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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-707
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0308720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Walnut, Kansas City, Missouri 64106-2124
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 556-2200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common stock at
April 29, 1994 was 61,908,726 shares.
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
March 31 December 31
1994 1993
ASSETS (Thousands)
UTILITY PLANT, at original cost
Electric $ 3,263,377 $ 3,240,384
Less-Accumulated depreciation 1,039,361 1,019,714
Net utility plant in service 2,224,016 2,220,670
Construction work in progress 66,470 67,766
Nuclear fuel, net of amortization of
$79,311,000 and $76,722,000 32,195 29,862
Total 2,322,681 2,318,298
REGULATORY ASSET - DEFERRED WOLF CREEK COSTS 26,526 29,118
REGULATORY ASSET - RECOVERABLE TAXES 122,000 122,000
INVESTMENTS AND NONUTILITY PROPERTY 35,789 28,454
CURRENT ASSETS
Cash 5,441 1,539
Special deposits - 60,118
Receivables
Customer accounts receivable 16,413 29,320
Other receivables 20,699 19,340
Fuel inventories, at average cost 13,344 14,550
Materials and supplies, at average cost 44,826 44,157
Prepayments 3,567 4,686
Deferred income taxes 5,069 3,648
Total 109,359 177,358
DEFERRED CHARGES
Regulatory Assets
Settlement of fuel contracts 19,527 20,634
KCC Wolf Creek carrying costs 8,891 9,575
Other 30,706 31,899
Other deferred charges 7,486 17,732
Total 66,610 79,840
Total $ 2,682,965 $ 2,755,068
LIABILITIES
CAPITALIZATION (Note 2)
Common stock-authorized 150,000,000 shares
without par value-61,908,726 shares issued
and outstanding-stated value $ 449,697 $ 449,697
Retained earnings 404,383 418,201
Capital stock premium and expense (1,736) (1,747)
Common stock equity 852,344 866,151
Cumulative preferred stock 89,000 89,000
Cumulative preferred stock (redeemable) 1,596 1,756
Long-term debt 737,018 733,664
Total 1,679,958 1,690,571
CURRENT LIABILITIES
Notes payable to banks 5,000 4,000
Commercial paper 33,000 25,000
Current maturities of long-term debt 74,250 134,488
Accounts payable 36,260 59,421
Dividends declared 423 423
Accrued taxes 40,046 27,800
Accrued interest 8,811 15,575
Accrued payroll and vacations 17,531 20,127
Accrued refueling outage costs 10,375 7,262
Other 7,598 8,531
Total 233,294 302,627
DEFERRED CREDITS
Deferred income taxes 629,666 627,819
Deferred investment tax credits 86,099 87,185
Other 53,948 46,866
Total 769,713 761,870
COMMITMENTS AND CONTINGENCIES (Note 1)
Total $ 2,682,965 $ 2,755,068
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Twelve Months Ended
March 31 March 31
1994 1993 1994 1993
(Thousands)
ELECTRIC OPERATING REVENUES $ 199,295 $ 191,380 $ 865,365 $ 814,026
OPERATING EXPENSES
Operation
Fuel 38,009 31,325 136,801 126,044
Purchased power 6,482 5,775 32,110 23,772
Other (Note 3) 58,562 44,168 199,027 178,959
Maintenance 18,816 18,102 79,264 78,626
Depreciation 23,331 22,511 91,930 89,199
Taxes
Income 6,748 11,162 65,088 56,302
General 23,468 23,669 95,458 94,547
Amortization of
MPSC rate phase-in plan - 1,768 5,304 7,072
Deferred Wolf Creek costs 3,276 3,276 13,102 13,102
Total 178,692 161,756 718,084 667,623
OPERATING INCOME 20,603 29,624 147,281 146,403
OTHER INCOME AND DEDUCTIONS
Allowance for equity funds
used during construction 473 542 2,777 1,615
Miscellaneous 123 (260) (2,103) 2,711
Income taxes 79 162 1,466 (529)
Total 675 444 2,140 3,797
INCOME BEFORE INTEREST CHARGES 21,278 30,068 149,421 150,200
INTEREST CHARGES
Long-term debt 10,380 13,781 46,717 54,206
Short-term notes 338 198 890 1,706
Miscellaneous 1,188 901 4,400 2,366
Allowance for borrowed funds
used during construction (519) (612) (2,449) (1,891)
Total 11,387 14,268 49,558 56,387
PERIOD RESULTS
Net income 9,891 15,800 99,863 93,813
Preferred stock
dividend requirements 807 827 3,133 3,293
Earnings available for
common stock $ 9,084 $ 14,973 $ 96,730 $ 90,520
Average number of common
shares outstanding 61,908,726 61,908,726 61,908,726 61,908,726
Earnings per common share $ 0.15 $ 0.24 $ 1.56 $ 1.46
Cash dividends per common
share $ 0.37 $ 0.36 $ 1.47 $ 1.44
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Twelve Months Ended
March 31 March 31
1994 1993 1994 1993
(Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,891 $ 15,800 $ 99,863 $ 93,813
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 23,331 22,511 91,930 89,199
Amortization of:
Nuclear fuel 2,589 1,714 9,580 10,085
Deferred Wolf Creek costs 3,276 3,276 13,102 13,102
MPSC rate phase-in plan - 1,768 5,304 7,072
Other 2,647 1,944 8,937 6,380
Deferred income taxes (net) 426 9,321 16,607 27,734
Investment tax credit (net) (1,086) (1,086) (4,345) (4,520)
Allowance for equity funds used
during construction (473) (542) (2,777) (1,615)
Cash flows affected by changes in:
Receivables 11,548 10,054 (8,751) (4,075)
Fuel inventories 1,206 1,274 6,007 1,380
Materials and supplies (669) 480 (43) 827
Accounts payable (23,161) (31,024) (9,878) 6,170
Accrued taxes 12,246 10,486 9,696 4,508
Accrued interest (6,764) 2,419 (6,557) (1,809)
Wolf Creek refueling outage
accrual 3,113 (4,851) 2,626 5,029
Early retirement program costs 14,000 - 14,000 -
Other operating activities (1,312) 2,158 2,949 1,230
Net cash provided by operating
activities 50,808 45,702 248,250 254,510
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (29,148) (28,347) (130,000) (136,117)
Allowance for borrowed funds used
during construction (519) (612) (2,449) (1,891)
Other investing activities (6,456) (3,651) (2,499) (7,602)
Net cash used in investing
activities (36,123) (32,610) (134,948) (145,610)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 38,922 168,000 195,768 302,750
Issuance of preferred stock - - - 50,000
Retirement of long-term debt (95,920) (83,000) (284,400) (191,230)
Temporary investments for the
retirement of debt 60,118 (38,824) 38,824 (27,759)
Premium on reacquired stock and
long-term debt - (1,776) (2,301) (3,685)
Increase (decrease) in short-term
borrowings 9,000 (33,000) 38,000 (146,000)
Dividends declared (23,709) (23,139) (94,126) (92,319)
Other financing activities 806 (222) (885) 464
Net cash used in financing
activities (10,783) (11,961) (109,120) (107,779)
NET INCREASE IN CASH 3,902 1,131 4,182 1,121
CASH AT BEGINNING OF PERIOD 1,539 128 1,259 138
CASH AT END OF PERIOD $ 5,441 $ 1,259 $ 5,441 $ 1,259
CASH PAID DURING THE PERIOD FOR:
Interest, net of amount capitalized $ 17,493 $ 11,358 $ 53,496 $ 56,420
Income taxes $ 7,098 $ 4,709 $ 42,530 $ 33,435
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Ended Twelve Months Ended
March 31 March 31
1994 1993 1994 1993
(Thousands)
Beginning balance $ 418,201 $ 405,985 $ 398,646 $ 397,152
Net income 9,891 15,800 99,863 93,813
428,092 421,785 498,509 490,965
Dividends declared 23,709 23,139 94,126 92,319
Ending balance $ 404,383 $ 398,646 $ 404,383 $ 398,646
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
Notes to Consolidated Financial Statements
In management's opinion, the consolidated interim financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly the results of operations for the interim periods
presented. These statements and notes should be read in conjunction with the
financial statements and the notes thereto, included in the Company's annual
report to the Securities and Exchange Commission on Form 10-K for the year
1993.
1. COMMITMENTS AND CONTINGENCIES
TAX MATTERS
The Company's federal income tax returns for the years 1985 through 1990
are presently under examination by the Internal Revenue Service (IRS). The IRS
has issued Revenue Agent's Reports for the years 1985 through 1990. The
Reports include proposed adjustments that would reduce the Company's Wolf Creek
investment tax credit (ITC) by 25% or approximately $20 million and tax
depreciation by 23% or approximately $195 million. These amounts include the
continuing effect of the adjustments through March 31, 1994. These adjustments,
principally, are based upon the IRS's contention that (i) certain start-up and
testing costs considered by the Company to be costs of the plant, should be
treated as licensing costs, which do not qualify for ITC or accelerated
depreciation, and (ii) certain cooling and generating facilities should not
qualify for ITC or accelerated depreciation.
If the IRS were to prevail on all of these proposed adjustments, the
Company would be obligated to make cash payments, calculated through March 31,
1994, of approximately $95 million for additional federal and state income
taxes and $50 million for corresponding interest. After offsets for deferred
income taxes, these payments would reduce net income by approximately $30
million.
The Company has filed a protest with the appeals division of the IRS.
Based upon their interpretation of applicable tax principles and the tax
treatment of similar costs and facilities with respect to other plants, it is
the opinion of management and outside tax counsel that the IRS's proposed Wolf
Creek adjustments are substantially overstated. Management believes any
additional taxes, together with interest, resulting from the final resolution
of these matters will not be material to the Company's financial condition or
results of operations.
ENVIRONMENTAL MATTERS
Interstate Power Company of Dubuque, Iowa (Interstate) filed a lawsuit in
1989 against the Company in the Federal District Court for the District of Iowa
seeking from the Company contribution and indemnity under the Federal
Comprehensive Environmental Response, Compensation and Liability Act, (the
Superfund law) for cleanup costs of hazardous substances at the site of a
demolished gas manufacturing plant in Mason City, Iowa. The plant was operated
by the Company for very brief periods of time before the plant was demolished
in 1952. The site and all other properties the Company owned in Iowa were sold
to Interstate in 1957. The Company estimates that the cleanup could cost up to
$10 million. The Company's estimate is based upon an evaluation of available
information from on-going site investigation and assessment activities,
including the costs of such activities.
In August 1993, the Company, along with other parties to the lawsuit,
received a letter from the Environmental Protection Agency (EPA) notifying each
such party that it was considered a potentially responsible party for cleanup
costs at the site. The EPA has also proposed to list the site on the National
Priorities List.
The Company believes it has several valid defenses to this action
including the fact that the 1957 sales documents included clauses which require
Interstate to indemnify the Company from and against all claims and damages
arising after the sale. However, in 1993 the Court rejected this position,
ruling that the indemnity clauses were not sufficiently broad to indemnify for
environmental cleanup. This order will be final for appeal after a trial to
allocate the cleanup costs among the parties, which is expected in 1994. Even
if unsuccessful on the liability issue, the Company does not believe its
allocated share of the cleanup costs will be material to its financial
condition or results of operations.
2. CAPITALIZATION
In February 1994, the Company issued $35.9 million of its General Mortgage
Bonds ($21.9 million due 2018 and $14.0 million due 2015) at a variable rate to
support $35.9 million City of LaCygne, Kansas Environmental Improvement Revenue
Refunding Bonds (Kansas City Power & Light Company Project) Series 1994. The
proceeds from the issuance were used to redeem at par value the $21.9 million
City of LaCygne, Kansas Pollution Control Revenue Refunding Bonds
collateralized with the Company's 5 7/8% First Mortgage Bonds due 2007, and the
$14.0 million 5 3/4% City of LaCygne, Kansas Pollution Control Revenue Bonds
due 2003.
Under the Indenture of Mortgage and Deed of Trust dated December 1, 1946,
as supplemented, a portion of retained earnings was not available for cash
dividends on common stock. Following the redemption of the 5 7/8% First
Mortgage Bond, this Indenture was retired. The remaining restriction relating
to the payment of dividends is set forth in the Restated Articles of
Consolidation and would apply in the event common equity falls to 25% of total
capitalization.
3. EARLY RETIREMENT
In March 1994, the Company offered a voluntary early retirement program to
411 eligible management and union employees. Eligible employees have until May
31, 1994 to decide whether or not to participate.
Through March 31, 1994, 167 of 411 eligible employees had already elected
to participate in the program. As a result, based on an estimated average cost
per employee, the Company expensed $14 million ($0.14 per share) in the first
quarter for the costs of the program relating to those 167 employees who had
accepted. As of May 10, 1994, 108 additional employees had elected to
participate. An additional expense will be accrued in the second quarter for
those employees accepting the offer between April 1, 1994 and May 31, 1994.
It is expected that future savings of payroll and benefits will offset the
program costs in less than two years if no retiring employees are replaced.
The extent of necessary replacements is unknown at this time.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three month period - three months ended March 31, 1994
compared to three months ended
March 31, 1993.
Twelve month period - twelve months ended March 31, 1994
compared to twelve months ended
March 31, 1993.
KILOWATT (KWH) SALES AND OPERATING REVENUES
Sales and revenue data:
Increase (Decrease)
From Prior Year
Three Month Twelve Month
Period Period
KWH Revenues KWH Revenues
(Millions) (Millions)
Retail sales:
Residential - % $ (1) 10 % $ 25
Commercial 1 % - 3 % 7
Industrial 4 % - 4 % 3
Other (4)% - (1)% -
Total retail 1 % (1) 5 % 35
Sales for resale:
Bulk power sales 68 % 9 31 % 16
Other - % - 3 % -
Total operating revenues $8 $51
Effective January 1, 1994, Missouri jurisdictional retail rates were
reduced 2.66%, or approximately $12.5 million annually, primarily to reflect
the end of the Missouri Public Service Commission (MPSC) rate phase-in
amortization. This agreement with the MPSC and public counsel also includes a
provision whereby none of the parties can file for a general increase or
decrease in Missouri retail electric rates prior to January 1, 1996.
Approximately two-thirds of total retail sales are from Missouri customers.
Other tariffs have not changed materially since 1988. Less than 1% of the
Company's revenues are affected by an automatic fuel adjustment provision.
Residential and commercial sales for the twelve month period reflect
closer to normal temperatures during the 1994 period compared to the abnormally
mild weather during the 1993 period. Based on the Company's records of cooling
degree days above 65 degrees Fahrenheit, the summer of 1992 was the coolest
since 1950. Industrial kwh sales for the twelve month period reflect increased
large customer usage in the steel, auto manufacturing, grain processing and
plastic container production sectors. In addition, both the three and twelve
month periods reflect basic load growth.
Bulk power sales reflect an increase in the number of sales commitments,
the Company's high unit availability, and the requirements of other electric
systems.
The level of future kwh sales will depend upon weather conditions,
customer conservation efforts, competing fuel sources and the overall economy
of the Company's service territory. Sales to industrial customers, such as
steel and auto manufacturers, are also affected by the national economy. The
level of bulk power sales in the future will depend upon the availability of
generating units, fuel costs, requirements of other electric systems and the
Company's system requirements. Sales could also be affected by issues facing
the electric utility industry such as transmission access, demand-side
management programs, increased competition and retention of large industrial
customers. Alternative sources of electricity, such as cogeneration, could
affect the retention of, and future sales to large industrial customers.
FUEL, PURCHASED POWER AND OTHER OPERATION EXPENSES
Combined fuel and purchased power expenses increased for the three and
twelve month periods reflecting additional sales. These increases were
partially offset by decreased coal costs.
Other operation expenses increased during the three and twelve month
periods primarily reflecting the $14 million ($0.14 per share) first quarter
accrual for estimated costs of the voluntary early retirement program. See
Note 3 to the Consolidated Financial Statements - Early Retirement for more
detail including additional second quarter expenses and future savings of the
program.
The twelve month period also reflects increased fossil plant production
expenses and the additional accrual of postretirement benefits.
The Company continues to place emphasis on cost control. Processes are
being reviewed and changed to provide increased efficiencies and improved
operations.
INCOME TAXES
In addition to reflecting an increase in income subject to tax, income tax
expense increased by approximately $2 million for the twelve month period due
to an increase in federal income tax rates.
The Company estimates state income tax expense will increase approximately
$1 million in 1994 reflecting a change in the Missouri state income tax law.
OTHER INCOME AND DEDUCTIONS
Miscellaneous and Income Taxes - the twelve months ended March 31, 1993
reflects gains from the sale of property and other contract settlements.
INTEREST CHARGES
The decrease in interest charges for the three and twelve month periods
reflect lower average levels of long-term debt outstanding and the refinancing
of long-term debt with lower fixed or variable rate debt.
EARNINGS PER SHARE (EPS)
EPS for the three and twelve month periods reflects the $14 million ($0.14
per share) first quarter decrease for estimated costs of the early retirement
program. See Note 3 to the Consolidated Financial Statements - Early
Retirement for more detail including additional second quarter expenses and
future savings of the program.
The effects of weather increased the twelve month period EPS approximately
$0.18. Although both twelve months ended March 31 were affected by milder than
normal temperatures, the twelve months ended March 31, 1994 reflects closer to
normal temperatures compared to the prior twelve month period. Based on a
statistical relationship between sales and the differences in actual and normal
temperatures for the year, the Company estimates the effects of abnormal
weather for the twelve month periods were as follows:
Twelve Months Ended
March 31
1994 1993
Estimated effects of
abnormal weather on EPS $(0.11) $(0.29)
In addition, EPS for the three and twelve month periods reflects reduced
interest costs because the Company has refinanced a significant portion of its
long-term debt to take advantage of lower interest rates.
ENVIRONMENTAL MATTERS
The Company's policy is to act in an environmentally responsible manner
and utilize the latest technological processes possible to avoid and treat
contamination. The Company continually conducts environmental audits designed
to assure compliance with governmental regulations and detect contamination.
However, these regulations are constantly evolving; governmental bodies may
impose additional or more rigid environmental regulations which could require
substantial changes to the Company's operations or facilities.
See Note 1 to the Consolidated Financial Statements-Commitments and
Contingencies-Environmental Matters for a discussion of costs of compliance
with environmental laws and regulations and a potential liability (which the
Company believes is not material to its financial condition or results of
operations) for cleanup costs under the Superfund law.
WOLF CREEK
Wolf Creek is one of the Company's principal generating facilities
representing approximately 17% of the Company's accredited generating capacity
and 26% of the Company's annual kwh generation and has the lowest fuel cost of
any of its generating facilities.
An extended shut-down of the unit could have a substantial adverse effect
on the Company's business, financial condition and results of operations.
Higher replacement power and other costs would be incurred as a result.
Although not expected, an abnormal shut-down of the plant could be caused by
adverse incidents at the plant or by actions of the Nuclear Regulatory
Commission reacting to safety concerns at the plant or other similar nuclear
facilities. If a long-term shut-down occurred, the state regulatory
commissions could consider reducing rates by excluding Wolf Creek investment
from rate base.
Ownership and operation of a nuclear generating unit exposes the Company
to potential retroactive assessments and property losses in excess of insurance
coverage.
CAPITAL REQUIREMENTS AND LIQUIDITY
See Note 2 to the Consolidated Financial Statements - Capitalization
regarding the refinancing of long-term debt.
The Company currently uses an accelerated depreciation method for tax
purposes. The accelerated depreciation on the Wolf Creek plant has reduced the
Company's tax payments during the last three years by approximately $30 million
per year. Accelerated depreciation on Wolf Creek ends in 1994.
See Note 1 to the Consolidated Financial Statements-Commitments and
Contingencies-Tax Matters for a discussion of the Company's federal income tax
returns for the years 1985 through 1990 which are presently under audit by the
Internal Revenue Service.
In order to take advantage of the potential benefits inherent in a larger
energy system, the Company might incur additional debt and/or issue additional
equity to finance system growth or new growth opportunities, through business
combinations or other investments such as an exempt wholesale generator.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A Current Report on Form 8-K providing financial information for the year ended
December 31, 1993 was filed by the Company on February 11, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KANSAS CITY POWER & LIGHT COMPANY
Dated: May 11, 1994
/s/Drue Jennings
(Drue Jennings)
(Chief Executive Officer)
Dated: May 11, 1994
/s/Neil Roadman
(Neil Roadman)
(Principal Accounting Officer)