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 June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-707
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0308720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Walnut, Kansas City, Missouri 64106-2124
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 556-2200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common stock at August 9,
1996 was 61,902,083 shares.
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
June 30 December 31
1996 1995
ASSETS
UTILITY PLANT, at original cost
Electric $3,417,505 $3,388,538
Less-accumulated depreciation 1,194,321 1,156,115
Net utility plant in service 2,223,184 2,232,423
Construction work in progress 83,961 72,365
Nuclear fuel, net of amortization of
$74,136 and $81,452 50,120 54,673
Total 2,357,265 2,359,461
REGULATORY ASSET - DEFERRED WOLF CREEK COSTS 4,440 8,880
REGULATORY ASSET - RECOVERABLE TAXES 123,000 123,000
INVESTMENTS AND NONUTILITY PROPERTY 190,006 166,751
CURRENT ASSETS
Cash and cash equivalents 21,426 28,390
Customer accounts receivable, net of allowance
for doubtful accounts of $1,270 and $1,574 47,120 32,830
Other receivables 26,706 31,838
Fuel inventories, at average cost 17,947 22,103
Materials and supplies, at average cost 46,100 47,175
Deferred income taxes 1,569 5,947
Other 4,716 5,179
Total 165,584 173,462
DEFERRED CHARGES
Regulatory assets
Settlement of fuel contracts 11,386 13,007
KCC Wolf Creek carrying costs 2,736 4,104
Other 19,749 21,231
Other deferred charges 25,506 12,610
Total 59,377 50,952
Total $2,899,672 $2,882,506
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock-authorized 150,000,000 shares
without par value-61,908,726 shares issued-
stated value $449,697 $449,697
Retained earnings 451,980 449,966
Capital stock premium and expense (1,714) (1,725)
Common stock equity 899,963 897,938
Cumulative preferred stock 89,000 89,000
Cumulative redeemable preferred stock 1,276 1,436
Long-term debt 829,136 835,713
Total $1,819,375 $1,824,087
CURRENT LIABILITIES
Notes payable to banks 8,000 0
Commercial paper 61,000 19,000
Current maturities of long-term debt 56,591 73,803
Accounts payable 52,600 52,506
Accrued taxes 36,279 39,726
Accrued interest 16,636 16,906
Accrued payroll and vacations 22,763 22,764
Accrued refueling outage costs 2,273 13,563
Other 11,201 11,787
Total 267,343 250,055
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 651,365 648,374
Deferred investment tax credits 69,221 71,270
Other 92,368 88,720
Total 812,954 808,364
COMMITMENTS AND CONTINGENCIES
Total $2,899,672 $2,882,506
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Year to Date Twelve Months Ended
June 30 June 30 June 30
1996 1995 1996 1995 1996 1995
(thousands of dollars)
ELECTRIC OPERATING REVENUES $ 226,205 $ 205,305 $ 432,829 $ 404,211 $ 914,573 $ 850,080
OPERATING EXPENSES
Operation
Fuel 36,096 33,045 66,869 67,764 138,476 129,530
Purchased power 12,540 7,586 26,525 14,318 50,990 33,700
Other 45,519 49,039 89,018 93,484 174,133 180,775
Maintenance 19,409 22,500 37,438 43,178 72,699 76,716
Depreciation 24,861 24,215 49,577 48,354 98,448 95,933
Taxes
Income 18,927 11,923 32,340 23,540 85,862 71,220
General 23,451 22,681 47,812 46,538 98,095 95,653
Deferred Wolf Creek costs
amortization 2,904 3,275 5,808 6,551 11,864 13,102
Total 183,707 174,264 355,387 343,727 730,567 696,629
OPERATING INCOME 42,498 31,041 77,442 60,484 184,006 153,451
OTHER INCOME
Allowance for equity funds
used during construction 457 505 1,117 740 2,656 1,715
Miscellaneous income 1,948 814 2,689 9,055 2,257 10,473
Miscellaneous deductions (10,928) (4,271) (14,713) (5,944) (19,870) (9,636)
Income taxes 8,245 4,110 14,466 3,774 20,951 6,943
Total (278) 1,158 3,559 7,625 5,994 9,495
INCOME BEFORE INTEREST CHARGES 42,220 32,199 81,001 68,109 190,000 162,946
INTEREST CHARGES
Long-term debt 13,205 12,890 26,629 25,223 53,590 48,418
Short-term debt 496 471 614 1,091 712 1,525
Miscellaneous 1,386 639 2,492 1,257 4,347 3,066
Allowance for borrowed funds
used during construction (541) (497) (931) (1,045) (1,849) (1,754)
Total 14,546 13,503 28,804 26,526 56,800 51,255
PERIOD RESULTS
Net income 27,674 18,696 52,197 41,583 133,200 111,691
Preferred stock
dividend requirements 935 1,022 1,892 2,048 3,855 3,863
Earnings available for
common stock 26,739 17,674 50,305 39,535 129,345 107,828
Average number of common
shares outstanding 61,902 61,902 61,902 61,902 61,902 61,902
Earnings per common share $0.43 $0.29 $0.81 $0.64 $2.09 $1.74
Cash dividends per
common share $0.39 $0.38 $0.78 $0.76 $1.56 $1.52
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
Year to Date Twelve Months Ended
June 30 June 30
1996 1995 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 52,197 $ 41,583 $133,200 $111,691
Adjustments to reconcile net income
to net cash from operating
activities:
Depreciation 49,577 48,354 98,448 95,933
Amortization of:
Nuclear fuel 5,689 7,142 13,226 11,853
Deferred Wolf Creek costs 5,808 6,551 11,864 13,102
Other 2,762 4,065 6,849 8,537
Deferred income taxes (net) 7,369 (5,782) 9,883 10,735
Deferred investment tax credit
amortization and reversals (2,049) (9,438) (4,181) (11,610)
Deferred merger costs (11,718) 0 (11,718) 0
Allowance for equity funds used
during construction (1,117) (740) (2,656) (1,715)
Cash flows affected by changes in:
Receivables (9,158) 3,592 (30,301) 17,876
Fuel inventories 4,156 (2,744) 1,367 (4,430)
Materials and supplies 1,075 (667) (480) (590)
Accounts payable 94 (35,164) 14,278 (3,968)
Accrued taxes (3,447) 30,335 (18,740) 20,385
Accrued interest (270) 838 3,589 1,288
Wolf Creek refueling outage
accrual (11,290) 6,027 (5,874) (5,340)
Pension and postretirement benefit
obligations 929 651 (3,898) 2,280
Other operating activities 4,642 (3,269) 12,236 (7,745)
Net cash from operating
activites 95,249 91,334 227,092 258,282
CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (52,734) (52,046) (134,758) (114,558)
Allowance for borrowed funds used
during construction (931) (1,045) (1,849) (1,754)
Purchases of investments (11,166) (23,098) (44,827) (68,011)
Purchases of nonutility property (9,558) 0 (9,558) 0
Other investing activities (3,489) 3,636 1,921 4,868
Net cash used in investing
activities (77,878) (72,553) (189,071) (179,455)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 20,441 82,382 49,114 167,220
Repayment of long-term debt (44,230) (33,419) (44,239) (86,419)
Net change in short-term borrowings 50,000 (18,000) 55,000 (48,000)
Dividends paid (50,183) (49,101) (100,440) (97,912)
Other financing activities (363) 441 2,669 77
Net cash used in financing
activities (24,335) (17,697) (37,896) (65,034)
NET CHANGE IN CASH AND CASH
EQUIVALENTS (6,964) 1,084 125 13,793
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 28,390 20,217 21,301 7,508
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $21,426 $21,301 $21,426 $21,301
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $28,306 $24,885 $51,621 $47,945
Income taxes $27,588 $13,649 $80,992 $44,226
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(thousands of dollars)
Year to Date Twelve Months Ended
June 30 June 30
1996 1995 1996 1995
Beginning balance $449,966 $426,738 $419,220 $405,441
Net income 52,197 41,583 133,200 111,691
502,163 468,321 552,420 517,132
Dividends declared 50,183 49,101 100,440 97,912
Ending balance $451,980 $419,220 $451,980 $419,220
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
Notes to Consolidated Financial Statements
In management's opinion, the consolidated interim financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly the results of operations for the interim periods
presented. These statements and notes should be read in connection with the
financial statements and related notes included in our 1995 annual report on
Form 10-K.
1. AGREEMENT AND PLAN OF MERGER WITH UTILICORP UNITED INC.
KCPL and UtiliCorp United Inc. (UtiliCorp) have entered into an Amended
and Restated Agreement and Plan of Merger dated as of May 20, 1996 (The Amended
Merger Agreement) to provide a strategic business combination of KCPL and
UtiliCorp (the Transaction). Under this agreement, a new KCPL subsidiary (Sub)
will be created and merged into UtiliCorp. UtiliCorp will then merge with KCPL
to form the combined company. As part of the Transaction, the combined company
will change its name to Maxim Energies, Inc. (Maxim).
Upon the merger of UtiliCorp and Sub, UtiliCorp shareholders will be
entitled to receive one share of KCPL common stock for each share of UtiliCorp
common stock. KCPL shareholders will continue to hold their existing shares of
KCPL common stock. After the combined company changes its name to Maxim, all
outstanding KCPL shares will constitute all of the outstanding shares of Maxim.
Based on the capitalization of KCPL and UtiliCorp on the date of The Amended
Merger Agreement, KCPL shareholders will hold approximately 57% of the common
stock of Maxim and the UtiliCorp shareholders will hold approximately 43%. The
Amended Merger Agreement also includes a provision for KCPL to call for
redemption, before the completion of the merger of UtiliCorp and Sub, all of
its outstanding shares of preferred stock at the applicable redemption prices,
together with all dividends accrued and unpaid through the applicable
redemption dates.
The Transaction is designed to qualify as a pooling of interests for
accounting and financial reporting purposes. Under this method, the recorded
assets and liabilities of KCPL and UtiliCorp will be carried forward to the
consolidated balance sheet of Maxim at their recorded amounts. The income of
Maxim will include the combined income of KCPL and UtiliCorp as though the
Transaction occurred at the beginning of the accounting period. Prior period
financial statements will be combined and presented as those of Maxim.
The Transaction will create a diversified energy company serving about
2.5 million customers in the United States, Canada, the United Kingdom, New
Zealand, Australia, China and Jamaica. The business of the combined companies
will consist of electric utility operations, gas utility operations and various
nonutility enterprises including independent power projects, and gas marketing,
gathering and processing operations. See Part II, Item 5 for the pro forma
combined condensed financial statements of Maxim.
The Special Meeting of KCPL shareholders to consider and vote on the
issuance of up to 54 million shares of KCPL common stock to be issued in the
mergers is scheduled for August 16, 1996. The number of affirmative votes
necessary to complete the Transaction is discussed in Part II - Legal
Proceedings.
The mergers are also subject to approval by UtiliCorp's shareholders and a
number of regulatory authorities. The special meeting of UtiliCorp
shareholders is scheduled for August 14, 1996. The regulatory approval process
is expected to be completed by the second quarter of 1997.
KCPL and UtiliCorp have recommended that the board of directors set the
initial annualized dividend rate at $1.85 per common share upon completion of
the Transaction.
The Amended Merger Agreement includes termination provisions which may
require certain payments, up to $58 million, to the other party to the
Transaction under certain circumstances, including a payment of $58 million if
the Transaction is terminated by a party and within two and one-half years
following such termination, the terminating party agrees to consummate or
consummates certain business combination transactions with a third party.
Through the second quarter of 1996, $12 million of merger-related costs
had been deferred by KCPL for post-merger amortization in accordance with
future regulatory approval.
2. CONDITIONAL HOSTILE BID BY WESTERN RESOURCES, INC.
Western Resources, Inc. (Western Resources) has delivered an unsolicited
proposal to KCPL's Board of Directors (the Western Resources Proposal). In the
proposal, Western Resources would acquire all of the outstanding shares of KCPL
common stock in a stock-for-stock transaction contingent on their ability to
achieve numerous conditions. This proposal calls for an exchange of each share
of KCPL common stock for Western Resources common stock valued at $31.00,
subject to a "collar" limiting the amount of Western Resources common stock
that holders of KCPL common stock would receive to no more than 1.1 shares, and
no less than 0.933 shares, of Western Resources common stock for each share of
KCPL common stock. After careful consideration of the Western Resources
Proposal, it was rejected by KCPL's Board of Directors, who determined that it
is not in the best interests of KCPL, its shareholders, employees or customers.
The KCPL Board has reaffirmed its approval of the merger with UtiliCorp.
In July, Western Resources' commenced its exchange offer for KCPL common
stock. Western Resources' proposed exchange offer is still subject to numerous
conditions, including the tender of at least 90% of the outstanding shares of
KCPL common stock, the availability of pooling of interests accounting,
obtaining shareholder and regulatory approvals, and complying with certain laws
that may prohibit the proposed transaction. The KCPL Board has recommended
that KCPL shareholders reject Western Resources' exchange offer and not tender
their shares.
Through June 30, about $5 million in costs to defend against this
unsolicited proposal, including costs to explain to KCPL shareholders why the
Board of Directors rejected this offer, were expensed.
3. MISSOURI STIPULATION AND AGREEMENT
During July 1996, KCPL and the Missouri Public Service Commission entered
into a stipulation and agreement to implement new pricing structures for our
Missouri customers, reduce Missouri annual electric revenues, and increase
depreciation and amortization expense.
The revenue reduction will take place in two phases. In the first phase,
beginning in July 1996, new pricing structures will increase revenues during
the summer months to more closely follow our increased costs of generating
electricity, but decrease revenues during the winter months. This will result
in an overall revenue reduction from commercial and industrial customers of $9
million per year. In addition, depreciation and amortization expense will
increase a total of $9 million per year.
The second phase, scheduled to take effect between January 1 and May 1,
1997, will reduce Missouri residential, commercial and industrial revenues by
an additional $11 million per year.
4. CAPITALIZATION
KLT Inc., a wholly-owned subsidiary of KCPL, amended its long-term
revolving line of credit agreement. The agreement was revised to extend the
maturity date to 1999 and increase the amount of credit available to $150
million. The other significant terms of the agreement were not changed. As of
June 30, 1996, $38 million had been borrowed against this line. Through August
9, 1996, KLT had borrowed an additional $3 million against the line.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REGULATION AND COMPETITION
As competition develops throughout the electric utility industry, we are
positioning Kansas City Power & Light Company (KCPL) to excel in an open
market. We're improving the efficiency of KCPL's core utility operations and
creating growth through its unregulated subsidiary. As competition presents
new opportunities, we will also consider various strategies including
partnerships, acquisitions, combinations, additions to or dispositions of
service territory, and restructuring wholesale and retail businesses. See Note
1 to the Consolidated Financial Statements regarding the Agreement and Plan of
Merger with UtiliCorp United and Note 2 regarding the hostile takeover attempt
by Western Resources.
Competition in the electric utility industry was accelerated with the
National Energy Policy Act of 1992. This gave the Federal Energy Regulatory
Commission (FERC) the authority to require electric utilities to provide
transmission line access to independent power producers (IPPs) and other
utilities (wholesale wheeling). KCPL, already active in the wholesale wheeling
market, was one of the first utilities to receive FERC's approval of an open-
access tariff for wholesale wheeling transactions. In April 1996, FERC issued
an order requiring all owners of transmission facilities to adopt open-access
tariffs and participate in wholesale wheeling. KCPL has made the necessary
filings to comply with additional terms required by the April order.
Certain state commissions are also actively considering an open access
requirement for utilities providing retail electric service, under which
competing suppliers would gain access to their retail customers (retail
wheeling). However, this may be preempted by provisions of the Federal Power
Act or by state laws. If allowed, retail wheeling would provide growth
opportunities for low-cost producers and risks for higher-cost producers,
especially those with large industrial customers. The loss of major customers
could result in under-utilized assets and place a costly burden on the
remaining customer base or shareholders if an adequate departure fee is not
assessed to the lost customer.
Although the Missouri and Kansas commissions have not permitted retail
wheeling, we believe KCPL is positioned well to compete in an open market with
its diverse customer mix and pricing strategies. About 22% of KCPL's retail
mwh sales are to industrial customers compared to the utility average of about
35%. KCPL has a flexible rate structure with industrial rates that are
competitively priced within our region. In addition, long-term contracts are
in place or under negotiation for a large portion of KCPL's industrial sales.
Increased competition could also force utilities to change accounting
methods. Financial Accounting Standards Board (FASB) Statement No. 71 _
Accounting for Certain Types of Regulation, applies to regulated entities whose
rates are designed to recover the costs of providing service. An entity's
operations could stop meeting the requirements of FASB 71 for various reasons,
including a change in regulation or a change in the competitive environment for
a company's regulated services. For those operations no longer meeting the
requirements of regulatory accounting, regulatory assets would be written off.
In a competitive environment, asset recoverability would be determined using
market-based rates which could be lower than traditional cost-based rates.
There has not been direct competition for retail electric service in our
service territory although there has been competition in the bulk power market
and between alternative fuels. KCPL's regulatory assets will be maintained as
long as the FASB 71 requirements are met.
NONREGULATED OPPORTUNITIES
In 1992 we formed KLT Inc., a wholly-owned subsidiary to pursue
nonregulated, mainly energy-related business ventures designed to supplement
the growth from the electric utility operations. We had a total equity
investment in KLT of $48 million as of June 30, 1996, and expect that
investment to grow to about $165 million within the next five years. KLT's
strategy capitalizes on new market opportunities by combining our expertise in
energy-related fields with the knowledge of our joint venture partners.
KLT has grown steadily since inception. Consolidated assets at June 30,
1996, totaled $179 million. KLT's existing ventures include investments in
domestic and international nonregulated power production, energy services, oil
and gas reserves, and affordable housing limited partnerships. Within the next
five years, we expect total subsidiary assets to exceed $500 million, generated
through the $165 million of equity investment, subsidiary retained earnings and
borrowings.
RESULTS OF OPERATIONS
EARNINGS OVERVIEW
Earnings Per Share (EPS)
For the Periods Ended June
30
1996 1995 Increase
Three months ended $0.43 $0.29 48%
Six months ended $0.81 $0.64 27%
Twelve months ended $2.09 $1.74 20%
Compared with 1995 quarter, EPS for the 1996 quarter increased mainly due
to improved weather and load growth, which consists of increases in usage per
customer as well as the number of customers. The quarter also reflects a $0.05
per share charge incurred to defend against Western Resources' hostile takeover
bid (see Note 2 to the Financial Statements, Conditional Hostile Bid By Western
Resources, Inc.). The 1995 quarter includes a number of one-time costs totaling
about $0.06 per share.
Compared with the 1995 periods, EPS for the 1996 six- and twelve-month
periods also increased due to the items mentioned above. However, the same
1995 periods include a gain on the sale of railcars of $0.08 per share, which
was reduced to $0.05 per share in the third quarter of 1995.
MEGAWATT-HOUR (MWH) SALES AND OPERATING REVENUES
Sales and revenue data:
(revenue change in millions)
Periods ended June 30, 1996 versus June 30,
1995
Three Months Six Months Twelve Months
Mwh Revenues Mwh Revenues Mwh Revenues
Increase (decrease)
Retail Sales:
Residential 15 % $ 8 13 % $ 14 14 % $ 36
Commercial 11 % 8 8 % 13 7 % 23
Industrial 7 % 3 5 % 4 2 % 6
Other (5)% - (5)% - (6)% -
Total Retail 11 % 19 9 % 31 8 % 65
Sales for Resale:
Bulk Power Sales 2 % 2 (14)% (2) (9)% (5)
Other 21 % - 13 % - 11 % -
Total 21 29 60
Other revenues - - 4
Total Operating
Revenues $ 21 $ 29 $ 64
Effective in July 1996, we implemented new pricing structures for our
Missouri customers. The new pricing structures will increase revenues during
the summer months to more closely follow our increased costs of generating
electricity, but decrease revenues during the winter months. This will result
in an overall revenue reduction from commercial and industrial customers of $9
million per year. In addition, depreciation and amortization expense will
increase a total of $9 million per year. The second phase of this stipulation,
scheduled to take effect between January 1 and May 1, 1997, will further reduce
Missouri residential, commercial and industrial revenues by $11 million per
year.
During April and May of 1995, the classification of about 600 net
commercial customers was changed to industrial to more appropriately reflect
their business operations. This change results in the reclassification of
about $680,000 (10,300 mwh sales) from commercial to industrial in each
subsequent month. Prior periods have not been restated.
Continued load growth and more favorable weather boosted retail mwh sales
and revenues during all periods. Seasonal revenues also resulted in increased
customer accounts receivable versus December 31, 1995.
KCPL has long-term sales contracts with certain major industrial
customers. These contracts are tailored to meet customers' needs in exchange
for their long-term commitment to purchase energy. Long-term contracts are now
in place for a large portion of KCPL's industrial sales and more contracts are
under negotiation. Overall, these contracts tend to reduce the average mwh
price of industrial sales. Although the twelve months ended June 30, 1996,
reflects more long-term contracts, the revenue reduction was offset by the
customer reclassification discussed above.
Bulk power sales vary with system requirements, generating unit and
purchased power availability, fuel costs and the requirements of other electric
systems. Wolf Creek Generating Station's (Wolf Creek) spring 1996 refueling
outage (see Wolf Creek section) contributed to lower bulk power sales during
the six and twelve months ended June 30, 1996. A combination of conditions in
1994 allowed KCPL to benefit from record bulk power sales in that year,
boosting bulk power sales for the 1995 twelve-month period.
Total revenue per mwh sold varies with changes in the mix of mwh sales
among customer classifications and the effect of declining price per mwh as
usage increases. An automatic fuel adjustment provision is included in only
sales for resale tariffs, which apply to less than 1% of revenues.
Future mwh sales and revenues per mwh will also be affected by national
and local economies, weather and customer conservation efforts. Competition,
including alternative sources of energy such as natural gas, cogeneration, IPPs
and other electric utilities, may also affect future sales and revenue.
FUEL AND PURCHASED POWER
Combined fuel and purchased power expenses increased 20%, or $8 million,
during the 1996 three-month period compared with the same 1995 period. This is
mainly due to a 9% increase in total mwh sales (the total of Retail Sales and
Sales for Resale). The 1996 period also reflects additional capacity purchase
contracts. These contracts provide a cost-effective alternative to
constructing new capacity.
Combined fuel and purchased power expenses increased 14%, or $11 million,
during the 1996 six-month period compared with the same 1995 period. This
increase is due, in part, to a 2% increase in total mwh sales and increased
capacity purchases. The 1996 period also reflects increased replacement power
expense for Wolf Creek's spring 1996 refueling outage, which began one month
early and lasted 19 days longer than planned (see Wolf Creek section).
Combined fuel and purchased power expenses increased 16%, or $26 million,
during the 1996 twelve-month period compared with the same 1995 period. This
increase is partly due to increased capacity purchases and a 3% increase in
total mwh sales. In addition, actual replacement power expenses incurred for
Wolf Creek's extended 1996 outage were $2 million more than originally accrued.
In contrast, the 1995 period reflects Wolf Creek's 1994 record-short outage.
Actual replacement power expenses incurred during that outage were about $2
million less than originally accrued. See Wolf Creek section.
The 1996 twelve-month period also reflects the effects of a July 1995 fire
that forced an outage at LaCygne I, a low-cost, coal-fired generating unit. We
replaced the power by increasing the generation at higher-cost, coal-fired
units and purchasing power on the wholesale market. Damage to the unit was
covered by insurance, but uninsured, incremental fuel and purchased power costs
were about $4 million.
All 1996 periods reflect increased system average fuel prices. While
nuclear fuel costs remain much less than the price of coal, the cost of nuclear
fuel increased about 10% during the twelve-month period. Nuclear fuel costs
averaged 50% of the price of coal during the current twelve months compared
with 44% during the prior twelve-month period. We expect this relationship to
steadily increase to around 55% to 60% by 1998 and remain in that range through
the year 2000. Coal continues to account for about 75% of generation and
nuclear fuel about 25%.
The average cost of coal burned decreased from prior periods. Our coal
procurement strategies continue to provide coal costs well below the regional
average. We expect to maintain coal costs at or below 1995 levels through the
year 2000.
OTHER OPERATION AND MAINTENANCE EXPENSES
Combined operations and maintenance expense for the 1996 periods reflect
savings realized from Wolf Creek's 1995 and our 1994 voluntary early retirement
program. The timing of our normal maintenance program also resulted in changes
in maintenance expense between periods. In addition, the 1995 periods reflect
several one-time costs totaling about $6 million. These include repairs of the
June 1995 storm damage, an extended coal plant maintenance outage and our share
of Wolf Creek's voluntary early retirement program costs.
We continue to emphasize new technologies, improved methods and cost
control. We are changing processes to provide increased efficiencies and
improved operations. Through the use of CellNet, a wireless data network, most
of our customer meters will be automatically read by the end of 1996. Our
CellNet-designed network is the largest existing fixed-point, two-way wireless
network in the world. Using this network, we can provide an expanded line of
products and services to customers in most of our service area. These types of
changes have allowed us to assimilate work performed by those who elected to
take part in the early retirement program.
OTHER INCOME
Miscellaneous Income
The six and twelve months ended June 30, 1995, include an $8 million gain
from the sale of steel railcars, which were replaced by leased aluminum
cars. Aluminum cars are lighter-weight and offer more coal capacity per
car, contributing to lower delivered coal prices. The twelve months ended
June 30, 1996, includes an adjustment to reduce this gain to $5 million.
The adjustment was based on a re-calculation of the cars' net cost. The
1996 twelve-month period also reflects increased interest and dividend
income due to subsidiary investments.
Miscellaneous Deductions
All 1996 periods reflect increased subsidiary operating expenses and the
$5 million incurred to defend against Western Resources' hostile takeover
offer (see Note 2 to the Financial Statements, Conditional Hostile Bid By
Western Resources, Inc.).
Income Taxes
During the first six months of 1996, we accrued tax credits of $6 million,
or one-half, of the total expected 1996 credits related to KLT's
affordable housing partnership investments. During the first six months
of 1995, we accrued tax credits of $2 million. Accrued tax credits for
the twelve months ended June 30, 1996, increased $6 million compared with
the same 1995 period. The 1995 six- and twelve-month periods also reflect
the 1995 income tax expense related to the gain on the sale of railcars.
Non-taxable increases in the cash surrender value of corporate-owned life
insurance contracts also affect the relationship between miscellaneous
deductions and income taxes.
INTEREST CHARGES
Long-term interest expense for the 1996 six- and twelve-month periods
increased compared with the same 1995 periods mainly due to increases in
subsidiary debt. These borrowings were used to make additional subsidiary
investments, including affordable housing limited partnerships. The affordable
housing partnerships provide tax benefits that more than offset the related
interest expense. Interest expense for the 1996 twelve-month period also
reflects slightly higher weighted-average interest rates compared with the same
1995 period.
WOLF CREEK
Wolf Creek, one of KCPL's principal generating units, represents about 18%
of accredited generating capacity. The plant's operating performance has
remained strong, contributing about 25% of annual mwh generation while
operating, on average, above 80% of capacity over the last three years. It has
the lowest fuel cost of any of KCPL's generating units. The Utility Data
Institute, an industry database, ranked Wolf Creek as the third-most economical
nuclear plant in the nation, based on 1995 production costs per net mwh
generated.
During 1994, Wolf Creek completed its seventh scheduled refueling and
maintenance outage in only 47 days, a plant record. Its eighth scheduled
refueling and maintenance outage began in early February 1996 and was completed
in April 1996 (64 days). The incremental operating, maintenance and
replacement power costs are accrued evenly over the unit's operating cycle,
normally 18 months. As actual outage expenses are incurred, the refueling
liability and related deferred tax asset are reduced. This outage started one
month early when the plant was shut-down after water flow from the cooling lake
was restricted by ice buildup on an intake screen. This extended the length of
the outage and is the primary reason for the increase in Wolf Creek related
replacement power and maintenance expenses for the 1996 six- and twelve-month
periods when compared with the same 1995 periods.
Currently, no major equipment replacements are expected, but an extended
shut-down of Wolf Creek could have a substantial adverse effect on KCPL's
business, financial condition and results of operations. Higher replacement
power and other costs would be incurred as a result. Although not expected, an
unscheduled plant shut-down could be caused by actions of the Nuclear
Regulatory Commission reacting to safety concerns at the plant or other similar
nuclear units. If a long-term shut-down occurred, the state regulatory
commissions could consider reducing rates by excluding the Wolf Creek
investment from rate base.
Ownership and operation of a nuclear generating unit exposes KCPL to
potential retrospective assessments and property losses in excess of insurance
coverage.
CAPITAL REQUIREMENTS AND LIQUIDITY
As of June 30, 1996, KCPL's liquid resources included cash flows from
operations, $98 million of registered but unissued medium-term notes and $243
million of unused bank lines of credit. The unused lines consist of KCPL's
short-term bank lines of credit of $131 million and KLT's long-term revolving
line of credit of $112 million.
KCPL continues to generate positive cash flows from operating activities,
although individual components of working capital will vary with normal
business cycles and operations including the timing of receipts and payments.
The fluctuations in deferred income taxes, investment tax credits and accrued
taxes mainly result from the first quarter 1995 settlement of the Internal
Revenue Service audit and the timing of the Wolf Creek refueling outage.
During the twelve months ended June 30, 1996, KCPL's dividend payout ratio
was 75%. We expect day-to-day operations, utility construction requirements
and dividends to be met with internally-generated funds. Uncertainties
affecting our ability to meet these requirements with internally-generated
funds include the effect of inflation on operating expenses, the level of mwh
sales, regulatory actions, compliance with future environmental regulations and
the availability of generating units. We might incur additional debt and/or
issue additional equity to finance growth or take advantage of new
opportunities.
Through the first six months of 1996, KLT issued about $15 million in long-
term debt to finance nonutility investments. KCPL's short-term borrowings
increased during this period mainly to repay maturing medium-term notes and
make quarterly income tax payments. Debt service requirements will be provided
from operations, refinancings and/or short-term debt.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On May 20, 1996, KCPL commenced litigation captioned Kansas
City Power & Light Co. v. Western Resources, Inc., et al., C.A. No.
96-0552-CV-W-5 in the United States District Court for the Western
District of Missouri, Western Division (District Court), against
Western Resources, Inc. (Western Resources) and Robert L. Rives
(Rives). KCPL sought a declaratory judgment that the Amended and
Restated Agreement and Plan of Merger by and among KCPL, KC Merger
Sub, Inc., UtiliCorp and KC United Corp., dated as of January 19,
1996, as amended and restated as of May 20, 1996 (Amended Merger
Agreement), and the transactions contemplated thereby
(collectively, the Transaction) were in accordance with Missouri
law and were not void, voidable, nor subject to injunction or
rescission based upon any claim that KCPL's directors, officers or
agents acted illegally or inequitably in adopting the Amended
Merger Agreement. On May 24, 1996, Jack R. Manson (Manson), a
shareholder of KCPL, filed a motion to intervene in the above
action as a representative of a class consisting of similarly
situated KCPL shareholders. On June 7, 1996, this motion to
intervene was granted. Manson filed counterclaims against KCPL and
each of its directors alleging that KCPL and its directors breached
their fiduciary duties; that their actions in adopting the Amended
Merger Agreement were illegal and ultra vires; that the adoption of
the Amended Merger Agreement illegally deprived KCPL shareholders
of voting and appraisal rights under Missouri law; and that the
adoption of the Amended Merger Agreement was a disproportionate
response to Western Resources' acquisition offer.
On June 7, 1996, Western Resources and Rives answered the
complaint and asserted two counterclaims against KCPL, alleging
that the Amended Merger Agreement was illegal under Missouri law
because it did not require approval of two-thirds of all
outstanding KCPL shares and did not provide dissenters' rights to
KCPL shareholders, and that the directors of KCPL breached their
fiduciary duties by adopting the Amended Merger Agreement.
On July 25 and 26, 1996, the District Court heard evidence and
argument on the issues of the legality of the Amended Merger
Agreement and its adoption. On August 2, 1996, the District Court
ruled that although the transactions contemplated by the Amended
Merger Agreement were legally valid and authorized under Missouri
law, their use in conjunction results in a merger between KCPL and
UtiliCorp, rendering applicable the Missouri statute requiring
approval of certain mergers by two-thirds of the outstanding shares
of the merging corporation's stock. As a consequence of the
District Court's decision, KCPL shareholders could be entitled to
dissenters' rights of appraisal in connection with the UtiliCorp
merger.
KCPL believes the District Court's conclusion that Missouri
law requires the Transaction be approved by two-thirds of KCPL's
outstanding shares is erroneous, and KCPL continues to believe the
only shareholder vote required in connection with the Transaction
is the approval of the issuance of KCPL shares pursuant to the
Amended Merger Agreement (Share Issuance) by the affirmative vote
of the holders of a majority of KCPL shares voting at a meeting at
which a quorum is present, as required by the rules of the New York
Stock Exchange. The District Court indicated on August 5, 1996
that it would consider entering an order that would permit
immediate appeal of its August 2, 1996 ruling to the United States
Court of Appeals for the Eighth Circuit (Court of Appeals), after
the Special Meeting of Shareholders (Special Meeting) scheduled for
August 16, 1996 is held. Assuming a majority of the KCPL shares
voting at the Special Meeting approve the Share Issuance, KCPL
intends to seek immediate leave of the District Court to pursue an
expedited appeal to the Court of Appeals.
There can be no assurance that an appeal will proceed or as to
the timing or the outcome thereof. If a majority of the shares
voting at the Special Meeting approve the Share Issuance and the
District Court permits KCPL's appeal of the District Court's
August 2, 1996 ruling to the Court of Appeals, there may be an
extended period of time before the Court of Appeals renders a
decision. Should the District Court's August 2, 1996 order remain
in effect, the vote at the Special Meeting will not be used by
KCPL to implement the KCPL/UtiliCorp merger irrespective of the
vote obtained.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting on May 22, 1996. The
following directors were elected by cumulative voting to hold
office until the next Annual Meeting of Shareholders in 1997:
Abstentions
(Withheld Authority)
Votes Cast to Vote for All
For Directors
__________ __________
David L. Bodde 40,265,518 11,344,089
William H. Clark 40,248,956 11,360,651
Robert J. Dineen 40,275,255 11,344,352
Arthur J. Doyle 40,199,659 11,409,948
W. Thomas Grant II 40,252,416 11,357,191
A. Drue Jennings 40,261,653 11,347,954
George E. Nettels, Jr. 40,281,818 11,327,789
Linda Hood Talbott 40,253,368 11,356,239
Robert H. West 40,280,738 11,328,869
The appointment of Coopers & Lybrand L.L.P. as independent
auditors was also ratified by the following vote:
For 41,897,989
Against 1,076,139
Abstentions 8,246,887
Item 5. Other Matters
AGREEMENT AND PLAN OF MERGER WITH UTILICORP UNITED INC. - UNAUDITED PRO
FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of Kansas City
Power & Light Company (KCPL) and UtiliCorp United Inc. (UtiliCorp), including
their respective subsidiaries, after giving effect to the Transaction. Further
information concerning The Amended Merger Agreement and proposed merger
Transaction is included in Note 1 to the Consolidated Financial Statements in
Part I of this report. The unaudited pro forma combined balance sheet at June
30, 1996, gives effect to the Transaction as if it had occurred at June 30,
1996. The unaudited pro forma combined statements of income for the three and
six months ended June 30, 1996, and 1995, give effect to the Transaction as if
it had occurred at the beginning of those periods. These statements are
prepared on a basis consistent with generally accepted accounting principles.
In addition, the statements are prepared on the basis of accounting for the
Transaction as a pooling of interests and are based on the assumptions set
forth in the notes thereto.
The following pro forma financial information has been prepared from, and
should be read in connection with, the historical consolidated financial
statements and related notes of KCPL and UtiliCorp. The following information
is not necessarily indicative of the financial position or operating results
that would have occurred had the Transaction been consummated on the date, or
at the beginning of the periods, for which the Transaction is being given
effect nor is it necessarily indicative of future operating results or
financial position.
MAXIM ENERGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
June 30, 1996
(thousands)
UtiliCorp KCPL Pro Forma
(as reported) (as reported) Combined
Utility plant in service $ 2,722,991 $ 3,417,505 $6,140,496
Accumulated depreciation 1,046,647 1,194,321 2,240,968
Net utility plant in service 1,676,344 2,223,184 3,899,528
Construction work in progress and
nuclear fuel, net 80,193 134,081 214,274
Total utility plant, net 1,756,537 2,357,265 4,113,802
Other property and investments 1,180,457 190,006 1,370,463
Current assets 611,716 165,584 777,300
Deferred charges and other assets 366,352 186,817 553,169
Total assets $ 3,915,062 $ 2,899,672 $6,814,734
Capitalization:
Common stock and premium on
common stock (Note 1) $ 873,711 $ 449,697 $1,323,408
Retained earnings 128,042 451,980 580,022
Other stockholders' equity (7,735) (1,714) (9,449)
Total common equity 994,018 899,963 1,893,981
Preferred and preference stock (Note 4) 25,356 90,276 115,632
Company-obligated mandatorily
redeemable preferred securities
of partnership 100,000 - 100,000
Long-term debt, net 1,380,495 829,136 2,209,631
Total capitalization 2,499,869 1,819,375 4,319,244
Current liabilities 902,133 267,343 1,169,476
Deferred income taxes 269,082 651,365 920,447
Other deferred liabilities 243,978 161,589 405,567
Total capitalization and liabilities $ 3,915,062 $ 2,899,672 $6,814,734
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
MAXIM ENERGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
For the Quarters Ended June 30
(thousands, except per share data)
1996 1995
UtiliCorp KCPL Pro Forma UtiliCorp KCPL Pro Forma Increase
(as reported) (as reported) Combined (as reported) (as reported) Combined (decrease)
Operating revenues $764,997 $226,205 $991,202 $600,766 $205,305 $806,071 $ 185,131
Operating expenses 729,814 164,780 894,594 565,812 162,341 728,153 166,441
Operating income before
income taxes 35,183 61,425 96,608 34,954 42,964 77,918 18,690
Interest charges 37,957 14,546 52,503 33,003 13,503 46,506 5,997
Other income (deductions), net 49,635 (8,523) 41,112 7,911 (2,952) 4,959 36,153
Income before income taxes 46,861 38,356 85,217 9,862 26,509 36,371 48,846
Income taxes 20,540 10,682 31,222 2,627 7,813 10,440 20,782
Net income 26,321 27,674 53,995 7,235 18,696 25,931 28,064
Preference and preferred stock
dividend requirements (Note 4) 512 935 1,447 512 1,022 1,534 (87)
Earnings available for
common shares $ 25,809 $ 26,739 $ 52,548 $ 6,723 $ 17,674 $ 24,397 $ 28,151
Weighted average common
shares outstanding (Note 1)
- Primary 46,701 61,902 108,603 45,052 61,902 106,954 1,649
- Fully diluted (Note 5) 47,025 61,902 108,927 45,548 61,902 107,450 1,477
Earnings per share
- Primary $ 0.55 $ 0.43 $ 0.48 $ 0.15 $ 0.29 $ 0.23 $ 0.25
- Fully diluted (Note 5) $ 0.55 $ 0.43 $ 0.48 $ 0.15 $ 0.29 $ 0.23 $ 0.25
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
MAXIM ENERGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
For the Six Months Ended June 30
(thousands, except per share data)
1996 1996 1996 1995 1995 1995
UtiliCorp KCPL Pro Forma UtiliCorp KCPL Pro Forma Increase
(as reported) (as reported) Combined (as reported) (as reported) Combined (decrease)
Operating revenues $ 1,849,431 $ 432,829 2,282,260 $ 1,327,069 $ 404,211 $1,731,280 $ 550,980
Operating expenses 1,727,333 323,047 2,050,380 1,210,630 320,187 1,530,817 519,563
Operating income before
income taxes 122,098 109,782 231,880 116,439 84,024 200,463 31,417
Interest charges 72,873 28,804 101,677 63,885 26,526 90,411 11,266
Other income (deductions), net 62,607 (10,907) 51,700 11,582 3,851 15,433 36,267
Income before income taxes 111,832 70,071 181,903 64,136 61,349 125,485 56,418
Income taxes 48,199 17,874 66,073 24,735 19,766 44,501 21,572
Net income 63,633 52,197 115,830 39,401 41,583 80,984 34,846
Preference and preferred stock
dividend requirements (Note 4) 1,025 1,892 2,917 1,025 2,048 3,073 (156)
Earnings available for
common shares $ 62,608 $ 50,305 $ 112,913 $ 38,376 $ 39,535 $ 77,911 $ 35,002
Weighted average common shares
outstanding (Note 1)
- Primary 46,467 61,902 108,369 44,928 61,902 106,830 1,539
- Fully diluted (Note 5) 46,796 61,902 108,698 45,426 61,902 107,328 1,370
Earnings per share
- Primary $ 1.35 $ 0.81 $ 1.04 $ 0.85 $ 0.64 $ 0.73 $ 0.31
- Fully diluted (Note 5) $ 1.34 $ 0.81 $ 1.04 $ 0.85 $ 0.64 $ 0.73 $ 0.31
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
MAXIM ENERGIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The pro forma combined financial statements are presented as if the
companies were combined during all periods included herein. No pro forma
adjustments were necessary.
2. The allocation between KCPL and UtiliCorp and their customers of the about
$600 million in net estimated cost savings over the ten-year period following
the Transaction, less transaction costs, will be subject to regulatory review
and approval. Transaction costs, currently estimated to be about $40 million
(including fees for financial advisors, attorneys, accountants, consultants,
filings and printing), are being deferred for post-merger amortization in
accordance with future regulatory approval. As of June 30, 1996, $12 and $9
million in merger-related costs had been deferred by KCPL and UtiliCorp,
respectively.
The net estimated costs savings and transactions costs do not reflect certain
other costs that could be incurred by Maxim, such as increases or decreases
in costs caused by the provisions of the employment agreements with Messrs.
Jennings and Green, severance agreements with certain executives and the
Maxim management incentive compensation plans.
The net estimated cost savings, transaction costs and certain other costs
have not been reflected in the pro forma combined financial statements
because of the inability to predict regulatory treatment or estimate the
amount of such costs that would impact any one period.
3. Intercompany transactions (including purchased and exchanged power
transactions) between KCPL and UtiliCorp during the periods presented were not
material and, accordingly, no pro forma adjustments were made to eliminate the
transactions. All financial statement presentation and accounting policy
differences are immaterial and have not been adjusted in the pro forma combined
financial statements.
4. Prior to the consummation of the Transaction, KCPL and UtiliCorp must
redeem their preferred stock outstanding as provided in the Merger Agreement.
Because the basis of accounting for the merger is a pooling of interests, the
effect of these redemptions is not required to be reflected in the pro forma
combined financial statements. The only redemption premium, as of December 31,
1995, is $755,000 applicable to the KCPL preferred stock. The on-going effect
of these redemptions is expected to be immaterial.
5. The fully diluted earnings per common share was determined assuming
UtiliCorp's outstanding convertible subordinated debentures were converted into
UtiliCorp common stock at the beginning of the periods presented. In
calculating fully diluted earnings per share, earnings available for common
shares were adjusted to eliminate interest expense, net of tax.
CONDITIONAL HOSTILE BID BY WESTERN RESOURCES, INC.
See Note 2 to the Consolidated Financial Statements in Part I of this report.
Item 6. Exhibits and Reports on Form 8-K.
EXHIBITS
27. Financial Data Schedule (for the six months ended June 30, 1996).
REPORTS ON FORM 8-K
A Report on Form 8-K was filed with the Securities and
Exchange Commission on May 22, 1996, with attached copy of a
press release announcing Kansas City Power & Light Company and
UtiliCorp United Inc. had entered into an Amended and Restated
Agreement and Plan of Merger.
A Report on Form 8-K was filed with the Securities and
Exchange Commission on May 28, 1996, with attached copy of the
Amended and Restated Agreement and Plan of Merger among Kansas
City Power & Light Company, KC Merger Sub, Inc., UtiliCorp United
Inc., and KC United Corp., dated as of January 19, 1996, and as
amended and restated on May 20, 1996, and forms of an Affiliate
Agreement, an Employment Agreement of A. Drue Jennings and an
Employment of Agreement of Richard C. Green, Jr.
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: August 13, 1996 /s/Drue Jennings
(Drue Jennings)
(Chief Executive Officer)
Dated: August 13, 1996 /s/Neil Roadman
(Neil Roadman)
(Principal Accounting Officer)
UT
1,000
6-MOS
Dec-31-1996
Jun-30-1996
PER-BOOK
2,357,265
190,006
165,584
186,817
0
2,899,672
449,697
(1,714)
451,980
899,963
1,276
89,000
829,136
8,000
0
61,000
56,591
0
0
0
954,706
2,899,672
432,829
32,340
323,047
355,387
77,442
3,559
81,001
28,804
52,197
1,892
50,305
48,284
26,629
95,249
0.81
0.81
