Organization and Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2018

Westar Energy was determined to be the accounting acquirer in the merger and thus, the predecessor of Evergy. Therefore, Evergy's consolidated financial statements reflect the results of operations of Westar Energy for the three months ended and year to date September 30, 2017 and the financial position of Westar Energy as of December 31, 2017. Evergy had separate operations for the period beginning with the quarter ended June 30, 2018, and references to amounts for periods after the closing of the merger relate to Evergy. The results of Great Plains Energy's direct subsidiaries have been included in Evergy's results of operations from the date of the closing of the merger and thereafter.

KCP&L and Westar Energy will continue to maintain their current reporting requirements as Securities and Exchange Commission (SEC) registrants. KCP&L has elected not to apply "push-down accounting" related to the merger, whereby the adjustments of assets and liabilities to fair value and the resulting goodwill would be recorded on the financial statements of the acquired subsidiary. These adjustments for KCP&L, as well as those related to the acquired assets and liabilities of Great Plains Energy and its other direct subsidiaries, are reflected at consolidated Evergy.

Each of Evergy's, Westar Energy's and KCP&L's consolidated financial statements includes the accounts of their subsidiaries and variable interest entities (VIEs) of which they are the primary beneficiary. Undivided interests in jointly-owned generation facilities are included on a proportionate basis. Intercompany transactions have been eliminated. The Evergy Companies assess financial performance and allocate resources on a consolidated basis (i.e., operate in one segment).

In preparing financial statements that conform to generally accepted accounting principles (GAAP), management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

These unaudited consolidated financial statements have been prepared in accordance with GAAP for the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these unaudited consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements. Because the unaudited consolidated financial statements and notes do not include all of the information and notes required by GAAP for annual financial statements, the unaudited consolidated financial statements and other information included in this quarterly report should be read in conjunction with the Westar Energy First Quarter 2018 Quarterly Report on Form 10-Q, the Great Plains Energy and KCP&L combined First Quarter 2018 Quarterly Report on Form 10-Q, the Westar Energy 2017 Form 10-K and the Great Plains Energy and KCP&L combined 2017 Form 10-K.

Certain changes in classification and corresponding reclassification of prior period data were made in Evergy's, Westar Energy's and KCP&L's unaudited consolidated balance sheets, statements of income and comprehensive income and unaudited statements of cash flows for comparative purposes. Evergy reflects the classifications of Westar Energy as the accounting acquirer in the merger. These reclassifications did not affect Evergy's, Westar Energy's or KCP&L's net income or Evergy's, Westar Energy's or KCP&L's cash flows from operations, investing or financing.

Most significantly for Westar Energy's consolidated balance sheets as of December 31, 2017 was the reclassification of $50.2 million from accrued employee benefits (currently reported as pension and post-retirement liability) to other long-term liabilities. Most significantly for KCP&L's consolidated balance sheets, current regulatory assets and liabilities have been presented separately from the non-current portions in each respective consolidated balance sheet where recovery or refund is expected within the next 12 months.

Fuel Inventory and Supplies

The Evergy Companies record fuel inventory and supplies at average cost.

Earnings Per Share

Evergy has participating securities in the form of unvested restricted share units (RSUs) with nonforfeitable rights to dividend equivalents that receive dividends on an equal basis with dividends declared on common stock. As a result, Evergy applies the two-class method of computing basic and diluted earnings per share (EPS).

To compute basic EPS, Evergy divides the earnings allocated to common stock by the weighted average number of common shares outstanding. Diluted EPS includes the effect of issuable common shares resulting from RSUs with forfeitable rights to dividend equivalents, performance shares and restricted stock. Evergy computes the dilutive effects of potential issuances of common shares using the treasury stock method.

New Accounting Standards

Intangibles - Internal-Use Software

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for recording implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. An entity in a hosting arrangement that is a service contract will need to determine which project stage (that is, preliminary project stage, application development stage or post-implementation stage) an implementation activity relates. Costs for implementation activities in the application development stage are recorded as a prepaid asset depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are incurred. Costs that are recorded to a prepaid asset are to be expensed over the term of the hosting arrangement. The new guidance is effective for annual periods beginning after December 15, 2019 and interim periods within those fiscal years. The new guidance can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. The Evergy Companies are currently evaluating the new guidance including the timing of adoption.

Compensation - Retirement Benefits

In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits, which requires an employer to disaggregate the service cost component from the other components of net benefit cost. The service cost component is to be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The non-service cost components are to be reported separately from service costs and outside of a subtotal of income from operations. The amendments in this update allow only the service cost component to be eligible for capitalization as part of utility plant. The non-service cost components that are no longer eligible for capitalization as part of utility plant will be recorded as a regulatory asset. The new guidance is to be applied retrospectively for the presentation of service cost and non-service cost components in the income statement and prospectively for the capitalization of the service cost component and is effective for interim and annual periods beginning after December 15, 2017. The Evergy Companies adopted ASU No. 2017-07 on January 1, 2018, and accordingly have retrospectively adjusted prior periods. The Evergy Companies utilized the practical expedient that allows for the use of amounts disclosed in Note 7 for applying the retrospective presentation to the 2017 consolidated statements of income and comprehensive income.

The following table reflects the retrospective adjustments in the line items of the Evergy Companies' consolidated statements of income and comprehensive income associated with the adoption of ASU No. 2017-07.



	Three Months Ended									Year to Date
	September 30, 2017									September 30, 2017
	As Previously Reported^(b)			Effect of Change			As Reported			As Previously Reported^(b)			Effect of Change			As Reported
Evergy	(millions)
Operating and maintenance expense	$	145.5		$	(4.9	)	$	140.6		$	430.6		$	(15.0	)	$	415.6
Total operating expenses	534.3			(4.9		)	529.4			1,434.7			(15.0		)	1,419.7
Income from operations	260.0			4.9			264.9			541.5			15.0			556.5
Other expense	(6.6		)	(4.9		)	(11.5		)	(14.6		)	(15.0		)	(29.6		)
Total other income (expense), net	(1.7		)	(4.9		)	(6.6		)	(5.4		)	(15.0		)	(20.4		)
Westar Energy
Operating and maintenance expense	$	145.5		$	(4.9	)	$	140.6		$	430.6		$	(15.0	)	$	415.6
Total operating expenses	534.3			(4.9		)	529.4			1,434.7			(15.0		)	1,419.7
Income from operations	260.0			4.9			264.9			541.5			15.0			556.5
Other expense	(6.6		)	(4.9		)	(11.5		)	(14.6		)	(15.0		)	(29.6		)
Total other income (expense), net	(1.7		)	(4.9		)	(6.6		)	(5.4		)	(15.0		)	(20.4		)
KCP&L^(a)
Operating and maintenance expense	$	124.2		$	(9.9	)	$	114.3		$	385.0		$	(34.3	)	$	350.7
Total operating expenses	385.8			(9.9		)	375.9			1,092.4			(34.3		)	1,058.1
Income from operations	209.9			9.9			219.8			381.9			34.3			416.2
Other expense	(2.0		)	(9.9		)	(11.9		)	(6.4		)	(34.3		)	(40.7		)
Total other income (expense), net	0.7			(9.9		)	(9.2		)	0.5			(34.3		)	(33.8		)

^(a)KCP&L amounts are not included in consolidated Evergy for the three months ended and year to date September 30, 2017.

^(b)Certain Evergy, Westar Energy, and KCP&L as previously reported amounts have been adjusted to reflect reclassification adjustments made for comparative purposes as discussed further in Principles of Consolidation above and that have no impact on net income.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. Among other clarifications, the guidance requires that cash proceeds received from the settlement of corporate-owned life insurance (COLI) policies be classified as cash inflows from investing activities and that cash payments for premiums on COLI policies may be classified as cash outflows for investing activities, operating activities or a combination of both. Retrospective application is required. The Evergy Companies adopted the guidance effective January 1, 2018, which resulted in retrospective reclassification of cash proceeds of $1.9 million from the settlement of COLI policies from cash inflows from operating activities to cash inflows from investing activities for year to date September 30, 2017, for Evergy and Westar Energy. In addition, cash payments of $2.3 million for premiums on COLI policies were reclassified from cash outflows used in operating activities to cash outflows used in investing activities for the same period for Evergy and Westar Energy. The adoption of ASU No. 2016-15 did not have a material impact on KCP&L.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, which requires that the statement of cash flows explains the change for the period of restricted cash and restricted cash equivalents along with cash and cash equivalents. The guidance requires a retrospective transition method and is effective for fiscal years beginning after December 15, 2017. The Evergy Companies adopted the guidance effective January 1, 2018. As a result, Evergy and Westar Energy adjusted amounts previously reported for cash and cash equivalents to include restricted cash which resulted in an increase to beginning and ending cash, cash equivalents and restricted cash of $0.1 million for year to date September 30, 2017. The adoption of ASU No. 2016-18 did not have a material impact on KCP&L.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires an entity that is a lessee to record a right-of-use asset and a lease liability for lease payments on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new guidance is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition approach with an option to either adjust or not adjust comparative periods. The Evergy Companies plan to adopt the new guidance on January 1, 2019, without adjusting comparative periods. In 2016, management began evaluating current leases to assess the initial impact on Evergy's consolidated financial results. The Evergy Companies continue to evaluate the guidance and disclosure requirements and believe application of the guidance will result in an increase to the assets and liabilities on their consolidated balance sheets, with minimal impact to their consolidated statements of income and comprehensive income. In addition, management is evaluating the Evergy Companies' internal controls over financial reporting as needed to ensure that they remain effective after implementation. The standard permits an entity to elect a practical expedient for existing or expired contracts to forgo reassessing leases to determine whether each is in scope of the new standard and to forgo reassessing lease classification. The Evergy Companies expect to elect this practical expedient upon implementation. In July 2018, the FASB issued ASU No. 2018-11, which provides entities an optional transition method to apply ASU No. 2016-02 as of the date of initial application of the standard rather than as of the earliest period presented. The Evergy Companies are evaluating this update and have not yet determined if they will elect to use this optional transition method.

Financial Instruments

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which generally requires equity investments to be measured at fair value with changes in fair value recognized in net income. Under the new standard, equity securities are no longer to be classified as available-for-sale or trading securities. The guidance requires a modified retrospective transition method. This guidance is effective for fiscal years beginning after December 15, 2017; accordingly, the Evergy Companies adopted the new standard on January 1, 2018, without a material impact on their consolidated financial statements.

Revenue Recognition

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In August 2015, the FASB issued ASU No. 2015-14, deferring the effective date of ASU No. 2014-09 one year, from January 1, 2017, to January 1, 2018. The ASU replaced most existing revenue recognition guidance in GAAP when it became effective. The Evergy Companies adopted ASU No. 2014-09 and its related amendments (ASC 606) on January 1, 2018, using the modified retrospective transition method for all contracts not completed as of the date of adoption. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while historical periods have not been adjusted and continue to be reported in accordance with the legacy guidance in ASC 605 - Revenue Recognition.

There was no cumulative effect adjustment to the opening balance of retained earnings in 2018 for the Evergy Companies as a result of the adoption of the new guidance. The impact to both operating revenues and taxes other than income taxes on KCP&L's statements of comprehensive income in 2018 as a result of adopting ASC 606 was a decrease of $22.1 million and $59.7 million for the three months ended and year to date September 30, 2018, respectively. This impact was related to sales taxes and franchise fees collected from KCP&L's Missouri customers, which prior to ASC 606, were recorded gross on KCP&L's statements of comprehensive income. See Note 3 for more information on revenue from contracts with customers.