Exhibit 99.1
UTILICORP UNITED INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
-------------------------------------------
In millions, except per share 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------
SALES $28,974.9 $18,621.5 $12,563.4
Cost of sales 27,546.2 17,464.7 11,596.0
- --------------------------------------------------------------------------------------------------------------
GROSS PROFIT 1,428.7 1,156.8 967.4
- --------------------------------------------------------------------------------------------------------------
Operating and maintenance expense 844.3 635.3 548.9
Depreciation and amortization expense 225.0 193.7 150.0
Impairments and other charges 27.2 -- 27.7
Equity in earnings of investments and partnerships (159.5) (69.5) (125.1)
Other (income) expense (48.3) (16.7) 14.5
- --------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES 540.0 414.0 351.4
- --------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest expense--long-term debt 166.2 160.9 111.4
Interest expense--short-term debt 17.9 9.3 12.3
Minority interest in income of partnership and trusts 30.9 15.1 8.9
- --------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 215.0 185.3 132.6
- --------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 325.0 228.7 218.8
Income taxes 118.2 68.2 86.6
- --------------------------------------------------------------------------------------------------------------
NET INCOME AND EARNINGS AVAILABLE FOR COMMON SHARES $206.8 $160.5 $132.2
==============================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 93.05 91.47 80.07
Diluted 93.75 92.11 81.18
- --------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
Basic $2.22 $1.75 $1.65
Diluted 2.21 1.75 1.63
==============================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-1
UTILICORP UNITED INC.
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------
Dollars in millions 2000 1999
- ---------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 392.6 $ 224.9
Funds on deposit 154.3 47.3
Accounts receivable, net 4,472.9 1,446.5
Inventories and supplies 195.2 266.0
Price risk management assets 1,454.3 198.2
Prepayments and other 199.3 89.3
- ---------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 6,868.6 2,272.2
- ---------------------------------------------------------------------------------------------
Property, plant and equipment, net 3,654.9 3,665.1
Investments in subsidiaries and partnerships 1,956.6 1,063.9
Price risk management assets 744.5 206.5
Merchant notes receivable 313.2 179.3
Deferred charges and other assets 577.8 151.6
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $14,115.6 $7,538.6
- ---------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 51.7 $ 42.8
Short-term debt 501.0 248.9
Accounts payable 4,828.2 1,713.1
Accrued liabilities 184.5 59.2
Price risk management liabilities 1,296.9 181.7
Customer funds on deposit 362.4 --
Other 259.7 99.0
- ---------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 7,484.4 2,344.7
- ---------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt, net 2,345.9 2,202.3
Income taxes and credits 625.2 434.2
Price risk management liabilities 1,252.4 520.7
Minority interests 18.1 76.8
Deferred credits 140.0 84.5
- ---------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 4,381.6 3,318.5
- ---------------------------------------------------------------------------------------------
Company-obligated preferred securities 450.0 350.0
Common shareholders' equity 1,799.6 1,525.4
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,115.6 $7,538.6
=============================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
UTILICORP UNITED INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Year Ended December 31,
-----------------------------------------------
Dollars in millions, except per share 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK: authorized 200,000,000 shares, par value $1 per share,
100,350,977 shares issued (93,605,700 at December 31, 1999
and 93,574,853 at December 31, 1998); authorized 20,000,000
shares of Class A common stock par value $1 per share, none issued
Balance beginning of year $ 93.6 $ 93.6 $ 80.6
Issuance of common stock 6.8 -- 13.0
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE END OF YEAR 100.4 93.6 93.6
- -------------------------------------------------------------------------------------------------------------------------------
Premium on Capital Stock:
Balance beginning of year 1,226.5 1,253.5 972.3
Issuance of common stock 189.3 -- 290.7
Other (10.1) (27.0) (9.5)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE END OF YEAR 1,405.7 1,226.5 1,253.5
- -------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance beginning of year 239.3 190.0 152.8
Net income 206.8 160.5 132.2
Dividends on common stock, $1.20 per share (111.6) (111.2) (95.0)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE END OF YEAR 334.5 239.3 190.0
- -------------------------------------------------------------------------------------------------------------------------------
Treasury stock, at cost (40,441 shares at December 31, 2000,
282,233 shares at December 31, 1999 and 2,159,330 shares at
December 31, 1998) (.8) (5.4) (53.2)
Accumulated other comprehensive losses (40.2) (28.6) (37.6)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON SHAREHOLDERS' EQUITY $1,799.6 $1,525.4 $1,446.3
===============================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UTILICORP UNITED INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
--------------------------------------------
Dollars in millions 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $206.8 $160.5 $132.2
Unrealized translation adjustments, net (42.2) 9.0 (6.3)
- -------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $164.6 $169.5 $125.9
===============================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
UTILICORP UNITED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------
Dollars in millions 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $206.8 $160.5 $132.2
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization expense 225.0 193.7 150.0
Impairments and other charges 27.2 -- 27.7
Net changes in price risk management assets and liabilities 178.9 185.7 100.8
Income taxes and investment tax credits (27.0) 4.7 61.7
Equity in earnings of investments and partnerships (159.5) (69.5) (125.1)
Dividends and fees from investments and partnerships 74.4 33.9 48.9
Minority interests 1.4 11.4 5.6
Changes in certain assets and liabilities, net of effects of
acquisitions:
Accounts receivable/payable, net (21.9) 128.2 (69.2)
Funds on deposit, net 255.4 (33.9) 18.1
Inventories and supplies 83.4 (30.9) (100.5)
Prepayments and other (53.6) (3.6) (13.6)
Accrued liabilities, net 120.2 9.5 36.8
Other (120.8) 10.7 41.7
- ----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED FROM OPERATING ACTIVITIES 789.9 600.4 315.1
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (138.7) (129.3) (121.8)
Increases in merchant notes receivable (133.9) (159.2) (20.1)
Repayment of debt securities -- -- 101.1
Investments in international businesses (725.2) (485.0) (520.0)
Investments in domestic businesses (696.7) (530.5) (33.8)
Sales of assets and partnership investment -- 159.0 --
Other (34.9) (125.4) (18.7)
- ----------------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (1,729.4) (1,270.4) (613.3)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 5.8 -- 303.7
Issuance of company-obligated preferred securities 100.0 250.0 --
Treasury stock sold (acquired) 4.6 44.0 (42.3)
Issuance of long-term debt 973.9 986.0 267.0
Retirement of long-term debt (309.7) (384.5) (216.4)
Short-term borrowings, net 454.3 13.2 121.8
Cash dividends paid (111.6) (111.2) (95.0)
Other (10.1) (23.2) (9.5)
- ----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED FROM FINANCING ACTIVITIES 1,107.2 774.3 329.3
- ----------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 167.7 104.3 31.1
Cash and cash equivalents at beginning of year 224.9 120.6 89.5
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $392.6 $224.9 $ 120.6
======================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest, net of amount capitalized $215.4 $167.7 $ 132.4
Income taxes 60.2 76.8 50.1
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES ASSUMED IN ACQUISITIONS:
Fair value of assets acquired $2,229.2 $898.9 $ 609.7
Cash paid for acquisitions (1,421.9) (898.9) (520.0)
Stock issued for acquisitions (190.2) -- --
- ----------------------------------------------------------------------------------------------------------------------
Liabilities assumed 617.1 -- 89.7
======================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UtiliCorp United Inc. is an international energy and energy solutions
provider headquartered in Kansas City, Missouri. We operate lines of business
in three financial reporting segments: Networks, Energy Merchant and Services.
The main activity of Networks is operating domestic and foreign businesses
that distribute and transmit electricity and natural gas to retail and wholesale
customers. Our electric generation facilities supply electricity, primarily for
our own distribution systems. However, we also sell to outside service areas.
Networks operates in seven states, two Canadian provinces, New Zealand and
Australia.
Our Energy Merchant business operates as Aquila, Inc. (Aquila), which
markets natural gas, electricity and other commodities throughout North America,
gathers, transports, stores and processes natural gas and gas liquids in five
states, and owns, operates or controls power plants in 11 states.
Aquila is a wholly owned subsidiary of UtiliCorp. Aquila's European operations,
which market natural gas and electricity in the United Kingdom (U.K.) and
continental Europe, are based in the U.K.
Our Services segment consists of UtiliCorp Communications Services, Inc.
(UCS), which is developing comprehensive broadband communications services in
mid-sized and smaller communities in the mid-continent region, and our
investment in Quanta Services, Inc. (Quanta), a specialty services firm based in
Houston. Quanta provides specialized construction and maintenance services to
the utility, telecommunications and cable television industries.
USE OF ESTIMATES
We prepared these financial statements in conformity with U.S. generally
accepted accounting principles and made certain estimates and assumptions
that affect the reported amounts of assets and liabilities. Our estimates and
assumptions affect the disclosure of contingent assets and liabilities in
this report and reported amounts of sales and expenses during the reporting
period. Actual results could differ from those estimates. Our accounting
policies conform to U.S. generally accepted accounting principles.
PRINCIPLES OF CONSOLIDATION
Our consolidated financial statements include all of UtiliCorp's operating
divisions and majority-owned subsidiaries for which we maintain
controlling interests. We use equity accounting for investments in which we
have significant influence. We eliminate significant inter-company accounts
and transactions.
PROPERTY, PLANT AND EQUIPMENT
We show property, plant and equipment at cost. We expense repair and
maintenance costs as incurred or as provided for by regulatory order.
Depreciation is provided on a straight-line basis over the estimated lives
for utility plant by applying composite average annual rates. These range
from 2.3% to 4.0%, as approved by regulatory authorities. When regulated
property is replaced, removed or abandoned, its cost, together with the costs
of removal less salvage, is charged to accumulated depreciation. We
depreciate gathering, processing and other energy-related property using a
composite average annual rate of 4.0%. We depreciate remaining non-regulated
property, plant and equipment on a straight-line basis over their estimated
lives, ranging from three to 50 years.
SALES RECOGNITION
We recognize sales as products and services are delivered, except for trading
and energy marketing activities. Transactions carried out in connection with
trading activities are accounted for under the mark-to-market method of
accounting. Under this method, our energy commodity trading contracts,
including both physical transactions and financial instruments, are recorded
at market value, and are shown on the consolidated balance sheets as "Price
Risk Management Assets" and "Price Risk Management Liabilities." As part of
the valuation of our portfolio, we value our credit risks associated with the
financial condition of counterparties, product location differentials and
other risks which our policy dictates. When market prices are not readily
available or determinable, certain contracts are valued at fair value using
an alternate approach such as model pricing. The market prices or fair values
used in determining the value of our portfolio are our best estimates
utilizing information such as closing exchange rates, over-the-counter
quotes, volatility and time value, counterparty credit and the potential
impact on market prices of liquidating our positions in an orderly manner
over a reasonable period of time under current market conditions. When the
portfolio market value changes (primarily due to newly originated
transactions and the effect of price changes), the change is recognized as
gain or loss in the period of change. We record the resulting unrealized
gains or losses as price risk management assets and liabilities.
FUNDS ON DEPOSIT
Our Energy Merchant business has funds on deposit with counterparties
consisting primarily of margin requirements related to commodity swap and
futures contracts. Pursuant to individual contract terms with counterparties,
deposit amounts required vary with changes in market prices, credit
provisions and various other factors. Interest is earned on most funds on
deposit. We also hold funds on deposit from counterparties in the same manner.
INVENTORIES
Our inventories consist primarily of natural gas in storage valued at the
lower of weighted average cost or market.
DEVELOPMENT ACTIVITY
Our Energy Merchant business incurs development costs related to projects,
including costs of feasibility studies, bid preparation, permitting,
licensing and contract negotiations which are expensed as incurred until the
project is deemed to be probable. At that point, we expense or capitalize the
costs based on the nature of the costs. These costs may be recoverable
through partners on the projects or other third parties, or classified as an
investment and recovered through the future cash flows of the project.
Accumulated capitalized project development costs are otherwise expensed in
the period we determine it is probable that the costs will not be recovered.
F-5
INCOME TAXES
Our financial statements use the liability method to reflect income taxes. To
estimate deferred tax assets and liabilities, we apply current tax
regulations 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. We amortize deferred investment
tax credits over the lives of the related properties.
CASH EQUIVALENTS AND CASH FLOW INFORMATION
Cash includes cash in banks and temporary investments with an original
maturity of three months or less. As of December 31, 2000, 1999 and 1998, our
cash held in foreign countries was $197.2 million, $46.6 million and $41.7
million, respectively.
- -------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
The table below shows how we calculated diluted earnings per share and
diluted shares outstanding. Basic earnings per share and basic weighted
average shares are the starting point in calculating the dilutive measures.
To calculate basic earnings per share, divide earnings available by
weighted average shares without adjusting for dilutive items.
In millions, except per share 2000 1999 1998
- --------------------------------------------------------------------------------------------------------
Earnings available for common shares $206.8 $160.5 $132.2
Convertible bonds .2 .2 .2
- --------------------------------------------------------------------------------------------------------
Earnings available for common shares after assumed
conversion of dilutive securities $207.0 $160.7 $132.4
========================================================================================================
EARNINGS PER SHARE:
Basic $2.22 $1.75 $1.65
Diluted 2.21 1.75 1.63
========================================================================================================
Weighted average number of common shares used in
basic earnings per share 93.05 91.47 80.07
Effect of dilutive securities:
Stock options .42 .32 .77
Convertible bonds .28 .32 .34
Company-obligated preferred securities -- -- --
========================================================================================================
Weighted number of common shares and dilutive potential
common stock used in diluted earnings per share 93.75 92.11 81.18
========================================================================================================
CURRENCY ADJUSTMENTS
We translate the financial statements of our foreign subsidiaries and
operations into U.S. dollars using the average monthly exchange rate during
the period for income statement items. We use the year-end exchange rate for
balance sheet items. When translating foreign currency-based assets and
liabilities to U.S. dollars, we show any differences between accounts as
translation adjustments in common shareholders' equity. Currency transaction
gains or losses on transactions executed in a currency other than the
functional currency are recorded in income.
RECLASSIFICATIONS
Certain prior year amounts in the consolidated financial statements have been
reclassified where necessary to conform to the 2000 presentation.
NOTE 2: PRICE RISK MANAGEMENT
A. TRADING ACTIVITIES:
PRICE RISK MANAGEMENT ACTIVITIES
We trade energy commodity contracts daily. Our trading activities attempt to
match our portfolio of physical and financial contracts to current or
anticipated market conditions. Within the trading portfolio, we take certain
positions to hedge physical sale or purchase contracts and we take certain
positions to take advantage of market trends and conditions. We record most
energy contracts--both physical and financial--at fair market value. Changes
in value are reflected in the consolidated statement of income. We use all
forms of financial instruments including futures, forwards, swaps and
options. Each type of financial instrument involves different risks. We
believe financial instruments help us manage our contractual commitments,
reduce our exposure to changes in cash market prices and take advantage of
selected arbitrage opportunities.
We refer to these transactions as price risk management activities.
F-6
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, 2000 and 1999, are shown below:
December 31, 2000
-------------------------------------------------------
Fixed Price Fixed Price Maximum Term
Dollars in millions Payor Receiver In Years
- ------------------------------------------------------------------------------------------------
ENERGY COMMODITIES:
Natural gas (TRILLION BTUs) 5,700 4,533 12
Electricity (MEGAWATT-HOURS) 9,820,208 14,068,008 5
Crude oil (BARRELS) 5,200,219 5,219,800 4
- ------------------------------------------------------------------------------------------------
FINANCIAL PRODUCTS:
Interest rate instruments $1,127 $4,884 10
================================================================================================
DECEMBER 31, 1999
-------------------------------------------------------
FIXED PRICE FIXED PRICE MAXIMUM TERM
Dollars in millions PAYOR RECEIVER IN YEARS
- ------------------------------------------------------------------------------------------------
ENERGY COMMODITIES:
Natural gas (TRILLION BTUs) 5,418.8 4,958.6 12
Electricity (megawatt-hours) 1,788,096 1,775,280 1
Crude oil (BARRELS) 733,000 744,000 5
- ------------------------------------------------------------------------------------------------
FINANCIAL PRODUCTS:
Interest rate instruments $1,998 $612 12
================================================================================================
Although we generally attempt to balance our physical and financial
contracts in terms of quantities and contract performance, net open positions
typically exist. We will at times create a net open position or allow a net open
position to continue when we believe that future price movements will increase
the portfolio's value. To the extent we have an open position, we are exposed to
fluctuating market prices that may adversely impact our financial position or
results from operations.
MARKET VALUATION
The market prices used to value price risk management activities reflect our
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. We adjust market prices to
reflect the potential impact of liquidating our position in an orderly manner
over a reasonable period of time under present market conditions.
We consider a number of risks and costs associated with the future
contractual commitments included in our energy portfolio, including credit risks
associated with the financial condition of counterparties, product location
(basis) differentials and other risks that our policy dictates. The value of all
forward contracts is discounted to December 31, 2000, using an estimated rate.
We continuously monitor the portfolio and value it daily based on present market
conditions. The following table displays the market values of energy
transactions at December 31, 2000, and the average value for the year ended
December 31, 2000:
PRICE RISK MANAGEMENT ASSETS PRICE RISK MANAGEMENT LIABILITIES
---------------------------------------- --------------------------------------
Dollars in millions AVERAGE VALUE DECEMBER 31, 2000 AVERAGE VALUE DECEMBER 31, 2000
- ------------------------------------------------------------------------------------------------------------------
Natural gas $ 793.1 $1,605.9 $1,210.6 $2,171.6
Electricity 195.7 536.6 146.5 357.9
Crude oil 4.6 3.6 4.3 3.6
Other 43.0 52.6 5.9 16.2
- ------------------------------------------------------------------------------------------------------------------
TOTAL $1,036.4 $2,198.7 $1,367.3 $2,549.3
==================================================================================================================
Future changes in the creditworthiness of our counterparties change the
value of our portfolio. We adjust the value of contracts and set dollar
limits with counterparties based on our assessment of their credit quality.
As of December 31, 2000, the future cash flow requirements, net of margin
deposits, related to these financial instruments were $739.2 million. Margin
deposits are required on certain financial instruments to address significant
fluctuations in market prices.
The value of price risk management assets is concentrated into five
contracts representing 27% of total asset value of the portfolio. 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.
The 2000 price risk management liabilities reflect the net present value of
$912.9 million for prepayments of long-term gas contracts.
F-7
B. NON-TRADING ACTIVITIES--HEDGING
INSTRUMENTS
We enter into swaps related to our commodity businesses solely to hedge
future production. 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 our entire trading
portfolio. We apply hedge accounting for these derivative financial
instruments utilized in non-trading activities. Unrealized changes in the
market value of derivatives utilized as hedges are not recognized in our
financial statements until the underlying hedged transaction occurs. See Note
3--New Accounting Standards.
NOTE 3: NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). In June 2000, the
FASB issued statement No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - An Amendment of FASB Statement No. 133,"
which amended the accounting and reporting standards of SFAS 133 for certain
derivative instruments and certain hedging activities. SFAS 133, as amended,
establishes accounting and reporting standards for derivative instruments and
hedging activities requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income
statement, and requires that the company must formally document, designate
and assess the effectiveness of transactions that receive hedge accounting.
We have adopted SFAS 133, as amended, effective January 1, 2001. The adoption
of these standards could increase volatility in earnings and other
comprehensive income or result in certain changes in our business practices.
Many contracts were found to have the requisite elements of a derivative
instrument. We believe these contracts are not subject to the accounting
requirements of SFAS 133 because they provide for the delivery of products or
services in quantities that are expected to be used or sold in the normal
course of operating our business or the value of the contract is directly
associated with the price or value of a service. Other contracts do not meet
the definition of a derivative instrument as provided by the standard because
they represent requirement-based commitments.
Significant portions of the derivatives we use are a component of our price
risk management activities. These derivatives, along with energy commodity
contracts included in our trading activities, are currently reflected on our
balance sheet as assets and liabilities at their fair value. In addition to the
cash flow hedging of future NGL production in our commodity business discussed
in Note 2, we also hedge the future cash flows on floating rate debt through the
use of various types of derivative instruments with the objective of reducing
the uncertainty resulting from interest rate movements. From time to time we
also hedge the future cash flows of certain forecasted foreign currency
transactions to reduce the uncertainty resulting from foreign currency exchange
rate movements. The cumulative effect on other comprehensive income from these
cash flow hedges in effect on January 1, 2001 was a decrease of $4.5 million.
NOTE 4: ACCOUNTS AND MERCHANT NOTES RECEIVABLE
Our accounts receivable on the Consolidated Balance Sheets are comprised as
follows:
December 31,
---------------------------
In millions 2000 1999
- ------------------------------------------------------------------------------
Accounts receivable, net of
allowance for bad debt $4,711.6 $1,733.4
Unbilled revenue 166.3 78.9
Accounts receivable sale program (405.0) (365.8)
- ------------------------------------------------------------------------------
TOTAL $4,472.9 $1,446.5
==============================================================================
We sell, on a continuing basis, up to $405 million of eligible accounts
receivable on a limited recourse basis. The financial institutions that buy our
receivables charge a fee based on the dollar amount sold, which is reflected as
an expense in the consolidated statements of income. Our consolidated statements
of income reflect fees associated with these sales of (in millions) $26.6 in
2000, $14.2 in 1999 and $16.0 in 1998. We received approximately $4.5 billion,
$3.5 billion and $3.2 billion, respectively, during 2000, 1999 and 1998, in
aggregate proceeds from these facilities. Our retained interests in the
receivables sold are recorded at cost which approximates fair value. We have
minimal servicing assets and liabilities relative to the receivables sold under
these facilities.
Merchant notes receivable consist of notes with terms ranging from one to
seven years and interest rates ranging from 9.0% to 14.0%. At December 31, 2000,
the carrying value approximated fair market value.
F-8
NOTE 5: INVESTMENTS IN SUBSIDIARIES AND PARTNERSHIPS
Our consolidated balance sheet contains various equity investments as shown
in the table below. The table below summarizes our investments and related
equity earnings:
Investment Equity Earnings
at December 31, Year Ended December 31,
Ownership --------------------- ------------------------------
Dollars in millions at 12/31/00 Country 2000 1999 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
United Energy Limited (a) 34.0% Australia $ 239.5 $ 234.2 $ 63.8 $28.0 $ 69.1
Multinet/Ikon (b) 25.5% Australia 168.6 245.3 10.4 (6.9) --
AlintaGas Limited (c) 22.5% Australia 69.4 -- .1 -- --
UNZ investment: (d)
UnitedNetworks Ltd. (UNL) 62.2% New Zealand 374.9 -- 13.9 -- 8.1
WEL Energy Group Ltd. (WEL) -- New Zealand -- -- -- -- 11.3
Pacific Energy -- New Zealand -- 1.2 -- .6 --
Independent power project
partnerships (e) 17%-50% U.S. & Jamaica 248.6 136.6 18.7 34.0 33.4
Oasis Pipe Line Company (Oasis) 50% United States 97.5 97.7 (.3) .6 1.1
Quanta Services, Inc. (f) 36% United States 711.9 319.5 53.7 13.2 --
Other Various 46.2 29.4 (.8) -- 2.1
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL $1,956.6 $1,063.9 $159.5 $69.5 $125.1
===============================================================================================================================
(a) INCLUDES OUR 34% INVESTMENT IN UNITED ENERGY LIMITED (UEL). EQUITY EARNINGS
IN 2000 INCLUDE A $44 MILLION GAIN ON THE UECOMM IPO.
(b) ON MARCH 12, 1999, WE ACQUIRED, FOR $224 MILLION, A 25.5% INTEREST IN
MULTINET/IKON, A NATURAL GAS NETWORK AND RETAILER IN VICTORIA,
AUSTRALIA.
(c) ON OCTOBER 17, 2000, WE PURCHASED A 45% INTEREST IN ALINTAGAS LIMITED, A GAS
UTILITY IN WESTERN AUSTRALIA, IN A $166 MILLION JOINT ACQUISITION WITH
UEL. OUR 22.5% INTEREST IS REFLECTED AS AN EQUITY INVESTMENT WITH THE
REMAINING 22.5% REFLECTED AS PART OF OUR INTEREST IN UEL.
(d) ON JUNE 30, 2000, WE SOLD A PORTION OF OUR NEW ZEALAND INVESTMENT TO A
PRIVATE EQUITY INVESTOR (MINORITY SHAREHOLDER) THAT REDUCED OUR EFFECTIVE
OWNERSHIP IN UNITEDNETWORKS TO APPROXIMATELY 62%. IN CONNECTION WITH THE
TRANSACTION WE GRANTED THE MINORITY SHAREHOLDER BOARD AND SHAREHOLDER
PARTICIPATION AND PROTECTIVE RIGHTS AND THEREFORE NO LONGER CONSOLIDATE
THESE OPERATIONS FOR FINANCIAL STATEMENT PURPOSES. OUR NEW ZEALAND
INVESTMENTS WERE REFLECTED ON A CONSOLIDATED BASIS FROM OCTOBER 1998 TO
JUNE 2000.
(e) WE OWN INTERESTS IN 15 INDEPENDENT POWER PROJECTS LOCATED IN EIGHT STATES
AND JAMAICA. OF THESE, 14 ARE CURRENTLY IN COMMERCIAL OPERATION. THESE
INVESTMENTS ARE AGGREGATED BECAUSE INDIVIDUAL INVESTMENTS ARE NOT
SIGNIFICANT. IN 1999, OUR PARTNER IN A POWER PROJECT EXERCISED AN OPTION
TO PURCHASE OUR INTEREST IN THE PROJECT. WE RECEIVED $83.8 MILLION AND
RECOGNIZED A GAIN OF $7.1 MILLION.
(f) IN 2000 AND 1999, WE ACQUIRED CONVERTIBLE PREFERRED AND COMMON STOCK OF
QUANTA SERVICES, INC. (QUANTA) FOR APPROXIMATELY $360 MILLION AND $319
MILLION, RESPECTIVELY. OUR FULLY CONVERTED BENEFICIAL INTEREST IN QUANTA
IS APPROXIMATELY 36%. MANAGEMENT ADVISORY FEES OF $17.5 MILLION AND $7.6
MILLION IN 2000 AND 1999, RESPECTIVELY, ARE REFLECTED AS EQUITY EARNINGS
IN THE ACCOMPANYING CONSOLIDATED STATEMENTS OF INCOME. INCLUDED IN THE
2000 MANAGEMENT ADVISORY FEES IS A CONTRACT TERMINATION FEE OF $8.1 MILLION
OF THE TOTAL $26.8 MILLION TERMINATION FEE PAID IN 2000.
Following is the summarized combined financial information of the
unconsolidated material equity investments listed above:
December 31,
-----------------------
In millions 2000 1999(a)
- ------------------------------------------------------------
ASSETS:
Current assets $1,087.8 $ 660.0
Non-current assets 6,713.9 4,024.2
- ------------------------------------------------------------
TOTAL ASSETS $7,801.7 $4,684.2
============================================================
LIABILITIES AND EQUITY
Current liabilities $ 684.1 $ 422.3
Non-current liabilities 3,810.6 2,267.6
Equity 3,307.0 1,994.3
- ------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $7,801.7 $4,684.2
============================================================
Year Ended December 31,
-------------------------------------
In millions 2000 1999(a) 1998
- --------------------------------------------------------------------------
OPERATING RESULTS:
Revenues $3,069.3 $1,986.0 $850.3
Costs and expenses 2,751.4 1,801.1 752.4
- --------------------------------------------------------------------------
NET INCOME $ 317.9 $ 184.9 $ 97.9
==========================================================================
(a) EXCLUDES UNITEDNETWORKS SINCE THIS SUBSIDIARY IS REFLECTED IN THE
CONSOLIDATED STATEMENTS.
F-9
NOTE 6: REGULATORY ASSETS
State, provincial or local authorities regulate certain of our utility
operations. Our financial statements therefore include the economic effects
of rate regulation. This means our consolidated balance sheet shows some
assets and liabilities that would not be found on the balance sheet of a
non-regulated company. There is a risk that if the utility industry
deregulates, we may have to remove the effects of regulation from our
financial statements.
In November 2000, the provincial government in Alberta, Canada suspended
pending rate increases to recover certain purchased power costs incurred by
our Alberta electric operation. The Alberta Energy and Utility Board issued
regulations in January 2001 which make the recovery of such prudently
incurred costs over 2002 through 2004, including carrying costs, probable.
If all or a separable portion of our operations becomes no longer subject to
the provisions of SFAS 71, a write-off of related regulatory assets and
liabilities would be required, unless some form of transition cost recovery
(refund) continues through rates established and collected for the remaining
regulated operations. In addition, we would be required to determine any
impairment to the carrying costs of deregulated plant and inventory assets.
The following table lists the regulatory assets and liabilities recorded
at December 31, 2000 and 1999. These are primarily shown as deferred charges
and credits on the consolidated balance sheets. Substantially all of the
regulatory assets listed below are either currently being collected in rates
or will be collected in a future period.
In millions 2000 1999
- -----------------------------------------------------------------------------
Purchased power costs $232.8 $ --
Underrecovered gas costs 44.8 24.5
Income taxes 69.0 55.6
Environmental 24.4 24.1
Debt-related costs 25.6 22.9
Regulatory accounting orders 8.1 5.9
Demand-side management programs 6.9 5.5
Other 27.5 10.4
- -----------------------------------------------------------------------------
TOTAL REGULATORY ASSETS $439.1 $148.9
- -----------------------------------------------------------------------------
Regulatory liabilities 34.6 27.6
- -----------------------------------------------------------------------------
NET REGULATORY ASSETS $404.5 $121.3
=============================================================================
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
December 31,
--------------------------
In millions 2000 1999
- -----------------------------------------------------------------------------
Electric utility $3,520.6 $2,809.7
Gas utility 1,198.4 1,158.2
Gas gathering and pipeline systems 655.6 669.0
Other 402.1 388.1
Construction in process 152.9 184.9
- -----------------------------------------------------------------------------
5,929.6 5,209.9
Less--depreciation, depletion
and amortization 2,274.7 1,544.8
- -----------------------------------------------------------------------------
PROPERTY, PLANT AND
EQUIPMENT, NET $3,654.9 $3,665.1
Our property, plant and equipment includes acquisition-related intangibles
that are being amortized over useful lives not exceeding 40 years. Amounts
included in electric and gas utility plant that are not included in rate base
were $558.9 million and $162.6 million at December 31, 2000 and 1999,
respectively.
NOTE 8: IMPAIRMENTS AND OTHER CHARGES
During 2000, we adjusted the reported value of certain assets to their net
realizable value. We recognized asset impairment charges in 2000 of $7.8
million with respect to our assessment of certain underperforming pipeline
assets; and $3.0 million related to our investments in certain retail assets
in the United Kingdom. We also recognized charges of $10.0 million related to
certain information technology assets that are no longer used in the
business, $2.4 million related to our decision to discontinue use of certain
corporate identity intangibles and $4.0 million of charges related to the
construction of broadband fiber-optic networks.
In 1998, we recognized asset impairment charges of $13.2 million reflecting
a plan to curtail our retail activities, $8.0 million with respect to our
decision to dissolve the EnergyOne, L.L.C. partnership, and $6.5 million related
to our investment in a power plant project.
F-10
NOTE 9: SHORT-TERM DEBT
Short-term debt includes the following components:
December 31,
-----------------------
Dollars in millions 2000 1999
- -----------------------------------------------------------
Bank borrowing and other $388.0 $243.9
Commercial paper 113.0 5.0
- -----------------------------------------------------------
Total $501.0 $248.9
===========================================================
Weighted average interest
rate at year end 7.32% 5.95%
===========================================================
We have a $150 million commercial paper program supported by a $400 million
revolving credit agreement. Our credit agreement contains restrictive covenants
and charges annual commitment fees ranging from .15% to .175%.
During 2000 we put in place a new Canadian credit facility that we used to
acquire TransAlta's Alberta-based electricity distribution and retail assets and
expanded a revolving credit agreement at our West Kootenay Power business. At
December 31, 2000, the facilities had the following terms:
Dollars in millions December 31, 2000
- ------------------------------------------------------------------
Maximum Amount Interest Maturity
Amount Outstanding Rate Date
- ------------------------------------------------------------------
$C60.0 $C54.5 7.006% May 2001
$C236.8 $C236.8 6.720% May 2001
==================================================================
The interest rates may vary with changes in the Canadian bank rate. The
$C60 million facility carries a commitment fee of .17% on unused amounts.
We have a $30 million credit facility with a U.S. financial institution
which provides working capital financing to our European energy merchant
business at a floating rate of 7.0% at December 31, 2000. We had $25.7
million borrowed on this facility at December 31, 2000.
We also have a $125 million letter of credit facility with a group of banks
that is used for trading and other activities of Aquila with various
counterparties. As of December 31, 2000, we had $88.8 million outstanding
against this facility. We have certain financial covenants that need to be
maintained to stay in compliance with the credit facility that relate to
coverage and capitalization ratios. As of December 31, 2000, we were in
compliance with these covenants.
NOTE 10: COMPANY-OBLIGATED PREFERRED SECURITIES
Summarized information regarding our company-obligated preferred securities
is as follows:
December 31,
-------------------- Liquidation Value
Dollars in millions 2000 1999 Per Share
- ----------------------------------------------------------------------------------------------------------------------------------
UtiliCorp Capital L.P. (UC) 8.875% Cumulative Monthly
Preferred Securities, Series A (4,000,000 shares) (a) $100.0 $100.0 $ 25
UtiliCorp Capital Trust I (UCT I) 9.75% Premium Equity Participating
Security Units (PEPS Units) (9,999,960 shares at December 31, 2000
and 10,000,000 shares at December 31, 1999) (b) $250.0 $250.0 $ 25
UtiliCorp Capital Trust II (UCT II) 7.715% Trust Preferred Securities
(100,000 shares)(c) $100.0 -- $1,000
- ----------------------------------------------------------------------------------------------------------------------------------
Total company-obligated preferred securities $450.0 $350.0
Fair market value of company-obligated preferred securities $488.7 $317.4
==================================================================================================================================
(a) 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. THE SOLE
ASSET OF UC CONSISTS OF 8.875% SENIOR DEFERRABLE NOTES OF UTILICORP DUE
JUNE 12, 2025 .
(b) EACH PEPS UNIT HAD AN ISSUE PRICE OF $25 AND CONSISTS OF A CONTRACT TO
PURCHASE SHARES OF OUR COMMON STOCK ON OR PRIOR TO NOVEMBER 16, 2002 AND
A PREFERRED SECURITY OF UCT I. THE SOLE ASSET OF UCT I CONSISTS OF 7.35%
SENIOR DEFERRABLE NOTES DUE NOVEMBER 16, 2004 OF UTILICORP. EACH PURCHASE
CONTRACT YIELDS 2.40% PER YEAR, PAID QUARTERLY, ON THE $25 STATED AMOUNT
OF THE PEPS UNIT. EACH TRUST PREFERRED SECURITY YIELDS 7.35% PER YEAR,
PAID QUARTERLY ON THE $25 STATED AMOUNT OF THE PEPS UNIT, UNTIL NOVEMBER
16, 2002. FOLLOWING A REMARKETING OF THE TRUST PREFERRED SECURITIES, THE
YIELDS WILL BE RESET AT A RATE THAT WILL BE EQUAL TO OR GREATER THAN
7.35%.
(c) THE SOLE ASSET OF UCT II CONSISTS OF SENIOR DEFERRABLE NOTES DUE
SEPTEMBER 30, 2002 OF UTILICORP. EACH TRUST PREFERRED SECURITY YIELDS
INTEREST ADJUSTED QUARTERLY AT THREE-MONTH LIBOR PLUS 90 BASIS POINTS PER
YEAR. THE RATE PAYABLE AT DECEMBER 31, 2000 WAS 7.715%. IN CONNECTION
WITH THIS FINANCING WE ALSO AGREED TO SELL $100 MILLION OF UTILICORP
UNITED INC. COMMON STOCK OR TRUST PREFERRED SECURITIES AT PREVAILING
MARKET PRICES THROUGH THE FINANCIAL INSTITUTION BY JUNE 2002. UNDER
CERTAIN CIRCUMSTANCES, WE MAY ELECT TO EXTEND THIS TIME PERIOD BY AN
ADDITIONAL 12 MONTHS.
F-11
NOTE 11: LONG-TERM DEBT
This table summarizes the company's long-term debt:
December 31,
------------------------------------
In millions 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
FIRST MORTGAGE BONDS:
Various, 9.65%*, due 2001-2021 $ 37.6 $ 17.3
SENIOR NOTES:
7.634% Floating Rate Series, due May 15, 2002 250.0 --
Aquila Southwest Energy 8.29% Series, due September 15, 2002 25.0 37.5
7.0% Series, due July 15, 2004 250.0 250.0
6.875% Series, due October 1, 2004 150.0 150.0
6.375% Series, due June 1, 2005 -- 100.0
9.03% Series, due December 1, 2005 20.2 20.2
6.70% Series, due October 15, 2006 100.0 100.0
8.2% Series, due January 15, 2007 130.0 130.0
7.625% Series, due November 15, 2009 200.0 200.0
10.5% Series, due December 1, 2020 35.7 35.7
8.27% Series, due November 15, 2021 131.8 131.8
9.0% Series, due November 15, 2021 18.2 18.2
8.0% Series, due March 1, 2023 125.0 125.0
MEDIUM TERM NOTES:
Various, 7.78%*, due 2005-2023 40.0 --
SECURED DEBENTURES OF WEST KOOTENAY POWER:
8.90%*, due 2001-2023 66.5 69.6
CONVERTIBLE SUBORDINATED DEBENTURES:
6.625%, due July 1, 2011 (convertible into 264,083 common shares) 4.2 4.9
SENIOR NOTES OF AUSTRALIA:
7.04%*, due October 2002 83.8 98.4
Floating Rate Notes of New Zealand, 6.89%, due April 2001 88.8 --
New Zealand Denominated Credit Facility, due June 2002 110.8 456.6
Floating Rate Notes of Australia, 6.98%, due December 2003 (a) 44.7 --
Australian Denominated Credit Facilities, due January 2001 and March 2002 114.6 187.0
Canadian Denominated Credit Facilities, due May 2004 290.7 48.5
Capital Leases 4.2 23.4
Other notes and obligations 75.8 41.0
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT 2,397.6 2,245.1
Less current maturities 51.7 42.8
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, NET $2,345.9 $2,202.3
=======================================================================================================================
Fair value of long-term debt, including current maturities (b) $2,455.2 $2,211.6
=======================================================================================================================
* WEIGHTED AVERAGE INTEREST RATE.
(a) $16.8 MILLION IS HEDGED WITH AN INTEREST RATE SWAP MOVING THE FLOATING
RATE TO A FIXED RATE OF 6.69%.
(b) THE FAIR VALUE OF LONG-TERM DEBT IS BASED ON CURRENT RATES AT WHICH THE
COMPANY COULD BORROW FUNDS WITH SIMILAR REMAINING MATURITIES.
All of our Michigan network assets are subject to the lien of a mortgage
indenture. We cannot issue mortgage bonds under our General Mortgage
Indenture without directly securing certain Senior Notes equally as any
mortgage bond issue. Currently we have no plans to issue mortgage bonds.
The amounts of long-term debt maturing in each of the next five years and
thereafter are shown below:
In millions Maturing Amounts
- --------------------------------------------
2001 $ 51.7
2002 532.9
2003 47.8
2004 693.5
2005 68.7
Thereafter 1,003.0
- --------------------------------------------
TOTAL $2,397.6
============================================
DEBT REFINANCING EXCHANGE OFFER
In March 1999, approximately $131.8 million of our 9% senior notes were
exchanged for 8.27% senior notes and $20.2 million of our 10.5% senior notes
were exchanged for 9.03% senior notes.
NEW ZEALAND DENOMINATED CREDIT FACILITIES
We maintain a $NZ 250 million credit facility with two banks that matures in
June 2002. The interest rate on this facility fluctuates with changes in the
New Zealand bank bill rate. At December 31, 2000, $NZ 249.6 million was
outstanding at a rate of 7.52%. A commitment fee of .40% applies to the
unused portion of the credit facility.
AUSTRALIAN DENOMINATED CREDIT FACILITIES
We maintained a $A75 million credit facility with a bank that matured in
January 2001. The interest rate for this facility fluctuated with changes in
the Australia bank bill rate. At
F-12
December 31, 2000, $A75 million was outstanding at a rate of 7.34%. A
commitment fee of .40% applied to the unused portion of the credit facility.
This facility was replaced through a $A75 million public debt issuance in
January 2001.
We also have a $A130 million credit facility with a consortium of banks that
matures in March 2002. The interest rate on this facility fluctuates with
changes in the Australian bank bill rate. At December 31, 2000, $A130 million
was outstanding at a rate of 7.495%. A commitment fee of .50% applies to the
unused portion of the credit facility.
CANADIAN DENOMINATED CREDIT FACILITIES
UtiliCorp Canada Finance Corporation (UCFC) maintains a $C70 million credit
facility with a bank that matures in May 2004. The interest rate for this
facility is fixed at 6.52%. At December 31, 2000, $C70 million was
outstanding.
UtiliCorp Networks Canada (Alberta) Ltd. maintains a $C363.2 million
credit facility with two banks which matures in February 2002. The interest
rate on this facility fluctuates with changes in the Bankers Acceptance
Discount Rate. At December 31, 2000, $C363.2 million was outstanding at a
rate of 6.43%.
SENIOR NOTE ISSUE
On February 2, 2001, we issued an additional $250.0 million in senior notes
bearing interest at 7.95%, due in February 2011.
NOTE 12: CAPITAL STOCK
CAPITAL STOCK
We have two types of authorized common stock--unclassified common stock and
Class A common stock. No Class A common stock is issued or outstanding. We
also have authorized 10,000,000 shares of preference stock, without par
value, none of which is issued or outstanding. As of December 31, 2000, we
had no restrictions on our ability to pay cash dividends.
COMMON STOCK SPLIT
In November 1998, our Board of Directors approved a 3-for-2 common stock
split. The stock split was effective March 12, 1999, and all share amounts,
share prices, and per share figures have been restated.
STOCKHOLDER RIGHTS PLAN
Our Board adopted a rights plan and declared a dividend distribution of one
right for each outstanding common share. The rights are not currently
exercisable. Each right, when exercisable, would entitle each right holder to
purchase one one-thousandth of a share of Series A Participating Cumulative
Preference Stock at a price of $77. The rights become exercisable if a person
has acquired 15% of the outstanding common stock. Once the rights become
exercisable, each rights holder can purchase common stock in the company at a
market value twice the exercise price of the right.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
We offer to current and potential shareholders a Dividend Reinvestment and
Common Stock Purchase Plan (the Stock Plan).
The Stock Plan allows participants to purchase up to $10,000 per month of
common stock at a five-day average market price, without sales commissions. The
Stock Plan also allows members to reinvest dividends into additional common
shares at a 5% discount.
For the year ended December 31, 2000, 1,286,515 shares were issued under the
Stock Plan. As of December 31, 2000, 3,487,103 shares were available to issue
under this plan.
EMPLOYEE STOCK PURCHASE PLAN
Participants in our Employee Stock Purchase Plan have the opportunity to buy
shares of 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 stock. 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 RETIREMENT INVESTMENT PLAN
A defined contribution plan, the Restated Retirement Investment Plan (Savings
Plan), covers all of our full-time and eligible part-time employees.
Participants may generally elect to contribute up to 15% 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 various investment options. All company matching
contributions are in UtiliCorp common stock. The Savings Plan also includes a
stock contribution fund to which the company can contribute an additional
amount of company common stock for participants.
STOCK INCENTIVE PLAN
Our Stock Incentive Plan enables the company to grant common shares to
certain employees as restricted stock awards and as stock options. The
company holds shares issued as restricted stock awards 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. They expire 10 years after 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 2.4 million stock options
to eligible 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 1998 and 1992, respectively, options for 1,278,713 and 1,114,350
shares were granted to employees. The exercise prices of these options are
$24.02 and $18.21, respectively.
F-13
This table summarizes stock options as of December 31, 2000, 1999 and 1998:
Shares 2000 1999 1998
- ---------------------------------------------------------------------------------------
BEGINNING BALANCE 7,347,961 5,440,403 3,764,441
Granted 1,153,487 2,640,401 2,706,526
Exercised (610,345) (214,724) (803,565)
Cancelled (734,503) (518,119) (226,999)
- ---------------------------------------------------------------------------------------
ENDING BALANCE 7,156,600 7,347,961 5,440,403
=======================================================================================
WEIGHTED AVERAGE PRICES:
Beginning balance $21.80 $21.15 $18.65
Granted price 18.84 23.19 23.94
Exercised price 26.97 24.30 18.79
Cancelled price 21.91 22.51 20.47
Ending balance 21.39 21.80 21.15
=======================================================================================
At December 31, 2000, total exercisable stock options were 2,952,418 shares.
Total restricted stock awards outstanding were 1,787,425 shares (at prices
ranging between $16.19 and $29.22).
STOCK BASED COMPENSATION
We issue stock options to employees from time to time and account for these
options under Accounting Principles Board Opinion No. 25 (APB 25). All stock
options issued are granted at the common stock's current market price. This
means we record no compensation expense related to stock options. We also
offer employees a 15% discount from the market price of common stock.
Since we record options and discounts under APB 25, we must disclose the pro
forma net income and earnings per share (dilutive method) as if we reflected the
estimated fair value of options and discounts as compensation at the date of
grant or issue. For the years ended December 31, 2000, 1999 and 1998, our pro
forma net income and diluted earnings per share would have been as follows:
In millions, except per share 2000 1999 1998
- ----------------------------------------------------------------------------------
NET INCOME:
As reported $206.8 $160.5 $132.2
Pro forma 205.3 155.5 126.2
- ----------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
As reported $2.21 $1.75 $1.63
Pro forma 2.19 1.70 1.56
==================================================================================
The fair value of stock options granted in 2000, 1999 and 1998 was estimated
on the date of grant using the Black-Scholes option-pricing model. The weighted
average fair values and related assumptions were as follows:
2000 1999 1998
- ----------------------------------------------------------------------------------
Weighted average fair value per share $2.39 $3.23 $3.54
Expected volatility 17.78% 17.25% 16.52%
Risk-free interest rate 6.71% 5.45% 5.76%
Expected lives 9 years 10 years 10 years
Dividend yield 6.25% 5.10% 4.97%
==================================================================================
F-14
NOTE 13: INCOME TAXES
Year Ended December 31,
-------------------------------
In millions 2000 1999 1998
- ----------------------------------------------------------------
CURRENTLY PAYABLE:
Federal $ 92.3 $91.1 $33.9
Foreign 43.4 7.5 1.7
State 9.5 15.6 6.5
DEFERRED:
Federal (23.8) (38.7) 41.5
State (2.1) (6.2) 4.2
Investment tax credit
amortization (1.1) (1.1) (1.2)
- ----------------------------------------------------------------
TOTAL INCOME
TAX EXPENSE $118.2 $68.2 $86.6
================================================================
The principal components of deferred income taxes consist of the
following:
December 31,
---------------------
In millions 2000 1999
- -------------------------------------------------------------------
DEFERRED TAX ASSETS:
Alternative minimum carryforward $ 43.0 $ 70.5
DEFERRED TAX LIABILITIES
AND CREDITS:
Accelerated depreciation and
other plant differences:
Regulated 442.4 229.6
Non-regulated 196.2 175.0
Regulatory asset 37.2 32.2
Mark-to-market (66.7) 39.8
Other, net 59.1 28.1
- -------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES
AND CREDITS 668.2 504.7
- -------------------------------------------------------------------
DEFERRED INCOME TAXES AND
CREDITS, NET $625.2 $434.2
===================================================================
Our effective income tax rates differed from the statutory federal income
tax rates primarily due to the following:
December 31,
--------------------------------
Percent 2000 1999 1998
- ---------------------------------------------------------------------------
Statutory Federal Income
Tax Rate 35.0% 35.0% 35.0%
TAX EFFECT OF:
Investment tax credit
amortization (.3) (.5) (.5)
State income taxes, net
of federal benefit 1.5 2.7 4.9
Difference in tax rate of
foreign subsidiaries (.6) (3.8) (3.1)
Other .8 (3.6) 3.3
- ---------------------------------------------------------------------------
EFFECTIVE INCOME
TAX RATE 36.4% 29.8% 39.6%
===========================================================================
We had alternative minimum tax credit carryforwards of approximately $43.0
million at December 31, 2000. Alternative minimum tax credits can be carried
forward indefinitely. The company has not recorded a valuation allowance against
its tax credit carryforwards.
We have made no provision for U.S. income taxes on undistributed earnings
from our international businesses ($224.7 million at December 31, 2000)
because it is our intention to reinvest those earnings. If we distribute
those earnings in the form of dividends, we 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,
2000, 1999 and 1998 included (in millions) $129.3, $70.7, and $70.5,
respectively, from international operations.
F-15
NOTE 14: EMPLOYEE BENEFITS
PENSIONS
The following table shows the funded status of our pension plans and the
amounts included in the consolidated balance sheets and statements of income:
Pension Benefits Other Benefits
------------------------------- ----------------------------------
Dollars in millions 2000 1999 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at start of year $218.6 $221.4 $205.5 $ 51.4 $ 42.2 $ 42.6
Service cost 8.3 7.7 7.7 .9 1.0 .7
Interest cost 16.3 14.8 14.4 3.7 3.2 2.7
Plan participants' contribution .9 .7 .6 1.0 .9 .8
Amendments .3 .3 8.9 -- -- .3
Net acquisitions 42.5 -- -- 17.1 -- --
Actuarial (gain) loss (2.1) (16.0) (1.2) 1.0 7.5 1.6
Curtailment (gain) loss (.5) -- -- (.3) -- --
Benefits paid (13.4) (12.5) (12.1) (5.1) (3.6) (6.3)
Foreign Currency Exchange changes (1.6) 2.2 (2.4) (.1) .2 (.2)
- ------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $269.3 $218.6 $221.4 $ 69.6 $ 51.4 $ 42.2
========================================================================================================================
CHANGE IN PLAN ASSETS:
Fair value of plan assets at start of year $259.6 $227.0 $239.6 $ 7.6 $ 4.5 $ 4.8
Actual return on plan assets 51.4 40.6 (.5) .4 .3 .2
Employer contribution 2.1 1.9 1.5 3.6 5.5 5.0
Plan participants' obligation .9 .7 .6 1.0 .9 .8
Net acquisitions 88.4 -- -- 5.9 -- --
Benefits paid (13.4) (12.5) (12.1) (5.1) (3.6) (6.3)
Foreign Currency Exchange changes (1.4) 1.9 (2.1) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $387.6 $259.6 $227.0 $ 13.4 $ 7.6 $ 4.5
========================================================================================================================
Funded status $118.3 $ 41.0 $ 5.6 $(56.2) $(43.8) $(37.7)
Unrecognized transition amount (7.0) (7.7) (8.9) 28.2 26.3 28.3
Unrecognized net actuarial (gain) loss (45.6) (13.6) 19.5 10.1 3.8 (8.8)
Unrecognized prior service cost 13.4 10.9 10.6 3.5 .3 3.2
- ------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 79.1 $ 30.6 $ 26.8 $(14.4) $(13.4) $(15.0)
========================================================================================================================
WEIGHTED AVERAGE ASSUMPTIONS AS OF
SEPTEMBER 30:
Discount rate 7.75% 7.61% 6.75% 7.88% 7.75% 6.75%
Expected return on plan assets 9.47% 9.70% 9.73% 7.87% 7.00% 7.00%
Rate of compensation increase 4.90% 5.04% 5.09% 5.06% 5.40% 5.40%
========================================================================================================================
For measurement purposes, we assumed a 6.18% annual rate of increase in the
per capita cost of covered health benefits for each future fiscal year.
Pension Benefits Other Benefits
-------------------------------- -------------------------------
Dollars in millions 2000 1999 1998 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 8.3 $ 7.7 $ 7.7 $.9 $1.0 $ .7
Interest cost 16.3 14.8 14.4 3.7 3.2 2.7
Expected return on plan assets (27.7) (23.4) (22.8) (.5) (.4) (.3)
Amortization of transition amount (1.2) (1.2) (1.2) 1.9 2.0 2.0
Amortization of prior service cost .6 .5 -- .1 .1 --
Recognized net actuarial (gain) loss (1.9) -- -- -- -- (.2)
Curtailment (gain) loss (1.0) -- -- (.3) -- --
Regulatory adjustment (1.3) .1 (.1) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $ (7.9) $(1.5) $(2.0) $5.8 $5.9 $4.9
=============================================================================================================================
F-16
The U.S. pension plan was amended effective December 1, 1999 to provide the
same pension benefits for almost all participants.
We maintain defined benefit pension plans in the United States and Canada.
The actuarial assumptions used to calculate the benefit obligation and periodic
pension costs for those plans are fundamentally identical. For the United States
plan, plan assets exceed benefit obligations in the years ended December 31,
2000, 1999 and 1998 by (in millions) $108.3, $47.1 and $12.2, respectively. For
the Canadian plan, plan assets exceeded benefit obligations by $10.0 million (in
U.S. dollars) as of December 31, 2000. For 1999 and 1998, the benefit obligation
exceeds plan assets by (in millions of U.S. dollars) $6.1 and $6.6 respectively.
The prepaid benefit correlating to the United States and Canada for the years
ended December 31, 2000, 1999 and 1998 are (in millions) $63.6 and $15.5, $27.3
and $3.2, and $24.4 and $2.4, respectively.
Our health care plans are contributory, with participants' contributions
adjusted annually. The life insurance plans are non-contributory. We have
assumed in estimating future health care costs future cost-sharing changes. The
expense recognition for health care costs does not necessarily match the cost
estimates due to certain differences in regulatory accounting at domestic
utility operations.
The assumed health care cost trends significantly affect the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects for Fiscal Year
2000.
1 Percentage-Point
---------------------------
In millions Increase Decrease
- -------------------------------------------------------------
Effect on total of
service and interest
cost components $ .4 $ (.4)
Effect on post-retirement
benefit obligation 6.3 (6.8)
=============================================================
In addition to the defined benefit retirement plans and health care plans,
we contribute to a defined contribution savings plan. Company contributions were
$9.9 million and $9.3 million during the plan years ending December 31, 2000 and
1999, respectively.
NOTE 15: COMMITMENTS AND CONTINGENCIES
COMMITMENTS
We have various commitments for the next five years relating to power and gas
supply commitments, and lease and rental commitments. A summary is below. As
with any estimates, the actual amounts paid or received could differ
materially.
Dollars in millions, except per unit 2001 2002 2003 2004 2005
==================================================================================================================
Future minimum lease payments $74.6 $115.7 $136.6 $134.3 $133.8
Purchased power obligations $66.5 $91.9 $95.2 $75.3 $51.3
Purchased power obligations (GIGAWATTS) 1,295 1,069 1,064 714 214
Purchased gas obligations $483.0 $122.5 $88.6 $18.3 $15.6
Purchased gas obligations (MCF) 60,101 5,891 5,194 3,066 3,066
==================================================================================================================
Coal contracts $76.4 $69.3 $54.8 $53.7 $41.7
Price ranges --------------------$10.49 to $26.10 per ton-------------------
==================================================================================================================
Future minimum lease payments primarily relate to our interest in future
power purchase commitments, peaking turbines, coal cars, and office space. Rent
expense for the years 2000, 1999 and 1998 was (in millions) $23.9, $26.9 and
$24.8, respectively.
In 1998 we entered into a 15-year agreement to obtain the rights to dispatch
267 megawatts of power from facilities currently being built by a third party.
As part of the agreement we will provide the natural gas to the power plant and
will be able to dispatch the power. This facility became operational in July
2000.
In October 2000, we announced two agreements, a 15-year agreement and a
20-year agreement, for the output of two natural gas-fired peaking facilities.
The agreements are expected to provide us with approximately 1,180 megawatts of
additional capacity. Both facilities are currently under construction. One of
these plants is expected to be operational in the summer of 2001 and the other
is expected to be operational in the summer of 2002.
In January 2000, we formed a joint venture with Calpine Corporation
(Calpine) to develop a 580-megawatt, combined-cycle power plant in Missouri that
we expect will begin operating in June 2001. In September 2000, Aquila and
Calpine closed on the financing of this project through a 30-year sale-leaseback
transaction with limited recourse to Aquila. This lease is classified as an
operating lease in the partnership financial statements. As such, we have
included the annual lease commitments above. We will manage the plant's fuel
supply and the marketing of the plant's power. Calpine will oversee
construction, operation and maintenance of the plant.
ENVIRONMENTAL
We are subject to various environmental laws. These include regulations
governing air and water quality and the storage and disposal of hazardous or
toxic wastes. We continually assess ways to ensure we comply with laws and
regulations on hazardous materials and hazardous waste and remediation
activities.
We own or previously operated 29 former manufactured gas plant (MGP) sites
which may, or may not, require some form of environmental remediation. We have
contacted appropriate
F-17
federal and state agencies and are working to determine what, if any,
specific cleanup activities these sites may require.
As of December 31, 2000, we estimate probable cleanup costs on our
identified MGP sites to be $12.7 million. This amount is our best estimate of
the costs of investigation and remediation of our identified MGP sites, and
is the amount we consider to be probable for future investigation and
remediation of these sites. This estimate is based upon a comprehensive
review of the potential costs associated with conducting investigative and
remedial actions at our identified MGP sites, as well as the likelihood of
whether such actions will be necessary. There are also additional costs that
we consider to be less likely but still "reasonably possible" to be incurred
at these sites. Based upon the results of studies at these sites and our
knowledge and review of potential remedial action options, it is reasonably
possible that these additional costs could exceed our best estimate by
approximately $34 million. This estimate could change materially when we have
investigated further. It could also be affected by the actions of
environmental agencies and the financial viability of other responsible
parties. Ultimate liability also may be affected significantly if we are held
responsible for parties unable to contribute financially to the cleanup
effort.
We have received favorable rate orders that enable us to recover
environmental cleanup costs in certain jurisdictions. In other jurisdictions,
there are favorable regulatory precedents for recovery of these costs. We are
also pursuing recovery from insurance carriers and other potentially
responsible parties.
In October 1998, the EPA published new air quality standards to further
reduce the emission of nitrogen oxides, or NOx. These more strict standards
would have required us to install new equipment on our baseload coal units in
Missouri that we estimated would cost $35 million. A federal court ruled in
March 2000 that the EPA regulation could not be applied to power plants in
Western Missouri. In May 2000, the state of Missouri adopted a revised
regulation that also requires reduction of NOx from our power plants. We are
currently conducting a study to determine the cost of complying with the
Missouri regulation but estimate that the cost would be comparable to that
required to comply with the former federal regulation. The new standard is
expected to be effective in May 2003 but could be delayed for one year.
In December 2000, the EPA announced that they would regulate mercury
emissions from coal- and oil-fired power plants. The EPA is expected to propose
regulations by December 2003 and issue final regulations by December 2004. The
impact of this action on our power plants cannot be determined until final
regulations are issued.
We do not expect final resolution of these environmental matters to have a
material adverse affect on our financial position or results of operations.
RATE PROCEEDINGS
We filed a gas rate case in Kansas in 1999 requesting an increase of $6.0
million. The Commission issued an order permitting us to increase gas rates
by $4.8 million effective September 1, 2000. In a Kansas electric show-cause
case, the Commission staff recommended a rate reduction of $19.9 million. The
Commission issued a final order to reduce rates by $8.3 million effective
January 19, 2000. We filed a $9.8 million Minnesota gas case and placed
interim rates in effect on October 1, 2000. We expect hearings to be held in
March 2001. We filed a $14.2 million Kansas electric rate case in December
2000. We expect hearings to be held in June 2001.
We filed for a rate increase in Alberta of about $13 million along with an
application for a performance-based rate-setting mechanism. We expect hearings
to begin in late February 2001.
OTHER
The company is subject to various legal proceedings and claims that arise in
the ordinary course of business operations. We do not expect the amount of
liability, if any, from these actions to materially affect our consolidated
financial position or results of operations.
NOTE 16: SEGMENT INFORMATION
A. BUSINESS LINES
Year Ended December 31,
---------------------------------------------------------
Dollars in millions 2000 1999 1998
- -----------------------------------------------------------------------------------------------
SALES:
Networks--
United States $ 2,053.6 7.1% $ 1,578.8 $ 1,492.2
International 492.4 1.7 309.2 144.5
- -----------------------------------------------------------------------------------------------
Total Networks 2,546.0 8.8 1,888.0 1,636.7
- -----------------------------------------------------------------------------------------------
Energy Merchant 26,424.4 91.2 16,730.0 10,925.8
Services 4.5 -- -- --
Corporate and other -- -- 3.5 .9
- -----------------------------------------------------------------------------------------------
TOTAL $28,974.9 100.0% $18,621.5 $12,563.4
===============================================================================================
F-18
Year Ended December 31,
---------------------------------------------------------
Dollars in millions 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES:
Networks--
United States $180.5 33.5% $195.1 $217.8
International 158.0 29.2 129.9 111.0
- ----------------------------------------------------------------------------------------------------------
Total Networks 338.5 62.7 325.0 328.8
- ----------------------------------------------------------------------------------------------------------
Energy Merchant 191.1 35.4 79.7 36.8
Services 35.1 6.5 13.2 --
Corporate and other (24.7) (4.6) (3.9) (14.2)
- ----------------------------------------------------------------------------------------------------------
TOTAL $540.0 100.0% $414.0 $351.4
==========================================================================================================
Year Ended December 31,
---------------------------------------------------------
Dollars in millions 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION EXPENSE:
Networks--
United States $121.0 53.8% $115.3 $109.3
International 45.5 20.2 42.2 10.7
- ----------------------------------------------------------------------------------------------------------
Total Networks 166.5 74.0 157.5 120.0
- ----------------------------------------------------------------------------------------------------------
Energy Merchant 48.8 21.7 39.1 29.8
Services 8.3 3.7 -- --
Corporate and other 1.4 .6 (2.9) .2
- ----------------------------------------------------------------------------------------------------------
TOTAL $225.0 100.0% $193.7 $150.0
==========================================================================================================
December 31,
--------------------------------------------
Dollars in millions 2000 1999
- -----------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
Networks--
United States $2,768.0 19.7% $2,042.3
International 2,285.4 16.2 1,792.1
- -----------------------------------------------------------------------------------------
Total Networks 5,053.4 35.9 3,834.4
- -----------------------------------------------------------------------------------------
Energy Merchant 7,798.5 55.2 3,089.1
Services 879.4 6.2 320.6
Corporate and other 384.3 2.7 294.5
- -----------------------------------------------------------------------------------------
TOTAL $14,115.6 100.0% $7,538.6
=========================================================================================
F-19
Year Ended December 31,
----------------------------------------------------------
Dollars in millions 2000 1999 1998
- ---------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
Networks--
United States $145.6 39.6% $130.2 $101.8
International 24.2 6.6 23.0 12.5
- ---------------------------------------------------------------------------------------------------
Total Networks 169.8 46.2 153.2 114.3
- ---------------------------------------------------------------------------------------------------
Energy Merchant 68.4 18.6 61.3 33.8
Services 104.3 28.4 -- --
Corporate and other 24.8 6.8 39.0 48.8
- ---------------------------------------------------------------------------------------------------
TOTAL $367.3 100.0% $253.5 $196.9
===================================================================================================
B. GEOGRAPHICAL INFORMATION (a)
Year Ended December 31,
-------------------------------------------------------------
Dollars in millions 2000 1999 1998
- ---------------------------------------------------------------------------------------------------
SALES:
United States $22,675.2 78.3% $15,348.5 $10,924.8
Canada 4,357.9 15.0 2,381.8 1,222.4
Other international 1,941.8 6.7 891.2 416.2
- ---------------------------------------------------------------------------------------------------
TOTAL $28,974.9 100.0% $18,621.5 $12,563.4
===================================================================================================
December 31,
------------------------------------------
Dollars in millions 2000 1999
- ---------------------------------------------------------------------------------
LONG-LIVED ASSETS:
United States $2,834.9 77.6% $2,857.6
Canada 777.2 21.2 224.1
New Zealand -- -- 563.6
Other international 42.8 1.2 19.8
- ---------------------------------------------------------------------------------
TOTAL $3,654.9 100.0% $3,665.1
=================================================================================
(a) CANADIAN SALES AND LONG-LIVED ASSETS INCLUDE AQUILA'S CANADIAN OPERATIONS
AND VARIOUS SMALL CANADIAN GAS MARKETING COMPANIES
F-20
NOTE 17: MERGERS, ACQUISITIONS AND DIVESTITURES
EMPIRE DISTRICT ELECTRIC COMPANY
On January 2, 2001, we notified the Empire Electric District Company that we
were terminating our merger agreement with them. Under the terms of the
agreement, either company could terminate the deal if regulatory approvals of
the merger were not obtained by December 31, 2000. As of December 31, 2000,
the Arkansas Public Service Commission had rejected the merger application
and the Kansas Corporation Commission had not acted on our application.
ST. JOSEPH LIGHT & POWER COMPANY
Effective December 31, 2000, St. Joseph Light & Power Company (SJL&P) merged
with us. Under the agreement, SJL&P shareholders received $23.00 in UtiliCorp
common shares for each SJL&P common share held. We issued approximately 6.6
million shares of UtiliCorp common stock with a total value of $190.2 million
in connection with this merger. We also assumed short-term debt of $23.6
million and long-term debt of $68.1 million. We accounted for the transaction
as a purchase.
PROPOSED AQUILA STOCK OFFERING
In December 2000, we announced our current intention to offer approximately
20% of Aquila's stock to the public in an initial public offering.
GPU INTERNATIONAL
On December 22, 2000, Aquila purchased GPU International, a company holding
interests in six independent U.S.-based generating plants, for $225 million.
We accounted for the transaction as a purchase.
ALINTAGAS
On October 17, 2000, we closed on our $166 million joint acquisition with
United Energy Limited of a 45% cornerstone interest in AlintaGas Limited, a
gas distribution utility in Western Australia. We funded one-half of the
purchase price primarily through short-term borrowings. The remaining 55% of
the shares of AlintaGas were sold to the Australian public in a share float
on October 17, 2000. UtiliCorp owns approximately 34% of United Energy.
INITIAL PUBLIC OFFERING--UECOMM LIMITED
In September 2000, Uecomm Limited (UEC), formerly a wholly owned subsidiary
of United Energy Limited, sold 34% of its common stock to the public,
reducing United Energy's ownership share of UEC to 66%. As a result, we
recorded a $44 million gain in "Equity in Earnings of Investments and
Partnerships" from the initial public offering.
TRANSALTA ASSETS
On August 31, 2000, we completed our acquisition of TransAlta Corporation's
Alberta-based electricity distribution and retail assets for approximately
$480 million. We operate this business as UtiliCorp Networks Canada (Alberta)
Ltd. On November 28, 2000, we sold the retail assets to Epcor, an
Edmonton-based utility, for approximately $75 million.
PULSE ENERGY
On June 30, 2000, United Energy and Energy Partnership (Ikon Energy Pty Ltd)
closed a transaction that resulted in the formation of Pulse Energy, a joint
venture with Shell Australia Ltd and Woodside Energy Ltd. United Energy
contributed its electric retail customers in exchange for $210 million and
Ikon contributed its gas retail customers in exchange for $281 million.
United Energy and Ikon each loaned Pulse $70 million, and hold a combined 50%
ownership of Pulse.
SALE OF RETAIL MARKETING
In January 2000, we sold our retail gas marketing business for $14 million.
SALE OF WEST VIRGINIA POWER DIVISION
On September 9, 1999, we agreed to sell our West Virginia Power division to
Allegheny Energy, Inc. for $75 million. The sale closed on December 31, 1999
and resulted in a 1999 fourth quarter gain of $4.5 million. In addition to
the sale of West Virginia Power's electric and natural gas distribution
assets, we entered into a separate agreement for Allegheny to purchase
Appalachian Electric Heating, our heating and air conditioning service
business in West Virginia.
AQUILA GAS PIPELINE TENDER OFFER
On May 7, 1999, approximately 3.4 million shares of Aquila Gas Pipeline
Corporation (AQP) were tendered to us at $8.00. The 3.4 million shares
together with the 24.0 million shares already held represented 93% of AQP's
total shares outstanding. All remaining shares not tendered were converted in
a "short-form" merger into a right to receive $8.00 per share. Upon
completion of the short-form merger on May 14, 1999, AQP ceased being a
publicly traded company and became wholly owned by Aquila, Inc.
MULTINET/IKON
In March 1999, we acquired a 25.5% equity interest in two Melbourne-area gas
businesses, the Multinet gas distribution utility and the Ikon Energy gas
retail sales business, for $224 million. These investments are accounted for
under the equity method.
NATURAL GAS STORAGE FACILITY
On March 29, 1999, we agreed to purchase Western Gas Resources Storage Inc.
The $100 million cash transaction increased our ownership and control of
strategically located natural gas storage assets. The 2,400-acre subsurface
facility in Katy, Texas has a storage capacity of 20 billion cubic feet. The
purchase closed on May 3, 1999.
INTEREST IN NEW ZEALAND ELECTRIC UTILITIES
Through a series of transactions in 1998, we acquired an additional 48% of
Power New Zealand's common stock for approximately $245 million, increasing
our ownership to 78.6%. Concurrent with this acquisition, we sold our 39.6%
interest in New Zealand's WEL Energy Group, which we acquired throughout
1995, 1996 and 1997, and bought out the 21% minority shareholder in our New
Zealand subsidiary, UtiliCorp N.Z., Inc.
New Zealand's Electricity Industry Reform Act of 1998 required all the
country's utilities to separate ownership of their lines (network) and supply
(generation and retail) businesses. Power New Zealand, with approximately 90% of
its assets and earnings in the lines area, in November 1998 announced its
intention to remain in the network business and to exit the sup-
F-21
ply business. It also agreed to purchase the Wellington-based lines assets of
TransAlta New Zealand Ltd. and to sell to TransAlta its retail electricity
business serving the Auckland area for a net expenditure by Power New Zealand
of $238 million.
Because Power New Zealand's name transferred to TransAlta as part of the
retail business TransAlta acquired, the network business became UnitedNetworks
Limited on January 1, 1999.
In November 1998, Power New Zealand agreed to purchase the electric line
assets of neighboring power company TrustPower Limited for approximately $261
million. The assets became part of a greater network, which includes parts of
metropolitan Auckland and other areas in the central and southern regions of New
Zealand's North Island. The TrustPower transaction closed in January 1999.
Completion of the TransAlta and TrustPower transactions created the country's
largest electricity distribution network.
On March 22, 2000, we expanded our presence in the New Zealand energy market
by announcing an agreement to purchase the natural gas distribution network and
North Island contracting business of Orion New Zealand Limited for about $274
million. The transaction had an effective date of April 1, 2000.
On June 30, 2000, we sold a portion of our New Zealand investment to a
private equity investor (minority shareholder) that reduced our effective
ownership in UnitedNetworks to about 62%. In connection with the transaction we
granted the minority shareholder participation and protective rights and
therefore no longer consolidate our New Zealand operations for financial
statement purposes.
INITIAL PUBLIC OFFERING--UNITED ENERGY LIMITED
In May 1998, United Energy Limited (UEL) sold 42% of its common stock to the
Australian public. As a result, we recorded a $45.3 million gain. The partial
sale to the public reduced our effective ownership of UEL to 29%.
Concurrent with UEL's stock offering, we bought an additional 5% in UEL
from another company to bring our ownership to 34%. The management agreement
between UEL and UtiliCorp remains in place.
PRO-FORMA OPERATING RESULTS
The following reflects our results for the three years ended December 31,
2000, assuming significant acquisitions during the year ended December 31,
2000 occurred as of the beginning of each of the respective periods:
(Unaudited)
Year Ended December 31,
--------------------------------------
Dollars in millions, except per share 2000 1999 1998
- ----------------------------------------------------------------------------------
Sales $29,418.2 $19,206.0 $13,143.4
Net income 243.1 185.9 160.2
Diluted earnings per
common share $2.42 $1.88 $1.83
====================================================================================
The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had we made the acquisitions at the
beginning of the respective periods, or of results which may occur in the
future. The 2000 pro forma operating results include certain unusually large
mark-to-market gains. The pro forma operating results do not include adjustments
for synergies or other adjustments to the business operations.
NOTE 18: QUARTERLY FINANCIAL DATA (UNAUDITED)
Financial results for interim periods do not necessarily indicate trends for
any 12-month period. Quarterly results can be affected by the timing of
acquisitions, the effect of weather on sales, and other factors typical of
utility operations and energy related businesses.
2000 QUARTERS 1999 Quarters
----------------------------------------- -----------------------------------------
In millions, except per share FIRST SECOND THIRD FOURTH First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------------------------
Sales $4,749.7 $5,770.9 $8,085.5 $10,368.8 $3,801.0 $3,970.1 $6,464.2 $4,386.2
Gross profit 317.9 323.2 267.8 519.8 282.9 273.0 289.1 311.8
Net income 54.4 29.3 74.9 48.2 51.9 24.8 42.5 41.3
Earnings per common share*:
Basic $.59 $.32 $.80 $.51 $.57 $.27 $.46 $.45
Diluted .59 .31 .80 .50 .57 .27 .46 .45
=================================================================================================================================
Cash dividend per common share $.30 $.30 $.30 $.30 $.30 $.30 $.30 $.30
Market price per common share:
High $20.06 $21.88 $28.50 $31.31 $23.58 $25.13 $24.56 $22.00
Low 15.19 17.31 19.88 23.94 22.44 22.63 21.00 19.00
=================================================================================================================================
* THE SUM OF THE QUARTERLY EARNINGS PER SHARE AMOUNTS MAY DIFFER FROM THAT
REFLECTED IN NOTE 1 DUE TO THE WEIGHTING OF COMMON SHARES OUTSTANDING
DURING EACH OF THE RESPECTIVE PERIODS.
F-22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF UTILICORP UNITED INC.:
We have audited the accompanying consolidated balance sheets of UtiliCorp
United Inc. and subsidiaries at December 31, 2000 and 1999 and the related
consolidated statements of income, common shareholders' equity, comprehensive
income, and cash flows for each of the three years in the period ended
December 31, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Kansas City, Missouri
February 5, 2001
F-23