<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<C> <S>
(MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
/X/ EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
</TABLE>
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-3562
------------------------
UTILICORP UNITED INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 44-0541877
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification
No.)
</TABLE>
20 West Ninth, Kansas City, Missouri 64105
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (816) 421-6600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Common Stock, par value $1.00 per share New York, Pacific and Toronto Stock Exchanges
Convertible Subordinated Debentures, New York Stock Exchange
6 5/8%, due July, 2011
8 7/8% Cumulative Monthly Income Preferred Securities, New York Stock Exchange
Series A, due June 30, 2025
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 4,
1997 as reported on the New York Stock Exchange, was approximately
$1,442,132,964. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
<TABLE>
<CAPTION>
TITLE OUTSTANDING (AT MARCH 4, 1997)
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Common Stock, par value $1.00 per share 53,412,332
- --------------------------------------------------------------------------------------------------------
Documents Incorporated by Reference Where Incorporated
1997 Proxy Statement and Prospectus Part 3
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE NO.
-------------
<S> <C> <C>
PART 1
Item 1 Business........................................................................ 3
Item 2 Properties...................................................................... 15
Item 3 Legal Proceedings............................................................... 19
Item 4 Submission of Matters to a Vote of Security Holders............................. 19
PART 2
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters........... 19
Item 6 Selected Financial Data......................................................... 20
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operation..................................................................... 21
Item 8 Financial Statements and Supplementary Data..................................... 36
Item 9 Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.................................................................... 68
PART 3
Item 10 Directors and Executive Officers of the Registrant.............................. 68
Item 11 Executive Compensation.......................................................... 68
Item 12 Security Ownership of Certain Beneficial Owners and Management.................. 68
Item 13 Certain Relationships and Related Transactions.................................. 68
PART 4
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K................ 68
INDEX TO EXHIBITS...................................................................................... 71
SIGNATURES............................................................................................. 74
</TABLE>
2
<PAGE>
PART 1
ITEM 1. BUSINESS.
ORGANIZATION AND HISTORY
UtiliCorp United Inc. (the company) is an international energy company which
consists of electric and natural gas utility operations, natural gas gathering,
marketing and processing energy services and independent power projects managed
through the following businesses: UtiliCorp Energy Delivery (UED), consisting
primarily of domestic transmission and distribution utility operations; Aquila
Energy Corporation (Aquila), consisting of wholesale energy marketing, gas
processing, gathering and pipelines, and electricity marketing, and UtiliCorp
Energy Solutions (UES), consisting of retail gas marketing, appliance repair and
service contracts and other energy related products and services. The Generation
segment consists of domestic electric generation and independent power projects.
The company also has various operations that include generation, gas marketing,
electricity distribution and various equity investments that are discussed in
the international section of this report. The company's businesses are organized
as shown graphically below.
[GRAPHIC]
The company was formed in 1985 and is incorporated under the laws of the
State of Delaware. Since then, the company has grown principally through utility
mergers, acquisitions and investments as shown below.
3
<PAGE>
MERGERS, ACQUISITIONS AND INVESTMENTS SINCE 1984
<TABLE>
<CAPTION>
CUSTOMERS COST
AS OF (IN
SERVICE OWNERSHIP 12/31/96 MILLIONS)
----------------------- --------- ------------------ ------------
ORIGINAL UTILITY OPERATIONS(a):
<S> <C> <C> <C> <C>
Missouri Public Service........................... Electric 100% 191,000 $ --
Missouri Public Service........................... Gas 100 45,000 --
---------- ------------
Total Original Utility
Operations.................................... 236,000 --
---------- ------------
DOMESTIC UTILITY MERGERS AND ACQUISITIONS:
Kansas Public Service............................. Gas 100% 27,000 4.8
Peoples Natural Gas............................... Gas 100 544,000 246.0(b)
Northern Minnesota Utilities...................... Gas 100 32,000 22.0
West Virginia Power............................... Electric 100 26,000 21.0
Michigan Gas Utilities............................ Gas 100 141,000 62.0
West Virginia gas system.......................... Gas 100 24,000 3.0
WestPlains Energy................................. Electric 100 142,000 209.2(c)
Missouri intrastate pipeline...................... Pipeline 100 -- 78.0
Kansas gas system................................. Gas 100 (d) 23.0
Nebraska gas system............................... Gas 100 (d) 78.0(e)
---------- ------------
Total Domestic Utility Mergers and
Acquisitions.................................. 936,000 747.0
---------- ------------
INTERNATIONAL INVESTMENTS:
West Kootenay Power............................... Electric 100% 83,000 62.0
WEL Energy Group Ltd.............................. Electric 39.5(f) 60,000 46.1
Power New Zealand Ltd............................. Electric 30.3(f) 216,000 134.2
United Energy Ltd................................. Electric 49.9 533,000 257.9
---------- ------------
Total........................................... 892,000 500.2
---------- ------------
NON-REGULATED ACQUISITIONS AND INVESTMENTS:
Independent Power Projects........................ Electric 22-50% -- 209.5
Oasis Pipe Line Company........................... Pipeline 40 -- 132.0
Other............................................. Gas Marketing and other 100 -- 123.0
---------- ------------
-- 464.5
---------- ------------
Total........................................... 2,064,000 $1,711.7
---------- ------------
---------- ------------
</TABLE>
- ------------------------
a) UtiliCorp was formed in 1985 from Missouri Public Service Company, which was
founded in 1917.
b) Not including the Nebraska gas system acquired in February 1993 or the
Kansas gas system acquired in September 1994. Both now operate as part of
Peoples Natural Gas.
c) The total value of the WestPlains Energy acquisition was $349.8 million,
including the $209.2 million cash purchase price, assumption of $26.0
million in debt, and the purchase by a third party of the ownership interest
in a generating facility for $114.6 million. WestPlains Energy has use of
that generating capacity through a 27-year operating lease.
d) Customers are included in Peoples Natural Gas above.
e) Excluding $21.0 million in working capital and liabilities assumed.
f) Interests are held through a 79%-owned subsidiary of the Company.
4
<PAGE>
The company had approximately 1.3 million utility customers and 4,700
employees at December 31, 1996. The company's electric utility operations are in
the states of Missouri, Kansas, Colorado and West Virginia and the Canadian
province of British Columbia. The company's gas utility operations are in the
states of Missouri, Kansas, Colorado, Iowa, Nebraska, Minnesota, Michigan and
West Virginia. Aquila markets natural gas throughout the United States and in
four provinces of Canada. The company also has several business ventures that
market natural gas in the United Kingdom. Aquila's 82% owned subsidiary, Aquila
Gas Pipeline Corporation (AGP), owns or has interests in 13 natural gas
gathering systems and four natural gas processing plants in Texas and Oklahoma.
The company has its ownership interests in power projects primarily through
Generation in which it has invested in 17 independent power projects located in
seven states and Jamaica. In addition, the company has made equity investments
in three electric distribution companies, two of them in New Zealand and one in
Australia.
BUSINESS GROUP SUMMARY
Segment information for the three years ended December 31, 1996 appears on
pages 62 through 64.
I. ENERGY DELIVERY
ELECTRIC OPERATING STATISTICS
The following table summarizes the sales, volumes and customers of UED's
electric transmission and distribution businesses.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales (in millions)
Residential................................... $ 227.3 $ 219.5 $ 211.4 $ 204.0 $ 182.4
Commercial.................................... 147.3 142.0 140.7 138.1 131.1
Industrial.................................... 70.4 67.9 66.4 63.2 62.4
Other......................................... 74.3 60.7 57.6 54.1 50.4
----------- ----------- ----------- ----------- -----------
Total....................................... 519.3 490.1 476.1 459.4 426.3
Purchases from Generation................... 285.2 262.9 258.7 248.1* 230.4*
----------- ----------- ----------- ----------- -----------
Total UED................................... $ 234.1 $ 227.2 $ 217.4 $ 211.3 $ 195.9
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Volumes (MWH 000's)
Residential................................... 2,897 2,758 2,639 2,597 2,329
Commercial.................................... 2,308 2,236 2,190 2,128 1,986
Industrial.................................... 1,660 1,608 1,535 1,430 1,374
Other......................................... 1,939 1,372 1,230 1,090 923
----------- ----------- ----------- ----------- -----------
Total....................................... 8,804 7,974 7,594 7,245 6,612
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Customers
Residential................................... 308,271 302,857 297,801 292,546 288,878
Commercial.................................... 46,651 47,378 46,470 45,709 45,184
Industrial.................................... 286 288 285 266 266
Other......................................... 3,606 3,556 3,545 3,513 3,572
----------- ----------- ----------- ----------- -----------
Total....................................... 358,814 354,079 348,101 342,034 337,900
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------
* Amount estimated.
UED obtains all of its power supply from Generation with the exception of
its business in West Virginia, which purchases its power supply from an
unrelated party.
5
<PAGE>
GAS OPERATING STATISTICS
The following table summarizes the sales, volumes and customers of UED's gas
distribution businesses.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales (in millions)
Residential................................... $ 429.1 $ 362.2 $ 356.4 $ 380.2 $ 276.0
Commercial.................................... 192.6 153.9 156.9 177.5 130.0
Industrial.................................... 45.8 45.8 66.7 89.8 76.4
Other......................................... 60.4 54.9 38.6 38.6 33.3
----------- ----------- ----------- ----------- -----------
Total....................................... $ 727.9 $ 616.8 $ 618.6 $ 686.1 $ 515.7
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Volumes (MCF)
Residential................................... 81,698 76,461 71,208 74,421 58,095
Commercial.................................... 40,698 37,282 35,952 40,232 32,239
Industrial.................................... 10,944 12,901 18,439 26,868 23,841
Transportation................................ 166,562 178,114 135,924 115,877 112,831
Other......................................... 1,611 1,827 2,420 3,672 2,683
----------- ----------- ----------- ----------- -----------
Total....................................... 301,513 306,585 263,943 261,070 229,689
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Customers
Residential................................... 728,867 713,586 698,156 661,930 535,058
Commercial.................................... 77,742 76,430 76,015 73,365 60,054
Industrial.................................... 3,725 3,790 3,878 3,874 3,622
Other......................................... 2,573 2,815 1,581 1,185 582
----------- ----------- ----------- ----------- -----------
Total....................................... 812,907 796,621 779,630 740,354 599,316
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
Except for its West Virginia operations, UED procures natural gas through a
central gas supply department. For West Virginia, UED procures its gas from
local suppliers and the spot market.
REGULATION
The utility businesses of UED and Generation are regulated on a combined
basis and are impacted similarly by competition and seasonality. The
consolidated utility businesses are regulated by the following commissions:
<TABLE>
<CAPTION>
STATE/JURISDICTION COMMISSION
- --------------------------- -----------------------------------------------------------
<S> <C>
Kansas Kansas Corporation Commission
Michigan Michigan Public Service Commission
Missouri Public Service Commission of the State of Missouri
Minnesota Minnesota Public Utilities Commission
Iowa Iowa State Utilities Board
West Virginia Public Service Commission of West Virginia
Colorado Public Utilities Commission of the State of Colorado
Federal Federal Energy Regulatory Commission
</TABLE>
There is no state regulatory agency in Nebraska. Each municipality served by
the company regulates local rates and services.
6
<PAGE>
The following is a summary of the recent rate case activity of the company:
<TABLE>
<CAPTION>
TYPE OF DATE DATE AMOUNT AMOUNT
RATE CASE DESIGNATION SERVICE REQUESTED APPROVED REQUESTED GRANTED
- ----------------------------------- ----------- ----------- ----------- ------------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Michigan
U-10960 Gas 10/31/95 (a) $ 10.5 (a)
Nebraska
Rate Areas 1&3 Gas 8/1/95 2/1/96 5.2 $ 2.78
Nebraska
Rate Area 2 Gas 5/31/96 10/1/96 5.45 3.35
Kansas
193,787U Gas 12/31/95 12/1/96 5.1 3.5
</TABLE>
- ------------------------
(a) Pending
In March 1997, the staff of the Missouri Public Service Commission filed a
complaint against the company seeking to reduce annual Missouri electric
revenues by $23 million. This review by the staff is a continuation of the
review that began as part of the UtiliCorp-KCPL merger application that was
terminated in September 1996. The investigation is in the discovery stage, and
as a result, management cannot predict the outcome of this investigation. The
company expects to file for a full rate proceeding to introduce certain
competitive initiatives, some of which were part of the merger application. No
resolution to these rate matters are anticipated before March 1998.
COMPETITION
ELECTRIC
The electric industry has increasingly become more competitive as federal
and state regulators and legislators move to an unregulated environment. The
anticipation of reduced regulation triggered some dramatic events in recent
years. Several major utility mergers were announced, including those that affect
competitors close to or next to the company's service territories. Other
utilities have implemented cost reduction programs and organizational changes in
preparation for greater competition.
The company began looking at its strengths and opportunities with respect to
future increased competition three years ago. The company brought together
approximately 100 employees from around the company to work on a strategic plan
that would be the foundation to reposition and reshape the company. In 1995, the
company began centralizing business support functions that previously were
performed separately in the operating divisions and building its resources and
capacity to take advantage of opportunities brought about as competition
increases.
The company currently accounts for the economic effects of regulation in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," and
accordingly has recorded certain costs as regulatory assets in the financial
statements. The company expects that its rates will continue to be based on
historical costs for the foreseeable future. If the company discontinued
applying SFAS No. 71, it would be required to make adjustment to the carrying
value of certain assets.
GAS
The competitive forces affecting the company's electric operations are also
affecting the company's gas operations. As competing electric utilities reduce
costs, it becomes more difficult to obtain new
7
<PAGE>
customers through fuel switching opportunities and in certain cases the
increased competition may result in loss of customers. The Federal Energy
Regulatory Commission (FERC) Order 636 shifted gas supply responsibilities from
traditional pipeline company sources to distribution utilities, allowing
customers to bypass the company's system by connecting directly to a
transportation pipeline. The company has addressed increased competition and
industry changes in several ways. First, its natural gas is priced competitively
in its respective service territories relative to alternative energy sources.
Second, in 1993 the company established a central gas procurement function
designed to take advantage of opportunities created by FERC Order 636. Besides
offering low cost natural gas, the company offers a wide range of energy
solutions to meet its customers' needs.
ENVIRONMENTAL
The company is subject to various environmental laws, including regulations
governing air and water quality and the storage and disposal of hazardous or
toxic wastes. The company assesses, on an ongoing basis, measures to ensure the
compliance with laws and regulations related to hazardous materials and
hazardous waste compliance and remediation activities. Compliance with existing
regulations, and those which may be promulgated in the future, can result in
considerable capital expenditures and operation and maintenance expense. A
discussion of the environmental matters of the company follows.
MANUFACTURED GAS PLANTS
The company owns or previously operated 29 former manufactured gas plants
(MGPs) which may, or may not, require some form of environmental remediation.
The company has contacted appropriate federal and state agencies and is in the
process of determining what, if any, specific cleanup activities may be needed
at these sites.
The company currently estimates that it will spend a minimum of
approximately $5.6 million over the next several years on the company's
identified MGP sites. These amounts could change materially based upon further
investigations, the actions of environmental agencies and the financial
viability of other responsible parties. Additionally, the ultimate liability may
be significantly affected if the company is held responsible for parties not
financially able to contribute to these costs. Based on prior experience,
available facts and existing law, the company has recorded a liability of $5.6
million representing its estimate of the amount of environmental costs currently
expected to be incurred.
The company has received favorable rate orders for recovery of its
environmental cleanup costs in certain jurisdictions. In other jurisdictions,
favorable regulatory precedent exist for the recovery of these costs. The
company is also pursuing recovery from insurance carriers and other potentially
responsible parties.
OTHER
In December 1996, the EPA promulgated its final rule for nitrous oxide (NOx)
emissions pursuant to the requirements of the Clean Air Act Amendments of 1980.
The new NOx regulations could impact one of the company's power plants by
necessitating the installation of additional emissions control equipment by
January 1, 2000. The company is currently evaluating the requirements of the
rule. Using EPA's default numbers contained in the cost-benefit analysis in its
final rule-making to estimate the cost of the additional equipment, the company
may be required to spend approximately $3.1 million to comply with these rules.
This estimate could be affected by the rule's applicability as determined by the
D.C. Court of Appeals in a lawsuit now pending, or by the engineering design
developed by the company for implementation of the new standards.
It is management's opinion that the ultimate resolution of these
environmental matters will not have a material adverse impact upon the financial
position or results of operations of the company.
8
<PAGE>
SEASONAL VARIATIONS OF BUSINESS
The company's utility and independent power project businesses are
weather-sensitive. The company has both summer and winter peaking utility assets
to reduce dependence on a single peak season. The table below shows peak times
for its consolidated utility businesses.
<TABLE>
<CAPTION>
JURISDICTION PEAK
- --------------------------------------------- ------------------------------
<S> <C>
Gas utility operations November through March
Missouri, Kansas and Colorado electric July and August
West Virginia electric November through March
</TABLE>
II. AQUILA ENERGY
WHOLESALE ENERGY MARKETING
Aquila's wholesale energy marketing business is conducted through various
operating units, collectively referred to as Energy Marketing. Energy Marketing
is a gas marketing company with a marketing, supply and transportation network
consisting of relations with more than 1,000 gas producers and 500 local
distribution companies and end-users throughout the United States and Canada.
Through more than 350 transportation agreements, it has over 15,000 gas
receiving and delivery points available on a network of 40 pipelines. Energy
Marketing adds value for customers by leveraging its national position in
financial deal structuring and gas and power marketing. It provides services
such as complex fuel supply arrangements, energy management services and project
development consulting. For the five years in the period ended December 31,
1996, Energy Marketing had marketing volumes of 2.1, 1.4, 1.0, 1.4 and 1.6
BCF/d, respectively.
In 1995, Energy Marketing began selling electricity to wholesale customers,
much as it markets natural gas. Aquila expects that the electricity marketing
industry will expand rapidly as electricity futures trading is developed and the
infrastructure of this industry segment is established. Aquila's wholesale power
sales have grown from 129,000 megawatt hours in 1995 to 6,495,000 megawatt hours
in 1996, ranking it among the nation's 10-largest volume power marketers.
Energy Marketing utilizes certain types of fixed-price contracts in
connection with its natural gas, natural gas liquids, and power marketing
businesses. These include contracts that commit the company to purchase or sell
natural gas and other commodities at fixed prices in the future (i.e.,
fixed-price forward purchase and sales contracts), futures and options contracts
traded on the NYMEX and swaps and other types of financial instruments traded in
the over-the-counter financial markets.
The availability and use of these types of contracts allow the company to
manage and hedge its contractual commitments, to reduce its exposure relative to
the volatility of cash market prices, take advantage of carefully selected
arbitrage opportunities via open positions, protect its investment in natural
gas storage inventories and provide price risk management services to its
customers. The company is also able to secure additional sources of energy or
create additional markets for existing supply through the use of exchange for
physical transactions allowed by NYMEX. The company's domestic and Canadian
natural gas and electricity trading activities are referred to herein as price
risk management activities and are reflected in the accompanying financial
statements using the mark-to-market method of accounting. The company's
non-Canadian foreign gas marketing, domestic non-trading gas and natural gas
liquids are accounted for on the accrual method.
Although the company generally attempts to balance its fixed-price physical
and financial purchase and sales contracts in terms of contract volumes and the
timing of performance and delivery obligations, net open positions often exist
or are established due to the origination of new transactions and the company
assessment of, and response to, changing market conditions. The company will at
times create a net open position or allow a net open position to continue when
it believes, based upon
9
<PAGE>
competitive information gained from its energy marketing activities, that future
price movements will be consistent with its net open position. To the extent
that the company has a net open position, the company is exposed to the risk
that fluctuating market prices may adversely impact its financial position or
results of operations.
In addition to the risk associated with price movements, credit risk is also
inherent in the company's risk management activities. Credit risk relates to the
risk of loss resulting from the non-performance of a counterparty of its
contractual obligations. The company maintains credit policies with regard to
its counterparties that the company believes significantly minimize overall
credit risk. These policies include the thorough review of potential
counterparties' financial condition, collateral requirements under certain
circumstances, monitoring of net exposure to each counterparty and the use of
standardized agreements which allow for the netting of positive and negative
exposures associated with each counter party.
GAS GATHERING AND PROCESSING
Aquila through AGP gathers and processes natural gas and natural gas
liquids. AGP owns and operates a 3,416-mile intrastate gas transmission and
gathering network and four processing plants that extract and sell natural gas
liquids.
Key operating statistics for AGP are presented in the table below.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Natural gas throughput (million cubic feet per day).................. 493 506 371 325 286
Natural gas liquids produced (thousand barrels per day).............. 41 32 31 31 24
Pipeline miles owned................................................. 3,416 3,311 2,718 2,531 2,014
</TABLE>
Through two transactions in July and November 1996, Aquila Energy and its 82
percent-owned AGP acquired a combined 40% of the outstanding capital stock of
Oasis Pipe Line Company (Oasis) and related transportation rights for
approximately $132 million. The 600-mile Oasis pipeline system spans the state
of Texas and links Aquila's gathering systems to the Waha, Texas hub and the
Katy, Texas hub. As part of the purchase, another owner has the option to buy
one-fifth of Oasis, including 5% now owned by Aquila, on or before April 1,
1997. Aquila was notified by the other partner that it intends to exercise this
option.
III. GENERATION
ELECTRIC UTILITY GENERATION
Generation manages the company's domestic regulated electric generation and
supply businesses in Colorado, Kansas and Missouri. Collectively, the generating
plants located in these three states had the capacity to generate 1,669
megawatts (MW) of electricity during the year ended December 31, 1996. The
following table shows the overall fuel mix, and the generation capability for
the past five years.
<TABLE>
<CAPTION>
SOURCE 1996 1995 1994 1993 1992
- ------------------------------------------------- --------- --------- --------- --------- ---------
(MW)
<S> <C> <C> <C> <C> <C>
Coal............................................. 885 875 868 864 863
Gas and oil...................................... 784 705 705 700 716
--------- --------- --------- --------- ---------
Total generation capability.................. 1,669 1,580 1,573 1,564 1,579
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
A listing of Generation's generating plants is provided in the "Properties"
section of this Form 10-K. Generation also sells electricity to the wholesale
market. For the year ended December 31, 1996, Generation sold 998 megawatt hours
to non-affiliated parties.
10
<PAGE>
INDEPENDENT POWER PROJECTS
UtilCo Group Inc. (UtilCo) participates in the ownership and operation of
facilities in the independent and wholesale power generation market. Consistent
with the company's overall strategy to minimize risk through diversification,
UtilCo has invested in generation facilities which are geographically diverse
and use a variety of fuels and proven technologies. Additionally, each project
is a producer of competitively priced wholesale power in its geographic region
and has a long-term market for its output. To date, UtilCo has made investments
in 17 projects located in seven states and Jamaica, with a total net ownership
of approximately 320 MW of generating capacity. All of the projects are in
commercial operation. A description and listing of the power projects appears on
page 18 of this Form 10-K.
The company does not anticipate further expansion or investment in
independent power projects. Due to increasing deregulation, the power generation
market does not offer the same high yield returns as the company's prior
investments.
IV. ENERGY SOLUTIONS
UES consists of retail gas marketing, appliance repair and service contracts
and energy related products and services. UES was formed to advance the
company's effort to become a leading retailer of energy and energy related
products and services.
GAS MARKETING
UES's gas marketing businesses are its largest segment. Although some of
UES's gas marketing operations have long been part of the company, the
underlying operating plans for these businesses have changed. UES ultimately
intends to market gas to residential customers in addition to its expanding
small commercial and industrial customer base. UES expects to participate in
various residential customer choice trials as competitive experiments occur. UES
has grown its gas marketing business over the last two years by acquiring gas
marketing companies in states with more favorable regulation and sufficient
customer density.
PRODUCTS AND SERVICES
Consistent with UES's overall plan to expand its efforts in serving the
retail sector, UES formed four teams to develop and bring to market new products
and services. These new products and services are expected to build on existing
competencies within the company. Management expects to introduce new products
and services in mid-1997. Management is hopeful, although no assurance can be
made given the competitive influences involved, that the products and services
brought to market will be profitable. The company expects to spend approximately
$8.0 million on product development in 1997.
V. INTERNATIONAL
The company's international operations are managed separately from the four
business groups previously discussed. The international businesses have local
management and report separately to the company. The contribution to earnings
from international businesses was 25%, 12% and 9% for the years ended December
31, 1996, 1995 and 1994, respectively. As of December 31, 1996, the company had
$860.5 million invested internationally. The following discussion briefly
describes the operations of these businesses.
AUSTRALIA
In September 1995, Power Partnership Pty Limited (PPL), of which the company
owns 49.9%, acquired United Energy Limited (UE), an Australian electric
distribution utility, from the State of Victoria. The company paid approximately
$257.9 million for its 49.9% ownership interest in PPL. The company
11
<PAGE>
manages the operation of UE on behalf of PPL and receives a management fee
consisting of a base amount indexed to the consumer price index and a variable
amount based on UE's financial performance.
Summarized UE financial information as of and for the year ended December
31, 1996 is as follows:
<TABLE>
<CAPTION>
(IN
MILLIONS)
------------
<S> <C>
Sales....................................................................... $ 546.8
Gross profit................................................................ 216.7
Operating expenses.......................................................... 93.7
------------
Earnings before interest and taxes.......................................... $ 123.0
------------
------------
Total assets................................................................ $ 1,399.0
------------
------------
Liabilities................................................................. $ 1,357.0
Equity...................................................................... 42.0
------------
Total liabilities and equity................................................ $ 1,399.0
------------
------------
</TABLE>
NEW ZEALAND
The New Zealand operations mainly consist of UtiliCorp N.Z., Inc. (UNZ), a
79%-owned subsidiary, which purchased a 29.4% ownership interest in Power New
Zealand Limited (PNZ), primarily in November 1995. As additional shares were
purchased throughout 1996, the ownership interest in PNZ increased to 30.3%. In
addition, UNZ has a 39.5% ownership position in WEL Energy Group Limited (WEL).
Both PNZ and WEL are New Zealand electric distribution utilities serving 216,000
and 60,000 customers, respectively.
Summarized PNZ and WEL financial information as of and for the years ended
September 30, 1996 and June 30, 1996, respectively, are as follows:
<TABLE>
<CAPTION>
PNZ WEL
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Sales........................................................... $ 226.0 $ 71.5
Earnings before taxes........................................... 64.2 18.2
Total assets.................................................... $ 427.5 $ 138.7
--------- ---------
--------- ---------
Liabilities..................................................... $ 87.9 $ 20.2
Equity.......................................................... 339.6 118.5
--------- ---------
Total liabilities and equity.................................... $ 427.5 $ 138.7
--------- ---------
--------- ---------
</TABLE>
UNITED KINGDOM
The company has several business ventures in the United Kingdom (UK) that
market natural gas to wholesale, commercial, residential and industrial
customers. United Gas Limited (UGL) is the company's primary UK subsidiary. UGL
markets gas to approximately 48,000 customers and had sales volumes of 56 BCF
for the year ended December 31, 1996. In addition to UGL, the company has two
gas marketing joint ventures in which it is a 25% equity partner.
In 1996, the company realigned certain of its business relationships in the
United Kingdom (UK). The equity relationships with Caledonian Gas Limited, Egas
Limited and Midlands Gas Limited (Midlands) were terminated. As part of the
termination of the equity relationship in Midlands, the company
12
<PAGE>
assumed an interest in two long-term gas supply contracts (for deliveries
through 2005) that is assimilated into its existing portfolio of sales and
supply contracts
On April 15, 1996, the company 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.
The utility industry in the United Kingdom has seen dramatic changes in
recent years. Ten of the UK's thirteen electric companies were sold to other
companies, six being purchased by U.S. utilities. One natural gas marketing
segment which the company competes in is dominated by British Gas which
currently serves almost all of the 18 million potential gas customers. Through
various deregulation stages, the entire gas market will become open within the
next two years with customers able to freely choose their gas supplier. Through
its established wholesale marketing businesses and associations with two
regional electric companies, the company is positioning itself to take advantage
of this competitive market. In addition, the company's UK businesses are
upgrading their gas management systems. In an effort to increase market
liquidity, the International Petroleum Exchange began trading a new natural gas
futures contract in January 1997 that closely resembles the NYMEX contract sold
in the U.S.
CANADA
In Canada, the company owns West Kootenay Power Ltd. (WKP), a hydro-electric
utility in British Columbia. WKP has four hydro-electric generation facilities
with a capacity of 205 megawatts and 915 miles of transmission lines that serve
approximately 82,536 customers in south central British Columbia. WKP generates
about half of its power requirements and purchases the remaining requirements
through power contracts.
The following table summarizes the sales, volumes and customers of WKP.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales (in millions)
Residential................................................. $ 37.0 $ 32.9 $ 34.4 $ 32.8 $ 30.1
Commercial.................................................. 19.7 19.1 16.6 18.1 17.2
Industrial.................................................. 9.4 9.4 8.7 12.8 10.9
Other....................................................... 26.8 26.2 21.2 23.8 23.3
--------- --------- --------- --------- ---------
Total..................................................... $ 92.9 $ 87.6 $ 80.9 $ 87.5 $ 81.5
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Volumes (MWH 000s)
Residential................................................. 990 920 873 939 847
Commercial.................................................. 467 440 421 400 381
Industrial.................................................. 313 319 362 491 426
Other....................................................... 909 892 869 849 825
--------- --------- --------- --------- ---------
Total..................................................... 2,679 2,571 2,525 2,679 2,479
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Customers
Residential................................................. 73,413 71,844 70,142 67,883 65,208
Commercial.................................................. 8,041 7,888 7,974 7,766 7,564
Industrial.................................................. 37 36 36 36 35
Other....................................................... 1,045 1,019 161 165 119
--------- --------- --------- --------- ---------
Total..................................................... 82,536 80,787 78,313 75,850 72,926
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
WKP is regulated by the British Columbia Utilities Commission. WKP is in the
second year of a three year incentive based rate setting mechanism. This
mechanism is the first of its kind for electric utilities in Canada and was the
result of a negotiated settlement with customers and regulators. The mechanism
13
<PAGE>
calls for equal sharing of savings between the customer and WKP in situations
where WKP performs over and above negotiated performance expectations.
British Columbia is the first province in Canada to allow wholesale
transmission access for large wholesale customers. WKP has recently filed an
application to allow retail transmission access on its transmission system, the
first application of its kind in Canada. A hearing is scheduled to commence
April 1, 1997 before the British Columbia Utilities Commission to deal with the
issue of retail transmission access in the entire province of British Columbia.
Management anticipates the province being opened up for large customer
competition over the next few years.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
EXECUTIVE OFFICER PROFESSIONAL EXPERIENCE
- ------------------------ ----------------------------------------------------------------------------------------
<S> <C>
Richard C. Green, Jr. TITLES: Chairman of the Board of Directors and Chief Executive Officer
AGE: 42
5-YEAR HISTORY: Chairman of the Board of Directors since February 1989 and Chief
Executive Officer since May 1985. Mr. Green previously was also President from May 1985
to February 1996. Mr. Green is a director of BHA Group, Inc., and CAT, Ltd.
Robert K. Green TITLES: President of the company, and Chairman of the Board of Directors of United
Energy Limited
AGE: 35
5-YEAR HISTORY: President since February 1996. Executive Vice President from January
1993 to February 1996. Prior to January 1993, Mr. Green was President of the Missouri
Public Service division between 1993 and 1991. Between 1991 and 1989 Mr. Green held
various division officer positions with Missouri Public Service. Mr. Green is also a
director of UMB Bank, n.a.
Terry G. Westbrook TITLE: Senior Vice President and Chief Financial Officer
AGE: 50
5-YEAR HISTORY: In present position since March 1996. Prior to being employed by the
company, Mr. Westbrook was employed by The Quaker Oats Company where he was Senior Vice
President-Finance and Chief Financial Officer since 1991. He joined Quaker Oats in 1983
and subsequently had a number of key officer positions in corporate development,
strategic planning, finance, and the company's Asian food and beverage operations.
James G. Miller TITLE: Senior Vice President, Energy Delivery
AGE: 48
5-YEAR HISTORY: In present position since September 1994. Prior positions included
various division President posts from 1983.
Harvey J. Padewer TITLE: Senior Vice President, Energy Group and President of Aquila Energy Corporation.
AGE: 49
5-YEAR HISTORY: Present position since January 1996. From May 1995, Mr. Padewer was Vice
President, Power Services. Prior to being employed by the company Mr. Padewer was
employed by Asea Brown Boveri Power Generation, Inc., at various officer level positions
for over five years.
</TABLE>
14
<PAGE>
All officers are elected annually by the Board of Directors for a term of
one year. Robert K. Green is the brother of Richard C. Green, Jr., and Avis G.
Tucker, Director, is the aunt of Richard C. Green, Jr. and Robert K. Green.
ITEM 2. PROPERTIES.
The company owns electric production, transmission and distribution systems
and gas transmission and distribution systems throughout its service
territories. The company also owns gas gathering, processing and pipeline
systems. Substantially all utility plant assets in Michigan are mortgaged under
terms pursuant to an Indenture of Mortgage and Deed of Trust dated July 1, 1951,
as supplemented. Substantially all of the company's Canadian utility plant is
mortgaged under terms pursuant to a separate indenture.
UTILITY FACILITIES
The company's electric generation facilities, as of December 31, 1996, are
as follows:
<TABLE>
<CAPTION>
UNIT CAPABILITY NET
(KW NET, PER GENERATION
UNIT LOCATION YEAR INSTALLED HOUR) FUEL (MW HOURS)
- -------------------------- -------------------------- ------------------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
MISSOURI:
Sibley #1 - #3 Sibley 1960, 1962,1969 496,000 Coal 2,792,773
Ralph Green #3 Pleasant Hill 1981 75,000 Gas 21,617
Nevada Nevada 1974 20,000 Oil --
Greenwood #1 - #4 Greenwood 1975 - 1979 241,000 Gas/Oil 34,647
KCI #1 and #2 Kansas City 1970 30,000 Gas 1,191
- -----------------------------------------------------------------------------------------------------
KANSAS:
Judson Large #4 Dodge City 1969 137,000 Gas/Oil 383,340
Arthur Mullergren #3 Great Bend 1963 92,000 Gas/Oil 91,349
Cimarron River #1 - #2 Liberal 1963, 1967 72,000 Gas 95,248
Clifton #1 - #2 Clifton 1974 73,500 Gas/Oil 4,682
Jeffrey #1 - #3 St. Mary's 1978, 1980, 1983 347,400 Coal 2,248,656
- -----------------------------------------------------------------------------------------------------
COLORADO:
W.N. Clark #1 - #2 Canon City 1955, 1959 39,690 Coal 226,792
Pueblo #6 Pueblo 1949 19,000 Gas/Oil 52,960
Diesel #'s 1,2,3,4,5 Pueblo 1964 10,000 Oil --
Diesel #'s 1,2,3,4,5 Rocky Ford 1964 10,000 Oil 1,735
- -----------------------------------------------------------------------------------------------------
CANADA:
No. 1 Lower Bonnington, BC 1925 52,500 Hydro 331,084
No. 2 Upper Bonnington, BC 1907, 1916, 1940 61,520 Hydro 413,827
No. 3 South Slocan, BC 1928 52,500 Hydro 423,633
No. 4 Corra Linn, BC 1932 45,000 Hydro 339,679
- -----------------------------------------------------------------------------------------------------
TOTAL 1,874,110 7,463,213
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, the company had transmission and distribution lines as
follows:
<TABLE>
<CAPTION>
LENGTH
DESCRIPTION (POLE MILES)
- -------------------------------------------------------------------------------- ------------
<S> <C>
Transmission lines.............................................................. 5,204
Overhead distribution lines..................................................... 16,570
Underground distribution lines.................................................. 1,560
------------
Total....................................................................... 23,334
------------
------------
</TABLE>
At December 31, 1996, the company owned substations aggregating 9,171,395
KVA.
15
<PAGE>
At December 31, 1996, the company's gas utility operations had 2,917 miles
of gas gathering and transmission pipelines and 22,244 miles of distribution
mains and service lines located throughout its service territories.
GAS PROCESSING AND GATHERING ASSETS
AGP owned and/or operated 13 natural gas pipeline systems with an aggregate
length of approximately 3,416 miles. These pipelines do not form an
interconnected system. Set forth below is information with respect to AGP's
pipeline systems as of December 31, 1996:
<TABLE>
<CAPTION>
GAS Avg. Daily
THROUGHPUT Gas
CAPACITY Throughput
MILES OF (MMcf/d) (MMcf/d)
GATHERING SYSTEMS LOCATION PIPELINE(1) (1),(3) (1),(2),(3)
- ----------------------------------------------------- ----------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Southeast Texas Pipeline System (SETPS).............. SE Texas 2,222 710 437
Mentone.............................................. W. Texas 13 60 --
Gomez................................................ W. Texas 11 40 1
Menard County........................................ C. Texas 120 30 4
Maverick County...................................... W. Texas 118 20 2
Rhoda Walker......................................... W. Texas 21 20 8
Panola County........................................ E. Texas 24 8 1
Elk City............................................. SW Oklahoma 160 115 82
Mooreland............................................ NW Oklahoma 325 40 14
Dorado--40%.......................................... S. Texas 57 40 19
Warwink--35%......................................... W. Texas 44 100 17
Benedum/Wilshire--5%................................. W. Texas 204 125 4
Brooks-Hidalgo (4)................................... S. Texas 97 75 7
----- ----- ---
3,416 1,383 596
Fuel and Shrinkage................................... -- -- (103)
----- ----- ---
Total............................................ 3,416 1,383 493
----- ----- ---
----- ----- ---
</TABLE>
- ------------------------
(1) All capacity, volume and mileage information is approximate. Capacity
figures are management's estimates based on existing facilities without
regard to the present availability of natural gas.
(2) Excludes off-system marketing sales with average daily volumes of 482 MMcf/d
sold from other companies' facilities.
(3) Gross gas throughput capacity is included at 100% while net average
throughput is presented at AGP's joint venture ownership interest.
(4) In 1996, Aquila ownership percentage decreased from 50% to 22%.
At December 31, 1996, Aquila owned 40% of the capital stock of Oasis Pipe
Line Company (Oasis) and the right to transport 320 MMcf/d of natural gas on
Oasis' pipeline, plus the opportunity to utilize excess capacity on an
interruptible basis. The Oasis pipeline is a 600-mile, 36-inch diameter natural
gas pipeline which connects the Waha, Texas hub and the Katy, Texas hub. The
Oasis pipeline has one Bcf/d of throughput capacity. The volumes transported on
the Oasis pipeline are reflected in the off-system marketing activities of the
company. Aquila utilizes the equity method of accounting for its investment in
the capital stock of Oasis.
16
<PAGE>
At December 31, 1996, AGP owned and/or operated an interest in four natural
gas processing plants. Set forth below is information with respect to AGP's
processing plants as of December 31, 1996:
<TABLE>
<CAPTION>
GAS Gas NGLs
THROUGHPUT Throughput Production
CAPACITY(1) (1), (2) (1), (2)
PROCESSING PLANTS (MMcf/d) (MMcf/d) (MBbls/d)(4)
- ----------------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
La Grange, Texas....................................................... 230 191 24.6
Somerville, Texas...................................................... 28 15 2.0
Benedum, Texas--5%..................................................... 125 4 --
Elk City, Oklahoma..................................................... 115 82 4.0
--- --- ---
Total--owned plants.................................................... 498 292 30.6
Katy, Texas (3)........................................................ -- 222 10.5
--- --- ---
Total.............................................................. 498 514 41.1
--- --- ---
--- --- ---
</TABLE>
- ------------------------
(1) All capacity and volume information is approximate. Capacity figures are
management's estimates based on existing facilities without regard to the
present availability of natural gas.
(2) Volumes from joint venture have been included at the present AGP ownership
interest.
(3) This plant is owned and operated by a third party from which AGP receives a
portion of the NGLs produced from gas AGP delivers to the plant. The plant
is included in this section for informational purposes to show the gas
throughput and NGLs production that AGP received utilizing the access to
this plant.
(4) Thousands of barrels per day (MBbls/d).
The availability of natural gas reserves to AGP depends on their development
in the area served by its pipelines and on AGP's ability to purchase gas
currently sold to or transported through other pipelines. The development of
additional gas reserves will be affected by many factors including the prices of
natural gas and crude oil, exploration and development costs and the presence of
natural gas reserves in the areas served by AGP's systems.
17
<PAGE>
INDEPENDENT POWER PROJECTS
Information regarding the company's generating projects is set forth below.
<TABLE>
<CAPTION>
TYPE OF PERCENT CAPACITY
PROJECT & LOCATION INVESTMENT OWNED (MW)(A) FUEL DATE IN SERVICE
- ----------------------------- ----------------- ----------- ----------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
Mega Renewables G.P., 4 General 49.75 12.2 Hydro Spring 1987(b)
projects in California partnership
- -------------------------------------------------------------------------------------------
Topsham Hydro Partners, Maine Leveraged lease 50 13.9 Hydro October 1987
- -------------------------------------------------------------------------------------------
Stockton CoGen Company, General 50 49.9 Coal March 1988(c)
California partnership
- -------------------------------------------------------------------------------------------
Westwood Energy Properties, Limited 38 29.25 Waste coal July 1988
Pennsylvania partnership
- -------------------------------------------------------------------------------------------
BAF Energy L.P., California Limited 23.1 111 Natural Gas May 1989
partnership
- -------------------------------------------------------------------------------------------
Rumford Cogeneration Company Limited 24.3 75 Coal and waste wood May 1990
L.P., Maine partnership
- -------------------------------------------------------------------------------------------
Koma Kulshan Associates, Limited 49.75 13.7 Hydro October 1990
Washington partnership
- -------------------------------------------------------------------------------------------
Badger Creek Limited, Limited 49.75 46.6 Natural gas April 1991
California partnership
- -------------------------------------------------------------------------------------------
McKittrick Limited, Limited 49.75 45.4 Natural gas October 1991
California partnership
- -------------------------------------------------------------------------------------------
Live Oak Limited, California Limited 50 45.8 Natural gas April 1992
partnership
- -------------------------------------------------------------------------------------------
Lockport Energy Associates, Limited 22.56 168.8 Natural gas December 1992
L.P., New York partnership
- -------------------------------------------------------------------------------------------
Orlando Cogen Limited, L.P., Limited 50 120 Natural gas September 1993
Florida partnership
- -------------------------------------------------------------------------------------------
Naheola Cogeneration LP, Limited 50 81.2 Black liquor solids, March 1993(d)
Alabama partnership coal, gas, wood
- -------------------------------------------------------------------------------------------
Jamaica Private Power Limited liability 22 60 Diesel January 1997
Company, Jamaica Company
- -------------------------------------------------------------------------------------------
</TABLE>
(a) Total capacity, net of power consumed in generation.
(b) Interest acquired by the company in June 1989.
(c) Interest acquired by the company in December 1988.
(d) Interest acquired by the company in May 1995.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
William Alpern vs. UtiliCorp United Inc. On June 17, 1992, a class action
suit was filed by a stockholder against the company in the United States
District Court for the Western District of Missouri. Plaintiff alleges that the
company violated Section 10(b) of the Securities Exchange Act of 1934,as
amended, and Rule 10b-5 of the Securities and Exchange Commission, both by
making misrepresentations and omitting to state material facts in connection
with public disclosures. Plaintiff also alleges a claim under Section 11 of the
Securities Act of 1933, as amended. Plaintiff seeks unspecified compensatory
damages. The District Court dismissed the case by granting summary judgment to
UtiliCorp. Plaintiff appealed that decision to the United States Court of
Appeals for the Eighth Circuit. On May 17, 1996, the Court of Appeals reversed
the decision of the District Court, reinstated plaintiff's claims and remanded
the case back to the District Court. A trial is anticipated in 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART 2
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The company's common stock (par $1) is listed on the New York, Pacific and
Toronto stock exchanges under the symbol UCU. At December 31, 1996, the company
had 41,796 common shareholders of record. Information relating to market prices
of common stock and cash dividends on common stock is set forth in the table
below.
MARKET PRICE
<TABLE>
<CAPTION>
HIGH LOW CASH DIVIDENDS
--------- --------- -------------------
<S> <C> <C> <C>
1996 QUARTERS
First................................................. $ 30.25 $ 28.25 $ .44
Second................................................ 29.13 25.75 .44
Third................................................. 29.13 26.50 .44
Fourth................................................ 27.25 26.38 .44
1995 QUARTERS
First................................................. $ 29.50 $ 26.25 $ .43
Second................................................ 29.00 27.25 .43
Third................................................. 28.50 26.63 .43
Fourth................................................ 29.63 27.50 .43
</TABLE>
Cash dividends on the common stock of the company and its predecessor have
been paid each year since 1939.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
IN MILLIONS EXCEPT PER SHARE
Sales.............................................. $ 4,332.3 $ 2,798.5 $ 2,398.1 $ 2,746.1 $ 2,339.0
Income from operations............................. 223.4 225.1 228.0 144.0 165.4
Net income......................................... 105.8 79.8 94.4 86.4 52.9
Earnings available for common shares............... 103.7 77.7 91.4 79.5 46.0
Primary earnings per common share.................. 2.20 1.72 2.08 1.95 1.32
Fully diluted earnings per common share............ 2.19 1.71 2.06 1.92 1.31
Cash dividends per common share.................... 1.76 1.72 1.70 1.62 1.60
Total assets....................................... 4,704.9 3,885.9 3,111.1 2,850.5 2,552.8
Short-term debt (including current maturities)..... 277.7 303.7 321.2 71.8 236.8
Long-term debt..................................... 1,470.7 1,355.4 976.9 1,009.7 890.8
Company-obligated mandatorily redeemable preferred
securities of a partnership...................... 100.0 100.0 -- -- --
Preference and preferred stock..................... 25.0 25.4 25.4 83.9 95.1
Common shareholders' equity........................ 1,158.0 946.3 906.8 851.7 661.1
Book value per common share........................ 21.73 20.59 20.24 20.27 18.66
</TABLE>
- ------------------------
(1) In 1996, the company wrote off $11.0 million of pretax deferred merger
costs, net of a termination fee payment.
(2) In 1996, the company recorded an $11.8 million after-tax gain from a sales
lease transaction at a power project, which was partially offset by certain
restructuring reserves.
(3) In 1996, the company issued 6 million shares of its common stock in a stock
offering that netted $160.8 million in proceeds.
(4) In 1995, the company recorded a $34.6 million pretax charge related to
impaired assets.
(5) In 1995, the company changed its method of accounting for domestic natural
gas trading operations to the mark-to-market method. This change in
accounting increased sales and income from operations by $29.8 million, net
income by $18.3 million and total assets by $201.9 million. This change in
accounting has been reflected from January 1, 1995. The pro forma effect on
prior periods is not material.
(6) In 1993, Aquila, a subsidiary of the company, recorded a $69.8 million
restructuring charge against pretax earnings related to a change in
strategic direction.
(7) In 1993, Aquila sold 18% of AGP in an initial public offering resulting in a
non-taxable gain of $47.8 million.
(8) In 1992, Aquila recorded a $17.7 million charge against pretax earnings
related to improper payments by former employees.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
KEY EVENTS OF 1996
- UtiliCorp's sales, earnings before interest and taxes (EBIT), and earnings
available for common shares all set records in 1996 at $4,332.3 million,
$322.1 million and $103.7 million, respectively.
- UtiliCorp's first full year of 49.9 percent ownership of United Energy in
Australia brought earnings of $14.1 million. In the last four months of
1995, results were $2.9 million.
- Aquila Energy's normalized EBIT was $60.2 million, or 42% higher than in
1995.
- Rate increases for gas operations in Nebraska and Kansas added $4.4
million to EBIT in 1996.
- In April, a sales lease arrangement at a project in which a UtiliCorp
subsidiary holds a 23 percent interest resulted in a significant one-time
gain, of which the company's share was $11.8 million after taxes.
- Through two transactions in July and November, Aquila Energy acquired a
combined 40% of Oasis Pipe Line Company and related transportation rights
for approximately $132 million. The Oasis pipeline system spans the state
of Texas.
- In September, Kansas City Power & Light Company (KCPL) terminated its
merger agreement with UtiliCorp and paid the company a $5 million
termination fee. UtiliCorp expensed approximately $11.0 million of
deferred merger costs, net of the $5 million received. In February 1997,
KCPL paid UtiliCorp a $53 million breakup fee, recorded in the 1997 first
quarter, following KCPL's signing of a definitive agreement to merge with
Western Resources Inc.
- In October, the company issued $100 million of 6.7% Senior Notes due in
2006, and in November it issued 6 million new shares of common stock. Net
proceeds totaling $260.3 million were used to reduce short-term debt.
- In January 1997, the company announced its intention to redeem its $2.05
Series preference stock on March 1, 1997 at $25.00 per share. Funded by
short-term debt, this redemption is expected to increase annual earnings
available by approximately $1.1 million after tax, based on current
short-term interest rates.
CONSOLIDATED 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
wholesale energy marketing, gas processing and gathering, gas pipelines and
electricity marketing; and UtiliCorp Energy Solutions (UES), consisting of
retail gas marketing, appliance repair and service contracts, and other energy
related products and services. The Generation segment consists 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.
Significant events and trends are presented which have had an effect on the
operations of the company during the three-year period ended December 31, 1996.
Also presented are factors that may affect future operating results, financial
position and liquidity. This discussion should be read in conjunction with the
company's consolidated financial statements and accompanying notes.
21
<PAGE>
The results of operations for the years ended December 31, 1996, 1995 and
1994 have been affected by several items that do not have a continuing impact on
the company's financial position or results from operations.
The table below summarizes the after-tax impact of the non-recurring items
on earnings available for common shares.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Earnings available, as reported....................................................... $ 103.7 $ 77.7 $ 91.4
Non-recurring items:
Merger termination, net of termination fee received (a)............................. 6.8 -- --
Gain on sales lease of a power project (b).......................................... (11.8) -- --
Provision for asset impairments (c)................................................. -- 19.6 --
Change to mark-to-market method of accounting (d)................................... -- (18.3) --
Reserve for United Kingdom gas contracts (e)........................................ -- 6.8 --
Net loss from oil and gas production business and other (f)......................... -- 5.0 3.9
--------- --------- ---------
Normalized earnings................................................................... $ 98.7 $ 90.8 $ 95.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(a) In 1996, the company expensed deferred merger costs, net of a termination
fee received, resulting in a $6.8 million after-tax charge against earnings.
(b) 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 earnings $11.8 million after tax.
(c) In 1995, the company recorded a provision for impaired assets of $19.6
million after tax.
(d) In 1995, the company changed its method of accounting for domestic natural
gas trading operations to the mark-to-market method. This increased after
tax earnings by $18.3 million.
(e) In 1995, the company recorded a $6.8 million after-tax reserve against
earnings for unfavorable gas supply contracts in the United Kingdom.
(f) 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 net loss from this business in 1995 and 1994. In 1994, the
company settled with certain defendants in lawsuits filed as a result of
improper payments. The settlements and insurance recoveries, net of legal
and related costs, resulted in a favorable adjustment of $1.5 million after
tax.
Normalized earnings or normalized 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.
22
<PAGE>
ENERGY DELIVERY
The following table summarizes the operations of UtiliCorp Energy Delivery
for the three years ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
THREE-YEAR REVIEW--ENERGY DELIVERY 1996 1995 1994
- ------------------------------------------------------------------------- ----------- ----------- -----------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Sales:
Electric............................................................... $ 519.3 $ 490.1 $ 476.1
Gas.................................................................... 727.9 616.8 618.6
Other.................................................................. 51.9 45.9 41.0
Purchases from Generation.............................................. (285.2) (262.9) (258.7)
----------- ----------- -----------
Total net sales.......................................................... 1,013.9 889.9 877.0
----------- ----------- -----------
Cost of sales:
Electric............................................................... 14.9 14.2 13.9
Gas.................................................................... 453.9 348.9 381.1
Other.................................................................. 32.1 30.7 23.6
----------- ----------- -----------
Total cost of sales...................................................... 500.9 393.8 418.6
----------- ----------- -----------
Gross profit............................................................. 513.0 496.1 458.4
----------- ----------- -----------
Operating expenses:
Other operating........................................................ 213.3 216.7 196.0
Maintenance............................................................ 26.0 22.7 25.4
Taxes, other than income taxes......................................... 50.6 48.0 45.5
Depreciation and amortization.......................................... 66.1 67.9 60.4
----------- ----------- -----------
Total operating expenses................................................. 356.0 355.3 327.3
----------- ----------- -----------
Income from operations................................................... 157.0 140.8 131.1
Other income............................................................. 11.0 7.4 5.6
----------- ----------- -----------
Earnings before interest expense and income taxes (EBIT)................. $ 168.0 $ 148.2 $ 136.7
----------- ----------- -----------
----------- ----------- -----------
Identifiable assets...................................................... $ 1,762.4 $ 1,646.4 $ 1,556.0
Electric sales (MWH 000's)............................................... 9,607 8,351 8,300
Gas sales and transportation (MCF 000's)................................. 301,513 306,585 263,943
Number of customers...................................................... 1,172,000 1,151,000 1,128,000
-------------------------------------
</TABLE>
SALES
Energy Delivery sales increased $124.0 million in 1996 compared to 1995,
which increased gross profit by $16.9 million. Sales were affected favorably by
colder temperatures and higher gas prices which increased sales by $119.6
million and gross profit by $11.9 million. In addition, increased gas rates in
Nebraska and Kansas contributed approximately $4.4 million in gross profit in
1996.
In 1995 compared to 1994, Energy Delivery sales increased $12.9 million due
to more favorable weather and continued growth in the number of customers.
Energy Delivery obtains all of its electricity requirements from Generation
except for its West Virginia operations. The cost of electricity from Generation
is reflected as "Purchases from Generation" in the sales section of the
three-year table above.
23
<PAGE>
COST OF SALES
The $105.0 million increase in 1996 cost of gas over 1995 is due primarily
to higher natural gas prices stemming from cold winter temperatures which
increased demand for gas supplies.
Cost of sales decreased by $24.8 million in 1995 compared to 1994, primarily
due to a $32.2 million decrease in gas cost of sales. On January 1, 1995, Energy
Delivery spent $78.0 million to acquire a Missouri gas pipeline company which
transports gas impacting sales, but not cost of sales. This caused gas gross
profit margins to vary between periods.
OPERATING EXPENSES
Operating expenses in 1996 were about the same as in 1995. Energy Delivery
reduced employment by 280 in 1995, which decreased salary and benefit costs.
These savings were offset by increased property taxes and increased
uncollectible customer accounts triggered by escalating gas prices.
Operating expenses increased $28.0 million or 8.6% in 1995 compared to 1994
mainly due to the costs of repositioning and reshaping the businesses. In 1995,
the company began integrating business support functions such as human
resources, accounting and information technology, among others, which previously
were located in the company's business units. The increase in depreciation and
amortization expense was due to additional capital improvements made to utility
assets.
ENVIRONMENTAL MATTERS
The company has been named as a potentially responsible party (PRP) at five
PCB disposal facilities. The company's combined clean-up expenditures have been
less than $1 million to date and it anticipates that future expenditures on
these sites will not be significant.
The company also owns or once operated 29 former manufactured gas plants
which may or may not require some form of environmental remediation. These are
discussed in Note 14 to the Consolidated Financial Statements.
COMPETITION
The electric industry has increasingly become more competitive as federal
and state regulators move to an unregulated environment. The anticipation of
reduced regulation triggered some dramatic events. Several major utility mergers
were announced, including those that affect competitors close to or next to the
company's service territories. Other utilities have implemented cost reduction
programs and organizational changes in preparation for greater competition.
UtiliCorp began looking at its strengths and opportunities with respect to
future increased competition three years ago. Approximately 100 employees from
around the company were brought together to work on a strategic plan that would
be the foundation from which to reposition and reshape the business. In 1995,
the company began integrating support functions that previously were performed
separately in the operating divisions and building its resources and capacity to
take advantage of opportunities brought about as competition increases.
The competitive forces affecting the company's electric operations are also
affecting the company's gas operations. As competing electric utilities reduce
costs, it becomes more difficult to obtain new customers through fuel switching
opportunities and in certain cases the result may be a loss of customers.
Federal Energy Regulatory Commission (FERC) Order 636 shifted gas supply
responsibilities from traditional pipeline company sources to distribution
utilities, and allows customers to bypass the company's system by directly
connecting to a transportation pipeline. The company has addressed increased
competition and industry changes in several ways. First, its natural gas is
priced competitively
24
<PAGE>
in its respective service territories compared to alternate energy sources.
Second, the company established in 1993 a central gas procurement function
designed to take advantage of opportunities created by FERC Order 636. Besides
offering low cost natural gas, the company offers its customers a wide range of
energy solutions to meet customers' needs.
The company currently accounts for the economic effects of regulation in
accordance with the provisions of Statement of Financial Accounting Standards
No. 71 (SFAS No. 71), "Accounting for the Effects of Certain Types of
Regulation," and accordingly has recorded certain costs as regulatory assets in
the financial statements. The company expects that its rates will continue to be
based on historical costs for the foreseeable future. If the company
discontinued applying SFAS No. 71, it would be required to make adjustments to
the carrying value of certain assets.
REGULATORY MATTERS
Energy Delivery has pending a gas rate case for its Michigan operations.
Energy Delivery requested a $9.1 million rate increase in late 1995. The
Michigan Commission has no time limit to make a final decision. UED does not
expect a final ruling on this case before spring 1997. See Missouri earnings
investigation discussion in the Generation section for a pending electric rate
matter.
GENERATION
The following table summarizes the operations of Generation for the three
years ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
THREE-YEAR REVIEW--GENERATION 1996 1995 1994
- ----------------------------------------------------------------------------------- --------- --------- ---------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Sales to affiliate and other....................................................... $ 285.2 $ 262.9 $ 258.7
Cost of sales--fuel used for generation and purchased power........................ 166.5 152.3 150.7
--------- --------- ---------
Gross profit....................................................................... 118.7 110.6 108.0
--------- --------- ---------
Operating expenses:
Other operating.................................................................. 50.1 41.2 36.1
Maintenance...................................................................... 14.6 12.8 15.0
Taxes, other than income taxes................................................... 6.6 6.8 6.7
Depreciation and amortization.................................................... 18.8 19.4 17.8
Provision for asset impairment................................................... -- 15.4 --
--------- --------- ---------
Total operating expenses........................................................... 90.1 95.6 75.6
--------- --------- ---------
Income from operations............................................................. 28.6 15.0 32.4
Equity in earnings of investments and partnerships................................. 50.9 21.9 19.2
Other expense...................................................................... (.2) (.5) (1.0)
--------- --------- ---------
Earnings before interest expense and income taxes (EBIT)........................... 79.3 36.4 50.6
--------- --------- ---------
Non-recurring items:
Provision for asset impairments.................................................. -- 15.4 --
Gain on sales lease of power project............................................. (20.9) -- --
--------- --------- ---------
Normalized EBIT.................................................................... $ 58.4 $ 51.8 $ 50.6
--------- --------- ---------
--------- --------- ---------
Identifiable assets................................................................ $ 482.1 $ 460.8 $ 397.2
Affiliate wholesale sales (MWH 000's).............................................. 7,411 6,998 6,767
Non-affiliate wholesale sales (MWH 000's).......................................... 998 589 459
-------------------------------
</TABLE>
25
<PAGE>
SALES
Generation provides firm wholesale electricity to UED. Sales to UED are
based on an internal transfer pricing model which represents a full requirements
capacity and energy contract. The opening of the wholesale market increased the
regulated trading opportunities resulting in increased sales in 1996 compared to
1995. Also included in sales to affiliates are sales to other wholesalers of
$23.3 million, $12.2 million and $10.9 million, respectively, for 1996, 1995 and
1994.
COST OF SALES
The increase in fuel and purchased power of approximately $14.2 million in
1996 compared to 1995 is primarily due to an increase of 409,000 MWH in
wholesale transactions combined with increased firm sales to UED resulting from
favorable weather and customer growth. The reduced cost of sales on a per unit
sold basis reflects savings from new coal supply and transportation contracts
signed in January 1996 combined with increased blending of low sulfur western
coal at the Sibley generating station. On August 1, 1996, the company amended an
electric supply contract with another utility, which is expected to reduce
future energy costs by $1 million and capacity costs by $2.9 million on an
annual basis. The company's customers will share in the fuel cost savings
through a fuel adjustment mechanism. As a result of this amended supply
contract, the company secured 168 megawatts of supply through 2001 at lower
prices and postponed its planned construction of a generating plant.
OPERATING EXPENSES
Operating expenses increased $9.9 million in 1996 compared to 1995 after
adjusting for the provisions for asset impairment recorded in 1995 relating to a
power project. The 1996 normalized increase is due to additional support costs,
such as information technology, human resources, legal, and other activities.
Additional increases primarily related to the establishment of an energy trading
group to sell available generation capacity during off-peak periods.
The provision for asset impairments was the result of a review of the
carrying value of Generation assets and the adoption of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of" (SFAS 121), which resulted in a non-cash, pretax
charge of $15.4 million.
EQUITY IN EARNINGS
Equity earnings in 1996 increased $8.1 million after adjusting for the net
gain on a sales lease transaction and other restructuring charges. The equity
earnings increase is due to higher steam output, new rates at two projects and a
full year of performance at another.
The company does not anticipate further expansion or investment in
independent power projects. Due to increasing deregulation, the power generation
market does not offer the same high yield returns as prior investments.
PENDING EARNINGS INVESTIGATION
In March 1997, the staff of the Missouri Public Service Commission filed a
complaint against the company seeking to reduce annual Missouri electric
revenues by $23 million. This review by the staff is a continuation of the
review that began as part of the UtiliCorp-KCPL merger application that was
terminated in September 1996. The investigation is in the discovery stage and as
a result, management cannot predict the outcome of this investigation. The
company expects to file for a full rate proceeding to introduce certain
competitive initiatives, some of which were part of the merger application. No
resolution to these rate matters is anticipated before March 1998.
26
<PAGE>
ENVIRONMENTAL MATTERS
In December 1996, the EPA promulgated its final rule for nitrous oxide (NOx)
emissions pursuant to the requirements of the Clean Air Act Amendments of 1990.
The new NOx regulations could impact one of the company's power plants by
necessitating the installation of additional emissions control equipment by
January 1, 2000, as more fully discussed in Note 14.
COMPETITION
See discussion of electric utility competition in the Energy Delivery
section.
AQUILA ENERGY
The following table summarizes the operations of Aquila Energy for the three
years ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
THREE-YEAR REVIEW--AQUILA ENERGY 1996 1995 1994
- ------------------------------------------------------------------------------- ---------- ---------- ---------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Sales:
Wholesale energy marketing................................................... $ 2,051.1 $ 835.7 $ 613.2
Gas sales, transmission and processing....................................... 376.0 284.7 245.7
Oil and gas production....................................................... -- 50.6 76.9
---------- ---------- ---------
Total sales.................................................................... 2,427.1 1,171.0 935.8
---------- ---------- ---------
Cost of sales:
Cost of wholesale energy marketing........................................... 1,982.1 774.8 596.8
Cost of gas gathering and processing......................................... 267.7 193.8 166.6
---------- ---------- ---------
Total cost of sales............................................................ 2,249.8 968.6 763.4
---------- ---------- ---------
Gross profit................................................................... 177.3 202.4 172.4
---------- ---------- ---------
Operating expenses:
Operating and maintenance.................................................... 81.4 71.2 69.4
Depreciation, depletion and amortization..................................... 25.7 49.6 59.6
Provision for asset impairments.............................................. -- 13.2 --
---------- ---------- ---------
Total operating expenses....................................................... 107.1 134.0 129.0
---------- ---------- ---------
Income from operations......................................................... 70.2 68.4 43.4
Minority interest expense and other............................................ 10.0 2.1 3.8
---------- ---------- ---------
Earnings before interest expense and income taxes (EBIT)....................... 60.2 66.3 39.6
---------- ---------- ---------
Non-recurring items:
Change to mark-to-market method of accounting................................ -- (29.8) --
Provision for asset impairments ($13.2 million less minority interest)....... -- 10.8 --
Oil and gas operating income and other....................................... -- (5.0) (7.8)
---------- ---------- ---------
Normalized EBIT................................................................ $ 60.2 $ 42.3 $ 31.8
---------- ---------- ---------
---------- ---------- ---------
Identifiable assets............................................................ $ 1,416.9 $ 873.1 $ 717.1
Physical gas sales and throughput (billion cubic feet per day)................. 2.6 1.9 1.4
Electricity marketing volumes (MWH 000's)...................................... 6,495 129 --
Natural gas liquids produced (thousand barrels per day)........................ 41 32 31
---------------------------------
</TABLE>
27
<PAGE>
REVIEW OF OPERATIONS
Sales increased in 1996 by $1.3 billion or 107% compared to 1995, primarily
due to a 54% increase in gas marketing volumes and a 48% increase in natural gas
prices. Natural gas marketing volumes reached 2.1 BCF per day as Aquila Energy
expanded market share of its gas wholesale business. For 1996 Aquila Energy
ranked among the 10 largest gas marketers in the United States. Aquila has
implemented an aggressive strategy to further grow this business so that it may
become one of the largest companies in the U.S. in terms of marketed volumes.
Sales were also positively affected by a 28% increase in production of natural
gas liquids (NGLs) and a 20% increase in NGL prices. The significant increase in
sales contributed to a normalized $56.9 million increase in gross profit.
Operating and maintenance expenses increased $10.2 million due to additional
employees and higher incentive payouts due to improved performance from the
wholesale energy marketing business.
Sales increased $235.2 million in 1995 due to a 42% increase in marketing
volumes and a 36% increase in gas pipeline throughput. Gas marketing volumes
increased mainly due to the January 1995 acquisition of Tristar Gas Company,
which had volumes of approximately 185 million cubic feet per day in 1995. Gas
throughput volumes increased due mainly to expanded drilling in Aquila Gas
Pipeline's gathering region. In addition, the company changed its method of
accounting for energy trading operations, which increased sales and EBIT by
$29.8 million.
Sales from oil and gas production activities decreased due to the sale of
all production assets for approximately $205 million in September 1995, which
also lowered depreciation, depletion and amortization expense in 1996 and 1995.
COMPETITION
The company has adopted a plan to provide both natural gas and electric
power commodity services to its wholesale customers from an integrated wholesale
marketing staff. This will allow the company to fully meet the needs of
customers who will have an ever-increasing portfolio of energy options from
which to choose in the future. A number of recent mergers and consolidations of
entities in the natural gas marketing industry have increased the focus on
controlling market share on a volumetric basis. The company expects the gas
marketing industry to consolidate into a few megamarketing companies. Electric
power marketing will be affected by the regulatory environment of the industry.
It is currently unclear as to when the various regulatory agencies will open
access to all power customers, including retail users. These regulatory
decisions may have a significant impact on the future economics of the power
marketing sector.
The gas gathering and processing business will be influenced by natural gas
and oil commodity prices and the drilling activity surrounding its major
pipeline asset in Southeast Texas. Aquila expects new well connections to
maintain or increase throughput as horizontal drilling technology increases
economically recoverable reserves in this area. Many pipeline acquisition
opportunities also exist for this business.
28
<PAGE>
ENERGY SOLUTIONS
The following table summarizes the operations of Energy Solutions for the
three years ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
THREE-YEAR REVIEW--ENERGY SOLUTIONS 1996 1995 1994
- ------------------------------------------------------------------------------------ --------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Sales............................................................................... $ 313.9 $ 178.5 $ 77.6
Cost of sales....................................................................... 285.1 152.7 56.5
--------- --------- ---------
Gross profit........................................................................ 28.8 25.8 21.1
--------- --------- ---------
Operating expenses:
Operating and maintenance......................................................... 44.7 26.0 13.5
Depreciation, depletion and amortization.......................................... 4.2 -- .3
--------- --------- ---------
Total operating expenses............................................................ 48.9 26.0 13.8
--------- --------- ---------
Income (loss) from operations....................................................... (20.1) (.2) 7.3
--------- --------- ---------
Other expense....................................................................... .2 -- --
--------- --------- ---------
Earnings before interest expense and income taxes (EBIT)............................ $ (20.3) $ (.2) $ 7.3
--------- --------- ---------
--------- --------- ---------
Identifiable assets................................................................. $ 112.6 $ 118.6 $ 66.1
-------------------------------
</TABLE>
REVIEW OF OPERATIONS
Energy Solutions sales increased 76% in 1996 compared to 1995, and more than
300% since 1994. UES has expanded its retail presence since 1994 by acquiring
gas marketing companies serving small commercial and industrial customers in
strategic locations. UES also has a multi-state appliance repair and servicing
business as well as a start-up home security business. Energy Solutions
operations, although expanding toward the goal of developing and selling
consumer-oriented products and services, are best described as start-up
operations as EBIT decreased to a $20.3 million loss in 1996. Energy Solutions'
gas marketing businesses, its primary operation, suffered from the effects of
severe winter weather which caused gas supply prices to increase rapidly
compared to its fixed price sales contracts, primarily in the first quarter of
1996.
In addition, when the colder weather increased customer demand for gas, UES
incurred pipeline penalties that compressed margins. The surge in price could
not be passed on to customers and in some cases resulted in losing customers to
other gas marketing companies.
OPERATING EXPENSES
Operating expenses increased $22.9 million or 88% in 1996 over 1995, and
more than 250% since 1994. The increase was the result of additional operating
expenses of $10.5 million incurred by Energy Solutions in its sales and
marketing organization relating to the acquisition of two gas marketing
companies, research and development costs for new consumer products and brand
support activities. The remaining 1996 increase in expenses related to
additional back office support activities, bad debt expenses and severance
costs. The 1995 operating expense increase of $12.2 million was primarily
related to the $9.9 million spent to launch the EnergyOne-SM- brand and hire
sales and marketing staffs.
29
<PAGE>
COMPETITION AND OUTLOOK
Management believes 1996 was a year of competitive positioning, which
focused UES to take advantage of the retail segment opportunities. UES's gas
marketing business competes with many regional and local companies for small
commercial and industrial customers. Although the gas marketing business is
highly competitive with small margins, management believes it has several
advantages over its competitors relating to gas procurement and marketing and
sales processes.
For products and services, UES staffed four research and development teams
late in 1996 to speed up the rollout of consumer-oriented products. UES's
long-term success depends on successful new product development and rollout to
the marketplace.
The company expects UES to improve its results in 1997, but still show a
loss for the year.
INTERNATIONAL
The following table summarizes the company's International operations for
the three years ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
THREE-YEAR REVIEW--INTERNATIONAL 1996 1995 1994
- ----------------------------------------------------------------------------------- --------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Sales:
Electric (Canada)................................................................ $ 92.9 $ 87.6 $ 80.9
Gas marketing (primarily United Kingdom)......................................... 199.2 199.9 163.8
--------- --------- ---------
Total sales........................................................................ 292.1 287.5 244.7
--------- --------- ---------
Cost of Sales:
Cost of fuel and purchased power (Canada)........................................ 29.8 27.4 27.3
Cost of gas marketing (United Kingdom)........................................... 187.5 184.2 155.5
--------- --------- ---------
Total cost of sales................................................................ 217.3 211.6 182.8
--------- --------- ---------
Gross profit....................................................................... 74.8 75.9 61.9
--------- --------- ---------
Operating expenses:
Other operating.................................................................. 26.6 28.4 13.1
Maintenance...................................................................... 9.0 8.9 7.4
Taxes, other than income taxes................................................... 12.1 13.0 12.3
Depreciation and amortization.................................................... 12.5 7.1 6.4
--------- --------- ---------
Total expense...................................................................... 60.2 57.4 39.2
--------- --------- ---------
Income from operations............................................................. 14.6 18.5 22.7
Equity earnings (loss) in subsidiaries and partnerships
(after foreign taxes)............................................................. 60.1 9.8 (.9)
Other income (expense)............................................................. 3.4 3.4 (.3)
--------- --------- ---------
Earnings before interest expense and income taxes (EBIT)........................... 78.1 31.7 21.5
--------- --------- ---------
Non-recurring item:
Reserve for United Kingdom gas contracts......................................... -- 11.0 --
--------- --------- ---------
Normalized EBIT.................................................................... $ 78.1 $ 42.7 $ 21.5
--------- --------- ---------
--------- --------- ---------
Identifiable assets................................................................ $ 860.5 $ 712.1 $ 295.4
-------------------------------
</TABLE>
30
<PAGE>
OPERATING PERFORMANCE
International EBIT and earnings available for common shares were $78.1
million and $26.4 million, respectively, in 1996, up well over 100% compared to
1995 levels. Over the last three years, the international operations have
continued to become a larger part of the consolidated operations. For the three
years ended December 31, 1996, 1995 and 1994, international earnings contributed
25%, 12% and 9%, respectively, of total earnings available for common shares.
AUSTRALIA
In 1996 and 1995, the company's Australian investments contributed $14.1
million and $2.9 million, respectively, to the company's consolidated earnings
available for common shares. The increase in earnings is a result of having
equity earnings relating to a full year of operations and from transforming
United Energy Limited (UE) to a competitive and customer-focused operation at a
much faster pace than anticipated. UtiliCorp Australia Holdings Limited, a
wholly-owned subsidiary of the company, manages UE and receives an annual
management fee consisting of a fixed fee and a variable fee dependent on UE's
financial performance. The company earned management fees of $6.9 million during
the year ended December 31, 1996.
UE was the first electric distribution business to be privatized in
Australia, and has become a benchmark for other privatized Australian
distribution businesses. Major achievements during 1996 include the
reengineering of business processes and replacement of core business support
systems. A key focus has been on efficiency improvements including staff
reductions. Productivity improvements have been made possible by improved
business processes, work practices and better use of resources.
Retail competition in the state of Victoria, where United Energy is located,
is being introduced in phases. Currently, customers using more than 750 MWH per
year (generally large commercial and industrial customers) are able to choose
their electricity supplier. Smaller commercial and residential customers will
have that choice by the year 2001.
CANADA
The company's Canadian operations consist primarily of its wholly-owned
Canadian electric distribution company, West Kootenay Power. This utility has
four hydro-electric generation facilities with a capacity of 205 megawatts and
915 miles of transmission lines that serve approximately 83,000 customers in the
south-central interior of British Columbia. The company achieved two historic
firsts in 1996. It became the first electric utility in Canada to be granted
performance-based regulation, and it filed a groundbreaking transmission access
application, opening the door to competition.
Canadian operations provided earnings available for common shares of $9.5
million, $8.2 million and $6.2 million for the periods ending December 31, 1996,
1995 and 1994, respectively. Increased earnings in 1996 resulted from the sale
of one of WKP's investments and favorable negotiations of purchased power
arrangements. Increased earnings in 1995 over 1994 were primarily due to a 4.7%
increase in rates reflecting an increase in the allowed return on equity.
NEW ZEALAND
The company's New Zealand investments (Power New Zealand and WEL Energy
Group) together contributed $2.4 million and $.7 million to earnings available
for common shares in 1996 and 1995, respectively. Earnings improved in 1996
compared to 1995 as a result of having a full year of equity earnings from Power
New Zealand shares purchased late in 1995, the additional earnings attached to
shares purchased throughout 1996 from both investments, and improved operations
at the underlying electric distribution companies.
31
<PAGE>
UNITED KINGDOM
The company has several business ventures in the United Kingdom (U.K.) that
market natural gas to wholesale and industrial customers. United Gas Limited
(UGL) is the company's primary U.K. subsidiary. UGL markets gas to approximately
48,000 customers and had sales volumes of 56 BCF for the year ended December 31,
1996. In addition to UGL, the company has two gas marketing joint ventures
(collectively referred to as Regional Gas Companies or RGCs) in which it is a
25% equity partner. In 1996, the company realigned certain of its business
relationships in the United Kingdom. The equity relationships with Caledonian
Gas Limited, Egas Limited and Midlands Gas Limited (Midlands) were terminated.
As part of the termination of the equity relationship in Midlands, 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.
At December 31, 1996, the company's portfolio of U.K. contracts was in a net
long position, as it included volumetric supply commitments of 72 BCF expiring
through 2005 and volumetric sales commitments of 62 BCF expiring through 1999.
Estimated losses on the above portfolio ranged from $14 million to $23 million
depending on the estimated future spot price of natural gas. Since the United
Kingdom natural gas market does not have liquid long-term pricing, it is
difficult to estimate future profitability of the portfolio. Based on
management's estimates and available market data at December 31, 1996, the
company is carrying a $14 million pretax reserve relating to future losses that
may exist within the portfolio of contracts. Management believes that this
reserve is adequate and that any additional losses would not be material. In
April 1996, the company 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.
Earnings available for common shares from the United Kingdom businesses for
the three-year period ended December 31, 1996, 1995 and 1994 were $.7 million,
$(2.5) million and $2.4 million, respectively. The increase in 1996 earnings
over 1995 was mainly due to the establishment of a $11.0 million pretax reserve
in 1995 for unfavorable long-term gas supply contracts, offset by the adverse
effect on trading profits due to the unexpected rise in natural gas prices
beginning in August 1996.
The lower 1995 results compared to 1994 were primarily due to the decline in
spot market prices and its effects on margins, equity investment values and
certain financial guarantees the company or subsidiaries had with its partners.
In the 1995 fourth quarter, the company reserved $11.0 million (pretax) for
probable funding requirements it expected to make to support its investments in
one of the RGCs and recognized an additional $1.6 million as its share of RGC
net losses. Results in 1995 were favorably affected by a gain on the sale of one
of its RGC investments and by a favorable gas settlement.
LIQUIDITY AND CAPITAL RESOURCES
The company's cash requirements arise primarily from its continued growth,
electric and gas utility construction programs, non-regulated investment
opportunities and information technology investments. The company's ability to
attract the necessary financial capital at reasonable terms is critical to the
company's overall plan. Historically, acquisitions and investments have been
initially financed with short-term debt and subsequently funded with an
appropriate mix of common equity and long-term debt securities, depending on
prevailing market conditions.
A primary source of short-term cash has been bank borrowings from
uncommitted bank lines which aggregated $202.0 million, $153.1 million and
$155.4 million at December 31, 1996, 1995 and 1994, respectively. The company
can also issue up to $150 million of commercial paper which is supported by a
$250 million committed revolving credit agreement. The credit agreement expires
in December 2000 and allows for the issuance of notes at interest rates based on
various money market rates. Commercial paper borrowings at December 31, 1996,
1995 and 1994 were $50.0 million, $135.5 million and $27.0 million,
respectively.
32
<PAGE>
To maintain flexibility in its capital structure and to take advantage of
favorable short-term rates, the company also uses proceeds from its two accounts
receivable sale programs to fund a portion of its short-term cash requirements.
The level of funding available from these programs varies depending on the level
of eligible accounts receivable, which fluctuates seasonally. These programs
were fully utilized at December 31, 1996.
At December 31, 1996, the company had approximately $86.7 million in cash in
its international businesses. The company does not provide for U.S. tax on its
international operations.
Total capitalization at December 31, 1996 was $2.8 billion. Common equity as
a percentage of total capitalization increased to 42% at December 31, 1996, up
from 39% at December 31, 1995. The increase relates primarily to increased
earnings, the issuance of 6 million shares of common stock, and the issuance of
1.3 million shares through customer stock purchase plans.
OPERATING CASH FLOWS
Cash flows provided from operations were $262.8, $261.2 and $229.3 million
for the three years ended December 31, 1996, 1995 and 1994, respectively. Cash
flows from operating activities increased slightly between 1996 and 1995. The
increase is primarily due to the timing of cash receipts and cash payments from
the prior year.
Cash flows from operating activities increased $31.9 million between 1995
and 1994. This increase was primarily due to a net favorable increase in working
capital and other changes in assets and liabilities. Working capital accounts
were significantly affected by volume increases and higher natural gas prices
compared to the prior year. Taken together, accounts receivable including
accrued revenues less accounts payable reduced working capital by $73.4 million,
primarily due to cash being used to pay energy cost related obligations before
cash is collected from customers. Partially offsetting this use of cash were
increased net borrowings from the company's accounts receivable financing
program which provided $50.8 million of additional operating cash flow.
INVESTING CASH FLOWS
Net cash used in investing activities totaled $411.6 million, $634.9 million
and $346.3 million for the three years ended December 31, 1996, 1995 and 1994,
respectively. Net cash flows used in investing activities decreased $223.3
million in 1996 compared to 1995 due to fewer acquisition opportunities than in
the prior year.
In July and November 1996, Aquila acquired 40% of the outstanding capital
stock of Oasis Pipe Line Company (Oasis) and related transportation rights for
approximately $132 million. The 600-mile Oasis pipeline system spans the state
of Texas and links Aquila's gathering systems to key gas market hubs. Oasis has
1 billion cubic feet per day of throughput capacity. In April 1997, Aquila
expects to receive $17 million for the sale of 5% of the outstanding stock in
Oasis.
Net cash used in investing activities increased $288.6 million between 1995
and 1994. The majority of the increase related to an increase in acquired
businesses of $452.0 million partially offset by $204.5 million of cash proceeds
received from the sale of the company's oil and gas properties.
33
<PAGE>
Investing activities by the company over the last three years are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Electric capital expenditures..................................................... $ 85.8 $ 69.5 $ 81.3
Gas capital expenditures.......................................................... 48.5 39.9 50.7
Acquired businesses--domestic..................................................... 138.1 100.9 28.2
Acquired businesses--international................................................ 42.3 379.3 --
Gas pipeline, gathering and processing............................................ 26.4 104.7 33.2
Independent power projects........................................................ -- 59.0 22.2
Oil and gas reserve development and purchases..................................... -- 39.3 80.4
Sale of oil and gas properties.................................................... -- (204.5) --
Other............................................................................. 70.5 46.8 50.3
--------- --------- ---------
Total investing activities........................................................ $ 411.6 $ 634.9 $ 346.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
The company's operating cash flow provided approximately 64%, 41% and 66% of
the investing activities for the three years ended December 31, 1996, 1995 and
1994, respectively, assuming all operating cash flows were applied to the
investment needs first. The remaining cash flows were provided from financing
activities as discussed below.
FINANCING CASH FLOWS
Net cash provided from financing activities totaled $175.2 million, $417.2
million and $128.3 million for the three years ended December 31, 1996, 1995 and
1994, respectively. Net cash flows provided from financing activities decreased
$242.0 million primarily due to the lower level of acquisition related activity
in 1996 compared to 1995.
Net cash provided by financing activities increased $288.9 million between
1995 and 1994. The majority of the increase related to additional borrowings
needed to acquire the company's equity investments in Australia and New Zealand.
Financing activities by the company over the last three years were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Stock ownership and option plans.................................................. $ 37.6 $ 29.5 $ 2.8
Issuance of stock................................................................. 160.8 -- --
Payment of dividends.............................................................. (86.7) (80.0) (77.6)
Treasury stock.................................................................... (6.4) 6.6 (6.6)
Issuance of senior notes.......................................................... 99.5 99.3 99.5
Retirement of senior notes........................................................ (12.5) (125.0) --
Monthly income securities......................................................... -- 100.0 --
Foreign debt borrowings, net...................................................... 29.7 286.4 --
Net change in short-term debt..................................................... (37.6) 106.2 112.4
Other............................................................................. (9.2) (5.8) (2.2)
--------- --------- ---------
Total net financing activities.................................................... $ 175.2 $ 417.2 $ 128.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
34
<PAGE>
FUTURE CASH REQUIREMENTS
Future cash requirements include utility plant additions, required
redemptions of long-term securities and acquisition opportunities. The company's
estimated expenditures over the next five years for these activities, excluding
acquisitions, are as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
IN MILLIONS
<S> <C> <C> <C> <C> <C>
Energy Delivery............................................... $ 101.3 $ 97.7 $ 98.4 $ 100.4 $ 103.7
Generation.................................................... 18.2 17.0 18.0 16.5 17.5
Aquila Energy................................................. 39.1 47.8 44.9 44.6 44.6
Energy Solutions.............................................. 7.2 -- -- -- --
Maturing long-term debt....................................... 25.7 163.7 165.9 280.6 16.0
Other......................................................... 84.1 64.6 75.1 68.6 70.6
--------- --------- --------- --------- ---------
Total......................................................... $ 275.6 $ 390.8 $ 402.3 $ 510.7 $ 252.4
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Amounts included in Other primarily relate to the company's continuing
information system reengineering efforts and other technology capital
expenditures to enable the company to implement its operating strategy.
On January 21, 1997, the company announced its intention to redeem all 1
million outstanding shares of its $2.05 Series preference stock on March 1,
1997. Shares will be redeemed at $25.00 a share and will be funded with
short-term debt. This redemption will increase earnings available by an
estimated $1.1 million after tax based on current short-term interest rates.
The company believes that its available cash resources from both operating
cash flows and borrowing capacity will be adequate to meet its anticipated
future cash requirements.
MERGER TERMINATION
On September 17, 1996, 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. Pursuant to the termination provision in the Agreement, KCPL
paid the company $5 million in 1996 and upon KCPL's definitive agreement to
merge with another company KCPL paid the company a $53 million breakup fee in
the first quarter of 1997. The company used the $53 million to reduce short-term
debt. In 1996 the company expensed $11.0 million of its deferred merger cost,
net of the $5 million termination fee received in 1996, against income.
EFFECTS OF INFLATION
In the next few years, the company anticipates that the level of inflation,
if moderate, will not have a significant effect on operations or acquisition
activity.
FORWARD-LOOKING INFORMATION
This report contains forward-looking information. Such statements involve
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.
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
IN MILLIONS EXCEPT PER SHARE
<S> <C> <C> <C>
Sales........................................................................ $ 4,332.3 $ 2,798.5 $ 2,398.1
Cost of sales................................................................ 3,422.5 1,881.8 1,575.8
---------- ---------- ----------
Gross profit................................................................. 909.8 916.7 822.3
---------- ---------- ----------
Operating, administrative and maintenance expense............................ 547.6 508.2 448.8
Depreciation, depletion and amortization..................................... 127.8 148.8 145.5
Provision for asset impairments.............................................. -- 34.6 --
Write-off of deferred merger costs, net of termination fee received.......... 11.0 -- --
---------- ---------- ----------
Income from operations....................................................... 223.4 225.1 228.0
---------- ---------- ----------
Other income (expense):
Equity in earnings of investments and partnerships (Received dividends of
$42.7, $18.6 and $13.7 million, respectively for the years ended 1996,
1995 and 1994)........................................................... 111.1 31.8 18.3
Minority interests and other expense....................................... (27.2) (16.7) (12.4)
Other income............................................................... 14.8 12.3 6.1
---------- ---------- ----------
Total other income........................................................... 98.7 27.4 12.0
---------- ---------- ----------
Earnings before interest and taxes........................................... 322.1 252.5 240.0
---------- ---------- ----------
Interest expense:
Interest expense--long-term debt........................................... 118.0 105.5 89.5
Interest expense--short-term debt.......................................... 8.7 10.5 4.0
Minority interest in income of partnership................................. 8.9 4.7 --
---------- ---------- ----------
Total interest expense....................................................... 135.6 120.7 93.5
---------- ---------- ----------
Earnings before income taxes................................................. 186.5 131.8 146.5
---------- ---------- ----------
Income taxes................................................................. 80.7 52.0 52.1
---------- ---------- ----------
Net income................................................................... 105.8 79.8 94.4
---------- ---------- ----------
Preference dividends......................................................... 2.1 2.1 3.0
---------- ---------- ----------
Earnings Available for Common Shares......................................... $ 103.7 $ 77.7 $ 91.4
---------- ---------- ----------
---------- ---------- ----------
Weighted Average Common Shares Outstanding:
Primary.................................................................... 47.21 45.08 43.97
Fully diluted.............................................................. 47.53 45.47 45.18
---------- ---------- ----------
---------- ---------- ----------
Earnings Per Common Share:
Primary.................................................................... $ 2.20 $ 1.72 $ 2.08
Fully diluted.............................................................. 2.19 1.71 2.06
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
IN MILLIONS
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................. $ 137.1 $ 110.7 $ 67.2
Funds on deposit........................................................... 56.8 41.2 44.8
Accounts receivable, net................................................... 811.6 332.2 215.6
Inventories and supplies................................................... 110.9 112.5 134.3
Price risk management assets............................................... 55.2 26.4 --
Prepayments and other...................................................... 32.9 53.0 51.9
---------- ---------- ----------
Total current assets......................................................... 1,204.5 676.0 513.8
---------- ---------- ----------
Property, plant and equipment, net........................................... 2,406.7 2,279.6 2,266.4
Investments in subsidiaries and partnerships................................. 761.0 574.4 148.5
Price risk management assets................................................. 154.1 175.5 --
Deferred charges............................................................. 178.6 180.4 182.4
---------- ---------- ----------
Total Assets................................................................. $ 4,704.9 $ 3,885.9 $ 3,111.1
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities of long-term debt....................................... $ 25.7 $ 15.1 $ 138.8
Short-term debt............................................................ 252.0 288.6 182.4
Accounts payable........................................................... 912.9 434.3 340.3
Accrued liabilities........................................................ 50.0 34.8 43.1
Price risk management liabilities.......................................... 71.7 67.9 --
Other...................................................................... 107.3 107.1 89.0
---------- ---------- ----------
Total current liabilities.................................................... 1,419.6 947.8 793.6
---------- ---------- ----------
Long-term liabilities:
Long-term debt, net........................................................ 1,470.7 1,355.4 976.9
Deferred income taxes and credits.......................................... 313.7 279.2 300.4
Price risk management liabilities.......................................... 64.5 94.6 --
Minority interests......................................................... 56.9 45.9 28.4
Other deferred credits..................................................... 96.5 91.3 79.6
---------- ---------- ----------
Total long-term liabilities.................................................. 2,002.3 1,866.4 1,385.3
---------- ---------- ----------
Company-obligated mandatorily redeemable
preferred securities of partnership........................................ 100.0 100.0 --
Preferred and preference stock............................................... 25.0 25.4 25.4
Common shareowners' equity................................................... 1,158.0 946.3 906.8
Commitments and contingencies................................................
---------- ---------- ----------
Total Liabilities and Shareowners' Equity.................................... $ 4,704.9 $ 3,885.9 $ 3,111.1
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
CONSOLIDATED STATEMENTS OF PREFERRED AND PREFERENCE STOCK
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
DOLLARS IN MILLIONS
EXCEPT PER SHARE
<S> <C> <C> <C>
Preference Stock, not mandatorily redeemable:
$2.05 series, 1,000,000 shares*................................................ $ 25.0 $ 25.0 $ 25.0
Preferred Stock of Subsidiary, retractable....................................... -- .4 .4
---------- --------- ---------
Total Preferred and Preference Stock............................................. $ 25.0 $ 25.4 $ 25.4
---------- --------- ---------
---------- --------- ---------
</TABLE>
- ------------------------
*The company intends to redeem all outstanding shares of its $2.05 Series
preference stock on March 1, 1997.
CONSOLIDATED STATEMENTS OF COMMON SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
DOLLARS IN MILLIONS
EXCEPT PER SHARE
<S> <C> <C> <C>
Common Stock: authorized 100,000,000 shares, par value $1 per share, 53,293,645
shares outstanding (45,965,952 at December 31, 1995 and 44,827,135 at December
31, 1994); authorized 20,000,000 shares of Class A common stock, par value $1
per share, none issued
Balance beginning of year...................................................... $ 46.0 $ 44.8 $ 42.0
Issuance of common stock....................................................... 7.3 1.2 2.8
---------- --------- ---------
Balance end of year.............................................................. 53.3 46.0 44.8
---------- --------- ---------
Premium on Capital Stock:
Balance beginning of year...................................................... 800.6 774.2 722.4
Issuance of common stock....................................................... 191.1 26.4 51.8
---------- --------- ---------
Balance end of year.............................................................. 991.7 800.6 774.2
---------- --------- ---------
Retained Earnings:
Balance beginning of year...................................................... 106.2 107.0 93.4
Net income..................................................................... 105.8 79.8 94.4
Dividends on preference stock.................................................. (2.1) (2.1) (3.0)
Dividends on common stock -- $1.76 per share in
1996, $1.72 in 1995, and $1.70 in 1994....................................... (84.6) (77.9) (74.6)
Reissuance of common stock..................................................... -- (.6) (3.2)
---------- --------- ---------
Balance end of year.............................................................. 125.3 106.2 107.0
---------- --------- ---------
Treasury stock, at cost (228,807 shares at December 31,
1996 and 227,587 shares at December 31, 1994)................................... (6.4) -- (6.6)
Currency translation adjustment.................................................. (5.9) (6.5) (12.6)
---------- --------- ---------
Total Common Shareowners' Equity................................................. $ 1,158.0 $ 946.3 $ 906.8
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income..................................................................... $ 105.8 $ 79.8 $ 94.4
Adjustments to reconcile net income to net cash provided:
Depreciation, depletion and amortization..................................... 127.8 155.6 147.1
Provision for asset impairments.............................................. -- 34.6 --
Net changes in price risk management assets and liabilities.................. (33.7) (39.4) --
Deferred taxes and investment tax credits.................................... 34.5 (21.2) 66.5
Equity in earnings from investments and partnerships......................... (111.1) (31.8) (18.3)
Dividends from investments and partnerships.................................. 42.7 18.6 13.7
Minority interests........................................................... 8.0 3.7 3.4
Write-off of deferred merger costs, net of termination fee received.......... 11.0 -- --
Changes in certain assets and liabilities, net of effects of acquisitions and
restructuring --
Accounts receivable, net................................................... (506.2) (167.4) 40.5
Accounts receivable sold................................................... 61.6 50.8 (21.5)
Inventories and supplies................................................... 1.6 21.8 (32.5)
Prepayments and other...................................................... 20.1 (1.1) (20.5)
Accounts payable........................................................... 478.6 94.0 (52.2)
Accrued liabilities........................................................ 15.2 (8.3) (5.3)
Deferred charges, net...................................................... (1.0) 2.0 (31.8)
Other...................................................................... 7.9 69.5 45.8
--------- --------- ---------
Cash provided from operating activities.......................................... 262.8 261.2 229.3
--------- --------- ---------
Cash Flows From Investing Activities:
Additions to utility plant..................................................... (134.3) (109.4) (132.0)
Purchase of utility and other businesses....................................... (138.1) (100.9) (28.2)
Investments in international businesses........................................ (42.3) (379.3) --
Investments in independent power projects...................................... -- (59.0) (22.2)
Proceeds on sale of oil and gas properties..................................... -- 204.5 --
Investments in energy related properties....................................... (26.4) (144.0) (113.6)
Other.......................................................................... (70.5) (46.8) (50.3)
--------- --------- ---------
Cash used for investing activities............................................... (411.6) (634.9) (346.3)
--------- --------- ---------
Cash Flows From Financing Activities:
Issuance of common stock....................................................... 198.4 29.5 2.8
Issuance of company-obligated mandatorily redeemable
preferred securities of partnership.......................................... -- 100.0 --
Retirements of preference stock................................................ -- -- (6.8)
Treasury stock sold (acquired)................................................. (6.4) 6.6 (6.6)
Issuance of long-term debt..................................................... 129.7 415.2 104.1
Retirement of long-term debt................................................... (22.2) (160.3) --
Short-term borrowings (repayments), net........................................ (37.6) 106.2 112.4
Cash dividends paid............................................................ (86.7) (80.0) (77.6)
--------- --------- ---------
Cash provided from financing activities.......................................... 175.2 417.2 128.3
--------- --------- ---------
Increase in cash and cash equivalents............................................ 26.4 43.5 11.3
Cash and cash equivalents at beginning of year................................... 110.7 67.2 55.9
--------- --------- ---------
Cash and Cash Equivalents at End of Year......................................... $ 137.1 $ 110.7 $ 67.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
UtiliCorp United Inc. (the company, a Delaware corporation) is an
international energy and energy services company. The company's principal lines
of business are in the following segments: UtiliCorp Energy Delivery (UED),
Generation, Aquila Energy (Aquila) and UtiliCorp Energy Solutions (UES). The
company's international operations are managed as stand-alone companies or
investments through locally based management. UED's businesses consist of the
domestic utility distribution and transmission businesses and certain on-system
appliance repair and servicing businesses. Generation's businesses are domestic
electricity generation and independent power projects. Aquila's businesses are
the wholesale energy marketing, natural gas processing and gathering businesses.
UES's businesses are small commercial and industrial gas marketing, appliance
repair and servicing and other consumer products and services. The utility
businesses operate in eight states and one province of Canada. Natural gas is
marketed throughout the U.S. and in parts of Canada and the United Kingdom
(U.K.). The company's gas processing operations are in Texas and Oklahoma. In
addition to U.S., Canadian and U.K. businesses, the company has various
investments in Australia, New Zealand and Jamaica.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
company's accounting policies conform to generally accepted accounting
principles which, in the case of the company's utility operations, consider the
impact of rate regulation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the company include all operating
divisions and all majority-owned subsidiaries. Investments in which the company
has an ownership interest between 20% and 50% or otherwise exercises significant
influence are accounted for using the equity method. All significant
intercompany accounts and transactions have been eliminated.
MINORITY INTERESTS
Minority interests represent the minority stockholders' proportionate share
of the stockholders' equity and net income, primarily Aquila Gas Pipeline
Corporation (AGP). The company also owns majority interest in a company that
invests in New Zealand electric utilities.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost. Repair and
maintenance costs are expensed as incurred. Depreciation is provided on a
straight-line basis over the estimated lives for utility plant by applying
composite average annual rates, ranging from 3.1% to 4.3%, as approved by
regulatory authorities. When property is replaced, removed or abandoned, its
cost, together with the costs of removal less salvage, is charged to accumulated
depreciation. Non-regulated property, plant and equipment are depreciated on a
straight-line basis over their estimated lives ranging from three to 50 years.
Depreciation was determined for oil and gas properties using the units of
production method over the estimated lives of the producing properties based on
estimated quantities of proved reserves. Gathering, processing and other energy
related property is depreciated using a composite average annual rate of 5.0%.
40
<PAGE>
The excess of total acquisition costs over the aggregate regulated value of
net assets acquired to date is included in utility plant ($163.8 million at
December 31, 1996) and is being amortized on a straight-line basis over periods
ranging from 15 to 40 years.
SALES RECOGNITION
Sales are generally recognized as products and services are delivered,
except for price risk management activities as discussed below.
Effective January 1, 1995, the company adopted the mark-to-market method of
accounting for its domestic natural gas trading activities, principally
conducted by Aquila Energy Corporation, a wholly-owned subsidiary of the
company. Under mark-to-market accounting, the company's domestic natural gas
trading contracts, including both physical transactions and financial
instruments, are recorded at fair value, net of future servicing costs and
reserves, and recognized as an adjustment to sales upon contract execution.
Changes in the market value of the portfolio (resulting primarily from newly
originated transactions and the impact of price movements) are recognized as
gains or losses in the period of change. The resulting unrealized gains and
losses are recorded as price risk management assets and liabilities.
The company's prior method recognized gains and losses when the underlying
physical commodity was sold. The change was made to more fairly present the
current results of the company's operations related to this business and to
recognize that value is created and the earnings process is completed when the
contractual commitments are finalized. The effect of this change was immaterial
for periods prior to 1995 and increased 1995 sales and income from operations by
$29.8 million ($18.3 million after tax). The impact primarily resulted from the
effect of certain contractual sales commitments which had been designated as
hedges of a portion of the company's natural gas reserves. As discussed in Note
4, the company sold its oil and gas reserves in September 1995. The resulting
open position of the commitments created a change in the price risk management
assets and liabilities.
FINANCIAL INSTRUMENTS
As indicated above, the company accounts for financial instruments
associated with its natural gas and electricity trading activities using the
mark-to-market method. Activities for non-trading purposes consist of
transactions entered into by the company's other businesses to hedge the impact
of market fluctuations on assets, liabilities, or other contractual commitments.
Changes in the market value of these transactions are deferred until the gain or
loss on the hedged item is recognized.
INCOME TAXES
The company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined by applying tax
regulations existing at the end of a reporting period to the cumulative
temporary differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements. Deferred income tax expense or
benefit is based on the changes in the assets and liabilities from period to
period. Deferred investment tax credits are amortized over the lives of the
related properties.
CASH EQUIVALENTS AND CASH FLOW INFORMATION
Cash equivalents are defined as temporary cash investments with an original
maturity of three months or less. As of December 31, 1996, 1995 and 1994, the
company had cash held in foreign countries of $86.7 million, $77.5 million and
$58.5 million, respectively.
41
<PAGE>
Cash payments for interest, taxes and supplemental disclosures relating to
acquisition activities are presented below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Cash paid during the year for--
Interest, net of amount capitalized.............................................. $ 132.1 $ 135.4 $ 100.3
Income taxes..................................................................... 49.1 46.9 11.4
--------- --------- ---------
Liabilities assumed in acquisitions--
Fair value of assets acquired.................................................... $ 7.0 $ 114.0 $ 35.9
Cash paid for acquisitions....................................................... -- 100.9 28.2
Liabilities assumed.............................................................. 7.0 13.1 7.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
EARNINGS PER COMMON SHARE
Primary earnings per common share are computed on the basis of the weighted
average number of common shares outstanding. Fully diluted earnings per common
share assume conversion of convertible subordinated debentures and convertible
preference stock for the periods they were outstanding and dilutive
CURRENCY TRANSLATION ADJUSTMENTS
The financial statements of foreign operations have been translated into
U.S. dollars using the weighted average exchange rates during the period for
income statement items and year-end exchange rates for balance sheet items. The
resulting changes in the value of foreign currencies affect the asset and
liability value, and income and loss contributions. The cumulative translation
adjustments are reflected in the consolidated statements of common shareowners'
equity.
SOFTWARE DEVELOPMENT COSTS
The company capitalizes the direct development costs of internal-use
software after technological feasibility has been achieved. All costs incurred
prior to reaching technical feasibility are expensed in the period incurred.
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). The company currently provides stock options to
certain employees and has an employee stock purchase program whereby employees
may purchase company common stock at a 15% discount. Under SFAS 123, these plans
require either recording additional compensation expense or disclosing the
impact on net income and earnings per share as if the company elected to record
compensation expense. The company has elected to disclose pro forma information
required by SFAS 123 rather than record compensation expense. For the years
ended December 31, 1996, 1995, and 1994, compensation expense under SFAS 123,
relating to stock-based compensation plans would be $1.5 million, $3.6 million
and $1.5 million, respectively. If the company had recorded compensation expense
pursuant to the requirements of SFAS 123, earnings per share would have been
reduced by $.02, $.05, and $.02 for the years ended December 31, 1996, 1995, and
1994, respectively.
RECLASSIFICATIONS
Certain prior year amounts in the consolidated financial statements have
been reclassified where necessary to conform to the 1996 presentation.
42
<PAGE>
NOTE 2: PRICE RISK MANAGEMENT
A. TRADING ACTIVITIES
PRICE RISK MANAGEMENT ACTIVITIES
The company offers price risk management services in connection with its
energy trading activities. These services are provided through a variety of
financial instruments, including forward contracts which commit the company to
purchase or sell energy in the future; swap agreements, which require payments
to (or receipt of payments from) counterparties based on the differential
between specified prices for the related commodity; futures and options
contracts traded on the New York Mercantile Exchange (NYMEX); and other
contractual arrangements.
The availability and use of these types of contracts allow the company to
manage and hedge its contractual commitments, reduce its exposure relative to
the volatility of cash market prices, take advantage of selected arbitrage
opportunities via open positions, protect its investment in natural gas storage
inventories and provide price risk management services to its customers. The
company is also able to secure additional sources of energy or create additional
markets for existing supply through the use of exchange for physical
transactions allowed by NYMEX. The management of these types of transactions is
referred to herein as price risk management activities.
MARKET RISK
The company's price risk management activities involve offering fixed price
commitments into the future. The contractual amounts and terms of these
financial instruments at December 31, 1996, are shown below:
<TABLE>
<CAPTION>
FIXED PRICE FIXED PRICE MAXIMUM TERM IN
PAYOR RECEIVER YEARS
------------ -------------- -------------------
<S> <C> <C> <C>
Energy Commodities:
Gas (trillion BTUs)............................................. 506.4 341.0 11
Electricity (megawatt-hours).................................... 134,400 492,000 1
-------------------------------------------------
Financial Products:
Interest rate instruments (in millions)......................... $ 1,570.0 -- 7
-------------------------------------------------
</TABLE>
Although the company attempts to balance its physical and financial purchase
and sale contracts in terms of quantities and contract performance, net open
positions often exist or are established due to the origination of new
transactions and the company's assessment of, and response to, changing market
conditions. The company will at times create a net open position or allow a net
open position to continue when it believes, based upon competitive information
acquired from its energy marketing activities, that future price movements will
be consistent with its net open position. To the extent that the company has an
open position, it is exposed to the risk that fluctuating market prices may
adversely impact its financial position or results from operations. A
simultaneous price movement of $.10 per MMBtu along the entire forward price
curve for natural gas positions held at December 31, 1996 would have impacted
sales by approximately $.8 million.
The company measures the risk in its trading portfolio using value-at-risk
methodologies, which simulate forward price curves in the energy markets to
estimate the size of future potential losses. The quantification of market risk
using value-at-risk methodologies provides a consistent measure of risk across
diverse energy markets and products. The use of this method requires a number of
key assumptions including the selection of a confidence level for losses, the
estimated holding period and the treatment of risks outside the value-at-risk
method.
43
<PAGE>
The company expresses value-at-risk as a percentage of earnings based on a
95% confidence level using three day holding periods. On a three day basis as of
December 31, 1996, the company's value-at-risk (unaudited) for its price risk
management activities was not material to consolidated net income. The company
employs additional risk control mechanisms such as stress testing, daily loss
limits and commodity position limits as well as daily monitoring of the trading
function by an independent function.
Based upon the policies and controls discussed above, management does not
anticipate a materially adverse effect on financial position or results of
operations as a result of market fluctuations.
MARKET VALUATION
The market prices used to value these transactions reflect management's best
estimate of market prices considering various factors including closing exchange
and over-the-counter quotations, time value of money and price volatility
factors underlying the commitments. These market prices are adjusted to reflect
the potential impact of liquidating the company's position in an orderly manner
over a reasonable period of time under present market conditions.
The company has considered a number of risks and costs associated with the
future contractual commitments included in its energy portfolio, including
credit risks associated with the financial condition of counterparties, product
location (basis) differentials and other risks which management policy dictates.
A calculation of the time value of money is also applied to all contracts. The
company continuously monitors the valuation of identified risks and adjusts them
based on present market conditions.
The following table displays the mark-to-market values of the company's
energy transactions at December 31, 1996 and 1995 and the average value for the
year ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
PRICE RISK MANAGEMENT ASSETS PRICE RISK MANAGEMENT LIABILITIES
------------------------------------ ------------------------------------
AVERAGE VALUE DECEMBER 31, 1996 AVERAGE VALUE DECEMBER 31, 1996
--------------- ------------------- --------------- -------------------
IN MILLIONS
<S> <C> <C> <C> <C>
Independent power producers........... $ 172.2 $ 158.3 $ -- $ .1
Financial institutions................ 17.4 18.3 34.3 21.0
Oil and gas producers................. 2.8 9.1 24.4 19.9
Gas transmission...................... 5.4 10.0 23.5 25.1
Energy marketers...................... 4.5 9.7 2.7 10.5
Other................................. 2.9 3.8 2.6 2.3
------- ------- ------- -------
Gross value........................... 205.2 209.2 87.5 78.9
Reserves.............................. 64.6 57.2
------- ------- ------- -------
Total................................. $ 205.2 $ 209.2 $ 152.1 $ 136.1
------- ------- ------- -------
Net Value............................. $ 73.1
-------
-------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
PRICE RISK MANAGEMENT ASSETS PRICE RISK MANAGEMENT LIABILITIES
------------------------------------ ------------------------------------
AVERAGE VALUE DECEMBER 31, 1995 AVERAGE VALUE DECEMBER 31, 1995
--------------- ------------------- --------------- -------------------
IN MILLIONS
<S> <C> <C> <C> <C>
Independent power producers........... $ 93.6 $ 187.6 $ -- $ --
Financial institutions................ 2.9 9.1 30.6 38.6
Oil and gas producers................. .6 2.0 12.0 30.7
Gas transmission...................... .9 2.4 4.8 19.7
Other................................. 1.2 3.3 .7 2.9
------- ------- ------- -------
Gross value........................... 99.2 204.4 48.1 91.9
Reserves.............................. 36.2 70.6
------- ------- ------- -------
Total................................. $ 99.2 $ 204.4 $ 84.3 $ 162.5
------- ------- ------- -------
Net Value............................. $ 41.9
-------
-------
</TABLE>
The counterparties in the company's portfolio consist primarily of financial
institutions, oil and gas companies and independent power producers. The
creditworthiness of the company's counterparties could impact its overall
exposure to credit risk, either positively or negatively. However, the company
maintains credit policies with regard to its counterparties that management
believes minimizes overall credit risk.
Three independent power producers comprise the majority of the company's net
price risk management assets. This concentration of customers may impact the
company's overall exposure to credit risk, either positively or negatively, in
that the counterparties may be similarly affected by changes in economic,
regulatory or other conditions.
B. NON-TRADING ACTIVITIES--HEDGING INSTRUMENTS
The company enters into forwards, futures and other contracts related to its
commodity businesses. Financial instruments are used to manage price
fluctuations in the portfolio of natural gas transactions. The estimated fair
value and cash flow requirements for these financial instruments are based on
the market prices in effect at the financial statement date and do not
necessarily reflect the company's entire trading portfolio.
At December 31, 1996, 1995 and 1994, the company had natural gas financial
instruments with a contractual volume of 1,701, 1,327 and 310 BCF, respectively,
expiring in 2007. As of December 31, 1996, 1995 and 1994 the future cash flow
requirements, net of margin deposits, related to these financial instruments was
$(33.1), $44.2 and $9.9 million, respectively. Margin deposits are required on
certain financial instruments to address significant fluctuations in market
prices.
NOTE 3: ACCOUNTS RECEIVABLE
The components of accounts receivable on the Consolidated Balance Sheets are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Accounts receivable, net........................................................ $ 925.2 $ 405.1 $ 261.7
Unbilled revenue................................................................ 116.4 95.5 71.5
Accounts receivable sale program................................................ (230.0) (168.4) (117.6)
--------- --------- ---------
Total........................................................................... $ 811.6 $ 332.2 $ 215.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
45
<PAGE>
The company has agreements with financial institutions to sell, on a
continuing basis, up to $230 million of eligible accounts receivable on a
limited recourse basis. Fees associated with these sales were approximately (in
millions) $12.2 in 1996, $8.6 in 1995 and $6.9 in 1994 and are included in
minority interests and other expense in the accompanying Consolidated Statements
of Income. The agreements were recently modified to meet the new criteria for
sales accounting treatment under the Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liability" (SFAS 125). These modifications were minor and had
no impact on the underlying economics of these facilities.
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
IN MILLIONS
<S> <C> <C> <C>
Electric utility............................................................. $ 1,703.8 $ 1,645.0 $ 1,578.7
Gas utility.................................................................. 1,102.2 1,064.8 954.6
Gas gathering and pipeline systems........................................... 569.2 547.0 440.0
Oil and gas properties....................................................... -- -- 416.7
Other non-regulated plant.................................................... 189.4 106.2 88.3
Construction in process (includes $34.1 of internal-use software costs at
December 31, 1996).......................................................... 93.3 47.6 23.3
---------- ---------- ----------
3,657.9 3,410.6 3,501.6
Less--depreciation, depletion and amortization............................... 1,251.2 1,131.0 1,235.2
---------- ---------- ----------
Property, plant and equipment, net........................................... $ 2,406.7 $ 2,279.6 $ 2,266.4
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
JOINTLY OWNED ELECTRIC UTILITY PLANT
The company holds an 8% ownership interest and leases another 8% in three
coal-fired plants, approximately 600-megawatt generating units (Jeffrey Energy
Center or JEC). The JEC is operated by another utility. At December 31, 1996,
electric utility plant and accumulated depreciation included $101.5 million and
$46.9 million, respectively, related to the company's investment in JEC. The pro
rata share of JEC expenses is reflected in the Consolidated Statements of
Income.
SALE OF OIL AND GAS ASSETS
On September 27, 1995, the company sold the assets of Aquila Energy
Resources Corporation, a wholly-owned subsidiary of Aquila Energy, for
approximately $205 million in cash, which approximated their carrying value. The
assets sold consisted of substantially all of the company's oil and gas
properties.
NOTE 5: ASSET IMPAIRMENTS
In 1995 the company reviewed its long-lived asset carrying values and also
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121). In the fourth quarter of 1995, the company recorded
46
<PAGE>
a non-cash charge of approximately $34.6 million for long-term asset
impairments. The assets related to this charge are summarized below:
<TABLE>
<CAPTION>
PRETAX
WRITEDOWN
-------------
IN MILLIONS
<S> <C>
Investment in an independent power project....................................... $ 15.4
Gas gathering systems............................................................ 13.2
Gas processing plants............................................................ 6.0
-----
Total............................................................................ $ 34.6
-----
-----
</TABLE>
The impairment loss related to UtilCo Group's investment in a power project
was primarily caused by a change in the projected cash flows of the project
after considering updated projections of future energy prices. This resulted in
the write-off of the remaining investment balance.
The impairment loss relating to AGP's gas gathering systems stems from a
review of cash flows on a system-by-system basis. Prior to adoption of SFAS 121,
AGP assessed asset realization at a cash flow level higher than SFAS 121
requires. In preparing cash flow projections related to AGP's assets certain
assumptions were used. The more significant assumptions included constant
throughput flow based on 1994 actual throughput for an estimated remaining life
of 20 years. Cash flows were discounted based on AGP's weighted average cost of
capital.
The impairment loss relating to gas processing plants relate to a review
conducted after the sale of Aquila's oil and gas properties. These company-owned
plants were managed as part of Aquila's properties, but were not part of Aquila.
In assessing these plants separately under the principles of SFAS 121, the cash
flows from these assets were not sufficient to recover the carrying value of the
plants.
NOTE 6: INVESTMENTS IN SUBSIDIARIES AND PARTNERSHIPS
The consolidated financial statements include the company's investments in
electric distribution utilities in Australia, via UtiliCorp Australia Holding
Limited (UAHL), New Zealand, via UtiliCorp N.Z., Inc. (UNZ), two U.K. gas
marketing joint ventures, via UtiliCorp U.K., Limited and 17 power projects via
UtilCo Group which are accounted for under the equity method. For the company's
international businesses, adjustments for significant differences between U.S.
generally accepted accounting principles and local accounting standards have
been made to the amounts included in the company's consolidated financial
47
<PAGE>
statements. The following table summarizes the company's equity investment
balances and related equity earnings for 1996 through 1994.
<TABLE>
<CAPTION>
INVESTMENT
DECEMBER 31, (A) EQUITY EARNINGS
OWNERSHIP ------------------------------- -------------------------------
AT 12/31/96 COUNTRY 1996 1995 1994 1996 1995 1994
----------- ------------------- --------- --------- --------- --------- --------- ---------
IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UAHL investment (b)..... 49.9% Australia $ 274.0 $ 257.9 $ -- $ 42.7 $ 9.3 $ --
UNZ investments: (c)
WEL Energy Group Ltd.
(WEL)(d)............ 39.5% New Zealand 46.1 39.1 24.3 6.2 2.2 .2
Power New Zealand Ltd.
(PNZ)............... 30.3% New Zealand 134.2 107.1 -- 11.2 -- --
UtiliCorp U.K., Limited
investments (e)........ 25% United Kingdom -- -- 1.4 -- (1.6) (1.1)
UtilCo Group
partnerships (e)(f).... 22%-50% U.S. & Jamaica 195.9 170.3 122.8 50.9 21.9 19.2
Oasis Pipe Line Company
(Oasis)................ 40% United States 110.8 -- -- .1 -- --
--------- --------- --------- --------- --------- ---------
Total................... $ 761.0 $ 574.4 $ 148.5 $ 111.1 $ 31.8 $ 18.3
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(a) Investment exceeds interest in the underlying company or partnership net
assets. Acquisition and transaction costs included in the investment
balances are being amortized on a straight-line basis over the remaining
lives of the related assets. As of December 31, 1996, the UAHL, WEL, PNZ,
UtilCo and Oasis investments had $8.0 million, $5.2 million, $39.9 million,
$30.6 million and $96.8 million, respectively, of value in excess of the
underlying pro rata equity amounts which are being amortized over periods
ranging between 10 and 40 years on a straight-line basis.
(b) Equity earnings include interest income and management fees between the
equity investee and UAHL.
(c) The company owns 79% of UNZ with the remaining 21% owned by an unrelated
party.
(d) Prior to February 1995, the company's participation in WEL's earnings was
limited to 5%.
(e) Investments are aggregated. Individual investments are not significant.
(f) Investment and share of pretax earnings include the James River project,
49% owned by the company and 1% owned by UtilCo Group.
48
<PAGE>
Summarized combined financial information of unconsolidated material equity
investments is presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
---------- ---------- ---------
IN MILLIONS
<S> <C> <C> <C>
Assets:
Current assets............................................................... $ 328.5 $ 336.5 $ 115.7
Non-current assets........................................................... 3,131.0 2,785.3 855.5
---------- ---------- ---------
Total assets................................................................... $ 3,459.5 $ 3,121.8 $ 971.2
---------- ---------- ---------
---------- ---------- ---------
Liabilities and Equity:
Current liabilities.......................................................... $ 325.2 $ 276.5 $ 93.7
Non-current liabilities...................................................... 2,163.7 2,125.6 694.8
Equity....................................................................... 970.6 719.7 182.7
---------- ---------- ---------
Total liabilities and capital.................................................. $ 3,459.5 $ 3,121.8 $ 971.2
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---------- ---------- ---------
IN MILLIONS
<S> <C> <C> <C>
Operating Results:
Revenues..................................................................... $ 1,277.8 $ 729.6 $ 352.8
Costs and expenses........................................................... 1,109.1 657.3 299.7
---------- ---------- ---------
Net income..................................................................... $ 168.7 $ 72.3 $ 53.1
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
INTEREST IN AUSTRALIAN ELECTRIC UTILITY
In September 1995, Power Partnership Pty Limited (PPL), of which the company
owns 49.9%, acquired United Energy Limited (UE), an Australian electric
distribution utility, from the State of Victoria. The company paid approximately
$257.9 million for its 49.9% ownership interest in PPL. The company manages the
operations of UE on behalf of PPL and receives an annual management fee
consisting of a base amount indexed to the consumer price index and a variable
amount based on UE's financial performance. The management agreement extends for
10 years from date of acquisition.
The company financed its ownership interest primarily through two five-year
Australian-dollar-denominated revolving credit facilities. See Note 9 for more
information regarding financing arrangements.
49
<PAGE>
The acquisition was recorded as a purchase and, accordingly, the assets and
liabilities were recorded at the estimated fair value at the date of
acquisition. The equity investment is included in Investments in Subsidiaries
and Partnerships on the Consolidated Balance Sheets. Pro forma unaudited results
of operations for the company, assuming the acquisition occurred at the
beginning of each period, are shown below. For the 1994 period, the pro forma
results include UE's results for the 12 months ended June 30, 1995. UE began
operations on July 1, 1994, and the 1995 amounts represent the most comparable
figures for the pro forma table.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1995 1994
---------- ----------
IN MILLIONS
EXCEPT PER SHARE
<S> <C> <C>
Sales.................................................................................... $ 2,798.5 $ 2,398.1
Income from operations................................................................... 225.1 228.0
Net income............................................................................... 81.7 89.9
Earnings available for common shares..................................................... 79.6 86.9
---------- ----------
Primary earnings per share............................................................... $ 1.76 $ 1.98
Fully diluted earnings per share......................................................... 1.75 1.96
----------------------
</TABLE>
The company's Australian investments are comprised of the following
components:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
IN MILLIONS
<S> <C> <C> <C> <C>
Investment in convertible notes(a)(b)................................... $ 138.1 $ 129.7 $ 138.1 $ 129.7
Investment in floating subordinated debt(a)(b).......................... 74.2 92.7 74.2 92.7
Investment in PPL common stock (not traded)............................. 61.7 35.5
--------- ---------
Total................................................................... $ 274.0 $ 257.9
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) The company classifies these securities as held-to-maturity.
(b) These securities have floating interest rates at 2.75% above the Australian
Bank Bill rate maturing in September 2015. The interest rate at December 31,
1996, was 9.57%.
INTEREST IN NEW ZEALAND ELECTRIC UTILITIES
In November 1995, UNZ acquired 20.0% of the common stock of PNZ, a New
Zealand electric distribution utility, for $69.4 million. This acquisition was
financed through a New Zealand-dollar-denominated credit facility. UNZ has
continued to acquire PNZ shares throughout 1996. PNZ is New Zealand's second
largest electric distribution utility, serving approximately 216,000 customers.
In February 1995, UNZ paid $16.1 million to WEL to satisfy its capital
commitment. Since then, UNZ has participated in WEL's earnings to the full
extent of its ownership. Prior to the payment of the remaining capital
commitment, UNZ's participation in WEL's earnings was limited to 5%. UNZ has
continued to acquire WEL shares throughout 1996. WEL is an electric distribution
utility serving approximately 60,000 customers.
INTERESTS IN INDEPENDENT POWER PROJECTS
In April 1996, one of UtilCo Group's power projects 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 the gain through equity earnings during the
50
<PAGE>
second quarter. In addition, UtilCo Group recorded certain restructuring
reserves primarily in connection with changes in power project agreements. The
net gain from these items was $11.8 million after tax.
In May 1995, the company and UtilCo Group acquired a 50% interest in an
independent power project in Alabama for $59 million.
INVESTMENT IN PIPELINE SYSTEM
In July 1996 and November 1996, the company acquired, in aggregate, 40% of
Oasis Pipe Line Company for approximately $132.0 million. Oasis consists of a
600-mile intrastate pipeline system in Texas near many of Aquila Energy's
existing gathering systems. As part of the purchase, another owner has the
option to buy one-fifth of Oasis, including 5% now held by Aquila, on or before
April 1, 1997. Aquila was notified by the other partner that it intends to
exercise this option.
NOTE 7: REGULATORY ASSETS
The company's utility operations are subject to regulation by various
regulatory authorities. The company currently applies accounting standards that
recognize the economic effects of rate regulation and, accordingly, has recorded
regulatory assets related to the company's energy generation, transmission and
distribution operations. If the company discontinued applying this accounting
standard, it would be required to make an adjustment to the carrying value of
certain assets.
The following table presents the amount of regulatory assets recorded at
December 31, 1996, 1995 and 1994, respectively. These regulatory assets are
primarily reflected as deferred charges on the consolidated balance sheets.
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Income taxes....................................................................... $ 53.6 $ 53.7 $ 72.3
Environmental liabilities.......................................................... 11.3 10.4 10.9
Debt-related costs................................................................. 22.3 23.8 21.9
Regulatory accounting orders....................................................... 9.1 7.8 8.3
Demand-side management programs.................................................... 10.8 8.6 5.0
Post-retirement benefits........................................................... 10.5 8.5 7.9
Purchased gas and related costs.................................................... 5.6 3.3 4.2
Other (including FERC Order No. 636)............................................... 22.6 30.3 31.6
--------- --------- ---------
Total.............................................................................. $ 145.8 $ 146.4 $ 162.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 8: SHORT-TERM DEBT
Short-term debt is comprised of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Bank borrowing (uncommitted)....................................................... $ 202.0 $ 153.1 $ 155.4
Commercial paper................................................................... 50.0 135.5 27.0
--------- --------- ---------
Total.............................................................................. $ 252.0 $ 288.6 $ 182.4
--------- --------- ---------
--------- --------- ---------
Weighted average interest rate at year end......................................... 5.78% 6.14% 6.20%
-------------------------------
</TABLE>
51
<PAGE>
The company has a commercial paper program of $150 million. To support the
program, the company has a revolving credit agreement with a consortium of banks
aggregating $250 million. The revolving credit agreement allows the issuance of
notes which bear interest at rates based on the prime rate or various money
market rates. The revolving credit agreement contains restrictive covenants and
the company pays an annual commitment fee of .17% on the unused portion of the
revolving credit facility.
NOTE 9: LONG-TERM DEBT
The company's long-term debt is summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
IN MILLIONS
<S> <C> <C> <C>
First Mortgage Bonds:
Various, 9.93%*, due 1997-2008............................................. $ 23.0 $ 23.0 $ 23.0
Senior Notes:
9.30% Series, retired...................................................... -- -- 125.0
6.0% Series, due April 1, 1998............................................. 70.0 70.0 70.0
9.21% Series, due October 11, 1999......................................... 50.0 50.0 50.0
8.45% Series, due November 15, 1999........................................ 100.0 100.0 100.0
Aquila Southwest Energy 8.29% Series, due September 15, 2002............... 75.0 87.5 100.0
6.375% Series, due June 1, 2005............................................ 100.0 100.0 --
6.70% Series, due October 15, 2006......................................... 100.0 -- --
8.2% Series, due January 15, 2007.......................................... 130.0 130.0 130.0
10.5% Series, due December 1, 2020......................................... 125.0 125.0 125.0
9.0% Series, due November 15, 2021......................................... 150.0 150.0 150.0
8.0% Series, due March 1, 2023............................................. 125.0 125.0 125.0
Secured Debentures of West Kootenay Power:
9.43%*, due 1997-2023...................................................... 68.2 50.3 54.0
Convertible Subordinated Debentures:
6.625%, due July 1, 2011................................................... 7.2 8.0 20.7
New Zealand Denominated Credit Facility, due February 28, 1998............... 78.9 63.6 --
Australian Denominated Credit Facility, due July 20, 2000.................... 237.3 222.8 --
Other Notes and Obligations.................................................. 56.8 65.3 43.0
---------- ---------- ----------
Total Long-Term Debt......................................................... 1,496.4 1,370.5 1,115.7
Less current maturities...................................................... 25.7 15.1 138.8
---------- ---------- ----------
Long-term debt, net.......................................................... $ 1,470.7 $ 1,355.4 $ 976.9
---------- ---------- ----------
---------- ---------- ----------
Fair value of long-term debt, including current maturities(a)................ $ 1,559.3 $ 1,473.6 $ 1,094.4
Interest rate swap(a)........................................................ (1.8) (.6) --
----------------------------------
</TABLE>
- ------------------------
* Weighted average interest rate.
(a) The fair value of long-term debt is based on current rates at which the
company could borrow funds with similar remaining maturities. The interest
rate swap agreements are used to reduce the effect of changing interest
rates on the company's Australian Dollar Denominated Credit Facility.
Substantially all of the domestic utility plant owned by the company is
subject to the lien of various mortgage indentures. The company cannot issue
additional mortgage bonds under these mortgage
52
<PAGE>
indentures without directly securing the 6.0%, 8.45%, 8.2%, 9.0%, 8.0%, 6.375%
and 6.70% Senior Notes equally as any mortgage bond issue. Currently the company
has no plans to issue mortgage bonds.
The amounts of long-term debt maturing in each of the next five years and
thereafter are shown at right:
<TABLE>
<CAPTION>
MATURING AMOUNTS
------------------
IN MILLIONS
<S> <C>
1997...................................................................... $ 25.7
1998...................................................................... 163.7
1999...................................................................... 165.9
2000...................................................................... 280.6
2001...................................................................... 16.0
Thereafter................................................................ 844.5
--------
Total..................................................................... $ 1,496.4
--------
--------
</TABLE>
For the three years ended December 31, 1996, the company issued the
following series of Senior Notes which were used to reduce short-term debt.
<TABLE>
<CAPTION>
DATE ISSUED MATURITY FACE AMOUNT NET PROCEEDS
------------------- ----------- ------------- ---------------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
6.7% series........................................ October 1996 2006* $ 100.0 $ 99.5
6.375% series...................................... June 1995 2005* 100.0 99.3
8.45% series....................................... November 1994 1999 100.0 99.5
</TABLE>
- ------------------------
* The holder of each 6.7% and 6.375% senior note may elect to redeem any
portion in multiples of $1,000 on October 15, 2001, and June 1, 2000,
respectively, at face value plus accrued interest.
NEW ZEALAND DENOMINATED CREDIT FACILITY
UtiliCorp South Pacific, Inc. (USP) has a $NZ135 million credit facility
with a consortium of banks that was used to finance a portion of the investments
made by UNZ. The interest rate floats (9.7% at December 31, 1996) with changes
in the New Zealand bank bill rate. The credit facility matures on February 28,
1998. A commitment fee of .20% applies to the unused portion of the credit
facility.
AUSTRALIAN DENOMINATED CREDIT FACILITIES
UAHL has two five-year credit facilities ($A225 million and $A75 million)
with a consortium of banks that mature on July 20, 2000, which were utilized to
finance the ownership interest in UE. The interest rate floats with changes in
the Australian bank bill rate. The weighted average interest rate at December
31, 1996 was 6.79%. A commitment fee of .20% applies to the unused portion of
the credit facility.
On November 6, 1995, UAHL entered into an interest rate swap agreement with
Deutsche Bank with a contractual amount of $100 million (Australian) whereby the
company exchanges variable Australian debt interest for fixed rate interest. The
fixed interest rate is 7.77% for a period extending to September 7, 1998.
CONVERTIBLE SUBORDINATED DEBENTURES
At December 31, 1996, 6.625% convertible subordinated debentures totaling
$7.2 million remained outstanding. The debentures can be converted into
approximately 300,000 shares of common stock,
53
<PAGE>
based on a conversion price of $23.68, subject to an annual maximum limitation.
The debentures are subordinate to the prior payment, when due, of the principal
and premium, if any, and interest on all the company's debt outstanding, except
debt that by its terms is not senior in right of payment to the debentures.
NOTE 10: COMPANY-OBLIGATED PREFERRED SECURITIES
In June 1995, UtiliCorp Capital L.P. (UC), a limited partnership of which
the company is the general partner, issued 4,000,000 shares of 8.875% Cumulative
Monthly Income Preferred Securities, Series A, for $100 million. The limited
partnership interests represented by the preferred securities are redeemable at
the option of UC, after June 12, 2000, at $25 per preferred security plus
accrued interest and unpaid dividends. Holders of the securities are entitled to
receive dividends at an annual rate of 8.875% of the liquidation preference
value of $25. Dividends are payable monthly and in substance are tax-deductible
by the company. The securities are shown as Company-Obligated Mandatorily
Redeemable Preferred Securities of Partnership on the Consolidated Balance
Sheets. The dividends are shown as minority interest in income of partnership.
The net proceeds were used to reduce short-term debt.
NOTE 11: CAPITAL STOCK
COMMON STOCK OFFERING
In November 1996, the company issued 6 million shares of common stock at
$27.625. The net proceeds of $160.8 were used to reduce short-term debt.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
In February 1995, the company registered 3 million shares of common stock to
initiate a new Dividend Reinvestment and Common Stock Purchase Plan (New Plan).
Under the provisions of this New Plan, current and potential shareholders can
purchase up to $10,000 per month of the company's common stock at a five-day
average market price and without sales commissions. The New Plan allows members
to reinvest dividends into additional common stock at a 5% discount. The New
Plan amends the previous plan and all members in the previous plan automatically
became members in the New Plan. For the year ended December 31, 1996, 1.3
million shares were issued under this plan. As of December 31, 1996, 900,000
shares were available to issue under this plan.
EMPLOYEE STOCK PURCHASE PLAN
Participants have the opportunity to buy shares of the company's common
stock at a reduced price through regular payroll deductions and/or lump sum
deposits of up to 20% of the employee's base salary. Contributions are credited
to the participant's account throughout an option period. At the end of the
option period, the participant's total account balance is applied to the
purchase of common shares of the company. The shares are purchased at 85% of the
lower of the market price on the first day or the last day of the option period.
Participants must be enrolled in the Plan as of the first day of an option
period in order to participate in that option period.
RESTATED SAVINGS PLAN
A defined contribution plan, the Restated Savings Plan (Savings Plan),
covers all full-time and eligible part-time employees of the company.
Participants may generally elect to contribute up to 12% of their annual pay on
a before- or after-tax basis subject to certain limitations. The company
generally matches contributions up to 6%. Participants may direct their
contributions into five different investment options. All company matching
contributions are in the company's common stock. In addition, the
54
<PAGE>
Savings Plan also includes a stock contribution fund whereby the company can
contribute an additional amount of company common stock to participants.
STOCK INCENTIVE PLAN
The company's Stock Incentive Plan provides for the granting of common
shares to certain employees as restricted stock awards and as stock options.
Shares issued as restricted stock awards are held by the company until certain
restrictions lapse, generally on the third award anniversary. The market value
of the stock, when awarded, is amortized to compensation expense over the
three-year period. Stock options granted under the Plan allow the purchase of
common shares at a price not less than fair market value at the date of grant.
Options are generally exercisable commencing with the first anniversary of the
grant and expire after 10 years from the date of grant.
EMPLOYEE STOCK OPTION PLAN
The Board approved the establishment of an Employee Stock Option Plan in
1991. This Plan provides for the granting of up to 1 million stock options to
full-time employees other than those eligible to receive options under the Stock
Incentive Plan. Stock options granted under the Employee Stock Option Plan carry
the same provisions as those issued under the Stock Incentive Plan. During 1992,
options for 742,900 shares were granted to employees. The exercise price of
these options is $27.3125. No options have been issued under this Plan since
1992.
Stock options as of December 31, 1996, 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
SHARES
<S> <C> <C> <C>
Beginning balance........................................................ 2,015,500 1,273,797 1,188,007
Granted.................................................................. 303,850 812,403 203,650
Exercised................................................................ (18,410) (11,900) (98,910)
Cancelled................................................................ (100,490) (58,800) (18,950)
----------- ----------- -----------
Ending balance........................................................... 2,200,450 2,015,500 1,273,797
----------- ----------- -----------
----------- ----------- -----------
Weighted average prices:
Beginning balance........................................................ $ 27.83 $ 28.13 $ 31.63
Granted price............................................................ 28.55 27.36 31.63
Exercised price.......................................................... 23.96 25.07 23.93
Cancelled price.......................................................... 28.40 28.36 27.90
Ending balance........................................................... 27.94 27.83 28.13
</TABLE>
At December 31, 1996, restricted stock awards and stock options which were
exercisable totaled 1,755,017 shares (at prices ranging between $17.40 and
$31.63).
55
<PAGE>
NOTE 12: INCOME TAXES
Income tax expense consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Currently Payable:
Federal............................................................................ $ 34.0 $ 35.4 $ 15.3
Foreign............................................................................ 14.2 10.6 5.2
State.............................................................................. 5.5 11.3 (1.5)
Deferred:
Federal............................................................................ 23.0 (3.6) 26.2
State.............................................................................. 4.3 (.4) 8.2
Investment tax credit amortization................................................... (.3) (1.3) (1.3)
--------- --------- ---------
Total Income Tax Expense............................................................. $ 80.7 $ 52.0 $ 52.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
The principal components of the company's deferred income taxes consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Deferred Tax Assets:
Alternative minimum tax credit carryforward...................................... $ 95.1 $ 88.2 $ 83.5
Net operating loss carryforward.................................................. -- -- 26.3
Restructuring charges............................................................ -- -- 16.0
--------- --------- ---------
Total deferred tax assets.......................................................... 95.1 88.2 125.8
--------- --------- ---------
Deferred Tax Liabilities:
Accelerated depreciation and other plant differences
Regulated...................................................................... 146.4 160.9 176.5
Non-regulated.................................................................. 158.3 140.2 168.7
Regulatory asset--SFAS 109....................................................... 37.1 33.8 32.8
Other, net....................................................................... 67.0 32.5 48.2
--------- --------- ---------
Total deferred tax liabilities..................................................... 408.8 367.4 426.2
--------- --------- ---------
Deferred income taxes, net......................................................... $ 313.7 $ 279.2 $ 300.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
56
<PAGE>
The company's effective income tax rates differed from the statutory federal
income tax rates primarily due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Statutory Federal Income Tax Rate.................................................... 35.0% 35.0% 35.0%
Tax effect of:
Temporary differences passed through, primarily removal costs...................... .2 (.5) (1.3)
Investment tax credit amortization................................................. (.2) (1.0) (.9)
State income taxes, net of federal benefit......................................... 5.8 4.3 3.1
Difference in tax rate of foreign subsidiaries..................................... .9 1.3 1.9
Other.............................................................................. 1.6 .4 (2.2)
--- --- ---
Effective Income Tax Rate............................................................ 43.3% 39.5% 35.6%
--- --- ---
--- --- ---
</TABLE>
The company has an alternative minimum tax credit carryforward of
approximately $95.1 million at December 31, 1996. Alternative minimum tax
credits can be carried forward indefinitely and the company has not recorded a
valuation allowance against its tax credit carryforwards.
No provision is made for U.S. income taxes on undistributed earnings of the
company's international businesses ($85.9 million at December 31, 1996) because
it is management's intention to reinvest such earnings in those international
operations. In the event of a distribution of these earnings in the form of
dividends, the company may be subject to both foreign withholding taxes and U.S.
income taxes net of allowable foreign tax credits. Consolidated income before
income taxes for the years ended December 31, 1996, 1995 and 1994 included
$39.2, $16.6 and $14.2 million, respectively, from international operations.
57
<PAGE>
NOTE 13: EMPLOYEE BENEFITS
PENSIONS
The following table represents the funded status of the pension plans and
the amounts included in the Consolidated Balance Sheets and Statements of
Income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
------------ ------------ -----------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................................. $153.9 $143.0 $119.4
Accumulated benefit obligation......................................... 158.1 146.9 122.6
------------ ------------ -----------
Projected benefit obligation............................................. $185.9 $183.9 $152.1
Plan assets at fair value (primarily publicly traded common stocks and
bonds)................................................................. 208.7 191.7 161.4
------------ ------------ -----------
Excess of plan assets over the projected benefit obligation.............. 22.8 7.8 9.3
Unrecognized net loss from past experience different from that assumed... 8.2 24.1 22.0
Unrecognized net asset being recognized over 16 years.................... (11.3) (12.5) (13.7)
Unrecognized prior service cost.......................................... .9 (.3) (.7)
------------ ------------ -----------
Pension assets included in prepayments and other......................... $ 20.6 $ 19.1 $ 16.9
------------ ------------ -----------
------------ ------------ -----------
Net pension expense included the following components:
Service cost........................................................... $ 6.5 $ 5.8 $ 5.6
Interest cost on projected benefit obligation.......................... 13.0 12.0 11.0
Actual return on plan assets........................................... (25.7) (37.6) .6
Regulatory adjustment.................................................. .9 .6 .5
Net amortization and deferral.......................................... 6.5 20.5 (16.7)
------------ ------------ -----------
Net pension expense...................................................... $ 1.2 $ 1.3 $ 1.0
------------ ------------ -----------
------------ ------------ -----------
Discount rate assumed.................................................... 7.60% 7.17% 7.89%
Assumed rate of return on future compensation levels..................... 5.0-5.4% 5.0-5.5% 5.0-5.5%
Assumed long-term rate of return on assets............................... 8.0-10.0% 8.5-10.0% 8.5-9.0%
---------------------------------------
</TABLE>
The company has pension plans covering substantially all qualified union and
non-union employees. The benefit formulas vary and are based either on years of
service multiplied by a percentage of salary, or a flat benefit based upon years
of service. The company's policy is to fund, at a minimum, an amount sufficient
to meet all ERISA funding requirements. In certain of its jurisdictions, the
company has recorded pension expense equal to its funding contribution, which is
consistent with the rate treatment allowed for this cost.
In 1995 the company changed its long-term view on pension fund asset returns
and increased its estimated return on domestic plan assets to 10%.
OTHER POST-RETIREMENT BENEFITS
The company provides post-retirement health care and life insurance benefits
to substantially all employees. The majority of the plan's funding is provided
by the company on a pay-as-you-go basis with most retirees paying a portion of
the cost.
58
<PAGE>
The following table summarizes the status of the company's post-retirement
plans for financial statement purposes and the related amounts included in the
Consolidated Balance Sheets at December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Actuarial present value of post-retirement benefit obligations:
Retirees.......................................................................... $ 27.8 $ 23.1 $ 24.1
Other fully eligible participants................................................. 4.2 6.0 7.6
Other active participants......................................................... 7.0 11.1 8.3
Plan assets at fair value......................................................... (.5) (.9) (.3)
Unrecognized transition obligation................................................ (32.4) (34.4) (36.4)
Unrecognized net gain............................................................. 8.5 5.2 3.3
--------- --------- ---------
Accrued liability................................................................... $ 14.6 $ 10.1 $ 6.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of health care and life insurance costs are:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
Service cost........................................................................ $ 1.0 $ .8 $ .6
Interest cost....................................................................... 2.9 2.7 2.9
Amortization of transition obligation............................................... 2.0 2.0 2.0
Net amortization and deferral....................................................... -- (.2)
--------- --------- ---------
Net health care and life insurance costs............................................ $ 5.9 $ 5.3 $ 5.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following actuarial assumptions were used in calculating the plan's
year-end funded status:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Discount rate.......................................................... 7.5% 7.0% 7.75%
Assumed rate of return on future compensation levels................... 5.0--5.4% 5.0--5.5% 5.0--5.5%
Health care cost trend rate............................................ 8.25--6% 10--6% 12.5--6%
----------------------------------------
</TABLE>
59
<PAGE>
The rate of change in health care cost has an effect on the projected
benefit obligation. Increasing the rate by 1% each year would have increased the
present value of the accumulated projected benefit obligation by $2.8 million
and the aggregate of the service and interest cost components by $.4 million in
1996.
Pursuant to regulatory orders or precedents, certain regulated divisions of
the company have deferred as a regulatory asset the incremental costs associated
with SFAS No. 106
NOTE 14: COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The company has various commitments for the years 1997 through 2001 relating
primarily to power and gas supply commitments, fixed price sales obligations and
lease and rental commitments. A table of the company's estimated capital
expenditures and more significant estimated commitments follows.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
DOLLARS IN MILLIONS EXCEPT PER UNIT
<S> <C> <C> <C> <C> <C>
Capital expenditures.......................................... $ 249.9 $ 227.1 $ 236.4 $ 230.1 $ 236.4
Future minimum lease payments................................. 21.5 22.3 20.9 19.3 17.6
Purchased power obligations................................... 65.3 69.4 71.8 67.8 60.5
-----------------------------------------------------
Coal contracts................................................ 37.3 39.9 41.5 41.7 28.8
Price ranges................................................
------ $21.61 to $27.74 per ton ------
-----------------------------------------------------
Fixed price sales obligations (trillion BTUs)................. 192.8 61.0 22.8 13.9 13.9
Price ranges................................................
------ $1.75 to $3.20 per MCF ------
-----------------------------------------------------
Fixed price purchase obligations (trillion BTUs).............. 199.0 39.2 12.0 11.2 2.2
Price ranges................................................
------ $1.75 to $4.30 per MCF ------
-----------------------------------------------------
</TABLE>
Future minimum lease payments primarily relate to the JEC interest, peaking
turbines, coal cars, and office space. Rent expense for the years 1996, 1995 and
1994 was (in millions) $29.4, $25.9 and $26.4, respectively.
Purchased power obligations for 1997 through 2001 are estimated to provide
1,026; 1,064; 1,108; 937; and 960 MW, respectively.
LONG-TERM GAS SUPPLY CONTRACT
In 1996, the company realigned certain of its business relationships in the
United Kingdom (U.K.). Its equity relationships in the Caledonian Gas Limited,
Midlands Gas Limited (Midlands), and Egas Limited joint ventures were
terminated. As part of the termination of the equity relationship in Midlands,
the company assumed an interest in two long-term gas supply contracts (for
deliveries through 2005) that it assimilated into its existing portfolios of
sales and supply contracts.
At December 31, 1996, the portfolio of U.K. contracts was in a net long
position. It has 72 BCF of supply commitments through 2005, and 62 BCF of sales
commitments through 1999. Pretax losses on the above portfolio range from $14
million to $23 million depending on the estimated future spot price of natural
gas. Since the U.K. natural gas market does not have liquid long-term pricing,
it is difficult to calculate future profitability of the portfolio. Based on
management's estimates and available market data at December 31, 1996, the
company is carrying a $14 million pretax reserve relating to future losses that
may exist within the portfolio of contracts. Management believes that this
reserve is adequate and that any additional increases in the reserve would not
be material.
60
<PAGE>
BUYOUT PROVISION
Upon the occurrence of certain events, the company may be required to buy
out its minority partner in UNZ. The buyout price would be based on the fair
market value of UNZ as agreed to by both parties.
ENVIRONMENTAL
The company is subject to various environmental laws, including regulations
governing air and water quality and the storage and disposal of hazardous or
toxic wastes. The company assesses, on an ongoing basis, measures to ensure
compliance with laws and regulations related to hazardous materials and
hazardous waste compliance and remediation activities. The company owns or
previously operated 29 former manufactured gas plants (MGPs) which may, or may
not, require some form of environmental remediation. The company has contacted
appropriate federal and state agencies and is in the process of determining
what, if any, specific cleanup activities may be needed at these sites.
As of December 31, 1996, the company estimates that it will spend a minimum
of approximately $5.6 million over the next several years on the company's
identified MGP sites. These amounts could change materially based upon further
investigations, the actions of environmental agencies and the financial
viability of other responsible parties. Additionally, the ultimate liability may
be significantly affected if the company is held responsible for parties not
financially able to contribute to these costs. Based on prior experience,
available facts and existing law, the company has recorded a liability of $5.6
million representing its estimate of the amount of environmental costs currently
expected to be incurred.
The company has received favorable rate orders for recovery of its
environmental cleanup costs in certain jurisdictions. In other jurisdictions,
favorable regulatory precedent exists for the recovery of these costs. The
company is also pursuing recovery from insurance carriers and other potentially
responsible parties.
In December 1996, the EPA promulgated its final rule for nitrous oxide (NOx)
emissions pursuant to the requirements of the Clean Air Act Amendments of 1990.
The new NOx regulations could impact one of the company's power plants by
necessitating the installation of additional emissions control equipment by
January 1, 2000. The company is currently evaluating the requirements of the
rule. Using EPA's default numbers contained in the cost-benefit analysis in its
final rule-making to estimate the cost of the additional equipment, the company
may be required to spend approximately $3.1 million to comply with these rules.
These estimates could be affected by the rule's applicability as determined by
the D.C. Court of Appeals in a lawsuit now pending, or by the engineering design
developed by the company for implementation of the new standards.
It is management's opinion that the ultimate resolution of these
environmental matters will not have a material adverse impact upon the financial
position or results of operations of the company.
OTHER
The company is subject to various legal proceedings and claims which arise
in the ordinary course of business operations. In the opinion of management, the
amount of liability, if any, with respect to these actions would not materially
affect the consolidated financial position of the company or its results of
operations.
61
<PAGE>
NOTE 15: SEGMENT INFORMATION
A. BUSINESS LINES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
SALES:
Energy Delivery--
Electric:
Unaffiliated................................................. $ 519.3 $ 490.1 $ 476.1
Affiliated................................................... (285.2) (262.9) (258.7)
---------- ---------- ----------
Total electric................................................. 234.1 5.4% 227.2 217.4
---------- ---------- ----------
Gas............................................................ 727.9 16.8 616.8 618.6
Other.......................................................... 51.9 1.2 45.9 41.0
---------- ---------- ----------
Total Energy Delivery............................................ 1,013.9 889.9 877.0
---------- ---------- ----------
Generation--Affiliated........................................... 285.2 6.6 262.9 258.7
Aquila Energy.................................................... 2,427.1 56.0 1,171.0 935.8
Energy Solutions................................................. 313.9 7.2 178.5 77.6
International and other.......................................... 292.2 6.8 296.2 249.0
---------- --------- ---------- ----------
Total............................................................ $ 4,332.3 100.0% $ 2,798.5 $ 2,398.1
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
INCOME (LOSS) FROM OPERATIONS:
Energy Delivery--
Electric............................................ $ 78.1 35.0% $ 71.9 $ 70.2
Gas................................................. 81.0 36.3 65.2 59.7
Other............................................... (2.1) (.9) 3.7 1.2
--------- --------- ---------
Total Energy Delivery........................... 157.0 140.8 131.1
--------- --------- ---------
Generation (a)........................................ 28.6 12.8 15.0 32.4
Aquila Energy......................................... 70.2 31.4 68.4 43.4
Energy Solutions...................................... (20.1) (9.0) (.2) 7.3
International (b)..................................... 14.6 6.5 18.5 22.7
Corporate and other................................... (26.9) (12.1) (17.4) (8.9)
--------- --------- --------- ---------
Total................................................. $ 223.4 100.0% $ 225.1 $ 228.0
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(a) The Generation segment includes the UtilCo Group partnership equity
investments that had equity earnings of $50.9 million, $21.9 million and
$19.2 million not included in operating income.
(b) The International segment includes operating activities in Australia, New
Zealand and the United Kingdom which had equity earnings of $60.1 million,
$9.9 million and $(.9) million.
62
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
DEPRECIATION, DEPLETION AND AMORTIZATION:
Energy Delivery--
Electric.......................................................... $ 30.8 23.9% $ 34.7 $ 27.6
Gas............................................................... 35.8 28.0 34.3 30.1
Other............................................................. (.5) (.4) (1.1) 2.7
---------- ---------- ----------
Total Energy Delivery............................................... 66.1 67.9 60.4
---------- ---------- ----------
Generation.......................................................... 18.8 14.7 19.4 17.8
Aquila Energy....................................................... 25.7 20.1 49.6 59.6
Energy Solutions.................................................... 4.2 3.4 -- .3
International....................................................... 12.5 9.9 7.1 6.4
Corporate and other................................................. .5 .4 4.8 1.0
---------- --------- ---------- ----------
Total............................................................... $ 127.8 100.0% $ 148.8 $ 145.5
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
IDENTIFIABLE ASSETS:
Energy Delivery--
Electric.......................................................... $ 718.7 15.3% $ 695.9 $ 690.6
Gas............................................................... 958.9 20.4 900.0 819.9
Other............................................................. 84.8 1.8 50.5 45.5
---------- ---------- ----------
Total Energy Delivery............................................... 1,762.4 1,646.4 1,556.0
---------- ---------- ----------
Generation--
Electric generation............................................... 281.0 6.0 279.0 259.7
Independent power projects........................................ 201.1 4.3 181.8 137.5
---------- ---------- ----------
Total Generation.................................................... 482.1 460.8 397.2
---------- ---------- ----------
Aquila Energy....................................................... 1,416.9 30.1 873.1 717.1
Energy Solutions.................................................... 112.6 2.4 118.6 66.1
International....................................................... 860.5 18.3 712.1 295.4
Corporate and other................................................. 70.4 1.4 74.9 79.3
---------- --------- ---------- ----------
Total............................................................... $ 4,704.9 100.0% $ 3,885.9 $ 3,111.1
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
CAPITAL EXPENDITURES:
Energy Delivery--
Electric.......................................................... $ 47.7 29.7% $ 39.1 $ 43.6
Gas............................................................... 48.5 30.2 39.9 50.7
---------- ---------- ----------
Total Energy Delivery............................................... 96.2 79.0 94.3
---------- ---------- ----------
Generation.......................................................... 16.6 10.3 11.2 17.9
Aquila Energy....................................................... 26.4 16.4 144.0 113.6
International....................................................... 21.5 13.4 19.2 19.8
---------- --------- ---------- ----------
Total............................................................... $ 160.7 100.0% $ 253.4 $ 245.6
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
63
<PAGE>
B. GEOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
SALES:
United States....................................................... $ 3,962.5 91.5% $ 2,510.9 $ 2,153.4
Canada (a).......................................................... 180.9 4.2 89.2 80.9
United Kingdom...................................................... 188.9 4.3 198.4 163.8
---------- --------- ---------- ----------
Total............................................................... $ 4,332.3 100.0% $ 2,798.5 $ 2,398.1
---------- --------- ---------- ----------
---------- --------- ---------- ----------
EARNINGS AVAILABLE FOR COMMON SHARES:
United States....................................................... $ 77.0 74.3% $ 68.4 $ 82.9
Canada (a).......................................................... 9.5 9.2 8.2 6.2
Australia (b)....................................................... 14.1 13.6 2.9 --
New Zealand (b)..................................................... 2.4 2.3 .7 (.1)
United Kingdom...................................................... .7 .6 (2.5) 2.4
---------- --------- ---------- ----------
Total............................................................... $ 103.7 100.0% $ 77.7 $ 91.4
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
IDENTIFIABLE ASSETS:
United States....................................................... $ 3,764.0 80.0% $ 3,173.8 $ 2,815.7
Canada (a).......................................................... 351.5 7.5 225.3 214.3
Australia (b)....................................................... 306.3 6.5 252.5 --
New Zealand (b)..................................................... 185.1 3.9 150.6 26.1
United Kingdom...................................................... 98.0 2.1 83.7 55.0
---------- --------- ---------- ----------
Total............................................................... $ 4,704.9 100.0% $ 3,885.9 $ 3,111.1
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
- ------------------------
(a) Canadian sales, earnings available for common shares and identifiable assets
include Aquila Energy's Canadian operations and various small Canadian gas
marketing companies.
(b) Earnings available and a majority of the identifiable assets relate to
equity investments.
64
<PAGE>
NOTE 16: TERMINATED MERGER--KANSAS CITY POWER & LIGHT COMPANY (KCPL)
On September 17, 1996, 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.
Since KCPL's shareholders did not approve the merger under the terms of the
Agreement, KCPL was required to pay the company $5 million. The company received
this termination payment on September 19, 1996. In connection with the Agreement
termination, the company expensed deferred merger costs of approximately $11.0
million (pretax), net of the termination fee payment.
In February 1997, Western Resources Inc. and KCPL signed a definitive
agreement to merge. As a result, KCPL paid the company a $53 million breakup fee
which was recorded in the first quarter of 1997.
NOTE 17: QUARTERLY FINANCIAL DATA (UNAUDITED)
Due to the timing of acquisitions, the effect of weather on sales, and other
factors characteristic of utility operations and energy related businesses,
financial results for interim periods are not necessarily indicative of trends
for any 12-month period.
<TABLE>
<CAPTION>
1996 QUARTERS 1995 QUARTERS (A)
-------------------------------------------- --------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
--------- ----------- --------- --------- --------- ----------- --------- ---------
IN MILLIONS EXCEPT PER SHARE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales............................. $ 1,084.4 $ 765.0 $ 892.6 $ 1,590.3 $ 726.3 $ 600.8 $ 607.5 $ 863.9
Gross profit...................... 249.7 202.4 204.4 253.3 236.2 196.6 250.0 233.9
Income from operations............ 88.0 35.1 32.7 67.6 81.5 34.9 81.8 26.9
Net income........................ 37.3 26.3 14.1 28.1 32.2 7.2 32.9 7.5
------------------------------------------------------------------------------------------
Earnings per common share:
Primary (b)..................... $ .80 $ .55 $ .29 $ .56 $ .71 $ .15 $ .72 $ .15
Fully diluted (c)............... .79 .55 .29 .56 .70 .15 .71 .15
------------------------------------------------------------------------------------------
Cash dividend per common share.... $ .44 $ .44 $ .44 $ .44 $ .43 $ .43 $ .43 $ .43
Market price per common share:
High............................ $ 30.25 $ 29.13 $ 29.13 $ 27.25 $ 29.50 $ 29.00 $ 28.50 $ 29.63
Low............................. 28.25 25.75 26.50 26.38 26.25 27.25 26.63 27.50
------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
(a) Restated for accounting change. See Note 1.
(b) The sum of the quarterly primary earnings per share amounts differs from
that reflected in the Consolidated Statements of Income due to the weighting
of common shares outstanding during each of the respective periods.
(c) The sum of the quarterly fully diluted earnings per share amounts differs
from that reflected in the Consolidated Statements of Income because the
company's convertible securities were anti-dilutive in certain quarterly
calculations.
65
<PAGE>
REPORT OF MANAGEMENT
The management of UtiliCorp United Inc. is responsible for the information
that appears in this annual report, including its accuracy. The accompanying
Consolidated Financial Statements were prepared in accordance with generally
accepted accounting principles. In addition to selecting appropriate accounting
principles, management is responsible for the manner of presentation and for the
reliability of the information. In fulfilling this responsibility, it is
necessary for management to make estimates based on currently available
information and judgments of current conditions and circumstances.
Through well-developed systems of internal control, management seeks to
assure the integrity and objectivity of the consolidated financial information
contained herein. These systems of internal control are designed to provide
reasonable assurance that the assets of the company are safeguarded and that the
transactions are executed to management's authorizations, and are recorded in
accordance with the appropriate accounting principles.
The Board of Directors participates in the financial information reporting
process through its Audit Committee, which selects the independent accountants
and reviews, along with management, the company's financial reporting and
internal accounting controls, policies and practices.
<TABLE>
<S> <C>
Terry G. Westbrook
Richard C. Green, Jr. Senior Vice President
Chairman of the Board and and
Chief Executive Officer Chief Financial Officer
</TABLE>
66
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF UTILICORP UNITED INC.:
We have audited the accompanying consolidated balance sheets and statements
of preferred and preference stock of UtiliCorp United Inc. and subsidiaries at
December 31, 1996, 1995 and 1994 and the related consolidated statements of
income, common shareowners' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of UtiliCorp
United Inc. and subsidiaries at December 31, 1996, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective
January 1, 1995, the company changed its method of accounting for price risk
management activities. As explained in Note 5 to the consolidated financial
statements, in 1995 the company changed its method of assessing the impairment
of long-lived assets.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
February 11, 1997
67
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART 3
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY,
EXECUTIVE
COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
AND
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding these items appears in the company's proxy statement
and prospectus for its annual meeting of shareholders to be held May 7, 1997 and
is hereby incorporated by reference in this Annual Report on Form 10-K, pursuant
to General Instruction G(3) of Form 10-K. For information with respect to the
executive officers of the company, see "Executive Officers" following Item 1 in
Part 1 of this Form 10-K.
PART 4
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT.
(1) FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
Consolidated Statements of Income for the three years ended December 31, 1996...... 36
Consolidated Balance Sheets at December 31, 1996, 1995, and 1994................... 37
Consolidated Statements of Preferred and Preference Stock at December 31, 1996,
1995 and 1994.................................................................... 38
Consolidated Statements of Common Shareowners' Equity for the three years ended
December 31, 1996................................................................ 38
Consolidated Statements of Cash Flows for the three years ended December 31,
1996............................................................................. 39
Notes to Consolidated Financial Statements......................................... 40-65
Report of Independent Public Accountants........................................... 67
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
Report of Independent Accountants on Financial Statement Schedule
II................................................................ 69
Valuation and Qualifying Accounts for the years 1996, 1995 and
1994............................................................ 70
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
68
<PAGE>
(3) LIST OF EXHIBITS *
The following exhibits relate to a management contract or compensatory plan
or arrangement:
<TABLE>
<S> <C>
10(a)(2) UtiliCorp United Inc. Deferred Income Plan.
10(a)(3) UtiliCorp United Inc. Amended and Restated 1986 Stock Incentive
Plan.
10(a)(4) UtiliCorp United Inc. Annual and Long-Term Incentive Plan.
10(a)(5) UtiliCorp United Inc. 1990 Non-Employee Director Stock Plan.
10(a)(6) Severance Compensation Agreement.
10(a)(7) Executive Severance Payment Agreement.
10(a)(8) Split Dollar Agreement.
10(a)(9) Supplemental Retirement Agreement.
10(a)(11) UtiliCorp United Inc. Life Insurance Program for Officers.
10(a)(12) Summary of Terms and Conditions of Employment of Charles K.
Dempster.
10(a)(13) Summary of Terms and Conditions of Employment of Terry G.
Westbrook.
10(a)(14) Employment Agreement for Richard C. Green, Jr.
10(a)(15) Employment Agreement for Robert K. Green.
</TABLE>
- ------------------------
* Incorporated by reference to the Index to Exhibits.
(b) Reports on Form 8-K
A current report on Form 8-K dated September 30, 1996, filed on October 1,
1996, with respect to Item 5 was filed with the Securities and Exchange
Commission by the Registrant.
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of UtiliCorp United Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements for 1996, 1995 and 1994 described on page
67 of UtiliCorp United Inc.'s Annual Report on Form 10-K, and have issued our
report thereon dated February 11, 1997. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The Financial Statement
Schedule listed in Item 14(a)2 is presented for the purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
February 11, 1997
69
<PAGE>
UTILICORP UNITED INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN E
COLUMN B COLUMN D -------------------
--------------- COLUMN C -------------- DEDUCTIONS FROM COLUMN F
COLUMN A BEGINNING ------------------- ADDITIONS RESERVES FOR -----------------
- ------------------------------- BALANCE AT PURCHASE OF A CHARGED TO PURPOSES FOR ENDING BALANCE
DESCRIPTION DECEMBER 31 BUSINESS EXPENSE WHICH CREATED AT DECEMBER 31
- ------------------------------- --------------- ------------------- -------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
Price Risk Management-- credit
and service reserves:
1996......................... $ 70.6 -- -- 13.4 $ 57.2
1995......................... $ -- -- 70.6(1) -- $ 70.6
1994......................... $ -- -- -- -- $ --
Reserve for United Kingdom gas
contracts
1996......................... $ 11.0 -- 3.0 -- $ 14.0
1995......................... $ -- -- 11.0 -- $ 11.0
1994......................... $ -- -- -- -- $ --
</TABLE>
- ------------------------
(1) Amount established in connection with change in accounting principle to the
mark-to-market method of accounting for domestic natural gas trading
activities in 1995.
70
<PAGE>
UTILICORP UNITED INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<C> <S>
*3(a)(1) Certificate of Incorporation of the Company. (Exhibit 3(a)(1) to the Company's Annual Report on Form
10-K for the year ended December 31, 1991.)
*3(a)(2) Certificate of Amendment to Certificate of Incorporation of the Company. (Exhibit 4(a)(1) to
Registration Statement No. 33-16990 filed September 3, 1987.)
*3(a)(3) Certificate of Designation of the Preference Stock (Cumulative), $2.05 Series. (Exhibit 3(a)(4) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
3(a)(4) and By-laws of the Company as amended.
4(a)(1)
*4(a)(2) Certificate of Incorporation of the Company. (Exhibit 4(a)(1) to the Company's Annual Report on Form
10-K for the year ended December 31, 1991.)
*4(a)(3) Certificate of Amendment to Certificate of Incorporation of the Company. (Exhibit 4(a)(1) to
Registration Statement No. 33-16990 filed September 3, 1987.)
*4(a)(4) Certificate of Designation of the Preference Stock (Cumulative), $2.05 Series. (Exhibit 4(a)(4) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1991.)
*4(b)(1) Indenture, dated as of November 1, 1990, between the Company and The First National Bank of Chicago,
Trustee. (Exhibit 4(a) to the Company's Current Report on Form 8-K, dated November 30, 1990.)
*4(b)(2) First Supplemental Indenture, dated as of November 27, 1990. (Exhibit 4(b) to the Company's Current
Report on Form 8-K, dated November 30, 1990.)
*4(b)(3) Second Supplemental Indenture, dated as of November 15, 1991. (Exhibit 4(a) to UtiliCorp United
Inc.'s Current Report on Form 8-K dated December 19, 1991.)
*4(b)(4) Third Supplemental Indenture, dated as of January 15, 1992. (Exhibit 4(c)(4) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.)
*4(b)(5) Fourth Supplemental Indenture, dated as of February 24, 1993. (Exhibit 4(c)(5) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.)
*4(b)(6) Fifth Supplemental Indenture, dated as of April 1, 1993. (Exhibit 4(c)(6) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.)
*4(b)(7) Sixth Supplemental Indenture, dated as of November 1, 1994. (Exhibit 4(d)(7) to the Company's
Registration Statement on Form S-3 No. 33-57167, filed January 4, 1995.
*4(b)(8) Seventh Supplemental Indenture, dated as of June 1, 1995. (Exhibit 4 to the Company's Form 10-Q for
the period ended June 30, 1995.)
4(b)(9) Eighth Supplemental Indenture, dated as of October 1, 1996.
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<C> <S>
*4(c) Twentieth Supplemental Indenture, dated as of May 26, 1989, Supplement to Indenture of Mortgage and
Deed of Trust, dated July 1, 1951. (Exhibit 4(d) to Registration Statement No. 33-45382, filed
January 30, 1992.)
Long-Term debt instruments of the Company in amounts not exceeding 10 percent of the total assets
of the Company and its subsidiaries on a consolidated basis will be furnished to the Commission
upon request.
*4(d)(1) Indenture, dated as of June 1, 1995, Junior Subordinated Debentures. (Exhibit 4(d)(1) to the
company's Annual Report on Form 10-K for the year ended December 31, 1995.)
*4(d)(2) First Supplemental Indenture, dated as of June 1, 1995, Supplement to Indenture dated June 1, 1995.
(Exhibit 4(d)(2) to the company's Annual Report on Form 10-K for the year ended December 31,
1995.)
*4(e) Form of Rights Agreement between UtiliCorp United Inc. and First Chicago Trust Company of New York,
as Rights Agent. (Exhibit 4 to the company's Form 10-Q for the period ended September 30, 1996.)
*10(a)(1) Agreement for the Construction and Ownership of Jeffrey Energy Center, dated as of January 13, 1975,
among Missouri Public Service Company, The Kansas Power & Light Company, Kansas Gas and Electric
Company and Central Telephone & Utilities Corporation. (Exhibit 5(e)(1) to Registration Statement
No. 2-54964, filed November 7, 1975.)
*10(a)(2) UtiliCorp United Inc. Deferred Income Plan. (Exhibit 10(a)(2) to the Company's Annual Report on Form
10-K for the year ended December 31, 1991.)
*10(a)(3) UtiliCorp United Inc. Amended and Restated 1986 Stock Incentive Plan. (Exhibit 10 (a)(3) to the
company's Annual Report on Form 10-K for the year ended December 31, 1995.)
*10(a)(4) UtiliCorp United Inc. Annual and Long-Term Incentive Plan. (Exhibit 10(a)(4) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994)
*10(a)(5) UtiliCorp United Inc. 1990 Non-Employee Director Stock Plan. (Exhibit 10(a)(5) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.)
*10(a)(6) Form of Severance Compensation Agreement between UtiliCorp United Inc., and certain Executives of
the Company. (Exhibit 10 (a)(7) to the company's Annual Report on Form 10-K for the year ended
December 31, 1995.)
*10(a)(7) Executive Severance Payment Agreement (Exhibit 10 to the Company's Quarterly Report on Form 10-Q
filed for the quarter ended September 30, 1993.)
*10(a)(8) Split Dollar Agreement dated as of June 12, 1985, between the Company and James G. Miller. (Exhibit
10(a)(10) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.)
*10(a)(9) Supplemental Retirement Agreement dated as of January 27, 1983, between the Company and James G.
Miller. (Exhibit 10(a)(11) to the Company's Annual Report on Form 10-K for the year ended December
31, 1994.)
*10(a)(10) Lease Agreement dated as of August 15, 1991, between Wilmington Trust Company, as Lessor, and the
Company, as Lessee. (Exhibit 10(a)(13) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.)
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<C> <S>
*10(a)(11) UtiliCorp United Inc. Life Insurance Program for Officers. (Exhibit 10 (a)(13) to the company's
Annual Report on Form 10-K for the year ended December 31, 1995.)
*10(a)(12) Summary of Terms and Conditions of Employment of Charles K. Dempster. (Exhibit 10 to the company's
quarterly report on Form 10-Q for the period ended March 31, 1996.)
10(a)(13) Summary of Terms and Conditions of Employment of Terry G. Westbrook.
10(a)(14) Employment Agreement for Richard C. Green, Jr.
10(a)(15) Employment Agreement for Robert K. Green.
11 Statement regarding Computation of Per Share Earnings.
21 Subsidiaries of the Company.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
- ------------------------
* Exhibits marked with an asterisk are incorporated by reference as indicated
pursuant to Rule 12(b)-23.
73
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C> <C>
By: /s/ RICHARD C. GREEN, JR.
----------------------------
Richard C. Green, Jr. Chairman of the Board of
Directors, Chief Executive
Officer (Principal Executive
Officer)
Date: March 14, 1997
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
By: /s/ RICHARD C. GREEN, JR.
----------------------------
Richard C. Green, Jr. Chairman of the Board of
Directors, Chief Executive
Officer (Principal Executive
Officer)
Date: March 14, 1997
By: /s/ ROBERT K. GREEN
----------------------------
Robert K. Green
President and Director
Date: March 14, 1997
By: /s/ TERRY G. WESTBROOK
----------------------------
Terry G. Westbrook
Senior Vice President and Chief
Financial Officer
Date: March 14, 1997
By: /s/ JOHN R. BAKER
----------------------------
John R. Baker
Director
Date: March 14, 1997
By: /s/ AVIS G. TUCKER
----------------------------
Avis G. Tucker
Director
Date: March 14, 1997
</TABLE>
74
<PAGE>
<TABLE>
<S> <C> <C>
By: /s/ ROBERT F. JACKSON
----------------------------
Robert F. Jackson
Director
Date: March 14, 1997
By: /s/ L. PATTON KLINE
----------------------------
L. Patton Kline
Director
Date: March 14, 1997
By: /s/ HERMAN CAIN
----------------------------
Herman Cain
Director
Date: March 14, 1997
By: /s/ IRVINE O. HOCKADAY,
JR.
----------------------------
Irvine O. Hockaday, Jr.
Director
Date: March 14, 1997
By: /s/ DR. STANLEY O.
IKENBERRY
----------------------------
Dr. Stanley O. Ikenberry
Director
Date: March 14, 1997
</TABLE>
75
<PAGE>
Amended - 5/4/93
Amended - 11/3/93
Amended - 5/2/95
UTILICORP UNITED INC. Amended - 4/30/96
Amended - 11/6/96
BY-LAWS Amended - 2/5/97
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The Corporation shall hold regular annual
meetings of its Stockholders for the election of Directors and for the
transaction of such other business as may properly be brought before the meeting
at its executive offices at Kansas City, Missouri, or at such other locations as
the Board of Directors may designate, on the first Wednesday in May, in each
year, beginning in the year 1987, if not a legal holiday, and if a legal
holiday, then on the first day following which is not a legal holiday, or at
such other date as may be designated from time to time by the Board of Directors
and stated in the notice of the meeting.
SECTION 2. SPECIAL MEETINGS. At any time in the interval between
annual meetings, special meetings of the Stockholders may be called by the
President or by a Vice President, or by a majority of the Board of Directors by
vote at a meeting or in writing with or without a meeting, or by not less than
one-fifth of all of the outstanding shares entitled to vote at such meeting. At
any time after the vesting of voting power of the holders of the Preference
Stock, a special meeting of the Stockholders shall be held upon the request in
writing of any holder of the Preference Stock entitled to vote in which case the
President, a Vice President or the Secretary shall call such meeting to be held
not less than ten (10) days nor more than sixty (60) days after the receipt of
such request. Special meetings of the Stockholders shall be held at the
executive offices of the Corporation at 911 Main, Kansas City, Missouri except
in cases in which the calls therefor designate some other place either within or
out of the State of Missouri.
SECTION 3. NOTICE OF MEETING. Notice of every annual meeting or
special meeting of the Stockholders shall state the place, day and hour of such
meeting and shall be given to each Stockholder entitled to vote at such
meeting by leaving the same with him or her at his or her residence or usual
place of business or by mailing it, postage prepaid and addressed to him or her
at his or her address as it appears upon the books of the Corporation, not less
than ten (10) nor more than sixty (60) days before such meeting. Notice of every
special meeting shall state the purpose or purposes of the proposed meeting.
Failure to give notice of any annual meeting, or any irregularity in such
notice, shall not affect the validity of such annual meeting or of any
proceedings at such meeting, except as otherwise
<PAGE>
required by law, by the Certificate of Incorporation or by the By-Laws.
It shall not be requisite to the validity of any meeting of Stockholders
that notice thereof, whether prescribed by law, by the Certificate of
Incorporation or by these By-Laws, shall have been given to any Stockholder who
attends in person or by proxy, except as otherwise prescribed by law, or to any
Stockholder, who in writing executed and filed with records of the meeting
either before or after the holding thereof, waives such notice.
SECTION 4. QUORUM. At all meetings of Stockholders, the holders of
record of a majority of the shares of stock of the Corporation issued and
outstanding and entitled to vote thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business; provided, however, that at
any special meeting of Stockholders called at the request of any holders of the
Preference Stock pursuant to Section 2 of this Article I, and at the next and
succeeding annual meetings of Stockholders until termination of such voting
power of the Preference Stock, the holders of record of a majority of the shares
of the Preference Stock issued and outstanding, present in person or represented
by proxy, shall constitute a quorum for the election of such number of Directors
as the holders of the Preference Stock may be entitled to elect at such special
or annual meetings. If, however, no such quorum shall be present or represented
at any meeting of the Stockholders, the Stockholders entitled to vote thereat,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time without notice other than announcement at the meeting, until the
requisite amount of voting stock shall be present or represented. At such
adjourned meeting at which the requisite amount of voting stock shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally called. If adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Stockholder of
record entitled to vote at the meeting.
SECTION 5. VOTING. All elections of Directors shall be by ballot.
Except in cases in which it is by statute, by the Certificate of Incorporation
or by these By-Laws otherwise provided, a majority of the votes shall be
sufficient to elect and to pass any measure. At all elections of Directors of
the Corporation, each Stockholder shall be entitled to as many votes as shall
equal the number of his shares of stock multiplied by the number of Directors to
be elected, and each Stockholder may cast all of such votes for one candidate or
may distribute them among two or more candidates as such Stockholder may see
fit, and the
2
<PAGE>
candidates receiving the highest number of votes shall be deemed to be elected
as Directors; provided, however, that at any special meeting of Stockholders
called at the request of any holder of the Preference Stock pursuant to Section
2 of this Article I and at the next and succeeding annual meetings of
Stockholders until termination of the voting power of the Preference Stock, the
holders of the Preference Stock, voting separately as a class, shall be entitled
to elect two Directors of the Corporation and the holders of the Common Stock
shall be entitled to elect the remaining Directors of the Corporation.
SECTION 6. PROXIES. Any Stockholder entitled to vote at any meeting
of Stockholders may vote either in person or by proxy, but no proxy which is
dated more than three (3) years before the meeting at which it is offered shall
be accepted, unless such proxy shall, on its face, name a longer period for
which it is to remain in force. Every proxy shall be in writing subscribed by
the Stockholder or his or her duly authorized attorney, and dated, but need not
be sealed, witnessed or acknowledged.
In lieu thereof, to the extent permitted by law, a proxy may be transmitted
in a telegram, cablegram or other means of electronic transmission provided that
the telegram, cablegram or electronic transmission either sets forth or is
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the Stockholder. A
copy, facsimile transmission or other reliable reproduction of a written or
electronically-transmitted proxy authorized by this Section 6 may be substituted
for or used in lieu of the original writing or electronic transmission.
SECTION 7. LIST OF STOCKHOLDERS. A complete list of the Stockholders
entitled to vote at each meeting of Stockholders arranged by class in
alphabetical order, with the address of each according to the records of the
Corporation and the number of voting shares registered in the name of each,
shall be prepared by the Secretary and shall be open to the examination of any
Stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days before every meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any Stockholder who is present and shall be the only evidence as to
who are the Stockholders entitled to examine the list of Stockholders or to vote
in person or by proxy at such meeting.
3
<PAGE>
SECTION 8. INSPECTORS OF ELECTION. The Corporation shall, in advance
of any meeting of Stockholders, appoint one or more inspectors of election to
act at the meeting and make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. In the event that no inspector so appointed or designated is
able to act at a meeting of Stockholders, the person presiding at the meeting
shall appoint one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of his or her duties, shall take and sign an
oath faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspector or inspectors so
appointed or designated shall (i) ascertain the number of shares of capital
stock of the Corporation outstanding and the voting power of each such share,
(ii) determine the shares of capital stock of the Corporation represented at the
meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares of capital stock of the
Corporation represented at the meeting and such inspectors' count of all votes
and ballots. Such certification shall specify such other information as may be
required by law. In determining the validity and counting of proxies and ballots
cast at any meeting of Stockholders of the Corporation, the inspectors may
consider such information as is permitted by applicable law. No person who is a
candidate for an office at an election may serve as an inspector at such
election.
SECTION 9. CONDUCT OF MEETINGS. The date and time of the opening
and the closing of the polls for each matter upon which the Stockholders will
vote at a meeting shall be announced at such meeting by the person presiding
over the meeting. The Board of Directors of the Corporation may adopt by
resolution such rules or regulations for the conduct of meetings of
Stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board of Directors, the
chairman of any meeting of Stockholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts as,
in the judgement of such chairman, are appropriate for the proper conduct of
the meeting. Such rules, regulations or procedures, whether adopted by the
Board of Directors or prescribed by the chairman of the meeting, may include,
without limitation, the following: (1) the establishment of an agenda or
order of business for the meeting; (2) rules and procedures for maintaining
order at the meeting and the safety of those present; (3) limitation on
attendance at or participation in the meeting to Stockholders of record of
the Corporation, their duly authorized and constituted proxies or such other
4
<PAGE>
persons as the chairman shall permit; (4) restrictions on entry to the meeting
after the time fixed for the commencement thereof; and (5) limitations on the
time allotted to questions or comments by participants. Unless, and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of Stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
SECTION 10. NOTICE OF STOCKHOLDER PROPOSAL. At a meeting of the
Stockholders, only such business shall be conducted as shall have properly
brought before the meeting. Any Stockholder who intends to bring any matter
other than the election of Directors before a meeting of Stockholders and is
entitled to vote on such matter shall deliver written notice of such
Stockholder's intent to bring such matter before the meeting of Stockholders,
either by personal delivery or by the United States mail, postage pre-paid, to
the Secretary of the Corporation. Such notice must be received by the Secretary
not later than the following dates: (1) with respect to an annual meeting of
Stockholders, 60 days in advance of such meeting if such meeting is to be held
on a day which is within 30 days preceding the anniversary of the previous
year's annual meeting or 90 days in advance of such meeting if such meeting is
to be held on or after the anniversary of the previous year's annual meeting;
and (2) with respect to any other annual meeting of Stockholders, or a special
meeting of Stockholders the close of business on the tenth day following the
date of public disclosure of the date of such meeting.
ARTICLE II
BOARD OF DIRECTORS
*SECTION 1. NUMBER, TERM OF OFFICE, POWERS. The Board of Directors of
the Corporation shall consist of not less than three persons, the exact number
of Directors to be fixed from time to time solely by the vote of not less than a
majority of the Directors then in office, and shall by divided into three
classes, Class A, Class B and Class C. Each class shall be elected at successive
annual meetings of Stockholders for a term of three years and shall be as nearly
equal in number as possible. At each annual meeting of Stockholders, the
successors to the class of Directors whose term shall expire shall be elected to
hold office for a term expiring at the third succeeding annual meeting. Each
Director shall hold office for the term for which he or she was elected and
until his or her successor is elected and qualified or until his or her earlier
resignation or removal; or, in the event of the vesting of voting power in the
Preference Stock, until the election of his or her
*See sheet attached after page #6
5
<PAGE>
successor pursuant to the provisions of Article Four of the Certificate of
Incorporation and the qualification of such new Director. Any increase or
decrease in the number of Directors shall be apportioned by the Board of
Directors among the classes so as to make all classes as nearly equal in number
as possible. No decrease in the number of Directors shall shorten the term of
any incumbent Director. A Director who is chosen in the manner provided herein
to fill a vacancy in the Board or to fill a newly-created directorship resulting
from an increase in the number of Directors shall hold office until the next
election of the class for which such Director shall have been chosen and until
his or her successor is elected and qualified or until his or her earlier
resignation or removal; or, in the event of the vesting of voting power in the
Preference Stock, until the election of his or her successor pursuant to the
provisions of Article Four of the Certificate of Incorporation and the
qualification of such new Director. Upon termination of the voting power of the
Preference Stock, the terms of office of all Directors elected by the holders of
such class shall forthwith terminate.
Directors need not be Stockholders. The business and property of the
Corporation shall be conducted and managed by its Board of Directors, which may
exercise all of the powers of the Corporation except such as are by statute, by
the Certificate of Incorporation or by these By-Laws conferred upon or reserved
to the Stockholders. The Board of Directors shall keep full and fair account of
its transactions.
SECTION 2. ANNUAL MEETING. The annual meeting of the Board of
Directors shall be held immediately following the annual meeting of Stockholders
at the place where such meeting of Stockholders was held or at such other place
as the Board of Directors shall determine. Notice of such meeting need not be
given.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as may be
fixed from time to time by the Board of Directors.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Secretary at the direction and
upon the request of the Chairman of the Board, the Vice Chairman of the Board,
the President, any Vice President, the Board of Directors by a vote at a
meeting or any two Directors, and notice of the place, day and hour of every
special meeting shall be given to each Director by the mailing of notice to each
Director at least 48 hours before the meeting or by notifying each Director of
the meeting at least 24 hours prior thereto either personally, by telephone,
telegram, cablegram or
6
<PAGE>
*
Pursuant to Board action of November 2, 1993, the following new paragraph is
added as the second paragraph of Section 1, Article II:
"Effective for Directors first elected or appointed to the Board of
Directors on and after November 3, 1993, each Director of the Corporation
upon attaining the age of 72 years shall be deemed to have submitted his or
her resignation as a Director of this Corporation to be effective on the
day such Director attains the age of 72 years. The continuation as a
Director, election or reelection of a Director, by mistake or otherwise, in
violation of the aforesaid policy, shall not, ipso facto, void such
continuation, election or reelection, or nullify any action so taken by
such person as a Director."
<PAGE>
electronic or facsimile transmission. It shall not be requisite to the validity
of any meeting of the Board of Directors that notice thereof shall have been
given to any Director who attends, or to any Director who, in writing executed
and filed with the records of the meeting either before or after the holding
thereof, waives such notice. No notice of adjourned meetings of the Board of
Directors need be given. All regular and special meetings of the Board of
Directors shall be general meetings, this is to say, open for the transaction of
any business within the powers of the Corporation without special notice of such
business, except in cases in which special notice is required by law, by the
Certificate of Incorporation, by these By-Laws or by the call of such meeting.
** SECTION 5. QUORUM. At all meetings of the Board of Directors,
one-third of the total number of the Directors shall constitute a quorum for the
transaction of business. Except in cases in which it is by law, by the
Certificate of Incorporation or by the By-Laws otherwise provided, a majority of
such quorum shall decide any questions that may come before the meeting. In the
absence of a quorum, the Directors present by majority vote may adjourn the
meeting from time to time without notice other than by verbal announcement at
the meeting until a quorum shall attend. At any such adjourned meeting at which
a quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 6. VACANCIES. Vacancies occurring in the Board of Directors,
through death, resignation, increase in the number of Directors, termination of
the terms of office of Directors elected by the holders of the Preference Stock
or any other cause may be filled by the vote of a majority of the remaining
Directors, although such majority is less than a quorum; provided, however, that
so long as voting power is vested in the holders of the Preference Stock to
elect Directors, any vacancy in Directors elected by the holders of Preference
Stock may be filled by the remaining Director elected by the holders of the
Preference Stock or, in the event of simultaneous vacancies among Directors
elected by the holders of the Preference Stock, an election of the holders of
the Preference Stock pursuant to the provisions of Article Four of the
Certificate of Incorporation will be held, and any vacancies in the Directors
elected by any other class or classes of stock may be filled by the remaining
Director or Directors elected by such class or classes of stock.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate
** See attached sheet
7
<PAGE>
**
Pursuant to Board action of November 6, 1996, the first sentence in Section 5,
Article II is amended as follows:
At all meetings of the Board of Directors, a majority of the total number
of members of the Directors as constituted from time to time shall
constitute a quorum for the transaction of business.
<PAGE>
members of any such committee, who may replace any absent or disqualified member
at any meeting of the committee. Any such committee shall have such powers as
are granted to it by the resolution of the Board or by subsequent resolutions
passed by a majority of the whole Board. Nothing herein shall limit the
authority of the Board of Directors to appoint other committees consisting in
whole or in part of persons who are not Directors of the Corporation to carry
out such functions as the Board may designate.
SECTION 8. PRESENCE AT MEETING. Members of the Board of Directors or
any committee designated by such Board, may participate in the meeting of said
Board or committee by means of conference telephone or similar communication
equipment by means of which all persons in the meeting can hear each other and
participate. The ability to participate in a meeting in the above manner shall
constitute presence at said meeting for purpose of a quorum and any action
thereat.
SECTION 9. ACTION WITHOUT MEETINGS. Any action required to be taken
at any meeting of the Board of Directors or any committee designated by such
Board may be taken without a meeting, if all members of the Board or committee
consent thereto in writing and the writing or writings are filed with the
minutes of the proceedings of the Board or committee.
SECTION 10. ELIGIBILITY TO MAKE NOMINATIONS. Nominations of candidates
for election as Directors at any meeting of Stockholders called for election of
Directors (an "Election Meeting") may be made by the Board of Directors or by
any Stockholder entitled to vote at such Election Meeting.
SECTION 11. PROCEDURE FOR NOMINATIONS BY STOCKHOLDERS. Any Stockholder
entitled to vote for the election of a Director at an Election Meeting may
nominate one or more persons for such election only if written notice of such
Stockholder's intent to make such nomination is given, either by personal
delivery or by United States mail postage pre-paid, to the Secretary of the
Corporation. Such notice must be received by the Secretary not later than the
following dates: (1) with respect to an annual meeting of Stockholders, 60 days
in advance of such meeting if such meeting is to be held on a day which is 30
days preceding the anniversary of the previous year's annual meeting or 90 days
in advance of such meeting if such meeting is to be held on or after the
anniversary of the previous year's annual meeting; and (2) with respect to
any other annual meeting of Stockholders or a special meeting of Stockholders,
the close of business on the tenth day following the date of public disclosure
of the date of such meeting. The written notice shall set forth (i) the name,
8
<PAGE>
age, business address and residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such nominee,
(iii) the number of shares of capital stock of the Corporation which are
beneficially owned by each such nominee, and (iv) such other information
concerning each such nominee as would be required, under the rules of the
United States Securities and Exchange Commission in a proxy statement
soliciting proxies for the election of such nominee as a Director. Such
notice shall include a signed consent of each such nominee to serve as a
Director of the Corporation, if elected.
SECTION 12. COMPLIANCE WITH PROCEDURES. If the Chairman of the
Election Meeting determines that a nomination of any candidate for election
as a Director was not made in accordance with the applicable provisions of
these By-Laws, such nomination shall be void; provided, however, that nothing
in these By-Laws shall be deemed to limit any class voting rights provided to
holders of Preference Stock.
SECTION 13. COMPENSATION. Directors may receive such compensation
as may be fixed for their services by resolution of the Board of Directors,
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting thereof. Nothing in this Section shall be
construed to preclude a Director from serving the Corporation in any other
capacity and receiving compensation therefor.
*SECTION 14. ADVISORY BOARDS OF DIRECTORS. The Board of Directors
may elect an Advisory Board of Directors for each division of the
Corporation. Each member of an Advisory Board shall be known individually as
an Advisory Director. Each Advisory Director shall hold office from the time
of his appointment or election until the next meeting of the Board of
Directors which follows the annual meeting of Stockholders, or until he shall
have resigned, or until he shall have been removed with or without cause by
a vote of a majority of the entire Board of Directors at any of its meetings
or by the Chief Executive Officer. Advisory Directors may receive such
compensation as may be fixed for their services by resolution of the Board of
Directors and expenses of attendance, if any, may be allowed for attendance
at each meeting thereof. Nothing in this section shall be construed to
preclude an Advisory Director from serving the Corporation in any other
capacity and receiving compensation therefor.
* Delete entire Section 14 pursuant to Board action on May 2, 1995.
9
<PAGE>
**** ARTICLE III
OFFICERS
**
* SECTION 1. ELECTION, TERM OF OFFICE, APPOINTMENTS. The Board of
Directors shall elect the following officers at its annual meeting: a
President, one or more Vice Presidents, a Secretary and a Treasurer. The
Board may also elect, appoint or provide for the appointment of, such other
officers and agents as may from time to time appear necessary or advisable in
the conduct of the affairs of the Corporation, including, but not limited to,
a Chairman of the Board, a Vice Chairman of the Board, one or more Division
Presidents, and one or more Division Vice Presidents. Officers shall hold
office until the corresponding meeting in the next year and until their
successors shall have been duly chosen and qualified in their stead or
removed in the manner provided in Section 11 of this Article III. Any vacancy
in any of the offices may be filled for the unexpired portion of the term by
the Board of Directors at any regular or special meeting. The term "Vice
President" shall include Executive Vice Presidents, Senior Vice Presidents
and Assistant Vice Presidents and the titles of Vice Presidents may be
limited by the Board of Directors by words describing particular functional
areas of responsibility. The term ""Division Vice President" shall include
Division Executive Vice Presidents, Division Senior Vice Presidents and
Division Assistant Vice Presidents and the titles of Division Vice Presidents
may be limited by the Board of Directors by words describing particular
functional areas of responsibility.
*** SECTION 2. CHAIRMAN AND VICE CHAIRMAN. The Chairman of the Board,
if elected, or failing election, the President, shall preside over meetings
of the Stockholders and meetings of the Board of Directors and shall have
additional powers and duties as may be prescribed by the Board of Directors.
The Vice Chairman of the Board, if elected, or failing election, the
President, shall preside over meetings of the Stockholders and meetings of
the Board of Directors in the absence of the Chairman of the Board. The
Chairman of the Board or the Vice Chairman of the Board may sign and execute,
in the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer
or agent of the Corporation, and he or she shall have such additional powers
and duties as may be prescribed by the Board of Directors.
SECTION 3. PRESIDENT AND VICE PRESIDENTS. The President shall have
general supervision and management over the business and policies of the
Corporation. The President
* See attached sheet
** See attached sheet
*** See attached sheet
**** See attached sheets
10
<PAGE>
*
Pursuant to Board action of May 4, 1993, the fifth sentence of Section 1,
Article III is amended to read as follows:
The term "Vice President" shall include Executive Vice Presidents,
Managing Executive Vice Presidents, Senior Vice Presidents, Managing Senior
Vice Presidents and Assistant Vice Presidents and the titles of Vice
Presidents may be limited by the Board of Directors by words describing
particular functional areas of responsibility.
<PAGE>
**
Pursuant to Board action of November 2, 1993, Section 1, Article III is
hereby amended by deleting in the ninth line thereof the words "a Vice
Chairman of the Board" and inserting in lieu thereof "one or more Vice
Chairmen of the Board."
***
Pursuant to Board action of November 2, 1993, Section 2, Article III is
hereby amended to read in its entirety as follows:
"SECTION 2. CHAIRMAN AND VICE CHAIRMEN. The Chairman of the Board
shall preside over meetings of the Stockholders and meetings of the Board
of Directors and shall have additional powers and duties as may be
prescribed by the Board of Directors.
The Chairman of the Board may sign and execute, in the name of the
Corporation, all authorized deeds, mortgages, bonds, contracts or other
instruments, except in cases where the signing and execution thereof
shall be expressly delegated to some other officer or agent of the
Corporation, and he or she shall have such additional powers and duties
as may be prescribed by the Board of Directors.
A Vice Chairman of the Board, when designated by the Chairman or by a
majority of the Board of Directors, shall preside over meetings of the
Stockholders and meetings of the Board of Directors in the absence of
the Chairman of the Board."
<PAGE>
****
Pursuant to Board action of May 2, 1995, Article III is deleted in its
entirety and replaced with the following new Article III:
ARTICLE III
OFFICERS
*****
SECTION 1. ELECTION, TERM OF OFFICE, APPOINTMENTS. The Board of
Directors shall elect the following officers at its annual meeting: a
President, one or more Vice Presidents (hereinafter referred to as "elected
Vice Presidents" and identified in this Section), a Secretary, one or more
Assistant Secretaries, a Treasurer and one or more Assistant Treasurers.
The Board may also elect such other officers as may from time to time
appear necessary or advisable in the conduct of the affairs of the
Corporation, including, but not limited to, a Chairman of the Board and
one or more Vice Chairmen of the Board. Officers shall hold office until
the corresponding meeting in the next year and until their successors shall
have been duly chosen and qualified in their stead or removed in the manner
provided in Section 9 of this Article III. Any vacancy in any of the
offices may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting. The Board of Directors may
authorize the President to appoint and remove additional Vice Presidents
and to prescribe the powers and duties thereof.
SECTION 2. CHAIRMAN AND VICE CHAIRMEN. The Chairman of the Board
shall preside over meetings of the Stockholders and meetings of the Board
of Directors and shall have additional powers and duties as may be
prescribed by the Board of Directors. The Chairman of the Board may sign
and execute, in the name of the Corporation, all authorized deeds,
mortgages, bonds, contracts or other instruments, except in cases in which
the signing and execution thereof shall be expressly delegated to some
other office or agent of the Corporation, and he or she shall have such
additional powers and duties as may be prescribed by the Board of
Directors. A Vice Chairman of the Board, when designated by the Chairman or
by a majority of the Board of Directors, shall preside over meetings of the
Stockholders and meetings of the Board of Directors in the absence of the
Chairman of the Board.
******
SECTION 3. PRESIDENT AND ELECTED VICE PRESIDENTS. The President
shall have general supervision and management over the business and
policies of the Corporation. The President or any elected Vice
President may sign and execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts or other instruments,
except in cases in which the
***** See attached sheet
****** See attached sheet
<PAGE>
*****
Pursuant to Board action of April 30, 1996, the last sentence of Section 1 of
Article III is hereby deleted and is replaced by the following sentence:
The Board of Directors may authorize the Chairman and/or the President
to appoint and remove additional Vice Presidents and to prescribe the
powers and duties thereof.
******
Pursuant to Board action of April 30, 1996, the last sentence of Section 3 of
Article III is hereby deleted and is replaced by the following
sentence:
In the case of Vice Presidents appointed by the Chairman and/or
President, such Vice President shall have such power and duties as may be
prescribed by the Chairman and/or President.
<PAGE>
signing and execution thereof shall have been expressly delegated to some
other officer or agent of the Corporation. The President or any elected
Vice President may sign, with the Treasurer or an Assistant Treasurer, or
with any Secretary or Assistant Secretary, certificates of stock of the
Corporation. The President and elected Vice Presidents shall have such
additional powers and duties as may be prescribed by the Board of
Directors. In the case of Vice Presidents appointed by the President, such
Vice Presidents shall have such powers and duties as may be prescribed by
the President.
SECTION 4. CHIEF OFFICERS. The Board of Directors may designate
either the Chairman of the Board or the President as Chief Executive
Officer. The Chief Executive Officer shall have overall responsibility for
the management of the business of the Corporation and the establishment of
it policies. The Board of Directors may designate any elected Vice
President as Chief Operating Officer. The Chief Operating Officer shall
have overall operational responsibility for the Corporation. The Board of
Directors my designate any elected Vice President as Chief Financial
Officer. The Chief Financial Officer shall have overall responsibility for
the financial and accounting operations of the Corporation.
SECTION 5. SECRETARY. The Secretary shall be sworn to the faithful
discharge of his or her duty and shall record the proceedings of the
meetings of the Stockholders and of the Board of Directors, in books
provided for that purpose; he or she shall see that all notices are duly
given in accordance with the provisions of these By-Laws, or as required by
law; he or she shall be custodian of the records and of the corporate seal
or seals of the Corporation; he or she shall see that the corporate seal is
affixed to all documents, the execution of which, on behalf of the
Corporation, under its seal, is duly authorized, and when so affixed may
attest the same; he or she may sign, with the President or an elected Vice
President, certificates of stock of the Corporation; and, in general, he or
she shall perform all duties incident to the office of a Secretary of a
corporation, and such other duties as, from time to time, may be assigned
to him or her by the Board of Directors. Any Assistant Secretary elected
by the Board of Directors may have such additional powers and duties as may
be prescribed by the Board of Directors.
SECTION 6. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by
the Board of Directors; he or she shall render to the President and to the
Board of Directors, whenever requested, an account of the financial
condition of the Corporation; he or she may sign, with the President or an
elected Vice President, certificates of
<PAGE>
stock of the Corporation; and, in general, he or she shall perform all
duties incident to the office of a Treasurer of a corporation, and such
other duties as, from time to time, may be assigned to him or her by the
Board of Directors. Any Assistant Treasurer elected by the Board of
Directors may have such additional powers and duties as may be prescribed
by the Board of Directors.
SECTION 7. OFFICERS HOLDING TWO OR MORE OFFICES. Any two or more of
the above mentioned offices may be held by the same person, except that one
person may not hold the office of President and Vice President, but no
officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument be required by statute, by the Certificate
of Incorporation or by these By-Laws, to be executed, acknowledged or
verified by any two or more officers.
SECTION 8. COMPENSATION. The Board of Directors shall have the power
to fix the compensation of all officers of the Corporation.
SECTION 9. REMOVAL. Any officer of the Corporation may be removed,
with or without cause, by a vote of a majority of the entire Board of
Directors at a meeting called for that purpose, or by an officer upon whom
such power of removal may have been conferred.
The By-Laws of the Company are hereby amended by deleting in its
entirety Section 14 of Article II, entitled "Advisory Board of Directors."
<PAGE>
or any Vice President may sign and execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts or other instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other officer or agent of the Corporation. The President or
any Vice President may sign, with the Treasurer or an Assistant Treasurer, or
with any Secretary or Assistant Secretary, certificates of stock of the
Corporation. The President and Vice President shall have such additional powers
and duties as may be prescribed by the Board of Directors.
SECTION 4. DIVISION PRESIDENTS AND DIVISION VICE PRESIDENTS. Each
Division President shall have general supervision and management over the
business of the Division to which he or she has been assigned by the Board of
Directors and shall manage and supervise the Division in accordance with
policies of the Corporation. Any Division President or any Division Vice
President may sign and execute, in the name of the Corporation, all authorized
deeds, contracts, or other instruments pertaining to the Division to which he or
she has been assigned. Division Presidents or any Division Vice Presidents
shall have such additional powers and duties as may be prescribed by the Board
of Directors.
SECTION 5. CHIEF OFFICERS. The Board of Directors may designate
either the Chairman of the Board or the President as Chief Executive Officer.
The Chief Executive Officer shall have overall responsibility for the management
of the business of the Corporation and the establishment of its policies. The
Board of Directors may designate any Vice President as Chief Operating Officer.
The Chief Operating Officer shall have overall operational responsibility for
the Corporation. The Board of Directors may designate any Vice President as
Chief Financial Officer. The Chief Financial Officer shall have overall
responsibility for the financial and accounting operations of the Corporation.
SECTION 6. SECRETARY. The Secretary shall be sworn to the faithful
discharge of his or her duty and shall record the proceedings of the meetings of
the Stockholders and of the Board of Directors, in books provided for that
purpose; he or she shall see that all notices are duly given in accordance with
the provisions of these By-Laws, or as required by law; he or she shall be
custodian of the records and of the corporate seal or seals or of the
Corporation; he or she shall see that the corporate seal is affixed to all
documents, the execution of which, on behalf of the Corporation, under its seal,
is duly authorized, and when so affixed may attest the same; he or she may sign,
with the President or a Vice President, certificates of stock of the
Corporation; and, in general, he or she shall perform all
11
<PAGE>
duties incident to the office of a Secretary of a corporation, and such other
duties as, from time to time, may be assigned to him or her by the Board of
Directors.
SECTION 7. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he or she shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; he or she may sign, with the President or a Vice President,
certificates of stock of the Corporation; and, in general, he or she shall
perform all duties incident to the office of a Treasurer of a corporation, and
such other duties as, from time to time, may be assigned to him or her by the
Board of Directors.
SECTION 8. SUBORDINATE OFFICERS. The Board of Directors may elect or
appoint such subordinate officers as it may deem desirable, including but not
limited to one or more Assistant Secretaries, one or more Assistant Treasurers,
one or more Division Assistant Secretaries and a Division Treasurer. Each such
officer shall hold office for such period, have such authority and perform such
duties as the Board of Directors may prescribe. The Board of Directors may
authorize any officer to appoint and remove subordinate officers and prescribe
the powers and duties thereof.
SECTION 9. OFFICERS HOLDING TWO OR MORE OFFICES. Any two of the
above mentioned offices, except those of President and a Vice President, may
be held by the same person, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity, if such instrument be
required by statute, by the Certificate of Incorporation or by these By-Laws,
to be executed, acknowledged or verified by any two or more officers.
SECTION 10. COMPENSATION. The Board of Directors shall have the power
to fix the compensation of all officers of the Corporation. It may authorize
any officer, upon whom the power of appointing subordinate officers may have
been conferred, to fix the compensation of such subordinate officers.
SECTION 11. REMOVAL. Any officer of the Corporation may be removed,
with or without cause, by a vote of a majority of the entire Board of Directors
at a meeting called for that purpose, or by an officer upon whom such power of
removal may have been conferred.
12
<PAGE>
ARTICLE IV
STOCK
* SECTION 1. CERTIFICATES. Each Stockholder shall be entitled to a
certificate or certificates certifying the number and kind of share owned,
signed in the name of and for and on the behalf of the Corporation by the
President or a Vice President and the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary, and sealed, with the seal of the
Corporation; provided, however, that where such certificate is countersigned by
a transfer that where such certificate is countersigned by a transfer agent,
other than the Corporation or its employee, or by a registrar, other than the
Corporation or its employee, any other signature on such certificate may be a
facsimile, engraved, stamped or printed. In case an officer or officers who
shall have signed, or whose facsimile signature or signatures shall have been
used on, any such certificate or certificates shall cease to be such officer or
officers whether because of death, resignation, or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature shall have been used thereon had not ceased to be such
officer or officers. Stock certificates shall be in such form, not inconsistent
with law or with the Certificate of Incorporation, as shall be approved by the
Board of Directors.
The powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock,
a statement that the Corporation will furnish without charge to each
Stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and qualifications, limitations or restrictions of
such preferences and/or rights.
SECTION 2. TRANSFER OF SHARES. Transfers of stock shall be made upon
the books of the Corporation upon presentation of the certificates by the
registered holder in person or by duly authorized attorney, or upon presentation
* See attached sheet
13
<PAGE>
*
Pursuant to Board action of February 5, 1997, the first sentence of Section 1
of Article IV is amended by deleting the first sentence of said Section 1 and
inserting the following new first sentence:
SECTION 1. CERTIFICATES. Each Stockholder shall be entitled to a
certificate or certificates certifying the number and kind of share owned,
signed in the name of and for and on the behalf of the Corporation by the
Chairman of the Board, the President or a Vice President and the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary, and
sealed, with the seal of the Corporation; provided, however, that where
such certificate is countersigned by a transfer agent, other than the
Corporation or its employee, or by a registrar, other than the Corporation
or its employee, any other signature on such certificate may be a
facsimile, engraved, stamped or printed.
<PAGE>
of proper evidence of succession, assignment or authority to transfer and upon
surrender of the certificate therefor.
SECTION 3. TRANSFER AGENTS AND REGISTRARS. The Corporation may have
one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent,
if the Corporation has a Transfer Agent, or until registered by a Registrar,
if the Corporation has a Registrar. The Board of Directors may designate the
same person or corporation as Registrar and Transfer Agent.
SECTION 4. RECORD DATES. The Board of Directors is hereby
authorized to fix in advance a date, not exceeding sixty (60) days and not
less than ten (10) days preceding (1) the date of any meeting of
Stockholders, (2) the date for the payment of any dividend, (3) the date for
the allotment of rights, or (4) the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date for the
determination of the Stockholders entitled to notice of, or to vote at, any
such meeting, or entitled to receive payment of any such dividend, or to any
such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, and in such case such
Stockholders and only such Stockholders, as shall be Stockholders of record
on the date so fixed, shall be entitled to such notice of, and to vote at
such meeting, or any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights,
as the case may be, notwithstanding any transfer of any shares on the books
of the Corporation any after such record date fixed aforesaid. In any case
in which the Board of Directors does not fix a record date as aforesaid, the
determination of the Stockholders entitled to notice of and to vote at such a
meeting of Stockholders, or to receive such dividends or rights, as the case
may be, shall be made in accordance with Section 213 of the General
Corporation Law of Delaware.
SECTION 5. MUTILATED, LOST OR DESTROYED CERTIFICATES. The Board of
Directors or any officer of the Corporation to whom the Board of Directors
has delegated authority, or failing such delegation, the Secretary of the
Corporation, may authorize any transfer agent of the Corporation to issue,
and any registrar of the Corporation to register, at any time and from time
to time unless otherwise directed, a new certificate or certificates of stock
in the place of a certificate or certificates theretofore issued by the
Corporation, alleged to have been lost, destroyed or mutilated, upon
surrender of the mutilated certificate, or in the case of loss or destruction
of the certificate, upon receipt by the transfer agent of
14
<PAGE>
evidence of such loss or destruction, which may be the affidavit of the
applicant; a bond indemnifying the Corporation and any transfer agent and
registrar of the class of stock involved against claims that may be made against
it or them on account of the lost or destroyed certificate or the issuance of a
new certificate, of such kind and in such amount as the Board of Directors shall
have authorized the transfer agent to accept generally or as the Board of
Directors or an authorized officer shall approve in particular cases; and any
other document or instruments that the Board of Directors or an authorized
officer may require from time to time to protect adequately the interest of the
Corporation. A new certificate may be issued without requiring any bond when,
in the judgment of the Directors, or such authorized officer, it is proper to do
so.
ARTICLE V
DIVIDENDS AND FINANCE
SECTION 1. DIVIDENDS. Subject to the provisions of the Certificate
of Incorporation, and of any bonds or indentures securing bonds of the
Corporation, the Board of Directors may, in its discretion, declare what, if
any, dividends shall be paid upon the stock of the Corporation, or upon any
class of such stock. Except as otherwise provided by the Certificate of
Incorporation, dividends shall be payable upon such dates as the Board of
Directors may designate. Before payment of any dividend there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends,
or for payment as a sinking fund to retire bonds of the Corporation, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conductive to the interests of the
Corporation, and the Directors may abolish any such reserve in the manner in
which it was created.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be
the twelve months ending on December 31 of each year, unless otherwise provided
by the Board of Directors.
ARTICLE VI
SUNDRY PROVISIONS
SECTION 1. SEAL. The Corporate Seal of the Corporation shall bear
the name of the Corporation and the words "CORPORATE SEAL, DELAWARE" and may
bear the year of
15
<PAGE>
incorporation. If deemed advisable by the Board of Directors, a duplicate seal
or duplicate seals may be provided and kept for the necessary purposes of the
Corporation.
SECTION 2. BOOKS AND RECORDS. The Board of Directors may determine
from time to time whether and, if allowed, when and under what conditions and
regulations, the books and records of the Corporation, or any of them, shall be
open to the inspection of Stockholders, and the rights of Stockholders in this
respect are and shall be limited accordingly, except as otherwise provided by
statute. Under no circumstances shall any Stockholder have the right to inspect
any books or records or receive any statement for an illegal or improper
purpose.
SECTION 3. INDEMNITY BONDS. The Board of Directors may require any
officer, agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
SECTION 4. VOTING STOCK IN OTHER CORPORATIONS. Any stock in other
corporations, which may from time to time be held by the Corporation, may be
represented and voted at any meeting of stockholders of such other
corporations by the President of the Corporation or any officer of the
Corporation authorized by the President or by any officer or nominee of the
Corporation when authorized by the Board of Directors.
SECTION 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Except as
otherwise provided by Delaware law, each person who is or was serving as a
director or officer of the Corporation, or who is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
(including the heirs, executors, administrators or estate of such person),
shall be indemnified by the Corporation against any costs or expenses
(including attorney's fees), judgments, fines and amounts paid in settlement,
which are actually and reasonably incurred by such person in connection with
any threatened, pending or completed action, suit or proceeding, whether
criminal, civil, administrative or investigative, and whether brought by or
in the right of the Corporation to procure a judgement in its favor, to which
such person is made a party or threatened to be made a party by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
at the request of the Corporation serving as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. Such right to indemnification, however, may be
16
<PAGE>
made only as authorized in any particular case by the Board of Directors by
(1) a majority vote of a quorum thereof consisting of Directors not parties
to the action, suit or proceeding, or, (2) if such a quorum is not obtainable
or, if obtainable, a majority thereof so directs, by independent legal
counsel (who, if a quorum of disinterested directors is not obtainable, shall
be selected by a majority vote of the full Board) in a written opinion, or
(3) by the Stockholders, upon a determination that the person to be
indemnified, did under the circumstances involved, act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action,
upon a determination that the person to be indemnified had no reasonable
cause to believe that his or her conduct was unlawful. The Corporation shall
advance the costs and expenses (including attorney's fees) reasonably
incurred by each person in defending any civil or criminal action, suit or
proceeding herein described in advance of the final disposition thereof, if
authorized by the Board of Directors in the specific case, upon receipt of an
undertaking by or on behalf of such person to repay any or all of such amount
as to which it may be ultimately determined under this By-Law that such
person is not entitled. The indemnification provided by this By-Law
provision shall not be exclusive of any other right to which those
indemnified may be entitled under the laws of the State of Delaware, as now
in effect or hereafter amended, or under any other by-law or any agreement,
vote of the Stockholders or disinterested directors, or otherwise, and shall
not limit in any way any right which the Corporation may have to make further
indemnifications with respect to the same or different persons or classes of
persons.
Section 6. AMENDMENTS. Subject to the provisions of Article Seven of
the Certificate of Incorporation, these By-Laws, whether made by the
Stockholders or by the Board of Directors, may be amended, added to or repealed
at any meeting of the Board of Directors or the Stockholders.
SECTION 7. DIVISIONS. The Board of Directors may from time to time
designate and organize certain geographical areas of the utility operations and
business of the Corporation as Divisions of the Corporation. The Board of
Directors may cause such Divisions to operate and conduct business by names
other than the name of the Corporation if lawful to do so.
SECTION 8. REGISTERED OFFICE AND REGISTERED AGENT. The location of the
registered office and the name of the registered agent of the Corporation in the
State of Delaware shall be as stated in the Certificate of Incorporation or as
determined from time to time by the Board of Directors and
17
<PAGE>
on file in the appropriate public offices of the state of Delaware pursuant to
applicable provisions of law.
SECTION 9. CORPORATE OFFICES. The Corporation may have such other
corporate offices and places of business anywhere within or out of the State of
Delaware as the Board of Directors may from time to time designate or the
business of the Corporation may require.
/s/ Dale J. Wolf
---------------------------
Date: November 6, 1991
- -----------------------------
D9
18
<PAGE>
______________________________________________________________________________
______________________________________________________________________________
UTILICORP UNITED INC.
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
____________________
6.70% Senior Notes Due 2006
____________________
EIGHTH SUPPLEMENTAL INDENTURE
Dated as of October 1, 1996
____________________
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
EIGHTH SUPPLEMENTAL INDENTURE, dated as of October 1, 1996 (herein
called the "Eighth Supplemental Indenture"), between UTILICORP UNITED INC., a
corporation duly organized and existing under the laws of the State of
Delaware (hereinafter called the "Company"), party of the first part, and
THE FIRST NATIONAL BANK OF CHICAGO, a national banking association duly
organized and existing under the laws of the United States, as Trustee under
the Original Indenture referred to below (hereinafter called the "Trustee"),
party of the second part.
WITNESSETH:
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an Indenture, dated as of November 1, 1990 (hereinafter called the
"Original Indenture"), to provide for the issuance from time to time of certain
of its unsecured senior notes (hereinafter called the "Securities"), the form
and terms of which are to be established as set forth in Sections 201 and 301 of
the Original Indenture; and
WHEREAS, Section 901 of the Original Indenture provides, among other
things, that the Company and the Trustee may enter into indentures supplemental
to the Original Indenture for, among other things, the purpose of establishing
the form or terms of the Securities of any series as permitted in Sections 201
and 301 of the Original Indenture; and
WHEREAS, the Company desires to create a series of the Securities in
an aggregate principal amount of $100,000,000 to be designated the "6.70% Senior
Notes Due 2006" (the "Senior Notes"), and all action on the part of the Company
necessary to authorize the issuance of the Senior Notes under the Original
Indenture and this Eighth Supplemental Indenture has been duly taken; and
WHEREAS, all acts and things necessary to make the Senior Notes when
<PAGE>
executed by the Company and completed, authenticated and delivered by the
Trustee as in the Original Indenture and this Eighth Supplemental Indenture
provided, the valid and binding obligations of the Company and to constitute
these presents a valid and binding supplemental indenture and agreement
according to its terms, have been done and performed.
WHEREAS, Section 901 of the Original Indenture provides, among other
things, that the Company and the Trustee may enter into indentures supplemental
to the Original Indenture to, among other things, add to the covenants of the
Company for the benefit of the Holders of all or any series of Securities; and
WHEREAS, the Company desires to limit the issuance of Mortgage Bonds
under its General Mortgage (as hereinafter defined) as set forth in Section 204
of this Eighth Supplemental Indenture for the benefit of the Holders of the
Senior Notes;
<PAGE>
NOW, THEREFORE, THIS EIGHTH SUPPLEMENTAL INDENTURE WITNESSETH:
That in consideration of the premises, the Company covenants and
agrees with the Trustee, for the equal benefit of holders of the Senior Notes,
as follows:
ARTICLE ONE
DEFINITIONS
The use of the terms and expressions herein is in accordance with the
definitions, uses and constructions contained in the Original Indenture and the
form of Senior Note attached hereto as Exhibit A.
ARTICLE TWO
TERMS AND ISSUANCE OF THE SENIOR NOTES
Section 201. ISSUE OF SENIOR NOTES. A series of Securities which
shall be designated the "6.70% Senior Notes Due 2006" shall be executed,
authenticated and delivered in accordance with the provisions of, and shall in
all respects be subject to, the terms, conditions and covenants of the Original
Indenture and this Eighth Supplemental Indenture (including the form of Senior
Note set forth as Exhibit A hereto). The aggregate principal amount of Senior
Notes of the series created hereby which may be authenticated and delivered
under the Original Indenture shall not, except as permitted by the provisions of
the Original Indenture, exceed $100,000,000.
Section 202. FORM OF SENIOR NOTES; INCORPORATION OF TERMS. The form
of the Senior Notes shall be substantially in the form of Exhibit A attached
hereto. The terms of such Senior Notes are herein incorporated by reference and
are part of this Eighth Supplemental Indenture.
<PAGE>
Section 203. PLACE OF PAYMENT. The Place of Payment will be
initially the corporate trust offices of the Trustee which, at the date hereof,
are located at The First National Bank of Chicago, One First National Plaza,
Suite 0126, Chicago, Illinois 60670-0126 and The First National Bank of Chicago,
14 Wall Street, 8th Floor, New York, New York 10005.
Section 204. LIMITATION ON ISSUANCE OF MORTGAGE BONDS. The Company
will not issue any Mortgage Bonds under its General Mortgage Indenture and Deed
of Trust, dated September 15, 1988, between the Company and Commerce Bank of
Kansas City, N.A., as Trustee (the "General Mortgage"), without making effective
provision, and the Company covenants that in any such case effective provisions
will be made, whereby the Senior Notes shall be directly secured by the General
Mortgage equally and ratably with any and all other obligations and indebtedness
thereby secured.
ARTICLE THREE
MISCELLANEOUS
Section 301. EXECUTION OF SUPPLEMENTAL INDENTURE. This Eighth
Supplemental Indenture is executed and shall be construed as an indenture
supplemental to the Original Indenture and, as provided in the Original
Indenture, this Eighth Supplemental Indenture forms a part thereof.
Section 302. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof which is
required to be included in this Eighth Supplemental Indenture by any of the
provisions of the Trust Indenture Act, such required provision shall control.
Section 303. EFFECT OF HEADINGS. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
Section 304. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Eighth Supplemental Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.
<PAGE>
Section 305. SEPARABILITY CLAUSE. In case any provision in this
Eighth Supplemental Indenture or in the Senior Notes shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 306. BENEFITS OF EIGHTH SUPPLEMENTAL INDENTURE. Nothing in
this Eighth Supplemental Indenture or in the Senior Notes, express or implied,
shall give to any person, other than the parties hereto and their successors
hereunder and the holders, any benefit or any legal or equitable right, remedy
or claim under this Eighth Supplemental Indenture.
Section 307. GOVERNING LAW. This Eighth Supplemental Indenture and
each Senior Note shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be governed by and construed in
accordance with the laws of said State.
Section 308. EXECUTION AND COUNTERPARTS. This Eighth Supplemental
Indenture may be executed in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Eighth
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
UTILICORP UNITED INC.
[Seal] By: /s/ Dale J. Wolf
----------------------------
Name: Dale J. Wolf
Title: Vice President,
Finance
<PAGE>
Attest:
/s/ Randy Miller
____________________________
Title: Asst. Treasurer
THE FIRST NATIONAL BANK
OF CHICAGO, as Trustee
[Seal] By: /s/ John R. Prendiville
_______________________________
Name: John R. Prendiville
Title: Vice President
Attest:
/s/ Brenda McCleod
__________________________
Title: Trust Officer
<PAGE>
STATE OF MISSOURI )
) ss.:
COUNTY OF JACKSON )
On the 18 day of October, 1996, before me personally came Dale J.
Wolf, to me known, who, being by me duly sworn, did depose and say that he is
Vice President of UtiliCorp United Inc., the corporation described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
/s/ Sandra L. Horvat
__________________________
Notary Public,
State of Missouri
STATE OF ILLINOIS )
) ss.:
COUNTY OF COOK )
On the 21 day of October, 1996, before me personally came John R.
Prendiville, to me known, who, being by me duly sworn, did depose and say
that he is Vice President of The First National Bank of Chicago, the national
banking association described in and which executed the foregoing instrument;
that he knows the seal of said association; that the seal affixed to said
instrument is such association seal; that it was so affixed by authority of
the Board of Directors of said association, and that he signed his name
thereto by like authority.
/s/ Mietka I. Collins
________________________
Notary Public,
State of Illinois
<PAGE>
EXHIBIT A
[FORM OF FACE OF SENIOR NOTE]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS GLOBAL SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY
IN THE LIMITED CIRCUMSTANCES HEREINAFTER DESCRIBED AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY
OR BY THE DEPOSITARY OR ANY NOMINEE TO A SUCCESSOR OF THE DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR.
REGISTERED REGISTERED
UTILICORP UNITED INC.
____% SENIOR NOTE DUE ____
No. $
UTILICORP UNITED INC., a corporation duly organized and existing under
the laws of Delaware (herein called the "Company", which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to ____________________, or registered
assigns, the principal sum of __________________________________________ DOLLARS
on ____________, and to pay interest thereon from _________, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, semi-annually on ______ and __________ in each year, commencing
________________, at the rate per annum provided in the title hereof, until the
principal hereof is paid or made available for payment, and, subject to the
terms of the Indenture, at the rate per annum provided in the title hereof on
any overdue principal and premium, if any, and (to the extent that the payment
of such interest shall be legally enforceable) on any overdue instalment of
interest. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Holder in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
payment, which shall be the ______ or ___________ (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
<PAGE>
payable to the Holder on such Regular Record Date, and may either be paid to the
Holder in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, in which event notice
whereof shall be given to Holders of Securities of this series not less than 10
days prior to such Special Record Date, or may be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of this series may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of and premium, if any, and interest on this
Security will be made at the office or agency of the Trustee maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. The Company may pay principal
by check payable in such money or by wire transfer to a dollar account
maintained by the holder (if the holder of the Security holds an aggregate
principal amount of Securities in excess of $5,000,000). The Company may pay
interest by mailing a dollar check to a holder's registered address or, upon
application by the holder hereof to the Registrar, not later than the applicable
record date, by wire transfer to a dollar account maintained by the holder (if
the holder of the Security holds an aggregate principal amount of Securities in
excess of $5,000,000).
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof, or an Authenticating Agent, by
manual signature of one of its authorized officers, this Security shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
UTILICORP UNITED INC.
Dated: By:___________________________
Title:
________________
Attest:
______________________________
[Seal] Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the Senior
Notes of the series designated
herein referred to in the
within-mentioned Indenture
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By:____________________________
Authorized Officer
<PAGE>
[FORM OF REVERSE OF SENIOR NOTE]
UTILICORP UNITED INC.
____% SENIOR NOTE DUE ____
This Senior Note is one of a duly authorized series of securities
of the Company (herein called the "Securities"), issued and to be issued in
one or more series under an Indenture, dated as of November 1, 1990, as
amended and supplemented (as amended and supplemented, the "Indenture"),
between the Company and The First National Bank of Chicago, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Securities and the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is
one of the series designated on the face hereof, limited in aggregate
principal amount to $100,000,000.
This Security is not subject to any sinking fund, nor may this
Security be redeemed at the option of the Company prior to the Maturity Date.
[This Security may be repaid by the Company at the option of the Holder on
____________ (the "Repayment Date"). The Repayment Price shall be 100% of the
principal amount of this Security plus accrued interest to the Repayment Date,
but interest installments whose Stated Maturity is prior to the Repayment Date
will be payable to the Holder of this Security, or one or more Predecessor
Securities, of record at the close of business on the relevant Regular or
Special Record Dates, all as provided in the Indenture. For this Security to be
repaid at the option of the Holder, the Paying Agent must receive, during the
period from and including _____________ to and including the close of business
on ___________ (or, if ___________ is not a Business Day, the next succeeding
Business Day) (a) appropriate wire transfer instructions and (b) either (i) this
Security with the form entitled "Option to Elect Repayment" below duly completed
or (ii) a telegram, telex, facsimile transmission or a letter from a member of a
national securities exchange, or the National Association of Securities Dealers,
Inc. or a commercial bank or trust company in the United States setting forth
the name of the Holder of this Security, the principal amount of this Security,
the portion of principal amount of this Security to be repaid, the certificate
number or a description of the tenor and terms of this Security, a statement
that the option to elect repayment is being exercised thereby and a guarantee
that this Security, together with the duly completed form entitled "Option to
Elect Repayment" on this Security, will be received by the Paying Agent not
later than the fifth Business Day after the date of such telegram, telex,
facsimile transmission or letter, PROVIDED, HOWEVER, that such Security and form
duly completed are received by the Paying Agent by such fifth Business Day.
Exercise of the repayment option by the Holder shall be irrevocable unless
waived by the Company. The repayment option with respect to this Security may
<PAGE>
be exercised by the Holder for less than the entire principal amount hereof,
PROVIDED that the principal amount, if any, of this Security that remains
outstanding after such repayment must be an authorized denomination as defined
herein. The Company will not be required to register the transfer or exchange
of any Security following the receipt of a notice to repay a Security as
described above. All questions as to the validity, eligibility (including time
of receipt) and acceptance of any Security for repayment will be determined by
the Paying Agent, whose determination will be final and binding. In the event
of repayment of this Security in part only, a new Security or Securities of this
series and of like tenor and for a principal amount equal to the unrepaid
portion will be delivered to the Holder upon the cancellation hereof.]
Interest payments for this Security will be computed and paid on the
basis of a 360-day year of twelve 30-day months. If an Interest Payment Date
falls on a day that is not a Business Day, such Interest Payment Date will be
the following day that is a Business Day.
The Indenture contains provisions for defeasance of (a) the entire
indebtedness of this Security and (b) certain restrictive covenants upon
compliance by the Company with certain conditions set forth therein.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of not less than 66 2/3% in principal amount of the
Securities at the time Outstanding of all series to be affected (voting as a
class). The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of each series at
the time Outstanding, on behalf of the Holders of all Securities of such series,
to waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest, if any, on this Security at the times, place and rate, and in the coin
or currency, herein prescribed.
This Security shall be exchangeable for Securities registered in the
names of Persons other than the Depositary with respect to such series or its
nominee only as provided in this paragraph. This Security shall be so
<PAGE>
exchangeable if (x) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for such series or at any time ceases to be a
clearing agency registered as such under the Securities Exchange Act of 1934,
(y) the Company executes and delivers to the Trustee an Officers' Certificate
providing that this Security shall be so exchangeable or (z) there shall have
occurred and be continuing an Event of Default with respect to the Securities of
such series. Securities so issued in exchange for this Security shall be of the
same series, having the same interest rate, if any, and maturity and having the
same terms as this Security, in authorized denominations and in the aggregate
having the same principal amount as this Security and registered in such names
as the Depositary for such Global Security shall direct.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of a Security of the series of which this
Security is a part is registrable in the Security Register, upon surrender of
this Security for registration of transfer at the office or agency of the
Company in any place where the principal of and premium, if any, and interest,
if any, on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of this series,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities of the series of which this Security is a part are
issuable only in registered form without coupons in denominations of $1,000 and
in integral multiples thereof. As provided in the Indenture and subject to
certain limitations therein set forth, Securities of this series are
exchangeable for a like aggregate principal amount of Securities of this series
and of like tenor of a different authorized denomination, as requested by the
Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Holder in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
This Security shall be governed by and construed in accordance with
the laws of the State of New York.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.<PAGE>
<PAGE>
OPTION TO ELECT REPAYMENT
TO BE COMPLETED ONLY IF THIS SECURITY IS REPAYABLE AT THE OPTION OF THE
HOLDER AND THE HOLDER ELECTS TO EXERCISE SUCH RIGHTS
The undersigned hereby irrevocably requests and instructs the Company
to repay the attached Security (or portion thereof specified below) pursuant to
its terms at a price equal to 100% of the principal amount thereof together in
the case of any such repayment with interest to the Repayment Date, to the
undersigned at ___________________________________________.
For the Security to be repaid at the option of the Holder, the Paying
Agent must receive as its corporate trust office, at any time from and including
_____________ to and including the close of business on ___________ (or if
___________ is not a Business Day, the next succeeding Business Day), (a)
appropriate wire transfer instructions and (b) either (i) the Security together
with this "Option to Elect Repayment" form duly completed or (ii) a telegram,
telex, facsimile transmission or a letter from a member of a national securities
exchange, or the National Association of Securities Dealers, Inc. or a
commercial bank or trust company in the United States setting forth the name of
the Holder of the Security, the principal amount of the Security, the principal
amount of the Security to be repaid, the certificate number or a description of
the tenor and terms of the Security, a statement that the option to elect
repayment is being exercised thereby and a guarantee that the Security, together
with this duly completed form entitled "Option to Elect Repayment" on the
reverse of the Security, will be received by the Paying Agent not later than the
fifth Business Day after the date of such telegram, telex, facsimile
transmission or letter, provided, however, that such telegram, telex, facsimile
transmission or letter shall be effective only if the Security with such form
duly completed are received by the Paying Agent by such fifth Business Day.
If less than the entire principal amount of the attached Security is
to be repaid, specify the portion thereof which the Holder elects to have
repaid: ____________________; and specify the denomination or denominations
(which shall be an Authorized Denomination) of the Security or Securities to be
issued to the Holder for the portion of the within Security not being repaid (in
the absence of any specification, one such Security will be issued for the
portion not being repaid): ______________________.
Dated:_______________________ ______________________________
NOTICE: The signature to this
Option to Elect Repayment must correspond
with the name as written upon the face of the
within instrument in every particular,
without alteration or enlargement or any
change whatsoever.
<PAGE>
April 19, 1996
Terry Westbrook
1160 Pelham Road
Winnetka, IL 60093
Dear Terry,
On behalf of Rick Green, I am pleased to confirm my verbal offer of employment
to join UtiliCorp United Inc. as our Senior Vice President and Chief Financial
Officer. This position reports to Rick Green and Bob Green. It is our hope you
will be with us as soon as possible.
OVERVIEW
Salary $325,000
Annual Bonus (% of base - $325,000)
Maximum 70% $227,500
--------
Subtotal $552,500
Long Term Incentive
Maximum 75% of base $243,750
(Prorated for participation)
Stock Options
Approximately 35,000 non-qualified stock options (Mega
Grant) with the exercise price to be established in the May
1996 Compensation Committee meeting.
The key elements of your employment are summarized below and are based upon
UtiliCorp's current compensation and benefits program:
- - Starting base annual salary - $325,000.
<PAGE>
- - Eligibility for participation in the Annual Incentive Compensation Program
with a maximum pay out opportunity of 70%. This pay out is contingent
upon corporate financial achievements and personal performance levels to be
discussed between you and Rick Green. Your minimum 1st year bonus for 1996
will be $100,000.
- - Eligibility to participate in the Long Term Incentive Programs available to
senior executives of UtiliCorp United, Inc. This plan targets Long Term
Incentive at a maximum of 75% of annual base compensation and is paid in
the following methods:
- Stock options in UtiliCorp United Common Shares.
- Three year performance cycles based on UtiliCorp United's financial
performance.
- Payments are in one year restricted stock until the share ownership
target of one times your annual salary is met. This ownership target
will be two times your annual salary after three years, assuming
"NEWCO" adopts UCU ownership targets. Once the target is achieved,
awards are payable in cash or restricted stock with an additional
bonus of 25%.
Assuming UCU is successful in meeting its cumulative three year financial
performance targets, you will receive a long term award at the end of each
three year cycle generally paid in March. The first long term incentive
pay out will be paid in 1997 for the three year cycle that began in 1994.
You will be eligible for a prorated award of 1/3 of the maximum amount
awarded for that performance cycle. For the period 1995 through 1997 you
are eligible for 2/3 of the maximum pay out. Beginning with the 1996 -
1998 cycle you are eligible for a full pay out award. An interim plan for
1996-1998 has been established with a targeted pay out of 37.5% that would
replace the 3 year cycle due to the expected close of our merger with KCPL
prior to the completion of the cycle in 1998.
- - Effective with your joining UtiliCorp United, you will be granted
approximately 15,000 in non-qualified stock options. The exercise price
and exact number of shares will be established by the Compensation
Committee in May of 1996.
- - You will be eligible to participate in UtiliCorp's 401(k) Savings Plan and
Employee Stock Purchase Plan the first eligible quarter subsequent to your
employment. The 401(k) Plan has a dollar for dollar employer match up to
6% of your pre-tax and/or after-tax contributions. Employer contributions
are made in UtiliCorp stock and vested over five years at 20% per year.
You may make total contributions up to 12% of pay subject to IRS
limitations.
<PAGE>
- - UtiliCorp United offers a Supplemental Contributory Retirement Plan (SCRP)
which is a non-qualified 401(k) type investment program. Because of IRS
limitations on how much employees may defer in a qualified 401(k) plan, we
have instituted this benefit to allow employees subject to such limits to
take advantage of the full 401(k) plan investment opportunity making tax
deferred contributions in excess of the limits to a non-qualified program.
- - Eligibility to participate in the Capital Accumulation Program. This is
UCU's deferred compensation plan. For 1997, you will be eligible to defer
compensation in year 1997 with an annualized investment rate of return
equal to 130% of Moody's Corporate Bond Yield. In addition, you are
eligible for the Supplemental Executive Retirement Plan for employees whose
salary is in excess of $150,000 annually and unable to receive the full
Pension Plan formula benefit due to IRS limitations.
- - Involuntary severance:
- You will receive one times your base salary if involuntarily separated
through the closing of our pending merger.
- You will be extended a change of control plan severance agreement as
presented to the Leadership Team on 4/1/96.
- In either case, you will receive outplacement service of your choice.
- - Eligibility to participate in the UtiliCorp United's Employee Benefit
Programs which include:
- 10 paid holidays per year.
- Eligibility for 4 weeks vacation per year, with a one week carryover
provision.
- Defined Pension Plan.
- - Executive perquisites package including:
- $5,000 after tax payment.
- $5,000 per year financial planning services.
- $300 per year for tax preparation services.
- Participation in Executive Life Insurance Program of 1 times salary in
addition to standard company paid at 2 times salary.
- Long Term Disability Insurance paid at 100% of salary.
- - In addition, eligibility for company business tools to assist in your
executive responsibilities; such as, clubs, computer, fax machine, and
cellular phone, all to be provided on business needs.
<PAGE>
Following is a brief summary of the key elements of our relocation program:
- - Eligibility to participate in the UtiliCorp United Executive Employee
Relocation Policy. This policy provides for the protection of the
appraised value of your home in the event you are unable to sell after 120
days.
- - Reimbursement of loan origination fee and/or points to purchase new
mortgage (maximum of 2 points).
- - Two house hunting trips for you and your wife (family).
- - One half month's salary for incidental moving expenses and settling costs.
- - 2% of sale price of present residence for its sale within 90 days from date
of hire. In the event a sale is not completed in this time, the
corporation will offer to purchase your present residence through a third
party.
- - UCU will reimburse you for reasonable seller expenses to include real
estate agent commission, loan discount, title charges, title examination
and all reasonable settlement and closing costs.
- - Movement of household furnishings will include a one time move from your
Illinois residence.
- - Temporary living and travel expenses in the Kansas City area will be
provided by UtiliCorp as described in the Executive Relocation Program.
These expenses are effective during the months of April, May and June.
Beginning July, and continuing for approximately 24 months, UtiliCorp
United will provide for you a leased apartment, airplane travel costs to
your home in Chicago and any incidental costs associated with local ground
transportation. All other costs not associated with business travel will
be your responsibility.
- - Trips home not to exceed twice monthly, paid by UtiliCorp, until such time
as your family is relocated to the Kansas City area.
- - All taxable expenses associated with your relocation will be grossed-up on
your W-2.
<PAGE>
It should be understood that all the preceding benefit plans are subject to
change during the normal course of UtiliCorp-wide plan re-designs.
Please acknowledge your acceptance by faxing a signed copy of this offer to me
at 816-467-3663. We look forward to your joining our UtiliCorp United Team.
Sincerely,
Robert M. Etienne
Accepted: ______________________________
Terry Westbrook
Date: ______________________________
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made and entered into as of the 6th day of November,
1996, by and between UTILICORP UNITED INC. (the "Company"), a Delaware
corporation, and Richard C. Green, Jr. (the "Executive");
WHEREAS, the Executive is currently serving as Chairman and Chief
Executive Officer of the Company, and the Company desires to secure the
continued employment of the Executive in accordance herewith;
WHEREAS, the Executive is willing to commit himself to be employed by the
Company on the terms and conditions herein set forth and thus to forego
opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement, as of the
Effective Date, as hereinafter defined, setting forth the terms and
conditions for the employment relationship of the Executive with the Company
during the Employment Period (as hereinafter defined).
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and
agreements set forth below, it is hereby agreed as follows:
1. EMPLOYMENT AND TERM.
(a) EMPLOYMENT. The Company agrees to employ the Executive, and
the Executive agrees to be employed by the Company, in accordance with the
terms and provisions of this Agreement during the term hereof (as described
below).
(b) TERM. The term of this Agreement shall commence as of the date
hereof (the "Effective Date") and shall continue until the date that is the
third anniversary of the Effective Date (such term being referred to
hereinafter as the "Employment Period"); provided, however, that the
Employment Period shall automatically be extended for one additional day on
each day this Agreement is effective beginning with the day after the
Effective Date, unless the Company, with the approval of the Board of
Directors of the Company (the "Board"), or the Executive shall have given
notice that this Agreement shall not be extended, in which case the
Employment Period shall terminate on the date that is three years following
receipt of such notice by the party to whom it is directed.
2. DUTIES AND POWERS OF EXECUTIVE.
(a) POSITION; LOCATION. During the Employment Period, the
Executive shall serve as Chairman of the Board and Chief Executive Officer of
the Company and perform such duties and services appertaining to such
positions as reasonably directed by the Company. The Executive's services
shall be performed primarily at the Company's headquarters which shall be
located in the Kansas City metropolitan area.
<PAGE>
(b) BOARD MEMBERSHIP. The Executive shall be a member of the Board
on the first day of the Employment Period, and the Board shall propose the
Executive for re-election to the Board throughout the Employment Period.
(c) ATTENTION. During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive shall devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary
to discharge the responsibilities assigned to the Executive under this
Agreement, shall use his reasonable best efforts to carry out such
responsibilities faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to serve on corporate, industry,
civic or charitable boards or committees, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement.
3. COMPENSATION. The Executive shall receive the following
compensation for his services hereunder to the Company:
(a) SALARY. During the Employment Period, the Executive's annual
base salary (the "Annual Base Salary"), payable in accordance with the
Company's general payroll practices, in effect from time to time, shall be at
the annual rate established by the Board, but in no event less than $630,000
which is the Executive's annual base salary with the Company in effect as of
the day before the Effective Date. The Board may from time to time direct
such upward adjustments in Annual Base Salary as the Board deems to be
necessary or desirable, including, without limitation, adjustments in order
to reflect increases in the cost of living. The Annual Base Salary shall not
be reduced after any increase thereof. Any increase in the Annual Base
Salary shall not serve to limit or reduce any other obligation of the Company
under this Agreement.
(b) INCENTIVE COMPENSATION. During the Employment Period, the
Executive shall participate in short-term incentive compensation plans and
long-term incentive compensation plans (the latter to consist of plans
offering stock options, restricted stock and other long-term incentive
compensation) providing him with the opportunity to earn, on a year-by-year
basis, short-term and long-term incentive compensation (the "Incentive
Compensation") at least equal to the greater of (i) the amounts that he had
the opportunity to earn under the comparable plans of the Company as in
effect immediately before the Effective Time, or (ii) the amounts that any
other senior executive officer of the Company has the opportunity to earn
under the plans of the Company and its subsidiaries for that year.
(c) RETIREMENT, INCENTIVE AND WELFARE BENEFIT PLANS. In addition
to the benefits available under Section 3(b), during the Employment Period
and so long as the Executive is employed by the Company, he shall be eligible
to participate in all other incentive, stock option, restricted stock,
performance unit, savings, retirement and welfare plans, practices, policies
and programs applicable generally to employees and/or senior executive
officers of the Company and its subsidiaries, except with respect to any
benefits under any plan, practice, policy or program to which the Executive
has waived his rights in writing.
<PAGE>
(d) INSURANCE. During the Employment Period, the Company shall
provide the Executive with life insurance coverage providing a death benefit
to such beneficiary or beneficiaries as the Executive may designate of not
less than three times his Annual Base Salary.
(e) EXPENSES. The Company shall reimburse the Executive for all
expenses, including those for travel and entertainment, properly incurred by
him in the performance of his duties hereunder, subject to any reasonable
policies established from time to time by the Board.
(f) FRINGE BENEFITS. During the Employment Period and so long as
the Executive is employed by the Company, he shall be entitled to receive
fringe benefits in accordance with the plans, practices, programs and
policies of the Company from time to time in effect, commensurate with his
position, which benefits shall be at least the same as those received by any
senior executive officer of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) DEATH. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
(b) BY THE COMPANY FOR CAUSE. The Company may terminate the
Executive's employment during the Employment Period for Cause. For purposes
of this Agreement, "Cause" shall mean (i) conduct which is not authorized by
the Board, is materially detrimental to the Company, is a willful breach of
this Agreement, and fails to fulfill substantially all of Executive's
necessary duties; or (ii) the conviction of the Executive for the commission
of a felony which, at the time of such commission, has a materially adverse
effect on the Company.
(c) BY THE COMPANY WITHOUT CAUSE. Notwithstanding any other
provision of this Agreement, the Company may terminate the Executive's
employment for any reason other than for Cause during the Employment Period,
but only upon the affirmative vote of two-thirds of the membership of the
Board.
(d) BY THE EXECUTIVE FOR GOOD REASON. The Executive may terminate
his employment during the Employment Period for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the reduction in the Executive's Annual Base Salary as
specified in Section 3(a) of this Agreement, the Executive's Incentive
Compensation benefit as specified in Section 3(b) of this Agreement,
or any other benefit or payment described in Section 3 of this
Agreement;
(ii) the change without the Executive's consent of the
Executive's title, authority, duties or responsibilities as specified
in Section 2(a) of this Agreement;
<PAGE>
(iii) the Company's requiring the Executive without his
consent to be based at any office or location other than the Company's
headquarters which shall be located in the Kansas City metropolitan
area; or
(iv) any breach by the Company of any other material provision of
this Agreement.
(e) NOTICE OF TERMINATION. Any termination of Executive's
employment during the Employment Period by the Company for any reason, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated,
and (iii) if the Date of Termination (as defined in Section 4(f)) is other
than the date of receipt of such notice, specifies the termination date
(which date shall not be more than 30 days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(f) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death, the Date of Termination shall be the date of
death.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) TERMINATION OTHER THAN FOR CAUSE. If, during the Employment
Period, the Company shall terminate the Executive's employment (other than in
the case of a termination for Cause), the Executive shall terminate his
employment for Good Reason or the Executive's employment shall terminate by
reason of death or Executive becoming eligible for long-term disability
benefits under Company sponsored disability plan(s) (which circumstance
shall hereinafter be referred to as "disability") (termination in any such
case being referred to as a "Termination"):
<PAGE>
(i) the Company shall pay to the Executive a lump sum amount in
cash equal to the sum of (A) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(B) an amount equal to the maximum Incentive Compensation benefit
described in Section 3(b) of this Agreement for the fiscal year of the
Company that includes the Date of Termination multiplied by a fraction
the numerator of which shall be the number of days from the beginning
of such fiscal year to and including the Date of Termination and the
denominator of which shall be 365, which calculation shall be based on
the assumption that all target performance goals in effect on the Date
of Termination will be exceeded to the maximum extent possible, and
(C) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid. (The
amounts specified in clauses (A), (B) and (C) shall be hereinafter
referred to as the "Accrued Obligations".) The amounts specified in
this Section 5(a)(i) shall be paid within 30 days after the Date of
Termination; and
(ii) in the event of Termination other than by reason of the
Executive's death or disability, then the Company shall pay to the
Executive (A) continued salary at the minimum annual base salary rate
required by this Agreement for three years following the Date of
Termination (the "Continuation Period"); (B) a lump sum amount, in
cash, equal to three times the maximum Incentive Compensation benefit
described in Section 3(b) of this Agreement that would be paid to
Executive for the year during which termination occurs, if all target
performance goals in effect on the Date of Termination were exceeded
to the maximum extent possible for such year, such amount to be paid
within 30 days of such Date of Termination; (C) except with respect to
the benefits provided pursuant to clause (E) below, the Company shall
pay to the Executive the value of all benefits to which the Executive
would have been entitled under Sections 3(d) and (f) had he remained
in employment with the Company until the end of the Continuation
Period; (D) the Company shall pay the value of all deferred
compensation amounts (together with any accrued interest or earnings
thereon) and all executive life insurance benefits whether or not then
vested or payable; and (E) the Company shall continue medical and
welfare benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided had the Executive
remained in employment to the end of the Continuation Period
(excluding benefits to which the Executive has waived his rights in
writing), such benefits to be in accordance with the most favorable
medical and welfare benefit plans, practices, programs or policies
(the "M&W Plans") of the Company as in effect and applicable to any
senior executive officer of the Company and his or her family during
the 90-day period immediately preceding the Date of Termination or, if
more favorable to the Executive, as in effect at any time thereafter
with respect to any senior executive officer of the Company (but on a
prospective basis only unless and then only to the extent, such more
favorable M&W Plans are by their terms retroactive); provided,
however, that if the Executive becomes employed with another employer
and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the benefits under the M&W Plans shall
be secondary to those provided under such other plan during such
applicable period of eligibility.
<PAGE>
(b) TERMINATION BY THE COMPANY FOR CAUSE OR BY THE EXECUTIVE OTHER
THAN FOR GOOD REASON. Subject to the provisions of Section 6 of this
Agreement, if the Executive's employment shall be terminated for Cause during
the Employment Period, or if the Executive terminates employment during the
Employment Period other than a termination for Good Reason, the Company shall
have no further obligations to the Executive under this Agreement other than
the obligation to pay to the Executive the Annual Base Salary through the
Date of Termination plus the amount of any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon), in
each case to the extent theretofore unpaid, plus any other benefits to which
Executive is entitled under any other agreements or policies with or of the
Company.
(c) PAYMENTS IN THE EVENT OF APPLICATION OF AN EXCISE TAX. It is
the intention of the parties that any payments under this Agreement shall not
be contingent upon a change in control of the Company. Nevertheless, in the
event that any payments under this Agreement or any other compensation,
benefit or other amount from the Company for the benefit of Executive are
subject to the tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") (including any applicable interest and
penalties, the "Excise Tax"), no such payment ("Parachute Payment") shall be
reduced (except for required tax withholdings) and the Company shall pay to
Executive by the earlier of the date such Excise Tax is withheld from
payments made to Executive or the date such Excise Tax becomes due and
payable by Executive, an additional amount (the "Gross-Up Payment") such that
the net amount retained by Executive, after deduction of any Excise Tax on
the Parachute Payments, taxes based upon the Tax Rate and Excise Tax upon the
payment provided for by this Section 5(c), shall be equal to the amount the
Executive would have received if no Excise Tax had been imposed. The Company
shall determine in good faith whether any of the Parachute Payments are
subject to the Excise Tax and the amount of any Excise Tax and shall notify
Executive of its determination. The Company and Executive shall file all tax
returns and reports regarding such Parachute Payments in a manner consistent
with the Company's reasonable good faith determination. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to
pay taxes at the Tax Rate applicable at the time of the Gross-Up Payment. In
the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time a Parachute Payment is made,
Executive shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction plus interest on the amount of such
repayment at the rate provided in Section 1274(d)(1) of the Code or other
applicable provision of the Code but only to the extent that such interest is
paid to Executive. In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder at the time a Parachute Payment is
made
<PAGE>
(including by reason of any payment the existence or amount of which cannot
be determined at the time of the Gross-Up Payment), the Company shall make an
additional gross-up payment in respect of such excess (plus any interest or
penalties payable in respect of such excess) at the time that the amount of
such excess is finally determined. The Company shall reimburse Executive for
all reasonable fees, expenses, and costs related to determining the
reasonableness of any Company position in connection with this paragraph,
preparation of any tax return or other filing that is affected by any matter
addressed in this paragraph and any audit, litigation or other proceeding
that is affected by any matter addressed in this paragraph. For the purposes
of the foregoing, "Tax Rate" means Executive's effective tax rate based upon
the combined federal and state and local income, earnings, Medicare and any
other tax rates applicable to Executive, net of the reduction in federal
income taxes which could be obtained by deduction of such state and local
taxes.
6. NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
plan, program, policy or practice provided by the Company and for which the
Executive may qualify (except with respect to any benefit to which the
Executive has waived his rights in writing), nor shall anything herein limit
or otherwise affect such rights as the Executive may have under any other
contract or agreement entered into after the Effective Date with the Company.
Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any benefit, plan, policy, practice or program of,
or any contract or agreement entered into with, the Company shall be payable
in accordance with such benefit, plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
7. FULL SETTLEMENT; MITIGATION. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts (including amounts for damages for breach) payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 5(a)(ii)(D), such amounts shall not be reduced whether or
not the Executive obtains other employment. If there occurs a dispute
between the Executive and the Company as to the interpretation, terms,
validity or enforceability of (including any dispute about the amount of any
payment pursuant to this Agreement) this Agreement, the Company agrees to pay
all legal fees and expenses which the Executive may reasonably incur as a
result of any such dispute.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret, confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the
Executive during the Executive's employment by UCU and the Company or any of
their affiliated companies and that shall not have been or now or hereafter
have become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). During the
Employment Period, the Executive shall not, without the prior written consent
of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone
other than the Company and those designated by it.
<PAGE>
9. NON-COMPETITION. Executive acknowledges that he will forfeit all
rights under this Agreement if, during the Employment Period, and for a
period of two years thereafter, Executive directly or indirectly, owns,
manages, operates, controls, is employed by, performs services for, consults
with, solicits business for, participates in, or is connected with the
ownership, management, operation, or control of any business that is either
directly or indirectly competitive with the products or services of the
Company.
10. SUCCESSORS.
(a) ASSIGNMENT BY EXECUTIVE. This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) SUCCESSORS AND ASSIGNS OF COMPANY. This Agreement shall inure
to the benefit of and be binding upon the Company, its successors and assigns.
(c) ASSUMPTION. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its businesses
and/or assets as aforesaid that assumes and agrees to perform this Agreement
by operation of law, or otherwise.
11. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri, without
reference to its principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended, modified, repealed, waived,
extended or discharged except by an agreement in writing signed by the party
against whom enforcement of such amendment, modification, repeal, waiver,
extension or discharge is sought. No person, other than pursuant to a
resolution of the Board or a committee thereof, shall have authority on
behalf of the Company to agree to amend, modify, repeal, waive, extend or
discharge any provision of this Agreement or anything in reference thereto.
<PAGE>
(b) NOTICES. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return-receipt requested, postage prepaid,
addressed, in either case, at the Company's headquarters or to such other
address as either party shall have furnished to the other in writing in
accordance herewith. Notices and communications shall be effective when
actually received by the addressee.
(c) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(d) WITHHOLDING. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) NO WAIVER. The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of
this Agreement or the failure to assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to Section 4(d) of
this Agreement, or the right of the Company to terminate the Executive's
employment for Cause pursuant to Section 4(b) of this Agreement shall not be
deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) ENTIRE AGREEMENT. This instrument contains the entire agreement
of the Executive, the Company or any predecessor or subsidiary thereof with
respect to the subject matter hereof, and may be modified only by a writing
signed by the parties hereto. All promises, representations, understandings,
arrangements and prior agreements, including the severance agreement entered
into on October 17, 1995, between the Executive and the Company, are merged
herein and superseded hereby.
IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from
its Board of Directors, the Company have caused this Agreement to be executed
as of the day and year first above written.
UtiliCorp United Inc.
/s/ L. Patton Kline
---------------------------------------
Name: L. Patton Kline
Title: Chairman Compensation Committee
/s/ Richard C. Green, Jr.
---------------------------------------
Richard C. Green, Jr.
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made and entered into as of the 6th day of November,
1996, by and between UTILICORP UNITED INC. (the "Company"), a Delaware
corporation, and Robert K. Green (the "Executive");
WHEREAS, the Executive is currently serving as President of the Company,
and the Company desires to secure the continued employment of the Executive
in accordance herewith;
WHEREAS, the Executive is willing to commit himself to be employed by the
Company on the terms and conditions herein set forth and thus to forego
opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement, as of the
Effective Date, as hereinafter defined, setting forth the terms and
conditions for the employment relationship of the Executive with the Company
during the Employment Period (as hereinafter defined).
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and
agreements set forth below, it is hereby agreed as follows:
1. EMPLOYMENT AND TERM.
(a) EMPLOYMENT. The Company agrees to employ the Executive, and
the Executive agrees to be employed by the Company, in accordance with the
terms and provisions of this Agreement during the term hereof (as described
below).
(b) TERM. The term of this Agreement shall commence as of the date
hereof (the "Effective Date") and shall continue until the date that is the
third anniversary of the Effective Date (such term being referred to
hereinafter as the "Employment Period"); provided, however, that the
Employment Period shall automatically be extended for one additional day on
each day this Agreement is effective beginning with the day after the
Effective Date, unless the Company, with the approval of the Board of
Directors of the Company (the "Board"), or the Executive shall have given
notice that this Agreement shall not be extended, in which case the
Employment Period shall terminate on the date that is three years following
receipt of such notice by the party to whom it is directed.
2. DUTIES AND POWERS OF EXECUTIVE.
(a) POSITION; LOCATION. During the Employment Period, the
Executive shall serve as President of the Company and perform such duties and
services appertaining to such position as reasonably directed by the Company.
The Executive's services shall be performed primarily at the Company's
headquarters which shall be located in the Kansas City metropolitan area.
<PAGE>
(b) BOARD MEMBERSHIP. The Executive shall be a member of the Board
on the first day of the Employment Period, and the Board shall propose the
Executive for re-election to the Board throughout the Employment Period.
(c) ATTENTION. During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive shall devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary
to discharge the responsibilities assigned to the Executive under this
Agreement, shall use his reasonable best efforts to carry out such
responsibilities faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to serve on corporate, industry,
civic or charitable boards or committees, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement.
3. COMPENSATION. The Executive shall receive the following
compensation for his services hereunder to the Company:
(a) SALARY. During the Employment Period, the Executive's annual
base salary (the "Annual Base Salary"), payable in accordance with the
Company's general payroll practices, in effect from time to time, shall be at
the annual rate established by the Board, but in no event less than $480,000
which is the Executive's annual base salary with the Company in effect as of
the day before the Effective Date. The Board may from time to time direct
such upward adjustments in Annual Base Salary as the Board deems to be
necessary or desirable, including, without limitation, adjustments in order
to reflect increases in the cost of living. The Annual Base Salary shall not
be reduced after any increase thereof. Any increase in the Annual Base
Salary shall not serve to limit or reduce any other obligation of the Company
under this Agreement.
(b) INCENTIVE COMPENSATION. During the Employment Period, the
Executive shall participate in short-term incentive compensation plans and
long-term incentive compensation plans (the latter to consist of plans
offering stock options, restricted stock and other long-term incentive
compensation) providing him with the opportunity to earn, on a year-by-year
basis, short-term and long-term incentive compensation (the "Incentive
Compensation") at least equal to the greater of (i) the amounts that he had
the opportunity to earn under the comparable plans of the Company as in
effect immediately before the Effective Time, or (ii) the amounts that any
other senior executive officer of the Company has the opportunity to earn
under the plans of the Company and its subsidiaries for that year.
(c) RETIREMENT, INCENTIVE AND WELFARE BENEFIT PLANS. In addition
to the benefits available under Section 3(b), during the Employment Period
and so long as the Executive is employed by the Company, he shall be eligible
to participate in all other incentive, stock option, restricted stock,
performance unit, savings, retirement and welfare plans, practices, policies
and programs applicable generally to employees and/or senior executive
officers of the Company and its subsidiaries, except with respect to any
benefits under any plan, practice, policy or program to which the Executive
has waived his rights in writing.
<PAGE>
(d) INSURANCE. During the Employment Period, the Company shall
provide the Executive with life insurance coverage providing a death benefit
to such beneficiary or beneficiaries as the Executive may designate of not
less than three times his Annual Base Salary.
(e) EXPENSES. The Company shall reimburse the Executive for all
expenses, including those for travel and entertainment, properly incurred by
him in the performance of his duties hereunder, subject to any reasonable
policies established from time to time by the Board.
(f) FRINGE BENEFITS. During the Employment Period and so long as
the Executive is employed by the Company, he shall be entitled to receive
fringe benefits in accordance with the plans, practices, programs and
policies of the Company from time to time in effect, commensurate with his
position, which benefits shall be at least the same as those received by any
senior executive officer of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) DEATH. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
(b) BY THE COMPANY FOR CAUSE. The Company may terminate the
Executive's employment during the Employment Period for Cause. For purposes
of this Agreement, "Cause" shall mean (i) conduct which is not authorized by
the Board, is materially detrimental to the Company, is a willful breach of
this Agreement, and fails to fulfill substantially all of Executive's
necessary duties; or (ii) the conviction of the Executive for the commission
of a felony which, at the time of such commission, has a materially adverse
effect on the Company.
(c) BY THE COMPANY WITHOUT CAUSE. Notwithstanding any other
provision of this Agreement, the Company may terminate the Executive's
employment for any reason other than for Cause during the Employment Period,
but only upon the affirmative vote of two-thirds of the membership of the
Board.
(d) BY THE EXECUTIVE FOR GOOD REASON. The Executive may terminate
his employment during the Employment Period for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the reduction in the Executive's Annual Base Salary as
specified in Section 3(a) of this Agreement, the Executive's Incentive
Compensation benefit as specified in Section 3(b) of this Agreement,
or any other benefit or payment described in Section 3 of this
Agreement;
<PAGE>
(ii) the change without the Executive's consent of the
Executive's title, authority, duties or responsibilities as specified
in Section 2(a) of this Agreement;
(iii) the Company's requiring the Executive without his
consent to be based at any office or location other than the Company's
headquarters which shall be located in the Kansas City metropolitan
area; or
(iv) any breach by the Company of any other material provision of
this Agreement.
(e) NOTICE OF TERMINATION. Any termination of Executive's
employment during the Employment Period by the Company for any reason, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated,
and (iii) if the Date of Termination (as defined in Section 4(f)) is other
than the date of receipt of such notice, specifies the termination date
(which date shall not be more than 30 days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(f) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death, the Date of Termination shall be the date of
death.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) TERMINATION OTHER THAN FOR CAUSE. If, during the Employment
Period, the Company shall terminate the Executive's employment (other than in
the case of a termination for Cause), the Executive shall terminate his
employment for Good Reason or the Executive's employment shall terminate by
reason of death or Executive becoming eligible for long-term disability
benefits under Company sponsored disability plan(s) (which circumstance
shall hereinafter be referred to as "disability") (termination in any such
case being referred to as a "Termination"):
<PAGE>
(i) the Company shall pay to the Executive a lump sum amount in
cash equal to the sum of (A) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(B) an amount equal to the maximum Incentive Compensation benefit
described in Section 3(b) of this Agreement for the fiscal year of the
Company that includes the Date of Termination multiplied by a fraction
the numerator of which shall be the number of days from the beginning
of such fiscal year to and including the Date of Termination and the
denominator of which shall be 365, which calculation shall be based on
the assumption that all target performance goals in effect on the Date
of Termination will be exceeded to the maximum extent possible, and
(C) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid. (The
amounts specified in clauses (A), (B) and (C) shall be hereinafter
referred to as the "Accrued Obligations".) The amounts specified in
this Section 5(a)(i) shall be paid within 30 days after the Date of
Termination; and
(ii) in the event of Termination other than by reason of the
Executive's death or disability, then the Company shall pay to the
Executive (A) continued salary at the minimum annual base salary rate
required by this Agreement for three years following the Date of
Termination (the "Continuation Period"); (B) a lump sum amount, in
cash, equal to three times the maximum Incentive Compensation benefit
described in Section 3(b) of this Agreement that would be paid to
Executive for the year during which termination occurs, if all target
performance goals in effect on the Date of Termination were exceeded
to the maximum extent possible for such year, such amount to be paid
within 30 days of such Date of Termination; (C) except with respect to
the benefits provided pursuant to clause (E) below, the Company shall
pay to the Executive the value of all benefits to which the Executive
would have been entitled under Sections 3(d) and (f) had he remained
in employment with the Company until the end of the Continuation
Period; (D) the Company shall pay the value of all deferred
compensation amounts (together with any accrued interest or earnings
thereon) and all executive life insurance benefits whether or not then
vested or payable; and (E) the Company shall continue medical and
welfare benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided had the Executive
remained in employment to the end of the Continuation Period
(excluding benefits to which the Executive has waived his rights in
writing), such benefits to be in accordance with the most favorable
medical and welfare benefit plans, practices, programs or policies
(the "M&W Plans") of the Company as in effect and applicable to any
senior executive officer of the Company and his or her family during
the 90-day period immediately preceding the Date of Termination or, if
more favorable to the Executive, as in effect at any time thereafter
with respect to any senior executive officer of the Company (but on a
prospective basis only unless and then only to the extent, such more
favorable M&W Plans are by their terms retroactive); provided,
however, that if the Executive becomes employed with another employer
and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the benefits under the M&W Plans shall
be secondary to those provided under such other plan during such
applicable period of eligibility.
<PAGE>
(b) TERMINATION BY THE COMPANY FOR CAUSE OR BY THE EXECUTIVE OTHER
THAN FOR GOOD REASON. Subject to the provisions of Section 6 of this
Agreement, if the Executive's employment shall be terminated for Cause during
the Employment Period, or if the Executive terminates employment during the
Employment Period other than a termination for Good Reason, the Company shall
have no further obligations to the Executive under this Agreement other than
the obligation to pay to the Executive the Annual Base Salary through the
Date of Termination plus the amount of any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon), in
each case to the extent theretofore unpaid, plus any other benefits to which
Executive is entitled under any other agreements or policies with or of the
Company.
(c) PAYMENTS IN THE EVENT OF APPLICATION OF AN EXCISE TAX. It is
the intention of the parties that any payments under this Agreement shall not
be contingent upon a change in control of the Company. Nevertheless, in the
event that any payments under this Agreement or any other compensation,
benefit or other amount from the Company for the benefit of Executive are
subject to the tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") (including any applicable interest and
penalties, the "Excise Tax"), no such payment ("Parachute Payment") shall be
reduced (except for required tax withholdings) and the Company shall pay to
Executive by the earlier of the date such Excise Tax is withheld from
payments made to Executive or the date such Excise Tax becomes due and
payable by Executive, an additional amount (the "Gross-Up Payment") such that
the net amount retained by Executive, after deduction of any Excise Tax on
the Parachute Payments, taxes based upon the Tax Rate and Excise Tax upon the
payment provided for by this Section 5(c), shall be equal to the amount the
Executive would have received if no Excise Tax had been imposed. The Company
shall determine in good faith whether any of the Parachute Payments are
subject to the Excise Tax and the amount of any Excise Tax and shall notify
Executive of its determination. The Company and Executive shall file all tax
returns and reports regarding such Parachute Payments in a manner consistent
with the Company's reasonable good faith determination. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to
pay taxes at the Tax Rate applicable at the time of the Gross-Up Payment. In
the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time a Parachute Payment is made,
Executive shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction plus interest on the amount of such
repayment at the rate provided in Section 1274(d)(1) of the Code or other
applicable provision of the Code but only to the extent that such interest is
paid to Executive. In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder at the time a Parachute Payment is
made (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional gross-up payment in respect of such excess (plus any
<PAGE>
interest or penalties payable in respect of such excess) at the time that the
amount of such excess is finally determined. The Company shall reimburse
Executive for all reasonable fees, expenses, and costs related to determining
the reasonableness of any Company position in connection with this paragraph,
preparation of any tax return or other filing that is affected by any matter
addressed in this paragraph and any audit, litigation or other proceeding
that is affected by any matter addressed in this paragraph. For the purposes
of the foregoing, "Tax Rate" means Executive's effective tax rate based upon
the combined federal and state and local income, earnings, Medicare and any
other tax rates applicable to Executive, net of the reduction in federal
income taxes which could be obtained by deduction of such state and local
taxes.
6. NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
plan, program, policy or practice provided by the Company and for which the
Executive may qualify (except with respect to any benefit to which the
Executive has waived his rights in writing), nor shall anything herein limit
or otherwise affect such rights as the Executive may have under any other
contract or agreement entered into after the Effective Date with the Company.
Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any benefit, plan, policy, practice or program of,
or any contract or agreement entered into with, the Company shall be payable
in accordance with such benefit, plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
7. FULL SETTLEMENT; MITIGATION. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts (including amounts for damages for breach) payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 5(a)(ii)(D), such amounts shall not be reduced whether or
not the Executive obtains other employment. If there occurs a dispute
between the Executive and the Company as to the interpretation, terms,
validity or enforceability of (including any dispute about the amount of any
payment pursuant to this Agreement) this Agreement, the Company agrees to pay
all legal fees and expenses which the Executive may reasonably incur as a
result of any such dispute.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret, confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the
Executive during the Executive's employment by UCU and the Company or any of
their affiliated companies and that shall not have been or now or hereafter
have become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). During the
Employment Period, the Executive shall not, without the prior written consent
of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone
other than the Company and those designated by it.
<PAGE>
9. NON-COMPETITION. Executive acknowledges that he will forfeit all
rights under this Agreement if, during the Employment Period, and for a
period of two years thereafter, Executive directly or indirectly, owns,
manages, operates, controls, is employed by, performs services for, consults
with, solicits business for, participates in, or is connected with the
ownership, management, operation, or control of any business that is either
directly or indirectly competitive with the products or services of the
Company.
10. SUCCESSORS.
(a) ASSIGNMENT BY EXECUTIVE. This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) SUCCESSORS AND ASSIGNS OF COMPANY. This Agreement shall inure
to the benefit of and be binding upon the Company, its successors and assigns.
(c) ASSUMPTION. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its businesses
and/or assets as aforesaid that assumes and agrees to perform this Agreement
by operation of law, or otherwise.
11. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri, without
reference to its principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended, modified, repealed, waived,
extended or discharged except by an agreement in writing signed by the party
against whom enforcement of such amendment, modification, repeal, waiver,
extension or discharge is sought. No person, other than pursuant to a
resolution of the Board or a committee thereof, shall have authority on
behalf of the Company to agree to amend, modify, repeal, waive, extend or
discharge any provision of this Agreement or anything in reference thereto.
<PAGE>
(b) NOTICES. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return-receipt requested, postage prepaid,
addressed, in either case, at the Company's headquarters or to such other
address as either party shall have furnished to the other in writing in
accordance herewith. Notices and communications shall be effective when
actually received by the addressee.
(c) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(d) WITHHOLDING. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) NO WAIVER. The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of
this Agreement or the failure to assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to Section 4(d) of
this Agreement, or the right of the Company to terminate the Executive's
employment for Cause pursuant to Section 4(b) of this Agreement shall not be
deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) ENTIRE AGREEMENT. This instrument contains the entire agreement
of the Executive, the Company or any predecessor or subsidiary thereof with
respect to the subject matter hereof, and may be modified only by a writing
signed by the parties hereto. All promises, representations, understandings,
arrangements and prior agreements, including the severance agreement entered
into on October 17, 1995, between the Executive and the Company, are merged
herein and superseded hereby.
IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from
its Board of Directors, the Company have caused this Agreement to be executed
as of the day and year first above written.
UtiliCorp United Inc.
/s/ L. Patton Kline
--------------------------------------
Name: L. Patton Kline
Title: Chairman Compensation Committee
/s/ Robert K. Green
--------------------------------------
Robert K. Green
<PAGE>
Exhibit 11
UtiliCorp United Inc.
Statement regarding Computation of Per Share Earnings
<TABLE>
For the Year Ended
December 31,
Line No. 1996 1995 1994
- ------- ----------------------------
<S> <C> <C> <C> <C>
Earnings Available for Common Shares:
(a) Earnings available for common shares as reported $103.7 $77.7 $91.4
(b) Elimination of interest on convertible
subordinated debenture, net of tax .32 .22 .55
(c) Elimination of dividends on cumulative
convertible preference stock -- -- .93
----------------------------
(d) Fully Diluted Earnings Available $104.0 $77.9 $92.9
----------------------------
----------------------------
Weighted Average Common Shares Outstanding:
(e) Primary weighted average shares outstanding
as reported 47.21 45.08 43.97
(f) Assumed conversion of convertible subordinated
debenture .32 .39 .55
(g) Assumed conversion of cumulative convertible
preference shares -- -- .66
----------------------------
(h) Fully Diluted Weighted Average Shares Outstanding 47.53 45.47 45.18
----------------------------
----------------------------
Earnings Per Common Share:
Primary (a/e) $2.20 $1.72 $2.08
Fully Diluted (d/h) 2.19 1.71 2.06
</TABLE>
<PAGE>
Exhibit 21
UtiliCorp United Inc.
Subsidiaries
1996 Annual Report on Form 10-K
Jurisdiction of
Subsidiary Incorporation
---------- ------------------
West Kootenay Power Ltd. Province of British Columbia
UtilCo Group Inc. Delaware
Aquila Energy Corporation Delaware
UtiliCorp Asia Pacific Delaware
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
As Independent Public Accountants we hereby consent to the incorporation
of our reports dated February 11, 1997, appearing on pages 67 and 69 of the
Annual Report on Form 10-K, into the company's previously filed Registration
Statements on Form S-3 (Nos. 33-60406, 33-57167 and 33-39466) and on Form S-8
(Nos. 33-45525, 33-50260, 33-45074, 33-52094 and 333-19671). It should be noted
that we have not audited any financial statements of UtiliCorp United Inc.
subsequent to December 31, 1996 or performed any audit procedures subsequent
to the date of our reports.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
March 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
1996 Consolidated Financial Statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 137
<SECURITIES> 0
<RECEIVABLES> 812
<ALLOWANCES> 0
<INVENTORY> 111
<CURRENT-ASSETS> 1205
<PP&E> 3658
<DEPRECIATION> 1251
<TOTAL-ASSETS> 4705
<CURRENT-LIABILITIES> 1420
<BONDS> 1471
0
25
<COMMON> 53
<OTHER-SE> 1105
<TOTAL-LIABILITY-AND-EQUITY> 4705
<SALES> 4332
<TOTAL-REVENUES> 4332
<CGS> 3423
<TOTAL-COSTS> 4109
<OTHER-EXPENSES> 27
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136
<INCOME-PRETAX> 187
<INCOME-TAX> 81
<INCOME-CONTINUING> 106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.19
</TABLE>
