<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-3562
UTILICORP UNITED INC.
(Exact name of registrant as specified in its charter)
Delaware 44-0541877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 West Ninth, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 816-421-6600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 1, 1997
- ----- --------------------------
Common Stock, $1 par value 53,929,936
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Information regarding the consolidated condensed financial statements is
set forth on pages 3 through 13.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations can be found on pages 14 through 21.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None .
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits can be found on page 22.
(b) Reports on 8-K - None.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME--UNAUDITED
<TABLE>
<CAPTION>
Quarter Ended March 31,
DOLLARS IN MILLIONS 1997 1996
-------- ---------
<S> <C> <C>
Sales $2,059.6 $1,084.4
Cost of sales 1,805.4 834.7
-------- ---------
GROSS PROFIT 254.2 249.7
-------- ---------
Operating, administrative and maintenance expense 137.5 130.9
Depreciation, depletion and amortization 31.9 31.9
Provision for asset impairments 26.5 --
-------- ---------
INCOME FROM OPERATIONS 58.3 86.9
-------- ---------
Other income (expense):
Equity in earnings from investments and partnerships 21.2 12.6
Merger termination fee 53.0 --
Other income 3.2 2.4
Minority interest and other expense (6.3) (6.8)
-------- ---------
Total other income 71.1 8.2
-------- ---------
EARNINGS BEFORE INTEREST AND TAXES 129.4 95.1
-------- ---------
Interest expense:
Interest expense - long-term debt 29.9 25.6
Interest expense - short-term debt 1.9 2.3
Minority interest in income of partnership 2.2 2.2
-------- ---------
Total interest expense 34.0 30.1
-------- ---------
EARNINGS BEFORE INCOME TAXES 95.4 65.0
Income taxes 37.5 27.7
-------- ---------
EARNINGS BEFORE EXTRAORDINARY ITEM 57.9 37.3
Loss on extinguishment of debt (net of income tax of $4.5) 7.2 --
-------- ---------
NET INCOME 50.7 37.3
Preference dividends .3 .5
-------- ---------
EARNINGS AVAILABLE FOR COMMON SHARES $50.4 $36.8
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME--UNAUDITED
<TABLE>
<CAPTION>
Twelve Months Ended
March 31,
DOLLARS IN MILLIONS 1997 1996
-------- --------
<S> <C> <C>
Sales $5,307.5 $3,156.7
Cost of sales 4,393.1 2,226.5
-------- --------
GROSS PROFIT 914.4 930.2
-------- --------
Operating, administrative and maintenance expense 554.3 522.2
Write-off of deferred merger costs, net 11.0 --
Depreciation, depletion and amortization 127.8 143.1
Provision for asset impairments 26.5 34.6
-------- --------
INCOME FROM OPERATIONS 194.8 230.3
-------- --------
Other income (expense):
Equity in earnings from investments and partnerships 119.7 42.2
Merger termination fee 53.0 --
Other income 15.6 12.9
Minority interest and other expense (26.6) (18.8)
-------- --------
Total other income 161.7 36.3
-------- --------
EARNINGS BEFORE INTEREST AND TAXES 356.5 266.6
-------- --------
Interest expense:
Interest expense - long-term debt 122.5 105.0
Interest expense - short-term debt 8.3 10.2
Minority interest in income of partnership 8.8 8.8
-------- --------
Total interest expense 139.6 124.0
-------- --------
EARNINGS BEFORE INCOME TAXES 216.9 142.6
Income taxes 90.5 57.6
-------- --------
EARNINGS BEFORE EXTRAORDINARY ITEM 126.4 85.0
Loss on extinguishment of debt (net of income tax of $4.5) 7.2 --
-------- --------
NET INCOME 119.2 85.0
Preference dividends 1.9 2.1
-------- --------
EARNINGS AVAILABLE FOR COMMON SHARES $117.3 $82.9
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
DOLLARS IN MILLIONS 1997 1996
--------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 172.9 $ 137.1
Funds on deposit 37.1 56.8
Accounts receivable, net 663.8 811.6
Inventories and supplies, at average cost 88.5 110.9
Price risk management assets 37.9 55.2
Prepayments and other 45.4 32.9
-------- --------
TOTAL CURRENT ASSETS 1,045.6 1,204.5
Property, plant and equipment, net 2,379.5 2,406.7
Investments in subsidiaries and partnerships 766.2 761.0
Price risk management assets 149.9 154.1
Deferred charges 187.0 178.6
-------- --------
TOTAL ASSETS $4,528.2 $4,704.9
-------- --------
-------- --------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 94.4 $ 25.7
Short-term debt 302.0 252.0
Accounts payable 753.0 912.9
Accrued liabilities 102.8 50.0
Price risk management liabilities 54.8 71.7
Other 58.8 107.3
-------- --------
TOTAL CURRENT LIABILITIES 1,365.8 1,419.6
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, net 1,325.9 1,470.7
Deferred income taxes and credits 319.9 313.7
Price risk management liabilities 61.3 64.5
Minority interest 58.6 56.9
Other deferred credits 103.3 96.5
-------- --------
TOTAL LONG-TERM LIABILITIES 1,869.0 2,002.3
Company-obligated mandatorily redeemable preferred securities
of partnership 100.0 100.0
Preference stock -- 25.0
Common shareowners' equity 1,193.4 1,158.0
Commitments and contingencies
-------- --------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $4,528.2 $4,704.9
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements
5
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF PREFERENCE STOCK
<TABLE>
<CAPTION>
March 31, December 31,
DOLLARS IN MILLIONS 1997 1996
---------- ------------
<S> <C> <C>
Preference Stock: (Unaudited)
$2.05 series, 1,000,000 shares, redeemed $-- $25.0
------- ---------
TOTAL PREFERENCE STOCK $-- $25.0
------- ---------
</TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF COMMON SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
DOLLARS IN MILLIONS 1997 1996
---------- ------------
<S> <C> <C>
Common Stock: authorized 100,000,000 shares, par value (Unaudited)
$1 per share, 53,427,524 shares outstanding (53,293,645 at
December 31, 1996 ); authorized 20,000,000 shares of $ 53.4 $ 53.3
Class A common stock, par value $1 per share, none issued
Premium on Capital Stock 997.3 991.7
Retained Earnings 150.9 125.3
Treasury Stock, at cost (31,242 and 228,807 shares at March 31,
1997 and December 31, 1996, respectively) (.8) (6.4)
Currency Translation Adjustment (7.4) (5.9)
-------- --------
TOTAL COMMON SHAREOWNERS' EQUITY $1,193.4 $1,158.0
-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED
<TABLE>
<CAPTION>
Quarter Ended March 31,
DOLLARS IN MILLIONS 1997 1996
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $50.7 $37.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 31.9 31.9
Net changes in price risk management assets and liabilities 1.4 (.8)
Deferred income taxes and credits 6.2 (.6)
Equity in earnings from investments and partnerships (21.2) (12.6)
Dividends from investments and partnerships 6.8 2.8
Minority interests 2.1 2.7
Provision for asset impairments 26.5 -
Loss on extinguishment of debt 7.2 -
Changes in certain assets and liabilities:
Accounts receivable, net 154.2 (51.7)
Accounts receivable sold -- 48.0
Inventories and supplies 22.4 42.1
Prepayments and other (12.5) (6.8)
Deferred charges, net (.3) (1.5)
Accounts payable (159.9) (6.4)
Accrued liabilities, net 57.3 52.6
Other (42.3) .2
----- -----
CASH PROVIDED FROM OPERATING ACTIVITIES 130.5 137.2
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (19.6) (17.9)
Investments in international businesses (1.9) --
Investments in energy related properties (4.9) (12.0)
Other 2.7 (19.3)
----- -----
CASH USED FOR INVESTING ACTIVITIES (23.7) (49.2)
----- -----
</TABLE>
7
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED, CONTINUED
<TABLE>
<CAPTION>
Quarter Ended March 31,
DOLLARS IN MILLIONS 1997 1996
----- -----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $5.7 $16.7
Treasury stock sold 5.6 --
Issuance of long-term debt .4 10.6
Retirement of long-term debt (82.6) --
Retirement of preference stock (25.0) --
Short-term borrowings (repayments), net 50.0 (87.1)
Cash dividends paid (23.7) (20.9)
Other (1.4) -
----- -----
CASH USED FOR FINANCING ACTIVITIES (71.0) (80.7)
Increase in cash and cash equivalents 35.8 7.3
Cash and cash equivalents at beginning of period 137.1 110.7
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $172.9 $118.0
----- -----
</TABLE>
See accompanying notes to consolidated condensed financial statements.
8
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED
<TABLE>
<CAPTION>
Twelve Months Ended March 31,
DOLLARS IN MILLIONS 1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $119.2 $ 85.0
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 127.8 143.1
Net changes in price risk management assets and liabilities (31.5) (41.2)
Deferred income taxes and credits 41.3 (29.6)
Equity in earnings from investments and partnerships (119.7) (42.2)
Dividends from investments and partnerships 46.7 19.8
Minority interest 7.4 5.6
Provision for asset impairments 26.5 34.6
Loss on extinguishment of debt 7.2 --
Write-off of deferred merger costs 11.0 --
Changes in certain assets and liabilities:
Accounts receivable, net (300.3) (175.1)
Accounts receivable sold 13.6 54.1
Inventories and supplies (18.1) 24.7
Prepayments and other 14.4 (21.4)
Deferred charges, net .2 4.3
Accounts payable 325.1 137.9
Accrued liabilities, net 19.9 5.5
Other (34.6) 69.7
------- -------
CASH PROVIDED FROM OPERATING ACTIVITIES 256.1 274.8
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (136.0) (107.3)
Purchase of utility and other businesses (138.1) --
Investments in international businesses (44.2) (379.3)
Investments in non-regulated generating assets -- (59.0)
Proceeds on sale of oil and gas properties -- 204.5
Investments in energy related properties (19.3) (152.7)
Other (48.5) (70.9)
------- -------
CASH USED FOR INVESTING ACTIVITIES (386.1) (564.7)
------- -------
</TABLE>
9
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED, CONTINUED
<TABLE>
<CAPTION>
Twelve Months Ended March 31,
DOLLARS IN MILLIONS 1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $187.4 $43.5
Issuance of company-obligated mandatorily redeemable
preferred securities of partnership -- 100.0
Retirements of preference stock (25.0) --
Treasury stock sold (acquired) (.8) 2.3
Issuance of long-term debt 119.5 425.8
Retirement of long-term debt (104.8) (155.0)
Short-term borrowings (repayments), net 99.5 (28.0)
Cash dividends paid (89.5) (81.2)
Other (1.4) --
-------- --------
CASH PROVIDED FROM FINANCING ACTIVITIES 184.9 307.4
-------- --------
Increase in cash and cash equivalents 54.9 17.5
Cash and cash equivalents at beginning of period 118.0 100.5
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $172.9 $118.0
-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
10
<PAGE>
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the accounting policies described in the
consolidated financial statements and related notes included in UtiliCorp's
1996 Form 10-K. It is suggested that those consolidated financial statements
be read in conjunction with this report. The year-end financial statements
presented were derived from audited financial statements of UtiliCorp United
Inc., (the company) but do not include all disclosures required by generally
accepted accounting principles. In the opinion of management, the
accompanying consolidated condensed financial statements reflect all
adjustments (which include only normal recurring adjustments) necessary for a
fair representation of the financial position of the company and the results
of its operations. Certain estimates and assumptions that affect reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of sales and expenses during the reporting periods shown
have been made in preparing the consolidated condensed financial statements.
Actual results could differ from these estimates.
Certain prior year amounts in the consolidated financial statements have been
reclassified where necessary to conform to the 1997 presentation.
2. MERGER TERMINATION FEE
On September 17, 1996, Kansas City Power & Light Company (KCPL) terminated
the Amended and Restated Agreement and Plan of Merger (the Agreement) among
KCPL, KC Merger Sub, Inc., the company, and KC United Corp., which would have
provided for the merger of the company and KCPL.
In February 1997, Western Resources Inc. and KCPL signed a definitive
agreement to merge. As a result, KCPL paid the company a $53 million
termination fee which was recorded as a gain in the first quarter of 1997.
3. PROVISION FOR ASSET IMPAIRMENTS
As part of the sale of the company's oil and gas production assets in
September 1995, the company retained a net profits interest in the properties
which was contingent upon the future performance and activities of the oil
and gas properties sold and certain payout criteria related to the sale
transaction. At the time of the sale, the net profits interest was valued at
$22.5 million. Pursuant to the sales agreement, periodic drilling and reserve
updates are provided each year to the company. After receiving the most
recent study in March 1997, the company recorded a $15.5 million charge
against earnings primarily to reflect the latest estimate of its net
realizable value.
During the first quarter of 1997, the company evaluated some of its
technology related investments and eliminated certain technology related
positions. In light of recent organizational changes at one of the company's
strategic partners and the results to date, the company expensed
approximately $11.0 million consisting of certain contractual and software
rights and severance costs.
11
<PAGE>
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
4. EXTINGUISHMENT OF DEBT
During the first quarter of 1997, the company retired, at a premium, $69.1
million of its 10.5% Series Senior Notes that were to mature in 2020. The
transaction resulted in an extraordinary loss of $7.2 million, net of an
income tax benefit of $4.5 million. This early retirement is expected to
save $1.2 million per year in interest costs based on current interest rates.
5. REDEMPTION OF PREFERENCE STOCK
On March 1, 1997, the company redeemed its $2.05 Series Preference Stock at
par. This redemption is expected to increase earnings available for common
shares by an estimated $1.1 million per year based on current interest rates.
6. EARNINGS PER SHARE
Primary and fully diluted earnings per share for the three months and twelve
months ending March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
IN MILLIONS, EXCEPT PER SHARE AMOUNTS Quarter Ended Twelve Months Ended
March 31, March 31,
--------------------- -----------------------
1997 1996 1997 1996
------ ------ ------- -------
<S> <C> <C> <C> <C>
Earnings available for common
shares $50.4 $36.8 $117.3 $82.9
------ ------ ------- -------
Earnings per share:
Primary:
Earnings before extraordinary item $1.08 $.80 $2.55 $1.82
Extraordinary item (.13) - (.15) -
------ ------ ------- -------
Earnings available for common $.95 $.80 $2.40 $1.82
------ ------ ------- -------
------ ------ ------- -------
Fully Diluted:
Earnings before extraordinary item $1.07 $.79 $2.54 $1.81
Extraordinary item (.13) - (.15) -
------ ------ ------- -------
Earnings available for common $.94 $.79 $2.39 $1.81
------ ------ ------- -------
------ ------ ------- -------
Weighted average common shares outstanding:
Primary 53.24 46.23 48.94 45.62
Fully Diluted 53.54 46.57 49.25 45.98
</TABLE>
12
<PAGE>
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
7. LONG-TERM GAS SUPPLY CONTRACTS
In 1996, the company realigned certain of its business relationships in the
United Kingdom (UK). Its equity relationships in three retail gas
partnerships were terminated. As part of the termination of one of its
equity relationships, the company assumed an interest in two long-term gas
supply contracts (for deliveries through 2005) that it assimilated into its
existing portfolio of sales and supply contracts. Based on management's
estimates and available market data at December 31, 1996, the company carried
a $14 million reserve relating to potential future losses that may have
existed within the portfolio of contracts. The net present value of the
range of future losses was estimated to be between $14 and $23 million.
Due to the continued decline in natural gas prices in the UK since December
31, 1996 and the fact that the purchase price of this gas supply is tied in
part to certain oil based indices which have strengthened, the company
increased its reserve related to its current portfolio of contracts by $5.0
million to $19 million. As the U.K. natural gas market does not have liquid
long-term pricing, it is difficult to calculate future profitability of the
portfolio. However, management believes that this reserve is adequate and
that any additional increases in the reserve would not be material.
8. REGULATORY MATTERS
MISSOURI
In the first quarter of 1997, the staff of the Missouri Public Service
Commission (MPSC) filed a complaint against the company seeking to reduce
annual Missouri electric revenues by $23 million. In a separate filing with
the MPSC, the company requested to increase electric rates by $24.6 million.
The company believes the MPSC will review the company's and staff's positions
on a similar timetable.. The primary differences between these two dockets
center on capital structure, test year and corporate allocations.
The company's filing is designed to recover inflationary and other cost
increases which include the investment of approximately $20 million in plant
and facility improvements. The rate increase also reflects the request for a
temporary surcharge of $.0028 per kilowatt-hour to cover cost related to
transitioning to the competitive customer-choice marketplace. In addition,
the filing includes a mechanism to lessen the impact of the surcharge on
consumers, and establishes a $1 million fund to assist low-income customers.
The company expects these regulatory matters to be resolved in 1998.
MICHIGAN
In March 1997, the Michigan Public Service Commission (MPS) issued an order on
the company's pending gas rate request and granted a $1.7 million annual
revenue increase. In response to the MPS order, the company filed for
reconsideration of certain issues totaling $1.5 million. The MPS has not set
a schedule for the reconsideration filing.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
UTILICORP UNITED INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT WHERE NOTED, THE FOLLOWING DISCUSSION REFERS TO THE CONSOLIDATED
ENTITY, UTILICORP UNITED INC., INCLUDING THE FOLLOWING BUSINESSES: UTLICORP
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 TRANSMISSION
AND ELECTRICITY MARKETING; UTILICORP ENERGY SOLUTIONS (UES), CONSISTING OF
RETAIL GAS MARKETING, APPLIANCE REPAIR AND SERVICE CONTRACTS, AND OTHER
ENERGY RELATED PRODUCTS AND SERVICES; AND GENERATION, CONSISTING OF DOMESTIC
ELECTRIC GENERATION AND INDEPENDENT POWER PROJECTS. THE COMPANY ALSO HAS
VARIOUS OPERATIONS THAT INCLUDE GENERATION, GAS MARKETING, ELECTRIC
DISTRIBUTION AND VARIOUS EQUITY INVESTMENTS THAT ARE DISCUSSED IN THE
INTERNATIONAL SECTION OF THIS REPORT. THE LIQUIDITY AND CAPITAL RESOURCES
SECTION IS PREPARED ON A CONSOLIDATED BASIS.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the company's liquidity and capital resources are
sufficient and provide adequate financial flexibility. During the first
quarter of 1997, the company redeemed its $2.05 Series Preference Stock at
par ($25 million) and retired $69.1 million of its 10.5% Series Senior Notes
with short-term debt. The company anticipates that it will permanently
refinance these items with long-term debt at interest rates substantially
lower than the coupon rates on its redeemed preference stock and senior
notes. The company uses its accounts receivable sales programs to efficiently
manage its working capital and provide immediate liquidity of certain
accounts receivable. At March 31, 1997, these programs were fully utilized.
In April 1997, the company increased one of its accounts receivable
sales programs from $100 million to $150 million to keep pace with the
company's growing wholesale energy marketing business. In addition to the
accounts receivable sales program, the company can also issue up to $150
million of commercial paper which is supported by a $250 million revolving
credit agreement. At March 31, 1997, there were $119 million in commercial
paper borrowings.
Cash provided from operating activities decreased $6.7 million for the
quarter ended March 31, 1997 compared to the same period in 1996. The
primary factors causing the decrease relate to increased equity earnings
and the timing of certain cash payments and receipts, offset by increased net
income and the provision for asset impairments
Cash used in investing activities decreased $25.5 million for the quarter
ended March 31, 1997, compared to 1996. Cash used in investing activities
varies depending on the number and magnitude of investment and acquisition
opportunities. The 1997 decrease in investing activities reflects the
renovation of the new headquarters building that was almost complete at the
end of 1996.
Cash used for financing activities decreased $9.7 million for the quarter
ended March 31, 1997, compared to 1996. The decrease was mainly due to
increased short-term borrowings which were used to partially fund the
retirement of long-term debt and preference stock as previously noted.
14
<PAGE>
FORWARD-LOOKING INFORMATION
This Form 10-Q contains forward-looking information. Such information
involves risks and uncertainties and there are certain important factors that
could cause actual results to differ materially from those anticipated. Some
of the important factors which could cause actual results to differ
materially from those anticipated include, but are not limited to, future
national and regional economic and competitive conditions, inflation rates,
regulatory changes, weather conditions, financial market conditions, interest
rates, future business decisions, and other uncertainties, all of which are
difficult to predict and many of which are beyond the control of the company.
RESULTS OF OPERATIONS
The results of operations for the 1997 and 1996 periods have been impacted by
several items that do not have a continuing effect on the Company's financial
position or results of operations. The table below summarizes the impact of
the non-recurring items on an earnings before interest and taxes (EBIT) and
earnings per share (EPS) basis.
<TABLE>
<CAPTION>
QUARTER ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ ------------------------------
DOLLARS IN MILLIONS 1997 1996 1997 1996
------------------------------ ------------------------------
EBIT EPS EBIT EPS EBIT EPS EBIT EPS
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS REPORTED $129.4 $.95 $95.1 $.80 $356.5 $2.40 $266.6 $1.82
NON-RECURRING ITEMS:
Merger termination fee (Note 2) (53.0) (.61) -- -- (53.0) (.67) -- --
Write-off of deferred merger costs, net (a) -- -- -- -- 11.0 .14 -- --
Provision for asset impairments (b) and (Note 3) 26.5 .31 -- -- 26.5 .33 32.3 .43
Change in accounting method--mark-to-market (c) -- -- -- -- -- -- (29.8) (.40)
Oil and gas operating results (d) -- -- -- -- -- -- (3.3) .07
Reserve for United Kingdom gas contracts
and other reserves (e) and (Note 7) 6.5 .07 -- -- 6.5 .08 11.0 .15
Gain on sales lease (f) -- -- -- -- (20.9) (.24) -- --
Loss on extinguishment of debt (g) -- .13 -- -- -- .15 -- --
------------------------------ ------------------------------
NORMALIZED $109.4 .85 $95.1 $.80 $326.6 $2.19 $276.8 $2.07
------------------------------ ------------------------------
------------------------------ ------------------------------
</TABLE>
a) In 1996, the company expensed deferred merger costs, net of a termination
fee received, resulting in a net write-off of $11.0 million. See Note 2
for additional termination fees received.
b) In 1995, the company recorded a $32.3 million pretax charge related to
impaired assets, net of minority interest of $2.3 million.
c) In 1995, the company changed its method of accounting for domestic natural
gas trading operations to the mark-to-market method. This change resulted
in a $29.8 million pretax enhancement to 1995 results.
d) In 1995, the company sold substantially all of its oil and gas
production assets for $204.5 million. This normalizing adjustment
represents the EBIT and net EPS loss from this business.
15
<PAGE>
e) In 1995, the company recorded a $11.0 million reserve against earnings for
unfavorable gas supply contracts in the United Kingdom.
f) 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 pre-tax earnings by $20.9 million.
g) See Note 4.
Normalized earnings or income are terms used by management to describe the
recurring earnings or income of the company. These terms are not meant to
replace net income or other measures under generally accepted accounting
principles.
ENERGY DELIVERY
The table below summarizes the operations of UtiliCorp Energy Delivery for
the following periods:
<TABLE>
<CAPTION>
Quarter Ended Twelve Months Ended
March 31, March 31,
DOLLARS IN MILLIONS 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales:
Electric $122.7 $117.0 $525.0 $500.6
Gas 342.5 300.1 770.4 670.9
Other 9.4 13.8 47.5 47.9
Purchases from Generation (72.7) (70.2) (287.8) (270.7)
-------- -------- -------- --------
Total net sales 401.9 360.7 1,055.1 948.7
-------- -------- -------- --------
Cost of sales:
Electric 3.9 4.5 14.3 14.7
Gas 237.9 194.4 497.3 393.5
Other 5.5 11.1 26.6 32.1
-------- -------- -------- --------
Total cost of sales 247.3 210.0 538.2 440.3
-------- -------- -------- --------
Gross profit 154.6 150.7 516.9 508.4
-------- -------- -------- --------
Operating expenses:
Other operating 54.2 50.4 217.2 213.7
Maintenance 6.3 6.0 26.4 23.2
Taxes, other than income taxes 14.0 13.4 51.2 49.7
Depreciation and amortization 17.3 17.6 65.7 68.9
-------- -------- -------- --------
Total operating expenses 91.8 87.4 360.5 355.5
-------- -------- -------- --------
Income from operations 62.8 63.3 156.4 152.9
Other income 1.4 1.9 10.6 8.4
-------- -------- -------- --------
Earnings before interest expense and
income taxes (EBIT) $64.2 $65.2 $167.0 $161.3
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
QUARTER-TO-QUARTER
EBIT decreased $1.0 million or 2% in the 1997 quarter compared to the 1996
quarter. Energy Delivery customer growth of 2% for both electric and gas
increased EBIT by $5.8 million over the 1996 period. New gas rates in
Nebraska and Kansas favorably impacted the 1997 quarter compared to the 1996
quarter by $3.3 million. These favorable impacts were offset by 8% warmer
winter weather compared to 1996 (3% warmer than normal) and increased
operating expenses stemming from costs incurred to realign certain resources
with its primary business processes. Other sales and costs of sales
decreased in the 1997 period compared to 1996 due to the disposition of the
company's propane and wastewater businesses.
16
<PAGE>
TWELVE MONTHS ENDED MARCH 31, 1997 TO 1996
EBIT increased 4% for the 1997 twelve month period compared to the 1996
period due primarily to the impact of several gas rate cases and growth in
the number of customers offset by unfavorable winter temperatures discussed
above. Significantly higher gas prices in 1997 increased both gas costs and
sales (through gas cost trackers), with no net impact on EBIT. Energy
Delivery's operating expenses increased 1% in 1997 compared to 1996 despite
the upward pressures of inflation, primarily due to improved operating
efficiencies and effective cost management.
GENERATION
The table below summarizes the operations of Generation for the following
periods:
<TABLE>
<CAPTION>
Quarter Ended Twelve Months Ended
March 31, March 31,
----------------------- -----------------------
DOLLARS IN MILLIONS 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales to Energy Delivery $72.7 $70.2 $287.8 $270.7
Cost of sales 40.1 39.2 167.4 156.8
-------- -------- -------- --------
Gross profit 32.6 31.0 120.4 113.9
-------- -------- -------- --------
Operating expenses:
Other operating 11.0 12.0 49.1 43.5
Maintenance 3.6 3.8 14.5 13.5
Taxes, other than income taxes 1.8 1.6 6.7 6.8
Depreciation and amortization 4.2 4.8 18.2 19.8
Provision for asset impairment - - - 15.4
-------- -------- -------- --------
Total operating expenses 20.6 22.2 88.5 99.0
-------- -------- -------- --------
Income from operations 12.0 8.8 31.9 14.9
Equity in earnings of investments and
partnerships 7.9 6.8 52.0 25.9
Other income (expense) .4 .1 - (.1)
-------- -------- -------- --------
EBIT 20.3 15.7 83.9 40.7
Non-recurring items:
Provision for asset impairments - - - 15.4
Gain on sales lease of a power project - - (20.9) -
-------- -------- -------- --------
Normalized EBIT $20.3 $15.7 $63.0 $56.1
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
QUARTER-TO-QUARTER
Generation's 1997 first quarter EBIT was $20.3 million or 29% above the 1996
quarter. EBIT increased $1.1 million due to a better performance of the
independent power projects and also benefited from increased spot market
sales of 128,750 MWH's and reduced operating expenses. Additionally,
purchased power for Energy Delivery's system load was lower in 1997 as
compared to 1996 due to more favorable pricing obtained in the spot market.
TWELVE MONTHS ENDED MARCH 31, 1997 TO 1996
Generation's normalized EBIT for the 1997 twelve month period compared to the
1996 period increased 12%. The improved results stem from the expansion of
off peak generation sales in the 1997 period compared to the 1996 period and
better independent power project performance.
17
<PAGE>
AQUILA ENERGY
The table below summarizes the operations of Aquila Energy for the following
periods:
<TABLE>
<CAPTION>
Quarter Ended Twelve Months Ended
March 31, March 31,
----------------------- -----------------------
DOLLARS IN MILLIONS 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales:
Wholesale energy marketing $1,216.2 $383.8 2,883.4 $1,058.6
Gas sales, transmission and processing 103.1 92.1 387.1 312.8
Oil and gas production - - - 34.1
-------- -------- -------- --------
Total sales 1,319.3 475.9 3,270.5 1,405.5
-------- -------- -------- --------
Cost of sales:
Cost of wholesale energy marketing 1,193.6 369.8 2,805.8 991.2
Cost of gas gathering and processing 75.3 65.1 278.1 215.8
-------- -------- -------- --------
Total cost of sales 1,268.9 434.9 3,083.9 1,207.0
-------- -------- -------- --------
Gross profit 50.4 41.0 186.6 198.5
-------- -------- -------- --------
Operating expenses:
Operating and maintenance 20.2 17.2 84.5 72.6
Depreciation, depletion and amortization 5.7 6.2 25.2 41.2
Provision for asset impairments 15.5 - 15.5 13.2
-------- -------- -------- --------
Total operating expenses 41.4 23.4 125.2 127.0
-------- -------- -------- --------
Income from operations 9.0 17.6 61.4 71.5
Minority interest expense and other 2.6 3.0 9.4 4.4
-------- -------- -------- --------
EBIT 6.4 14.6 52.0 67.1
Non-recurring items:
Change to mark-to-market method of
accounting - - - (29.8)
Oil and gas operating income - - - (3.3)
Provision for asset impairments 15.5 - 15.5 10.8
-------- -------- -------- --------
Normalized EBIT $21.9 $14.6 $67.5 $44.8
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
QUARTER-TO-QUARTER
Aquila's 1997 normalized EBIT increased 50% over the 1996 quarter. This EBIT
increase is primarily due to margins generated from Aquila's wholesale energy
marketing businesses as the company capitalized upon favorable market trading
conditions. Gas marketing volumes sold grew 161% over the 1996 quarter.
This volume increase results from the pursuit of an aggressive expansion
strategy and a successful startup of a Canadian gas marketing operation late
in 1996. Aquila continues to focus on maintaining growth in the wholesale
gas marketing business. Aquila's wholesale electricity marketing business
also experienced significant volume growth with the 1997 quarter volumes of
7.8 million MWHs exceeding full year 1996 volumes by 20%. The increased gas
and electricity volumes marketed significantly increased sales and cost of
sales in 1997 compared to 1996. The increase in operating expenses is
primarily the result of the hiring of additional traders and support staff to
implement Aquila's growth strategy.
In the 1997 quarter, Aquila's gas processing business had a 10% decrease in
throughput volumes which was mitigated by a 36% increase in natural gas
liquid (NGL) pricing compared to the 1996 quarter. The throughput volumes
are expected to increase in the second quarter as two new large well
connections are completed on Aquila's largest gathering system.
18
<PAGE>
TWELVE MONTHS ENDED MARCH 31, 1997 TO 1996
Aquila's normalized EBIT for the 1997 twelve month period increased 51% over
the 1996 twelve month period. The increased EBIT is a result of the
aggressive market share growth strategy mentioned above and volatile gas
prices which provided trading opportunities during the period. Gas marketing
volumes rose 86% to 2.8 Bcf per day in the 1997 twelve month period.
Aquila's NGL processing businesses benefited from a 27% increase in NGL
prices and a 19% increase in NGL production which increased pipeline and
processing EBIT by $11.2 million.
ENERGY SOLUTIONS
The table below summarizes the operations of Energy Solutions for the following
periods:
<TABLE>
<CAPTION>
Quarter Ended Twelve Months Ended
March 31, March 31,
----------------------- -----------------------
DOLLARS IN MILLIONS 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $166.5 $80.1 $400.2 $221.9
Cost of sales 159.7 74.0 370.7 197.9
-------- -------- -------- --------
Gross profit 6.8 6.1 29.5 24.0
-------- -------- -------- --------
Operating expenses:
Operating and maintenance 10.3 8.7 46.2 30.1
Depreciation, depletion and amortization .3 .3 4.3 .4
-------- -------- -------- --------
Total operating expenses 10.6 9.0 50.5 30.5
-------- -------- -------- --------
EBIT $(3.8) $(2.9) $(21.0) $(6.5)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
QUARTER-TO-QUARTER
Energy Solutions' EBIT decreased $.9 million for the 1997 quarter compared to
the 1996 quarter. This decrease in EBIT is primarily due to lower gas
marketing margins on a percentage basis which resulted from increased
competition and higher operating expenses resulting from additional
infrastructure building.
TWELVE MONTHS ENDED MARCH 31, 1997 TO 1996
Energy Solutions' 1997 twelve month EBIT loss was $21.0 million compared to a
$6.5 million loss in 1996. Increased losses primarily reflect the impact of
fixed price gas sales contracts that were partially supplied with floating
supply contracts as required volumes were higher than anticipated. In
addition, Energy Solutions incurred severance costs, additional backroom
costs and had additional bad debts stemming from higher gas costs.
19
<PAGE>
INTERNATIONAL
<TABLE>
<CAPTION>
Quarter Ended Twelve Months Ended
March 31, March 31,
----------------------- -----------------------
DOLLARS IN MILLIONS 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales:
Electric (Canada) $26.2 $26.1 $93.0 $90.2
Gas Marketing (primarily United Kingdom) 72.9 71.4 200.7 211.8
-------- -------- -------- --------
Total Sales 99.1 97.5 293.7 302.0
-------- -------- -------- --------
Cost of Sales:
Cost of fuel and purchased power (Canada) 9.0 9.4 29.3 28.3
Cost of gas marketing (United Kingdom) 78.1 66.9 198.7 193.4
-------- -------- -------- --------
Total Cost of sales 87.1 76.3 228.0 221.7
-------- -------- -------- --------
Gross Profit 12.0 21.2 65.7 80.3
-------- -------- -------- --------
Operating expenses:
Other operating 5.5 5.8 26.2 31.3
Maintenance 2.4 2.2 9.3 8.5
Taxes, other than income taxes 2.9 3.1 11.9 12.9
Depreciation and amortization 4.1 2.3 14.4 7.7
-------- -------- -------- --------
Total Expense 14.9 13.4 61.8 60.4
-------- -------- -------- --------
Income (loss) from operations (2.9) 7.8 3.9 19.9
Equity earnings in subsidiaries and
partnerships 13.7 5.8 68.0 15.7
Other income and (expense) .7 (.5) 4.6 2.8
-------- -------- -------- --------
EBIT 11.5 13.1 76.5 38.4
Non-recurring item :
UK gas contracts reserve 5.0 - 5.0 11.0
-------- -------- -------- --------
Normalized EBIT $16.5 $13.1 $81.5 $49.4
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
QUARTER-TO-QUARTER
International normalized EBIT increased $3.4 million or 26% in 1997 compared
to 1996. This increase was primarily due to a 141% increase in EBIT from the
Australian operations and stronger earnings in New Zealand, which were
partially offset by lower EBIT from operations in the United Kingdom. The
1997 increase in Australian EBIT reflects the avoidance of certain initial
start-up costs that were incurred in 1996 when operations were in the
formative stage, as well as benefits received from changes made in
transforming United Energy Limited to a competitive and customer-focused
operation.
The company's New Zealand investments contributed $2.3 million and $.2
million to EBIT for the three months ended March 31, 1997 and 1996,
respectively. The $2.1 million EBIT increase in 1997 over 1996 is due to
additional equity earnings from its investments in Power New Zealand (PNZ)
and WEL Energy Group (WEL). Increased equity earnings are a result of a
higher ownership position in both investments as well as improved operations
at both PNZ and WEL.
The 1997 decrease in United Kingdom EBIT is a result of reduced margins
stemming from a change in the price of gas and its impact on the Company's
portfolio of contracts.
TWELVE MONTHS ENDED MARCH 31, 1997 TO 1996
International normalized EBIT increased $32.1 million or 65% in 1997 compared
to 1996. This increase was primarily due to a $29.5 million increase in EBIT
from the Australian operations. The company's Australian operations contributed
20
<PAGE>
EBIT of $43.7 million and $14.2 million for the twelve months ended March 31,
1997 and 1996, respectively. The 1997 increase in EBIT refelects the timing
of the Australian acquisition, which occurred in September 1995, thus only
six months of operations are included in the twelve months ended March 31,
1996. Other factors are the avoidance of certain initial start-up costs that
were incurred in 1996 due to operations being in the formative stage, and the
benefits received from transforming United Energy Limited into a competitive
and customer-focused operation.
The company's New Zealand investments contributed EBIT of $13.7 and $1.8
million for the twelve months ending March 31, 1997 and 1996, respectively.
The 1997 increase in EBIT was primarily a result of three factors. A
significant amount of PNZ shares were not purchased until November 1995,
yielding only a partial year of earnings during the twelve months ended March
31, 1996. The company benefitted from the additional earnings in 1997 that
were attached to shares purchased throughout 1996 from both investments and
improved operations at the underlying electric distribution companies
The UK's normalized EBIT for the twelve months ending March 31, 1997 dropped
primarily due to the changing price of natural gas and its impact on the
portfolio of sales and supply contracts.
21
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS.
(a) List of Exhibits
11 Statement regarding Computation of Per Share Earnings.
27 Financial Data Schedule--For the three months ended March 31, 1997.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UTILICORP UNITED INC.
By: /S/ RICHARD C. GREEN, JR.
----------------------------------------------------
Richard C. Green, Jr.
Chairman of the Board and Chief Executive Officer
Date: May 14, 1997
By: /S/ TERRY G. WESTBROOK
--------------------------------
Terry G. Westbrook
Senior Vice President and
Chief Financial Officer
Date: May 14, 1997
23
<PAGE>
UTILICORP UNITED INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Exhibit 11
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31
----------------------- ------------------------------
(In thousands except per share amounts) 1997 1996 1997 1996
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Earnings Available for Common Shares:
(a) Income before extraordinary item $57,567 $36,799 $124,473 $82,873
(b) Extraordinary item (7,184) - (7,184) -
---------- ---------- ---------- ---------
(c) Primary Earnings Available 50,383 36,799 117,289 82,873
Elimination of interest on convertible
subordinated debenture, net of tax 70 84 310 361
---------- ---------- ---------- ---------
(d) Fully Diluted Earnings Available $50,453 $36,883 $117,599 $83,234
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Weighted Average Common Shares Outstanding:
(e) Primary weighted average shares outstanding
as reported 53,244 46,233 48,937 45,624
Assumed conversion of convertible subordinated
debenture 295 335 311 357
---------- ---------- ---------- ---------
(f) Fully Diluted Weighted Average Shares
Outstanding 53,539 46,568 49,248 45,981
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Earnings Per Common Share:
Income before extraordinary item (a/e) $1.08 $.80 $2.55 $1.82
Extraordinary item (b/e) (.13) - (.15) -
---------- ---------- ---------- ---------
Primary Earnings Available $.95 $.80 $2.40 $1.82
Fully Diluted (d/f) $.94 $.79 $2.39 $1.81
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE QUARTER ENDING MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-03-1997
<CASH> 173
<SECURITIES> 0
<RECEIVABLES> 664
<ALLOWANCES> 0
<INVENTORY> 89
<CURRENT-ASSETS> 1,046
<PP&E> 2,380
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,528
<CURRENT-LIABILITIES> 1,366
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 1,140
<TOTAL-LIABILITY-AND-EQUITY> 4,528
<SALES> 2,060
<TOTAL-REVENUES> 2,060
<CGS> 1,805
<TOTAL-COSTS> 1,974
<OTHER-EXPENSES> 27
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> 95
<INCOME-TAX> 38
<INCOME-CONTINUING> 58
<DISCONTINUED> 0
<EXTRAORDINARY> (7)
<CHANGES> 0
<NET-INCOME> 51
<EPS-PRIMARY> .95
<EPS-DILUTED> .94
</TABLE>
