Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-707
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0308720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Walnut, Kansas City, Missouri 64106-2124
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 556-2200
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 ( )
The number of shares outstanding of the registrant's Common stock at May 3,
1996 was 61,902,083 shares.
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
March 31 December 31
1996 1995
ASSETS
UTILITY PLANT, at original cost
Electric $3,399,478 $3,388,538
Less-accumulated depreciation 1,177,540 1,156,115
Net utility plant in service 2,221,938 2,232,423
Construction work in progress 86,138 72,365
Nuclear fuel, net of amortization of
$82,649 and $81,452 54,422 54,673
Total 2,362,498 2,359,461
REGULATORY ASSET - DEFERRED WOLF CREEK COSTS 6,660 8,880
REGULATORY ASSET - RECOVERABLE TAXES 123,000 123,000
INVESTMENTS AND NONUTILITY PROPERTY 188,059 166,751
CURRENT ASSETS
Cash and cash equivalents 28,749 28,390
Customer accounts receivable, net of allowance
for doubtful accounts of $1,376 and $1,574 25,696 32,830
Other receivables 21,162 31,838
Fuel inventories, at average cost 17,020 22,103
Materials and supplies, at average cost 45,672 47,175
Deferred income taxes 884 5,947
Other 3,380 5,179
Total 142,563 173,462
DEFERRED CHARGES
Regulatory assets
Settlement of fuel contracts 12,197 13,007
KCC Wolf Creek carrying costs 3,420 4,104
Other 20,716 21,231
Other deferred charges 17,338 12,610
Total 53,671 50,952
Total $2,876,451 $2,882,506
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock-authorized 150,000,000 shares
without par value-61,908,726 shares issued-
stated value $449,697 $449,697
Retained earnings 449,377 449,966
Capital stock premium and expense (1,714) (1,725)
Common stock equity 897,360 897,938
Cumulative preferred stock 89,000 89,000
Cumulative redeemable preferred stock 1,276 1,436
Long-term debt 841,040 835,713
Total $1,828,676 $1,824,087
CURRENT LIABILITIES
Notes payable to banks 3,000 0
Commercial paper 7,000 19,000
Current maturities of long-term debt 80,303 73,803
Accounts payable 52,041 52,506
Accrued taxes 41,269 39,726
Accrued interest 21,791 16,906
Accrued payroll and vacations 20,045 22,764
Accrued refueling outage costs 557 13,563
Other 11,134 11,787
Total 237,140 250,055
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 649,042 648,374
Deferred investment tax credits 70,246 71,270
Other 91,347 88,720
Total 810,635 808,364
COMMITMENTS AND CONTINGENCIES
Total $2,876,451 $2,882,506
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(thousands of dollars)
Year to Date Twelve Months Ended
March 31 March 31
1996 1995 1996 1995
ELECTRIC OPERATING REVENUES $ 206,624 $ 198,906 $ 893,673 $ 867,883
OPERATING EXPENSES
Operation
Fuel 30,773 34,719 135,425 131,816
Purchased power 13,985 6,732 46,036 34,179
Other 43,499 44,445 177,653 188,187
Maintenance 18,029 20,678 75,790 74,330
Depreciation 24,716 24,139 97,802 95,169
Taxes
Income 13,413 11,617 78,858 75,818
General 24,361 23,857 97,325 96,751
Deferred Wolf Creek costs
amortization 2,904 3,276 12,235 13,102
Total 171,680 169,463 721,124 709,352
OPERATING INCOME 34,944 29,443 172,549 158,531
OTHER INCOME
Allowance for equity funds
used during construction 660 235 2,704 1,849
Miscellaneous income 741 8,241 1,123 9,865
Miscellaneous deductions (3,785) (1,673) (13,213) (7,579)
Income taxes 6,221 (336) 16,816 4,157
Total 3,837 6,467 7,430 8,292
INCOME BEFORE INTEREST CHARGES 38,781 35,910 179,979 166,823
INTEREST CHARGES
Long-term debt 13,424 12,333 53,275 45,915
Short-term debt 118 620 687 1,452
Miscellaneous 1,106 618 3,600 3,558
Allowance for borrowed funds
used during construction (390) (548) (1,805) (1,873)
Total 14,258 13,023 55,757 49,052
PERIOD RESULTS
Net income 24,523 22,887 124,222 117,771
Preferred stock
dividend requirements 957 1,026 3,942 3,676
Earnings available for
common stock 23,566 21,861 120,280 114,095
Average number of common
shares outstanding 61,902 61,902 61,902 61,902
Earnings per common share $0.38 $0.35 $1.94 $1.84
Cash dividends per
common share $0.39 $0.38 $1.55 $1.51
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
Year to Date Twelve Months Ended
March 31 March 31
1996 1995 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 24,523 $ 22,887 $124,222 $117,771
Adjustments to reconcile net income
to net cash from operating
activities:
Depreciation 24,716 24,139 97,802 95,169
Amortization of:
Nuclear fuel 1,197 3,412 12,464 10,959
Deferred Wolf Creek costs 2,904 3,276 12,235 13,102
Other 1,409 2,028 7,533 8,989
Deferred income taxes (net) 5,731 (4,815) 7,278 15,283
Deferred investment tax credit
amortization and reversals (1,024) (8,352) (4,242) (11,611)
Deferred merger costs (5,383) 0 (5,383) 0
Allowance for equity funds used
during construction (660) (235) (2,704) (1,849)
Cash flows affected by changes in:
Receivables 17,810 10,122 (9,863) 117
Fuel inventories 5,083 (4,497) 4,047 (7,723)
Materials and supplies 1,503 86 (805) (41)
Accounts payable (465) (31,656) 10,211 5,570
Accrued taxes 1,543 33,669 (17,084) 18,307
Accrued interest 4,885 (2,183) 11,765 1,215
Wolf Creek refueling outage
accrual (13,006) 3,180 (4,743) (5,075)
Pension and postretirement benefit
obligations (519) (2,405) (2,290) 13,807
Other operating activities 1,878 (6,661) 12,864 (6,185)
Net cash from operating
activites 72,125 41,995 253,307 267,805
CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (29,549) (26,657) (136,962) (122,474)
Allowance for borrowed funds used
during construction (390) (548) (1,805) (1,873)
Purchases of investments (17,589) (6,455) (67,893) (68,278)
Other investing activities (1,804) 3,306 3,936 9,616
Net cash used in investing
activities (49,332) (30,354) (202,724) (183,009)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 11,827 4,163 118,719 99,034
Repayment of long-term debt 0 0 (33,428) (74,250)
Net change in short-term borrowings (9,000) 9,500 (31,500) 3,500
Dividends paid (25,112) (24,545) (99,925) (97,074)
Other financing activities (149) 490 2,834 19
Net cash used in financing
activities (22,434) (10,392) (43,300) (68,771)
NET CHANGE IN CASH AND CASH
EQUIVALENTS 359 1,249 7,283 16,025
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 28,390 20,217 21,466 5,441
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $28,749 $21,466 $28,749 $21,466
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $8,962 $14,808 $42,354 $45,561
Income taxes $5,072 $3,975 $68,150 $50,597
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(thousands of dollars)
Year to Date Twelve Months Ended
March 31 March 31
1996 1995 1996 1995
Beginning balance $449,966 $426,738 $425,080 $404,383
Net income 24,523 22,887 124,222 117,771
474,489 449,625 549,302 522,154
Dividends declared 25,112 24,545 99,925 97,074
Ending balance $449,377 $425,080 $449,377 $425,080
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
Notes to Consolidated Financial Statements
In management's opinion, the consolidated interim financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly the results of operations for the interim periods
presented. These statements and notes should be read in connection with the
financial statements and related notes included in our 1995 annual report on
Form 10-K.
1. AGREEMENT AND PLAN OF MERGER WITH UTILICORP UNITED INC.
On January 19, 1996, KCPL, UtiliCorp United Inc. (UtiliCorp) and KC United
Corp. (KCU) entered into an Agreement and Plan of Merger (the Merger Agreement)
which provides for a strategic business combination of KCPL and UtiliCorp in a
"merger-of-equals" transaction (the Transaction). Pursuant to the Merger
Agreement, KCPL and UtiliCorp will merge with and into KCU (which may be
renamed at the discretion of KCPL and UtiliCorp), a corporation formed for the
purpose of effecting the Transaction. Under the terms of the Merger Agreement,
each share of KCPL common stock will be exchanged for one share of KCU common
stock and each share of UtiliCorp common stock will be exchanged for 1.096
shares of KCU common stock. Based on the number of shares of KCPL common stock
and UtiliCorp common stock outstanding on the date of the Merger Agreement,
KCPL's common shareholders will receive about 55% of the common equity of KCU
and UtiliCorp's common shareholders will receive about 45%. KCPL has agreed
under the Merger Agreement to call for redemption before the consummation of
the Transaction all of its outstanding shares of preferred stock at the
applicable redemption prices therefore, together with all dividends accrued and
unpaid through the applicable redemption dates.
On May 6, 1996, KCPL and UtiliCorp announced that they will recommend an
annual dividend of $1.85 per common share for KCU.
The Transaction is designed to qualify as a pooling of interests for
accounting and financial reporting purposes. Under this method, the recorded
assets and liabilities of KCPL and UtiliCorp would be carried forward to the
consolidated balance sheet of KCU at their recorded amounts. The income of KCU
would include the combined income of KCPL and UtiliCorp as though the
Transaction occurred at the beginning of the accounting period. Prior period
financial statements would be combined and presented as those of KCU.
The Transaction will create a diversified energy company serving about
2.5 million customers in the United States, Canada, the United Kingdom, New
Zealand, Australia, China and Jamaica. The business of the combined companies
will consist of electric utility operations, gas utility operations and various
nonutility enterprises including independent power projects, and gas marketing,
gathering and processing operations. See Part II, Item 5 for the pro forma
combined condensed financial statements of KCU.
The Transaction is subject to approval by each company's shareholders and
a number of regulatory authorities. The regulatory approval process is expected
to take about 12 to 18 months. The Merger Agreement includes termination
provisions which may require certain payments, up to $58 million, to the other
party to the Transaction under certain circumstances, including a payment of
$58 million if the Transaction is terminated by a party and within two and one-
half years following such termination, the terminating party agrees to
consummate or consummates certain business combination transactions.
During the first quarter of 1996, $5.4 of merger-related costs were
deferred by KCPL for post-merger amortization in accordance with future
regulatory approval.
2. CONDITIONAL HOSTILE BID BY WESTERN RESOURCES, INC.
On April 14, 1996, Western Resources, Inc. (Western Resources) delivered
to KCPL's Board of Directors an unsolicited proposal (the Western Resources
Proposal). In the proposal, Western Resources would acquire all of the
outstanding shares of KCPL common stock in exchange for less than a full share
of Western Resources common stock. The exchange ratio would be subject to a
collar which prevents the exchange ratio from being less than 0.833 or more
than 0.985. The effect of the collar would be that each share of KCPL common
stock accepted for exchange pursuant to the Western Resources Proposal would be
exchanged for $28 of Western Resources common stock so long as the market price
of the Western Resources common stock was between $28.43 per share and $33.61
per share. If the market price falls below $28.43, each share of KCPL common
stock would be exchanged for 0.985 shares of Western Resources common stock,
and if the market price rises above $33.61, each share of KCPL common stock
would be exchanged for 0.833 shares of Western Resources common stock. On
April 12, 1996, the last trading day before the announcement of the Western
Resources Proposal, the closing price of Western Resources common stock was
$29.125. Shortly after delivery of the Western Resources Proposal, Western
Resources publicly announced its unsolicited merger proposal.
On April 21, 1996, based upon the presentations given, advice received and
considerations discussed at the Board meeting, the KCPL Board determined that
further exploration of the Western Resources Proposal was not in the best
interests of KCPL, its shareholders, employees or its customers. Also on that
date, the KCPL Board reaffirmed its approval of the Merger with UtiliCorp. On
April 22, 1996, KCPL notified Western Resources of its decision.
On April 22, 1996, Western Resources announced that it intended to
commence an unsolicited exchange offer, and that it had filed preliminary proxy
materials for use in soliciting proxies from KCPL common shareholders in
opposition to the approval and adoption of the Transaction with UtiliCorp, the
Merger Agreement and the transactions contemplated thereby. On the same day,
Western Resources filed a registration statement on Form S-4 which included a
preliminary prospectus (the Western Resources Preliminary Prospectus) relating
to Western Resources' unsolicited offer to exchange each outstanding share of
KCPL common stock for an amount of Western Resources common stock under terms
substantially the same as the Western Resources Proposal. According to the
Western Resources Preliminary Prospectus, Western Resources intends, as soon as
practicable after consummation of the Proposed Western Resources Offer, to seek
to merge KCPL with and into itself pursuant to applicable law.
On May 6, 1996, Western Resources announced an increase in the minimum
number of shares of Western Resources common stock KCPL shareholders would
receive for each share of KCPL common stock pursuant to the Western Resources
Proposal from 0.833 to 0.91. The maximum number was not changed.
Western Resources' proposed exchange offer is subject to numerous
conditions, including the tender of at least 90% of the outstanding shares of
KCPL common stock, the availability of pooling of interests accounting,
obtaining shareholder and regulatory approvals, and being in compliance with
certain laws that may prohibit the transaction as proposed.
The costs being incurred in connection with this unsolicited proposal,
including the costs to inform KCPL shareholders of the reasons why KCPL
rejected this offer, will be expensed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REGULATION AND COMPETITION
As competition develops throughout the electric utility industry, we are
positioning Kansas City Power & Light Company (KCPL) to excel in an open
market. We're improving the efficiency of KCPL's core utility operations and
creating growth through its unregulated subsidiary. As competition presents
new opportunities, we will also consider various strategies including
partnerships, acquisitions, combinations, additions to or dispositions of
service territory, and restructuring of wholesale and retail businesses. See
Note 1 to the Consolidated Financial Statements regarding the Agreement and
Plan of Merger with UtiliCorp United Inc. and Note 2 regarding the hostile
takeover attempt by Western Resources.
Competition in the electric utility industry was accelerated with the
National Energy Policy Act of 1992. This gave the Federal Energy Regulatory
Commission (FERC) the authority to require electric utilities to provide
transmission line access to independent power producers (IPPs) and other
utilities (wholesale wheeling). In response to FERC's new comparability
standard, KCPL, already active in the wholesale wheeling market, was one of the
first utilities to obtain FERC's acceptance of an open-access, wholesale
transmission tariff. On April 24, 1996, FERC issued an order requiring filing
and compliance with a standard transmission service tariff for all owners of
transmission facilities.
Certain state commissions are also actively considering an open access
requirement for utilities providing retail electric service, under which
competing suppliers would gain access to their retail customers (retail
wheeling). However, this may be preempted by provisions of the Federal Power
Act or by state laws. If allowed, retail wheeling would provide growth
opportunities for low-cost producers and risks for higher-cost producers,
especially those with large industrial customers. The loss of major customers
could result in under-utilized assets and place a costly burden on the
remaining customer base or shareholders if an adequate departure fee is not
assessed to the lost customer.
Although the Missouri and Kansas commissions have not permitted retail
wheeling, we believe KCPL is positioned well to compete in an open market with
its diverse customer mix and pricing strategies. About 22% of KCPL's retail
mwh sales are to industrial customers compared to the utility average of about
35%. KCPL has a flexible rate structure with industrial rates that are
competitively priced within our region. In addition, long-term contracts are
in place or under negotiation for a large portion of KCPL's industrial sales.
Increased competition could also force utilities to change accounting
methods. Financial Accounting Standards Board (FASB) Statement No. 71 _
Accounting for Certain Types of Regulation, applies to regulated entities whose
rates are designed to recover the costs of providing service. An entity's
operations could stop meeting the requirements of FASB 71 for various reasons,
including a change in regulation or a change in the competitive environment for
a company's regulated services. For those operations no longer meeting the
requirements of regulatory accounting, regulatory assets would be written off.
In a competitive environment, asset recoverability would be determined using
market-based rates which could be lower than traditional cost-based rates.
There has not been direct competition for retail electric service in our
service territory although there has been competition in the bulk power market
and between alternative fuels. KCPL's regulatory assets will be maintained as
long as the FASB 71 requirements are met.
NONREGULATED OPPORTUNITIES
In 1992 we formed KLT Inc., a wholly-owned subsidiary to pursue
nonregulated, primarily energy-related business ventures designed to supplement
the growth from the electric utility operations. We had a total equity
investment in KLT of $46 million as of March 31, 1996, and expect that
investment to grow to about $165 million within the next five years. KLT's
strategy capitalizes on new market opportunities by combining our expertise in
energy-related fields with the knowledge of our joint venture partners.
KLT has grown steadily since inception. Consolidated assets at March 31,
1995, totaled $178 million. KLT continues to develop existing ventures in
domestic and international nonregulated power production, energy services, oil
and gas reserves, and affordable housing limited partnerships. Within the next
five years, we expect total subsidiary assets will exceed $500 million,
generated through the $165 million of equity investment, subsidiary retained
earnings and borrowings.
RESULTS OF OPERATIONS
Three-month three months ended March 31, 1996, compared
period: to three months ended March 31, 1995
Twelve-month twelve months ended March 31, 1996, compared
period: to twelve months ended March 31, 1995
EARNINGS OVERVIEW
EPS for the three-month period increased to $0.38 from $0.35. Improved
weather and load growth in the current period resulted in higher earnings,
despite higher nuclear refueling costs in the current period and the $0.08 per
share gain on the sale of railcars in the prior period (reduced to $0.05 per
share in the third quarter of 1995).
EPS for the twelve-month period increased to $1.94 from $1.84. The 1995
period reflects an $0.08 per share charge for the 1994 early retirement plan
offset by the gain on the sale of railcars. The current period reflects
several charges that reduced earnings. These include the reduction of the
railcar gain, decreased bulk power sales, higher fuel and purchased power costs
caused by a forced outage at a coal plant, and KCPL's share of Wolf Creek
Generating Station's (Wolf Creek) voluntary early retirement program costs.
Despite these charges, favorable weather and load growth in the current period
resulted in improved earnings.
MEGAWATT-HOUR (MWH) SALES AND OPERATING REVENUES
Sales and revenue data:
Increase (Decrease) from Prior Year
Three-Month Twelve-Month
Period Period
Mwh Revenues Mwh Revenues
(millions) (millions)
Retail sales:
Residential 11% $ 6 9% $ 22
Commercial 5% 4 3% 11
Industrial 3% 2 0% 2
Other (6%) - (6%) -
Total retail 6% 12 4% 35
Sales for resale:
Bulk power sales (26%) (4) (17%) (12)
Other 6% - (1%) -
Total 8 23
Other revenues - 3
Total electric operating revenues $ 8 $ 26
During April and May of 1995, the classification of about 600 net commercial
customers was changed to industrial to more appropriately reflect their
business operations. This change results in the reclassification of about
$690,000 (10,300 mwh sales) from commercial to industrial in each subsequent
month. Prior periods have not been restated.
Continued load growth and more favorable weather boosted retail mwh sales
and revenues during the three- and twelve-month periods.
KCPL has long-term sales contracts with certain major industrial
customers. These contracts are tailored to meet customers' needs in exchange
for their long-term commitment to purchase energy. Long-term contracts are now
in place for a large portion of KCPL's industrial sales and additional
contracts are under negotiation. Overall, these contracts tend to reduce the
average mwh price of industrial sales. Although the twelve-month period
reflects more of these contracts, this revenue reduction was offset by the
reclassification of customers discussed above.
Although retail revenues increased in the current operating periods,
customer accounts receivable decreased since December 31, 1995, due to higher
billed and estimated unbilled sales in December 1995 versus March 1996.
Bulk power sales vary with system requirements, generating unit and
purchased power availability, fuel costs and the requirements of other electric
systems. Wolf Creek's spring 1996 refueling outage (see Wolf Creek section)
contributed to lower bulk power sales in the current periods. A combination of
conditions in 1994 allowed KCPL to benefit from record bulk power sales in that
year, boosting bulk power sales for the prior twelve-month period. Lower bulk
power sales in March 1996 also resulted in a decrease in other receivables
since December 31,1995.
Total revenue per mwh sold varies with changes in the mix of mwh sales
among customer classifications and the effect of declining price per mwh as
usage increases. An automatic fuel adjustment provision is included in only
sales for resale tariffs, which apply to less than 1% of revenues. KCPL's
current rates allow for the recovery of Deferred Wolf Creek Cost amortization.
The amortization of this regulatory asset ends during 1996 and could result in
future rate adjustments.
Future mwh sales and revenues per mwh will also be affected by national
and local economies, weather and customer conservation efforts. Competition,
including alternative sources of energy such as natural gas, cogeneration, IPPs
and other electric utilities, may also affect future sales and revenue.
FUEL AND PURCHASED POWER
Combined fuel and purchased power expenses increased 8% for the three-
month period despite a 4% decrease in total mwh sales (total of retail and
sales for resale). This increase is due in part to additional replacement
power expense for Wolf Creek's spring 1996 refueling outage which began one
month early and lasted 19 days longer than planned (see Wolf Creek section).
The three-month period also reflects an increase in capacity purchases. KCPL
has entered into capacity purchase contracts to provide a cost-effective
alternative to constructing new capacity.
Combined fuel and purchased power expenses increased 9% for the twelve-
month period despite a 2% decrease in total mwh sales. In addition to an
increase in capacity purchases, the following items impacted fuel and purchased
power expenses for the twelve-month period.
During July 1995, a fire forced an outage at LaCygne I, a low-cost, coal-
fired generating unit. We replaced the power by increasing the usage of higher-
cost, coal-fired units and purchasing power on the wholesale market. Damage to
the unit was covered by insurance, but uninsured, incremental fuel and
purchased power costs were about $4 million.
A $3 million difference in coal inventory adjustments caused an increase
in fuel costs.
Replacement power expenses associated with Wolf Creek refueling outages
(see Wolf Creek section) increased $2 million reflecting a longer outage in the
first quarter of 1996 compared with the outage completed the fourth quarter of
1994.
While nuclear fuel costs remain substantially less than the price of coal,
the cost of nuclear fuel increased 10%. Nuclear fuel costs averaged 46% of the
price of coal during the current twelve months compared with 42% during the
prior twelve-month period. We expect this relationship to steadily increase to
around 55% to 60% by 1998 and remain in that range through the year 2000.
During both twelve-month periods, coal represented about 75% of generation and
nuclear fuel about 25%.
The cost of coal burned remained comparable with the prior periods. Our
coal procurement strategies continue to provide coal costs well below the
regional average. We expect to maintain coal costs at or below 1995 levels
through the year 2000.
OTHER OPERATION AND MAINTENANCE EXPENSES
Combined other operation and maintenance expenses for the twelve-month
period decreased mainly due to the 1994 voluntary early retirement program
costs recorded in the prior period and the related savings realized in the
current period. Of the $22.5 million in total program costs, $8.0 million was
recorded during the prior twelve-month period. KCPL's $2 million share of Wolf
Creek's voluntary early retirement program recorded in the current twelve-month
period partially offset these decreases. Similar to KCPL's program, this
charge is expected to be recovered within two years through reduced salaries
and benefits.
We continue to emphasize new technologies, improved methods and cost
control. We are changing processes to provide increased efficiencies and
improved operations. Through the use of cellular technology, a majority of
customer meters will be read automatically by the end of 1996. These types of
changes have allowed us to assimilate work performed by those who elected to
take part in the early retirement program.
OTHER INCOME AND DEDUCTIONS
Miscellaneous income for the prior three- and twelve-month periods
includes an $8 million gain from the sale of steel railcars which were replaced
by leased aluminum cars. Aluminum cars are lighter-weight and offer more coal
capacity per car contributing to lower delivered coal prices. The current
twelve-month period includes an adjustment to reduce this gain to $5 million.
The adjustment was based on a re-calculation of the cars' net cost. The
remaining increase in the twelve-month period mainly reflects increases in
interest and dividend income.
Subsidiary operations are included in miscellaneous income, miscellaneous
deductions and income taxes. Miscellaneous deductions for the three- and
twelve-month periods reflect increased subsidiary operating expenses.
Miscellaneous deductions for the twelve-month period also reflect an increase
in charitable contributions to local organizations and increased fees related
to the sale of customer accounts receivable.
During the first quarter of 1996 we accrued tax credits of $3 million, or
one-fourth of the total expected 1996 credits, related to affordable housing
partnership investments and oil and gas investments. This is an increase of $2
million compared with the tax credits accrued during the first quarter of 1995.
For the twelve-month period, total accrued tax credits increased by $5 million.
Both periods also reflect the 1995 income tax expense related to the gain on
the sale of railcars. Non-taxable increases in the cash surrender value of
corporate-owned life insurance contracts also affect the relationship between
miscellaneous deductions and income taxes.
INTEREST CHARGES
The increase in long-term interest expense for the three-month period
reflects an increase in the average outstanding balance of subsidiary debt.
About one-half of this increase is related to investments in affordable housing
partnerships. The tax benefits provided by these investments more than offset
the related interest expense.
The increase in long-term interest expense for the twelve-month period
reflects an increase in the weighted-average interest rates and an increase in
the average outstanding balance of long-term debt. The higher average level of
outstanding debt is mainly due to subsidiary investments including affordable
housing partnerships.
WOLF CREEK
Wolf Creek is one of KCPL's principal generating units representing about
18% of accredited generating capacity. The plant's operating performance has
remained strong, contributing about 25% of annual mwh generation while
operating, on average, above 80% of capacity over the last three years. It has
the lowest fuel cost of any of KCPL's generating units. During 1994, the unit
completed its seventh scheduled refueling and maintenance outage in only 47
days, a plant record.
Wolf Creek's eighth scheduled refueling and maintenance outage began in
early February 1996 and was completed in April 1996 (64 days). The incremental
operating, maintenance and replacement power costs are accrued evenly over the
unit's operating cycle, normally 18 months. As actual outage expenses are
incurred, the accrual and related deferred tax asset are relieved. Although
this outage was scheduled during the first quarter of 1996, it started one
month early when the plant was shut-down to correct a water pump problem. This
extended the length of the outage and is the primary reason for a $2 million
increase in Wolf Creek related replacement power and maintenance expenses for
the three-month period.
Currently, no major equipment replacements are expected, but an extended
shut-down of Wolf Creek could have a substantial adverse effect on KCPL's
business, financial condition and results of operations. Higher replacement
power and other costs would be incurred as a result. Although not expected, an
unscheduled plant shut-down could be caused by actions of the Nuclear
Regulatory Commission reacting to safety concerns at the plant or other similar
nuclear units. If a long-term shut-down occurred, the state regulatory
commissions could consider reducing rates by excluding the Wolf Creek
investment from rate base.
Ownership and operation of a nuclear generating unit exposes KCPL to
potential retrospective assessments and property losses in excess of insurance
coverage.
CAPITAL REQUIREMENTS AND LIQUIDITY
As of March 31, 1996, the liquid resources of KCPL included cash flows
from operations, $98 million of registered but unissued medium-term notes, and
$136 million of unused bank lines of credit.
KCPL continues to generate positive cash flows from operating activities,
although individual components of working capital will vary with normal
business cycles and operations including the timing of receipts and payments.
The fluctuations in deferred income taxes, investment tax credits and accrued
taxes result mainly from the first quarter 1995 settlement of the Internal
Revenue Service audit and the timing of the Wolf Creek refueling outage.
During the twelve months ended March 31, 1996, KCPL's dividend payout
ratio was 80%. Cash flows from operating activities were sufficient to cover
dividend payments and utility construction expenditures. Day-to-day
operations, utility construction requirements and dividends are expected to be
met with internally-generated funds. Uncertainties affecting our ability to
meet these requirements with internally-generated funds include the effect of
inflation on operating expenses, the level of mwh sales, regulatory actions,
compliance with future environmental regulations and the availability of
generating units. We might incur additional debt and/or issue additional
equity to finance growth or take advantage of new opportunities.
During the first quarter of 1996, KLT issued about $12 million in long-
term debt to finance an additional nonutility investment. In addition, KCPL
repaid $9 million of short-term borrowings with cash from operating activities.
Debt service requirements will be provided from operations, refinancings and/or
short-term debt.
PART II - OTHER INFORMATION
Item 5. Other Matters
I. AGREEMENT AND PLAN OF MERGER WITH UTILICOPR UNITED INC. - UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information combines
the historical consolidated balance sheets and statements of income of
Kansas City Power & Light Company (KCPL) and UtiliCorp United Inc.
(UtiliCorp), including their respective subsidiaries, after giving
effect to the Transaction. Further information concerning the Merger
Agreement and proposed merger Transaction is included in Note 1 to the
Consolidated Financial Statements in Part I of this report. The
unaudited pro forma combined balance sheet at March 31, 1996, gives
effect to the Transaction as if it had occurred at March 31, 1996. The
unaudited pro forma combined statements of income for each of the
three months ended March 31, 1996, and 1995, give effect to the Transaction
as if it had occurred at the beginning of those periods. These
statements are prepared on a basis consistent with generally accepted
accounting principles. In addition, the statements are prepared on
the basis of accounting for the Transaction as a pooling of interests and
are based on the assumptions set forth in the notes thereto.
The following pro forma financial information has been prepared
from, and should be read in connection with, the historical
consolidated financial statements and related notes of KCPL and
UtiliCorp. The following information is not necessarily indicative of
the financial position or operating results that would have occurred
had the Transaction been consummated on the date, or at the beginning of
the periods, for which the Transaction is being given effect nor is it
necessarily indicative of future operating results or financial
position.
KC UNITED CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
March 31, 1996
(thousands)
UtiliCorp KCPL Pro Forma
(as (as Combined
reported) reported)
Utility plant in service $2,721,045 $3,399,478 $6,120,523
Accumulated depreciation 1,030,945 1,177,540 2,208,485
Net utility plant in service 1,690,100 2,221,938 3,912,038
Construction work in progress and
nuclear fuel, net 63,952 140,560 204,512
Total utility plant, net 1,754,052 2,362,498 4,116,550
Other property and investments 1,130,074 188,059 1,318,133
Current assets 665,578 142,563 808,141
Deferred charges and other assets 337,260 183,331 520,591
Total assets $3,886,964 $2,876,451 $6,763,415
Capitalization
Common stock and premium
on common stock (Note 1) $863,283 $449,697 $1,312,980
Retained earnings 122,682 449,377 572,059
Other stockholders' equity (1,022) (1,714) (2,736)
Total common equity 984,943 897,360 1,882,303
Preferred and preference stock 25,356 90,276 115,632
(Note 4)
Company-obligated mandatorily
redeemable preferred securities
of partnership 100,000 - 100,000
Long-term debt, net 1,365,935 841,040 2,206,975
Total capitalization 2,476,234 1,828,676 4,304,910
Current liabilities 914,437 237,140 1,151,577
Deferred income taxes 259,059 649,042 908,101
Other deferred liabilities 237,234 161,593 398,827
Total capitalization and $3,886,964 $2,876,451 $6,763,415
liabilities
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
KC UNITED CORP
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Three Months Ended March 31, 1996
(thousands, except per share data)
UtiliCorp KCPL Pro Forma
(as (as Combined
reported) reported)
Operating revenues $1,084,434 $206,624 $1,291,058
Operating expenses 996,468 158,267 1,154,735
Operating income before
income taxes 87,966 48,357 136,323
Interest charges 34,404 14,258 48,662
Other income, net 11,409 (2,384) 9,025
Income before income taxes 64,971 31,715 96,686
Income taxes 27,659 7,192 34,851
Net income 37,312 24,523 61,835
Preference and preferred stock
dividend requirements (Note 4) 513 957 1,470
Earnings available for
common shares $36,799 $23,566 $60,365
Weighted average common shares
outstanding (Note 1)
- Primary 46,233 61,902 112,573
- Fully diluted (Note 5) 46,568 61,902 112,941
Earnings per share
- Primary $0.80 $0.38 $0.54
- Fully diluted (Note 5) $0.79 $0.38 $0.53
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
KC UNITED CORP
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Three Months Ended March 31, 1995
(thousands, except per share data)
UtiliCorp KCPL Pro Forma
(as (as Combined
reported) reported)
Operating revenues $726,303 $198,906 $925,209
Operating expenses 644,818 157,846 802,664
Operating income before
income taxes 81,485 41,060 122,545
Interest charges 30,600 13,023 43,623
Other income, net 3,389 6,803 10,192
Income before income taxes 54,274 34,840 89,114
Income taxes 22,108 11,953 34,061
Net income 32,166 22,887 55,053
Preference and preferred stock
dividend requirements (Note 4) 513 1,026 1,539
Earnings available for
common shares $31,653 $21,861 $53,514
Weighted average common shares
outstanding (Note 1)
- Primary 44,743 61,902 110,940
- Fully diluted (Note 5) 45,242 61,902 111,487
Earnings per share
- Primary $0.71 $0.35 $0.48
- Fully diluted (Note 5) $0.70 $0.35 $0.48
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
KC UNITED CORP
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Three Months Ended March 31
(thousands, except per share data)
Increase
1996 1995 (Decrease)
Operating revenues $1,291,058 $925,209 $365,849
Operating expenses 1,154,735 802,664 352,071
Operating income before
income taxes 136,323 122,545 13,778
Interest charges 48,662 43,623 5,039
Other income, net 9,025 10,192 (1,167)
Income before income taxes 96,686 89,114 7,572
Income taxes 34,851 34,061 790
Net income 61,835 55,053 6,782
Preference and preferred stock
dividend requirements (Note 4) 1,470 1,539 (69)
Earnings available for
common shares $60,365 $53,514 $6,851
Weighted average common shares
outstanding (Note 1)
- Primary 112,573 110,940 1,633
- Fully diluted (Note 5) 112,941 111,487 1,454
Earnings per share
- Primary $0.54 $0.48 $0.06
- Fully diluted (Note 5) $0.54 $0.48 $0.06
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
KC UNITED CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The pro forma combined financial statements reflect the conversion
of each outstanding share of KCPL common stock into one share of KCU
common stock outstanding and the conversion of each outstanding share
of UtiliCorp common stock into 1.096 shares of KCU common stock, as
provided in the Merger Agreement. The pro forma combined financial
statements are presented as if the companies were combined during all
periods included herein. No pro forma adjustments were necessary.
2. The allocation between KCPL and UtiliCorp and their customers of
the about $600 million in net estimated cost savings over the ten-year
period following the Merger, less transaction costs, will be subject
to regulatory review and approval. Transaction costs, currently
estimated to be about $30 million (including fees for financial
advisors, attorneys, accountants, consultants, filings and printing),
are being deferred for post-merger amortization in accordance with
future regulatory approvals. As of March 31, 1996, $5.4 and $4.2
million in merger-related costs had been deferred by KCPL and
UtiliCorp, respectively.
The net estimated costs savings and transactions costs do not
reflect certain other costs that could be incurred by KCU, such as
increases or decreases in costs caused by the provisions of the
employment agreements with Messrs. Jennings and Green, severance
agreements with certain executives and the KCU Plans.
The net estimated cost savings, transaction costs and certain other
costs have not been reflected in the pro forma combined financial
statements because of the inability to predict regulatory treatment
or estimate the amount of such costs that would impact any one
period.
3. Intercompany transactions (including purchased and exchanged
power transactions) between KCPL and UtiliCorp during the periods
presented were not material and, accordingly, no pro forma adjustments
were made to eliminate such transactions. All financial statement
presentation and accounting policy differences are immaterial and have
not been adjusted in the pro forma combined financial statements.
4. Prior to the consummation of the Merger, KCPL must redeem its
cumulative preferred stock outstanding as provided in the Merger
Agreement. Under the Merger Agreement, UtiliCorp must also redeem the
UtiliCorp preferred stock outstanding if the effective time occurs on
or after March 1, 1997. Because the basis of accounting for the merger
is a pooling of interests, the effect of these redemptions is not
required to be reflected in the pro forma combined financial
statements. The only redemption premium is $755,000 applicable to the
KCPL preferred stock. The continuing effect of these redemptions is
anticipated to be immaterial.
5. The fully diluted earnings per common share was determined
assuming UtiliCorp's outstanding convertible subordinated debentures
were converted into UtiliCorp common stock at the beginning of the
periods presented. In calculating fully diluted earnings per share,
earnings available for common shares were adjusted to eliminate
interest expense, net of tax.
II. CONDITIONAL HOSTILE BID BY WESTERN RESOURCES, INC.
See Note 2 to the Consolidated Financial Statements in Part I of this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits
2. *Agreement and Plan of Merger dated as of January 19, 1996, by
and among KCPL, UtiliCorp and KCU (Exhibit 2-1 to the
Company's current report on Form 8-K dated January 24, 1996).
3(ii). By-laws of the Company, as amended April 1, 1996.
27. Financial Data Schedule (for the three months ended March 31,
1996).
Report on Form 8-K
A report on Form 8-K was filed with the Securities and
Exchange Commission on January 24, 1996, with attached copy of the
Agreement and Plan of Merger dated as of January 19, 1996, by and
among KCPL, UtiliCorp and KCU.
*Previously filed with the Securities and Exchange Commission and
incorporated herein by reference and made a part hereof. The
exhibit number and document in which so filed, and incorporated
herein by reference, is stated in parenthesis in the description of
such exhibit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
KANSAS CITY POWER & LIGHT COMPANY
Dated: May 10, 1996 /s/Drue Jennings
(Drue Jennings)
(Chief Executive Officer)
Dated: May 10, 1996 /s/Neil Roadman
(Neil Roadman)
(Principal Accounting Officer)