ORGANIZATION AND BASIS OF PRESENTATION

Organization

Evergy is a public utility holding company incorporated in 2017 and headquartered in Kansas City, Missouri. Evergy operates primarily through the following wholly-owned direct subsidiaries:


•	Westar Energy is an integrated, regulated electric utility that provides electricity to customers in the state of Kansas. Westar Energy has one active wholly-owned subsidiary with significant operations, Kansas Gas and Electric Company (KGE).


•	KCP&L is an integrated, regulated electric utility that provides electricity to customers in the states of Missouri and Kansas.


•	KCP&L Greater Missouri Operations Company (GMO) is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri.


•	GPE Transmission Holding Company, LLC (GPETHC) owns 13.5% of Transource Energy, LLC (Transource) with the remaining 86.5% owned by AEP Transmission Holding Company, LLC, a subsidiary of American Electric Power Company, Inc. (AEP). Transource is focused on the development of competitive electric transmission projects. GPETHC accounts for its investment in Transource under the equity method.

Westar Energy also owns a 50% interest in Prairie Wind Transmission, LLC (Prairie Wind), which is a joint venture between Westar Energy and affiliates of AEP and Berkshire Hathaway Energy Company. Prairie Wind owns a 108-mile, 345 kV double-circuit transmission line that provides transmission service in the Southwest Power Pool, Inc. (SPP). Westar Energy accounts for its investment in Prairie Wind under the equity method.

Westar Energy and KGE conduct business in their respective service territories using the name Westar Energy. KCP&L and GMO conduct business in their respective service territories using the name KCP&L. Collectively, the Evergy Companies have approximately 14,500 MWs of owned generating capacity and renewable purchased power agreements and engage in the generation, transmission, distribution and sale of electricity to approximately 1.6 million customers in the states of Kansas and Missouri.

Evergy was incorporated in 2017 as Monarch Energy Holding, Inc. (Monarch Energy), a wholly-owned subsidiary of Great Plains Energy Incorporated (Great Plains Energy). Prior to the closing of the merger transactions, Monarch Energy changed its name to Evergy and did not conduct any business activities other than those required for its formation and matters contemplated by the Amended and Restated Agreement and Plan of Merger, dated as of July 9, 2017, by and among Great Plains Energy, Westar Energy, Monarch Energy and King Energy, Inc. (King Energy), a wholly-owned subsidiary of Monarch Energy (Amended Merger Agreement). On June 4, 2018, in accordance with the Amended Merger Agreement, Great Plains Energy merged into Evergy, with Evergy surviving the merger and King Energy merged into Westar Energy, with Westar Energy surviving the merger. These merger transactions resulted in Evergy becoming the parent entity of Westar Energy and the direct subsidiaries of Great Plains Energy, including KCP&L and GMO. As a result of the closing of the merger transactions, each outstanding share of Great Plains Energy common stock was converted into 0.5981 shares of Evergy common stock, resulting in the issuance of 128.9 million shares. Additionally, each outstanding share of Westar Energy common stock was converted into 1 share of Evergy common stock.

Principles of Consolidation

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 March 31, 2018. 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.

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).

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 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.

The table below summarizes KCP&L's reclassifications related to operating and investing activities for its consolidated statement of cash flows for the three months ended March 31, 2018.



	As Previously Filed			As Recast
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:	(millions)
Adjustments to reconcile income to net cash from operating activities:
Amortization of other	$	6.6		$	—
Amortization of deferred refueling outage	—			3.9
Deferred income taxes, net	5.6			—
Investment tax credit amortization	(0.3		)	—
Net deferred income taxes and credits	—			5.3
Other^(a)	3.8			0.2
Changes in working capital items:
Fuel inventory and supplies	—			(2.8		)
Fuel inventories^(a)	(1.0		)	—
Materials and supplies^(a)	(1.8		)	—
Prepaid expenses and other current assets	—			(2.5		)
Accrued interest^(a)	8.3			—
Other current liabilities	—			(1.8		)
Changes in other assets	—			16.5
Changes in other liabilities	—			13.5
Deferred refueling outage costs^(a)	0.9			—
Pension and post-retirement benefit obligations^(a)	9.0			—
Fuel recovery mechanisms^(a)	1.2			—
Total reclassifications	$	32.3		$	32.3
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Additions to property, plant and equipment	$	—		$	(100.6	)
Utility capital expenditures	(93.5		)	—
Allowance for borrowed funds used during construction	(2.0		)	—
Other investing activities	(4.5		)	0.6
Total reclassifications	$	(100.0	)	$	(100.0	)

^(a)Previously reported within Note 4 to the consolidated financial statements of the Great Plains Energy and KCP&L combined First Quarter 2018 Quarterly Report on Form 10-Q.

Restricted Cash

As of March 31, 2019, Evergy and KCP&L had restricted cash balances of $414.3 million as a result of the net proceeds from KCP&L's issuance of $400.0 million of 4.125% Mortgage Bonds in March 2019 that were irrevocably deposited with a bond trustee along with accrued interest, in order to retire KCP&L's 7.15% Mortgage Bonds, which matured in April 2019. See Note 7 for additional details.

Fuel Inventory and Supplies

The Evergy Companies record fuel inventory and supplies at average cost. The following table separately states the balances for fuel inventory and supplies.



	March 31			December 31
		2019			2018
Evergy		(millions)
Fuel inventory		$	132.2		$	168.9
Supplies		334.3			342.1
Fuel inventory and supplies		$	466.5		$	511.0
Westar Energy
Fuel inventory		$	74.2		$	87.8
Supplies		180.8			189.0
Fuel inventory and supplies		$	255.0		$	276.8
KCP&L
Fuel inventory		$	39.2		$	57.8
Supplies		120.1			119.8
Fuel inventory and supplies		$	159.3		$	177.6

Property, Plant and Equipment

The following tables summarize the property, plant and equipment of Evergy, Westar Energy and KCP&L.



March 31, 2019	Evergy			Westar Energy			KCP&L
	(millions)
Electric plant in service	$	27,161.1		$	13,263.5		$	10,546.0
Electric plant acquisition adjustment	740.6			740.6			—
Accumulated depreciation	(9,856.2		)	(4,721.2		)	(4,083.5		)
Plant in service	18,045.5			9,282.9			6,462.5
Construction work in progress	635.7			365.0			173.2
Nuclear fuel, net	155.9			77.5			78.4
Plant to be retired, net^(a)	1.0			1.0			—
Property, plant and equipment, net	$	18,838.1		$	9,726.4		$	6,714.1

December 31, 2018	Evergy			Westar Energy			KCP&L
	(millions)
Electric plant in service	$	26,916.7		$	13,176.7		$	10,439.1
Electric plant acquisition adjustment	740.6			740.6			—
Accumulated depreciation	(9,694.1		)	(4,642.8		)	(4,022.4		)
Plant in service	17,963.2			9,274.5			6,416.7
Construction work in progress	685.2			376.7			204.4
Nuclear fuel, net	133.1			66.1			67.0
Plant to be retired, net^(a)	1.0			1.0			—
Property, plant and equipment, net	$	18,782.5		$	9,718.3		$	6,688.1

^(a) As of March 31, 2019 and December 31, 2018, represents the planned retirement of Westar Energy analog meters prior to the end of their remaining useful lives.

Other Income (Expense), Net

The table below shows the detail of other expense for each of the Evergy Companies.



Three Months Ended March 31	2019			2018
Evergy	(millions)
Non-service cost component of net benefit cost	$	(13.1	)	$	(5.7	)
Other	(6.3		)	(4.9		)
Other expense	$	(19.4	)	$	(10.6	)
Westar Energy
Non-service cost component of net benefit cost	$	(4.4	)	$	(5.7	)
Other	(6.2		)	(4.9		)
Other expense	$	(10.6	)	$	(10.6	)
KCP&L^(a)
Non-service cost component of net benefit cost	$	(5.1	)	$	(6.7	)
Other	0.1			(1.2		)
Other expense	$	(5.0	)	$	(7.9	)

^(a)KCP&L amounts are not included in consolidated Evergy for the three months ended March 31, 2018.

Earnings Per Share

To compute basic earnings per share (EPS), Evergy divides net income attributable to Evergy, Inc. by the weighted average number of common shares outstanding. Diluted EPS includes the effect of issuable common shares resulting from restricted share units (RSUs), performance shares and restricted stock. Evergy computes the dilutive effects of potential issuances of common shares using the treasury stock method.

The following table reconciles Evergy's basic and diluted EPS.



Three Months Ended March 31	2019		2018
Income	(millions, except per share amounts)
Net income	$	103.4	$	62.9
Less: net income attributable to noncontrolling interests	3.9		2.4
Net income attributable to Evergy, Inc.	99.5		60.5
Common Shares Outstanding
Weighted average number of common shares outstanding - basic	252.8		142.6
Add: effect of dilutive securities	0.2		0.1
Weighted average number of common shares outstanding - dilutive	253.0		142.7
Basic and Diluted EPS	$	0.39	$	0.42

There were no anti-dilutive securities excluded from the computation of diluted EPS for the three months ended March 31, 2019 and 2018.

Dividends Declared

In May 2019, Evergy's Board of Directors (Evergy Board) declared a quarterly dividend of $0.475 per share on Evergy's common stock. The common dividend is payable June 20, 2019, to shareholders of record as of May 30, 2019.

In May 2019, KCP&L's Board of Directors declared a cash dividend payable to Evergy of $65.0 million, payable no later than June 19, 2019.

Supplemental Cash Flow Information



Three Months Ended March 31	2019			2018
Evergy	(millions)
Cash paid for (received from):
Interest, net of amounts capitalized	$	59.3		$	33.0
Interest of VIEs	1.0			1.3
Income taxes, net of refunds	(0.1		)	(0.2		)
Non-cash investing transactions:
Property, plant and equipment additions	47.1			29.8
Non-cash financing transactions:
Issuance of stock for compensation and reinvested dividends	0.5			0.1
Westar Energy
Cash paid for (received from):
Interest, net of amounts capitalized	$	32.6		$	33.0
Interest of VIEs	1.0			1.3
Income taxes, net of refunds	—			(0.2		)
Non-cash investing transactions:
Property, plant and equipment additions	27.1			29.8
Non-cash financing transactions:
Issuance of stock for compensation and reinvested dividends	—			0.1
KCP&L^(a)
Cash paid for (received from):
Interest, net of amounts capitalized	$	19.6		$	22.7
Non-cash investing transactions:
Property, plant and equipment additions	15.9			20.9

^(a)KCP&L amounts are not included in consolidated Evergy for the three months ended March 31, 2018.

See Note 13 for supplemental cash flow information regarding the Evergy Companies' leases.

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 occur. 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 early adopted ASU No. 2018-15 prospectively as of January 1, 2019. The adoption of ASU No. 2018-15 did not have a material impact on the Evergy Companies.

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. Lessor accounting remains largely unchanged. In January 2018, the FASB issued ASU No. 2018-01, Leases: Land Easement Practical Expedient for Transition to Topic 842, which permits entities to elect an optional transition practical expedient to not evaluate, under Topic 842, land easements that exist or expired before the entity's adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which updates narrow aspects of the guidance issued in ASU No. 2016-02. Also in July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, which provides an optional transition method that allows entities to initially apply Topic 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. In December 2018, the FASB issued ASU No. 2018-20, Leases: Narrow-Scope Improvements for Lessors, which is expected to reduce a lessor's implementation and ongoing costs associated with applying ASU No. 2016-02. In March 2019, the FASB issued ASU No. 2019-01, Leases: Codification Improvements, which clarifies certain lessor accounting and interim reporting requirements. ASU No. 2016-02 and the subsequent amendments are 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 adopted the new guidance on January 1, 2019, without adjusting comparative periods for all leases existing as of January 1, 2019, by electing the optional transition method permitted by ASU No. 2018-11. As a result, Evergy, Westar Energy and KCP&L recorded an increase to assets and liabilities of approximately $110 million, $40 million and $80 million, respectively, as of January 1, 2019. Westar Energy and KCP&L have certain lease transactions between them for which the related assets and liabilities are eliminated at consolidated Evergy. The adoption of Topic 842 did not have a material impact on the Evergy Companies' consolidated statements of income and comprehensive income and there was no cumulative-effect adjustment recorded to the opening balance of retained earnings. The Evergy Companies also elected a practical expedient to forgo reassessing existing or expired contracts as leases to determine whether each is in scope of Topic 842 and to forgo reassessing lease classification for existing and expired leases.

See Note 13 for additional disclosures about the Evergy Companies' leases.

Merger Pro Forma Financial Information

The following unaudited pro forma financial information reflects the consolidated results of operations of Evergy as if the merger transactions had taken place on January 1, 2017. The unaudited pro forma information was calculated after applying Evergy's accounting policies and adjusting Great Plains Energy's results to reflect purchase accounting adjustments.

The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved or the future consolidated results of operations of Evergy.



Three Months Ended March 31, 2018
	(millions, except per share amounts)
Operating revenues	$	1,184.1
Net income attributable to Evergy, Inc.	91.9
Basic earnings per common share	$	0.34
Diluted earnings per common share	$	0.34

Evergy, Westar Energy and Great Plains Energy incurred non-recurring costs and a gain directly related to the merger that have been excluded in the pro forma earnings presented above in accordance with generally accepted accounting principles (GAAP). On an after-tax basis, these non-recurring merger-related costs and gain incurred by Evergy, Westar Energy and Great Plains Energy included $5.2 million for the three months ended March 31, 2018, of after-tax mark-to-market gains on interest rate swaps for which cash settlement was contingent upon the consummation of the merger.