-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B8sQvyUMufTcgrA/IMVTQ/FDGqaalaNuCLPuotAZ2K+gMPl+KUyqL+iOF66vuzLE NrTPIW96ZLodlv3hpgxdLQ== 0001047469-98-010573.txt : 19980323 0001047469-98-010573.hdr.sgml : 19980323 ACCESSION NUMBER: 0001047469-98-010573 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980319 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UTILICORP UNITED INC CENTRAL INDEX KEY: 0000066960 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 440541877 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-03562 FILM NUMBER: 98569137 BUSINESS ADDRESS: STREET 1: 20 WEST NINTH STREET STREET 2: 911 MAIN STE 3000 CITY: KANSAS CITY STATE: MO ZIP: 64105-1711 BUSINESS PHONE: 8164216600 MAIL ADDRESS: STREET 1: PO BOX 13287 CITY: KANSAS CITY STATE: MO ZIP: 64199-3287 FORMER COMPANY: FORMER CONFORMED NAME: MISSOURI PUBLIC SERVICE CO DATE OF NAME CHANGE: 19850516 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES /X/ EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 1-3562 ------------------------ UTILICORP UNITED INC. (Exact name of registrant as specified in its charter) DELAWARE 44-541877 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.)
20 West Ninth, Kansas City, Missouri 64105 (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (816) 421-6600 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ----------------------------------------------------------- ----------------------------------------------------------- Common Stock, par value $1.00 per share New York, Pacific and Toronto Stock Exchanges Convertible Subordinated Debentures, New York Stock Exchange 6 5/8%, due July 1, 2011 8 7/8% Cumulative Monthly Income Preferred Securities, New York Stock Exchange Series A, due June 30, 2025
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on March 3, 1998 as reported on the New York Stock Exchange, was approximately $1,835,114,353. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
TITLE OUTSTANDING (AT MARCH 3, 1998) - ------------------------------------------------------ ------------------------------------------------------ Common Stock, par value $1.00 per share 53,756,549 - -------------------------------------------------------------------------------------------------------------- Documents Incorporated by Reference Where Incorporated 1997 Annual Report to Shareholders Part 2 Proxy Statement for 1998 Annual Shareholders Meeting Part 3
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PAGE NO. ------------- PART 1 Item 1 Business........................................................................ 3 Item 2 Properties...................................................................... 16 Item 3 Legal Proceedings............................................................... 20 Item 4 Submission of Matters to a Vote of Security Holders............................. 20 PART 2 Item 5 Market for Registrant's Common Equity and Related Stockholder Matters........... 20 Item 6 Selected Financial Data......................................................... 21 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation..................................................................... 21 Item 8 Financial Statements and Supplementary Data..................................... 21 Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................................................................... 21 PART 3 Item 10 Directors and Executive Officers of the Registrant.............................. 21 Item 11 Executive Compensation.......................................................... 21 Item 12 Security Ownership of Certain Beneficial Owners and Management.................. 21 Item 13 Certain Relationships and Related Transactions.................................. 21 PART 4 Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K................ 22 REPORT OF INDEPENDANT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE...................................... 23 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS......................................................... 24 INDEX TO EXHIBITS...................................................................................... 25 SIGNATURES............................................................................................. 28
2 PART 1 ITEM 1: BUSINESS ORGANIZATION AND HISTORY UtiliCorp United Inc. (the company) is an international energy and energy services company. The company's principal lines of business are in the following segments: UtiliCorp Energy Delivery (UED), Generation and Aquila Energy (Aquila). The company's international operations are managed as stand-alone companies or investments through locally based management. UED's businesses consist of the domestic utility distribution and transmission businesses, on-system appliance repair and servicing businesses, and gas marketing businesses. Generation's businesses are comprised of domestic electricity generation and independent power projects. Aquila's businesses are wholesale energy marketing, natural gas processing and gas gathering businesses. Its gas processing and gathering businesses, operated by 82%-owned Aquila Gas Pipeline Corporation (AGP), are in Texas and Oklahoma. The utility businesses operate in eight states and one province of Canada. Natural gas is marketed throughout the U.S. and in parts of Canada and the United Kingdom (U.K.). In addition to U.S., Canadian, and U.K. businesses, the company has various investments in Australia, New Zealand and Jamaica. UtiliCorp Energy Solutions (UES), consisting of retail gas marketing, appliance repair and service contracts, was realigned during the second quarter of 1997 into the operations of UED and Aquila. The realignment better leverages existing support facilities, processes and expertise. 3 The company was formed in 1985 and is incorporated under the laws of the State of Delaware. Since then, the company has grown principally through utility mergers, acquisitions and investments as shown below. MERGERS, ACQUISITIONS AND INVESTMENTS SINCE 1984
CUSTOMERS AS OF COST (IN SERVICE OWNERSHIP 12/31/97 MILLIONS) ----------------------------- ----------- ----------- ------------ ORIGINAL UTILITY OPERATIONS(a): Missouri Public Service................... Electric 100% 196,000 $ -- Missouri Public Service................... Gas 100 46,000 -- ----------- ------------ Total Original Utility Operations..... 242,000 -- ----------- ------------ DOMESTIC UTILITY MERGERS AND ACQUISITIONS: Kansas Public Service..................... Gas 100% 28,000 4.8 Peoples Natural Gas(b).................... Gas 100 585,000 369.0 West Virginia Power....................... Electric 100 26,000 21.0 Michigan Gas Utilities.................... Gas 100 145,000 62.0 West Virginia gas system.................. Gas 100 24,000 3.0 WestPlains Energy(c)...................... Electric 100 144,000 209.2 Missouri intrastate pipeline.............. Pipeline 100 -- 78.0 ----------- ------------ Total Domestic Utility Mergers and Acquisitions........................ 952,000 747.0 ----------- ------------ INTERNATIONAL INVESTMENTS: West Kootenay Power....................... Electric 100% 84,000 62.0 WEL Energy Group Ltd.(d).................. Electric 39.6 66,000 41.8 Power New Zealand Ltd.(d)................. Electric 30.6 216,000 138.3 United Energy, Limited.................... Electric 49.9 546,000 257.9 ----------- ------------ Total International Investments....... 912,000 500.0 ----------- ------------ NON-REGULATED ACQUISITIONS AND INVESTMENTS: Independent Power Projects................ Electric 22-50% -- 209.5 Oasis Pipe Line Company................... Pipeline 35 -- 117.7 Other..................................... Gas Marketing and other 100 -- 123.0 ----------- ------------ Total Non-Regulated................... -- 450.2 ----------- ------------ TOTAL MERGERS, ACQUISITIONS AND INVESTMENTS SINCE 1984.................. 2,106,000 $ 1,697.2 ----------- ------------ ----------- ------------
- ------------------------ a) UtiliCorp was formed in 1985 from Missouri Public Service Company, which was founded in 1917. b) Cost includes the Nebraska gas system acquired in February 1993 for $78 million and the Kansas gas system acquired in September 1994 for $23 million. Both now operate as part of Peoples Natural Gas. c) The total value of the WestPlains Energy acquisition was $349.8 million, including the $209.2 million cash purchase price, assumption of $26.0 million in debt, and the purchase by a third party of the ownership interest in a generating facility for $114.6 million. WestPlains Energy has use of that generating capacity through a 27-year operating lease. d) Ownership interests are held through a 79%-owned subsidiary of the Company. 4 The company had approximately 1.3 million utility customers and 4,640 employees at December 31, 1997. The company's electric utility operations are in the states of Missouri, Kansas, Colorado and West Virginia and the Canadian province of British Columbia. The company's gas utility operations are in the states of Missouri, Kansas, Colorado, Iowa, Nebraska, Minnesota, Michigan and West Virginia. Aquila markets natural gas throughout the United States and in four provinces of Canada. The company also markets, transports, and provides load balancing services for natural gas in the United Kingdom. Aquila's 82% owned subsidiary, Aquila Gas Pipeline Corporation (AGP), owns or has interests in 12 active natural gas gathering systems and four natural gas processing plants in Texas and Oklahoma. The company has its ownership interests in power projects primarily through Generation in which it has invested in 17 independent power projects located in seven states and Jamaica. In addition, the company has made equity investments in three electric distribution companies, two of them in New Zealand and one in Australia. BUSINESS GROUP SUMMARY Segment information for the three years ended December 31, 1997 is incorporated by reference on pages 57 through 58 of the company's 1997 Annual Report to Shareholders. I. ENERGY DELIVERY ELECTRIC OPERATING STATISTICS The following table summarizes the sales, volumes and customers of UED's electric transmission and distribution businesses.
1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Sales (in millions): Residential.......................................... $ 232.1 $ 227.3 $ 219.5 $ 211.4 $ 204.0 Commercial........................................... 154.5 147.3 142.0 140.7 138.1 Industrial........................................... 73.6 70.4 67.9 66.4 63.2 Other................................................ 97.2 74.3 60.7 57.6 54.1 --------- --------- --------- --------- --------- Total.............................................. 557.4 519.3 490.1 476.1 459.4 Less purchases from Generation..................... 313.6 285.2 263.2 258.7 248.1* --------- --------- --------- --------- --------- Total UED.......................................... $ 243.8 $ 234.1 226.9 $ 217.4 $ 211.3 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Volumes (MWH 000's) Residential.......................................... 2,942 2,897 2,758 2,639 2,597 Commercial........................................... 2,409 2,308 2,236 2,190 2,128 Industrial........................................... 1,727 1,660 1,608 1,535 1,430 Other................................................ 1,390 1,939 1,372 1,230 1,090 --------- --------- --------- --------- --------- Total.............................................. 8,468 8,804 7,974 7,594 7,245 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Customers Residential.......................................... 313,598 308,271 302,857 297,801 292,546 Commercial........................................... 48,012 46,651 47,378 46,470 45,709 Industrial........................................... 290 286 288 285 266 Other................................................ 3,590 3,606 3,556 3,545 3,513 --------- --------- --------- --------- --------- Total.............................................. 365,490 358,814 354,079 348,101 342,034 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ * Estimated. 5 UED obtains all of its power supply from Generation with the exception of its business in West Virginia, which purchases its power supply from an unrelated party. GAS OPERATING STATISTICS The following table summarizes the sales, volumes and customers of UED's gas distribution businesses.
1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Sales (in millions) Residential.......................................... $ 464.4 $ 429.1 $ 362.2 $ 356.4 $ 380.2 Commercial........................................... 205.8 192.6 153.9 156.9 177.5 Industrial........................................... 46.8 45.8 45.8 66.7 89.8 Other................................................ 50.4 60.4 54.9 38.6 38.6 --------- --------- --------- --------- --------- Total.............................................. $ 767.4 $ 727.9 $ 616.8 $ 618.6 $ 686.1 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Volumes (MCF- 000's) Residential.......................................... 77,594 81,698 76,461 71,208 74,421 Commercial........................................... 39,128 40,698 37,282 35,952 40,232 Industrial........................................... 11,059 10,944 12,901 18,439 26,868 Transportation....................................... 158,937 166,562 178,114 135,924 115,877 Other................................................ 678 1,611 1,827 2,420 3,672 --------- --------- --------- --------- --------- Total.............................................. 287,396 301,513 306,585 263,943 261,070 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Customers Residential.......................................... 744,238 728,867 713,586 698,156 661,930 Commercial........................................... 78,925 77,742 76,430 76,015 73,365 Industrial........................................... 2,491 3,725 3,790 3,878 3,874 Other................................................ 2,491 2,573 2,815 1,581 1,185 --------- --------- --------- --------- --------- Total.............................................. 828,145 812,907 796,621 779,630 740,354 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Except for its West Virginia operations, UED procures natural gas through a central gas supply department. For West Virginia, UED procures its gas from local suppliers and the spot market. REGULATION The utility businesses of UED and Generation are regulated on a combined basis and are impacted similarly by competition and seasonality. The consolidated utility businesses are regulated by the following commissions:
STATE/JURISDICTION COMMISSION - --------------------------- ----------------------------------------------------------- Kansas Kansas Corporation Commission Michigan Michigan Public Service Commission Missouri Public Service Commission of the State of Missouri Minnesota Minnesota Public Utilities Commission Iowa Iowa State Utilities Board West Virginia Public Service Commission of West Virginia Colorado Public Utilities Commission of the State of Colorado Federal Federal Energy Regulatory Commission
There is no state regulatory agency in Nebraska. Each municipality served by the company regulates local rates and services. 6 The following is a summary of the recent rate case activity of the company:
TYPE OF DATE DATE AMOUNT AMOUNT RATE CASE DESIGNATION SERVICE REQUESTED GRANTED REQUESTED GRANTED - ------------------------------------ ----------- ----------- --------- ------------- ----------- (IN MILLIONS) Michigan U-10960 Gas 10/31/95 3/28/97 $ 5.2 $ 1.7 Kansas 193,787U Gas 12/31/95 12/1/96 5.1 3.5 Nebraska Rate Area 2 Gas 5/31/96 10/1/96 5.5 3.4 Nebraska Rate Areas 1&3 Gas 8/1/95 2/1/96 5.2 2.8
In the first quarter of 1997, the Staff of the Missouri Public Service Commission (the Staff) filed a complaint against the company seeking to reduce annual Missouri electric revenues by $23 million. In September 1997, the Staff increased its recommendation for a rate reduction to $28.5 million. In a separate filing with the Staff, the company requested to increase electric rates by $24.6 million. The Staff is reviewing the company's position with the final order to be issued in March 1998. The primary differences between these two dockets center on rate of return, capital structure, transition costs, depreciation methods and corporate allocations. The company's filing is designed to recover inflationary and other cost increases which include the investment of approximately $20 million in plant and facility improvements. The rate increase also reflects the request for a temporary surcharge of $.0028 per kilowatt-hour to cover costs related to transitioning to the competitive customer-choice marketplace. In addition, the filing includes a mechanism to lessen the impact of the surcharge on consumers, and requests the Staff approve the establishment of a $1 million fund to assist low-income customers. The Commission is expected to issue a final order by March 7, 1998, with new rates effective March 17, 1998. Although this matter is still pending, the public scenarios under consideration by the Commission range from a $12 million to a $23 million rate reduction. ENVIRONMENTAL The company is subject to various environmental laws, including regulations governing air, water quality and the storage and disposal of hazardous or toxic wastes. The company assesses, on an ongoing basis, measures to ensure the compliance with laws and regulations related to hazardous materials and hazardous waste compliance and remediation activities. Compliance with existing regulations, and those which may be promulgated in the future, can result in considerable capital expenditures and operation and maintenance expense. A discussion of the environmental matters of the company follows. MANUFACTURED GAS PLANTS The company owns or previously operated 29 former manufactured gas plants (MGPs) which may, or may not, require some form of environmental remediation. The company has contacted appropriate federal and state agencies and is in the process of determining what, if any, specific cleanup activities may be needed at these sites. As of December 31, 1997, the company estimates its cleanup costs on its identified MGP sites will be approximately $6.2 million. These amounts could change materially based upon further investigations, the actions of environmental agencies and the financial viability of other responsible parties. Additionally, the ultimate liability may be significantly affected if the company is held responsible for 7 parties not financially able to contribute to these costs. Based on prior experience, available facts and existing law, the company has recorded a liability of $6.2 million representing its estimate of the amount of environmental costs currently expected to be incurred. The company has received favorable rate orders for recovery of its environmental cleanup costs in certain jurisdictions. In other jurisdictions, a favorable regulatory precedent exists for the recovery of these costs. The company is also pursuing recovery from insurance carriers and other potentially responsible parties. OTHER In December 1996, the U.S. Environmental Protection Agency (EPA) promulgated its final rule for nitrous oxide (NOx) emissions pursuant to the requirements of the Clean Air Act Amendments of 1990. The new NOx regulations will impact one of the company's power plants by necessitating the installation of additional emissions control equipment by January 1, 2000. The company estimates that it will spend approximately $2.0 million to comply with these rules. It is management's opinion that the ultimate resolution of these environmental matters will not have a material adverse impact upon the financial position or results of operations of the company. SEASONAL VARIATIONS OF BUSINESS The company's utility and independent power project businesses are weather-sensitive. The company has both summer and winter peaking utility assets to reduce dependence on a single peak season. The table below shows peak times for its consolidated utility businesses.
JURISDICTION PEAK - --------------------------------------- ------------------------------ Gas utility operations November through March Electric utility operations-- Missouri, Kansas and Colorado July and August West Virginia November through March
II. AQUILA ENERGY WHOLESALE ENERGY MARKETING Aquila's wholesale energy marketing business is conducted through various operating units, collectively referred to as Energy Marketing. Energy Marketing is a gas and power marketing company with a marketing, supply and transportation network consisting of relations with gas producers, local distribution companies, and end-users throughout the United States and Canada. Energy Marketing adds value for customers by leveraging its national position in financial deal structuring in gas and power marketing. It provides services such as complex fuel supply arrangements, energy management services and project development consulting. For the five years in the period ended December 31, 1997, Energy Marketing had gas marketing volumes of 5.5, 2.1, 1.4, 1.0, and 1.4 billion cubic feet a day (BCF/d), respectively. In 1995, Energy Marketing began selling electricity to wholesale customers, much as it markets natural gas. Aquila expects that the electricity marketing industry will expand rapidly as electricity futures trading is developed and the infrastructure of this industry segment is established. Aquila's wholesale power sales have grown from 129,000 megawatt hours in 1995 to 65.3 million megawatt hours in 1997, ranking it among the nation's largest volume power marketers. Energy Marketing utilizes certain types of fixed-price contracts in connection with its natural gas, natural gas liquids, and power marketing businesses. These include contracts that commit the company to purchase or sell natural gas and other commodities at fixed prices in the future (i.e., fixed-price 8 forward purchase and sales contracts), futures and options contracts traded on the NYMEX and swaps and other types of financial instruments traded in the over-the-counter financial markets. The availability and use of these types of contracts allows the company to manage and hedge its contractual commitments, reduce its exposure relative to the volatility of cash market prices, take advantage of carefully selected arbitrage opportunities via open positions, protect its investment in natural gas storage inventories and to provide price risk management services to its customers. The company is also able to secure additional sources of energy or create additional markets for existing supply through the use of exchange for physical transactions allowed by NYMEX. The company's domestic and Canadian natural gas and electricity trading activities are referred to herein as price risk management activities and are reflected in the accompanying financial statements using the mark-to-market method of accounting. Although the company generally attempts to balance its fixed-price physical and financial purchase and sales contracts in terms of contract volumes and the timing of performance and delivery obligations, net open positions often exist or are established due to the origination of new transactions and the company assessment of, and response to, changing market conditions. The company will at times create a net open position or allow a net open position to continue when it believes, based upon competitive information gained from its energy marketing activities, that future price movements will be consistent with its net open position. To the extent that the company has a net open position, the company is exposed to the risk that fluctuating market prices may adversely impact its financial position or results of operations. In addition to the risk associated with price movements, credit risk is also inherent in the company's risk management activities. Credit risk relates to the risk of loss resulting from the non-performance of a counterparty of its contractual obligations. The company maintains credit policies with regard to its counterparties that the company believes significantly minimize overall credit risk. These policies include the thorough review of potential counterparties' financial condition, collateral requirements under certain circumstances, monitoring of net exposure to each counterparty and the use of standardized agreements which allow for the netting of positive and negative exposures associated with each counter party. GAS GATHERING AND PROCESSING Aquila through AGP gathers and processes natural gas and natural gas liquids. AGP owns and operates a 3,434-mile intrastate gas transmission and gathering network and four processing plants that extract and sell natural gas liquids. Key operating statistics for AGP are presented in the table below.
1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Natural gas throughput (million cubic feet per day).................. 483 493 506 371 325 Natural gas liquids produced (thousand barrels per day).............. 37 41 32 31 31 Pipeline miles owned................................................. 3,434 3,416 3,311 2,718 2,531
Through two transactions in July and November 1996, Aquila Energy and its 82 percent-owned AGP acquired a combined 40% of the outstanding capital stock of Oasis Pipe Line Company (Oasis) and related transportation rights for approximately $132 million. The 600-mile Oasis pipeline system spans the state of Texas and links Aquila's gathering systems to the Waha, Texas hub and the Katy, Texas hub. As part of the purchase, another owner had the option to buy one-fifth of Oasis, including 5% now owned by Aquila, on or before April 1, 1997. In 1997, the option was exercised and Aquila sold the 5% at book value. 9 III. GENERATION ELECTRIC UTILITY GENERATION Generation manages the company's domestic regulated electric generation and supply businesses in Colorado, Kansas and Missouri. Collectively, the generating plants located in these three states had the capacity to generate 1,679 megawatts (MW) of electricity during the year ended December 31, 1997. The following table shows the overall fuel mix, and the generation capability for the past five years.
SOURCE 1997 1996 1995 1994 1993 - ------------------------------------------------- --------- --------- --------- --------- --------- (MW) Coal............................................. 889 885 875 868 864 Gas and oil...................................... 790 784 705 705 700 --------- --------- --------- --------- --------- Total generation capability.................... 1,679 1,669 1,580 1,573 1,564 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
A listing of Generation's generating plants is provided in the "Properties" section of this Form 10-K. Generation also sells electricity to the wholesale market. For the year ended December 31, 1997, Generation sold 1,546 megawatt hours to non-affiliated parties. INDEPENDENT POWER PROJECTS UtilCo Group Inc. (UtilCo) participates in the ownership and operation of facilities in the independent and wholesale power generation market. Consistent with the company's overall strategy to minimize risk through diversification, UtilCo has invested in generation facilities which are geographically diverse and use a variety of fuels and proven technologies. Additionally, each project is a producer of competitively priced wholesale power in its geographic region and has a long-term market for its output. To date, UtilCo has made investments in 17 projects located in seven states and Jamaica, with a total net ownership of approximately 341 MW of generating capacity. A description and listing of the power projects appears on page 15 of this Form 10-K. IV. INTERNATIONAL The company's international operations are managed separately from the four business groups previously discussed. The international businesses have local management and report separately to the company. The contribution to earnings from international businesses was 14%, 25%, and 12% for the years ended December 31, 1997, 1996 and 1995, respectively. As of December 31, 1997, the company had $907.9 million invested internationally. The following discussion briefly describes the operations of these businesses. AUSTRALIA In September 1995, Power Partnership Pty Limited (PPL), of which the company owns 49.9%, acquired United Energy Limited (UE), an Australian electric distribution utility, from the State of Victoria. The company paid approximately $257.9 million for its 49.9% ownership interest in PPL. The company manages the operation of UE on behalf of PPL and receives a management fee consisting of a base amount indexed to the consumer price index and a variable amount based on UE's financial performance. 10 Summarized UE financial information as of and for the year ended December 31, 1997 is as follows:
(IN MILLIONS) ------------ Sales........................................................................... $ 498.0 ------------ ------------ Net income...................................................................... $ 20.0 ------------ ------------ Total assets.................................................................... $ 114.5 ------------ ------------ Liabilities..................................................................... $ 15.4 Equity.......................................................................... 99.1 ------------ Total liabilities and equity.................................................... $ 114.5 ------------ ------------
NEW ZEALAND The New Zealand operations mainly consist of UtiliCorp N.Z., Inc. (UNZ), a 79%-owned subsidiary, which purchased a 29.4% ownership interest in Power New Zealand Limited (PNZ), primarily in November 1995. As additional shares were purchased throughout 1996 and 1997, the ownership interest in PNZ increased to 30.6%. In addition, UNZ has a 39.6% ownership position in WEL Energy Group Limited (WEL). Both PNZ and WEL are New Zealand electric distribution utilities serving 216,000 and 66,000 customers, respectively. Summarized PNZ and WEL financial information as of and for the years ended September 30, 1997 and June 30, 1997, respectively, are as follows:
PNZ WEL --------- --------- (IN MILLIONS) Sales.................................................................... $ 282.7 $ 68.2 --------- --------- --------- --------- Net income............................................................... $ 32.4 $ 10.9 --------- --------- --------- --------- Total assets............................................................. $ 523.6 $ 114.5 --------- --------- --------- --------- Liabilities.............................................................. $ 103.5 $ 15.4 Equity................................................................... 420.1 99.5 --------- --------- Total liabilities and equity............................................. $ 523.6 $ 114.5 --------- --------- --------- ---------
UNITED KINGDOM The company has several business ventures in the United Kingdom (U.K.) that market natural gas and transportation services to wholesale, industrial, and residential customers. United Gas Limited (UGL) is the company's primary U.K. subsidiary. UGL markets gas directly and indirectly to approximately 96,000 customers and had sales volumes of 68 BCF for the year ended December 31, 1997, an increase of 12 BCF from 1996. The contestability of the residential gas markets began in April 1996 and have continued through 1997. Residential gas markets will be fully contestable by the summer of 1998. In connection with the opening of this market, new suppliers have entered the market. These include companies with a strong residential brand such as electricity companies, water companies, and grocery chains who are adding natural gas to their exiting products and offering multiple products to the residential marketplace. Since a large number of new suppliers are from outside the natural gas industry, UGL has developed natural gas transportation and load balancing services that are targeted at these new suppliers. These products allow UGL to leverage its existing expertise and information technology systems to generate revenue while managing operational risks for new suppliers. 11 In 1997 and 1996, the company realigned certain of its business relationships in the United Kingdom (UK). The equity relationships with Western Gas Limited, Caledonian Gas Limited, Egas Limited and Midlands Gas Limited (Midlands) were terminated. As part of the termination of the equity relationship in Midlands, the company assumed an interest in two unfavorable long-term gas supply contracts (for deliveries through 2005) that is assimilated into its existing portfolio of sales and supply contracts. At December 31, 1997, the company's portfolio of fixed price contracts was in a net long position, as it included supply commitments of 66 BCF through 2005 and sales commitments of 50 BCF through 1999. Depending on the long term price of natural gas, estimated losses on the above portfolio range between $19 million and $26 million due to the two long term supply contracts referred to above. Since the U.K. natural gas market does not have liquid long-term pricing, it is difficult to estimate the future profitability of the portfolio. Based on management's estimates and available market data at December 31, 1997, the company is carrying a $19 million pretax reserve relating to future losses that may exist within the portfolio of contracts. Management believes that this reserve is adequate and that any additional losses would not be material. On April 15, 1996, the company acquired the 25% interest in UtiliCorp U.K., Inc., it did not already own for approximately $12 million. This transaction was accounted for as a purchase. CANADA In Canada, the company owns West Kootenay Power Ltd. (WKP), a hydro-electric utility in British Columbia. WKP has four hydro-electric generation facilities with a capacity of 205 megawatts and 962 miles of transmission lines that serve 84,225 customers in south central British Columbia. WKP generates about half of its power requirements and purchases the remaining requirements through power contracts. The following table summarizes the sales, volumes and customers of WKP.
1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Sales (in millions): Residential................................................. $ 36.2 $ 37.0 $ 32.9 $ 34.4 $ 32.8 Commercial.................................................. 18.8 19.7 19.1 16.6 18.1 Industrial.................................................. 8.5 9.4 9.4 8.7 12.8 Other....................................................... 26.3 26.8 26.2 21.2 23.8 --------- --------- --------- --------- --------- Total..................................................... $ 89.8 $ 92.9 $ 87.6 $ 80.9 $ 87.5 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Volumes (MWH 000s) Residential................................................. 943 990 920 873 939 Commercial.................................................. 474 467 440 421 400 Industrial.................................................. 266 313 319 362 491 Other....................................................... 874 909 892 869 849 --------- --------- --------- --------- --------- Total..................................................... 2,557 2,679 2,571 2,525 2,679 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Customers Residential................................................. 74,934 73,413 71,844 70,142 67,883 Commercial.................................................. 8,195 8,041 7,888 7,974 7,766 Industrial.................................................. 36 37 36 36 36 Other....................................................... 1,060 1,045 1,019 161 165 --------- --------- --------- --------- --------- Total..................................................... 84,225 82,536 80,787 78,313 75,850 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
12 WKP is regulated by the British Columbia Utilities Commission. WKP is in the third year of a three year incentive based rate setting mechanism. This mechanism is the first of its kind for electric utilities in Canada and was the result of a negotiated settlement with customers and regulators. The mechanism calls for equal sharing of savings between the customer and WKP in situations where WKP performs over and above negotiated performance expectations. COMPETITION ELECTRIC The electric industry has increasingly become more competitive as federal and state regulators move to a more unregulated environment. At the federal level, the passage of the Energy Policy Act of 1992 (Energy Act) allowed the Federal Energy Regulatory Commission (FERC) to order electric utilities to grant access to transmission systems by third-party power producers. The Energy Act specifically prohibits federally mandated wheeling of power for retail customers. In April 1996, the FERC issued its Order No. 888, and subsequently Order Nos. 888-A and 888-B, which opened wholesale power sales to competition and required public utilities owning, controlling, or operating transmission lines to file non-discriminatory open access tariffs that offer others the same transmission service they provide themselves. The company has open access tariffs in each of its electric jurisdictions. On the federal legislative front, several bills in congress have been proposed on electric restructuring matters, but no bill currently has wide support or is ready for passage. Without federal restructuring guidelines, electric restructuring is taking place on a state-by-state basis without consistency between states. In each of the company's domestic electric jurisdictions, various restructuring proposals are being proposed in the state legislature. The pace of electric restructuring is unpredictable and subject to change. GAS The competitive forces affecting the company's electric operations are also affecting the company's gas operations. As competing electric utilities reduce costs, it becomes more difficult to obtain new customers through fuel switching opportunities and in certain cases the increased competition may result in loss of customers. The Federal Energy Regulatory Commission (FERC) Order 636 shifted gas supply responsibilities from traditional pipeline company sources to distribution utilities, and allows customers to bypass the company's system by connecting directly to a transportation pipeline. In addition, the mix of gas sales has changed between industrial transportation and large commercial customers. The company has addressed increased competition and industry changes in several ways. First, its natural gas is priced competitively in its respective service territories compared to alternate energy sources. Second, in 1993 the company established a central gas procurement function designed to take advantage of opportunities created by FERC Order 636. Besides offering low cost natural gas, the company offers a wide range of energy solutions to meet its customers' needs. The company currently accounts for the economic effects of regulation in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," and accordingly has recorded certain costs as regulatory assets in the financial statements. The company expects that its rates will continue to be based on historical costs for the foreseeable future. If the company discontinued applying SFAS No. 71, it would be required to make adjustment to the carrying value of certain assets. 13 ENERGY MARKETING The company has adopted a plan to provide both natural gas and electric power commodity services to its wholesale customers from an integrated wholesale marketing staff. This allows the company to fully meet the needs of customers that continue to have an ever-increasing portfolio of energy options from which to choose. A number of recent mergers and consolidations of entities in the energy marketing industry have increased the focus on controlling market share on a volumetric basis. The company expects the energy marketing industry to consolidate into a few megamarketing companies. Electric power marketing will be affected by the regulatory environment of the industry. It is currently unclear as to when the various regulatory agencies will open access to all power customers, including retail users. These regulatory decisions may have a significant impact on the future economics of the power marketing sector. EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICER PROFESSIONAL EXPERIENCE - -------------------------- -------------------------------------------------------------------------------------- Richard C. Green, Jr. TITLES: Chairman of the Board and Chief Executive Officer AGE: 43 5-YEAR HISTORY: Chairman of the Board of Directors since February 1989 and Chief Executive Officer since May 1985. Mr. Green previously was also President from May 1985 to February 1996. Mr. Green is a director of BHA Group, Inc., and CAT, Ltd. Robert K. Green TITLES: President and Chief Operating Officer of the company, and Chairman of the Board of United Energy Limited AGE: 36 5-YEAR HISTORY: President since February 1996. Executive Vice President from January 1993 to February 1996. Prior to January 1993, Mr. Green was President of the Missouri Public Service division between 1993 and 1991. Between 1991 and 1989 Mr. Green held various division officer positions with Missouri Public Service. Mr. Green is also a director of UMB Bank, n.a. Charles K. Dempster TITLE: Chairman of the Board and President of UtiliCorp U.K., Inc. AGE: 55 5-YEAR HISTORY: In present position since November 1995. Before current position Mr. Dempster was Vice President, Energy Resources from September 1994. From December 1995 to January 1993, Mr. Dempster was President of Aquila Energy Corporation, a subsidiary of the company. Prior to being employed by the company, Mr. Dempster was President of Reliance Pipeline Company since 1987. James G. Miller TITLE: Senior Vice President, Energy Delivery AGE: 49 5-YEAR HISTORY: In present position since September 1994. Prior positions included various division President posts from 1983.
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EXECUTIVE OFFICER PROFESSIONAL EXPERIENCE - -------------------------- -------------------------------------------------------------------------------------- Harvey J. Padewer TITLE: Senior Vice President, Energy Group and President of Aquila Energy Corporation. AGE: 50 5-YEAR HISTORY: Present position since January 1996. From May 1995, Mr. Padewer was Vice President, Power Services. Prior to being employed by the company Mr. Padewer was employed by Asea Brown Boveri Power Generation, Inc., at various officer level positions for over five years. James S. Brook TITLE: Vice President, Controller and Chief Accounting Officer AGE: 48 5-YEAR HISTORY: Present position since November 1993. Prior to current position, Mr. Brook held various Vice President positions at Missouri Public Service and West Kootenay Power since 1980. Dale J. Wolf TITLE: Vice President, Finance and Corporate Secretary AGE: 58 5-YEAR HISTORY: Held present position for 8 years. Prior position was Vice President, Finance and Treasurer for four years.
All officers are elected annually by the Board of Directors for a term of one year. Robert K. Green is the brother of Richard C. Green, Jr., and Avis G. Tucker, Director, is the aunt of Richard C. Green, Jr. and Robert K. Green. 15 ITEM 2: PROPERTIES The company owns electric production, transmission and distribution systems and gas transmission and distribution systems throughout its service territories. The company also owns gas gathering, processing and pipeline systems. Substantially all utility plant assets in Michigan are mortgaged pursuant to an Indenture of Mortgage and Deed of Trust dated July 1, 1951, as supplemented. Substantially all of the company's Canadian utility plant is mortgaged under terms of a separate indenture. UTILITY FACILITIES The company's electric generation facilities, as of December 31, 1997, are as follows:
UNIT CAPABILITY NET (KW NET, PER GENERATION UNIT LOCATION YEAR INSTALLED HOUR) FUEL (MW HOURS) - -------------------------- -------------------------- ------------------- --------------- --------- ------------ MISSOURI: Sibley #1 - #3 Sibley 1960, 1962, 1969 496,000 Coal 2,850,803 Ralph Green #3 Pleasant Hill 1981 72,000 Gas 21,588 Nevada Nevada 1974 20,000 Oil 145 Greenwood #1 - #4 Greenwood 1975 - 1979 247,000 Gas/Oil 103,935 KCI #1 and #2 Kansas City 1970 33,000 Gas 2,071 - --------------------------------------------------------------------------------------------------------------------- KANSAS: Judson Large #4 Dodge City 1969 143,000 Gas/Oil 377,552 Arthur Mullergren #3 Great Bend 1963 90,000 Gas/Oil 150,608 Cimarron River #1 - #2 Liberal 1963, 1967 72,000 Gas 53,953 Clifton #1 - #2 Clifton 1974 73,000 Gas/Oil 30,303 Jeffrey #1 - #3 St. Mary's 1978, 1980, 1983 352,000 Coal 2,283,552 - --------------------------------------------------------------------------------------------------------------------- COLORADO: W.N. Clark #1 - #2 Canon City 1955, 1959 41,000 Coal 240,849 Pueblo #6 Pueblo 1949 20,000 Gas/Oil 10,427 Diesel #'s 1,2,3,4,5 Pueblo 1964 10,000 Oil 242 Diesel #'s 1,2,3,4,5 Rocky Ford 1964 10,000 Oil 1,259 - --------------------------------------------------------------------------------------------------------------------- CANADA: No. 1 Lower Bonnington, BC 1925 42,000 Hydro 320,017 No. 2 Upper Bonnington, BC 1907 60,000 Hydro 424,963 No. 3 South Slocan, BC 1928 53,000 Hydro 417,976 No. 4 Corra Linn, BC 1932 50,000 Hydro 338,001 - --------------------------------------------------------------------------------------------------------------------- TOTAL 1,884,000 7,628,244 - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
At December 31, 1997, the company had transmission and distribution lines as follows:
LENGTH (POLE DESCRIPTION MILES) - -------------------------------------------------------------------------------- ------------ Transmission lines.............................................................. 5,250 Overhead distribution lines..................................................... 15,383 Underground distribution lines.................................................. 2,671 ------------ Total....................................................................... 23,304 ------------ ------------
At December 31, 1997, the company's gas utility operations had 3,148 miles of gas gathering and transmission pipelines and 22,879 miles of distribution mains and service lines located throughout its service territories. 16 GAS PROCESSING AND GATHERING ASSETS AGP owned and/or operated 12 active natural gas pipeline systems with an aggregate length of approximately 3,434 miles. These pipelines do not form an interconnected system. Set forth below is information with respect to AGP's pipeline systems as of December 31, 1997:
GAS THROUGHPUT AVG. DAILY GAS MILES OF CAPACITY THROUGHPUT PIPELINE (A)(B) (A)(B)(C) GATHERING SYSTEMS LOCATION (A) (MMCF/D) (MMCF/D) - ---------------------------------------------- ----------------- ----------- ----------------- ------------------- Southeast Texas............................... SE Texas 2,285 710 416 Mentone....................................... W. Texas 13 60 -- Gomez......................................... W. Texas 11 40 -- Menard County................................. C. Texas 120 30 4 Maverick County............................... W. Texas 121 20 2 Rhoda Walker.................................. W. Texas 21 20 8 Panola County................................. E. Texas 23 8 1 Elk City...................................... SW Oklahoma 155 115 84 Mooreland..................................... NW Oklahoma 327 40 12 Brooks-Hidalgo--23%........................... S. Texas 97 75 3 Dorado--40%................................... S. Texas 57 40 11 Benedum/Wilshire--20%(d)...................... W. Texas 204 125 3 Warwink(e).................................... W. Texas -- -- 25 ----- ----- --- 3,434 1,283 569 Fuel and Shrinkage............................ -- -- (86) ----- ----- --- Total..................................... 3,434 1,283 483 ----- ----- --- ----- ----- ---
- ------------------------ (a) All mileage, capacity and volume information is approximate. Capacity figures are management's estimates based on existing facilities without regard to the present availability of natural gas. (b) Gross gas throughput capacity is included at 100% while average gas throughput is presented at the Company's present joint venture ownership interest. (c) Excludes off-system marketing sales with average daily volumes of 687 MMcf/d sold from other companies' facilities (d) In 1997, the Company's ownership percentage increased from 5% to 20%. (e) On December 1, 1997, the Warwink Joint Venture was sold. Average gas throughput has been included for the period for which the Company had ownership in Warwink. At December 31, 1997, the Company owned 35% of the capital stock of Oasis and the right to transport 280 MMcf/d of natural gas on Oasis' pipeline, plus the opportunity to utilize excess capacity on an interruptible basis. The Oasis pipeline is a 600-mile, 36-inch diameter natural gas pipeline which connects the Waha, Texas hub to the Katy, Texas hub. The Oasis pipeline has one (1) Bcf/d of throughput capacity. The volumes transported on the Oasis pipeline are reflected in the off-system marketing activities of the Company. The Company utilizes the equity method of accounting for its investment in the capital stock of Oasis. 17 At December 31, 1997, AGP owned and/or operated an interest in four natural gas processing plants. Set forth below is information with respect to AGP's processing plants as of December 31, 1997:
GAS THROUGHPUT GAS THROUGHPUT NGLS PRODUCTION CAPACITY(A) (A)(B) (A)(B) PROCESSING PLANTS (MMCF/D) (MMCF/D) (MBBLS/D)(D) - ---------------------------------------------------------- ------------------- ------------------- ------------------- La Grange, Texas.......................................... 230 175 23.4 Somerville, Texas......................................... 28 15 .6 Benedum, Texas 5%......................................... 125 13 .8 Elk City, Oklahoma........................................ 115 83 4.1 --- --- --- Total owned plants........................................ 498 286 28.9 Katy, Texas(c)............................................ -- 200 8.1 --- --- --- Total................................................. 498 486 37.0 --- --- --- --- --- ---
- ------------------------ (a) All capacity and volume information is approximate. Capacity figures are management's estimates based on existing facilities without regard to the present availability of natural gas. (b) Volumes from joint venture have been included at the present AGP ownership interest. (c) This plant is owned and operated by a third party from which AGP receives a portion of the NGLs produced from gas AGP delivers to the plant. The plant is included in this section for informational purposes to show the gas throughput and NGLs production that AGP received utilizing the access to this plant. (d) Thousands of barrels per day (MBbls/d). The availability of natural gas reserves to AGP depends on their development in the area served by its pipelines and on AGP's ability to purchase gas currently sold to or transported through other pipelines. The development of additional gas reserves will be affected by many factors including the prices of natural gas and crude oil, exploration and development costs and the presence of natural gas reserves in the areas served by AGP's systems. 18 INDEPENDENT POWER PROJECTS Information regarding the company's generating projects is set forth below.
TYPE OF PERCENT CAPACITY PROJECT & LOCATION INVESTMENT OWNED (MW)(A) FUEL DATE IN SERVICE - ----------------------------- ----------------- ----------- ----------- -------------------- ------------------- Mega Renewables G.P., 4 General 49.75% 12.2 Hydro Spring 1987(b) projects in California partnership - --------------------------------------------------------------------------------------------------------------------- Topsham Hydro Partners, Maine Leveraged lease 50 13.9 Hydro October 1987 - --------------------------------------------------------------------------------------------------------------------- Stockton CoGen Company, General 50 60.0 Coal March 1988(c) California partnership - --------------------------------------------------------------------------------------------------------------------- Westwood Energy Properties, Limited 38 29.25 Waste coal July 1988 Pennsylvania partnership - --------------------------------------------------------------------------------------------------------------------- BAF Energy L.P., California Limited 23.1 120.0 Natural Gas May 1989 partnership - --------------------------------------------------------------------------------------------------------------------- Rumford Cogeneration Company Limited 24.3 85.0 Coal and waste wood May 1990 L.P., Maine partnership - --------------------------------------------------------------------------------------------------------------------- Koma Kulshan Associates, Limited 49.75 13.7 Hydro October 1990 Washington partnership - --------------------------------------------------------------------------------------------------------------------- Badger Creek Limited, Limited 49.75 50.0 Natural gas April 1991 California partnership - --------------------------------------------------------------------------------------------------------------------- McKittrick Limited, Limited 49.75 50.0 Natural gas October 1991 California partnership - --------------------------------------------------------------------------------------------------------------------- Live Oak Limited, California Limited 50 50.0 Natural gas April 1992 partnership - --------------------------------------------------------------------------------------------------------------------- Lockport Energy Associates, Limited 22.56 180.0 Natural gas December 1992 L.P., New York partnership - --------------------------------------------------------------------------------------------------------------------- Orlando Cogen Limited, L.P., Limited 50 125.7 Natural gas September 1993 Florida partnership - --------------------------------------------------------------------------------------------------------------------- Naheola Cogeneration LP, Limited 50 81.2 Black liquor solids, March 1993(d) Alabama partnership coal, gas, wood - --------------------------------------------------------------------------------------------------------------------- Jamaica Private Power Limited liability 21.5 60.0 Diesel January 1997 Company, Jamaica company - ---------------------------------------------------------------------------------------------------------------------
(a) Nominal gross capacity. (b) Interest acquired by the company in June 1989. (c) Interest acquired by the company in December 1988. (d) Interest acquired by the company in May 1995. 19 ITEM 3: LEGAL PROCEEDINGS William Alpern vs. UtiliCorp United Inc. On June 17, 1992, a class action suit was filed by a stockholder against the company in the United States District Court for the Western District of Missouri. Plaintiff alleges that the company violated Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 of the Securities and Exchange Commission, both by making misrepresentations and omitting to state material facts in connection with public disclosures. Plaintiff also alleges a claim under Section 11 of the Securities Act of 1933, as amended. Plaintiff seeks unspecified compensatory damages. The District Court dismissed the case by granting summary judgment to UtiliCorp. Plaintiff appealed that decision to the United States Court of Appeals for the Eighth Circuit. On May 17, 1996, the Court of Appeals reversed the decision of the District Court, reinstated plaintiff's claims and remanded the case back to the District Court. In December 1997, the Company made a $2 million payment to the plaintiffs to resolve the case. The settlement was approved and the case dismissed by the District Court in January 1998. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders in the fourth quarter of 1997. PART 2 ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The company's common stock (par $1) is listed on the New York, Pacific and Toronto stock exchanges under the symbol UCU. At December 31, 1997, the company had 41,849 common shareholders of record. Information relating to market prices of common stock and cash dividends on common stock is set forth in the table below. MARKET PRICE
HIGH LOW CASH DIVIDENDS --------- --------- ------------------- 1997 QUARTERS First................................................. $ 28.25 $ 25.50 $ .44 Second................................................ 29.38 25.75 .44 Third................................................. 30.88 29.00 .44 Fourth................................................ 39.06 30.13 .44 1996 QUARTERS First................................................. $ 30.25 $ 28.25 $ .44 Second................................................ 29.13 25.75 .44 Third................................................. 29.13 26.50 .44 Fourth................................................ 27.25 26.38 .44
20 ITEM 6: SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- IN MILLIONS EXCEPT PER SHARE Sales.............................................. $ 8,296.3 $ 4,332.3 $ 2,792.6 $ 2,398.1 $ 2,746.1 Income from operations............................. 243.3 225.8 227.1 228.0 144.0 Net income......................................... 122.1 105.8 79.8 94.4 86.4 Earnings available for common shares............... 121.8 103.7 77.7 91.4 79.5 Basic earnings per common share.................... 2.27 2.20 1.72 2.08 1.95 Cash dividends per common share.................... 1.76 1.76 1.72 1.70 1.62 Total assets....................................... 5,113.5 4,739.8 3,885.9 3,111.1 2,850.5 Short-term debt (including current maturities)..... 263.4 277.7 303.7 321.2 71.8 Long-term debt..................................... 1,358.6 1,470.7 1,355.4 976.9 1,009.7 Company-obligated mandatorily redeemable preferred securities of a partnership...................... 100.0 100.0 100.0 -- -- Preference and preferred stock..................... -- 25.0 25.4 25.4 83.9 Common shareholders' equity........................ 1,163.6 1,158.0 946.3 906.8 851.7
Items between years that impact comparability are described and are incorporated by reference on page 26 in the company's 1997 Annual Report to Shareholders. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The information required by this item is incorporated by reference on pages 26 through 38 in the company's 1997 Annual Report to Shareholders. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated by reference on pages 39 through 60 of the company's 1997 Annual Report to Shareholders. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART 3 ITEMS 10, 11, 12 AND 13: DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding these items appears in the company's proxy statement for its annual meeting of shareholders to be held May 6, 1998 and is hereby incorporated by reference in this Annual Report on Form 10-K. For information with respect to the executive officers of the company, see "Executive Officers of the Registrant" following Item 1 in Part 1 of this Form 10-K. 21 PART 4 ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT: (1) FINANCIAL STATEMENTS:
PAGE NO. ----------- Consolidated Statements of Income for the three years ended December 31, 1997...... * Consolidated Balance Sheets at December 31, 1997 and 1996.......................... * Consolidated Statements of Common Shareowners' Equity for the three years ended December 31, 1997................................................................ * Consolidated Statements of Cash Flows for the three years ended December 31, 1997 * Notes to Consolidated Financial Statements......................................... * Report of Independent Public Accountants........................................... *
- ------------------------ * Incorporated by reference on pages 39 through 60 of the company's 1997 Annual Report to Shareholders. (2) Financial Statement Schedule Report of Independent Accountants on Financial Statement Schedule.......................................................... 23 Schedule II Valuation and Qualifying Accounts for the years 1997, 1996 and 1995................................................... 24
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) LIST OF EXHIBITS * The following exhibits relate to a management contract or compensatory plan or arrangement: 10(a)(2) UtiliCorp United Inc. Deferred Income Plan. 10(a)(3) UtiliCorp United Inc. Amended and Restated 1986 Stock Incentive Plan. 10(a)(4) UtiliCorp United Inc. Annual and Long-Term Incentive Plan. 10(a)(5) UtiliCorp United Inc. 1990 Non-Employee Director Stock Plan. 10(a)(6) Severance Compensation Agreement. 10(a)(7) Executive Severance Payment Agreement. 10(a)(8) Split Dollar Agreement. 10(a)(9) Supplemental Retirement Agreement. 10(a)(11) UtiliCorp United Inc. Life Insurance Program for Officers. 10(a)(12) Summary of Terms and Conditions of Employment of Charles K. Dempster. 10(a)(13) Summary of Terms and Conditions of Employment of Terry G. Westbrook. 10(a)(14) Employment Agreement for Richard C. Green, Jr. 10(a)(15) Employment Agreement for Robert K. Green.
- ------------------------ * Incorporated by reference to the Index to Exhibits. (b) Reports on Form 8-K None 22 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders of UtiliCorp United Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements for 1997, 1996 and 1995 described on page 60 of UtiliCorp United Inc.'s 1997 Annual Report to shareholders, which is incorporated by reference in this Form 10-K, and have issued our report thereon dated February 3, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The Financial Statement Schedule listed in Item 14(a)2 is presented for the purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Kansas City, Missouri February 3, 1998 23 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1997 (IN MILLIONS)
COLUMN E COLUMN B COLUMN D ------------------- ----------- COLUMN C -------------- DEDUCTIONS FROM COLUMN F COLUMN A BEGINNING ------------------- ADDITIONS RESERVES FOR ----------------- - ----------------------------------- BALANCE AT PURCHASE OF A CHARGED TO PURPOSES FOR ENDING BALANCE DESCRIPTION JANUARY 1 BUSINESS EXPENSE WHICH CREATED AT DECEMBER 31 - ----------------------------------- ----------- ------------------- -------------- ------------------- ----------------- Price Risk Management-- credit and service reserves: 1997............................. $ 57.2 -- 3.2 -- $ 60.4 1996............................. $ 70.6 -- -- 13.4 $ 57.2 1995............................. -- -- 70.6(1) -- $ 70.6 Reserve for United Kingdom gas contracts: 1997............................. $ 14.0 -- 5.0 -- $ 19.0 1996............................. $ 11.0 -- 3.0 -- $ 14.0 1995............................. -- -- 11.0 -- $ 11.0
- ------------------------ (1) Amount established in connection with change in accounting principle to the mark-to-market method of accounting for domestic natural gas trading activities in 1996. 24 UTILICORP UNITED INC. INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------------ ---------------------------------------------------------------------------------------------------- *3(a)(1) Certificate of Incorporation of the Company. (Exhibit 3(a)(1) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) *3(a)(2) Certificate of Amendment to Certificate of Incorporation of the Company. (Exhibit 4(a)(1) to Registration Statement No. 33-16990 filed September 3, 1987.) *3(a)(3) and By-laws of the Company as amended. (Exhibit 3(a)(4) and 4(a)(1) to the company's Annual Report on 4(a)(1) Form 10-K for the year ended December 31, 1996). *4(a)(2) Certificate of Incorporation of the Company. (Exhibit 4(a)(1) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) *4(a)(3) Certificate of Amendment to Certificate of Incorporation of the Company. (Exhibit 4(a)(1) to Registration Statement No. 33-16990 filed September 3, 1987.) *4(b)(1) Indenture, dated as of November 1, 1990, between the Company and The First National Bank of Chicago, Trustee. (Exhibit 4(a) to the Company's Current Report on Form 8-K, dated November 30, 1990.) *4(b)(2) First Supplemental Indenture, dated as of November 27, 1990. (Exhibit 4(b) to the Company's Current Report on Form 8-K, dated November 30, 1990.) *4(b)(3) Second Supplemental Indenture, dated as of November 15, 1991. (Exhibit 4(a) to UtiliCorp United Inc.'s Current Report on Form 8-K dated December 19, 1991.) *4(b)(4) Third Supplemental Indenture, dated as of January 15, 1992. (Exhibit 4(c)(4) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) *4(b)(5) Fourth Supplemental Indenture, dated as of February 24, 1993. (Exhibit 4(c)(5) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) *4(b)(6) Fifth Supplemental Indenture, dated as of April 1, 1993. (Exhibit 4(c)(6) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.) *4(b)(7) Sixth Supplemental Indenture, dated as of November 1, 1994. (Exhibit 4(d)(7) to the Company's Registration Statement on Form S-3 No. 33-57167, filed January 4, 1995. *4(b)(8) Seventh Supplemental Indenture, dated as of June 1, 1995. (Exhibit 4 to the Company's Form 10-Q for the period ended June 30, 1995.) *4(b)(9) Eighth Supplemental Indenture, dated as of October 1, 1996 (Exhibit 4(b)(9) to the company's Annual Report on Form 10-K for the year ended December 31, 1996). *4(b)(10) Ninth Supplemental Indenture, dated as of September 1, 1997 (Exhibit 4 to the company's quarterly report on Form 10-Q for the period ended September 30, 1997). *4(c) Twentieth Supplemental Indenture, dated as of May 26, 1989, Supplement to Indenture of Mortgage and Deed of Trust, dated July 1, 1951. (Exhibit 4(d) to Registration Statement No. 33-45382, filed January 30, 1992.) Long-Term debt instruments of the Company in amounts not exceeding 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis will be furnished to the Commission upon request.
25
EXHIBIT NUMBER DESCRIPTION - ------------ ---------------------------------------------------------------------------------------------------- *4(d)(1) Indenture, dated as of June 1, 1995, Junior Subordinated Debentures. (Exhibit 4(d)(1) to the company's Annual Report on Form 10-K for the year ended December 31, 1995.) *4(d)(2) First Supplemental Indenture, dated as of June 1, 1995, Supplement to Indenture dated June 1, 1995. (Exhibit 4(d)(2) to the company's Annual Report on Form 10-K for the year ended December 31, 1995.) *4(e) Form of Rights Agreement between UtiliCorp United Inc. and First Chicago Trust Company of New York, as Rights Agent. (Exhibit 4 to the company's Form 10-Q for the period ended September 30, 1996.) *10(a)(1) Agreement for the Construction and Ownership of Jeffrey Energy Center, dated as of January 13, 1975, among Missouri Public Service Company, The Kansas Power & Light Company, Kansas Gas and Electric Company and Central Telephone & Utilities Corporation. (Exhibit 5(e)(1) to Registration Statement No. 2-54964, filed November 7, 1975.) *10(a)(2) UtiliCorp United Inc. Deferred Income Plan. (Exhibit 10(a)(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) *10(a)(3) UtiliCorp United Inc. Amended and Restated 1986 Stock Incentive Plan. (Exhibit 10 (a)(3) to the company's Annual Report on Form 10-K for the year ended December 31, 1995.) *10(a)(4) UtiliCorp United Inc. Annual and Long-Term Incentive Plan. (Exhibit 10(a)(4) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) *10(a)(5) UtiliCorp United Inc. 1990 Non-Employee Director Stock Plan. (Exhibit 10(a)(5) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) *10(a)(6) Form of Severance Compensation Agreement between UtiliCorp United Inc., and certain Executives of the Company. (Exhibit 10 (a)(7) to the company's Annual Report on Form 10-K for the year ended December 31, 1995.) *10(a)(7) Executive Severance Payment Agreement (Exhibit 10 to the Company's Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1993.) *10(a)(8) Split Dollar Agreement dated as of June 12, 1985, between the Company and James G. Miller. (Exhibit 10(a)(10) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.) *10(a)(9) Supplemental Retirement Agreement dated as of January 27, 1983, between the Company and James G. Miller. (Exhibit 10(a)(11) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.) *10(a)(10) Lease Agreement dated as of August 15, 1991, between Wilmington Trust Company, as Lessor, and the Company, as Lessee. (Exhibit 10(a)(13) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) *10(a)(11) UtiliCorp United Inc. Life Insurance Program for Officers. (Exhibit 10 (a)(13) to the company's Annual Report on Form 10-K for the year ended December 31, 1995.) *10(a)(12) Summary of Terms and Conditions of Employment of Charles K. Dempster. (Exhibit 10 to the company's quarterly report on Form 10-Q for the period ended March 31, 1996.)
26
EXHIBIT NUMBER DESCRIPTION - ------------ ---------------------------------------------------------------------------------------------------- *10(a)(13) Summary of Terms and Conditions of Employment of Terry G. Westbrook (Exhibit 10(a)(13) to the company's Annual Report on Form 10-K for the year ended December 31, 1996). *10(a)(14) Employment Agreement for Richard C. Green, Jr. (Exhibit 10(a)(14) to the company's Annual Report on Form 10-K for the year ended December 31, 1996). *10(a)(15) Employment Agreement for Robert K. Green (Exhibit 10(a)(15) to the company's Annual Report on Form 10-K for the year ended December 31, 1996). 13 Annual Report to Shareholders for the year ended December 31, 1997 (pages 26 to 60). 21 Subsidiaries of the Company. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule.
- ------------------------ * Exhibits marked with an asterisk are incorporated by reference as indicated pursuant to Rule 12(b)-23. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UTILICORP UNITED INC. By: /s/ RICHARD C. GREEN, JR. ---------------------------- Richard C. Green, Jr. Chairman of the Board of Directors, Chief Executive Officer (Principal Executive Officer) Date: March 19, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ RICHARD C. GREEN, JR. ---------------------------- Richard C. Green, Jr. Chairman of the Board of Directors, Chief Executive Officer (Principal Executive Officer) Date: March 19, 1998 By: /s/ ROBERT K. GREEN ---------------------------- Robert K. Green President, Chief Operating Officer and Director Date: March 19, 1998 By: /s/ JAMES S. BROOK ---------------------------- James S. Brook Vice President, Controller and Chief Accounting Officer Date: March 19, 1998 By: /s/ JOHN R. BAKER ---------------------------- John R. Baker Director Date: March 19, 1998 By: /s/ AVIS G. TUCKER ---------------------------- Avis G. Tucker Director Date: March 19, 1998
28 By: /s/ ROBERT F. JACKSON ---------------------------- Robert F. Jackson Director Date: March 19, 1998 By: /s/ L. PATTON KLINE ---------------------------- L. Patton Kline Director Date: March 19, 1998 By: /s/ HERMAN CAIN ---------------------------- Herman Cain Director Date: March 19, 1998 By: /s/ IRVINE O. HOCKADAY, JR. ---------------------------- Irvine O. Hockaday, Jr. Director Date: March 19, 1998 By: /s/ DR. STANLEY O. IKENBERRY ---------------------------- Dr. Stanley O. Ikenberry Director Date: March 19, 1998
29 EX-13 2 EXHIBIT 13 OPERATIONS AND FINANCE CONSOLIDATED OPERATIONS Except where noted, the following discussion refers to the consolidated entity, UtiliCorp United Inc., including the following businesses: UtiliCorp Energy Delivery (UED), consisting primarily of domestic transmission and distribution utility operations, on-system appliance repair servicing operations, and gas marketing operations; Aquila Energy Corporation (Aquila), consisting primarily of wholesale gas and electricity marketing, gas gathering and processing and gas pipelines; and Generation, consisting of domestic electric generation and independent power projects. The company also has various operations that include generation, gas marketing, electric distribution and several investments that are discussed in the International section of this report. UtiliCorp Energy Solutions (UES), consisting of retail gas marketing, appliance repair and service contracts, was realigned during the second quarter of 1997 into the operations of UED and Aquila. The realignment better leverages existing support facilities, processes and expertise. Significant events and trends are presented which have had an effect on the operations of the company during the three-year period ended December 31, 1997. Also presented are factors that may affect future operating results, financial position and liquidity. This discussion should be read in conjunction with the company's consolidated financial statements and accompanying notes. The results of operations for the three years ended December 31, 1997 have been affected by several items that, in management's opinion, do not have a continuing impact on the company's financial position or results from operations. The table below summarizes the effect of the non-recurring items on earnings before interest and taxes (EBIT).
Year Ended December 31, In millions 1997 1996 1995 - -------------------------------------------------------------------------------------- EBIT, as reported $359.1 $326.2 $253.6 NON-RECURRING ITEMS: Merger termination fee (a) (53.0) -- -- Write-off of deferred merger costs, net (a) -- 11.0 -- Gain on sales lease of a power project (b) -- (20.9) -- Provision for asset impairments (c) 26.5 -- 34.6 Change to mark-to-market method of accounting (d) -- -- (29.8) Reserve for United Kingdom gas contracts and other reserves (e) 6.5 -- 11.0 EBIT from oil and gas production business (f) -- -- (5.0) - -------------------------------------------------------------------------------------- NORMALIZED EBIT $339.1 $316.3 $264.4 - -------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------
(a) IN 1997, THE COMPANY RECEIVED A $53.0 MILLION TERMINATION FEE FROM KANSAS CITY POWER & LIGHT COMPANY RELATED TO THE TERMINATED MERGER. IN 1996, THE COMPANY EXPENSED DEFERRED MERGER COSTS, NET OF A TERMINATION FEE RECEIVED, RESULTING IN AN $11.0 MILLION CHARGE AGAINST EARNINGS. (b) IN 1996, THE COMPANY RECORDED A GAIN FROM A SALES LEASE ON A POWER PROJECT, WHICH WAS PARTIALLY OFFSET BY CERTAIN RESTRUCTURING RESERVES IN CONNECTION WITH CHANGES IN POWER PROJECT AGREEMENTS. THE RESULT OF THESE ITEMS INCREASED EBIT $20.9 MILLION. (c) IN 1997, THE COMPANY RECORDED A PROVISION FOR IMPAIRED ASSETS OF $26.5 MILLION RELATED TO CERTAIN TECHNOLOGY AND ROYALTY ASSETS. IN 1995, THE COMPANY RECORDED A PROVISION FOR IMPAIRED ASSETS OF $34.6 MILLION. (d) IN 1995, THE COMPANY CHANGED ITS METHOD OF ACCOUNTING FOR DOMESTIC NATURAL GAS TRADING OPERATIONS TO THE MARK-TO-MARKET METHOD. THIS INCREASED EBIT BY $29.8 MILLION. (e) IN 1997 AND 1995, THE COMPANY RECORDED A $5.0 MILLION AND AN $11.0 MILLION RESERVE AGAINST EARNINGS, RESPECTIVELY, FOR UNFAVORABLE GAS SUPPLY CONTRACTS IN THE UNITED KINGDOM. (f) IN 1995, THE COMPANY SOLD SUBSTANTIALLY ALL OF ITS OIL AND GAS PRODUCTION ASSETS AT BOOK VALUE FOR $204.5 MILLION. THIS NORMALIZING ADJUSTMENT REPRESENTS THE EBIT FROM THIS BUSINESS IN 1995. Normalized EBIT is a term used by management to describe the recurring EBIT of the company. These terms are not meant to replace actual EBIT or other measures under generally accepted accounting principles. ENERGY DELIVERY [PICTURE] "WHAT OUR ENERGY DELIVERY FOLKS DO EVERY DAY IS PROVIDE SUPERIOR NETWORK SERVICES, HOUR BY HOUR THROUGHOUT THE YEAR." JIM MILLER SENIOR VICE PRESIDENT ENERGY DELIVERY The following table summarizes the operations of UtiliCorp Energy Delivery for the three years ended December 31, 1997. Energy Delivery obtains all of its electricity requirements from Generation except for its West Virginia operations. The cost of electricity from Generation is reflected as "Purchases from Generation" in the sales section of the three-year table below. Three Year Review--Energy Delivery
Year Ended December 31, Dollars in millions 1997 1996 1995 - ------------------------------------------------------------------------------------------- SALES: Electric $ 557.4 $ 519.3 $ 490.1 Gas 767.4 727.9 616.6 Non-regulated 258.7 124.8 88.1 Purchases from Generation (313.6) (285.2) (263.2) - ------------------------------------------------------------------------------------------- Total net sales 1,269.9 1,086.8 931.6 - ------------------------------------------------------------------------------------------- COST OF SALES: Electric 14.2 14.9 14.1 Gas 493.2 455.2 352.7 Non-regulated 223.0 84.5 55.0 - ------------------------------------------------------------------------------------------- Total cost of sales 730.4 554.6 421.8 - ------------------------------------------------------------------------------------------- Gross profit 539.5 532.2 509.8 - ------------------------------------------------------------------------------------------- OPERATING EXPENSES: Other operating 237.3 228.8 225.4 Maintenance 30.6 26.0 22.7 Taxes, other than income taxes 54.7 50.9 48.0 Depreciation and amortization 68.7 66.8 66.9 - ------------------------------------------------------------------------------------------- Total operating expenses 391.3 372.5 363.0 - ------------------------------------------------------------------------------------------- Income from operations 148.2 159.7 146.8 Other income 5.3 10.3 6.8 - ------------------------------------------------------------------------------------------- EARNINGS BEFORE INTEREST AND TAXES (EBIT) $ 153.5 $ 170.0 $ 153.6 - ------------------------------------------------------------------------------------------- Identifiable assets $1,806.7 $1,814.7 $1,674.8 Electric sales and transportation (MWH 000's) 11,201 9,607 8,351 Gas sales and transportation (MCF 000's) 287,396 301,513 306,585 - ------------------------------------------------------------------------------------------- Electric customers 829,000 813,000 797,000 Gas customers 365,000 359,000 354,000 - ------------------------------------------------------------------------------------------- Total customers 1,194,000 1,172,000 1,151,000 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
GROSS PROFIT Energy Delivery's gross profit in 1997 increased $7.3 million over 1996. Gross profit from utility operations increased $11.9 million from 1996 levels, which was offset by a decrease of $4.6 million in non-regulated profits. Utility profit increased from customer growth of 2%, new gas rates in Michigan, and the full-year impact of rate increases in Kansas and Nebraska. Utility profit decreased $9.7 million from the very favorable weather in 1996 compared to near-normal weather in 1997. Profit from non-regulated operations decreased as a result of lower margins on non-regulated energy sales and the effects of certain businesses that were sold in 1996. The non-regulated profit decrease was partially offset by appliance service margin growth from customer growth and price increases. Gross profit in 1996 increased $22.4 million compared to 1995 primarily due to colder temperatures affecting gas utility operations ($11.9 million), increased margins from non-regulated operations ($7.2 million) and increased gas rates in Nebraska and Kansas ($4.4 million). Early 1998 winter temperatures in the company's primary service territories have been unseasonably mild compared to 30-year average temperatures as a result of global weather patterns related to the El Nino phenomenon. The initial unfavorable impact may be mitigated by Energy Delivery's summer-peaking operations. OPERATING EXPENSES Operating expenses increased $18.8 million in 1997 compared to 1996. Energy Delivery was allocated approximately $6.0 million of additional expenses from Corporate. These charges primarily related to information system reengineering efforts and other technology capital projects placed in service to help position Energy Delivery for the more competitive future environment. Approximately $5.7 million of the remaining increase relates to additional depreciation on utility plant expenditures and property taxes. Operating expenses for Energy Delivery's regulated businesses in 1996 were essentially flat with 1995. Savings in 1996 resulted from a series of efficiency initiatives that began in 1995, but were offset by increased uncollectible customer accounts triggered by escalating gas prices and higher property taxes. Operating expenses in 1996 for non-regulated businesses increased by $8.8 million over 1995 due to support costs for non-regulated energy sales and positioning expenses to improve the appliance repair business.
SALES: ELECTRIC ENERGY DELIVERY DOLLARS IN MILLIONS - ----------------------------------- 97 557.4 96 519.3 95 490.1
SALES: GAS ENERGY DELIVERY DOLLARS IN MILLIONS - ----------------------------------- 97 767.4 96 727.9 95 616.6
EBIT: ENERGY DELIVERY DOLLARS IN MILLIONS - ----------------------------------- 97 153.5 96 170.0 95 153.6
CAPITAL EXPENDITURES: ENERGY DELIVERY DOLLARS IN MILLIONS - ----------------------------------- 97 109.0 96 96.2 95 79.0
GENERATION Generation provides firm wholesale electricity to Energy Delivery based on an internal transfer pricing model which represents a full requirements capacity and energy contract. This segment also sells non-firm energy to other utilities and municipalities in the wholesale market and retains an interest in independent power projects. The following table summarizes the operations of Generation for the three years ended December 31, 1997. Three-Year Review--Generation
Year Ended December 31, Dollars in millions 1997 1996 1995 - -------------------------------------------------------------------------------------------- Sales to affiliate and other $313.6 $285.2 $263.2 Cost of sales--fuel used for generation and purchased power 184.8 164.3 151.6 - -------------------------------------------------------------------------------------------- Gross profit 128.8 120.9 111.6 - -------------------------------------------------------------------------------------------- OPERATING EXPENSES: Other operating 47.1 52.3 42.2 Maintenance 17.1 14.6 12.9 Taxes, other than income taxes 6.5 6.6 6.8 Depreciation and amortization 16.2 16.4 18.1 Provision for asset impairment -- -- 15.4 - -------------------------------------------------------------------------------------------- Total operating expenses 86.9 89.9 95.4 - -------------------------------------------------------------------------------------------- Income from operations 41.9 31.0 16.2 Equity in earnings of investments and partnerships 29.6 48.5 19.6 Other income (expense), net .3 (.2) (.5) - -------------------------------------------------------------------------------------------- EARNINGS BEFORE INTEREST AND TAXES (EBIT) 71.8 79.3 35.3 - -------------------------------------------------------------------------------------------- NON-RECURRING ITEMS: Provision for asset impairments -- -- 15.4 Gain on sales lease of power project -- (20.9) -- - -------------------------------------------------------------------------------------------- NORMALIZED EBIT $ 71.8 $ 58.4 $ 50.7 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- EBIT by business subunit: Regulated power $44.0 $36.3 $36.1 UtilCo Group 27.8 22.1 14.6 - -------------------------------------------------------------------------------------------- TOTAL $71.8 $58.4 $50.7 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Identifiable assets $503.0 $482.1 $460.8 Affiliate sales (MWH 000's) 7,767 7,411 6,998 Non-affiliate sales (MWH 000's) 1,546 998 589 - --------------------------------------------------------------------------------------------
GROSS PROFIT In 1997 energy sales to non-affiliates increased more than 50% due to a variety of market conditions which included regional nuclear outages, coal shortages and extremely hot midwest temperatures during late July. Overall margins for this unit increased by $7.9 million compared to 1996 due to higher margins on off-system sales, load growth, and reduced purchased power costs due to available hydroelectric power in the Missouri Basin. Gross profit in 1996 increased $9.3 million over 1995 due to system load growth, an increase in off-system sales of 409,000 MWH, reduced fuel cost resulting from a new coal supply and transportation contract, and aggressive fuel blending at the Sibley generating station. OPERATING EXPENSES Operating expenses decreased by $3.0 million in 1997 compared to 1996 primarily due to a change in the strategic direction of the independent power generation segment. The company is no longer seeking additional investments in independent power projects and therefore is not making acquisition related expenditures. Operating expenses increased $9.9 million in 1996 compared to 1995 after adjusting for the provision for asset impairment recorded in 1995 relating to a power project. The 1996 normalized increase is due to additional support costs, such as information technology, human resources, legal and other activities. Additional increases primarily related to the establishment of an energy trading group to sell available generation capacity during off-peak periods. EQUITY IN EARNINGS Equity in earnings increased $2.0 million in 1997 compared to 1996 after normalizing for the gain on sales lease of $20.9 million. The increase is primarily due to innovative gas tolling and dispatch arrangements at one of the independent power projects combined with increased production from another project. Equity earnings in 1996 increased $8.0 million compared to 1995 after adjusting for the net gain on a sales lease transaction and other restructuring charges. The equity earnings increase is due to higher steam output, new rates at two projects and a full year of performance at another.
SALES: GENERATION DOLLARS IN MILLIONS - ------------------------- 97 313.6 96 285.2 95 263.2
EBIT (NORMALIZED): GENERATION DOLLARS IN MILLIONS - ------------------------- 97 71.8 96 58.4 95 50.7
CAPITAL EXPENDITURES: GENERATION DOLLARS IN MILLIONS - ------------------------- 97 7.6 96 16.6 95 11.2
[PICTURE] IN 1897 WE CLIMBED OUR FIRST MOUNTAIN 100 YEARS LATER, WE'RE STILL REACHING NEW HEIGHTS In 1897 it had never been done. No one had ever built a high voltage transmission line thru the mountains. But to the enterprising people who founded West Kootenay Power, reaching new heights was a pre-requisite to meeting customers' needs. That 50 kilometre transmission line has grown to a 1,500 kilometre transmission system serving 129,000 customers in the West Kootenay, Okanagan and Similkameen Valleys. Today we provide some of the lowest cost, most reliable electricity in the country. In 1897 we climbed our first mountain. A hundred years later we are Canada's oldest integrated electric utility and we're still reaching new heights for our customers. [LOGO] INCORPORATED MAY 8, 1897 AQUILA ENERGY [PICTURE] "THE KEYS TO AQUILA'S RAPID GROWTH HAVE BEEN INITIATIVE, AMBITION AND IMAGINATION. THOSE THREE WORDS DESCRIBE WHAT WE'RE ALL ABOUT." HARVEY PADEWER SENIOR VICE PRESIDENT ENERGY GROUP The following table summarizes the operations of Aquila Energy for the three years ended December 31, 1997. Three-Year Review--Aquila Energy
Year Ended December 31, Dollars in millions 1997 1996 1995 - ------------------------------------------------------------------------------------------- SALES: Energy marketing $6,017.1 $1,882.4 $ 773.8 Aquila Gas Pipeline 1,013.9 790.3 485.2 Oil and gas production -- -- 50.6 - ------------------------------------------------------------------------------------------- TOTAL SALES 7,031.0 2,672.7 1,309.6 - ------------------------------------------------------------------------------------------- COST OF SALES: Cost of energy marketing 5,909.0 1,822.6 714.0 Aquila Gas Pipeline 894.6 664.1 387.1 - ------------------------------------------------------------------------------------------- Total cost of sales 6,803.6 2,486.7 1,101.1 - ------------------------------------------------------------------------------------------- Gross profit 227.4 186.0 208.5 - ------------------------------------------------------------------------------------------- OPERATING EXPENSES: Operating and maintenance 119.0 100.2 78.7 Depreciation, depletion and amortization 27.6 28.6 49.6 Provision for asset impairments 15.5 -- 13.2 - ------------------------------------------------------------------------------------------- Total operating expenses 162.1 128.8 141.5 - ------------------------------------------------------------------------------------------- Income from operations 65.3 57.2 67.0 Minority interest expense and other 10.6 10.0 2.1 - ------------------------------------------------------------------------------------------- EARNINGS BEFORE INTEREST AND TAXES (EBIT) 54.7 47.2 64.9 - ------------------------------------------------------------------------------------------- NON-RECURRING ITEMS: Change to mark-to-market method of accounting -- -- (29.8) Provision for asset impairments 15.5 -- 10.8 Oil and gas operating income and other -- -- (5.0) - ------------------------------------------------------------------------------------------- NORMALIZED EBIT $ 70.2 $ 47.2 $ 40.9 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- EBIT by business subunit: Energy marketing $ 18.4 $ (4.2) $ 3.3 Aquila Gas Pipeline 51.8 51.4 37.6 - ------------------------------------------------------------------------------------------- TOTAL $ 70.2 $ 47.2 $ 40.9 - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Identifiable assets $2,067.7 $1,698.9 $1,100.4 Physical gas volumes marketed (BILLION CUBIC FEET PER DAY) (a) 5.5 2.1 1.4 Gas throughput volumes (BILLION CUBIC FEET PER DAY) .5 .5 .5 Electricity marketing volumes (MWH 000's) 65,258 6,495 129 Natural gas liquids produced (THOUSAND BARRELS PER DAY) 37 41 32 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
(a) INCLUDES VOLUMES MARKETED BY AQUILA GAS PIPELINE. GROSS PROFIT Gross profit in 1997 increased $41.4 million or 22% compared to 1996. This increase is due to a 189% and 905% increase in gas and electricity volumes marketed which resulted in $26.2 million and $9.0 million, respectively, in additional margin. These volumetric increases reflect the impact of an aggressive expansion program that led to Aquila's gas and electricity marketing businesses being ranked fifth and sixth nationally, respectively. Gross profit from Aquila Gas Pipeline (AGP) decreased $6.9 million in 1997 compared to 1996 due to reduced natural gas liquids (NGL) production volumes resulting from leaner gas streams, lower NGL prices and reduced gas marketing results. In 1997, NGL production volumes and prices were off 10% and 3%, respectively, compared to 1996. The leaner gas streams are due to deep well drilling in the Austin Chalk area of Texas making up a higher percentage of the area's total activity. It is expected that the drilling profile for 1998 may contain more volumes from deep wells and less volumes from oil wells than in 1997, resulting in lower NGL production. In addition, the NGL prices in 1998 so far are considerably lower than in 1997 and may remain below the 1997 average price of $.33 per gallon. The continuation of these trends may reduce gross profit from AGP in 1998 compared to 1997. Gross profit from retail gas marketing increased $13.1 million over 1996 as these businesses were assimilated into Aquila from UtiliCorp Energy Solutions. The increase is due to the expansion of sales to industrial and commercial customers. In 1996, the retail business had fixed price sales contracts against variable purchase contracts when the price of natural gas escalated. Although the retail business improved in 1997, it still had a net EBIT loss in 1997 of $5.1 million compared to $13.1 million in 1996. Gross profits in 1996 increased $59.5 million compared to 1995 after normalizing for the sale of the oil and gas business and the change to the mark-to-market method of accounting. This increase is primarily due to 54% growth in gas marketing volumes that increased gross profit by $28.8 million. Gross profit from AGP increased $28.1 million due to a 28% increase in NGL production and a 20% increase in NGL prices. OPERATING EXPENSES Operating expenses increased $17.8 million in 1997 after normalizing for the provision for asset impairment compared to 1996. This increase reflects higher staffing and salary cost in support of Aquila's aggressive growth strategy and its rapid increase in marketed volumes. Operating expenses for 1996 were $47.8 million higher than in 1995 after normalizing for the asset impairment charge and the sale of oil and gas properties. In addition to higher cost to support business growth, this increase includes $21.7 million from the retail segment. In 1995, the retail business was in the start-up phase.
SALES: AQUILA ENERGY DOLLARS IN MILLIONS - ------------------------------------ 97 7,031.0 96 2,672.7 95 1,309.6
EBIT (NORMALIZED): AQUILA ENERGY DOLLARS IN MILLIONS - ------------------------------------ 97 70.2 96 47.2 95 40.9
CAPITAL EXPENDITURES: AQUILA ENERGY DOLLARS IN MILLIONS - ------------------------------------ 97 28.4 96 26.4 95 144.0
[PICTURE] AHHHHH. THE PEACE OF MIND THAT COMES FROM HAVING AN APPLIANCE REPAIR PLAN... [LOGO] INTERNATIONAL The following table summarizes the company's International operations for the three years ended December 31, 1997. Three-Year Review--International
Year Ended December 31, Dollars in millions 1997 1996 1995 - ------------------------------------------------------------------------------------------- SALES: Electric (Canada) $ 89.8 $ 92.9 $ 87.6 Gas marketing (United Kingdom) 215.4 191.5 199.9 - ------------------------------------------------------------------------------------------- Total sales 305.2 284.4 287.5 - ------------------------------------------------------------------------------------------- COST OF SALES: Cost of fuel and purchased power (Canada) 28.8 29.8 27.4 Cost of gas marketing (United Kingdom) 217.3 179.9 184.2 - ------------------------------------------------------------------------------------------- Total cost of sales 246.1 209.7 211.6 - ------------------------------------------------------------------------------------------- Gross profit 59.1 74.7 75.9 - ------------------------------------------------------------------------------------------- OPERATING EXPENSES: Other operating 21.6 24.8 28.4 Maintenance 10.0 9.0 8.9 Taxes, other than income taxes 11.3 12.2 13.0 Depreciation and amortization 11.0 12.5 7.1 - ------------------------------------------------------------------------------------------- Total expense 53.9 58.5 57.4 - ------------------------------------------------------------------------------------------- Income from operations 5.2 16.2 18.5 Equity earnings in subsidiaries and partnerships 42.3 60.1 9.8 Other income, net 5.0 3.4 3.4 - ------------------------------------------------------------------------------------------- EARNINGS BEFORE INTEREST AND TAXES (EBIT) 52.5 79.7 31.7 - ------------------------------------------------------------------------------------------- NON-RECURRING ITEM: Reserve for United Kingdom gas contracts 5.0 -- 11.0 - ------------------------------------------------------------------------------------------- NORMALIZED EBIT $ 57.5 $ 79.7 $ 42.7 - ------------------------------------------------------------------------------------------- Identifiable assets $789.0 $848.3 $728.2 - -------------------------------------------------------------------------------------------
SUMMARY International normalized EBIT consists of operations and equity investments in the following countries for the three years ended December 31, 1997.
In millions 1997 1996 1995 - --------------------------------------------------- Australia $27.0 $38.3 $10.3 Canada 26.2 27.7 23.1 New Zealand 9.9 11.6 1.7 United Kingdom (5.6) 2.1 7.6 - --------------------------------------------------- TOTAL $57.5 $79.7 $42.7 - --------------------------------------------------- - ---------------------------------------------------
The normalized EBIT by country is discussed below. AUSTRALIA EBIT in 1997 decreased $11.3 million or 30% compared to 1996. This decrease is due to a $3.8 million reduction in margins at United Energy Limited (UEL) reflecting lower margins on its contestable customers. In addition, the management fees that the company receives for managing UEL decreased $2.0 million, primarily due to the financial performance in 1997 relative to financial targets established following the strong performance in 1996. EBIT was further reduced as the depreciating Australian dollar decreased dramatically relative to the U.S. dollar in the fourth quarter of 1997 when the collateral effects of the Asian stock market decline affected the Australian markets. The remaining decrease relates to the tax deductibility of certain expenses at UEL. The 1996 EBIT increased $28.0 million or 272% compared to 1995. The 1996 EBIT reflects UEL's first full year of operations compared to 1995. The company's interest in UEL was acquired in the fourth quarter of 1995. The 1996 EBIT also reflects a successful reengineering effort that replaced many core business support systems, complementing the productivity improvements across UEL. In July 1998, customers in Victoria, Australia with volumes greater than 160 MWH per year will become contestable and will be able to choose their electricity supplier. UEL plans to compete aggressively in this customer segment. As of December 31, 1997, UEL had approximately 865 customers that were already contestable. CANADA The company's Canadian operations consist primarily of its wholly-owned Canadian electric distribution company, West Kootenay Power (WKP). This utility has four hydroelectric generation facilities with a capacity of 205 megawatts and 962 miles of transmission lines that serve approximately 84,000 customers in the south-central interior of British Columbia. In 1996, the company became the first electric utility in Canada to be granted performance-based regulation. It is now in the third year of a three-year incentive-based rate-setting mechanism. This calls for equal sharing of savings between the customer and WKP in situations where WKP performs over and above negotiated performance expectations. Increased earnings in 1996 compared to 1995 resulted from the sale of one of WKP's investments and favorable negotiations of purchased power arrangements. The 1997 EBITis comparable to 1996. NEW ZEALAND The company's New Zealand investments (Power New Zealand and WEL Energy Group) together contributed $9.9 million, $11.6 million and $1.7 million to EBIT in 1997, 1996 and 1995, respectively. In 1997 EBIT decreased compared to 1996 due to the timing of earnings at WEL Energy Group and a depreciating currency relative to the U.S. dollar. The New Zealand currency was affected similarly to the Australian currency discussed above. EBIT improved in 1996 compared to 1995 as a result of having a full year of equity earnings from Power New Zealand shares purchased late in 1995, the additional earnings attached to shares purchased throughout 1996 from both investments, and improved operations at the underlying electric distribution companies. UNITED KINGDOM The company has several business ventures in the United Kingdom (U.K.) that market natural gas and transportation services to wholesale, industrial, and residential customers. United Gas Limited (UGL), the company's primary U.K. subsidiary, markets gas directly and indirectly to approximately 96,000 customers. It had sales volumes of 68 BCF in 1997, an increase of 12 BCF from 1996. The U.K. residential gas markets first became contestable in 1996 and will be fully contestable by the summer of 1998. In preparation for competition, new suppliers have entered the market. These competitors include companies with a strong name recognition such as electric companies, water companies and grocery chains that intend to add natural gas to their existing products. Since a large number of new suppliers came from outside the natural gas industry, UGL developed natural gas transportation and load balancing services for them. These products allow UGL to leverage its existing expertise and information technology systems to generate revenue while managing operational risks for these new suppliers. At December 31, 1997, the company's portfolio of fixed price contracts was in a net long position, as it included supply commitments of 66 BCF through 2005 and sales commitments of 50 BCF through 1999. Depending on the long-term price of natural gas, estimated losses on the above portfolio range between $19 and $26 million due to two long-term supply contracts. Since the U.K. natural gas market does not have liquid long-term pricing, it is difficult to estimate the future profitability of the portfolio. Based on management's estimates and available market data at December 31, 1997, the company is carrying a $19 million pretax reserve relating to future losses that may exist within the portfolio of contracts. Management believes that this reserve is adequate and that any additional losses would not be material. Normalized EBIT from the U.K. businesses for the three years ended December 31, 1997, 1996 and 1995 were $(5.6) million, $2.1 million and $7.6 million, respectively. The $7.7 million decrease in 1997 EBIT from 1996 is due to the full-year impact of high-cost gas contracts in 1997 compared to one quarter in 1996 and certain profitable gas sales contracts which expired in 1997. EBIT in 1996 compared to 1995 decreased $5.5 million due to unfavorable long-term gas supply contracts.
SALES: INTERNATIONAL DOLLARS IN MILLIONS - ------------------------------------ 97 305.2 96 284.4 95 287.5
EBIT (NORMALIZED): INTERNATIONAL DOLLARS IN MILLIONS - ------------------------------------ 97 57.5 96 79.7 95 42.7
CAPITAL EXPENDITURES: INTERNATIONAL DOLLARS IN MILLIONS - ------------------------------------ 97 19.4 96 21.5 95 19.2
CORPORATE MATTERS CORPORATE AND OTHER The table below summarizes the corporate and other EBIT for the three years ended December 31, 1997. Corporate primarily contains the retained costs of the company that are not allocated to the business units and the net losses from the company's investment in EnergyOne, L.L.C.
In millions 1997 1996 1995 - ------------------------------------------------------------- EBIT, as reported $ 26.6 $(50.0) $(31.9) Merger termination (53.0) 11.0 -- Asset impairment provision 11.0 -- 6.0 Other 1.6 -- -- - ------------------------------------------------------------- EBIT, NORMALIZED $(13.8) $(39.0) $(25.9) - ------------------------------------------------------------- - -------------------------------------------------------------
Corporate and other normalized EBIT improved by $25.2 million in 1997 compared to 1996 due to the elimination of certain corporate activities and transfer of capital costs associated with new information systems recorded at corporate, but allocated to business units. PENDING RATE PROCEEDING In the first quarter of 1997, the Staff of the Missouri Public Service Commission (the Staff) filed a complaint against the company seeking to reduce annual Missouri electric revenues by $23 million. In September 1997, the Staff increased its recommendation for a rate reduction to $28.5 million. In a separate filing with the Staff, the company requested to increase electric rates by $24.6 million. The Staff is reviewing the company's position and the final order is expected to be issued in March 1998. The primary differences between these two dockets center on rate of return, capital structure, transition costs, depreciation methods and corporate allocations. The company's filing is designed to recover inflationary and other cost increases which include the investment of approximately $20 million in plant and facility improvements. The rate increase also reflects the request for a temporary surcharge of $.0028 per kilowatt-hour to cover costs related to transitioning to the competitive customer-choice marketplace. In addition, the filing includes a mechanism to lessen the impact of the surcharge on consumers, and requests that the Commission approve the establishment of a $1 million fund to assist low-income customers. The Commission is expected to issue an order by March 7, 1998, with new rates effective March 17, 1998. Although this matter is still pending, the public scenarios under consideration by the Commission range from a $12 million to a $23 million rate reduction. COMPETITION UTILITY OPERATIONS The electric industry has increasingly become more competitive as federal and state regulators move to a more deregulated environment. At the federal level, the passage of the Energy Policy Act of 1992 (Energy Act) allowed the Federal Energy Regulatory Commission (FERC) to order electric utilities to grant access to transmission systems by third-party power producers. The Energy Act specifically prohibits federally mandated wheeling of power for retail customers. In April 1996, the FERC issued its Order No. 888, and subsequently Orders No. 888-A and No. 888-B, which opened wholesale power sales to competition and required public utilities owning, controlling or operating transmission lines to file non-discriminatory open access tariffs that offer others the same transmission service they provide themselves. The company has open access tariffs in each of its electric jurisdictions. On the federal legislative front, several bills in Congress have been proposed on electric restructuring matters, but no bill currently has wide support or is ready for passage. Without federal restructuring guidelines, electric restructuring is taking place on a state-by-state basis without consistency between states. In each of the company's domestic electric jurisdictions, various restructuring proposals are being introduced in the state legislature. The pace of electric restructuring is unpredictable and subject to change. The competitive forces affecting the company's electric operations are also affecting the company's gas operations. As competing electric utilities reduce costs, it becomes more difficult to obtain new customers through fuel switching opportunities and in certain cases the result may be a loss of customers. Federal Energy Regulatory Commission (FERC) Order 636 shifted gas supply responsibilities from traditional pipeline company sources to distribution utilities, and allows customers to bypass the company's system by directly connecting to a transportation pipeline. In addition, the mix of gas sales has changed between industrial, transportation and large commercial customers. The company has addressed increased competition and industry changes in several ways. First, its natural gas is priced competitively in its respective service territories compared to alternate energy sources. Second, the company established in 1993 a central gas procurement function designed to take advantage of opportunities created by FERC Order 636. Besides offering low cost natural gas, the company offers its customers a wide range of energy solutions to meet their needs. The company currently accounts for the economic effects of regulation in accordance with the provisions of Statement of Financial Accounting Standards No. 71 (SFAS No. 71), "Accounting for the Effects of Certain Types of Regulation," and accordingly has recorded certain costs as regulatory assets in the financial statements. The company expects that its utility rates will continue to be based on historical costs for the foreseeable future. If the company discontinued applying SFAS No. 71, it would be required to make adjustments to the carrying value of certain assets. ENERGY MARKETING The company has adopted a plan to provide both natural gas and electric power commodity services to its wholesale customers from an integrated wholesale marketing staff. This allows the company to fully meet the needs of customers that continue to have an ever-increasing port- folio of energy options from which to choose. A number of recent mergers and consolidations of entities in the energy marketing industry have increased the focus on controlling market share on a volumetric basis. The company expects the energy marketing industry to consolidate into a few megamarketing companies. Electric power marketing will be affected by the regulatory environment of the industry. It is currently unclear as to when the various regulatory agencies will open access to all power customers, including retail users. These regulatory decisions may have a significant impact on the future economics of the power marketing sector. MERGER TERMINATION On September 17, 1996, KCPL terminated the Amended and Restated Agreement and Plan of Merger (the Agreement) among KCPL, KC Merger Sub, Inc., the company, and KC United Corp. Pursuant to the termination provision in the Agreement, KCPL paid the company $5.0 million in 1996 and upon KCPL's definitive agreement to merge with another company KCPL paid the company a $53.0 million breakup fee in the first quarter of 1997. The company used the $53.0 million to reduce short-term debt. In 1996 the company expensed $11.0 million of its deferred merger cost, net of the $5.0 million termination fee received in 1996, against income. ENVIRONMENTAL MATTERS The company has been named as a potentially responsible party (PRP) at three PCB disposal facilities. The company's combined clean-up expenditures have been less than $1 million to date and it anticipates that future expenditures on these sites will not be significant. The company also owns or once operated 29 former manufactured gas plants which may or may not require some form of environmental remediation. These are discussed in Note 14 to the Consolidated Financial Statements. In December 1996, the EPA promulgated its final rule for nitrous oxide (NOx) emissions pursuant to the requirements of the Clean Air Act Amendments of 1990. The new NOx regulations will impact one of the company's power plants by necessitating the installation of additional emissions control equipment by January 1, 2000, as more fully discussed in Note 14. YEAR 2000 ISSUES The company established a cross-functional team of employees to study and address potential year 2000 issues that may impact the company, including potential year 2000 issues with key customers and vendors. The company is addressing several mission-critical systems as part of its ongoing new system development project. The company has implemented a new financial reporting system which is year 2000 ready and it is implementing a new customer information system (CIS) that will be year 2000 ready. The new CIS system is expected to be completed in early 1999. For complete system changeouts, the company capitalizes its cost under guidelines described in Emerging Issues Task Force (EITF) 97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project that Combines Business Process Reengineering and Information Technology Transformation." For programming fixes on existing systems, the company records these costs as maintenance expense. The company does not expect the amount spent on year 2000 issues to be material. MARKET PRICE RISKS The company is exposed to market risk, including changes in commodity prices, interest rates and currency exchange rates. To manage the volatility relating to these exposures, the company enters into various derivative transactions in accordance with the company's policies related to its trading operations and certain hedged positions. Derivative positions are monitored using a value-at-risk (VAR) model for commodity and interest rate financial instruments within the overall trading portfolio that includes physical contracts. For the company's trading operation the company uses the mark-to-market method of accounting, reflecting all changes in fair value in the income statement. The company also uses hedge accounting for treasury related instruments and commodity related instruments pertaining to owned system volumes at Aquila Gas Pipeline. COMMODITY PRICE EXPOSURE The company manages and measures its exposure to commodity price changes using a VAR model as a percentage of net income based on a 95% confidence level using three day holding periods. The company's Board of Directors sets the VAR limit. The company also uses stress testing, daily loss limits and commodity position limits to manage risk. A simultaneous price movement of $.10 per MMBtu and $1.00 per megawatt hour along the entire forward price curve for natural gas and electricity positions held at December 31, 1997 would have impacted EBIT by $1.7 million and $.5 million, respectively. The company is also exposed to commodity price changes outside of price risk management activities. The following table summarizes these exposures on an EBIT basis.
Commodity EBIT Price Change Impact (a) - --------------------------------------------------------------- NGL price per gallon +$.01 $1.9 million Oasis price spread +$.01 1.4 million United Kingdom natural gas prices +$.01 1.9 million - --------------------------------------------------------------- - ---------------------------------------------------------------
(a) ASSUMES THE $.01 PRICE CHANGE OCCURS FOR AN ENTIRE YEAR. FOR THE U.K., THE PRICE CHANGE ASSUMES THAT IT OCCURS OVER THE ENTIRE FORWARD CONTRACT PERIOD. CURRENCY RATE EXPOSURE The company does not currently hedge its net investment in foreign operations. As a result, the foreign denominated assets and liabilities fluctuate in value. Historically, the company's net exposure to changes in foreign currency has been limited as the company's foreign investments were financed through foreign debt. The recent downturn in the Asian market has had a collateral impact on the Australian and New Zealand currencies which each decreased in value by 18%during the year. The net decrease in net income in 1997 due to depreciating foreign currencies was approximately $1.3 million. A 10% movement in all foreign currencies occurring uniformly over the entire year relative to the U.S. dollar would impact earnings by approximately $2.5 million. INTEREST RATE EXPOSURE The company has approximately $240.0 million of long-term variable rate debt, including current maturities, as of December 31, 1997. A 100 basis point change in each debt's benchmark rate would impact net income by approximately $1.0 million. The company has approximately $65 million of its variable debt hedged with a fixed rate financial instrument. Changes in value of this hedge instrument are reflected as an adjustment to interest expense. LIQUIDITY AND CAPITAL RESOURCES The company's cash requirements arise primarily from its continued growth, electric and gas utility construction programs, non-regulated investment opportunities and information technology investments. The company's ability to attract the necessary financial capital at reasonable terms is critical to its overall plan. Historically, acquisitions and investments have been financed initially with short-term debt and subsequently funded with an appropriate mix of common equity and long-term debt securities, depending on prevailing market conditions. A primary source of short-term cash has been bank borrowings from uncommitted bank lines which aggregated $100.0 million, $185.0 million and $152.0 million at December 31, 1997, 1996 and 1995, respectively. The company can also issue up to $150 million of commercial paper which is supported by a $250 million committed revolving credit agreement. The credit agreement expires in December 2000 and allows for the issuance of notes at interest rates based on various money market rates. Commercial paper borrowings at December 31, 1996 and 1995 were $50.0 million and $135.5 million, respectively. The company had no commercial paper borrowings at December 31, 1997. To maintain flexibility in its capital structure and to take advantage of favorable short-term rates, the company also uses proceeds from its two accounts receivable sale programs to fund a portion of its short-term cash requirements. The level of funding available from these programs varies depending on the level of eligible accounts receivable, which fluctuates seasonally. These programs were fully utilized at December 31, 1997. At December 31, 1997, the company had approximately $74.5 million in cash in its international businesses. The company does not provide for U.S. tax on its international operations. Total capitalization at December 31, 1997, was $2.9 billion. Common equity as a percentage of total capitalization was 40% at December 31, 1997, up from 38% at December 31, 1996. The increase primarily relates to the paydown of short-term debt and depreciation of foreign currencies relative to the U.S. dollar and its impact on foreign debt. - -------------------------------------------------------------------------------- CASH REQUIREMENTS Future cash requirements include utility plant additions, required redemptions of long-term securities and acquisition opportunities. The company's estimated expenditures over the next three years for these activities, excluding acquisitions, are as follows:
Actual Future Cash Requirements -------- ---------------------------------- In millions 1997 1998 1999 2000 - -------------------------------------------------------------------------- Energy Delivery $109.0 $ 95.0 $ 91.0 $ 93.0 Generation 7.6 14.0 14.0 15.0 Aquila Energy 28.4 25.0 28.0 26.0 International 19.4 36.0 39.0 37.0 Maturing long-term debt 108.7 149.6 165.6 224.8 Other 38.2 55.0 73.0 66.0 - -------------------------------------------------------------------------- TOTAL $311.3 $374.6 $410.6 $461.8 - -------------------------------------------------------------------------- - --------------------------------------------------------------------------
Amounts included in Other primarily relate to the company's continuing information system efforts and other technology capital expenditures to enable the company to implement its operating strategy. In 1997, the company redeemed all one million outstanding shares of its $2.05 Series preference stock at $25.00 a share. Also in 1997, the company retired approximately $69 million of its 10.5% senior note issue which resulted in a $7.2 million extraordinary loss. The early retirement was effectively refinanced with new senior notes with an interest rate of 6.875%. In December 1997, the company received approximately $117.1 million in cash as a customer's prepayment for a 10-year gas supply contract. The company used the proceeds to reduce short-term debt. The company is considering refinancing certain higher coupon debt in 1998 if market conditions warrant. The company believes that its available cash resources from both operating cash flows and borrowing capacity will be adequate to meet its anticipated future cash requirements. SIGNIFICANT BALANCE SHEET MOVEMENTS Total assets increased $373.7 million in 1997 compared to 1996. This increase is primarily due to increases in current assets reflecting the expansion of Aquila's wholesale energy marketing business in 1997 which mainly increased accounts receivable, net by $353.5 million and price risk management assets by $66.3 million. The increase in current assets is partially offset by a $69.8 million decline in investments in subsidiaries and partnerships due to depreciating foreign currencies relative to the U.S. dollar. Total liabilities increased $393.1 million due to a $355.4 million increase in current liabilities stemming from additional accounts payable related to the wholesale energy marketing business. Partially offsetting the increase in accounts payable is a decrease in other current liabilities related to purchased gas adjustments. The remaining increase in liabilities relates to an increase in price risk management liabilities which reflects a $117.1 million contract that closed in December 1997. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. "Comprehensive Income" is the total of net income and all other non-owner changes in equity. This statement will be adopted by the company in 1998. The company does not expect the adoption of this statement to have a material impact. In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." This statement introduces a new model for segment reporting based on the way senior management organizes segments within a company for making operating decisions and assessing performance. This statement will be adopted by the company in 1998. The company does not expect the adoption of this statement to have a material impact. EFFECTS OF INFLATION In the next few years, the company anticipates that the level of inflation, if moderate, will not have a significant effect on operations or acquisition activity. FORWARD-LOOKING INFORMATION This report contains forward-looking information. Such statements involve risks and uncertainties and there are certain important factors that could cause actual results to differ materially from those anticipated. Some of the important factors which could cause actual results to differ materially from those anticipated include, but are not limited to, future national and regional economic and competitive conditions, inflation rates, regulatory changes, weather conditions, financial market conditions, interest rates, future business decisions and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the company. Particular consideration should be given to the NGL prices and production trends noted on page 32 and related EBIT sensitivities on page 36. In addition, the pending rate proceeding is expected to decrease gross profit and EBIT in 1998 and beyond, although the exact amount is not known.
UTILITY PLANT ADDITIONS DOLLARS IN MILLIONS - -------------------------------------- 97 133.2 96 134.3 95 109.4
CASH FROM OPERATIONS DOLLARS IN MILLIONS - -------------------------------------- 97 349.0 96 262.8 95 261.2
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, In millions except per share 1997 1996 1995 - --------------------------------------------------------------------- SALES $8,926.3 $4,332.3 $2,792.6 Cost of sales 7,972.0 3,420.3 1,886.1 - --------------------------------------------------------------------- GROSS PROFIT 954.3 912.0 906.5 - --------------------------------------------------------------------- Operating, administrative and maintenance expense 554.9 549.8 485.2 Depreciation, depletion, and amortization 129.6 125.4 159.6 Provision for asset impairments 26.5 -- 34.6 Write-off of deferred merger costs, net of termination fee received -- 11.0 -- - --------------------------------------------------------------------- INCOME FROM OPERATIONS 243.3 225.8 227.1 - --------------------------------------------------------------------- OTHER INCOME (EXPENSE): Equity in earnings of investments and partnerships 68.8 108.7 29.5 Minority interests (6.5) (8.0) (3.7) Merger termination fee 53.0 -- -- Other income (expense) .5 (.3) .7 - --------------------------------------------------------------------- TOTAL OTHER INCOME 115.8 100.4 26.5 - --------------------------------------------------------------------- EARNINGS BEFORE INTEREST AND TAXES 359.1 326.2 253.6 - --------------------------------------------------------------------- INTEREST EXPENSE: Interest expense--long-term debt 115.5 118.0 110.2 Interest expense--short-term debt 10.9 12.8 6.9 Minority interest in income of partnership 8.9 8.9 4.7 - --------------------------------------------------------------------- TOTAL INTEREST EXPENSE 135.3 139.7 121.8 - --------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES 223.8 186.5 131.8 Income taxes 89.7 80.7 52.0 - --------------------------------------------------------------------- EARNINGS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF SOFTWARE ACCOUNTING CHANGE 134.1 105.8 79.8 Loss on retirement of debt (net of income tax of $4.5) 7.2 -- -- Cumulative effect of software accounting change (net of income tax of $3.2) 4.8 -- -- - --------------------------------------------------------------------- Net income 122.1 105.8 79.8 Preference dividends .3 2.1 2.1 - --------------------------------------------------------------------- EARNINGS AVAILABLE FOR COMMON SHARES $ 121.8 $ 103.7 $ 77.7 - --------------------------------------------------------------------- - --------------------------------------------------------------------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 53.62 47.21 45.08 Diluted 54.00 47.53 45.48 - --------------------------------------------------------------------- EARNINGS PER COMMON SHARE: Basic $2.27 $2.20 $1.72 Diluted 2.26 2.19 1.71 - --------------------------------------------------------------------- - --------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS YEAR ENDED DECEMBER 31, Dollars in millions 1997 1996 - --------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 89.5 $ 137.1 Funds on deposit 31.5 56.8 Accounts receivable, net 1,165.1 811.6 Inventories and supplies 111.6 110.9 Price risk management assets 121.5 55.2 Prepayments and other 95.2 67.8 - --------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,614.4 1,239.4 - --------------------------------------------------------------------- Property, plant and equipment, net 2,480.3 2,406.7 Investments in subsidiaries and partnerships 691.2 761.0 Price risk management assets 161.5 154.1 Deferred charges 166.1 178.6 - --------------------------------------------------------------------- TOTAL ASSETS $5,113.5 $4,739.8 - --------------------------------------------------------------------- - --------------------------------------------------------------------- LIABILITIES AND SHAREOWNERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 149.6 $ 25.7 Short-term debt 113.8 252.0 Accounts payable 1,356.3 947.8 Accrued liabilities 13.8 50.0 Price risk management liabilities 123.7 71.7 Other 52.7 107.3 - --------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,809.9 1,454.5 - --------------------------------------------------------------------- LONG-TERM LIABILITIES: Long-term debt, net 1,358.6 1,470.7 Deferred income taxes and credits 362.7 313.7 Price risk management liabilities 170.5 64.5 Minority interests 59.0 56.9 Other deferred credits 89.2 96.5 - --------------------------------------------------------------------- TOTAL LONG-TERM LIABILITIES 2,040.0 2,002.3 - --------------------------------------------------------------------- Company-obligated mandatorily redeemable preferred securities of partnership 100.0 100.0 Preferred and preference stock -- 25.0 Common shareowners' equity 1,163.6 1,158.0 Commitments and contingencies - --------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $5,113.5 $4,739.8 - --------------------------------------------------------------------- - ---------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. CONSOLIDATED STATEMENTS OF COMMON SHAREOWNERS' EQUITY
YEAR ENDED DECEMBER 31, Dollars in millions except per share 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- COMMON STOCK: authorized 100,000,000 shares, par value $1 per share, 53,753,800 shares outstanding (53,293,645 at December 31, 1996 and 45,965,952 at December 31, 1995); authorized 20,000,000 shares of Class A common stock par value $1 per share, none issued Balance beginning of year $ 53.3 $ 46.0 $ 44.8 Issuance of common stock .5 7.3 1.2 - ---------------------------------------------------------------------------------------------------------- BALANCE END OF YEAR 53.8 53.3 46.0 - ---------------------------------------------------------------------------------------------------------- PREMIUM ON CAPITAL STOCK: Balance beginning of year 991.7 800.6 774.2 Issuance of common stock 7.4 191.1 26.4 - ---------------------------------------------------------------------------------------------------------- BALANCE END OF YEAR 999.1 991.7 800.6 - ---------------------------------------------------------------------------------------------------------- RETAINED EARNINGS: Balance beginning of year 125.3 106.2 106.4 Net income 122.1 105.8 79.8 Dividends on preference stock (.3) (2.1) (2.1) Dividends on common stock, $1.76 per share in 1997, $1.76 in 1996, and $1.72 in 1995 (94.3) (84.6) (77.9) - ---------------------------------------------------------------------------------------------------------- BALANCE END OF YEAR 152.8 125.3 106.2 - ---------------------------------------------------------------------------------------------------------- Treasury stock, at cost (235,075 shares at December 31, 1997 and 228,807 shares at December 31, 1996) (10.8) (6.4) -- Currency translation adjustment (31.3) (5.9) (6.5) - ---------------------------------------------------------------------------------------------------------- TOTAL COMMON SHAREOWNERS' EQUITY $1,163.6 $1,158.0 $946.3 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, Dollars in millions 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $122.1 $105.8 $ 79.8 Adjustments to reconcile net income to net cash provided: Depreciation, depletion and amortization 129.6 125.4 159.6 Provision for asset impairments 26.5 -- 34.6 Net changes in price risk management assets and liabilities 84.3 (33.7) (39.4) Deferred taxes and investment tax credits 49.0 34.5 (21.2) Equity in earnings from investments and partnerships (68.8) (108.7) (29.5) Dividends from investments and partnerships 36.0 42.7 18.6 Minority interests 6.5 8.0 3.7 Write-off of deferred merger costs, net of termination fee received -- 11.0 -- Loss on retirement of debt, net 7.2 -- -- Cumulative effect of software accounting change, net 4.8 -- -- Changes in certain assets and liabilities, net of effects of acquisitions and restructuring Accounts receivable, net (385.6) (506.2) (167.4) Accounts receivable sold 50.0 61.6 50.8 Inventories and supplies (.7) 1.6 21.8 Prepayments and other (27.4) (14.8) (1.1) Accounts payable 408.5 513.5 94.0 Accrued liabilities, net (28.5) 15.2 (8.3) Other (64.5) 6.9 65.2 - ---------------------------------------------------------------------------------------------------------- CASH PROVIDED FROM OPERATING ACTIVITIES 349.0 262.8 261.2 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant (133.2) (134.3) (109.4) Purchase of utility and other business -- (138.1) (100.9) Investments in international businesses (2.8) (42.3) (379.3) Investments in independent power projects -- -- (59.0) Proceeds on sale of oil and gas properties -- -- 204.5 Investments in energy related properties (28.4) (26.4) (144.0) Other (38.2) (70.5) (46.8) - ---------------------------------------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES (202.6) (411.6) (634.9) - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 7.9 198.4 29.5 Issuance of company-obligated mandatorily redeemable preferred securities of partnership -- -- 100.0 Retirement of preference stock (25.0) -- Treasury stock sold (acquired) (4.4) (6.4) 6.6 Issuance of long-term debt 169.0 129.7 415.2 Retirement of long-term debt (108.7) (22.2) (160.3) Short-term borrowings (repayments), net (138.2) (37.6) 106.2 Cash dividends paid (94.6) (86.7) (80.0) - ---------------------------------------------------------------------------------------------------------- CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (194.0) 175.2 417.2 - ---------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (47.6) 26.4 43.5 Cash and cash equivalents at beginning of year 137.1 110.7 67.2 - ---------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 89.5 $137.1 $110.7 - ---------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS UtiliCorp United Inc. (the company) is an international energy and energy services company. The company's principal lines of business are in the following segments: UtiliCorp Energy Delivery (UED), Generation and Aquila Energy (Aquila). The company's international operations are managed as stand-alone companies or investments through locally based management. UED's businesses consist of the domestic utility distribution and transmission businesses, on-system appliance repair and servicing businesses, and gas marketing businesses. Generation's businesses are domestic electricity generation and independent power projects. Aquila's businesses are wholesale energy marketing, natural gas processing and gas gathering. Aquila Energy Corporation is a wholly-owned subsidiary of the company. Aquila's gas processing and gathering businesses, operated by 82%-owned Aquila Gas Pipeline Corporation (AGP), are in Texas and Oklahoma. The utility businesses operate in eight states and one province of Canada. Natural gas is marketed throughout the U.S. and in parts of Canada and the United Kingdom (U.K.). In addition to U.S., Canadian and U.K. businesses, the company has various investments in Australia, New Zealand and Jamaica. UtiliCorp Energy Solutions (UES), consisting of retail gas marketing, appliance repair and service contracts, was realigned during the second quarter of 1997 into the operations of UED and Aquila. The realignment is expected to better leverage existing support facilities, processes and expertise. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The company's accounting policies conform to generally accepted accounting principles which, in the case of the company's utility operations, consider the impact of rate regulation. PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the company include all operating divisions and all majority-owned subsidiaries. Investments in which the company has an ownership interest between 20% and 50% or otherwise exercises significant influence are accounted for using the equity method. All significant inter-company accounts and transactions have been eliminated. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at original cost. Repair and maintenance costs are expensed as incurred. Depreciation is provided on a straight-line basis over the estimated lives for utility plant by applying composite average annual rates, ranging from 3.1% to 4.6%, as approved by regulatory authorities. When property is replaced, removed or abandoned, its cost, together with the costs of removal less salvage, is charged to accumulated depreciation. Gathering, processing and other energy related property is depreciated using a composite average annual rate of 5.0%. Remaining non-regulated property, plant and equipment are depreciated on a straight-line basis over their estimated lives ranging from three to 50 years. SALES RECOGNITION Sales are generally recognized as products and services are delivered, except for price risk management activities as discussed below. The company engages in price risk management activities for its domestic natural gas and electricity trading activities, principally conducted by Aquila Energy. Effective January 1, 1995, these activities have been accounted for using the mark-to-market method of accounting. Under mark-to-market accounting, the company's domestic natural gas and electricity trading contracts, including both physical transactions and financial instruments, are recorded at fair value, net of future servicing costs and reserves, and recognized as an adjustment to sales upon contract execution. Changes in the market value of the portfolio (resulting primarily from newly originated transactions and the impact of price movements) are recognized as gains or losses in the period of change. The resulting unrealized gains and losses are recorded as price risk management assets and liabilities. FINANCIAL INSTRUMENTS As indicated above, the company accounts for financial instruments associated with its natural gas and electricity trading activities using the mark-to-market method. Activities for non-trading purposes consist of transactions entered into by the company's other businesses to hedge the impact of market fluctuations on assets, liabilities, or other contractual commitments. Changes in the market value of these transactions are deferred until the gain or loss on the hedged item is recognized. INCOME TAXES The company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined by applying tax regulations existing at the end of a reporting period to the cumulative temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred income tax expense or benefit is based on the changes in the assets and liabilities from period to period. Deferred investment tax credits are amortized over the lives of the related properties. CASH EQUIVALENTS AND CASH FLOW INFORMATION Cash equivalents are defined as temporary cash investments with an original maturity of three months or less. As of December 31, 1997, 1996 and 1995, the company had cash held in foreign countries of $74.5 million, $86.7 million and $77.5 million, respectively. Cash payments for interest, taxes and supplemental disclosures relating to acquisition activities are presented at right:
In millions 1997 1996 1995 - -------------------------------------------------------------------- CASH PAID DURING THE YEAR FOR: Interest, net of amount capitalized $131.4 $132.1 $135.4 Income taxes 61.9 49.1 46.9 - -------------------------------------------------------------------- LIABILITIES ASSUMED IN ACQUISITIONS: Fair value of assets acquired $ -- $ 7.0 $114.0 Cash paid for acquisitions -- -- 100.9 Liabilities assumed -- 7.0 13.1 - -------------------------------------------------------------------- - --------------------------------------------------------------------
EARNINGS PER COMMON SHARE The following table shows the amounts used in computing earnings per share and the effect on income and weighted average number of shares of dilutive potential common stock.
In millions except per share 1997 1996 1995 - --------------------------------------------------------------------------------- Earnings available for common shares $121.8 $103.7 $77.7 Convertible bonds .3 .3 .2 - --------------------------------------------------------------------------------- Earnings available for common shares after assumed conversion of dilutive securities $122.1 $104.0 $77.9 - --------------------------------------------------------------------------------- EARNINGS PER SHARE: BASIC-- Earnings before extraordinary item and cumulative effect of software accounting change $2.49 $2.20 $1.72 Loss on retirement of debt (.13) -- -- Cumulative effect of software accounting change (.09) -- -- - --------------------------------------------------------------------------------- EARNINGS AVAILABLE FOR COMMON SHARES $2.27 $2.20 $1.72 - --------------------------------------------------------------------------------- DILUTED-- Earnings before extraordinary item and cumulative effect of software accounting change $2.48 $2.19 $1.71 Loss on retirement of debt (.13) -- -- Cumulative effect of software accounting change (.09) -- -- - --------------------------------------------------------------------------------- EARNINGS AVAILABLE FOR COMMON SHARES $2.26 $2.19 $1.71 - --------------------------------------------------------------------------------- Weighted average number of common shares used in basic EPS 53.62 47.21 45.08 Per share effect of dilutive securities: Stock options .12 -- .01 Convertible bonds .26 .32 .39 - --------------------------------------------------------------------------------- Weighted number of common shares and dilutive potential common stock used in diluted EPS 54.00 47.53 45.48 - --------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------
CURRENCY TRANSLATION ADJUSTMENTS The financial statements of foreign operations have been translated into U.S. dollars using the average monthly exchange rate during the period for income statement items and the year-end exchange rate for balance sheet items. Related translation adjustments are reported as a separate component of common shareowners' equity, whereas gains or losses resulting from foreign currency transactions are included in the consolidated statements of income. SOFTWARE DEVELOPMENT COSTS The company capitalizes certain internally-developed software costs that relate to costs of coding and testing. All material costs that relate to reengineering activities, software feasibility analysis and data conversion activities are expensed as incurred. STOCK-BASED COMPENSATION The company currently provides stock options to certain employees and has an employee stock purchase program whereby employees may purchase company common stock at a 15% discount. Under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation (SFAS 123), the company is required to either record additional compensation expense or disclose the impact on net income and earnings per share as if the company elected to record compensation expense. The company has elected to disclose pro forma information required by SFAS 123 rather than record compensation expense. For the years ended December 31, 1997, 1996, and 1995, compensation expense under SFAS 123 relating to stock-based compensation plans would be $4.9 million, $1.5 million and $3.6 million, respectively. If the company had recorded compensation expense pursuant to the requirements of SFAS 123, earnings per share would have been reduced by $.05, $.02, and $.05 for the years ended December 31, 1997, 1996 and 1995, respectively. RECLASSIFICATIONS Certain prior year amounts in the consolidated financial statements have been reclassified where necessary to conform to the 1997 presentation. NOTE 2: PRICE RISK MANAGEMENT A. TRADING ACTIVITIES: PRICE RISK MANAGEMENT ACTIVITIES The company offers price risk management services in connection with its energy trading activities. These services are provided through a variety of financial instruments, including forward contracts which commit the company to purchase or sell energy in the future; swap agreements, which require payments to (or receipt of payments from) counterparties based on the differential between specified prices for the related commodity; futures and options contracts traded on the New York Mercantile Exchange (NYMEX); and other contractual arrangements. The availability and use of these types of contracts allow the company to manage and hedge its contractual commitments, reduce its exposure relative to the volatility of cash market prices, take advantage of selected arbitrage opportunities via open positions, protect its investment in natural gas storage inventories and provide price risk management services to its customers. The company is also able to secure additional sources of energy or create additional markets for existing supply through the use of exchange for physical transactions allowed by NYMEX. The management of these types of transactions is referred to herein as price risk management activities. - -------------------------------------------------------------------------------- MARKET RISK The company's price risk management activities involve offering fixed price commitments into the future. The contractual amounts and terms of these financial instruments at December 31, 1997, are shown below:
Fixed Price Payor Fixed Price Receiver Maximum Term In Years - ------------------------------------------------------------------------------------------------------------- ENERGY COMMODITIES: Gas (TRILLION BTUS) 2,012.3 1,790.4 10 Electricity (MEGAWATT-HOURS) 6,195,744 6,647,008 2 - ------------------------------------------------------------------------------------------------------------- FINANCIAL PRODUCTS: Interest rate instruments (IN MILLIONS) $2,229 $830 10 - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
Although the company attempts to balance its physical and financial purchase and sale contracts in terms of quantities and contract performance, net open positions often exist or are established due to the origination of new transactions and the company's assessment of, and response to, changing market conditions. The company will at times create a net open position or allow a net open position to continue when it believes, based upon competitive information acquired from its energy marketing activities, that future price movements will be consistent with its net open position. To the extent that the company has an open position, it is exposed to the risk that fluctuating market prices may adversely impact its financial position or results from operations. The company measures the risk in its trading portfolio using value-at-risk methodologies, which simulate forward price curves in the energy markets to estimate the size of future potential losses. The quantification of market risk using value-at-risk methodologies provides a consistent measure of risk across diverse energy markets and products. The use of this method requires a number of key assumptions including the selection of a confidence level for losses, the estimated holding period and the treatment of risks outside the value-at-risk method. The company expresses value-at-risk as a percentage of earnings based on a 95% confidence level using three-day holding periods. On a three-day basis as of December 31, 1997, the company's value-at-risk (unaudited) for its price risk management activities was not material to consolidated net income. The company employs additional risk control mechanisms such as stress testing, daily loss limits and commodity position limits as well as daily monitoring of the trading function by an independent function. Based upon the policies and controls discussed above, management does not anticipate a materially adverse effect on financial position or results of operations as a result of market fluctuations. MARKET VALUATION The market prices used to value these transactions reflect management's best estimate of market prices considering various factors including closing exchange and over-the-counter quotations, time value of money and price volatility factors underlying the commitments. These market prices are adjusted to reflect the potential impact of liquidating the company's position in an orderly manner over a reasonable period of time under present market conditions. The company has considered a number of risks and costs associated with the future contractual commitments included in its energy portfolio, including credit risks associated with the financial condition of counterparties, product location (basis) differentials and other risks which management policy dictates. A calculation of the time value of money is also applied to all contracts. The company continuously monitors the valuation of identified risks and adjusts them based on present market conditions. The following table displays the mark-to-market values of the company's energy transactions at December 31, 1997 and 1996 and the average value for the year ended December 31, 1997 and 1996:
Price Risk Management Assets Price Risk Management Liabilities --------------------------------- ---------------------------------- Dollars in millions Average Value December 31, 1997 Average Value December 31, 1997 - --------------------------------------------------------------------------------------------------------------------- Independent power producers $158.7 $162.2 $-- $-- Financial institutions 16.1 15.4 28.7 36.6 Oil and gas producers 9.0 13.1 20.1 25.2 Gas transmission 14.6 31.7 44.2 144.4 Energy marketers 25.4 52.2 14.7 22.1 Other 5.6 8.4 3.8 5.5 - --------------------------------------------------------------------------------------------------------------------- Gross value 229.4 283.0 111.5 233.8 Reserves -- -- 57.9 60.4 - --------------------------------------------------------------------------------------------------------------------- TOTAL $229.4 $283.0 $169.4 $294.2 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Price Risk Management Assets Price Risk Management Liabilities --------------------------------- ---------------------------------- Dollars in millions Average Value December 31, 1997 Average Value December 31, 1997 - --------------------------------------------------------------------------------------------------------------------- Independent power producers $172.2 $158.3 $ -- $_.1 Financial institutions 17.4 18.3 34.3 21.0 Oil and gas producers 2.8 9.1 24.4 19.9 Gas transmission 5.4 10.0 23.5 25.1 Energy marketers 4.5 9.7 2.7 10.5 Other 2.9 3.9 2.6 2.4 - --------------------------------------------------------------------------------------------------------------------- Gross value 205.2 209.3 87.5 79.0 Reserves -- -- 64.6 57.2 - --------------------------------------------------------------------------------------------------------------------- TOTAL $205.2 $209.3 $152.1 $136.2 - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
The counterparties in the company's portfolio consist primarily of gas transmission companies, energy marketers and independent power producers. The creditworthiness of the company's counterparties could impact its overall exposure to credit risk, either positively or negatively. However, the company maintains credit policies with regard to its counterparties that in management's view minimize overall credit risk. At December 31, 1997, the company had natural gas financial instruments with a contractual volume of 3,816 BCF, expiring through 2007. As of December 31, 1997, the future cash flow requirements, net of margin deposits, related to these financial instruments were $13.5 million. Margin deposits are required on certain financial instruments to address significant fluctuations in market prices. Three independent power producers comprise the majority of the company's net price risk management assets. This concentration of customers may impact the company's overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions. The net value of the 1997 price risk management portfolios reflects the $117.1 million prepayment of a long-term gas contract. B. NON-TRADING ACTIVITIES--HEDGING INSTRUMENTS The company enters into forwards, futures and other contracts related to its commodity businesses. Financial instruments are used to manage price fluctuations in the portfolio of natural gas transactions. The estimated fair value and cash flow requirements for these financial instruments are based on the market prices in effect at the financial statement date and do not necessarily reflect the company's entire trading portfolio. NOTE 3: ACCOUNTS RECEIVABLE The components of accounts receivable on the Consolidated Balance Sheets are as follows:
December 31, In millions 1997 1996 - ----------------------------------------------------------------------- Accounts receivable, net $1,328.3 $925.2 Unbilled revenue 116.8 116.4 Accounts receivable sale program (280.0) (230.0) - ----------------------------------------------------------------------- Total $1,165.1 $811.6 - ----------------------------------------------------------------------- - -----------------------------------------------------------------------
The company has agreements with financial institutions to sell, on a continuing basis, up to $280 million of eligible accounts receivable on a limited recourse basis. Fees associated with these sales were approximately (in millions) $15.2 in 1997, $12.2 in 1996 and $8.6 in 1995 and are included in the accompanying consolidated statements of income. NOTE 4: PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment are as follows:
December 31, In millions 1997 1996 - ----------------------------------------------------------------------- Electric utility $1,766.2 $1,703.8 Gas utility 1,128.7 1,102.2 Gas gathering and pipeline systems 555.8 569.2 Other non-regulated plant 261.8 189.4 Construction in process 88.2 93.3 - ----------------------------------------------------------------------- 3,800.7 3,657.9 Less--depreciation, depletion and amortization 1,320.4 1,251.2 - ----------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT, NET $2,480.3 $2,406.7 - ----------------------------------------------------------------------- - -----------------------------------------------------------------------
CUMULATIVE EFFECT OF SOFTWARE ACCOUNTING CHANGE During 1997, the company changed its method of accounting for internally developed software costs to conform with the new requirements of Emerging Issues Task Force (EITF) 97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project That Combines Business Process Reengineering and Information Technology Transformation," that became effective November 20, 1997. The effect of this change was to reduce net income in 1997 by $4.8 million. This is described as a cumulative effect of software accounting change in the consolidated statements of income. The 1996 financial statements were not affected by EITF 97-13 as costs not allowed under the EITF had not been capitalized prior to 1997. SALE OF OIL AND GAS ASSETS On September 27, 1995, the company sold assets of Aquila Energy Resources Corporation, a wholly-owned subsidiary of Aquila, for approximately $205 million in cash, their approximate carrying value. The assets sold consisted of substantially all of the company's oil and gas properties. NOTE 5: ASSET IMPAIRMENTS As part of the sale of the company's oil and gas production assets in September 1995, the company retained a net profits interest in the properties which was contingent upon the future performance and activities of the oil and gas properties sold and certain payout criteria related to the sale transaction. At the time of the sale, the net profits interest was valued at $22.5 million. Pursuant to the sales agreement, periodic drilling and reserve updates are provided each year to the company. After receiving the 1997 study, the company recorded a $15.5 million pretax charge against earnings primarily to reflect the latest estimate of its net realizable value. Also in 1997, the company evaluated some of its technology related investments and eliminated certain technology related positions. In light of recent organizational changes at one of the company's strategic partners and the results to date, the company expensed approximately $11.0 million pretax consisting of certain contractual and software rights and severance costs. In 1995 the company reviewed its long-lived asset car-rying values and also adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). In the fourth quarter of 1995, the company recorded a non-cash charge of approximately $34.6 million for long-term asset impairments. The assets related to this charge are summarized as follows:
In millions Pretax Writedown - -------------------------------------------------------- Investment in an independent power project $15.4 Gas gathering systems 13.2 Gas processing plants 6.0 - -------------------------------------------------------- TOTAL $34.6 - -------------------------------------------------------- - --------------------------------------------------------
The impairment loss related to UtilCo Group's investment in an independent power project was primarily caused by a change in the projected cash flows of the project after considering updated projections of future energy prices. This resulted in the write-off of the remaining investment balance. The impairment loss relating to AGP's gas gathering systems stems from a review of cash flows on a system-by-system basis. Prior to adoption of SFAS 121, AGP assessed asset realization on an aggregate cash flow level, which is higher than what SFAS 121 allows. In preparing cash flow projections related to AGP's assets, certain assumptions were used. The more significant assumptions included constant throughput flow based on 1994 actual throughput for an estimated remaining life of 20 years. Cash flows were discounted based on AGP's weighted average cost of capital. The impairment loss relating to gas processing plants relates to a review conducted after the sale of Aquila's oil and gas properties. These company-owned plants were managed as part of Aquila's properties, but were not part of Aquila. In assessing these plants separately under the principles of SFAS 121, the cash flows from these assets were not sufficient to recover the carrying value of the plants. NOTE 6: INVESTMENTS IN SUBSIDIARIES AND PARTNERSHIPS The consolidated financial statements include the company's investments in: an electric distribution utility in Australia, via UtiliCorp Australia Holding Limited (UAHL); two electric distribution utilities in New Zealand, via UtiliCorp N.Z., Inc. (UNZ); and 17 power projects via UtilCo Group. These are all accounted for under the equity method. For the company's international businesses, adjustments for significant differences between U.S. generally accepted accounting principles and local accounting standards have been made to the amounts included in the company's consolidated financial statements. The following table summarizes the company's equity investment balances at December 31, 1997 and 1996 and the related equity earnings for the three years ended December 31, 1997.
Investment Equity Earnings at December 31, Year Ended December 31, Ownership ----------------- ------------------------------ In millions at 12/31/97 Country 1997 1996 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- UAHL investment (a) (e) 49.9% Australia $237.9 $274.0 $ 28.6 $ 42.7 $_9.3 UNZ investment (b) WEL Energy Group Ltd. (WEL) (e) 39.6% New Zealand 39.6 46.1 4.5 6.2 2.2 Power New Zealand (PNZ) (e) 30.6% New Zealand 115.2 134.2 9.2 11.2 -- UtilCo Group partnerships (c) (d) 22%-50% U.S. & Jamaica 199.7 194.4 29.6 48.5 19.6 Oasis Pipe Line Company (Oasis) 35% United States 96.3 110.8 .9 .1 -- Other 50% United States 2.5 1.5 (4.0) -- (1.6) - ---------------------------------------------------------------------------------------------------------------------- TOTAL $691.2 $761.0 $ 68.8 $108.7 $29.5 - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
(a) EQUITY EARNINGS INCLUDE INTEREST INCOME AND MANAGEMENT FEES BETWEEN THE EQUITY INVESTEE AND UAHL. (b) THE COMPANY OWNS 79% OF UNZ WITH THE REMAINING 21% OWNED BY AN UNRELATED PARTY. (c) INVESTMENTS ARE AGGREGATED. INDIVIDUAL INVESTMENTS ARE NOT SIGNIFICANT. (d) INVESTMENT AND SHARE OF PRETAX EARNINGS INCLUDE THE JAMES RIVER PROJECT, 49% OWNED BY THE COMPANY AND 1% OWNED BY UTILCO GROUP. (e) THE INVESTMENT VALUES DECLINED IN 1997 COMPARED TO 1996 DUE TO A DECLINE IN THOSE CURRENCIES RELATIVE TO THE U.S. DOLLAR. THE AUSTRALIAN AND NEW ZEALAND DOLLARS DECLINED AS THE ASIAN STOCK MARKET TOOK A SEVERE DOWNTURN IN LATE 1997. Summarized combined financial information of unconsolidated material equity investments is presented below.
December 31, In millions 1997 1996 - ------------------------------------------------------------ ASSETS: Current assets $ 338.1 $ 328.5 Non-current assets 2,840.6 3,131.0 - ------------------------------------------------------------ TOTAL ASSETS $3,178.7 $3,459.5 - ------------------------------------------------------------ - ------------------------------------------------------------ LIABILITIES AND EQUITY: Current liabilities $ 449.8 $ 325.2 Non-current liabilities 1,718.1 2,163.7 Equity 1,010.8 970.6 - ------------------------------------------------------------ TOTAL LIABILITIES AND EQUITY $3,178.7 $3,459.5 - ------------------------------------------------------------ - ------------------------------------------------------------
Year Ended December 31, In millions 1997 1996 1995 - ----------------------------------------------------------------------- OPERATING RESULTS: Revenues $1,294.7 $1,277.8 $729.6 Costs and expenses 1,140.7 1,109.1 657.3 - ----------------------------------------------------------------------- NET INCOME $ 154.0 $ 168.7 $ 72.3 - ----------------------------------------------------------------------- - -----------------------------------------------------------------------
INTEREST IN AUSTRALIAN ELECTRIC UTILITY In September 1995, Power Partnership Pty Limited (PPL), 49.9%-owned by the company, acquired United Energy Limited (UE), an Australian electric distribution utility, from the State of Victoria. The company paid approximately $257.9 million for its 49.9% ownership interest in PPL. The company manages the operations of UE on behalf of PPL and receives an annual management fee consisting of a base amount indexed to the consumer price index and a variable amount based on UE's financial performance. The management agreement extends for 10 years from date of acquisition. The company financed its ownership interest primarily through two five-year Australian currency revolving credit facilities. See Note 9 for more information regarding financing arrangements. The acquisition was recorded as a purchase and, accordingly, the assets and liabilities were recorded at the estimated fair value at the date of acquisition. The equity investment is included in investments in subsidiaries and partnerships on the Consolidated Balance Sheets. Pro forma unaudited results of operations for the company, assuming the acquisition occurred at the beginning of 1995, are shown below.
Year Ended December 31, In millions, except per share 1995 - ------------------------------------------------ Sales $2,798.5 Income from operations 225.1 Net income 81.7 Earnings available for common shares 79.6 - ------------------------------------------------ - ------------------------------------------------ Basic earnings per share $1.76 Diluted earnings per share 1.75 - ------------------------------------------------ - ------------------------------------------------
The company's Australian investment has the following components:
Carrying Value Fair Value ---------------- ------------ 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------------------- Investment in convertible notes (a) (b) $113.6 $138.1 $113.6 $138.1 Investment in floating subordinated debt (a) (b) 61.0 74.2 61.0 74.2 Investment in PPL common stock (not traded) 63.3 61.7 - -------------------------------------------------------------------------------------------------------------------- Total $237.9 $274.0 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
(a) THE COMPANY CLASSIFIES THESE SECURITIES AS HELD-TO-MATURITY. (b) THESE SECURITIES HAVE FLOATING INTEREST RATES AT .9% ABOVE THE AUSTRALIAN BANK BILL RATE MATURING IN SEPTEMBER 2015. THE INTEREST RATE AT DECEMBER 31, 1997 WAS 7.28%. INTEREST IN NEW ZEALAND ELECTRIC UTILITIES In November 1995, UNZ acquired 20.0% of the common stock of Power New Zealand Ltd. (PNZ), a New Zealand electric distribution utility, for $69.4 million. This acquisition was financed through a New Zealand currency credit facility. UNZ continued to acquire PNZ shares through May 1997 and at the end of 1997 held 30.6%. PNZ is New Zealand's second largest electric distribution utility, serving approximately 216,000 customers. In February 1995, UNZ paid $16.1 million to WEL Energy Group Ltd. (WEL) to satisfy its capital commitment. UNZ continued to acquire WEL shares throughout 1996 and 1997 and at the end of 1997 held 39.6%. WEL is an electric distribution utility serving approximately 66,000 customers. INTEREST IN INDEPENDENT POWER PROJECTS The company participates in the ownership and operation of facilities in the independent and wholesale power generation market. It has investments in 17 projects located in seven states and Jamaica. In April 1996, one of UtilCo Group's power projects entered into a long-term lease arrangement with a third party. This transaction was accounted for as a sale by the partnership and resulted in the recognition of a gain. UtilCo Group recorded its share of the gain through equity earnings during the second quarter. In addition, UtilCo Group recorded certain restructuring reserves primarily in connection with changes in power project agreements. The net gain from these items was $11.8 million after tax. INVESTMENT IN PIPELINE SYSTEM In July 1996 and November 1996, the company acquired, in aggregate, 40% of Oasis Pipe Line Company for approximately $132.0 million. Oasis consists of a 600-mile intrastate pipeline system in Texas near many of Aquila Energy's existing gathering systems. As part of the purchase, another owner had the option to buy 20% of Oasis, including 5% held by Aquila. The option was exercised in 1997 and Aquila sold the 5% at book value. NOTE 7: REGULATORY ASSETS The company's utility operations are subject to regulation by various regulatory authorities. The company currently applies accounting standards that recognize the economic effects of rate regulation and, accordingly, has recorded regulatory assets related to the company's energy generation, transmission and distribution operations. If the company discontinued applying this accounting standard, it would be required to make an adjustment to the carrying value of certain assets. The following table presents the amount of regulatory assets recorded at December 31,1997 and 1996. These are primarily reflected as deferred charges on the consolidated balance sheets.
Dollars in millions 1997 1996 - ---------------------------------------------------------- Income taxes $ 55.2 $ 53.6 Environmental liabilities 11.2 11.3 Debt-related costs 19.6 22.3 Regulatory accounting orders 8.4 9.1 Demand-side management programs 13.0 10.8 Post-retirement benefits 7.4 10.5 Other (including FERC Order No. 636) 7.9 28.2 - ---------------------------------------------------------- Total $122.7 $145.8 - ---------------------------------------------------------- - ----------------------------------------------------------
NOTE 8: SHORT-TERM DEBT Short-term debt includes the following components:
December 31, In millions 1997 1996 ---------------------------------------------------------------------- Bank borrowing and other $113.8 $202.0 Commercial paper -- 50.0 ---------------------------------------------------------------------- TOTAL $113.8 $252.0 ---------------------------------------------------------------------- Weighted average interest rate at year end 6.21% 5.78% ---------------------------------------------------------------------- ----------------------------------------------------------------------
The company has a commercial paper program of $150 million. To support it, the company has a revolving credit agreement with a consortium of banks aggregating $250 million. The agreement allows the issuance of notes which bear interest at rates based on the prime rate or various money market rates. The revolving credit agreement contains restrictive covenants and the company pays an annual commitment fee of .17% on the unused portion of the revolving credit facility. NOTE 9: LONG-TERM DEBT The company's long-term debt is summarized below:
December 31, In millions 1997 1996 ----------------------------------------------------------------------------------------------------- FIRST MORTGAGE BONDS: Various, 9.94%*, due 1998-2008 $ 20.6 $ 23.0 SENIOR NOTES: 6.0% Series, due April 1, 1998 70.0 70.0 9.21% Series, due October 11, 1999 50.0 50.0 8.45% Series, due November 15, 1999 100.0 100.0 Aquila Southwest Energy 8.29% Series, due September 15, 2002 62.5 75.0 6.875% Series, due October 1, 2004 150.0 -- 6.375% Series, due June 1, 2005 100.0 100.0 6.7% Series, due October 15, 2006 100.0 100.0 8.2% Series, due January 15, 2007 130.0 130.0 10.5% Series, due December 1, 2020 55.9 125.0 9.0% Series, due November 15, 2021 150.0 150.0 8.0% Series, due March 1, 2023 125.0 125.0 SECURED DEBENTURES OF WEST KOOTENAY POWER: 9.15%*, due 2001-2023 71.3 68.2 CONVERTIBLE SUBORDINATED DEBENTURES: 6.625%, due July 1, 2011 5.8 7.2 New Zealand Denominated Credit Facility, due June 30, 1998 64.7 78.9 Australian Denominated Credit Facilities, due July 20, 2000 195.1 237.3 Other notes and obligations 57.3 56.8 ----------------------------------------------------------------------------------------------------- TOTAL LONG-TERM DEBT 1,508.2 1,496.4 Less current maturities 149.6 25.7 ----------------------------------------------------------------------------------------------------- Long-term debt, net $1,358.6 $1,470.7 ----------------------------------------------------------------------------------------------------- Fair value of long-term debt, including current maturities (a) $1,581.1 $1,559.3 Interest rate swap (a) (.1) (1.8) -----------------------------------------------------------------------------------------------------
* WEIGHTED AVERAGE INTEREST RATE. (a) THE FAIR VALUE OF LONG-TERM DEBT IS BASED ON CURRENT RATES AT WHICH THE COMPANY COULD BORROW FUNDS WITH SIMILAR REMAINING MATURITIES. THE INTEREST RATE SWAP AGREEMENTS ARE USED TO REDUCE THE EFFECT OF CHANGING INTEREST RATES ON THE COMPANY'S AUSTRALIAN DENOMINATED CREDIT FACILITY. Substantially all of the domestic utility plant owned by the company is subject to the lien of various mortgage indentures. The company cannot issue additional mortgage bonds under these indentures without directly securing the 6.0%, 8.45%, 8.2%, 9.0%, 8.0%, 6.375% and 6.70% Senior Notes equally as any mortgage bond issue. Currently the company has no plans to issue mortgage bonds. The amounts of long-term debt maturing in each of the next five years and thereafter are shown at right:
In millions Maturing Amounts ------------------------------------------------- 1998 $ 149.6 1999 165.6 2000 224.8 2001 15.7 2002 15.7 Thereafter 936.8 ------------------------------------------------- Total $1,508.2 ------------------------------------------------- -------------------------------------------------
--------------------------------------------------------------------------- For the two years ended December 31, 1997, the company issued the following series of Senior Notes which were used to reduce short-term debt.
In millions Date Issued Maturity Face Amount Net Proceeds --------------------------------------------------------------------------------------------- 6.875% series October 1997 2004 $150.0 $149.0 6.7% series October 1996 2006* $100.0 $ 99.5 --------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------
* THE HOLDER OF THE 6.7% SENIOR NOTE MAY ELECT TO REDEEM ANY PORTION IN MULTIPLES OF $1,000 ON OCTOBER 1, 2001 AT FACE VALUE PLUS ACCRUED INTEREST. RETIREMENT OF DEBT In March 1997, the company retired, at a premium, $69.1 million of its 10.5% series senior notes that were to mature in 2020. The transaction resulted in an ex-traordinary loss of $7.2 million, net of an income tax benefit of $4.5 million. NEW ZEALAND DENOMINATED CREDIT FACILITY UtiliCorp South Pacific, Inc. (USP) has a $NZ135 million credit facility with a consortium of banks that was used to finance a portion of the investments made by UNZ. The interest rate fluctuates (7.93% at December 31, 1997) with changes in the New Zealand bank bill rate. The credit facility matures on June 30, 1998. A commitment fee of .20% applies to the unused portion of the credit facility. AUSTRALIAN DENOMINATED CREDIT FACILITIES UAHL has two $A150 million credit facilities with a consortium of banks that mature on July 20, 2000. The interest rates for $A250 million of the above facilities fluctuates with changes in the Australian bank bill rate. The weighted average interest rate at December 31, 1997 was 5.51%. The interest rate on the remaining $A50 million is fixed at 7.48%. A commitment fee of .20% applies to the unused portion of the credit facility. On November 6, 1995, UAHL entered into an interest rate swap agreement with Deutsche Bank with a contractual amount of $A100 million whereby the company exchanges variable Australian debt interest for fixed rate interest. The fixed interest rate is 7.77% for a period extending to September 7, 1998. CONVERTIBLE SUBORDINATED DEBENTURES At December 31, 1997, 6.625% convertible subordinated debentures totaling $5.8 million remained outstanding. The debentures can be converted into approximately 245,000 shares of common stock, based on a conversion price of $23.68, subject to an annual maximum limitation. The debentures are subordinate to the prior payment, when due, of the principal and premium, if any, and interest on all the company's debt outstanding, except debt that by its terms is not senior in right of payment to the debentures. NOTE 10: COMPANY-OBLIGATED PREFERRED SECURITIES In June 1995, UtiliCorp Capital L.P. (UC), a limited partnership of which the company is the general partner, issued 4 million shares of 8.875% Cumulative Monthly Income Preferred Securities, Series A, for $100 million. The limited partnership interests represented by the preferred securities are redeemable at the option of UC, after June 12, 2000, at $25 per preferred security plus accrued interest and unpaid dividends. Holders of the securities are entitled to receive dividends at an annual rate of 8.875% of the liquidation preference value of $25. Dividends are payable monthly and in substance are tax-deductible by the company. The securities are shown as company-obligated mandatorily redeemable preferred securities of partnership on the consolidated balance sheets. The dividends are shown as minority interest in income of partnership in the consolidated statements of income. NOTE 11: CAPITAL STOCK COMMON STOCK OFFERING In November 1996, the company issued 6 million shares of common stock at $27.625. The net proceeds of $160.8 were used to reduce short-term debt. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN In February 1995, the company registered 3 million shares of common stock to initiate a new Dividend Reinvestment and Common Stock Purchase Plan (New Plan). In 1997, an additional 5 million shares were authorized. Under the provisions of this New Plan, current and potential shareholders can purchase up to $10,000 per month of the company's common stock at a five-day average market price and without sales commissions. The New Plan allows members to reinvest dividends into additional common stock at a 5% discount. The New Plan amends the previous plan and all members in the previous plan automatically became members in the New Plan. For the year ended December 31, 1997, 1,124,283 shares were issued under this plan. As of December 31, 1997, 4,887,761 shares were available to issue under this plan. EMPLOYEE STOCK PURCHASE PLAN Participants have the opportunity to buy shares of the company's common stock at a reduced price through regular payroll deductions and/or lump sum deposits of up to 20% of the employee's base salary. Contributions are credited to the participant's account throughout an option period. At the end of the option period, the participant's total account balance is applied to the purchase of common shares of the company. The shares are purchased at 85% of the lower of the market price on the first day or the last day of the option period. Participants must be enrolled in the Plan as of the first day of an option period in order to participate in that option period. RESTATED SAVINGS PLAN A defined contribution plan, the Restated Savings Plan (Savings Plan), covers all full-time and eligible part-time employees of the company. Participants may generally elect to contribute up to 12% (15% beginning January 1, 1998) of their annual pay on a before- or after-tax basis subject to certain limitations. The company generally matches contributions up to 6%. Participants may direct their contributions into five different investment options. All company matching contributions are in the company's common stock. In addition, the Savings Plan also includes a stock contribution fund whereby the company can contribute an additional amount of company common stock to participants. STOCK INCENTIVE PLAN The company's Stock Incentive Plan provides for the granting of common shares to certain employees as restricted stock awards and as stock options. Shares issued as restricted stock awards are held by the company until certain restrictions lapse, generally on the third award anniversary. The market value of the stock, when awarded, is amortized to compensation expense over the three-year period. Stock options granted under the Plan allow the purchase of common shares at a price not less than fair market value at the date of grant. Options are generally exercisable commencing with the first anniversary of the grant and expire after 10 years from the date of grant. EMPLOYEE STOCK OPTION PLAN The Board approved the establishment of an Employee Stock Option Plan in 1991. This Plan provides for the granting of up to 1 million stock options to full-time employees other than those eligible to receive options under the Stock Incentive Plan. Stock options granted under the Employee Stock Option Plan carry the same provisions as those issued under the Stock Incentive Plan. During 1992, options for 742,900 shares were granted to employees. The exercise price of these options is $27.3125. No options have been issued under this Plan since 1992. Stock options as of December 31, 1997 and 1996 are summarized below:
Shares 1997 1996 ------------------------------------------------------------------ BEGINNING BALANCE 2,200,450 2,015,500 Granted 1,123,020 303,850 Exercised (615,290) (18,410) Cancelled (198,553) (100,490) ------------------------------------------------------------------ ENDING BALANCE 2,509,627 2,200,450 ------------------------------------------------------------------ ------------------------------------------------------------------ WEIGHTED AVERAGE PRICES: Beginning balance $27.94 $27.83 Granted price 27.79 28.55 Exercised price 27.60 23.96 Cancelled price 27.71 28.40 Ending balance 27.97 27.94 ------------------------------------------------------------------ ------------------------------------------------------------------
At December 31, 1997, restricted stock awards and stock options which were exercisable totaled 1,136,225 shares (at prices ranging between $21.88 and $31.63). NOTE 12: INCOME TAXES Income tax expense consists of the following components:
Year Ended December 31, Dollars in millions 1997 1996 1995 ------------------------------------------------------------------------- CURRENTLY PAYABLE: Federal $27.1 $35.0 $35.4 Foreign 7.1 14.2 10.6 State 6.5 5.5 11.3 DEFERRED: Federal 42.1 23.0 (3.6) State 8.2 4.3 (.4) Investment tax credit amortization (1.3) (1.3) (1.3) ------------------------------------------------------------------------- TOTAL INCOME TAX EXPENSE $89.7 $80.7 $52.0 ------------------------------------------------------------------------- -------------------------------------------------------------------------
The principal components of the company's deferred income taxes consist of the following:
December 31, Dollars in millions 1997 1996 ----------------------------------------------------------------------- DEFERRED TAX ASSETS: Alternative maximum carryforward $ 98.3 $ 95.1 ----------------------------------------------------------------------- TOTAL DEFERRED TAX ASSETS 98.3 95.1 ----------------------------------------------------------------------- DEFERRED TAX LIABILITIES: Accelerated depreciation and other plant differences: Regulated 167.5 146.4 Non regulated 168.9 158.3 Regulatory asset--SFAS 109 38.6 37.1 Mark-to-market reserve 25.8 11.3 Other, net 60.2 55.7 ----------------------------------------------------------------------- TOTAL DEFERRED TAX LIABILITIES 461.0 408.8 ----------------------------------------------------------------------- DEFERRED INCOME TAXES, NET $362.7 $313.7 ----------------------------------------------------------------------- -----------------------------------------------------------------------
The company's effective income tax rates differed from the statutory federal income tax rates primarily due to the following:
December 31, Dollars in millions 1997 1996 1995 ---------------------------------------------------------------------- Statutory Federal Income Tax Rate 35.0% 35.0% 35.0% TAX EFFECT OF: Temporary difference passed through, primarily removal costs -- .2 (.5) Investment tax credit amortization (.6) (.7) (1.0) State income taxes, net of federal benefit 5.8 5.8 4.3 Difference in tax rate of foreign subsidiaries (1.9) (.7) 1.0 Other 1.8 3.7 .7 ---------------------------------------------------------------------- EFFECTIVE INCOME TAX RATE 40.1% 43.3% 39.5% ---------------------------------------------------------------------- ----------------------------------------------------------------------
The company has an alternative minimum tax credit carryforward of approximately $98.3 million at December 31, 1997. Alternative minimum tax credits can be carried forward indefinitely and the company has not recorded a valuation allowance against its tax credit carryforwards. No provision is made for U.S. income taxes on undistributed earnings of the company's international businesses ($96.5 million at December 31, 1997) because it is management's intention to reinvest such earnings in those international operations. In the event of a distri-bution of these earnings in the form of dividends, the company may be subject to both foreign withholding taxes and U.S. income taxes net of allowable foreign tax credits. Consolidated income before income taxes for the years ended December 31, 1997, 1996 and 1995 included $13.6, $39.2 and $16.6 million, respectively, from international operations. [PICTURE] You've Seen the Photos, Now View the Video! HOST WILLIAM SHATNER walks you through UtiliCorp's award-winning World Headquarters Building and its colorful 110-year history in THE 2ND LIFE OF 20 WEST NINTH This 28-minute program aired on public television in 1997. To order a VHS tape, call KCPT Public Television 19 toll-free at 1-800-459-9733. $24.95 plus $3.95 shipping/handling. NOTE 13: EMPLOYEE BENEFITS PENSIONS The following table represents the funded status of the pension plans and the amounts included in the consolidated balance sheets and statements of income:
Year Ended December 31, Dollars in millions 1997 1996 1995 ----------------------------------------------------------------------------------------------------------------------- ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: Vested benefit obligation $168.3 $153.9 $143.0 Accumulated benefit obligation 173.1 158.1 146.9 ----------------------------------------------------------------------------------------------------------------------- Projected benefit obligation $205.4 $185.9 $183.9 Plan assets at fair value (primarily publicly traded common stocks and bonds) 240.1 208.7 191.7 ----------------------------------------------------------------------------------------------------------------------- Excess of plan assets over the projected benefit obligation 34.7 22.8 7.8 Unrecognized net loss from past experience different from that assumed (2.4) 8.2 24.1 Unrecognized net asset being recognized over 16 years (10.1) (11.3) (12.5) Unrecognized prior service cost 1.1 .9 (.3) ----------------------------------------------------------------------------------------------------------------------- PENSION ASSETS INCLUDED IN PREPAYMENTS AND OTHER $ 23.3 $ 20.6 $ 19.1 ----------------------------------------------------------------------------------------------------------------------- NET PENSION EXPENSE INCLUDED THE FOLLOWING COMPONENTS: Service cost $6.2 $6.5 $5.8 Interest cost on projected benefit obligation 13.8 13.0 12.0 Actual return on plan assets (44.8) (25.7) (37.6) Regulatory adjustment .8 .9 .6 Net amortization and deferral 23.8 6.5 20.5 ----------------------------------------------------------------------------------------------------------------------- NET PENSION EXPENSE (CREDIT) $ (.2) $1.2 $1.3 ----------------------------------------------------------------------------------------------------------------------- Discount rate assumed 7.17% 7.60% 7.17% Assumed rate of return on future compensation levels 5.36% 5.0-5.4% 5.0-5.5% Assumed long-term rate of return on assets 9.73% 8.0-10.0% 8.5-10.0% -----------------------------------------------------------------------------------------------------------------------
The company has pension plans covering substantially all qualified union and non-union employees. The benefit formulas vary and are based either on years of service multiplied by a percentage of salary, or a flat benefit based upon years of service. The company's policy is to fund, at a minimum, an amount sufficient to meet all ERISA funding requirements. In certain of its jurisdictions, the company has recorded pension expense equal to its funding contribution, which is consistent with the rate treatment allowed for this cost. In 1995 the company changed its long-term view on pension fund asset returns and increased its estimated return on domestic plan assets to 10%. OTHER POST-RETIREMENT BENEFITS The company provides post-retirement health care and life insurance benefits to substantially all employees. The majority of the plan's funding is provided by the company on a pay-as-you-go basis with most retirees paying a portion of the cost. The following table summarizes the status of the company's post-retirement plans for financial statement purposes and the related amounts included in the consolidated balance sheets at December 31, 1997 and 1996: ---------------------------------------------------------------------------
December 31, In millions 1997 1996 ---------------------------------------------------------------------------------------------- ACTUARIAL PRESENT VALUE OF POST-RETIREMENT BENEFIT OBLIGATIONS: Retirees $29.7 $27.8 Other fully eligible participants 4.4 4.2 Other active participants 8.5 7.0 Plan assets at fair value (4.8) (.5) Unrecognized transition obligation (30.4) (32.4) Unrecognized net gain 7.7 8.5 ---------------------------------------------------------------------------------------------- ACCRUED LIABILITY $15.1 $14.6 ---------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------
The components of health care and life insurance costs are:
In millions 1997 1996 1995 -------------------------------------------------------------------------- Service cost $ .7 $1.0 $ .8 Interest cost 2.8 2.9 2.7 Amortization of transition obligation 2.0 2.0 2.0 Net amortization and deferral (.5) -- (.2) -------------------------------------------------------------------------- NET HEALTH CARE AND LIFE $5.0 $5.9 $5.3 INSURANCE COSTS -------------------------------------------------------------------------- --------------------------------------------------------------------------
The following actuarial assumptions were used in calculating the plan's year-end funded status:
1997 1996 1995 -------------------------------------------------------------------------- Discount rate 7.0% 7.5% 7.0% Assumed rate of return on future compensation levels 5.4% 5.0-5.4% 5.0-5.5% Health care cost trend rate 10-6% 8.25-6% 10-6% -------------------------------------------------------------------------- --------------------------------------------------------------------------
The rate of change in health care cost has an effect on the projected benefit obligation. Increasing the rate by 1% each year would have increased the present value of the accumulated projected benefit obligation by $3.4 million and the aggregate of the service and interest cost components by $.4 million in 1997. Pursuant to regulatory orders or precedents, certain regulated divisions of the company have deferred as a regulatory asset the incremental costs associated with SFAS No. 106, "Employers' Accounting for Post-retirement Benefits--Other Than Pensions." NOTE 14: COMMITMENTS AND CONTINGENCIES COMMITMENTS The company has various commitments for the years 1998 through 2002 relating primarily to power and gas supply commitments, fixed price sales obligations and lease and rental commitments. A table of the company's estimated capital expenditures and more significant estimated commitments follows.
Dollars in millions except per unit 1998 1999 2000 2001 2002 --------------------------------------------------------------------------------------------------------------- Capital expenditures $229.0 $249.0 $239.0 $236.0 $229.0 Future minimum lease payments 23.8 22.4 21.2 18.8 18.5 Purchased power obligations 63.1 68.1 63.0 56.5 36.3 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Coal contracts $41.6 $43.8 $44.0 $31.1 $30.0 Price ranges ----------------$12.87 to $25.90 per ton----------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Fixed price sales obligations (trillion BTUs) 353.9 50.7 26.4 21.4 21.3 Price ranges ------------------$.98 to $5.51 per MCF------------------ --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Fixed price purchase obligations (trillion BTUs) 348.6 58.9 12.7 2.2 2.0 Price ranges ------------------$.98 to $4.19 per MCF------------------ --------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------
Future minimum lease payments primarily relate to the Jeffrey Energy Center interest, peaking turbines, coal cars, and office space. Rent expense for the years 1997, 1996 and 1995 was (in millions) $32.1, $29.4 and $25.9, respectively. Purchased power obligations for 1998 through 2002 are estimated to provide 989; 1,039; 926; 626; and 323 MW, respectively. LONG-TERM GAS SUPPLY CONTRACTS In 1996, the company realigned certain of its business relationships in the United Kingdom (U.K.). Its equity relationships in the Caledonian Gas Limited, Midlands Gas Limited (Midlands), and Egas Limited joint ventures were terminated. As part of the termination of the equity relationship in Midlands, the company assumed an interest in two long-term gas supply contracts (for deliveries through 2005) that it assimilated into its existing portfolios of sales and supply contracts. At December 31, 1997, the portfolio of U.K. contracts was in a net long position. It has 66.4 BCF of supply commitments through 2005, and 50.0 BCF of sales commitments through 1999. Pretax losses on the above portfolio range from $19 million to $26 million depending on the estimated future spot price of natural gas. Since the U.K. natural gas market does not have liquid long-term pricing, it is difficult to calculate future profitability of the portfolio. Based on management's estimates and available market data at December 31, 1997, the company is carrying a $19 million pretax reserve relating to future losses that may exist within the portfolio of contracts. Management believes that this reserve is adequate and that any additional increases in the reserve would not be material. ENVIRONMENTAL The company is subject to various environmental laws, including regulations governing air and water quality and the storage and disposal of hazardous or toxic wastes. The company assesses, on an ongoing basis, measures to ensure compliance with laws and regulations related to hazardous materials and hazardous waste compliance and remediation activities. The company owns or previously operated 29 former manufactured gas plants (MGPs) which may, or may not, require some form of environmental remediation. The company has contacted appropriate federal and state agencies and is in the process of determining what, if any, specific cleanup activities may be needed at these sites. As of December 31, 1997, the company estimates its cleanup costs on its identified MGP sites to be approximately $6.2 million. These amounts could change materially based upon further investigations, the actions of environmental agencies and the financial viability of other responsible parties. Additionally, the ultimate liability may be significantly affected if the company is held responsible for parties not financially able to contribute to these costs. Based on prior experience, available facts and existing law, the company has recorded a liability of $6.2 million representing its estimate of the amount of environmental costs currently expected to be incurred. The company has received favorable rate orders for recovery of its environmental cleanup costs in certain jurisdictions. In other jurisdictions, favorable regulatory precedent exists for the recovery of these costs. The company is also pursuing recovery from insurance carriers and other potentially responsible parties. In December 1996, the U.S. Environmental Protection Agency (EPA) promulgated its final rule for nitrous oxide (NOx) emissions pursuant to the requirements of the Clean Air Act Amendments of 1990. The new NOx regulations will require the installation of additional emissions control equipment at one of the company's power plants by January 1, 2000. The company estimates that it will spend approximately $2.0 million to comply with these rules. It is management's opinion that the ultimate resolution of these environmental matters will not have a material adverse impact upon the financial position or results of operations of the company. PENDING RATE PROCEEDING In the first quarter of 1997, the Staff of the Missouri Public Service Commission (the Staff) filed a complaint against the company seeking to reduce annual Missouri electric revenues by $23 million. In September 1997, the Staff increased its recommendation for a rate reduction to $28.5 million. In a separate filing with the Staff, the company requested to increase electric rates by $24.6 million. The Staff is reviewing the company's position and the final order is expected to be issued in March 1998. The primary differences between these two dockets center on rate of return, capital structure, transition costs, depreciation methods and corporate allocations. The company's filing is designed to recover inflationary and other cost increases which include the investment of approximately $20 million in plant and facility improvements. The rate increase also reflects the request for a temporary surcharge of $.0028 per kilowatt-hour to cover costs related to transitioning to the competitive customer-choice marketplace. In addition, the filing includes a mechanism to lessen the impact of the surcharge on consumers, and requests that the Commission approve the establishment of a $1 million fund to assist low-income customers. The Commission is expected to issue an order by March 7, 1998, with new rates effective March 17, 1998. Although this matter is still pending, the public scenarios under consideration by the Commission range from a $12 million to a $23 million rate reduction. OTHER The company is subject to various legal proceedings and claims which arise in the ordinary course of business operations. In the opinion of management, the amount of liability, if any, with respect to these actions would not materially affect the consolidated financial position of the company or its results of operations. NOTE 15: SEGMENT INFORMATION A. BUSINESS LINES
Year Ended December 31, In millions 1997 1996 1995 ------------------------------------------------------------------------------------------------------- SALES: Energy Delivery-- Electric: Total $ 557.4 $ 519.3 $ 490.1 Affiliated (313.6) (285.2) (263.2) ------------------------------------------------------------------------------------------------------- Total unaffiliated electric 243.8 2.7% 234.1 226.9 Gas 767.4 8.6 727.9 616.6 Non-regulated 258.7 2.9 124.8 88.1 ------------------------------------------------------------------------------------------------------- Total Energy Delivery 1,269.9 14.2 1,086.8 931.6 Generation--affiliated 313.6 3.5 285.2 263.2 Aquila Energy 7,031.0 78.8 2,672.7 1,309.6 International and other 311.8 3.5 287.6 288.2 ------------------------------------------------------------------------------------------------------- TOTAL $8,926.3 100.0% $4,332.3 $2,792.6 ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- Year Ended December 31, In millions 1997 1996 1995 ------------------------------------------------------------------------------------------------------- EARNINGS BEFORE INTEREST AND TAXES: Energy Delivery $153.5 42.7% $170.0 $153.6 Generation (a) 71.8 20.0 79.3 35.3 Aquila Energy 54.7 15.2 47.2 64.9 International (b) 52.5 14.6 79.7 31.7 Corporate and other 26.6 7.5 (50.0) (31.9) ------------------------------------------------------------------------------------------------------- TOTAL $359.1 100.0% $326.2 $253.6 ------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------
(a) THE GENERATION SEGMENT INCLUDES THE UTILCO GROUP PARTNERSHIP EQUITY INVESTMENTS THAT HAD EQUITY EARNINGS OF $29.6, $48.5 AND $19.6 MILLION IN 1997, 1996 AND 1995, RESPECTIVELY. (b) THE INTERNATIONAL SEGMENT INCLUDES OPERATING ACTIVITIES IN AUSTRALIA, NEW ZEALAND, CANADA AND THE UNITED KINGDOM WHICH HAD TOTAL EQUITY EARNINGS OF $42.3, $60.1 AND $9.9 MILLION IN 1997, 1996 AND 1995, RESPECTIVELY.
Year Ended December 31, In millions 1997 1996 1995 ------------------------------------------------------------------------------------------------------- DEPRECIATION, DEPLETION AND AMORTIZATION: Energy Delivery $ 68.7 53.0% $ 66.8 $ 66.9 Generation 16.2 12.5 16.4 18.1 Aquila Energy 27.6 21.3 28.6 49.6 International 11.0 8.5 12.5 7.1 Corporate and other 6.1 4.7 1.1 17.9 ------------------------------------------------------------------------------------------------------- TOTAL $129.6 100.0% $125.4 $159.6 ------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------
December 31, In millions 1997 1996 ------------------------------------------------------------------------------------------------------- IDENTIFIABLE ASSETS: Energy Delivery $1,806.7 35.3% $1,814.7 Generation 503.0 9.8 482.1 Aquila Energy 2,067.7 40.4 1,698.9 International 789.0 15.4 848.3 Corporate and other (a) (52.9) (.9) (104.2) ------------------------------------------------------------------------------------------------------- TOTAL $5,113.5 100.0% $4,739.8 ------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------
(a) INCLUDES APPROXIMATELY $130 MILLION OF SOLD ACCOUNTS RECEIVABLE THAT RELATE TO ENERGY DELIVERY AND GENERATION.
YEAR ENDED DECEMBER 31, In millions 1997 1996 1995 ---------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES: Energy Delivery -- Electric $ 49.8 24.6% $ 47.7 $ 39.1 Gas 59.2 29.2 48.5 39.9 ---------------------------------------------------------------------------------------------- Total Energy Delivery 109.0 53.8 96.2 79.0 ---------------------------------------------------------------------------------------------- Generation 7.6 3.7 16.6 11.2 Aquila Energy 28.4 14.0 26.4 144.0 International 19.4 9.6 21.5 19.2 Corporate and other 38.2 18.9 70.5 46.8 ---------------------------------------------------------------------------------------------- TOTAL $202.6 100.0% $231.2 $300.2 ---------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------
B. GEOGRAPHICAL INFORMATION
YEAR ENDED DECEMBER 31, In millions 1997 1996 1995 ---------------------------------------------------------------------------------------------- SALES: United States $8,007.8 89.7% $3,962.5 $2,505.0 Canada (a) 704.4 7.9 180.9 89.2 United Kingdom 214.1 2.4 188.9 198.4 ---------------------------------------------------------------------------------------------- TOTAL $8,926.3 100.0% $4,332.3 $2,792.6 ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- EARNINGS AVAILABLE FOR COMMON SHARES: United States $105.2 86.3% $ 77.0 $68.4 Canada (a) 10.8 8.9 9.5 8.2 Australia (b) 11.3 9.3 14.1 2.9 New Zealand (b) 1.9 1.6 2.4 .7 United Kingdom (7.4) (6.1) .7 (2.5) ---------------------------------------------------------------------------------------------- TOTAL $121.8 100.0% $103.7 $77.7 ---------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------
DECEMBER 31, In millions 1997 1996 ---------------------------------------------------------------------------------------------- IDENTIFIABLE ASSETS: United States $4,205.6 82.2% $3,798.9 Canada (a) 376.4 7.4 351.5 Australia (b) 270.3 5.3 306.3 New Zealand (b) 160.7 3.1 185.1 United Kingdom 100.5 2.0 98.0 ---------------------------------------------------------------------------------------------- TOTAL $5,113.5 100.0% $4,739.8 ---------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------
(a) CANADIAN SALES, EARNINGS AVAILABLE FOR COMMON SHARES AND IDENTIFIABLE ASSETS INCLUDE AQUILA ENERGY'S CANADIAN OPERATIONS AND VARIOUS SMALL CANADIAN GAS MARKETING COMPANIES. (b) EARNINGS AVAILABLE AND A MAJORITY OF THE IDENTIFIABLE ASSETS RELATE TO EQUITY INVESTMENTS. NOTE 16: TERMINATED MERGER--KANSAS CITY POWER & LIGHT COMPANY (KCPL) On September 17, 1996, KCPL terminated the Amended and Restated Agreement and Plan of Merger (the Agreement) among KCPL, KC Merger Sub, Inc., the company and KC United Corp., which would have provided for the merger of the company and KCPL. Since KCPL's shareholders did not approve the merger under the terms of the Agreement, KCPL was required to pay the company $5.0 million. The company received this termination payment on September 19, 1996. In connection with the Agreement termination, the company expensed deferred merger costs of approximately $11.0 million (pretax), net of the termination fee payment. In February 1997, Western Resources Inc. and KCPL signed a definitive agreement to merge. As a result, KCPL paid the company a $53.0 million breakup fee which was recorded in the first quarter of 1997. NOTE 17: QUARTERLY FINANCIAL DATA (UNAUDITED) Due to the timing of acquisitions, the effect of weather on sales, and other factors characteristic of utility operations and energy related businesses, financial results for interim periods are not necessarily indicative of trends for any 12-month period.
1997 Quarters 1996 Quarters --------------------------------------- --------------------------------------- In millions, except per share First Second Third Fourth First Second Third Fourth ------------------------------------------------------------------------------------------------------------------------------ Sales $2,059.6 $1,550.1 $2,256.5 $3,060.1 $1,084.4 $765.0 $892.6 $1,590.3 Gross profit 254.2 216.7 237.0 246.4 249.7 202.4 206.8 253.1 Earnings before extraordinary item and cumulative effect of software accounting change 57.9 20.3 24.9 31.0 37.3 26.3 14.1 28.1 Net income 50.7 20.3 24.9 26.2 37.3 26.3 14.1 28.1 ------------------------------------------------------------------------------------------------------------------------------ Earnings per common share before extraordinary item and cumulative effect of software accounting change: Basic (a)(b) $1.08 $.38 $.46 $.58 $.80 $.55 $.29 $.56 Diluted (a)(b) 1.07 .38 .46 .58 .79 .55 .29 .56 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------ Cash dividend per common share $.44 $.44 $.44 $.44 $.44 $.44 $.44 $.44 Market price per common share: High $28.25 $29.38 $30.88 $39.06 $30.25 $29.13 $29.13 $27.25 Low 25.50 25.75 29.00 30.13 28.25 25.75 26.50 26.38 ------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------
(a) RESTATED FOR ACCOUNTING CHANGE RELATED TO EARNINGS PER SHARE. SEE NOTE 1. (b) THE SUM OF THE QUARTERLY EARNINGS PER SHARE AMOUNTS DIFFERS FROM THAT REFLECTED IN NOTE 1 DUE TO THE WEIGHTING OF COMMON SHARES OUTSTANDING DURING EACH OF THE RESPECTIVE PERIODS. - -------------------------------------------------------------------------------- REPORT OF MANAGEMENT The management of UtiliCorp United Inc. is responsible for the information that appears in this annual report, including its accuracy. The accompanying Consolidated Financial Statements were prepared in accordance with generally accepted accounting principles. In addition to selecting appropriate accounting principles, management is responsible for the manner of presentation and for the reliability of the information. In fulfilling this responsibility, it is necessary for management to make estimates based on currently available information and judgments of current conditions and circumstances. Through well-developed systems of internal control, management seeks to assure the integrity and objectivity of the consolidated financial information contained herein. These systems of internal control are designed to provide reasonable assurance that the assets of the company are safeguarded and that the transactions are executed to management's authorizations, and are recorded in accordance with the appropriate accounting principles. The Board of Directors participates in the financial information reporting process through its Audit Committee, which selects the independent accountants and reviews, along with management, the company's financial reporting and internal accounting controls, policies and practices. /s/ Richard C. Green, Jr. /s/ James S. Brook Richard C. Green, Jr. James S. Brook Chairman of the Board Vice President, Controller and Chief Executive Officer and Chief Accounting Officer 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, 1997 and 1996 and the related consolidated statements of income, common shareowners' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of UtiliCorp United Inc. and subsidiaries at December 31, 1997 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. As explained in Note 4 to the consolidated financial statements, effective October 1, 1997, the company changed its method of accounting for internally developed software costs. As explained in Note 1 and Note 5 to the consolidated financial statements, effective January 1, 1995, the company changed its method of accounting for price risk management activities, and its method of assessing the impairment of long-lived assets, respectively. /s/ Arthur Andersen LLP Arthur Andersen LLP Kansas City, Missouri February 3, 1998 EX-10.(A)(16) 3 EXHIBIT 10(A)(16) UTILICORP UNITED INC. SUPPLEMENTAL CONTRIBUTORY RETIREMENT PLAN EFFECTIVE AS OF JANUARY 1, 1998 UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE ---- Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE I Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 2 Selection, Enrollment, Eligibility . . . . . . . . . . . . . . . . 8 2.1 Selection by Committee. . . . . . . . . . . . . . . . . . . . . . . 8 2.2 Enrollment Requirements.. . . . . . . . . . . . . . . . . . . . . . 8 2.3 Eligibility; Commencement of Participation. . . . . . . . . . . . . 8 2.4 Termination of Participation and/or Deferrals.. . . . . . . . . . . 8 ARTICLE 3 Deferral Commitments/Company Matching/Crediting/Taxes. . . . . . . 8 3.1 Annual Deferral Amounts . . . . . . . . . . . . . . . . . . . . . . 8 3.2 Election to Defer; Effect of Election Form . . . . . . . . . . . . 9 3.3 Withholding of Annual Deferral Amounts. . . . . . . . . . . . . . . 9 3.4 Company Matching Amount . . . . . . . . . . . . . . . . . . . . . . 9 3.5 Investment of Trust Assets. . . . . . . . . . . . . . . . . . . . . 9 3.6 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.7 Crediting/Debiting of Account Balances. . . . . . . . . . . . . . . 10 3.8 FICA and Other Taxes. . . . . . . . . . . . . . . . . . . . . . . . 12 3.9 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 4 Unforeseeable Financial Emergencies; Withdrawal Election . . . . . 12 4.1 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.2 Withdrawal Election . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 5 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . 13 5.1 Retirement Benefit. . . . . . . . . . . . . . . . . . . . . . . . . 13 2.1 Payment of Retirement Benefit . . . . . . . . . . . . . . . . . . . 13 5.3 Death Prior to Completion of Retirement Benefit . . . . . . . . . . 13 ARTICLE 6 Pre-Retirement Survivor Benefit. . . . . . . . . . . . . . . . . . 14 6.1 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . . 14 6.2 Payment of Pre-Retirement Survivor Benefit. . . . . . . . . . . . . 14 ARTICLE 7 Termination Benefit. . . . . . . . . . . . . . . . . . . . . . . . 14 7.1 Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . 14 - -------------------------------------------------------------------------------- -i- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7.2 Payment of Termination Benefit. . . . . . . . . . . . . . . . . . . 14 ARTICLE 8 Disability Waiver and Benefit. . . . . . . . . . . . . . . . . . . 15 8.1 Disability Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 15 8.2 Continued Eligibility; Disability Benefit . . . . . . . . . . . . . 15 ARTICLE 9 Beneficiary Designation. . . . . . . . . . . . . . . . . . . . . . 15 9.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9.2 Beneficiary Designation; Change . . . . . . . . . . . . . . . . . . 15 9.3 Acknowledgement . . . . . . . . . . . . . . . . . . . . . . . . . . 16 9.4 No Beneficiary Designation. . . . . . . . . . . . . . . . . . . . . 16 9.5 Doubt as to Beneficiary . . . . . . . . . . . . . . . . . . . . . . 16 9.6 Discharge of Obligations. . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 10 Leave of Absence. . . . . . . . . . . . . . . . . . . . . . . . . 16 10.1 Paid Leave of Absence. . . . . . . . . . . . . . . . . . . . . . . 16 10.2 Unpaid Leave of Absence. . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 11 Termination, Amendment or Modification. . . . . . . . . . . . . . 16 11.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 11.2 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 11.3 Plan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 17 11.4 Effect of Payment. . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE 12 Administration. . . . . . . . . . . . . . . . . . . . . . . . . . 17 12.1 Committee Duties . . . . . . . . . . . . . . . . . . . . . . . . . 17 12.2 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 12.3 Binding Effect of Decisions. . . . . . . . . . . . . . . . . . . . 18 12.4 Indemnity of Committee . . . . . . . . . . . . . . . . . . . . . . 18 12.5 Employer Information . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE 13 Other Benefits and Agreements . . . . . . . . . . . . . . . . . . 18 13.1 Coordination with Other Benefits . . . . . . . . . . . . . . . . . 18 ARTICLE 14 Claims Procedures . . . . . . . . . . . . . . . . . . . . . . . . 18 14.1 Presentation of Claim. . . . . . . . . . . . . . . . . . . . . . . 18 14.2 Notification of Decision . . . . . . . . . . . . . . . . . . . . . 18 14.3 Review of a Denied Claim . . . . . . . . . . . . . . . . . . . . . 19 - -------------------------------------------------------------------------------- -ii- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 14.4 Decision on Review . . . . . . . . . . . . . . . . . . . . . . . . 19 14.5 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 15 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 15.1 Establishment of the Trust . . . . . . . . . . . . . . . . . . . . 19 15.2 Interrelationship of the Plan and the Trust. . . . . . . . . . . . 20 15.3 Distributions From the Trust . . . . . . . . . . . . . . . . . . . 20 ARTICLE 16 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 20 16.1 Status of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 20 16.2 Unsecured General Creditor . . . . . . . . . . . . . . . . . . . . 20 16.3 Employer's Liability . . . . . . . . . . . . . . . . . . . . . . . 20 16.4 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . 20 16.5 Not a Contract of Employment . . . . . . . . . . . . . . . . . . . 20 16.6 Furnishing Information . . . . . . . . . . . . . . . . . . . . . . 20 16.7 Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.10 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.11 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.12 Spouse's Interest . . . . . . . . . . . . . . . . . . . . . . . . 21 16.13 Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.14 Incompetent . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 16.15 Court Order . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 16.16 Distribution in the Event of Taxation . . . . . . . . . . . . . . 22 16.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 16.18 Legal Fees To Enforce Rights After Change in Control. . . . . . . 22
- -------------------------------------------------------------------------------- -iii- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ UTILICORP UNITED INC. SUPPLEMENTAL CONTRIBUTORY RETIREMENT PLAN EFFECTIVE JANUARY 1, 1998 PURPOSE The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated Employees who contribute materially to the continued growth, development and future business success of UtiliCorp United Inc., a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. ARTICLE 1 DEFINITIONS For purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Account Balance" shall mean, with respect to a Participant, a credit on the records of the Employer equal to the sum of (i) the Deferral Account balance and (ii) the vested Company Matching Account balance. The Account Balance, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan. 1.2 "Annual Company Matching Amount" for any one Plan Year shall be the amount determined in accordance with Section 3.4. 1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base Annual Salary that a Participant elects to have, and is deferred, in accordance with Article 3, for any one Plan Year. In the event of a Participant's Retirement, Disability (if deferrals cease in accordance with Section 8.1), death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event. 1.4 "Base Annual Salary" shall mean the annual cash compensation relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, excluding bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, directors fees and other fees, automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee's gross income). Except as otherwise provided in this sentence, Base Annual Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant's gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that (i) all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Employee; and (ii) Base Annual Salary shall be calculated after reduction for compensation voluntarily deferred or contributed by the Participant pursuant to the UtiliCorp United Inc. Capital Accumulation Plan. - ------------------------------------------------------------------------------ -4- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 1.5 "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.6 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.7 "Board" shall mean the board of directors of the Company. 1.8 "Change in Control" shall mean the first to occur of any of the following events: (a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act")) becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 20% or more of the Company's capital stock entitled to vote in the election of directors; (b) During any period of not more than two consecutive years, not including any period prior to the adoption of this Plan, individuals who at the beginning of such period constitute the board of directors of the Company cease for any reason to constitute at least a majority thereof; (c) The shareholders of the Company approve any consolidation or merger of the Company, other than a consolidation or merger of the Company in which the holders of the common stock of the Company immediately prior to the consolidation or merger hold the same proportion of the common stock of the surviving corporation immediately after the consolidation or merger; (d) The shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or (e) The shareholders of the Company approve the sale or transfer of all or substantially all of the assets of the Company (in one transaction or a series of transactions) to parties that are not within a "controlled group of corporations" (as defined in Code Section 1563) in which the Company is a member. 1.9 "Claimant" shall have the meaning set forth in Section 14.1. 1.10 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. 1.11 "Committee" shall mean the committee described in Article 12. 1.12 "Company" shall mean UtiliCorp United Inc., a Delaware corporation, and any successor to all or substantially all of the Company's assets or business. 1.13 "Company Matching Account" shall mean with respect to each Participant, (i) the amount credited to the Participant's "deferred benefit account(s)" as of December 31, 1997, under the terms of the Plan in effect immediately prior to the effective date of this restatement, plus (ii) the sum of all of a Participant's Company Matching Amounts attributable to amounts deferred under this restatement, plus (iii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant's Company Matching Account, less (iv) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Company Matching Account. - ------------------------------------------------------------------------------ -5- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 1.14 "Deduction Limitation" shall mean the following described limitation on a benefit that may otherwise be distributable pursuant to the provisions of this Plan. Except as otherwise provided, this limitation shall be applied to all distributions that are "subject to the Deduction Limitation" under this Plan. If an Employer determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Employer would not be deductible by the Employer solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change in Control is deductible, the Employer may defer all or any portion of a distribution under this Plan. Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Section 3.7 below, even if such amount is being paid out in installments. The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his or her Beneficiary (in the event of the Participant's death) at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Employer during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change in Control. Notwithstanding anything to the contrary in this Plan, the Deduction Limitation shall not apply to any distributions made after a Change in Control. 1.15 "Deferral Account" shall mean with respect to each Participant, (i) the amount credited to the Participant's "deferred benefit account(s)" as of December 31, 1997, under the terms of the Plan in effect immediately prior to the effective date of this restatement, plus (ii) the sum of all of a Participant's Annual Deferral Amounts attributable to amounts deferred under this restatement, plus (iii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant's Deferral Account, less (iv) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account. 1.16 "Disability" shall mean a period of disability during which a Participant qualifies for permanent disability benefits under the Participant's Employer's long-term disability plan, or, if a Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for permanent disability benefits under such a plan had the Participant been a participant in such a plan, as determined in the sole discretion of the Committee. If the Participant's Employer does not sponsor such a plan, or discontinues to sponsor such a plan, Disability shall be determined by the Committee in its sole discretion. 1.17 "Disability Benefit" shall mean the benefit set forth in Article 8. 1.18 "Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.19 "Employee" shall mean a person who is an employee of any Employer. 1.20 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board to participate in the Plan and have adopted the Plan as a sponsor. 1.21 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.22 "401(k) Plan" shall be that certain UtiliCorp United Inc. Retirement Investment Plan, formerly known as the UtiliCorp Restated Savings Plan, adopted by the Company. 1.23 "Maximum 401(k) Amount" with respect to a Participant, shall be the maximum amount of elective contributions that can be made by such Participant, consistent with Code Section 402(g) and the limitations of Code Section 401(k)(3), for a given plan year under the 401(k) Plan. - ------------------------------------------------------------------------------ -6- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 1.24 "Participant" shall mean any Employee (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, (v) who commences participation in the Plan, and (vi) whose Plan Agreement has not terminated. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an account balance under the Plan, even if he or she has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce. 1.25 "Plan" shall mean the Company's Supplemental Contributory Retirement Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may be amended from time to time. 1.26 "Plan Agreement" shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant and the Participant's Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all previous Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant. 1.27 "Plan Year" shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year. 1.28 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in Article 6. 1.29 "Quarterly Installment Method" shall be a quarterly installment payment over the number of calendar quarters selected by the Participant in accordance with this Plan, calculated as follows: For purposes of determining the initial amount of quarterly installments, the Account Balance of the Participant shall be calculated as of the close of business on the last business day of the calendar quarter during which the Participant terminates employment due to Retirement or death , or the Plan is terminated. The amount of the quarterly installments shall be redetermined effective as of January 1 of each year by dividing the Participant's remaining Account Balance by the remaining number of installment payments. In no event shall any quarterly installment exceed the Participant's Account Balance at the time of distribution. 1.30 "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an Employee, severance from employment from all Employers for any reason other than a leave of absence, death or Disability on or after the attainment of age fifty-five (55). 1.31 "Retirement Benefit" shall mean the benefit set forth in Article 5. 1.32 "Termination Benefit" shall mean the benefit set forth in Article 7. 1.33 "Termination of Employment" shall mean the severing of employment with all Employers, voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence. 1.34 "Trust" shall mean one or more trusts established pursuant to that certain Executive Benefit Security Trust Agreement, dated as of January 1, 1997 between the Company and the trustee named therein, as amended from time to time. - ------------------------------------------------------------------------------ -7- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 1.35 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. 1.36 "Years of Service" for a Participant shall mean the total number of full years of "Vesting Service" a Participant has earned under the terms of the 401(k) Plan. ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY 2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a select group of management and highly compensated Employees of the Employers, as determined by the Committee in its sole discretion. From that group, the Committee shall select, in its sole discretion, Employees to participate in the Plan. 2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected Employee shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form, all within 30 days after he or she is selected to participate in the Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary. 2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period, that Employee shall commence participation in the Plan on the first day of the month following the month in which the Employee completes all enrollment requirements. If an Employee fails to meet all such requirements within the period required, in accordance with Section 2.2, that Employee shall not be eligible to participate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee of the required documents. 2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to (i) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant's membership status changes, (ii) prevent the Participant from making future deferral elections and/or (iii) immediately distribute the Participant's then Account Balance as a Termination Benefit and terminate the Participant's participation in the Plan. ARTICLE 3 DEFERRAL COMMITMENTS/COMPANY MATCHING/CREDITING/TAXES 3.1 ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Annual Deferral Amount for a Participant shall be equal to: (A x B) - C, where: A = the Participant's Base Annual Salary for the Plan Year - ------------------------------------------------------------------------------ -8- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ B = the contribution percentage elected by the Participant under the 401(k) Plan in effect as of the first day of the deferral period C = the Participant's Maximum 401(k) Amount for the Plan Year. Notwithstanding the foregoing, the minimum deferral for any Plan Year shall be $1,000 and no amount shall be credited to a Participant's Deferral Account under this Plan for a Plan Year until such Participant has contributed the Maximum 401(k) Amount to the 401(k) Plan. 3.2 ELECTION TO DEFER; EFFECT OF ELECTION FORM. (a) FIRST PLAN YEAR. In connection with a Participant's commencement of participation in the Plan, the Participant shall make an irrevocable deferral election for the Plan Year in which the Participant commences participation in the Plan, along with such other elections as the Committee deems necessary or desirable under the Plan. For these elections to be valid, the Election Form must be completed and signed by the Participant, timely delivered to the Committee (in accordance with Section 2.2 above) and accepted by the Committee. (b) SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an irrevocable deferral election for that Plan Year, and such other elections as the Committee deems necessary or desirable under the Plan, shall be made by timely delivering to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made, a new Election Form. If no such Election Form is timely delivered for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year. 3.3 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS For each Plan Year, the Annual Deferral Amount for a Participant shall be withheld from each regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Annual Salary; provided, however, that no such amount shall be withheld until the Participant has contributed the Maximum 401(k) Amount to the 401(k) Plan for such Plan Year. 3.4 COMPANY MATCHING AMOUNT. A Participant's Company Matching Amount for any Plan Year shall be equal to one hundred percent (100%) of the Participant's Annual Deferral Amount for such Plan Year, up to an amount that does not exceed six percent (6%) of the Participant's Base Annual Salary, reduced by the amount of any matching contributions made to the 401(k) Plan on his or her behalf for the plan year of the 401(k) Plan that corresponds to the Plan Year. Company Matching Contributions shall be credited to Participant's Company Matching Accounts at the same time Company Matching Contributions would have been made under the 401(k) Plan. 3.5 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall be authorized, upon written instructions received from the Committee or investment manager appointed by the Committee, to invest and reinvest the assets of the Trust in accordance with the applicable Trust Agreement, including the disposition of stock and reinvestment of the proceeds in one or more investment vehicles designated by the Committee. 3.6 VESTING. (a) A Participant shall at all times be 100% vested in his or her Deferral Account. (b) A Participant shall be vested in his or her Company Matching Account as follows: (i) with respect to all benefits under this Plan other than the Termination Benefit, a Participant's vested Company Matching Account shall equal 100% of such Participant's Company Matching Account; and (ii) with respect to the Termination Benefit, a Participant's Company Matching Account shall vest on the basis of the Participant's - ------------------------------------------------------------------------------ -9- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Years of Service at the time the Participant experiences a Termination of Employment, in accordance with the following schedule:
--------------------------------------------------------- YEARS OF SERVICE AT DATE OF VESTED PERCENTAGE OF TERMINATION OF EMPLOYMENT COMPANY MATCHING ACCOUNT --------------------------------------------------------- Less than 1 year 0% --------------------------------------------------------- 1 year or more, but less than 2 20% --------------------------------------------------------- 2 years or more, but less than 3 40% --------------------------------------------------------- 3 years or more, but less than 4 60% --------------------------------------------------------- 4 years or more, but less than 5 80% --------------------------------------------------------- 5 years or more 100% ---------------------------------------------------------
(c) Notwithstanding anything to the contrary contained in this Section 3.6, in the event of a Change in Control, a Participant's Company Matching Account shall immediately become 100% vested (if it is not already vested in accordance with the above vesting schedules). (d) Notwithstanding subsection (c), the vesting schedule for a Participant's Company Matching Account shall not be accelerated to the extent that the Committee determines that such acceleration would cause the deduction limitations of Section 280G of the Code to become effective. In the event that all of a Participant's Company Matching Account is not vested pursuant to such a determination, the Participant may request independent verification of the Committee's calculations with respect to the application of Section 280G. In such case, the Committee must provide to the Participant within 15 business days of such a request an opinion from a nationally recognized accounting firm selected by the Participant (the "Accounting Firm"). The opinion shall state the Accounting Firm's opinion that any limitation in the vested percentage hereunder is necessary to avoid the limits of Section 280G and contain supporting calculations. The cost of such opinion shall be paid for by the Company. 3.7 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant's Account Balance in accordance with the following rules: (a) ELECTION OF MEASUREMENT FUNDS FOR DEFERRAL ACCOUNT BALANCE. Except as provided in Section 3.7(f) or otherwise provided below, a Participant, in connection with his or her initial deferral election in accordance with Section 3.2(a) above, shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 3.7(c) below) to be used to determine the additional amounts to be credited to his or her Deferral Account balance for the first calendar quarter or portion thereof in which the Participant commences participation in the Plan and continuing thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, unless changed in accordance with the next sentence. Commencing with the first calendar quarter that follows the Participant's commencement of participation in the Plan and continuing thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, no later than the next to last business day of the calendar quarter, the Participant may (but is not required to) elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Fund(s) to be used to determine the additional amounts to be credited to his or her Deferral Account balance, or to change the percentage of his or her Deferral Account balance allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply to the next calendar quarter and continue thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. - ------------------------------------------------------------------------------ -10- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (b) PROPORTIONATE ALLOCATION. In making any election described in Section 3.7(a) above, the Participant shall specify on the Election Form, in increments of one percentage point (1%), the percentage of his or her Deferral Account balance to be allocated to a Measurement Fund (as if the Participant was making an investment in that Measurement Fund with that portion of his or her Deferral Account balance). (c) MEASUREMENT FUNDS. Except as otherwise provided in Section 3.7(f) below, the Participant may elect one or more of the following measurement funds, based on certain mutual funds (the "Measurement Funds"), for the purpose of crediting additional amounts to his or her Account Balance: (1) Neuberger & Berman Low Duration Portfolio (described as a mutual fund seeking current income and, secondarily, long-term growth of capital, primarily through investments in fixed income securities with a duration of less than 3 years); (2) Brinson Partners U.S. Equity Fund (described as a mutual fund which seeks long-term growth of capital through investments in large capitalization stocks in the United States); (3) Provident Investment Counsel Small-Cap Equity Growth Portfolio (described as a mutual fund which seeks long-term growth of capital and income primarily through investments in small capitalization common stocks with perceived above average earnings growth potential); (4) Morgan Stanley International Equity Fund (described as a mutual fund which seeks long-term growth of capital by investing in companies outside of the United States); and (5) Company Stock Fund (described as a fund invested in UtiliCorp United Inc. common stock). As necessary, the Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund. Each such action will take effect as of the first day of the calendar quarter that follows by thirty (30) days the day on which the Committee gives Participants advance written notice of such change. (d) CREDITING OR DEBITING METHOD. The performance of each elected Measurement Fund (either positive or negative) will be determined by the Committee, in its sole discretion, based on the performance of the Measurement Funds themselves. A Participant's Account Balance shall be credited or debited on a daily basis based on the performance of each Measurement Fund selected by the Participant, AS DETERMINED BY THE COMMITTEE IN ITS SOLE DISCRETION, as though (i) a Participant's Deferral Account balance were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, as of the close of business on the first business day of such calendar quarter, at the closing price on such date; (ii) a Participant's Company Matching Account balance were invested in the Company Stock Fund, as of the close of business on the first business day of such calendar quarter, at the closing price on such date; (iii) the portion of the Annual Deferral Amount that was actually deferred during any calendar quarter were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, no later than the close of business on the last business day of the calendar quarter in which such amounts are actually deferred from the Participant's Base Annual Salary through reductions in his or her payroll, at the closing price on such date; and (iv) any distribution made to a Participant that decreases such Participant's Account Balance ceased being invested in the Measurement Fund(s), in the percentages applicable to such calendar quarter, no earlier than the first business day of the calendar quarter of the distribution, at the closing price on such date. The - ------------------------------------------------------------------------------ -11- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Participant's Annual Company Matching Amount shall be credited, in whole or in part, to his or her Company Matching Account for purposes of this Section 3.7(d) at such time(s) such Amount would have been credited to the 401(k) Plan, had such Amount been credited as a matching contribution to the 401(k) Plan. (e) NO ACTUAL INVESTMENT. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant's election of any such Measurement Fund, the allocation to his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance SHALL NOT be considered or construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the trustee of the Trust, in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company. (f) INVESTMENT OF COMPANY MATCHING AMOUNTS. Notwithstanding any other provisions of this Plan that may be interpreted to the contrary, the Participant's Company Matching Amounts shall be deemed invested in the Company Stock Fund at all times such amounts are credited to his or her Account Balance. 3.8 FICA AND OTHER TAXES. (a) ANNUAL DEFERRAL AMOUNTS. For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Participant's Employer(s) shall withhold from that portion of the Participant's Base Annual Salary that is not being deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes on such Annual Deferral Amount and Plan earnings, as applicable. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.8. (b) COMPANY MATCHING AMOUNTS. When a participant becomes vested in a portion of his or her Company Matching Account, the Participant's Employer(s), to the extent required by applicable law, shall withhold from the Participant's Base Annual Salary that is not deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes. If necessary, the Committee may reduce the vested portion of the Participant's Company Matching Account in order to comply with this Section 3.8, which reduction may subject the Participant to additional taxes. 3.9 DISTRIBUTIONS. The Participant's Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust. ARTICLE 4 UFORESEEABLE FNANCIAL EMERGENCIES; WITHDRAWAL ELECTION 4.1 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. If a Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to - ------------------------------------------------------------------------------ -12- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ be made by the Participant and/or (ii) receive a partial or full payout from the Plan. The payout shall not exceed the lesser of the Participant's Account Balance, calculated as if such Participant were receiving a Termination Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If, subject to the sole discretion of the Committee, the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. The payment of any amount under this Section 4.1 shall not be subject to the Deduction Limitation. 4.2 WITHDRAWAL ELECTION. A Participant (or, after a Participant's death, his or her Beneficiary) may elect, at any time, to withdraw all of his or her Account Balance, calculated as if there had occurred a Termination of Employment as of the day of the election, less a withdrawal penalty equal to 10% of such amount (the net amount shall be referred to as the "Withdrawal Amount"). This election can be made at any time, before or after Retirement, Disability, death or Termination of Employment, and whether or not the Participant (or Beneficiary) is in the process of being paid pursuant to an installment payment schedule. If made before Retirement, Disability or death, a Participant's Withdrawal Amount shall be his or her Account Balance calculated as if there had occurred a Termination of Employment as of the day of the election. No partial withdrawals of the Withdrawal Amount shall be allowed. The Participant (or his or her Beneficiary) shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant (or his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days of his or her election. Once the Withdrawal Amount is paid, the Participant's participation in the Plan shall terminate and the Participant shall not be eligible to participate in the Plan for eighteen (18) months in the future. The payment of this Withdrawal Amount shall not be subject to the Deduction Limitation. ARTICLE 5 RETIREMENT BENEFIT 5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant who Retires shall receive, as a Retirement Benefit, his or her Account Balance. 5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or pursuant to a Quarterly Installment Method over 2 to 15 years. The Participant may annually change his or her election to an allowable alternative payout period by submitting a new Election Form to the Committee, provided that any such Election Form is submitted at least 3 years prior to the Participant's Retirement and is accepted by the Committee in its sole discretion. In the event that a Participant Retires before his or her attainment of age 62, the Participant may file a written request with the Committee requesting that the lump sum payment not be made, or installment payments not commence, until after the Participant reaches age sixty-five (65), provided that any such Election Form is submitted at least 13 months prior to the Participant's Retirement date and is accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the payment of the Retirement Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Participant Retires. Any payment made shall be subject to the Deduction Limitation. 5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies after Retirement but before the Retirement Benefit is paid in full, the Participant's unpaid Retirement Benefit payments shall continue and shall be paid to the Participant's Beneficiary (a) over the remaining number of quarters and in the same amounts as that benefit would have been paid to the Participant had the Participant survived, or (b) in a lump sum, if requested - ------------------------------------------------------------------------------ -13- UTILICORP UNITED, INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ by the Beneficiary and allowed in the sole discretion of the Committee, that is equal to the Participant's unpaid remaining Account Balance. ARTICLE 6 PRE-RETIREMENT SURVIVOR BENEFIT 6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation, the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance if the Participant dies before he or she Retires, experiences a Termination of Employment or suffers a Disability. 6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form whether the Pre-Retirement Survivor Benefit shall be received by his or her Beneficiary in a lump sum or pursuant to a Quarterly Installment Method over 2 to 15 years. The Participant may annually change this election to an allowable alternative payout period by submitting a new Election Form to the Committee, which form must be accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee prior to the Participant's death shall govern the payout of the Participant's Pre-Retirement Survivor Benefit. If a Participant does not make any election with respect to the payment of the Pre-Retirement Survivor Benefit, then such benefit shall be paid in a lump sum. Despite the foregoing, if the Participant's Account Balance at the time of his or her death is less than $25,000, payment of the Pre-Retirement Survivor Benefit may be made, in the sole discretion of the Committee, in a lump sum or pursuant to a Quarterly Installment Method over not more than 5 years. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Committee is provided with proof that is satisfactory to the Committee of the Participant's death. Any payment made shall be subject to the Deduction Limitation. ARTICLE 7 TERMINATION BENEFIT 7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the Participant shall receive a Termination Benefit, which shall be equal to the Participant's Account Balance if a Participant experiences a Termination of Employment prior to his or her Retirement, death or Disability. 7.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall be paid in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date of the Participant's Termination of Employment. Any payment made shall be subject to the Deduction Limitation. - ------------------------------------------------------------------------------ -14- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE 8 DISABILITY WAIVER AND BENEFIT 8.1 DISABILITY WAIVER. (a) WAIVER OF DEFERRAL. A Participant who is determined by the Committee to be suffering from a Disability shall be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from a Participant's Base Annual Salary for the Plan Year during which the Participant first suffers a Disability. During the period of Disability, the Participant shall not be allowed to make any additional deferral elections, but will continue to be considered a Participant for all other purposes of this Plan. (b) RETURN TO WORK. If a Participant returns to employment with an Employer, after a Disability ceases, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment or service and for every Plan Year thereafter while a Participant in the Plan; provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.2 above. 8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a Disability shall, for benefit purposes under this Plan, continue to be considered to be employed, or in the service of an Employer and shall be eligible for the benefits provided for in Article 4, 5, 6 or 7 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right to, in its sole and absolute discretion and for purposes of this Plan only, and must in the case of a Participant who is otherwise eligible to Retire, deem the Participant to have experienced a Termination of Employment, or in the case of a Participant who is eligible to Retire, to have Retired, at any time (or in the case of a Participant who is eligible to Retire, as soon as practicable) after such Participant is determined to be suffering a Disability, in which case the Participant shall receive a Disability Benefit equal to his or her Account Balance at the time of the Committee's determination; provided, however, that should the Participant otherwise have been eligible to Retire, he or she shall be paid in accordance with Article 5. The Disability Benefit shall be paid in a lump sum within 60 days of the Committee's exercise of such right. Any payment made shall be subject to the Deduction Limitation. ARTICLE 9 BENEFICIARY DESIGNATION 9.1 BENEFICIARY. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates. 9.2 BENEFICIARY DESIGNATION; CHANGE. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. - ------------------------------------------------------------------------------- -15- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 9.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Committee or its designated agent. 9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. 9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to the Committee's satisfaction. 9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Plan Agreement shall terminate upon such full payment of benefits. ARTICLE 10 LEAVE OF ABSENCE 10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the Participant's Employer for any reason to take a paid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.3. 10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the Participant's Employer for any reason to take an unpaid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Participant shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral shall be withheld. ARTICLE 11 TERMINATION, AMENDMENT OR MODIFICATION 11.1 TERMINATION. Although each Employer anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that any Employer will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, each Employer reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees by action of its board of directors. Upon the termination of the Plan with respect to any Employer, the Plan Agreements of the affected Participants who are employed by that Employer shall terminate and their Account Balances, - ------------------------------------------------------------------------------- -16- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- determined as if they had experienced a Termination of Employment on the date of Plan termination or, if Plan termination occurs after the date upon which a Participant was eligible to Retire, then with respect to that Participant as if he or she had Retired on the date of Plan termination, shall be paid to the Participants as follows: Prior to a Change in Control, if the Plan is terminated with respect to all of its Participants, an Employer shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or pursuant to a Quarterly Installment Method of up to 15 years, with amounts credited and debited during the installment period as provided herein. If the Plan is terminated with respect to less than all of its Participants, an Employer shall be required to pay such benefits in a lump sum. After a Change in Control, the Employer shall be required to pay such benefits in a lump sum. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided however, that the Employer shall have the right to accelerate installment payments without a premium or prepayment penalty by paying the Account Balance in a lump sum or pursuant to a Quarterly Installment Method using fewer quarters (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in whole or in part with respect to that Employer by the action of its board of directors; provided, however, that no amendment or modification shall be effective to decrease or restrict the value of a Participant's Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying the Account Balance in a lump sum or pursuant to a Quarterly Installment Method using fewer quarters (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2 above, if a Participant's Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer may only amend or terminate such provisions with the consent of the Participant. 11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit under Article 4, 5, 6, 7 or 8 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant's Plan Agreement shall terminate. ARTICLE 12 ADMINISTRATION 12.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee which shall consist of the Board, or such committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including - ------------------------------------------------------------------------------- -17- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company. 12.2 AGENTS. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 12.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless the members of the Committee, and any Employee to whom the duties of the Committee may be delegated, against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members or any such Employee. 12.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee may reasonably require. ARTICLE 13 OTHER BENEFITS AND AGREEMENTS 13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. ARTICLE 14 CLAIMS PROCEDURES 14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim within 90 days (unless special circumstances require additional time) a reasonable time, and shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or - ------------------------------------------------------------------------------- -18- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part of it; (ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and (iv) an explanation of the claim review procedure set forth in Section 14.3 below. 14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): (a) may review pertinent documents; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 14.4 DECISION ON REVIEW. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and (c) such other matters as the Committee deems relevant. 14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of this Article 14 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 15 TRUST 15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and each Employer shall at least annually transfer over to the Trust such assets as the Employer determines, in its sole discretion, are necessary to provide, on a present value basis, for its respective future liabilities created with respect to the Annual Deferral Amounts and Company Matching Amounts for such Employer's Participants for all periods prior to the transfer, as well as any debits and credits to the Participants' Account Balances for all periods prior to the transfer, taking into consideration the value of the assets in the trust at the time of the transfer. - ------------------------------------------------------------------------------- -19- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan. 15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer's obligations under this Plan. ARTICLE 16 MISCELLANEOUS 16.1 STATUS OF PLAN. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that "is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employee" within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent. 16.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer's assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 16.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement. 16.4 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise. 16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer as an Employee or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 16.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate - ------------------------------------------------------------------------------- -20- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 16.7 TERMS. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 16.8 CAPTIONS. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Missouri without regard to its conflicts of laws principles. 16.10 NOTICE. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: Mr. Phil Beyer Director of Benefits UtiliCorp United Inc. 20 West Ninth Street Kansas City, MO 64105-1711 ------------------------------------- Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 16.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer and its successors and assigns and the Participant and the Participant's designated Beneficiaries. 16.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 16.13 VALIDITY. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 16.14 INCOMPETENT. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. - ------------------------------------------------------------------------------- -21- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 16.15 COURT ORDER. The Committee is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. In addition, if a court determines that a spouse or former spouse of a Participant has an interest in the Participant's benefits under the Plan in connection with a property settlement or otherwise, the Committee, in its sole discretion, shall have the right, notwithstanding any election made by a Participant, to immediately distribute the spouse's or former spouse's interest in the Participant's benefits under the Plan to that spouse or former spouse. 16.16 DISTRIBUTION IN THE EVENT OF TAXATION. (a) IN GENERAL. If, for any reason, all or any portion of a Participant's benefits under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee before a Change in Control, or the trustee of the Trust after a Change in Control, for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld (and, after a Change in Control, shall be granted), a Participant's Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's unpaid Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. (b) TRUST. If the Trust terminates in accordance with its terms and benefits are distributed from the Trust to a Participant in accordance with that Section, the Participant's benefits under this Plan shall be reduced to the extent of such distributions. 16.17 INSURANCE. The Employers, on their own behalf or on behalf of the trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Employers or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance. 16.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company and each Employer is aware that upon the occurrence of a Change in Control, the Board or the board of directors of a Participant's Employer (which might then be composed of new members) or a shareholder of the Company or the Participant's Employer, or of any successor corporation might then cause or attempt to cause the Company, the Participant's Employer or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company or the Participant's Employer to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change in Control, it should appear to any Participant that the Company, the Participant's Employer or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company, such Employer or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company and the Participant's Employer irrevocably authorize such Participant to retain counsel of his or her choice at the expense of the Company and the Participant's Employer (who shall be jointly and severally liable) to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, the Participant's Employer or any director, officer, shareholder or other person affiliated with the Company, the Participant's Employer or any successor thereto in any jurisdiction. - ------------------------------------------------------------------------------- -22- UTILICORP UNITED INC. Supplemental Contributory Retirement Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EX-10.(A)(17) 4 EXHIBIT 10(A)(17) UTILICORP UNITED INC. CAPITAL ACCUMULATION PLAN EFFECTIVE AS OF JANUARY 1, 1998 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UTILICORP UNITED INC. CAPITAL ACCUMULATION PLAN EFFECTIVE AS OF JANUARY 1, 1998 PURPOSE The purpose of this Plan is to provide specified benefits to (i) a select group of management and highly compensated Employees who contribute materially to the continued growth, development and future business success of UtiliCorp United Inc., a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan, and (ii) Directors of UtiliCorp United Inc. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. ARTICLE 1 DEFINITIONS For purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Account Balance" shall mean, with respect to a Participant, a credit on the records of the Employer equal to the Deferral Account balance. The Account Balance, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan. 1.2 "Annual Bonus" shall mean, with respect to each Participant who is an Employee, any cash compensation payable to such Participant during a Plan Year in excess of Base Annual Salary under any Employer's bonus, long-term or annual cash incentive plans, excluding stock options. 1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base Annual Salary and Annual Bonus, if any, that a Participant elects to have, and is deferred, in accordance with Article 3, for any one Plan Year. In the event of a Participant's Retirement, Disability (if deferrals cease in accordance with Section 8.1), death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event. 1.4 "Base Annual Pay" shall mean the (i) with respect to any Participant who is a Director, any annual retainer, meeting fees, and committee fees payable in cash to the Director for serving on the Board or any committee thereof, but does not include reimbursable expenses or any bonuses or incentive awards, and (ii) with respect to any Participant who is an Employee, annual cash compensation relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, excluding bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, directors fees and other fees, automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee's gross income). Base Annual Pay shall be calculated before reduction for compensation voluntarily deferred or contributed UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- by the Participant pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant's gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Participant. 1.5 "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.6 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.7 "Board" shall mean the board of directors of the Company. 1.8 "Bonus Rate" shall mean, for that portion of a Participant's Account Balance allocated to the Moody's Bond Index Measurement Fund, for each Plan Year, a crediting or debiting rate, stated as an annual rate, equal to 30% of the performance of the Moody's Bond Index Measurement Fund itself, in accordance with Section 3.6. 1.9 "Change in Control" shall mean the first to occur of any of the following events: (a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act")) becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 20% or more of the Company's capital stock entitled to vote in the election of directors; (b) During any period of not more than two consecutive years, not including any period prior to the adoption of this Plan, individuals who at the beginning of such period constitute the board of directors of the Company cease for any reason to constitute at least a majority thereof; (c) The shareholders of the Company approve any consolidation or merger of the Company, other than a consolidation or merger of the Company in which the holders of the common stock of the Company immediately prior to the consolidation or merger hold the same proportion of the common stock of the surviving corporation immediately after the consolidation or merger; (d) The shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or (e) The shareholders of the Company approve the sale or transfer of all or substantially all of the assets of the Company (in one transaction or a series of related transactions) to parties that are not within a "controlled group of corporations" (as defined in Code Section 1563) in which the Company is a member. 2 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1.10 "Claimant" shall have the meaning set forth in Section 14.1. 1.11 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. 1.12 "Committee" shall mean the committee described in Article 12. 1.13 "Company" shall mean UtiliCorp United Inc., a Delaware corporation, and any successor to all or substantially all of the Company's assets or business. 1.14 "Crediting Rate" shall mean, for amounts deemed invested in each Measurement Fund for each Plan Year, a crediting or debiting rate, equal to the performance of such Measurement Fund, in accordance with Section 3.6. 1.15 "Deduction Limitation" shall mean the following described limitation on a benefit that may otherwise be distributable pursuant to the provisions of this Plan. Except as otherwise provided, this limitation shall be applied to all distributions that are "subject to the Deduction Limitation" under this Plan. If an Employer determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Employer would not be deductible by the Employer solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change in Control is deductible, the Employer may defer all or any portion of a distribution under this Plan. Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Section 3.6 below, even if such amount is being paid out in installments. The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his or her Beneficiary (in the event of the Participant's death) at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Employer during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change in Control. Notwithstanding anything to the contrary in this Plan, the Deduction Limitation shall not apply to any distributions made after a Change in Control. 1.16 "Deferral Account" shall mean with respect to each Participant, (i) the amount credited to the Participant's "deferred benefit account" as of December 31, 1997, under the terms of the Plan in effect immediately prior to the effective date of this restatement, plus (ii) the Participant's Annual Deferral Amounts deferred under this restatement, plus (iii) amounts credited or debited in accordance with all the applicable crediting/debiting provisions of this Plan that relate to the Participant's Deferral Account, less (iv) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account. 1.17 "Director" means a member of the Board who is neither an officer nor an Employee of any Employer. 1.18 "Disability" shall mean a period of disability during which a Participant qualifies for permanent disability benefits under the Participant's Employer's long-term disability plan, or, 3 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- if a Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for permanent disability benefits under such a plan had the Participant been a participant in such a plan, as determined in the sole discretion of the Committee. If the Participant's Employer does not sponsor such a plan, or discontinues to sponsor such a plan, Disability shall be determined by the Committee in its sole discretion. 1.19 "Disability Benefit" shall mean the benefit set forth in Article 8. 1.20 "Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.21 "Employee" shall mean a person who is an employee of any Employer. 1.22 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board to participate in the Plan and have adopted the Plan as a sponsor. 1.23 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.24 "Moody's Account Balance" shall mean, after the commencement of the Quarterly Installment Method, the portion of the Account Balance allocated to the Moody's Bond Index Measurement Fund. 1.25 "Non-Moody's Account Balance" shall mean, after the commencement of the Quarterly Installment Method, the portion of the Account Balance allocated to any Measurement Fund other than the Moody's Bond Index Measurement Fund. 1.26 "Participant" shall mean any Employee or Director (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, (v) who commences participation in the Plan, and (vi) whose Plan Agreement has not terminated. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an account balance under the Plan, even if he or she has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce. 1.27 "Plan" shall mean the Company's Capital Accumulation Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may be amended from time to time. 1.28 "Plan Agreement" shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant and the Participant's Employer shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all previous Plan Agreements in their entirety and shall govern such entitlement. 4 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant. 1.29 "Plan Year" shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year. 1.30 "Preferred Rate" shall mean, for amounts (i) allocated to the Moody's Bond Index Measurement Fund and (ii) never reallocated to any other Measurement Fund in accordance with Section 3.6, a crediting or debiting rate for each Plan Year that is the sum of the Crediting Rate and the Bonus Rate for that Plan Year. 1.31 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in Article 6. 1.32 "Quarterly Installment Method" shall be a quarterly installment payment over the number of calendar quarters selected by the Participant in accordance with this Plan, calculated as follows: For purposes of determining the initial amount of quarterly installments, the Moody's Account Balance and the Non-Moody's Account Balance of the Participant shall be calculated as of the close of business on the last business day of the calendar quarter during which the Participant terminates employment due to Retirement or death, or the Plan is terminated. The amount of the quarterly installments with respect to the Moody's Account Balance shall be determined as set forth in Section 5.4 or 6.3, as the case may be. The amount of the quarterly installments of the Non-Moody's Account Balance shall be redetermined effective as of January 1 of each year by dividing the Participant's remaining Non-Moody's Account Balance by the remaining number of installment payments. In no event shall any quarterly installment exceed the Participant's Account Balance at the time of distribution. 1.33 "Retirement", "Retire(s)" or "Retired" shall mean (i) with respect to any Participant who is an Employee, severance from employment from all Employers for any reason other than a leave of absence, death or Disability on or after the attainment of age fifty-five (55); and (ii) with respect to any Participant who is a Director, the date on which such Participant ceases to be a director of the Board for any reason other than death. 1.34 "Retirement Benefit" shall mean the benefit set forth in Article 5. 1.35 "Short-Term Payout" shall mean the payout set forth in Section 4.1. 1.36 "Termination Benefit" shall mean the benefit set forth in Article 7. 1.37 "Termination of Employment" shall mean the severing of employment with all Employers, voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence. Despite the foregoing, a Director who ceases to be a director of the Board for any reason other than death shall be deemed to have Retired. 5 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1.38 "Trust" shall mean one or more trusts established pursuant to that certain Executive Benefit Security Trust Agreement, dated as of January 1, 1997 between the Company and the trustee named therein, as amended from time to time. 1.39 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. ARTICLE 2 SELECTION, ENROLLMENT, ELIGIBILITY 2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to (i) a select group of management and highly compensated Employees of the Employers, as determined by the Committee in its sole discretion and (ii) Directors of the Company. From that group, the Committee shall select, in its sole discretion, Employees and Directors to participate in the Plan. 2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected Employee or Director shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form, all within 30 days after he or she is selected to participate in the Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary. 2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee or Director selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period, that Employee or Director shall commence participation in the Plan on the first day of the month following the month in which he completes all enrollment requirements. If an Employee or Director fails to meet all such requirements within the period required, in accordance with Section 2.2, he shall not be eligible to participate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee of the required documents. 2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to (i) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant's membership status changes, (ii) prevent the Participant from making future deferral elections and/or (iii) immediately distribute the Participant's then Account Balance as a Termination Benefit and terminate the Participant's participation in the Plan. 6 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ ARTICLE 3 DEFERRAL COMMITMENTS/CREDITING/TAXES 3.1 DEFERRALS. (a) BASE ANNUAL PAY AND ANNUAL BONUS. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, between 0% and 100% (in 1% increments) of his or her Base Annual Pay and Annual Bonus, in the following minimum dollar amounts for each deferral elected: DEFERRAL MINIMUM AMOUNT -------------------------------------------- Base Annual Pay $5,000 -------------------------------------------- Annual Bonus $5,000 -------------------------------------------- If an election is made for less than stated minimum amounts, or if no election is made, the amount deferred shall be zero. (b) SHORT PLAN YEAR. Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, or in the case of the first Plan Year of the Plan itself, (i) the minimum Base Annual Pay deferral shall be an amount equal to the minimum set forth above, multiplied by a fraction, the numerator of which is the number of complete months remaining in the Plan Year and the denominator of which is 12; and (ii) the maximum Annual Deferral Amount, with respect to Base Annual Pay and Annual Bonus shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits a Plan Agreement and Election Form to the Committee for acceptance. 3.2 ELECTION TO DEFER; EFFECT OF ELECTION FORM. (a) FIRST PLAN YEAR. In connection with a Participant's commencement of participation in the Plan, the Participant shall make an irrevocable deferral election for the Plan Year in which the Participant commences participation in the Plan, along with such other elections as the Committee deems necessary or desirable under the Plan. For these elections to be valid, the Election Form must be completed and signed by the Participant, timely delivered to the Committee (in accordance with Section 2.2 above) and accepted by the Committee. (b) SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an irrevocable deferral election for that Plan Year, and such other elections as the Committee deems necessary or desirable under the Plan, shall be made by timely delivering to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made, a new Election Form. If no such Election Form is timely delivered for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year. 3.3 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Base Annual Pay portion of the Annual Deferral Amount shall be withheld from each regularly scheduled payment date in approximately equal amounts, as adjusted from time to time for increases and decreases in Base Annual Pay. The Annual Bonus portion of the Annual Deferral Amount 7 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ shall be withheld at the time the Annual Bonus is or otherwise would be paid to the Participant. 3.4 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall be authorized, upon written instructions received from the Committee or investment manager appointed by the Committee, to invest and reinvest the assets of the Trust in accordance with the applicable Trust Agreement, including the disposition of stock and reinvestment of the proceeds in one or more investment vehicles designated by the Committee. 3.5 VESTING. A Participant shall at all times be 100% vested in his or her Deferral Account. 3.6 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant's Account Balance in accordance with the following rules: (a) ELECTION OF MEASUREMENT FUNDS. Except as provided in Section 3.6(f) below, a Participant, in connection with his or her initial deferral election in accordance with Section 3.2(a) above, shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 3.6(c) below) to be used to determine the additional amounts to be credited to his or her Account Balance for the first calendar quarter or portion thereof in which the Participant commences participation in the Plan and continuing thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, unless changed in accordance with the next sentence. Except as provided in Section 3.6(f) below, commencing with the first calendar quarter that follows the Participant's commencement of participation in the Plan and continuing thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, no later than the next to last business day of the calendar quarter, the Participant may (but is not required to) elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Fund(s) to be used to determine the additional amounts to be credited to his or her Account Balance, or to change the portion of his or her Account Balance allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply to the next calendar quarter and continue thereafter for each subsequent calendar quarter in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. (b) PROPORTIONATE ALLOCATION. In making any election described in Section 3.6(a) above, the Participant shall specify on the Election Form, in increments of one percentage point (1%), the percentage of his or her Account Balance to be allocated to a Measurement Fund (as if the Participant was making an investment in that Measurement Fund with that portion of his or her Account Balance). (c) MEASUREMENT FUNDS. Except as provided in Section 3.6(f) below, the Participant may elect one or more of the following measurement funds, based on certain mutual funds (the "Measurement Funds"), for the purpose of crediting additional amounts to his or her Account Balance: 8 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (1) Moody's Bond Index Measurement Fund. Amounts deemed invested in the Moody's Bond Index Measurement Fund shall be credited with interest at no less than 100% of the Moody's Crediting Rate. The Moody's Crediting Rate for a Plan Year shall be a fixed rate, stated as an annual rate, determined and announced by the Committee before the Plan Year for which it is to be used that (i) is published in Moody's Bond Record under the heading of "Moody's Corporate Bond Yield Averages -- Av. Corp." and (ii) is equal to the average corporate bond yield calculated for the month of December that immediately precedes the Plan Year for which the rate is to be used; (2) Neuberger & Berman Low Duration Portfolio (described as a mutual fund seeking current income and, secondarily, long-term growth of capital, primarily through investments in fixed income securities with a duration of less than 3 years); (3) Brinson Partners U.S. Equity Fund (described as a mutual fund which seeks long-term growth of capital through investments in large capitalization stocks in the United States); (4) Provident Investment Counsel Small-Cap Equity Growth Portfolio (described as a mutual fund which seeks long-term growth of capital and income primarily through investments in small capitalization common stocks with perceived above average earnings growth potential); (5) Morgan Stanley International Equity Fund (described as a mutual fund which seeks long-term growth of capital by investing in companies outside of the United States); and (6) Company Stock Fund (described as a fund invested in UtiliCorp United Inc. common stock). As necessary, the Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund. Each such action will take effect as of the first day of the calendar quarter that follows by thirty (30) days the day on which the Committee gives Participants advance written notice of such change. (d) CREDITING OR DEBITING METHOD. The performance of each elected Measurement Fund (either positive or negative) will be determined by the Committee, in its sole discretion, based on the performance of the Measurement Funds themselves. A Participant's Account Balance shall be credited or debited on a daily basis based on the performance of each Measurement Fund selected by the Participant, AS DETERMINED BY THE COMMITTEE IN ITS SOLE DISCRETION, as though (i) a Participant's Account Balance were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, as of the close of business on the first business day of such calendar quarter, at the closing price on such date; (ii) the portion of the Annual Deferral Amount that was actually deferred during any calendar quarter were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such calendar quarter, no later than the close of business on the last day of the calendar quarter in which such amounts are actually deferred from the Participant's 9 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Base Annual Pay through reductions in his or her payroll, at the closing price on such date; and (iii) any distribution made to a Participant that decreases such Participant's Account Balance ceased being invested in the Measurement Fund(s), in the percentages applicable to such calendar quarter, no earlier than the first day of the calendar quarter, at the closing price on such date. The rate of interest for crediting or debiting earnings shall be the Crediting Rate, except as otherwise provided in this Plan, which rate shall be treated as the nominal rate for crediting interest. (e) NO ACTUAL INVESTMENT. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant's election of any such Measurement Fund, the allocation to his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance SHALL NOT be considered or construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the trustee of the Trust, in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company. (f) SPECIAL RULE FOR MOODY'S BOND INDEX MEASUREMENT FUND. Notwithstanding the foregoing or any other provision to the contrary in this Plan, (i) the Participant may only elect to change the portion of his or her Account Balance allocated to the Moody's Bond Index Measurement Fund effective as of January 1 of each Plan Year and (ii) the Participant may not elect to change the portion of his or her Account Balance allocated to the Moody's Bond Index Measurement Fund once Quarterly Installment Method payments commence. 3.7 FICA AND OTHER TAXES. For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Participant's Employer(s), to the extent required by applicable law shall withhold from that portion of the Participant's Base Annual Pay and Bonus that is not being deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.7. 3.8 DISTRIBUTIONS. The Participant's Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust. ARTICLE 4 SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION 10 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 4.1 SHORT-TERM PAYOUT. In connection with each election to defer an Annual Deferral Amount, a Participant may irrevocably elect to receive a future "Short-Term Payout" from the Plan with respect to such Annual Deferral Amount. Subject to the Deduction Limitation, the Short-Term Payout shall be a lump sum payment in an amount that is equal to the Annual Deferral Amount plus amounts credited or debited in the manner provided in Section 3.6 above on that amount, determined at the time that the Short-Term Payout becomes payable (rather than the date of a Termination of Employment). Subject to the Deduction Limitation and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out as soon as reasonably practicable (which will normally be within 60 days) after the last day of any Plan Year designated by the Participant that is at least five Plan Years after the Plan Year in which the Annual Deferral Amount is actually deferred. By way of example, if a five year Short-Term Payout is elected for Annual Deferral Amounts that are deferred in the Plan Year commencing January 1, 1998, the five year Short-Term Payout would become payable as soon as reasonably practicable on or after January 1, 2004. For purposes of calculating the Short-Term Payout, the rate of interest for crediting amounts (i) allocated to the Moody's Bond Index Measurement Fund and (ii) never reallocated to any other Measurement Fund shall be the Preferred Rate, which rate shall be treated as the nominal rate for crediting interest. Otherwise, the rate of interest for crediting amounts allocated to the Moody's Bond Index Measurement Fund shall be the Crediting Rate of such Fund (and not the Preferred Rate). 4.2 ELECTION TO DEFER SHORT-TERM PAYOUT. At any time after Short-Term Payout is elected and not less than one (1) year before the first possible date of the Short-Term Payout, the Participant may irrevocably elect to have the Short-Term Payout paid as soon as reasonably practicable (which will normally be within 60 days) after the last day of any Plan Year designated by the Participant that is at least five Plan Years after the first possible date of the Short-Term Payout. 4.3 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM. Should an event occur that triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral Amount, plus amounts credited or debited thereon, that is subject to a Short-Term Payout election under Section 4.1 shall not be paid in accordance with Section 4.1 but shall be paid in accordance with the other applicable Article. 4.4 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES . If a Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to be made by the Participant and/or (ii) receive a partial or full payout from the Plan. The payout shall not exceed the lesser of the Participant's Account Balance, calculated as if such Participant were receiving a 11 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Termination Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If, subject to the sole discretion of the Committee, the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. The payment of any amount under this Section 4.3 shall not be subject to the Deduction Limitation. For purposes of calculating a payout under this Section 4.4, the rate of interest shall be the Crediting Rate, which rate shall be treated as the nominal rate for crediting interest. 4.5 WITHDRAWAL ELECTION. A Participant (or, after a Participant's death, his or her Beneficiary) may elect, at any time, to withdraw all of his or her Account Balance, calculated as if there had occurred a Termination of Employment as of the day of the election, less a withdrawal penalty equal to 10% of such amount (the net amount shall be referred to as the "Withdrawal Amount"). This election can be made at any time, before or after Retirement, Disability, death or Termination of Employment, and whether or not the Participant (or Beneficiary) is in the process of being paid pursuant to an installment payment schedule. If made before Retirement, Disability or death, a Participant's Withdrawal Amount shall be his or her Account Balance calculated as if there had occurred a Termination of Employment as of the day of the election. No partial withdrawals of the Withdrawal Amount shall be allowed. The Participant (or his or her Beneficiary) shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant (or his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days of his or her election. Once the Withdrawal Amount is paid, the Participant's participation in the Plan shall terminate and the Participant shall not be eligible to participate in the Plan for eighteen (18) months in the future. The payment of this Withdrawal Amount shall not be subject to the Deduction Limitation. For purposes of calculating a Withdrawal Amount under this Section 4.5, the rate of interest shall be the Crediting Rate, which rate shall be treated as the nominal rate for crediting interest. ARTICLE 5 RETIREMENT BENEFIT 5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant who Retires shall receive, as a Retirement Benefit, his or her Account Balance. For purposes of calculating the Retirement Benefit, the rate of interest for crediting amounts (i) allocated to the Moody's Bond Index Measurement Fund and (ii) never reallocated to any other Measurement Fund shall be the Preferred Rate, which rate shall be treated as the nominal rate for crediting interest. Otherwise, the rate of interest for crediting amounts allocated to the Moody's Bond Index Measurement Fund shall be the Crediting Rate of such Fund (and not the Preferred Rate). 12 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or pursuant to a Quarterly Installment Method over 2 to 15 years. The Participant may annually change his or her election to an allowable alternative payout period by submitting a new Election Form to the Committee, provided that any such Election Form is submitted at least 3 years prior to the Participant's Retirement and is accepted by the Committee in its sole discretion. In the event that a Participant Retires before his or her attainment of age 62, the Participant may file a written request with the Committee requesting that the lump sum payment not be made, or installment payments not commence, until after the Participant reaches age sixty-five (65), provided that any such Election Form is submitted at least 13 months prior to the Participant's Retirement date and is accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the payment of the Retirement Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Participant Retires. Any payment made shall be subject to the Deduction Limitation. 5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies after Retirement but before the Retirement Benefit is paid in full, the Participant's unpaid Retirement Benefit payments shall continue and shall be paid to the Participant's Beneficiary (a) over the remaining number of quarters and in the same amounts as that benefit would have been paid to the Participant had the Participant survived, or (b) in a lump sum, if requested by the Beneficiary and allowed in the sole discretion of the Committee, that is equal to the Participant's unpaid remaining Account Balance. 5.4 QUARTERLY INSTALLMENT METHOD FOR MOODY'S ACCOUNT BALANCE. Notwithstanding any other provision of this Plan, if the Participant has elected the Quarterly Installment Method as set forth in Section 5.2, amounts in the Moody's Account Balance may not be reallocated into or out of the Moody's Bond Index Measurement Fund once such Quarterly Installment Method payments commence. Payments of the Moody's Account Balance shall be determined by amortizing the Participant's specified benefit over the number of months selected, using the interest rate specified below and treating the first installment payment of the Moody's Account Balance as all principal and each subsequent installment payment of the Moody's Account Balance, first as interest accrued for the applicable installment period on the unpaid Moody's Account Balance and second as a reduction in the unpaid Moody's Account Balance. The interest rate to be used to calculate the installment payment amount with respect to the Moody's Account Balance shall be a fixed interest rate (compounded quarterly) that is determined by averaging the Preferred Rate for the Plan Year in which the 13 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ installment payments commence and the three (3) preceding Plan Years. If a Participant has completed fewer than four (4) Years of Plan Participation, this average shall be determined using the Preferred Rates for the Plan Years during which the Participant participated in the Plan. ARTICLE 6 PRE-RETIREMENT SURVIVOR BENEFIT 6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation, the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance if the Participant dies before he or she Retires, experiences a Termination of Employment or suffers a Disability. For purposes of calculating the Pre-Retirement Survivor Benefit, the rate of interest for crediting amounts (i) allocated to the Moody's Bond Index Measurement Fund and (ii) never reallocated to any other Measurement Fund shall be the Preferred Rate, which rate shall be treated as the nominal rate for crediting interest. Otherwise, the rate of interest for crediting amounts allocated to the Moody's Bond Index Measurement Fund shall be the Crediting Rate of such Fund (and not the Preferred Rate). 6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form whether the Pre-Retirement Survivor Benefit shall be received by his or her Beneficiary in a lump sum or pursuant to a Quarterly Installment Method over 2 to 15 years. The Participant may annually change this election to an allowable alternative payout period by submitting a new Election Form to the Committee, which form must be accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee prior to the Participant's death shall govern the payout of the Participant's Pre-Retirement Survivor Benefit. If a Participant does not make any election with respect to the payment of the Pre-Retirement Survivor Benefit, then such benefit shall be paid in a lump sum. Despite the foregoing, if the Participant's Account Balance at the time of his or her death is less than $25,000, payment of the Pre-Retirement Survivor Benefit may be made, in the sole discretion of the Committee, in a lump sum or pursuant to a Quarterly Installment Method of not more than 5 years. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Committee is provided with proof that is satisfactory to the Committee of the Participant's death. Any payment made shall be subject to the Deduction Limitation. 6.3 QUARTERLY INSTALLMENT METHOD FOR MOODY'S ACCOUNT BALANCE. Notwithstanding any other provision of this Plan, if the Participant or the Committee has elected the Quarterly Installment Method as set forth in Section 6.2, amounts in the Moody's Account Balance 14 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ may not be reallocated into or out of the Moody's Bond Index Measurement Fund once such Quarterly Installment Method payments commence. Payments of the Moody's Account Balance shall be determined by amortizing the Participant's specified benefit over the number of months selected, using the interest rate specified below and treating the first installment payment of the Moody's Account Balance as all principal and each subsequent installment payment of the Moody's Account Balance, first as interest accrued for the applicable installment period on the unpaid Moody's Account Balance and second as a reduction in the unpaid Moody's Account Balance. The interest rate to be used to calculate the installment payment amount with respect to the Moody's Account Balance shall be a fixed interest rate that is determined by averaging the Preferred Rate for the Plan Year in which the installment payments commence and the three (3) preceding Plan Years. If a Participant has completed fewer than four (4) Years of Plan Participation, this average shall be determined using the Preferred Rates for the Plan Years during which the Participant participated in the Plan. ARTICLE 7 TERMINATION BENEFIT 7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the Participant who experiences a Termination of Employment shall receive a Termination Benefit, which shall be equal to the Participant's Account Balance, with earnings credited in the manner provided in Section 3.6 above. For purposes of calculating the Termination Benefit, the rate of interest for crediting shall be the Crediting Rate, except as otherwise provided in this Plan, which rate shall be treated as the nominal rate for crediting interest. 7.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall be paid in a lump sum. The lump sum payment shall be made no later than 60 days after the date of the Participant's Termination of Employment. Any payment made shall be subject to the Deduction Limitation. ARTICLE 8 DISABILITY WAIVER AND BENEFIT 8.1 DISABILITY WAIVER (a) WAIVER OF DEFERRAL. A Participant who is determined by the Committee to be suffering from a Disability shall be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from a Participant's Base Annual Pay and Annual Bonus for the Plan Year during which the Participant first suffers a Disability. During the period of Disability, the Participant shall not be allowed to 15 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ make any additional deferral elections, but will continue to be considered a Participant for all other purposes of this Plan. (b) RETURN TO WORK. If a Participant returns to employment with an Employer, after a Disability ceases, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment or service and for every Plan Year thereafter while a Participant in the Plan; provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.2 above. 8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a Disability shall, for benefit purposes under this Plan, continue to be considered to be employed and shall be eligible for the benefits provided for in Article 4, 5, 6 or 7 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right to, in its sole and absolute discretion and for purposes of this Plan only, and must in the case of a Participant who is otherwise eligible to Retire, deem the Participant to have experienced a Termination of Employment, or in the case of a Participant who is eligible to Retire, to have Retired, at any time (or in the case of a Participant who is eligible to Retire, as soon as practicable) after such Participant is determined to be suffering a Disability, in which case the Participant shall receive a Disability Benefit equal to his or her Account Balance at the time of the Committee's determination; provided, however, that should the Participant otherwise have been eligible to Retire, he or she shall be paid in accordance with Article 5. The Disability Benefit shall be paid in a lump sum within 60 days of the Committee's exercise of such right. Any payment made shall be subject to the Deduction Limitation. 16 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE 9 BENEFICIARY DESIGNATION 9.1 BENEFICIARY. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates. 9.2 BENEFICIARY DESIGNATION; CHANGE. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. 9.3 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Committee or its designated agent. 9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. 9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to the Committee's satisfaction. 9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Plan Agreement shall terminate upon such full payment of benefits. 17 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE 10 LEAVE OF ABSENCE 10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the Participant's Employer for any reason to take a paid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.3. 10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the Participant's Employer for any reason to take an unpaid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Participant shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral shall be withheld. ARTICLE 11 TERMINATION, AMENDMENT OR MODIFICATION 11.1 TERMINATION. Although each Employer anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that any Employer will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, each Employer reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees by action of its board of directors. Upon the termination of the Plan with respect to any Employer, the Plan Agreements of the affected Participants who are employed by that Employer shall terminate and their Account Balances, determined as if they had experienced a Termination of Employment on the date of Plan termination or, if Plan termination occurs after the date upon which a Participant was eligible to Retire, then with respect to that Participant as if he or she had Retired on the date of Plan termination, shall be paid to the Participants as follows: Prior to a Change in Control, if the Plan is terminated with respect to all of its Participants, an Employer shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or pursuant to a Quarterly Installment Method of up to 15 years, with amounts credited and debited during the installment period as provided herein. If the Plan is terminated with respect to less than all of its Participants, an Employer shall be required to pay such benefits in a lump sum. After a Change in Control, the Employer shall be required to pay such benefits in a lump sum. The termination 18 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided however, that the Employer shall have the right to accelerate installment payments without a premium or prepayment penalty by paying the Account Balance in a lump sum or pursuant to a Quarterly Installment Method using fewer quarters (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in whole or in part with respect to that Employer by the action of its board of directors; provided, however, that no amendment or modification shall be effective to decrease or restrict the value of a Participant's Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying the Account Balance in a lump sum or pursuant to a Quarterly Installment Method using fewer quarters (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2 above, if a Participant's Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer may only amend or terminate such provisions with the consent of the Participant. 11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit under Article 4, 5, 6, 7 or 8 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant's Plan Agreement shall terminate. 11.5 INTEREST RATE IN THE EVENT OF A CHANGE IN CONTROL. If a Change in Control occurs, the applicable interest rate to be used in determining a Participant's benefit in connection with a Termination of Employment after the Change in Control, or a Plan termination, amendment or modification under Sections 11.1 and 11.2, shall be, solely for amounts (i) allocated to the 19 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Moody's Bond Index Measurement Fund and (ii) never reallocated to any other Measurement Fund, the Preferred Rate. However, the Crediting Rate for the applicable Plan Year, and not the Preferred Rate, shall continue to be used as the discount rate for determining present value. ARTICLE 12 ADMINISTRATION 12.1 COMMITTEE DUTIES.12.1Committee Duties: This Plan shall be administered by a Committee which shall consist of the Board, or such committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company. 12.2 AGENTS. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 12.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless the members of the Committee, and any Employee to whom the duties of the Committee may be delegated, against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members or any such Employee. 12.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee may reasonably require. 20 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE 13 OTHER BENEFITS AND AGREEMENTS 13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. ARTICLE 14 CLAIMS PROCEDURES 14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's claim within 90 days (unless special circumstances require additional time) and shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part of it; (ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; 21 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and (iv) an explanation of the claim review procedure set forth in Section 14.3 below. 14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): (a) may review pertinent documents; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 14.4 DECISION ON REVIEW. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and (c) such other matters as the Committee deems relevant. 14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of this Article 14 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. 22 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE 15 TRUST 15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and each Employer shall at least annually transfer over to the Trust such assets as the Employer determines, in its sole discretion, are necessary to provide, on a present value basis, for its respective future liabilities created with respect to the Annual Deferral Amounts for such Employer's Participants for all periods prior to the transfer, as well as any debits and credits to the Participants' Account Balances for all periods prior to the transfer, taking into consideration the value of the assets in the trust at the time of the transfer. 15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan. 15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer's obligations under this Plan. ARTICLE 16 MISCELLANEOUS 16.1 STATUS OF PLAN. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that "is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employee" within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent. 16.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer's assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 23 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 16.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement. 16.4 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise. 16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer as an Employee, or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 16.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 16.7 TERMS. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 24 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 16.8 CAPTIONS. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Missouri without regard to its conflicts of laws principles. 16.10 NOTICE. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: Mr. Phil Beyer Director of Benefits UtiliCorp United Inc. 20 West Ninth Street Kansas City, MO 64105-1711 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 16.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer and its successors and assigns and the Participant and the Participant's designated Beneficiaries. 16.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 16.13 VALIDITY. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 16.14 INCOMPETENT. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, 25 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 16.15 COURT ORDER. The Committee is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. In addition, if a court determines that a spouse or former spouse of a Participant has an interest in the Participant's benefits under the Plan in connection with a property settlement or otherwise, the Committee, in its sole discretion, shall have the right, notwithstanding any election made by a Participant, to immediately distribute the spouse's or former spouse's interest in the Participant's benefits under the Plan to that spouse or former spouse. 16.16 DISTRIBUTION IN THE EVENT OF TAXATION. (a) IN GENERAL. If, for any reason, all or any portion of a Participant's benefits under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee before a Change in Control, or the trustee of the Trust after a Change in Control, for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld (and, after a Change in Control, shall be granted), a Participant's Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's unpaid Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. (b) TRUST. If the Trust terminates in accordance with its terms and benefits are distributed from the Trust to a Participant in accordance with that Section, the Participant's benefits under this Plan shall be reduced to the extent of such distributions. 16.17 INSURANCE. The Employers, on their own behalf or on behalf of the trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Employers or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance. 16.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company and each Employer is aware that upon the occurrence of a Change in Control, the Board or the board of directors of a Participant's Employer (which might then be composed of new members) or a shareholder of the Company or the Participant's Employer, or of any successor corporation might then cause or attempt to cause the Company, the Participant's Employer or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company or the Participant's Employer to institute, or may institute, litigation seeking to deny 26 UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Participants the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change in Control, it should appear to any Participant that the Company, the Participant's Employer or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company, such Employer or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company and the Participant's Employer irrevocably authorize such Participant to retain counsel of his or her choice at the expense of the Company and the Participant's Employer (who shall be jointly and severally liable) to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, the Participant's Employer or any director, officer, shareholder or other person affiliated with the Company, the Participant's Employer or any successor thereto in any jurisdiction. UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE 2 Selection, Enrollment, Eligibility. . . . . . . . . . . . . . .6 2.1 Selection by Committee. . . . . . . . . . . . . . . . . . . . .6 2.2 Enrollment Requirements . . . . . . . . . . . . . . . . . . . .6 2.3 Eligibility; Commencement of Participation. . . . . . . . . . .6 2.4 Termination of Participation and/or Deferrals . . . . . . . . .7 ARTICLE 3 Deferral Commitments/Crediting/Taxes. . . . . . . . . . . . . .7 3.1 Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . .7 3.2 Election to Defer; Effect of Election Form. . . . . . . . . . .7 3.3 Withholding of Annual Deferral Amounts. . . . . . . . . . . . .8 3.4 Investment of Trust Assets. . . . . . . . . . . . . . . . . . .8 3.5 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 3.6 Crediting/Debiting of Account Balances. . . . . . . . . . . . .8 3.7 FICA and Other Taxes. . . . . . . . . . . . . . . . . . . . . 10 3.8 Distributions . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election . . . . . . . . . . . . . . . . . . . . . 11 4.1 Short-Term Payout . . . . . . . . . . . . . . . . . . . . . . 11 4.2 Election to Defer Short-Term Payout . . . . . . . . . . . . . 11 4.3 Other Benefits Take Precedence Over Short-Term. . . . . . . . 12 4.4 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.5 Withdrawal Election . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 5 Retirement Benefit. . . . . . . . . . . . . . . . . . . . . . 13 5.1 Retirement Benefit. . . . . . . . . . . . . . . . . . . . . . 13 5.2 Payment of Retirement Benefit . . . . . . . . . . . . . . . . 13 5.3 Death Prior to Completion of Retirement Benefit . . . . . . . 13 5.4 Quarterly Installment Method for Moody's Account Balance. . . 14 ARTICLE 6 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . 14 6.1 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . 14 6.2 Payment of Pre-Retirement Survivor Benefit. . . . . . . . . . 14 i UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 6.3 Quarterly Installment Method for Moody's Account Balance. . . 15 ARTICLE 7 Termination Benefit . . . . . . . . . . . . . . . . . . . . . 15 7.1 Termination Benefit . . . . . . . . . . . . . . . . . . . . . 15 7.2 Payment of Termination Benefit. . . . . . . . . . . . . . . . 15 ARTICLE 8 Disability Waiver and Benefit . . . . . . . . . . . . . . . . 16 8.1 Disability Waiver . . . . . . . . . . . . . . . . . . . . . . 16 8.2 Continued Eligibility; Disability Benefit . . . . . . . . . . 16 ARTICLE 9 Beneficiary Designation . . . . . . . . . . . . . . . . . . . 17 9.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . 17 9.2 Beneficiary Designation; Change . . . . . . . . . . . . . . . 17 9.3 Acknowledgment. . . . . . . . . . . . . . . . . . . . . . . . 17 9.4 No Beneficiary Designation. . . . . . . . . . . . . . . . . . 17 9.5 Doubt as to Beneficiary . . . . . . . . . . . . . . . . . . . 17 9.6 Discharge of Obligations. . . . . . . . . . . . . . . . . . . 17 ARTICLE 10 Leave of Absence. . . . . . . . . . . . . . . . . . . . . . . 18 10.1 Paid Leave of Absence . . . . . . . . . . . . . . . . . . . . 18 10.2 Unpaid Leave of Absence . . . . . . . . . . . . . . . . . . . 18 ARTICLE 11 Termination, Amendment or Modification. . . . . . . . . . . . 18 11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 18 11.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 19 11.3 Plan Agreement. . . . . . . . . . . . . . . . . . . . . . . . 19 11.4 Effect of Payment . . . . . . . . . . . . . . . . . . . . . . 19 11.5 Interest Rate in the Event of a Change in Control . . . . . . 19 ARTICLE 12 Administration. . . . . . . . . . . . . . . . . . . . . . . . 20 12.1 Committee Duties. . . . . . . . . . . . . . . . . . . . . . . 20 12.2 Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 12.3 Binding Effect of Decisions . . . . . . . . . . . . . . . . . 20 12.4 Indemnity of Committee. . . . . . . . . . . . . . . . . . . . 20 12.5 Employer Information. . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 13 Other Benefits and Agreements . . . . . . . . . . . . . . . . 21 13.1 Coordination with Other Benefits. . . . . . . . . . . . . . . 21 ii UTILICORP UNITED INC. Capital Accumulation Plan MASTER PLAN DOCUMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE 14 Claims Procedures . . . . . . . . . . . . . . . . . . . . . . 21 14.1 Presentation of Claim . . . . . . . . . . . . . . . . . . . . 21 14.2 Notification of Decision. . . . . . . . . . . . . . . . . . . 21 14.3 Review of a Denied Claim. . . . . . . . . . . . . . . . . . . 22 14.4 Decision on Review. . . . . . . . . . . . . . . . . . . . . . 22 14.5 Legal Action. . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE 15 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 15.1 Establishment of the Trust. . . . . . . . . . . . . . . . . . 23 15.2 Interrelationship of the Plan and the Trust . . . . . . . . . 23 15.3 Distributions From the Trust. . . . . . . . . . . . . . . . . 23 ARTICLE 16 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 23 16.1 Status of Plan. . . . . . . . . . . . . . . . . . . . . . . . 23 16.2 Unsecured General Creditor. . . . . . . . . . . . . . . . . . 23 16.3 Employer's Liability. . . . . . . . . . . . . . . . . . . . . 24 16.4 Nonassignability. . . . . . . . . . . . . . . . . . . . . . . 24 16.5 Not a Contract of Employment. . . . . . . . . . . . . . . . . 24 16.6 Furnishing Information. . . . . . . . . . . . . . . . . . . . 24 16.7 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 16.8 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 16.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 25 16.10 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 16.11 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . 25 16.12 Spouse's Interest . . . . . . . . . . . . . . . . . . . . . . 25 16.13 Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 16.14 Incompetent . . . . . . . . . . . . . . . . . . . . . . . . . 25 16.15 Court Order . . . . . . . . . . . . . . . . . . . . . . . . . 26 16.16 Distribution in the Event of Taxation . . . . . . . . . . . . 26 16.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 26 16.18 Legal Fees To Enforce Rights After Change in Control. . . . . 26 iii EX-21 5 EXHIBIT 21 EXHIBIT 21 UTILICORP UNITED INC. SUBSIDIARIES 1997 ANNUAL REPORT ON FORM 10-K
SUBSIDIARY JURISDICTION OF INCORPORATION - ------------------------------------------------------------------------------- --------------------------------- West Kootenay Power, Ltd....................................................... Province of British Columbia UtilCo Group, Inc.............................................................. Delaware Aquila Energy Corporation...................................................... Delaware UtiliCorp Asia Pacific......................................................... Delaware UtiliCorp South Pacific........................................................ Delaware
30 EX-23 6 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS As Independent Public Accountants, we hereby consent to the incorporation by reference of our report dated February 3, 1998, appearing on page 60 of the 1997 Annual Report to Shareholders, which is incorporated in the Form 10-K, into the Company's previously filed Registration Statements on Form S-3 (Nos. 333-29657, 333-34609, 33-60406, and 33-39466) and on Form S-8 (Nos. 333-19671, 333-29819, 33-50260, 33-45074 and 33-52094). We also consent to the incorporation of our report dated February 3, 1998, on the Financial Statement Schedule, appearing on page 19 of the Form 10-K. It should be noted that we have not audited any financial statements of UtiliCorp United Inc. subsequent to December 31, 1997, or performed any audit procedures subsequent to the date of our reports. /s/ ARTHUR ANDERSEN LLP Kansas City, Missouri March 19, 1998 31 EX-27 7 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 89 0 1,165 0 112 1,614 2,480 0 5,113 1,810 1,500 0 0 54 1,110 5,113 8,926 8,926 7,972 684 32 0 135 224 90 134 0 7 5 122 2.27 2.26
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