-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Be6ekKRYYD9g4lGYk8DqxrEyCCO2oZdynvMQR9iE6vSCS5NwoGvUrRsxSdS9zoSd 9yeCQIrxHRYOy4DaoVZIXA== 0000054476-94-000007.txt : 19940531 0000054476-94-000007.hdr.sgml : 19940531 ACCESSION NUMBER: 0000054476-94-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KANSAS CITY POWER & LIGHT CO CENTRAL INDEX KEY: 0000054476 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 440308720 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00707 FILM NUMBER: 94527168 BUSINESS ADDRESS: STREET 1: 1201 BALTIMORE AVE CITY: KANSAS CITY STATE: MO ZIP: 64106 BUSINESS PHONE: 8165562200 MAIL ADDRESS: STREET 1: PO BOX 418679 CITY: KANSAS CITY STATE: MO ZIP: 64141-9679 10-Q 1 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) -----END PRIVACY-ENHANCED MESSAGE-----