Exhibit 99
Item 8. Consolidated Financial Statements
GREAT PLAINS ENERGY
Consolidated Statements of Income
Year ended December 31 2001 2000 1999
(thousands)
Operating Revenues
Electric sales revenues $1,363,483 $1,063,804 $ 897,393
Gas sales revenues 15,754 48,297 20,814
Other revenues 82,681 3,767 3,275
Total 1,461,918 1,115,868 921,482
Operating Expenses
Fuel 163,846 153,144 129,255
Purchased power 394,176 190,171 94,697
Gas purchased and production expenses 16,932 30,396 11,125
Other 323,663 249,926 220,534
Maintenance 77,802 74,466 62,589
Depreciation and depletion 158,771 132,378 123,269
(Gain) Loss on property 171,477 (99,118) 1,200
General taxes 98,060 92,228 93,051
Total 1,404,727 823,591 735,720
Operating income 57,191 292,277 185,762
Losses from equity investments (376) (19,441) (24,951)
Other income and expenses (29,440) (15,353) (7,382)
Interest charges 103,332 75,686 68,334
Income (loss) before income taxes,
extraordinary item and cumulative effect
of changes in accounting principles (75,957) 181,797 85,095
Income taxes (35,914) 53,166 3,180
Income (loss) before extraordinary item
and cumulative effect of changes in
accounting principles (40,043) 128,631 81,915
Early extinguishment of debt,
net of income taxes (Note 17) 15,872 - -
Cumulative effect to January 1, 2000,
of changes in accounting principles,
net of income taxes (Note 3) - 30,073 -
Net income (loss) (24,171) 158,704 81,915
Preferred stock dividend requirements 1,647 1,649 3,733
Earnings (loss) available for common stock $ (25,818) $ 157,055 $ 78,182
Average number of common shares outstanding 61,864 61,864 61,898
Basic and diluted earnings (loss) per
common share before extraordinary item
and cumulative effect of changes in
accounting principles $ (0.68) $ 2.05 $ 1.26
Early extinguishment of debt 0.26 - -
Cumulative effect to January 1, 2000, of
changes in accounting principles - 0.49 -
Basic and diluted earnings (loss) per
common share $ (0.42) $ 2.54 $ 1.26
Cash dividends per common share $ 1.66 $ 1.66 $ 1.66
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
1
GREAT PLAINS ENERGY
Consolidated Balance Sheets
At December 31 2001 2000
(thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 29,034 $ 34,877
Receivables 152,114 115,356
Equity securities - 18,597
Fuel inventories, at average cost 22,246 20,802
Materials and supplies, at average cost 50,696 46,402
Current income taxes 31,031 -
Deferred income taxes 5,061 737
Other 19,167 14,455
Total 309,349 251,226
Nonutility Property and Investments
Affordable housing limited partnerships 81,136 98,129
Gas property and investments 43,385 47,654
Nuclear decommissioning trust fund 61,766 56,800
Other 64,519 81,624
Total 250,806 284,207
Utility Plant, at Original Cost
Electric 4,332,464 3,832,655
Less-accumulated depreciation 1,793,786 1,645,450
Net utility plant in service 2,538,678 2,187,205
Construction work in progress 51,265 309,629
Nuclear fuel, net of amortization
of $127,101 and $110,014 33,771 30,956
Total 2,623,714 2,527,790
Deferred Charges
Regulatory assets 124,406 139,456
Prepaid pension costs 88,337 68,342
Goodwill 37,066 11,470
Other deferred charges 30,724 11,400
Total 280,533 230,668
Total $ 3,464,402 $ 3,293,891
LIABILITIES AND CAPITALIZATION
Current Liabilities
Notes payable $ 144,404 $ -
Commercial paper 62,000 55,600
Current maturities of long-term debt 238,767 93,645
EIRR bonds classified as current (Note 13) 177,500 177,500
Accounts payable 173,956 158,242
Accrued taxes 14,324 14,402
Accrued interest 13,262 12,553
Accrued payroll and vacations 26,422 28,257
Accrued refueling outage costs 12,979 1,890
Other 35,810 14,877
Total 899,424 556,966
Deferred Credits and Other Liabilities
Deferred income taxes 594,704 590,220
Deferred investment tax credits 45,748 50,037
Accrued nuclear decommisioning costs 63,040 58,047
Other 114,085 63,860
Total 817,577 762,164
Capitalization (see statements) 1,747,401 1,974,761
Commitments and Contingencies (Note 6)
Total $ 3,464,402 $ 3,293,891
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
2
GREAT PLAINS ENERGY
Consolidated Statements of Capitalization
At December 31 2001 2000
(thousands)
Long-term Debt (excluding current maturities)
General Mortgage Bonds
Medium-Term Notes due 2003-08,
7.28% and 7.18% weighted-average rate $ 179,000 $ 206,000
2.71%* and 5.59%** EIRR bonds due 2012-23 158,768 158,768
EIRR bonds classified as
current liabilities (Note 13) (31,000) (31,000)
Senior Notes
7.125% due 2005 250,000 250,000
6.500% due 2011 150,000 -
Unamortized discount (660) (550)
Medium-Term Notes
6.69%** due 2002 - 200,000
EIRR bonds
3.25%* and 5.55%** Series A & B due 2015 106,500 106,500
3.25%* and 4.35%** Series D due 2017 40,000 40,000
EIRR bonds classified as
current liabilities (Note 13) (146,500) (146,500)
4.50%* and 4.50%** Series C due 2017 50,000 50,000
Subsidiary Obligations
R.S. Andrews Enterprises, Inc. long-term debt
8.14% weighted-average rate due 2003-07 2,832 -
Affordable Housing Notes
8.16% and 8.29% weighted-average rate
due 2003-08 19,746 31,129
Total 778,686 864,347
Company-obligated Mandatorily Redeemable
Preferred Securities of a trust holding solely
KCPL Subordinated Debentures 150,000 150,000
Cumulative Preferred Stock
$100 Par Value
3.80% - 100,000 shares issued 10,000 10,000
4.50% - 100,000 shares issued 10,000 10,000
4.20% - 70,000 shares issued 7,000 7,000
4.35% - 120,000 shares issued 12,000 12,000
$100 Par Value - Redeemable
4.00% - 62
Total 39,000 39,062
Common Stock Equity
Common stock-150,000,000 shares authorized
without par value 61,908,726 shares issued,
stated value 449,697 449,697
Capital stock premium and expense (1,656) (1,666)
Retained earnings (see statements) 344,815 473,321
Accumulated other comprehensive loss
Loss on derivative hedging instruments (12,110) -
Minimum pension liability (1,031) -
Total 779,715 921,352
Total $ 1,747,401 $ 1,974,761
* Variable rate securities, weighted-average rate as of December 31, 2001
** Variable rate securities, weighted-average rate as of December 31, 2000
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
3
GREAT PLAINS ENERGY
Consolidated Statements of Cash Flows
Year Ended December 31 2001 2000 1999
(thousands)
Cash Flows from Operating Activities
Net income (loss) $ (24,171) $ 158,704 $ 81,915
Adjustments to reconcile income to net cash
from operating activities:
Early extinguishment of debt, net of
income taxes (15,872) - -
Cumulative effect of changes in
accounting principles, net of
income taxes - (30,073) -
Depreciation and depletion 158,771 132,378 123,269
Amortization of:
Nuclear fuel 17,087 15,227 15,782
Other 16,755 11,940 12,263
Deferred income taxes (net) (301) (29,542) (26,784)
Investment tax credit amortization (4,289) (4,296) (4,453)
Fuel contract settlement - - (13,391)
Loss from equity investments 376 19,441 24,951
(Gain) Loss on property 171,477 (99,118) 1,200
Kansas rate refund accrual - - (14,200)
Allowance for equity funds
used during construction (3,616) (4,001) (2,657)
Other operating activities (Note 2) (37,356) 23,213 (37,786)
Net cash from operating activities 278,861 193,873 160,109
Cash Flows from Investing Activities
Utility capital expenditures (262,030) (401,041) (180,687)
Allowance for borrowed funds
used during construction (9,197) (12,184) (3,378)
Purchases of investments (46,105) (55,531) (35,072)
Purchases of nonutility property (66,119) (25,466) (55,792)
Proceeds from sale of assets 66,460 225,958 39,617
Hawthorn No. 5 partial insurance recovery 30,000 50,000 80,000
Loan to DTI prior to majority ownership (94,000) - -
Other investing activities 10,306 18,967 (10,316)
Net cash from investing activities (370,685) (199,297) (165,628)
Cash Flows from Financing Activities
Issuance of long-term debt 249,597 500,445 10,889
Repayment of long-term debt (193,145) (179,858) (109,060)
Net change in short-term borrowings 140,747 (183,099) 228,699
Dividends paid (104,335) (104,335) (106,662)
Redemption of preferred stock - - (50,000)
Other financing activities (6,883) (5,925) 1,513
Net cash from financing activities 85,981 27,228 (24,621)
Net Change in Cash and Cash Equivalents (5,843) 21,804 (30,140)
Cash and Cash Equivalents at Beginning of Year 34,877 13,073 43,213
Cash and Cash Equivalents at End of Year $ 29,034 $ 34,877 $ 13,073
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
4
GREAT PLAINS ENERGY
Consolidated Statements of Comprehensive Income
Year Ended December 31 2001 2000 1999
(thousands)
Net Income (Loss) $ (24,171) $ 158,704 $ 81,915
Other comprehensive loss:
Unrealized loss on securites
available for sale - - (3,778)
Income tax benefit - - 1,367
Net unrealized loss on
securites available for sale - - (2,411)
Loss on derivative
hedging instruments (43,706) - -
Income tax benefit 18,136 - -
Net loss on derivative
hedging instruments (25,570) - -
Minimum pension liability (1,691) - -
Income tax benefit 660 - -
Net minimum pension liability (1,031) - -
Reclassification to revenues
and expenses, net of tax (3,983) 2,337 -
Comprehensive income before
cumulative effect of a
change in accounting
principles, net of
income taxes (54,755) 161,041 79,504
Cumulative effect to
January 1, 2001, of a
change in accounting
principles, net of
income taxes 17,443 - -
Comprehensive Income (Loss) $ (37,312) $ 161,041 $ 79,504
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
GREAT PLAINS ENERGY
Consolidated Statements of Retained Earnings
2001 2000 1999
Year Ended December 31 (thousands)
Beginning Balance $ 473,321 $ 418,952 $ 443,699
Net Income (Loss) (24,171) 158,704 81,915
449,150 577,656 525,614
Dividends Declared
Preferred stock -
at required rates 1,647 1,649 3,911
Common stock 102,688 102,686 102,751
Ending Balance $ 344,815 $ 473,321 $ 418,952
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
5
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Income
Year ended December 31 2001 2000 1999
(thousands)
Operating Revenues
Electric sales revenues $ 1,256,121 $ 1,063,804 $ 897,393
Other revenues 94,773 52,064 24,089
Total 1,350,894 1,115,868 921,482
Operating Expenses
Fuel 163,846 153,144 129,255
Purchased power 304,862 190,171 94,697
Gas purchased and production expenses 17,454 30,396 11,125
Other 304,704 249,926 220,534
Maintenance 77,172 74,466 62,589
Depreciation and depletion 152,893 132,378 123,269
(Gain) Loss on property (22,026) (99,118) 1,200
General taxes 97,288 92,228 93,051
Total 1,096,193 823,591 735,720
Operating income 254,701 292,277 185,762
Losses from equity investments (501) (19,441) (24,951)
Other income and expenses (22,440) (15,353) (7,382)
Interest charges 97,653 75,686 68,334
Income before income taxes, extraordinary
item and cumulative effect of changes
in accounting principles 134,107 181,797 85,095
Income taxes 30,288 53,166 3,180
Income before extraordinary item
and cumulative effect of changes in
accounting principles 103,819 128,631 81,915
Early extinguishment of debt,
net of income taxes 15,872 - -
Cumulative effect to January 1, 2000,
of changes in accounting principles,
net of income taxes (Note 3) - 30,073 -
Net income 119,691 158,704 81,915
Preferred stock dividend requirements 1,098 1,649 3,733
Earnings available for common stock $ 118,593 $ 157,055 $ 78,182
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
6
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Balance Sheets
At December 31 2001 2000
(thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 962 $ 34,877
Receivables 62,511 115,356
Equity securities - 18,597
Fuel inventories, at average cost 22,246 20,802
Materials and supplies, at average cost 50,696 46,402
Deferred income taxes 5,061 737
Other 11,484 14,455
Total 152,960 251,226
Nonutility Property and Investments
Affordable housing limited partnerships - 98,129
Gas property and investments - 47,654
Nuclear decommissioning trust fund 61,766 56,800
Other 40,797 81,624
Total 102,563 284,207
Utility Plant, at Original Cost
Electric 4,332,464 3,832,655
Less-accumulated depreciation 1,793,786 1,645,450
Net utility plant in service 2,538,678 2,187,205
Construction work in progress 51,265 309,629
Nuclear fuel, net of amortization
of $127,101 and $110,014 33,771 30,956
Total 2,623,714 2,527,790
Deferred Charges
Regulatory assets 124,406 139,456
Prepaid pension costs 88,337 68,342
Goodwill 22,952 11,470
Other deferred charges 30,724 11,400
Total 266,419 230,668
Total $ 3,145,656 $ 3,293,891
LIABILITIES AND CAPITALIZATION
Current Liabilities
Notes payable $ 20,404 $ -
Commercial paper 62,000 55,600
Current maturities of long-term debt 227,383 93,645
EIRR bonds classified as current (Note 13) 177,500 177,500
Accounts payable 113,029 158,242
Accrued taxes 15,895 14,402
Accrued interest 11,327 12,553
Accrued payroll and vacations 22,581 28,257
Accrued refueling outage costs 12,979 1,890
Other 14,562 14,877
Total 677,660 556,966
Deferred Credits and Other Liabilities
Deferred income taxes 630,699 590,220
Deferred investment tax credits 45,748 50,037
Accrued nuclear decommisioning costs 63,040 58,047
Other 75,186 63,860
Total 814,673 762,164
Capitalization (see statements) 1,653,323 1,974,761
Commitments and Contingencies (Note 6)
Total $ 3,145,656 $ 3,293,891
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
7
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Capitalization
At December 31 2001 2000
(thousands)
Long-term Debt (excluding current maturities)
General Mortgage Bonds
Medium-Term Notes due 2003-08,
7.28% and 7.18% weighted-average rate $ 179,000 $ 206,000
2.71%* and 5.59%** EIRR bonds due 2012-23 158,768 158,768
EIRR bonds classified as
current liabilities (Note 13) (31,000) (31,000)
Senior Notes
7.125% due 2005 250,000 250,000
6.500% due 2011 150,000 -
Unamortized discount (660) (550)
Medium-Term Notes
6.69%** due 2002 - 200,000
EIRR bonds
3.25%* and 5.55%** Series A & B due 2015 106,500 106,500
3.25%* and 4.35%** Series D due 2017 40,000 40,000
EIRR bonds classified as
current liabilities (Note 13) (146,500) (146,500)
4.50%* and 4.50%** Series C due 2017 50,000 50,000
Subsidiary Obligations
R.S. Andrews Enterprises, Inc. long-term debt
8.14% weighted-average rate due 2003-07 2,832 -
Affordable Housing Notes
8.29% weighted-average rate due 2003-08 - 31,129
Total 758,940 864,347
Company-obligated Mandatorily Redeemable
Preferred Securities of a trust holding solely
KCPL Subordinated Debentures 150,000 150,000
Cumulative Preferred Stock
$100 Par Value
3.80% - 100,000 shares issued - 10,000
4.50% - 100,000 shares issued - 10,000
4.20% - 70,000 shares issued - 7,000
4.35% - 120,000 shares issued - 12,000
$100 Par Value - Redeemable
4.00% - 62
Total - 39,062
Common Stock Equity
Common stock-150,000,000 shares authorized
without par value 61,908,726 shares issued,
stated value - 449,697
Common stock-1,000 shares authorized without
par value 1 share issued, stated value *** 487,041 -
Capital stock premium and expense 39,000 (1,666)
Retained earnings (see statements) 219,524 473,321
Accumulated other comprehensive loss
Loss on derivative hedging instruments (151) -
Minimum pension liability (1,031) -
Total 744,383 921,352
Total $ 1,653,323 $ 1,974,761
* Variable rate securities, weighted-average rate as of December 31, 2001
** Variable rate securities, weighted-average rate as of December 31, 2000
*** Reflects common stock value held by Great Plains Energy resulting from the
exchange of KCP&L common stock to Great Plains Energy common stock and the
transfer of $39 million of preferred stock and the associated stock premium
and discount to Great Plains Energy due to the October 1, 2001 formation of
the holding company.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
8
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Cash Flows
Year Ended December 31 2001 2000 1999
(thousands)
Cash Flows from Operating Activities
Net income $ 119,691 $ 158,704 $ 81,915
Adjustments to reconcile income to net cash
from operating activities:
Early extinguishment of debt, net of
income taxes (15,872) - -
Cumulative effect of changes in
accounting principles, net of
income taxes - (30,073) -
Depreciation and depletion 152,893 132,378 123,269
Amortization of:
Nuclear fuel 17,087 15,227 15,782
Other 15,717 11,940 12,263
Deferred income taxes (net) 12,867 (29,542) (26,784)
Investment tax credit amortization (4,289) (4,296) (4,453)
Fuel contract settlement - - (13,391)
Loss from equity investments 501 19,441 24,951
(Gain) Loss on property (22,026) (99,118) 1,200
Kansas rate refund accrual - - (14,200)
Allowance for equity funds
used during construction (3,616) (4,001) (2,657)
Other operating activities (Note 2) (35,322) 23,213 (37,786)
Net cash from operating activities 237,631 193,873 160,109
Cash Flows from Investing Activities
Utility capital expenditures (262,030) (401,041) (180,687)
Allowance for borrowed funds
used during construction (9,197) (12,184) (3,378)
Purchases of investments (41,548) (55,531) (35,072)
Purchases of nonutility property (49,254) (25,466) (55,792)
Proceeds from sale of assets 64,072 225,958 39,617
Hawthorn No. 5 partial insurance recovery 30,000 50,000 80,000
Loan to DTI prior to majority ownership (94,000) - -
Other investing activities 8,087 18,967 (10,316)
Net cash from investing activities (353,870) (199,297) (165,628)
Cash Flows from Financing Activities
Issuance of long-term debt 249,597 500,445 10,889
Repayment of long-term debt (93,099) (179,858) (109,060)
Net change in short-term borrowings 14,524 (183,099) 228,699
Dividends paid (78,246) (104,335) (106,662)
Dividends paid to Great Plains Energy (25,677) - -
Cash of KLT Inc. and GPP dividended to
Great Plains Energy (19,115) - -
Redemption of preferred stock - - (50,000)
Equity contribution from Great Plains Energy 39,000 - -
Other financing activities (4,660) (5,925) 1,513
Net cash from financing activities 82,324 27,228 (24,621)
Net Change in Cash and Cash Equivalents (33,915) 21,804 (30,140)
Cash and Cash Equivalents at Beginning of Year 34,877 13,073 43,213
Cash and Cash Equivalents at End of Year $ 962 $ 34,877 $ 13,073
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
9
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Comprehensive Income
Year Ended December 31 2001 2000 1999
(thousands)
Net income $ 119,691 $ 158,704 $ 81,915
Other comprehensive loss:
Unrealized loss on securites
available for sale - - (3,778)
Income tax benefit - - 1,367
Net unrealized loss on
securites available for sale - - (2,411)
Loss on derivative
hedging instruments (39,952) - -
Income tax benefit 16,590 - -
Net loss on derivative
hedging instruments (23,362) - -
Minimum pension liability (1,691) - -
Income tax benefit 660 - -
Net minimum pension liability (1,031) - -
Reclassification to revenues
and expenses, net of tax (7,687) 2,337 -
Comprehensive income before
cumulative effect of a
change in accounting
principles, net of
income taxes 87,611 161,041 79,504
Cumulative effect to
January 1, 2001, of a
change in accounting
principles, net of
income taxes 17,443 - -
Comprehensive Income $ 105,054 $ 161,041 $ 79,504
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Retained Earnings
Year Ended December 31 2001 2000 1999
(thousands)
Beginning Balance $ 473,321 $ 418,952 $ 443,699
Net Income 119,691 158,704 81,915
593,012 577,656 525,614
Dividends Declared
Preferred stock -
at required rates 824 1,649 3,911
Common stock 77,011 102,686 102,751
Common stock held by
Great Plains Energy 25,677 - -
Equity dividend of KLT Inc.
and GPP to Great Plains Energy 269,976 - -
Ending Balance $ 219,524 $ 473,321 $ 418,952
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
10
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms that
are found throughout this report:
Abbreviation or Acronym Definition
APB Accounting Principles Board
Clean Air Act Clean Air Act Amendments of 1990
CO2 Carbon Dioxide
Consolidated KCP&L KCP&L and its subsidiary HSS
DIP Debtor-in-Possession
DTI DTI Holdings, Inc. and its subsidiary Digital Teleport Inc.
DOE Department of Energy
EIRR bonds Environmental Improvement Revenue Refunding bonds
EPA Environmental Protection Agency
EPS Earnings per share
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
GAAP Generally Accepted Accounting Principles
IBEW International Brotherhood of Electrical Workers
IOUs Investor owned utilities
GPP Great Plains Power Incorporated, a subsidiary of Great
Plains Energy Incorporated
HSS Home Service Solutions Inc., a subsidiary of KCP&L
KCC The State Corporation Commission of the State of Kansas
KCP&L Kansas City Power & Light Company, a regulated electric
utility subsidiary of Great Plains Energy Incorporated
MACT Maximum Achievable Control Technology
MISO Midwest Independent System Operator
MPSC Missouri Public Service Commission
mw Megawatt
NEIL Nuclear Electric Insurance Limited
NOx Nitrogen Oxide
NRC Nuclear Regulatory Commission
PCBs Polychlorinated biphenyls
PUHCA Public Utility Holding Company Act of 1935
RSAE R.S. Andrews Enterprises, Inc. a consumer services company
in which HSS owns a 72% equity interest
RTO Regional Transmission Organization
SEC Securities and Exchange Commission
SPP Southwest Power Pool
SFAS Statement of Financial Accounting Standards
Superfund law Federal Comprehensive Environmental Response, Compensation
and Liability Act
WCNOC Wolf Creek Nuclear Operating Corporation
11
GREAT PLAINS ENERGY INCORPORATED
KANSAS CITY POWER & LIGHT COMPANY
Notes to Consolidated Financial Statements
The notes to consolidated financial statements that follow are a
combined presentation for Great Plains Energy and consolidated KCP&L,
both registrants under this filing. Effective October 1, 2001, KCP&L
completed its formation of the holding company and became a wholly
owned subsidiary of Great Plains Energy. Additionally, KCP&L
dividended to Great Plains Energy, its ownership in KLT Inc. and GPP.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Great Plains Energy (The Company)
Great Plains Energy is a registered holding company under the PUHCA.
Effective October 1, 2001, all outstanding KCP&L shares were exchanged
one for one for shares of Great Plains Energy. The Great Plains
Energy trading symbol "GXP" replaced the KCP&L trading symbol "KLT" on
the New York Stock Exchange.
Effective October 1, 2001, KCP&L dividended its 100% ownership of KLT
Inc. and GPP to Great Plains Energy. As a result, those companies are
subsidiaries of Great Plains Energy and are not included in
consolidated KCP&L's results of operations and financial position
since that date.
Great Plains Energy's consolidated financial statements include
consolidated KCP&L, KLT Inc. and GPP. The presentation of prior years
results of operations and financial position for Great Plains Energy
is provided for comparative purposes and is identical to the results
of operations and financial position for consolidated KCP&L, prior to
formation of the holding company, presented for those years.
Intercompany balances and transactions have been eliminated in
consolidation.
Consolidated KCP&L
KCP&L's consolidated financial statements include its wholly owned
subsidiary HSS. In addition, KCP&L's consolidated results of
operations include KLT Inc. and GPP for all periods prior to the
October 1, 2001, formation of the holding company. KCP&L is a medium-
sized, integrated electric utility with more than 474,000 customers at
year-end in western Missouri and eastern Kansas. About 95% of KCP&L's
retail electric revenues are from the Kansas City metropolitan area,
an agribusiness center and major regional center for wholesale, retail
and service companies. About 60% of KCP&L's 2001 retail megawatt-hour
sales were to Missouri customers, the remainder to Kansas customers.
The rates charged by KCP&L are approved by the FERC and the state
utility commissions, the MPSC and the KCC. The FERC regulates
wholesale electricity operations and transmission rates and the state
commissions regulate retail generation and distribution rates.
HSS, a wholly owned, unregulated subsidiary, owns 72% of RSAE, a
consumer services company in Atlanta, Georgia. In 2001, HSS acquired
majority ownership in RSAE and changed the method of accounting for
RSAE from the equity method to consolidation. In addition, HSS owns
all the stock of Worry Free Service, Inc. (Worry Free). Worry Free
assists residential customers in obtaining financing primarily for
heating and air conditioning equipment.
KLT Inc. and GPP
KLT Inc., formed in 1992, is an investment company focusing on energy-
related ventures that are unregulated with high growth potential. KLT
Inc.'s major holdings consist of Strategic Energy, KLT Gas, and
investments in affordable housing limited partnerships. GPP, formed
in 2001, will be a competitive generator that will sell to the
wholesale market.
12
The preparation of Great Plains Energy and KCP&L's consolidated
financial statements conforms with GAAP. Additionally, KCP&L's
consolidated financial statements conform with the standards set forth
by the FERC. GAAP requires in certain instances the use of estimates
and assumptions that affect amounts reported in the financial
statements along with the disclosure of commitments and contingencies
at the date of the financial statements. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with
original maturities of three months or less.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Current Assets and Current Liabilities-The stated value of financial
instruments classified as current assets or liabilities approximates
fair value due to the short-term nature of the instruments. At
December 31, 2000, the equity securities were considered trading
securities and therefore were recorded at fair value based on quoted
market prices.
Investments and Nonutility Property-KCP&L's nuclear decommissioning
trust fund is recorded at fair value. Fair value is based on quoted
market prices of the investments held by the fund. The fair value of
KLT Investments' affordable housing limited partnership total
portfolio, based on the discounted cash flows generated by tax
credits, tax deductions and sale of properties, approximates book
value. The fair values of other various investments are not readily
determinable and the investments are therefore stated at cost.
Long-term debt-The incremental borrowing rate for similar debt was
used to determine fair value if quoted market prices were not
available. The stated values approximate fair market values.
Investments in Affordable Housing Limited Partnerships
At December 31, 2001, KLT Investments had $81.1 million in affordable
housing limited partnerships. About 68% of these investments were
recorded at cost; the equity method was used for the remainder. Tax
expense is reduced in the year tax credits are generated. The
investments generate future cash flows from tax credits and tax losses
of the partnerships. The investments also generate cash flows from
the sales of the properties (estimated residual value). For most
investments, tax credits are received over ten years. A change in
accounting principle relating to investments made after May 19, 1995,
requires the use of the equity method when a company owns more than 5%
in a limited partnership investment. Of the investments recorded at
cost, $52.9 million exceed this 5% level but were made before May 19,
1995.
On a quarterly basis, KLT Investments compares the cost of those
properties accounted for by the cost method to the total of projected
residual value of the properties and remaining tax credits to be
received. Estimated residual values are based on studies performed by
an independent firm. Based on the latest comparison, KLT Investments
reduced its investments in affordable housing limited partnerships by
$13.5 million in 2001 and $2.4 million in 2000. Projected annual
reductions of the book cost for the years 2002 through 2006 total $9
million, $12 million, $8 million, $7 million and $6 million,
respectively. Even after these reductions, earnings from affordable
housing are expected to be positive for the next five years.
These projections are based on the latest information available but
the ultimate amount and timing of actual reductions made could be
significantly different from the above estimates.
13
Securities Available for Sale
In 2000, CellNet completed a sale of its assets to a third party
causing KLT's investment in CellNet to become worthless. Accordingly,
in March 2000, KLT Inc. realized losses on its investment in CellNet
of $4.8 million before taxes ($0.05 per share). At December 31, 1999,
$3.8 million before taxes of this loss had been reported as an
unrealized loss in the Consolidated Statement of Comprehensive Income.
These pre-tax amounts were reduced by taxes of $1.7 million in 2000
and $1.4 million in 1999.
Prior to realizing the losses, the investment in CellNet had been
accounted for as securities available for sale and adjusted to market
value, with unrealized gains or (losses) reported as a separate
component of comprehensive income. The cost of these securities
available for sale that KLT Investments II held as of December 31,
1999, was $4.8 million. Accumulated net unrealized losses were $2.3
million at December 31, 1999.
Utility Plant
KCP&L's utility plant is stated at historical costs of construction.
These costs include taxes, an allowance for funds used during
construction (AFDC) and payroll-related costs, including pensions and
other fringe benefits. Replacements, improvements and additions to
units of property are capitalized. Repairs of property and
replacements of items not considered to be units of property are
expensed as incurred (except as discussed under Wolf Creek Refueling
Outage Costs). When property units are retired or otherwise disposed,
the original cost, net of salvage and removal, is charged to
accumulated depreciation.
Through December 31, 2001, KCP&L received $160 million in insurance
recoveries related to property destroyed in the February 17, 1999,
explosion at the Hawthorn No. 5 generating unit. Recoveries received
have been recorded as an increase in accumulated depreciation.
AFDC represents the cost of borrowed funds and a return on equity
funds used to finance construction projects. AFDC on borrowed funds
reduces interest charges. AFDC on equity funds is included as a
noncash item in Other income and expenses. The rates used to compute
gross AFDC are compounded semi-annually and averaged 6.8% for 2001,
7.5% for 2000, and 7.7% for 1999.
Depreciation is computed using the straight-line method over the
estimated lives of depreciable property based on rates approved by
state regulatory authorities. Annual depreciation rates average about
3%.
Natural Gas Properties
KLT Gas follows the full cost method of accounting for its natural gas
properties. Under the full cost method, all costs of acquisition,
exploration and development of natural gas reserves are capitalized
regardless of success. Any excess of book value plus costs to develop
over the present value (10% discount rate) of estimated future net
revenues (at year-end prices) from the natural gas reserves would be
expensed.
Natural gas property and equipment included in the gas property and
investments totaled $39.9 million, net of accumulated depreciation of
$5.0 million, in 2001 and $18.1 million, net of accumulated
depreciation of $1.1 million, in 2000.
Depletion, depreciation and amortization of these assets are
calculated using the units of production method. The depletion per
mmBtu was $1.35 for 2001, $0.63 for 2000 and $0.42 for 1999. Unproved
gas properties are not amortized but are assessed for impairment
either individually or on an aggregated basis. All natural gas
property interests owned by KLT Gas are located in the United States.
14
Wolf Creek Refueling Outage Costs
KCP&L accrues forecasted incremental costs to be incurred during
scheduled Wolf Creek refueling outages monthly over the unit's
operating cycle, normally about 18 months. Estimated incremental
costs, which include operating, maintenance and replacement power
expenses, are based on budgeted outage costs and the estimated outage
duration. Changes to or variances from those estimates are recorded
when known or probable.
Nuclear Plant Decommissioning Costs
The MPSC and the KCC require KCP&L and the other owners of Wolf Creek
to submit an updated decommissioning cost study every three years.
The following table shows the decommissioning cost estimates and the
escalation rates and earnings assumptions approved by the MPSC and the
KCC in 2000. The decommissioning cost estimates are based on the
immediate dismantlement method and include the costs of
decontamination, dismantlement and site restoration. KCP&L does not
expect plant decommissioning to start before 2025.
KCC MPSC
Future cost of decommissioning:
Total Station $1.2 billion $1.5 billion
47% share $554 million $694 million
Current cost of decommissioning (in 1999 dollars):
Total Station $470 million $470 million
47% share $221 million $221 million
Annual escalation factor 3.60% 4.50%
Annual return on trust assets 6.93% 7.66%
KCP&L contributes about $3 million annually to a tax-qualified trust
fund to be used to decommission Wolf Creek. These costs are charged
to other operating expenses and recovered in billings to customers.
These funding levels assume a certain return on trust assets. If the
actual return on trust assets is below the anticipated level, KCP&L
believes a rate increase will be allowed ensuring full recovery of
decommissioning costs over the remaining life of the unit.
The trust fund balance, including reinvested earnings, was $61.8
million at December 31, 2001, and $56.8 million at December 31, 2000.
The related liabilities for decommissioning are included in Deferred
Credits and Other Liabilities - Other.
In 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. Under the new pronouncement, an entity
must recognize as a liability the fair value of legal obligations
associated with the retirement of long-lived assets. Management
currently believes that nuclear decommissioning cost is the only
significant legal retirement obligation.
After adoption of SFAS No. 143 in 2003, the asset retirement
obligation for nuclear decommissioning would be recorded as a
liability, currently estimated to be less than $100 million, with
offsets to net utility plant and a regulatory asset. The amount
recorded to the electric plant accounts will be depreciated over the
remaining life of Wolf Creek. The associated liability will be
increased for the passage of time (accretion) to operating expense.
Trust fund income and losses from the external decommissioning trusts
would be reported as investment income or loss. KCP&L does not
anticipate results of operations to be significantly affected by the
adoption of SFAS No. 143 as long as KCP&L is regulated. Regulatory
assets or liabilities would be recorded when SFAS No. 143 is first
adopted and then yearly for the difference between decommissioning
expense determined by regulation and amounts required by SFAS No. 143.
15
Nuclear Fuel
KCP&L amortizes nuclear fuel to fuel expense based on the quantity of
heat produced during generation of electricity. Under the Nuclear
Waste Policy Act of 1982, the DOE is responsible for the permanent
disposal of spent nuclear fuel. For the future disposal of spent
nuclear fuel, KCP&L pays the DOE a quarterly fee of one-tenth of a
cent for each kilowatt-hour of net nuclear generation delivered and
sold. These disposal costs are charged to fuel expense.
A permanent disposal site will not be available for the industry until
2010 or later. Under current DOE policy, once a permanent site is
available, the DOE will accept spent nuclear fuel first from the
owners with the oldest spent fuel. As a result, disposal services for
Wolf Creek will not be available before 2016. Wolf Creek has an
on-site, temporary storage facility for spent nuclear fuel. In early
2000, Wolf Creek completed replacement of spent fuel storage racks to
increase its on-site storage capacity for all spent fuel expected to
be generated by Wolf Creek through the end of its licensed life in
2025.
Regulatory Assets
SFAS No. 71, "Accounting for Certain Types of Regulation", applies to
regulated entities whose rates are designed to recover the costs of
providing service. Under this statement, KCP&L defers on the balance
sheet items when allowed by a commission's rate order or when it is
probable, based on regulatory past practices, that future rates will
recover the amortization of the deferred costs. If SFAS No. 71 were
not applicable, the unamortized balance of $124.4 million of KCP&L's
regulatory assets, net of the related tax benefit, would be written
off.
Amortization
December 31, ending
2001 period
Regulatory Assets (millions)
Recoverable taxes $ 108.0
Coal contract termination costs 6.4 2003
Decommission and decontaminate federal
uranium enrichment facilities 3.9 2007
Premium on redeemed debt 5.1 2023
Other 1.0 2006
Total Regulatory Assets $ 124.4
Revenue Recognition
KCP&L and Strategic Energy use cycle billing and accrue estimated
unbilled revenue at the end of each month. When Strategic Energy is
arranging supply for retail customers, excess supply in certain time
periods may occur. To reduce the total cost of providing energy to
its retail customers, Strategic Energy sells the excess retail supply.
The sale of excess retail supply is recorded in the consolidated
statements of income as a reduction of purchased power. The gross
amount of such excess retail supply sales was approximately $95.6
million in 2001, $29.5 million in 2000 and $7.2 million in 1999. KLT
Gas records natural gas sales revenues based on the amount of gas sold
to purchasers on its behalf.
Property Gains and Losses
Net gains and losses from the sales of assets, businesses, and asset
impairments are recorded in operating expenses. See Note 17 for
additional information regarding the net impairment of DTI assets.
Asset Impairments
Long-lived assets, including intangibles, are periodically reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. To the
extent that there is impairment, analysis is performed based on
several criteria, including but not
16
limited to revenue trends,discounted operating cash flows and other
operating factors, to determine the impairment amount.
Income Taxes
The balance sheet includes deferred income taxes for all temporary
differences between the tax basis of an asset or liability and that
reported in the financial statements. These deferred tax assets and
liabilities are determined by using the tax rates scheduled by the tax
law to be in effect when the differences reverse. A tax valuation
allowance is recorded when it is more likely than not that a deferred
tax asset will not be realized.
Regulatory Asset - Recoverable taxes mainly reflects the future
revenue requirements necessary to recover the tax benefits of existing
temporary differences previously passed through to KCP&L customers.
KCP&L records operating income tax expense based on ratemaking
principles. However, if the method used for the balance sheet were
reflected in the income statement, net income would remain the same.
Tax credits are recognized in the year generated except for certain
KCP&L investment tax credits that have been deferred and amortized
over the remaining service lives of the related properties.
Environmental Matters
Environmental costs are accrued when it is probable a liability has
been incurred and the amount of the liability can be reasonably
estimated.
Basic and Diluted Earnings per Common Share Calculation
There is no dilutive effect on Great Plains Energy's earnings per
share from other securities in 2001, 2000 or 1999. To determine
earnings per common share, preferred stock dividend requirements are
subtracted from both income before extraordinary item and cumulative
effect of changes in accounting principles and net income before
dividing by average number of common shares outstanding. The earnings
per share impact of the extraordinary item and the cumulative effect
of changes in accounting principles is determined by dividing each by
the average number of common shares outstanding.
Earnings per share for KCP&L and Great Plains Energy are the same for
the years 2000 and 1999, prior to the formation of the holding
company.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Great Plains Energy Other Operating Activities
2001 2000 1999
Cash flows affected by changes in: (thousands)
Receivables $(32,680) $ (42,565) $ (1,417)
Fuel inventories (1,444) 1,787 (3,840)
Materials and supplies (4,294) (113) (926)
Accounts payable 9,495 66,765 6,545
Accrued taxes (31,133) 13,430 (14,653)
Accrued interest 667 (2,865) (7,962)
Wolf Creek refueling outage accrual 11,089 (5,166) (5,259)
Pension and postretirement
benefit obligations (22,577) (12,653) 1,939
Other 33,932 4,593 (12,213)
Total other operating activities $(36,945) $ 23,213 $(37,786)
Cash paid during the period:
Interest $ 84,907 $ 76,395 $ 74,520
Income taxes $ 21,614 $ 80,445 $ 52,300
17
During the first quarter of 2001, because KLT Telecom increased its
equity ownership in DTI to a majority ownership, DTI was consolidated.
On December 31, 2001, DTI filed voluntary petitions in Bankruptcy
Court. See Note 17 for details regarding the bankruptcy. Beginning
February 8, 2001, through December 31, 2001, prior to the bankruptcy,
DTI's operations were included in KLT Telecom's results of operations.
The table below reflects a reconciliation of DTI's effect on Great
Plains Energy's consolidated statement of cash flows for the year
ended December 31, 2001, to the cash invested in DTI during 2001.
Cash Flows from Operating Activities (thousands)
Amounts included in net income(loss) $(248,437)
Depreciation 17,907
Goodwill amortization 2,481
Loss on property (net impairment) 195,835
Other operating activities
Accretion of Senior Discount Notes and
amortization of the discount 16,364
Other 1,719
DTI adjustment to operating activities 234,306
Net cash from operating activities $ (14,131)
Cash Flows from Investing Activities
Purchase of additional ownership in DTI (39,855)
Purchase of nonutility property (33,648)
Loans to DTI prior to consolidation (94,000)
Other investing activities 3,002
DTI effect on cash from investing activities (164,501)
Cash Flows from Financing Activities
DTI effect on cash from financing activities (2,223)
Cash flows from DTI investment $(180,855)
Cash invested in DTI
Loan to DTI Holdings $ (94,000)
Operating loans to Digital Teleport, Inc. (47,000)
Purchase of additional ownership in DTI (39,855)
Cash used for DTI investment $(180,855)
18
Consolidated KCP&L Other Operating Activities
2001 2000 1999
Cash flows affected by changes in: (thousands)
Receivables $(43,604) $(42,565) $ (1,417)
Fuel inventories (1,444) 1,787 (3,840)
Materials and supplies (4,294) (113) (926)
Accounts payable (14,878) 66,765 6,545
Accrued taxes (1,995) 13,430 (14,653)
Accrued interest 610 (2,865) (7,962)
Wolf Creek refueling outage accrual 11,089 (5,166) (5,259)
Pension and postretirement
benefit obligations (22,577) (12,653) 1,939
Other 41,771 4,593 (12,213)
Total other operating activities $(35,322) $ 23,213 $(37,786)
Cash paid during the period:
Interest $ 82,867 $ 76,395 $ 74,520
Income taxes $ 21,470 $ 80,445 $ 52,300
As described in note 1, KCP&L dividended its ownership in KLT Inc. and
GPP to Great Plains Energy on October 1, 2001. The effect of this
transaction on KCP&L's consolidated statement of cash flows for the
year ended December 31, 2001, is summarized in the table that follows.
Effect of dividend to Great Plains Energy: October 1, 2001
(thousands)
Assets
Cash $ 19,115
Equity securities 283
Receivables 101,539
Nonutility property and investments 529,121
Goodwill 75,534
Other assets 8,542
Total assets $734,134
Liabilities and Accumulated Other Comprehensive Income
Notes payable $ 3,077
Accounts payable 67,853
Accrued taxes (1,050)
Accrued interest 1,878
Deferred income taxes (23,868)
Deferred telecommunications revenue 45,595
Other liabilities and deferred credits 54,340
Long-term debt 329,788
Accumulated other comprehensive income (13,455)
Total liabilities and accumulated
other comprehensive income 464,158
Equity dividend of KLT Inc. and GPP to Great Plains Energy $269,976
19
During the first quarter of 2001, KLT Telecom increased its equity
ownership in DTI to a majority ownership and HSS increased its equity
ownership in RSAE to a majority ownership. The effect of these
transactions is summarized in the tables that follow. The initial
consolidation of DTI (February 8, 2001) and RSAE (January 1, 2001) are
not reflected in KCP&L's consolidated statement of cash flows for the
year ended December 31, 2001.
DTI RSAE
(thousands)
Cash paid to obtain majority ownership $ (39,855) $ (560)
Subsidiary cash 4,557 1,053
Purchase of DTI and RSAE,
net of cash received $ (35,298) $ 493
Initial consolidation of subsidiaries:
Assets
Cash $ 4,557 $ 1,053
Receivables 1,012 4,078
Other nonutility property and 363,825 6,267
investments
Goodwill 62,974 24,496
Other assets 5,143 3,919
Eliminate equity investment (67,660) (7,200)
Total assets $ 369,851 $ 32,613
Liabilities
Notes payable $ 5,300 $ 10,057
Accounts payable 31,299 6,219
Accrued taxes 2,414 24
Deferred income taxes 7,437 -
Other liabilities and deferred credits 46,531 13,418
Loan from KLT Telecom (a) 94,000 -
Long-term debt 182,870 2,895
Total liabilities $ 369,851 $ 32,613
(a) KLT Telecom provided a $94 million loan to DTI for the
completion of the tender offer of 50.4 percent of DTI's
Senior Discount Notes prior to increasing its DTI
investment to a majority ownership.
Sales of KLT Gas properties
KLT Gas sold producing natural gas properties to Evergreen Resources,
Inc. (Evergreen) and Barrett Resources Corporation during 2000. The
transactions are summarized in the table below.
2000
(thousands)
Cash proceeds $ 125,958
Preferred stock redeemed (a) 100,000
Total cash proceeds 225,958
Equity securities 10,000
Receivable 1,243
Total proceeds 237,201
Cost basis in property sold (87,785)
Accounts payable (b) (23,168)
Other assets and liabilities (b) (15,670)
Gain on sale before income tax 110,578
Income tax (42,606)
Gain on sale, net of income tax $ 67,972
(a) The preferred stock received in September 2000 was redeemed in
December 2000.
(b) Includes $7.9 million of incentive compensation.
As part of the sales transactions, KLT Gas received additional
Evergreen shares valued at $4 million in December 2000 because of the
increase in natural gas futures. The Evergreen common stock was
considered a trading security and recorded at fair value at December
31, 2000.
20
3. PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Changes in Pension Accounting Principles
Effective January 1, 2000, KCP&L changed its methods of amortizing
unrecognized net gains and losses and determination of expected return
related to its accounting for pension expense. These changes were
made to reflect more timely in pension expense the gains and losses
incurred by the pension funds.
At the time KCP&L originally adopted the standards governing
accounting for pensions, it chose the following accounting methods
that would minimize fluctuations in pension expense:
- - Recognized gains and losses if, as of the beginning of the year,
the unrecognized net gain or loss exceeded 10 percent of the greater
of the projected benefit obligation or the market-related value of
plan assets. If amortization was required, amortization was the
excess divided by the average remaining service period, approximately
15 years, of active employees expected to receive benefits under the
plan. This method resulted in minimal gains being amortized.
- - Determined the expected return by multiplying the long-term rate of
return times the market-related value. KCP&L determined market-
related value by recognizing changes in fair value of plan assets over
a five-year period.
KCP&L has changed the above accounting methods to the following:
- - Recognize gains and losses by amortizing over a five-year period
the rolling five-year average of unamortized gains and losses.
- - Determine the expected return by multiplying the long-term rate of
return times the fair value of plan assets.
Adoption of the new methods of accounting for pensions has led and
will continue to lead to greater fluctuations in pension expense in
the future. The following table details the effects of the adoption
of the new methods of accounting for pensions.
Changes in Method of Accounting for Pensions (a)
Amortization
of Gains and Expected Reductions Net
Losses Return Total (b) Total
(millions except per share amounts)
Cumulative effect of change
in method of accounting:
Income $ 21.4 $ 13.6 $ 35.0 $ (4.9) $ 30.1
Basic and diluted earnings
per common share $ 0.35 $ 0.22 $ 0.57 $ (0.08) $ 0.49
Year 2000 earnings effect of
change in method of accounting:
Income $ 4.1 $ 2.0 $ 6.1 $ (1.1) $ 5.0
Basic and diluted earnings
per common share $ 0.07 $ 0.03 $ 0.10 $ (0.02) $ 0.08
Prior year's earnings effect
of change in method of
accounting if the change had
been made January 1, 1999:
1999
Income $ 4.4 $ 1.1 $ 5.5 $ (1.0) $ 4.5
Basic and diluted earnings
per common share $ 0.07 $ 0.02 $ 0.09 $ (0.02) $ 0.07
(a) All changes are increases to income or earnings per common share
and are after income taxes.
(b) The Reductions column reflects the effects of capitalization and
sharing with joint-owners of power plants.
21
Pension Plans and Other Employee Benefits
KCP&L has defined benefit pension plans for its employees, including
officers and Wolf Creek employees. Benefits under these plans reflect
the employees' compensation, years of service and age at retirement.
KCP&L satisfies the minimum funding requirements under the Employee
Retirement Income Security Act of 1974.
During 2001, the plans, other than those at Wolf Creek, were amended
resulting in an increase to the benefit obligation of $6.8 million.
The increase was due primarily to an amendment to the non-management
plan, which improved benefits to employees with at least thirty years
of service who elected lump sum distributions.
During 2000, the plans were amended, except for those at Wolf Creek,
which resulted in a $42.0 million increase in the benefit obligation.
The amendments changed the mortality tables used and added enhanced
benefit options. The enhancements include improved early retirement
benefits for employees who retire after their age plus their years of
service equals at least 85. The options also include lump sum
distributions. During 2001, the plans experienced lump sum
distributions related to these enhancements in excess of $33.0
million.
Primarily as a result of the significant decline in the market value
of plan assets, KCP&L recorded an additional minimum pension liability
of $20.0 million offset by an increase of $18.3 million in intangible
assets and $1.7 million in other comprehensive income.
In addition to providing pension benefits, KCP&L provides certain
postretirement health care and life insurance benefits for
substantially all retired employees. KCP&L accrues the cost of
postretirement health care and life insurance benefits during an
employee's years of service and recovers these accruals through rates.
KCP&L funds the portion of net periodic postretirement benefit costs
that are tax deductible. Beginning in 2001, management employees who
resign with 25 years or more of service are eligible for life
insurance benefits.
Pension Benefits Other Benefits
2001 2000 2001 2000
(thousands)
Change in benefit obligation
Benefit obligation at
beginning of year $ 411,960 $ 334,939 $ 36,858 $ 31,910
Service cost 11,152 9,384 729 547
Interest cost 31,905 26,538 2,918 2,543
Contribution by
participants - - 459 243
Amendments 6,790 42,025 960 -
Actuarial (gain) loss 22,853 26,504 3,185 4,997
Benefits paid (28,807) (27,116) (3,432) (2,980)
Benefits paid by KCP&L (1,381) (314) (454) (402)
Settlements (33,346) - - -
Benefit obligation at
end of year (a) $ 421,126 $ 411,960 $ 41,223 $ 36,858
22
Pension Benefits Other Benefits
2001 2000 2001 2000
(thousands)
Change in plan assets
Fair value of plan assets
at beginning of year $ 564,947 $ 453,150 $ 8,096 $ 7,100
Actual return on plan
assets (112,397) 137,684 601 225
Contributions by employer
and participants 1,017 1,229 4,193 3,751
Benefits paid (28,807) (27,116) (3,432) (2,980)
Settlements (29,745) - - -
Fair value of plan assets
at end of year $ 395,015 $ 564,947 $ 9,458 $ 8,096
Prepaid (accrued)
benefit cost
Funded status $ (26,111) $ 152,987 $ (31,765) $(28,762)
Unrecognized actuarial
(gain) loss 58,686 (138,818) 4,649 1,692
Unrecognized prior
service cost 47,296 44,960 1,282 400
Unrecognized transition
obligation (230) (2,253) 12,919 14,093
Net prepaid (accrued)
benefit cost $ 79,641 $ 56,876 $(12,915) $(12,577)
Amounts recognized in the
consolidated balance
sheets
Prepaid benefit cost $ 88,337 $ 68,342 $ - $ -
Accrued benefit cost (8,696) (11,466) (12,915) (12,577)
Minimum pension
liability adjustment (19,994) - - -
Intangible asset 18,303 - - -
Accumulated other
comprehensive income 1,691 - - -
Net amount recognized
in statements $ 79,641 $ 56,876 $(12,915) $(12,577)
(a) Based on weighted-average discount rates of 7.25% in 2001 and 8.0% in
2000; and increases in future salary levels of 4.1% in 2001 and 2000.
Pension Benefits Other Benefits
2001 2000 1999 2001 2000 1999
Components of net (thousands)
periodic Benefit cost
Service cost $ 11,152 $ 9,384 $ 10,983 $ 729 $ 547 $ 678
Interest cost 31,905 26,538 25,446 2,918 2,543 2,493
Expected return on
plan assets (48,967) (39,571) (31,263) (403) (361) (348)
Amortization of prior
service cost 3,884 488 498 78 78 77
Recognized net actuarial
loss (gain) (11,333) (5,913) 896 32 2 51
Transition obligation (2,023) (2,072) (2,072) 1,174 1,174 1,175
Net settlements (1,738) - - - - -
Net periodic benefit
cost $(17,120) $(11,146) $ 4,488 $4,528 $3,983 $4,126
Long-term rates of return on pension assets of 9.0% to 9.25% were
used.
The pension benefits table above provides information relating to the
funded status of all defined benefit pension plans on an aggregate
basis. The projected benefit obligation, accumulated benefit
23
obligation and fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets was $213.4
million, $176.3 million, and $234.3 million, respectively, as of
December 31, 2001, and $404.1 million, $342.6 million, and $564.9
million, respectively, as of December 31, 2000. Net periodic benefit
costs reflect total plan benefit costs prior to the effects of
capitalization and sharing with joint-owners of power plants.
Actuarial assumptions include an increase in the annual health care
cost trend rate for the year 2001 and thereafter of 5.3%. The health
care plan requires retirees to share in the cost when premiums exceed
a certain amount. An increase or decrease in the assumed health care
cost trend rate by 1% per year would only increase or decrease the
benefit obligation as of December 31, 2001, by about $2,000,000 and
the combined service and interest costs of the net periodic
postretirement benefit cost for 2001 by about $200,000.
Employee Savings Plans
KCP&L has a defined contribution savings plan that covers
substantially all employees. The Company matches employee
contributions, subject to limits. The annual cost of the plan was
$2.9 million during both 2001 and 2000, and $2.8 million during 1999.
Stock Options
The Company has a long-term incentive plan that permits the grant of
restricted stock, stock options, limited stock appreciation rights and
performance shares to officers and other employees of the Company and
its subsidiaries. The maximum number of shares of Great Plains Energy
common stock that may be issued under the plan is 3.0 million.
Stock Options Granted 1992 - 1996
The exercise price of stock options granted equaled the market price
of the Company's common stock on the grant date. One-half of all
options granted vested one year after the grant date, the other half
vested two years after the grant date. An amount equal to the
quarterly dividends paid on Great Plains Energy's common stock shares
(dividend equivalents) accrues on the options for the benefit of
option holders. The option holders are entitled to stock for their
accumulated dividend equivalents only if the options are exercised
when the market price is above the exercise price. At December 31,
2001, the market price of Great Plains Energy's common stock was
$25.20, which exceeded the grant price for two of the three years that
options granted were still outstanding. Unexercised options expire
ten years after the grant date.
KCP&L follows Accounting Principles Board (APB) Opinion 25,
"Accounting for Stock Issued to Employees" and related interpretations
in accounting for this plan. KCP&L recognizes annual expense equal to
accumulated and reinvested dividends plus the impact of the change in
stock price since the grant date. KCP&L expensed $(0.3) million in
2001, $1.1 million in 2000 and $(1.1) million in 1999.
Even though KCP&L follows APB Opinion 25, SFAS No. 123, "Accounting
for Stock-Based Compensation" requires certain disclosures regarding
expense and value of options granted using the fair-value method.
KCP&L has expensed approximately the same amount as required by FASB
123. For options outstanding at December 31, 2001, grant prices range
from $20.6250 to $26.1875 and the weighted-average remaining
contractual life is 3.6 years.
24
Stock option activity over the last three years is summarized below:
2001 2000 1999
Shares Price* Shares Price* Shares Price*
Outstanding at
January 1 88,500 $23.57 89,875 $23.57 97,875 $23.41
Exercised 31,125 23.27 (1,375) 23.88 - -
Canceled - - - - (8,000) 21.63
Outstanding at
December 31 57,375 $23.73 88,500 $23.57 89,875 $23.57
Exercisable as
of December 31 57,375 $23.73 88,500 $23.57 89,875 $23.57
*weighted-average price
Stock Options Granted 2001
In 2001, 193,000 stock options were granted under the plan at the fair
market value of the shares on the grant date. The options vest three
years after the grant date and expire in ten years if not exercised.
Exercise prices range from $25.32 to $25.98.
Great Plains Energy follows APB Opinion 25 to account for these
options. No compensation cost is recognized because the option
exercise price is equal to the market price of the underlying stock on
the date of grant. Had compensation cost for the plan been recorded
based on the fair value at the grant dates for awards as prescribed by
SFAS No. 123, pro forma net income and earnings per share would not
have been materially different than reported for 2001.
The fair value of each option award is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used to estimate the fair value of options granted in
2001: dividend yield of 6.37%; expected stock price volatility of
25.879%; risk-free interest rate of 5.53% and expected life of option
of 9.2 years.
In 2001, 144,500 performance shares were awarded. The issuance of
performance shares is contingent upon achievement, over a four-year
period, of company and individual performance goals. Performance
shares have an intrinsic value equal to the market price of a share on
the date of grant. Pursuant to APB 25, expense is accrued for
performance shares over the period services are performed, if
attainment of the performance goals appears probable. As a result of
the Company's 2001 results of operations, no compensation expense was
recognized in 2001 related to the performance shares.
25
4. INCOME TAXES
Income tax expense consisted of the following:
Great Plains Energy 2001 2000 1999
Current income taxes: (thousands)
Federal $(32,628) $ 76,076 $ 31,439
State 1,304 10,928 2,978
Total (31,324) 87,004 34,417
Deferred income taxes:
Federal 9,785 (9,846) (23,313)
State (943) (469) (3,471)
Total 8,842 (10,315) (26,784)
Investment tax credit amortization (4,289) (4,296) (4,453)
Total income tax expense (26,771) 72,393 3,180
Less: Deferred taxes on the
cumulative effect of
changes in accounting
principles - 19,227 -
Deferred taxes on early
extinguishment of debt 9,143 - -
Total $(35,914) $ 53,166 $ 3,180
Consolidated KCP&L 2001 2000 1999
Current income taxes: (thousands)
Federal $ 17,601 $ 76,076 $ 31,439
State 4,109 10,928 2,978
Total 21,710 87,004 34,417
Deferred income taxes:
Federal 18,968 (9,846) (23,313)
State 3,042 (469) (3,471)
Total 22,010 (10,315) (26,784)
Investment tax credit amortization (4,289) (4,296) (4,453)
Total income tax expense 39,431 72,393 3,180
Less: Deferred taxes on the
cumulative effect of
changes in accounting
principles - 19,227 -
Deferred taxes on early
extinguishment of debt 9,143 - -
Total $ 30,288 $ 53,166 $ 3,180
26
The effective income tax rates differed from the statutory federal rates
mainly due to the following:
Great Plains Energy 2001 2000 1999
Federal statutory income tax rate (35.0)% 35.0 % 35.0 %
Differences between book and tax
depreciation not normalized 1.4 0.7 6.9
Proposed IRS Adjustment (see Note 18) - 4.6 -
Amortization of investment tax credits (8.4) (1.9) (5.2)
Federal income tax credits (41.6) (9.2) (26.4)
State income taxes 0.5 2.9 (0.4)
Merger expenses - - (3.8)
Valuation allowance 31.0 - -
Other (0.5) (0.8) (2.4)
Effective income tax rate (52.6)% 31.3 % 3.7 %
Consolidated KCP&L 2001 2000 1999
Federal statutory income tax rate 35.0 % 35.0 % 35.0 %
Differences between book and tax
depreciation not normalized 0.5 0.7 6.9
Proposed IRS Adjustment (see Note 18) - 4.6 -
Amortization of investment tax credits (2.7) (1.9) (5.2)
Federal income tax credits (10.6) (9.2) (26.4)
State income taxes 2.9 2.9 (0.4)
Merger expenses - - (3.8)
Other (0.3) (0.8) (2.4)
Effective income tax rate 24.8 % 31.3 % 3.7 %
The tax effects of major temporary differences resulting in deferred tax
assets and liabilities in the balance sheets are as follows:
Great Plains Energy Consolidated KCP&L
December 31 2001 2000 2001 2000
(thousands)
Plant related $ 533,521 $530,600 $533,521 $530,600
Recoverable taxes 42,000 45,000 42,000 45,000
Pension and postretirement
benefits 21,474 10,544 21,474 10,544
Tax credit carryforwards (19,183) - - -
Gas properties related (9,535) (21,071) - (21,071)
Nuclear fuel outage (5,061) (737) (5,061) (737)
AMT credit (4,258) - - -
Other 14,906 25,147 33,704 25,147
Net deferred tax liability
before valuation allowance 573,864 589,483 625,638 589,483
Valuation allowance
(see Note 17) 15,779 - - -
Net deferred tax liability $ 589,643 $589,483 $625,638 $589,483
27
The net deferred income tax liability consisted of the following:
Great Plains Energy Consolidated KCP&L
December 31 2001 2000 2001 2000
(thousands)
Gross deferred income tax
assets $(125,413) $(97,418) $(73,640) $(97,418)
Gross deferred income tax
liabilities 715,056 686,901 699,278 686,901
Net deferred income tax
liability $ 589,643 $589,483 $625,638 $589,483
5. RELATED PARTY TRANSACTIONS AND RELATIONSHIPS
On September 30, 2000, KLT Energy Services exercised an option to
purchase 1,411,765 shares of Bracknell Corporation (Bracknell) common
stock owned by Reardon Capital, L.L.C. (Reardon). KLT Energy Services
received 1,136,789 common shares of Bracknell at $4.25 per share and a
warrant to purchase the remaining 274,976 shares at an exercise price
of $4.25 per share. On that date, the closing price of Bracknell stock
was $6.80 per share. Reardon had granted the option to KLT Energy
Services in connection with the acquisition by Bracknell of an
investment owned by KLT Energy Services and Reardon. In May 2001, KLT
Energy Services exercised its warrant for 274,976 shares at $4.25 per
share and sold 278,600 shares of Bracknell common stock in June 2001
at $4.48 per share.
KLT Energy Services classified its investment in Bracknell as a
trading security and reflected such investment at its market price.
At December 31, 2000, the market value of KLT Energy Service's
investment in Bracknell was $6.2 million or $5.56 per Bracknell share.
In November 2001, Bracknell common stock ceased trading at a last sale
price of $0.13 per share. As a result, during 2001, KLT Energy
Services wrote off its investment in Bracknell.
Gregory Orman, President and Chief Executive Officer of KLT Energy
Services owns 55% of the membership interests of Reardon in addition
to 740,000 common shares (approximately 1%) of Bracknell. At December
31, 2001, Bracknell common stock is no longer traded.
In January of 1997, KLT Energy Services acquired approximately 71% of
Custom Energy from Environmental Lighting Concepts. In February of
1999, Custom Energy acquired 100% of the outstanding ownership
interest in Strategic Energy in exchange for 25% of the ownership
interest in Custom Energy. Through a series of transactions, KLT
Energy Services has increased its indirect ownership position in
Strategic Energy to approximately 83% as of December 31, 2001.
Environmental Lighting Concepts continues to own a 5.8% indirect
ownership interest in Strategic Energy. Gregory Orman holds a 67%
interest in Environmental Lighting Concepts.
6. COMMITMENTS AND CONTINGENCIES
Nuclear Liability and Insurance
Liability Insurance
The Price-Anderson Act currently limits the combined public liability
of nuclear reactor owners to $9.5 billion for claims that could arise
from a single nuclear incident. The owners of Wolf Creek (the Owners)
carry the maximum available commercial insurance of $0.2 billion.
Secondary Financial Protection, an assessment plan mandated by the
NRC, provides insurance for the $9.3 billion balance.
Under Secondary Financial Protection, if there were a catastrophic
nuclear incident involving any of the nation's licensed reactors, the
Owners would be subject to a maximum retrospective assessment per
incident of up to $88 million ($41 million, KCP&L's share). The
Owners are jointly and severally liable for these charges, payable at
a rate not to exceed $10 million ($5 million, KCP&L's share) per
incident
28
per year, excluding applicable premium taxes. The assessment, most
recently revised in 1998, is subject to an inflation adjustment every
five years based on the Consumer Price Index.
Property, Decontamination, Premature Decommissioning and Extra Expense
Insurance
The Owners also carry $2.8 billion ($1.3 billion, KCP&L's share) of
property damage, decontamination and premature decommissioning
insurance for loss resulting from damage to the Wolf Creek facilities.
NEIL provides this insurance.
In the event of an accident, insurance proceeds must first be used for
reactor stabilization and NRC mandated site decontamination. KCP&L's
share of any remaining proceeds can be used for further
decontamination, property damage restoration and premature
decommissioning costs. Premature decommissioning coverage applies
only if an accident at Wolf Creek exceeds $500 million in property
damage and decontamination expenses, and only after trust funds have
been exhausted (see Note 1 - Nuclear Plant Decommissioning Costs).
The Owners also carry additional insurance from NEIL to cover costs of
replacement power and other extra expenses incurred in the event of a
prolonged outage resulting from accidental property damage at Wolf
Creek.
Under all NEIL policies, KCP&L is subject to retrospective assessments
if NEIL losses, for each policy year, exceed the accumulated funds
available to the insurer under that policy. The estimated maximum
amount of retrospective assessments to KCP&L under the current
policies could total about $10.7 million.
In the event of a catastrophic loss at Wolf Creek, the insurance
coverage may not be adequate to cover property damage and extra
expenses incurred. Uninsured losses, to the extent not recovered
through rates, would be assumed by KCP&L and could have a material,
adverse effect on its financial condition, results of operations and
cash flows.
Low-Level Waste
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated
that the various states, individually or through interstate compacts,
develop alternative low-level radioactive waste disposal facilities.
The states of Kansas, Nebraska, Arkansas, Louisiana and Oklahoma
formed the Central Interstate Low-Level Radioactive Waste Compact and
selected a site in northern Nebraska to locate a disposal facility.
WCNOC and the owners of the other five nuclear units in the compact
provided most of the pre-construction financing for this project.
KCP&L's net investment on its books at December 31, 2001 and 2000, was
$7.4 million.
Significant opposition to the project has been raised by Nebraska
officials and residents in the area of the proposed facility, and
attempts have been made through litigation and proposed legislation in
Nebraska to slow down or stop development of the facility. On
December 18, 1998, the application for a license to construct this
project was denied. This issue is being addressed in the courts. The
passage of time, along with the appointment of a new state
administration in Nebraska, has increased the chances for reversal of
the license denial.
In May 1999, the Nebraska legislature passed a bill withdrawing
Nebraska from the Compact. In August 1999, the Nebraska governor gave
official notice of the withdrawal to the other member states.
Withdrawal will not be effective for five years and will not, of
itself, nullify the site license proceeding.
Environmental Matters
KCP&L's operations are subject to regulation by federal, state and
local authorities with regard to air and other environmental matters.
The generation and transmission of electricity produces and requires
disposal of certain hazardous products which are subject to these laws
and regulations. In addition to
29
imposing continuing compliance obligations, these laws and regulations
authorize the imposition of substantial penalties for noncompliance,
including fines, injunctive relief and other sanctions. Failure to comply
with these laws and regulations could have a material adverse affect on KCP&L.
KCP&L operates in an environmentally responsible manner and seeks to
use current technology to avoid and treat contamination. KCP&L
regularly conducts environmental audits designed to ensure compliance
with governmental regulations and to detect contamination.
Governmental bodies, however, may impose additional or more rigid
environmental regulations that could require substantial changes to
operations or facilities at a significant cost. Expenditures made in
2001 to comply with environmental laws and regulations were not
material in amount and are not expected to be material in the upcoming
years with the exception of the issues discussed below.
Monitoring Equipment and Certain Air Toxic Substances
In July 2000, the National Research Council published its findings of
a study under the Clean Air Act which stated that power plants that
burn fossil fuels, particularly coal, generate the greatest amount of
mercury emissions. As a result, in December 2000, the EPA announced
it would propose Maximum Achievable Control Technology (MACT)
requirements to reduce mercury emissions by December 2003 and issue
final rules by December 2004. KCP&L cannot predict the likelihood or
compliance costs of such regulations.
Air Particulate Matter
In July 1997, the EPA revised ozone and particulate matter air quality
standards creating a new eight-hour ozone standard and establishing a
new standard for particulate matter less than 2.5 microns in diameter.
These standards were challenged in the U. S. Court of Appeals for the
District of Columbia (Appeals Court) that decided against the EPA.
Upon appeal, the U. S. Supreme Court reviewed the standards and
remanded the case back to the Appeals Court for further review,
including a review of whether the standards were arbitrary and
capricious. The Appeals Court has not rendered a decision, and the
new particulate standards have not been finalized. Without
implementation of the regulations, the outcome cannot be determined,
but the impact on KCP&L and all other utilities that use fossil fuels
could be substantial. In addition, the EPA is conducting a three-year
study of fine particulate ambient air levels. Until this testing and
review period has been completed, KCP&L cannot determine additional
compliance costs, if any, associated with the new particulate
regulations.
Nitrogen Oxide
The EPA announced in 1998 regulations implementing reductions in NOx
emissions. These regulations initially called for 22 states,
including Missouri, to submit plans for controlling NOx emissions.
The regulations require a significant reduction in NOx emissions from
1990 levels at KCP&L's Missouri coal-fired plants by the year 2003.
In December 1998, KCP&L and several other western Missouri utilities
filed suit against the EPA over the inclusion of western Missouri in
the NOx reduction program based on the 1-hour NOx standard. On March
3, 2000, a three-judge panel of the District of Columbia Circuit of
the U.S. Court of Appeals sent the NOx rules related to Missouri back
to the EPA, stating the EPA failed to prove that fossil plants in the
western part of Missouri significantly contribute to ozone formation
in downwind states. On March 5, 2001, the U.S. Supreme Court denied
certiorari, making the decision of the Court of Appeals final. This
decision will likely delay the implementation of new NOx regulations
by the EPA in the western portion of Missouri for some time.
If required to be implemented, KCP&L would need to incur significant
capital costs, purchase power or purchase NOx emission allowances.
Preliminary analysis of the regulations indicates that selective
catalytic reduction technology, as well as other changes, may be
required for some of the KCP&L units. Currently, KCP&L estimates that
additional capital expenditures to comply with these regulations could
range from $40 million to $60 million. Operations and maintenance
expenses could also
30
increase by more than $2.5 million per year. KCP&L continues to refine
these preliminary estimates and explore alternatives. The ultimate cost
of these regulations, if any, could be significantly different from the
amounts estimated above.
Carbon Dioxide
At a December 1997 meeting in Kyoto, Japan, delegates from 167
nations, including the United States, agreed to a treaty (Kyoto
Protocol) that would require a seven percent reduction in United
States CO2 emissions below 1990 levels. Although the United States
agreed to the Kyoto Protocol, the treaty has not been sent to Congress
for ratification. The financial impact on KCP&L of future
requirements in the reduction of CO2 emissions cannot be determined
until specific regulations are adopted.
Nuclear Fuel Commitments
As of December 31, 2001, KCP&L's portion of Wolf Creek nuclear fuel
commitments included $22.7 million for enrichment through 2006, $57.5
million for fabrication through 2025 and $3.8 million for uranium and
conversion through 2003.
Coal Contracts
KCP&L's share of coal purchased under existing contracts was $44.6
million in 2001, $31.1 million in 2000, and $33.3 million in 1999.
Under these coal contracts, KCP&L's remaining share of purchase
commitments totals $65.7 million. Obligations for the years 2002 and
2003 based on estimated prices for those years, total $48.5 million
and $17.2 million, respectively. The remainder of KCP&L's coal
requirements will be fulfilled through spot market purchases.
Natural Gas Contracts
KCP&L has entered natural gas agreements for the purchase of natural
gas to be used in the generation of electricity. At December 31,
2001, obligations under these agreements total $2.6 million for 2002.
The remainder of KCP&L's natural gas requirements will be fulfilled
through spot market purchases.
Purchased Capacity Commitments
KCP&L purchases capacity from other utilities and nonutility
suppliers. Purchasing capacity provides the option to purchase energy
if needed or when market prices are favorable. This can be a cost-
effective alternative to new construction. KCP&L capacity purchases
totaled $17.7 million in 2001, $25.4 million in 2000 and $25.9 million
during 1999. As of December 31, 2001, contracts to purchase capacity
totaled $109.5 million through 2016. For the years 2002 through 2006,
these commitments average $14 million per year. Capacity sales
contracts to supply municipalities in the years 2002 through 2006
average $12 million. For the next five years, net capacity contracts
average under 3% of KCP&L's 2001 total available capacity.
Strategic Energy Purchased Power Energy Commitments
Strategic Energy has entered into agreements to purchase electricity
at various fixed prices to meet estimated supply requirements for 2002
through 2006. Commitments under these agreements total $366.3 million
in 2002, $242.5 million in 2003, $146.9 million in 2004, $142.2
million in 2005 and $17.1 million in 2006. See Note 15 for further
discussion.
Leases
Consolidated expense for leases, excluding DTI, was about $28 million
during 2001, $26 million during 2000 and $22 million in 1999. The
remaining rental commitments under leases total $163.6 million ending
in 2028. Obligations for the years 2002 through 2006 average $16
million per year.
KCP&L Leases
KCP&L has a transmission line lease with another utility through
September 2025 whereby, with FERC approval, the rental payments can be
increased by the lessor. If this occurs and KCP&L is able to
31
secure an alternative transmission path, KCP&L can cancel the lease.
Commitments under this lease total $1.9 million per year and
$44.9 million over the remaining life of the lease if it is not
canceled.
KCP&L's expense for other leases, including railcars, computer
equipment, buildings, transmission line and other items, was about
$25 million per year for the last three years. The remaining rental
commitments under these leases total $159.4 million ending in 2028.
Obligations for the years 2002 through 2006 average $15 million per
year. Capital leases are not material and are included in these
amounts.
As the managing partner of three jointly-owned generating units, KCP&L
has entered into leases for railcars to serve those units. KCP&L has
reflected the entire lease commitment in the above amounts although
about $1.9 million per year ($27.0 million total) will be reimbursed
by the other owners.
In 2001, KCP&L entered into a synthetic lease arrangement with a Trust
(Lessor) to finance the purchase, installation, assembly and
construction of five combustion turbines and related property and
equipment that will add 385 megawatts of peaking capacity (the
"Project). The Trust is a special-purpose entity and has an aggregate
financing commitment from third-party equity and debt participants
(Investors) of $200 million. In accordance with SFAS No. 13
"Accounting for Leases," and related EITF issues (including EITF Issue
No. 90-15, "Impact of Non-substantive Lessors, Residual Value
Guarantees, and Other Provisions in Leasing Transactions" and EITF
Issue No. 97-10, "The Effect of Lessee Involvement in Asset
Construction"), the Project and related lease obligations are not
included in KCP&L's consolidated balance sheet. The Lessor has
appointed KCP&L as supervisory agent responsible for completing
construction of the Project by no later than June 2004. The initial
lease term is approximately three and one quarter years, beginning at
the date of construction completion, which is expected to be October
2003. At the end of the lease term (October 2006), KCP&L may choose
to sell the Project for the Lessor, guaranteeing to the Lessor a
residual value for the Project in an amount which may be up to 83.21%
of the project cost. If KCP&L does not elect the sale option, KCP&L
must either extend the lease, if it can obtain the consent of the
Lessor, or purchase the Project for the then outstanding project cost.
KCP&L also has contingent obligations to the Lessor upon an event of a
default during both the construction period and lease period. Upon a
default in the construction period, KCP&L's maximum obligation to the
Lessor equals (i) in the circumstances of bankruptcy, fraud, illegal
acts, misapplication of funds and willful misconduct, 100% of then-
incurred project costs, and (ii) in all other circumstances, an amount
which may be up to 89.9% of then-incurred project costs that are
capitalizable in accordance with GAAP. At December 31, 2001, project
costs were approximately $62.7 million. Upon a default during the
lease period, KCP&L's maximum obligation to the Lessor equals 100% of
project costs. KCP&L's rental obligation, which reflects interest
payments only, totals approximately $35.5 million in the aggregate.
KLT Inc. Leases
KLT Inc. and its subsidiaries have entered operating leases for
buildings, compressors, communications equipment and other items. KLT
Inc.'s expense recorded for these leases was about $1 million per year
during both 2001 and 2000. KLT Inc. and its subsidiaries had no
leases in 1999. Obligations average about $1 million per year for the
years 2002 through 2004 and $0.5 million per year for the years 2005
and 2006.
Guaranteed Savings Energy Management Agreements
KCP&L is contingently liable for guaranteed energy savings under
agreements with several customers. KCP&L has entered agreements
guaranteeing an aggregate value of approximately $14.7 million over
the next nine years. In most cases a subcontractor would indemnify
KCP&L for any payments made by KCP&L under these guarantees.
32
7. HSS PURCHASE OF AN ADDITIONAL OWNERSHIP INTEREST IN RSAE
On March 12, 2001, HSS acquired control of RSAE by acquiring an
additional 22.1% of the shares of RSAE for $0.6 million.
This acquisition has been accounted for by the purchase method of
accounting and the operating results of RSAE have been included in the
KCP&L's consolidated financial statements from January 1, 2001, with
the appropriate adjustments to minority interest from January 1, 2001,
through the date of the acquisition. RSAE's December 31, 2001, assets
included $23.0 million of goodwill, which was being amortized over 40
years. On a pro forma basis, as if the business had been acquired at
the beginning of fiscal 2000, revenue, net income and earnings per
share would not differ materially from the amounts reported in the
KCP&L's year ended December 31, 2000, consolidated financial
statements.
8. EQUITY METHOD INVESTMENTS
See Note 17 for information regarding 2001 activity in KLT Telecom's
investment in DTI.
Sale of KLT Investments II Inc.'s Ownership of Downtown Hotel Group
On May 31, 2001, KLT Investments II Inc. sold its 25% ownership of
Kansas City Downtown Hotel Group, L.L.C. for total proceeds of $3.8
million resulting in a $2.2 million gain before income taxes. The after
income tax gain on the sale was $1.4 million ($0.02 per share). The
carrying value of this equity method investment at December 31, 2000,
was included in Other in the table below.
Sale of KLT Gas Properties
On June 28, 2001, KLT Gas sold its 50% ownership in Patrick KLT Gas,
LLC for total proceeds of $42.3 million resulting in a $20.1 million
gain before income taxes. The after income tax gain on the sale was
$12.0 million ($0.19 per share).
After the acquisition of majority ownership in RSAE (see Note 7) and
the sales of the equity method investments discussed above, the
Company has no remaining equity method investments other than
affordable housing limited partnerships held by KLT Investments.
Equity method investments at December 31, 2000, excluding affordable
housing limited partnerships, consisted of the following:
Common Carrying
Ownership Value
Percentage December 31,
Name of Company 2000 2000
(thousands)
DTI 47% $ -
Patrick KLT Gas, LLC 50% 21,744
RSAE 49% 6,750
Other Various 1,786
Total equity method
investments $30,280
33
Summarized financial information supplied to us by companies in which
the consolidated company had an equity investment was as follows:
December 31 2000
(thousands)
Current assets $ 36,368
Non-current assets 498,133
Total Assets $ 534,501
Current liabilities $ 74,616
Non-current liabilities 460,786
Equity (901)
Total Liabilities and Equity $ 534,501
Revenues $ 153,211
Costs and expenses 225,665
Net Loss $ (72,454)
December 31 2000
(thousands)
Consolidated share of net loss $ (36,707)
Less: DTI losses not recorded
by KLT Telecom after
the investment was
reduced to zero (18,768)
Consolidated net loss recorded (17,939)
Affordable housing equity losses (1,502)
Total losses from equity
investments $ (19,441)
34
9. SEGMENT AND RELATED INFORMATION
Great Plains Energy
During the second quarter of 2002, the Company's management revised its
corporate business strategy focusing on the following three primary business
segments: (1) KCP&L, an integrated electric utility which generates, transmits
and distributes electricity; (2) Strategic Energy, which earns a management fee
on the direct delivery to retail customers under long-term contracts of
wholesale power purchased under long-term contracts while operating in several
deregulated electricity markets; and (3) KLT Gas, which acquires and develops
early stage coal bed methane properties. "Other" includes the operations of
HSS and GPP, all KLT Inc. operations other than Strategic Energy and KLT Gas,
unallocated corporate charges and intercompany eliminations. The summary of
significant accounting policies applies to all of the segments. Segment
performance is evaluated based on net income.
Prior to the second quarter 2002 revised corporate business strategy, the
Company's reportable segments were (1) KCP&L; (2) KLT Inc., an investment
company focusing on energy-related ventures that are unregulated with high
growth potential; such as energy services, natural gas development and
production, affordable housing limited partnerships and the parent company of
Strategic Energy and KLT Gas; and (3) HSS which holds investments in two
businesses focusing primarily in residential services. "Other" included the
operations of GPP, unallocated corporate charges and intercompany eliminations.
The tables below present Great Plains Energy's reformatted segment information
for the years ended December 31, 2001, 2000 and 1999, reflecting the second
quarter 2002 revision to the Company's corporate business strategy.
Strategic Great Plains
2001 KCP&L Energy KLT Gas Other Energy (b)
(millions)
Operating revenues $ 967.5 $ 411.9 $ 0.3 $ 82.2 $1,461.9
Fuel expense (163.8) - - - (163.8)
Purchased power expense (65.2) (329.0) - - (394.2)
Other (a) (365.1) (38.7) (9.4) (103.3) (516.5)
Depreciation and depletion (136.3) (0.3) (1.8) (20.4) (158.8)
Gain (loss) on property (0.2) - 23.8 (195.0) (171.4)
Income (loss) from equity investments - - 1.0 (1.4) (0.4)
Other income and expenses (9.2) (6.4) 0.3 (14.2) (29.5)
Interest charges (78.1) (0.5) - (24.7) (103.3)
Income taxes (51.6) (15.2) 0.1 102.6 35.9
Early extinguishment of debt - - - 15.9 15.9
Net income (loss) $ 98.0 $ 21.8 $ 14.3 $(158.3)* $ (24.2)
* Includes loss from DTI of $157.9 million. See note 17 for detail of
accounting treatment related to DTI and its bankruptcy.
35
Favorable/(unfavorable) Strategic Great Plains
variance between 2001 and 2000 KCP&L Energy KLT Gas Other Energy
(millions)
Operating revenues $ 15.5 $ 282.3 $ (30.2) $ 78.4 $ 346.0
Fuel expense (10.7) - - - (10.7)
Purchased power expense 40.5 (244.6) - - (204.1)
Other (a) 17.3 (7.8) 12.9 (91.8) (69.4)
Depreciation and depletion (12.0) 0.1 4.2 (18.7) (26.4)
Loss on property (3.7) - (84.1) (182.7) (270.5)
Income (loss) from equity investments - - (2.6) 21.6 19.0
Other income and expenses 7.1 (2.2) (5.0) (14.0) (14.1)
Interest charges (15.3) (0.3) 3.5 (15.5) (27.6)
Income taxes 1.3 (11.6) 36.4 63.0 89.1
Early extinguishment of debt - - - 15.9 15.9
Cumulative effect of a changes in
pension accounting (30.1) - - - (30.1)
Net income (loss) $ 9.9 $ 15.9 $ (64.9) $(143.8) $ (182.9)
Strategic Great Plains
2000 KCP&L Energy KLT Gas Other Energy (b)
(millions)
Operating revenues $ 952.0 $ 129.6 $ 30.5 $ 3.8 $1,115.9
Fuel expense (153.1) - - - (153.1)
Purchased power expense (105.7) (84.4) - - (190.1)
Other (a) (382.4) (30.9) (22.3) (11.5) (447.1)
Depreciation and depletion (124.3) (0.4) (6.0) (1.7) (132.4)
Gain (loss) on property 3.5 - 107.9 (12.3) 99.1
Income (loss) from equity investments - - 3.6 (23.0) (19.4)
Other income and expenses (16.3) (4.2) 5.3 (0.2) (15.4)
Interest charges (62.8) (0.2) (3.5) (9.2) (75.7)
Income taxes (52.9) (3.6) (36.3) 39.6 (53.2)
Cumulative effect of a changes in
pension accounting 30.1 - - - 30.1
Net income (loss) $ 88.1 $ 5.9 $ 79.2 $ (14.5) $ 158.7
Favorable/(unfavorable) Strategic Great Plains
variance between 2000 and 1999 KCP&L Energy KLT Gas Other Energy
(millions)
Operating revenues $ 54.6 $ 129.6 $ 13.2 $ (3.0) $ 194.4
Fuel expense (23.8) - - - (23.8)
Purchased power expense (11.0) (84.4) - - (95.4)
Other (a) (29.9) (30.9) (6.3) 7.3 (59.8)
Depreciation and depletion (5.9) (0.4) (2.8) - (9.1)
Gain (loss) on property 3.5 - 110.8 (14.0) 100.3
Income (loss) from equity investments - (3.5) 6.2 2.8 5.5
Other income and expenses (7.5) (4.2) 5.2 (1.5) (8.0)
Interest charges (6.4) (0.2) (2.3) 1.5 (7.4)
Income taxes (2.5) (2.3) (48.1) 2.9 (50.0)
Cumulative effect of a changes in
pension accounting 30.1 - - - 30.1
Net income (loss) $ 1.2 $ 3.7 $ 75.9 $ (4.0) $ 76.8
36
Strategic Great Plains
1999 KCP&L Energy KLT Gas Other Energy (b)
(millions)
Operating revenues $ 897.4 - $ 17.3 $ 6.8 $ 921.5
Fuel expense (129.3) - - - (129.3)
Purchased power expense (94.7) - - - (94.7)
Other (a) (352.5) - (16.0) (18.8) (387.3)
Depreciation and depletion (118.4) - (3.2) (1.7) (123.3)
Gain (loss) on property - - (2.9) 1.7 (1.2)
Income (loss) from equity investments - $ 3.5 (2.6) (25.8) (24.9)
Other income and expenses (8.8) - 0.1 1.3 (7.4)
Interest charges (56.4) - (1.2) (10.7) (68.3)
Income taxes (50.4) (1.3) 11.8 36.7 (3.2)
Net income (loss) $ 86.9 $ 2.2 $ 3.3 $ (10.5) $ 81.9
(a) Other includes gas purchased and production expenses, telecommunications
expenses, other operating, maintenance and general tax expenses.
(b) Includes goodwill amortization expense of $4.1 million ($0.07 per share)
in 2001, $0.7 million ($0.01 per share) in 2000, and $0.7 million
($0.01 per share) in 1999. Net income (loss) and basic and diluted
earnings (loss) per common share for these years would have improved
by these amounts if the provisions of SFAS No. 142 had been applied.
See Note 10 that follows.
Strategic KLT Great Plains
KCP&L Energy Gas Other Energy
2001 (millions)
Assets (a) $3,089.4 $ 129.1 $ 57.6 $ 188.3 $3,464.4
Capital and investment expenditures (b) 265.8 1.5 25.0 82.0 374.3
2000
Assets $2,980.9 $ 47.7 $ 239.6 $ 25.7 $3,293.9
Net equity method investments (c) - - 21.7 8.6 30.3
Capital and investment expenditures (b) 406.1 0.2 45.2 30.5 482.0
1999
Assets $2,672.3 $ - $ 101.8 $ 216.0 $2,990.1
Net equity method investments (c) - - 0.6 50.6 51.2
Capital and investment expenditures (b) 184.6 - 49.5 37.5 271.6
(a) KCP&L assets do not match the KCP&L assets in the consolidated KCP&L
segment table due to the reclassification of accrued taxes to current
income taxes during consolidation with Great Plains Energy.
(b) Capital and investment expenditures reflect year to date amounts for the
periods presented.
(c) Excluding affordable housing limited partnerships.
Consolidated KCP&L
On October 1, 2001, consolidated KCP&L distributed, as a dividend, its
ownership interest in KLT Inc. and GPP to Great Plains Energy. As a result,
those companies are direct subsidiaries of Great Plains Energy and are not
included in consolidated KCP&L's results of operations and financial position
since October 1, 2001. See Note 1 for additional information about the
formation of the holding company.
The table below presents reformatted 2001 summarized financial information
concerning consolidated KCP&L's reportable segments, reflecting the second
quarter 2002 revision to the Company's corporate business strategy. For the
years ended 2000 and 1999, consolidated KCP&L's reformatted segment information
is identical to the Great Plains Energy reformatted segment information
presented above.
37
Subsidiaries
transferred to Consolidated
2001 KCP&L Other (b) Great Plains KCP&L (d)
Energy (c)
(millions)
Operating revenues $ 967.5 $ 66.2 $ 317.2 $1,350.9
Fuel expense (163.8) - - (163.8)
Purchased power expense (65.2) - (239.7) (304.9)
Other (a) (365.1) (70.8) (60.7) (496.6)
Depreciation and depletion (136.3) (2.4) (14.3) (153.0)
Gain (loss) on property (0.2) (1.4) 23.7 22.1
Loss from equity investments - (0.1) (0.4) (0.5)
Other income and expenses (9.2) 4.3 (17.5) (22.4)
Interest charges (78.1) (1.7) (17.8) (97.6)
Income taxes (51.6) 0.3 20.9 (30.4)
Early extinguishment of debt - - 15.9 15.9
Net income (loss) $ 98.0 $ (5.6) $ 27.3 $ 119.7
(a) Other includes gas purchased and production expenses, telecommunications
expenses, other operating, maintenance and general tax expenses.
(b) "Other" includes primarily the operations of HSS and immaterial
intercompany eliminations. Prior to the second quarter of 2002, HSS was
considered a reportable segment.
(c) The subsidiaries transferred to Great Plains Energy include the operations
of KLT Inc., a $0.2 million loss due to unallocated corporate charges and a
$0.2 million loss for GPP operations.
(d) Includes goodwill amortization of $3.2 million in 2001. Net income for
2001 would have improved by this amount if the provision of SFAS No. 142
had been applied. See Note 10 that follows.
Subsidiaries
transferred to Consolidated
KCP&L Other Great Plains Energy KCP&L
2001 (millions)
Assets $3,092.5 $ 53.1 $ - $3,145.6
Capital and investment expenditures (a) 265.8 1.1 85.9 352.8
(a) Capital and investment expenditures reflect year to date amounts for the
periods presented.
10. GOODWILL AND INTANGIBLE PROPERTY
SFAS No. 142, "Goodwill and Other Intangible Assets"
SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. The Company will adopt SFAS No. 142 on January 1, 2002.
Under the new pronouncement, goodwill will be assigned to
reporting units and an initial impairment test (comparison of the fair
value of a reporting unit to its carrying amount) will be done on all
goodwill within six months of initially applying the statement and
then at least annually, thereafter. Also, goodwill will no longer be
amortized. Although the Company has not completed the analysis required
by SFAS No. 142, management currently does not anticipate an impairment
of goodwill. Goodwill, net of amortization, reported on Great Plains
Energy's Consolidated Balance Sheets totaled $23.0 million associated
with HSS' ownership interest in RSAE and $14.1 million associated with
KLT Energy Services ownership interest in Strategic Energy at December 31,
2001, and $11.5 million related to the ownership interest in Strategic
Energy at December 31, 2000. The goodwill associated with HSS' ownership
interest in RSAE is also reflected on KCP&L's consolidated balance sheet.
Intangible Property
KCP&L electric utility plant on the consolidated balance sheets
included intangible computer software of $48.2 million, net of
accumulated depreciation of $33.0 million, in 2001 and $51.2 million,
net of accumulated depreciation of $21.7 million, in 2000.
38
KLT Inc. gas property and investments on the consolidated balance
sheets included intangible drilling costs of $17.7 million in 2001 and
$7.0 million in 2000.
Other nonutility property and investments on the consolidated balance
sheets included intangible computer software and other intangible
property of $1.7 million, net of accumulated depreciation of $0.2
million, in 2001 and $0.7 million, net of accumulated depreciation in
2000.
11. RECEIVABLES
December 31
2001 2000
(thousands)
KCP&L Receivable Corporation $ 25,723 $ 48,208
KCP&L other receivables 36,788 67,148
Consolidated KCP&L receivables 62,511 115,356
Great Plains Energy other receivables 89,603 -
Great Plains Energy receivables $152,114 $115,356
In 1999, KCP&L entered into a revolving agreement to sell all of its
right, title and interest in the majority of its customer accounts
receivable to KCP&L Receivable Corporation, a special purpose entity
established to purchase customer accounts receivable from KCP&L
expiring in October 2002. The Company expects the agreement to be
renewed annually. KCP&L Receivable Corporation has sold receivable
interests to outside investors. In consideration of the sale, KCP&L
received $60 million in cash in 2000 increasing to $70 million in 2001
and the remaining balance in the form of a subordinated note from KCP&L
Receivable Corporation. The agreement is structured as a true sale under
which the creditors of KCP&L Receivable Corporation are entitled to be
satisfied out of the assets of KCP&L Receivable Corporation prior to
any value being returned to KCP&L or its creditors. Accounts
receivable sold under the agreement totaled $95.7 million at December
31, 2001 and $108.2 million at December 31, 2000.
Administrative costs associated with the sale of customer accounts
receivable of approximately $2.7 million for the year ended December
31, 2001, approximately $4.3 million for the year ended 2000 and
approximately $3.5 million for the year ended 1999, were included in
Other income and expenses.
KCP&L other receivables at December 31, 2001, consist primarily of
receivables from partners in jointly-owned electric utility plants,
bulk power sales receivables and accounts receivable held by RSAE and
Worry Free. Great Plains Energy other receivables at December 31,
2001, consist of accounts receivable held by KLT Inc. and its
subsidiaries, including receivables of $85.0 million held by Strategic
Energy. Other receivables at December 31, 2000, consist primarily of
receivables from partners in jointly-owned electric utility plants,
bulk power sales receivables and accounts receivable held by subsidiaries.
12. SHORT-TERM BORROWINGS AND SHORT-TERM BANK LINES OF CREDIT
In October 2001, Great Plains Energy entered into a $110 million
bridge revolving credit facility with tiered pricing based on the
credit rating of Great Plains Energy's unsecured long-term debt
securities. Later in 2001, this facility was increased to $129
million. At December 31, 2001, Great Plains Energy had $124 million
of outstanding borrowings under this facility with a weighted-average
interest rate of 3.0%. This facility terminates on February 28, 2002.
Great Plains Energy is in the process of syndicating a 364-day,
revolving credit facility for up to $225 million with a group of banks
to replace the bridge facility. The new facility will be used for
general corporate purposes.
In 2001, Strategic Energy entered into a $5 million, variable interest
rate line of credit that expires in December 2002. The line is secured
by the deposits, moneys, securities, and other property in the
39
possession of the lender. There were no outstanding borrowings under
this agreement as of December 31, 2001. In January 2002, Strategic
Energy increased this line of credit to $15 million.
KCP&L's short-term borrowings consist of funds borrowed from banks or
through the sale of commercial paper as needed. The weighted-average
interest rate on the $62.0 million of commercial paper outstanding as
of December 31, 2001, was 3.2%. The weighted-average interest rate on
the $55.6 million of commercial paper outstanding as of December 31,
2000, was 7.1%. Under minimal fee arrangements, KCP&L's short-term
bank lines of credit totaled $196.0 million with $134.0 million unused
as of December 31, 2001, and $255.0 million with $199.4 million unused
as of December 31, 2000.
RSAE has a $22.0 million short-term bank credit agreement. Great
Plains Energy has entered into a support agreement with RSAE and the
lender that ensures adequate capital to operate RSAE. At December 31,
2001, RSAE had $20.4 million of outstanding borrowings under the
agreement with a weighted-average interest rate of 6.8%.
13. LONG-TERM DEBT AND EIRR BONDS CLASSIFIED AS CURRENT LIABILITIES
KCP&L General Mortgage Bonds
KCP&L has issued mortgage bonds under the General Mortgage Indenture
and Deed of Trust dated December 1, 1986, as supplemented. The
Indenture creates a mortgage lien on substantially all utility plant.
Mortgage bonds secure $364.8 million of medium-term notes and EIRR
bonds (see discussion below). KCP&L is prohibited from issuing
additional mortgage bonds while its unsecured medium-term notes are
outstanding and remain unsecured. KCP&L has $200.0 million of these
notes outstanding which mature in March 2002.
During the third quarter 2001, KCP&L remarketed $48.3 million of its
$158.8 million secured EIRR bonds due 2012-23 at a fixed rate of 3.90%
through August 31, 2004. See discussion of $31.0 million, remarketed
weekly, below. The rest of the secured EIRR bonds are in a 35-day,
dutch auction mode.
KCP&L Unsecured Notes
KCP&L has a total of $196.5 million of unsecured EIRR bonds
outstanding. Series C, $50 million due 2017, has a fixed rate of
4.50% through August 31, 2003. See discussion of series A, B and D
(classified as current liabilities) below. During 2001, KCP&L issued
$150 million of unsecured senior notes increasing the outstanding
unsecured senior notes to a total of $400 million.
KCP&L EIRR Bonds Classified as Current Liabilities
A $31.0 million variable-rate, secured EIRR bond with a final maturity
in 2017 is remarketed on a weekly basis, with full liquidity support
provided by a 364-day credit facility with one bank. This facility
requires KCP&L to represent, as both a condition to renewal and prior
to receiving any funding under the facility, that no Material Adverse
Change has occurred. KCP&L's available liquidity under this credit
line is not impacted by a decline in credit ratings unless the
downgrade occurs in the context of a merger, consolidation, or sale.
Additionally, in 2001 KCP&L remarketed three series of unsecured EIRR
bonds at a fixed rate of 3.25% through August 29, 2002; its series A
and B, $106.5 million due 2015, and series D, $40.0 million due 2017.
If those bonds to be remarketed in less than one-year could not be
remarketed, KCP&L would be obligated to either purchase or retire the
bonds. Even though such an occurrence is unlikely, the $177.5 million
of bonds discussed above are classified as current liabilities on the
balance sheets for the current year and the prior year has been
reclassified to be consistent with the current year presentation.
KLT Inc. Long-Term Debt
KLT Investments' affordable housing notes are collateralized by the
affordable housing investments. Most of the notes also require the
greater of 15% of the outstanding note balances or the next annual
40
installment to be held as cash, cash equivalents or marketable
securities. The equity securities held as collateral for these notes
are included in other investments and nonutility property on the
consolidated balance sheets.
Scheduled Maturities
Great Plains Energy's long-term debt maturities for the years 2002
through 2006 are $239 million, $31 million, $60 million, $293 million
and $11 million, respectively. These amounts include consolidated
KCP&L's long-term debt maturities for the years 2002 through 2006 of
$227 million, $22 million, $56 million, $290 million and $9 million,
respectively. EIRR bonds classified as current liabilities discussed
above are considered due in 2015 and 2017 for the scheduled
maturities.
14. COMMON STOCK EQUITY, PREFERRED STOCK, REDEEMABLE PREFERRED STOCK
AND MANDATORILY REDEEMABLE PREFERRED SECURITIES
Common Stock Equity
Effective October 1, 2001, all outstanding KCP&L shares of common
stock were exchanged one for one for shares of Great Plains Energy.
Great Plains Energy has shares of common stock registered with the
Securities and Exchange Commission for a Dividend Reinvestment and
Stock Purchase Plan (the Plan). The Plan allows for the purchase of
common shares by reinvesting dividends or making optional cash
payments. Great Plains Energy currently purchases shares for the Plan
on the open market.
As of December 31, 2001, the Company held 35,916 shares of its common
stock to be used for future distribution and 60,841 shares were held
as of December 31, 2000. The cost of these shares is included in
other investments and nonutility property on the consolidated balance
sheets.
The Restated Articles of Consolidation contain a restriction related
to the payment of dividends in the event common equity falls to 25% of
total capitalization. If preferred stock dividends are not declared
and paid when scheduled, Great Plains Energy could not declare or pay
common stock dividends or purchase any common shares. If the unpaid
preferred stock dividends equal four or more full quarterly dividends,
the preferred shareholders, voting as a single class, could elect the
smallest number of Directors necessary to constitute a majority of the
full Board of Directors.
Preferred Stock and Redeemable Preferred Stock
During 2001, KCP&L redeemed its redeemable 4% Cumulative Preferred
Stock. Shares outstanding totaled 6,357 as of December 31, 2000.
Scheduled mandatory sinking fund requirements for the issue
were 1,600 per year. Shares held by KCP&L to meet future sinking fund
requirements totaled 5,734 as of December 31, 2000. The cost of these
shares held by KCP&L was reflected as a reduction of the capital account.
Effective October 1, 2001, all shares of KCP&L preferred stock were
converted to Great Plains Energy preferred stock. As of December 31,
2001, 0.4 million shares of $100 par Cumulative Preferred Stock, 1.6
million shares of Cumulative No Par Preferred Stock and 11 million
shares of no par Preference Stock were authorized. Great Plains
Energy has the option to redeem the $39.0 million of issued Cumulative
Preferred Stock at prices approximating par or stated value.
Mandatorily Redeemable Preferred Securities
In 1997, KCP&L Financing I (Trust) issued $150,000,000 of 8.3%
preferred securities. The sole asset of the Trust is the $154,640,000
principal amount of 8.3% Junior Subordinated Deferrable Interest
Debentures, due 2037, issued by KCP&L. The terms and interest
payments on these debentures correspond to the terms and dividend
payments on the preferred securities. KCP&L deducts these payments
for tax purposes. KCP&L may elect to defer interest payments on the
debentures for a period up to 20 consecutive quarters, causing
dividend payments on the preferred securities to be
41
deferred as well. In case of a deferral, interest and dividends will continue
to accrue, along with quarterly compounding interest on the deferred amounts.
KCP&L may redeem all or a portion of the debentures after March 31,
2002. If KCP&L redeems all or a portion of the debentures, the Trust
must redeem an equal amount of preferred securities at face value plus
accrued and unpaid distributions. The back-up undertakings in the
aggregate provide a full and unconditional guarantee of amounts due on
the preferred securities.
15. DERIVATIVE FINANCIAL INSTRUMENTS
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended. SFAS No.
133 requires that every derivative instrument be recorded on the
balance sheet as an asset or liability measured at its fair value and
that changes in the fair value be recognized currently in earnings
unless specific hedge accounting criteria are met.
SFAS No. 133 requires that as of the date of initial adoption, the
difference between the fair market value of derivative instruments
recorded on the balance sheet and the previous carrying amount of
those derivatives be reported in net income or other comprehensive
income, as appropriate, as a cumulative effect of a change in
accounting principle. The adoption of SFAS No. 133 on January 1,
2001, required the Company to record a $0.2 million expense, net of
$0.1 million of income tax. The Company did not reflect this
immaterial amount as a cumulative effect. This entry increased
interest expense by $0.6 million and reduced purchased power expense
by $0.3 million. The Company also recorded $17.4 million, net of
$12.6 million of income tax, as a cumulative effect of a change in
accounting principle applicable to comprehensive income for its cash
flow hedges.
Derivative Instruments and Hedging Activities
The Company's activities expose it to a variety of market risks
including interest rates and commodity prices. Management has
established risk management policies and strategies to reduce the
potentially adverse effects that the volatility of the markets may
have on its operating results.
The Company's interest rate risk management strategy uses derivative
instruments to minimize significant, unanticipated earnings
fluctuations caused by interest-rate volatility on a portion of its
variable rate debt. The Company maintains commodity-price risk
management strategies that use derivative instruments to minimize
significant, unanticipated earnings fluctuations caused by commodity
price volatility.
The Company's risk management activities, including the use of
derivatives, are subject to the management, direction and control of
Risk Management Committees.
Interest Rate Risk Management
KCP&L utilizes interest rate management derivatives to reduce a
portion of KCP&L's interest rate risk by converting a portion of its
variable interest rate payments into fixed interest rate payments.
In 2000, KCP&L issued $200 million of unsecured, floating rate medium-
term notes. Simultaneously, KCP&L entered into interest rate cap
agreements to hedge the interest rate risk on the notes. The cap
agreements are designated as cash flow hedges. The difference between
the fair market value of the cap agreements recorded on the balance
sheet at initial adoption and the unamortized premium was reported in
interest expense.
KCP&L entered into interest rate swap agreements to limit the interest
rate on $30 million of long-term debt. These swaps do not qualify for
hedge accounting. The swap agreements mature in 2003 and effectively
fix the interest to a weighted-average rate of 3.88%. The fair market
values of these agreements are recorded as current assets and
liabilities and adjustments to interest expense on the
42
income statement. Changes in the fair market value of these instruments are
recorded in the income statement.
Commodity Risk Management
KCP&L's risk management policy is to use derivative hedge instruments
to mitigate its exposure to market price fluctuations on its projected
gas requirements for native and firm sales. These hedging instruments
are designated as cash flow hedges. The fair market value of these
instruments is recorded as current assets and current liabilities.
When the gas is purchased and to the extent the hedge is effective at
mitigating the impact of a change in the purchase price of gas, the
amounts in other comprehensive income are reclassified to the
consolidated income statement. To the extent that the hedges are not
effective, the ineffective portion of the changes in fair market value
are recorded directly in fuel expense.
Strategic Energy maintains a commodity-price risk management strategy
that uses forward physical energy purchases and derivative instruments
to minimize significant, unanticipated earnings fluctuations caused by
commodity-price volatility. Supplying electricity to retail customers
under fixed rate contracts requires Strategic Energy to match
customers' demand with fixed price purchases. In certain markets
where Strategic Energy operates, there is limited availability of
forward fixed price power contracts. By entering into swap contracts
for a portion of its forecasted purchases in these markets, the future
purchase price of electricity is effectively fixed under these swap
contracts protecting Strategic Energy from price volatility. The swap
contracts limit the unfavorable effect that price increases will have
on electricity purchases. Under SFAS No. 133, the majority of the
swap agreements are designated as cash flow hedges resulting in the
difference between the market value of energy and the hedge value
being recorded as comprehensive income(loss). At December 31, 2001,
the accumulated comprehensive loss, net of income taxes and minority
interest, reflected in Great Plains Energy's consolidated statement of
capitalization reflected a $11.7 million loss related to such cash
flow hedges. However, most of the energy hedged with the swaps has
been sold to customers through contracts at prices different than the
fair market value used to value the swaps. Therefore, Strategic
Energy does not anticipate incurring any of the losses represented in
comprehensive income.
The remaining swap agreements do not qualify for hedge accounting.
The fair market value of these swaps at January 1, 2001, was recorded
as an asset or liability on the consolidated balance sheet and an
adjustment to the cost of purchased power. The change in the fair
market value and future changes in the fair market values of these
swaps will also be recorded in purchased power.
An option that was designated as a cash flow hedge expired on December
31, 2001. The option allowed Strategic Energy to purchase up to 270
megawatts of power at a fixed rate of $21 per mwh. The fair market
value of this option and the swap agreements designated as cash flow
hedges at January 1, 2001, was recorded as a current asset and a
cumulative effect of a change in accounting principle in comprehensive
income. When the power is purchased and to the extent the hedge is
effective at mitigating the cost of purchased power, the amounts
accumulated in other comprehensive income are reclassified to the
consolidated income statement. However, most of the energy hedged
with the swaps has been sold to customers through contracts at prices
different than the fair market value used to value the swaps.
Therefore, Strategic Energy will not receive income or losses to the
extent represented in comprehensive income in the current or future
periods. To the extent that the hedges are not effective, the
ineffective portion of the changes in fair market value will be
recorded directly in purchased power.
KLT Gas' risk management policy is to use firm sales agreements or
financial hedge instruments to mitigate its exposure to market price
fluctuations on up to 85% of its daily natural gas production. These
hedging instruments are designated as cash flow hedges. The fair
market value of these instruments at January 1, 2001, was recorded as
current assets and current liabilities, as applicable,
43
and the cumulative effect of a change in an accounting principle in
comprehensive income. When the gas is sold and to the extent the
hedge is effective at mitigating the impact of a change in the sales
price of gas, the amounts in other comprehensive income are
reclassified to the consolidated income statement. To the extent that the
hedges are not effective, the ineffective portion of the changes in fair market
value are recorded directly in gas revenues.
KLT Gas unwound the majority of its gas hedge derivatives with an
offsetting swap transaction during the second quarter of 2001
primarily due to declining production at its gas properties. This
transaction does not qualify for hedge accounting. The fair market
value of the swap has been recorded in gas revenues. Future changes
in the fair market value of this swap will also be recorded in gas
revenues.
KCP&L has eight capacity contracts it considers to be normal purchases
and sales and not derivatives in accordance with GAAP. During the
fourth quarter of 2001, FASB cleared new implementation guidelines
that will be applied in the second quarter of 2002. KCP&L is still
evaluating its capacity contracts under the new guidelines, but does
not expect the contracts to be considered derivatives under the new
guidelines.
The amounts recorded related to the cash flow hedges are summarized below.
Great Plains Energy activity for 2001
Cumulative Increase
Effect to (Decrease) in
January 1, Comprehensive December 31
2001 Income Reclassified 2001
Balance Sheet Classification
Assets (millions)
Other current assets $ 44.5 $(20.6) $(24.1) $(0.2)
Liabilities and
capitalization
Other current liabilities (6.8) (20.8) 14.9 (12.7)
Other comprehensive
income (17.4) 25.6 3.9 12.1
Deferred income taxes (12.7) 18.1 3.1 8.5
Other deferred credits (7.6) (2.3) 2.2 (7.7)
KCP&L activity for 2001
Cumulative Increase Transferred
Effect to (Decrease) in to Great
Balance Sheet January 1, Comprehensive Plains December 31
Classification 2001 Income Reclassified Energy 2001
Assets (millions)
Other current
assets $ 44.5 $(20.6) $(24.1) $ - $(0.2)
Liabilities and
capitalization
Other current
liabilities (6.8) (15.7) 7.4 15.0 (0.1)
Other
comprehensive
income (17.4) 23.4 7.6 (13.4) 0.2
Deferred income
taxes (12.7) 16.6 5.6 (9.4) 0.1
Other deferred
credits (7.6) (3.7) 3.5 7.8 -
44
16. JOINTLY-OWNED ELECTRIC UTILITY PLANTS
KCP&L's share of jointly-owned electric utility plants as of December
31, 2001, is as follows (in millions of dollars):
Wolf Creek LaCygne Iatan
Unit Units Unit
KCP&L's share 47% 50% 70%
Utility plant in service $ 1,360 $ 327 $ 253
Estimated accumulated depreciation
(production plant only) $ 540 $ 217 $ 163
Nuclear fuel, net $ 34 - -
KCP&L's accredited capacity-megawatts 550 681 469
Each owner must fund its own portion of the plant's operating expenses
and capital expenditures. KCP&L's share of direct expenses is included
in the appropriate operating expense classifications in the income
statement.
17. DTI HOLDINGS, INC. AND SUBSIDIARIES
On December 31, 2001, a subsidiary of KLT Telecom, DTI Holdings, Inc.
(Holdings) and its subsidiary Digital Teleport Inc. (collectively
called DTI), filed voluntary petitions in Bankruptcy Court for the
Eastern District of Missouri for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. The filings enable DTI to continue to
conduct its business operations while restructuring its financial
obligations. DTI is a telecommunications company headquartered in St.
Louis that focuses on providing access and connectivity to secondary
and tertiary markets. KLT Telecom has agreed to provide up to $5
million in DIP financing to Digital Teleport Inc. during the
bankruptcy process if it achieves certain financial goals. If KLT
Telecom provides loans under this DIP financing agreement, it will
have priority repayment over most other DTI obligations.
KLT Telecom originally acquired a 47% interest in DTI in 1997. On
February 8, 2001, KLT Telecom acquired control of DTI by purchasing
shares from the majority shareholder, Richard D. Weinstein (Weinstein)
increasing its ownership to 83.6%. In connection with the February 8,
2001 purchase agreement, KLT Telecom granted Weinstein a put option.
The put option allows Weinstein to sell his remaining shares to KLT
Telecom during a period beginning September 1, 2003, and ending August
31, 2005. The shares shall have an aggregate exercise price equal to
the fair market of the shares with an aggregate floor amount of $15
million. The put option has negligible value at December 31,
2001, because of the bankruptcy of DTI and prior to December 31, 2001,
because of the contract provisions.
Prior to items discussed below, KLT Telecom's remaining $175.2 million
investment in DTI included a February 1, 2001, $94 million loan to
Holdings, the proceeds of which were used to repurchase a portion of
its Senior Discount Notes, and $47 million in loans to Digital
Teleport Inc. under various arrangements. The $47 million of loans
are secured, to the extent permitted by law or agreement, by Digital
Teleport Inc.'s assets. In December 2001, KLT Telecom converted $84
million of the $94 million loan, plus accrued interest of $8.5
million, to an equity contribution.
The Company obtained from legal counsel, an opinion which stated that
based upon and subject to the analysis, limitations and qualifications
set forth in the opinion, that they are of the opinion that a court
applying Missouri law and acting reasonably in a properly presented
and argued case would hold that the corporate veil of DTI would not be
pierced with respect to Great Plains Energy and its subsidiaries and
therefore neither Great Plains Energy nor the subsidiaries would be
required to fund, beyond KLT
45
Telecom's current equity investment in or loans to DTI, directly,
indirectly or through guarantees, any of the present, past or future
liabilities, commitments or obligations of DTI except for the DIP
loan and certain performance bonds.
The operating results of DTI have been included for the period
February 8, 2001, (date of acquisition) through September 30, 2001,
for consolidated KCP&L and through December 31, 2001, for Great Plains
Energy.
During the fourth quarter of 2001, the following have been recognized
in the financial statements of Great Plains Energy related to the
activities of DTI:
- Wrote off $60.8 million of goodwill related to the purchase of DTI
in February 2001.
- Recorded a $342.5 million impairment of DTI's assets resulting in a
negative KLT Telecom investment of $228.1 million.
- Because of DTI's filing for bankruptcy protection under the U.S.
Bankruptcy code, KLT Telecom no longer has control over nor can they
exert significant control over DTI. As a consequence, as of December
31, 2001, DTI has been de-consolidated and is presented on the cost
basis. Consequently KLT Telecom will not include the ongoing results
of operations, earnings or losses incurred by DTI during bankruptcy.
- Because of the legal opinion from counsel discussed above, the
Company was able to record a reduction in the negative investment of
$207.5 million. This reduction resulted in a net impairment charge of
$195.8 million ($342.5 million impairment of DTI's assets plus the
$60.8 million write-off of goodwill less the $207.5 million adjustment
of KLT Telecom's investment) and a remaining negative investment of
$20.6 million. This remaining negative investment represents the
possible commitments and guarantees relating to DTI including the $5
million for DIP financing and the $15 million aggregate floor of the
Weinstein put option. The $20.6 million is included in Deferred
Credits and Other Liabilities - Other on Great Plains Energy's
consolidated balance sheet.
The results of the above include a $140.0 million ($2.27 per share)
reduction to net income ($195.8 included in (Gain) Loss on Property in
Operating Expenses and $55.8 million of income tax benefits included
in Income Taxes on Great Plains Energy's Consolidated Statements of
Income).
The $55.8 million income tax benefits applicable to this net write-off
is net of a $15.8 million tax valuation allowance due to the
uncertainty of recognizing future tax deductions while in the
bankruptcy process. The $55.8 million income tax benefit reflects the
impact of DTI's 2001 abandonment of its $104 million of long-haul
assets in addition to other expected tax deductions. If additional
assets of DTI are sold or abandoned during the bankruptcy process, or
additional tax losses not already reflected are incurred by DTI, KLT
Telecom will record tax benefits associated with these additional tax
deductions at that time. The amount of additional tax deductions will
be limited by KLT Telecom's tax basis in DTI. DTI's tax losses will
continue to be included in Great Plains Energy's consolidated tax return.
In accordance with the tax allocation agreement with DTI, cash tax savings
are shared with DTI only to the extent DTI generates taxable income to
utilize such losses.
46
Following are condensed DTI consolidated financial statements for the
year ended December 31, 2001.
Net Assets
De-consolidated
by KLT
DTI Consolidated Balance Sheet December 31, 2001 Telecom
(millions)
Assets
Property and equipment, net $ 46.9
Other 6.1
Total assets $ 53.0 $ (53.0)
Liabilities
Current liabilities not subject to compromise $ 0.2 0.2
Liabilities subject to compromise
Loans from KLT Telecom 57.0
Deferred revenue 45.8 45.8
Interest payable to KLT Telecom 3.0
Other 31.9 31.9
Senior discount notes
Held by KLT Telecom 8.5
Held by others 203.2 203.2
Total liabilities subject to compromise 349.4
Stockholders' equity(deficit) (296.6)
Total liabilities and
stockholders' equity(deficit) $ 53.0 $ 228.1
DTI Consolidated Statement of Income for the Year Ended December 31, 2001
(millions)
Telecommunications service revenues $ 17.4
Operating expenses
Provision for impairment of long-lived assets (a) (342.5)
Other (44.2)
Interest expense net of interest income (31.9)
Loss before income tax benefit and extraordinary item (401.2)
Income tax benefit 37.9
Gain on early extinguishment of debt 57.2
Net loss $ (306.1)
(a) The write-down of assets was determined by DTI in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of". The write-down reflects the
abandonment of $104 million of long-haul assets and the impairment of
the rest of the telecommunication network and equipment. The
impairment is primarily a result of the downward trends in certain
segments of the economy, particularly with respect to previously expected
growth of demand in technology and telecommunications, the accompanying
deterioration in value of DTI's operating assets and its Chapter 11
filing. The fair value used in the impairment analysis was derived
primarily from the discounted cash flows from continued future
operations.
47
DTI Consolidated Statement of Cash Flows for the Year Ended
December 31, 2001
(millions)
Net cash used in operating activities $ (10.8)
Net cash used in investing activities (41.2)
Cash provided by financing activities 42.9
Net decrease in cash and cash equivalents $ (9.1)
Reconciliation of DTI consolidated financial statements to DTI
financial results included in Great Plains Energy consolidated
financial statements
(millions)
Loss before income tax benefit and extraordinary item $ (401.2)
Loss before consolidation on February 8, 2001 7.1
Goodwill write-off (60.8)
Reduction to KLT Telecom's negative investment in DTI 207.5
Total $ (247.4)
Net DTI write-off $ (195.8)
DTI operational loss, excluding net write-off (51.6)
Total equal to the above (247.4)
Other (1.0)
Total included in loss before income taxes (248.4)
Income tax benefits recorded by KLT Telecom 74.6
Loss before extraordinary item (173.8)
Early extinguishment of debt 15.9
DTI loss included in Great Plains Energy consolidated loss $ (157.9)
Extraordinary Item Early Extinguishment of Debt
The KLT Telecom gain on early extinguishment of debt resulted from
DTI's completion of a successful tender offer for 50.4 percent of its
outstanding Senior Discount Notes prior to KLT Telecom acquiring a
majority ownership in DTI. The $15.9 million early extinguishment of
debt has been reduced by the losses previously recorded by DTI but not
reflected by KLT Telecom, and is net of $9.1 million of income taxes.
18. PROPOSED INTERNAL REVENUE SERVICE ADJUSTMENT - CORPORATE OWNED
LIFE INSURANCE
During 2000, KCP&L recorded a $12.7 million charge for the Federal and
states income tax impact of the proposed disallowance of interest
deductions on corporate owned life insurance loans and assessed
interest on the disallowance for tax years 1994 to 1998. KCP&L
believes it has complied with all applicable tax laws and regulations.
As a result, KCP&L plans to vigorously contest the IRS's disallowance
up to, and including, all appeals available.
48
19. QUARTERLY OPERATING RESULTS (UNAUDITED)
Quarterly operating results for Great Plains Energy and consolidated
KCP&L are identical prior to the October 1, 2001, formation of a
holding company. Thus, Great Plains Energy and consolidated KCP&L are
presented separately below for the year 2001 to reflect the
differences for the registrants in the fourth quarter. The 2000
quarterly operating results presented below represent both Great
Plains Energy and consolidated KCP&L.
Great Plains Energy
Quarter
1st 2nd 3rd 4th
(millions)
2001
Operating revenues $280.2 $346.5 $480.9 $ 354.3
Operating income (loss) 7.4 75.8 131.7 (157.7)
Income (loss) before
extraordinary item (3.0) 36.2 55.6 (128.8)
Net income (loss) 12.9 36.2 55.6 (128.9)
Basic and diluted earnings
(loss) per common share
before extraordinary item $(0.06) $ 0.58 $ 0.89 $ (2.09)
Basic and diluted earnings
(loss) per common share $ 0.20 $ 0.58 $ 0.89 $ (2.09)
Basic and diluted earnings per common share in the fourth
quarter of 2001 include a loss of $2.27 due to the net write-off of the
investment in DTI.
Consolidated KCP&L
Quarter
1st 2nd 3rd 4th
(millions)
2001
Operating revenues $280.2 $346.5 $480.9 $ 243.3
Operating income 7.4 75.8 131.7 39.8
Income (loss) before
extraordinary item (3.0) 36.2 55.6 15.0
Net income 12.9 36.2 55.6 15.0
Certain reclassifications have been made to previously reported
amounts in the 2001 Form 10-Q's, reflecting audit adjustments to
revenues and purchased power recorded by Strategic Energy. There
is no impact to net income as a result of these adjustments.
Revenues previously reported were $281.9 million, $354.3
million, and $492.6 million for the first, second and third
quarters of 2001, respectively.
49
Great Plains Energy and Consolidated KCP&L
Quarter
1st 2nd 3rd 4th
(millions)
2000
Operating revenues $199.3 $290.9 $378.4 $247.3
Operating income 22.0 63.3 142.2 64.8
Income before cumulative effect
of changes in accounting
principles 0.6 26.7 81.6 19.7
Net income 30.7 26.7 81.6 19.7
Basic and diluted earnings per
common share before cumulative
effect of changes in
accounting principles - $ 0.43 $ 1.31 $ 0.31
Basic and diluted earnings per
common share $ 0.49 $ 0.43 $ 1.31 $ 0.31
Basic and diluted earnings per common share in the third and
fourth quarter of 2000, include $0.62 and $0.48, respectively,
from the sales of gas properties.
The quarterly data is subject to seasonal fluctuations with peak
periods occurring during the summer months.
50
Report of Independent Accountants
To the Shareholders and the Board of Directors of
Great Plains Energy Incorporated:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Great Plains Energy Incorporated and Subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of income,
comprehensive income, retained earnings and cash flows for each of the three
years in the period ended December 31, 2001. 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 did not audit the
consolidated financial statements of DTI Holdings, Inc. and Subsidiaries
(Debtors-in-Possession) (an 83.6 percent owned entity), as of and for the year
ended December 31, 2001, which statements reflect total assets of $53.0 million
as of December 31, 2001 and total revenues of $17.4 million and a net loss of
$306.1 million for the year ended December 31, 2001. Those statements were
audited by other auditors whose report thereon has been furnished to us, and
our opinion expressed herein, insofar as it relates to the amounts included for
DTI Holdings, Inc. and Subsidiaries is based solely on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Great Plains Energy Incorporated
and Subsidiaries at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 15 to the consolidated financial statements, the Company
adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities", as amended on January 1, 2001. As discussed in Note 3 to the
consolidated financial statements, the Company changed its method of accounting
for pensions in 2000.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 5, 2002, except with respect to Note 9,
as to which the date is May 22, 2002
51
Report of Independent Accountants
To the Shareholder and the Board of Directors of
Kansas City Power & Light Company:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Kansas City Power & Light Company (a wholly-owned subsidiary
of Great Plains Energy Incorporated) and Subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of income, comprehensive
income, retained earnings and cash flows for each of the three years in the
period ended December 31, 2001. 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 did not audit the
consolidated financial statements of DTI Holdings, Inc. and Subsidiaries
(Debtors-in-Possession) (an 83.6 percent owned entity through September 30,
2001), as of and for the year ended December 31, 2001, which statements reflect
total assets of $53.0 million as of December 31, 2001 and total revenues of
$17.4 million and a net loss of $306.1 million for the year ended December 31,
2001. Those statements were audited by other auditors whose report thereon has
been furnished to us, and our opinion expressed herein, insofar as it relates
to the amounts included for DTI Holdings, Inc. and Subsidiaries is based solely
on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Kansas City Power & Light Company
and Subsidiaries at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 15 to the consolidated financial statements, the Company
adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities", as amended on January 1, 2001. As discussed in Note 3 to the
consolidated financial statements, the Company changed its method of accounting
for pensions in 2000.
As discussed in Note 1 to the consolidated financial statements, on October 1,
2001 the Company completed its corporate reorganization creating a holding
company structure.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 5, 2002, except with respect to Note 9,
as to which the date is May 22, 2002
52
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of DTI Holdings, Inc.
We have audited the accompanying balance sheets of DTI Holdings, Inc. and
subsidiaries (Debtors-in-Possession) (the "Company") as of December 31, 2000
and 2001, and the related statements of operations and stockholder's equity
(deficit) and of cash flows for the years ended June 30, 1999 and 2000, the
six-month period ended December 31, 2000 and the year ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such financial statements present fairly, in all material
respects, the financial position of DTI Holdings, Inc. and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their cash
flows for the years ended June 30, 1999 and 2000, the six-month period ended
December 31, 2000 and the year ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1, the Company has filed for reorganization under Chapter
11 of the Federal Bankruptcy Code. The accompanying financial statements do not
purport to reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such financial statements do not purport to show
(a) as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to prepetition liabilities, the
amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes
that may be made in the capitalization of the Company; or (d) as to operations,
the effect of any changes that may be made in its business.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company's
recurring losses from operations, negative working capital, and stockholders'
capital deficiency raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also discussed
in Note 1. The financial statements do not include adjustments that might
result from the outcome of this uncertainty.
As discussed in Note 3, the Company determined that the carrying value of its
long-lived assets had been impaired during the year. In accordance with
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-lived Assets to be Disposed of, the Company
recorded an impairment charge of approximately $342 million at December 31,
2001.
/s/ DELOITTE & TOUCHE, LLP
St. Louis, Missouri
January 30, 2002
53