FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 Street
Kansas City, Missouri 64106
(Address of principal executive offices)
Registrant's telephone number, including area code: 816-556-2200
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Cumulative Preferred Stock New York Stock Exchange
par value $100 per share - 3.80%, 4.50%, 4.35%
Common Stock without par value New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X
On February 7, 2000, KCPL had 61,898,020 shares of common stock
outstanding. The aggregate market value of the common stock held
by nonaffiliates of KCPL (based upon the closing price of the
Company's common stock on the New York Stock Exchange on
February 7, 2000) was approximately $1,446,464,976.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2000 Proxy Statement are incorporated by reference
in Part III of this report.
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TABLE OF CONTENTS
Page
Number
------
Item 1. Business 1
Organization and History 1
Strategy 1
Segment Information 1
KCPL - Regulated Electric Utility 1
Competition 2
Rates 2
Missouri 2
Kansas 2
Environmental 2
Air 3
Water 4
Fuel Supply 5
Coal 5
Nuclear 5
High-Level Waste 5
Low-Level Waste 6
Unregulated Subsidiaries 6
Employees 7
Officers of the Registrant 8
Item 2. Properties 9
Generation Resources 9
Transmission and Distribution Resources 10
General 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Consolidated Financial Statements 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 53
Item 10. Directors and Executive Officers of the Registrant 53
Item 11. Executive Compensation 53
Item 12. Security Ownership of Certain Beneficial Owners
and Management 53
Item 13. Certain Relationships and Related Transactions 53
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 54
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CERTAIN FORWARD-LOOKING INFORMATION
STATEMENTS MADE IN THIS REPORT WHICH ARE NOT BASED ON
HISTORICAL FACTS ARE FORWARD-LOOKING AND, ACCORDINGLY,
INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED. ANY
FORWARD-LOOKING STATEMENTS ARE INTENDED TO BE AS OF THE DATE
ON WHICH SUCH STATEMENT IS MADE. IN CONNECTION WITH THE
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995, WE ARE PROVIDING A NUMBER OF IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM PROVIDED FORWARD-LOOKING INFORMATION. THESE IMPORTANT
FACTORS INCLUDE:
- -- FUTURE ECONOMIC CONDITIONS IN THE REGIONAL, NATIONAL AND
INTERNATIONAL MARKETS
- -- STATE, FEDERAL AND FOREIGN REGULATION
- -- WEATHER CONDITIONS
- -- FINANCIAL MARKET CONDITIONS, INCLUDING, BUT NOT LIMITED
TO CHANGES IN INTEREST RATES
- -- INFLATION RATES
- -- INCREASED COMPETITION, INCLUDING, BUT NOT LIMITED TO, THE
DEREGULATION OF THE UNITED STATES ELECTRIC UTILITY INDUSTRY,
AND THE ENTRY OF NEW COMPETITORS
- -- ABILITY TO CARRY OUT MARKETING AND SALES PLANS
ABILITY TO ACHIEVE GENERATION PLANNING GOALS AND THE
OCCURRENCE OF UNPLANNED GENERATION OUTAGES
- -- NUCLEAR OPERATIONS
- -- ABILITY TO ENTER NEW MARKETS SUCCESSFULLY AND CAPITALIZE
ON GROWTH OPPORTUNITIES IN NONREGULATED BUSINESSES
- -- ADVERSE CHANGES IN APPLICABLE LAWS, REGULATIONS OR RULES
GOVERNING ENVIRONMENTAL (INCLUDING AIR QUALITY REGULATIONS),
TAX OR ACCOUNTING MATTERS
This list of factors may not be all-inclusive since it is
not possible for us to predict all possible factors.
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PART I
ITEM 1. BUSINESS
ORGANIZATION AND HISTORY
Kansas City Power & Light Company (KCPL) is a publicly-held,
regulated electric utility incorporated in Missouri in 1922 and
headquartered in downtown Kansas City, Missouri. KCPL engages in
the generation, transmission, distribution and sale of
electricity to approximately 463,000 customers located in all or
portions of 31 counties in western Missouri and eastern Kansas.
About two-thirds of KCPL's retail sales are to Missouri customers
and the remainder to Kansas customers. Customers include
approximately 407,000 residences, 53,000 commercial firms, and
3,000 industrials, municipalities and other electric utilities.
Retail electric revenues in Missouri and Kansas accounted for
approximately 93% of KCPL's total electric revenues in 1999.
Wholesale firm power, bulk power sales and miscellaneous electric
revenues accounted for the remainder of utility revenues.
KCPL also owns two unregulated subsidiaries. KLT Inc., formed in
1992, holds interests in telecommunications, oil and gas
development and production, energy services and affordable
housing limited partnerships. Home Service Solutions Inc. (HSS),
formed in 1998, holds interests in companies providing products
and services solutions to residential customers. For additional
information regarding KCPL's unregulated subsidiaries, see "KLT
Inc. Nonregulated Opportunities" and "Home Service Solutions Inc.
Nonregulated Opportunities" in Management's Discussion and
Analysis on pages 14-16 included in this report.
STRATEGY
Our strategy is to add value for our shareholders by further
separating the electric utility business into generation and
transmission/distribution businesses along with our nonregulated
ventures. In implementing this strategy, we are focused on:
-- Providing low-cost electricity
-- Aggressively pursuing high value, unregulated
business opportunities
-- Managing the Company as a portfolio of companies
-- Investing in people, recognizing that KCPL's success
is dependent upon the skills and expertise of its
people
SEGMENT INFORMATION
Financial information with respect to business segments is set
forth in Note 6 - Segment and Related Information on page 46
in the Consolidated Financial Information included in this
report.
KCPL - REGULATED ELECTRIC UTILITY
KCPL, the electric utility, is regulated by the Public Service
Commission of the State of Missouri (MPSC), the State Corporation
Commission of the State of Kansas (KCC), the Federal Energy
Regulatory Commission (FERC), the Nuclear Regulatory Commission
(NRC) and certain other governmental regulatory bodies as to
various phases of its
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operations, including rates, service, safety and nuclear plant operations,
environmental matters and issuances of securities.
COMPETITION
A number of states already have authorized retail electric
competition. In Missouri, comprehensive retail access
legislation has been introduced and is moving through the
legislature. In Kansas, comprehensive retail competition
legislation was proposed in the 1999 legislative session but is
not expected to be reintroduced in 2000. We do not expect
legislation to pass in either state this year. For additional
information on competition, see "Regulation and Competition" of
Management's Discussion and Analysis on page 13 included in this
report.
We believe we have developed a number of competitive strengths
that will enable us to successfully compete as more of our
business becomes unregulated. These strengths include:
- -- Delivered coal costs which are among the lowest in the region
- -- Innovative, award-winning technology system offering
expanded and value-added services to the customer
- -- Aggressive financial management
- -- Strong cash flows
- -- Competitive regional retail rates
RATES
The MPSC and KCC regulate KCPL's retail electric rates for sales
within the respective states of Missouri and Kansas. FERC
approves KCPL's rates for wholesale bulk electricity sales. Firm
electric sales are made by contractual arrangements between the
entity being served and KCPL.
MISSOURI
Pursuant to a stipulation and agreement approved by the MPSC on
April 13, 1999, a rate reduction for Missouri customers of 3.2%
began on March 1, 1999. The stipulation and agreement also
provided that the MPSC Staff or Office of Public Counsel would
not request additional changes to rates prior to March 1, 2002.
KANSAS
Pursuant to a rate settlement and agreement with the KCC, KCPL
implemented a 4.7% reduction in Kansas retail rates effective
January 1, 1998.
ENVIRONMENTAL
KCPL's operations must comply with federal, state and local
environmental laws and regulations. The generation and
transmission of electricity produces and requires disposal of
certain products and by-products, including polychlorinated
biphenyl (PCBs), asbestos and other potentially hazardous
materials. The Federal Comprehensive Environmental Response,
Compensation and Liability Act (the Superfund law) imposes strict
joint and several liability for those who generate, transport or
deposit hazardous
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waste. This liability extends to the current property owner, as
well as prior owners since the time of contamination.
We continually conduct environmental audits designed to detect
contamination and ensure compliance with governmental
regulations; however, compliance programs need to meet new and
future environmental laws, as well as regulations governing water
and air quality, including carbon dioxide emissions, nitrogen
oxide emissions, hazardous waste handling and disposal, toxic
substances and the effects of electromagnetic fields. Therefore,
compliance programs could require substantial changes to
operations or facilities. We cannot presently estimate any
additional costs of meeting such new regulations or standards
which might be established in the future or the possible effect
which any new regulations or standards could have on KCPL's
operations. We currently estimate, however, that expenditures
necessary to comply with environmental regulations will not be
material with the possible exceptions set forth below.
AIR
AIR PARTICULATE MATTER
In July 1997 the United States Environmental Protection Agency
(EPA) published new air quality standards for particulate matter.
Additional regulations implementing these new particulate
standards have not been finalized. Without the implementation
regulations, the real impact of the standards on KCPL cannot be
determined. However, the impact on KCPL and other utilities that
use fossil fuels could be substantial. Under the new fine
particulate regulations the EPA is in the process of implementing
a three-year study of fine particulate emissions. Until this
testing and review period has been completed, KCPL cannot
determine additional compliance costs, if any, associated with
the new particulate regulations.
NITROGEN OXIDE
In 1997 the EPA also issued new proposed regulations on reducing
nitrogen oxide (NOx) emissions. The EPA announced in 1998 final
regulations implementing reductions in NOx emissions. These
regulations initially called for 22 states, including Missouri,
to submit plans for controlling NOx emissions. The regulations
require a significant reduction in NOx emissions from 1990 levels
at KCPL's Missouri coal-fired plants by the year 2003.
To achieve these proposed reductions, KCPL would need to incur
significantly higher capital costs, purchase power or purchase
NOx emissions allowances. It is possible that purchased power or
emissions allowances may be too costly or unavailable.
Preliminary analysis of the regulations indicate that selective
catalytic reduction technology will be required for some of the
KCPL units, as well as other changes. Currently, we estimate
that additional capital expenditures to comply with these
regulations could range from $40 million to $60 million.
Operations and maintenance expenses could also increase by more
than $2.5 million per year. These capital expenditure estimates
do not include the costs of the new air quality control equipment
to be installed at Hawthorn No. 5. The new air control equipment
designed to meet current environmental standards will also comply
with the proposed requirements discussed above.
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We continue to refine our preliminary estimates and explore
alternatives to comply with these new regulations in order to
minimize, to the extent possible, KCPL's capital costs and
operating expenses. The ultimate cost of these regulations could
be significantly different from the amounts estimated above.
In December 1998, KCPL and several other western Missouri
utilities filed suit against the EPA over the inclusion of
western Missouri in the NOx reduction program. The plaintiffs
filed their initial briefs in April 1999.
In May 1999, a three-judge panel of the D.C. Circuit of the U.S.
Court of Appeals found certain portions of the NOx control
program unconstitutional in a related case. The EPA is pursuing
appellate review of this finding, and the outcome cannot be
predicted at this time. If the panel's decision is upheld, the
effect will be to decrease the severity of the standards with
which KCPL ultimately may need to comply.
The State of Missouri is currently developing a State
Implementation Plan (SIP) for NOx Reduction. This plan will
likely result in KCPL having to comply with new standards for NOx
that are less severe than those that would result from the EPA's
1998 NOx SIP call. As currently proposed, KCPL would not incur
significant additional costs to comply with the State of Missouri SIP.
CARBON DIOXIDE
At a December 1997 meeting in Kyoto, Japan, the Clinton
Administration supported changes to the International Global
Climate Change treaty which would require a seven percent
reduction in United States carbon dioxide (CO2) emissions below
1990 levels. The Administration has not submitted this change to
the U.S. Senate where ratification is uncertain. If future
reductions of electric utility CO2 emissions are eventually
required, the financial impact upon KCPL could be substantial.
WATER
KCPL commissioned an environmental assessment of its Northeast
Station and of its Spill Prevention Control and Countermeasure
plan as required by the Clean Water Act. The assessment revealed
contamination of the site by petroleum products, heavy metals,
volatile and semi-volatile organic compounds, asbestos,
pesticides and other regulated substances. Based upon studies
and discussions with Burns & McDonnell, the cost of the cleanup
could range between $1.5 million and $6 million. The Missouri
Department of Natural Resources ("MDNR") tested for arsenic in
soils at the Northeast site during December 1997. MDNR issued a
report on these tests in April of 1998, concluding that arsenic
levels are not a concern.
Also, groundwater analysis has indicated that certain volatile
organic compounds are moving through the Northeast site, just
above bedrock. MDNR was notified of the possible release of
petroleum products from prior operations on the site and the
presence of volatile organic compounds moving under the site.
Monitoring and removal of free petroleum products continues at
the site. The RCRA division of MDNR has concluded that the
volatile organic compounds originated from a source off site. This
site is upgrade and upstream from Northeast Station and is
being cleaned. KCPL has been advised that remediation has begun
at this site which should affect the flow of volatile organic
compounds moving through the site. At this time KCPL is under no
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obligation to perform further activities at the site as MDNR has
concluded KCPL did not contribute to this contamination.
FUEL SUPPLY
KCPL's principal sources of fuel for electric generation are coal
and nuclear fuel. These fuels are expected to satisfy about 95%
of the 2000 fuel requirements with the remainder provided by
other sources including natural gas, oil and steam. The 1999 and
estimated 2000 fuel mix, based on total Btu generation, are as
follows:
ESTIMATED
1999 2000
---- ---------
Coal 70% 67%
Nuclear 28% 28%
Other 2% 5%
COAL
KCPL's average cost per million Btu of coal burned, excluding
fuel handling costs, was $0.82 in 1999, $0.81 in 1998, and $0.85
in 1997.
During 2000, approximately 9.6 million tons of coal (6.1 million
tons, KCPL's share) are projected to be burned at KCPL's
generating units, including jointly-owned units. (This amount
has been reduced for 2000 due to the unavailability of
Hawthorn 5. For additional information regarding Hawthorn 5, see
"Hawthorn No. 5" in Management's Discussion and Analysis on page
25 included in this report.) KCPL has entered into coal-purchase
contracts with various suppliers in Wyoming's Powder River Basin,
the nation's principal supplier of low-sulfur coal. These
contracts, with expiration dates ranging from 2000 through 2003,
will satisfy approximately 95% of the projected coal requirements
for 2000, 50% for 2001 and 2002, and 20% in 2003.
NUCLEAR
KCPL also owns 47% of Wolf Creek Nuclear Operating
Corporation (WCNOC), the operating company for the Wolf Creek
Generating Station (Wolf Creek). WCNOC has on hand, or under
contract, 100% of the uranium needs for 2000 and 77% of the
uranium required to operate Wolf Creek through March 2005. The
balance is expected to be obtained through contract and spot
market purchases.
HIGH-LEVEL WASTE
We amortize nuclear fuel to fuel expense based on the
quantity of heat produced during generation of electricity.
Under the Nuclear Waste Policy Act of 1982, the Department of
Energy (DOE) is responsible for the permanent disposal of spent
nuclear fuel. For this future disposal of spent nuclear fuel,
KCPL pays the DOE a quarterly fee of one-tenth of a cent for each
kilowatt-hour of net nuclear generation delivered and sold.
These disposal costs are charged to fuel expense.
A permanent disposal site may not be available for the industry
until 2010 or later, although an interim facility may be
available earlier. Under current DOE policy, once a permanent
site is available, the DOE will accept spent nuclear fuel first
from the owners with the oldest spent fuel. As a result,
disposal services for Wolf Creek may not be
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available before 2016. Wolf Creek has an on-site, temporary storage
facility for spent nuclear fuel. Under current regulatory guidelines,
this facility can provide storage space until about 2005. Wolf Creek
has begun replacement of spent fuel storage racks to increase its
on-site storage capacity for all spent fuel expected to be
generated by Wolf Creek through the end of its licensed life in
2025.
LOW-LEVEL WASTE
The Low-Level Radioactive Waste Policy Amendments Act of
1985 mandated that the various states, individually or through
interstate compacts, develop alternative low-level radioactive
waste disposal facilities. The states of Kansas, Nebraska,
Arkansas, Louisiana and Oklahoma formed the Central Interstate
Low-Level Radioactive Waste Compact and selected a site in
northern Nebraska to locate a disposal facility. WCNOC and the
owners of the other five nuclear units in the compact provide
most of the pre-construction financing for this project.
Nebraska officials and some residents in the area of the proposed
facility have raised significant opposition to the project
throughout the licensing process. In 1999 the Nebraska
legislature voted to withdraw from the compact, and in August
1999, the Nebraska governor officially notified the other member
states of its intent to withdraw. Withdrawal will not be
effective for five years. Meanwhile, the facility developer has
sought a "contested case hearing" to challenge the Nebraska
agencies' license denial. Also, the utilities and the compact
commission filed suit against the state of Nebraska and others
alleging that Nebraska officials acted in bad faith in conducting
the licensing proceedings. In April 1999, the utilities and the
commission obtained a US District Court injunction against
further proceedings on the contested case hearing pending
resolution of the "bad faith" litigation, and Nebraska has
appealed from the injunction. For additional information on low-
level waste, see Note 4 "Low-Level Waste" to Notes to
Consolidated Financial Information on page 41 included in this
report.
UNREGULATED SUBSIDIARIES
KLT INC. has five active wholly-owned direct subsidiaries:
-- KLT INVESTMENTS INC., a passive investor in affordable
housing investments that generate tax credits.
-- KLT INVESTMENTS II INC., a passive investor in economic
and community-development and energy-related projects.
-- KLT ENERGY SERVICES INC., an investor in companies which
provide products and services to commercial and industrial
customers to control the amount, cost and quality of
electricity. KLT Energy Services Inc. has a majority
economic interest in Strategic Energy, L.L.C., which
provides power supply coordination (including purchasing
electricity in the wholesale market and selling it to end
users), gas management, energy consulting, generation
optimization and wholesale electricity marketing services.
KLT Energy Services Inc. holds 50% interest in Custom
Lighting Services, L.L.C., which provides streetlighting
system design, installation and maintenance services to
municipalities and utilities.
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-- KLT GAS INC., an investor in oil and gas producing
properties and companies. The focus of KLT Gas Inc. is
primarily on coalbed methane producing properties. It is
the sole owner of Apache Canyon Gas, L.L.C., which has
production from over 180 coalbed methane wells and continues
development of mineral rights and leases in the vicinity of
Weston, Colorado. KLT Gas Inc. also has a 50% working
interest in natural gas producing properties in south Texas.
FAR Gas Acquisitions Corporation, a wholly-owned subsidiary
of KLT Gas Inc., holds limited partnership interests in
coalbed methane gas well properties.
-- KLT TELECOM INC., an investor in communications and
information technology. KLT Telecom's major investment is a
47% ownership of DTI Holdings, parent of Digital Teleport
Inc. (DTI). At year-end 1999 DTI owned or controlled over
8,000 route miles of fiber optic network, with 14,000 route
miles of network projected to be completed by year-end 2000.
When completed, DTI will have approximately 20,000 route
miles on its network comprised of 23 regional rings
interconnecting primary, secondary and tertiary cities in 37
states. DTI intends to focus on the continued build-out of
its sophisticated low-cost network and to grow its products
and services with the objective of becoming a major
competitor in the telecommunications services industry.
HOME SERVICE SOLUTIONS INC. (HSS) made investments in two
companies:
-- WORRY FREE SERVICE, INC., a participant in electrical and
energy-related services to residential users (owned 100% by HSS).
-- R. S. ANDREWS ENTERPRISE, INC., a consumer services
company in Atlanta, Georgia (HSS holds 49% ownership interest).
EMPLOYEES
At December 31, 1999, KCPL and its wholly-owned subsidiaries had
2,222 employees (including temporary and part-time employees),
1,364 of which were represented by three local unions of the
International Brotherhood of Electrical Workers (IBEW). KCPL has
labor agreements with Local 1613, representing clerical employees
(which expires March 31, 2002), with Local 1464, representing
outdoor workers (which expires January 31, 2003), and with Local
412, representing power plant workers (which expires February 28,
2001). KCPL is also a 47% owner of WCNOC, which employs 986
persons to operate Wolf Creek.
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OFFICERS OF THE REGISTRANT
YEAR
NAMED
NAME AGE POSITIONS CURRENTLY HELD OFFICER
---- --- ------------------------ -------
Drue Jennings 53 Chairman of the Board 1980
and Chief Executive Officer
Bernard J. Beaudoin 59 President 1984
Marcus Jackson 48 Executive Vice President - Chief 1989
Financial Officer
Ronald G. Wasson 55 Executive Vice President - KCPL and 1983
Chairman of the Board - KLT Inc.
Gregory J. Orman 31 President and Chief Executive 2000
Officer - KLT Inc.
John J. DeStefano 50 Senior Vice President - Business 1989
Development
Jeanie Sell Latz 48 Senior Vice President - Corporate 1991
Services, Corporate Secretary
and Chief Legal Officer
Andrea F. Bielsker 41 Vice President - Finance and Treasurer 1996
Frank L. Branca 52 Vice President - Generation Services 1989
Nancy J. Moore 50 Vice President - Customer Services 2000
Douglas M. Morgan 57 Vice President - Information Technology 1994
Richard A. Spring 45 Vice President - Transmission and 1994
Environmental Services
Bailus M. Tate 53 Vice President - Human Resources 1994
Neil A. Roadman 54 Controller 1980
All of the above individuals have been officers or employees in a
responsible position with KCPL for the past five years, with the
exception of Mr. Orman who was appointed to his position in
January 2000. The term of office of each officer commences with
his or her appointment by the Board of Directors and ends at such
time as the Board of Directors may determine.
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ITEM 2. PROPERTIES
GENERATION RESOURCES
KCPL's generating facilities consist of the following:
ESTIMATED
2000
MEGAWATT
YEAR (MW)
UNIT COMPLETED CAPACITY FUEL
---- --------- -------- -------
Existing Units
Base Load... Wolf Creek(a) 1985 550(b) Nuclear
Iatan 1980 469(b) Coal
LaCygne 2 1977 337(b) Coal
LaCygne 1 1973 344(b) Coal
Hawthorn 9(c)* 2000 140 Gas
Hawthorn 8(d)* 2000 77 Gas
Hawthorn 7(d)* 2000 77 Gas
Hawthorn 6(d) 1997 141 Gas
Hawthorn 5(e) 1969 0 Coal/Gas
Montrose 3 1964 176 Coal
Montrose 2 1960 164 Coal
Montrose 1 1958 170 Coal
Peak Load... Northeast 13 and 14(d) 1976 114 Oil
Northeast 17 and 18(d) 1977 117 Oil
Northeast 15 and 16(d) 1975 116 Oil
Northeast 11 and 12(d) 1972 111 Oil
Northeast Black Start Unit 1985 2 Oil
Grand Avenue (2 units) 1929 & 1948 73 Gas
-----
Total 3,178
=====
____________
(a) This unit is one of KCPL's principal generating facilities
and has the lowest fuel cost of any of its generating facilities.
An extended shutdown of the unit could have a substantial adverse
effect on the operations of KCPL and its financial condition.
(b) KCPL's share of jointly-owned unit.
(c) Heat Recovery Steam Generator portion of combined cycle.
(d) Combustion turbines.
(e) On February 17, 1999, an explosion occurred at the Hawthorn
Generating Station. (For additional information regarding
Hawthorn 5, see "Hawthorn No. 5" in Management's Discussion and
Analysis on page 25 included in this report.)
*THIS ADDITIONAL CAPACITY IS UNDER CONSTRUCTION AND ON SCHEDULE
TO BE IN SERVICE BY JULY 2000.
KCPL owns the Hawthorn Station (Jackson County, Missouri),
Montrose Station (Henry County, Missouri), Northeast Station
(Jackson County, Missouri) and two Grand Avenue Station turbine
generators (Jackson County, Missouri). KCPL also owns 50% of the
688-mw LaCygne 1 Unit and 674-mw LaCygne 2 Unit in Linn County,
Kansas; 70% of the 670-mw Iatan Station in Platte County, Missouri;
and 47% of the 1,170 mw Wolf Creek in Coffey County, Kansas.
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TRANSMISSION AND DISTRIBUTION RESOURCES
KCPL's electric transmission system is interconnected with
systems of other utilities to permit bulk power transactions with
other electricity suppliers. KCPL owns approximately 1,700 miles
of transmission lines, approximately 8,900 miles of overhead
distribution lines, and approximately 3,300 miles of underground
distribution lines. KCPL has all franchises necessary to sell
electricity within the territories from which substantially all
of its gross operating revenue is derived.
GENERAL
KCPL's principal plants and properties, insofar as they
constitute real estate, are owned in fee; certain other
facilities are located on premises held under leases, permits or
easements; and its electric transmission and distribution systems
are for the most part located over or under highways, streets,
other public places or property owned by others for which
permits, grants, easements or licenses (deemed satisfactory but
without examination of underlying land titles) have been
obtained.
Substantially all of the fixed property and franchises of
KCPL, which consists principally of electric generating stations,
electric transmission and distribution lines and systems, and
buildings (subject to exceptions and reservations), are subject
to a General Mortgage Indenture and Deed of Trust dated as of
December 1, 1986.
ITEM 3. LEGAL PROCEEDINGS
CARLOS SALAZAR, ET AL. V. KANSAS CITY POWER & LIGHT COMPANY.
On May 28, 1999, an action was filed against KCPL in the United
States District Court Western District of Missouri by three
current Hispanic employees. The complaint alleges race
discrimination on behalf of all existing Hispanic employees and
those who tried to obtain employment with KCPL from May 28, 1994
to the present. While the petition requests formation of and
certification as a class action, the relief sought is wages and
fringe benefits, alleged wage differentials, punitive damages,
attorneys fees and costs of the action for the three named
plaintiffs, together with an injunction prohibiting KCPL from
retaliating. This relief sought by the three individual
plaintiffs would not be material to KCPL's financial condition or
operations. Due to the vagueness of the complaint, it is not
possible at this time to evaluate the materiality of the relief
sought by the proposed class; however, KCPL believes it will be
able to successfully defend the certification of the class.
PATRICIA S. LANG, ON BEHALF OF HERSELF AND ALL OTHERS
SIMILARLY SITUATED V. KANSAS CITY POWER & LIGHT COMPANY. On
October 8, 1999, a First Amended Class Action Complaint was filed
against KCPL in the United States District Court, Western
District of Missouri by Patricia Lang on behalf of herself and
all others similarly situated. The complaint alleges plaintiff
seeks to bring a claim of race discrimination as a class action
on behalf of herself and all other current and former African
American employees from May 11, 1994 to the present. The
complaint alleges that plaintiff and members of the proposed
class are subjected to a hostile and offensive working
environment, denied promotional opportunities, compensated less
than similarly situated or less qualified Caucasian employees;
and are disciplined and/or terminated when they complain of
racially discriminatory practices at KCPL. The complaint seeks
a money award for alleged lost wages and fringe benefits, alleged
wage differentials, as well as punitive damages, attorneys fees
and costs of the action together with an injunction prohibiting
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KCPL from retaliating against anyone participating in the litigation
and continuing monitoring of KCPL's compliance with anti-discrimination
laws. Because of the vagueness of the complaint, it also is not
possible at this time to evaluate the materiality of the relief
sought by the proposed class if certified. However, if no class
is certified by the court, and we believe that we will be able to
successfully defend the certification of any class action, then the
relief sought by the individual plaintiff in this action would not
be material to KCPL's financial condition or result of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders
through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
KCPL's common stock is listed on the New York and Chicago
stock exchanges under the symbol KLT. At December 31, 1999, our
common stock was held by 20,661 shareholders of record.
Information relating to market prices and cash dividends on our
common stock is set forth below:
Common Stock Price Range ($)
-----------------------------------------------
1998 1999
------------------ -------------------
Quarter High Low High Low
------- -------- ------- -------- --------
First 31-5/8 28-5/16 29-5/8 24-5/8
Second 31-1/2 28-1/16 28-3/16 23-5/16
Third 30-3/4 28 26-11/16 22-3/16
Fourth 31-13/16 28-3/8 25-1/8 20-13/16
Common Stock Dividends Declared
--------------------------------
Quarter 1998 1999 2000
------- ------ ------ ------
First $0.405 $0.415 $0.415
Second 0.405 0.415
Third 0.415 0.415
Fourth 0.415 0.415
KCPL's Restated Articles of Consolidation contain certain
restrictions on the payment of dividends on KCPL's Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31
1999(a)(b)1998(a) 1997(a) 1996(a) 1995
(dollars in millions except per share amounts)
Operating revenues $ 897 $ 939 $ 896 $ 904 $ 886
Net income $ 82 $ 121 $ 77 $ 108 $ 123
Earnings per common
share $ 1.26 $ 1.89 $ 1.18 $ 1.69 $ 1.92
Total assets at
year end $2,990 $3,012 $3,058 $2,915 $2,883
Total mandatorily
redeemable preferred
securities $ 150 $ 150 $ 150 $ -- $ --
Total redeemable
preferred stock and
long-term debt
(including current
maturities) $ 815 $ 913 $1,008 $ 971 $ 911
Cash dividends per
common share $ 1.66 $ 1.64 $ 1.62 $ 1.59 $ 1.54
Ratio of earnings to
fixed charges 2.07 2.87 2.03 3.06 3.94
(a) KCPL incurred significant merger-related costs of $15 million in
1998, $60 million in 1997 and $31 million in 1996. Included in 1997
merger expense is the $53 million payment to UtiliCorp United
(UtiliCorp) for terminating the merger with UtiliCorp and agreeing to
a merger with Western Resources Inc. Subsequently, the planned merger
with Western Resources Inc. was terminated.
(b) See Management Discussion for explanation of 1999 results.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TERMINATION OF MERGER
On January 2, 2000, KCPL's Board of Directors unanimously voted to
terminate its Amended and Restated Agreement and Plan of Merger, dated
as of March 18, 1998, with Western Resources Inc. (Western Resources).
See Note 14 to the Consolidated Financial Statements for further
information concerning the terminated Western Resources merger.
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 are continuing to improve the efficiency of KCPL's
electric utility operations, lowering prices and offering new
services.
Competition in the electric utility industry accelerated with the
passage of the National Energy Policy Act of 1992. This Act 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). In
April 1996 FERC issued an order requiring all owners of transmission
facilities to adopt open-access tariffs and participate in wholesale
wheeling. We made the necessary filings to comply with that order.
FERC's April 1996 order encouraged more movement toward retail
competition at the state level. An increasing number of states have
already adopted open access requirements for utilities' retail
electric service, allowing competing suppliers access to their retail
customers (retail wheeling). Many other states, including Kansas and
Missouri, are actively considering retail wheeling. While retail
wheeling legislation was introduced in Kansas and Missouri in 1999, no
comprehensive legislation was passed.
Retail access could result in market-based rates below current cost-
based rates, providing growth opportunities for low-cost producers and
risks for higher-cost producers, especially those with large
industrial customers. Lower rates and the loss of major customers
could result in stranded costs and place an unfair burden on the
remaining customer base or shareholders. We cannot predict whether
any stranded costs would be recoverable in future rates. If an
adequate and fair provision for recovery of lost revenues is not
provided, certain generating assets may have to be evaluated for
impairment and appropriate charges recorded against earnings. In
addition to lowering profit margins, market-based rates could require
generating assets to be depreciated over shorter useful lives,
increasing operating expenses.
KCPL is positioned to compete in an open market with its diverse
customer mix and pricing strategies. Industrial customers make up
about 20% of KCPL's retail mwh sales, well below the utility industry
average. KCPL's flexible industrial rate structure is competitive
with other companies' rate structures in the region. In addition, we
have entered into long-term contracts for a significant portion of
KCPL's industrial sales. Although no direct competition for retail
electric service currently exists within KCPL's service territory, it
exists in the bulk power market and between alternative fuel suppliers
and KCPL. Third-party energy management companies are seeking to
initiate relationships with large users in KCPL's service territory in
an attempt to enhance their chances to supply electricity directly
when retail wheeling is authorized.
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
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regulated
entities whose rates are designed to recover the costs of providing
service. A utility's operations could cease 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. KCPL
can maintain its $138 million of regulatory assets at December 31,
1999, as long as FASB 71 requirements are met.
Competition could eventually have a material, adverse effect on KCPL's
results of operations and financial position. Should competition
eventually result in a significant charge to equity, capital
requirements and related costs could increase significantly.
KLT INC. NONREGULATED OPPORTUNITIES
KLT Inc. (KLT), a wholly-owned subsidiary of KCPL, pursues
nonregulated business ventures. Existing ventures include investments
in telecommunications, oil and gas development and production, energy
services and affordable housing limited partnerships.
KCPL's investment in KLT was $119 million as of December 31, 1999 and
1998. KLT's loss for 1999 totaled $1.3 million compared to income of
$4.6 million in 1998. (See KLT earnings per share analysis on page 20
for significant factors impacting KLT's operations and resulting net
income for 1999, 1998 and 1997.) KLT's consolidated assets at
December 31, 1999, totaled $268 million.
Telecommunications
Through our subsidiary, KLT Telecom, we own 47% of DTI Holdings
(acquired in 1997), which is the parent company of Digital Teleport,
Inc. (DTI), a facilities-based telecommunications company. DTI is
creating an approximately 20,000 route-mile, digital fiber optic
network comprising 23 regional rings that interconnect primary,
secondary and tertiary cities in 37 states. DTI now owns or controls
over 8,000 route-miles of fiber optic capacity with local rings
located in the metropolitan areas of Kansas City, St. Louis, Memphis
and Tulsa. By the end of year 2000, DTI projects it will have over
14,000 route-miles of its network completed.
The strategic design of the DTI network allows DTI to offer reliable,
high-capacity voice and data transmission services, on a region-by-
region basis, to primary carriers and end-user customers who seek a
competitive alternative to existing providers. DTI's network
infrastructure is designed to provide reliable customer service
through back-up power systems, automatic traffic re-routing and
computerized automatic network monitoring. If the network experiences
a failure of one of its links, the routing intelligence of the
equipment transfers traffic to the next choice route, thereby ensuring
call delivery without affecting customers. DTI currently provides
services to other communications companies including AT&T, Sprint, MCI
Worldcom, Ameritech Cellular and Broadwing Communications, among
others. DTI also provides private line services to targeted business
and governmental end-user customers.
DTI intends to focus on the continued build-out of its sophisticated
low cost network and to grow its products and services with the
objective of becoming a major competitor in the telecommunication
services industry.
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Oil and Gas Development and Production
KLT Gas pursues nonregulated growth primarily through the acquisition,
development and production of natural gas properties. We have built a
knowledge base in coalbed methane production and reserves evaluation.
Therefore, the focus of KLT Gas is on coalbed methane, a niche in the
oil and gas industry where we believe our expertise gives us a
competitive advantage. Coalbed methane, with a longer, predictable
reserve life, is inherently lower risk than conventional gas
exploration. In addition to coalbed methane projects, we seek out
high quality conventional gas production to add additional value to
our operations. Conventional gas properties comprise approximately
25% of KLT Gas' properties as of December 31, 1999.
KLT Gas has properties in Colorado, Texas, Wyoming, Oklahoma, Kansas,
New Mexico and North Dakota. KLT Gas has an ownership interest in
approximately 200 wells in these states and plans to drill over 150
additional wells during 2000. In 1999, KLT Gas acquired properties in
five new basins. These acquisitions provide significant planned
future growth potential by virtue of their development acreage and
proven reserve base. At December 31, 1999, net proven reserves
approximate 247 Billion Cubic Feet. Average gas production at
December 31, 1999, was approximately 42 Million Cubic Feet per Day.
These levels of net production and reserves in the United States would
place KLT Gas in the top 100 publicly-traded oil and gas companies in
the United States, based on the September 1999 Oil and Gas Journal.
In January 2000, KLT Gas acquired 80 wells with significant proven
reserves, continuing its growth strategy. KLT Gas develops newly
acquired areas to realize significant gas production from proven
reserves.
The future price scenarios for natural gas appear strong, showing
steady growth. We believe the demand for natural gas should
strengthen into the future. Environmental concerns are leading to
increased demand of natural gas by electric utilities switching from
coal or oil generation to cleaner burning natural gas. We believe
that natural gas prices will continue to be more stable than oil
prices and that increased demand for natural gas will move natural gas
prices upward in the future. Even with the stable gas prices, we
utilize gas forward contracts to minimize the risk of gas price
changes.
Energy Services
KLT Energy Services acquired in 1999 a 56% ownership (49% of the
voting stock) in Strategic Energy, LLC (SEL). SEL provides energy
supply coordination services and purchases electricity and gas for
resale to retail end users. SEL also provides strategic planning and
consulting services in natural gas and electricity markets.
SEL builds strong customer relationships by providing quality services
over extended periods of time. SEL has provided services to over 100
Fortune 500 companies and currently serves over 5,000 customers. SEL
has developed an excellent market reputation for providing energy
procurement services to end-users over the past fifteen years. Their
revenues grew significantly from $7 million in 1998 to $62 million in
1999.
SEL has developed into a major provider of services, mainly
electricity for a fee, in the newly deregulated electricity market in
Pennsylvania, capturing approximately 10% of the eligible commercial
market and 4% of the eligible industrial market in western
Pennsylvania. SEL utilizes hedges on all of its retail obligations to
eliminate any market risk.
SEL has invested substantial dollars in information systems necessary
to manage both retail and wholesale energy on an integrated basis over
the past three years. SEL plans to continue to invest in systems to
maintain and exploit their technological advantage.
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HOME SERVICE SOLUTIONS INC. NONREGULATED OPPORTUNITIES
Home Service Solutions Inc. (HSS), a wholly-owned subsidiary of KCPL,
pursues nonregulated business ventures, primarily in residential
services. At December 31, 1999, HSS has a 49% ownership in R.S.
Andrews Enterprises, Inc. (RSAE), a consumer services company in
Atlanta, Georgia. RSAE has made acquisitions in key U.S. markets.
RSAE provides heating, cooling, plumbing and electrical services as
well as appliance services, pest control and home warranties.
Additionally, Worry Free Service, Inc., a wholly-owned subsidiary of
HSS, provides financing for residential services, including
preventative maintenance and warranty services for heating and air
conditioning equipment.
KCPL's investment in HSS was $46.3 million as of December 31, 1999 and
$21.2 million as of December 31, 1998. HSS' loss for 1999 totaled
$3.7 million compared to a loss of $0.1 million in 1998. In 1999, HSS'
loss included $2.4 million from its investment in RSAE primarily
because of increased integration costs incurred by RSAE associated
with recent acquisitions. HSS' consolidated assets at December 31,
1999, totaled $50 million.
EARNINGS OVERVIEW
For the Years Ended December 31
1999 1998 1997
Earnings per share (EPS) $1.26 $1.89 $1.18
EPS excluding merger
expenses $1.23* $2.09 $1.77
Increase(Decrease)
excluding merger
expenses $(0.86) $0.32
- - Net income in 1999 was increased $1.7 million ($0.03 per share)
because the merger expenses incurred in 1999 were more than offset
by the tax deductibility of certain 1998 merger expenses in 1999.
EPS, excluding merger expenses, decreased in 1999 compared to 1998 and
was affected by the following factors:
- The approximate $15 million Missouri rate reduction, effective
March 1, 1999, reduced EPS by $0.13 in 1999.
- Intense and prolonged heat during the last half of July produced
a new summer peak demand of 3,251 megawatts and increased kilowatt-
hour consumption. Because of these conditions, purchased power prices
and volumes exceeded the prior year's. These higher purchased power
expenses in July 1999, net of the increased revenues, lowered EPS by
approximately $0.18 in 1999.
- The impact of the unavailability of Hawthorn No. 5, excluding the
impact of the July 1999 heat storm, reduced EPS by $0.10 in 1999 (see
page 25).
- Earnings per share from KLT decreased $0.09 in 1999 (see KLT
earnings per share analysis on page 20).
- Earnings per share from HSS decreased $0.06 in 1999 primarily
because of equity losses from HSS' investment in R.S. Andrews
Enterprises, Inc. At December 31, 1999, HSS had a 49% ownership in
R.S. Andrews Enterprises, Inc.
- Milder than normal weather in 1999, despite intense heat in July
1999, compared with warmer than normal summer weather in 1998, reduced
EPS in 1999.
- Higher operating expenses in 1999 compared to 1998, excluding the
impact of the unavailability of Hawthorn No. 5, reduced EPS in 1999.
EPS, excluding merger expenses, increased in 1998 compared to 1997 and
was affected by the following factors:
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- Warmer than normal summer weather in 1998 compared with cooler
than normal summer weather in 1997, in addition to continued load
growth, increased EPS in 1998.
- The Kansas rate reduction, effective January 1, 1998, reduced EPS
by $0.14 in 1998.
- Increased depreciation expense reduced EPS by $0.05 in 1998.
MEGAWATT-HOUR (MWH) SALES AND ELECTRIC OPERATING REVENUES
Sales and revenue data:
Increase (Decrease) from Prior Year
1999 1998
Mwh Revenues Mwh Revenues
(revenue change in millions)
Retail:
Residential (3)% $(10) 8 % $ 19
Commercial 1 % (5) 5 % 13
Industrial (1)% 1 4 % 3
Other 2 % - 8 % (4)
Total retail (1)% (14) 6 % 31
Sales for resale:
Bulk power sales (38)% (26) 8 % 11
Other (1)% - 4 % -
Total (40) 42
Other revenues (2) 1
Total electric operating revenues $(42) $43
In 1999 the Missouri Public Service Commission (MPSC) approved a
stipulation and agreement that called for KCPL to reduce its annual
Missouri electric revenues by 3.2%, or about $15 million effective
March 1, 1999. Revenues decreased by about $13 million in 1999 as a
result of the Missouri rate reduction. As part of the stipulation and
agreement, KCPL, MPSC Staff or the Office of Public Counsel will not
file any case with the Commission, requesting a general increase or
decrease, rate credits or rate refunds that would become effective
prior to March 1, 2002.
The Kansas Corporation Commission (KCC) approved a rate settlement
agreement, effective January 1, 1998, authorizing a $14.2 million
annual revenue reduction and an annual increase in depreciation
expense of $2.8 million. Pending the approval of a new Kansas rate
design, we accrued $14.2 million during 1998 for refund to customers.
The new rate design was approved in December 1998 and directed KCPL to
refund, starting March 1, 1999, the $14.2 million we accrued during
1998, plus the amount that we accrued for January and February 1999.
Milder than normal weather decreased retail mwh sales in 1999 compared
with 1998, but the decrease was partially offset by continued load
growth. Load growth consists of higher usage per customer as well as
new customer additions. Warmer than normal summer weather and
continued load growth increased retail mwh sales in 1998 compared with
1997. Less than 1% of revenues include an automatic fuel adjustment
provision.
Other retail revenues in 1998 decreased from 1997 while Other retail
mwh sales increased reflecting the sale of the public streetlight
system to the City of Kansas City, Missouri in August 1997. KCPL
reduced the rate per mwh paid by the City as a result of the sale
agreement.
Bulk power sales vary with system requirements, generating unit and
purchased power availability, fuel costs and requirements of other
electric systems. The unavailability of Hawthorn No. 5 contributed to a
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38% decrease in bulk power mwh sales from 1998 levels. In addition,
the Wolf Creek refueling and maintenance outage in Spring 1999
contributed to decreased bulk power mwh sales in 1999 compared to
1998. The price per mwh and quantity of bulk power sales increased in
1998 compared to 1997 increasing bulk power revenues. Outages at the
Hawthorn No. 5 and LaCygne No. 1 generating units in 1998 decreased
bulk power mwh sales partially offsetting this increase.
Future mwh sales and revenues per mwh could be affected by national
and local economies, weather, customer conservation efforts and
availability of generating units. Competition, including alternative
sources of energy such as natural gas, co-generation, IPPs and other
electric utilities, may also affect future sales and revenue.
FUEL AND PURCHASED POWER
Combined fuel and purchased power expenses for 1999 increased 8% from
1998 while total mwh sales (total of retail and sales for resale)
decreased by 8%. Excluding the impacts of the unavailability of
Hawthorn No. 5 and the July heat storm, net interchange and fuel costs
increased in 1999 by $11 million compared to 1998 because of increased
per unit prices. The unavailability of Hawthorn No. 5 resulted in
increased purchased power expenses partially offset by decreased fuel
expenses at Hawthorn No. 5. Moreover, as a result of the intense and
prolonged heat in the Midwest during the last half of July 1999, KCPL
incurred approximately $18 million in higher costs including purchased
power expenses, net of the increased revenues. Prices for purchased
power in the wholesale market escalated during the last half of July
1999, reflecting constrained transmission and limited generating
capacity in the region. Normal costs of $20 to $30 per mwh of
purchased power in the Midwest and South rose to more than $3,000 per
mwh. Because of these market conditions and the unavailability of
Hawthorn No. 5, KCPL incurred purchased power costs of $35 million in
July 1999, an increase of $25 million over July 1998. These higher
prices explain why Combined fuel and purchased power expenses
increased while Total MWH sales decreased.
Combined fuel and purchased power expenses for 1998 increased 7% from
1997 while total mwh sales increased by 6%. The price per unit of
purchased power increased in 1998 compared to 1997 because the
availability of purchased power decreased and market-based rates were
widely used in the competitive wholesale market. Even with the
increase in the price per unit of purchased power however, KCPL's
price per unit of total generation and purchased power in 1998
remained consistent with 1997. Purchased power expenses also
increased in 1998 due to replacement power expenses incurred during
outages at the Hawthorn No. 5 and LaCygne No. 1 generating units.
Purchased power expenses include capacity purchases that provide a
cost-effective alternative to constructing new capacity.
Nuclear fuel costs per MMBTU remained substantially less than the
MMBTU price of coal. Nuclear fuel costs per MMBTU decreased 5% during
1999 and 6% during 1998. Nuclear fuel costs per MMBTU averaged 56% of
the MMBTU price of coal in 1999 and 60% of the MMBTU price of coal in
1998 and 1997. We expect the price of nuclear fuel to remain fairly
constant through the year 2005. During 1999 fossil plants represented
about 71% of total generation and the nuclear plant about 29%. During
1998 fossil plants represented about 70% of total generation and the
nuclear plant about 30%.
The cost of coal per MMBTU increased 1% in 1999 compared to 1998 and
declined 5% in 1998 compared to 1997. The cost of coal per MMBTU
increased in 1999 because Hawthorn No. 5 was unavailable. The cost of
coal per MMBTU at Hawthorn No. 5 was lower than the average cost of
coal per MMBTU at most of KCPL's other coal-fired plants. Not only do
KCPL's coal procurement strategies continue to provide coal costs
below the regional average, but we also expect coal costs to remain
fairly consistent with 1999 levels through 2000.
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OTHER OPERATION AND MAINTENANCE EXPENSES
Combined other operation and maintenance expenses for 1999 declined
slightly from 1998. As a result of the February 17, 1999, boiler
explosion at Hawthorn No. 5, Hawthorn No. 5's other operation and
maintenance expenses decreased. The decline in maintenance expenses
at Hawthorn No. 5 was partially offset by increased maintenance
expenses at LaCygne No. 2 during a scheduled outage in Spring 1999.
Administrative and general labor expenses and customer accounts
expenses for meter reading and customer record keeping increased in
1999, offsetting most of the decline in other operation and
maintenance expenses as a result of the Hawthorn No. 5 explosion.
Combined other operation and maintenance expenses for 1998 declined
$4.2 million from 1997 due to lower non-fuel production operations and
lower administrative and general expenses, partially offset by
increased advertising expenses. In addition, during the Wolf Creek
outage, completed in December 1997, actual costs incurred were $3.5
million in excess of the estimated and accrued costs, increasing
combined other operation and maintenance expenses in 1997.
We continue to emphasize new technologies, improved work methodologies
and cost control. We continuously improve our work processes to
provide increased efficiencies and improved operations. For example,
through the use of cellular technology, more than 90% of KCPL's
customer meters are read automatically.
DEPRECIATION
The increased depreciation expense in 1999 compared to 1998 reflected
increased depreciation of capitalized computer software for internal
use and normal increases in depreciation from capital additions.
These increases were partially offset by a $2.4 million decrease in
depreciation expense in 1999 because Hawthorn No. 5 property was
partially retired due to the February 1999 explosion.
The increase in depreciation expense in 1998 compared to 1997
reflected the implementation of the KCC settlement agreement as well
as normal increases in depreciation from capital additions. The KCC
settlement agreement, effective January 1, 1998, authorized a $2.8
million annual increase in depreciation expense.
TAXES
Operating income taxes decreased $20 million in 1999 compared to 1998
reflecting lower taxable operating income. Operating income taxes
increased $8 million in 1998 compared to 1997 reflecting higher
taxable operating income.
Components of general taxes:
1999 1998 1997
(thousands)
Property $ 42,734 $ 41,398 $ 43,529
Gross receipts 41,216 42,140 40,848
Other 9,051 10,048 8,920
Total $ 93,001 $ 93,586 $ 93,297
Property taxes decreased in 1998 compared to 1997, reflecting lower
Missouri and Kansas property tax assessed valuations in 1998, as well
as changes in Kansas tax law which reduced the mill levy rates.
Changes in gross receipts taxes result from changes in billed Missouri
revenues.
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OTHER INCOME AND (DEDUCTIONS)
KLT summarized operations
For the year ended December 31
1999 1998 1997
(millions, except for earnings per share)
Miscellaneous income and
(deductions) - net* $(34.6) $(22.1) $(16.2)
Income taxes 45.2 40.2 35.7
Interest charges (11.9) (13.5) (13.5)
Net income(loss) $ (1.3) $ 4.6 $ 6.0
KLT Earnings(Loss) per share $(0.02) $ 0.07 $ 0.10
* To table on page 21
KLT earnings per share analysis
For the year ended December 31
1999 1998 1997
(earnings per share)
KLT excluding items below $ 0.30 $ 0.24 $ 0.14
Sale of Nationwide Electric 0.20 - -
Write down of Lyco investment (0.03) - -
Write down of a note
receivable (0.05) - (0.02)
KLT Power transactions - (0.02) -
KLT Telecom - Telemetry
Solutions (0.20) (0.06) (0.02)
KLT Telecom - Digital
Teleport Inc. (0.24) (0.09) -
KLT Earnings(Loss) per share $(0.02) $ 0.07 $ 0.10
In September 1999, KLT Energy Services sold 100% of the stock it held
in Nationwide Electric, Inc., resulting in a gain of $20 million.
KLT Telecom consisted primarily of investments in Telemetry Solutions
and Digital Teleport Inc. (DTI). Because Telemetry Solutions'
subsidiaries were unable to bring their products to market, KLT
Telecom decided, in the third quarter of 1999, to cease funding
Telemetry Solutions and wrote off its investment. (Both the write off
of the investment ($0.13 per share) and the operating losses incurred
prior to the write off are included on the KLT Telecom - Telemetry
Solutions line in the earnings per share table above).
The enlarged scope of the business plans of DTI accelerated the time
and increased the magnitude of network depreciation expenses.
Interest expense also increased, due to discounted, high-yield bonds
offered in 1998 to obtain funds to expand the digital fiber optic
network, contributing to DTI's 1999 and 1998 losses. KLT Telecom's
total losses from its investment in DTI are limited to its $45 million
equity investment. At December 31, 1999, the equity investment in DTI
is approximately $14 million, limiting the magnitude of possible
future losses.
The following significant factors affected KLT's 1998 operations:
- - The $4 million gain on the sale of the common stock of KLT Power Inc.
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- - The $6 million write down of KLT's investment in a power station
in China. After this write-off, KLT has no other recorded assets in
foreign countries.
- - A $9 million loss on a KLT equity investment in Digital Teleport,
Inc. (DTI) due to developmental costs DTI incurred in 1998.
Miscellaneous income and (deductions) - net
For the years ended December 31
1999 1998 1997
(millions)
Merger related expenses $ (3.2) $(14.6) $(60.0)
* From table on page 20 (34.6) (22.1) (16.2)
Other (13.9) (4.8) (3.2)
Total Miscellaneous
income and
(deductions) - net $(51.7) $(41.5) $(79.4)
A $53 million payment to UtiliCorp United Inc. (UtiliCorp) in February
1997 comprised the bulk of merger-related expenses in 1997. The
September 1996 termination of the UtiliCorp merger agreement and the
February 1997 merger agreement with Western Resources triggered the
payment to UtiliCorp under provisions of the UtiliCorp merger
agreement. Subsequently, the planned merger with Western Resources
was terminated.
Other Miscellaneous income and (deductions) - net for 1999 was
affected by a $2 million write-off to comply with an AICPA Statement
of Position (SOP) regarding start-up activities and a $3 million
reduction in electric operations interest and dividend income in 1999
compared to 1998. Further, HSS' operations resulted in deductions of
approximately $6 million primarily due to equity losses from HSS'
investment in R.S. Andrews Enterprises, Inc.
Other Income and (Deductions) - Income taxes
Other Income and (Deductions) - Income taxes for all years reflects
the tax impact on total miscellaneous income and (deductions) - net.
Additionally, KLT accrued tax credits of $28 million in 1999, $25
million in 1998 and $23 million in 1997 related to investments in
affordable housing limited partnerships and oil and gas investments.
Also, income taxes in 1999 decreased by $3.6 million because we were
able to deduct for tax purposes certain merger costs that were treated
as permanent tax differences in 1998. These costs became deductible
when we terminated the merger with Western Resources.
INTEREST CHARGES
Long-term debt interest expense decreased in 1999 compared to 1998,
reflecting lower average levels of outstanding long-term debt. The
lower average levels of debt reflected $69 million of scheduled debt
repayments made by KCPL, repayments of affordable housing notes made
by KLT and lower average levels of debt by KLT on its bank credit
agreement.
Long-term debt interest expense decreased in 1998 compared to 1997,
reflecting lower average levels of outstanding long-term debt. The
lower average levels of debt reflected $61 million in scheduled debt
repayments made by KCPL in 1998.
The average interest rate on long-term debt, including current
maturities, was about 6% during the last three years.
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We use interest rate swap and cap agreements to limit the volatility
in interest expense on a portion of KLT's variable-rate, bank credit
agreement and KCPL's variable-rate, long-term debt. Although these
agreements are an integral part of interest rate management, the
incremental effect on interest expense and cash flows is not
significant. We do not use derivative financial instruments for
speculative purposes.
Short-term debt interest expense increased in 1999 compared to 1998
reflecting higher average levels of outstanding short-term debt by
KCPL. Whereas KCPL had $214 million of commercial paper outstanding
at December 31, 1999, it had no outstanding commercial paper at
December 31, 1998.
WOLF CREEK
Wolf Creek is one of KCPL's principal generating units, representing
about 19% of KCPL's generating capacity, excluding the Hawthorn No. 5
generating unit. The plant's operating performance has remained
strong over the last three years, contributing about 28% of the annual
mwh generation while operating at an average capacity of 91%.
Furthermore, Wolf Creek has the lowest fuel cost per MMBTU of any of
KCPL's generating units. During 1998 Wolf Creek generated more mwhs
than in any other year of operation.
We accrue the incremental operating, maintenance and replacement power
costs for planned outages 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. Wolf
Creek's eleventh refueling and maintenance outage is scheduled for the
fall of 2000 and is estimated to be a 35-day outage.
Wolf Creek's tenth refueling and maintenance outage, estimated to be a
40-day outage, began April 3, 1999, and was completed May 9, 1999.
Actual costs of the 1999 outage were $1 million less than the
estimated and accrued costs for the outage. The 36-day outage was the
shortest refueling and maintenance outage in Wolf Creek's history.
Wolf Creek's ninth refueling and maintenance outage, budgeted for 35
days, began in early October 1997 and was completed in December 1997
(58 days). Several equipment problems caused the extended length of
the ninth outage. Actual costs of the 1997 outage were $6 million in
excess of the estimated and accrued costs for the outage.
Wolf Creek's assets represent about 39% of utility total assets and
its operating expenses represent about 19% of utility operating
expenses. No major equipment replacements are currently projected.
An extended shut-down of Wolf Creek could have a substantial adverse
effect on KCPL's business, financial condition and results of
operations because of higher replacement power and other costs.
Although not expected, the Nuclear Regulatory Commission could impose
an unscheduled plant shut-down, reacting to safety concerns at the
plant or other similar nuclear units. If a long-term shut-down
occurred, the state regulatory commissions could reduce rates by
excluding the Wolf Creek investment from rate base.
Ownership and operation of a nuclear generating unit exposes KCPL to
risks regarding decommissioning costs at the end of the unit's life
and to potential retrospective assessments and property losses in
excess of insurance coverage. These risks are more fully discussed in
the related sections of Notes 1 and 4 to the Consolidated Financial
Statements.
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ENVIRONMENTAL MATTERS
KCPL's operations must comply with federal, state and local
environmental laws and regulations. The generation and transmission
of electricity produces and requires disposal of certain products and
by-products, including polychlorinated biphenyl (PCBs), asbestos and
other potentially hazardous materials. The Federal Comprehensive
Environmental Response, Compensation and Liability Act (the Superfund
law) imposes strict joint and several liability for those who
generate, transport or deposit hazardous waste. This liability
extends to the current property owner, as well as prior owners back to
the time of contamination.
We continually conduct environmental audits to detect contamination
and ensure compliance with governmental regulations. However,
compliance programs need to meet new and future environmental laws, as
well as regulations governing water and air quality, including carbon
dioxide emissions, nitrogen oxide emissions, hazardous waste handling
and disposal, toxic substances and the effects of electromagnetic
fields. Therefore, compliance programs could require substantial
changes to operations or facilities (see Note 4 to the Consolidated
Financial Statements).
IMPACT OF THE YEAR 2000 ISSUE
Due to the many hours worked by knowledgeable and committed personnel,
we experienced no Year 2000-related problems during the turn of the
century. We will continue to monitor our systems to prevent
incidental production errors and to ensure no problems occur during
the leap year rollover. KCPL expensed about $4 million over the last
three years to assess, remediate and test all of its computer
hardware, software and embedded systems.
SIGNIFICANT CONSOLIDATED BALANCE SHEET CHANGES (December 31, 1999
compared to December 31, 1998)
- Net utility plant in service decreased by $53.9 million primarily
because the $80 million partial insurance recovery for the Hawthorn
No. 5 boiler explosion is included in accumulated depreciation.
- Utility plant - construction work in process increased $48.1
million primarily due to increases of $35.6 million at Hawthorn No. 5
for rebuilding the boiler and $45.1 million for construction of an
additional 294 megawatts of capacity partially offset by projects
completed during 1999.
- Investments and nonutility property increased $33.5 million
primarily due to the following:
- $14.5 million increase in HSS' investment in R. S. Andrews
Enterprises,
- $12.9 million increase in HSS' Worry Free net equipment and Notes
Receivable,
- $ 4.8 million increase in KCPL's decommissioning trust fund,
- $ 0.7 million increase in KLT's investments, including a $39.1
million increase in oil and gas property offset primarily by the sale
of Nationwide Electric, Inc. and equity losses at Digital Teleport
Inc.
- Cash and cash equivalents decreased by $30.1 million; and
commercial paper, a current liability, increased $214.0 million due to
expenditures exceeding cash receipts.
- Deferred charges - regulatory assets increased $5.7 million
primarily because of the buyout of a fuel contract less normal
amortization.
- Other deferred charges decreased $15.0 million primarily
reflecting the change in KLT's ownership in a subsidiary to less than
50% and KLT Telecom's September 1999 write off of Telemetry Solutions.
The change in ownership changed KLT's accounting treatment of the
investment from consolidation to an equity investment, removing
deferred charges from KLT's books.
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- Capitalization decreased primarily due to redemption of $50
million Cumulative No Par Preferred Stock Auction Series A in December
1999. Additionally, KCPL reclassified $52.5 million of long-term debt
to current maturities and made $24.7 million in dividend payments in
excess of net income. KLT's long-term debt decreased $10.9 million
primarily due to reclassification of the current maturities of
affordable housing notes to current liabilities.
- Notes payable to banks increased $14.7 million due to borrowings
by KLT Gas to fund oil and gas development activities.
- Current maturities of long-term debt decreased $34.8 million
primarily reflecting a $16.5 million decrease in maturing medium-term
notes. Moreover, KLT's borrowings on its bank credit agreement
decreased by $18.0 million since December 31, 1998.
- Accounts payable increased $6.5 million primarily due to accruals
for Hawthorn station construction project expenditures at December 31,
1999.
- Accrued taxes decreased $14.7 million primarily due to the timing
of income tax and property tax payments.
- Other current liabilities decreased $15.3 million primarily
because of the rate refund to Kansas retail customers in March 1999,
of which $14.2 million was accrued at December 31, 1998.
- A payment to the IRS in 1999 for the settlement of certain
outstanding issues decreased deferred income taxes by $12 million and
accrued interest by $7 million.
PROJECTED CONSTRUCTION EXPENDITURES
Total utility capital expenditures, excluding allowance for funds used
during construction, were $181 million in 1999. The utility
construction expenditures, excluding Hawthorn No. 5 construction
expenditures (see Hawthorn No. 5 discussion below), are projected for
the next five years as follows:
Construction Expenditures
2000 2001 2002 2003 2004 Total
(millions)
Generating facilities $ 90 $ 54 $ 29 $30 $ 12 $215
Nuclear fuel 19 11 11 22 12 75
Distribution and transmission
facilities 73 65 57 49 51 295
General facilities 11 6 2 3 3 25
Total $193 $136 $ 99 $104 $ 78 $610
This construction expenditure plan is subject to continual review and
change.
CAPITAL REQUIREMENTS AND LIQUIDITY
KCPL's liquid resources at December 31, 1999, included cash flows from
operations; $300 million of registered but unissued, unsecured medium-
term notes; and $125 million of unused bank lines of credit. The
unused lines consisted of KCPL's short-term bank lines of credit of
$61 million and KLT's bank credit agreement of $64 million. In
January 2000, KLT borrowed $17 million on its bank credit agreement
primarily to fund an oil and gas acquisition by KLT Gas. At December
31, 1999, KCPL had $214 million of commercial paper borrowings. We
plan to issue unsecured medium-term notes during the first quarter of
the year 2000 to refinance a portion of the commercial paper
borrowings.
KCPL continues to generate positive cash flows from operating
activities. Individual components of working capital will vary with
normal business cycles and operations. Also, the timing of the Wolf
Creek outage affects the refueling outage accrual, deferred income
taxes and amortization of nuclear fuel.
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Cash from operating
activities decreased in 1999 compared to 1998 primarily due to
decreased net income before non-cash expenses, the buyout of a fuel
contract, the refund of amounts accrued for the Kansas rate
adjustment, a payment of $19 million to the IRS to settle certain
outstanding issues and changes in certain working capital items (as
detailed in Note 1 to the Consolidated Financial Statements). Cash
from operating activities increased in 1998 compared to 1997 due to
increased net income before non-cash expenses and changes in certain
working capital items.
Cash used in investing activities varies with the timing of utility
capital expenditures and purchases of investments and nonutility
properties. Cash used for investing activities increased in 1999
compared to 1998 primarily because of increased utility capital
expenditures, increased utility plant net removal costs and increased
expenditures for oil and gas nonutility property. The proceeds from
the sale of the Nationwide Electric, Inc. stock by KLT Energy Services
and $80 million in partial insurance recoveries related to Hawthorn
No. 5 partially offset these increases in 1999. Proceeds in 1998
reflected the sale of KLT Power Inc. Cash used for investing
activities decreased in 1998 compared to 1997 partly due to the
proceeds from this sale. Additionally, KLT made several large
investments during 1997. Partially offsetting these activities, KCPL
received $21.5 million in 1997 from the sale of streetlights to the
City of Kansas City, Missouri at a minimal gain.
Cash used for financing activities decreased in 1999 primarily due to
$214 million of commercial paper that KCPL borrowed during 1999.
Partially offsetting this decrease, KCPL redeemed $50 million of
preferred stock in 1999. Cash used for financing activities increased
in 1998 compared to 1997 primarily due to $103 million of debt
repayments in 1998. KLT primarily used the proceeds from the sale of
KLT Power Inc. in 1998 to repay borrowings under its bank credit
agreement. Additionally, KCPL made $61 million in scheduled
repayments of long-term debt in 1998.
KCPL's common dividend payout ratio was 132% in 1999, 87% in 1998 and
137% in 1997. See Earnings Overview on page 16 for discussion of
declines in EPS that caused the increased payout ratio in 1999. The
1997 payout ratio was higher mainly due to $60 million in merger-
related expenses incurred in 1997.
We expect KCPL to meet day-to-day operations, utility construction
requirements (excluding new generating capacity) and dividends with
internally generated funds. But KCPL might not be able to meet these
requirements with internally-generated funds because of the effect of
inflation on operating expenses, the level of mwh sales, regulatory
actions, compliance with future environment regulations and the
availability of generating units (see discussion below). The funds
needed to retire $349 million of maturing debt through the year 2004
will be provided from operations, refinancings or short-term debt.
KCPL might issue additional debt and/or additional equity to finance
growth or take advantage of new opportunities.
HAWTHORN NO. 5
On February 17, 1999, an explosion occurred at the 476-megawatt, coal-
fired Hawthorn Generating Station Unit No. 5 (Hawthorn No. 5). The
boiler, which was destroyed, was not operating at the time, and there
were no injuries. Though the cause of the explosion is still under
investigation, preliminary results indicate that an explosion of
accumulated gas in the boiler's firebox caused the damage. KCPL has
property insurance coverage with limits of $300 million. Through
December 31, 1999, KCPL has received $80 million in insurance
recoveries under this coverage and has recorded the recoveries in
Utility Plant - accumulated depreciation on the consolidated balance
sheet.
We have entered into a contract for construction of a new coal-fired
boiler to permanently replace the lost capacity of Hawthorn No. 5.
Construction expenditures for rebuilding Hawthorn No. 5 were $36
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million in 1999 and are projected to be $199 million in 2000 and $54
million in 2001. These amounts have not been reduced by the $80
million insurance proceeds received in 1999 or future proceeds to be
received. The new unit, expected to have a capacity of 540 megawatts,
is estimated to be in service June 1, 2001. However, we are
continuing to evaluate alternatives to replace the power generated by
Hawthorn No. 5 before the new coal-fired boiler comes on line. We
believe that we can secure sufficient power to meet the energy needs
of KCPL's customers. Hawthorn No. 6, a 141-megawatt, gas-fired
combustion turbine was accepted under a lease arrangement and placed
into commercial operation in July 1999. An additional 294 megawatts
of capacity, represented by two new combustion turbines and a re-
powered existing unit, are under construction and on schedule to be in
service by July 2000.
We estimated for the year 1999, excluding the impact of the July heat
storm, a net increase in expense of $10 million before taxes due to
the February 17, 1999, Hawthorn No. 5 explosion. However, weather
during July 1999 was abnormal. Intense and prolonged heat during the
last half of July 1999 contributed to a reduction of core utility
business earnings per share of $0.18, lowering EPS. A portion of this
reduction in EPS can be attributed to the unavailability of Hawthorn
No. 5. However, it is not possible to estimate the impact of the
unavailability of Hawthorn No. 5 on that portion of the reduction in
EPS that resulted from the July 1999 heat storm.
Assuming normal weather and operating conditions, we estimate a net
increase in expense (before tax) of $31 million for the year 2000 and
$3 million for the year 2001. This estimate mainly includes the
effect of increased net replacement power costs, reduced bulk power
sales and a reduction of Hawthorn No. 5 fuel expense.
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 1999 1998 1997
(thousands)
ELECTRIC OPERATING REVENUES $897,393 $938,941 $895,943
OPERATING EXPENSES
Operation
Fuel 129,255 143,349 134,509
Purchased power 94,697 63,618 59,247
Other 196,926 188,991 193,265
Maintenance 62,589 70,998 70,892
Depreciation 118,428 115,452 110,898
Income taxes 58,548 78,782 71,113
General taxes 93,001 93,586 93,297
Total 753,444 754,776 733,221
ELECTRIC OPERATING INCOME 143,949 184,165 162,722
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds
used during construction 2,657 3,816 2,407
Miscellaneous income and
(deductions) - net (51,725) (41,501) (79,421)
Income taxes 55,368 45,982 63,034
Total 6,300 8,297 (13,980)
INCOME BEFORE INTEREST CHARGES 150,249 192,462 148,742
INTEREST CHARGES
Long-term debt 51,327 57,012 60,298
Short-term debt 4,362 295 1,382
Mandatorily redeemable Preferred
Securities 12,450 12,450 8,853
Miscellaneous 3,573 4,457 3,990
Allowance for borrowed funds
used during construction (3,378) (2,474) (2,341)
Total 68,334 71,740 72,182
Net income 81,915 120,722 76,560
Preferred stock
dividend requirements 3,733 3,884 3,789
Earnings available for
common stock $78,182 $116,838 $72,771
Average number of common
shares outstanding 61,898 61,884 61,895
Basic and diluted earnings
per common share $1.26 $1.89 $1.18
Cash dividends per
common share $1.66 $1.64 $1.62
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended December 31 1999 1998 1997
(thousands)
Beginning Balance $443,699 $428,452 $455,934
Net Income 81,915 120,722 76,560
525,614 549,174 532,494
Dividends Declared
Preferred stock - at required rates 3,911 3,980 3,773
Common stock 102,751 101,495 100,269
Ending Balance $418,952 $443,699 $428,452
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
December 31 December 31
1999 1998
(thousands)
ASSETS
UTILITY PLANT, at original cost
Electric $3,628,120 $3,576,490
Less-accumulated depreciation 1,516,255 1,410,773
Net utility plant in service 2,081,865 2,165,717
Construction work in progress 158,616 110,528
Nuclear fuel, net of amortization of
108,077 and $105,661 28,414 40,203
Total 2,298,895 2,316,448
REGULATORY ASSET - RECOVERABLE TAXES 106,000 109,000
INVESTMENTS AND NONUTILITY PROPERTY 376,704 343,247
CURRENT ASSETS
Cash and cash equivalents 13,073 43,213
Receivables 71,548 70,131
Fuel inventories, at average cost 22,589 18,749
Materials and supplies, at average cost 46,289 45,363
Deferred income taxes 2,751 4,799
Other 6,086 5,926
Total 162,336 188,181
DEFERRED CHARGES
Regulatory assets 31,908 26,229
Other deferred charges 14,299 29,259
Total 46,207 55,488
Total $2,990,142 $3,012,364
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statements) $1,739,590 $1,880,147
CURRENT LIABILITIES
Notes payable to banks 24,667 10,000
Commercial paper 214,032 0
Current maturities of long-term debt 128,858 163,630
Accounts payable 68,309 61,764
Accrued taxes 972 15,625
Accrued interest 15,418 23,380
Accrued payroll and vacations 20,102 21,684
Accrued refueling outage costs 7,056 12,315
Other 13,569 28,874
Total 492,983 337,272
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 592,227 625,426
Deferred investment tax credits 54,333 58,786
Other 111,009 110,733
Total 757,569 794,945
COMMITMENTS AND CONTINGENCIES (Note 4)
Total $2,990,142 $3,012,364
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31 December 31
1999 1998
(thousands)
COMMON STOCK EQUITY
Common stock-150,000,000 shares authorized
without par value 61,908,726 shares issued,
stated value $ 449,697 $ 449,697
Retained earnings (see statements) 418,952 443,699
Accumulated other comprehensive income (loss)
Unrealized gain (loss)on securities available
for sale (2,337) 74
Capital stock premium and expense (1,668) (1,668)
Total 864,644 891,802
CUMULATIVE PREFERRED STOCK
$100 Par Value
3.80% - 100,000 shares issued 10,000 10,000
4.50% - 100,000 shares issued 10,000 10,000
4.20% - 70,000 shares issued 7,000 7,000
4.35% - 120,000 shares issued 12,000 12,000
No Par Value
4.27%** - 500,000 shares issued 0 50,000
$100 Par Value - Redeemable
4.00% 62 62
Total 39,062 89,062
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF A TRUST HOLDING SOLELY KCPL
SUBORDINATED DEBENTURES 150,000 150,000
LONG-TERM DEBT (excluding current maturities)
General Mortgage Bonds
Medium-Term Notes due 2000-2008, 6.99% and
6.95% weighted-average rate 286,000 338,500
4.87%* Environmental Improvement Revenue
Refunding Bonds due 2012-23 158,768 158,768
Environmental Improvement Revenue Refunding Bonds
5.06%* Series A & B due 2015 106,500 106,500
4.50% Series C due 2017 50,000 50,000
4.35% Series D due 2017 40,000 40,000
Subsidiary Obligations
Affordable Housing Notes due 2000-08, 8.35%
and 8.42% weighted-average rate 44,616 54,775
Other Long-Term Notes 0 740
Total 685,884 749,283
Total $1,739,590 $1,880,147
* Variable rate securities, weighted-average rate as of December 31, 1999
** Variable rate securities, weighted-average rate as of December 31, 1998
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1999 1998 1997
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $81,915 $120,722 $76,560
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation of electric plant 118,428 115,452 110,898
Amortization of:
Nuclear fuel 15,782 19,146 16,836
Other 12,263 9,071 9,591
Deferred income taxes (net) (26,784) (2,468) 4,780
Investment tax credit amortization (4,453) (4,471) (3,850)
Fuel contract settlement (13,391) 0 0
Losses from equity investments 24,951 11,683 2,748
Asset impairments 21,078 6,027 2,300
Gain on sale of Nationwide Electric, Inc.
stock (19,835) 0 0
Kansas rate refund accrual (14,200) 14,200 0
Allowance for equity funds used
during construction (2,657) (3,816) (2,407)
Other operating activities (Note 1) (32,988) 17,117 (8,972)
Net cash from operating activities 160,109 302,663 208,484
CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (180,687) (119,540) (124,734)
Allowance for borrowed funds used
during construction (3,378) (2,474) (2,341)
Purchases of investments (35,072) (55,154) (107,603)
Purchases of nonutility property (55,792) (22,611) (15,733)
Sale of KLT Power 0 53,033 0
Sale of Nationwide Electric, Inc. stock 39,617 0 0
Hawthorn No. 5 partial insurance recovery 80,000 0 0
Sale of streetlights 0 0 21,500
Other investing activities (10,316) 8,008 (8,902)
Net cash from investing activities (165,628) (138,738) (237,813)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of mandatorily redeemable
Preferred Securities 0 0 150,000
Issuance of long-term debt 10,889 7,406 66,292
Repayment of long-term debt (109,060) (102,680) (28,832)
Net change in short-term borrowings 228,699 8,757 1,243
Dividends paid (106,662) (105,475) (104,042)
Redemption of preferred stock (50,000) 0 0
Other financing activities 1,513 (2,818) (4,805)
Net cash from financing activities (24,621) (194,810) 79,856
NET CHANGE IN CASH AND CASH
EQUIVALENTS (30,140) (30,885) 50,527
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 43,213 74,098 23,571
CASH AND CASH EQUIVALENTS
AT END OF YEAR $13,073 $43,213 $74,098
CASH PAID DURING THE YEAR FOR:
Interest (net of amount capitalized) $74,520 $71,696 $71,272
Income taxes $52,300 $24,788 $22,385
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31 1999 1998 1997
(thousands)
Net income $81,915 $120,722 $76,560
Other comprehensive loss:
Unrealized loss on securities
available for sale (3,778) (2,915) (7,138)
Income tax benefit 1,367 1,054 2,589
Net unrealized loss on
securities available for sale (2,411) (1,861) (4,549)
Comprehensive Income $79,504 $118,861 $72,011
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Kansas City Power & Light Company is a medium-sized electric utility
with more than 463,000 customers at year-end in western Missouri and
eastern Kansas. About 95% of KCPL's retail revenues are from the
Kansas City metropolitan area, an agribusiness center and major
regional center for wholesale, retail and service companies. About
two-thirds of KCPL's retail sales are to Missouri customers, the
remainder to Kansas customers.
The consolidated financial statements include the accounts of Kansas
City Power & Light Company, KLT Inc. (KLT) and Home Service Solutions
Inc. (HSS). KLT and HSS are wholly-owned, nonregulated subsidiaries.
The consolidated entity is referred to as KCPL. We formed KLT in 1992
as a holding company for various nonregulated business ventures.
Existing ventures include investments in energy services, oil and gas
development and production, telecommunications and affordable housing
limited partnerships. We formed HSS in 1998 and invested in R.S.
Andrews Enterprises, Inc., a consumer services company in Atlanta,
Georgia. Also in 1998, HSS acquired through its subsidiary Worry Free
Service, Inc. the Worry Free assets from KCPL. Worry Free provides
financing for residential services, including preventative maintenance
and warranty services for heating and air conditioning equipment.
Currently, the electric utility accounts for about 89% of consolidated
assets and substantially all results of operations. Intercompany
balances and transactions have been eliminated. KLT and HSS revenues
and expenses are classified as Other Income and (Deductions) and
Interest Charges in the income statement.
The accounting records conform to the accounting standards set by the
Federal Energy Regulatory Commission (FERC) and generally accepted
accounting principles. These standards require the use of estimates
and assumptions that affect amounts reported in the financial
statements and the disclosure of commitments and contingencies.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid investments with
original maturities of three months or less.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Current Assets and Current Liabilities-The stated value of financial
instruments classified as current assets or liabilities approximates
fair value due to the short-term nature of the instruments.
Investments and Nonutility Property-The nuclear decommissioning trust
fund is recorded at fair value. Fair value is based on quoted market
prices of the investments held by the fund. The fair value of KLT's
affordable housing limited partnership portfolio, based on the
discounted cash flows generated by tax credits and tax deductions,
approximates book value. This calculation did not include the estimated
32
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cash flows from the sale of properties. The fair values of
other various investments are not readily determinable and the
investments are therefore stated at cost.
Long-term debt-KCPL's incremental borrowing rate for similar debt was
used to determine fair value if quoted market prices were not
available. The stated values approximate fair market values.
Securities Available for Sale
An investment in CellNet Data System Inc. (CellNet) is accounted for
as securities available for sale and adjusted to market value, with
unrealized gains or (losses) reported as a separate component of
comprehensive income.
The cost of these securities available for sale that KLT held as of
December 31, 1999 and 1998 was $4.8 million. Accumulated net
unrealized losses were $2.3 million at December 31, 1999, and
accumulated net unrealized gains were $0.1 million at December 31,
1998.
On February 1, 2000, CellNet announced that it had agreed to sell its
assets to a third party and that the third party had agreed to assume
some of CellNet's financial obligations. As part of this transaction,
CellNet plans to reorganize under Chapter 11 of the United States
Bankruptcy Code. If the proposed reorganization plan is approved,
KLT's investment would become worthless and would result in a realized
loss of $4.8 million before taxes ($0.05 per share).
Investments in Affordable Housing Limited Partnerships
Through December 31, 1999, KLT had invested $104 million in affordable
housing limited partnerships. About $71 million of these investments
were recorded at cost; the equity method was used for the remainder.
We reduce tax expense in the year tax credits are generated. A change
in accounting principle relating to investments made after May 19,
1995, requires the use of the equity method when a company owns more
than 5% in a limited partnership investment. Of the investments
recorded at cost, $68 million exceed this 5% level but were made
before May 19, 1995.
Utility Plant
Utility plant is stated at historical costs of construction. These
costs include taxes, an allowance for funds used during construction
(AFDC) and payroll-related costs, including pensions and other fringe
benefits. Replacements, improvements and additions to units of
property are capitalized. Repairs of property and replacements of
items not considered to be units of property are expensed as incurred
(except as discussed under Wolf Creek Refueling Outage Costs). When
property units are retired or otherwise disposed, the original cost,
net of salvage and removal, is charged to accumulated depreciation.
Through December 31, 1999, KCPL has received $80 million in insurance
recoveries related to property destroyed in the February 17, 1999
explosion at the Hawthorn No. 5 generating unit. Recoveries received
have been recorded in Utility Plant-accumulated depreciation.
AFDC represents the cost of borrowed funds and a return on equity
funds used to finance construction projects. AFDC on borrowed funds
reduces interest charges. AFDC on equity funds is shown as a noncash
item in Other Income and (Deductions). The rates used to compute
gross AFDC are compounded semi-annually and averaged 7.7% for 1999,
9.3% for 1998, and 8.6% for 1997.
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Depreciation is computed using the straight-line method over the
estimated lives of depreciable property based on rates approved by
state regulatory authorities. Annual depreciation rates average about
3%.
Wolf Creek Refueling Outage Costs
Forecasted incremental costs to be incurred during scheduled Wolf
Creek Generating Station (Wolf Creek) refueling outages are accrued
monthly over the unit's operating cycle, normally about 18 months.
Estimated incremental costs, which include operating, maintenance and
replacement power expenses, are based on budgeted outage costs and the
estimated outage duration. Changes to or variances from those
estimates are recorded when known or probable.
Nuclear Plant Decommissioning Costs
The Missouri Public Service Commission (MPSC) and the Kansas
Corporation Commission (KCC) require the owners of Wolf Creek to
submit an updated decommissioning cost study every three years. The
following table shows the decommissioning cost estimates and the
escalation rates and earnings assumptions approved by the MPSC in
January 2000. It also shows the decommissioning cost estimates
submitted to the KCC on September 1, 1999, and the escalation rates
and earnings assumptions approved by the KCC in 1997. We have not yet
received approval from the KCC for the cost estimates submitted and we
have not yet submitted to the KCC the 1999 study of escalation rates
and earnings assumptions. The decommissioning cost estimates are
based on the immediate dismantlement method and include the costs of
decontamination, dismantlement and site restoration. We do not expect
plant decommissioning to start before 2025.
KCC MPSC
Future cost of decommissioning:
Total Station $1.2 billion $1.5 billion
47% share $554 million $694 million
Current cost of decommissioning
(in 1999 dollars):
Total Station $470 million $470 million
47% share $221 million $221 million
Annual escalation factor 3.60% 4.50%
Annual return on trust assets 6.80% 7.66%
KCPL contributes about $3 million annually to a tax-qualified trust
fund to be used to decommission Wolf Creek. These costs are charged
to other operation expenses and recovered in billings to customers
(rates). Contributions to the trust will increase slightly in the
year 2000. These funding levels assume a certain return on trust
assets. If the actual return on trust assets is below the anticipated
level, we believe a rate increase will be allowed ensuring full
recovery of decommissioning costs over the remaining life of the unit.
The trust fund balance, including reinvested earnings, was $52 million
at December 31, 1999, and $47 million at December 31, 1998. These
assets are reflected in Investments and Nonutility Property. The
related liabilities for decommissioning are included in Deferred
Credits and Other Liabilities - Other.
In 1996 the Financial Accounting Standards Board (FASB) issued an
Exposure Draft of a proposed Statement of Financial Accounting
Standards, Accounting for Certain Liabilities Related to Closure or
Removal of Long-Lived Assets, that addressed the accounting for
decommissioning costs. In
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November 1997 the FASB decided to reconsider the scope of the statement.
The FASB expects to issue another Exposure Draft in the year 2000.
If current electric utility industry accounting practices for
decommissioning costs change, annual decommissioning expenses could
increase and trust fund income from the external decommissioning
trusts could be reported as investment income. We cannot predict the
effect of any such changes, if any, on results of operations,
financial position, or related regulatory practices. However, we do
not anticipate results of operations to be significantly affected as
long as KCPL is regulated.
Nuclear Fuel
We amortize nuclear fuel to fuel expense based on the quantity of heat
produced during generation of electricity. Under the Nuclear Waste
Policy Act of 1982, the Department of Energy (DOE) is responsible for
the permanent disposal of spent nuclear fuel. For the future
disposal of spent nuclear fuel, KCPL pays the DOE a quarterly fee of
one-tenth of a cent for each kilowatt-hour of net nuclear generation
delivered and sold. These disposal costs are charged to fuel expense.
A permanent disposal site may not be available for the industry until
2010 or later, although an interim facility may be available earlier.
Under current DOE policy, once a permanent site is available, the DOE
will accept spent nuclear fuel first from the owners with the oldest
spent fuel. As a result, disposal services for Wolf Creek may not be
available before 2016. Wolf Creek has an on-site, temporary storage
facility for spent nuclear fuel. Under current regulatory guidelines,
this facility can provide storage space until about 2005. Wolf Creek
has begun replacement of spent fuel storage racks to increase its on-
site storage capacity for all spent fuel expected to be generated by
Wolf Creek through the end of its licensed life, in 2025.
Regulatory Assets
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. Under this statement, we defer on the
balance sheet items when allowed by a commission's rate order or when
it is probable, based on regulatory past practices, that future rates
will recover the amortization of the deferred costs. If FASB 71 were
not applicable, the unamortized balance of $137.9 million of KCPL's
regulatory assets, net of the related tax benefit, would be written
off.
December 31, Amortization
1999 Ending period
Deferred Charges (millions)
Coal contract termination
costs $ 15.5 2003
1996 snowstorm costs 3.5 2001
Decommission and decontaminate
federal uranium enrichment
facilities 5.0 2007
Premium on redeemed debt 6.4 2023
Other 1.5 2006
Total 31.9
Recoverable Taxes 106.0
Total Regulatory Assets $ 137.9
Oil and Gas Properties
KLT Gas follows the full cost method of accounting for its oil and gas
properties. Under the full cost
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method, all costs of acquisition, exploration and development of oil
and gas reserves are capitalized regardless of success. Any excess of
book value plus costs to develop over the present value (10% discount
rate) of estimated future net revenues (at year-end prices) from the
oil and gas reserves would be expensed.
Depletion, depreciation and amortization of these assets is calculated
using the units of production method. The depletion per mmBtu was
$0.42 for 1999 and $0.26 for 1998. Undeveloped leaseholds were
included in the depletable base in both years. All oil and gas property
interests owned by KLT Gas are located in the United States.
Revenue Recognition
We use cycle billing and accrue estimated unbilled revenue at the end
of each reporting period.
Income Taxes
The balance sheet includes deferred income taxes for all temporary
differences between the tax basis of an asset or liability and that
reported in the financial statements. These deferred tax assets and
liabilities are determined by using the tax rates scheduled by the tax
law to be in effect when the differences reverse.
Regulatory Asset - Recoverable Taxes mainly reflects the future
revenue requirements necessary to recover the tax benefits of existing
temporary differences previously passed through to customers. We
record operating income tax expense based on ratemaking principles.
However, if the method used for the balance sheet were reflected in
the income statement, net income would remain the same.
We amortize investment tax credits to income over the remaining
service lives of the related properties.
Derivative Financial Instruments
We use interest rate swap agreements to reduce the impact of changes
in interest rates on variable-rate debt. The net effect of these
agreements is recorded as interest expense. Interest rate swap
agreements effectively fix the interest rates on a portion of KCPL's
variable-rate debt. These agreements are not adjusted to market value
as they are used only to manage interest expense and the intent is to
hold them until their termination date.
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities". The effective date of SFAS 133 for KCPL is January 1,
2001. SFAS 133 requires an entity to recognize all derivatives as
either assets or liabilities on the balance sheet and measure those
instruments at fair value. We are currently evaluating the effect
adopting SFAS 133 will have on KCPL's financial statements.
Environmental Matters
We accrue environmental costs when it is probable a liability has been
incurred and the amount of the liability can be reasonably estimated.
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Basic and Diluted Earnings per Common Share Calculation
1999 1998 1997
(millions)
Net Income $ 81.9 $ 120.7 $ 76.6
Less: Preferred stock dividend
requirements $ 3.7 $ 3.9 $ 3.8
Earnings available for common stock $ 78.2 $ 116.8 $ 72.8
Divided by: Average number of common
shares outstanding 61.9 61.9 61.9
Basic and diluted earnings per common
share $ 1.26 $ 1.89 $ 1.18
Consolidated Statements of Cash Flows - Other Operating Activities
1999 1998 1997
Cash flows affected by changes in: (thousands)
Receivables $ (1,417) $ (7,898) $ 973
Fuel inventories (3,840) (4,925) 5,253
Materials and supplies (926) 1,216 755
Accounts payable 6,545 4,196 1,950
Accrued taxes (14,653) 13,953 (16,771)
Accrued interest (7,962) 1,020 1,306
Wolf Creek refueling outage
accrual (5,259) 10,651 (5,517)
Other (5,476) (1,096) 3,079
Total $(32,988) $ 17,117 $ (8,972)
Change in Accounting Estimate
In 1998 we adopted the American Institute of Certified Public
Accountants Statement of Position (SOP) 98-1 - Accounting for the
Costs of Computer Software Developed or Obtained For Internal Use.
Because we adopted SOP 98-1 in 1998, net income increased
approximately $2.9 million ($0.05 per share) in 1999 and $3.2 million
($0.05 per share) in 1998. Net income increased because we
capitalized payroll costs for employees developing the software. We
expensed such costs in prior years. We amortize capitalized software
costs on a straight-line basis over estimated service lives of 5 to 10
years.
2. PENSION PLANS AND OTHER EMPLOYEE BENEFITS
KCPL has defined benefit pension plans for its employees, including
officers. Benefits under these plans reflect the employees'
compensation, years of service and age at retirement. KCPL satisfies
the minimum funding requirements under the Employee Retirement Income
Security Act of 1974.
In addition to providing pension benefits, KCPL provides certain
postretirement health care and life insurance benefits for
substantially all retired employees.
We accrue the cost of postretirement health care and life insurance
benefits during an employee's years of service and recover these
accruals through rates. We fund the portion of net periodic
postretirement benefit costs that are tax deductible.
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Pension Benefits Other Benefits
1999 1998 1999 1998
(thousands)
Change in benefit obligation
Benefit obligation at
beginning of year $ 384,588 $334,017 $ 36,222 $ 33,198
Service cost 10,983 9,661 678 532
Interest cost 25,446 24,892 2,493 2,429
Contribution by participants 207 169
Actuarial (gain) loss (56,395) 39,214 (4,191) 2,980
Benefits paid (29,362) (22,875) (3,024) (2,832)
Benefits paid by KCPL (321) (321) (475) (254)
Benefit obligation at end of
year (a) $ 334,939 $384,588 $ 31,910 $ 36,222
Change in plan assets
Fair value of plan assets at
beginning of year $ 407,829 $423,331 $ 6,364 $ 4,970
Actual return on plan assets 72,520 5,131 (85) 380
Contributions by employer and
participants 2,163 2,242 3,845 3,846
Benefits paid (29,362) (22,875) (3,024) (2,832)
Fair value of plan assets at
end of year $ 453,150 $407,829 $ 7,100 $ 6,364
Funded status $ 118,211 $ 23,241 $(24,810)$(29,858)
Unrecognized actuarial (gain)
loss (130,455) (31,907) (3,439) 370
Unrecognized prior service
cost 3,423 3,921 478 555
Unrecognized transition
obligation (4,325) (6,397) 15,267 16,442
Accrued benefit cost $ (13,146) $(11,142)$(12,504)$(12,491)
(a) Based on weighted-average discount rates of 7.90% in 1999 and
6.75% in 1998; and increases in future salary levels of 4% to 5% in
1999 and 1998.
Pension Benefits Other Benefits
1999 1998 1997 1999 1998 1997
Components of net (thousands)
periodic Benefit cost
Service cost $10,983 $9,661 $8,427 $678 $532 $514
Interest cost 25,446 24,892 24,258 2,493 2,429 2,518
Expected return on plan
assets (31,263)(29,806)(25,142) (348) (203) (118)
Amortization of prior
service cost 498 547 491 77 77 77
Recognized net actuarial
loss (gain) 896 (910) (622) 51 8 (25)
Transition obligation (2,072) (2,072) (2,072) 1,175 1,174 1,174
Net periodic benefit
cost $ 4,488 $2,312 $5,340 $4,126 $4,017 $4,140
Long-term rates of return on pension assets of 9.0% to 9.25% were
used.
Actuarial assumptions include an increase in the annual health care
cost trend rate for the year 2000 of 7%, decreasing to its ultimate
level of 6% in 2001. The health care plan requires retirees to share
in the cost when premiums exceed a certain amount. An increase or
decrease in the assumed health care cost trend rate by 1% per year
would only increase or decrease the benefit obligation as of December
31, 1999, by about $600,000 and the combined service and interest
costs of the net periodic postretirement benefit cost for 1999 by
about $70,000.
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Stock Options
The exercise price of stock options granted equaled the market price
of KCPL's common stock on the grant date. One-half of all options
granted vested one year after the grant date, the other half vested
two years after the grant date. An amount equal to the quarterly
dividends paid on KCPL's common stock shares (dividend equivalents)
accrues on the options for the benefit of option holders. The option
holders are entitled to stock for their accumulated dividend
equivalents only if the options are exercised when the market price is
above the exercise price. At December 31, 1999, the market price of
KCPL's common stock was $22.0625, which was below the grant price for
three of the five years that options were granted. Unexercised
options expire ten years after the grant date.
We follow Accounting Principles Board (APB) Opinion 25 - Accounting
for Stock Issued to Employees and related interpretations in
accounting for this plan. Because of the dividend equivalents
provision, we expensed $(1.1) million in 1999, $0.1 million in 1998
and $1.2 million in 1997. The expense includes accumulated and
reinvested dividends plus the impact of the change in stock price
since the grant date. Because of the decrease in KCPL's common stock
market price during 1999, we recorded a $1.1 million expense
reduction.
FASB Statement No. 123 - Accounting for Stock-Based Compensation
requires certain disclosures regarding expense and value of options
granted using the fair-value method, even though we follow APB Opinion
25. We have expensed approximately the same amount as required by
FASB 123. For options outstanding at December 31, 1999, grant prices
range from $20.625 to $26.188 and the weighted-average remaining
contractual life is 5.1 years.
Stock option activity over the last three years is summarized below:
1999 1998 1997
shares price* shares price* shares price*
Outstanding at January 1 97,875 $23.41 265,250 $23.12 298,875 $22.96
Granted --- -- --- -- --- --
Exercised --- -- (143,875) 22.68 (33,625) 21.75
Canceled (8,000) 21.63 (23,500) 24.54 --- --
Outstanding at December 31 89,875 $23.57 97,875 $23.41 265,250 $23.12
Exercisable as of
December 31 89,875 $23.57 97,875 $23.41 235,750 $22.73
*weighted-average price
3. INCOME TAXES
Income tax expense consisted of the following:
1999 1998 1997
(thousands)
Current income taxes:
Federal $ 31,439 $ 32,621 $ 2,801
State 2,978 7,118 4,348
Total 34,417 39,739 7,149
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1999 1998 1997
(thousands)
Deferred income taxes, net:
Federal (23,313) (2,225) 4,108
State (3,471) (243) 672
Total (26,784) (2,468) 4,780
Investment tax credit amortization
and reversals (4,453) (4,471) (3,850)
Total income tax expense $ 3,180 $ 32,800 $ 8,079
KCPL's effective income tax rates differed from the statutory federal
rates mainly due to the following:
1999 1998 1997
Federal statutory income tax rate 35.0% 35.0% 35.0%
Differences between book and tax
depreciation not normalized 6.9 2.1 3.7
Amortization of investment tax credits (5.2) (2.9) (4.5)
Federal income tax credits (26.4) (14.6) (26.0)
State income taxes (0.4) 2.9 3.9
Merger expenses (3.8) 2.1 -
Other (2.4) (3.2) (2.6)
Effective income tax rate 3.7 % 21.4% 9.5%
The tax effects of major temporary differences resulting in deferred
tax assets and liabilities in the balance sheets are as follows:
December 31 1999 1998
(thousands)
Plant related $ 523,539 $ 547,223
Recoverable taxes 41,000 42,000
Other 24,937 31,404
Net deferred income tax liability $ 589,476 $ 620,627
The net deferred income tax liability consisted of the following:
December 31 1999 1998
(thousands)
Gross deferred income tax assets $ (65,491) $ (64,564)
Gross deferred income tax liabilities 654,967 685,191
Net deferred income tax liability $ 589,476 $ 620,627
4. COMMITMENTS AND CONTINGENCIES
Nuclear Liability and Insurance
Liability Insurance
The Price-Anderson Act currently limits the combined public
liability of nuclear reactor owners to
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$9.5 billion for claims that could arise from a single nuclear
incident. The owners of Wolf Creek (the Owners) carry the maximum
available commercial insurance of $0.2 billion. Secondary Financial
Protection (SFP), an assessment plan mandated by the Nuclear
Regulatory Commission (NRC), provides insurance for the $9.3 billion
balance.
Under SFP, if there were a catastrophic nuclear incident
involving any of the nation's licensed reactors, the Owners would
be subject to a maximum retrospective assessment per incident of
up to $88 million ($41 million, KCPL's share). The Owners are
jointly and severally liable for these charges, payable at a rate
not to exceed $10 million ($5 million, KCPL's share) per incident
per year, excluding applicable premium taxes. The assessment,
most recently revised in 1998, is subject to an inflation
adjustment every five years based on the Consumer Price Index.
Property, Decontamination, Premature Decommissioning and Extra
Expense Insurance
The Owners also carry $2.8 billion ($1.3 billion, KCPL's share)
of property damage, decontamination and premature decommissioning
insurance for loss resulting from damage to the Wolf Creek
facilities. Nuclear Electric Insurance Limited (NEIL) provides
this insurance.
In the event of an accident, insurance proceeds must first be
used for reactor stabilization and NRC mandated site
decontamination. KCPL's share of any remaining proceeds can be
used for further decontamination, property damage restoration and
premature decommissioning costs. Premature decommissioning
coverage applies only if an accident at Wolf Creek exceeds $500
million in property damage and decontamination expenses, and only
after trust funds have been exhausted (see Note 1 - Nuclear Plant
Decommissioning Costs).
The Owners also carry additional insurance from NEIL to cover
costs of replacement power and other extra expenses incurred in
the event of a prolonged outage resulting from accidental
property damage at Wolf Creek.
Under all NEIL policies, KCPL is subject to retrospective
assessments if NEIL losses, for each policy year, exceed the
accumulated funds available to the insurer under that policy.
The estimated maximum amount of retrospective assessments to KCPL
under the current policies could total about $6 million.
In the event of a catastrophic loss at Wolf Creek, the insurance
coverage may not be adequate to cover property damage and extra
expenses incurred. Uninsured losses, to the extent not recovered
through rates, would be assumed by KCPL and could have a
material, adverse effect on KCPL's financial condition, results
of operations and cash flows.
Low-Level Waste
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated
that the various states, individually or through interstate compacts,
develop alternative low-level radioactive waste disposal facilities.
The states of Kansas, Nebraska, Arkansas, Louisiana and Oklahoma
formed the Central Interstate Low-Level Radioactive Waste Compact and
selected a site in northern Nebraska to locate a disposal facility.
Wolf Creek Nuclear Operating Corporation (WCNOC) and the owners of the
other five nuclear units in the compact have provided most of the pre-
construction financing for this project. As of December 31, 1999,
KCPL's net investment on its books was $7.4 million.
Significant opposition to the project has been raised by Nebraska
officials and residents in the area of the proposed facility, and
attempts have been made through litigation and proposed legislation in
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Nebraska to slow down or stop development of the facility. On
December 18, 1998, the application for a license to construct this
project was denied. In December 1998, the utilities filed a federal
court lawsuit contending Nebraska officials acted in bad faith while
handling the license application. On January 15, 1999, a request for
a contested case hearing on the denial of the license was filed. On
April 16, 1999, a U.S. District Court judge in Nebraska issued an
injunction staying indefinitely any further activity on the contested
case hearing. In May 1999 the state of Nebraska appealed the
injunction. The possibility of reversing the license denial will be
greater when the contested case hearing ultimately is conducted than
it would have been had the hearing been conducted immediately. In May
1999, the Nebraska legislature passed a bill withdrawing Nebraska from
the Compact. In August 1999, the Nebraska governor gave official
notice of the withdrawal to the other member states. Withdrawal will
not be effective for five years and will not, of itself, nullify the
site license proceeding.
Nuclear Fuel Commitments
As of December 31, 1999, KCPL's portion of Wolf Creek nuclear fuel
commitments included $26 million for enrichment through 2003, $65
million for fabrication through 2025 and $14 million for uranium and
conversion through 2003.
Environmental Matters
KCPL's policy is to act in an environmentally responsible manner and
use the latest technology available to avoid and treat contamination.
We continually conduct environmental audits designed to ensure
compliance with governmental regulations and to detect contamination.
However, governmental bodies may impose additional or more rigid
environmental regulations that could require substantial changes to
operations or facilities.
Monitoring Equipment and Certain Air Toxic Substances
The Clean Air Act Amendments of 1990 required KCPL to spend about
$5 million in prior years for the installation of continuous
emission monitoring equipment to satisfy the requirements under
the acid rain provision. Also, a study under the Act could
require regulation of certain air toxic substances, including
mercury. We cannot predict the likelihood of any such
regulations or compliance costs.
Air Particulate Matter
In July 1997 the United States Environmental Protection Agency
(EPA) published new air quality standards for particulate matter.
Additional regulations implementing these new particulate
standards have not been finalized. Without the implementation
regulations, the impact of the standards on KCPL cannot be
determined. However, the impact on KCPL and other utilities that
use fossil fuels could be substantial. Under the new fine
particulate regulations the EPA is in the process of implementing
a three-year study of fine particulate emissions. Until this
testing and review period has been completed, KCPL cannot
determine additional compliance costs, if any, associated with
the new particulate regulations.
Nitrogen Oxide
In 1997 the EPA also issued new proposed regulations on reducing
nitrogen oxide (NOx) emissions. The EPA announced in 1998 final
regulations implementing reductions in NOx emissions. These
regulations initially called for 22 states, including Missouri,
to submit plans for
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controlling NOx emissions. The regulations require a significant
reduction in NOx emissions from 1990 levels at KCPL's Missouri
coal-fired plants by the year 2003.
To achieve these proposed reductions, KCPL would need to incur
significantly higher capital costs, purchase power or purchase
NOx emissions allowances. It is possible that purchased power or
emissions allowances may be too costly or unavailable.
Preliminary analysis of the regulations indicate that selective
catalytic reduction technology will be required for some of the
KCPL units, as well as other changes. Currently, we estimate
that additional capital expenditures to comply with these
regulations could range from $40 million to $60 million.
Operations and maintenance expenses could also increase by more
than $2.5 million per year. These capital expenditure estimates
do not include the costs of the new air quality control equipment
to be installed at Hawthorn No. 5. The new air control equipment
designed to meet current environmental standards will also comply
with the proposed requirements discussed above.
We continue to refine our preliminary estimates and explore
alternatives to comply with these new regulations in order to
minimize, to the extent possible, KCPL's capital costs and
operating expenses. The ultimate cost of these regulations could
be significantly different from the amounts estimated above.
In December 1998, KCPL and several other western Missouri
utilities filed suit against the EPA over the inclusion of
western Missouri in NOx reduction program. The outcome cannot be
predicted at this time.
In May 1999, a three-judge panel of the D.C. Circuit of the U.S.
Court of Appeals found certain portions of the NOx control
program unconstitutional in a related case. The EPA is pursuing
appellate review of this finding, and the outcome cannot be
predicted at this time. If the panel's decision is upheld, the
effect will be to decrease the severity of the standards with
which KCPL ultimately may need to comply.
The State of Missouri is currently developing a State
Implementation Plan (SIP) for NOx reduction. This plan will
likely result in KCPL having to comply with new standards for NOx
that are less severe than those that would result from the EPA's
1998 NOx SIP call. As currently proposed, KCPL would not incur
significant additional costs to comply with the State of Missouri
SIP.
Carbon Dioxide
At a December 1997 meeting in Kyoto, Japan, the Clinton
Administration supported changes to the International Global
Climate Change treaty which would require a seven percent
reduction in United States carbon dioxide (CO2) emissions below
1990 levels. The Administration has not submitted this change to
the U.S. Senate where ratification is uncertain. If future
reductions of electric utility CO2 emissions are eventually
required, the financial impact upon KCPL could be substantial.
Coal Contracts
KCPL's share of coal purchased under existing contracts was $33
million in 1999, $37 million in 1998 and $38 million in 1997. Under
these coal contracts, KCPL's remaining share of purchase commitments
totals $56 million. Obligations for the years 2000 through 2003 total
$29, $12, $11 and $4
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million, respectively. The remainder of KCPL's
coal requirements will be fulfilled through spot market purchases.
KCPL has freight commitments for delivery of coal for the next six
years at the cost of approximately $14 to $17 million per year.
Leases
KCPL has a transmission line lease with another utility whereby, with
FERC approval, the rental payments can be increased by the lessor. If
this occurs and we are able to secure an alternative transmission
path, we can cancel the lease. Commitments under this lease total
$2 million per year and $49 million over the remaining life of the
lease if it is not canceled.
Rental expense for other leases, including railcars, computer
equipment, buildings, transmission line and other items, was about
$22 million per year for the last three years. The remaining rental
commitments under these leases total $163 million. Obligations for
the years 2000 through 2004 average $15 million per year. Capital
leases are not material and are included in these amounts.
As the managing partner of three jointly-owned generating units, KCPL
has entered into leases for railcars to serve those units. We have
reflected the entire lease commitment in the above amounts although
about $2 million per year ($30 million total) will be reimbursed by
the other owners.
KCPL has a renewable lease agreement for a combustion turbine that
expires in October 2000. The lease may be extended if both KCPL and
the lessor agree to extend it. Commitments under this lease total
approximately $3 million for the year 2000.
Purchased Capacity Commitments
KCPL purchases capacity from other utilities and nonutility suppliers.
Purchasing capacity provides the option to purchase energy if needed
or when market prices are favorable. This is a cost-effective
alternative to new construction. As of December 31, 1999, contracts
to purchase capacity totaled $149 million through 2016. KCPL
purchased capacity of about $26 million during each of the last three
years. For the years 2000 through 2004, these commitments average
$20 million per year. For the next five years, net capacity purchases
average about 6% of KCPL's 1999 total available capacity.
Corporate Owned Life Insurance
On January 4, 2000, KCPL received written notification from the
Internal Revenue Service (IRS) that it intends to dispute interest
deductions associated with KCPL's corporate owned life insurance
(COLI) program. We understand this issue is an IRS Coordinated Issue
and thus has been raised and not finalized for many of the largest
companies in the country. A disallowance of KCPL's COLI interest
deductions and assessed interest on the disallowance for tax years
1994 to 1998 would reduce net income by approximately $12 million.
KCPL believes it has complied with all applicable tax laws and
regulations and will vigorously contest any adjustment or claim by the
IRS including exhausting all appeals available.
Gas Firm Sales Agreement
KLT sells 15,000 mmBtu (equivalent to approximately 15 Million Cubic
Feet) of natural gas per day under 3 firm sales agreements of 5,000
mmBtu. Two of the contracts expire in April 2000 and are priced at
$2.18 and $2.26 per mmBtu. The third contract expires in June 2000
and is priced at $2.365 per mmBtu. For gas sales not covered by these
contracts, KLT's sales price at December 31, 1999, was $2.05 per
mmBtu.
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Guaranteed Savings Energy Management Agreements
KCPL is contingently liable for guaranteed energy savings under
agreements with several customers. KCPL has entered agreements with
an aggregate value of approximately $16 million over a period of five
to fifteen years. In most cases a subcontractor would indemnify KCPL
for any payments made by KCPL under these guarantees.
5. EQUITY METHOD INVESTMENTS
Equity method investments, excluding affordable housing limited
partnerships, consist of the following:
Goodwill
Common included in
Ownership Carrying Value(1) Carrying Value
Percentage December 31 December 31
Name of Company 1999 1998 1999 1998 1999 1998
(thousands)
DTI Holdings, Inc. 47% 47% $13,989 $36,172 - -
Nationwide Electric,
Inc.(2) - 57% - 12,939 - $12,303
Strategic Energy,
LLC(2) 56% - 7,306 - $ 5,362 -
R.S. Andrews
Enterprises, Inc. 49% 42% 25,589 11,105 6,490 4,839
Other Various 4,363 7,603 - 1,763
Total equity method
investments $51,247 $67,819 $11,852 $18,905
(1) Carrying Value is net of amortization of goodwill. Such amortization
is over 15 to 40 years.
(2) We hold less than 50% of the voting common stock.
In addition to the above goodwill, an additional $11 million of
goodwill, net of amortization, as of December 31, 1998, was included
in other deferred charges on the consolidated balance sheet. A
portion of this goodwill was written off in 1999 and the remainder was
included in the equity investment in Strategic Energy, LLC as a result
of a reorganization of one of KLT's investments.
The non-public, unaudited combined summarized financial information
supplied to KCPL by companies in which we have an equity investment is
as follows:
December 31 1999 1998
(thousands)
Current assets $129,109 $268,958
Non-current assets 397,418 221,753
Total Assets $526,527 $490,711
Current liabilities $ 68,239 $ 49,483
Non-current liabilities 414,846 367,084
Equity (1) 43,442 74,144
Total Liabilities and Equity $526,527 $490,711
Revenues $193,171 $113,658
Costs and expenses 245,038 135,036
Net Loss $(51,867) $(21,378)
KCPL's share of net loss $(24,951) $(11,683)
(1) Includes DTI's $45 million of convertible preferred stock held by
KLT.
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6. SEGMENT AND RELATED INFORMATION
KCPL's reportable segments are strategic business units. Electric
Operations includes the regulated electric utility, unallocated
corporate charges and wholly-owned subsidiaries on an equity basis.
KLT and HSS are holding companies for various nonregulated business
ventures.
The summary of significant accounting policies applies to all of the
segments. We evaluate performance based on profit or loss from
operations and return on capital investment. We eliminate all
intersegment sales and transfers. We include KLT and HSS revenues and
expenses in Other Income and (Deductions) and Interest Charges in the
Consolidated Statements of Income.
The tables below reflect summarized financial information concerning
KCPL's reportable segments.
Electric Intersegment Consolidated
Operations KLT HSS Eliminations Totals
(thousands)
1999
Electric Operating
Income (a) $ 143,949 $ 143,949
Miscellaneous
Income (b) 25,630 $ 17,173 $ (355) $ 4,946 47,394
Miscellaneous
Deductions (c) (42,015) (51,786) (5,318) - (99,119)
Income taxes on
Other Income and
(Decuctions) 8,151 45,198 2,019 - 55,368
Interest Charges (56,457) (11,877) - - (68,334)
Net Income(Loss) 81,915 (1,292) (3,654) 4,946 81,915
Assets 2,851,469 267,763 50,043 (179,133) 2,990,142
1998
Electric Operating
Income (a) $ 184,165 $ 184,165
Miscellaneous
Income (b) 21,808 $ 25,246 $ 733 $ (4,486) 43,301
Miscellaneous
Deductions (c) (36,496) (47,373) (933) - (84,802)
Income taxes on
Other Income and
(Deductions) 5,694 40,210 78 - 45,982
Interest Charges (58,265) (13,475) - - (71,740)
Net Income(Loss) 120,722 4,608 (122) (4,486) 120,722
Assets 2,831,052 310,750 24,239 (153,677) 3,012,364
1997
Electric Operating
Income (a) $ 162,722 $ 162,722
Miscellaneous
Income (b) 20,407 $ 24,651 $ (6,037) 39,021
Miscellaneous
Deductions (c) (77,614) (40,828) - (118,442)
Income taxes on
Other Income and
(Deductions) 27,279 35,755 - 63,034
Interest Charges (58,641) (13,541) - (72,182)
Net Income 76,560 6,037 (6,037) 76,560
Assets 2,835,414 346,154 (123,535) 3,058,033
(a) Refer to the Consolidated Statements of Income for detail of
Electric Operations revenues and expenses.
(b) Includes nonregulated revenues, interest and dividend income,
income and losses from equity investments and gains on sales of
property.
(c) Includes nonregulated expenses, losses on sales of property,
asset impairments and merger-related expenses.
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7. OIL AND GAS PROPERTY AND INTANGIBLE PROPERTY
Oil and gas property and equipment included in Investments and
Nonutility Property on the consolidated balance sheets totaled $87
million, net of accumulated depreciation of $5 million, in 1999 and
$43 million, net of accumulated depreciation of $2 million in 1998.
Included in the oil and gas property and equipment were intangible
drilling costs of $24 million in 1999 and $15 million in 1998.
Electric utility plant on the consolidated balance sheets included
intangible computer software of $63 million, net of accumulated
depreciation of $13 million, in 1999 and $27 million, net of
accumulated depreciation of $7 million, in 1998.
8. RECEIVABLES
December 31
1999 1998
(thousands)
KCPL Receivable Corporation $ 29,705 -
Customer Accounts Receivable - $ 31,150
Other Receivables 41,843 38,981
Receivables $ 71,548 $ 70,131
In 1999 KCPL entered into a revolving agreement to sell all of its
right, title and interest in the majority of its customer accounts
receivable to KCPL Receivable Corporation, a special purpose entity
established to purchase customer accounts receivable from KCPL. KCPL
Receivable Corporation has sold receivable interests to outside
investors. In consideration of the sale, KCPL received $60 million in
cash and the remaining balance in the form of a subordinated note from
KCPL Receivable Corporation. The agreement is structured as a true
sale under which the creditors of KCPL Receivable Corporation will be
entitled to be satisfied out of the assets of KCPL Receivable
Corporation prior to any value being returned to KCPL or its
creditors. At December 31, 1999, $89.7 million of accounts
receivable, net of reserves, was sold under the agreement.
At December 31, 1998, the customer accounts receivable of $31.2
million was recorded net of allowance for doubtful accounts of $1.9
million. As of December 31, 1998, we sold with limited recourse
$60 million of customer accounts receivable.
Costs associated with the sale of customer accounts receivable of
approximately $3.5 million for each of the years ended December 31,
1999, 1998 and 1997, were included in Other Income and (Deductions) -
Miscellaneous income and (deductions) - net.
The other receivables consist primarily of receivables from partners
in jointly-owned electric utility plants, bulk power sales receivables
and accounts receivable held by subsidiaries.
9. SHORT-TERM BORROWINGS AND SHORT-TERM BANK LINES OF CREDIT
Short-term borrowings consist of funds borrowed from banks or through
the sale of commercial paper as needed. The weighted-average interest
rate on the $214 million of commercial paper outstanding as of
December 31, 1999, was 6.4%. Under minimal fee arrangements, KCPL's
unused short-term bank lines of credit totaled $61 million as of
December 31, 1999, and $210 million as of December 31, 1998.
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KLT Gas has a short-term revolving note payable to a bank that
provides borrowing capacity of up to $25 million for oil and gas
development activities. Under this note, KLT had borrowings at
December 31, 1999, of $24.7 million at an interest rate of 8.5% and
borrowings at December 31, 1998, of $10.0 million at an interest rate
of 7.0%. The note is collateralized by a mortgage on a significant
portion of the natural gas leaseholds, mineral interest and facilities
and expires in March 2000.
10. COMMON STOCK EQUITY, PREFERRED STOCK, REDEEMABLE PREFERRED STOCK
AND MANDATORILY REDEEMABLE PREFERRED SECURITIES
Common Stock Equity
KCPL has shares of common stock registered with the Securities and
Exchange Commission for a Dividend Reinvestment and Stock Purchase
Plan (the Plan). The Plan allows for the purchase of common shares by
reinvesting dividends or making optional cash payments. We currently
purchase shares for the Plan on the open market.
As of December 31, 1999 and 1998, KCPL held 10,706 shares of its
common stock to be used for future distribution. We include the cost
of these shares in Investments and Nonutility Property.
The Restated Articles of Consolidation contain a restriction related
to the payment of dividends in the event common equity falls to 25% of
total capitalization. If preferred stock dividends are not declared
and paid when scheduled, KCPL could not declare or pay common stock
dividends or purchase any common shares. If the unpaid preferred
stock dividends equal four or more full quarterly dividends, the
preferred shareholders, voting as a single class, could elect members
to the Board of Directors.
Preferred Stock and Redeemable Preferred Stock
Scheduled mandatory sinking fund requirements for the redeemable
4% Cumulative Preferred Stock are 1,600 shares per year. Shares
issued totaled 7,957 as of December 31, 1999, and 9,557 as of December
31, 1998. Shares held by KCPL to meet future sinking fund
requirements totaled 7,334 as of December 31, 1999, and 8,934 as of
December 31, 1998. The cost of the shares held is reflected as a
reduction of the capital account.
During 1999, we redeemed 500,000 shares of Cumulative No Par Preferred
Stock, reducing the number of Cumulative Preferred Stock shares issued
by 500,000 and the stated capital of KCPL by $50,000,000.
As of December 31, 1999, 0.4 million shares of $100 par Cumulative
Preferred Stock, 1.6 million shares of Cumulative No Par Preferred
Stock and 11 million shares of no par Preference Stock were
authorized. We have the option to redeem the $39 million of issued
Cumulative Preferred Stock at prices approximating par or stated
value.
Mandatorily Redeemable Preferred Securities
In April 1997 KCPL Financing I (Trust) issued $150,000,000 of 8.3%
preferred securities. The sole asset of the Trust is the $154,640,000
principal amount of 8.3% Junior Subordinated Deferrable Interest
Debentures, due 2037, issued by KCPL. The terms and interest payments
on these debentures correspond to the terms and dividend payments on
the preferred securities. We deduct these payments for tax purposes.
We may elect to defer interest payments on the debentures for a period
up to 20 consecutive quarters, causing dividend payments on the
preferred securities to be deferred as well. In case of a deferral,
interest and dividends will continue to accrue, along with quarterly
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<PAGE>
compounding interest on the deferred amounts. We may redeem all or a
portion of the debentures after March 31, 2002. If we redeem all or a
portion of the debentures, the Trust must redeem an equal amount of
preferred securities at face value plus accrued and unpaid
distributions. The back-up undertakings in the aggregate provide a
full and unconditional guarantee of amounts due on the preferred
securities.
11. LONG-TERM DEBT
General Mortgage Bonds and Unsecured Notes
KCPL is authorized to issue mortgage bonds under the General Mortgage
Indenture and Deed of Trust dated December 1, 1986, as supplemented.
The Indenture creates a mortgage lien on substantially all utility
plant.
As of December 31, 1999, $497 million general mortgage bonds were
pledged under the Indenture to secure the outstanding medium-term
notes and revenue refunding bonds.
KCPL is also authorized to issue up to $300 million in unsecured
medium-term notes under an indenture dated December 1, 1996. This
indenture prohibits KCPL from issuing additional general mortgage
bonds while any unsecured notes are outstanding. We have not issued
any unsecured notes.
Subsidiary Obligations
KLT has a bank credit agreement for $125 million collateralized by the
capital stock of KLT's direct subsidiaries. Under this revolving
credit agreement, KLT had borrowings at December 31, 1999, of $61
million with a weighted-average interest rate of 7.7%. KLT had
borrowings at December 31, 1998, of $79 million with a weighted-
average interest rate of 6.4%. This debt is classified as current
maturities since the agreement expires in June 2000.
The affordable housing notes are collateralized by the affordable
housing investments.
Scheduled Maturities
Long-term debt maturities for the years 2000 through 2004 are $129,
$94, $38, $29 and $59 million, respectively.
12. DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 1999 and 1998, KCPL had entered into two interest
rate swap agreements to limit the interest rate on $30 million of long-
term debt. The swap agreements mature in 2001 and effectively fix the
interest rate to a weighted-average rate of 3.88%. Also, as of
December 31, 1998, KLT had entered into an interest rate swap
agreement to limit the interest rate on $40 million of its variable-
rate bank credit agreement. This swap agreement matured in 1999 and
was not renewed.
These swap agreements are with highly rated financial institutions and
simply limit KCPL's exposure to increases in interest rates. They do
not subject KCPL to any material credit or market risks. The fair
value of these agreements is immaterial and is not reflected in the
financial statements. Although derivatives are an integral part of
KCPL's interest rate management, the effect on interest expense for
each of the last three years was less than $0.6 million.
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KLT entered into a put and call agreement in 1999 in which the grantee
has the option to sell to KLT up to 1,411,765 common shares of a
publicly traded stock at a purchase price of $3.54 per share. KLT is
also granted the right to purchase up to 1,411,765 common shares at a
purchase price of $4.25 per share. At December 31, 1999, the stock
was trading at $4.44. However, since the exercise period is from
April 30, 2000 through September 30, 2000, the fair market value of
these options is not readily determinable at December 31, 1999, and is
not recorded in the consolidated financial statements.
13. JOINTLY-OWNED ELECTRIC UTILITY PLANTS
KCPL's share of jointly-owned electric utility plants as of December
31, 1999, is as follows (in millions of dollars):
Wolf Creek LaCygne Iatan
Unit Units Unit
KCPL's share 47% 50% 70%
Utility plant in service $ 1,349 $ 307 $ 245
Estimated accumulated depreciation
(production plant only) $ 464 $ 195 $ 153
Nuclear fuel, net $ 28 $ - $ -
KCPL's accredited capacity-megawatts 550 681 469
Each owner must fund its own portion of the plant's operating expenses
and capital expenditures. KCPL's share of direct expenses is included
in the appropriate operating expense classifications in the income
statement.
14. TERMINATION OF PLANNED MERGER WITH WESTERN RESOURCES
On January 2, 2000, KCPL's Board of Directors unanimously voted to
terminate its Amended and Restated Agreement and Plan of Merger, dated
as of March 18, 1998, with Western Resources. The Board of Directors
acted pursuant to a provision of the parties' Merger Agreement that
permitted either party to terminate the Merger Agreement if it was not
consummated on or before December 31, 1999. The termination was
effective immediately.
A key factor in the KCPL Board's action was problems at Western
Resources' Protection One subsidiary and their impact on Western
Resources as a whole. These problems and the related decline in
Western Resources' stock price since the signing of the Merger
Agreement had a direct bearing on the value of the contemplated
transaction to KCPL's shareholders, as well as the future prospects of
Western Resources and its affiliated companies assuming such
transaction was consummated. Western Resources' common stock, which
closed at $43.13 per share on March 18, 1998, closed at $16.94 per
share on December 31, 1999. Also critical among the KCPL Board's
reasons for their decision was the fact that KCPL's financial advisor,
Merrill Lynch & Co., was unable to provide an opinion that the
contemplated transaction was fair to KCPL shareholders from a
financial point of view.
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15. QUARTERLY OPERATING RESULTS (UNAUDITED)
Quarter
1st 2nd 3rd 4th
(millions)
1999
Operating revenues $ 191 $ 217 $ 301 $ 189
Operating income 26 41 54 23
Net income 12 25 37 7
Basic and diluted earnings
per common share $ 0.18 $ 0.39 $ 0.59 $ 0.11
Quarter
1st 2nd 3rd 4th
(millions)
1998
Operating revenues $ 196 $ 240 $ 313 $ 190
Operating income 30 51 77 26
Net income 14 39 59 9
Basic and diluted earnings
per common share $ 0.22 $ 0.60 $ 0.94 $ 0.13
The quarterly data is subject to seasonal fluctuations with peak
periods occurring during the summer months.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Kansas City Power & Light Company:
We have audited the consolidated financial statements of Kansas City
Power & Light Company and Subsidiaries listed in the index on page 54
of this Form 10-K. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Kansas City Power & Light Company and
Subsidiaries as of December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 1, 2000
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
See General Note to Part III.
EXECUTIVE OFFICERS
See Part I, page 8, entitled "Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
See General Note to Part III.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
See General Note to Part III.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
GENERAL NOTE TO PART III
Pursuant to General Instruction G to Form 10-K, the other
information required by Part III (Items 10, 11, and 12) of Form
10-K not disclosed above will be either (i) incorporated by
reference from the Definitive Proxy Statement for KCPL's 2000
Annual Meeting of Shareholders, to be filed with the Securities
and Exchange Commission not later than March 31, 2000, or
(ii) included in an amendment to this report filed with the
Commission on Form 10-K/A.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
Page
No.
----
Financial Statements
a. Consolidated Statements of Income and Consolidated 27
Statements of Retained Earnings for the years ended
December 31, 1999, 1998 and 1997
b. Consolidated Balance Sheets - December 31, 1999 and 1998 28
c. Consolidated Statements of Capitalization - December 31, 29
1999 and 1998
d. Consolidated Statements of Cash Flows for the years ended 30
December 31, 1999, 1998 and 1997
e. Consolidated Statements of Comprehensive Income for the 31
years ended December 31, 1999, 1998 and 1997
f. Notes to Consolidated Financial Statements 32
g. Report of Independent Accountants 52
Exhibits
Exhibit
Number Description of Document
- -------- -----------------------
3-a *Restated Articles of Consolidation of KCPL dated
as of May 5, 1992 (Exhibit 4 to Registration Statement,
Registration No. 33-54196).
3-b *By-laws of KCPL, as amended and in effect on May 4, 1999
(Exhibit 3-b to form 10-Q dated June 30, 1999).
4-a *General Mortgage and Deed of Trust dated as of
December 1, 1986, between KCPL and UMB Bank, n.a.
(formerly United Missouri Bank) of Kansas City, N.A.,
Trustee (Exhibit 4-bb to Form 10-K for the year ended
December 31, 1986).
4-b *Fourth Supplemental Indenture dated as of February 15,
1992, to Indenture dated as of December 1, 1986
(Exhibit 4-y to Form 10-K for year ended December 31, 1991).
4-c *Fifth Supplemental Indenture dated as of September 15, 1992,
to Indenture dated as of December 1, 1986 (Exhibit 4-a to
Form 10-Q dated September 30, 1992).
4-d *Sixth Supplemental Indenture dated as of November 1, 1992,
to Indenture dated as of December 1, 1986 (Exhibit 4-z to
Registration Statement, Registration No. 33-54196).
4-e *Seventh Supplemental Indenture dated as of October 1, 1993,
to Indenture dated as of December 1, 1986 (Exhibit 4-a to
Form 10-Q dated September 30, 1993).
4-f *Eighth Supplemental Indenture dated as of December 1, 1993,
to Indenture dated as of December 1, 1986 (Exhibit 4 to
Registration Statement, Registration No. 33-51799).
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<PAGE>
4-g *Ninth Supplemental Indenture dated as of February 1, 1994,
to Indenture dated as of December 1, 1986 (Exhibit 4-h to
Form 10-K for year ended December 31, 1993).
4-h *Tenth Supplemental Indenture dated as of November 1, 1994,
to Indenture dated as of December 1, 1986 (Exhibit 4-I to
Form 10-K for year ended December 31, 1994).
4-i *Resolution of Board of Directors Establishing 3.80% Cumulative
Preferred Stock (Exhibit 2-R to Registration Statement,
Registration No. 2-40239).
4-j *Resolution of Board of Directors Establishing 4%
Cumulative Preferred Stock (Exhibit 2-S to Registration
Statement, Registration No. 2-40239).
4-k *Resolution of Board of Directors Establishing
4.50% Cumulative Preferred Stock (Exhibit 2-T to
Registration Statement, Registration No. 2-40239).
4-l *Resolution of Board of Directors Establishing
4.20% Cumulative Preferred Stock (Exhibit 2-U to
Registration Statement, Registration No. 2-40239).
4-m *Resolution of Board of Directors Establishing 4.35%
Cumulative Preferred Stock (Exhibit 2-V to Registration
Statement, Registration No. 2-40239).
4-n *Indenture for Medium-Term Note Program dated as of
February 15, 1992, between KCPL and The Bank of New York
(Exhibit 4-bb to Registration Statement, Registration
No. 33-45736).
4-o *Indenture for Medium-Term Note Program dated as of
November 15, 1992, between KCPL and The Bank of New York
(Exhibit 4-aa to Registration Statement, Registration
No. 33-54196).
4-p *Indenture for Medium-Term Note Program dated as of
November 17, 1994, between KCPL and The Bank of New York
(Exhibit 4-s to Form 10-K for year ended December 31,
1994).
4-q *Indenture for Medium-Term Note Program dated as of
December 1, 1996, between KCPL and The Bank of New York
(Exhibit 4 to Registration Statement, Registration No.
333-17285).
4-r *Amended and Restated Declaration of Trust of KCPL
Financing I dated April 15, 1997 (Exhibit 4-a to Form
10-Q for quarter ended March 31, 1997).
4-s *Indenture dated as of April 1, 1997 between the
Company and The First National Bank of Chicago, Trustee
(Exhibit 4-b to Form 10-Q for quarter ended March 31,
1997).
4-t *First Supplemental Indenture dated as of April 1,
1997 to the Indenture dated as of April 1, 1997 between
the Company and The First National Bank of Chicago,
Trustee (Exhibit 4-c to Form 10-Q for quarter ended
March 31, 1997).
4-u *Preferred Securities Guarantee Agreement dated
April 15, 1997 (Exhibit 4-d to Form 10-Q for quarter
ended March 31, 1997).
10-a *Copy of Wolf Creek Generating Station Ownership
Agreement between Kansas City Power & Light Company,
Kansas Gas and Electric Company and Kansas Electric
Power Cooperative, Inc. (Exhibit 10-d to Form 10-K for
the year ended December 31, 1981).
10-b *Long-Term Incentive Plan (Exhibit 28 to Registration
Statement, Registration 33-42187).
10-c *Long- and Short-Term Incentive Compensation Plan, dated
January 1, 1997 (Exhibit 10-e to Form 10-K for year
ended December 31, 1996).
10-d *Copy of Indemnification Agreement entered into by KCPL
with each of its officers and directors (Exhibit 10-f to
Form 10-K for year ended December 31, 1995).
10-e *Copy of Severance Agreement entered into by KCPL with
certain of its executive officers (Exhibit 10 to Form 10-Q
dated June 30, 1993).
10-f *Copy of Amendment to Severance Agreement dated
January 15, 1996, entered into by KCPL with certain of
its executive officers (Exhibit 10-h to Form 10-K dated
December 31, 1995).
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<PAGE>
10-g *Copy of Amendment to Severance Agreement dated January
1997 entered into by KCPL with certain of its executive
officers (Exhibit 10-I to Form 10-K for year ended
December 31, 1996).
10-h *Copy of Supplemental Executive Retirement and Deferred
Compensation Plan (Exhibit 10-h to Form 10-K for year
ended December 31, 1993).
10-i *Copy of Railcar Lease dated as of April 15, 1994,
between Shawmut Bank Connecticut, National Association,
and KCPL (Exhibit 10 to Form 10-Q for period ended
June 30, 1994).
10-j *Copy of Railcar Lease dated as of January 31, 1995,
between First Security Bank of Utah, National
Association, and KCPL (Exhibit 10-o to Form 10-K for
year ended December 31, 1994).
10-k *Copy of Lease Agreement dated as of October 18, 1995,
between First Security Bank of Utah, N.A., and KCPL
(Exhibit 10 to Form 10-Q for period ended September 30,
1995).
10-l *Railcar Lease dated as of September 8, 1998, with CCG
Trust Corporation (Exhibit 10(b) to Form 10-Q for period
ended September 30, 1998).
10-m Purchase and Sale Agreement dated October 29, 1999
between KCPL and Kansas City Power & Light Receivables
Company.
12 Computation of Ratios of Earnings to Fixed Charges.
23-a Consent of Counsel.
23-b Consent of Independent Accountants-PricewaterhouseCoopers LLP.
24 Powers of Attorney.
27 Financial Data Schedules (filed electronically).
* Filed with the Securities and Exchange Commission as exhibits
to prior registration statements (except as otherwise noted) and
are incorporated herein by reference and made a part hereof. The
exhibit number and file number of the documents so filed, and
incorporated herein by reference, are stated in parenthesis in
the description of such exhibit.
Copies of any of the exhibits filed with the Securities and
Exchange Commission in connection with this document may be
obtained from KCPL upon written request.
Reports on Form 8-K
No report on Form 8-K was filed during the fourth quarter 1999.
A report on Form 8-K was filed with the Securities and Exchange
Commission on January 3, 2000, with attached press release
reporting the termination of the March 18, 1998 Amended and
Restated Agreement and Plan of Merger between Kansas City Power &
Light Company and Western Resources, Inc.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Kansas City, and State
of Missouri on the 10 day of February, 2000.
KANSAS CITY POWER & LIGHT COMPANY
By /s/Drue Jennings
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
Chairman of the Board and )
/s/ Drue Jennings Chief Executive Officer )
(Drue Jennings) (Principal Executive Officer) )
)
Executive Vice President-Chief )
/s/ Marcus Jackson Financial Officer (Principal )
(Marcus Jackson) Financial Officer) )
)
/s/ Neil A. Roadman Controller (Principal )
(Neil A. Roadman) Accounting Officer) )
)
Bernard J. Beaudoin* President and Director )
) February 10, 2000
David L. Bodde* Director )
)
William H. Clark* Director )
)
Robert J. Dineen* Director )
)
W. Thomas Grant II* Director )
)
George E. Nettels, Jr.* Director )
)
Linda Hood Talbott* Director )
)
Robert H. West* Director )
*By /s/Drue Jennings
(Drue Jennings)
Attorney-in-Fact*
Exhibit 10-m
Purchase and Sale Agreement
Dated as of October 29, 1999
between
Kansas City Power & Light Company,
as Originator,
and
Kansas City Power & Light Receivables Company,
as Buyer
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Table of Contents
Section Heading Page
Section 1. Definitions and Related Matters 1
Section 1.1. Defined Terms 1
Section 1.2. Other Interpretive Matters 1
Section 2. Agreement to Contribute, Purchase and Sell 2
Section 2.1. Purchase and Sale 2
Section 2.2. Timing of Contribution, Purchases 2
Section 2.3. Purchase Price 2
Section 2.4. No Recourse or Assumption of Obligations 3
Section 3. Administration and Collection 3
Section 3.1. Originator to Act as Collection Agent 3
Section 3.2. Deemed Collections 3
Section 3.3. Application of Collections 4
Section 3.4. Responsibilities of Originator 4
Section 3.5. Maintenance of Sold Interest 4
Section 4. Representations and Warranties 5
Section 4.1. Mutual Representations and Warranties 5
Section 4.2. Additional Representations by Originator 5
Section 5. General Covenants 7
Section 5.1. Covenants 7
Section 5.2 Organizational Separateness 10
Section 6. Termination of Purchases 10
Section 6.1. Voluntary Termination 10
Section 6.2. Automatic Termination 10
Section 7. Indemnification 10
Section 7.1. Originator's Indemnity 10
Section 7.2 Indemnification Due to Failure to Consummate
Purchase 12
Section 7.3 Other Costs 12
Section 8. Miscellaneous 12
Section 8.1. Amendments, Waivers, etc 12
Section 8.2. Assignment of Receivables Purchase Agreement 12
Section 8.3. Binding Effect; Assignment 13
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Section 8.4. Survival 13
Section 8.5. Costs, Expenses and Taxes 13
Section 8.6. Execution in Counterparts; Integration 13
Section 8.7. Governing Law; Submission to Jurisdiction 13
Section 8.8. No Proceedings 14
Section 8.9. Loans by Buyer to Originator 14
Section 8.10. Notice 14
Section 8.11. Entire Agreement 14
Signature 15
Exhibit A Purchase Price
-ii-
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This Purchase and Sale Agreement dated as of October 29,
1999 (this "Agreement") is between Kansas City Power & Light
Company, a Missouri corporation ("Originator"), and Kansas City
Power & Light Receivables Company, a Delaware corporation
("Buyer"). The parties agree as follows:
Section 1. Definitions and Related Matters.
Section 1.1. Defined Terms. In this Agreement, unless otherwise
specified or defined herein: (a) capitalized terms are used as
defined in Schedule I to the Receivables Sale Agreement dated as
of the date hereof (as amended or modified from time to time, the
"Second Tier Agreement") among Buyer, Originator, Amsterdam
Funding Corporation, the liquidity providers party thereto, and
ABN AMRO Bank N.V. as the Enhancer and the Agent, as such
agreement may be amended or modified from time to time; and
(b) terms defined in Article 9 of the UCC and not otherwise
defined herein are used as defined in such Article 9.
In addition, the following terms will have the meanings
specified below:
"Available Funds" is defined in Section 2.3(b) hereof.
"Closing Date" means the date on which this Agreement
and the Second Tier Agreement become effective in accordance
with their terms.
"Collection Agent Fee" is defined in Section 3.6 of the
Second Tier Agreement.
"Excluded Losses" is defined in Section 7.1 hereof.
"Initial Funding Date" means the date of the first
purchase by Buyer from Originator under this Agreement as
approved by the Agent.
"Settlement Date" means, with respect to any Settlement
Period, the twentieth day of the immediately succeeding
calendar month (or, if such day is not a Business Day, the
next preceding Business Day).
"Settlement Period" means a calendar month (or, in the
case of the first Settlement Period, the period from the
Initial Funding Date to the end of the calendar month in
which the Initial Funding Date occurs).
"Trigger Event" means that (x) the outstanding
principal amount of the Subordinated Note exceeds the value
of Buyer's interest in the Receivables (determined in
accordance with GAAP), and (y) such condition has continued
for five Business Days.
Section 1.2. Other Interpretive Matters. In this Agreement,
unless otherwise specified: (a) references to any Section or
Annex refer to such Section of, or Annex to, this Agreement, and
references in any Section or definition to any subsection or
clause refer to such subsection or clause of such Section or
definition; (b) "herein", "hereof", "hereto", "hereunder" and
similar terms refer to this Agreement as a whole and not to any
particular provision of this Agreement;
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(c) "including" means including without limitation, and other
forms of the verb "to include" have correlative meanings; (d) the
word "or" is not exclusive; and (e) captions are solely for
convenience of reference and shall not affect the meaning of
this Agreement.
Section 2. Agreement to Contribute, Purchase and Sell.
Section 2.1. Purchase and Sale. On the terms and subject to the
conditions set forth in this Agreement, Originator hereby sells
to Buyer, and Buyer hereby purchases from Originator, all of
Originator's right, title and interest in, to and under the
Receivables and all proceeds thereof (including all Collections
with respect thereto), in each case whether now existing or
hereafter arising or acquired.
Section 2.2. Timing of Contribution, Purchases. $3,000,000 of
the Receivables existing at the opening of Originator's business
on the Initial Funding Date are hereby contributed by Originator
as capital to Buyer as of the Initial Funding Date. All of the
remaining Receivables existing at the opening of Originator's
business on the Initial Funding Date are hereby sold to Buyer as
of the Initial Funding Date. After the Initial Funding Date,
each Receivable shall be deemed to have been sold to Buyer
immediately (and without further action by any Person) upon the
creation of such Receivable. The proceeds with respect to each
Receivable (including all Collections with respect thereto) shall
be sold at the same time as such Receivable, whether such
proceeds (or Collections) exist at such time or arise or are
acquired thereafter.
Section 2.3. Purchase Price. (a) The aggregate purchase price
for the Receivables sold on the Initial Funding Date shall be
such amount as agreed upon prior to the Initial Funding Date
between Originator and Buyer to be the fair market value of such
Receivables on such date, which shall equal the excess of the
(i) estimated aggregate outstanding balance of such Receivables
over (ii) an amount agreed upon by Buyer and Originator
representing the uncertainty of payment and cost of purchase of
such Receivables. The purchase price for Receivables
subsequently sold during any Settlement Period shall be
calculated in accordance with the provisions set forth in
Exhibit A hereto.
(b) On the Initial Funding Date, Buyer shall pay Originator
the purchase price for the Receivables sold on that date. On
each Business Day after the Initial Funding Date on which
Originator sells any Receivables to Buyer pursuant to the terms
of Section 2.1, until the termination of the purchase and sale of
Receivables under Section 6 hereof, Buyer shall pay to Originator
the purchase price of such Receivables (i) by depositing into
such account as Originator shall specify immediately available
funds from monies then held by or on behalf of Buyer solely to
the extent that such monies do not constitute Collections that
are required to be identified or are deemed to be held by the
Collection Agent pursuant to the Second Tier Agreement for the
benefit of, or required to be distributed to, the Agent or the
Purchasers pursuant to the Second Tier Agreement or required to
be paid to the Collection Agent as the Collection Agent Fee, or
otherwise necessary to pay current expenses of Buyer (in its
reasonable discretion) (such available monies, the "Available
Funds") and provided that Originator has paid all amounts then
due by Originator hereunder or (ii) by increasing the principal
amount owed to Originator under the promissory note (as amended
or modified from time to time, the "Subordinated Note") executed
and delivered by Buyer to the order of Originator as of the
Initial Funding Date. The outstanding principal amount owed to
Originator under the
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Subordinated Note may be reduced from time
to time as provided in Section 3.2 hereof or by payments made by
Buyer from Available Funds, provided that Originator has paid all
amounts then due by Originator hereunder. Originator shall make
all appropriate record keeping entries with respect to amounts
due to Originator under the Subordinated Note to reflect payments
by Buyer thereon and increases of the principal amount thereof,
and Originator's books and records shall constitute rebuttable
presumptive evidence of the principal amount of and accrued
interest owed to Originator under the Subordinated Note.
Notwithstanding the foregoing, the Buyer shall not be allowed to
pay for Receivables through an increase in the Subordinated Note
if, after giving effect thereto, the outstanding principal amount
thereof would be greater than (i) the Eligible Receivables
Balance minus (ii) the Aggregate Investment minus
(iii) $2,500,000.
Section 2.4. No Recourse or Assumption of Obligations. Except
as specifically provided in this Agreement, the contribution,
purchase and sale of Receivables under this Agreement shall be
without recourse to Originator. Originator and Buyer intend the
transactions hereunder to constitute true sales of Receivables by
Originator to Buyer, providing Buyer with the full risks and
benefits of ownership of the Receivables (such that the
Receivables would not be property of Originator's estate in the
event of Originator's bankruptcy). If, however, despite the
intention of the parties, the conveyances provided for in this
Agreement are determined not to be "true sales" of Receivables
from Originator to Buyer, then this Agreement shall also be
deemed to be a "security agreement" within the meaning of Article
9 of the UCC and Originator hereby grants to Buyer a "security
interest" within the meaning of Article 9 of the UCC in all of
Originator's right, title and interest in and to such Receivables
(including the proceeds thereof), now existing and thereafter
created, to secure a non-recourse loan in an amount equal to the
aggregate purchase prices therefor and each of Originator's other
payment obligations (including the obligation to remit to Buyer
all Collection of all Receivables) under this Agreement.
Buyer shall not have any obligation or liability with
respect to any Receivable, nor shall Buyer have any obligation or
liability to any Obligor or other customer or client of
Originator (including any obligation to perform any of the
obligations of Originator under any Receivable).
Section 3. Administration and Collection.
Section 3.1. Originator to Act as Collection Agent.
Notwithstanding the sale of Receivables pursuant to this
Agreement, Originator shall continue to be responsible for the
servicing, administration and collection of the Receivables, all
on the terms set out in (and subject to any rights to terminate
Originator as Collection Agent pursuant to) the Second Tier
Agreement.
Section 3.2. Deemed Collections. If on any day the outstanding
balance of a Receivable is reduced or cancelled as a result of
any defective or rejected goods or services, any cash discount or
adjustment (including as a result of the application of any
special refund or other discounts or any reconciliation), any
setoff or credit (whether such claim or credit arises out of the
same, a related, or an unrelated transaction) or other similar
reason not arising from the financial inability of the Obligor to
pay undisputed indebtedness, (i) Originator shall be deemed to
have received on such day a Collection on such Receivable in the
amount of such reduction or cancellation and (ii) such Receivable
shall thereupon be, or be deemed to be reconveyed to Originator.
If on any day any representation, warranty, covenant or other
agreement of
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Originator related to a Receivable is discovered to
have been untrue or not satisfied as of the date such Receivable
was sold, (i) Originator shall be deemed to have received on such
day a Collection in the amount of the outstanding balance of such
Receivable and (ii) such Receivable shall thereupon be, or be
deemed to be reconveyed to Originator. Not later than the first
Settlement Date after Originator is deemed pursuant to this
Section 3.2 to have received any Collections, Originator shall
transfer to Buyer, in immediately available funds, the amount of
such deemed Collections; provided, however, that if no such
application is required under the Second Tier Agreement, Buyer
and Originator may agree to reduce the outstanding principal
amount of the Subordinated Note in lieu of all or part of such
transfer. To the extent that Buyer subsequently collects any
payment with respect to any such "receivable", Buyer shall pay
Originator an amount equal to the amount so collected, such
amount to be payable not later than the first Settlement Date
after Buyer has so collected such amount.
Section 3.3. Application of Collections. Any payment by an
Obligor in respect of any indebtedness owed by it to Originator
shall, except as otherwise specified by such Obligor (including
by reference to a particular invoice), or required by the related
contracts or law, be applied, first, as a Collection of any
Receivable or Receivables then outstanding of such Obligor in the
order of the age of such Receivables, starting with the oldest of
such Receivables, and, second, to any other indebtedness of such
Obligor to Originator.
Section 3.4. Responsibilities of Originator. Originator shall
pay when due all Taxes payable in connection with the Receivables
or their creation or satisfaction. Originator shall perform all
of its obligations under agreements related to the Receivables to
the same extent as if interests in the Receivables had not been
transferred hereunder. The Agent's or any Purchaser's exercise
of any rights hereunder or under the Second Tier Agreement shall
not relieve Originator from such obligations. Neither the Agent
nor any Purchaser shall have any obligation to perform any
obligation of Originator or any other obligation (other than the
obligation to act in good faith and with commercial
reasonableness) or liability in connection with the Receivables.
Section 3.5. Maintenance of Sold Interest. If at any time on or
before the Liquidity Termination Date the Aggregate Investment
plus the Reserve Amount exceeds the Eligible Receivable Balance,
then the Originator shall no later than the date on which the
Collection Agent is obligated to deliver its next Periodic Report
as provided in Section 3.3 of the Second Tier Agreement pay to
the Buyer an amount equal to such excess; provided that if no
such application is required under the Second Tier Agreement,
Buyer and Originator may agree to reduce the outstanding
principal amount of the Subordinated Note in lieu of all or part
of such transfer.
Section 4. Representations and Warranties.
Section 4.1. Mutual Representations and Warranties. Each of
Originator and Buyer represents and warrants to the other as
follows:
(a) Existence and Power. It is a corporation, duly
organized, validly existing and in good standing under the
laws of its state of incorporation and has all corporate
power and authority and all governmental licenses,
authorizations, consents and approvals required to carry on
its business in each jurisdiction in which its business is
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now conducted, except where failure to obtain such license,
authorization, consent or approval could not reasonably be
expected to have a material adverse effect on (i) its
ability to perform its obligations under, or the
enforceability of, any Transaction Document to which it is a
party, (ii) its business or financial condition, (iii) the
interests of Buyer under any Transaction Document or (iv)
the enforceability or collectibility of any Receivable.
(b) Authorization and No Contravention. Its
execution, delivery and performance of each Transaction
Document to which it is a party (i) are within its corporate
powers, (ii) have been duly authorized by all necessary
corporate action, (iii) do not contravene or constitute a
default under: (A) any applicable law, rule or regulation,
(B) its charter or by-laws or (C) any agreement, order or
other instrument to which it is a party or its property is
subject and (iv) will not result in any Adverse Claim on any
Receivable or Collection or give cause for the acceleration
of any of its indebtedness.
(c) No Consent Required. Other than the filing of
financing statements no approval, authorization or other
action by, or filings with, any Governmental Authority or
other Person is required in connection with the execution,
delivery and performance by it of any Transaction Document
to which it is a party or any transaction contemplated
thereby.
(d) Binding Effect. Each Transaction Document to
which it is a party constitutes the legal, valid and binding
obligation of such Person enforceable against such Person in
accordance with its terms, except as limited by bankruptcy,
insolvency, or other similar laws of general application
relating to or affecting the enforcement of creditors'
rights generally and subject to general principles of
equity.
Section 4.2. Additional Representations by Originator.
Originator further represents and warrants to Buyer as follows:
(a) Perfection of Ownership Interest. Immediately
preceding its sale of Receivables to Buyer, Originator was
the owner of, and effectively sold, such Receivables to
Buyer, free and clear of any Adverse Claim, except for the
interests of the Purchasers (through the Agent) therein that
are created by the Second Tier Agreement.
(b) Accuracy of Information. All written information
furnished by Originator in connection with any Transaction
Document, or any transaction contemplated thereby, is true
and accurate in all material respects as of the date it was
dated (and was not incomplete by omitting to state a
material fact necessary to make such information not
materially misleading in light of the circumstances when
made).
(c) No Actions, Suits. Except as disclosed by the
Originator in its most recent filings with the SEC under the
Securities Exchange Act of 1934, there are no actions, suits
or other proceedings (including matters relating to
environmental liability) pending or threatened against or
affecting Originator or any of its properties, that (i) is
reasonably likely to have a material adverse effect on the
financial condition of the Originator or on
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the collectibility of the Receivables or (ii) seeks to challenge
the validity of Originator's obligations under any
Transaction Document to which it is a party or any
transaction contemplated thereby. Originator is not in
default of any contractual obligation or in violation of any
order, rule or regulation of any Governmental Authority,
which default or violation could reasonably be expected to
have a material adverse effect upon (i) the financial
condition or the Originator or (ii) the collectibility of
the Receivables.
(d) No Material Adverse Change. Except as disclosed
by the Originator in its most recent filings with the SEC
under the Securities Exchange Act of 1934, there has been no
material adverse change in (i) the collectibility of the
Receivables or (ii) the Originator's financial condition,
business or operations or its ability to perform its
obligations under any Transaction Document.
(e) Accuracy of Exhibits. All information on Exhibits
D and E of the Second Tier Agreement (to the extent
describing Originator) is true and complete, subject to any
changes permitted by, and notified to the Agent in
accordance with the Second Tier Agreement.
(f) Sales by Originator. Each sale by Originator to
Buyer of an interest in Receivables has been made for
"reasonably equivalent value" (as such term is used in
Section 548 of the Bankruptcy Code) and not for or on
account of "antecedent debt" (as such term is used in
Section 547 of the Bankruptcy Code) owed by Originator to
Buyer.
(g) Year 2000 Problem. Originator has reviewed the
areas within its business and operations which could be
adversely affected by, and has developed or is developing a
program to address on a timely basis, the "Year 2000
Problem" (that is, the risk that computer applications used
by Originator and its Subsidiaries may be unable to
recognize and perform properly date-sensitive functions
involving certain dates prior to and any date on or after
December 31, 1999). Based on such review and program,
Originator believes as of the date hereof the Year 2000
Problem will not have a material adverse effect on the
ability of the Originator to perform its obligations under
the Transaction Documents.
Section 5. General Covenants.
Section 5.1. Covenants. Originator hereby covenants and agrees
to comply with the following covenants and agreements, unless
Buyer (with the consent of the Agent) shall otherwise consent:
(a) Financial Reporting. Originator will maintain a
system of accounting established and administered in
accordance with GAAP and will furnish to Buyer:
(i) Within 90 days after each fiscal year of the
Originator, copies of the Originator's annual audited
financial statements (including a consolidated balance
sheet, consolidated statement of income and retained
earnings and statement of cash flows, with related
footnotes) certified by independent certified
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public accountants satisfactory to the Agent and prepared
on a consolidated basis in conformity with GAAP;
(ii) Within 45 days after each (except the last)
fiscal quarter of each fiscal year of the Originator,
copies of the Originator's unaudited financial
statements (including at least a consolidated balance
sheet as of the close of such quarter and statements of
earnings and sources and applications of funds for the
period from the beginning of the fiscal year to the
close of such quarter) certified by a Designated
Financial Officer and prepared in a manner consistent
with the financial statements described in part (A) of
clause (i) of this Section 5.1(a);
(iii) Promptly upon becoming available, a copy of
each report or proxy statement filed by the Originator
with the Securities and Exchange Commission or any
securities exchange; and
(iv) with reasonable promptness such other
information (including non-financial information) as
Buyer may reasonably request.
(b) Notices. Promptly and in any event within five
Business Days after a Designated Financial Officer of
Originator obtains knowledge of any of the following,
Originator will notify Buyer and provide a description of:
(i) Potential Termination Events. The occurrence
of any Potential Termination Event;
(ii) Representations and Warranties. The failure
of any representations or warranty herein to be true
when made in any material respect;
(iii) Downgrading. The downgrading, withdrawal or
suspension of any rating by any rating agency of any
indebtedness of the Originator;
(iv) Litigation. The institution of any
litigation, arbitration proceeding or governmental
proceeding reasonably likely to be material to the
Originator or the collectibility or quality of the
Receivables which is not referenced in the Originator's
filings with the SEC; or
(v) Judgments. The entry of any judgment or
decree against the Originator if the aggregate amount
of all judgments then outstanding against the
Originator exceeds $10,000,000.
(c) Conduct of Business. The Originator will perform
all actions necessary to remain duly incorporated, validly
existing and in good standing in its jurisdiction of
incorporation and to maintain all requisite authority to
conduct its business in each jurisdiction in which it
conducts business except where the failure to do so could
not reasonably be expected to have a material adverse effect
on the collectibility of the Receivables. The Agent hereby
agrees that nothing in this Agreement or any other
Transaction Document would restrict or prohibit the
Originator's plan of merger with
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Western Resources pursuant to that certain Amended and Restated
Agreement and Plan of Merger (Amended Agreement) dated as
of March 18, 1998 between the Originator and Western Resources;
provided, that (i) the surviving corporation agrees to assume
all duties and obligations of the Originator under this Agreement
and all other Transaction Documents to which the Originator is a
party and (ii) the surviving corporation executes all
documents and agreements reasonably necessary (including any
UCC-1 and UCC-3 financing statements) to maintain the
Agent's first priority perfected security interest in the
Receivables, Related Security and Collections.
(d) Compliance with Laws. The Originator will comply
with all laws, regulations, judgments and other directions
or orders imposed by any Governmental Authority to which the
Originator or any Receivable, any Related Security or
Collection may be subject, except where the failure to do so
could not reasonably be expected to have a material adverse
effect on the collectibility of the Receivables.
(e) Furnishing Information and Inspection of Records.
Originator will furnish to Buyer such information concerning
the Receivables as Buyer may reasonably request. With
reasonable notice, Originator will permit, at any time
during regular business hours, Buyer (or any representatives
thereof) (i) to examine and make copies of all Records,
(ii) to visit the offices and properties of Originator for
the purpose of examining the Records and (iii) to discuss
matters relating hereto with any of Originator's officers,
directors, employees or independent public accountants
having knowledge of such matters. Once a year, Buyer may
(at the expense of Originator) have an independent public
accounting firm conduct an audit of the Records or make test
verification of the Receivables and Collections in
connection with the audit and test verifications conducted
on behalf of the Agent under the Second Tier Agreement.
(f) Keeping Records. (i) Originator will have and
maintain (A) administrative and operating procedures
(including an ability to recreate Records if originals are
destroyed), (B) adequate facilities, personnel and equipment
and (C) all Records and other information necessary or
advisable for collecting the Receivables (including Records
adequate to permit the immediate identification of each new
Receivable and all Collections of, and adjustments to, each
existing Receivable). Originator will give Buyer prior
notice of any material change in such administrative
operating procedures.
(ii) Originator will, (A) at all times from and after
the date hereof, clearly and conspicuously mark its computer
and master data processing books and records with a legend
describing Buyer's interest in the Receivables and the
Collections.
(g) Perfection. (i) The Originator will at its
expense, promptly execute and deliver all instruments and
documents and take all action necessary or requested by the
Buyer (including the execution and filing of financing or
continuation statements, amendments thereto or assignments
thereof) to vest and maintain vested in the Buyer a valid,
first priority perfected security interest in the
Receivables, the Collections, and proceeds thereof free and
clear of any Adverse Claim (and a perfected ownership
interest in the Receivables and Collections to the extent of
the Sold Interest). To the extent
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permitted by applicable law, the Buyer will be permitted to
sign and file any continuation statements, amendments
thereto and assignments thereof without the Buyer's signature.
(ii) The Originator will not change its name, identity
or corporate structure or relocate its chief executive
office or the Records except after fifteen (15) days advance
notice to the Buyer and the delivery to the Buyer of all
financing statements, instruments and other documents
(including direction letters) requested by the Buyer.
(iii) The Originator will at all times maintain its
chief executive offices within a jurisdiction in the USA
(other than in the states of Florida, Maryland and
Tennessee) in which Article 9 of the UCC is in effect. If
the Originator moves its chief executive office to a
location that imposes Taxes, fees or other charges to
perfect the Buyer's interests hereunder the Originator will
pay all such amounts and any other costs and expenses
incurred in order to maintain the enforceability of the
Transaction Documents, the Sold Interest and the interests
of the Buyer in the Receivables, the Related Security and
Collections.
(h) Payments on Receivables, Accounts. The Originator
will at all times instruct all Obligors to deliver payments
on the Receivables to a Lock-Box or to a Designated Payee
(as set forth in the Second Tier Agreement). The Originator
will also instruct each Designated Payee to pay all
Collections it receives to a Collection Account. If any
such payments or other Collections are received by the
Originator, it shall hold such payments in trust for the
benefit of the Buyer and promptly (but in any event within
two Business Days after receipt) remit such funds at the
direction of the Buyer. The Originator will cause each
Collection Bank to comply with the terms of each applicable
Collection Letter. After the occurrence of a Termination
Event, the Originator will not, and will not permit any
Collection Agent or other Person to, commingle Collections
or other funds to which the Buyer is entitled with any other
funds. The Originator shall only add a Collection Bank or
Lock-Box to those listed on Exhibit F of the Second Tier
Agreement if the Buyer has received notice of such addition,
a copy of any new Lock-Box, as applicable, Agreement and an
executed and acknowledged copy of a Collection Letter
substantially in the form of Exhibit G of the Second Tier
Agreement (with such changes as are acceptable to the Buyer)
from any new Collection Bank. The Originator shall only
terminate a Collection Bank or Lock-Box upon 30 days advance
notice to the Buyer. If the long term unsecured
indebtedness of the Originator is rated less than BBB by S&P
or Baa2 by Moody's (or either S&P or Moody's has withdrawn
or suspended such rating), the Originator agrees that it
will not access any Lock-Box without the consent of the
Buyer.
(i) Sales and Adverse Claims Relating to Receivables.
Except as otherwise provided herein, the Originator will not
(by operation of law or otherwise) dispose of or otherwise
transfer, or create or suffer to exist any Adverse Claim
upon, any Receivable or any proceeds thereof.
(j) Extension or Amendment of Receivables. Except as
otherwise permitted in the Second Tier Agreement and then
subject to Section 1.5 of the Second Tier Agreement, the
Originator will not extend, amend, rescind or cancel any
Receivable.
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(k) Performance of Duties. Originator will perform
its duties or obligations in accordance with the provisions
of each of the Transaction Documents to which it is a party.
Originator (at its expense) will (i) fully and timely
perform in all material respects all agreements, if any,
required to be observed by it in connection with each
Receivable, (ii) comply in all material respects with the
Credit and Collection Policy, and (iii) refrain from any
action that could reasonably be expected to impair the
rights of Buyer in the Receivables or Collections.
Section 5.2. Organizational Separateness. Originator agrees not
to take any action that would cause Buyer to violate its limited
liability company agreement or operating agreement. Buyer agrees
to conduct its business in a manner consistent with its limited
liability company agreement and operating agreement.
Section 6. Termination of Purchases.
Section 6.1. Voluntary Termination. The purchase and sale of
Receivables pursuant to this Agreement may be terminated by
either party, upon at least five Business Days' prior written
notice to the other party.
Section 6.2. Automatic Termination. The purchase and sale of
Receivables pursuant to this Agreement shall automatically
terminate upon the occurrence of (i) a Bankruptcy Event with
respect to Originator, (ii) a Trigger Event, or (iii) the
Liquidity Termination Date.
Section 7. Indemnification.
Section 7.1. Originator's Indemnity. Without limiting any other
rights any Person may have hereunder or under applicable law,
Originator hereby indemnifies and holds harmless Buyer and its
officers, managers, agents and employees (each an "Indemnified
Party") from and against any and all damages, losses, claims,
liabilities, penalties, Taxes, costs and expenses (including
reasonable attorneys' fees and court costs actually incurred)
(all of the foregoing collectively, the "Indemnified Losses") at
any time imposed on or incurred by any Indemnified Party arising
out of or otherwise relating to any Transaction Document, the
transactions contemplated thereby, or any action taken or omitted
by any of the Indemnified Parties, whether arising by reason of
the acts to be performed by Originator hereunder or otherwise,
excluding only Indemnified Losses ("Excluded Losses") to the
extent (a) a final judgment of a court of competent jurisdiction
holds such Indemnified Losses resulted solely from gross
negligence or willful misconduct of the Indemnified Party seeking
indemnification, (b) solely due to the credit risk or financial
inability to pay of the Obligor and for which reimbursement would
constitute recourse to Originator or the Collection Agent for
uncollectible Receivables or (c) such Indemnified Losses include
Taxes on, or measured by, the overall net income of the Buyer.
Without limiting the foregoing indemnification, but subject to
the limitations set forth in clauses (a), (b) and (c) of the
previous sentence, Originator shall indemnify each Indemnified
Party for Indemnified Losses relating to or resulting from:
(i) any representation or warranty made by or on
behalf of Originator under or in connection with this
Agreement, any Periodic Report or any other information or
-10-
<PAGE>
report delivered by Originator pursuant to the Transaction
Documents, which shall have been false or incorrect in any
material respect when made or deemed made;
(ii) the failure by Originator to comply with any
applicable law, rule or regulation related to any
Receivable, or the nonconformity of any Receivable with any
such applicable law, rule or regulation;
(iii) the failure of Originator to vest and maintain
vested in Buyer, a perfected ownership or security interest
in the Receivables and the other property conveyed pursuant
hereto, free and clear of any Adverse Claim;
(iv) any commingling of funds to which Buyer is
entitled hereunder with any other funds;
(v) any failure of a Lock-Box Bank to comply with the
terms of the applicable Lock-Box Letter;
(vi) any dispute, claim, offset or defense (other than
discharge in bankruptcy of the Obligor or financial
inability of the Obligor to pay) of the Obligor to the
payment of any Receivable, or any other claim resulting from
the rendering of services related to such Receivable or the
furnishing or failure to furnish any such services or other
similar claim or defense not arising from the financial
inability of any Obligor to pay undisputed indebtedness;
(vii) any failure of Originator to perform its duties or
obligations in accordance with the provisions of this
Agreement or any other Transaction Document to which
Originator is a party; or
(viii) any environmental liability claim, products
liability claim or personal injury or property damage suit
or other similar or related claim or action of whatever
sort, arising out of or in connection with any Receivable or
any other suit, claim or action of whatever sort relating to
any of Originator's obligations under the Transaction
Documents.
Section 7.2. Indemnification Due to Failure to Consummate
Purchase. Originator will indemnify Buyer on demand and hold it
harmless against all costs (including, without limitation,
breakage costs) and expenses incurred by Buyer resulting from any
failure by Originator to consummate a purchase after Buyer has
requested a transfer of the applicable Receivables to the
Purchasers under the terms of the Second Tier Agreement.
Section 7.3. Other Costs. If Buyer becomes obligated to
compensate the Purchasers under the Second Tier Agreement or any
other Transaction Document for any costs or indemnities pursuant
to any provision of the Second Tier Agreement or any other
Transaction Document, which obligation is triggered directly or
indirectly by Originator's failure to perform any obligations
hereunder, then Originator shall, on demand, reimburse Buyer for
the amount of any compensation.
-11-
<PAGE>
Section 8. Miscellaneous.
Section 8.1. Amendments, Waivers, etc. No amendment of this
Agreement or waiver of any provision hereof or consent to any
departure by either party therefrom shall be effective without
the written consent of the party that is sought to be bound. Any
such waiver or consent shall be effective only in the specific
instance given. No failure or delay on the part of either party
to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law. Originator agrees that the Purchasers
may rely upon the terms of this Agreement, and that the terms of
this Agreement may not be amended, nor any material waiver of
those terms be granted, without the consent of the Agent;
provided that Originator and Buyer may agree to an adjustment of
the purchase price for any Receivable without the consent of the
Agent provided that any such adjustment shall be prospective only
and the purchase price paid for any Receivable shall be an amount
not less than adequate consideration that represents fair value
for such Receivable.
Section 8.2. Assignment of Receivables Purchase Agreement.
Originator hereby acknowledges that on the date hereof Buyer has
assigned all of its right, title and interest in, to and under
this Agreement to the Agent for the benefit of the Purchasers
pursuant to the Second Tier Agreement and that the Agent and the
Purchasers are third party beneficiaries hereof. Originator
hereby further acknowledges that after the occurrence and during
the continuation of a Termination Event all provisions of this
Agreement shall inure to the benefit of the Agent and the
Purchasers, including the enforcement of any provision hereof to
the extent set forth in the Second Tier Agreement, but that
neither the Agent nor any Purchaser shall have any obligations or
duties under this Agreement. No purchases shall take place
hereunder at any time that the Buyer has ceased to sell Purchase
Interests under the Second Tier Agreement. Originator hereby
further acknowledges that the execution and performance of this
Agreement are conditions precedent for the Agent and the
Purchasers to enter into the Second Tier Agreement and that the
agreement of the Agent and Purchasers to enter into the Second
Tier Agreements will directly or indirectly benefit Originator
and constitutes good and valuable consideration for the rights
and remedies of the Agent and each Purchaser with respect hereto.
Section 8.3. Binding Effect; Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns and shall also, to
the extent provided herein, inure to the benefit of the parties
to the Second Tier Agreement. Originator acknowledges that
Buyer's rights under this Agreement are being assigned to the
Agent under the Second Tier Agreement and consents to such
assignment and to the exercise of those rights directly by the
Agent, to the extent permitted by the Second Tier Agreement.
Section 8.4. Survival. The rights and remedies with respect to
any breach of any representation and warranty made by Originator
or Buyer pursuant to Section 4 and the indemnification provisions
of Section 7 shall survive any termination of this Agreement.
Section 8.5. Costs, Expenses and Taxes. In addition to the
obligations of Originator under Section 7, each party hereto
agrees to pay within 30 days of demand all costs and expenses
-12-
<PAGE>
incurred by the other party and its assigns (other than Excluded
Losses) in connection with the enforcement of, or any actual or
claimed breach of, this Agreement, including the reasonable fees
and expenses of counsel to any of such Persons incurred in
connection with any of the foregoing or in advising such Persons
as to their respective rights and remedies under this Agreement
in connection with any of the foregoing. Originator also agrees
to pay on demand all stamp and other taxes and fees payable or
determined to be payable in connection with the execution,
delivery, filing, and recording of this Agreement.
Section 8.6. Execution in Counterparts; Integration. This
Agreement may be executed in any number of counterparts and by
the different parties in separate counterparts, each of which
when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same
Agreement.
Section 8.7. Governing Law; Submission to Jurisdiction. This
Agreement shall be governed by, and construed in accordance with,
the internal laws (and not the law of conflicts) of the State of
Illinois. Originator hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Northern
District of Illinois and of any Illinois state court sitting in
Chicago for purposes of all legal proceedings arising out of, or
relating to, the Transaction Documents or the transactions
contemplated thereby. Originator hereby irrevocably waives, to
the fullest extent permitted by law, any objection it may now or
hereafter have to the venue of any such proceeding and any claim
that any such proceeding has been brought in an inconvenient
forum. Nothing in this Section 8.7 shall affect the right of
Buyer to bring any action or proceeding against Originator or its
property in the courts of other jurisdictions.
Section 8.8. No Proceedings. Originator agrees, for the benefit
of the parties to the Second Tier Agreement, that it will not
institute against Buyer, or join any other Person in instituting
against Buyer, any proceeding of a type referred to in the
definition of Bankruptcy Event until one year and one day after
no investment, loan or commitment is outstanding under the Second
Tier Agreement. In addition, all amounts payable by Buyer to
Originator pursuant to this Agreement shall be payable solely
from funds available for that purpose (after Buyer has satisfied
all obligations then due and owing under the Second Tier
Agreement).
Section 8.9. Loans by Buyer to Originator. Buyer may make
loans to Originator from time to time if so agreed between such
parties and to the extent that Buyer has funds available for that
purpose after satisfying its obligations under this Agreement and
the Second Tier Agreement. Any such loan shall be payable upon
demand (and may be prepaid with penalty or premium) and shall
bear interest at such rate as Buyer and Originator shall from
time to time agree.
Section 8.10. Notices. Unless otherwise specified, all notices
and other communications hereunder shall be in writing (including
by telecopier or other facsimile communication), given to the
appropriate Person at its address or telecopy number set forth in
the Second Tier Agreement or at such other address or telecopy
number as such Person may specify, and effective when received at
the address specified by such Person.
-13-
<PAGE>
Section 8.11. Entire Agreement. This Agreement constitutes the
entire understanding of the parties thereto concerning the
subject matter thereof. Any previous or contemporaneous
agreements, whether written or oral, concerning such matters are
superseded thereby.
-14-
<PAGE>
In Witness Whereof, the parties have caused this Agreement
to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
Kansas City Power & Light
Company, as Originator
By /s/Marcus Jackson
Name: Marcus Jackson
Title: Executive Vice President &
Chief Financial Officer
Kansas City Power & Light
Receivables Company, as Buyer
By /s/Andrea F. Bielsker
Name: Andrea F. Bielsker
Title: President
-15-
<PAGE>
Exhibit A
Purchase Price
All capitalized terms used, and not otherwise defined,
herein have the meanings set forth for such terms in the
Receivables Sale Agreement dated as of October 29, 1999 among
Kansas City Power & Light Receivables Company ("Seller"), as the
Seller, Kansas City Power & Light Receivables Company ("KCPL"),
as the Initial Collection Agent, ABN AMRO Bank N.V., as the
Agent, the Liquidity Providers party thereto, ABN AMRO Bank N.V.,
as the Enhancer, and Amsterdam Funding Corporation or, if not
defined therein, in the Purchase and Sale Agreement dated as of
October 29, 1999 between KCPL, as the Originator ("Originator"),
and Seller, as the Buyer ("Buyer").
The purchase price applicable to the Receivables purchased
on any day after the Initial Funding Date by Buyer from
Originator shall be equal to 99.25% times the aggregate
outstanding balance of such Receivables. The foregoing purchase
price was calculated to yield to the Buyer a reasonable profit
return on its equity and was calculated assuming, among other
things, that charge-offs of Receivables in any year will average
approximately one-half of one percent (0.5%) of the average
outstanding balance of the Receivables and that LIBOR (which
represents the index for the Buyer's cost of funds) would average
approximately 6%. If the Originator or Buyer determines that
charge-offs in any twelve-month period have exceeded one percent
(1.0%) of the average outstanding balance of Receivables during
such period, or if LIBOR subsequently rises above 7.5% or falls
below 4.5%, then the Originator and the Buyer agree to negotiate
in good faith to re-set the purchase price percentage so as to
reflect in an equitable manner the impact of such revised charge-
off ratio or revised cost of funds on the Buyer's anticipated
equity return. Any such change in the purchase price percentage
shall not take effect unless and until both parties agree to such
adjustment. In the event that (i) the purchase price is adjusted
due to increased charge-offs and average charge-off experience
over a twelve-month period subsequently reduces to one-half of
one percent, (ii) the purchase price is adjusted due to an
increase in LIBOR and LIBOR subsequently reduces below 6.5% for a
three-month consecutive period or (iii) the purchase price is
adjusted due to a decrease in LIBOR and LIBOR subsequently
increases above 5.5% for the three-month consecutive period then
the Originator and Buyer may subsequently agree to readjust the
purchase price percentage as set forth above to reflect the
equitable impact of such changes. All purchase price adjustments
pursuant to the foregoing provisions shall be prospective only
and shall not operate to adjust retroactively the purchase price
previously paid for any Receivables.
<TABLE>
Exhibit 12
KANSAS CITY POWER & LIGHT COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<CAPTION>
1999 1998 1997 1996 1995
(Thousands)
<S> <C> <C> <C> <C> <C>
Net income $81,915 $120,722 $76,560 $108,171 $122,586
Add:
Taxes on income 3,180 32,800 8,079 31,753 66,803
Kansas City earnings tax 602 864 392 558 958
Total taxes on income 3,782 33,664 8,471 32,311 67,761
Interest on value of
leased property 8,577 8,482 8,309 8,301 8,269
Interest on long-term debt 51,327 57,012 60,298 53,939 52,184
Interest on short-term debt 4,362 295 1,382 1,251 1,189
Mandatorily redeemable
Preferred Securities 12,450 12,450 8,853 0 0
Other interest expense
and amortization 3,573 4,457 3,990 4,840 3,112
Total fixed charges 80,289 82,696 82,832 68,331 64,754
Earnings before taxes
on income and fixed
charges $165,986 $237,082 $167,863 $208,813 $255,101
Ratio of earnings to
fixed charges 2.07 2.87 2.03 3.06 3.94
</TABLE>
Exhibit 23-a
CONSENT OF COUNSEL
As Senior Vice President-Corporate Services,
Corporate Secretary and Chief Legal Officer of Kansas
City Power & Light Company, I have reviewed the
statements as to matters of law and legal conclusions
in the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, and consent to the
incorporation by reference of such statements in the
Company's previously-filed Form S-3 Registration
Statements (Registration No. 33-51799, Registration
No. 333-17285, and Registration No. 333-18139) and Form
S-8 Registration Statements (Registration No. 33-45618
and Registration No. 333-49353).
/s/Jeanie Sell Latz
Jeanie Sell Latz
Kansas City, Missouri
February 10, 2000
Exhibit 23-b
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Kansas City Power & Light Company on Form S-3 (File Nos.
33-51799, 333-17285 and 333-18139) and Form S-8 (File Nos.33-45618 and
333-49353) of our report dated February 1, 2000, on our audits of the
consolidated financial statements of Kansas City Power & Light Company
and Subsidiaries as of December 31, 1999 and 1998, and for the years
ended December 31, 1999, 1998, and 1997, which report is included in
this Annual Report on Form 10-K.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 10, 2000
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 1st day of February 2000.
/s/Bernard J. Beaudoin
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 1st day of February 2000, before me the
undersigned, a Notary Public, personally appeared
Bernard J. Beaudoin, to be known to be the person
described in and who executed the foregoing instrument,
and who, being by me first duly sworn, acknowledged
that he executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 1st day of February 2000.
/s/David L. Bodde
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 1st day of February 2000, before me the
undersigned, a Notary Public, personally appeared David
L. Bodde, to be known to be the person described in and
who executed the foregoing instrument, and who, being
by me first duly sworn, acknowledged that he executed
the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 1st day of February 2000.
/s/William H. Clark
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 1st day of February 2000, before me the
undersigned, a Notary Public, personally appeared
William H. Clark, to be known to be the person
described in and who executed the foregoing instrument,
and who, being by me first duly sworn, acknowledged
that he executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 1st day of February 2000.
/s/Robert J. Dineen
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 1st day of February 2000, before me the
undersigned, a Notary Public, personally appeared
Robert J. Dineen, to be known to be the person
described in and who executed the foregoing instrument,
and who, being by me first duly sworn, acknowledged
that he executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 1st day of February 2000.
/s/W. Thomas Grant II
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 1st day of February 2000, before me the
undersigned, a Notary Public, personally appeared W.
Thomas Grant II, to be known to be the person described
in and who executed the foregoing instrument, and who,
being by me first duly sworn, acknowledged that he
executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 1st day of February 2000.
/s/George E. Nettels, Jr.
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 1st day of February 2000, before me the
undersigned, a Notary Public, personally appeared
George E. Nettels, Jr., to be known to be the person
described in and who executed the foregoing instrument,
and who, being by me first duly sworn, acknowledged
that he executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, her true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 1st day of February 2000.
/s/Linda H. Talbott
Linda H. Talbott
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 1st day of February 2000, before me the
undersigned, a Notary Public, personally appeared Linda
H. Talbott, to be known to be the person described in
and who executed the foregoing instrument, and who,
being by me first duly sworn, acknowledged that she
executed the same as her free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Kansas City
Power & Light Company, a Missouri corporation, does
hereby constitute and appoint Drue Jennings or Jeanie
Sell Latz, his true and lawful attorney and agent, with
full power and authority to execute in the name and on
behalf of the undersigned as such director an Annual
Report on Form 10-K; hereby granting unto such attorney
and agent full power of substitution and revocation in
the premises; and hereby ratifying and confirming all
that such attorney and agent may do or cause to be done
by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand
and seal this 1st day of February 2000.
/s/Robert H. West
STATE OF MISSOURI )
) ss
COUNTY OF JACKSON )
On this 1st day of February 2000, before me the
undersigned, a Notary Public, personally appeared
Robert H. West, to be known to be the person described
in and who executed the foregoing instrument, and who,
being by me first duly sworn, acknowledged that he
executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed my official seal the day and year last
above written.
/s/Jacquetta L. Hartman
Notary Public
My Commission Expires:
April 8, 2000
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,298,895
<OTHER-PROPERTY-AND-INVEST> 376,704
<TOTAL-CURRENT-ASSETS> 162,336
<TOTAL-DEFERRED-CHARGES> 152,207
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,990,142
<COMMON> 449,697
<CAPITAL-SURPLUS-PAID-IN> (1,668)
<RETAINED-EARNINGS> 418,952
<TOTAL-COMMON-STOCKHOLDERS-EQ> 864,644
62
39,000
<LONG-TERM-DEBT-NET> 685,884
<SHORT-TERM-NOTES> 24,667
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 214,032
<LONG-TERM-DEBT-CURRENT-PORT> 128,858
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,030,658
<TOT-CAPITALIZATION-AND-LIAB> 2,990,142
<GROSS-OPERATING-REVENUE> 897,393
<INCOME-TAX-EXPENSE> 58,548
<OTHER-OPERATING-EXPENSES> 694,896
<TOTAL-OPERATING-EXPENSES> 753,444
<OPERATING-INCOME-LOSS> 143,949
<OTHER-INCOME-NET> 6,300
<INCOME-BEFORE-INTEREST-EXPEN> 150,249
<TOTAL-INTEREST-EXPENSE> 68,334
<NET-INCOME> 81,915
3,733
<EARNINGS-AVAILABLE-FOR-COMM> 78,182
<COMMON-STOCK-DIVIDENDS> 102,751
<TOTAL-INTEREST-ON-BONDS> 51,327
<CASH-FLOW-OPERATIONS> 160,109
<EPS-BASIC> 1.26
<EPS-DILUTED> 1.26
</TABLE>
