UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
or
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______to_______
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification Number
0-33207 GREAT PLAINS ENERGY INCORPORATED 43-1916803
(A Missouri Corporation)
1201 Walnut Street
Kansas City, Missouri 64106
(816) 556-2200
www.greatplainsenergy.com
1-707 KANSAS CITY POWER & LIGHT COMPANY 44-0308720
(A Missouri Corporation)
1201 Walnut Street
Kansas City, Missouri 64106
(816) 556-2200
www.kcpl.com
Each of the following classes or series of securities registered pursuant to
Section 12(b) of the Act is registered on the New York Stock Exchange:
Registrant Title of each class
Great Plains Energy Incorporated Cumulative Preferred Stock par value $100 per share 3.80%
Cumulative Preferred Stock par value $100 per share 4.50%
Cumulative Preferred Stock par value $100 per share 4.35%
Common Stock without par value
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.___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-3 of the Act.)
Great Plains Energy Incorporated Yes X No ___
Kansas City Power and Light Company Yes___ No X
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of Great Plains Energy Incorporated (based on the closing price
of its common stock on the New York Stock Exchange on June 28, 2002, was
approximately $1,259,842,574. All of the common equity of Kansas City Power and
Light Company is held by Great Plains Energy Incorporated, an affiliate of
Kansas City Power & Light Company.
On February 26, 2003, Great Plains Energy Incorporated had 69,189,049 shares of
common stock outstanding. The aggregate market value of the common stock held by
nonaffiliates of Great Plains Energy Incorporated (based upon the closing price
of its common stock on the New York Stock Exchange on February 26, 2003) was
approximately $1,542,915,793. On February 26, 2003, Kansas City Power & Light
Company had one share of common stock outstanding and held by Great Plains
Energy Incorporated.
Documents Incorporated by Reference
Portions of the 2003 Proxy Statement of Great Plains Energy Incorporated to be
filed with the Securities and Exchange Commission are incorporated by reference
in Part III of this report.
TABLE OF CONTENTS
Page
Number
Cautionary Statements Regarding Forward-Looking Information 3
Glossary of Terms 4
PART I
Item 1 Business 6
Item 2 Properties
Item 3 Legal Proceedings 18
Item 4 Submission of Matters to a Vote of Security Holders 21
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters 21
Item 6 Selected Financial Data 23
Item 7 Management's Discussion and Analysis of Financial Conditions
and Results of Operation 24
Item 7A Quantitative and Qualitative Disclosures About Market Risks 54
Item 8 Consolidated Financial Statements and Supplementary Data
Great Plains Energy
Consolidated Statements of Income 56
Consolidated Balance Sheets 57
Consolidated Statements of Capitalization 58
Consolidated Statements of Cash Flows 59
Consolidated Statements of Comprehensive Income 60
Consolidated Statements of Retained Earnings 60
Kansas City Power & Light Company
Consolidated Statements of Income 61
Consolidated Balance Sheets 62
Consolidated Statements of Capitalization 63
Consolidated Statements of Cash Flows 64
Consolidated Statements of Comprehensive Income 65
Consolidated Statements of Retained Earnings 65
Great Plains Energy
Kansas City Power & Light Company
Notes to Consolidated Financial Statements 66
Item 9 Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 119
PART III
Item 10 Directors and Officers of the Registrants 119
Item 11 Executive Compensation 121
Item 12 Security Ownership of Certain Beneficial Owners and Management 127
Item 13 Certain Relationships and Related Transactions 127
Item 14 Controls and Procedures 128
PART IV
Item 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 128
2
Great Plains Energy Incorporated and Kansas City Power & Light Company
separately file this combined Annual Report on Form 10-K. Information contained
herein relating to an individual registrant and its subsidiaries is filed by
such registrant on its own behalf. Each registrant makes representations only as
to information relating to itself and its subsidiaries.
This report should be read in its entirety. No one section of the report deals
with all aspects of the subject matter.
CAUTIONARY STATEMENTS REGARDING CERTAIN FORWARD-LOOKING INFORMATION
Statements made in this report that are not based on historical facts are
forward-looking, may involve risks and uncertainties, and are intended to be as
of the date when made. In connection with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, the registrants are providing
a number of important factors that could cause actual results to differ
materially from the provided forward-looking information. These important
factors include:
o future economic conditions in the regional, national and international markets
o market perception of the energy industry and the Company
o changes in business strategy, operations or development plans
o state and federal legislative and regulatory actions or developments,
including deregulation, re-regulation and restructuring of the electric
utility industry and constraints placed on the Company's actions by the 35 Act
o adverse changes in applicable laws, regulations, rules, principles or
practices governing tax, accounting and environmental matters including,
but not limited to, air quality
o financial market conditions including, but not limited to, changes in interest
rates
o ability to maintain current credit ratings
o availability and cost of capital
o inflation rates
o effectiveness of risk management policies and procedures and the ability of
counterparties to satisfy their contractual commitments
o impact of terrorist acts
o increased competition including, but not limited to, retail choice in the
electric utility industry and the entry of new competitors
o ability to carry out marketing and sales plans
o weather conditions including weather-related damage
o cost and availability of fuel
o ability to achieve generation planning goals and the occurrence of unplanned
generation outages
o delays in the anticipated in-service dates of additional generating capacity
o nuclear operations
o ability to enter new markets successfully and capitalize on growth
opportunities in non-regulated businesses
o performance of projects undertaken by our non-regulated businesses and the
success of efforts to invest in and develop new opportunities, and
o other risks and uncertainties.
This list of factors is not all-inclusive because it is not possible to predict
all factors.
3
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms that
are found throughout this report:
Abbreviation or Acronym Definition
35 Act Public Utility Holding Company Act of 1935
ABO Accumulated Benefit Obligation
APB Accounting Principles Board
ARB Accounting Research Bulletin
Bracknell Bracknell Corporation
CO2 Carbon Dioxide
COLI Corporate Owned Life Insurance
CellNet CellNet Data Systems Inc.
Clean Air Act Clean Air Act Amendments of 1990
Compact Central Interstate Low-Level Radioactive Waste Compact
Consolidated KCP&L KCP&L and its subsidiary HSS
DIP Loan Debtor-in-Possession Financing
DOE Department of Energy
DTI DTI Holdings, Inc. and its subsidiaries Digital Teleport, Inc.
and Digital Teleport of Virginia, Inc.
Digital Teleport Digital Teleport, Inc.
EIRR Environmental Improvement Revenue Refunding
ELC Environmental Lighting Concepts, Inc.
EPA Environmental Protection Agency
EPS Earnings per share
ERISA Employee Retirement Income Security Act of 1974
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
GAAP Generally Accepted Accounting Principles
GPP Great Plains Power Incorporated, a wholly-owned subsidiary
of Great Plains Energy
Great Plains Energy Great Plains Energy Incorporated
HSS Home Service Solutions Inc., a wholly-owned subsidiary of KCP&L
Holdings DTI Holdings, Inc.
IBEW International Brotherhood of Electrical Workers
IEC Innovative Energy Consultants Inc., a wholly-owned subsidiary
of Great Plains Energy
IRS Internal Revenue Service
KCC The State Corporation Commission of the State of Kansas
KCP&L Kansas City Power & Light Company, a wholly-owned subsidiary
of Great Plains Energy
KLT Gas KLT Gas Inc., a wholly-owned subsidiary of KLT Inc.
KLT Energy Services KLT Energy Services Inc., a wholly-owned subsidiary of KLT Inc.
KLT Inc. KLT Inc., a wholly-owned subsidiary of Great Plains Energy
KLT Investments KLT Investments Inc., a wholly-owned subsidiary of KLT Inc.
KLT Telecom KLT Telecom Inc., a wholly-owned subsidiary of KLT Inc.
MAC Material Adverse Change
MACT Maximum Achievable Control Technology
MISO Midwest Independent System Operator
MmBtu Million British Thermal Units
4
MPSC Missouri Public Service Commission
MW Megawatt
MWh Megawatt hour
NEIL Nuclear Electric Insurance Limited
NERC North American Electric Reliability Council
NOx Nitrogen Oxide
NRC Nuclear Regulatory Commission
OCI Other Comprehensive Income
RSAE R.S. Andrews Enterprises, Inc., a subsidiary of HSS
RTO Regional Transmission Organization
Reardon Reardon Capital, L.L.C.
Receivables Company Kansas City Power & Light Receivables Company
SEC Securities and Exchange Commission
SPP Southwest Power Pool, Inc.
SFAS Statement of Financial Accounting Standards
Strategic Energy Strategic Energy, L.L.C, a subsidiary of KLT Energy Services
WCNOC Wolf Creek Nuclear Operating Corporation
Wolf Creek Wolf Creek Nuclear Operating Station
Worry Free Worry Free, a wholly-owned subsidiary of HSS
5
PART I
ITEM 1. BUSINESS
General
Great Plains Energy Incorporated and Kansas City Power & Light Company are
separate registrants in this combined annual report. The terms "Great Plains
Energy", "Company", "KCP&L" and "consolidated KCP&L" are used throughout this
report. "Great Plains Energy" and the "Company" refer to Great Plains Energy
Incorporated and its consolidated subsidiaries, unless otherwise indicated.
"KCP&L" refers to Kansas City Power & Light Company, and "consolidated KCP&L"
refers to KCP&L and its consolidated subsidiaries.
Great Plains Energy
Great Plains Energy, a Missouri corporation incorporated in 2001, is a public
utility holding company registered with and subject to the regulation of the
Securities and Exchange Commission (SEC) under the Public Utility Holding
Company Act of 1935 (35 Act). Through a corporate restructuring consummated on
October 1, 2001, Great Plains Energy became the parent company and sole owner of
the common stock of KCP&L. This restructuring was implemented through an
agreement and plan of merger whereby KCP&L merged with a wholly-owned subsidiary
of Great Plains Energy, with KCP&L continuing as the surviving company and
wholly-owned subsidiary of Great Plains Energy. Each outstanding share of KCP&L
stock was exchanged for a share of Great Plains Energy stock. As a result, Great
Plains Energy replaced KCP&L as the listed entity on the New York Stock
Exchange, with the trading symbol GXP. In connection with the reorganization,
KCP&L transferred to Great Plains Energy its interest in two wholly-owned
subsidiaries, KLT Inc. and Great Plains Power Incorporated (GPP).
Great Plains Energy does not own or operate any significant assets other than
the stock of its subsidiaries. Great Plains Energy's primary direct subsidiaries
are KCP&L and KLT Inc. KCP&L is described below. KLT Inc. is an investment
company that primarily holds, directly or indirectly, interests in Strategic
Energy, L.L.C. (Strategic Energy), KLT Gas Inc. (KLT Gas), DTI Holdings, Inc.
(Holdings) and affordable housing limited partnerships. Strategic Energy
provides power supply coordination services in several electricity markets
offering retail choice. KLT Gas explores for, develops and produces
unconventional natural gas resources, including coalbed methane properties.
Holdings, through its subsidiaries, provides telecommunications access and
connectivity to secondary and tertiary markets. Holdings and its subsidiaries
are currently in bankruptcy: for further information see Item 3.
Consolidated Kansas City Power & Light Company
KCP&L, a Missouri corporation incorporated in 1922, is an integrated electric
utility company serving retail customers in the states of Missouri and Kansas.
KCP&L has one wholly-owned subsidiary, Home Service Solutions Inc. (HSS). HSS
provides energy-related services to residential and commercial customers through
its subsidiaries.
Recent Developments
In November 2002, Great Plains Energy increased it ownership interest in
Strategic Energy from 83% to 89% for $15.1 million in stock and notes. See Note
9 to the consolidated financial statements.
In December 2001, Holdings and its two subsidiaries filed voluntary petitions
for reorganization under the bankruptcy code. See Note 19 to the consolidated
financial statements for additional discussion of these bankruptcy proceedings.
6
Business Segments of Great Plains Energy and KCP&L
Consolidated KCP&L's sole reportable business segment is KCP&L. Great Plains
Energy, through its direct and indirect subsidiaries, has three reportable
business segments: KCP&L, Strategic Energy and KLT Gas.
For information regarding the revenues, income and assets attributable to the
Company's reportable business segments, see Note 13 to the consolidated
financial statements, which is incorporated by reference. Comparative financial
information and discussion regarding the Company's and KCP&L's reportable
business segments can be found in Management's Discussion and Analysis starting
on page 24.
Regulation - General
Great Plains Energy and its subsidiaries are subject to SEC regulations,
including the 35 Act, on matters such as the structure of utility systems,
transactions among affiliates, acquisitions, business combinations, the issuance
and sale of securities, and engaging in business activities not directly related
to the utility or energy business. Consistent with the requirements under the 35
Act, Great Plains Energy plans to form a service company in early 2003. Unless
specifically exempted, the Company is required to submit reports providing
detailed information concerning the organization, financial structure, and
operations of Great Plains Energy and its subsidiaries. Several proposals
regarding the 35 Act have been introduced in Congress in the past few years;
however, the prospects for legislative reform or repeal are highly uncertain at
this time.
Other regulatory matters affecting KCP&L, Strategic Energy and KLT Gas are
described later in this Item 1 in the discussion on each of these reportable
business segments.
Capital Program and Financing
For information on the Company's and KCP&L's capital program and financial
needs, see Management's Discussion and Analysis, Capital Requirements and
Liquidity section on page 46 and Notes 14 and 15 to the consolidated financial
statements.
KCP&L
KCP&L, headquartered in downtown Kansas City, Missouri, engages in the
generation, transmission, distribution and sale of electricity. KCP&L has
approximately 485,000 customers located in all or portions of 24 counties in
western Missouri and eastern Kansas. Customers included over 425,000 residences,
almost 55,000 commercial firms, and almost 2,500 industrials, municipalities and
other electric utilities. KCP&L's retail revenues averaged 91% of its total
operating revenues over the last three years. Wholesale firm power, bulk power
sales and miscellaneous electric revenues accounted for the remainder of utility
revenues. KCP&L is significantly impacted by seasonality with approximately
one-third of its revenues recorded in the third quarter. KCP&L's total electric
revenues accounted for approximately 54%, 66% and 85% of Great Plains Energy's
consolidated revenues in 2002, 2001 and 2000, respectively.
Regulation
KCP&L is regulated by the Missouri Public Service Commission (MPSC) and The
State Corporation Commission of the State of Kansas (KCC) with respect to retail
rates, accounting matters, standards of service and, in certain cases, the
issuance of securities, certification of facilities and service territories.
KCP&L is classified as a public utility under the Federal Power Act, and
accordingly is subject to regulation by the Federal Energy Regulatory Commission
(FERC). By virtue of its 47% ownership interest in Wolf Creek Nuclear Operating
Station (Wolf Creek), KCP&L is subject to regulation not common to fossil
generating units. Operation of nuclear plants is intensively regulated by the
Nuclear Regulatory Commission (NRC), which has broad power to impose licensing
and safety-related
7
requirements. KCP&L is also subject to the jurisdiction of the SEC under the 35
Act, as described above.
At the end of January 2002, a severe ice storm occurred throughout large
portions of the Midwest, including the greater Kansas City metropolitan area. In
August 2002, the MPSC approved KCP&L's application for an accounting authority
order related to the Missouri jurisdictional portion of the storm costs. The
order allowed KCP&L to defer and amortize $20.1 million, representing the
Missouri impact of the storm, through January 2007. In October 2002, the Staff
of the MPSC concluded a review of the Missouri jurisdictional earnings for KCP&L
and determined that the current rate levels did not warrant further action.
Missouri jurisdictional retail revenues averaged 58% of KCP&L's total retail
revenue over the last three years.
In the second quarter of 2002, the KCC approved the stipulation and agreement
that KCP&L had reached with the Commission staff and the Citizens Utility
Ratepayers Board with regard to treatment of the Kansas portion of the ice storm
costs. Under the stipulation and agreement, KCP&L received a rate moratorium
until 2006 in exchange for KCP&L's agreement to not seek recovery of the $16.5
million expense for the Kansas jurisdictional portion of the storm costs and to
reduce rates by $12 - $13 million in 2003. Additionally, KCP&L agreed to
determine depreciation expense of Wolf Creek using a 60 year life instead of a
40 year life effective January 2003, which results in a reduction of expense by
approximately $8 million in 2003. KCP&L also agreed to file a rate case by May
15, 2006. In December 2002, the KCC approved tariffs implementing the
stipulation and agreement, which resulted in a reduction of $12.4 million in
annual Kansas retail revenues, effective January 1, 2003. Kansas jurisdictional
retail revenues averaged 42% of KCP&L's total retail revenue over the last three
years.
Under the FERC Order 2000, "Regional Transmission Organizations" (FERC Order
2000), KCP&L, as an investor-owned utility, is strongly encouraged to join a
FERC approved Regional Transmission Organization (RTO). RTOs combine regional
transmission operations of utility businesses into a regional organization that
schedules transmission services and monitors the energy market to ensure
regional transmission reliability and non-discriminatory access. During the
first quarter of 2002, the Southwest Power Pool (SPP) and the Midwest
Independent System Operator (MISO) voted to consolidate the two organizations to
create a larger Midwestern RTO, a non-profit organization that will operate in
twenty states and one Canadian province. KCP&L is a member of the SPP. The
consolidation is expected to be completed during the second quarter of 2003 and
has received FERC approval. The FERC has already approved an RTO proposal
submitted by the MISO. Additionally, regulatory approvals would have to be
received from the MPSC and the KCC prior to KCP&L's participation in an RTO.
During 2003, KCP&L expects to make filings with the MPSC and KCC seeking
permission to participate in the RTO resulting from the merger of SPP and MISO.
During February 2003, KCP&L submitted to MISO a conditional application to
joining the RTO resulting from the merger of SPP and MISO.
During the third quarter of 2002, the FERC issued a Notice of Proposed
Rulemaking to Remedy Undue Discrimination through Open Access Transmission
Service and Standard Electricity Market Design. The proposed rulemaking is
designed to establish a single non-discriminatory open access transmission
tariff with a single transmission service that is applicable to all users of the
interstate transmission grid. All public utilities that own, control or operate
interstate transmission facilities would be required to become independent
transmission providers, turn over the operation of their transmission facilities
to an RTO that meets the definition of an independent transmission provider or
contract with an entity that meets the definition of an independent transmission
provider. KCP&L filed comments with the FERC on the proposed rulemaking in
November 2002. The FERC has recently announced that it will issue a white paper
on Standard Electricity Market Design in April 2003 and accept comments on that
paper before issuing a final rule, which is now expected in the third or fourth
8
quarter of 2003. KCP&L believes its participation in the RTO resulting from the
merger of SPP and MISO would fulfill the majority of the requirements of this
proposed rulemaking.
Competition
For years the electric industry was relatively stable, characterized by
vertically integrated electric companies. During recent years however, federal
and state developments aimed at promoting competition resulted in much industry
restructuring. The industry is moving from a fully regulated industry, comprised
of integrated companies that combine generation, transmission and distribution,
to an industry comprised of competitive wholesale generation markets with
continuing regulation of transmission and distribution. However, the pace of
restructuring has slowed significantly due primarily to public and governmental
reactions to issues associated with deregulation efforts in California and the
collapse of its wholesale electric energy market.
At the federal level, the FERC remains committed to the development of wholesale
generation markets. Although its proposal for the development of RTOs to
facilitate markets has been delayed, it has undertaken an initiative to
standardize wholesale markets in the United States. At the state level, concerns
raised by the California experiences have stalled new retail competition
initiatives and slowed the separation of generation from regulated transmission
and distribution assets. As changes in the retail and wholesale markets have
occurred, regulators and legislators in different jurisdictions have not
coordinated these changes. In some cases, actions by one jurisdiction may
conflict with actions by another, creating potentially incompatible obligations
for public utilities. Management believes the transition to competition will
continue, although at a slower pace, particularly at the state level. To date,
Missouri and Kansas have not proposed legislation authorizing retail choice.
Management believes it is too early to predict what the ultimate timing or
effects of changes in the energy industry will be, or how potentially
incompatible regulatory obligations will be resolved. Restructuring issues are
complex and are continually affected by events at the federal and state levels.
However, these changes may result in fundamental alterations in the way
traditional integrated utilities like KCP&L conduct business. Management also
believes that competition for electric generation services has created new risks
and uncertainties in the industry. The uncertainties include future prices of
generation service in the wholesale and retail markets, supply and demand
volatility, and changes in customer profiles that may impact margins on various
electric service offerings. These uncertainties create additional risk for
participants in the industry, including KCP&L, and may result in increased
volatility in operating results.
If Missouri or Kansas were to pass legislation authorizing retail choice, KCP&L
may no longer be able to apply regulated utility accounting principles to some,
or all, of its operations and may be required to write off certain regulatory
assets and liabilities. See Note 4 to the consolidated financial statements for
additional information regarding regulatory assets and liabilities.
Power Supply
KCP&L is a member of the SPP reliability region. As one of the ten regional
members of North American Electric Reliability Council (NERC), SPP is
responsible for maintaining reliability in its area through coordination of
planning and operations. As a member of the SPP, KCP&L must maintain a capacity
margin of at least 12% of its projected peak summer demand. This net positive
supply of capacity and energy is maintained through its generation assets and
capacity and power purchase agreements. The capacity margin insures the
reliability of electric energy in the SPP region in the event of operational
failure of power generating units utilized by the members of the SPP.
KCP&L's maximum system net hourly summer peak load of 3,374 megawatts (MW)
occurred on August 28, 2000. The maximum winter peak load of 2,382 MW occurred
on December 18, 2000.
9
During 2002, the winter peak load was 2,105 MW and the summer peak load was
3,335 MW. The projected peak summer demand for 2003 is 3,447 MW.
KCP&L's generation assets account for 97% of its 4,167 MW of projected 2003
capacity. The remainder of KCP&L's capacity requirements will be met by capacity
purchases net of capacity sales. Additionally, KCP&L has adequate generation
assets to provide service through 2004 and is currently evaluating various
purchase and construction options to meet capacity and energy requirements
through 2010.
The majority of KCP&L's rates do not contain an automatic fuel adjustment clause
to recover or pass through fuel costs to customers without the delay required by
a rate case. Consequently, to the extent the price of coal, coal transportation,
nuclear fuel, nuclear fuel processing or purchased power increased significantly
after the expiration of the contracts described in this section, KCP&L's
earnings may be adversely affected until the increases could be reflected in
rates, which could be an extended period of time.
The principal sources of fuel for KCP&L's electric generation are coal and
nuclear fuel. KCP&L expects to satisfy about 98% of its 2003 fuel requirements
from these sources with the remainder provided by natural gas and oil. The
actual 2002 and estimated 2003 fuel mix and delivered cost per megawatt hour
(MWh) generated are as follows:
Fuel cost (cents) per
Fuel Mix net MWh generated
Estimated Actual Estimated Actual
Fuel 2003 2002 2003 2002
Coal 75 % 75 % 0.92 0.92
Nuclear 23 23 0.41 0.42
Other 2 2 4.85 3.48
Total Generation 100 % 100 % 0.89 0.86
During 2003, KCP&L's generating units, including jointly-owned units, are
projected to burn approximately 11.7 million tons of coal. KCP&L 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 2003 through 2005, will satisfy approximately 95%
of the projected coal requirements for 2003 and 55% for 2004 and 2005. The
remainder of KCP&L's coal requirements will be fulfilled through additional
contracts or spot market purchases. KCP&L has also entered into rail
transportation contracts with various railroads for moving coal from Powder
River Basin to its generating units. These contracts, with expiration dates
ranging from 2005 through 2020, will provide transportation services for all of
the coal KCP&L transports from Powder River Basin to its generating units.
KCP&L owns 47% of Wolf Creek Nuclear Operating Corporation (WCNOC), the
operating company for Wolf Creek, its only nuclear generating unit. Wolf Creek
purchases uranium and has it processed for use as fuel in its reactor. In the
first step, uranium concentrates are chemically converted to uranium
hexafluoride, which is suitable for enrichment. During enrichment, the
fissionable isotope of uranium contained in uranium hexafluoride is concentrated
by removing a large part of the non-fissionable isotope resulting in enriched
uranium hexafluoride suitable for further processing into nuclear fuel pellets.
Finally, the enriched uranium hexafluoride is further processed into ceramic
pellets, which are then encased in metal tubes and arranged into fuel assemblies
in the fabrication process.
The owners of Wolf Creek have on hand or under contract 100% of their uranium
and conversion needs for 2003 and 78% of the uranium and conversion needed for
operation of Wolf Creek through
10
March 2008. The balance is expected to be obtained through the spot market and
contract purchases. The owners also have under contract 100% of Wolf Creek's
uranium enrichment needs for 2003 and 80% of the uranium enrichment required to
operate Wolf Creek through March 2008. The balance of Wolf Creek's enrichment
needs are expected to be obtained through spot market and contract purchases.
Fabrication requirements are under contract through 2024.
Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE) is
responsible for the permanent disposal of spent nuclear fuel. KCP&L pays the DOE
a quarterly fee of one-tenth of a cent for each kilowatt-hour of net nuclear
generation delivered and sold for the future disposal of spent nuclear fuel.
These disposal costs are charged to fuel expense. In 2002, the U.S. Senate
approved Yucca Mountain, Nevada as a long-term geologic repository. The DOE is
currently in the process of preparing an application to obtain the NRC license
to proceed with construction of the repository. Management cannot predict when
this site may be available. 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. Wolf Creek has completed an on-site storage facility that is
designed to hold all spent fuel generated at the plant through the end of its
40-year licensed life in 2025.
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated the
development of low-level radioactive waste disposal facilities. The states of
Kansas, Nebraska, Arkansas, Louisiana and Oklahoma formed the Central Interstate
Low-Level Radioactive Waste Compact (Compact) and selected a site in northern
Nebraska to locate a disposal facility. Nebraska officials opposed the facility
and Nebraska has given notice of its withdrawal from the Compact. Currently, the
low-level waste from Wolf Creek is being processed and disposed of in other
federally-approved sites. See Note 10 to the consolidated financial statements
for additional information regarding low-level waste.
At times, KCP&L purchases power to meet the requirements of its customers.
Management believes KCP&L will be able to obtain enough power to meet its future
demands due to the coordination of planning and operations in the SPP region;
however, price and availability of power purchases may be significantly impacted
during periods of excess demand. KCP&L purchased power, as a percent of MWh
requirements, totaled 5%, 6%, and 11%, in 2002, 2001 and 2000, respectively.
Environmental Matters
KCP&L's operations are subject to regulation by federal, state and local
authorities with regard to air and other environmental matters. The generation
and transmission of electricity produces and requires disposal of certain
hazardous products which are subject to these laws and regulations. In addition
to imposing continuing compliance obligations, these laws and regulations
authorize the imposition of substantial penalties for noncompliance, including
fines, injunctive relief and other sanctions. Failure to comply with these laws
and regulations could have a material adverse effect on KCP&L.
KCP&L operates in an environmentally responsible manner and seeks to use current
technology to avoid and treat contamination. KCP&L regularly conducts
environmental audits designed to ensure compliance with governmental regulations
and to detect contamination. Governmental bodies, however, may impose additional
or more restrictive environmental regulations that could require substantial
changes to operations or facilities at a significant cost. Expenditures to
comply with environmental laws and regulations have not been material in amount
during the periods presented and are not expected to be material in the upcoming
years with the exception of the issues discussed below.
Certain Air Toxic Substances
In July 2000, the National Research Council published its findings of a study
under the Clean Air Act Amendments of 1990 (Clean Air Act) which stated that
power plants that burn fossil fuels, particularly coal, generate the greatest
amount of mercury emissions. As a result, in December 2000, the
11
Environmental Protection Agency (EPA) announced it would propose Maximum
Achievable Control Technology (MACT) requirements by December 2003 to reduce
mercury emissions and issue final rules by December 2004. Until the rules are
proposed, KCP&L cannot predict the likelihood or compliance costs of such
regulations.
Air Particulate Matter
In July 1997, the EPA revised ozone and particulate matter air quality standards
creating a new eight-hour ozone standard and establishing a new standard for
particulate matter less than 2.5 microns (PM-2.5) in diameter. These standards
were challenged in the U. S. Court of Appeals for the District of Columbia
(Appeals Court) that decided against the EPA. Upon further appeal, the U. S.
Supreme Court reviewed the standards and remanded the case back to the Appeals
Court for further review, including a review of whether the standards were
arbitrary and capricious. On March 26, 2002, the Appeals Court issued its
decision on challenges to the 8-hour ozone and PM-2.5 national ambient air
quality standards (NAAQS). This decision denies all state, industry and
environmental groups petitions for review and thus upheld as valid the EPA's new
8-hour ozone and PM-2.5 NAAQS. In so doing, the court held that the EPA acted
consistently with the Clean Air Act in setting the standards at the levels it
chose and the EPA's actions were reasonable and not arbitrary and capricious,
and cited the deference given the EPA's decision-making authority. The court
stated that the extensive records established for each rule supported the EPA's
actions in both rulemakings.
This decision by the Appeals Court removed the last major hurdle to the EPA's
implementation of stricter ambient air quality standards for ozone and fine
particles. The EPA has not yet issued regulations incorporating the new
standards. Until new regulations are issued, KCP&L is unable to estimate the
impact of the new standards. However, the impact on KCP&L and all other
utilities that use fossil fuels could be substantial. In addition, the EPA is
conducting a three-year study of fine particulate ambient air levels. Until this
testing and review period has been completed, KCP&L cannot determine additional
compliance costs, if any, associated with the new particulate regulations.
Nitrogen Oxide
The EPA announced in 1998 regulations implementing reductions in Nitrogen Oxide
(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 KCP&L's Missouri
coal-fired plants by the year 2003.
In December 1998, KCP&L and several other western Missouri utilities filed suit
against the EPA over the inclusion of western Missouri in the NOx reduction
program based on the 1-hour NOx standard. On March 3, 2000, a three-judge panel
of the District of Columbia Circuit of the U.S. Court of Appeals sent the NOx
rules related to Missouri back to the EPA, stating the EPA failed to prove that
fossil plants in the western part of Missouri significantly contribute to ozone
formation in downwind states. On March 5, 2001, the U.S. Supreme Court denied
certiorari, making the decision of the Court of Appeals final.
In February 2002, the EPA issued proposed Phase II NOx SIP Call regulation which
specifically excludes the fossil plants in the western part of Missouri from the
NOx SIP Call. To date, the EPA has not issued its final Phase II NOx SIP Call
regulation. If fossil plants in western Missouri are required to implement NOx
reductions, KCP&L would need to incur significant capital costs, purchase power
or purchase NOx emission allowances. Preliminary analysis of the regulations
indicates that selective catalytic reduction technology, as well as other
changes, may be required for some of the KCP&L units. Currently, KCP&L estimates
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. KCP&L continues to refine
these preliminary estimates and explore alternatives. The ultimate cost of these
regulations, if any, could be significantly different from the amounts estimated
above.
12
Carbon Dioxide
At a December 1997 meeting in Kyoto, Japan, delegates from 167 nations,
including the United States, agreed to a treaty (Kyoto Protocol) that would
require a seven percent reduction in United States carbon dioxide (CO2)
emissions below 1990 levels. Although the United States agreed to the Kyoto
Protocol, the treaty has not been sent to Congress for ratification. The
financial impact on KCP&L of future requirements in the reduction of CO2
emissions cannot be determined until specific regulations are adopted.
Clean Air Legislation
Congress has debated numerous bills that would make significant changes to the
current federal Clean Air Act including potential establishment of nationwide
limits on power plant emissions for several specific pollutants. These bills
have the potential for a significant financial impact on KCP&L through the
installation of new pollution control equipment to achieve compliance with the
new nationwide limits. The financial consequences to KCP&L cannot be determined
until the final legislation is passed. KCP&L will continue to monitor the
progress of these bills.
Proposed Water Use Regulations
In February 2002, the EPA issued proposed rules related to certain existing
power producing facilities that employ cooling water intake structures that
withdraw 50 million gallons or more per day and use 25% or more of that water
for cooling purposes. The proposed rules establish national minimum performance
requirements designed to minimize adverse environmental impact. The EPA must
take final action by August 2003. KCP&L will continue to monitor the progress of
this rulemaking. The impact of these proposed rules has not yet been quantified,
however, KCP&L's generating stations would be affected.
Strategic Energy
Strategic Energy, an 89% indirect subsidiary of Great Plains Energy, provides
power supply coordination services by entering into long-term contracts with its
customers to supply electricity that Strategic Energy purchases under long-term
contracts to manage its customers electricity needs. In return, Strategic Energy
receives an ongoing management fee, which is included in the contracted sales
price for the electricity. Strategic Energy operates in several electricity
markets offering retail choice, including Pennsylvania, California, Ohio, New
York, Massachusetts and Texas. Strategic Energy is targeting expansion into two
additional states in 2003, which would expand its operations into eight of the
sixteen states that offer retail choice. Strategic Energy also provides
strategic planning and consulting services in the natural gas and electricity
markets. Strategic Energy's total revenues accounted for approximately 42%, 28%
and 12% of Great Plains Energy's consolidated revenues in 2002, 2001 and 2000,
respectively.
At December 31, 2002, Strategic Energy provided power supply coordination
services on behalf of approximately 33,100 commercial, institutional and small
manufacturing accounts. Strategic Energy's customer base is very diverse.
Strategic Energy served over 5,200 customers, including numerous Fortune 500
companies, smaller companies, and governmental entities. Based solely on current
signed contracts and expected usage, Strategic Energy anticipates future MWh
sales of 14.0 million, 8.2 million, 5.3 million, and 1.2 million for the years
2003 through 2006, respectively. Strategic Energy expects to also supply
additional MWh sales in these years through growth in existing markets by
re-signing existing customers and signing new customers as well as through
expansion into new markets.
Power Supply
To supply its retail contracts, Strategic Energy purchases long-term blocks of
electricity under forward contracts in fixed quantities at fixed prices from
power suppliers based on projected usage. Strategic Energy does not own any
generation, transmission or distribution facilities. Strategic Energy sells any
13
excess retail supply of electricity back into the wholesale market. The proceeds
from the sale of excess supply of electricity are recorded as a reduction of
purchased power.
In the normal course of business, Great Plains Energy and KLT Inc. enter into
various agreements providing financial or performance assurance to third parties
on behalf of Strategic Energy. Such agreements include, for example, guarantees,
stand-by letters of credit and surety bonds. These agreements are entered into
primarily to support or enhance the creditworthiness otherwise attributed to
Strategic Energy on a stand-alone basis, thereby facilitating the extension of
sufficient credit to accomplish Strategic Energy's intended business purposes.
Strategic Energy enters into forward contracts with multiple suppliers. At
December 31, 2002, Strategic Energy's five largest suppliers under forward
supply contracts represented 69% of the total future committed purchases. In the
event of supplier non-delivery or default, Strategic Energy's results of
operations could be affected to the extent that the cost of replacement power
exceeded the combination of the contracted price with the supplier and the
amount of collateral held by Strategic Energy to mitigate its market risk with
the supplier. Strategic Energy's results of operations could also be affected,
in a given period, if it was required to make a payment upon termination of a
supplier contract to the extent that the contracted price with the supplier
exceeded the market value of the contract. Strategic Energy monitors its
counterparty credit risk by evaluating the credit quality and performance of its
suppliers on a routine basis and by, among other things, adjusting the amount of
collateral required from its suppliers, as part of its risk management policy
and practices.
Regulation
Strategic Energy, as a participant in the wholesale electricity and transmission
markets, is subject to FERC jurisdiction. Additionally, Strategic Energy is
subject to regulation by state regulatory agencies in states where Strategic
Energy has retail customers. Each state has a public utilities commission that
publishes rules related to retail choice. Each state's rules are distinct and
may conflict. These rules do not restrict the amount Strategic Energy can charge
for its services, but can have an impact on Strategic Energy's ability to
profitably serve in any jurisdiction.
During the third quarter of 2002, the FERC issued a Notice of Proposed
Rulemaking to Remedy Undue Discrimination through Open Access Transmission
Service and Standard Electricity Market Design. The proposed rulemaking is
designed to establish a single non-discriminatory open access transmission
tariff with a single transmission service that is applicable to all users of the
interstate transmission grid. Strategic Energy has evaluated the impact of the
proposed rulemaking on its operations and provided comments to the FERC that are
generally supportive of the provisions of the proposal, but suggested some
changes to the proposed rule. The FERC has recently announced that it will issue
a white paper on Standard Electricity Market Design in April 2003 and accept
comments on that paper before issuing a final rule, which is now expected in the
third or fourth quarter of 2003.
Competition
Strategic Energy currently provides retail electricity services in six states
where electricity retail choice has occurred. Strategic Energy has two national
competitors that operate in most or all of the same states in which Strategic
Energy has operations. In addition to these national competitors, Strategic
Energy faces competition in certain markets from deregulated utility affiliates
that have been formed by the host regulated utility to capitalize on retail
choice in their home market territory. Additionally, Strategic Energy, as well
as its other competitors, must compete with the host utility in order to
convince customers to switch away from their service offerings. The principal
methods of competition are price, service and product differentiation. Strategic
Energy competes in all of these areas.
14
KLT Gas
KLT Gas is focused on exploring for, developing, and producing unconventional
natural gas resources, including coalbed methane properties. KLT Gas believes
that unconventional natural gas resources provide an economically attractive
alternative source of supply to meet the growing demand for natural gas in North
America. Additionally, KLT Gas' management team has experience and expertise in
identifying, testing and producing unconventional natural gas properties and, as
a result, it believes its expertise provides a competitive advantage in this
niche of the exploration and production sector. Because it has a longer,
predictable reserve life and lower development cost, management believes
unconventional natural gas exploration is inherently lower risk than
conventional gas exploration.
Although gas prices have been volatile historically, KLT Gas continues to
believe that the long-term future price scenarios for natural gas appear strong.
Environmental concerns, especially air quality, and the increased demand for
natural gas for new electric generating capacity are contributing to this
projected growth in demand.
Regulation
KLT Gas' exploration and production activities are regulated extensively at the
federal, state and local levels including environmental, health and safety
regulations. Regulated matters include permits for discharges of wastewaters and
other substances generated in connection with drilling operations; bonds or
other financial responsibility requirements to cover drilling contingencies and
well plugging and abandonment costs; and reports concerning operations, the
spacing of wells and unitization and pooling of properties. At various times,
regulatory agencies have imposed price controls and limitations on oil and gas
production. In addition, at the federal level, the FERC regulates interstate
transportation of natural gas under the Natural Gas Act. Other regulated matters
include marketing, pricing, transportation and valuation of royalty payments.
Competition
KLT Gas is an independent natural gas company that frequently competes for
reserve acquisitions, exploration leases, licenses, concessions, marketing
agreements, equipment and labor against companies with financial and other
resources substantially larger than KLT Gas' resources. In addition, many of KLT
Gas' competitors have been operating in the same core areas for a much longer
time than KLT Gas or have established strategic long-term positions in
geographic regions in which KLT Gas may seek new entry.
Great Plains Energy and Consolidated KCP&L Employees
At December 31, 2002, Great Plains Energy had 3,046 employees. Consolidated
KCP&L had 2,854 employees, including 1,397 represented by three local unions of
the International Brotherhood of Electrical Workers (IBEW). KCP&L has labor
agreements with Local 1613, representing clerical employees (expires March 31,
2005), with Local 1464, representing outdoor workers (expires January 31, 2006),
and with Local 412, representing power plant workers (expires February 29,
2004).
15
Executive Officers
Year Assumed
An Officer
Name Age Current Position(s) Position
Bernard J. Beaudoin 62 Chairman of the Board, President and Chief Executive 1984
Officer - Great Plains Energy Incorporated
Chairman of the Board and Chief Executive Officer - Kansas
City Power & Light Company
Andrea F. Bielsker 44 Senior Vice President - Finance, Chief Financial Officer and 1996
Treasurer - Great Plains Energy Incorporated
Senior Vice President - Finance, Chief Financial Officer and
Treasurer - Kansas City Power & Light Company
John J. DeStefano 53 President - Great Plains Power Incorporated 1989
President - Home Service Solutions Inc.
President - Worry Free Services, Inc.
William H. Downey 1 57 Executive Vice President - Great Plains Energy Incorporated 2000
President - Kansas City Power & Light Company
Stephen T. Easley 2 47 Vice President - Generation Services - Kansas City Power & 2000
Light Company
William P. Herdegen III 3 48 Vice President - Distribution Operations - Kansas City 2001
Power & Light Company
Jeanie S. Latz 51 Executive Vice President - Corporate and Shared Services and 1991
Secretary - Great Plains Energy Incorporated
Secretary - Kansas City Power & Light Company
Nancy J. Moore 53 Vice President - Customer Services - Kansas City Power & 2000
Light Company
1 Mr. Downey was President of Unicom Energy Services Company Inc. from
1997-1999; and Vice President of Commonwealth Edison Company from 1992-1999.
2 Mr. Easley was Director of Construction at KCP&L from October 1999-April 2000;
Assistant to the Chief Financial Officer at KCP&L in 1999; and Vice President,
Business Development Americas with KLT Power Inc. from March 1996-November 1998.
3 Mr. Herdegen was Chief Operating Officer at Laramore, Douglass and Popham in
2001 and Vice President and Director of Utilities Practice at System Development
Integration, a consulting company, from 1999 to 2001; and held various positions
at Commonwealth Edison during 1976-1999.
16
Year Assumed
An Officer
Name Age Current Position(s) Position
Douglas M. Morgan 60 Vice President - Information Technology and Support 1994
Services - Great Plains Energy Incorporated
Brenda Nolte 4 50 Vice President - Public Affairs - Great Plains Energy 2000
Incorporated
William G. Riggins 44 General Counsel - Great Plains Energy Incorporated 2000
Richard A. Spring 48 Vice President - Transmission Services - Kansas City Power & 1994
Light Company
Andrew B. Stroud, Jr. 5 44 Vice President - Human Resources - Great Plains Energy 2001
Incorporated
Lori A. Wright 6 40 Controller - Great Plains Energy Incorporated 2002
Controller - Kansas City Power & Light Company
Richard M. Zomnir 7 54 President and Chief Executive Officer - Strategic Energy 2003
All of the above individuals have been officers or employees in a responsible
position with the Company for the past five years except as noted in the
footnotes. 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. Gregory J. Orman resigned his position as Executive
Vice President - Corporate Development and Strategic Planning of Great Plains
Energy effective December 31, 2002.
There are no family relationships between any of the executive officers, nor any
arrangement or understanding between any executive officer and any other person
involved in officer selection.
4 Ms. Nolte was Vice President, Corporate Affairs, with AMC Entertainment from
1997-2000.
5 Mr. Stroud was Vice President-Global Human Resources of Evenflo Company, Inc.
in 2000-2001; and held various management positions at PepsiCo during 1991-2000.
6 Ms. Wright served as Assistant Controller for Kansas City Power & Light
Company from 2001 until named Controller in 2002; and was Director of Accounting
and Reporting with American Electric Power Company, Inc. (which acquired Central
& South West) in 2000-2001; and Assistant Controller with Central & South West
Corporation in 1997-2000.
7 Mr. Zomnir founded the predecessor to Strategic Energy in 1991 and has served
as its President and Chief Executive Officer since that time.
17
Available Information
Great Plains Energy's website is www.greatplainsenergy.com, and KCP&L's website
is www.kcpl.com. Information contained on the companies' websites is not
incorporated herein except to the extent specifically so indicated. Both
companies make available, free of charge, on or through their websites their
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act as soon as reasonably practicable
after the companies electronically file such material with, or furnish it to,
the SEC. In addition, the companies make available on or through their websites
all other reports, notifications and certifications filed electronically with
the SEC.
ITEM 2. PROPERTIES
KCP&L Generation Resources
KCP&L's generating facilities consist of the following:
Unit Year Completed Estimated 2003 Primary Fuel
MW Capacity
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 137 Gas
Hawthorn 6 (d) 1997 132 Gas
Hawthorn 5 (e) 1969 565 Coal
Montrose 3 1964 176 Coal
Montrose 2 1960 164 Coal
Montrose 1 1958 170 Coal
Peak Load Hawthorn 8 (d) 2000 77 Gas
Hawthorn 7 (d) 2000 77 Gas
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
West Gardner 1, 2, 3, and 4 (f) 2003 308 Gas
Osawatomie (f) 2003 77 Gas
Total 4,043
(a) Wolf Creek is one of KCP&L's principal generating facilities and has the
lowest fuel cost of any of its generating facilities.
(b) KCP&L's share of a 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. The station returned to commercial operation on June 20, 2001,
with a new boiler, air quality control equipment and an uprated turbine.
(f) Combustion turbines currently under construction. Completion is scheduled
for the spring and summer of 2003.
KCP&L owns the Hawthorn Station (Jackson County, Missouri), Montrose Station
(Henry County, Missouri), Northeast Station (Jackson County, Missouri), West
Gardner Station (Johnson County, Kansas) and Osawatomie (Miami County, Kansas).
KCP&L 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.
18
KCP&L Transmission and Distribution Resources
KCP&L's electric transmission system interconnects with systems of other
utilities to permit bulk power transactions with other electricity suppliers.
KCP&L owns approximately 1,700 miles of transmission lines, approximately 9,000
miles of overhead distribution lines, and approximately 3,500 miles of
underground distribution lines in Missouri and Kansas. KCP&L has all the
franchises necessary to sell electricity within the territories from which
substantially all of its gross operating revenue is derived. KCP&L's
distribution and transmission systems are continuously monitored for adequacy to
meet customer needs. Management believes the current systems are adequate to
serve its customers.
KCP&L General
KCP&L's principal plants and properties, insofar as they constitute real estate,
are owned in fee simple. Certain other facilities are located on premises held
under leases, permits or easements. KCP&L's 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 KCP&L, 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.
KLT Gas
KLT Gas leases mineral rights on properties located in Colorado, Texas, Wyoming,
Kansas and Nebraska. At December 31, 2002, these leased properties cover
approximately 255,000 undeveloped acres. The testing of this acreage is in
accordance with KLT Gas' exploration plan and capital budget. The timing of the
testing may vary from current plans based upon obtaining the required
environmental and regulatory approvals and permits and future changes in market
conditions. KLT Gas continues to seek and identify new lease prospects in
addition to its existing portfolio of properties.
Item 3. Legal Proceedings
DTI Bankruptcy
On December 31, 2001, a subsidiary of KLT Telecom, DTI Holdings, Inc. (Holdings)
and its subsidiaries, Digital Teleport, Inc. (Digital Teleport) and Digital
Teleport of Virginia, Inc., filed separate voluntary petitions in Bankruptcy
Court for the Eastern District of Missouri for reorganization under Chapter 11
of the U.S. Bankruptcy Code in Case Nos. 01-54369-399, 01-54370-399 and
01-54371-399. These cases have been consolidated for joint procedural
administration. Holdings and its two subsidiaries are collectively called "DTI".
The filings enable DTI to continue to conduct its business operations while
attempting to resolve its financial obligations. KLT Telecom is a creditor in
the proceedings, and KCP&L has an immaterial trade claim in the Digital Teleport
bankruptcy proceedings. KLT Telecom agreed to provide up to $5 million in
debtor-in-possession financing (DIP Loan) to Digital Teleport for a term of 18
months during the bankruptcy process if it achieves certain financial goals. The
Bankruptcy Court approved the DIP Loan on February 18, 2002, but no advances
have been made under the DIP Loan to date.
In December 2002, Digital Teleport entered into an agreement to sell
substantially all of its assets (Asset Sale) to CenturyTel Fiber Company II, LLC
(Century Tel), a nominee of CenturyTel, Inc. (Asset Purchase Agreement). The
Asset Sale was approved by the Bankruptcy Court in February 2003, but the Asset
Purchase Agreement contains conditions to closing which include, among other
items, the receipt of all necessary regulatory approvals, which must either be
satisfied or waived by July 15, 2003.
19
In the Digital Teleport bankruptcy case, KLT Telecom, KLT Inc., KCP&L, Great
Plains Energy, Digital Teleport and the Official Unsecured Creditors Committee
of Digital Teleport entered into a Settlement Agreement as of December 23, 2002
(Teleport Settlement Agreement). The Teleport Settlement Agreement, if approved
by the Bankruptcy Court, resolves all material issues and disputes among the
parties to that agreement. The Teleport Settlement Agreement does not resolve
any claims that Holdings or its creditors may have against the Company; however,
as discussed below, settlement discussions have commenced in the Holdings
bankruptcy case. Digital Teleport and Digital Teleport of Virginia have prepared
a Chapter 11 plan (Chapter 11 Plan) and disclosure statement reflecting the
Asset Sale and the terms of the Teleport Settlement Agreement and expect that a
confirmation hearing will be held by the Bankruptcy Court in May 2003. The
Chapter 11 Plan contemplates that Digital Teleport and Digital Teleport of
Virginia will be liquidated after distribution of those companies' assets to
their creditors pursuant to the Chapter 11 Plan and the Teleport Settlement
Agreement.
In an objection to a motion by Digital Teleport for an extension of time in
which to propose a Chapter 11 plan, the largest creditor of Holdings (the
Creditor) asserted that Holdings, Digital Teleport and their creditors have
claims against KLT Telecom, KLT Inc., KCP&L and Great Plains Energy based on
theories of breach of contract, fraudulent conveyance, recharacterization of
debt, subordination and breach of fiduciary duty. Among other things, the
Creditor asserted that certain tax benefits should have been paid to Holdings
and Digital Teleport, rather than to KLT Telecom as provided in the October 1,
2001, Great Plains Energy tax allocation agreement. The Creditor has not
otherwise pursued these claims at this time, and the Company believes that it
has meritorious defenses to these claims. Further, Holdings, the principal
creditors of Holdings (including the Creditor), KLT Telecom, KLT Inc., KCP&L,
and Great Plains Energy are in the process of negotiating a separate settlement
agreement which, if finalized and approved by the Bankruptcy Court, is
anticipated to resolve the Holdings bankruptcy case and any claims that might be
asserted in the Holdings bankruptcy case against the Company, and to provide
payment to the creditors of Holdings from a portion of the proceeds KLT Telecom
otherwise would receive from the Asset Sale. If the separate settlement
agreement is finalized, it is anticipated that the Chapter 11 Plan will be
modified to add Holdings as a proponent and to include the terms of the Holdings
Settlement Agreement. For further information regarding the DTI bankruptcy
proceedings, see Note 19 to the consolidated financial statements, which is
incorporated by reference.
Central Interstate Low-Level Radioactive Waste Compact Litigation
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 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 provided most of the pre-construction
financing for this project. KCP&L's net investment in the Compact was $7.4
million at December 31, 2002 and 2001.
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 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. After the license denial, WCNOC and others
filed a lawsuit in federal court contending Nebraska officials acted in bad
faith while handling the license application. In September 2002, the U.S.
District Court Judge presiding over the Central Interstate Compact Commission's
federal "bad faith" lawsuit against the State of Nebraska issued his decision in
the case finding clear evidence that the State of Nebraska acted in bad faith in
processing the license application for a low-level radioactive waste disposal
site in Nebraska and rendered a judgment in the amount of $151.4 million against
the state. The state has appealed this decision to the 8th Circuit, U.S. Court
of Appeals. Based on the favorable outcome of this trial, in KCP&L's opinion,
there is a greater possibility of reversing the state's license denial once the
decision in this case is final.
20
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2002, no matter was submitted to a vote of security
holders through the solicitation of proxies or otherwise for either Great Plains
Energy or KCP&L.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Great Plains Energy
Great Plains Energy common stock is listed on the New York Stock Exchange under
the symbol GXP. Prior to October 1, 2001, the Company was listed on the New York
Stock Exchange under the symbol KLT. At December 31, 2002, Great Plains Energy's
common stock was held by 17,131 shareholders of record. Information relating to
market prices and cash dividends on Great Plains Energy's common stock is set
forth below:
Common Stock Price Range Common Stock
2002 2001 Dividends Declared
Quarter High Low High Low 2003 2002 2001
First $26.98 $24.40 $27.56 $23.60 $ 0.415 $0.415 $0.415
Second 25.07 20.35 26.75 23.63 0.415 0.415
Third 22.45 15.69 26.13 23.70 0.415 0.415
Fourth 23.59 17.66 27.35 23.19 0.415 0.415
Regulatory Restrictions
Under the 35 Act, Great Plains Energy and KCP&L can pay dividends only out of
retained or current earnings, unless authorized to do so by the SEC. Under
stipulations with the MPSC and KCC, Great Plains Energy and KCP&L have committed
to maintain consolidated common equity of not less than 30% and 35%,
respectively. In their application under the 35 Act to establish a registered
holding company structure, Great Plains Energy and KCP&L committed to maintain a
consolidated common equity capitalization of at least 30%.
Dividend Restrictions
Great Plains Energy's Articles of Incorporation contain certain restrictions on
the payment of dividends on Great Plains Energy's common stock in the event
common equity falls to 25% of total capitalization. If preferred stock dividends
are not declared and paid when scheduled, Great Plains Energy 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.
Issuance of Unregistered Securities
On November 7, 2002, Great Plains Energy entered into an Agreement and Plan of
Merger (Agreement) with [OBJECT OMITTED] (ELC), Gregory J. Orman and Mark R.
Schroeder (ELC shareholders) and Innovative Energy Consultants Inc. (IEC), a
wholly-owned subsidiary of Great Plains Energy. The ELC Shareholders received
$15.1 million in merger consideration. As part of the merger consideration, on
November 7, 2002, Great Plains Energy issued 387,596 additional shares of its
common stock to the ELC Shareholders. The Agreement valued such shares at
approximately $8 million.
21
The issuance of the common stock by Great Plains Energy to the ELC Shareholders
is a transaction not involving a public offering, and is exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
The facts relied on to make this exemption available include, without
limitation, the following: (i) the offering did not involve any general
solicitation or advertising, but was limited to the two ELC Shareholders; (ii)
the offering was made to the ELC Shareholders solely in connection with the
acquisition and merger of ELC into IEC; (iii) the number of common shares issued
constituted approximately 0.6% of the then-issued and outstanding shares of
Great Plains Energy; and (iv) the representations and covenants of the ELC
Shareholders contained in the Agreement regarding, among other things,
investment intent, status as accredited investors, access to information and
restrictions on transferring the common stock.
KCP&L
Great Plains Energy holds all the outstanding shares of KCP&L's common stock.
Under the indenture relating to KCP&L's 8.3% Junior Subordinated Deferrable
Interest Debentures, due 2037 (Debentures), which are held by KCP&L Financing I,
KCP&L may not declare or pay any dividends on any shares of its capital stock if
at the time (i) there is an event of default (as defined in the indenture), (ii)
KCP&L is in default with respect to its payment of any obligations under its
guarantee of preferred securities issued by KCP&L Financing I, or (iii) KCP&L
has elected to defer payments of interest on the Debentures.
Equity Compensation Plan
Great Plains Energy has one equity compensation plan which authorizes the
issuance of Great Plains Energy common stock. The equity compensation plan has
been approved by the shareholders of Great Plains Energy. The following table
provides information, as of December 31, 2002, regarding the number of common
shares to be issued upon exercise of outstanding options, warrants and rights,
their weighted average exercise price, and the number of shares of common stock
remaining available for future issuance under the equity compensation plan. The
table excludes shares issued or issuable under Great Plains Energy's defined
contribution savings plans.
Number of securities
remaining available
for future issuance
Number of securities to Weighted average under equity
be issued upon exercise exercise price of compensation
of outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
Equity compensation plans
approved by security holders 541,500 (1) $25.21 (2) 2,135,000
Equity compensation plans not
approved by security holders - - -
Total 541,500 (1) $25.21 (2) 2,135,000
(1) Includes 144,500 performance shares and options for 397,000 shares of Great
Plains Energy common stock outstanding at December 31, 2002.
(2) The 144,500 performance shares have no exercise price and therefore are not
reflected in the weighted average exercise price.
22
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31 2002 (b) 2001 (b) 2000 (b) 1999 1998
(dollars in millions except per share amounts)
Great Plains Energy (a)
Operating revenues $ 1,862 $ 1,462 $ 1,116 $ 921 $ 973
Income (loss) before extraordinary
item and cumulative effect of
changes in accounting principles (c) $ 129 $ (40) $ 129 $ 82 $ 121
Net income (loss) $ 126 $ (24) $ 159 $ 82 $ 121
Basic and diluted earnings (loss) per
common share before extraordinary
item and cumulative effect of changes in
accounting principles $ 2.04 $ (0.68) $ 2.05 $ 1.26 $ 1.89
Basic and diluted earnings (loss) per
common share $ 1.99 $ (0.42) $ 2.54 $ 1.26 $ 1.89
Total assets at year end $ 3,507 $ 3,464 $ 3,294 $ 2,990 $ 3,012
Total mandatorily redeemable preferred
securities $ 150 $ 150 $ 150 $ 150 $ 150
Total redeemable preferred stock and long-
term debt (including current maturities) $ 1,189 $ 1,195 $ 1,136 $ 815 $ 913
Cash dividends per common share $ 1.66 $ 1.66 $ 1.66 $ 1.66 $ 1.64
Ratio of earnings to fixed charges 2.85 (d) 3.02 2.38 2.98
Consolidated KCP&L (a)
Operating revenues $ 1,071 $ 1,351 $ 1,116 $ 921 $ 973
Income before extraordinary
item and cumulative effect of
changes in accounting principles (c) $ 99 $ 104 $ 129 $ 82 $ 121
Net income $ 96 $ 120 $ 159 $ 82 $ 121
Total assets at year end $ 3,139 $ 3,146 $ 3,294 $ 2,990 $ 3,012
Total mandatorily redeemable preferred
securities $ 150 $ 150 $ 150 $ 150 $ 150
Total redeemable preferred stock and long-
term debt (including current maturities) $ 1,170 $ 1,164 $ 1,136 $ 815 $ 913
Ratio of earnings to fixed charges 2.80 2.11 3.02 2.38 2.98
(a) Great Plains Energy's consolidated financial statements include
consolidated KCP&L, KLT Inc., GPP and IEC. KCP&L's consolidated financial
statements include its wholly owned subsidiary HSS. In addition, KCP&L's
consolidated results of operations include KLT Inc. and GPP for all periods
prior to the October 1, 2001 formation of the holding company.
(b) See Management's Discussion for explanations of 2002, 2001 and 2000 results.
(c) In 2002, this amount is before the $3.0 million cumulative effect of a
change in accounting principle. For further information, see Note 6 to the
consolidated financial statements. In 2001, this amount is before the $15.9
million after tax extraordinary gain on early extinguishment of debt. For
further information, see Note 19 to the consolidated financial statements.
In 2000, this amount is before the $30.1 million after tax cumulative
effect of changes in pension accounting. For further information, see Note
7 to the consolidated financial statements.
(d) An $80.0 million deficiency in earnings caused the ratio of earnings to
fixed charges to be less than a one-to-one coverage. A $195.8 million net
write-off before income taxes related to the bankruptcy filing of DTI was
recorded in 2001.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of
Operations that follow are a combined presentation for Great Plains Energy and
KCP&L, both registrants under this filing. The discussion and analysis by
management focuses on those factors that had a material effect on the financial
condition and results of operations of the registrants during the periods
presented. It should be read in conjunction with the accompanying consolidated
financial statements and related notes.
Great Plains Energy Incorporated
Effective October 1, 2001, Great Plains Energy became the holding company of
KCP&L, GPP and KLT Inc. As a diversified energy company, its reportable business
segments include:
o KCP&L, an integrated electric utility in the states of Missouri and Kansas,
provides reliable, affordable electricity to retail customers;
o Strategic Energy provides power supply coordination services in several
electricity markets offering retail choice, including Pennsylvania,
California, Ohio, New York, Massachusetts and Texas; and
o KLT Gas explores for, develops and produces unconventional natural gas
resources.
Effective October 1, 2001, all outstanding KCP&L shares were exchanged one for
one for shares of Great Plains Energy. The Great Plains Energy trading symbol
"GXP" replaced the KCP&L trading symbol "KLT" on the New York Stock Exchange.
During 2002, the Company's management revised its corporate business strategy.
The goal is to become a premier diversified energy company that achieves annual
growth in earnings per share in a financially disciplined manner. To achieve
this goal, Great Plains Energy intends to focus on its three reportable segments
of business:
o Stressing operational excellence in the utility operations of KCP&L;
o Expanding Strategic Energy's business model into new markets; and
o Developing KLT Gas into a leading unconventional natural gas exploration
company.
Critical Accounting Policies
Pensions
KCP&L incurs significant costs in providing non-contributory defined pension
benefits. The costs are developed from actuarial valuations that are dependent
upon numerous factors resulting from actual plan experience and assumptions of
future plan experience.
Pension costs are impacted by actual employee demographics (including age,
compensation levels and employment periods), the level of contributions made to
the plan, earnings on plan assets and plan amendments. In addition, pension
costs are also affected by changes in key actuarial assumptions, including
anticipated rates of return on plan assets and the discount rates used in
determining the projected benefit obligation and pension costs.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 87,
"Employers' Accounting for Pensions", changes in pension obligations associated
with these factors may not be immediately recognized as pension costs on the
income statement. KCP&L generally recognizes gains and losses by amortizing over
a five-year period the rolling five-year average of unamortized gains and
losses. The key assumptions used in developing our 2002 pension disclosures were
a 6.75% discount
24
rate, a 9.0% expected return on plan assets and a 4.1% compensation rate
increase. These are consistent with the prior years' assumptions except that the
discount rate was 7.25% and 8.00% in 2001 and 2000, respectively.
The following chart reflects the sensitivities associated with a 0.5 percent
increase or decrease in certain actuarial assumptions. Each sensitivity reflects
an evaluation of the change based solely on a change in that assumption.
Impact on Impact on
Projected Impact on 2002
Change in Benefit Pension Pension
Actuarial assumption Assumption Obligation Liability Expense
(millions)
Discount rate 0.5% increase $ (20.2) $ (7.6) $ (1.0)
Rate of return on plan assets 0.5% increase - - (1.8)
Discount rate 0.5% decrease 20.6 9.4 1.1
Rate of return on plan assets 0.5% decrease - - 1.8
In selecting an assumed discount rate, fixed income security yield rates for
30-year Treasury bonds and corporate high-grade bond yields are considered. The
assumed rate of return on plan assets is the weighted average of long-term
returns forecast for the type of investments held by the plan.
In 2002, KCP&L recorded non-cash expense of approximately $5.5 million, a $17.7
million increase from the previous year. Pension expense for 2003 is expected to
be approximately $18.1 million, an increase of $12.6 million over 2002. The
increase is due primarily to lower returns on plan assets.
KCP&L's pension plan assets are primarily made up of equity and fixed income
investments. The market value of the plan assets has been affected by the sharp
declines in equity markets since the third quarter of 2000. During 2001, plan
assets declined in value by approximately $170 million. During 2002, the plan
continued to experience losses as plan assets declined an additional $71 million
in market value. At December 31, 2002, the fair value of pension plan assets was
$324.2 million.
As a result of the decline in the equity markets and lower discount rates in
2002, the total Accumulated Benefit Obligation (ABO) of the plans exceeded the
fair value of plan assets at December 31, 2002. As prescribed by SFAS No. 87,
KCP&L has recorded a minimum pension liability of $63.1 million. This was offset
by an intangible asset of $19.2 million, the balance of unamortized prior
service costs, with the remaining $43.9 million charged to common equity through
Other Comprehensive Income (OCI). The impact on OCI, net of deferred tax, was
$26.8 million. However, there was no impact on net income. The impact on OCI
could reverse in future periods to the extent the fair value of trust assets
exceeds the ABO.
Absent a substantial recovery in the equity markets, pension costs, cash funding
requirements and the additional pension liability could substantially increase
in future years.
Regulatory Matters
As a regulated utility, KCP&L is subject to the provisions of SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation". Accordingly, KCP&L
has recorded assets and liabilities on its balance sheet resulting from the
effects of the ratemaking process, which would not be recorded under generally
accepted accounting principles (GAAP) if KCP&L was not regulated. Regulatory
assets represent incurred costs that have been deferred because they are
probable of future recovery in customer rates. Regulatory liabilities generally
represent probable future reductions in revenue or refunds to customers. At
December 31, 2002, KCP&L's regulatory assets and liabilities totaled $128.9
25
million and $103.6 million, respectively. KCP&L's continued ability to meet the
criteria for application of SFAS No. 71 may be affected in the future by
competitive forces and restructuring in the electric industry. In the event that
SFAS No. 71 no longer applied to all, or a separable portion of KCP&L's
operations, the related regulatory assets and liabilities would be written off
unless an appropriate regulatory recovery mechanism is provided. Additionally,
these factors could result in an impairment of utility plant assets as
determined pursuant to SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-lived Assets." See Note 4 to the consolidated financial statements for a
discussion of regulatory assets and liabilities.
At the end of January 2002, a severe ice storm occurred throughout large
portions of the Midwest, including the greater Kansas City metropolitan area. In
the second quarter of 2002, the KCC approved the stipulation and agreement that
KCP&L had reached with the Commission staff and the Citizens Utility Ratepayers
Board with regard to treatment of the Kansas portion of the ice storm costs.
Under this stipulation and agreement, KCP&L received a rate moratorium until
2006 in exchange for KCP&L's agreement to not seek recovery of the $16.5 million
expense for the Kansas jurisdictional portion of the storm costs and reduce
rates by $12 - $13 million in 2003. Additionally, KCP&L agreed to determine
depreciation expense of Wolf Creek using a 60 year life instead of a 40 year
life effective January 2003, which results in a reduction of expense by
approximately $8 million in 2003. KCP&L also agreed to file a rate case by May
15, 2006. In December 2002, the KCC approved tariffs implementing the
stipulation and agreement, which resulted in a reduction of $12.4 million in
annual Kansas retail revenues, effective January 1, 2003.
Effective August 2002, the MPSC approved KCP&L's application for an accounting
authority order related to the Missouri jurisdictional portion of the storm
costs. The order allows KCP&L to defer and amortize $20.1 million, representing
the Missouri impact of the storm, through January 2007. The amortization began
in September 2002 and totaled $1.5 million in 2002. KCP&L will amortize
approximately $4.6 million annually for the remainder of the amortization
period. In October 2002, the Staff of the MPSC concluded its review of the
Missouri jurisdictional earnings for KCP&L and determined that the current rate
levels did not warrant action.
Asset Impairment, including Goodwill and Other Intangible Assets
Long-lived assets and intangible assets subject to amortization are periodically
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable as prescribed under
SFAS No. 144. SFAS No. 144 requires that if the sum of the undiscounted expected
future cash flows from an asset is less than the carrying value of the asset, an
asset impairment must be recognized in the financial statements. The amount of
impairment recognized is calculated by subtracting the fair value of the asset
from the carrying value of the asset. The adoption of SFAS No. 144 had no impact
on Great Plains Energy and consolidated KCP&L.
Goodwill is tested for impairment at least annually and more frequently when
indicators of impairment exist as prescribed under SFAS No. 142, "Goodwill and
Other Intangible Assets". SFAS No. 142 requires that if the fair value of a
reporting unit is less than its carrying value including goodwill, the implied
fair value of the reporting unit goodwill must be compared with its carrying
value to determine the amount of impairment. See Note 6 to the consolidated
financial statements for information regarding the impact of adopting SFAS No.
142 on goodwill and goodwill amortization.
Goodwill of $15.9 million was recorded in conjunction with KLT Energy Services'
indirect ownership acquisitions of Strategic Energy from 1999 through 2001. At
December 31, 2001, the unamortized balance of goodwill associated with Strategic
Energy was $14.1 million. During 2002, additional goodwill of $12.0 million was
recorded at IEC related to its 6% indirect ownership acquisition of Strategic
Energy. Strategic Energy's transition and 2002 annual impairment tests have been
completed and there was no impairment of the Strategic Energy goodwill. At
December 31, 2002, the
26
unamortized balance of Strategic Energy goodwill on Great Plains Energy's
balance sheet was $26.1 million.
Goodwill has been recorded by R.S. Andrews Enterprises, Inc. (RSAE) at various
times as it purchased property and businesses. At December 31, 2002, the
unamortized balance of RSAE goodwill was $20.0 million.
RSAE's goodwill was reviewed for impairment as of January 1, 2002, as required
under the implementation provisions of SFAS No. 142. Based upon the results of a
third party study and budgeted 2002 revenue, RSAE recorded a $3.0 million
impairment of goodwill. The impairment is reflected as a cumulative effect to
January 1, 2002, of a change in accounting principle.
During September 2002, the Company conducted its first annual impairment test on
RSAE's goodwill based on a discounted cash flow model. The model assumed a
discount rate of 6.8% and sales growth of 3% for five years with revenues stable
thereafter. The model indicated no additional impairment had occurred.
Management believes that the accounting estimates related to impairment analyses
required under SFAS No. 142 and SFAS No. 144 are critical accounting estimates.
The estimates are highly susceptible to change from period to period because it
requires company management to make assumptions about future sales, operating
costs and discount rates over an indefinite life. Historically, actual margins
and volumes have fluctuated and, to a great extent, fluctuations are expected to
continue. The estimates of future margins are based upon internal budgets, which
incorporate estimates of customer growth, business expansion and weather trends,
among other items.
Related Party Transactions
In November 2002, the Board of Directors of the Company approved a merger of ELC
into IEC. Gregory J. Orman, former Executive Vice President - Corporate
Development and Strategic Planning of the Company was the majority shareholder
of ELC and received $10.1 million in Company common stock and a note. See Note 9
to the consolidated financial statements.
In September 2000, KLT Energy Services exercised an option to purchase shares of
Bracknell Corporation (Bracknell) common stock owned by Reardon Capital, L.L.C.
(Reardon) and received a majority of the shares in 2000 and a warrant to
purchase the remainder. In May 2001, KLT Energy Services exercised the warrant
for 274,976 shares and sold 278,600 shares in June 2001. In November 2001,
Bracknell common stock ceased trading and as a result KLT Energy Services wrote
off its remaining investment in Bracknell. Gregory J. Orman, former Executive
Vice President - Corporate Development and Strategic Planning of Great Plains
Energy and former President and CEO of KLT Inc., owned 55% of the membership
interests of Reardon and approximately 1% of Bracknell. See Note 9 to the
consolidated financial statements.
27
Great Plains Energy Results of Operations
2002 2001 2000
(millions)
Operating revenues $1,861.9 $1,461.9 $1,115.9
Fuel (159.7) (163.8) (153.1)
Purchased power - KCP&L (46.2) (65.2) (105.7)
Purchased power - Strategic Energy (685.4) (329.0) (84.4)
Revenues, net of
fuel and purchased power 970.6 903.9 772.7
Other operating expenses (527.4) (516.5) (447.1)
Depreciation and depletion (151.6) (158.8) (132.4)
Gain (loss) on property 0.1 (171.4) 99.1
Operating income 291.7 57.2 292.3
Loss from equity investments (1.2) (0.4) (19.4)
Non-operating income (expenses) (23.9) (29.5) (15.4)
Interest charges (89.1) (103.3) (75.7)
Income taxes (48.3) 35.9 (53.2)
Early extinguishment of debt - 15.9 -
Cumulative effects of changes
in accounting principles (3.0) - 30.1
Net income (loss) 126.2 (24.2) 158.7
Preferred dividends (1.7) (1.6) (1.6)
Earnings (loss) available for common stock $ 124.5 $ (25.8) $ 157.1
2002 compared to 2001
Great Plains Energy's 2002 earnings, as detailed in the table below, increased
to $124.5 million, or $1.99 per share, from a loss of $25.8 million, or $(0.42)
per share, compared to the same period of 2001.
Earnings (Loss) Per
Earnings (Loss) Great Plains Energy Share
2002 2001 2000 2002 2001 2000
(millions)
KCP&L $102.9 $ 96.8 $ 56.4 $ 1.64 $ 1.57 $ 0.91
Subsidiary operations (4.2) (5.5) (13.5) (0.06) (0.09) (0.22)
Cumulative effect of changes
in accounting principles (3.0) - 30.1 (0.05) - 0.49
Consolidated KCP&L 95.7 91.3 73.0 1.53 1.48 1.18
Strategic Energy 29.7 21.8 5.9 0.48 0.35 0.09
KLT Gas - 14.3 79.2 - 0.23 1.28
Other non-regulated operations (0.9) (169.1) (1.0) (0.02) (2.74) (0.01)
Earnings excluding extraordinary item 124.5 (41.7) 157.1 1.99 (0.68) 2.54
Early extinguishment of debt - 15.9 - - 0.26 -
Great Plains Energy $124.5 $(25.8) $157.1 $ 1.99 $(0.42) $ 2.54
KCP&L's increase in earnings is the result of warmer summer 2002 weather
compared to 2001, continued load growth and a 40% increase in wholesale MWh
sales, which combined with other net positive impacts of the return to service
of Hawthorn No. 5 in mid-2001 to more than offset increased expenses. The
increased expenses included the January 2002 ice storm costs and increased
administrative and general expenses primarily from increased pension expenses.
28
Strategic Energy's earnings increased $22.9 million, excluding earnings during
2001 of $15.0 million from the sale of power purchased from one supplier under
wholesale contracts that expired at the end of 2001. The increase is due to
continued growth in retail electric sales resulting from increases in customer
accounts and MWh's served. This was partially offset by increased salaries and
benefits and an increase in income taxes as a result of increased sales in
states with higher income tax rates for the current year.
During 2002, KLT Gas focused on the acquisition of additional leased acreage and
the testing and development of several unconventional natural gas properties.
KLT Gas' earnings in 2001 reflect the $12.0 million after tax gain on the sale
of its 50% equity ownership in Patrick KLT Gas, LLC.
Other non-regulated operations included, among other things, a $3.8 million
increase in earnings primarily due to lower reductions in affordable housing
limited partnerships in 2002 compared to 2001. Additionally, 2001 reflects
$173.8 million related to both DTI operating losses incurred in 2001 and the
$140.0 million net write-off following DTI's bankruptcy filings at the end of
2001. As a result of DTI's filing for bankruptcy protection, DTI is not included
in 2002 results of operations.
The 2002 cumulative effect of changes in accounting principles reflects RSAE's
write-down of goodwill due to the adoption of SFAS No. 142. In 2001, prior to
KLT Telecom's purchase of a majority ownership in DTI, DTI completed a tender
offer for 50.4% of its outstanding senior discount notes. This transaction
resulted in a $15.9 million extraordinary gain on the early extinguishment of
debt.
2001 compared to 2000
Great Plains Energy's 2001 earnings decreased from $157.1 million or $2.54 per
share in 2000, to a loss of $25.8 million, or $(0.42) per share.
KCP&L's increase in earnings was primarily the result of the significant net
positive impacts of the return to service of Hawthorn No. 5 in mid-2001. A
significant reduction in purchased power expense, especially in the summer
months, combined with reduced fuel cost per MWh generated more than offset
increased fuel costs primarily due to an increase in MWh's generated and
increased operating expenses including depreciation and interest charges. KCP&L
recorded $12.7 million of income taxes in 2000 for a proposed Internal Revenue
Service (IRS) adjustment related to corporate-owned life insurance (COLI).
Additionally, subsidiary operations in 2000 included a $12.2 million write-down
of the investment in RSAE.
Strategic Energy's earnings increased $15.9 million primarily due to growth in
retail electric sales and higher earnings during 2001 than in 2000 on wholesale
sales of the power supplied under wholesale contracts, particularly during the
summer months of 2001.
KLT Gas' earnings decreased $64.9 million primarily due to the sale in late 2000
of producing natural gas properties for an after tax gain of $68.0 million. The
2000 gain and the loss of gas production revenue were partially offset by the
$12.0 million after tax gain on KLT Gas' 2001 sale of its 50% equity ownership
in Patrick KLT Gas, LLC.
Other non-regulated operations included $173.8 million related to both DTI
operating losses in 2001 and the $140.0 million net write-off following DTI's
bankruptcy filing at the end of 2001 partially offset by $9.1 million of equity
losses in DTI in 2000. Also included was a $6.7 million decrease primarily
attributable to recording more reductions in affordable housing limited
partnerships in 2001 than 2000.
In 2001, prior to KLT Telecom's purchase of majority ownership in DTI, DTI
completed a tender offer for 50.4% of its outstanding senior discount notes.
This transaction resulted in a $15.9 million extraordinary gain on the early
extinguishment of debt. The cumulative effect to January 1, 2000,
29
reflects KCP&L's change in methods of amortizing unrecognized net gains and
losses and determination of expected return related to its accounting for
pension expense.
For further discussion regarding each segment's results of operations, see its
respective section below.
Consolidated KCP&L
The following discussion of consolidated KCP&L results of operations includes
KCP&L, an integrated electric utility and HSS, an unregulated subsidiary of
KCP&L. References to KCP&L, in the discussion that follows, reflect only the
operations of the integrated electric utility. The discussion excludes the
results of operations for GPP and KLT Inc. and subsidiaries, which were
transferred to Great Plains Energy on October 1, 2001.
Consolidated KCP&L Business Overview
As an integrated electric utility, KCP&L engages in the generation,
transmission, distribution and sale of electricity.
KCP&L's power business will have over 4,000 megawatts of generating capacity
following the completion of five combustion turbine units that will add 385
megawatts of peaking capacity. During 2001, KCP&L entered into a $200 million,
five-year construction and synthetic operating lease transaction for the five
combustion turbines. During 2002, the lease was amended to reduce the amount
financed from the previously estimated $200 million to $176 million to reflect
changes in the estimated cost for the purchase, installation, assembly and
construction of the five combustion turbines. Construction began during the
third quarter of 2002 with the expected commercial operation of the five
combustion turbines in the spring and summer 2003.
KCP&L's delivery business consists of transmission and distribution facilities
that serve almost 485,000 customers as of December 31, 2002. KCP&L continues to
experience load growth approximating the historical average of 2.0% to 2.5%
annually through increased customer usage and additional customers. Rates
charged for electricity are below the national average.
At the end of January 2002, a severe ice storm occurred throughout large
portions of the Midwest, including the greater Kansas City metropolitan area. At
its peak, the storm caused over 300,000 customer outages throughout the KCP&L
service territory, an unprecedented level in the KCP&L's 120-year history. Crews
from other utilities in numerous states were called in to assist in the
restoration of power and power was restored in nine days. Costs related to the
January ice storm were approximately $51.3 million of which $14.7 million were
capital expenditures and therefore charged to utility plant. KCP&L expensed
$16.5 million for the Kansas jurisdictional portion of the storm costs and
deferred $20.1 million of the storm costs applicable to Missouri. In January
2003, Edison Electric Institute honored KCP&L for exemplary performance and
dedication in restoring power to customers during the storm and recognized KCP&L
by awarding it the association's annual "Emergency Response Award".
Under the FERC Order 2000, KCP&L, as an investor-owned utility, is strongly
encouraged to join a FERC approved RTO. RTOs combine regional transmission
operations of utility businesses into a regional organization that schedules
transmission services and monitors the energy market to ensure regional
transmission reliability and non-discriminatory access. During the first quarter
of 2002, the SPP and the MISO voted to consolidate the two organizations to
create a larger Midwestern RTO, a non-profit organization that will operate in
twenty states and one Canadian province. KCP&L is a member of the SPP. The
consolidation is expected to be completed during the second quarter of 2003 and
has received FERC approval. The FERC has already approved an RTO proposal
submitted by the MISO. Additionally, regulatory approvals would have to be
received from the MPSC and the KCC prior to KCP&L's participation in an RTO.
During 2003, KCP&L expects to make filings with the MPSC and
30
KCC seeking permission to participate in the RTO resulting from the merger of
SPP and MISO. During February 2003, KCP&L submitted to MISO a conditional
application to joining the RTO resulting from the merger of SPP and MISO.
During the third quarter of 2002, the FERC issued a Notice of Proposed
Rulemaking to Remedy Undue Discrimination through Open Access Transmission
Service and Standard Electricity Market Design. The proposed rulemaking is
designed to establish a single non-discriminatory open access transmission
tariff with a single transmission service that is applicable to all users of the
interstate transmission grid. All public utilities that own, control or operate
interstate transmission facilities would be required to become independent
transmission providers, turn over the operation of their transmission facilities
to an RTO that meets the definition of an independent transmission provider or
contract with an entity that meets the definition of an independent transmission
provider. KCP&L filed comments with the FERC on the proposed rulemaking in
November 2002. The FERC has recently announced that it will issue a white paper
on Standard Electricity Market Design in April 2003 and accept comments on that
paper before issuing a final rule, which is now expected in the third or fourth
quarter of 2003. KCP&L's participation in the RTO resulting from the merger of
SPP and MISO would fulfill the majority of the requirements of this proposed
rulemaking.
KCP&L has a wholly-owned unregulated subsidiary, HSS, that holds investments in
businesses primarily in residential services. HSS is comprised of two direct
subsidiaries, RSAE and Worry Free. HSS is evaluating strategic alternatives
concerning its investments, which could include a possible sale of a portion or
all of the business.
In 2001, HSS increased its ownership in RSAE, a consumer services company
headquartered in Atlanta, Georgia, from 49% to 72%. Accordingly, HSS changed its
method of accounting for RSAE from the equity method to consolidation. During
2001, HSS recorded losses from its investment in RSAE that resulted in a
negative investment balance. As a result of these losses, the minority interest
in RSAE was reduced to zero. Accordingly, as long as RSAE is consolidated, any
future losses of RSAE would be recorded by HSS at 100%, which will further
decrease the investment below zero.
31
Consolidated KCP&L Results of Operations
The following table summarizes consolidated KCP&L's comparative results of
operations. For comparative purposes only, 2001 and 2000 presented below have
been restated to exclude the results of operations for KLT Inc. and subsidiaries
and GPP, which were transferred to Great Plains Energy on October 1, 2001.
Therefore, 2001 and 2000 presented below do not agree with 2001 and 2000
presented in KCP&L's consolidated statements of income and should only be used
in the context of the discussion and analysis that follows.
2002 2001 2000
(millions)
Operating revenues $1,071.3 $1,033.7 $ 955.8
Fuel (159.7) (163.8) (153.1)
Purchased power (46.2) (65.2) (105.7)
Revenues, net of
fuel and purchased power 865.4 804.7 697.0
Other operating expenses (468.8) (435.9) (387.9)
Depreciation and depletion (147.9) (138.7) (126.0)
Loss on property - (1.6) (9.9)
Operating income 248.7 228.5 173.2
Loss from equity investments - (0.1) (6.6)
Non-operating income (expenses) (5.1) (4.9) (15.0)
Interest charges (82.0) (79.8) (62.8)
Income taxes (62.9) (51.3) (44.3)
Cumulative effect of a change
in accounting principle (3.0) - 30.1
Net income 95.7 92.4 74.6
Preferred dividends - (1.1) (1.6)
Earnings (loss) available for common stock $ 95.7 $ 91.3 $ 73.0
Consolidated KCP&L's earnings increased $4.4 million in 2002 compared to 2001,
as a result of warmer summer 2002 weather compared to 2001, continued load
growth, and a 40% increase in wholesale MWh sales. These factors combined with
other net positive impacts of the return to service of Hawthorn No. 5 in
mid-2001 to more than offset increased expenses. The increased expenses included
$18.0 million of January 2002 ice storm costs and $25.4 million in increased
KCP&L administrative and general expenses primarily attributable to increased
pension expenses.
The Company adopted SFAS No. 142, effective January 1, 2002. In accordance with
SFAS No. 142, the Company completed its transition impairment test of RSAE
goodwill and determined that a $3.0 million write-down of goodwill was required.
As a result, KCP&L's consolidated 2002 net income reflects the $3.0 million
cumulative effect to January 1, 2002, of a change in accounting principle.
Ongoing annual impairment tests are required by SFAS No. 142. RSAE completed its
first annual impairment test in September 2002. The test indicated no
impairment.
Consolidated KCP&L's earnings increased $18.3 million in 2001 compared to 2000,
primarily due to the significant net positive impacts of the return to service
of Hawthorn No. 5 in mid-2001. A $40.5 million reduction in purchased power
expense, primarily in the summer months, combined with reduced fuel cost per MWh
generated more than offset the increased KCP&L fuel costs associated with
increased MWh's generated and increased operating expenses including a $12.7
million increase in depreciation and a $17.0 million increase in interest
charges. KCP&L recorded $12.7 million of additional income taxes in 2000 for a
proposed IRS adjustment related to COLI. Additionally, in 2000, HSS recorded a
$12.2 million write-down of its investment in RSAE.
32
Effective January 1, 2000, KCP&L changed its methods of amortizing unrecognized
net gains and losses and the determination of expected return related to its
accounting for pension expense. Accounting principles required KCP&L to record
the cumulative effect of these changes, resulting in a $30.1 million increase in
2000 earnings.
Consolidated KCP&L Sales Revenues and MWh Sales
% %
2002 Change 2001 Change 2000
Retail revenues (millions)
Residential $ 367.4 5 $ 348.8 (1) $ 352.1
Commercial 418.6 2 411.8 1 406.3
Industrial 93.7 (10) 103.9 (19) 127.6
Other retail revenues 8.6 3 8.3 2 8.1
Total retail 888.3 2 872.8 (2) 894.1
Wholesale revenues 108.0 36 79.3 78 44.5
Other revenues 13.6 (12) 15.4 15 13.4
KCP&L electric revenues 1,009.9 4 967.5 2 952.0
Subsidiary revenues 61.4 (7) 66.2 *NM 3.7
Consolidated KCP&L revenues $1,071.3 4 $1,033.7 8 $ 955.7
*NM -- Not meaningful due to 2001 consolidation of RSAE
% %
2002 Change 2001 Change 2000
Retail MWh sales (thousands)
Residential 5,004 6 4,729 - 4,725
Commercial 6,902 2 6,798 2 6,687
Industrial 1,968 (8) 2,130 (21) 2,713
Other retail MWh sales 83 6 78 3 76
Total retail 13,957 2 13,735 (3) 14,201
Wholesale MWh sales 4,969 40 3,558 107 1,718
KCP&L electric MWh sales 18,926 9 17,293 9 15,919
Retail revenues improved slightly in 2002 compared to 2001 due to warmer 2002
summer weather and continued load growth which increased residential and
commercial revenues $25.4 million mostly offset by a reduction in industrial
revenues. The reduction in industrial revenues was primarily due to a weakened
economy and the loss of $4.4 million in revenues from one of KCP&L's major
industrial customers. Load growth consists of higher usage-per-customer and the
addition of new customers. The average number of both residential and commercial
customers increased approximately 2% in 2002 as compared to 2001. Less than 1%
of revenues include an automatic fuel adjustment provision.
Excluding the impact of the loss of $22.9 million in revenues from one of
KCP&L's major industrial customers, retail revenues and MWh sales remained
relatively consistent in 2001 compared to 2000. Extremely mild weather during
the second half of 2001 mostly offset the colder winter and warmer spring and
early summer weather experienced in the first half of 2001 and continued load
growth. The average number of both residential and commercial customers
increased approximately 2% in 2001 as compared to 2000.
The major industrial customer declared bankruptcy on February 7, 2001, and
closed its Kansas City, Missouri facilities on May 25, 2001. KCP&L has continued
to be able to mitigate the effect of the loss with other sales.
33
Bulk power sales, the major component of wholesale sales, vary with system
requirements, generating unit and purchased power availability, fuel costs and
requirements of other electric systems. Wholesale MWh sales increased 40% in
2002 compared to 2001 and 107% in 2001 compared to 2000 due to increased bulk
power MWh's sold. Additionally, wholesale sales revenue increased $1.7 million
in 2002 compared to 2001 and $2.5 million in 2001 compared to 2000 due to
additional capacity sales beginning in the last half of 2001.
KCP&L Fuel and Purchased Power
The fuel cost per MWh generated and the purchased power cost per MWh have a
significant impact on the results of operations for KCP&L. Generation fuel mix
can change the fuel cost per MWh generated substantially. Nuclear fuel costs per
MWh generated remain substantially less than the cost of coal per MWh generated.
Replacement power costs for planned Wolf Creek outages are accrued evenly over
the unit's operating cycle. KCP&L expects its cost of nuclear fuel to remain
fairly constant through the year 2008. Coal has a significantly lower cost per
MWh generated than natural gas and oil. KCP&L's procurement strategies continue
to provide delivered coal costs below the regional average. The cost per MWh for
purchased power is still significantly higher than the fuel cost per MWh of coal
and nuclear generation. KCP&L continually evaluates its system requirements, the
availability of generating units, availability and cost of fuel supply,
availability and cost of purchased power and the requirements of other electric
systems to provide reliable power economically. Fossil plants averaged 74% of
total generation and the nuclear plant the remainder over the last three years.
Fuel costs decreased $4.1 million in 2002 compared to 2001, despite a 12%
increase in generation. Lower fuel cost per MWh generated due to additional coal
and less natural gas and oil in the generation fuel mix was the primary reason
for the decline in fuel costs. The return to service of Hawthorn No. 5, a low
cost coal-fired unit, in mid-2001 contributed to the change in generation fuel
mix. Significantly lower natural gas prices and a reduction in the cost of
uranium during 2002 also contributed to the lower fuel cost. Fuel costs
increased $10.7 million in 2001 compared to 2000 primarily due to a 13% increase
in MWh's generated partially offset by a reduction in the fuel cost per MWh
generated. The increase in MWh's generated was primarily due to Hawthorn No. 5,
a coal-fired unit, returning to operation in mid-2001 and the impact of the
scheduled 2000 outage at Wolf Creek, a nuclear unit. The additional availability
of these two low fuel cost units in 2001 changed the generation fuel mix and
lowered the cost per MWh generated.
Purchased power expenses decreased $19.0 million in 2002 compared to 2001. Cost
per MWh purchased decreased approximately 31% in 2002 compared to 2001 due to
regional energy availability, a less volatile energy market and decreased MWh
purchases during peak hours. Also contributing to the decrease was a 15%
decrease in MWh's purchased due to the increased availability of KCP&L
generating units. Purchased power expenses decreased $40.5 million in 2001
compared to 2000 primarily due to a 38% decrease in MWh's purchased in 2001
compared to 2000. The decrease in MWh's purchased was primarily due to the
increased availability of KCP&L's generating units during 2001 compared to 2000.
Increased availability also allowed KCP&L to reduce its cost of purchased
capacity by $7.6 million in 2001 as compared to 2000. In addition, the cost per
MWh was down 4% in 2001 compared to 2000.
Consolidated KCP&L Other Operating Expenses (including operating, maintenance
and general taxes)
KCP&L's other operating expenses increased $43.0 million in 2002 compared to
2001 primarily due to the following:
o expensing the $16.5 million Kansas jurisdictional portion of the January 2002
ice storm and amortizing $1.5 million of the Missouri jurisdictional portion
of the ice storm
o increased administrative and general expenses:
34
o $17.7 million increased pension expense due to a significant decline in the
market value of plan assets
o $3.3 million increased injuries and damages expenses resulting from
additional claims and the settlement of outstanding claims
o $3.2 million increased general taxes primarily due to increases in property
tax levy rates
HSS' other expenses decreased $10.1 million in 2002 compared to 2001 due to the
closure of some RSAE locations and the implementation of cost saving strategies
at RSAE.
KCP&L's other operating expenses decreased $17.3 million in 2001 compared to
2000 primarily due to the following:
o $3.7 million decreased operating expenses for replacement power insurance
because of the availability of Hawthorn No. 5
o decreased administrative and general expenses including:
o $2.0 million of additional customer information system software consulting
in 2000
o $2.7 million of advertising not continued in 2001
o $4.5 million decrease in pension expense due to strong returns on plan
assets
HSS' other expenses increased $65.3 million primarily due to the consolidation
of RSAE following HSS' increase in its ownership from 49% to 72% in 2001.
Consolidated KCP&L Depreciation
Consolidated KCP&L's depreciation expense increased $9.2 million in 2002
compared to 2001 and $12.7 million in 2001 compared to 2000. The primary reason
for the increases was increased capital additions relating to Hawthorn No. 5,
which was returned to service mid-2001. Additionally, KCP&L paid $40.8 million
to exercise its purchase option on the previously leased Hawthorn No. 6 unit in
late 2001 and Hawthorn Nos. 7, 8 and 9 units were placed in service in mid-2000.
Consolidated KCP&L Interest Charges
Consolidated KCP&L's interest charges increased $2.2 million in 2002 compared to
2001 and $17.0 million in 2001 compared to 2000 primarily because of increased
interest expense on long-term debt and decreased allowance for borrowed funds
used to finance construction, partially offset by a decreased interest expense
on short-term debt. A portion of the proceeds from long-term debt issuances has
been used to pay down short-term debt.
Long-term debt interest expense
KCP&L's long-term debt interest expense increased $3.0 million in 2002 compared
to 2001, primarily due to higher average levels of long-term debt outstanding.
Lower average rates on variable rate long-term debt partially offset the higher
average levels of long-term debt. The higher average levels of debt outstanding
primarily reflect the issuances of long-term debt in 2001 and the 2002 issuance
of $225.0 million of unsecured, fixed-rate senior notes partially offset by
$227.0 million of scheduled debt repayments during 2002.
KCP&L's long-term debt interest expense increased $12.3 million in 2001 compared
to 2000 reflecting higher average levels of long-term debt outstanding,
partially offset by the impact of decreases in variable interest rates. The
higher average levels of debt primarily reflect the issuances of long-term debt
in 2000 and $150.0 million of unsecured, fixed-rate senior notes issued in
November 2001, partially offset by $80.0 million of scheduled debt repayments.
Short-term debt interest expense
KCP&L's short-term debt interest expense decreased $7.7 million in 2002 compared
to 2001. Average interest rates were down more than 50% and average levels of
outstanding commercial paper were
35
down more than 70% in 2002 compared to 2001. KCP&L had no commercial paper
outstanding at December 31, 2002.
KCP&L's short-term debt interest expense decreased $2.2 million in 2001 compared
to 2000 primarily due to lower average interest rates on commercial paper,
partially offset by higher average levels of outstanding commercial paper during
2001 compared to 2000. KCP&L had $62.0 million and $55.6 million of commercial
paper outstanding at December 31, 2001 and 2000, respectively.
Capitalized interest
Allowance for borrowed funds used to finance construction decreased $8.2 million
in 2002 compared to 2001 and $3.0 million in 2001 compared to 2000 because of
decreased construction work in progress primarily due to the return to service
of Hawthorn No. 5 in mid-2001.
Wolf Creek
Wolf Creek, a nuclear unit, represents about 15% of KCP&L's generating capacity.
This percentage will decline slightly with KCP&L's expected 2003 addition of
five leased combustion turbines. Wolf Creek's operating performance has remained
strong over the last three years, contributing an average of 26% of KCP&L's
annual MWh generation while operating at an average capacity of 92%. Wolf Creek
has the lowest fuel cost per MWh generated of any of KCP&L's generating units.
KCP&L accrues 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 returned to service on April 27,
2002, following a 35-day refueling and maintenance outage that began on March
23, 2002. During the outage, a complete inspection of the reactor vessel head
indicated no corrosion or other problems of the type experienced at the
Davis-Besse nuclear plant in Ohio. The next outage is scheduled for the fall of
2003 and is estimated to be a 35-day outage.
Wolf Creek's assets represent about 33% of KCP&L's assets and its operating
expenses represent about 19% of KCP&L's operating expenses. An extended
shut-down of Wolf Creek could have a substantial adverse effect on KCP&L's
business, financial condition and results of operations because of higher
replacement power and other costs. Although not expected, the NRC 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.
There has been significant opposition and delays to, development of a low-level
radioactive waste disposal facility. See Note 10 to the consolidated financial
statements for additional information. An inability to complete this project
would require KCP&L to write-off its net investment in the project, which was
$7.4 million at December 31, 2002. KCP&L, and the other owners of Wolf Creek,
could also still be required to participate in development of an alternate site.
Ownership and operation of a nuclear generating unit exposes KCP&L 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 10
to the consolidated financial statements.
Montrose No. 3
Montrose No. 3, a 176 MW unit, returned to service at the end of the third
quarter 2002 following a forced outage due to damage to the turbine blades in
the combined high and intermediate pressure section of the turbine. Additional
maintenance, including replacing blades in the low pressure section of the
turbine to mitigate a long outage in the next few years and maintenance
originally scheduled for
36
October 2002, was also completed during the three-month outage. The
unanticipated outage costs were approximately $4.3 million of capital
expenditures, $0.9 million in additional operations and maintenance expense and
$4.0 million in net fuel and purchased power expense in 2002. These amounts do
not reflect the $1.0 million expected to be recovered from insurance in 2003.
Hawthorn No. 5
On June 20, 2001, Hawthorn No. 5 was returned to commercial operation. The
coal-fired unit has a capacity of 565 megawatts and was rebuilt following a
February 1999 explosion that destroyed the boiler. Hawthorn No. 5 has been
nationally recognized in the 2001 National Energy Policy Report for its use of
best available pollution control technology. Under KCP&L's property insurance
coverage, KCP&L received an additional $30 million in insurance recoveries in
2001, increasing the total insurance recoveries received to date to $160
million. The recoveries have been recorded as an increase in accumulated
depreciation on the consolidated balance sheet. Expenditures, excluding
capitalized interest and insurance proceeds, for rebuilding Hawthorn No. 5 were
$35.6 million in 1999, $207.6 million in 2000, and $72.9 million in 2001.
KCP&L Projected Utility Capital Expenditures
Total utility capital expenditures, excluding allowance for funds used to
finance construction, were $132.0 million, $262.0 million and $401.0 million in
2002, 2001, and 2000, respectively. Utility capital expenditures projected for
the next five years are as follows:
2003 2004 2005 2006 2007 Total
(millions)
Generating facilities $ 36.6 $ 42.2 $ 46.9 $ 28.5 $ 18.9 $173.1
Nuclear fuel 20.5 21.0 0.7 23.1 25.0 90.3
Distribution and transmission facilities 73.8 75.8 73.1 74.0 71.5 368.2
General facilities 6.3 5.8 2.8 2.7 1.1 18.7
Total $137.2 $144.8 $123.5 $128.3 $116.5 $650.3
This utility capital expenditure plan is subject to continual review and change.
KCP&L is currently evaluating various purchase and construction options to meet
capacity and energy requirements in 2005 through 2010. Consequently, the table
does not reflect utility capital expenditures for new capacity.
Peaking capacity totaling 385 megawatts is being added pursuant to a $176
million construction and operating lease transaction as discussed in the KCP&L
Business Overview.
Strategic Energy
Strategic Energy Business Overview
Strategic Energy provides power supply coordination services by entering into
long-term contracts with its customers to supply electricity that Strategic
Energy purchases under long-term contracts to manage its customers electricity
needs. In return, Strategic Energy receives an ongoing management fee, which is
included in the contracted sales price for the electricity. Strategic Energy
operates in several electricity markets offering retail choice, including
Pennsylvania, California, Ohio, New York, Massachusetts and Texas. Strategic
Energy is targeting expansion into two additional states in 2003, which would
expand its operations into eight of the sixteen states that offer retail choice.
Strategic Energy also provides strategic planning and consulting services in the
natural gas and electricity markets.
In the normal course of business, Great Plains Energy and KLT Inc. enter into
various agreements providing financial or performance assurance to third parties
on behalf of Strategic Energy. Such agreements include, for example, guarantees,
stand-by letters of credit and surety bonds. These agreements are entered into
primarily to support or enhance the creditworthiness otherwise attributed
37
to Strategic Energy on a stand-alone basis, thereby facilitating the extension
of sufficient credit to accomplish Strategic Energy's intended business
purposes.
In 2001, KLT Energy Services exchanged its ownership of $4.7 million of
preferred stock in another energy service company for additional ownership in
Strategic Energy. This transaction increased KLT Energy Services' indirect
ownership in Strategic Energy from 72% to 83%. During the fourth quarter of
2002, IEC acquired a 6% indirect ownership position in Strategic Energy in
exchange for $15.1 million in common stock and notes issued by Great Plains
Energy and IEC. As of December 31, 2002, Great Plains Energy's indirect
ownership in Strategic Energy totals 89%.
In 2000, Strategic Energy also provided retail gas services to commercial,
institutional and small manufacturing customers. Strategic Energy elected to
exit this business in the first quarter of 2001 to focus on power supply
coordination services and had phased out of retail gas services at the end of
2001. Strategic Energy made this decision after evaluating the organizational
demands, growth prospects and relative levels of profitability of both
businesses. As the marketplace and Strategic Energy's business evolves,
Strategic Energy may elect to re-enter the market for retail gas services.
At December 31, 2002, Strategic Energy provided power supply coordination
services on behalf of approximately 33,100 commercial, institutional and small
manufacturing accounts. Strategic Energy's customer base is very diverse.
Strategic Energy served over 5,200 customers, including numerous Fortune 500
companies, smaller companies, and governmental entities. Based solely on current
signed contracts and expected usage, Strategic Energy anticipates future MWh
sales of 14.0 million, 8.2 million, 5.3 million, and 1.2 million for the years
2003 through 2006, respectively. Strategic Energy expects to also supply
additional MWh sales in these years through growth in existing markets by
re-signing existing customers and signing new customers as well as through
expansion into new markets.
Strategic Energy enters into forward contracts with multiple suppliers. At
December 31, 2002, Strategic Energy's five largest suppliers under forward
supply contracts represented 69% of the total future committed purchases. In the
event of supplier non-delivery or default, Strategic Energy's results of
operations could be affected to the extent that the cost of replacement power
exceeded the combination of the contracted price with the supplier and the
amount of collateral held by Strategic Energy to mitigate its market risk with
the supplier. Strategic Energy's results of operations could also be affected,
in a given period, if it was required to make a payment upon termination of a
supplier contract to the extent that the contracted price with the supplier
exceeded the market value of the contract. Strategic Energy monitors its
counterparty credit risk by evaluating the credit quality and performance of its
suppliers on a routine basis and by, among other things, adjusting the amount of
collateral required from its suppliers, as part of its risk management policy
and practices.
Strategic Energy maintains a commodity-price risk management strategy that uses
forward physical energy purchases and derivative instruments to minimize
significant, unanticipated earnings fluctuations caused by commodity-price
volatility. As a result of supplying electricity to retail customers under fixed
rate contracts, Strategic Energy's policy is to match customers' demand with
fixed price purchases. In certain markets where Strategic Energy operates,
entering into forward fixed price contracts is cost prohibitive. By entering
into swap contracts for a portion of its forecasted purchases in these markets,
the future purchase price of electricity is effectively fixed under these swap
contracts. The swap contracts limit the unfavorable effect that price increases
will have on electricity purchases. Under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", all of the swap agreements are
currently designated as cash flow hedges resulting in the difference between the
market value of energy and the hedge value being recorded as comprehensive
income (loss). At December 31, 2002 and 2001, the accumulated comprehensive gain
(loss), net of income taxes and minority interest, reflected in Great Plains
Energy's consolidated statements of capitalization included a $0.8 million gain
and $11.7 million loss, respectively, related to such cash flow hedges. However,
38
substantially all of the energy hedged with the swaps has been sold to customers
through contracts at prices different than the fair market value used to value
the swaps. Therefore, Strategic Energy does not anticipate realizing the gain
(loss) represented in comprehensive income.
During the third quarter of 2002, the FERC issued a Notice of Proposed
Rulemaking to Remedy Undue Discrimination through Open Access Transmission
Service and Standard Electricity Market Design. The proposed rulemaking is
designed to establish a single non-discriminatory open access transmission
tariff with a single transmission service that is applicable to all users of the
interstate transmission grid. Strategic Energy has evaluated the impact of the
proposed rulemaking on its operations and provided comments to the FERC that are
generally supportive of the provisions of the proposal, but suggested some
changes to the proposed rule. The FERC has recently announced that it will issue
a white paper on Standard Electricity Market Design in April 2003 and accept
comments on that paper before issuing a final rule, which is now expected in the
third or fourth quarter of 2003.
Strategic Energy Results of Operations
The following table summarizes Strategic Energy's comparative results of
operations.
2002 2001 2000
(millions)
Operating revenues $789.5 $411.9 $129.6
Purchased power (685.4) (329.0) (84.4)
Revenues, net of
purchased power 104.1 82.9 45.2
Other operating expenses (37.6) (38.7) (30.9)
Depreciation (0.9) (0.3) (0.4)
Operating income 65.6 43.9 13.9
Non-operating income (expenses) (10.4) (6.4) (4.2)
Interest charges (0.3) (0.5) (0.2)
Income taxes (25.2) (15.2) (3.6)
Net income $ 29.7 $ 21.8 $ 5.9
Strategic Energy's net income increased $22.9 million in 2002 compared to 2001,
excluding earnings during 2001 of $15.0 million from the sale of power purchased
from one supplier under wholesale contracts that expired at the end of 2001. The
increased net income in 2002 compared to 2001 is primarily due to continued
growth in retail electric sales from the expansion into new markets and
continued sales efforts in existing markets, partially offset by increased labor
and benefits as well as other general and administrative expenses and income
taxes due to increased sales in states with higher income tax rates. Strategic
Energy's net income increased $15.9 million in 2001 compared to 2000, primarily
due to growth in retail electric sales and higher earnings during 2001 than in
2000 on wholesale sales of the power supplied under the wholesale contracts
discussed above.
39
Strategic Energy Operating Revenues
Operating revenues from Strategic Energy increased $377.6 million in 2002
compared to 2001 and $282.3 million in 2001 compared to 2000. The following
table reflects Strategic Energy's operating revenues.
% %
2002 Change 2001 Change 2000
(millions)
Electric - Retail $759.5 142 $313.3 446 $ 57.4
Electric - Wholesale 28.8 (65) 82.7 58 52.3
Gas and other 1.2 (92) 15.9 (20) 19.9
Total Operating Revenues $789.5 92 $411.9 218 $129.6
At December 31, 2002, Strategic Energy served over 5,200 customers, an increase
from approximately 3,400 customers and 2,000 customers at the end of 2001 and
2000, respectively. These customers represented approximately 33,100 accounts at
the end of 2002, compared to about 19,500 accounts and 7,000 accounts at the end
of 2001 and 2000, respectively. Strategic Energy may provide periodic billing
credits to its customers resulting from its power supply coordination efforts.
The amounts credited back to the customer are treated as a reduction of retail
electric revenues when determined to be payable.
Retail electric revenues increased $446.2 million in 2002 compared to 2001
primarily due to increased retail MWh sales, partially offset by an 8% decrease
in average retail revenues per MWh. Retail MWh's sold increased 162% to 11.8
million in 2002 from 4.5 million in 2001, primarily from continued growth in
existing markets and expansion into new markets during 2002. Growth in existing
markets came primarily from strong sales efforts in re-signing existing
customers as well as signing new customers. Expansion into new markets
contributed 2.8 million in MWh sales and approximately $166 million of retail
electric revenues during 2002. Several factors contribute to changes in the
average retail revenues per MWh, including the underlying price of the
commodity, the nature and type of products offered and the mix of sales by
geographic market.
Retail electric revenues increased $255.9 million in 2001 compared to 2000
primarily due to an increase in retail MWh sales and an increase in average
retail revenues per MWh. Retail MWh's sold increased 221% from 1.4 million in
2000, primarily from growth in existing markets and expansion into new markets
during 2001. The increase in average retail revenues per MWh in 2001 compared to
2000 is due to higher bundled product sales in 2001 and expansion into new
markets, which had higher average commodity prices than the average for
Strategic Energy's existing markets.
Wholesale electric revenues decreased $53.9 million in 2002 compared to 2001 and
increased $30.4 million in 2001 compared to 2000 primarily due to the sale of
power during 2001 purchased from one supplier under wholesale contracts that
expired at the end of 2001.
During the third quarter of 2001, Strategic Energy began to phase out its
natural gas retail supply service, which was completely phased out during the
fourth quarter of 2001. This is the primary reason for the decrease in gas and
other sales revenues in 2002 compared to 2001.
Strategic Energy Purchased Power
To supply its retail contracts, Strategic Energy purchases long-term blocks of
electricity under forward contracts in fixed quantities at fixed prices from
power suppliers based on projected usage. Strategic Energy sells any excess
retail supply of electricity back into the wholesale market. The proceeds from
the sale of excess supply of electricity is recorded as a reduction of purchased
power. The gross
40
amount of excess retail supply sales that reduced purchased power was $126.4
million, $95.6 million and $29.5 million in 2002, 2001 and 2000, respectively.
As previously discussed, Strategic Energy operates in several retail choice
electricity markets. The cost of supplying electricity to retail customers can
vary widely by geographic market. This variability can be affected by many
factors including, among other items, geographic differences in the cost per MWh
of purchased power and capacity charges due to regional purchased power
availability and requirements of other electricity providers and differences in
transmission charges. However, Strategic Energy has mitigated the effects of
higher supply costs by entering into long-term, full-requirements contracts with
customers that are priced to the customers based on the cost of the associated
supply contract.
Purchased power increased $356.4 million in 2002 compared to 2001 and $244.6
million in 2001 compared to 2000 primarily due to the increases in electric MWh
sales discussed above. Additionally, purchased power expense as a percentage of
electric revenues increased in 2002 compared to 2001 primarily due to purchases
of power from one supplier during 2001 under wholesale contracts that expired at
the end of 2001. Purchased power expense as a percentage of electric revenues
also increased in 2001 compared to 2000. The 2001 increase in purchased power as
a percentage of electric revenues was due to a significant increase in the
percentage of Strategic Energy's total MWh sales derived from retail MWh sales
compared to 2000. Strategic Energy's wholesale electric MWh sales in both 2001
and 2000 had a higher gross margin (revenues less cost of energy supplied) than
its retail electric MWh sales.
Strategic Energy Other Operating Expenses
Strategic Energy's other operating expenses as a percentage of operating
revenues decreased to 4.8% in 2002 from 9.4% and 23.8% in 2001 and 2000,
respectively, due to Strategic Energy's efforts in leveraging its infrastructure
and the effects of achieving economies of scale. Strategic Energy continued to
experience increased labor and benefits as well as other general and
administrative expenses during 2002, following the growth in retail electric
sales, expansion into new markets and increased fuel management and consulting
activities. Other operating expenses in 2001 include the cost of commercial gas
sales of about $15.5 million, from Strategic Energy's natural gas retail supply
service, which was phased out by the end of 2001. As a result, other operating
expenses (excluding the cost of commercial gas sales) increased $14.4 million in
2002 compared to 2001. Contributing to this increase were higher labor and
benefit costs from the addition of employees and increasing health care related
costs, higher profit sharing and deferred compensation expense which are tied to
earnings and financial performance, and higher other general and administrative
expenses associated with higher sales volumes, geographic market expansion, and
regulatory and market development initiatives. Operating expenses increased $7.8
million in 2001 compared to 2000 primarily due to increased labor and benefits
costs from the addition of employees during 2001 as well as increased other
general and administrative expenses during 2001, following the pattern of growth
in sales and expansion of activities discussed above.
Strategic Energy Non-operating Income (Expenses)
Non-operating income (expenses) includes non-operating income less minority
interest expense and non-operating expenses. In 2002 compared to 2001,
non-operating income (expenses) increased $4.0 million primarily due to a gain
of $1.4 million recognized on the sale of gas contracts during the second
quarter of 2001 and an increase in minority interest expense of $2.8 million,
which represents the share of Strategic Energy's net income not attributable to
Great Plains Energy's indirect ownership interest in Strategic Energy. In 2001
compared to 2000, non-operating income (expenses) increased $2.2 million
primarily due to an increase in minority interest expense of $3.6 million,
offset by the gain of $1.4 million recognized on the sale of gas contracts
during the second quarter of 2001.
41
KLT Gas
KLT Gas Business Overview
KLT Gas is focused on exploring for, developing and producing unconventional
natural gas resources, including coalbed methane properties. KLT Gas believes
that unconventional natural gas resources provide an economically attractive
alternative source of supply to meet the growing demand for natural gas in North
America. Additionally, KLT Gas' management team has experience and expertise in
identifying, testing and producing unconventional natural gas properties and, as
a result, it believes its expertise provides a competitive advantage in this
niche of the exploration and production sector. Because it has a longer,
predictable reserve life and lower development cost, management believes
unconventional natural gas exploration is inherently lower risk than
conventional gas exploration.
Although gas prices have been volatile historically, KLT Gas continues to
believe that the long-term future price scenarios for natural gas appear strong.
Environmental concerns, especially air quality, and the increased demand for
natural gas for new electric generating capacity are contributing to this
projected growth in demand.
KLT Gas' properties are located in Colorado, Texas, Wyoming, Kansas, and
Nebraska. These leased properties cover approximately 255,000 undeveloped acres.
The testing of this acreage is in accordance with KLT Gas' exploration plan and
capital budget. KLT Gas estimates capital expenditures of approximately $30
million to $40 million annually for the years 2003 through 2005. The timing of
the testing may vary from current plans based upon obtaining the required
environmental and regulatory approvals and permits and future changes in market
conditions. KLT Gas continues to seek and identify new prospects in addition to
its existing portfolio of properties.
In 2002, KLT Gas focused on the acquisition of additional leased acreage and the
testing and development of several unconventional natural gas exploration
projects. KLT Gas is in the early stages of testing a new prospect in Colorado
and continuing pilot development at a Powder River Basin project and two
additional projects in the Rocky Mountain region. KLT Gas continued production
at its South Texas property.
KLT Gas Results of Operations
The following table summarizes KLT Gas' comparative results of operations.
2002 2001 2000
(millions)
Operating revenues $ 1.1 $ 0.3 $ 30.5
Other operating expenses (9.6) (9.4) (22.3)
Depreciation and depletion (2.5) (1.8) (6.0)
Gain on property 0.2 23.8 107.9
Operating income (loss) (10.8) 12.9 110.1
Income from equity investments - 1.0 3.6
Non-operating income (expenses) 0.8 0.3 5.3
Interest charges (0.3) - (3.5)
Income taxes 10.3 0.1 (36.3)
Net income $ - $ 14.3 $ 79.2
KLT Gas is currently testing gas properties following its most recent sale of
property during the second quarter of 2001. KLT Gas' 2001 net income included
its second quarter Patrick KLT Gas, LLC sale
42
which resulted in a $12.0 million after tax gain. KLT Gas' 2000 net income
included its third and fourth quarter sales of producing natural gas properties,
resulting in a $68.0 million after tax gain.
KLT Gas Operating Revenues
Operating revenues increased $0.8 million in 2002 compared to 2001 primarily due
to the effect of gas hedging activities during 2001, partially offset by
declining production at KLT Gas' South Texas property during 2002. Operating
revenues decreased $30.2 million in 2001 compared to 2000 primarily due to the
sale of producing natural gas properties in the third and fourth quarters of
2000 and the effect of gas hedging activities. KLT Gas unwound the majority of
its gas hedge derivatives with an offsetting swap transaction during the second
quarter of 2001. The fair market value of the swap was recorded in gas revenues.
KLT Gas Income Taxes
KLT Gas recorded tax credits related to its investment in natural gas properties
of $6.5 million, $6.0 million and $7.1 million in 2002, 2001 and 2000,
respectively. The law that allowed substantially all of these credits expired at
the end of 2002.
Other Non Regulated Activities
Investment in Affordable Housing Limited Partnerships - KLT Investments
KLT Investments Inc.'s (KLT Investments) earnings in 2002 totaled $10.4 million
(including an after tax reduction of $5.7 million in its affordable housing
investment) compared to earnings of $6.6 million in 2001 (including an after tax
reduction of $8.6 million in its affordable housing investment) and earnings of
$13.3 million in 2000 (including an after tax reduction of $1.5 million in its
affordable housing investment).
Pretax reductions in affordable housing investments were $9.0 million, $13.5
million and $2.4 million in 2002, 2001 and 2000, respectively. Pretax reductions
in its affordable housing investments are estimated to be $13 million, $7
million, $7 million, and $6 million for the years 2003 through 2006,
respectively. The reductions in 2002, 2001 and 2000 and estimated future
reductions are based on comparisons of the cost for those properties accounted
for by the cost method to the total projected residual value of the properties
and remaining tax credits to be received. These projections are based on the
latest information available but the ultimate amount and timing of actual
reductions could be significantly different from the above estimates. The
properties underlying the partnership investment are subject to certain risks
inherent in real estate ownership and management. Even after the estimated
reductions, earnings from the investments in affordable housing are expected to
be positive for the next four years.
KLT Investments accrued tax credits related to its investments in affordable
housing limited partnerships of $19.3 million, $19.2 million and $19.2 million
in 2002, 2001 and 2000, respectively.
Subsidiary of KLT Telecom Files for Bankruptcy - DTI
The accounting treatment related to DTI and its 2001 bankruptcy is complex and
is addressed in greater detail in Note 19 to the consolidated financial
statements; consequently, Note 19 in its entirety is incorporated by reference
in this portion of Management's Discussion and Analysis and should be read as a
component of this discussion.
In 1997, KLT Telecom originally purchased, for $45 million, a 47% equity
ownership of DTI, a facilities-based telecommunications company headquartered in
St. Louis. DTI's operating losses reduced this original equity investment to
zero by June 2000. In February 2001, KLT Telecom increased its ownership to
83.6% by purchasing additional shares at a cost of approximately $40 million,
and in conjunction with such purchase made a $94 million loan to Holdings. Also
in February 2001, KLT
43
Telecom made a commitment to obtain or arrange a $75 million revolving credit
facility for Digital Teleport Inc. KLT Telecom loaned Digital Teleport Inc. $47
million during 2001 under this and other arrangements. DTI intended to refinance
part of these loans. However, a new senior credit facility from bank lenders was
not obtained due to, among other things, the downturn in the telecommunications
industry.
Starting in the second quarter of 2001, DTI conserved cash by more narrowly
focusing its strategy to providing connectivity in secondary and tertiary
markets in a five state region. DTI actively explored its strategic alternatives
including a merger, sale of assets and all other types of recapitalization
including bankruptcy. DTI originally thought that the industry downturn would be
only temporary. However, during the fourth quarter the combination of a lack of
additional financing, continued decline of the telecommunication industry, and
the cash requirements of maintaining its long-haul assets resulted in DTI making
the decision to abandon certain of its long-haul assets and file for
reorganization under Chapter 11 of the U.S. Bankruptcy Code.
On December 31, 2001, a subsidiary of KLT Telecom, Holdings and its
subsidiaries, Digital Teleport and Digital Teleport of Virginia, Inc., filed
separate voluntary petitions in Bankruptcy Court for the Eastern District of
Missouri for reorganization under Chapter 11 of the U.S. Bankruptcy Code. These
cases have been consolidated for joint procedural administration. Holdings and
its two subsidiaries are collectively called "DTI". The filings enable DTI to
continue to conduct its business operations while attempting to resolve its
financial obligations. KLT Telecom agreed to provide up to $5 million in a DIP
Loan to Digital Teleport for a term of 18 months during the bankruptcy process
if it achieves certain financial goals. The Bankruptcy Court approved the DIP
Loan on February 18, 2002, but no advances have been made under the DIP Loan to
date.
In December 2002, Digital Teleport entered into an agreement to sell
substantially all of its assets (Asset Sale) to CenturyTel Fiber Company II, LLC
(Century Tel), a nominee of CenturyTel, Inc. (Asset Purchase Agreement). The
Asset Sale was approved by the Bankruptcy Court on February 13, 2003, but the
Asset Purchase Agreement contains conditions to closing which include among
other items the receipt of all necessary regulatory approvals, which must either
be satisfied or waived by July 15, 2003.
In the Digital Teleport bankruptcy case, KLT Telecom, KLT Inc., KCP&L, Great
Plains Energy, Digital Teleport and the Official Unsecured Creditors Committee
of Digital Teleport entered into a Settlement Agreement as of December 23, 2002
(Teleport Settlement Agreement). The Teleport Settlement Agreement, if approved
by the Bankruptcy Court, resolves all material issues and disputes among the
parties to that agreement. The Teleport Settlement Agreement does not resolve
any claims that Holdings or its creditors may have against the Company; however,
as discussed below, settlement discussions have commenced in the Holdings
bankruptcy case. Digital Teleport and Digital Teleport of Virginia have prepared
a Chapter 11 plan (Chapter 11 Plan) and disclosure statement reflecting the
Asset Sale and the terms of the Teleport Settlement Agreement and expect that a
confirmation hearing will be held by the Bankruptcy Court in May 2003. The
Chapter 11 Plan contemplates that Digital Teleport and Digital Teleport of
Virginia will be liquidated after distribution of those companies' assets to
their creditors pursuant to the Chapter 11 Plan and the Teleport Settlement
Agreement.
In an objection to a motion by Digital Teleport for an extension of time in
which to propose a Chapter 11 plan, the largest creditor of Holdings (the
Creditor) asserted that Holdings, Digital Teleport and their creditors have
claims against KLT Telecom, KLT Inc., KCP&L and Great Plains Energy based on
theories of breach of contract, fraudulent conveyance, recharacterization of
debt, subordination and breach of fiduciary duty. Among other things, the
Creditor asserted that certain tax benefits should have been paid to Holdings
and Digital Teleport, rather than to KLT Telecom as provided in the October 1,
2001 Great Plains Energy tax allocation agreement. The Creditor has not
otherwise pursued these claims at this time, and the Company believes that it
has meritorious defenses to these claims. Further,
44
Holdings, the principal creditors of Holdings (including the Creditor), KLT
Telecom, KLT Inc., KCP&L, and Great Plains Energy are in the process of
negotiating a separate settlement agreement which, if finalized and approved by
the Bankruptcy Court, is anticipated to resolve the Holdings bankruptcy case and
any claims that might be asserted in the Holdings bankruptcy case against the
Company, and to provide payment to the creditors of Holdings from a portion of
the proceeds KLT Telecom otherwise would receive from the Asset Sale. If the
separate settlement agreement is finalized, it is anticipated that the Chapter
11 Plan will be modified to add Holdings as a proponent and to include the terms
of the Holdings Settlement Agreement. For further information regarding the DTI
bankruptcy proceedings, see Note 19 to the consolidated financial statements.
The operating results of DTI have been included for the period February 8, 2001
(date of acquisition) through September 30, 2001, for consolidated KCP&L and
through December 31, 2001, for Great Plains Energy. Because of DTI's bankruptcy
filings, KLT Telecom no longer has control over nor can it exert significant
control over DTI. As a consequence, as of December 31, 2001, DTI was
de-consolidated and is presented on the cost basis. Consequently, KLT Telecom
did not include in its financial results the ongoing results of operations,
earnings or losses incurred by DTI during 2002 and will not do so during the
remaining period of the DTI bankruptcy proceedings.
Because of the bankruptcy filings, a $195.8 million net write-off was included
in (Gain) Loss on Property in operating expenses on Great Plains Energy's 2001
Consolidated Statement of Income. A corresponding tax benefit of $55.8 million
was included in income taxes. The net impact of the bankruptcy to income was a
$140.0 million reduction.
Income taxes reported in 2001 do not reflect the entire effect of the net
write-off because of the uncertainty of recognizing future tax deductions while
in the bankruptcy process. If additional DTI assets are abandoned or sold during
the bankruptcy process, or additional tax losses not already reflected are
incurred by DTI, future tax benefits will be recorded.
Other
During 2001, KLT Energy Services wrote off its $6.2 million investment in the
common stock of Bracknell due to a decline in its share price and the bankruptcy
filing of one of Bracknell's subsidiaries. In 2000, KLT Inc. realized losses on
its investment in CellNet Data Systems Inc. (CellNet) of $3.1 million after tax.
Significant Balance Sheet Changes
(December 31, 2002 compared to December 31, 2001)
o Great Plains Energy's receivables increased $48.9 million primarily due
to a $48.4 million increase in Strategic Energy's receivables as a
result of the strong growth in its power supply coordination services
and a $7.7 million increase in consolidated KCP&L's receivables
partially offset by a $4.7 million decrease in KLT Gas' receivables.
Consolidated KCP&L's receivables increased primarily due to a $7.3
million increase in KCP&L's receivables due to an increase in bulk
power sales.
o Great Plains Energy's affordable housing limited partnerships decreased
$12.5 million primarily due to a reduction in the valuation of the
properties held by KLT Investments.
o Great Plains Energy's goodwill increased $9.0 million due to an
increase of $12.0 million related to IEC's purchase of a 6% indirect
ownership interest in Strategic Energy partially offset by a decrease
in consolidated KCP&L goodwill of $3.0 million due to the cumulative
effect write-down of goodwill at RSAE.
o Great Plains Energy's other deferred charges increased $8.6 million
primarily due to an $8.5 million increase in consolidated KCP&L's other
deferred charges. Consolidated KCP&L's other deferred charges increase
was primarily due to a $4.3 million increase in KCP&L's fair value of
interest rate hedging derivatives and a $3.8 million increase in
intangible assets at RSAE
45
reflecting the purchase of a trademark and logo and the extension of an
employment contract and non-compete agreement with a key employee.
o Great Plains Energy's notes payable decreased $99.7 million primarily
due to Great Plains Energy paying down $110.0 million of its short-term
credit facility with proceeds from the November 2002 equity offering.
This decrease was partially offset by Great Plains Energy borrowings in
2002 primarily used to make a capital contribution to KCP&L and a $3.4
million increase in consolidated KCP&L's notes payable due to
additional borrowing by RSAE on its short-term credit facility for
general corporate purposes.
o Great Plains Energy's and consolidated KCP&L's commercial paper
decreased $62.0 million primarily due to KCP&L paying down commercial
paper with cash flow from operations and a capital contribution from
Great Plains Energy.
o Great Plains Energy's current maturities of long-term debt decreased
$104.7 million primarily due to a $102.5 million decrease in
consolidated KCP&L's current maturities of long-term debt. Consolidated
KCP&L's decrease was primarily due to refinancing $200.0 million of
maturing KCP&L medium-term notes with the issuance of KCP&L unsecured
senior notes and a $27.0 million decrease due to KCP&L retiring
medium-term notes partially offset by a $124.0 million increase in the
current portion of KCP&L's medium-term notes.
o Great Plains Energy's and consolidated KCP&L's Environmental
Improvement Revenue Refunding (EIRR) bonds classified as current
decreased $96.5 million due to the remarketing of $146.5 Series 1998 A,
B and D bonds to a five-year term offset by $50.0 million of Series
1998 C bonds classified as current due to the scheduled remarketing in
August 2003.
o Great Plains Energy's accounts payable increased $1.6 million primarily
due to a $42.5 million increase in Strategic Energy's accounts payable
as a result of the strong growth in its power supply coordination
services, mostly offset by a $35.4 million decrease in consolidated
KCP&L's accounts payable and a $5.4 million decrease in KLT Gas'
accounts payable. Consolidated KCP&L's accounts payable decreased
primarily due to the timing of cash payments by KCP&L.
o Great Plains Energy's and consolidated KCP&L's pension liability
increased $44.6 million primarily due to KCP&L's $42.2 million
additional minimum pension liability as a result of a significant
decline in the market value of pension plan assets.
o Great Plains Energy's combined accrued taxes liability and current
income tax asset increased $46.0 million to a liability of $29.3
million primarily due to a $49.6 million increase in consolidated
KCP&L's accrued tax. Consolidated KCP&L's increase is primarily due to
a $50.4 million increase in KCP&L's accrued tax due to the timing of
income tax payments.
Capital Requirements and Liquidity
Great Plains Energy operates through its subsidiaries and has no material assets
other than the stock of its subsidiaries. Great Plains Energy's ability to make
payments on its debt securities and its ability to pay dividends is dependent on
its receipt of dividends from its subsidiaries and proceeds from the sale of its
securities.
Great Plains Energy's capital requirements are principally comprised of KCP&L's
utility capital expenditures, KLT Gas' capital expenditures, and KCP&L's pension
benefit plan funding requirements discussed below. Capital expenditures are
discussed in Management's Discussion and Analysis consolidated KCP&L and KLT Gas
sections. Additional cash and capital requirements for the companies, including
long-term debt requirements, are discussed below.
Great Plains Energy's liquid resources at December 31, 2002, included cash flows
from operations of subsidiaries, $65.3 million cash on hand and $367.0 million
of unused bank lines of credit. The unused lines consisted of $126.0 million
from KCP&L's short-term bank lines of credit, $30.0 million from Strategic
Energy's bank line of credit, and $211.0 million from Great Plains Energy's
revolving credit facilities.
46
Great Plains Energy terminated its $129 million bridge revolving credit facility
in the first quarter of 2002 and replaced it with a $205 million 364-day
revolving credit facility syndicated with a group of banks. Also during 2002,
Great Plains Energy entered into a $20 million 364-day revolving credit facility
with a bank. The $205 million facility contains a material adverse change (MAC)
clause that requires Great Plains Energy to represent, prior to receiving any
funding, that no MAC has occurred. The $20 million facility does not contain a
MAC clause. Great Plains Energy's available liquidity under these facilities is
not impacted by a decline in credit ratings unless the downgrade occurs in the
context of a merger, consolidation or sale. The Company is currently negotiating
the renewal and consolidation of these facilities.
Strategic Energy increased its bank line of credit in 2002 to $30 million from
$10 million. The line of credit contains a MAC clause. This agreement requires
Strategic Energy to represent, prior to receiving any funding, that no MAC has
occurred.
KCP&L's primary sources of liquidity are cash flows from operations and
bilateral credit lines totaling $126.0 million with six banks (as of December
31, 2002). KCP&L uses these lines to provide support for its issuance of
commercial paper, which had all been repaid at December 31, 2002. These bank
facilities are each for a 364-day term and mature at various times throughout
the year. Four of the facilities totaling $76.0 million can be extended for one
year under their term out provisions. KCP&L has MAC clauses in two agreements
covering $50.0 million of available bilateral credit lines. These two agreements
require KCP&L to represent, prior to receiving any funding, that no MAC has
occurred. KCP&L's available liquidity under these facilities is not impacted by
a decline in credit ratings unless the downgrade occurs in the context of a
merger, consolidation or sale. A default by KCP&L on other indebtedness is a
default under these bank line agreements. Under the terms of certain bank line
agreements, KCP&L is required to maintain a consolidated indebtedness to
consolidated capitalization ratio not greater than 0.65 to 1.0 at all times. At
December 31, 2002, the consolidated indebtedness to consolidated capitalization
ratio calculated in accordance with the covenant was 0.60 to 1.0; therefore, the
Company was in compliance with the covenant.
Under the indenture relating to KCP&L's 8.3% Junior Subordinated Deferrable
Interest Debentures, due 2037 (Debentures), which are held by KCP&L Financing I,
KCP&L may not declare or pay any dividends on any shares of its capital stock if
at the time (i) there is an event of default (as defined in the indenture), (ii)
KCP&L is in default with respect to its payment of any obligations under its
guarantee of preferred securities issued by KCP&L Financing I, or (iii) KCP&L
has elected to defer payments of interest on the Debentures.
Great Plains Energy has agreements with KLT Investments associated with notes
KLT Investments issued to acquire its affordable housing investments. Prior to
forming Great Plains Energy, KCP&L had these agreements. Great Plains Energy
agreed not to take certain actions including, but not limited to, merging,
dissolving or causing the dissolution of KLT Investments, or withdrawing amounts
from KLT Investments if the withdrawals would result in KLT Investments to not
be in compliance with minimum net worth and cash balance requirements. The
agreements also give KLT Investments' lenders the right to have KLT Investments
repurchase the notes if Great Plains Energy's senior debt rating falls below
investment grade, or if Great Plains Energy ceases to own at least 80% of
KCP&L's stock. At December 31, 2002, KLT Investments had $19.7 million in
outstanding notes, including current maturities.
Pursuant to agreements with the MPSC and the KCC, KCP&L maintains its common
equity at not less than 35% of total capitalization. Additionally, Great Plains
Energy maintains its consolidated common equity at no less than 30% of total
consolidated capitalization.
47
KCP&L's consolidated statements of cash flows include KLT Inc. and GPP for all
the periods prior to the October 1, 2001 formation of the holding company. The
presentation of the prior years statements of cash flows for Great Plains Energy
is provided for comparative purposes and is identical to the statements of cash
flows for consolidated KCP&L, prior to the formation of the holding company. The
effect of DTI on the statements of cash flows is detailed in Note 19 to the
consolidated financial statements.
Great Plains Energy and consolidated KCP&L generated positive cash flows from
operating activities for all periods presented. The increase for Great Plains
Energy and consolidated KCP&L in 2002 compared to 2001 is due to the changes in
working capital detailed in Note 2 to the consolidated financial statements. The
individual components of working capital 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. The
increase for Great Plains Energy and consolidated KCP&L in 2001 compared to 2000
is due to increased net income before non-cash expenses. The increased net
income before non-cash expenses was partially offset by the changes in working
capital detailed in Note 2 to the consolidated financial statements.
Great Plains Energy's and consolidated KCP&L's cash used for investing
activities varies with the timing of utility capital expenditures and purchases
of investments and nonutility property. Investing activities are offset by the
proceeds from the sale of properties and insurance recoveries. With KCP&L's
mid-2001 completion of the rebuild of Hawthorn No. 5, utility capital
expenditures and the allowance for borrowed funds used during construction
decreased $139.1 million in 2002 compared to 2001 and $142.0 million in 2001
compared to 2000. The decreases in 2002 compared to 2001 would have been greater
if not for $14.7 million of KCP&L capital expenditures as a result of the
January 2002 ice storm. Cash used for purchases of investments and nonutility
property in 2002 compared to 2001 decreased primarily reflecting KLT Telecom's
2001 investments in DTI and DTI's 2001 purchases of telecommunications property.
The increase in 2001 compared to 2000 for the DTI investments and purchased
property was partially offset by KLT Gas' investments in gas properties during
2000. Proceeds from the sale of properties decreased significantly in 2002
compared to 2001 because of KLT Gas' 2001 sale of its equity ownership in
Patrick KLT Gas, LLC. Proceeds from the sale of properties also decreased
significantly in 2001 compared to 2000 because the proceeds from the sale of KLT
Gas properties in 2000 more than offset the 2001 sale.
Great Plains Energy completed a public offering of 6.9 million of Great Plains
Energy common shares at $22 per share, raising $151.8 million in gross proceeds
in late 2002. Expenses to issue the stock totaled $6.1 million, which is
included in other financing activities. Great Plains Energy repaid $178.8
million of debt balances in 2002 compared to net borrowings in 2001 of $197.2
million. Included in the Great Plains Energy's amounts, consolidated KCP&L
repaid $57.2 million of debt balances in 2002 compared to net borrowings of
$171.0 million in 2001. The repayments in 2002 compared to the borrowings in
2001 reflect decreased investing activities in utility capital expenditures,
nonutility property and investments discussed above. Cash from Great Plains
Energy financing activities increased in 2001 compared to 2000 primarily because
short-term borrowings increased $140.7 million in 2001 compared to a $183.1
million decrease in 2000. However, this change in short-term borrowings was
partially offset by a $264.1 million decrease in long-term debt issuances, net
of repayments. Cash from consolidated KCP&L financing activities increased
similarly in 2001 compared to 2000, but exclude the fourth quarter 2001 $99.5
million repayment of KLT Inc.'s bank credit agreement and a fourth quarter 2001
$124.0 million increase in short term borrowings by Great Plains Energy.
On November 7, 2002, Great Plains Energy entered into an Agreement and Plan of
Merger (Agreement) with ELC, the ELC shareholders and IEC, a wholly-owned
subsidiary of Great Plains Energy. The ELC Shareholders received $15.1 million
in merger consideration. As part of the merger
48
consideration, on November 7, 2002, Great Plains Energy issued 387,596
additional shares of its common stock to the ELC Shareholders. The Agreement
valued such shares at approximately $8 million. The remainder of the merger
consideration was in short-term notes, which were paid in January 2003.
In early 2003, KCP&L received a total of approximately $100 million as an equity
contribution from Great Plains Energy. KCP&L repaid $104.0 million of
medium-term notes included in current maturities on its December 31, 2002,
balance sheet.
The Company's common dividend payout ratio was 81% (excluding the cumulative
effect of a change in accounting principle) in 2002, 104% (excluding the
extraordinary item and the DTI net write-off) in 2001, and 81% (excluding the
cumulative effect of changes in accounting principles) in 2000. See the Results
of Operations sections for discussion of significant factors impacting earnings
in 2002, 2001 and 2000.
KCP&L expects to meet day-to-day operating requirements including interest
payments, construction requirements (excluding new generating capacity) and
dividends with internally-generated funds. However, it 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 environmental regulations and the availability of
generating units. The funds Great Plains Energy and consolidated KCP&L need to
retire maturing debt (detailed below) will be provided from operations, the
issuance of long and short-term debt and/or the issuance of equity or
equity-linked instruments. In addition, the Company may issue debt, equity
and/or equity-linked instruments to finance growth or take advantage of new
opportunities.
Great Plains Energy filed a registration statement in April 2002 for the
issuance of an aggregate amount up to $300 million of any combination of senior
debt securities, subordinated debt securities, trust preferred securities,
convertible securities, or common stock. The registration statement became
effective in November 2002 and Great Plains Energy issued $151.8 million of
common stock. The proceeds were used for repayment of debt and general corporate
purposes.
As a registered public utility company, Great Plains Energy must receive
authorization from the SEC under the 35 Act to issue equity or debt. Great
Plains Energy is currently authorized to issue up to $450.0 million of debt and
equity. Great Plains Energy has utilized $423.8 million of this amount as
follows: (i) $39.0 million in preferred stock issued in connection with the
October 1, 2001, reorganization; (ii) $225.0 million in revolving credit
facilities and (iii) $159.8 million in common equity issued in a public offering
and in connection with IEC's acquisition of an indirect ownership interest in
Strategic Energy. Great Plains Energy is seeking an additional $750 million in
authorization from the SEC and anticipates the SEC will act on the application
in 2003.
In 2002, KCP&L issued $225 million of 6.0% unsecured senior notes, maturing in
2007. The proceeds from the issuance were primarily used to refinance maturing
unsecured medium-term notes.
KCP&L plans to file a registration statement in 2003 for up to $255 million in
debt securities. This will preserve KCP&L's flexibility to access the capital
markets for long-term debt if required.
KCP&L has entered into a revolving agreement, which expires in October 2003, to
sell all of its right, title and interest in the majority of its customer
accounts receivable to Receivables Company, which in turn sells most of the
receivables to outside investors. KCP&L expects the agreement to be renewed
annually. See Note 3 to the consolidated financial statements.
49
Pensions
KCP&L maintains defined benefit plans for substantially all of its employees.
Our policy is to fund the plan on an actuarial basis to provide assets
sufficient to meet benefits to be paid to plan participants consistent with the
funding requirements of the Employee Retirement Income Security Act of 1974
(ERISA). Contributions of $1.6 million and $1.0 million were made in 2002 and
2001, respectively.
Due to sharp declines in the debt and equity markets since the third quarter of
2000, the value of assets held in the trusts to satisfy pension plan obligations
has decreased significantly. As a result, under the minimum funding requirements
of ERISA, KCP&L will be required to fund approximately $9.7 million and $20.9
million during 2003 and 2004, respectively. Management believes KCP&L has
adequate access to capital resources through cash flows from operations or
through existing lines of credit to support this funding.
Participants in the plans may request a lump-sum cash payment upon termination
of their employment, which could result in increased cash requirements from
pension plan assets and KCP&L being required to accelerate future funding. While
it is difficult to estimate future cash requirements due to uncertain market
conditions and other factors, additional funding may be required in future
years.
Under the terms of the pension plans, KCP&L reserves the right to amend or
terminate the plans, and from time to time benefits have changed. See Note 7 to
the consolidated financial statements for further discussion.
Credit Ratings
At December 31, 2002, the major credit rating agencies rated the Companies'
securities as follows:
Moody's Standard
Investor Service and Poor's
Great Plains Energy
Outlook Negative Stable
Corporate Credit Rating - BBB
Bank Credit Facility Baa2 -
Preferred Stock Ba1 BB+
Senior Unsecured Debt Baa2 (preliminary) BBB- (preliminary)
Subordinated Debt Baa3 (preliminary) BBB- (preliminary)
KCP&L
Outlook Negative Stable
Senior Secured Debt A1 BBB
Senior Unsecured Debt A2 BBB
Commercial Paper P-1 A-2
These ratings reflect the current views of these rating agencies and no
assurances can be given that these ratings will continue for any given period of
time. The Companies view maintenance of strong credit ratings as being extremely
important; however, and to that end, an active and ongoing dialogue is
maintained with the agencies with respect to the Companies' results of
operations, financial position, and future prospects.
None of the Companies' outstanding debt, except for the notes associated with
affordable housing investments discussed above, is impacted by a decline in
credit ratings, which would cause the acceleration of interest and/or principal
payments in the event of a ratings downgrade, unless the downgrade occurs in the
context of a merger, consolidation, or sale. However, in the event of a
50
downgrade the Companies and/or their subsidiaries may be subject to increased
interest costs on their credit facilities. Additionally, in one bond agreement,
KCP&L has agreed to limits on its ability to issue additional mortgage bonds
based on the bond's credit ratings. See Note 15 to the consolidated financial
statements.
Supplemental Capital Requirements and Liquidity Information
The following information is provided to summarize cash obligations and
commercial commitments.
Great Plains Energy Contractual Cash Obligations
Payment due by period 2003 2004 2005 2006 2007 After 2007 Total
(millions)
Long-term debt,
including current maturities $ 134.1 $ 60.6 $ 254.2 $ 2.6 $ 227.0 $ 507.6 $1,186.1
Lease obligations 30.1 33.9 36.1 37.2 14.7 114.7 266.7
Other long-term obligations, net 588.2 360.8 267.5 68.5 20.9 160.4 1,466.3
Total contractual obligations $ 752.4 $ 455.3 $ 557.8 $ 108.3 $ 262.6 $ 782.7 $2,919.1
Consolidated KCP&L Contractual Cash Obligations
Payment due by period 2003 2004 2005 2006 2007 After 2007 Total
(millions)
Long-term debt,
including current maturities $ 124.9 $ 55.8 $ 250.9 $ 0.9 $ 226.5 $ 507.3 $1,166.3
Lease obligations 29.2 33.2 35.6 36.8 14.3 114.3 263.4
Other long-term obligations, net 87.8 61.3 45.4 18.4 12.3 148.8 374.0
Total contractual obligations $ 241.9 $ 150.3 $ 331.9 $ 56.1 $ 253.1 $ 770.4 $1,803.7
Long-term debt, including current maturities excludes $0.9 million discount on
senior notes and the $4.3 million fair value adjustment to the EIRR bonds
related to SFAS No. 133. EIRR bonds classified as current liabilities of $81
million due 2017 are included here on their final due date. See Note 15 to the
consolidated financial statements.
Lease obligations includes capital and operating lease obligations; capital
lease obligations are less than 5% of the total. Lease obligations also includes
leases for railcars to serve jointly-owned generating units where KCP&L is the
managing partner. KCP&L will be reimbursed by the other owners for about $1.9
million per year ($24.4 million total). Lease obligations excludes a commitment
to either purchase leased combustion turbines at termination of the construction
leasing agreement for a price equal to amounts expended by the Lessor or sell
the turbines on behalf of the Lessor while guaranteeing the Lessor's receipt of
an amount equal to 83.21% of the amounts expended. See Note 10 to the
consolidated financial statements for additional information.
Other long-term obligations include commitments for KCP&L's share under
contracts for acquisition of coal, and nuclear fuel including the DOE
assessment; and capacity purchases for KCP&L. KCP&L has capacity sales
agreements not included above that total $12.8 million for 2003, $11.8 million
per year for 2004 through 2007, and $49.3 million after 2007. Great Plains
Energy also includes Strategic Energy's purchased power commitments of $500.4
million, 299.5 million, $222.1 million, $50.1 million, $8.6 million and $11.6
million for 2003 through 2007 and after 2007, respectively.
Guarantees
In the normal course of business, Great Plains Energy and certain of its
subsidiaries enter into various agreements providing financial or performance
assurance to third parties on behalf of certain subsidiaries. Such agreements
include, for example, guarantees, stand-by letters of credit and surety bonds.
These agreements are entered into primarily to support or enhance the
creditworthiness
51
otherwise attributed to a subsidiary on a stand-alone basis, thereby
facilitating the extension of sufficient credit to accomplish the subsidiaries'
intended business purposes.
As prescribed in Financial Accounting Standards Board (FASB) Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others", the Company will begin
recording a liability for the fair value of obligations it undertakes for
guarantees issued after December 31, 2002. The interpretation does not encompass
guarantees of the Company's own future performance, such as Great Plains
Energy's guarantees to support Strategic Energy power purchases and regulatory
requirements; however, these guarantees are included in the presentation below.
KCP&L will record an immaterial amount for the fair value of guarantees expected
to be issued in 2003 for the residual value of vehicles and heavy equipment
under an operating lease.
Other Commercial Commitments Outstanding
Amount of commitment expiration per period
2003 2004 2005 2006 2007 After 2007 Total
(millions)
Consolidated KCP&L Guarantees $ 1.8 $ 1.8 $ 1.8 $ 1.5 $ 1.5 $ 4.4 $ 12.8
Great Plains Energy Guarantees,
including consolidated KCP&L $178.0 $ 1.8 $ 11.4 $ 1.5 $ 2.4 $ 45.9 $241.0
Great Plains Energy and KLT Inc. have provided $202.3 million of guarantees to
support Strategic Energy power purchases and regulatory requirements. Strategic
Energy's current power supply contracts end in 2010; however, 94% expire by the
end of 2005. As of December 31, 2002, guarantees related to Strategic Energy are
as follows:
o Great Plains Energy direct guarantees to counterparties totaling $68.7
million and KLT Inc. direct guarantees to counterparties totaling $60.4
million, with varying expiration dates
o Great Plains Energy indemnifies the issuers of surety bonds totaling
$61.2 million, of which $51.6 million expire in 2003 and $9.6 million
expire in 2005
o Great Plains Energy guarantees related to letters of credit totaling
$11.9 million, all of which expire in 2003
RSAE has a $25 million line of credit with a commercial bank, which Great Plains
Energy supports through an agreement that ensures adequate capital to operate
RSAE. KCP&L is contingently liable for guaranteed energy savings under
agreements with several customers.
KLT Inc. issued a letter of credit, currently $0.9 million, related to the sale
of demand side management credits by Custom Energy, LLC, which renews annually
and has five years remaining.
KCP&L has entered agreements guaranteeing an aggregate value of approximately
$12.8 million over the next eight years. In most cases a subcontractor would
indemnify KCP&L for any payments made by KCP&L under these guarantees.
The table above does not include the following guarantees because they do not
require a future cash payment:
o Custom Energy, LLC has guaranteed construction performance bonds totaling
$9.7 million which are secured by KLT Energy Services' ownership interest
in Custom Energy. These bonds are expected to expire in 2003.
o RSAE and its subsidiary, R. S. Andrews of Maryland, have secured notes to
an individual and a company totaling $4.1 million. The security for the
notes includes a pledge of RSAE stock in R. S. Andrews of Maryland and a
security interest in all of R. S. Andrews of Maryland assets. In
52
the event of default on either of the notes, RSAE's investment in R. S.
Andrews of Maryland would be at risk to satisfy the notes.
The table above does not include the following guarantees:
KCP&L Financing I, a trust, has issued $150.0 million of preferred securities.
In connection with the issuance of the preferred securities, KCP&L issued a
preferred securities guarantee, which guarantees the payment of any accrued and
unpaid distributions, the redemption price and payments upon dissolution,
winding-up or termination of the trust, all to the extent that the trust has
funds available therefore. At December 31, 2002, there were no accrued and
unpaid distributions.
In December 2002, KCP&L obtained bond insurance policies as a credit enhancement
to its Series 1993A and 1993B EIRR bonds, which total $79.5 million. The
insurance agreement between KCP&L and the issuer of the bond insurance policies,
provides for reimbursement by KCP&L for any amounts the insurer pays under the
bond insurance policies.
Environmental Matters
KCP&L's operations are subject to regulation by federal, state and local
authorities with regard to air and other environmental matters. The generation
and transmission of electricity produces and requires disposal of certain
hazardous products which are subject to these laws and regulations. In addition
to imposing continuing compliance obligations, these laws and regulations
authorize the imposition of substantial penalties for noncompliance, including
fines, injunctive relief and other sanctions. Failure to comply with these laws
and regulations could have a material adverse effect on KCP&L.
KCP&L operates in an environmentally responsible manner and seeks to use current
technology to avoid and treat contamination. KCP&L regularly conducts
environmental audits designed to ensure compliance with governmental regulations
and to detect contamination. Governmental bodies, however, may impose additional
or more restrictive environmental regulations that could require substantial
changes to operations or facilities at a significant cost. See Note 10 to the
consolidated financial statements.
53
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Great Plains Energy and consolidated KCP&L are exposed to market risks
associated with commodity price and supply, interest rates and equity prices.
Market risks are handled in accordance with established policies, which may
include entering into various derivative transactions. In the normal course of
business, Great Plains Energy and consolidated KCP&L also face risks that are
either non-financial or non-quantifiable. Such risks principally include
business, legal, operational and credit risks and are not represented in the
following analysis.
Commodity Risk
KCP&L and Strategic Energy engage in the wholesale and retail marketing of
electricity and accordingly, are exposed to risk associated with the price of
electricity.
KCP&L's wholesale operations include the physical delivery and marketing of
power obtained through its generation capacity and long, intermediate and
short-term capacity/energy contracts. KCP&L maintains a capacity margin of at
least 12% of its peak summer demand. This net positive supply of capacity and
energy is maintained through its generation assets and capacity and power
purchase agreements to protect it from the potential operational failure of one
of its owned or contracted power generating units. The agreements contain
penalties for non-performance to protect KCP&L from energy price risk on the
contracted energy. KCP&L also enters into additional power purchase agreements
with the objective of obtaining the most economical energy to meet its physical
delivery obligations to its customers. KCP&L continually evaluates the need for
additional risk mitigation measures in order to minimize its financial exposure
to, among other things, spikes in wholesale power prices during periods of high
demand.
KCP&L's sales include the sales of electricity to its retail customers and bulk
power sales of electricity in the wholesale market. KCP&L continually evaluates
its system requirements, the availability of generating units, availability and
cost of fuel supply, the availability and cost of purchased power and the
requirements of other electric systems; therefore, the impact of the
hypothetical amounts that follow could be significantly reduced depending on the
system and market prices at the time of the increases. During 2002,
approximately 75% of KCP&L's net MWh's generated was coal-fired. A hypothetical
10% increase in the market price of coal could have resulted in a $2.9 million
decrease in pretax earnings for 2002. KCP&L currently has approximately 95% of
its coal requirements for 2003 under contract. Approximately 10% of the 2003
expected delivered cost of coal is subject to the market price of coal, which is
approximately one-half of the amounts subject to the market price of coal in
2002. KCP&L has implemented price risk mitigation measures to reduce its
exposure to high natural gas prices. A hypothetical 10% increase in natural gas
and oil market prices would have resulted in a decrease of less than $1.0
million in pretax earnings. Approximately 75% of KCP&L's summer 2003 projected
gas generation requirements for retail and firm wholesale sales are price
protected through its hedging program, which is consistent with the percentages
hedged in 2002. A hypothetical 10% increase in the cost of purchased power could
have resulted in a $2.8 million decrease in pretax earnings for 2002.
Strategic Energy maintains a commodity-price risk management strategy that uses
forward physical energy purchases and derivative instruments to minimize
significant, unanticipated earnings fluctuations caused by commodity-price
volatility. As a result of supplying electricity to retail customers under
fixed rate contracts, Strategic Energy's policy is to match customers' demand
with fixed price purchases. In certain markets where Strategic Energy operates,
entering into forward fixed price contracts is cost prohibitive. By entering
into swap contracts for a portion of its forecasted purchases in these markets,
the future purchase price of electricity is effectively fixed under these swap
contracts. The swap contracts limit the unfavorable effect that price increases
will have on electricity purchases.
54
KLT Gas is exposed to commodity price risk on the natural gas it produces.
Financial hedge instruments can be used to mitigate its exposure to market price
fluctuations on approximately 85% of
its daily gas sales in accordance with its risk management policy. Currently,
KLT Gas is producing an insignificant volume of gas and the price risk is
minimal.
KCP&L and Strategic Energy are not required to record energy transactions at
fair value. Commitments to purchase and sell energy and energy-related products
except for derivatives that qualify as cash flow hedges are currently carried at
cost. KCP&L and Strategic Energy report the revenue and expense associated with
all energy contracts at the time the underlying physical transaction closes
consistent with industry practice and the business philosophy of
generating/purchasing and delivering physical power to customers.
Interest Rate Risk
Great Plains Energy manages interest expense and short and long-term liquidity
through a combination of fixed rate and variable rate debt. Generally, the
amount of each type of debt is managed through market issuance, but interest
rate swap and cap agreements with highly rated financial institutions may be
used to achieve the desired combination. Using outstanding balances and
annualized interest rates as of December 31, 2002, a hypothetical 10% increase
in the interest rates associated with variable rate debt would have resulted in
a decrease of less than $1.0 million in pretax earnings for 2002. Additionally,
interest rates impact the fair value of long-term debt. A change in interest
rates would impact the Company to the extent it redeemed any of its outstanding
debt. At December 31, 2002, stated values approximate fair value.
Equity Price Risk
KCP&L maintains trust funds, as required by the NRC, to fund certain costs of
decommissioning its Wolf Creek nuclear power plant. KCP&L does not expect Wolf
Creek decommissioning to start before 2025. As of December 31, 2002, these funds
were invested primarily in domestic equity securities and fixed income
securities and are reflected at fair value on the KCP&L's balance sheets. The
mix of securities is designed to provide returns to be used to fund
decommissioning and to compensate for inflationary increases in decommissioning
costs; however the equity securities in the trusts are exposed to price
fluctuations in equity markets, and the value of fixed rate fixed income
securities are exposed to changes in interest rates. Investment performance and
asset allocation are periodically reviewed. A hypothetical increase in interest
rates resulting in a hypothetical 10% decrease in the value of the fixed income
securities would have resulted in a $3.9 million reduction in the value of the
decommissioning trust funds. A hypothetical 10% decrease in equity prices would
have resulted in a $2.3 million reduction in the fair value of the equity
securities as of December 31, 2002. KCP&L's exposure to equity price market risk
associated with the decommissioning trust funds is in large part mitigated due
to the fact that KCP&L is currently allowed to recover its decommissioning costs
in its rates.
KLT Investments has affordable housing notes that require the greater of 15% of
the outstanding note balances or the next annual installment to be held as cash,
cash equivalents or marketable securities. A hypothetical 10% decrease in market
prices of the securities held as collateral would have resulted in a decrease of
less than $1.0 million in pretax earnings for 2002.
55
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
GREAT PLAINS ENERGY
Consolidated Statements of Income
Year Ended December 31 2002 2001 2000
(thousands)
Operating Revenues
Electric revenues - KCP&L $ 1,009,868 $ 967,479 $ 951,960
Electric revenues - Strategic Energy 788,278 396,004 111,844
Other revenues 63,736 98,435 52,064
Total 1,861,882 1,461,918 1,115,868
Operating Expenses
Fuel 159,666 163,846 153,144
Purchased power - KCP&L 46,214 65,173 105,722
Purchased power - Strategic Energy 685,370 329,003 84,449
Gas purchased and production expenses 3,531 16,932 30,396
Other 332,650 323,663 249,926
Maintenance 91,944 77,802 74,466
Depreciation and depletion 151,593 158,771 132,378
General taxes 99,351 98,060 92,228
(Gain) Loss on property (92) 171,477 (99,118)
Total 1,570,227 1,404,727 823,591
Operating income 291,655 57,191 292,277
Loss from equity investments (1,173) (376) (19,441)
Minority interest in subsidiaries (10,753) (2,899) (4,376)
Non-operating income 6,893 12,348 21,643
Non-operating expenses (20,055) (38,889) (32,620)
Interest charges 89,094 103,332 75,686
Income (loss) before income taxes, extraordinary item and
cumulative effect of changes in accounting principles 177,473 (75,957) 181,797
Income taxes 48,285 (35,914) 53,166
Income (loss) before extraordinary item and cumulative effect
of changes in accounting principles 129,188 (40,043) 128,631
Early extinguishment of debt, net of income taxes (Note 19) - 15,872 -
Cumulative effect to January 1 of changes in
accounting principles (Note 6 and 7) (3,000) - 30,073
Net income (loss) 126,188 (24,171) 158,704
Preferred stock dividend requirements 1,646 1,647 1,649
Earnings (Loss) available for common stock $ 124,542 $ (25,818) $ 157,055
Average number of common shares outstanding 62,623 61,864 61,864
Basic and diluted earnings (loss) per common share
before extraordinary item and cumulative effect of
changes in accounting principles $ 2.04 $ (0.68) $ 2.05
Early extinguishment of debt - 0.26 -
Cumulative effect to January 1 of changes in
accounting principles (0.05) - 0.49
Basic and diluted earnings (loss) per common share $ 1.99 $ (0.42) $ 2.54
Cash dividends per common share $ 1.66 $ 1.66 $ 1.66
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
56
GREAT PLAINS ENERGY
Consolidated Balance Sheets
December 31 December 31
2002 2001
(thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 65,302 $ 29,034
Receivables 200,972 152,114
Fuel inventories, at average cost 21,311 22,246
Materials and supplies, at average cost 50,800 50,696
Current income taxes - 31,031
Deferred income taxes 3,233 5,061
Other 19,543 19,167
Total 361,161 309,349
Nonutility Property and Investments
Affordable housing limited partnerships 68,644 81,136
Gas property and investments 45,419 43,385
Nuclear decommissioning trust fund 63,283 61,766
Other 63,964 63,616
Total 241,310 249,903
Utility Plant, at Original Cost
Electric 4,428,433 4,332,464
Less-accumulated depreciation 1,885,389 1,793,786
Net utility plant in service 2,543,044 2,538,678
Construction work in progress 39,519 51,265
Nuclear fuel, net of amortization of
$121,951 and $127,101 21,506 33,771
Total 2,604,069 2,623,714
Deferred Charges
Regulatory assets 128,901 124,406
Prepaid pension costs 85,945 88,337
Goodwill 46,058 37,066
Other deferred charges 39,295 30,724
Total 300,199 280,533
Total $ 3,506,739 $ 3,463,499
LIABILITIES AND CAPITALIZATION
Current Liabilities
Notes payable $ 44,679 $ 144,404
Commercial paper - 62,000
Current maturities of long-term debt 134,092 238,767
EIRR bonds classified as current 81,000 177,500
Accounts payable 175,547 173,956
Accrued taxes 29,257 14,324
Accrued interest 16,407 13,262
Accrued payroll and vacations 28,000 26,422
Accrued refueling outage costs 8,292 12,979
Other 32,816 35,810
Total 550,090 899,424
Deferred Credits and Other Liabilities
Deferred income taxes 593,169 594,704
Deferred investment tax credits 41,565 45,748
Accrued nuclear decommissioning costs 64,584 63,040
Pension liability 73,251 28,692
Other 81,275 85,393
Total 853,844 817,577
Capitalization (see statements) 2,102,805 1,746,498
Commitments and Contingencies (Note 10)
Total $ 3,506,739 $ 3,463,499
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
57
GREAT PLAINS ENERGY
Consolidated Statements of Capitalization
December 31 December 31
2002 2001
(thousands)
Long-term Debt (excluding current maturities)
General Mortgage Bonds
Medium-Term Notes due 2004-07,
7.55%* and 7.28%** weighted-average rate $ 55,000 $ 179,000
2.48%* and 2.71%** EIRR bonds due 2012-23 158,768 158,768
EIRR bonds classified as current liabilities (31,000) (31,000)
Senior Notes
7.125% due 2005 250,000 250,000
6.500% due 2011 150,000 150,000
6.000% due 2007 225,000 -
Unamortized discount (915) (660)
EIRR bonds
2.41%* and 3.25%** Series A & B due 2015 109,607 106,500
4.50%*** Series C due 2017 50,000 50,000
2.41%* and 3.25%** Series D due 2017 41,183 40,000
EIRR bonds classified as current liabilities (50,000) (146,500)
Subsidiary Obligations
R.S. Andrews Enterprises, Inc. long-term debt
5.70%* and 8.14%** weighted-average rate due 2004-16 6,128 2,832
Affordable Housing Notes
7.84%* and 8.16%** weighted-average rate due 2004-08 10,564 19,746
Total 974,335 778,686
Company-obligated Mandatorily Redeemable Preferred Securities
of a trust holding solely KCP&L Subordinated Debentures 150,000 150,000
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
Total 39,000 39,000
Common Stock Equity
Common stock-150,000,000 shares authorized without par value
69,196,322 and 61,908,726 shares issued, stated value 609,497 449,697
Capital stock premium and expense (7,744) (1,656)
Retained earnings (see statements) 363,579 344,815
Treasury stock (4) (903)
Accumulated other comprehensive loss
Income (loss) on derivative hedging instruments 927 (12,110)
Minimum pension obligation (26,785) (1,031)
Total 939,470 778,812
Total $ 2,102,805 $ 1,746,498
* Weighted-average rate as of December 31, 2002
** Weighted-average rate as of December 31, 2001
*** Weighted-average rate as of December 31, 2002 and 2001
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
58
GREAT PLAINS ENERGY
Consolidated Statements of Cash Flows
Year Ended December 31 2002 2001 2000
(thousands)
Cash Flows from Operating Activities
Net income (loss) $ 126,188 $ (24,171) $ 158,704
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Early extinguishment of debt, net of income taxes - (15,872) -
Cumulative effect of changes in accounting priciples 3,000 - (30,073)
Depreciation and depletion 151,593 158,771 132,378
Amortization of:
Nuclear fuel 13,109 17,087 15,227
Other 12,496 16,755 11,940
Deferred income taxes (net) 15,594 (301) (29,542)
Investment tax credit amortization (4,183) (4,289) (4,296)
Loss from equity investments 1,173 376 19,441
(Gain) Loss on property (92) 171,477 (99,118)
Allowance for equity funds used during construction (299) (3,616) (4,001)
Deferred storm costs (20,149) - -
Minority interest 10,753 2,899 4,376
Other operating activities (Note 2) 28,022 (40,255) 18,837
Net cash from operating activities 337,205 278,861 193,873
Cash Flows from Investing Activities
Utility capital expenditures (131,158) (262,030) (401,041)
Allowance for borrowed funds used during construction (979) (9,197) (12,184)
Purchases of investments (7,134) (46,105) (55,531)
Purchases of nonutility property (12,605) (66,119) (25,466)
Proceeds from sale of assets 7,821 66,460 225,958
Hawthorn No. 5 partial insurance recovery - 30,000 50,000
Loan to DTI prior to majority ownership - (94,000) -
Other investing activities (6,953) 10,306 18,967
Net cash from investing activities (151,008) (370,685) (199,297)
Cash Flows from Financing Activities
Issuance of common stock 151,800 - -
Issuance of long-term debt 228,876 249,597 500,445
Repayment of long-term debt (238,897) (193,145) (179,858)
Net change in short-term borrowings (168,805) 140,747 (183,099)
Dividends paid (107,424) (104,335) (104,335)
Other financing activities (15,479) (6,883) (5,925)
Net cash from financing activities (149,929) 85,981 27,228
Net Change in Cash and Cash Equivalents 36,268 (5,843) 21,804
Cash and Cash Equivalents at Beginning of Year 29,034 34,877 13,073
Cash and Cash Equivalents at End of Year $ 65,302 $ 29,034 $ 34,877
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
59
GREAT PLAINS ENERGY
Consolidated Statements of Comprehensive Income
Year Ended December 31 2002 2001 2000
(thousands)
Net Income (Loss) $ 126,188 $ (24,171) $ 158,704
Other comprehensive loss:
Gain (loss) on derivative hedging instruments 17,584 (43,706) -
Income tax (expense) benefit (7,138) 18,136 -
Net gain (loss) on derivative hedging instruments 10,446 (25,570) -
Minimum pension obligation (42,218) (1,691) -
Income tax benefit 16,464 660 -
Net minimum pension obligation (25,754) (1,031) -
Reclassification to revenues and expenses, net of tax 2,591 (3,983) 2,337
Comprehensive income (loss) before cumulative
effect of a change in accounting principles,
net of income taxes 113,471 (54,755) 161,041
Cumulative effect to January 1, 2001, of a change
in accounting principles, net of income taxes - 17,443 -
Comprehensive Income (Loss) $ 113,471 $ (37,312) $ 161,041
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
GREAT PLAINS ENERGY
Consolidated Statements of Retained Earnings
Year Ended December 31 2002 2001 2000
(thousands)
Beginning Balance $ 344,815 $ 473,321 $ 418,952
Net Income (Loss) 126,188 (24,171) 158,704
471,003 449,150 577,656
Dividends Declared
Preferred stock - at required rates 1,646 1,647 1,649
Common stock 105,778 102,688 102,686
Ending Balance $ 363,579 $ 344,815 $ 473,321
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
60
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Income
Year Ended December 31 2002 2001 2000
(thousands)
Operating Revenues
Electric revenues $ 1,009,868 $ 1,256,121 $ 1,063,804
Other revenues 61,445 94,773 52,064
Total 1,071,313 1,350,894 1,115,868
Operating Expenses
Fuel 159,666 163,846 153,144
Purchased power 46,214 304,862 190,171
Gas purchased and production expenses - 17,454 30,396
Other 279,207 304,704 249,926
Maintenance 91,858 77,172 74,466
Depreciation and depletion 147,925 152,893 132,378
General taxes 97,699 97,288 92,228
(Gain) Loss on property 59 (22,026) (99,118)
Total 822,628 1,096,193 823,591
Operating income 248,685 254,701 292,277
Loss from equity investments - (501) (19,441)
Minority interest in subsidiaries - (1,276) (4,376)
Non-operating income 4,838 11,996 21,643
Non-operating expenses (9,937) (33,160) (32,620)
Interest charges 82,020 97,653 75,686
Income before income taxes, extraordinary item and
cumulative effect of changes in accounting principles 161,566 134,107 181,797
Income taxes 62,867 30,288 53,166
Income before extraordinary item and cumulative
effect of changes in accounting principles 98,699 103,819 128,631
Early extinguishment of debt, net of income taxes (Note 19) - 15,872 -
Cumulative effect to January 1 of changes in accounting
principles (Note 6 and 7) (3,000) - 30,073
Net income 95,699 119,691 158,704
Preferred stock dividend requirements - 1,098 1,649
Earnings available for common stock $ 95,699 $ 118,593 $ 157,055
The disclosures regarding KCP&L included in the accompanying Notes to
Consolidated Financial Statements are an integral part of these statements.
61
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Balance Sheets
December 31 December 31
2002 2001
(thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 179 $ 962
Receivables 70,170 62,511
Fuel inventories, at average cost 21,311 22,246
Materials and supplies, at average cost 50,800 50,696
Deferred income taxes 3,233 5,061
Other 10,644 11,484
Total 156,337 152,960
Nonutility Property and Investments
Nuclear decommissioning trust fund 63,283 61,766
Other 41,414 40,797
Total 104,697 102,563
Utility Plant, at Original Cost
Electric 4,428,433 4,332,464
Less-accumulated depreciation 1,885,389 1,793,786
Net utility plant in service 2,543,044 2,538,678
Construction work in progress 39,519 51,265
Nuclear fuel, net of amortization
of $121,951 and $127,101 21,506 33,771
Total 2,604,069 2,623,714
Deferred Charges
Regulatory assets 128,901 124,406
Prepaid pension costs 85,945 88,337
Goodwill 19,952 22,952
Other deferred charges 39,256 30,724
Total 274,054 266,419
Total $ 3,139,157 $ 3,145,656
LIABILITIES AND CAPITALIZATION
Current Liabilities
Notes payable $ 23,850 $ 20,404
Commercial paper - 62,000
Current maturities of long-term debt 124,911 227,383
EIRR bonds classified as current 81,000 177,500
Accounts payable 77,618 113,029
Accrued taxes 65,455 15,895
Accrued interest 15,462 11,327
Accrued payroll and vacations 24,538 22,581
Accrued refueling outage costs 8,292 12,979
Other 12,630 14,562
Total 433,756 677,660
Deferred Credits and Other Liabilities
Deferred income taxes 615,967 630,699
Deferred investment tax credits 41,565 45,748
Accrued nuclear decommissioning costs 64,584 63,040
Pension liability 73,251 28,692
Other 51,230 46,494
Total 846,597 814,673
Capitalization (see statements) 1,858,804 1,653,323
Commitments and Contingencies (Note 10)
Total $ 3,139,157 $ 3,145,656
The disclosures regarding KCP&L included in the accompanying Notes to
Consolidated Financial Statements are an integral part of these statements.
62
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Capitalization
December 31 December 31
2002 2001
(thousands)
Long-term Debt (excluding current maturities)
General Mortgage Bonds
Medium-Term Notes due 2004-07,
7.55%* and 7.28%** weighted-average rate $ 55,000 $ 179,000
2.48%* and 2.71%** EIRR bonds due 2012-23 158,768 158,768
EIRR bonds classified as current liabilities (31,000) (31,000)
Senior Notes
7.125% due 2005 250,000 250,000
6.500% due 2011 150,000 150,000
6.000% due 2007 225,000 -
Unamortized discount (915) (660)
EIRR bonds
2.41%* and 3.25%** Series A & B due 2015 109,607 106,500
2.41%* and 3.25%** Series D due 2017 41,183 40,000
4.50%*** Series C due 2017 50,000 50,000
EIRR bonds classified as current liabilities (50,000) (146,500)
Subsidiary Obligations
R.S. Andrews Enterprises, Inc. long-term debt
5.70%* and 8.14%** weighted-average rate due 2004-16 6,128 2,832
Total 963,771 758,940
Company-obligated Mandatorily Redeemable Preferred Securities
of a trust holding solely KCP&L Subordinated Debentures 150,000 150,000
Common Stock Equity
Common stock-1,000 shares authorized without par value
1 share issued, stated value 562,041 526,041
Retained earnings (see statements) 209,606 219,524
Accumulated other comprehensive income (loss)
Income (loss) on derivative hedging instruments 171 (151)
Minimum pension obligation (26,785) (1,031)
Total 745,033 744,383
Total $ 1,858,804 $ 1,653,323
* Weighted-average rate as of December 31, 2002
** Weighted-average rate as of December 31, 2001
*** Weighted-average rate as of December 31, 2002 and 2001
The disclosures regarding KCP&L included in the accompanying Notes to
Consolidated Financial Statements are an integral part of these statements.
63
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Cash Flows
Year Ended December 31 2002 2001 2000
(thousands)
Cash Flows from Operating Activities
Net income $ 95,699 $ 119,691 $ 158,704
Adjustments to reconcile net income to net cash
from operating activities:
Early extinguishment of debt, net of income taxes - (15,872) -
Cumulative effect of changes in accounting principles 3,000 - (30,073)
Depreciation and depletion 147,925 152,893 132,378
Amortization of:
Nuclear fuel 13,109 17,087 15,227
Other 9,581 15,717 11,940
Deferred income taxes (net) 11,355 12,867 (29,542)
Investment tax credit amortization (4,183) (4,289) (4,296)
Loss from equity investments - 501 19,441
(Gain) Loss on property 59 (22,026) (99,118)
Allowance for equity funds used during construction (299) (3,616) (4,001)
Deferred storm costs (20,149) - -
Other operating activities (Note 2) 19,204 (35,322) 23,213
Net cash from operating activities 275,301 237,631 193,873
Cash Flows from Investing Activities
Utility capital expenditures (132,039) (262,030) (401,041)
Allowance for borrowed funds used during construction (979) (9,197) (12,184)
Purchases of investments (3,421) (41,548) (55,531)
Purchases of nonutility property (1,279) (49,254) (25,466)
Proceeds from sale of assets - 64,072 225,958
Hawthorn No. 5 partial insurance recovery - 30,000 50,000
Loan to DTI prior to majority ownership - (94,000) -
Other investing activities (7,289) 8,087 18,967
Net cash from investing activities (145,007) (353,870) (199,297)
Cash Flows from Financing Activities
Issuance of long-term debt 228,876 249,597 500,445
Repayment of long-term debt (227,513) (93,099) (179,858)
Net change in short-term borrowings (58,554) 14,524 (183,099)
Dividends paid - (78,246) (104,335)
Dividends paid to Great Plains Energy (105,617) (25,677) -
Cash of KLT Inc. and GPP dividended to - (19,115) -
Great Plains Energy
Equity contribution from Great Plains Energy 36,000 39,000 -
Other financing activities (4,269) (4,660) (5,925)
Net cash from financing activities (131,077) 82,324 27,228
Net Change in Cash and Cash Equivalents (783) (33,915) 21,804
Cash and Cash Equivalents at Beginning of Year 962 34,877 13,073
Cash and Cash Equivalents at End of Year $ 179 $ 962 $ 34,877
The disclosures regarding KCP&L included in the accompanying Notes to
Consolidated Financial Statements are an integral part of these statements.
64
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Comprehensive Income
Year Ended December 31 2002 2001 2000
(thousands)
Net income $ 95,699 $ 119,691 $ 158,704
Other comprehensive income (loss):
Income (loss) on derivative hedging instruments 702 (39,952) -
Income tax (expense) benefit (274) 16,590 -
Net income (loss) on derivative hedging instruments 428 (23,362) -
Minimum pension obligation (42,218) (1,691) -
Income tax benefit 16,464 660 -
Net minimum pension obligation (25,754) (1,031) -
Reclassification to revenues and expenses, net of tax (106) (7,687) 2,337
Comprehensive income before cumulative
effect of a change in accounting principles,
net of income taxes 70,267 87,611 161,041
Cumulative effect to January 1, 2001, of a change
in accounting principles, net of income taxes - 17,443 -
Comprehensive Income $ 70,267 $ 105,054 $ 161,041
The disclosures regarding KCP&L included in the accompanying Notes to
Consolidated Financial Statements are an integral part of these statements.
KANSAS CITY POWER & LIGHT COMPANY
Consolidated Statements of Retained Earnings
Year Ended December 31 2002 2001 2000
(thousands)
Beginning Balance $ 219,524 $ 473,321 $ 418,952
Net Income 95,699 119,691 158,704
315,223 593,012 577,656
Dividends Declared
Preferred stock - at required rates - 824 1,649
Common stock - 77,011 102,686
Common stock held by Great Plains Energy 105,617 25,677 -
Equity dividend of KLT Inc. and GPP
to Great Plains Energy - 269,976 -
Ending Balance $ 209,606 $ 219,524 $ 473,321
The disclosures regarding KCP&L included in the accompanying Notes to
Consolidated Financial Statements are an integral part of these statements.
65
GREAT PLAINS ENERGY INCORPORATED
KANSAS CITY POWER & LIGHT COMPANY
Notes to Consolidated Financial Statements
The notes to consolidated financial statements that follow are a combined
presentation for Great Plains Energy and consolidated KCP&L, both registrants
under this filing.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Great Plains Energy, a Missouri corporation incorporated in 2001, is a public
utility holding company registered with and subject to the regulation of the SEC
under the 35 Act. Through a corporate restructuring, which was consummated on
October 1, 2001, Great Plains Energy became the parent company and sole owner of
the common stock of KCP&L. This restructuring was implemented through an
agreement and plan of merger whereby KCP&L merged with a wholly-owned subsidiary
of Great Plains Energy, with KCP&L continuing as the surviving company and
wholly-owned subsidiary of Great Plains Energy. Each outstanding share of KCP&L
stock was exchanged for a share of Great Plains Energy stock. As a result, Great
Plains Energy replaced KCP&L as the listed entity on the New York Stock
Exchange, with the trading symbol GXP. In connection with the reorganization,
KCP&L transferred to Great Plains Energy its interest in two wholly-owned
subsidiaries, KLT Inc. and GPP. Great Plains Energy does not own or operate any
significant assets other than the stock of its subsidiaries.
Great Plains Energy currently has four direct subsidiaries:
o KCP&L is an integrated electric utility company that serves retail
customers in the states of Missouri and Kansas. KCP&L is one of Great
Plains Energy's three reportable segments. KCP&L has one wholly-owned
subsidiary, HSS. HSS has invested in two companies, RSAE and Worry
Free. RSAE and Worry Free provide energy-related residential and
commercial services.
o KLT Inc. is an investment company that primarily holds interests in
Strategic Energy, KLT Gas, DTI and affordable housing limited
partnerships. Strategic Energy and KLT Gas are the other two reportable
segments of Great Plains Energy. DTI has filed voluntary bankruptcy
petitions. See Note 19 for additional information concerning DTI's
bankruptcy petitions.
o GPP focuses on the development of wholesale generation. During 2002,
management decided to limit the operations of GPP until market
conditions improve or the Company makes further changes in its business
strategy. GPP has made no significant investments to date.
o IEC was formed to acquire and hold an interest in Strategic Energy. See
Note 9 for additional information concerning IEC's acquisition of an
indirect interest in Strategic Energy. IEC does not own or operate any
assets other than its indirect interest in Strategic Energy.
The operations of Great Plains Energy and its subsidiaries are divided into
three reportable segments: KCP&L, Strategic Energy and KLT Gas. Great Plains
Energy's legal structure differs from the functional management and financial
reporting of its reportable segments. Other activities not considered reportable
segment primarily include the operations of HSS and GPP, all KLT Inc. operations
other than Strategic Energy and KLT Gas and holding company operations.
66
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original
maturities of three months or less. For Great Plains Energy this includes
Strategic Energy's cash held in trust of $11.4 million at December 31, 2002 and
$2.2 million at December 31, 2001.
Strategic Energy has entered into collateral arrangements with selected
electricity power suppliers that require selected customers to remit payment to
lockboxes that are held in trust and managed by a Trustee. As part of the trust
administration, the Trustee remits payment to the supplier for electricity
purchased by Strategic Energy. Any excess remittances into the lockboxes are
remitted back to Strategic Energy after the disbursement to the supplier has
been made.
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:
Investments and Nonutility Property--Consolidated KCP&L's investments and
nonutility property includes the nuclear decommissioning trust fund recorded at
fair value. Fair value is based on quoted market prices of the investments held
by the fund. In addition to consolidated KCP&L's investments, Great Plains
Energy's investments and nonutility property include KLT Investments' affordable
housing limited partnerships and trading equity securities. The fair value of
KLT Investments' affordable housing limited partnership total portfolio, based
on the discounted cash flows generated by tax credits, tax deductions and sale
of properties, approximates book value. KLT Investments' other trading equity
securities are recorded at fair value based on quoted market prices of the
investments held. The fair values of other various investments are not readily
determinable and the investments are therefore stated at cost.
Long-term debt--The 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.
Investments in Affordable Housing Limited Partnerships
At December 31, 2002, KLT Investments had $68.6 million in affordable housing
limited partnerships. About 67% of these investments were recorded at cost; the
equity method was used for the remainder. Tax expense is reduced in the year tax
credits are generated. The investments generate future cash flows from tax
credits and tax losses of the partnerships. The investments also generate cash
flows from the sales of the properties. For most investments, tax credits are
received over ten years. KLT Investments projects tax credits to run through
2009. 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, $44.2
million exceed this 5% level but were made before May 19, 1995. KLT Investments'
management does not anticipate making additional investments in affordable
housing limited partnerships at this time.
On a quarterly basis, KLT Investments compares the cost of those properties
accounted for by the cost method to the total of projected residual value of the
properties and remaining tax credits to be received. Estimated residual values
are based on studies performed by an independent firm. Based on the latest
comparison, KLT Investments reduced its investments in affordable housing
limited partnerships by $9.0 million, $13.5 million and $2.4 million in 2002,
2001 and 2000, respectively. Projected annual reductions of the book cost for
the years 2003 through 2006 total $13 million, $7 million, $7 million and $6
million, respectively. Even after these reductions, earnings from affordable
housing are expected to be positive for the years 2003 through 2006.
These projections are based on the latest information available but the ultimate
amount and timing of actual reductions made could be significantly different
from the above estimates.
67
Securities Available for Sale
In 2000, CellNet completed a sale of its assets to a third party causing KLT
Inc.'s investment in CellNet to become worthless. Accordingly, in March 2000,
KLT Inc. realized losses on its investment in CellNet of $3.1 million after tax.
Utility Plant
KCP&L's utility plant is stated at historical costs of construction. These costs
include taxes, an allowance for the cost of borrowed and equity funds used to
finance construction 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. Substantially all utility plant is pledged as
collateral for KCP&L's mortgage bonds under the General Mortgage Indenture and
Deed of Trust dated December 1, 1986, as supplemented.
The balances of utility plant in service with a range of depreciable lives are
listed in the table below:
December 31
Utility Plant In Service 2002 2001
(thousands)
Production (23 - 42 years) $ 2,712,170 $ 2,681,060
Transmission (27 - 76 years) 282,117 247,626
Distribution (8 - 75 years) 1,218,606 1,180,056
General (5 - 50 years) 215,540 223,722
Total $ 4,428,433 $ 4,332,464
Through December 31, 2002, KCP&L has received $160 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 as an
increase in accumulated depreciation.
As prescribed by the FERC, AFDC is charged to the cost of the plant. AFDC is
included in the rates charged to customers by KCP&L over the service life of the
property. AFDC equity funds are included as a non-cash item in non-operating
income and AFDC borrowed funds are a reduction of interest charges. The rates
used to compute gross AFDC are compounded semi-annually and averaged 4.4% in
2002, 6.8% in 2001 and 7.5% in 2000.
Natural Gas Properties
The Company does not have significant oil and gas producing activities based on
the results of the significance tests preformed as prescribed in SFAS No. 69,
"Disclosures About Oil and Gas Producing Activities." KLT Gas follows the full
cost method of accounting for its natural gas properties, substantially all of
which were undeveloped at December 31, 2002. The full cost method requires that
all costs associated with property acquisition, exploration and development
activities be capitalized. Any excess of book value over the present value (10%
discount rate) of estimated future net revenues (at year-end prices) from the
natural gas reserves is expensed. All natural gas property interests owned by
KLT Gas are located in the United States.
Natural gas property and equipment included in gas property and investments on
Great Plains Energy's consolidated balance sheets totaled $45.0 million, net of
$8.5 million of accumulated depreciation, in 2002 and $39.9 million, net of $5.0
million of accumulated depreciation, in 2001.
68
Other Nonutility Property
Great Plains Energy's and consolidated KCP&L's other nonutility property
includes land, buildings, vehicles, general office equipment and software and is
recorded at historical cost, net of accumulated depreciation, and has a range of
depreciable lives of 3 to 43 years.
Depreciation, Depletion and Amortization
Depreciation of KCP&L's utility plant other than nuclear fuel 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%. Depreciation of nonutility property is computed using the
straight-line method. Excluding DTI, annual depreciation rates for the years
2002, 2001 and 2000 were 19.3%, 15.3% and 13.3%, respectively.
KCP&L amortizes nuclear fuel to fuel expense based on the quantity of heat
produced during the generation of electricity. Regulatory assets and liabilities
are amortized consistent with the recovery period.
Prior to adoption of SFAS No. 142 on January 1, 2002, Great Plains Energy and
consolidated KCP&L amortized goodwill using the straight-line method over a 15
and 40 year life. See Note 6 for additional information concerning the adoption
of SFAS No. 142.
Depletion, depreciation and amortization of natural gas properties are
calculated using the units of production method. The depletion per mmBtu was
$4.61 in 2002, $1.35 in 2001, and $0.63 in 2000. The depletion per mmBtu in 2002
reflected downward revisions in reserve estimates. Unproved gas properties are
not amortized but are assessed for impairment either individually or on an
aggregated basis.
Nuclear Fuel
Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the
permanent disposal of spent nuclear fuel. KCP&L pays the DOE a quarterly fee of
one-tenth of a cent for each kilowatt-hour of net nuclear generation delivered
and sold for the future disposal of spent nuclear fuel. These disposal costs are
charged to fuel expense. In 2002, the U.S. Senate approved Yucca Mountain,
Nevada as a long-term geologic repository. The DOE is currently in the process
of preparing an application to obtain the NRC license to proceed with
construction of the repository. Management cannot predict when this site may be
available. 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.
Wolf Creek has completed an on-site storage facility that is designed to hold
all spent fuel generated at the plant through the end of its 40-year licensed
life in 2025.
Wolf Creek Refueling Outage Costs
KCP&L accrues forecasted incremental costs to be incurred during scheduled Wolf
Creek refueling outages 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 are probable.
Nuclear Plant Decommissioning Costs
The MPSC and the KCC require KCP&L and the other owners of Wolf Creek to submit
an updated decommissioning cost study every three years. The most recent study
was submitted to the MPSC and the KCC on August 30, 2002, and is the basis for
the decommissioning cost estimates in the table below. The MPSC has since
approved continuation of funding at the previously approved level. The KCC is
expected to rule on the new decommissioning cost estimate and the associated
escalation and earnings assumptions in the spring of 2003. The escalation rates
and earnings assumptions shown in
69
the table below are those that were last explicitly approved by the MPSC and the
KCC. The decommissioning cost estimates are based on the immediate dismantlement
method and include the costs of decontamination, dismantlement and site
restoration. KCP&L does not expect plant decommissioning to start before 2025.
KCC MPSC
Future cost of decommissioning:
Total Station $1.1 billion $1.3 billion
47% share $497 million $606 million
Current cost of decommissioning (in 2002 dollars):
Total Station $468 million $468 million
47% share $220 million $220 million
Annual escalation factor 3.60% 4.50%
Annual return on trust assets 6.93% 7.66%
KCP&L contributes about $3 million annually to a tax-qualified trust fund to be
used to decommission Wolf Creek. These costs are charged to other operating
expenses and recovered in billings to customers. These funding levels assume a
certain return on trust assets. If the actual return on trust assets is below
the anticipated level, KCP&L believes a rate increase would be allowed ensuring
full recovery of decommissioning costs over the remaining life of the station.
The trust fund balance, including reinvested earnings, was $63.3 million at
December 31, 2002, and $61.8 million at December 31, 2001. The related
liabilities for decommissioning are included in Deferred Credits and Other
Liabilities -- Other.
The Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations"
on January 1, 2003. See Note 12 for discussion of asset retirement obligations
including those associated with nuclear plant decommissioning costs.
Regulatory Matters
KCP&L is subject to the provisions of SFAS No. 71. Pursuant to SFAS No. 71,
KCP&L defers items on the balance sheet resulting from the effects of the
ratemaking process, which would not be recorded under GAAP if KCP&L was not
regulated. See Note 4 for additional information concerning regulatory matters.
Revenue Recognition
KCP&L and Strategic Energy recognize revenues on sales of electricity when the
service is provided. KLT Gas records natural gas sales revenues based on the
amount of gas sold to purchasers on its behalf. Receivables recorded at December
31, 2002 and 2001, include $27.2 million and $28.9 million, respectively, for
electric services provided but not yet billed by KCP&L, and $57.3 million and
$48.5 million, respectively, for electric services provided, but not yet billed
by Strategic Energy. See Note 3 for additional information on receivables.
To supply its retail contracts, Strategic Energy purchases long-term blocks of
electricity under forward contracts in fixed quantities at fixed prices from
power suppliers based on projected usage. Strategic Energy sells any excess
retail supply of electricity back into the wholesale market. The proceeds from
the sale of excess supply of electricity are recorded as a reduction of
purchased power. The gross amount of excess retail supply sales that reduced
purchased power was $126.4 million, $95.6 million and $29.5 million in 2002,
2001 and 2000, respectively.
70
Property Gains and Losses
Net gains and losses from the sales of assets, businesses, and net asset
impairments are recorded in operating expenses. See Note 19 for additional
information regarding the net impairment of DTI assets.
Asset Impairments
Long-lived assets and intangible assets subject to amortization are periodically
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable as prescribed under
SFAS No. 144. SFAS No. 144 requires that if the sum of the undiscounted expected
future cash flows from an asset to be held and used is less than the carrying
value of the asset, an asset impairment must be recognized in the financial
statements. The amount of impairment recognized is the excess of the carrying
value of the asset over its fair value.
Goodwill is tested for impairment at least annually and more frequently when
indicators of impairment exist as prescribed under SFAS No. 142. SFAS No. 142
requires that if the fair value of a reporting unit is less than its carrying
value including goodwill, an impairment charge for goodwill must be recognized
in the financial statements. To measure the amount of the impairment loss to
recognize, the implied fair value of the reporting unit goodwill would be
compared with its carrying value. See Note 6 for information regarding the
impact of adopting SFAS No. 142 on goodwill and goodwill amortization.
Income Taxes
Great Plains Energy and its subsidiaries file consolidated federal and combined
and separate state income tax returns. Income taxes for consolidated or combined
subsidiaries are allocated to the subsidiaries based on separate company
computations of taxable income or loss. In accordance with 35 Act requirements,
the holding company allocates its own net income tax benefits to its direct
subsidiaries based on the positive taxable income of each company in the
consolidated federal or combined state returns. KCP&L uses the separate return
method to compute its income tax provision. For the years ended December 31,
2002 and 2001, there were no differences between the separate return method used
to compute KCP&L's tax provision and the formula to compute the amount it owed
to Great Plains Energy under the allocation previously described.
The consolidated balance sheets include 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. A tax valuation allowance is recorded when it is more
likely than not that a deferred tax asset will not be realized. See Note 19 for
additional information concerning the valuation allowance related to DTI.
Regulatory Asset -- Recoverable taxes reflects the future revenue requirements
necessary to recover the tax benefits of existing temporary differences
previously passed through to KCP&L customers. KCP&L records operating income tax
expense based on ratemaking principles.
Tax credits are recognized in the year generated except for certain KCP&L
investment tax credits that have been deferred and amortized over the remaining
service lives of the related properties.
Environmental Matters
Environmental costs are accrued when it is probable a liability has been
incurred and the amount of the liability can be reasonably estimated.
Basic and Diluted Earnings (Loss) per Common Share Calculation
There was no dilutive effect on Great Plains Energy's earnings per share from
other securities in 2002, 2001 or 2000. To determine earnings (loss) per common
share, preferred stock dividend requirements
71
are deducted from both income before extraordinary item and cumulative effect of
changes in accounting principles and net income before dividing by average
number of common shares outstanding. The earnings (loss) per share impact of the
extraordinary item and the cumulative effect of changes in accounting principles
is determined by dividing each by the average number of common shares
outstanding.
Earnings per share for KCP&L and Great Plains Energy are the same in 2000 prior
to the formation of the holding company. The following table reconciles Great
Plains Energy's basic and diluted earnings (loss) per common share calculation:
Income Shares EPS
2002 (thousands except per share amounts)
Income before cumulative effect $ 129,188
Less: Preferred stock dividend requirement 1,646
Basic EPS
Income available to common stockholders 127,542 62,623 $ 2.04
Add: effect of dilutive securities 1
Diluted EPS $ 127,542 62,624 $ 2.04
Income (Loss) Shares EPS
2001 (thousands except per share amounts)
Loss before extraordinary item $ (40,043)
Less: Preferred stock dividend requirement 1,647
Basic EPS
Income available to common stockholders (41,690) 61,864 $(0.68)
Add: effect of dilutive securities -
Diluted EPS $ (41,690) 61,864 $(0.68)
Income Shares EPS
2000 (thousands except per share amounts)
Income before cumulative effect $ 128,631
Less: Preferred stock dividend requirement 1,649
Basic EPS
Income available to common stockholders 126,982 61,864 $ 2.05
Add: effect of dilutive securities 19
Diluted EPS $ 126,982 61,883 $ 2.05
Options to purchase 394,723 shares of common stock as of December 31, 2002, were
excluded from the computation of diluted earnings per share because the option
exercise prices were greater than the average market price of the common shares
at the end of the respective periods. Options to purchase 277,902 shares of
common stock as of December 31, 2001, were excluded from the diluted earnings
calculation because the Company had a net loss from operations; therefore no
potential common shares are included in the calculation because the effect is
always anti-dilutive.
72
2. SUPPLEMENTAL CASH FLOW INFORMATION
Great Plains Energy Other Operating Activities
2002 2001 2000
Cash flows affected by changes in: (thousands)
Receivables $ (43,858) $ (32,680) $ (42,565)
Fuel inventories 1,339 (1,444) 1,787
Materials and supplies (104) (4,294) (113)
Accounts payable 1,591 9,495 66,765
Accrued taxes and current income taxes 45,964 (31,133) 13,430
Accrued interest 3,145 667 (2,865)
Wolf Creek refueling outage accrual (4,687) 11,089 (5,166)
Pension and postretirement benefit obligations 3,774 (22,577) (12,653)
Other 20,858 30,622 217
Total other operating activities $ 28,022 $ (40,255) $ 18,837
Cash paid during the period:
Interest $ 83,818 $ 84,907 $ 76,395
Income taxes $ 17,709 $ 21,614 $ 80,445
During November 2002, Great Plains Energy indirectly acquired an additional 6%
ownership in Strategic Energy through its recently created subsidiary, IEC. The
$15.1 million consideration paid for the 6% ownership consisted of $8.0 million
in Great Plains Energy common stock and promissory notes of $4.7 million (issued
by Great Plains Energy) and $2.4 million (issued by IEC). The promissory notes
were paid in January 2003. This transaction had no effect on Great Plains
Energy's consolidated statement of cash flows for the year ended December 31,
2002. See Note 9 for additional information regarding this transaction.
On February 8, 2001, KLT Telecom increased its equity ownership in DTI to a
majority ownership. On December 31, 2001, DTI filed voluntary petitions in
Bankruptcy Court. As a result, DTI was consolidated and its operations were
included in KLT Telecom's results of operations from February 8, 2001, through
December 31, 2001, prior to the bankruptcy filings at which time DTI was
de-consolidated. See Note 19 for additional information concerning the
bankruptcy filings.
73
The table below reflects a reconciliation of DTI's effect on Great Plains
Energy's consolidated statement of cash flows for the year ended December 31,
2001, to the cash invested in DTI during 2001.
2001
Cash Flows from Operating Activities (thousands)
Amounts included in net income (loss) $(248,437)
Depreciation 17,907
Goodwill amortization 2,481
Loss on property (net impairment) 195,835
Other operating activities
Accretion of Senior Discount Notes and
amortization of the discount 16,364
Other 1,719
DTI adjustment to operating activities 234,306
Net cash from operating activities $ (14,131)
Cash Flows from Investing Activities
Purchase of additional ownership in DTI (39,855)
Purchase of nonutility property (33,648)
Loans to DTI prior to consolidation (94,000)
Other investing activities 3,002
DTI effect on cash from investing activities (164,501)
Cash Flows from Financing Activities
DTI effect on cash from financing activities (2,223)
Cash flows from DTI investment $(180,855)
Cash invested in DTI
Loan to DTI holdings $ (94,000)
Operating loans to Digital Teleport, Inc. (47,000)
Purchase of additional ownership in DTI (39,855)
Cash used for DTI investment $(180,855)
Consolidated KCP&L Other Operating Activities
2002 2001 2000
Cash flows affected by changes in: (thousands)
Receivables $ (7,659) $ (43,604) $ (42,565)
Fuel inventories 1,339 (1,444) 1,787
Materials and supplies (104) (4,294) (113)
Accounts payable (35,411) (14,878) 66,765
Accrued taxes and current income taxes 49,560 (1,995) 13,430
Accrued interest 4,135 610 (2,865)
Wolf Creek refueling outage accrual (4,687) 11,089 (5,166)
Pension and postretirement benefit obligations 3,774 (22,577) (12,653)
Other 8,257 41,771 4,593
Total other operating activities $ 19,204 $ (35,322) $ 23,213
Cash paid during the period:
Interest $ 75,754 $ 82,867 $ 76,395
Income taxes $ 11,330 $ 21,470 $ 80,445
74
As described in Note 1, KCP&L distributed, as a dividend, its ownership in KLT
Inc. and GPP to Great Plains Energy on October 1, 2001. The effect of this
transaction on KCP&L's consolidated statement of cash flows for the year ended
December 31, 2001, is summarized in the table that follows.
Effect of dividend to Great Plains Energy: October 1, 2001
Assets (thousands)
Cash $ 19,115
Equity securities 283
Receivables 101,539
Nonutility property and investment 529,121
Goodwill 75,534
Other assets 8,542
Total assets $ 734,134
Liabilities and Accumulated Other Comprehensive Income
Notes payable $ 3,077
Accounts payable 67,853
Accrued taxes (1,050)
Accrued interest 1,878
Deferred income taxes (23,868)
Deferred telecommunications revenue 45,595
Other liabilities and deferred credits 54,340
Long-term debt 329,788
Accumulated other comprehensive income (13,455)
Total liabilities and accumulated other
comprehensive income 464,158
Equity dividend of KLT Inc. and GPP to Great Plains Energy $ 269,976
During the first quarter of 2001, KLT Telecom increased its equity ownership in
DTI to a majority ownership and HSS increased its equity ownership in RSAE to a
majority ownership. The effect of these transactions is summarized in the tables
that follow. The initial consolidation of DTI (February 8, 2001) and RSAE
(January 1, 2001) are excluded from both Great Plains Energy and KCP&L's
consolidated statement of cash flows for the year December 31, 2001. See Note 19
for information concerning of DTI's bankruptcy filings.
75
DTI RSAE
(thousands)
Cash paid to obtain majority ownership $ (39,855) $ (560)
Subsidiary cash 4,557 1,053
Purchase of DTI and RSAE, net of cash received $ (35,298) $ 493
Initial consolidation of subsidiaries:
Assets
Cash $ 4,557 $ 1,053
Receivables 1,012 4,078
Other nonutility property and investments 363,825 6,267
Goodwill 62,974 24,496
Other assets 5,143 3,919
Eliminate equity investment (67,660) (7,200)
Total assets $ 369,851 $ 32,613
Liabilities
Notes payable $ 5,300 $ 10,057
Accounts payable 31,299 6,219
Accrued taxes 2,414 24
Deferred income taxes 7,437 -
Other liabilities and deferred credits 46,531 13,418
Loan from KLT Telecom (a) 94,000 -
Long-term debt 182,870 2,895
Total liabilities $ 369,851 $ 32,613
(a) KLT Telecom provided a $94 million loan to DTI for the completion of the
tender offer of 50.4 percent of DTI's Senior Discount Notes prior to
increasing its DTI investment to a majority ownership.
Sales of KLT Gas properties
KLT Gas sold producing natural gas properties during 2000. The transactions are
summarized in the table below.
2000
(thousands)
Cash proceeds $ 125,958
Preferred stock redeemed (a) 100,000
Total cash proceeds 225,958
Equity securities 10,000
Receivable 1,243
Total proceeds 237,201
Cost basis in property sold (87,785)
Accounts payable (b) (23,168)
Other assets and liabilities (b) (15,670)
Gain on sale before income tax 110,578
Income tax (42,606)
Gain on sale, net of income tax $ 67,972
(a) The preferred stock received in September 2000 was redeemed in December
2000.
(b) Includes $7.9 million of incentive compensation.
76
3. RECEIVABLES
The Company's accounts receivables are comprised of the following:
December 31
2002 2001
(thousands)
Receivables Company $ 19,168 $ 25,723
KCP&L other receivables 51,002 36,788
Consolidated KCP&L receivables 70,170 62,511
Great Plains Energy other receivables 130,802 89,603
Great Plains Energy receivables $ 200,972 $ 152,114
KCP&L has entered into a revolving agreement, which expires in October 2003, to
sell all of its right, title and interest in the majority of its customer
accounts receivable to Kansas City Power & Light Receivables Company
(Receivables Company), which in turn sells most of the receivables to outside
investors. KCP&L expects the agreement to be renewed annually. Accounts
receivable sold under this revolving agreement totaled $89.2 million at December
31, 2002, and $95.7 million at December 31, 2001. These sales included unbilled
receivables of $27.2 million and $28.9 million at December 31, 2002 and 2001,
respectively. As a result of the sales to outside investors, Receivables
Company received $70 million in cash, which was forwarded to KCP&L as
consideration for its sale. The agreement is structured as a true sale under
which the creditors of Receivables Company are entitled to be satisfied out of
the assets of Receivables Company prior to any value being returned to KCP&L or
its creditors.
KCP&L sells its receivables at a fixed price based upon the expected cost of
funds and charge-offs. These costs comprise KCP&L's loss on the sale of accounts
receivable and are included in non-operating expenses. KCP&L services the
receivables and receives an annual servicing fee of 0.25% of the outstanding
principal amount of the receivables sold and retains any late fees charged to
customers. Management is still evaluating whether KCP&L will be required to
consolidate Receivables Company under FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities".
Information regarding KCP&L's sale of accounts receivable is reflected in the
following table.
For the years ended December 31 2002 2001 2000
(thousands)
Gross proceeds on sale of
accounts receivable $ 957,222 $ 949,045 $ 972,436
Collections 974,669 952,122 942,612
Loss on sale of accounts receivable 4,558 8,776 13,032
Late fees 2,572 3,045 2,474
KCP&L other receivables at December 31, 2002 and 2001, consist primarily of
receivables from partners in jointly-owned electric utility plants, wholesale
sales receivables and accounts receivable held by RSAE and Worry Free. Great
Plains Energy other receivables at December 31, 2002 and 2001, are primarily the
accounts receivable held by Strategic Energy including unbilled revenues held by
Strategic Energy of $57.3 million and $48.5 million December 31, 2002 and 2001,
respectively.
77
4. REGULATORY MATTERS
Regulatory Assets and Liabilities
As discussed in Note 1, KCP&L is subject to the provisions of SFAS No. 71.
Accordingly, KCP&L has recorded assets and liabilities on its balance sheet
resulting from the effects of the ratemaking process, which would not be
recorded under GAAP for non-regulated entities. Regulatory assets represent
incurred costs that have been deferred because they are probable of future
recovery in customer rates. Regulatory liabilities generally represent probable
future reductions in revenue or refunds to customers. KCP&L's continued ability
to meet the criteria for application of SFAS No. 71 may be affected in the
future by competitive forces and restructuring in the electric industry. In the
event that SFAS No. 71 no longer applied to all, or a separable portion, of
KCP&L's operations, the related regulatory assets and liabilities would be
written off unless an appropriate regulatory recovery mechanism is provided.
Amortization
ending December 31 December 31
period 2002 2001
Regulatory Assets (millions)
Taxes recoverable through future rates $ 100.0 $ 108.0
Coal contract termination costs 2003 1.6 6.4
Decommission and decontaminate federal
uranium enrichment facilities 2007 3.3 3.9
Loss on reaquired debt 2023 4.7 5.1
January 2002 incremental ice storm costs 2007 18.6 -
Other (a) 2006 0.7 1.0
Total Regulatory Assets $ 128.9 $ 124.4
Regulatory Liabilities
Taxes recoverable through future rates $ (100.0) $ (108.0)
Emission allowances (b) (3.6) (3.5)
Total Regulatory Liabilities $ (103.6) $ (111.5)
(a) $0.5 million earns a return on investment in the rate making process.
(b) Consistent with the MPSC order establishing regulatory treatment, no
amortization is being recorded.
Retail Rate Matters
At the end of January 2002, a severe ice storm occurred throughout large
portions of the Midwest, including the greater Kansas City metropolitan area. At
its peak, the storm caused over 300,000 customer outages throughout the KCP&L
territory. Costs related to the January ice storm were approximately $51.3
million of which $14.7 million were capital expenditures and therefore recorded
to utility plant. KCP&L expensed $16.5 million for the Kansas jurisdictional
portion of the storm costs and deferred as a regulatory asset $20.1 million of
the storm costs applicable to Missouri.
In the second quarter of 2002, the KCC approved the stipulation and agreement
that KCP&L had reached with the KCC staff and the Citizens Utility Ratepayers
Board with regard to treatment of the Kansas portion of the ice storm costs.
Under this stipulation and agreement, KCP&L received a rate moratorium until
2006 in exchange for KCP&L's agreement to not seek recovery of the $16.5 million
expense for the Kansas jurisdictional portion of the storm costs and to reduce
rates by $12 - $13 million in 2003. Additionally, KCP&L agreed to determine
depreciation expense of Wolf Creek using a 60 year life instead of a 40 year
life effective January 2003, which results in a reduction of expense by
approximately $8 million in 2003. KCP&L will record a regulatory asset for the
reduction in depreciation expense. KCP&L also agreed to file a rate case by May
15, 2006. In December 2002, the KCC approved tariffs implementing the
stipulation and agreement, which resulted in a reduction of $12.4 million in
annual Kansas retail revenues, effective January 1, 2003.
78
Effective August 2002, the MPSC approved KCP&L's application for an accounting
authority order related to the Missouri jurisdictional portion of the storm
costs. The order allowed KCP&L to defer and amortize $20.1 million, representing
the Missouri impact of the storm, through January 2007. The amortization began
in September 2002 and totaled $1.5 million in 2002. KCP&L will amortize
approximately $4.6 million annually for the remainder of the amortization
period. In October 2002, the Staff of the MPSC concluded its review of the
Missouri jurisdictional earnings for KCP&L and determined that the current rate
levels do not warrant action.
5. EQUITY METHOD INVESTMENTS
See Note 19 for information regarding 2001 activity in KLT Telecom's investment
in DTI.
Sale of KLT Investments II 's Ownership of Downtown Hotel Group
On May 31, 2001, KLT Investments II sold its 25% ownership of Kansas City
Downtown Hotel Group, L.L.C. for total proceeds of $3.8 million resulting in a
$1.4 million after tax gain.
Sale of KLT Gas Properties
On June 28, 2001, KLT Gas sold its 50% ownership in Patrick KLT Gas, LLC for
total proceeds of $42.3 million resulting in a $12.0 million after tax gain.
After the acquisition of majority ownership in RSAE (see Note 2 for additional
information) and the sales of the equity method investments discussed above, the
Company has no remaining equity method investments other than affordable housing
limited partnerships held by KLT Investments.
6. GOODWILL AND INTANGIBLE PROPERTY
SFAS No. 142, "Goodwill and Other Intangible Assets"
The Company adopted SFAS No. 142 on January 1, 2002. Under the new standard,
goodwill is no longer amortized, but rather is tested for impairment upon
adoption and at least annually thereafter. The annual test may be performed
anytime during the year, but must be performed at the same time each year.
Strategic Energy's transition and 2002 annual impairment tests have been
completed and there was no impairment of the Strategic Energy goodwill. Goodwill
reported on Great Plains Energy's consolidated balance sheets associated with
the Company's ownership in Strategic Energy totaled $26.1 million and $14.1
million at December 31, 2002 and 2001, respectively. The 2002 increase in
goodwill was a result of IEC's acquisition of a 5.8% indirect ownership interest
in Strategic Energy.
After the transition impairment test of RSAE goodwill, the Company recorded a
$3.0 million write-down of goodwill. The goodwill write-down is reflected as a
cumulative effect to January 1, 2002, of a change in accounting principle. RSAE
completed its first annual impairment test in September 2002. The test indicated
no impairment. Goodwill reported on Great Plains Energy's and consolidated
KCP&L's balance sheets associated with HSS' ownership interest in RSAE totaled
$20.0 million and $23.0 million at December 31, 2002 and 2001, respectively.
The following table adjusts the reported 2001 and 2000 Great Plains Energy and
consolidated KCP&L income statement information to add back goodwill
amortization as if the non-amortization provisions of SFAS No. 142 had been
applied during all periods presented.
79
Great Plains Energy
2001 2000 (a)
(thousands except per share amounts)
Income (loss) before extraordinary item and cumulative
effect, as reported $ (40,043) $ 128,631
Add back: Goodwill amortization 3,713 412
Income (loss) before extraordinary item and cumulative effect (36,330) 129,043
Early extinguishment of debt, net of income taxes 15,872 -
Cumulative effect to January 1, 2000, of changes in
accounting principles, net of income taxes - 30,073
Net (loss) income, as adjusted (20,458) 159,116
Preferred stock dividend requirements 1,647 1,649
Earnings (loss) available for common stock, as adjusted $ (22,105) $ 157,467
Basic and diluted earnings (loss) per common share before
extraordinary item and cumulative effect, as reported $ (0.68) $ 2.05
Add back: Goodwill amortization 0.06 0.01
Basic and diluted earnings (loss) per common share before
extraordinary item and cumulative effect, as adjusted (0.62) 2.06
Early extinguishment of debt 0.26 -
Cumulative effect to January 1, 2000, of changes in
accounting principles - 0.49
Basic and diluted earnings (loss) per common share, as adjusted $ (0.36) $ 2.55
(a) Great Plains Energy and consolidated KCP&L are the same for 2000.
Consolidated KCP&L
2001
(thousands)
Income before extraordinary item, as reported $ 103,819
Add back: Goodwill amortization 2,879
Income before extraordinary item 106,698
Early extinguishment of debt, net of income taxes 15,872
Net income, as adjusted 122,570
Preferred stock dividend requirements 1,098
Earnings available for common stock, as adjusted $ 121,472
Other Intangible Assets
KCP&L electric utility plant on the consolidated balance sheets included
intangible computer software of $41.6 million, net of accumulated amortization
of $42.4 million, in 2002 and $48.2 million, net of accumulated amortization of
$33.0 million, in 2001.
Other intangible assets on the consolidated KCP&L balance sheets include
intangible computer software, the Worry Free service mark, and an RSAE
trademark, logo and non-compete agreement totaling $4.7 million, net of
accumulated amortization of $0.4 million, in 2002 and $0.6 million, net of
accumulated amortization of $0.2 million, in 2001.
KLT Gas' gas property and investments on the consolidated balance sheets
included intangible drilling costs of $20.8 million in 2002 and $17.7 million in
2001.
Other intangible assets on the Great Plains Energy consolidated balance sheets
include other intangible computer software of $1.8 million, net of accumulated
amortization of $0.6 million, in 2002 and $1.2 million, net of accumulated
amortization of $0.1 million, in 2001.
80
7. PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Changes in Pension Accounting Principles
Effective January 1, 2000, KCP&L changed its methods of amortizing unrecognized
net gains and losses and determination of expected return related to its
accounting for pension expense. These changes were made to reflect more timely
in pension expense the gains and losses incurred by the pension funds. KCP&L's
current method is to recognize gains and losses by amortizing over a five-year
period the rolling five-year average of unamortized gains and losses and
determine the expected return by multiplying the assumed long-term rate of
return times the fair value of plan assets. Accounting principles required KCP&L
to record the cumulative effect of these changes by increasing 2000 earnings by
$30.1 million or $0.49 per share. Adoption of the new methods of accounting for
pensions has led and will continue to lead to greater fluctuations in pension
expense in the future.
Pension Plans and Other Employee Benefits
KCP&L has defined benefit pension plans for its employees, including officers
and Wolf Creek employees. Benefits under these plans reflect the employees'
compensation, years of service and age at retirement. KCP&L satisfies the
minimum funding requirements under the ERISA.
There were no significant amendments to the plans in 2002. During 2001, the
plans, other than those at Wolf Creek, were amended resulting in an increase to
the benefit obligation of $6.8 million. The increase was due primarily to an
amendment to the non-management plan, which improved benefits to employees with
at least thirty years of service who elected lump sum distributions.
During 2000, the plans were amended, except for those of Wolf Creek, which
resulted in a $42.0 million increase in the benefit obligation. The amendments
changed the mortality tables used and added enhanced benefit options. The
enhancements include improved early retirement benefits for employees who retire
after their age plus their years of service equals at least 85. The options also
include lump sum distributions. During 2001, the plans experienced lump sum
distributions related to these enhancements in excess of $33.0 million.
Primarily as a result of the significant decline in the market value of plan
assets, in 2002 the Company had a minimum pension liability of $63.1 million
offset by an intangible asset of $19.2 million and OCI of $43.9 million ($26.8
million net of tax). In 2001, the Company's minimum pension liability was $20.0
million offset by an intangible asset of $18.3 million and OCI of $1.7 million
($1.0 million net of tax). Because these adjustments were non-cash, their effect
has been excluded from the Consolidated Statements of Cash Flows.
In addition to providing pension benefits, KCP&L provides certain postretirement
health care and life insurance benefits for substantially all retired employees.
KCP&L accrues the cost of postretirement health care and life insurance benefits
during an employee's years of service and recovers these accruals through rates.
KCP&L funds the portion of net periodic postretirement benefit costs that are
tax deductible. Beginning in 2001, management employees who resign with 25 years
or more of service are eligible for life insurance benefits.
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $219.1 million, $185.8 million, and $121.8 million,
respectively, as of December 31, 2002 and $207.7 million, $176.6 million, and
$160.7 million, respectively, as of December 31, 2001. Net periodic benefit
costs reflect total plan benefit costs prior to the effects of capitalization
and sharing with joint-owners of power plants. The pension benefits table below
provides information relating to the funded status of all defined benefit
pension plans on an aggregate basis.
81
Pension Benefits Other Benefits
2002 2001 2002 2001
Change in projected benefit obligation (thousands)
PBO at beginning of year $ 421,126 $ 411,960 $ 41,224 $ 36,858
Service cost 13,360 11,152 757 729
Interest cost 30,272 31,905 2,951 2,918
Contribution by participants - - 785 459
Amendments - 6,790 247 960
Actuarial loss 29,174 22,853 7,181 3,185
Benefits paid (42,482) (28,807) (3,715) (3,432)
Benefits paid by KCP&L (934) (1,381) (494) (454)
Settlements 284 (33,346) - -
PBO at end of year (a) $ 450,800 $ 421,126 $ 48,936 $ 41,223
Change in plan assets
Fair value of plan assets at beginning of year $ 395,015 $ 564,947 $ 9,459 $ 8,096
Actual return on plan assets (29,983) (112,397) 321 601
Contributions by employer and participants 1,619 1,017 5,032 4,193
Benefits paid (42,482) (28,807) (3,758) (3,432)
Settlements - (29,745) - -
Fair value of plan assets at end of year $ 324,169 $ 395,015 $ 11,054 $ 9,458
Prepaid (accrued) benefit cost
Funded status $(126,631) $ (26,111) $ (37,882) $ (31,765)
Unrecognized actuarial loss 157,438 58,686 11,947 4,649
Unrecognized prior service cost 44,769 47,296 1,344 1,282
Unrecognized transition obligation 512 (230) 11,744 12,919
Net prepaid (accrued) benefit cost $ 76,088 $ 79,641 $ (12,847) $ (12,915)
Amounts recognized in the consolidated balance sheets
Prepaid benefit cost $ 85,945 $ 88,337 $ - $ -
Accrued benefit cost (9,857) (8,696) (12,847) (12,915)
Minimum pension liability adjustment (63,142) (19,994) - -
Intangible asset 19,233 18,303 - -
Accumulated other comprehensive income 43,909 1,691 - -
Net amount recognized in balance sheets $ 76,088 $ 79,641 $ (12,847) $ (12,915)
(a) Based on weighted-average discount rates of 6.75%, 7.25%, and 8.0% in 2002,
2001 and 2000, respectively; and increases in future salary levels of 4.1%
in 2002, 2001 and 2000.
Pension Benefits Other Benefits
2002 2001 2000 2002 2001 2000
Components of net periodic benefit cost (thousands)
Service cost $ 13,360 $ 11,152 $ 9,384 $ 757 $ 729 $ 547
Interest cost 30,272 31,905 26,538 2,951 2,918 2,543
Expected return on plan assets (34,144) (48,967) (39,571) (503) (403) (361)
Amortization of prior service cost 4,313 3,884 488 194 78 78
Recognized net actuarial loss (gain) (7,237) (11,333) (5,913) 100 32 2
Transition obligation (742) (2,023) (2,072) 1,174 1,174 1,174
Net settlements 284 (1,738) - - - -
Net periodic benefit cost $ 6,106 $ (17,120) $(11,146) $ 4,673 $ 4,528 $ 3,983
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 2002 and thereafter of 9.9%. The health care plan requires
retirees to share in the cost when premiums
82
exceed a certain amount. A 1% point change in the assumed health care cost trend
rate would have the following effects as of December 31, 2002:
Increase Decrease
(thousands)
Effect on total service and interest component $ 297 $ (216)
Effect on postretirement benefit obligation $ 2,926 $ (2,222)
Employee Savings Plans
Great Plains Energy has defined contribution savings plans that cover
substantially all employees. The Company matches employee contributions, subject
to limits. The annual cost of the plans was $3.2 million in 2002 and $2.9
million for both 2001 and 2000.
Strategic Energy Phantom Stock Plan
Strategic Energy has a phantom stock plan that provides incentive in the form of
deferred compensation based upon the award of performance units, the value of
which is related to the increase in financial growth and performance of
Strategic Energy. Strategic Energy's annual cost for the plan was $5.9 million
in 2002 and $3.4 million in 2001. There was no expense recognized in 2000.
Stock Options
The Company has one equity compensation plan, which has been approved by its
shareholders. The equity compensation plan is a long-term incentive plan that
permits the grant of restricted stock, stock options, limited stock appreciation
rights and performance shares to officers and other employees of the Company and
its subsidiaries. The maximum number of shares of Great Plains Energy common
stock that may be issued under the plan is 3.0 million with 2.1 million shares
remaining available for future issuance.
Stock Options Granted 1992 - 1996
The exercise price of stock options granted equaled the market price of the
Company'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 Great Plains Energy'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, 2002, the market price
of Great Plains Energy's common stock was $22.88, which exceeded the grant price
for one of the three years that options granted were still outstanding.
Unexercised options expire ten years after the grant date.
Great Plains Energy follows Accounting Principles Board (APB) Opinion 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for these options. Great Plains Energy recognizes annual expense
equal to accumulated and reinvested dividends plus the impact of the change in
stock price since the grant date. Great Plains Energy expensed $0.1 million in
2002, $(0.3) million in 2001 and $1.1 million in 2000.
For options outstanding at December 31, 2002, grant prices range from $20.6250
to $26.1875 and the weighted-average remaining contractual life is 2.9 years.
Stock Options Granted 2001 and 2002
Stock options were granted under the plan at the fair market value of the shares
on the grant date. The options vest three years after the grant date and expire
in ten years if not exercised. Exercise prices range from $24.90 to $25.98 and
the remaining contractual life is 8.7 years. Great Plains Energy
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follows APB Opinion 25 to account for these options. No compensation cost is
recognized because the option exercise price is equal to the market price of the
underlying stock on the date of grant.
All stock option activity for the last three years is summarized below:
2002 2001 2000
Shares Price* Shares Price* Shares Price*
Outstanding at January 1 250,375 $ 25.14 88,500 $ 23.57 89,875 $ 23.57
Granted 181,000 24.90 193,000 25.56 - -
Exercised (34,375) 23.00 (31,125) 23.27 (1,375) 23.88
Outstanding at December 31 397,000 $ 25.21 250,375 $ 25.14 88,500 $ 23.57
Exercisable as of December 31 23,000 $ 24.81 57,375 $ 23.73 88,500 $ 23.57
* weighted-average price
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, "Accounting for Stock-Based Compensation". Under this statement,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the vesting period. The pro forma amounts have been
determined as if the Company had accounted for its stock options under SFAS No.
123. The stock options granted in 1992 - 1996 were all 100% vested prior to the
year 2000 and therefore would have no compensation cost in the years 2000 - 2002
under SFAS No. 123. The fair value for the stock options granted in 2001 and
2002 was estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:
2002 2001
Risk-free interest rate 4.57 % 5.53 %
Dividend yield 7.68 % 6.37 %
Stock volatility 27.503 % 25.879 %
Expected option life (in years) 10 10
The option valuation model requires the input of highly subjective assumptions,
primarily stock price volatility, changes in which can materially affect the
fair value estimate. Compensation cost would have been $0.4 million and $0.2
million in 2002 and 2001, respectively under SFAS No. 123. The pro forma
information is as follows:
2002 2001 2000
(thousands except per share amounts)
Net income (loss), as reported $ 126,188 $ (24,171) $ 158,704
Pro forma net income (loss) as if fair
value method were applied $ 125,990 $ (24,479) $ 159,366
Basic and diluted earnings (loss)
per common share, as reported $ 1.99 $ (0.42) $ 2.54
Basic and diluted earnings (loss)
per common share, pro forma $ 1.99 $ (0.42) $ 2.55
The effects of applying SFAS No. 123 in this pro forma disclosure may not be
representative of effects on net income for future years due to the timing and
number of options granted under the equity compensation plan.
Performance Shares
In 2001, 144,500 performance shares were granted. The issuance of performance
shares is contingent upon achievement, over a four-year period, of company and
individual performance goals.
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Performance shares have an intrinsic value equal to the market price of a share
on the date of grant. Pursuant to APB Opinion 25, expense is accrued for
performance shares over the period services are performed if attainment of the
performance goals appears probable. No compensation expense was recorded in 2002
or 2001.
8. INCOME TAXES
Income tax expense consisted of the following:
Great Plains Energy 2002 2001 2000
Current income taxes: (thousands)
Federal $ 27,505 $ (32,628) $ 76,076
State 9,369 1,304 10,928
Total 36,874 (31,324) 87,004
Deferred income taxes:
Federal 13,915 9,785 (9,846)
State 1,679 (943) (469)
Total 15,594 8,842 (10,315)
Investment tax credit amortization (4,183) (4,289) (4,296)
Total income tax expense 48,285 (26,771) 72,393
Less: Deferred taxes on the cumulative effect
of changes in accounting principles - - 19,227
Deferred taxes on early extinguishment
of debt - 9,143 -
Total $ 48,285 $ (35,914) $ 53,166
Consolidated KCP&L 2002 2001 2000
Current income taxes: (thousands)
Federal $ 47,027 $ 17,601 $ 76,076
State 8,668 4,109 10,928
Total 55,695 21,710 87,004
Deferred income taxes:
Federal 9,391 18,968 (9,846)
State 1,964 3,042 (469)
Total 11,355 22,010 (10,315)
Investment tax credit amortization (4,183) (4,289) (4,296)
Total income tax expense 62,867 39,431 72,393
Less: Deferred taxes on the cumulative effect
of changes in accounting principles - - 19,227
Deferred taxes on early extinguishment
of debt - 9,143 -
Total $ 62,867 $ 30,288 $ 53,166
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The effective income tax rates differed from the statutory federal rates mainly
due to the following:
Great Plains Energy 2002 2001 2000
Federal statutory income tax rate 35.0 % (35.0)% 35.0 %
Differences between book and tax
depreciation not normalized 1.9 1.4 0.7
Proposed IRS Adjustment (see Note 10) - - 4.6
Amortization of investment tax credits (2.4) (8.4) (1.9)
Federal income tax credits (11.3) (41.6) (9.2)
State income taxes 4.1 0.5 2.9
Valuation allowance - 31.0 -
Other 0.4 (0.5) (0.8)
Effective income tax rate 27.7 % (52.6)% 31.3 %
Consolidated KCP&L 2002 2001 2000
Federal statutory income tax rate 35.0 % 35.0 % 35.0 %
Differences between book and tax
depreciation not normalized 2.1 0.5 0.7
Proposed IRS Adjustment (see Note 10) - - 4.6
Amortization of investment tax credits (2.6) (2.7) (1.9)
Federal income tax credits (a) - (10.6) (9.2)
State income taxes 4.4 2.9 2.9
Other 0.7 (0.3) (0.8)
Effective income tax rate 39.6 % 24.8 % 31.3 %
(a) KLT Investments and KLT Gas generated the federal income tax credits in 2001
and 2000. Great Plains Energy and consolidated KCP&L are the same prior to
the October 1, 2001, formation of the holding company.
The tax effects of major temporary differences resulting in deferred tax assets
and liabilities in the balance sheets are as follows:
Great Plains Energy Consolidated KCP&L
December 31 2002 2001 2002 2001
(thousands)
Plant related $ 521,979 $ 533,521 $ 521,979 $ 533,521
Recoverable taxes 39,000 42,000 39,000 42,000
Pension and postretirement benefits 6,194 21,474 6,194 21,474
Tax credit carryforwards (21,150) (19,183) - -
Gas properties related 6,230 (9,535) - -
Nuclear fuel outage (3,233) (5,061) (3,233) (5,061)
AMT credit (4,093) (4,258) - -
Other 29,230 14,906 48,794 33,704
Net deferred tax liability before
valuation allowance 574,157 573,864 612,734 625,638
Valuation allowance (See Note 19) 15,779 15,779 - -
Net deferred tax liability $ 589,936 $ 589,643 $ 612,734 $ 625,638
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The net deferred income tax liability consisted of the following:
Great Plains Energy Consolidated KCP&L
December 31 2002 2001 2002 2001
(thousands)
Gross deferred income tax assets $(129,741) $(125,413) $ (91,000) $ (73,640)
Gross deferred income tax liabilities 719,677 715,056 703,734 699,278
Net deferred income tax liability $ 589,936 $ 589,643 $ 612,734 $ 625,638
9. RELATED PARTY TRANSACTIONS AND RELATIONSHIPS
In January of 1997, KLT Energy Services acquired approximately 71% of Custom
Energy from ELC. In February of 1999, Custom Energy acquired 100% of the
outstanding ownership interest in Strategic Energy from SE Holdings, L.L.C. (SE
Holdings) in exchange for 25% of the ownership interest in Custom Energy. In a
December 1999 reorganization, Custom Energy changed its name to Custom Energy
Holdings and transferred all of its operations to a new wholly owned subsidiary
called Custom Energy. After the reorganization, Custom Energy Holdings' assets
consisted of its ownership interests in Strategic Energy and Custom Energy.
Through a series of transactions, KLT Energy Services had increased its indirect
ownership position in Strategic Energy to approximately 83% as of December 31,
2001. In a July 2002 transaction, Custom Energy was distributed to KLT Energy
Services and a third-party investor, resulting in Strategic Energy being the
sole subsidiary of Custom Energy Holdings. ELC continued to own a 6% indirect
ownership interest in Strategic Energy, while SE Holdings owns an 11% interest
in Strategic Energy. Richard Zomnir, President and Chief Executive Officer of
Strategic Energy, holds a 56% interest in SE Holdings. Gregory Orman, former
Executive Vice President - Corporate Development and Strategic Planning of Great
Plains Energy and former President and CEO of KLT Inc., held a 67% interest in
ELC. The other 33% interest in ELC was held by an employee of Great Plains
Energy. Both persons were officers and shareholders of ELC before they became
officers or employees of the Company.
On November 5, 2002, the Board of Directors of the Company approved the merger
of ELC into IEC, a recently created wholly-owned subsidiary of the Company. The
merger was consummated on November 7, 2002, with IEC being the surviving company
after the merger. In exchange for their entire ownership interest in ELC, the
two shareholders received $15.1 million in Great Plains Energy common stock and
notes issued by Great Plains Energy and IEC. Great Plains Energy issued 387,596
common shares of Great Plains Energy common stock, valued at $8.0 million, which
was distributed to the ELC shareholders in proportion to their interests in that
company. Great Plains Energy also issued a promissory note to Mr. Orman in the
principal amount of approximately $4.7 million, and IEC issued a promissory note
to the other shareholder of ELC in the principal amount of approximately $2.4
million. Both notes were paid in January 2003.
As a result of the merger, Great Plains Energy now holds an 89% indirect
ownership interest in Strategic Energy through KLT Energy Services and IEC.
Certain employees of Strategic Energy, including Mr. Zomnir, indirectly hold
through SE Holdings the remaining ownership interest in Strategic Energy.
Custom Energy Holdings' business and affairs are controlled and managed by a
three member Management Committee composed of one representative designated by
KLT Energy Services, one representative designated by IEC and one representative
designated by SE Holdings. Certain actions (including amendment of Custom Energy
Holdings' operating agreement, approval of actions in contravention of the
operating agreement, approval of a dissolution of Custom Energy Holdings,
additional capital contributions and assumption of recourse indebtedness)
require the unanimous consent of all the members of Custom Energy Holdings.
Certain other actions (including mergers with
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Custom Energy Holdings, acquisitions by Custom Energy Holdings, assumption of
non-recourse indebtedness, sales of substantial assets, approval of
distributions, filing of registration statements, partition of assets, admission
of new members and transfers of interests in Custom Energy Holdings) can be
approved by the Management Committee, but to the extent they affect the rights,
obligations, assets or business of Strategic Energy, the approval of the
Strategic Energy Management Committee is also required.
Strategic Energy's business and affairs are controlled and managed exclusively
by a four member Management Committee composed of two representatives designated
by KLT Energy Services, one representative designated by IEC and one
representative designated by SE Holdings. Certain actions (including amendment
of Strategic Energy's operating agreement, approval of actions in contravention
of the operating agreement, approval of transactions between Strategic Energy
and affiliates of its members, approval of a dissolution of Strategic Energy,
and assumption of recourse indebtedness) require the unanimous consent of all
the Management Committee representatives of Strategic Energy.
On September 30, 2000, KLT Energy Services exercised an option to purchase
1,411,765 shares of Bracknell common stock owned by Reardon. KLT Energy Services
received 1,136,789 common shares of Bracknell at $4.25 per share and a warrant
to purchase the remaining 274,976 shares at an exercise price of $4.25 per
share. In May 2001, KLT Energy Services exercised the warrant for 274,976 shares
at $4.25 per share and sold 278,600 shares of Bracknell common stock in June
2001 at $4.48 per share. In November 2001, Bracknell common stock ceased trading
at a last sale price of $0.13 per share and KLT Energy Services wrote off its
investment in Bracknell. Bracknell common stock is no longer traded. Gregory
Orman, former Executive Vice President - Corporate Development and Strategic
Planning of Great Plains Energy and former President and CEO of KLT Inc., owned
55% of the membership interests of Reardon and approximately 1% of Bracknell.
10. COMMITMENTS AND CONTINGENCIES
Nuclear Liability and Insurance
Liability Insurance
The Price-Anderson Act currently limits the combined public liability of nuclear
reactor owners to $9.4 billion for claims that could arise from a single nuclear
incident. The owners of Wolf Creek, a nuclear generating station, (the Owners)
carry the maximum available commercial insurance of $0.2 billion. Secondary
Financial Protection, an assessment plan mandated by the NRC, provides insurance
for the $9.2 billion balance.
Under Secondary Financial Protection, 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, KCP&L's 47% share). The Owners are jointly and severally liable
for these charges, payable at a rate not to exceed $10 million ($5 million,
KCP&L's 47% share) per incident per year, excluding applicable premium taxes.
The assessment, most recently revised in 1998, is subject to an inflation
adjustment based on the Consumer Price Index and renewal of the Price-Anderson
Act by Congress.
Property, Decontamination, Premature Decommissioning and Extra Expense Insurance
The Owners also carry $2.8 billion ($1.3 billion, KCP&L's 47% 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. KCP&L's share of any
remaining proceeds can be used for further
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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.
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, KCP&L 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 KCP&L under the current policies could total about $24.5 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 KCP&L and
could have a material, adverse effect on its 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. WCNOC and the owners of the other five nuclear units in the
Compact provided most of the pre-construction financing for this project.
KCP&L's net investment in the Compact was $7.4 million at December 31, 2002 and
2001.
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 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. After the license denial, WCNOC and others
filed a lawsuit in federal court contending Nebraska officials acted in bad
faith while handling the license application. In September 2002, the U.S.
District Court Judge presiding over the Central Interstate Compact Commission's
federal "bad faith" lawsuit against the State of Nebraska issued his decision in
the case finding clear evidence that the State of Nebraska acted in bad faith in
processing the license application for a low-level radioactive waste disposal
site in Nebraska and rendered a judgment in the amount of $151.4 million against
the state. The state has appealed this decision to the 8th Circuit, U.S. Court
of Appeals. Based on the favorable outcome of this trial, in KCP&L's opinion,
there is a greater possibility of reversing the state's license denial once the
decision in this case is final.
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.
Environmental Matters
KCP&L's operations are subject to regulation by federal, state and local
authorities with regard to air and other environmental matters. The generation
and transmission of electricity produces and requires disposal of certain
hazardous products which are subject to these laws and regulations. In addition
to imposing continuing compliance obligations, these laws and regulations
authorize the imposition of substantial penalties for noncompliance, including
fines, injunctive relief and other sanctions. Failure to comply with these laws
and regulations could have a material adverse effect on KCP&L.
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KCP&L operates in an environmentally responsible manner and seeks to use current
technology to avoid and treat contamination. KCP&L regularly conducts
environmental audits designed to ensure compliance with governmental regulations
and to detect contamination. Governmental bodies, however, may impose additional
or more restrictive environmental regulations that could require substantial
changes to operations or facilities at a significant cost. At December 31, 2002
and 2001, KCP&L had $1.9 million accrued for environmental remediation expenses
covering water monitoring at one site and unasserted claims for remediation at a
second site. The amounts accrued were established on an undiscounted basis and
KCP&L does not currently have an estimated time frame over which the accrued
amounts may be paid out. Expenditures to comply with environmental laws and
regulations have not been material in amount during the periods presented and
are not expected to be material in the upcoming years with the exception of the
issues discussed below.
Certain Air Toxic Substances
In July 2000, the National Research Council published its findings of a study
under the Clean Air Act which stated that power plants that burn fossil fuels,
particularly coal, generate the greatest amount of mercury emissions. As a
result, in December 2000, the EPA announced it would propose Maximum Achievable
Control Technology (MACT) requirements by December 2003 to reduce mercury
emissions and issue final rules by December 2004. Until the rules are proposed,
KCP&L cannot predict the likelihood or compliance costs of such regulations.
Air Particulate Matter
In July 1997, the EPA revised ozone and particulate matter air quality standards
creating a new eight-hour ozone standard and establishing a new standard for
particulate matter less than 2.5 microns (PM-2.5) in diameter. These standards
were challenged in the U. S. Court of Appeals for the District of Columbia
(Appeals Court) that decided against the EPA. Upon further appeal, the U. S.
Supreme Court reviewed the standards and remanded the case back to the Appeals
Court for further review, including a review of whether the standards were
arbitrary and capricious. On March 26, 2002, the Appeals Court issued its
decision on challenges to the 8-hour ozone and PM-2.5 national ambient air
quality standards (NAAQS). This decision denies all state, industry and
environmental groups petitions for review and thus upheld as valid the EPA's new
8-hour ozone and PM-2.5 NAAQS. In so doing, the court held that the EPA acted
consistently with the Clean Air Act in setting the standards at the levels it
chose and the EPA's actions were reasonable and not arbitrary and capricious,
and cited the deference given the EPA's decision-making authority. The court
stated that the extensive records established for each rule supported the EPA's
actions in both rulemakings.
This decision by the Appeals Court removed the last major hurdle to the EPA's
implementation of stricter ambient air quality standards for ozone and fine
particles. The EPA has not yet issued regulations incorporating the new
standards. Until new regulations are issued, KCP&L is unable to estimate the
impact of the new standards. However, the impact on KCP&L and all other
utilities that use fossil fuels could be substantial. In addition, the EPA is
conducting a three-year study of fine particulate ambient air levels. Until this
testing and review period has been completed, KCP&L cannot determine additional
compliance costs, if any, associated with the new particulate regulations.
Nitrogen Oxide
The EPA announced in 1998 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 KCP&L's Missouri coal-fired
plants by the year 2003.
In December 1998, KCP&L and several other western Missouri utilities filed suit
against the EPA over the inclusion of western Missouri in the NOx reduction
program based on the 1-hour NOx standard. On March 3, 2000, a three-judge panel
of the District of Columbia Circuit of the U.S. Court of Appeals sent
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the NOx rules related to Missouri back to the EPA, stating the EPA failed to
prove that fossil plants in the western part of Missouri significantly
contribute to ozone formation in downwind states. On March 5, 2001, the U.S.
Supreme Court denied certiorari, making the decision of the Court of Appeals
final.
In February 2002, the EPA issued proposed Phase II NOx SIP Call regulation which
specifically excludes the fossil plants in the western part of Missouri from the
NOx SIP Call. To date, the EPA has not issued its final Phase II NOx SIP Call
regulation.
If fossil plants in western Missouri are required to implement NOx reductions,
KCP&L would need to incur significant capital costs, purchase power or purchase
NOx emission allowances. Preliminary analysis of the regulations indicates that
selective catalytic reduction technology, as well as other changes, may be
required for some of the KCP&L units. Currently, KCP&L estimates 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. KCP&L continues to refine these preliminary
estimates and explore alternatives. The ultimate cost of these regulations, if
any, could be significantly different from the amounts estimated above.
Carbon Dioxide
At a December 1997 meeting in Kyoto, Japan, delegates from 167 nations,
including the United States, agreed to a treaty (Kyoto Protocol) that would
require a seven percent reduction in United States carbon dioxide (CO2)
emissions below 1990 levels. Although the United States agreed to the Kyoto
Protocol, the treaty has not been sent to Congress for ratification. The
financial impact on KCP&L of future requirements in the reduction of CO2
emissions cannot be determined until specific regulations are adopted.
Clean Air Legislation
Congress has debated numerous bills that would make significant changes to the
current federal Clean Air Act including potential establishment of nationwide
limits on power plant emissions for several specific pollutants. These bills
have the potential for a significant financial impact on KCP&L through the
installation of new pollution control equipment to achieve compliance with the
new nationwide limits. The financial consequences to KCP&L cannot be determined
until the final legislation is passed. KCP&L will continue to monitor the
progress of these bills.
Proposed Water Use Regulations
In February 2002, the EPA issued proposed rules related to certain existing
power producing facilities that employ cooling water intake structures that
withdraw 50 million gallons or more per day and use 25% or more of that water
for cooling purposes. The proposed rules establish national minimum performance
requirements designed to minimize adverse environmental impact. The EPA must
take final action by August 2003. KCP&L will continue to monitor the progress of
this rulemaking. The impact of these proposed rules has not yet been quantified,
however, KCP&L's generating stations would be affected.
Nuclear Fuel Commitments
As of December 31, 2002, KCP&L's 47% share of Wolf Creek nuclear fuel
commitments included $21.5 million for enrichment through 2006, $57.5 million
for fabrication through 2025 and $5.7 million for uranium and conversion through
2003.
Coal Contracts
KCP&L's share of coal purchased under existing contracts was $49.5 million in
2002, $44.6 million in 2001, and $31.1 million in 2000. Under these coal
contracts, KCP&L's remaining share of purchase commitments totals $105.1
million. Obligations for the years 2003 through 2005 based on estimated
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prices for those years total $46.0 million, $28.5 million and $30.6 million,
respectively. The remainder of KCP&L's coal requirements will be fulfilled
through additional contracts or spot market purchases.
Purchased Capacity Commitments
KCP&L 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 can be a cost-effective alternative to new
construction. KCP&L capacity purchases totaled $18.5 million, $17.7 million and
$25.4 million in 2002, 2001 and 2000, respectively. As of December 31, 2002,
contracts to purchase capacity totaled $90.5 million through 2016. These
commitments average $19 million in 2003 and 2004, $10 million in 2005 and $4
million in 2006 and 2007. Capacity sales contracts to supply municipalities in
the years 2003 through 2007 average $12 million per year. For the next five
years, net capacity contracts average under 1% of KCP&L's estimated 2003 total
available generating capacity.
Strategic Energy Purchased Power Energy Commitments
Strategic Energy has entered into agreements to purchase electricity at various
fixed prices to meet estimated supply requirements. Commitments at December 31,
2002, under these agreements total $1,092.3 million through 2010. Commitments
for the years 2003 through 2007 total $500.4 million, $299.5 million, $222.1
million, $50.1 million, and $8.6 million, respectively. See Note 17 for further
discussion.
Leases
Great Plains Energy's lease expense, excluding DTI, was about $27.4 million,
$30.6 million and $27.9 million during 2002, 2001 and 2000, respectively. The
remaining rental commitments under leases total $266.7 million ending in 2028.
Obligations for the years 2003 through 2007 average $30.4 million per year.
These amounts exclude possible termination payments under the synthetic lease
arrangement discussed below.
Consolidated KCP&L Leases
Consolidated KCP&L's lease expense, excluding DTI, was $25.7 million, $29.6
million and $27.3 million during 2002, 2001 and 2000, respectively. The
remaining rental commitments under leases total $263.4 million ending in 2028.
Obligations for the years 2003 through 2007 average $29.8 million per year.
These amounts exclude possible termination payments under the synthetic lease
arrangement discussed below.
KCP&L has a transmission line lease with another utility through September 2025
whereby, with the FERC's approval, the rental payments can be increased by the
lessor. If this occurs and KCP&L is able to secure an alternative transmission
path, KCP&L can cancel the lease. Commitments under this lease total $1.9
million per year and $43.0 million over the remaining life of the lease,
assuming it is not canceled.
KCP&L's expense for other leases, including railcars, computer equipment,
buildings, transmission line and other items, approximated $25 million annually
for the last three years. The remaining rental commitments under these leases
total $186.6 million through 2028. Obligations for the years 2003 through 2007
average $21 million per year. Capital leases are not material and are included
in these amounts.
As the managing partner of three jointly-owned generating units, KCP&L has
entered into leases for railcars to serve those units. KCP&L has reflected the
entire lease commitment in the above amounts although about $1.9 million per
year ($24.4 million total) will be reimbursed by the other owners.
In 2001, KCP&L entered into a synthetic lease arrangement with a Trust (Lessor)
to finance the purchase, installation, assembly and construction of five
combustion turbines and related property and
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equipment that will add 385 MWs of peaking capacity (Project). The Trust is a
special-purpose entity and has an aggregate financing commitment from
third-party equity and debt participants of $176 million, amended during the
third quarter 2002 to adjust the amount financed from the previously estimated
$200 million to reflect a reduction in the estimated cost for the purchase,
installation, assembly and construction of the five combustion turbines. In
accordance with SFAS No. 13 "Accounting for Leases," and related EITF issues
(including EITF Issue No. 90-15, "Impact of Non-substantive Lessors, Residual
Value Guarantees, and Other Provisions in Leasing Transactions" and EITF Issue
No. 97-10, "The Effect of Lessee Involvement in Asset Construction"), the
Project and related lease obligations are not included in KCP&L's consolidated
balance sheet. The Lessor has appointed KCP&L as supervisory agent responsible
for completing construction of the Project by no later than June 2004. The
initial lease term is approximately three and one quarter years, beginning at
the date of construction completion, which is expected to be June 2003. At the
end of the lease term (October 2006), KCP&L may choose to sell the Project for
the Lessor, guaranteeing to the Lessor a residual value for the Project in an
amount which may be up to 83.21% of the project cost. If KCP&L does not elect
the sale option, KCP&L must either extend the lease, if it can obtain the
consent of the Lessor, or purchase the Project for the outstanding project cost.
KCP&L also has contingent obligations to the Lessor upon an event of a default
during both the construction period and lease period. Upon a default in the
construction period, KCP&L's maximum obligation to the Lessor equals (i) in the
circumstances of bankruptcy, fraud, illegal acts, misapplication of funds and
willful misconduct, 100% of then-incurred project costs, and (ii) in all other
circumstances, an amount which may be up to 89.9% of then-incurred project costs
that are capitalizable in accordance with GAAP. At December 31, 2002, cumulative
project costs were approximately $127.4 million. Upon a default during the lease
period, KCP&L's maximum obligation to the Lessor equals 100% of project costs.
KCP&L's rental obligation, which reflects interest payments only, is expected to
be approximately $28.2 million in the aggregate.
In January 2003, the FASB issued Interpretation No. 46. The Interpretation
clarifies the application of ARB No. 51, "Consolidated Financial Statements", to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties (Variable Interest Entities). The Trust, acting as
Lessor in the synthetic lease arrangement discussed above, is considered a
Variable Interest Entity under the Interpretation. Because KCP&L has variable
interests in the Trust, including among other things, a residual value guarantee
provided to the Lessor, KCP&L is the primary beneficiary of the Trust.
Accordingly, KCP&L will be required to consolidate the Trust at July 1, 2003.
Great Plains Energy's and consolidated KCP&L's utility plant and long-term debt
will increase $176 million upon consolidation of the Trust.
Other Consolidated KCP&L Leases
RSAE has entered into capital leases for vehicles, office equipment and
software. Lease expense was about $1 million per year in 2002 and 2001.
Obligations average about $2 million per year for the years 2003 and 2004, $1
million in 2005 and $0.5 million in 2006 and 2007.
Other Great Plains Energy Leases
Great Plains Energy's other subsidiaries have entered operating leases for
buildings, compressors, communications equipment and other items. Lease expense
was about $1.7 million in 2002 and about $1 million per year during 2001 and
2000. Obligations average about $1 million per year for the years 2003 and 2004
and $0.5 million per year for the years 2005 through 2007.
Put Option Held by Minority Interests in Strategic Energy
As of November 7, 2002, Great Plains Energy indirectly owns 89% of Strategic
Energy. SE Holdings has a put option to sell all or part of its 11% interest in
Strategic Energy to Custom Energy Holdings at any time within the 90 days
following January 31, 2004, under certain circumstances, at fair market
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value. Fair market value would be determined by the mutual agreement of the
parties, or if an agreement cannot be reached, by third party appraisal.
Internal Revenue Service Settlement - Corporate-Owned Life Insurance
During 2000, KCP&L recorded a $12.7 million charge for the federal and states
income tax impact of the proposed disallowance of interest deductions on COLI
loans and assessed interest on the disallowance for tax years 1994 to 1998. In
November 2002, KCP&L accepted a settlement offer related to COLI from the IRS.
The offer allows 20% of the interest originally deducted and taxes only 20% of
the gain on surrender of the COLI policies. KCP&L surrendered the policies in
February 2003. Acceptance of the offer had an immaterial impact on earnings.
KCP&L will make cash payments to the IRS in 2003 of approximately $11.2 million
to satisfy the liability. KCP&L paid $1.5 million to the IRS in 2001 related to
the disallowance of the COLI deduction.
11. GUARANTEES
In the normal course of business, Great Plains Energy and certain of its
subsidiaries enter into various agreements providing financial or performance
assurance to third parties on behalf of certain subsidiaries. Such agreements
include, for example, guarantees, stand-by letters of credit and surety bonds.
These agreements are entered into primarily to support or enhance the
creditworthiness otherwise attributed to a subsidiary on a stand-alone basis,
thereby facilitating the extension of sufficient credit to accomplish the
subsidiaries' intended business purposes.
As prescribed in FASB Interpretation No. 45, the Company will begin recording a
liability for the fair value of the obligation it has undertaken for guarantees
issued after December 31, 2002. The liability recognition requirements of FASB
Interpretation No. 45 are to be applied on a prospective basis to guarantees
issued or modified after December 31, 2002, while the disclosure requirements
are to be applied to all guarantees. The interpretation does not encompass
guarantees of the Company's own future performance. KCP&L believes it will
record an immaterial amount for the fair value of guarantees expected to be
issued in 2003 for the residual value of vehicles and heavy equipment under an
operating lease.
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The following table reflects Great Plains Energy's and consolidated KCP&L's
maximum potential amount of future payments that could be required under
guarantees and describes those guarantees:
Maximum potential
amount of future
payments under
Guarantor guarantee Nature of Guarantee
(millions)
KCP&L $12.8 Guaranteed energy savings under agreements with several
customers that expire over the next 8 years. In most cases, a
subcontractor would indemnify KCP&L for any payments made
by KCP&L under these guarantees.
KCP&L 8.1 Guarantees for residual value of vehicles and heavy equipment
under an operating lease. Guaranteed residual values average
approximately $0.7 million per year through 2012.
Total consolidated KCP&L 20.9
KLT Inc. 0.9 KLT Inc. issued a letter of credit related to the sale of demand
side management credits by Custom Energy, L.L.C. which
renews annually and has 5 years remaining.
KLT Energy Services 3.0 Custom Energy, L.L.C. has indemnified construction performance
bonds totaling $9.7 million, which are secured by KLT Energy
Services' $3.0 million ownership interest in Custom Energy, L.L.C.
These bonds are expected to expire in 2003.
Total Great Plains Energy $24.8
KCP&L has also entered into a synthetic lease arrangement with a Trust (Lessor).
At the end of the lease term (October 2006), KCP&L may choose to sell the
project for the Lessor, guaranteeing to the Lessor a residual value for the
Project in an amount which may be up to 83.21% of the project cost. As a result
of the new consolidation requirements of FASB Interpretation No. 46, the
synthetic lease arrangement will be consolidated in the third quarter of 2003.
See Note 10 for additional information regarding KCP&L's synthetic lease
arrangement.
12. ASSET RETIREMENT OBLIGATIONS
During 2001, the FASB issued SFAS No. 143. SFAS No. 143 provides accounting
requirements for the recognition and measurement of liabilities associated with
the retirement of tangible long-lived assets. Under the standard, these
liabilities are recognized at fair value as incurred and capitalized as part of
the cost of the related long-lived asset. Accretion of the liabilities due to
the passage of time is recorded as an operating expense. Effective January 1,
2003, the Company adopted the provisions of SFAS No. 143.
The adoption of SFAS No. 143 required KCP&L to recognize an estimated liability
for its 47% share of the estimated cost to decommission Wolf Creek. The
liability to decommission Wolf Creek was incurred when the plant was placed in
service in 1985. The estimated liability is based on a third party nuclear
decommissioning study conducted in 2002, that is updated every three years for
filing with the MPCS and the KCC. To calculate the retirement obligation, KCP&L
used a credit-adjusted risk free discount rate of 6.42%. This rate is based on
the rate KCP&L could issue 30-year bonds, adjusted downward to reflect the
portion of the anticipated costs in current year dollars that have been funded
to
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date through the tax-qualified trust fund. The cumulative impact of prior
decommissioning accruals recorded consistent with rate orders from its
regulatory commissions has been reversed and a new regulatory contra-asset for
such amounts has been established. Amounts collected through these rate orders
have been deposited in a legally restricted external trust fund, the fair market
value of which was $63.3 million at December 31, 2002.
KCP&L also must recognize, where possible to estimate, the future costs to
settle other legal liabilities including the removal of water intake structures
on rivers, capping/filling of piping at levees following steam power plant
closures and capping/closure of ash landfills. Estimates for these liabilities
are based on internal engineering estimates of third party costs to remove the
assets in satisfaction of legal obligations and have been discounted using
credit adjusted risk free rates ranging from 5.25% to 7.50% depending on the
anticipated settlement date.
KLT Gas has estimated liabilities for gas well plugging and abandonment,
facility removal and surface restoration. These estimates are based upon
internal estimates of third party costs to satisfy the legal obligations and
have been discounted using credit adjusted risk free rates ranging from 6.00% to
7.25%, depending upon the anticipated settlement date.
Revisions to the estimated liabilities of KCP&L and KLT Gas could occur due to
changes in the decommissioning or other cost estimates, extension of the nuclear
operating license or changes in federal or state regulatory requirements.
In conjunction with the adoption of SFAS No.143 in January 2003, KCP&L recorded
an asset retirement obligation of $99.2 million and increased property and
equipment, net of accumulated depreciation, by $18.3 million. KCP&L is a
regulated utility subject to the provisions of SFAS No. 71. As a result, the
$80.9 million cumulative effect of the adoption of SFAS No. 143 was recorded as
a regulatory asset and therefore, had no impact on net income.
As a result of its adoption of SFAS No. 143, KLT Gas recorded an asset
retirement obligation of $1.3 million, increased property and equipment by $1.0
million and increased operating expense by $0.3 million. KLT Gas did not reflect
the $0.2 million ($0.3 million of operating expense reduced by $0.1 million of
income tax) as a cumulative effect due to its immateriality.
If the provisions of SFAS No. 143 had been applied to the consolidated balance
sheets presented, Consolidated KCP&L's liability for asset retirement
obligations would have been $99.2 million and $93.1 million at December 31, 2002
and 2001, respectively. Great Plains Energy's liability for asset retirement
obligations would have also included the KLT Gas liabilities of $1.3 million and
$1.1 million at December 31, 2002 and 2001, respectively.
KCP&L has legal asset retirement obligations for certain other assets where it
is not possible to estimate the time period when the obligations will be
settled. Consequently, the retirement obligations cannot be measured at this
time. For transmission easements obtained by condemnation, KCP&L must remove its
transmission lines if the line is de-energized. It is extremely difficult to
obtain siting for new transmission lines. Consequently, KCP&L does not
anticipate de-energizing any of its existing lines. KCP&L also operates, under
state permits, ash landfills at several of its power plants. While the life of
the ash landfill at one plant can be estimated and is included in the estimated
liabilities above, the future life of ash landfills at other permitted landfills
cannot be estimated. KCP&L can continue to maintain permits for these landfills
after the adjacent plant is closed.
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13. SEGMENT AND RELATED INFORMATION
Great Plains Energy
Great Plains Energy has three reportable segments based on its method of
internal reporting, which generally segregates the reportable segments based on
products and services, management responsibility and regulation. During 2002,
the Company's management revised its corporate business strategy focusing on the
following three reportable business segments: (1) KCP&L, an integrated electric
utility, generates, transmits and distributes electricity; (2) Strategic Energy
delivers electricity to retail customers under long-term contracts for wholesale
power purchased under long-term contracts, operating in several retail choice
electricity markets; and (3) KLT Gas explores for, develops, and produces
unconventional natural gas resources, including coalbed methane properties.
"Other" includes the operations of HSS and GPP, all KLT Inc. operations other
than Strategic Energy and KLT Gas, unallocated corporate charges and
intercompany eliminations. The summary of significant accounting policies
applies to all of the reportable segments. Segment performance is evaluated
based on net income.
The tables below reflect summarized financial information concerning Great
Plains Energy's reportable segments. Prior year information has been restated to
conform to the current presentation.
Strategic Great Plains
2002 KCP&L Energy KLT Gas Other Energy
(millions)
Operating revenues $1,009.9 $ 789.5 $ 1.1 $ 61.4 $1,861.9
Depreciation and depletion (144.3) (0.9) (2.5) (3.9) (151.6)
Loss from equity investments - - - (1.2) (1.2)
Interest charges (80.3) (0.3) (0.3) (8.2) (89.1)
Income taxes (63.4) (25.2) 10.3 30.0 (48.3)
Cumulative effect of a change
in accounting principle - - - (3.0) (3.0)
Net income (loss) 102.9 29.7 - (6.4) 126.2
Strategic Great Plains
2001 KCP&L Energy KLT Gas Other Energy
(millions)
Operating revenues $ 967.5 $ 411.9 $ 0.3 $ 82.2 $1,461.9
Depreciation and depletion (136.3) (0.3) (1.8) (20.4) (158.8)
Income (loss) from equity investments - - 1.0 (1.4) (0.4)
Interest charges (78.1) (0.5) - (24.7) (103.3)
Income taxes (51.6) (15.2) 0.1 102.6 35.9
Early extinguishment of debt - - - 15.9 15.9
Net income (loss) 98.0 21.8 14.3 (158.3) (24.2)
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Strategic Great Plains
2000 KCP&L Energy KLT Gas Other Energy
(millions)
Operating revenues $ 952.0 $ 129.6 $ 30.5 $ 3.8 $1,115.9
Depreciation and depletion (124.3) (0.4) (6.0) (1.7) (132.4)
Income (loss) from equity investments - - 3.6 (23.0) (19.4)
Interest charges (62.8) (0.2) (3.5) (9.2) (75.7)
Income taxes (52.9) (3.6) (36.3) 39.6 (53.2)
Cumulative effect of a change
in accounting principle 30.1 - - - 30.1
Net income (loss) 88.1 5.9 79.2 (14.5) 158.7
Strategic KLT Great Plains
KCP&L Energy Gas Other Energy
2002 (millions)
Assets $3,084.5 $ 226.0 $ 49.8 $ 146.4 $3,506.7
Capital and investment expenditures (a) 135.5 2.1 8.7 4.6 150.9
2001
Assets(b) $3,089.4 $ 129.1 $ 57.6 $ 188.3 $3,464.4
Capital and investment expenditures (a) 265.8 1.5 25.0 82.0 374.3
2000
Assets $2,980.9 $ 47.7 $ 239.6 $ 25.7 $3,293.9
Net equity method investments (c) - - 21.7 8.6 30.3
Capital and investment expenditures (a) 406.1 0.2 45.2 30.5 482.0
(a) Capital and investment expenditures reflect annual amounts for the
periods presented.
(b) KCP&L assets do not match the KCP&L assets in the consolidated KCP&L segment
table due to the reclassification of accrued taxes to current income taxes
during consolidation with Great Plains Energy.
(c) Excluding affordable housing limited partnerships.
Consolidated KCP&L
On October 1, 2001, consolidated KCP&L distributed, as a dividend, its ownership
interest in KLT Inc. and GPP to Great Plains Energy. As a result, those
companies are direct subsidiaries of Great Plains Energy and have not been
included in consolidated KCP&L's results of operations and financial position
since October 1, 2001.
The table below reflects summarized financial information for the years 2002 and
2001 concerning consolidated KCP&L's reportable segment. For the year 2000,
consolidated KCP&L's segment information is identical to the Great Plains Energy
segment information presented above. Other includes the operations of HSS and
immaterial intercompany eliminations.
Consolidated
2002 KCP&L Other KCP&L
(millions)
Operating revenues $1,009.9 $ 61.4 $1,071.3
Depreciation and depletion (144.3) (3.6) (147.9)
Interest charges (80.3) (1.7) (82.0)
Income taxes (63.4) 0.5 (62.9)
Cumulative effect of a change
in accounting principle - (3.0) (3.0)
Net income (loss) 102.9 (7.2) 95.7
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Subsidiaries
transferred to Consolidated
2001 KCP&L Other Great Plains Energy KCP&L
(millions)
Operating revenues $ 967.5 $ 66.2 $ 317.2 $1,350.9
Depreciation and depletion (136.3) (2.4) (14.3) (153.0)
Loss from equity investments - (0.1) (0.4) (0.5)
Interest charges (78.1) (1.7) (17.8) (97.6)
Income taxes (51.6) 0.3 20.9 (30.4)
Early extinguishment of debt - - 15.9 15.9
Net income (loss) 98.0 (5.6) 27.3 119.7
Subsidiaries
transferred to Consolidated
KCP&L Other Great Plains Energy KCP&L
2002 (millions)
Assets $ 3,084.5 $ 54.7 $ - $ 3,139.2
Capital and investment expenditures (a) 135.5 1.2 - 136.7
2001
Assets $ 3,092.5 $ 53.1 $ - $ 3,145.6
Capital and investment expenditures (a) 265.8 1.1 85.9 352.8
(a) Capital and investment expenditures reflect annual amounts for the
periods presented.
14. SHORT-TERM BORROWINGS AND SHORT-TERM BANK LINES OF CREDIT
During the first quarter of 2002, Great Plains Energy terminated its $129
million bridge revolving credit facility. Great Plains Energy replaced the
bridge facility with a $205 million syndicated 364-day, revolving credit
facility with a group of banks. During June 2002, Great Plains Energy entered
into a separate $20 million 364-day revolving credit facility with a bank. At
December 31, 2002, Great Plains Energy had $14.0 million of outstanding
borrowings, at an average interest rate of 2.27%, under the facilities. At
December 31, 2001, Great Plains Energy had $124 million of outstanding
borrowings under its $129 million bridge revolving credit facility with a
weighted-average interest rate of 3.0%.
Both facilities require a ratio of Great Plains Energy indebtedness to
consolidated capitalization of not more than 0.65 to 1.0. At December 31, 2002,
the total indebtedness to consolidated capitalization calculated in accordance
with the covenant was 0.55 to 1.0; therefore, the Company was in compliance with
the covenant. A default by Great Plains Energy or any of its significant
subsidiaries on more than $25 million of indebtedness is also a default under
both facilities. Both facilities also require the ratio of consolidated EBITDA
for the four quarters ending on such date to consolidated interest charges be
less than 2.0 to 1.0. At December 31, 2002, the ratio was 5.99; therefore, the
Company was in compliance with the covenant.
Strategic Energy has a $30 million short-term bank credit agreement that expires
in March 2003. At December 31, 2002 and 2001, Strategic Energy had no short-term
borrowings outstanding.
KCP&L's short-term borrowings consist of funds borrowed from banks or through
the sale of commercial paper as needed. As of December 31, 2002, there was no
commercial paper outstanding. The weighted-average interest rate on the $62.0
million of commercial paper outstanding as of December 31, 2001, was 3.2%. Under
minimal fee arrangements, KCP&L's short-term bank lines of credit totaled $126.0
million as of December 31, 2002, and $196.0 million with $134.0 million unused
as of December 31, 2001.
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A default by KCP&L on other indebtedness is a default under these bank line
agreements. Under the terms of certain bank line agreements, KCP&L is required
to maintain a consolidated indebtedness to consolidated capitalization ratio not
greater than 0.65 to 1.0 at all times. At December 31, 2002, the consolidated
indebtedness to consolidated capitalization ratio calculated in accordance with
the covenant was 0.60 to 1.0; therefore, the Company was in compliance with the
covenant.
RSAE has a $25.0 million short-term bank credit agreement that increased from
$22.0 million at December 31, 2001. Great Plains Energy has entered into a
support agreement with RSAE and the lender that ensures adequate capital to
operate RSAE. At December 31, 2002, RSAE had $23.6 million of outstanding
borrowings under the agreement with a weighted-average interest rate of 4.75%.
At December 31, 2001, RSAE had $20.4 million of outstanding borrowings under the
agreement with a weighted-average interest rate of 6.8%.
15. LONG-TERM DEBT AND EIRR BONDS CLASSIFIED AS CURRENT LIABILITIES
KCP&L General Mortgage Bonds
KCP&L has issued 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. Mortgage bonds secure $337.8 million
and $364.8 million of medium-term notes and EIRR bonds (see discussion below) at
December 31, 2002 and 2001, respectively.
In December 2002, KCP&L secured bond insurance policies as a credit enhancement
to its Series 1993A and 1993B EIRR bonds, which aggregate $79.5 million. The
insurance agreement between KCP&L and XL Capital Assurance Inc. (XLCA), the
issuer of the bond insurance policies, provides for reimbursement by KCP&L for
any amounts that XLCA pays under the bond insurance policies. The insurance
agreement contains a covenant that the indebtedness to total capitalization
ratio of KCP&L and its consolidated subsidiaries will not be greater than 0.68
to 1.0. KCP&L is also restricted from issuing additional bonds under its General
Mortgage Indenture if, after giving effect to such additional bonds, the
proportion of secured debt to total indebtedness would be more than 75%, or more
than 50% if the long term rating for such bonds by Standard & Poor's or Moody's
Investors Service would be at or below A- or A3, respectively. In the event of a
default under the insurance agreement, XLCA may take any available legal or
equitable action against KCP&L, including seeking specific performance of the
covenants.
The EIRR bonds are subject to mandatory redemption within 120 to 180 days of a
final determination by the IRS or a court that, as a result of KCP&L failing to
perform any of its agreements relating to the bonds, interest paid or payable on
the bonds is or was includable in the bondholders' gross income for Federal tax
purposes.
KCP&L EIRR Bonds Classified as Current Liabilities
A $31.0 million variable-rate, secured EIRR bond with a final maturity in 2017
is remarketed on a weekly basis, with full liquidity support provided by a
364-day credit facility with one bank. This facility requires KCP&L to
represent, as both a condition to renewal and prior to receiving any funding
under the facility, that no MAC has occurred. KCP&L's available liquidity under
this credit line is not impacted by a decline in credit ratings unless the
downgrade occurs in the context of a merger, consolidation, or sale.
The 4.50% interest rate on KCP&L's $50.0 million Series C unsecured EIRR bonds
expires on August 31, 2003. If the bonds could not be remarketed, KCP&L would be
obligated to either purchase or retire the bonds. The $50.0 million Series C
unsecured EIRR bonds and the $31.0 million discussed previously totaled $81.0
million and were classified as current liabilities at December 31, 2002.
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In 2001, KCP&L remarketed three series of unsecured EIRR bonds at a fixed rate
of 3.25% through August 29, 2002: its Series A and B, $106.5 million due 2015,
and Series D, $40.0 million due 2017. The Series A, B and D EIRR bonds and the
$31.0 million discussed previously totaled $177.5 million and were classified as
current liabilities at December 31, 2001. In 2002, KCP&L remarketed its Series
A, B and D EIRR bonds totaling $146.5 million to a five-year fixed interest rate
of 4.75% ending October 1, 2007.
KCP&L Unsecured Notes
At December 31, 2002, KCP&L had a total of $200.8 million of unsecured EIRR
bonds outstanding. The Series C EIRR bonds, $50.0 million due 2017, have a fixed
rate of 4.50% through August 31, 2003, and are classified as current liabilities
at December 31, 2002. In 2002, KCP&L remarketed its 1998 Series A, B and D EIRR
bonds totaling $146.5 million to a five-year fixed interest rate of 4.75% ending
October 1, 2007. The final maturity for Series A and B bonds is 2015 and the
final maturity for Series D is 2017. At the end of the fixed interest rate
period, the bonds will be subject to mandatory redemption or purchase and KCP&L
anticipates remarketing the bonds at which time a new interest rate period and
mode will be determined. KCP&L has classified the 1998 Series A, B and D EIRR
bonds as long-term debt consistent with the five-year term of the remarketing.
Under the previous one-year remarketing term, these three series were classified
as current liabilities.
Simultaneously with the remarketing, KCP&L entered into an interest rate swap
for the $146.5 million based on LIBOR to effectively create a floating interest
rate obligation. The transaction is a fair value hedge with the assumption of no
ineffectiveness under SFAS No. 133. The fair value of the swap is recorded on
KCP&L's balance sheet as an asset with an offset to the respective debt balances
and has no impact on earnings. Future changes in the fair market value of the
swap will be similarly recorded on the balance sheet with no impact on earnings.
At December 31, 2002, the fair value of the swap was $4.3 million. See Note 17
for additional discussion of the interest rate swap.
KCP&L has a total of $625.0 million of outstanding unsecured senior notes at
December 31, 2002. In 2002, KCP&L issued $225.0 million of 6.0% unsecured senior
notes, maturing in 2007. The proceeds from the issuance were primarily used to
refinance maturing unsecured medium-term notes.
Other Consolidated KCP&L Long-Term Debt
RSAE's long-term debt consists mainly of loans for buildings, leasehold
improvements and equipment.
Other Great Plains Energy Long-Term Debt
KLT Investments' affordable housing notes are collateralized by the affordable
housing investments. Most of the notes also require the greater of 15% of the
outstanding note balances or the next annual installment to be held as cash,
cash equivalents or marketable securities. The equity securities held as
collateral for these notes, included in other investments and nonutility
property on the consolidated balance sheets, were $9.3 million at December 31,
2002 and $12.0 million at December 31, 2001.
Scheduled Maturities
Great Plains Energy's long-term debt maturities for the years 2003 through 2007
are $134.1 million, $60.6 million, $254.2 million, $2.6 million and $227.0
million, respectively. These amounts include consolidated KCP&L's long-term debt
maturities for the years 2003 through 2007, of $124.9 million (including $104.0
million of medium term notes called in early 2003), $55.8 million, $250.9
million, $0.9 million and $226.5 million, respectively. In early 2003, KCP&L
received a total of approximately $100 million as an equity contribution from
Great Plains Energy, which was used to repay the $104.0 million of medium-term
notes included in current maturities at December 31, 2002.
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16. COMMON STOCK EQUITY, PREFERRED STOCK, REDEEMABLE PREFERRED STOCK AND
MANDATORILY REDEEMABLE PREFERRED SECURITIES
Common Stock Equity
In 2002, Great Plains Energy filed a registration statement for the issuance of
an aggregate amount up to $300 million of any combination of senior debt
securities, subordinated debt securities, trust preferred securities,
convertible securities or common stock. During November 2002, Great Plains
Energy issued 6.9 million shares of common stock at $22 per share under this
registration with $151.8 million in gross proceeds to be used for repayment of
debt at Great Plains Energy and KCP&L and for general corporate purposes.
Issuance costs of $6.1 million are reflected in Great Plains Energy's capital
stock premium and expense line in the December 31, 2002, consolidated statement
of capitalization.
Also during November 2002, Great Plains Energy issued 0.4 million shares of
common stock valued at $8.0 million in conjunction with the purchase of an
additional indirect ownership interest in Strategic Energy. See Note 9 for
additional information concerning this transaction.
As of December 31, 2002 and 2001, the Company held 152 shares and 35,916 shares,
respectively, of its common stock. The cost of these shares is included in
treasury stock on the consolidated statements of capitalization. The shares are
held for future distribution upon exercise of options issued in conjunction with
the Company's equity compensation plan.
Great Plains Energy has 3.0 million shares of common stock registered with the
SEC for a Dividend Reinvestment and Direct Stock Purchase Plan (Plan). The Plan
allows for the purchase of common shares by reinvesting dividends or making
optional cash payments. Great Plains Energy currently purchases shares for the
Plan on the open market.
Great Plains Energy has 8.3 million shares of common stock registered with the
SEC for a defined contribution savings plan. The Company matches employee
contributions, subject to limits.
Under the 35 Act, Great Plains Energy and KCP&L can pay dividends only out of
retained or current earnings, unless authorized to do so by the SEC. Under
stipulations with the MPSC and KCC, Great Plains Energy and KCP&L have committed
to maintain consolidated common equity of not less than 30% and 35%,
respectively. In their application under the 35 Act to establish a registered
holding company structure, GPE and KCP&L committed to maintain a consolidated
common equity capitalization of at least 30%.
Great Plains Energy's Articles of Incorporation 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, Great Plains Energy 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 the smallest number of Directors necessary to
constitute a majority of the full Board of Directors.
Under the indenture relating to KCP&L's 8.3% Junior Subordinated Deferrable
Interest Debentures, due 2037 (Debentures), which are held by KCP&L Financing I,
KCP&L may not declare or pay any dividends on any shares of its capital stock if
at the time (i) there is an event of default (as defined in the indenture), (ii)
KCP&L is in default with respect to its payment of any obligations under its
guarantee of preferred securities issued by KCP&L Financing I, or (iii) KCP&L
has elected to defer payments of interest on the Debentures.
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In March 2002, Great Plains Energy made a $36.0 million capital contribution to
KCP&L increasing capital stock premium and expense to $75.0 million, which is
reflected in common stock in the KCP&L consolidated statement of capitalization.
In early 2003, Great Plains Energy made an additional capital contribution to
KCP&L of approximately $100 million, which was used to pay down long-term debt.
Preferred Stock
As of December 31, 2002, 1.6 million shares of Cumulative No Par Preferred Stock
and 11 million shares of no par Preference Stock were authorized under Great
Plains Energy's Articles of Incorporation. Great Plains Energy has the option to
redeem the $39.0 million of issued Cumulative Preferred Stock at prices
approximating par or stated value.
Mandatorily Redeemable Preferred Securities
In 1997, KCP&L 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
KCP&L. The terms and interest payments on these debentures correspond to the
terms and dividend payments on the preferred securities. KCP&L deducts these
payments for tax purposes. KCP&L 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 compounding
interest on the deferred amounts. KCP&L may redeem all or a portion of the
debentures at anytime but has not elected to redeem any at this time. If KCP&L
redeems 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.
17. DERIVATIVE FINANCIAL INSTRUMENTS
On January 1, 2001, the Company adopted SFAS No. 133. SFAS No. 133 requires that
every derivative instrument be recorded on the balance sheet as an asset or
liability measured at its fair value and that changes in the fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met.
SFAS No. 133 requires that as of the date of initial adoption, the difference
between the fair market value of derivative instruments recorded on the balance
sheet and the previous carrying amount of those derivatives be reported in net
income or other comprehensive income, as appropriate, as a cumulative effect of
a change in accounting principle. The adoption of SFAS No. 133 on January 1,
2001, required the Company to record a $0.2 million expense, net of $0.1 million
of income tax. The Company did not reflect this immaterial amount as a
cumulative effect. This entry increased interest expense by $0.6 million and
reduced purchased power expense by $0.3 million. The Company also recorded $17.4
million, net of $12.6 million of income tax, as a cumulative effect of a change
in accounting principle applicable to comprehensive income for its cash flow
hedges. Cash flow hedges are derivative instruments used to mitigate the
exposure to variability in expected future cash flows attributable to a
particular risk.
Derivative Instruments and Hedging Activities
The Company's activities expose it to a variety of market risks including
interest rates and commodity prices. Management has established risk management
policies and strategies to reduce the potentially adverse effects that the
volatility of the markets may have on its operating results.
The Company's interest rate risk management strategy uses derivative instruments
to adjust the Company's liability portfolio to optimize the mix of fixed and
floating rate debt within an established range. The Company maintains
commodity-price risk management strategies that use derivative
103
instruments to minimize significant, unanticipated earnings fluctuations caused
by commodity price volatility.
The Company's risk management activities, including the use of derivatives, are
subject to the management, direction and control of internal Risk Management
Committees.
Interest Rate Risk Management
KCP&L utilizes interest rate management derivatives to adjust the Company's
liability portfolio to optimize the mix of fixed and floating rate debt within
an established range.
In 2002, KCP&L remarketed its 1998 Series A, B, and D EIRR bonds totaling $146.5
million to a 5-year fixed interest rate of 4.75% ending October 1, 2007.
Simultaneously with the remarketing, KCP&L entered into an interest rate swap
for the $146.5 million based on LIBOR to effectively create a floating interest
rate obligation. The transaction is a fair value hedge with the assumption of no
ineffectiveness under SFAS No. 133. The fair value of the swap is recorded on
KCP&L's balance sheet as an asset with an offset to the respective debt balances
and has no impact on earnings. Future changes in the fair market value of the
swap will be similarly recorded on the balance sheet with no impact on earnings.
At December 31, 2002, the fair value of the swap was $4.3 million.
KCP&L has two interest rate swap agreements in place to fix the interest rate on
$30 million of floating-rate long-term debt. These swaps do not meet the
criteria to qualify for hedge accounting. The swap agreements terminate in 2003
and effectively fix the interest at a weighted-average rate of 3.88%. The fair
market values of these agreements are recorded as current assets or liabilities
and changes in the fair market value of these instruments is recorded as
interest expense in the income statement.
In 2000, KCP&L issued $200 million of unsecured, floating rate medium-term
notes. Simultaneously, KCP&L entered into interest rate cap agreements to hedge
the interest rate risk on the notes. The cap agreements were designated as cash
flow hedges. The difference between the fair market value of the cap agreements
recorded on the balance sheet at initial adoption and the unamortized premium
was reported in interest expense. Both the notes and the cap agreements have
matured.
Commodity Risk Management
KCP&L's risk management policy is to use derivative hedge instruments to
mitigate its exposure to market price fluctuations on a portion of its projected
gas generation requirements for retail and firm wholesale sales. These hedging
instruments are designated as cash flow hedges. The fair market value of these
instruments is recorded as current assets or current liabilities. When the gas
is purchased and to the extent the hedge is effective at mitigating the impact
of a change in the purchase price of gas, the amounts in other comprehensive
income are reclassified to the consolidated income statement. To the extent that
the hedges are not effective, the ineffective portion of the changes in fair
market value are recorded directly in fuel expense.
Strategic Energy maintains a commodity-price risk management strategy that uses
forward physical energy purchases and derivative instruments to minimize
significant, unanticipated earnings fluctuations caused by commodity-price
volatility. An option that was designated as a cash flow hedge expired on
December 31, 2001. The option allowed Strategic Energy to purchase up to 270 MWs
of power at a fixed rate of $21 per MWh. The fair market value of this option
and swap agreements designated as cash flow hedges at January 1, 2001, was
recorded as a current asset and a cumulative effect of a change in accounting
principle in comprehensive income.
As a result of supplying electricity to retail customers under fixed rate
contracts, Strategic Energy's policy is to match customers' demand with fixed
price purchases. In certain markets where Strategic Energy operates, entering
into forward fixed price contracts is cost prohibitive. By entering into swap
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contracts for a portion of its forecasted purchases in these markets, the future
purchase price of electricity is effectively fixed under these swap contracts
protecting Strategic Energy from price volatility. The swap contracts limit the
unfavorable effect that price increases will have on electricity purchases.
Under SFAS No. 133, the majority of the swap agreements are designated as cash
flow hedges resulting in the difference between the market value of energy and
the hedge value being recorded as comprehensive income (loss). To the extent
that the hedges are not effective, the ineffective portion of the changes in
fair market value will be recorded directly in purchased power.
At January 1, 2001, Strategic Energy also had five swap agreements that did not
qualify for hedge accounting. The fair market value of these swaps at January 1,
2001, was recorded as an asset or liability on the consolidated balance sheet
and an adjustment to the cost of purchased power. The change in the fair market
value was recorded in purchased power. All of these swaps expired in 2002.
KLT Gas' risk management policy is to use firm sales agreements or financial
hedge instruments to mitigate its exposure to market price fluctuations on up to
85% of its daily natural gas production. These hedging instruments are
designated as cash flow hedges. The fair market value of these instruments at
January 1, 2001, was recorded as current assets or current liabilities, as
applicable, and the cumulative effect of a change in accounting principle in
comprehensive income. When the gas is sold and to the extent the hedge is
effective at mitigating the impact of a change in the sales price of gas, the
amounts in other comprehensive income are reclassified to the consolidated
income statement. To the extent that the hedges are not effective, the
ineffective portion of the changes in fair market value are recorded directly in
gas revenues. KLT Gas is currently developing gas properties; therefore, no
production was hedged in 2002.
The amounts recorded related to the cash flow hedges in OCI are summarized in
the following tables:
Great Plains Energy activity for 2002
Increase
December 31 (Decrease) in December 31
2001 OCI Reclassified 2002
Assets (millions)
Other current assets $ (0.2) $ 2.7 $ 0.5 $ 3.0
Liabilities and capitalization
Other current liabilities (12.7) 6.1 5.0 (1.6)
Accumulated OCI 12.1 (10.4) (2.6) (0.9)
Deferred income taxes 8.5 (7.2) (2.0) (0.7)
Other deferred credits (7.7) 8.8 (0.9) 0.2
Consolidated KCP&L activity for 2002
Increase
December 31 (Decrease) in December 31
2001 OCI Reclassified 2002
Assets (millions)
Other current assets $ (0.2) $ 0.6 $ (0.1) $ 0.3
Liabilities and capitalization
Other current liabilities (0.1) 0.1 - -
Accumulated OCI 0.2 (0.4) - (0.2)
Deferred income taxes 0.1 (0.3) 0.1 (0.1)
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Great Plains Energy activity for 2001
Cumulative
Effect to Increase
January 1, (Decrease) in December 31
2001 OCI Reclassified 2001
Assets (millions)
Other current assets $ 44.5 $ (20.6) $ (24.1) $ (0.2)
Liabilities and capitalization
Other current liabilities (6.8) (20.8) 14.9 (12.7)
Accumulated OCI (17.4) 25.6 3.9 12.1
Deferred income taxes (12.7) 18.1 3.1 8.5
Other deferred credits (7.6) (2.3) 2.2 (7.7)
Consolidated KCP&L activity for 2001
Cumulative Transferred
Effect to Increase to Great
January 1, (Decrease) in Plains December 31
2001 OCI Reclassified Energy 2001
Assets (millions)
Other current assets $ 44.5 $ (20.6) $ (24.1) $ - $ (0.2)
Liabilities and capitalization
Other current liabilities (6.8) (15.7) 7.4 15.0 (0.1)
Accumulated OCI (17.4) 23.4 7.6 (13.4) 0.2
Deferred income taxes (12.7) 16.6 5.6 (9.4) 0.1
Other deferred credits (7.6) (3.7) 3.5 7.8 -
Reclassified to earnings
Great Plains Energy Consolidated KCP&L
2002 2001 2002 2001
(millions)
Gas revenues $ (0.2) $ (3.9) $ - $ (3.7)
Fuel expense 0.1 - 0.1 -
Purchased power expense (5.4) 13.1 - 20.4
Minority interest 0.9 (2.2) - (3.5)
Income taxes 2.0 (3.1) (0.1) (5.6)
OCI $ (2.6) $ 3.9 $ - $ 7.6
18. JOINTLY-OWNED ELECTRIC UTILITY PLANTS
KCP&L's share of jointly-owned electric utility plants as of December 31, 2002,
is as follows (in millions of dollars):
Wolf Creek LaCygne Iatan
Unit Units Unit
KCP&L's share 47% 50% 70%
Utility plant in service $1,360 $ 324 $ 260
Estimated accumulated depreciation 584 218 170
Nuclear fuel, net 22 - -
KCP&L's accredited capacity--MWs 550 681 469
Each owner must fund its own portion of the plant's operating expenses and
capital expenditures.
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KCP&L's share of direct expenses is included in the appropriate operating
expense classifications in the Great Plains Energy and Consolidated KCP&L
Statements of Income.
19. DTI HOLDINGS, INC. AND SUBSIDIARIES
On December 31, 2001, a subsidiary of KLT Telecom, DTI Holdings, Inc. (Holdings)
and its subsidiaries, Digital Teleport Inc. (Digital Teleport) and Digital
Teleport of Virginia, Inc., filed separate voluntary petitions in Bankruptcy
Court for the Eastern District of Missouri for reorganization under Chapter 11
of the U.S. Bankruptcy Code which cases have been procedurally consolidated.
Holdings and its two subsidiaries are collectively called "DTI". The filings
enable DTI to continue to conduct its business operations while attempting to
resolve its financial obligations. DTI is a telecommunications company
headquartered in St. Louis that focuses on providing access and connectivity to
secondary and tertiary markets. KLT Telecom agreed to provide up to $5 million
in debtor-in-possession financing (DIP Loan) to Digital Teleport for a term of
18 months during the bankruptcy process if it achieves certain financial goals.
If KLT Telecom provides loans under the DIP Loan agreements, it will have
priority repayment over most other Digital Teleport obligations to the extent of
such DIP loan advances. The Bankruptcy Court approved the DIP Loan on February
18, 2002, but no advances have been made under the DIP Loan to date.
KLT Telecom originally acquired a 47% interest in DTI in 1997. On February 8,
2001, KLT Telecom acquired control of DTI by purchasing shares from the majority
shareholder, Richard D. Weinstein (Weinstein), increasing its ownership to
83.6%. In connection with the February 8, 2001, Purchase Agreement, KLT Telecom
granted Weinstein a put option. The put option allows Weinstein to sell his
remaining shares to KLT Telecom during a period beginning September 1, 2003, and
ending August 31, 2005. The put option provides for an aggregate exercise price
for these remaining shares equal to their fair market value with an aggregate
floor amount of $15 million. The floor amount of the put option was fully
reserved during the fourth quarter of 2001, as discussed below.
Prior to the DTI bankruptcy filings, KLT Telecom's $175.2 million book value of
its investment in, and loans to, DTI included a February 1, 2001, $94 million
loan to Holdings, the proceeds of which were used by Holdings to repurchase a
portion of its Senior Discount Notes, and $47 million in principal amount of
loans to Digital Teleport under various arrangements. The $47 million of loans
are secured, to the extent permitted by law or agreement, by Digital Teleport
Inc.'s assets. In December 2001, KLT Telecom converted $84 million of the $94
million loan to Holdings, plus accrued interest of approximately $8.5 million,
to an equity contribution to Holdings.
The Company obtained from legal counsel an opinion which stated that, based upon
and subject to the analysis, limitations and qualifications set forth in the
opinion, a court applying Missouri law and acting reasonably in a properly
presented and argued case would hold that the corporate veil of DTI would not be
pierced with respect to Great Plains Energy and its subsidiaries and therefore
neither Great Plains Energy nor its subsidiaries would be required to fund,
beyond KLT Telecom's current equity investment in or loans to DTI, directly,
indirectly or through guarantees, any of the present, past or future
liabilities, commitments or obligations of DTI, except for the DIP Loan and
certain performance bonds.
In December 2002, Digital Teleport entered into an agreement to sell
substantially all of its assets (Asset Sale) to CenturyTel Fiber Company II, LLC
(Century Tel), a nominee of CenturyTel, Inc. (Asset Purchase Agreement). The
Asset Sale was approved by the Bankruptcy Court on February 13, 2003, but the
Asset Purchase Agreement contains conditions to closing, which include among
other items the receipt of all necessary regulatory approvals, which must either
be satisfied or waived by July 15, 2003. The Asset Sale, if it is consummated,
will produce $38 million of gross sale proceeds, subject to certain closing
adjustments, $3.8 million of which will be escrowed (Escrow Funds). The Escrow
Funds will be disbursed 180 days following the closing of the Asset Sale,
subject to any reduction for the amount of
107
claims by Century Tel for breaches of representations and warranties of Digital
Teleport under the Asset Purchase Agreement. Assuming full release of that
escrow, the proceeds of the Asset Sale together with Digital Teleport's cash on
hand are expected to total approximately $47 million (Anticipated Assets).
The Company believes that KLT Telecom has a valid and perfected security
interest in virtually all of Digital Teleport's assets to secure repayment of
approximately $50 million (including accrued interest) of indebtedness which
would entitle KLT Telecom to receive all of the Anticipated Assets, leaving no
distribution to other creditors of Digital Teleport. The Bankruptcy Court,
however, has not ruled on the validity of KLT Telecom's security interest in
Digital Teleport's assets, and there is a possibility that the Bankruptcy Court
would disallow this security interest or otherwise subordinate KLT Telecom's
claims to other Digital Teleport creditors' claims. To expedite the Digital
Teleport bankruptcy case process, including the resolution of creditors' claims
and possible claims against the Company, KLT Telecom, KLT Inc., KCP&L, Great
Plains Energy, Digital Teleport and the Official Unsecured Creditors Committee
of Digital Teleport entered into a Settlement Agreement as of December 23, 2002
(Teleport Settlement Agreement). The Teleport Settlement Agreement does not
resolve any claims that Holdings or its creditors may have against the Company;
however, as discussed below, settlement discussions have commenced in the
Holdings bankruptcy case. The Teleport Settlement Agreement, if approved by the
Bankruptcy Court, resolves all material issues and disputes among the parties to
that agreement. Under the Teleport Settlement Agreement, Digital Teleport, the
Creditors Committee and three members of the Creditors Committee holding claims
against Digital Teleport will release claims and possible causes of action
against the Company and any other entity currently or previously a member of the
Great Plains Energy or KCP&L consolidated tax group, and creditors receiving
payments will be deemed to receive such payments in full satisfaction of their
claims against Digital Teleport. In addition, the Teleport Settlement Agreement
provides for the receipt by KLT Telecom of an assignment of claims of Digital
Teleport, the Creditors Committee and the bankruptcy estate of Digital Teleport
against Weinstein, any officer or director of Digital Teleport, or any other
person or entity.
The Teleport Settlement Agreement does not purport to resolve (i) three priority
proofs of claim by the Missouri Department of Revenue in the aggregate amount of
$2,848,446 (collectively, the MODOR Claim); (ii) an unsecured proof of claim by
Gary Douglass, the former Chief Financial Officer of DTI, in the amount of
$2,055,900 (Douglass Claim); or (iii) any claims by Holdings against KLT
Telecom, KLT Inc., KCP&L and Great Plains Energy, or by creditors of Holdings,
including the holders of $265 million of Senior Discount Notes of Holdings as to
which no proof of claim has been filed in the Digital Teleport bankruptcy
proceeding. Digital Teleport has filed objections to the Douglass Claim and
MODOR Claim asserting that each claim should be disallowed in full. The Teleport
Settlement Agreement provides for a pro rata distribution from the Anticipated
Assets ranging from 82.5% to 90% of the sum of (i) the non-priority unsecured
claims of approximately $10.3 million held by Digital Teleport's trade creditors
(Trade Claims), (ii) an amended claim of $1 million by Union Electric Co. d/b/a
Ameren UE (Amended Ameren Claim), and (iii) the allowed, non-priority unsecured
portions, if any, of the Douglass Claim and the MODOR Claim, with the exact
percentage being determined by the extent to which the MODOR Claim and the
Douglass Claim are resolved in the Digital Teleport bankruptcy proceeding and
are not disallowed. Upon approval of the Teleport Settlement Agreement by the
Bankruptcy Court, after the payment of administrative, secured and priority
claims (which claims, excluding the MODOR Claim, are estimated to total
approximately $3 million) the balance of the Anticipated Assets is expected to
be distributed to KLT Telecom, subject to the resolution of the MODOR Claim and
the Douglass Claim, and subject, further, to a possible payment to the creditors
of Holdings as described below.
Upon closure of the proposed Asset Sale, KLT Telecom will pay a base sum of $1.6
million to certain executives of Digital Teleport for entering into employment
agreements required as a condition precedent to the proposed Asset Sale. This
sum will be increased based upon the amount of Escrow Funds released to Digital
Teleport, but the sum is not anticipated to exceed $2.5 million.
108
Digital Teleport and Digital Teleport of Virginia have prepared a Chapter 11
plan (Chapter 11 Plan) and disclosure statement reflecting the Asset Sale and
Teleport Settlement Agreement and expect that a confirmation hearing will be
held by the Bankruptcy Court in May 2003. While confirmation of the Chapter 11
Plan is subject to a vote of creditors and the approval of the Bankruptcy Court,
it is currently expected that, if the Bankruptcy Court approves the Teleport
Settlement Agreement, the Chapter 11 Plan will be confirmed due to the level of
support for the plan by certain members of the Creditors Committee. The Chapter
11 Plan contemplates that Digital Teleport and Digital Teleport of Virginia will
be liquidated after distribution of those companies' assets to their creditors
pursuant to the Chapter 11 Plan and the Teleport Settlement Agreement.
In an objection to a motion by Digital Teleport for an extension of time in
which to propose a Chapter 11 plan, the largest creditor of Holdings (the
Creditor) asserted that Holdings, Digital Teleport and their creditors have
claims against KLT Telecom, KLT Inc., KCP&L and Great Plains Energy based on
theories of breach of contract, fraudulent conveyance, recharacterization of
debt, subordination and breach of fiduciary duty. Among other things, the
Creditor asserted that certain tax benefits should have been paid to Holdings
and Digital Teleport, rather than to KLT Telecom as provided in the October 1,
2001, Great Plains Energy tax allocation agreement. The Creditor has not
otherwise pursued these claims at this time, and the Company believes that it
has meritorious defenses to these claims. Further, Holdings, the principal
creditors of Holdings (including the Creditor), KLT Telecom, KLT Inc., KCP&L,
and Great Plains Energy are in the process of negotiating a separate settlement
agreement which, if finalized and approved by the Bankruptcy Court, is
anticipated to resolve the Holdings bankruptcy case and any claims that might be
asserted in the Holdings bankruptcy case against the Company, and to provide
payment to the creditors of Holdings from a portion of the proceeds KLT Telecom
otherwise would receive from the Asset Sale. If the separate settlement
agreement is finalized, it is anticipated that the Chapter 11 Plan will be
modified to add Holdings as a proponent and to include the terms of the Holdings
Settlement Agreement.
The ultimate impact of the Asset Sale, the Teleport Settlement Agreement and/or
the potential separate settlement agreement in the Holdings bankruptcy case will
not be determined until final resolution of the matters set forth above.
The operating results of DTI have been included for the period February 8, 2001
(date of acquisition) through September 30, 2001, for consolidated KCP&L and
through December 31, 2001, for Great Plains Energy. Because of DTI's filing for
bankruptcy protection under the U.S. Bankruptcy Code, KLT Telecom no longer has
control over nor can it exert significant control over DTI. As a consequence, as
of December 31, 2001, DTI was de-consolidated and is presented on the cost
basis. Consequently, KLT Telecom did not include in its financial results the
ongoing results of operations, earnings or losses incurred by DTI during 2002
and will not do so during the remaining period of the DTI bankruptcy.
During the fourth quarter of 2001, the following were recognized in the
financial statements of the Company related to the activities of DTI:
o Wrote off $60.8 million of goodwill related to the purchase of DTI in
February 2001.
o Recorded a $342.5 million impairment of DTI's assets resulting in a
negative KLT Telecom investment of $228.1 million.
o The Company recorded a reduction in the negative investment of $207.5
million. This reduction resulted in a net impairment charge of $195.8
million ($342.5 million impairment of DTI's assets plus the $60.8
million write-off of goodwill less the $207.5 million adjustment of KLT
Telecom's investment) and a remaining negative investment of $20.6
million. This remaining negative investment represents the possible
commitments and guarantees relating to DTI including the $5 million for
DIP financing and the $15 million aggregate floor of the Weinstein put
option. The
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$20.6 million is included in Deferred Credits and Other Liabilities -
Other on Great Plains Energy's consolidated balance sheet at both
December 31, 2001 and 2002.
The net of the above items resulted in Great Plains Energy recording in 2001 a
$195.8 million loss on property and $55.8 million of related income tax
benefits. The $55.8 million income tax benefits applicable to this net write-off
is net of a $15.8 million tax valuation allowance due to the uncertainty of
recognizing future tax deductions while in the bankruptcy process. The $55.8
million income tax benefit reflects the impact of DTI's 2001 abandonment of $104
million of its long-haul assets in addition to other expected tax deductions. If
additional assets of DTI are sold or abandoned during the bankruptcy process, or
additional tax losses not already reflected are incurred by DTI, KLT Telecom
will record tax benefits associated with these additional tax deductions at that
time. The amount of additional tax deductions will be limited by KLT Telecom's
tax basis in DTI. DTI's tax losses have continued to be included in Great Plains
Energy's consolidated tax return. In accordance with the tax allocation
agreement with DTI, cash tax savings are shared with DTI only to the extent DTI
generates taxable income to utilize such losses. The Company will reconsider the
$15.8 million tax valuation allowance at the conclusion of the bankruptcy
process.
The following are condensed DTI consolidated financial statements for the year
ended December 31, 2001:
Net Assets
De-consolidated by
DTI Consolidated Balance Sheet December 31, 2001 KLT Telecom
(millions)
Assets
Property and equipment, net $ 46.9
Other 6.1
Total assets $ 53.0 $ (53.0)
Liabilities
Current liabilities not subject to compromise $ 0.2 0.2
Liabilities subject to compromise
Loans from KLT Telecom 57.0
Deferred revenue 45.8 45.8
Interest payable to KLT Telecom 3.0
Other 31.9 31.9
Senior discount notes
Held by KLT Telecom 8.5
Held by others 203.2 203.2
Total liabilities subject to compromise 349.4
Stockholders' equity (deficit) (296.6)
Total liabilities and stockholders'
equity (deficit) $ 53.0 $ 228.1
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DTI Consolidated Statement of Income for the Year Ended December 31, 2001
(millions)
Telecommunications service revenues $ 17.4
Operating expenses
Provision for impairment of long-lived assets (a) (342.5)
Other (44.2)
Interest expense net of interest income (31.9)
Loss before income tax benefit and extraordinary item (401.2)
Income tax benefit 37.9
Gain on early extinguishment of debt 57.2
Net loss $(306.1)
(a) The write-down of assets was determined by DTI in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". The write-down reflects the abandonment of $104
million of long-haul assets and the impairment of the rest of the
telecommunication network and equipment. The impairment is primarily a
result of the downward trends in certain segments of the economy,
particularly with respect to previously expected growth of demand in
technology and telecommunications, the accompanying deterioration in value
of DTI's operating assets and its Chapter 11 filing. The fair value used in
the impairment analysis was derived primarily from the discounted cash
flows from continued future operations.
DTI Consolidated Statement of Cash Flows for the Year Ended December 31, 2001
(millions)
Net cash used in operating activities $ (10.8)
Net cash used in investing activities (41.2)
Cash provided by financing activities 42.9
Net decrease in cash and cash equivalents $ (9.1)
Reconciliation of DTI consolidated financial statements to DTI financial
results included in Great Plains Energy consolidated financial statements
(millions)
Loss before income tax benefit and extraordinary item $ (401.2)
Loss before consolidation on February 8, 2001 7.1
Goodwill write-off (60.8)
Reduction to KLT Telecom's negative investment in DTI 207.5
Total $ (247.4)
Net DTI write-off $ (195.8)
DTI operational loss, excluding net write-off (51.6)
Total equal to the above (247.4)
Other (1.0)
Total included in loss before income taxes (248.4)
Income tax benefits recorded by KLT Telecom 74.6
Loss before extraordinary item (173.8)
Early extinguishment of debt 15.9
DTI loss included in Great Plains Energy
consolidated net loss $ (157.9)
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Extraordinary Item - Early Extinguishment of Debt
The KLT Telecom gain on early extinguishment of debt resulted from DTI's
completion of a successful tender offer for 50.4 percent of its outstanding
Senior Discount Notes prior to KLT Telecom acquiring a majority ownership in
DTI. The $15.9 million early extinguishment of debt has been reduced by the
losses previously recorded by DTI but not reflected by KLT Telecom, and is net
of $9.1 million of income tax.
20. QUARTERLY OPERATING RESULTS (UNAUDITED)
Quarterly operating results for Great Plains Energy and consolidated KCP&L are
identical prior to the October 1, 2001, formation of a holding company.
Great Plains Energy
Quarter
1st 2nd 3rd 4th
2002 (millions)
Operating revenue $ 358.8 $ 465.4 $ 585.0 $ 452.7
Operating income 15.3 78.4 135.9 62.1
Income (loss) before cumulative effect (2.9) 36.0 68.8 27.3
Net income (loss) (5.9) 36.0 68.8 27.3
Basic and diluted earning (loss) per common
share before cumulative effect $ (0.05) $ 0.57 $ 1.11 $ 0.41
Basic and diluted earning (loss) per common
share $ (0.10) $ 0.57 $ 1.11 $ 0.41
2001
Operating revenue $ 280.2 $ 346.5 $ 480.9 $ 354.3
Operating income (loss) 7.4 75.8 131.7 (157.7)
Income (loss) before extraordinary item (3.0) 36.2 55.6 (128.8)
Net income (loss) 12.9 36.2 55.6 (128.9)
Basic and diluted earning (loss) per common
share before extraordinary item $ (0.06) $ 0.58 $ 0.89 $ (2.09)
Basic and diluted earning (loss) per common
share $ 0.20 $ 0.58 $ 0.89 $ (2.09)
Net income (loss) in the fourth quarter of 2001 includes a loss of $140.0
million due to the net write-off of the investment in DTI.
Consolidated KCP&L
Quarter
1st 2nd 3rd 4th
2002 (millions)
Operating revenue $ 212.2 $ 264.2 $ 351.5 $ 243.4
Operating income 6.7 66.9 124.6 50.5
Income (loss) before cumulative effect (8.0) 27.1 62.3 17.3
Net income (loss) (11.0) 27.1 62.3 17.3
2001
Operating revenue $ 280.2 $ 346.5 $ 480.9 $ 243.3
Operating income 7.4 75.8 131.7 39.8
Income (loss) before cumulative effect (3.0) 36.2 55.6 15.0
Net income 12.9 36.2 55.6 15.0
112
First quarter 2002 income statement information as reported in the March 31,
2002, Form 10-Q has been restated to reflect the cumulative effect to January 1,
2002, of a change in accounting principle for the $3.0 million RSAE goodwill
write-down. Certain reclassifications have been made to previously reported
amounts in the 2001 Form 10-Q's, reflecting reclassifications of revenues and
purchased power recorded by Strategic Energy. There is no impact to net income
as a result of these adjustments. Revenues reported in the 2001 Form 10-Q's were
$281.9 million, $354.3 million and $492.6 million for the first, second and
third quarters of 2001, respectively. The quarterly data is subject to seasonal
fluctuations with peak periods occurring during the summer months.
113
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Great Plains Energy Incorporated
We have audited the accompanying consolidated balance sheet and consolidated
statement of capitalization of Great Plains Energy Incorporated and subsidiaries
(the "Company") as of December 31, 2002, and the related consolidated statements
of income, comprehensive income, retained earnings and cash flows for the year
then ended. Our audit also included the 2002 financial statement schedules
listed in the Index at Item 15. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Great Plains Energy
Incorporated and subsidiaries as of December 31, 2002, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedules, when considered in relation
to the 2002 basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
As discussed in Note 6 to the consolidated financial statements, on January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets."
/s/DELOITTE & TOUCHE LLP
Kansas City, Missouri
February 27, 2003
114
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Kansas City Power & Light Company
We have audited the accompanying consolidated balance sheet and consolidated
statement of capitalization of Kansas City Power & Light Company and
subsidiaries (the "Company") as of December 31, 2002, and the related
consolidated statements of income, comprehensive income, retained earnings and
cash flows for the year then ended. Our audit also included the 2002 financial
statement schedules listed in the Index at Item 15. These financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Kansas City Power & Light
Company and subsidiaries as of December 31, 2002, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedules, when considered in relation
to the 2002 basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
As discussed in Note 6 to the consolidated financial statements, on January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets."
/s/DELOITTE & TOUCHE LLP
Kansas City, Missouri
February 27, 2003
115
Report of Independent Accountants
To the Shareholders and the Board of Directors of
Great Plains Energy Incorporated:
We have audited the accompanying consolidated balance sheet and statement of
capitalization of Great Plains Energy Incorporated and Subsidiaries as of
December 31, 2001, and the related consolidated statements of income,
comprehensive income, retained earnings, and cash flows for each of the two
years in the period ended December 31, 2001. 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 did not audit the
consolidated financial statements of DTI Holdings, Inc. and Subsidiaries
(Debtors-in-Possession) (an 83.6 percent owned entity), as of and for the year
ended December 31, 2001, which statements reflect total assets of $53.0 million
as of December 31, 2001 and total revenues of $17.4 million and a net loss of
$306.1 million for the year ended December 31, 2001. Those statements were
audited by other auditors whose report thereon has been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for DTI
Holdings, Inc. and Subsidiaries is based solely on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Great Plains Energy Incorporated
and Subsidiaries at December 31, 2001, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 2001
in conformity with accounting principles generally accepted in the United States
of America.
As discussed in Note 17 to the consolidated financial statements, the Company
adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities", as amended on January 1, 2001. As discussed in Note 7 to the
consolidated financial statements, the Company changed its method of accounting
for pensions in 2000.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 5, 2002, except with respect to Note 13, as to which the date is May
22, 2002, and except with respect to the 2001 and 2000 transitional disclosures
relating to the adoption of Statement of Financial Accounting Standards No. 142
as described in Note 6, as to which the date is February 21, 2003
116
Report of Independent Accountants
To the Shareholder and the Board of Directors of
Kansas City Power & Light Company:
We have audited the accompanying consolidated balance sheet and statement of
capitalization of Kansas City Power & Light Company (a wholly-owned subsidiary
of Great Plains Energy Incorporated) and Subsidiaries as of December 31, 2001,
and the related consolidated statements of income, comprehensive income,
retained earnings and cash flows for each of the two years in the period ended
December 31, 2001. 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 did not audit the consolidated
financial statements of DTI Holdings, Inc. and Subsidiaries
(Debtors-in-Possession) (an 83.6 percent owned entity), as of and for the year
ended December 31, 2001, which statements reflect total assets of $53.0 million
as of December 31, 2001 and total revenues of $17.4 million and a net loss of
$306.1 million for the year ended December 31, 2001. Those statements were
audited by other auditors whose report thereon has been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for DTI
Holdings, Inc. and Subsidiaries is based solely on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Kansas City Power & Light Company
and Subsidiaries at December 31, 2001, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 2001
in conformity with accounting principles generally accepted in the United States
of America.
As discussed in Note 17 to the consolidated financial statements, the Company
adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities", as amended on January 1, 2001. As discussed in Note 7 to the
consolidated financial statements, the Company changed its method of accounting
for pensions in 2000.
As discussed in Note 1 to the consolidated financial statements, on October 1,
2001 the Company completed its corporate reorganization creating a holding
company structure.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 5, 2002, except with respect to Note 13, as to which the date is May
22, 2002, and except with respect to the 2001 transitional disclosures relating
to the adoption of Statement of Financial Accounting Standards No. 142 as
described in Note 6, as to which the date is February 21, 2003
117
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of DTI Holdings, Inc.
We have audited the balance sheets of DTI Holdings, Inc. and subsidiaries
(Debtors-in-Possession) (the "Company") as of December 31, 2001, and the related
statements of operations and stockholder's equity (deficit) and of cash flows
for the year ended June 30, 2000, the six-month period ended December 31, 2000
and the year ended December 31, 2001. These financial statements (which are not
included herein) 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 of America. 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, such financial statements present fairly, in all material
respects, the financial position of DTI Holdings, Inc. and subsidiaries as of
December 31, 2001, and the results of their operations and their cash flows for
the year ended June 30, 2000, the six-month period ended December 31, 2000 and
the year ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to those financial statements, the Company has filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code. The financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such financial statements do not purport
to show (a) as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to prepetition liabilities, the
amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Company; or (d) as to operations, the
effect of any changes that may be made in its business.
The financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to those financial
statements, the Company's recurring losses from operations, negative working
capital, and stockholders' capital deficiency raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also discussed in Note 1 to those financial statements. The
financial statements do not include adjustments that might result from the
outcome of this uncertainty.
As discussed in Note 3 to those financial statements, the Company determined
that the carrying value of its long-lived assets had been impaired during the
year. In accordance with Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed of,
the Company recorded an impairment charge of approximately $342 million at
December 31, 2001.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
January 30, 2002
118
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
General Note
Pursuant to General Instruction G to Form 10-K, the Great Plains Energy
information required by Part III (Items 10, 11, 12 and 13) of Form 10-K will
either be (i) incorporated by reference from the Definitive Proxy Statement for
Great Plains Energy's 2002 Annual Meeting of Shareholders, to be filed with the
SEC not later than March 31, 2003, or (ii) included in an amendment to this
report filed with the SEC on Form 10-K/A not later than 120 days after December
31, 2002.
The following information is provided in connection with KCP&L.
Directors
The directors of KCP&L are the same as those for Great Plains Energy. The ten
nominees listed below are all of the current directors and have consented to
stand for election to the Board of Great Plains Energy. If they are elected to
serve by the shareholders of Great Plains Energy at the Annual Meeting on May 6,
2003, they will also be elected to the KCP&L Board.
Nominees for Directors
Bernard J. Beaudoin Director since 1999
Mr. Beaudoin, 62, is Chairman of the Board, President and Chief
Executive Officer of Great Plains Energy. He is also Chairman of the
Board and Chief Executive Officer of KCP&L. He was elected Chairman of
the Board and named Chief Executive Officer of Great Plains Energy in
2001. He was elected President in 1999. Previously, he was President of
KLT Inc., a wholly-owned subsidiary of Great Plains Energy. Mr.
Beaudoin served as a member of the Executive Committee during 2002.
David L. Bodde Director since 1994
Dr. Bodde, 60, holds the Charles N. Kimball Chair in Technology and
Innovation (since 1996) at the Bloch School of Business, University of
Missouri-Kansas City. He serves on the board of The Commerce Funds. Dr.
Bodde served as a member of the Audit and Governance Committees during
2002.
Mark A. Ernst Director since 2000
Mr. Ernst, 44, is Chairman of the Board, President and Chief Executive
Officer of H&R Block Inc., a provider of tax preparation, investment,
mortgage and accounting services. He was elected Chairman of the Board
in 2002, Chief Executive Officer in 2001 and President in 1999.
Previously, he was Chief Operating Officer of H&R Block. He also serves
on the board of SCS Transportation. Mr. Ernst served on the Audit and
Compensation Committees during 2002.
Randall C. Ferguson, Jr. Director since 2002
Mr. Ferguson, 51, is the retired Senior Location Executive (1998-2003)
for the IBM Western Region. IBM is a leading creator and manufacturer
of advanced information technologies, including computer systems,
software, network systems, storage devices and microelectronics. Mr.
Ferguson served on the Audit Committee during 2002.
119
William K. Hall Director since 2000
Mr. Hall, 59, is Chairman and Chief Executive Officer (since 2000) of
Procyon Technologies Inc., a Chicago-based holding company with
investments in the aerospace and defense industries. He was previously
President and Chief Executive Officer of Falcon Building Products, Inc.
Mr. Hall serves on the boards of Actuant Corporation, A. M. Castle &
Co., GenCorp and Woodhead Industries. Mr. Hall served on the
Compensation and Executive Committees during 2002.
Luis A. Jimenez Director since 2001
Mr. Jimenez, 58, is Senior Vice President and Chief Strategy Officer
(since 1999) of Global Growth and Futures Strategy with Pitney Bowes, a
Fortune 300 provider of messaging solutions, office products and
financial services. Previously, he was Vice President and Practice
Leader, Telecommunications and Media, Latin America, for Arthur D.
Little, Inc., an international management consulting firm. Mr. Jimenez
served on the Governance Committee during 2002.
James A. Mitchell Director since 2002
Mr. Mitchell, 61, is the Executive Fellow, Leadership (since 1999), at
the Center for Ethical Business Cultures. He is the retired Executive
Vice President of Marketing and Products (1993-1999) of American
Express Company. Mr. Mitchell served on the Governance Committee during
2002.
William C. Nelson Director since 2000
Mr. Nelson, 65, is Chairman (since 2001) of George K. Baum Asset
Management, an asset management advisor. He is the retired Chairman
(1990-2000) of Bank of America Midwest. He serves on the board of DST
Systems. Mr. Nelson served on the Audit and Compensation Committees
during 2002.
Linda H. Talbott Director since 1983
Dr. Talbott, 62, is President (since 1975) of Talbott & Associates,
international consultants in strategic planning, philanthropic
management and development to foundations, corporations, and the
nonprofit sector. Dr. Talbott served as a member of the Executive and
Governance Committees during 2002.
Robert H. West Director since 1980
Mr. West, 64, is the retired Chairman (1986-1999) of Butler
Manufacturing Company, a supplier of non-residential building systems,
specialty components, and construction services. He serves on the
boards of Astec Industries, Inc., Burlington Northern Santa Fe
Corporation and Commerce Bancshares, Inc. Mr. West served as a member
of the Audit, Compensation and Executive Committees during 2002.
Executive Officers
The information with respect to executive officers of the registrants contained
in this Form 10-K under "Item 1. Business-Executive Officers of Registrants" is
incorporated herein by reference.
120
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table contains compensation data for KCP&L executive
officers for fiscal years ended December 31, 2002, 2001 and 2000.
Annual Compensation Long Term Compensation
Awards Payouts
Other Annual Restricted Securities LTIP All Other
Compensation Stock Award(s) Underlying Payouts Compensation
Name and Principal Position Year Salary($) Bonus ($) ($) (2) ($) Options/SARs ($) (3)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Bernard J. Beaudoin (1) 2002 415,000 186,750 0 55,000 0 51,486
Chairman of the Board and 2001 400,000 0 0 55,000 0 36,971
Chief Executive Officer 2000 325,000 162,535 0 0 0 33,174
Andrea F. Bielsker (1) 2002 200,000 60,000 0 13,000 0 18,569
Senior Vice President-Finance, 2001 180,000 0 0 13,000 0 15,565
Chief Financial Officer and 2000 140,000 63,991 0 0 0 11,213
Treasurer
William H. Downey (1)(4) 2002 260,000 78,000 0 20,000 0 14,382
President 2001 250,000 0 0 20,000 0 5,645
2000 65,000 54,000 0 0 0 698
Stephen T. Easley 2002 200,000 50,000 0 13,000 0 5,242
Vice President-Generation 2001 160,000 0 0 6,000 0 6,833
Services 2000 115,455 63,000 0 0 0 4,980
Jeanie Sell Latz (1) 2002 210,000 63,000 0 13,000 0 29,353
Secretary 2001 200,000 0 0 13,000 0 27,056
2000 180,000 83,506 0 0 0 19,121
(1) Includes compensation received from Great Plains Energy and KCP&L.
(2) While the five named executive officers receive certain perquisites
from the Company, such perquisites did not reach in any of the reported
years the threshold for reporting of the lesser of either $50,000 or
ten percent of salary and bonus set forth in the applicable rules of
the Securities and Exchange.
(3) For 2002, amounts include:
* Flex dollars under the Flexible Benefits Plan: Beaudoin - $18,310;
Bielsker -$11,707; Downey - $3,867; Easley - $2,104; and
Latz - $17,867
* Deferred Flex Dollars: Beaudoin - $16,157; and Downey - $650
* Above-market interest paid on deferred compensation: Beaudoin -
$4,569; Bielsker - $862; Downey - $2,065; and Latz - $5,186
* Great Plains Energy contribution under the Great Plains Energy
Employee Savings Plus Plan: Beaudoin - $5,563; Bielsker - $5,521;
Downey -$5,563; Easley - $3,138; and Latz - $5,533
* Contribution to Deferred Compensation Plan: Beaudoin - $6,887;
Bielsker - $479; Downey - $2,237; and Latz - $767
(4) Mr. Downey was employed as Executive Vice President-KCPL and
President-KCPL Delivery effective September 25, 2000.
121
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value
of Assumed Annual Alternative
Rates of Stock to (f) and
Price Appreciation (g): Grant
Individual Grants For Option Term Date Value
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Price Expiration 5% 10% Present
Name Granted (#) Fiscal Year ($/Sh) Date ($) ($) Value ($) (1)
(a) (b) (c) (d) (e) (f) (g) (f)
Bernard J. Beaudoin 55,000 30.4% $24.90 02-05-2012 $ 173,173
Andrea F. Bielsker 13,000 7.2% $24.90 02-05-2012 $ 40,932
William H. Downey 20,000 11% $24.90 02-05-2012 $ 62,972
Stephen T. Easley 13,000 7.2% $24.90 02-05-2012 $ 40,932
Jeanie S. Latz 13,000 7.2% $24.90 02-05-2012 $ 40,932
(1) The grant date valuation was calculated by using the binomial option
pricing formula, a derivative of the Black-Scholes model. The
underlying assumptions used to determine the present value of the
option were as follows:
Annualized Stock Volatility: 27.503%
Time of Exercise (Option Term): 10 years
Risk Free Interest Rate: 4.57%
Exercise Price (Equal to the Fair Market Value): $24.90
Average Dividend Yield: 7.68%
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
Shares
Acquired Number of Unexercised Value of Unexercised In-the-Money
on Value Options/SARs at Fiscal Year End Options/SARs at Fiscal Year End
Exercise Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
(a) (b) (c) (d) (e)
Bernard J. Beaudoin 0 0 0 / 110,000 0 / 0
Andrea F. Bielsker 0 0 0 / 26,000 0 / 0
William H. Downey 0 0 0 / 40,000 0 / 0
Stephen T. Easley 0 0 0 / 19,000 0 / 0
Jeanie S. Latz 0 0 12,000 / 26,000 $9,020 / 0
(1) All unexercisable options were out-of-the-money on December 31, 2002.
122
Pension Plans
The Company has a non-contributory pension plan (Great Plains Energy Pension
Plan) for its management employees providing for benefits upon retirement,
normally at age 65. In addition, a supplemental retirement benefit is provided
for executive officers. The following table shows examples of single life option
pension benefits (including unfunded supplemental retirement benefits) payable
upon retirement at age 65 to the named executive officers:
Average Annual Base Salary Annual Pension for
for Highest Years of Service Indicated
36 Months
15 20 25 30 or more
150,000 45,000 60,000 75,000 90,000
200,000 60,000 80,000 100,000 120,000
250,000 75,000 100,000 125,000 150,000
300,000 90,000 120,000 150,000 180,000
350,000 105,000 140,000 175,000 210,000
400,000 120,000 160,000 200,000 240,000
450,000 135,000 180,000 225,000 270,000
500,000 150,000 200,000 250,000 300,000
Each eligible employee with 30 or more years of credited service, or whose age
and years of service add up to 85, is entitled to a total monthly annuity equal
to 50% of their average base monthly salary for the period of 36 consecutive
months in which their earnings were highest. The monthly annuity will be
proportionately reduced if their years of credited service are less than 30 or
do not add up to 85. The compensation covered by the Great Plains Energy Pension
Plan -- base monthly salary -- excludes any bonuses and other compensation. The
Great Plains Energy Pension Plan provides that pension amounts are not reduced
by Social Security benefits. The estimated credited years of service for the
named executive officers in the Summary Compensation table are as follows:
Credited
Officer Years of Service
Bernard J. Beaudoin 22 years
Andrea F. Bielsker 18 years
William H. Downey 2 years
Stephen T. Easley 6 years
Jeanie S. Latz 22 years
Eligibility for supplemental retirement benefits is limited to executive
officers selected by the Compensation Committee of the Board; all the named
executive officers are participants. The total retirement benefit payable at the
normal retirement date is equal to 2% of highest average earnings, as shown
above, for each year of credited service up to 30 (maximum of 60% of highest
average earnings). The actual retirement benefit paid equals the target
retirement benefit less retirement benefits payable under the management pension
plan. A liability accrues each year to cover the estimated cost of future
supplemental benefits.
The Internal Revenue Code imposes certain limitations on pensions that may be
paid under tax qualified pension plans. In addition to the supplemental
retirement benefits, the amount by which pension benefits exceed the limitations
will be paid outside the qualified plan and accounted for by Great Plains Energy
as an operating expense.
123
Great Plains Energy Severance Agreements
Great Plains Energy has severance agreements (Severance Agreements) with certain
executive officers, including the named executives, to ensure their continued
service and dedication and their objectivity in considering on behalf of Great
Plains Energy any transaction which would change the control of the company.
Under the Severance Agreements, an executive officer would be entitled to
receive a lump-sum cash payment and certain insurance benefits during the
three-year period after a Change in Control (or, if later, the three-year period
following the consummation of a transaction approved by Great Plains Energy's
shareholders constituting a Change in Control) if the officer's employment was
terminated by:
o Great Plains Energy other than for cause or upon death or disability;
o the executive officer for "Good Reason" (as defined in the Severance
Agreements); and
o the executive officer for any reason during a 30-day period commencing one
year after the Change in Control or,
if later, commencing one year following consummation of a transaction
approved by Great Plains Energy's shareholders constituting a change in
control (a Qualifying Termination).
A Change in Control is defined as:
o an acquisition by a person or group of 20% or more of the Great Plains
Energy common stock (other than an acquisition from or by Great Plains
Energy or by a Great Plains Energy benefit plan);
o a change in a majority of the Board; and
o approval by the shareholders of a reorganization, merger or consolidation
(unless shareholders receive 60% or more of the stock of the surviving
company) or a liquidation, dissolution or sale of substantially all of
Great Plains Energy's assets.
Upon a Qualifying Termination, Great Plains Energy must make a lump-sum cash
payment to the executive officer of:
o the officer's base salary through the date of termination;
o a pro-rated bonus based upon the average of the bonuses paid to the
officer for the last five fiscal years;
o any accrued vacation pay;
o two or three times the officer's highest base salary during the prior 12
months;
o two or three times the average of the bonuses paid to the officer for the
last five fiscal years;
o the actuarial equivalent of the excess of the officer's accrued pension
benefits including supplemental retirement benefits computed without
reduction for early retirement and including two or three additional years
of benefit accrual service, over the officer's vested accrued pension
benefits; and
o the value of any unvested contributions for the benefit of the officer
under the Great Plains Energy Employee Savings Plus Plan.
In addition, Great Plains Energy must offer health, disability and life
insurance plan coverage to the officer and his dependents on the same terms and
conditions that existed immediately prior to the Qualifying Termination for two
or three years, or, if earlier, until the executive officer is covered by
equivalent plan benefits. Great Plains Energy must make certain "gross-up"
payments regarding tax obligations relating to payments under the Severance
Agreements as well as provide reimbursement of certain expenses relating to
possible disputes that might arise.
124
Payments and other benefits under the Severance Agreements are in addition to
balances due under the Great Plains Energy Long-Term Incentive Plan and Annual
Incentive Plan. Upon a Change in Control (as defined in the Great Plains Energy
Long-Term Incentive Plan), all stock options granted in tandem with limited
stock appreciation rights will be automatically exercised.
Director Compensation
The directors of KCP&L receive the following compensation for serving on the
Boards of Great Plains Energy and KCP&L.
Non-employee members of the Board received an annual retainer of $30,000 in 2002
($15,000 of which was used to acquire shares of Great Plains Energy Common stock
through Great Plains Energy's Dividend Reinvestment and Direct Stock Purchase
Plan on behalf of each non-employee member of the Board). An additional retainer
of $3,000 was paid to those non-employee directors serving as chair of a
committee. Attendance fees of $1,000 for each Board meeting and $1,000 for each
committee meeting attended were also paid in 2002. Directors may defer the
receipt of all or part of the cash retainers and meeting fees.
Great Plains Energy also provides life and medical insurance coverage for each
non-employee member of the Board. The total premiums paid by Great Plains Energy
for this coverage for all participating non-employee directors in 2002 was
$18,362.40.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Great Plains Energy is composed of
four independent directors. The Compensation Committee recommends to the Board
the executive compensation structure and administers the policies and plans that
govern compensation for the executive officers. Executive compensation is
consistent with the Great Plains Energy total remuneration philosophy which
provides:
Given Great Plains Energy's strategies in the competitive and demanding
energy marketplace, attracting and retaining talent is a top priority.
Great Plains Energy is committed to establishing total remuneration
levels which are performance-based, competitive with the energy or
utility market for jobs of similar scope to enable the organization to
recruit and retain talented personnel at all levels in a dynamic and
complex marketplace. This will be established through base salary,
benefits and performance-based annual and long-term incentives. The
incentive targets will be consistent with current trends in the energy
or utility sector and the incentive measures will be appropriately tied
to shareholder and customer interests.
The Compensation Committee has not adopted a policy concerning the Internal
Revenue Services' rules on the deductibility of compensation in excess of
$1,000,000.
Base Salaries
The Compensation Committee reviews executive officer salaries regularly, at
least once every twelve months, and makes adjustments as warranted. The
Compensation Committee also compares annually executive compensation with
national compensation surveys. Base salaries were established for 2002 on the
basis of:
o job responsibilities and complexity;
o individual performance under established guidelines;
o competitiveness for comparable positions in companies of similar size
within the industry; and
o sustained performance of the company.
125
Annual Incentives
Under the Great Plains Energy Annual Incentive Plan in 2002 (the "Plan"),
executives received incentive compensation based upon the achievement of a
specific corporate performance target based on Economic Value Added (EVA(R))1.
Under the Plan, when shareholder value is increased by the amount of the annual
EVA(R) goal, bonuses are paid at a target level that varies to reflect a
participant's level of responsibility. A minimum level of EVA(R) improvement has
to be achieved before any bonus is awarded. EVA(R) improvement above the annual
goal results in payouts above the target level. In 2002, the EVA(R) goal was met
and bonuses were earned at the target level in the amounts set forth in the
Summary Compensation Table.
Long-Term Incentive Plan
The Great Plains Energy Long-Term Incentive Plan, as approved by the
shareholders in May 2002, provides for grants by the Compensation Committee of
stock options, restricted stock, performance shares and other stock-based
awards. The Compensation Committee believes that equity interests in Great
Plains Energy by its executive officers more closely aligns the interests of
management with shareholders and has established stock ownership guidelines for
executive officers based on their level within the organization. Compliance with
these guidelines is taken into consideration in determining grants under the
Long-Term Incentive Plan. Stock options were granted in 2002 in the amounts set
forth in the Summary Compensation Table. The stock options were granted at an
exercise price equal to the fair market value on the date of issuance.
Chief Executive Officer
In determining the base salary for Bernard J. Beaudoin, the Chairman of the
Board, President and Chief Executive Officer in 2002, the Compensation Committee
considered:
o financial performance of the company;
o cost and quality of services provided;
o leadership in enhancing the long-term value of the company; and
o relevant salary data including information supplied by the EEI.
Incentive awards to Mr. Beaudoin in 2002 under the Annual Incentive Plan and
Long-Term Incentive Plan were determined in the same manner as other executive
officers.
COMPENSATION COMMITTEE
William C. Nelson (Chairman)
Mark A. Ernst
William K. Hall
Robert H. West
1EVA(R)is a registered trademark of Stern Stewart & Co. in the United States of
America, France, the United Kingdom, Canada, Australia and Mexico.
126
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Great Plains Energy is the sole shareholder of KCP&L.
The following table shows beneficial ownership of Great Plains Energy's common
stock by the named executive officers, directors and all directors and officers
of Great Plains Energy and KCP&L as of January 31, 2003. The total of all shares
owned by directors and officers represents less than 1% of Great Plains Energy's
common stock.
Shares of Common Stock
Name of Beneficial Owner Beneficially Owned
Named Executive Officers
Bernard J. Beaudoin 12,538 (1)(2)
Andrea F. Bielsker 2,797 (1)
William H. Downey 4,267 (1)
Stephen T. Easley 699 (1)
Jeanie S. Latz 16,268 (1)
Other Director Nominees
David L. Bodde 6,593 (3)
Mark A. Ernst 5,414
Randall C. Ferguson, Jr. 1,221
William K. Hall 8,491
Luis A. Jimenez 1,494
James A. Mitchell 2,121
William C. Nelson 1,796
Linda H. Talbott 7,362
Robert H. West 5,249 (4)
All Executive Officers and Directors As A 149,375 (1)
Group (26 persons)
(1) Includes shares held in the Great Plains Energy's Employee Savings Plus
Plan and exercisable non-qualified stock option grants under the
Long-Term Incentive Plan.
(2) Includes 2,879 shares of restricted stock issued under the Long-Term
Incentive Plan.
(3) The nominee disclaims beneficial ownership of 1,000 shares
reported and held by nominee's mother.
(4) The nominee disclaims beneficial ownership of 1,000 shares reported and
held by nominee's wife.
See Item 5, Market for the Registrants' Common Equity and Related Shareholder
Matters, for information on Great Plains Energy's equity compensation plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 7, 2002, Innovative Energy Consultants Inc., a wholly-owned
subsidiary of Great Plains Energy, merged with Environmental Lighting Concepts,
Inc., with Innovative Energy Consultants continuing as the surviving corporation
and a wholly-owned subsidiary of Great Plains Energy. At the time of the merger,
Gregory J. Orman was Executive Vice President - Corporate Development and
Strategic Planning of Great Plains Energy, and owned approximately 67% of the
stock of Environmental Lighting Concepts. Environmental Lighting Concepts' only
significant asset was a 5.8% indirect ownership interest in Strategic Energy, an
indirect subsidiary of Great Plains Energy, and the merger increased Great
Plains Energy's indirect ownership in Strategic Energy from approximately
127
83% to approximately 89%. The merger consideration was based on a valuation
analysis by Merrill Lynch and Company. On the date of the merger, Mr. Orman
received $10.07 million from Great Plains Energy for his interest in
Environmental Lighting Concepts in the form of 258,917 shares of Great Plains
Energy common stock, valued at $5.34 million, and a short-term note for $4.73
million which was subsequently paid on January 2, 2003.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days in advance of the filing of this report, Great Plains Energy and
KCP&L carried out evaluations, under the supervision and with the participation
of each company's management, including the chief executive officer and chief
financial officer of those companies and the disclosure committee, of the
effectiveness of the companies' disclosure controls and procedures. Based upon
these evaluations, the chief executive officer and chief financial officer of
Great Plains Energy and KCP&L have concluded that the disclosure controls and
procedures of those companies are functioning effectively to provide reasonable
assurance that the information required to be disclosed by those companies in
the reports that they file or submit under the Securities Exchange Act of 1934,
as amended, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
There have been no significant changes to Great Plains Energy's or KCP&L's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation described above.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements
Page
No.
Great Plains Energy
a. Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000 56
b. Consolidated Balance Sheets - December 31, 2002 and 2001 57
c. Consolidated Statements of Capitalization - December 31, 2002 and 2001 58
d. Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 59
e. Consolidated Statements of Comprehensive Income and Consolidated Statements of Retained
Earnings for the years ended December 31, 2002, 2001 and 2000 60
f. Notes to Consolidated Financial Statements 66
g. Independent Auditors' Report - Deloitte & Touche LLP to the Board of Directors and
Shareholders of Great Plains Energy 114
128
h. Report of Independent Accountants - PricewaterhouseCoopers LLP to the Shareholders and
Board of Directors of Great Plains Energy 116
i. Report of Independent Accountants - Deloitte & Touche, LLP to the Board of Directors and
Stockholders of DTI Holdings, Inc. 118
KCP&L
j. Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000 61
k. Consolidated Balance Sheets - December 31, 2002 and 2001 62
l. Consolidated Statements of Capitalization - December 31, 2002 and 2001 63
m. Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 64
n. Consolidated Statements of Comprehensive Income and Consolidated Statements of Retained
Earnings for the years ended December 31, 2002, 2001 and 2000 65
o. Notes to Consolidated Financial Statements 66
p. Independent Auditors' Report - Deloitte & Touche LLP to the Board of Directors and
Shareholder of KCP&L 115
q. Report of Independent Accountants - PricewaterhouseCoopers LLP to the Shareholder and
the Board of Directors of KCP&L 117
r. Independent Auditors' Report - Deloitte & Touche LLP to the Board of Directors and
Stockholders of DTI Holdings, Inc. 118
Financial Statement Schedules
Great Plains Energy
a. Schedule II - Valuation and Qualifying Accounts 136
b. Report of Independent Accountants - PricewaterhouseCoopers LLP to the Shareholders
and the Board of Directors of Great Plains Energy 138
KCP&L
c. Schedule II - Valuation and Qualifying Accounts 137
d. Report of Independent Accountants - PricewaterhouseCoopers LLP to the Shareholder
and the Board of Directors of KCP&L 139
129
Exhibits
Great Plains Energy Documents
Exhibit
Number Description of Document
2.1 * Agreement and Plan of Merger among Kansas City Power & Light
Company, Great Plains Energy Incorporated and KCP&L Merger Sub
Incorporated dated as of October 1, 2001 (Exhibit 2 to Form 8-K
dated October 1, 2001).
3.1.a * Articles of Incorporation of Great Plains Energy Incorporated
dated as of February 26, 2001 (Exhibit 3.i to Form 8-K filed
October 1, 2001).
3.1.b * By-laws of Great Plains Energy Incorporated dated March 13, 2001
(Exhibit 3.ii to Form 8-K filed October 1, 2001).
4.1.a * Resolution of Board of Directors Establishing 3.80% Cumulative
Preferred Stock (Exhibit 2-R to Registration Statement,
Registration No. 2-40239).
4.1.b * Resolution of Board of Directors Establishing 4.50% Cumulative
Preferred Stock (Exhibit 2-T to Registration Statement,
Registration No. 2-40239).
4.1.c * Resolution of Board of Directors Establishing 4.20% Cumulative
Preferred Stock (Exhibit 2-U to Registration Statement,
Registration No. 2-40239).
4.1.d * Resolution of Board of Directors Establishing 4.35% Cumulative
Preferred Stock (Exhibit 2-V to Registration Statement,
Registration No. 2-40239).
4.1.e Underwriting Agreement among Great Plains Energy
Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as representative of the several
underwriters, dated November 21, 2002.
10.1.a + Amended Long-Term Incentive Plan, effective as of May 7, 2002.
10.1.b + Annual Incentive Compensation Plan dated February 2003.
10.1.c *+ Indemnification Agreement with each officer and director
(Exhibit 10-f to Form 10-K for year ended December 31, 1995).
10.1.d *+ Restated Severance Agreement dated January 2000 with
certain executive officers (Exhibit 10-e to Form 10-K for
the year ended December 31, 2000).
10.1.e *+ Supplemental Executive Retirement Plan Amended and Restated
November 1, 2000 (Exhibit 10-f to Form 10-K for the year ended
December 31, 2000).
10.1.f *+ Nonqualified Deferred Compensation Plan (Exhibit 10-b to Form
10-Q for the period ended March 31, 2000).
130
10.1.g + Agreement between Great Plains Energy Incorporated and Gregory
J. Orman dated December 31, 2002.
10.1.h + Employment Agreement between Strategic Energy, L.L.C. and
Richard M. Zomnir dated June 13, 2002.
10.1.i *+ KLT Gas Inc. Compensation Program effective January 1, 2001
(Exhibit 10-l to Form 10-K for the year ended December 31, 2000).
10.1.j *+ Amendment No. 1 to KLT Gas Inc. Compensation Program dated as
of October 31, 2001 (Exhibit 10.1.m to Form 10-K for the year
ended December 31, 2001).
10.1.k * Demand Promissory Note and Pledge Agreement between DTI
Holdings, Inc. and KLT Telecom Inc. dated February 1, 2001
(Exhibit 10-t to Form 10-K for the year ended December 31, 2000).
10.1.l * Credit Agreement between KLT Telecom Inc. and Digital Teleport,
Inc. dated February 21, 2001 (Exhibit 10-u to Form 10-K for the
year ended December 31, 2000).
10.1.m * Amendment No. 1 dated April 30, 2001, to Credit Agreement among
KLT Telecom Inc. and Digital Teleport, Inc. (Exhibit 10-c to
Form 10-Q for the period ended June 30, 2001).
10.1.n * Amendment No. 2 dated June 4, 2001 to Credit Agreement between
KLT Telecom Inc. and Digital Teleport, Inc. (Exhibit 10-c to
Form 10-Q for the period ended June 30, 2001).
10.1.o * Credit Agreement between KLT Telecom Inc. and Digital Teleport,
Inc. dated as of September 25, 2001 (Exhibit 10 to Form 10-Q for
the period ended September 30, 2001).
10.1.p * First Amendment dated as of October 23, 2001 to Credit Agreement
between KLT Telecom Inc. and Digital Teleport, Inc. (Exhibit
10.1.s to Form 10-K for the year ended December 31, 2001).
10.1.q * Credit Agreement dated as of March 13, 2002 among Great
Plains Energy Incorporated, BNP Paribas, Bank One of
America, N.A. and Bank One, N.A. (Exhibit 10.3.a. to Form
10-Q for the period ended March 31, 2002).
10.1.r * Support Agreement between Great Plains Energy Incorporated and
R. S. Andrews Enterprises, Inc. dated October 25, 2001 (Exhibit
10.1.a. to Form 10-Q for the period ended March 31, 2002).
10.1.s * Guarantee and Suretyship Agreement between Great Plains
Energy Incorporated and PNC Bank, National Association
dated March 8, 2002 (Exhibit 10.2.a. to Form 10-Q for the
period ended March 31, 2002).
131
10.1.t * General Agreement of Indemnity issued by Great Plains
Energy Incorporated and Strategic Energy, L.L.C. in favor
of Federal Insurance Company and subsidiary or affiliated
insurers dated May 23, 2002 (Exhibit 10.1.a. to Form 10-Q
for the period ended June 30, 2002).
10.1.u * Agreement of Indemnity issued by Great Plains Energy
Incorporated and Strategic Energy, L.L.C. in favor of Federal
Insurance Company and subsidiary or affiliated insurers dated
May 23, 2002 (Exhibit 10.1.b. to Form 10-Q for the period ended
June 30, 2002).
10.1.v * Guaranty issued by Great Plains Energy Incorporated in favor of
El Paso Merchant Energy, L.P. dated June 14, 2002 (Exhibit
10.1.c. to Form 10-Q for the period ended June 30, 2002).
10.1.w * Line of Credit Agreement between Great Plains Energy
Incorporated and LaSalle Bank National Association dated
as of June 14, 2002 (Exhibit 10.1.d. to Form 10-Q for the
period ended June 30, 2002).
10.1.x * Guaranty issued by Great Plains Energy Incorporated in favor of
PG&E Trading-Power, L.P. dated July 26, 2002 (Exhibit 10.1.a.
to Form 10-Q for the period ended September 30, 2002).
10.1.y * Agreement and Plan of Merger among Environmental Lighting
Concepts, Inc., Mark R. Schroeder and Gregory J. Orman,
Innovative Energy Consultants Inc. and Great Plains Energy
Incorporated dated November 7, 2002 (Exhibit 10 to Form 8-K
dated November 7, 2002).
10.1.z Settlement Agreement dated as of December 23, 2002, by and
between Digital Teleport, Inc., the Official Unsecured Creditors
Committee of Digital Teleport, Inc., KLT Inc., KLT Telecom Inc.,
Kansas City Power & Light Company and Great Plains Energy
Incorporated.
10.1.aa Asset Purchase Agreement dated as of December 26, 2002 by
and between Digital Teleport, Inc., CenturyTel Fiber
Company II, LLC and CenturyTel, Inc.
12.1 Ratio of Earnings to Fixed Charges
16 * Letter of PricewaterhouseCoopers LLP (Exhibit 16 to Form 8-K/A
dated February 8, 2002).
21.1 List of Wholly-Owned Subsidiaries of Great Plains Energy Inc.
23.1.a Consent of Counsel.
23.1.b Consent of Independent Accountants-PricewaterhouseCoopers LLP.
23.1.c Consent of Independent Accountants-Deloitte & Touche LLP.
23.1.d Consent of Independent Accountants-Deloitte & Touche LLP
24.1 Powers of Attorney.
132
99.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
* Filed with the SEC 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.
+ Indicates management contract or compensatory plan or arrangement.
Copies of any of the exhibits filed with the SEC in connection with this
document may be obtained from Great Plains Energy upon written request.
KCP&L Documents
Exhibit Number Description of Document
2.2 * Agreement and Plan of Merger among Kansas City Power & Light
Company, Great Plains Energy Incorporated
and KCP&L Merger Sub Incorporated dated as of October 1, 2001
(Exhibit 2 to Form 8-K dated October 1, 2001).
3.2.a * Restated Articles of Consolidation of Kansas City Power & Light
Company, as amended October 1, 2001 (Exhibit 3-(i) to Form 10-Q
for the period ended September 30, 2001).
3.2.b * By-laws of Kansas City Power & Light Company, as amended on
November 7, 2000 (Exhibit 3-b to Form 10-K for the year ended
December 31, 2000).
4.2.a * General Mortgage and Deed of Trust dated as of December 1,
1986, between Kansas City Power & Light Company 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).
4.2.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 the year ended December 31, 1991).
4.2.c * Fifth Supplemental Indenture dated as of September 15, 1992, to
Indenture dated as of December 1, 1986 (Exhibit 4-a to quarterly
report on Form 10-Q for the period ended September 30, 1992).
4.2.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).
4.2.e * Seventh Supplemental Indenture dated as of October 1, 1993, to
Indenture dated as of December 1, 1986 (Exhibit 4-a to quarterly
report on Form 10-Q for the period ended September 30, 1993).
4.2.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).
133
4.2.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).
4.2.h * Indenture for Medium-Term Note Program dated as of February 15,
1992, between Kansas City Power & Light Company and The Bank of
New York (Exhibit 4-bb to Registration Statement, Registration
No. 33-45736).
4.2.i * Indenture for Medium-Term Note Program dated as of November 15,
1992, between Kansas City Power & Light Company and The Bank of
New York (Exhibit 4-aa to Registration Statement, Registration
No. 33-54196).
4.2.j * Amended and Restated Declaration of Trust of Kansas City Power
& Light Company Financing I dated April 15, 1997 (Exhibit 4-a to
Form 10-Q for the period ended March 31, 1997).
4.2.k * 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 the period ended March 31, 1997).
4.2.l * 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 the period ended March 31, 1997).
4.2.m * Preferred Securities Guarantee Agreement dated April 15, 1997
(Exhibit 4-d to Form 10-Q for the period ended March 31, 1997).
4.2.n * Indenture for $150 million aggregate principal amount of 6.50%
Senior Notes due November 15, 2011 and $250 million aggregate
principal amount of 7.125% Senior Notes due December 15, 2005
dated as of December 1, 2000, between Kansas City Power & Light
Company and The Bank of New York (Exhibit 4-a to Report on Form
8-K dated December 18, 2000).
4.2.o * Indenture for $225 million aggregate principal amount of 6.00%
Senior Notes due 2007, Series B, dated March 1, 2002 between The
Bank of New York and Kansas City Power & Light Company (Exhibit
4.1.b. to Form 10-Q for the period ended March 31, 2002).
10.2.a * Railcar Lease dated as of April 15, 1994, between Shawmut Bank
Connecticut, National Association, and Kansas City Power & Light
Company (Exhibit 10 to Form 10-Q for the period ended June 30,
1994).
10.2.b * Railcar Lease dated as of January 31, 1995, between First
Security Bank of Utah, National Association, and Kansas City
Power & Light Company (Exhibit 10-o to Form 10-K for the year
ended December 31, 1994).
10.2.c * Railcar Lease dated as of September 8, 1998, with CCG Trust
Corporation (Exhibit 10(b) to Form 10-Q for the period ended
September 30, 1998).
10.2.d * Amended and Restated Lease dated as of October 12, 2001 between
Kansas City Power & Light Company and Wells Fargo Bank Northwest,
National Association (Exhibit 10.2.d to Form 10-K for the year
ended December 31, 2001).
134
10.2.e * Purchase and Sale Agreement dated October 29, 1999 between
Kansas City Power & Light Company and Kansas City Power & Light
Receivables Company (Exhibit 10-m to Form 10-K for year ended
December 31, 1999).
10.2.f Insurance agreement between Kansas City Power & Light Company and
XL Capital Assurance Inc., dated December 5, 2002.
12.2 Ratio of Earnings to Fixed Charges
16.2 * Letter of PricewaterhouseCoopers LLP (Exhibit 16 to Form 8-K/A
dated February 8, 2002).
23.2.a Consent of Counsel.
23.2.b Consent of Independent Accountants - PricewaterhouseCoopers LLP.
23.2.c Consent of Independent Accountants - Deloitte & Touche, LLP
23.2.d Consent of Independent Accountants - Deloitte & Touche, LLP
24.2 Powers of Attorney.
99.2 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
* Filed with the SEC 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 SEC in connection with this
document may be obtained from KCP&L upon written request.
Reports on Form 8-K
Great Plains Energy
Great Plains Energy filed a report on Form 8-K dated November 7, 2002, including
an Agreement and Plan of Merger among Great Plains Energy, Environmental
Lighting Concepts, Inc. Innovative Energy Consultants Inc., Gregory J. Orman and
Mark R. Schroeder (the ELC Shareholders). Mr. Orman was at the time Executive
Vice President - Corporate Development and Strategic Planning of Great Plains
Energy, and Mr. Schroeder is an employee of a Great Plains Energy subsidiary.
Pursuant to the Agreement and Plan of Merger, the ELC Shareholders received
$15.08 million of merger consideration. As part of the merger consideration,
Great Plains Energy issued 387,596 shares of its common stock to the ELC
Shareholders. The remainder of the merger consideration was in the form of
short-term notes issued by Great Plains Energy and Innovative Energy Consultants
Inc. As a result of the merger, Great Plains Energy's indirect ownership of
Strategic Energy, L.L.C., increased from 82.75% to 88.55%.
Great Plains Energy filed a report on Form 8-K dated November 14, 2002,
including a press release announcing earnings guidance for 2003, and a press
release announcing plans for a public offering of six million of newly issued
common shares.
135
Great Plains Energy filed a report on Form 8-K dated December 16, 2002,
including a press release announcing the resignation of Gregory J. Orman as
Executive Vice President - Corporate Development and Strategic Planning of Great
Plains Energy and as President and Chief Executive Officer of KLT Inc., and his
retention as a company advisor effective December 31, 2002.
KCP&L
KCP&L did not file any reports on Form 8-K during the fourth quarter of 2002.
Schedule II - Valuation and Qualifying Accounts and Reserves
Great Plains Energy
Valuation and Qualifying Accounts
Years Ended December 31, 2002, 2001 and 2000
Additions
Charged
Balance At To Costs Charged Balance
Beginning And To Other At End
Description Of Period Expenses Accounts Deductions Of Period
(millions)
Year Ended December 31, 2002:
Allowance for uncollectible accounts $ 7.3 $ 8.0 $ 3.5 (a) $ 9.6 (b) $ 9.2
Legal reserves 2.0 3.5 - 1.7 (c) 3.8
Environmental reserves 1.9 - - - (d) 1.9
Tax valuation allowance 15.8 - - - 15.8
Other reserves (f) 1.2 1.9 0.5 (i) 2.3 (j) 1.3
Year Ended December 31, 2001:
Allowance for uncollectible accounts $ 7.9 $ 6.2 $ 2.9 (a) $ 9.7 (b) $ 7.3
Legal reserves 1.6 0.9 - 0.5 (c) 2.0
Environmental reserves 2.0 - - 0.1 (d) 1.9
Tax valuation allowance (e) - 15.8 - - 15.8
Other reserves (g) 0.7 0.9 - 0.4 (k) 1.2
Year Ended December 31, 2000:
Allowance for uncollectible accounts $ 7.1 $ 8.0 $ 2.5 (a) $ 9.7 (b) $ 7.9
Legal reserves 1.5 0.7 - 0.6 (c) 1.6
Environmental reserves 2.1 - - 0.1 (d) 2.0
Tax valuation allowance - - - - -
Other reserves (h) 0.3 0.6 - 0.2 (l) 0.7
(a) Recoveries. Charged to other accounts for the year ended December 31,
2002, includes the establishment of an allowance of $0.3 million.
(b) Uncollectible accounts charged off. Deductions for the year ended December
31, 2001, include an adjustment of $1.2 million based on a change in
estimated collectibility.
(c) Payment of claims
(d) Payment of expenses
(e) A tax valuation allowance of $15.8 million was recorded at KLT Telecom in
2001 to reduce the income tax benefits arising primarily form DTI's 2001
abandonment of its $104.0 million of long-haul assets. The allowance as
necessary due to the uncertainty of recognizing future tax deductions while
DTI is in the bankruptcy process.
(f) Other reserves at December 31, 2002, include property and casualty
insurance reserves, medical insurance reserves and warranty repair reserves
for RSAE.
(g) Other reserves at December 31, 2001, include property and casualty
insurance reserves, inventory reserves and warranty repair reserves for
RSAE.
(h) Other reserves at December 31, 2000, include warranty repair reserves for
RSAE.
136
(i) Primarily the establishment of medical insurance reserves and contributions
from Cobra insurance premiums.
(j) Payment of claims on property and casualty and medical insurance reserves,
expenses incurred on warranty repair reserves and inventory reserve
adjustments.
(k) Payment of claims on property and casualty insurance reserves and expenses
incurred on warranty repair reserves.
(l) Expenses incurred on warranty repair reserves.
Kansas City Power & Light Company
Valuation and Qualifying Accounts
Years Ended December 31, 2002, 2001 and 2000
Additions
Charged
Balance At To Costs Charged Balance
Beginning And To Other At End
Description Of Period Expenses Accounts Deductions Of Period
(millions)
Year Ended December 31, 2002:
Allowance for uncollectible accounts $ 6.4 $ 3.9 $ 3.0 (a) $ 7.3 (b) $ 6.0
Legal reserves 2.0 3.5 - 1.7 (c) 3.8
Environmental reserves 1.9 - - - (d) 1.9
Tax valuation allowance - - - - -
Other reserves(e) 1.2 1.9 0.5 (h) 2.3 (i) 1.3
Year Ended December 31, 2001:
Allowance for uncollectible accounts $ 7.9 $ 5.4 $ 2.9 (a) $ 9.8 (b) $ 6.4
Legal reserves 1.6 0.9 - 0.5 (c) 2.0
Environmental reserves 2.0 - - 0.1 (d) 1.9
Tax valuation allowance - - - - -
Other reserves(f) 0.7 0.9 - 0.4 (j) 1.2
Year Ended December 31, 2000:
Allowance for uncollectible accounts $ 7.1 $ 8.0 $ 2.5 (a) $ 9.7 (b) $ 7.9
Legal reserves 1.5 0.7 - 0.6 (c) 1.6
Environmental reserves 2.1 - - 0.1 (d) 2.0
Tax valuation allowance - - - - -
Other reserves(g) 0.3 0.6 - 0.2 (k) 0.7
(a) Recoveries
(b) Uncollectible accounts charged off. Deductions for the year ended December
31, 2001, include an adjustment of $1.2 million based on a change in
estimated collectibility and an adjustment of $0.9 million related to
Strategic Energy reflecting the October 1, 2001, KCP&L dividending up its
100% ownership of KLT Inc. to Great Plains Energy.
(c) Payment of claims
(d) Payment of expenses
(e) Other reserves at December 31, 2002, include property and casualty
insurance reserves, medical insurance reserves and warranty repair reserves
for RSAE.
(f) Other reserves at December 31, 2001, include property and casualty
insurance reserves, inventory reserves and warranty repair reserves for
RSAE.
(g) Other reserves at December 31, 2000, include warranty repair reserves for
RSAE.
(h) Primarily the establishment of medical insurance reserves and contributions
from Cobra insurance premiums.
(i) Payment of claims on property and casualty and medical insurance reserves,
expenses incurred on warranty repair reserves and inventory reserve
adjustments.
(j) Payment of claims on property and casualty insurance reserves and expenses
incurred on warranty repair reserves.
(k) Expenses incurred on warranty repair reserves.
137
Report of Independent Accountants
To the Shareholders and the Board of Directors of
Great Plains Energy Incorporated:
Our audits of the consolidated financial statements of Great Plains Energy
Incorporated referred to in our report dated February 5, 2002, except with
respect to Note 13, as to which the date is May 22, 2002, and except with
respect to the to the 2001 and 2000 transitional disclosures relating to the
adoption of Statement of Financial Accounting Standards No. 142 as described
in Note 6, as to which the date is February 21, 2003, appearing in this Annual
Report on Form 10-K also included an audit of the 2001 and 2000 information
included in the financial statement schedule listed in Item 15 of this Form
10-K. In our opinion, the 2001 and 2000 information included in this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 5, 2002
138
Report of Independent Accountants
To the Shareholder and the Board of Directors of
Kansas City Power & Light Company:
Our audits of the consolidated financial statements of Kansas City Power & Light
Company referred to in our report (which has an explanatory paragraph regarding
the corporate reorganization which occurred on October 1, 2001), dated February
5, 2002, except with respect to Note 13, as to which the date is May 22, 2002,
and except with respect to the to the 2001 transitional disclosures relating to
the adoption of Statement of Financial Accounting Standards No. 142 as described
in Note 6, as to which the date is February 21, 2003, appearing in this Annual
Report on Form 10-K also included an audit of the 2001 and 2000 information
included in the financial statement schedule listed in Item 15 of this Form
10-K. In our opinion, the 2001 and 2000 information included in this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 5, 2002
139
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.
GREAT PLAINS ENERGY INCORPORATED
Date: February 28, 2003 By: /s/Bernard J. Beaudoin
Bernard J. Beaudoin
Chairman of the Board, President 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, President )
/s/Bernard J. Beaudoin and Chief Executive Officer )
Bernard J. Beaudoin (Principal Executive Officer) )
)
Senior Vice President - Finance, )
/s/Andrea F. Bielsker Chief Financial Officer and )
Andrea F. Bielsker Treasurer )
(Principal Financial Officer) )
)
/s/Lori A. Wright Controller )
Lori A. Wright (Principal Accounting Officer) )
)
David L. Bodde* Director ) February 28, 2003
)
Mark A. Ernst* Director )
)
Randall C. Ferguson, Jr.* Director )
)
William K. Hall* Director )
)
Luis A. Jimenez* Director )
)
James A. Mitchell* Director )
)
William C. Nelson* Director )
)
Linda H. Talbott* Director )
)
Robert H. West* Director )
*By /s/Bernard J. Beaudoin
Bernard J. Beaudoin
Attorney-in-Fact*
140
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.
KANSAS CITY POWER & LIGHT COMPANY
Date: February 28, 2003 By: /s/Bernard J. Beaudoin
Bernard J. Beaudoin
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 Chief Executive )
/s/Bernard J. Beaudoin Officer )
Bernard J. Beaudoin (Principal Executive Officer) )
)
Senior Vice President - Finance, )
/s/Andrea F. Bielsker Chief Financial Officer and )
Andrea F. Bielsker Treasurer )
(Principal Financial Officer) )
)
/s/Lori A. Wright Controller )
Lori A. Wright (Principal Accounting Officer) )
)
David L. Bodde* Director ) February 28, 2003
)
Mark A. Ernst* Director )
)
Randall C. Ferguson, Jr.* Director )
)
William K. Hall* Director )
)
Luis A. Jimenez* Director )
)
James A. Mitchell* Director )
)
William C. Nelson* Director )
)
Linda H. Talbott* Director )
)
Robert H. West* Director )
*By /s/Bernard J. Beaudoin
Bernard J. Beaudoin
Attorney-in-Fact*
141
CERTIFICATION
I, Bernard J. Beaudoin, certify that:
1. I have reviewed this annual report on Form 10-K of Great Plains Energy
Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 28, 2003
By: /s/Bernard J. Beaudoin
Bernard J. Beaudoin
Chairman of the Board, President and
Chief Executive Officer
142
CERTIFICATION
I, Andrea F. Bielsker, certify that:
1. I have reviewed this annual report on Form 10-K of Great Plains Energy
Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 28, 2003
By: /s/Andrea F. Bielsker
Andrea F. Bielsker
Senior Vice President - Finance,
Chief Financial Officer and
Treasurer
143
CERTIFICATION
I, Bernard J. Beaudoin, certify that:
1. I have reviewed this annual report on Form 10-K of Kansas City Power &
Light Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 28, 2003
By: /s/Bernard J. Beaudoin
Bernard J. Beaudoin
Chairman of the Board and
Chief Executive Officer
144
CERTIFICATION
I, Andrea F. Bielsker, certify that:
1. I have reviewed this annual report on Form 10-K of Kansas City Power &
Light Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 28, 2003
By: /s/Andrea F. Bielsker
Andrea F. Bielsker
Senior Vice President - Finance,
Chief Financial Officer and
Treasurer
145
Exhibit 4.1.e
GREAT PLAINS ENERGY INCORPORATED
6,000,000 shares of common stock
(no par value)
UNDERWRITING AGREEMENT
November 21, 2002
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center
North Tower
New York, New York 10281-1209
As Representative of the several Underwriters
Ladies and Gentlemen:
Great Plains Energy Incorporated, a Missouri corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch is acting as representative (in such capacity, the "Representative"), with respect to the issue and sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, no par value, of the Company ("Common Stock") set forth in said Schedule A, and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or a
ny part of additional shares of Common Stock to cover over-allotments, if any. The aforesaid shares of Common Stock (the "Initial Securities") to be purchased by the Underwriters and all or any part of the shares of Common Stock subject to the option described in Section 2(b) hereof (the "Option Securities") are hereinafter called, collectively, the "Securities".
The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representative deems advisable after this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-3 (No. 333-87190) for the registration of common stock and other securities under the Securities Act of 1933, as amended (the "1933 Act"), and the offering thereof from time to time in accordance with Rule 415 of the rules and regulations of the SEC under the 1933 Act (the "1933 Act Regulations"). Such registration statement has been declared effective by the SEC. Promptly after execution and delivery of this Agreement, the Company will prepare and file with the SEC a prospectus in accordance with the provisions of paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations. The prospectus included in the registration statement at the time it became effective, as supplemented to reflect the terms of the Securities and the terms of the offering of the Securities, as first filed with the
SEC pursuant to and in accordance with Rule 424(b) under the 1933 Act Regulations, including all material incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, is hereinafter referred to as the "Prospectus." No document has been or will be prepared or distributed in reliance on Rule 434 under the Act. A "preliminary prospectus" shall be deemed to refer to (i) any prospectus used before the registration statement became effective and (ii) any preliminary prospectus supplement that omitted information to be included upon pricing in a form of prospectus filed with the SEC pursuant to Rule 424(b) of the 1933 Act Regulations and was used after such effectiveness and prior to the initial delivery of the Prospectus to the Underwriters by the Company. Such registration statements, including the exhibits thereto, if any, and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time registration statement becam
e effective and including the prospectus included in such registration statement at the time it became effective, as supplemented to reflect the terms of the Securities and the terms of the offering of the Securities, as first filed with the SEC pursuant to and in accordance with Rule 424(b) under the 1933 Act Regulations, is herein called the "Registration Statement"; provided that references to the Registration Statement at the time it became effective shall not be deemed to include the information first filed pursuant to and in accordance with Rule 424(b) under the 1933 Act Regulations; provided, further, that if the Company files a registration statement with the SEC pursuant to Rule 462(b) of the 1933 Act Regulations (the "Rule 462(b) Registration Statement") then all references to "Registration Statement" shall also be deemed to include the Rule 462(b) Registration Statement. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospec
tus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the SEC pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Underwriting Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" (or other references of like import) in the Registration Statement, Prospectus or preliminary prospectus shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, Prospectus or preliminary prospectus, as the case may be; and all references in this Underwriting Agreement to amendments or supplements to the Registration Statement, Prospectus or preliminary prospectus shall be deemed to include the filing of any document under the Securities Exchange Act of 1934, as amended (the "1934 Act") which is incorporated by reference in the Registration Statement, Prospectus or preliminary prospectus, as the case may be.
SECTION 1. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with, each Underwriter as of the date hereof, and as of the Closing Time (as defined below) and as of each Date of Delivery (if any) (as defined below) that:
(i) Compliance with Registration Requirements. The Company meets the requirements for use of Form S-3 under the 1933 Act. The Registration Statement (including any Rule 462(b) Registration Statement) has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement (or such Rule 462(b) Registration Statement) has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the SEC, and any request on the part of the SEC for additional information has been complied with.
At the respective times the Registration Statement (including any Rule 462(b) Registration Statement) and any post-effective amendments thereto (including the filing of the Company's most recent Annual Report on Form 10-K with the SEC (the "Annual Report on Form 10-K")) became effective and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), the Registration Statement (including any Rule 462(b) Registration Statement) and any amendments thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. At the date of the Prospectus, and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), neither the Prospectus nor any amendments and suppleme
nts thereto included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or the Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by the Underwriters expressly for use in the Registration Statement or the Prospectus.
Each preliminary prospectus and prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act Regulations, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering will, at the time of such delivery, be identical to any electronically transmitted copies thereof filed with the SEC pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated by reference in the Prospectus pursuant to Item 12 of Form S-3 under the 1933 Act, at the time they were filed with the SEC, complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC thereunder (the "1934 Act Regulations"), and, when read together and with the other information in the Prospectus, at the time the Registration Statement becomes effective, and at the Closing Time (and, if any Options Securities are purchased, at the Date of Delivery) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and any documents deemed to be incorporated by reference in the Prospectus will, when they are filed with the SEC, comply in all material respects with the requirements of the 1934 Act Regulations, and will not
contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading.
(iii) Due Incorporation and Qualification. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of its incorporation with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify and be in good standing would not have a Material Adverse Effect (as defined herein).
(iv) Subsidiaries. Each "significant subsidiary" (as such term is defined in Rule 1-02 of Regulation S-X) of the Company (which term shall not include Digital Teleport Inc.) and each of KLT Inc.; Kansas City Power & Light Company; KLT Energy Services Inc.; Innovative Energy Consultants Inc.; Custom Energy Holdings, L.L.C.; Strategic Energy, L.L.C.; KLT Gas, Inc.; KLT Investments Inc.; Home Service Solutions Inc.; R.S. Andrews Enterprises, Inc.; and Worry Free Service Inc. (each, a "Subsidiary" and, together with each "significant subsidiary", the "Subsidiaries") has been duly organized or formed and is validly existing as a corporation or limited liability company in good standing under the laws of its jurisdiction of incorporation or formation, has corporate or limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is du
ly qualified as a foreign corporation or limited liability company to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect (as defined herein); except as otherwise disclosed in the Registration Statement, all of the issued and outstanding shares of capital stock or limited liability company interests owned directly or indirectly by the Company of each such Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; and none of the outstanding shares of capital stock or limited partnership interests of any Subsidiary was issued in violation of the preemptive or similar rights of
any security holder of such Subsidiary. The only Subsidiaries of the Company are the subsidiaries listed on Schedule C hereto. The Company's indirect ownership interest in Strategic Energy, L.L.C. is 88.55% and all subsidiaries through which this interest is owned are included as Subsidiaries.
(v) Capitalization. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any security holder of the Company.
(vi) Accountants. The accountants who issued their reports on the financial statements included or incorporated by reference in the Prospectus are independent public accountants within the meaning of the 1933 Act and the 1933 Act Regulations.
(vii) Financial Statements. The financial statements and any supporting schedules of the Company included or incorporated by reference in the Registration Statement and the Prospectus present fairly the financial position of the Company as of the dates indicated and the results of its operations and cash flows for the periods specified; and, except as stated therein, said financial statements have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis; and any supporting schedules included in the Registration Statement present fairly the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement.
(viii) Authorization of this Agreement. This Agreement has been duly authorized, executed and delivered by the Company.
(ix) Authorization and Description of Securities. The Securities have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued, fully paid and non-assessable; the Common Stock conforms to all statements relating thereto contained in the Prospectus and such description conforms to the rights set forth in the instruments defining the same; no holder of the Securities will be subject to personal liability by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive or other similar rights of any security holder of the Company.
(x) Material Changes or Material Transactions. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as may otherwise be stated therein or contemplated thereby, (a) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a "Material Adverse Effect") and (b) there have been no material transactions entered into by the Company and its subsidiaries considered as one enterprise other than those in the ordinary course of business which are material with respect to the Company and its subsidiaries considered as one enterprise.
(xi) No Defaults. The Company is not in violation of its Restated Articles of Consolidation, as amended, or by-laws, or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it or its properties may be bound; the execution and delivery of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by all necessary corporate action and will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company is a party or by which it may be bound or to which any of the property or assets of the Company is
subject, nor will such action result in any violation of the provisions of the Restated Articles of Consolidation, as amended, or by-laws, of the Company or any law, administrative regulation or administrative or court order or decree.
(xii) Regulatory Approvals. The Company has made all necessary filings and obtained all necessary consents, orders or approvals in connection with the issuance and sale of the Securities or will have done so by the time the Securities shall be issued and sold, and no consent, approval, authorization, order or decree of any other court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Agreement except such as may be required under the 1933 Act, the 1933 Act Regulations, the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"), or state securities ("Blue Sky") laws.
(xiii) Legal Proceedings; Contracts. Except as may be set forth in the Prospectus, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened against or affecting, the Company which might, in the opinion of the Company, result in any Material Adverse Effect, or might materially and adversely affect its properties or assets or might materially and adversely affect the consummation of this Agreement; and there are no contracts or documents of the Company which are required to be filed as exhibits to the Registration Statement by the 1933 Act or by the 1933 Act Regulations which have not been so filed.
(xiv) Franchises. The Company and its subsidiaries hold, to the extent required, valid and subsisting franchises, licenses and permits authorizing them to carry on the respective utility businesses in which they are engaged, in the territories from which substantially all of their gross operating revenue is derived.
(xv) Investment Company Act. The Company is not and, upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus, will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act").
(xvi) Sarbanes-Oxley. The Company is in compliance with the provisions of the Sarbanes-Oxley Act of 2002 to the extent currently applicable.
(b) Additional Certifications. Any certificate signed by any director or officer of the Company and delivered to the Underwriters or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby on the date of such certificate and, unless subsequently amended or supplemented, at each representation date subsequent thereto.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 900,000 shares of Common Stock at the price per share set forth in Schedule B, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representative to the Company setting forth the number of Option Securities as to which the several Underwriters are
then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Representative, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as the Representative in its discretion shall make to eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York, 10019, or at such other place as shall be agreed upon by the Representative and the Company, at 9:00 A.M. (Eastern time) on the fourth (if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representative and the Company (such time and date of payment and delivery being herein called "Closing Time")
In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representative and the Company, on each Date of Delivery as specified in the notice from the Representative to the Company.
Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company, against delivery to the Representative for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representative, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representative may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representative in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company.
The Company covenants with each Underwriter as follows:
(a) Notice of Certain Events. The Company will notify the Underwriters immediately, and confirm the notice in writing, of (i) the effectiveness of any post-effective amendment to the Registration Statement or the filing of any supplement or amendment to the Prospectus, (ii) the receipt of any comments from the SEC, (iii) any request by the SEC for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, (iv) the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the initiation of any proceedings for any of such purposes, and (v) any withdrawal or lowering of the rating assigned by Moody's Investors Service, Inc. or Standard & Poor's Rating Group (each, a "Rating Agency") to any d
ebt securities of the Company or the public announcement by any Rating Agency that it has under surveillance or review, with possible negative implications, its rating of such debt securities, but only to the extent such Rating Agency has notified the Company of such surveillance or review. The Company will promptly effect the filings necessary pursuant to Rule 424 and will take such steps as it deems necessary to ascertain promptly whether the Prospectus transmitted for filing under Rule 424 was received for filing by the SEC and, in the event that it was not, it will promptly file the Prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) Amendments and Supplements. The Company will not: (i) at any time after the Registration Statement becomes effective, file any amendment to the Registration Statement or any amendment or supplement to the Prospectus (including a prospectus filed pursuant to Rule 424(b) which differs from the prospectus on file at the time the Registration Statement becomes effective), or (ii) at any time when delivery of a Prospectus (exclusive of documents incorporated therein by reference) is required in connection with the offering or sale of the Securities, file any documents pursuant to Section 13, 14 or 15(d) of the 1934 Act, in either case, to which you shall reasonably object or which shall be reasonably disapproved by counsel for the Underwriters.
(c) Copies of the Registration Statement. The Company will deliver to the Underwriters as many signed and conformed copies of the Registration Statement (as originally filed) and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated by reference in the Prospectus) as the Underwriters may reasonably request.
(d) Copies of the Prospectus. The Company will deliver to each Underwriter, from time to time before the Registration Statement becomes effective, such number of copies of the preliminary prospectus as originally filed, relating to the Securities, and of any amended preliminary prospectus, and will deliver, as soon as the Registration Statement becomes effective and thereafter from time to time during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented), as such Underwriter may reasonably request for the purposes contemplated by the 1933 Act or the 1933 Act Regulations.
(e) Revisions of Prospectus - Material Changes. If at any time when a prospectus relating to the Securities is required to be delivered under the 1933 Act any event shall occur or condition exist as a result of which it is necessary, in the reasonable opinion of counsel for the Underwriters or counsel for the Company, to amend or supplement the Prospectus in order that the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, or if it shall be necessary, in the reasonable opinion of either such counsel, to amend or supplement the Registration Statement or the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the
SEC such amendment or supplement, whether by filing documents pursuant to the 1934 Act, the 1933 Act or otherwise, as may be necessary to correct such untrue statement or omission or to make the Registration Statement and Prospectus comply with such requirements.
(f) Earnings Statements. The Company will make generally available to its security holders as soon as practicable, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering each twelve month period beginning, in each case, not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in such Rule 158) of the Registration Statement.
(g) Blue Sky Qualifications. The Company will endeavor, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Underwriters may designate, and will maintain such qualifications in effect for as long as may be required for the distribution of the Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified. The Company will file such statements and reports as may be required by the laws of each jurisdiction in which the Securities have been qualified as above provided. The Company will promptly advise the Underwriters of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securi
ties for sale in any such state or jurisdiction or the initiating or threatening of any proceeding for such purpose.
(h) 1934 Act Filings. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act, will file promptly all documents required to be filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act.
(i) Restriction on Sale of Securities. During, a period of 90 days from the date of the Prospectus, the Company will not, without the prior written consent of the Representative, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common S
tock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, or (B) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing employee benefit plans, dividend reinvestment plans, employee savings plus (401-K) plans and executive compensation plans of the Company.
(j) Listing. The Company will use its best efforts to effect the listing of the Securities on the New York Stock Exchange.
SECTION 4. Conditions; Obligations.
The obligations of the several Underwriters to purchase and pay for the Securities pursuant to this Agreement will be subject to the accuracy of the representations and warranties on the part of the Company herein and to the accuracy of the statements of the Company's officers made in any certificate furnished pursuant to the provisions hereof, to the performance and observance by the Company of all its covenants and agreements herein contained and to the following additional conditions precedent:
(a) Registration Statement. Prior to the Closing Time, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Underwriters, shall be threatened by the SEC.
(b) Lock-up Agreements. At the Closing Time, the Representative shall have received agreements substantially in the form of Exhibit A hereto signed by the persons listed on Schedule D hereto.
(c) Material Changes and Transactions. Since the respective most recent dates as of which information is given in the Prospectus and up to the Closing Time, there shall not have been any material adverse change in the condition of the Company, financial or otherwise, except as reflected in or contemplated by the Prospectus, and, since such date and up to the Closing Time, there shall not have been any material transaction entered into by the Company other than transactions contemplated by the Prospectus and transactions in the ordinary course of business.
(d) Legal Opinions. At Closing Time, the Underwriters shall have received the following legal opinions, dated the Closing Time, and in form and substance satisfactory to the Underwriters:
(1) Opinion of Company Counsel. The opinion of Ms. Jeanie Sell Latz, Executive Vice President - Corporate and Shared Services and Secretary, or the General Counsel of the Company (collectively, "Company Legal Officer") to the effect that:
(i) the Company is a validly organized and existing corporation in good standing under the laws of the State of Missouri and is duly qualified as a foreign corporation to do business in the State of Kansas;
(ii) the Company is a public utility holding company duly authorized by its Articles of Incorporation, as amended, under which it was organized to carry on the business in which it is engaged as set forth in the Prospectus; and the Company has the legal right to function and operate as an electric utility holding company in the States of Missouri and Kansas;
(iii) this Agreement has been duly authorized, executed and delivered by the Company; the authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement); the shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company;
(iv) the Securities have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth in this Agreement, will be validly issued and fully paid and non-assessable and no holder of the Securities is or will be subject to personal liability by reason of being such a holder;
(v) the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company;
(vi) each Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation or organization, has corporate or limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign corporation or limited liability company to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock or limited liability company interests directly or indirectly owned by the Company of each Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and, to the best of the Company Legal Officer's knowledge, such capital stock or limited liability company interests owned by the Company, are owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock or limited liability company interests of any Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary and the Company's indirect ownership interest in Strategic Energy, LLC, is 88.55% and all Subsidiaries through which this interest is owned are listed as Subsidiaries;
(vii) all orders authorizing the issuance and sale of the Securities have been duly entered and are still in full force and effect, and no further approval, authorization, consent, certificate or order of any state or federal commission or regulatory authority (other than as may be required under the securities or blue sky laws of the various states, as to which we need express no opinion) is necessary with respect to the issue and sale of the Securities as contemplated in this Agreement;
(viii) the Company and its Subsidiaries, to the extent required, hold valid and subsisting franchises, licenses and permits authorizing them to carry on the respective utility businesses in which they are engaged, in the territory from which substantially all of their gross operating revenue is derived;
(ix) the statements contained in the Registration Statement and Prospectus which are expressed therein have been made on the authority of legal counsel to the Company, have been reviewed by such legal counsel and, as to matters of law and legal conclusions, are correct;
(x) the Registration Statement is effective under the 1933 Act, and no proceedings for a stop order are pending or, to the best of the Company Legal Officer's knowledge, threatened under Section 8(d) of the 1933 Act;
(xi) (A) the Registration Statement and the Prospectus comply as to form in all material respects with the 1933 Act and with the 1933 Act Regulations and (B) the documents incorporated by reference in the Prospectus, as of the time they were filed with the SEC, complied as to form in all material respects with the requirements of the 1934 Act and the 1934 Act Regulations, it being understood that the Company Legal Officer need express no opinion or belief as to the financial statements and other financial data included in the Registration Statement, Prospectus or such documents;
(xii) to the best of the Company Legal Officer's knowledge, there are no legal or governmental proceedings pending or threatened which are required to be disclosed in the Prospectus, other than those disclosed therein, and all pending legal or governmental proceedings to which the Company is a party or of which any of its property is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business of the Company, are, considered in the aggregate, not material to the financial condition of the Company;
(xiii) to the best of the Company Legal Officer's knowledge, the Company is not in violation of its Restated Articles of Consolidation, as amended, or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note or lease to which it is a party or by which it or any of its properties may be bound. The execution and delivery of this Agreement or the consummation by the Company of the transactions contemplated by this Agreement and the incurrence of the obligations therein contemplated, will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument known to such counsel and to which the Company is a party or by which it may be bound or to which
any of the property or assets of the Company is subject, or any law, administrative regulation or administrative or court decree known to such counsel to be applicable to the Company of any court or governmental agency, authority or body or any arbitrator having jurisdiction over the Company; nor will such action result in any violation of the provisions of the Restated Articles of Consolidation, as amended, or by-laws of the Company; and
(xiv) to the best of the Company Legal Officer's knowledge, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments or documents required to be described or referred to in the Registration Statement or the Prospectus or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto, the descriptions thereof or references thereto are correct, and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instruments described, referred to, filed or incorporated by reference.
(2) Opinion of Counsel to the Underwriters. The letter of Dewey Ballantine LLP, counsel for the Underwriters, in which such counsel shall set forth their opinions with respect to the issuance and sale of the Securities, the Registration Statement, the Prospectus and other related matters as the Underwriters may reasonably require, and the Company shall have furnished to such counsel such documents as they may request for the purpose of enabling them to pass upon such matters.
(3) Additional Statements. In giving their opinions required by subsection (d)(1) and (d)(2) of this Section, the Company Legal Officer and Dewey Ballantine LLP shall each additionally state that nothing has come to their attention that would lead them to believe that the Registration Statement, at the time it became effective, and if an amendment to the Registration Statement or an Annual Report on Form 10-K has been filed by the Company with the SEC subsequent to the effectiveness of the Registration Statement, then at the time such amendment became effective or at the time of the most recent such filing, and at the Closing Time, contains or contained an untrue statement of a material fact or omits or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading or that the Prospectus, as of its date, as amended o
r supplemented at the Closing Time, contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(e) Officer's Certificate. At the Closing Time the Underwriters shall have received a certificate of the President or Vice President and the chief financial or chief accounting officer of the Company, dated the Closing Time, to the effect that to the best of their knowledge, after reasonable investigation (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, (ii) the other representations and warranties of the Company contained in Section 1 hereof are true and correct with the same force and effect as though expressly made at and as of the date of such certificate, (iii)
the Company has performed or complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or threatened by the SEC.
(f) Comfort Letters. (1) At the time of the execution of this Agreement, the Underwriters shall have received a letter from each of (i) Deloitte & Touche LLP, accountants to the Company, dated as of the date hereof and in form and substance satisfactory to the Underwriters, addressed to the Underwriters containing statements and information of the type ordinarily included in an accountants' SAS 72 comfort letter, (ii) Deloitte & Touche LLP, accountants to DTI Holdings, Inc. and its subsidiary, Digital Teleport Inc., dated as of the date hereof and in form and substance satisfactory to the Underwriters, addressed to the Underwriters, and (iii) PricewaterhouseCoopers LLP, previous accountants to the Company, dated as of the date hereof and in form and substance satisfactory to the Underwriters.
(2) At the Closing Time, the Underwriters shall have received from each of Deloitte & Touche LLP and PricewaterhouseCoopers LLP letters, dated the Closing Time, to the effect that such accountants reaffirm the statements made in the letters furnished pursuant to Section (4)(f)(1), except that the specified date referred to shall be a date not more than three days prior to the Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance.
(h) Conditions to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company or any subsidiary of the Company hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representative shall have received:
(1) Officers' Certificate. A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at Closing Time pursuant to Section 4(e) hereof remains true and correct as of such Date of Delivery.
(2) Opinion of Counsel for Company. The favorable opinion of counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 4(d)(1) hereof.
(3) Opinion of counsel for Underwriters. The favorable opinion of Dewey Ballantine LLP, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 4(d)(2) hereof.
(4) Bring-down Comfort Letters. Letters from Deloitte & Touche LLP and PricewaterhouseCoopers LLP, in form and substance satisfactory to the Representative and dated such Date of Delivery, substantially in the same form and substance as the letters furnished to the Representative pursuant to Section 4(f) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than three days prior to such Date of Delivery.
(i) 1935 Act Order. At the Closing Time and at each Date of Delivery, an appropriate order of the SEC under the 1935 Act as necessary to permit the sale of the Securities to the Underwriters, shall be in effect.
(j) Other Documents. At the Closing Time and at each Date of Delivery, counsel to the Underwriters shall have been furnished with such documents and opinions as such counsel may reasonably require for the purpose of enabling such counsel to pass upon the issuance and sale of the Securities as herein contemplated and related proceedings, or in order to evidence the accuracy and completeness of any of the representations and warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Underwriters and to counsel to the Underwriters.
If any condition specified in subdivisions (a) through (k) of this Section 4 shall not have been fulfilled when and as required to be fulfilled, this Agreement or, in the case of any condition to the purchase of Option Securities, on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities may be terminated by the Underwriters by notice to the Company at any time prior to the Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party, except Sections 5 and 6 and the provisions concerning payment of expenses under Section 7 hereof shall survive any such termination and remain in full force and effect.
SECTION 5. Indemnification.
(a) Indemnification of the Underwriters. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls such Underwriter within the meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), or the omission or alleged omission therefrom of a material fact necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in the preliminary prospectus or Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such untrue statement or omission or such alleged untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter expressly for use in the Regist ration Statement, preliminary prospectus or the Prospectus;
(ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred, (including the fees and disbursements of counsel chosen by such Underwriter) reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above.
(b) Indemnification of Company. Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or the preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter expressly for use in the Registration statement (or any amendment thereto) or the preliminary prospectus or the Prospectus (or any amen dment or supplement thereto).
(c) General. Each indemnified party shall give notice as promptly as reasonably possible to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 5(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and in the case of parties indemnified pursuant to Section 5(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no ev
ent shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 5 or Section 6 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii
) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 5(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
SECTION 6. Contribution.
(a) If the indemnification provided for in Section 5 is unavailable or insufficient to hold harmless an indemnified party, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in Section 5 above as incurred (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand, and the Underwriters on the other, from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand, and the Underwriters on the other, in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any o
ther relevant equitable considerations. The relative benefits received by the Company on the one hand, and the Underwriters on the other, shall be deemed to be in the same respective proportions as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Underwriters from the Company under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purposes) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 6. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (a) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing or defending any action or claim which is the subject of this subsection (a). Notwithstanding the provisions of this Section 6, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Underwriters obligations in this Section 6 to c
ontribute are several in proportion to their respective purchase obligations and not joint.
(b) No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls such Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company.
SECTION 7. Payment of Expenses.
The Company will pay all expenses incident to the performance of its obligations under this Agreement, including:
(a) The preparation and filing of the Registration Statement and all amendments thereto and the Prospectus and any amendments or supplements thereto;
(b) The preparation, filing and reproduction of this Agreement;
(c) The preparation, printing, issuance and delivery of the certificates for the Securities, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities;
(d) The fees and disbursements of the Company's accountants and counsel;
(e) The qualification of the Securities under state securities laws in accordance with the provisions of Section 3(g) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of any Blue Sky Survey and any Legal Investment Survey;
(f) The printing and delivery to the Underwriters in quantities as hereinabove stated of copies of the Registration Statement and any amendments thereto, and of the Prospectus and any amendments or supplements thereto, and the delivery by the Underwriters of the Prospectus and any amendments or supplements thereto in connection with solicitations or confirmations of sales of the Securities;
(g) The fees and expenses of any transfer agent or registrar for the securities;
(h) The cost of preparing, and providing any CUSIP or other identification number for, the Securities;
(i) The fees and expenses incurred in connection with the listing of the Securities on the New York Stock Exchange; and
(j) All reasonable out of pocket expenses incurred by the Representative with respect to the "road show", including expenses relating to slide production, internet roadshow taping and travel.
The Underwriters shall be responsible for the fees and disbursements of their counsel, Dewey Ballantine LLP, except to the extent provided in Section 7(e).
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto or thereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriters or any controlling person of the Underwriters, or by or on behalf of the Company, and shall survive the delivery of and payment for any of the Securities.
SECTION 9. Termination.
(a) Termination of this Agreement. The Representative may terminate this Agreement, immediately upon notice to the Company, at any time prior to the Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Prospectus (exclusive of any supplement thereto), any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, whether or not arising in the ordinary course of business, or (ii) if there shall have occurred any material adverse change in the financial markets in the United States or in the international financial markets or any outbreak or escalation of hostilities or other calamity or crisis or development involving a prospective change in national or international, political, financial or economic conditions in each case, the effect of
which is such as to make it, in the judgment of the Representative, impracticable or inadvisable to market the Securities or enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended by the SEC or a national securities exchange, or if trading generally on either the American Stock Exchange or the New York Stock Exchange or the NASDAQ national market shall have been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the SEC or any other governmental authority, or if a banking moratorium shall have been declared by either Federal or New York authorities, or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (iv) if the rating assigned by any nationally recognized securities rating agency to any debt securities of the Company as of the dat
e of this Agreement shall have been lowered since that date or if any such rating agency shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any debt securities of the Company, or (v) if there shall have come to the attention of the Representative any facts that would cause the Representative to believe that the Prospectus, at the time it was required to be delivered to a purchaser of Securities, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time of such delivery, not misleading.
(b) General. If the Underwriters shall so terminate this Agreement, pursuant to Section 9(a), such termination shall be without liability of any party to any other party except for any expenses to be paid or reimbursed by the Company pursuant to Section 7 and provided further that Sections 5 and 6 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One of the Underwriters.
If one or more of the Underwriters shall fail at the Closing Time or a Date of Delivery to purchase the principal amount of Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), then the remaining Underwriters (the "Non-Defaulting Underwriter") shall have the right, within 24 hours thereafter, to make arrangements to purchase all, but not less than all, of the Defaulted Securities upon the terms herein set forth. If, however, during such 24 hours the Non-Defaulting Underwriters shall not have completed such arrangements for the purchase of all of the Defaulted Securities, then this Agreement shall terminate without any liability on the part of the Company or the Non-Defaulting Underwriters. Nothing in this Section 10 and no action taken pursuant to this Section 10 shall relieve any Defaulting Underwriter from liability in respect of any default of such Underwriter under this Ag
reement. In the event of a default by any Underwriter as set forth in this Section 10, either the Non-Defaulting Underwriters or the Company shall have the right to postpone the Closing Time for a period not exceeding seven days in order that any required changes in the Registration Statement or Prospectus or in any other documents or arrangements may be effected.
SECTION 11. Notices.
Unless otherwise provided herein, all notices required under the terms and provisions hereof shall be in writing, either delivered by hand, by mail or by telex, telecopier or telegram, and any such notice shall be effective when received at the address specified below.
If to the Company:
Great Plains Energy Incorporated
1201 Walnut Street
Kansas City, Missouri 64106-2124
Attention: Treasurer
Facsimile: (816) 556-2992
If to the Underwriters:.
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281
Attention: Mary Ryan
Facsimile: (212) 449-7148
or at such other address as such party may designate from time to time by notice duly given in accordance with the terms of this Section 11.
SECTION 12. Governing Law.
This Agreement and all the rights and obligations of the parties shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in such State. Any suit, action or proceeding brought by the Company against the Underwriters in connection with or arising under this Agreement shall be brought solely in the state or federal court of appropriate jurisdiction located in the Borough of Manhattan, The City of New York.
SECTION 13. Parties.
This Agreement shall inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons and officers and directors referred to in Sections 5 and 6 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and their respective successors and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any of the Underwriters shall be deeme
d to be a successor by reason merely of such purchase.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between the Underwriters and the Company in accordance with its terms.
Very truly yours,
GREAT PLAINS ENERGY INCORPORATED
By: /s/Bernard J. Beaudoin
Name: Bernard J. Beaudoin
Title: Chief Executive Officer
By: /s/Andrea F. Bielsker
Name: Andrea F. Bielsker
Title: Chief Financial Officer and Treasurer
Accepted:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By: /s/Karl Newlin
Name: Karl Newlin
Title: Vice President
For itself and as Representative of the Underwriters named in Schedule A
SCHEDULE A
|
Name of Underwriter |
Number of |
|
|
Merrill Lynch, Pierce, Fenner & Smith |
2,220,000 |
|
|
Banc of America Securities LLC |
832,500 |
|
|
Credit Suisse First Boston Corporation |
832,500 |
|
|
Lehman Brothers Inc. |
832,500 |
|
|
Morgan Stanley & Co. Incorporated |
832,500 |
|
|
A.G. Edwards & Sons, Inc. |
75,000 |
|
|
BNY Capital Markets, Inc. |
75,000 |
|
|
William Blair & Company, L.L.C. |
75,000 |
|
|
Crowell, Weedon & Co. |
75,000 |
|
|
Fahnestock & Co. Inc. |
75,000 |
|
|
Jefferies & Company, Inc. |
75,000 |
|
|
Total |
6,000,000 |
|
SCHEDULE B
GREAT PLAINS ENERGY INCORPORATED
Shares of Common Stock
(No Par Value)
1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $22.00.
2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $21.175, being an amount equal to the initial public offering price set forth above less $.825 per share; provided that the purchase price per share for any Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities.
SCHEDULE C
List of Subsidiaries
Custom Energy Holdings, L.L.C.
Home Service Solutions Inc.
Innovative Energy Consultants Inc.
Kansas City Power & Light Company
KLT Energy Services Inc.
KLT Gas, Inc.
KLT Inc.
KLT Investments, Inc.
Strategic Energy, L.L.C.
R.S. Andrews Enterprises, Inc.
Worry Free Service Inc.
SCHEDULE D
Directors and Officers of Great Plains Energy
|
Bernard J. Beaudoin |
Chairman of the Board, President and Chief Executive Officer |
|
Andrea F. Bielsker |
Senior Vice President of Finance, Chief Financial Officer |
|
and Treasurer |
|
|
David J. Bodde |
Director |
|
William H. Downey |
Executive Vice President |
|
Mark A. Ernst |
Director |
|
Randall C. Ferguson, Jr. |
Director |
|
William K. Hall |
Director |
|
Luis A. Jimenez |
Director |
|
Jeanie S. Latz |
Senior Vice President -Corporate Services and Secretary |
|
James A. Mitchell |
Director |
|
Douglas M. Morgan |
Vice President Information Technology and |
|
Support Services |
|
|
William C. Nelson |
Director |
|
Brenda Nolte |
Vice President - Public Affairs |
|
Gregory J. Orman |
Executive Vice President |
|
William G. Riggins |
General Counsel |
|
Lori Wright |
Controller |
|
Andrew B. Stroud, Jr. |
Vice President - Human Resources |
|
Linda Hood Talbott |
Director |
|
Robert H. West |
Director |
Exhibit A
FORM OF LOCK UP FROM DIRECTORS AND OFFICERS
November[___], 2002
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
North Tower
World Financial Center
New York, New York 10281
as Representative of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
Re: Proposed Public Offering by Great Plains Energy Incorporated
Dear Sirs:
The undersigned, a stockholder and an officer and/or director of Great Plains Energy Incorporated, a Missouri corporation (the "Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") proposes to enter into an Underwriting Agreement (the "Underwriting Agreement") with the Company providing for the public offering of shares (the "Securities") of the Company's common stock, no par value (the "Common Stock"). In recognition of the benefit that such an offering will confer upon the undersigned as a stockholder and an officer and/or director of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the Underwriting Agreement that, during a period of 90 days from the date of the Underwriting Agreement, the undersigned will not, without the p
rior written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of the Company's Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing of (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature: _____________________
Print Name: ___________________
Exhibit 10.1.a
GREAT PLAINS ENERGY INCORPORATED
LONG-TERM INCENTIVE PLAN
SECTION ONE. PURPOSE OF PLAN
The purposes of the Plan are to encourage officers and employees of the Company to acquire proprietary and vested interest in the growth and performance of the Company, to generate an increased incentive to enhance the value of the Company for the benefit of its customers and Shareholders, and to aid in the attraction and retention of exceptionally qualified individuals upon whom the Company's success largely depends.
SECTION TWO. DEFINITIONS
The following definitions are applicable herein:
"Award" means the award to a Participant of Restricted stock, Stock Option, Limited Stock Appreciation Right, or Performance Shares.
"Award Period" means that period established by the Committee during which any performance goals specified with respect to earning any Award are to be measured.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations promulgated thereunder.
"Committee" means the Compensation Committee of the Board, composed of not less than two directors, each of whom is a Disinterested Person.
"Common stock" means the common stock, without par value, of the Company, or such other class of shares or other securities as may be subject to the Plan as a result of an adjustment made pursuant to the provisions of Section Fifteen I.
"Company" means Great Plains Energy Incorporated and its successors, including any Company as provided in Section Fifteen J.
"Date of Disability" means the date on which a Participant is classified as disabled as defined in the Company's Long-Term Disability Plan.
"Date of Grant" means the date on which an Award is granted by the Committee or such later date as may be specified in making such grant.
"Date of Retirement" means the date of normal retirement or early retirement as defined in the Company's pension plan.
"Disinterested Person" means a disinterested person as defined in Rule 16b-3(c)(2)(i) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor definition adopted by the Securities and Exchange Commission.
"Eligible Employee" means any person employed by the Company or a Subsidiary on a regularly scheduled basis during any portion of an Award Period and who satisfies all of the requirements of Section Six.
"Fair Market Value" means the average of the high and low prices for the common stock as reported on the New York Stock Exchange Composite Transactions for the date(s) specified from time to time by the Committee.
"Incentive Stock Option" means an incentive stock option within the meaning of Section 422 of the Code.
"Option" or "Stock Option" means either a non-qualified stock option or an Incentive Stock Option granted under Section Eight.
"Option Period" or "Option Periods" means the period or periods during which an option is exercisable as described in Section Eight E.
"Participant" means an Eligible Employee who has been granted an Award under the Plan.
"Plan" means the Great Plains Energy Incorporated Long-Term Incentive Plan.
"Performance Shares" means an Award granted under Section Ten.
"Restricted stock" means an Award granted under Section Seven.
"Subsidiary" means any corporation of which 50% or more of its outstanding voting stock or voting power is beneficially owned, directly or indirectly, by the Company.
"Termination" means resignation or discharge from employment with the Company or any one of its Subsidiaries, except in the event of death, disability, or retirement.
SECTION THREE. EFFECTIVE DATE, DURATION AND STOCKHOLDER APPROVAL
The Plan became effective on May 5, 1992.
Awards may be granted until May 5, 2012.
The Plan shall continue in effect until all matters relating to the payment of Awards and administration of the Plan have been settled.
SECTION FOUR. ADMINISTRATION
The Plan shall be administered by the Committee for, and on behalf of, the Board. The Committee shall have all of the powers (other than amending or terminating this Plan as provided in Section Fourteen) respecting the Plan. All questions of interpretation and application of the Plan, or of the terms and conditions pursuant to which Awards are granted, exercised or forfeited under the provisions hereof, shall be subject to the determination of the Committee. Any such determination shall be final and binding upon all parties affected thereby.
SECTION FIVE. GRANT OF AWARDS AND LIMITATION OF NUMBER OF SHARES AWARDED
The Committee may, from time to time, grant awards to one or more Eligible Employees, provided that (i) subject to any adjustment pursuant to Section Fifteen I, the aggregate number of shares of common stock available for Awards under this Plan may not exceed 3,000,000 shares; (ii) to the extent that an award lapses or the rights of the Participant to whom it was granted terminate, any shares of common stock subject to such Award shall again be available for the grant of an Award under the Plan; and (iii) shares delivered by the Company under the Plan may be authorized but unissued common stock, common stock held in the treasury of the Company or common stock purchased on the open market (including private purchases) in accordance with applicable securities laws. In determining the size of the Awards, the Committee shall assess the performance of the Eligible Employees against criteria to be established by the Committee, from time to time, based on the Comp any's performance (such as stockholder and customer related factors) and shall take into account a Participant's responsibility level, potential, cash compensation level, and the Fair Market Value of the common stock at the time of Awards, as well as such other considerations as it deems appropriate.
SECTION SIX. ELIGIBILITY
Officers and other employees of the Company and its subsidiaries (including officers or salaried full-time employees who are members of the Board, but excluding directors who are not officers or employees) who, in the opinion of the Committee, make significant contributions to the continued growth, development, and financial success of the Company or one or more of its Subsidiaries shall be eligible to receive Awards. Subject to the provisions of the Plan, the Committee shall from time to time select from such eligible persons those to whom Awards shall be granted and determine the amount of such Awards. No officer or employee of the Company or any of its Subsidiaries shall have any right to be granted an Award under this Plan.
SECTION SEVEN. RESTRICTED STOCK
An Award made pursuant to this Section Seven shall be in the form of shares of common stock, restricted as provided herein. The restricted stock shall be issued in the name of the Participant and shall bear a restrictive legend prohibiting sale, transfer, pledge or hypothecation of the restricted stock until the expiration of the restriction period.
The Committee may also impose such other restriction and conditions on the restricted stock as it deems appropriate.
Upon issuance to the Participant of restricted stock, the Participant shall have the right to vote the restricted stock.
At the time restricted stock is awarded, the Committee shall establish a restriction period applicable to such Award which shall not be less than three years nor more than ten years. Each Restricted Stock Award may have a different restriction period at the discretion of the Committee.
Notwithstanding the other provisions of this Section Seven B, the Committee is authorized in its sole discretion to accelerate the time at which any or all of the restrictions on the restricted stock shall lapse or to remove any or all of such restrictions whenever the Committee may decide that changes in tax or other laws or business conditions arising after the granting of a restricted stock Award make such action appropriate. Notwithstanding the above, the shares of restricted stock may not be sold by a Participant within six months of the date on which such shares were granted.
Upon completion of the restriction period and satisfaction of any other restrictions required by the Award, all restrictions upon the Award will expire. New certificates representing the Award will be issued without the restrictive legend described in Section Seven A, and the shares will become nonforfeitable.
SECTION EIGHT. STOCK OPTION
An Award of one or more options may be granted to any Eligible Employee.
Each option granted under the Plan shall be evidenced by a "Stock Option Agreement" between the Company and the Participant containing such terms and conditions as may be determined by the Committee, including, without limitations, provisions to qualify Incentive Stock Options as such under Section 422 of the Code; provided, however, that each Stock Option Agreement must include the following terms and conditions: (i) that the Options are exercisable either in total or in part with a partial exercise not affecting the exercisability of the balance of the option; (ii) that every share of common stock purchased through the exercise of an option shall be paid for in full at the time of the exercise; (iii) that each option shall cease to be exercisable, as to any share of Common stock, at the earliest of (a) the Participant's purchase of the common stock to which the option relates, (b) the exercise of a related Limited Stock Appreciation Right, or (c) the lapse of the option ; and (iv) that options shall not be transferable by the Participant other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder.
The Option Price per share of common stock shall be set by the grant, but shall not be less than 100% of the Fair Market Value at the Date of the Grant.
At the time of an exercise of an option, the option price shall be payable in cash or in previously-owned shares of common stock or in a combination thereof. When common stock is used in full or partial payment of the option price, it shall be valued at the Fair Market Value on the date the option is exercised.
Each option shall become exercisable in such manner and within such option period or periods not to exceed ten years from its Date of Grant, as set forth in the Stock Option Agreement.
An option will lapse upon the first occurrence of one of the following circumstances: (i) ten years from the Date of Grant; (ii) three months following the Participant's Date of Retirement; (iii) at the time of a Participant's Termination; (iv) at the expiration of the option period set by the grant; or (v) twelve months from the Date of Disability. If, however, the Participant dies within the option period and prior to the lapse of the Option, the Option shall lapse unless it is exercised within the option period or twelve months from the date of the Participant's death, whichever is earlier, by the Participant's legal representative or representatives or by the person or persons entitled to do so under the Participant's will or, if the Participant shall fail to make testamentary disposition of such option or shall die intestate, by the person or persons entitled to receive said option under the applicable laws of descent and distribution.
A participant or a transferee of a Participant shall have no rights as a stockholder with respect to any shares of common stock covered by an option, until the date the option is exercised, except as provided in Section Fifteen A.
If a Participant shall engage in a disqualifying disposition (such as term or successor term is then used under the Code) with respect to any shares of common stock purchased pursuant to an Incentive stock option (presently within one year from the date the shares were acquired or within two years from the Date of Grant of the Option), then, to provide the Company with the opportunity to claim the benefit of any income tax deduction which may be available to it under the circumstances, the Participant shall, within ten days of such disposition, notify the Company of the dates of acquisition and disposition of such shares of common stock, the number of shares so disposed and the consideration, if any, received therefore.
The aggregate Fair Market Value (determined at the time of Award) of the common stock, with respect to which an Incentive Stock Option is exercisable for the first time by a Participant during any calendar year (whether under this Plan
or another plan or arrangement of the Company) shall not exceed $100,000 (or such other limit as may be in effect under the Code on the date of Award).
The Granting of an option shall impose no obligation on the Participant to exercise such option.
At least six months must elapse between the date the option is acquired by the Participant and the date of disposition of the option (other than upon exercise or conversion) or the common stock for which it is exercisable.
SECTION NINE. LIMITED STOCK APPRECIATION RIGHT
The Committee may, in its sole discretion, grant a Limited Stock Appreciation Right to the holder of any stock option granted under the Plan.
A Limited Stock Appreciation Right may be granted with respect to a stock option at the time of its grant or any time thereafter up to six months prior to its expiration.
Limited Stock Appreciation Rights will be automatically exercised one day after an event of Change of Control (as defined in Section Eleven). A Limited Stock Appreciation Right cannot be exercised in any other manner. Notwithstanding the above, a Limited Stock Appreciation Right will only be exercised if the Change in Control event occurred six months after the date of the grant of the Limited Stock Appreciation Right and the stock option to which it relates has not previously been exercised.
The exercise of a Limited Stock Appreciation Right will cancel any related stock option and allow the holder to receive in cash an amount equal to the excess of the Fair Market Value on the date of exercise of one share of common stock over the option price, multiplied by the number of shares of common stock covered by the related stock option.
In the event of an exercise of a Limited Stock Appreciation Right, the number of shares reserved for issuance shall be reduced by the number of shares covered by the Stock Option Award.
SECTION TEN. PERFORMANCE SHARES
A Performance Share is the right to receive a payment from the Company with respect to such Performance Share subject to satisfaction of such terms and conditions as the Committee may determine. Performance Shares shall be credited to a Performance Share account to be maintained for each Participant. Each Performance Share shall be deemed to be equivalent of one share of common stock. The Award of Performance Shares under the Plan shall not entitle the participant to any interest in or to any dividend, voting, or other rights of a stockholder of the Company.
A grant of Performance Shares may be made by the Committee during the term of the Plan.
The Participant shall be entitled to receive payment for each Performance Share of an amount based on the achievement of performance measures for such Award Period as determined by the Committee. The Committee shall have the right to establish requirements or other criteria for measuring performance prior to the beginning of the Award Period but subject to such later revisions as the Committee shall deem appropriate to reflect significant or unforeseen events or changes.
Except in the event of a Change of Control, no payment in respect of Performance Shares shall be made prior to the end of an Award Period. Payment thereafter shall be made as soon as practicable.
The payment to which a Participant shall be entitled at the end of an Award Period shall be a dollar amount equal to the Fair Market Value of the number of shares of Common stock equal to the number of Performance Shares earned. Payment shall normally be made in common stock. The Committee, however, may authorize payment in such combinations of cash and common stock or all in cash as it deems appropriate.
The number of shares of common stock to be paid to a Participant will be determined by dividing the portion of the payment not paid in cash by (i) the Fair Market Value of the common stock on the date on which the shares are issued; or (ii) the price per share paid for shares purchased for a Participant's account should the Board determine to purchase common stock on behalf of the Participant. Stock received in settlement of Performance Shares may not be disposed of within six months of the date on which the Performance Shares were granted.
SECTION ELEVEN. CHANGE IN CONTROL
In the event of Change in Control (as defined below) of the Company, and except as the Committee may expressly provide otherwise, (i) all Stock Options then outstanding shall become fully exercisable unless Limited Stock Appreciation Rights were granted in connection with the Stock Options which in such event the Limited Stock Appreciation Rights will be automatically exercised as provided for in Section Nine herein; (ii) all restrictions (other than restrictions imposed by law) and conditions of all Restricted stock Grants then outstanding shall be deemed satisfied as of the date of the Change in Control; and (iii) all Performance Share Grants shall be deemed to have been fully earned as of the date of the Change in Control, subject to the limitation that any Award which has been outstanding less than six months on the date of the Change in Control shall not be afforded such treatment.
A "Change in Control" shall be deemed to have occurred if (i) any person other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, and other than the Company or a corporation owned, directly or indirectly, by the Shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company representing 20% or more of the Common stock of the Company then outstanding; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in (i) above) whose election by the Board or nomination for election by the Company's Shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof.
SECTION TWELVE. FORFEITURE
In the event a Participant ceases employment, restricted stock for which the restriction period has not expired and Performance Shares are subject to forfeiture as follows:
(i) Termination - the Award would be completely forfeited as of the date of termination.
(ii) Retirement - payout of the Award would be prorated for service during the period.
(iii) Disability - payout of the Award would be prorated for service during the period.
(iv) Death - payout of the Award would be prorated for service during the period.
In any instance where payout of an Award is to be prorated, the Committee may choose to provide the Participant (or the Participant's estate) with the entire Award rather than the prorated portion thereof.
Restricted stock which is forfeited will be transferred to the Company or canceled and made available again for the grant of an Award under the Plan.
SECTION THIRTEEN. DEFERRAL ELECTION
Upon the request of a Participant, the Committee may, in its sole discretion, permit a Participant to elect to defer payout of all or any part of any Award under the Plan under such conditions as the Committee may establish.
SECTION FOURTEEN. AMENDMENT OF PLAN
The Board may at any time and from time to time alter, amend, suspend or terminate the Plan in whole or in part, except (i) no such action may be taken without shareholder approval which increases the benefits accruing to Participants pursuant to the Plan, increases the number of shares of Common stock which may be issued pursuant to the Plan (except as provided in Section Fifteen I), extends the period for granting Options under the Plan, modifies the requirements as to eligibility for participation in the Plan, or requires shareholder approval under any law or regulation in effect at the time such amendment is proposed for adoption; (ii) no such action may be taken without the consent of the Participant to whom any Award shall theretofore have been granted, which adversely affects the rights of such Participant concerning such Award, except as such termination or amendment of the Plan is required by statute, or rules and regulations promulgated thereunder; and (iii) no such action may be taken if the proposed amendment must be in the discretion of the Committee to comply with the disinterested administration requirements of Rule 16b-3 under the Exchange Act.
SECTION FIFTEEN. MISCELLANEOUS PROVISIONS
A. Dividends.
The recipient of an Award may, if so determined by the Committee, be entitled to receive, currently or on a deferred basis, dividends or their equivalents, with respect to the number of shares of Common stock covered by the Award.
B. Nontransferability.
No benefit provided under this Plan shall be subject to alienation or assignment by a Participant (or by any person entitled to such benefit pursuant to the terms of this Plan), nor shall it be subject to attachment or other legal process of whatever nature. Any attempted alienation, assignment or attachment shall be void and of no effect whatsoever. Notwithstanding the above, Stock Options and Limited
Stock Appreciation Rights may be transferred as provided in any Stock Option Agreement.
Payment shall be made only into the hands of the Participant entitled to receive the same or into the hands of the Participant's authorized legal representative. Deposit of any sum in any financial institution to the credit of any Participant (or of a person entitled to such sum pursuant to the terms of this Plan) shall constitute payment into the hands of that Participant (or such person).
C. No Employment Right.
Neither this Plan nor any action taken hereunder shall be construed as giving any right to be retained as an officer or employee of the Company or any of its Subsidiaries.
D. Tax Withholding.
The Company shall be authorized to withhold under the Plan the amount of withholding taxes due in respect of an Award or payment hereunder and to take such other actions as may be necessary in the opinion of the Company to satisfy all obligations for the payment of taxes. Such withholding may be deducted in cash from the value of any Award.
E. Fractional Shares.
Any fractional shares shall be eliminated at the time of payment or payout by rounding down for fractions of less than one-half and rounding up for fractions equal to or more than one-half. No cash settlements shall be made with respect to fractional shares eliminated by rounding.
F. Government and Other Regulations.
The obligation of the Company to make payment of Awards in common stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by any government agencies as may be required. Except as required by law, the Company shall be under no obligation to register under the Securities Act of 1933, as amended ("Act"), any of the shares of common stock issued, delivered or paid in settlement under the Plan. If common stock awarded under the Plan may in certain circumstances be exempt from registration under the Act, the Company may restrict its transfer in such manner as it deems advisable to ensure such exempt status.
G. Indemnification.
Each person who is or at any time serves as a member of the Committee shall be indemnified and held harmless by the Company against and from (i) any loss, cost
liability, or expenses that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit, or proceeding to which such person may be a party or in which such person may be involved by reason of any action or failure to act under the Plan; and (ii) any and all amounts paid by such person in satisfaction of judgment in any such action, suit or proceeding relating to the Plan. Each person covered by this indemnification shall give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Restated Articles of Consolidation or By-Laws of the Company or any of its Subsidiaries, as a matter of law, or otherwise, or any power that the Company may have to indemnify such person or hold su ch person harmless.
H. Reliance on Reports.
Each member of the Committee shall be fully justified in relying or acting in good faith upon any report made by the independent public accountants of the Company and its Subsidiaries and upon any other information furnished in connection with the Plan. In no event shall any person who is or shall have been a member of the Committee be liable for any determination made or other action taken or any omission to act in reliance upon any such report or information or for any action taken, including the furnishing of information, or failure to act, if in good faith.
I. Changes in Capital Structure.
In the event of any change in the outstanding shares of common stock by reason of any stock dividend or split, recapitalization, combination or exchange of shares or other similar changes in the common stock, then appropriate adjustments shall be made in Awards theretofore granted to the Participants and in the aggregate number of shares of common stock (or cash payment in lieu thereof) which may be granted pursuant to the Plan. Such adjustments shall be conclusive and binding for all purposes. Additional shares of common stock issued to a Participant as the result of any such change shall bear the same restrictions as the shares of common stock to which they relate.
J. Company Successors.
In the event the Company becomes party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which the Company will not be the surviving corporation or in which the holders of the common stock will receive securities of another corporation, then such Company shall assume the rights and obligations of the Company under this Plan.
K. Governing Law.
All matters relating to the Plan or to Awards granted hereunder shall be governed by the laws of the State of Missouri, without regard to the principles of conflict of laws.
L. Relationship to Other Benefits.
No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing or group insurance plan of the Company or any Subsidiary, except as may be required by Federal law and regulation or to meet other applicable legal requirements.
M. Expenses.
The expenses of the Plan shall be borne by the Company and its Subsidiaries if appropriate.
N. Titles and Headings.
The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
Exhibit 10.1.b
Great Plains Energy Incorporated
Annual Incentive Plan
Amended February 2003
This plan was previously adopted by Kansas City Power & Light Company (KCPL). The Plan was first amended October 1, 2001, to reflect a name change from Kansas City Power & Light Company to Great Plains Energy Incorporated (GPE). The Plan was further amended on February 4, 2003 by the GPE Board of Directors.
Objective
The Great Plains Energy Incorporated (the Company) executive Annual Incentive Plan is designed to reward sustained value creation by providing competitive incentives for the achievement of annual financial performance goals. By providing market-competitive target awards, the plan supports the attraction and retention of senior executive talent critical to achieving the Company's strategic business objectives.
Eligible participants include Executives and other Key Employees of the Company, as approved by the Compensation Committee (the Committee) of the Board of Directors.
Target award levels will be approved by the Committee and set as a percentage of executive's base salary. The percentage will vary based on organizational responsibilities and market-compilation bonus levels based on industry data. The current annual target award percentage of base salary is set forth on Appendix I attached hereto.
Corporate performance under the plan will be measured by Earnings Per Shares (EPS). The awards paid under the plan will be based in part on the achievement of the annual GPE EPS goal approved by the Committee. In addition to the overall GPE goal, separate goals will be established for the business units. The proposed annual EPS goal for GPE and the relevant business units goals for the current annual incentive plan year are set forth in Appendix II attached hereto.
Individual incentive awards will reflect a mix of GPE and business unit performance (EPS and customer satisfaction) along with individual discretionary factors; the current actual mix for each executive will be determined based on his/her role and contribution to the organization in accordance with the chart set forth on Appendix III attached hereto.
Award Threshold and Maximum
The EPS goals will be subject to an established performance threshold and maximum. Fifty percent of the EPS incentive targets are payable at the threshold level of performance and 150% of the incentive at target is payable at the maximum level of performance. If performance falls below target but is above threshold, the amount of the award payable will be below the target award level. Similarly, performance above target will result in an award higher than target level. The amount of the award will be determined using the performance matrix provided in Appendix II. Discretionary awards will not be paid for corporate executives if the GPE EPS performance falls below the threshold level for the current year; discretionary awards will not be paid for KCPL executives if the KCPL EPS performance falls below the threshold level for the current year.
The EPS targets established for the plan period are fixed for the duration period and will only be changed upon the approval of the Committee and the Board. Changes will only be approved as a result of an acquisition, divestiture or other significant event that, in the judgment of the Committee, results in a change in the character of the Company. Each year, the Committee will approve the annual EPS targets.
APPENDIX I
Proposed Target Incentive Award Levels
(expressed as a percent of base salary)
|
Executive Tier |
Annual Target Award Opportunity |
|
Chairman and CEO (GPE) |
60% |
|
President and/or CEO (KCPL) |
45% |
|
Executive or Senior Vice President |
40% |
|
Vice President |
30% |
|
Other Officers |
25% |
APPENDIX II
Proposed EPS Targets for 2003
Following are the proposed targets for the period January 1, 2003 through December 31, 2003
2003 Goals
Earnings Per Share*
|
|
GPE |
Reported Earnings |
KCPL |
Reported Earnings |
|
Threshold - 50% |
$1.93 |
($1.90) |
$1.51 |
($1.50) |
|
Target - 100% |
$2.01 |
($1.96) |
$1.59 |
($1.57) |
|
Max - 150% |
$2.08 |
($2.01) |
$1.65 |
($1.62) |
*Excluding DTI from earnings
Customer Satisfaction Goal
|
Payout |
Performance Achievement |
|
Threshold - 50% |
Maintain current Tier III performance for benchmark group |
|
Target - 100% |
Maintain Tier III performance for benchmark group and current Customer Satisfaction Index (100 +/-2) |
|
Max - 150% |
Achieve minimum of Tier II performance for benchmark group and exceed current Customer Satisfaction Index (100 +/-2) |
APPENDIX III
Weighting of Performance Goals
|
|
|
KCPL Business Unit |
Customer Satisfaction |
|
|
Corporate Executives |
70% |
0% |
10% |
20% |
|
KCPL Executives |
20% |
40% |
20% |
20% |
Exhibit 10.1.g
AGREEMENT
THIS AGREEMENT (the "Agreement"), made this 31st day of December 2002, between Great Plains Energy Incorporated, a corporation organized and existing under the laws of the State of Missouri, (the "Company") and Gregory J. Orman, an individual (the "Consultant").
RECITALS
WHEREAS, Consultant is currently employed by the Company, holding the positions of Executive Vice President of Great Plains Energy Incorporated, and President and Chief Executive Officer of KLT Inc., and providing the Company with general business advice, strategic planning expertise and management assistance to the Company's non-regulated businesses, including Strategic Energy L.L.C. ("SEL").
WHEREAS, the Company wishes to retain the services of Consultant after his resignation from the Company on the terms and conditions herein provided.
WHEREAS, Consultant is willing to act as a consultant for the Company and its subsidiaries on such terms and conditions.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties agree as follows:
1. Engagement of Consultant. During the term commencing January 1, 2003 and ending June 30, 2003, unless extended or terminated pursuant to Section 4 hereof (the "Consulting Term"), Consultant shall make himself available at mutually agreeable times to provide business advice and services to the officers, directors and other representatives of the Company and its subsidiaries as reasonably requested by the Chairman and Chief Executive Officer of the Company (hereinafter the "Executive"). Such services shall include, but not be limited to Consultant serving as an advisor to SEL's management committee and providing consulting services to SEL. It is expressly understood that Consultant is expected to devote time to performing his duties hereunder, but is not expected to keep regular hours or be present on a full-time basis. It is understood that Consultant will provide consultation regarding str ategic planning initiatives and other aspects of the Company's business that may require the Company and its subsidiaries to disclose to Consultant secret, proprietary and confidential information concerning the Company and its business affairs.
2. Compensation. For the consulting services provided pursuant to Section 1, the Company shall pay Consultant a monthly retainer of $8,460.00, payable on a monthly basis during the Consulting Term.
3. Reimbursement of Expenses. The Company shall reimburse Consultant for reasonable business expenses incurred in providing consulting services pursuant to this Agreement, upon presentation by the Consultant of documentation, expense statements and or such other supporting information as the Company may request; provided, however, that the amount available for such expenses may be fixed in advance by the Executive of the Company.
4. Use of Company Facilities. For the consulting services provided pursuant to paragraph 1, the Consultant shall have the use of an office, appropriate administrative support service and all necessary office supplies.
5. Extension of Agreement. This Agreement may be renewed for additional terms at the mutual election of Consultant and the Company. This agreement may also be terminated by either party with thirty (30) days notice for any reason whatsoever.
6. Independent Contractor. In rendering services as a consultant hereunder, Consultant shall be an independent contractor. As an independent contractor, the Company will issue an IRS Form 1099 for payments made pursuant to this Agreement, and Consultant will be responsible for paying all federal, state and local income and social security taxes arising out of any such payments. In addition, during the Consulting Term, Consultant will not accrue further service or compensation credit or benefits for any purpose under any of the Company's retirement, disability, medical, dental or other benefits or plans of the Company or any of its affiliated companies.
7. Confidential and Proprietary Information.
(a) The Consultant agrees to maintain the confidentiality of all Company trade secrets and proprietary information. Consultant also acknowledges that during the course of his employment with the Company, he has been entrusted with certain personnel, business, financial, technical and other information and material which are the property of the Company and its subsidiaries and which involve confidential information" of the Company and the Company's associates. Consultant agrees that he will not communicate or disclose to any third party (and acknowledge that he has not communicated or disclosed), or use (or have used) for his own account, without written consent of the Company, any of such confidential information or material, except in response to a lawfully issued subpoena, court order or other lawful request by any regulatory agency or government authority having supervisory authority over the business of the Company, u nless and until such information or material becomes generally available to the public through no fault of Consultant's.
(b) The Consultant agrees that if any confidential information is requested by subpoena or court, governmental or regulatory order, he will notify the Company as soon as practicable and if requested by the Company, he will undertake his best efforts to assist the Company in obtaining a confidentiality order from the court or governmental or regulatory agency requesting such information.
8. Non-Competition and Non-Solicitation.
(a) This Consultant agrees to continue to be bound by the non-competition and non-solicitation terms and conditions of Article IX of the Agreement and Plan of Merger by and among Environmental Lighting Concepts, Inc., a Minnesota corporation ("ELC"), Mark R. Schroeder ("Schroeder") and Gregory J. Orman ("Orman")(Schroeder and Orman collectively, the "ELC Stockholders"), Innovative Energy Consultants Inc., a Missouri corporation ("IEC") and Great Plains Energy Incorporated, a Missouri corporation ("GPE") dated November 7, 2002.
(b) The Consultant agrees to consult with the Executive in the event a situation arises in which his opinion, if expressed, or his actions, if taken, could possibly affect the interests or reputation of the Company.
9. Indemnification. The Consultant shall be indemnified to the extent set forth in the Indemnification Agreement dated May 1, 2000 by and between KLT Inc., a Missouri corporation, and Gregory J. Orman, a copy of which is attached hereto and incorporated herein.
10. Assignment. This Agreement is not assignable other than to a successor of the Company, except the Agreement shall not be assigned without the prior consent of the Consultant.
11. Severability. In the event that any provision or portion of this Agreement will be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement will be unaffected thereby and will remain in full force and effect to the fullest extent permitted by the law.
12. Waiver of Breach. A party's failure upon compliance or enforcement of any provision of this Agreement shall not affect the validity or enforceability or constitute a waiver of future enforcement of that provision or of any other provision of this Agreement by that party or any other party.
13. Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by Registered or Certified Mail to the last known residence in the case of Consultant, or to its principal office in the case of the Company or at such other address or addresses as either party may hereafter designate in writing to the other.
14. Amendment. This Agreement may be amended at any time by consent of the parties hereto by a written instrument.
15. Entire Agreement. This Agreement constitutes the entire agreement between the parties as it relates to the subject matter of this Agreement and supersedes all prior agreements and understandings wither written or oral relating to the subject matter of this Agreement.
16. Governing Law. This Agreement has been entered into in Kansas City, Missouri, and will be governed by and construed, interpreted and enforced in accordance with the laws of the State of Missouri.
17. Captions and Headings. The captions of the sections of this Agreement are for convenience only and shall not be considered in construing or interpreting any provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first mentioned above.
|
GREAT PLAINS ENERGY INCORPORATED |
|
|
By: |
/s/Bernard J. Beaudoin |
|
Bernard J. Beaudoin |
|
|
/s/Gregory J. Orman |
|
Gregory J. Orman |
Exhibit 10.1.h
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 13th day of June, 2002, between Strategic Energy, L.L.C., a Delaware limited liability company (the "Company") having its principal offices located at Two Gateway Center, Pittsburgh, Pennsylvania 15222-1425, and Richard M. Zomnir (the "Employee"), an individual with a residential address at 422 Heights Drive, Gibsonia, PA 15044.
RECITALS
A. In February, 1999, the Employee and the Company entered into an Employment Agreement (the "Previous Employment Agreement").
B. The Company desires the Employee's continued employment with the Company and the Employee wishes to accept such continued employment, upon the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows:
1. Term of Employment. The initial term (the "Initial Term") of employment of the Employee by the Company under this Agreement shall commence on the date hereof (the "Effective Date") and, subject to the further provisions of this Agreement providing for, among other things, earlier termination of such employment, shall end on the fifth anniversary of the Effective Date; provided, however, this term of employment shall be automatically renewed for successive one (1) year periods (each a "Renewal Term") unless, at least one hundred eighty (180) days prior to the expiration of the Initial Term or any Renewal Term, either party gives written notice to the other party specifically electing to terminate this Agreement at the end of the Initial Term or any such Renewal Term, or the employment otherwise is terminated earlier in accordance with the provisions hereof. (The Initial Term and any Renewal Terms (both of which are subject to early te rmination in accordance with the provisions hereof) are collectively hereinafter referred to as the "Employment Period".)
2. Title; Capacity. During the Initial Term or any Renewal Term, the Employee shall have the title of President and Chief Executive Officer of the Company and shall perform such duties which are typical of the President and Chief Executive Officer of a business, and his duties and responsibilities, at all times, shall be consistent with and at a similar level to those previously performed by him for the Company prior to the Effective Date. Any addition to or deletion from the aforementioned scope of duties and responsibilities shall be conditioned upon the mutual agreement, in writing, of the Employee and the Management Committee of the Company, or any successor thereto, as the case may be (such committee, and any successor thereto, the "Management Committee").
The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such position as set forth above. The Employee agrees to devote his
entire business time, attention and energies to the business and interests of the Company during the Employment Period. Notwithstanding anything herein to the contrary, the Employee will not be prevented from engaging in additional activities in connection with his personal investments and/or community affairs which are not inconsistent with the Employee's duties under this Agreement. The Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company as in effect as of the date hereof, as well as any changes therein which may be adopted by mutual agreement of the Employee and the Management Committee from time to time.
3. Compensation and Benefits.
(a) Salary. The Company shall pay the Employee, in semi-monthly installments, an annual base salary of Two Hundred Eighty Thousand Dollars ($280,000), which annual base salary may be increased from time to time at the discretion of the Management Committee. The Employee shall be paid such salary in accordance with payroll practices in effect for all employees of the Company.
(b) Bonus. The Employee shall participate in the Company's Employee Bonus Plan, as the same may be established, maintained, amended or modified from time to time by the Management Committee, in accordance with the terms and conditions thereof. For calendar year 2002, the Employee shall participate in the Company's Employee Bonus Plan as a Grade 6 executive.
(c) Medical Insurance. The Company shall continue to offer to the Employee, at Company's expense, the same medical and dental insurance coverage, both in terms of type and levels of coverage, as well as co-payment percentage, if any, being provided to him by the Company immediately prior to the date hereof.
(d) Life Insurance. The Company shall continue to provide to the Employee, at Company's expense, any and all life insurance coverage (both in terms of type and levels of coverage) being maintained for the Employee and/or the Employee's beneficiaries by the Company immediately prior to the date hereof.
(e) Disability Insurance. The Company shall continue to provide to the Employee, at Company's expense, any disability insurance coverage (both in terms of type and levels of coverage) provided to him by the Company immediately prior to the date hereof.
(f) 401(k) Match. The Company shall continue to contribute, on behalf of the Employee, One Dollar ($1) for every Two Dollars ($2) contributed by the Employee to a qualified plan under Section 401(k) of the Internal Revenue Code of 1986, as amended.
(g) Automobile Lease. The Company shall continue to lease for the Employee such automobile, or an automobile of similar cost, subject to a reasonable increase for inflation, as is leased for the Employee by the Company immediately prior to the date hereof.
(h) Other Benefits. The Company shall continue to provide for the Employee such membership fees, dues, athletic season tickets and parking benefits, as are provided by the Company to the Employee immediately prior to the date hereof.
(i) Reimbursement of Expenses. The Company shall reimburse the Employee for all reasonable travel, entertainment and other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may request; provided, however, that the amount available for such travel, entertainment and other expenses may be fixed in advance by the Management Committee.
(j) Vacation and Holidays. The Company shall provide the Employee with paid vacation in accordance with the vacation policies of the Company in effect for its executive officers from time to time. The Company shall also provide the Employee paid holidays and other paid leave as set forth in the Company's policies.
4. Termination by Company.
(a) Events of Termination. The employment of the Employee by the Company pursuant to this Agreement shall be terminable by the Company only upon the occurrence of any of the following:
(i) The expiration or termination of the Initial Term or any Renewal Term (as the case may be), provided that either of the parties hereto have given written notice to the other electing to terminate this Agreement in compliance with Section 1 hereof;
(ii) The death of the Employee;
(iii) At the election of the Company, upon the "disability" of the Employee (as such term is defined in Section 4(b) hereof);
(iv) At the election of the Company, "for cause" (as such term is defined in Section 4(c) hereof); and
(v) At the election of the Company, without cause and for any or no reason whatsoever.
(b) Definition of "Disability". For purposes of Section 4(a)(iii) of this Agreement, the term "disability" shall mean the inability of the Employee, due to a physical or mental disability, for a period of 120 consecutive days, or for 180 days in a calendar year period, to perform the services contemplated under this Agreement. The "disability" of the Employee will be determined by a medical doctor selected by written consent of the Company and the Employee upon the request of either party by notice to the other. If the Company and the Employee cannot agree on the selection of a medical doctor, each of them will select a medical doctor and the two medical doctors will select a third medical doctor who will determine whether
the Employee has a "disability". The determination of the medical doctor selected under this Section 4(b) will be binding on both parties. The Employee must submit to a reasonable number of examinations, as necessary, by the medical doctor making the determination under this Section 4(b), and the Employee hereby authorizes the disclosure and release to the Company of such determination of all supporting medical records.
(c) Definition of "For Cause". For purposes of Section 4(a)(iv) of this Agreement, the term "for cause" shall mean any of the following:
(i) Misappropriation of any of the Company's funds or property by the Employee;
(ii) The conviction of Employee, or the entering of a plea of guilty or a plea of no contest by Employee, with respect to a felony or the equivalent thereof;
(iii) Material failure, neglect or refusal by the Employee to perform his duties and responsibilities under this Agreement after fifteen (15) days written notice from the Company to the Employee of the specific nature of the alleged failure, neglect or refusal and after the expiration, without cure by the Employee, of such fifteen (15) day cure period; provided, however, that if the Employee's default is of a nature that it cannot reasonably be cured within such fifteen (15) day period, the Employee will be permitted a longer cure period, in an amount of time reasonable under the circumstances, so long as he diligently prosecutes the cure to completion.
(iv) A material breach by the Employee of any of the other terms or conditions contained in this Agreement after fifteen (15) days written notice from the Company to the Employee of the specific nature of the claimed material breach and after the expiration, without cure by the Employee, of such fifteen (15) day cure period; provided however, that if the Employee's default is of a nature that it cannot reasonably be cured within such fifteen (15) day cure period, the Employee will be permitted a longer cure period, in an amount of time reasonable under the circumstances, so long as he diligently prosecutes the cure to completion.
The Company must provide written notice to the Employee setting forth with factual specificity the circumstances or actions of the Employee which justify the termination of the Employee "for cause".
(d) Effect of Termination. Effective upon the termination of the employment of the Employee by the Company pursuant to this Agreement in accordance with the provisions of Section 4 hereof, the Employee shall be entitled to compensation as provided in this Section 4(d).
(i) Termination for Cause. In the event that such employment is terminated "for cause" pursuant to Section 4(a)(iv) hereof, the Company shall pay to the Employee the compensation and benefits otherwise payable to him under Section 3 hereof through the date such termination is effective; provided, however, that the Employee shall not be
entitled to any payment pursuant to Section 3(b) hereof with respect to the calendar year in which such termination is effective.
(ii) Termination for Death. If such employment is terminated pursuant to Section 4(a)(ii) hereof, by reason of the Employee's death, the Company shall pay to the estate of the Employee, (A) the compensation which would otherwise be payable to the Employee under Section 3(a) hereof through the end of the calendar month in which his death occurs and for three months thereafter, and (B) a Bonus Payment prorated through the end of the calendar month during which the Employee's death occurred. For purposes of this Agreement, the term "Bonus Payment" shall mean a payment determined based upon a One Hundred Twenty Thousand Dollar ($120,000) bonus payment payable with respect to the calendar year in which such payment is to be made, which bonus payment shall be prorated with respect to the applicable calendar year through a stated date.
(iii) Termination for "Disability". If such employment is terminated pursuant to Section 4(a)(iii) hereof, by reason of the Employee's "disability", the Company shall pay to the Employee, (A) the compensation which would otherwise be payable to the Employee under Section 3(a) hereof through the end of the calendar month in which the Employee is terminated due to such "disability" (pursuant to Section 4(b) hereof) and for three months thereafter, and (B) a Bonus Payment prorated through the end of the calendar month during which the termination of employment due to such "disability" occurs.
(iv) Termination Without Cause. In the event that such employment is terminated without cause pursuant to Section 4(a)(v) hereof (but not pursuant to Section 4(a)(i) hereof), the Company shall pay to the Employee the Severance Payments. For purposes of this Agreement, the term "Severance Payments" collectively shall mean (A) the compensation otherwise payable to the Employee under Section 3(a) hereof for a period of two (2) years commencing on the date such termination is effective at such times and in such amounts as set forth in Section 3(a) hereof, (B) an additional annual amount of One Hundred Twenty Thousand Dollars ($120,000), payable in semi-monthly installments for a period of two (2) years commencing on the date such termination is effective, at such times as the payments under clause (A) of this Section are made, and (C) a Bonus Payment prorated through the date such termina tion is effective.
(e) Benefits. The Employee's accrual of, or participation in plans providing for, the benefits provided in Sections 3(c) through 3(j) hereof (the "Benefits") will cease immediately upon the termination of the Employee's employment with the Company pursuant to Section 4 or 5 hereof or the expiration of the Initial Term or any Renewal Term, except as may required by law, and the Employee will be entitled to accrued Benefits pursuant to such plans, but only as provided in such plans. Additionally, in all cases, the Employee will be entitled to receive payment for all accrued but unused vacation as set forth in the Company's policies; provided, however, that to the extent the Company is obligated to pay the Employee the Severance Payments in connection with a termination of the employment of Employee pursuant to this Agreement, the Company shall, during the period in which the Severance Payments are payable, (i) prov ide the Employee, at the Company's expense, the benefits provided in Sections 3(c) through 3(e) hereof (the "Insurance Benefits"), or (ii) from time to time pay the Employee
an amount that enables the Employee to obtain, on an net, after-tax basis, insurance that affords the Employee substantially the same benefits as the Insurance Benefits, or (iii) provide the Employee, at the Company's expense, a portion of the Insurance Benefits and from time to time pay the Employee an amount that enables the Employee to obtain, on an net, after-tax basis, insurance that affords the Employee substantially the same benefits as the portion of the Insurance Benefits that otherwise are not provided by the Company to the Employee.
5. Termination by Employee.
(a) The employment of the Employee by the Company pursuant to this Agreement shall be terminable by the Employee upon the occurrence of any of the following:
(i) The expiration of the Initial Term or any Renewal Term (as the case may be), provided that either of the parties hereto have given written notice to the other electing to terminate this Agreement in compliance with Section 1 hereof;
(ii) The material breach by Company of any of the terms or conditions contained in this Agreement after fifteen (15) days written notice from the Employee to the Company of the specific nature of the claimed material breach and after the expiration, without cure by Company, of such fifteen (15) day cure period; provided, however, that if Company's breach is of a nature that it cannot reasonably be cured within such fifteen (15) day cure period, Company will be permitted a longer cure period, in an amount of time reasonable under the circumstances, so long as it diligently prosecutes the cure to completion; or
(iii) If a Change of Control occurs. For purposes of this Agreement, a "Change of Control" shall occur upon less than fifty and one-tenths percent (50.1%) of the Company's Interests then outstanding being owned, directly or indirectly, at any time by GPE or any of its affiliates, or any combination thereof; further provided, however, that a Change of Control shall not occur as a result of an initial public offering of the Company's Interests (an "IPO"). Upon the occurrence of an IPO, the provisions of this Section 5(a)(iii) automatically, and without any further act or deed, shall be of no further force or effect. For purposes of this Agreement, the term "Company's Interests" shall mean the voting interests of the Company (or any permitted successor or assignee of the Company, as the case may be), and "GPE" shall mean Great Plains Energy Incorporated and its successors, but not its assigns.
(b) Effect of Termination for Breach or Change of Control. In the event the Employee terminates the employment of the Employee by the Company pursuant to this Agreement pursuant to Section 5(a)(ii) or 5(a)(iii) above, the Company shall pay to the Employee the Severance Payments. The Employee shall be under no duty to mitigate damages in the event of termination of this Agreement by the Employee for breach by the Company or unlawful termination of the Employee's employment by Company.
6. Company Covenants. The Company agrees that it will not, during the Employment Period, without the Employee's consent, (a) assign (or constructively assign) the Employee to a position of lesser status or degree of responsibility than his position, duties or responsibilities immediately before the Effective Date; (b) relocate (or constructively relocate)
its principal offices to any location outside of metropolitan Pittsburgh, Pennsylvania; and (c) require the Employee to relocate (or constructively relocate (e.g., by requiring the Employee to spend an extended period of time at an office location outside of metropolitan Pittsburgh)) anywhere to a location other than Company's principal offices.
7. Non-Compete, Proprietary Information and Developments
(a) Survival. The provisions of Section 7 hereof shall survive the termination or expiration of this Agreement for a period ending twenty-four (24) months after the date of such expiration or termination.
(b) Non-Compete.
(i) During the Employment Period and, in the event the Employee's employment by the Company is terminated pursuant to Section 4(a)(v), 5(a)(ii) or 5(a)(iii) hereof, for a period ending two (2) years after the date such termination is effective, the Employee will not, directly or indirectly, in the territory comprised of the continental United States and any and all other jurisdictions in which the Company has conducted, conducts or, as of the date of termination or expiration of the Employment Period, intends to conduct, the Business (as defined in Section 7(b)(i)(A) hereof):
(A) own, have any interest in, or act as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, or in any other capacity whatsoever (other than as the holder of not more than five percent (5%) of the total outstanding stock of a publicly held company), or, or in any way assist in, any business engaged or proposed to be engaged in the business of developing, producing, marketing or selling products or services of the kind or type developed or being developed, produced, marketed or sold by the Company or any Subsidiary (as defined in Section 7(b)(iv) hereof) (the "Business"); or
(B) recruit, solicit, induce, or attempt to recruit, solicit or induce, any employee or employees of the Company or any Subsidiary to terminate their employment with, or otherwise cease their relationship with, the Company or any Subsidiary; or
(C) solicit, divert, take away, or attempt to solicit, divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company or any Subsidiary.
(ii) If any restriction set forth in this Section 7(b) is determined in accordance with Section 14 hereof to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.
(iii) The restrictions contained in this Section 7(b) are necessary for the protection of the business and goodwill of the Company and are considered by the Employee to
be reasonable for such purpose. The Employee agrees that any breach of this Section will cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Company shall have the right to seek specific performance and injunctive relief. The prevailing party in any proceeding to remedy a breach under this Section 7(b) shall be entitled to receive its reasonable attorney's fees, expert witness fees, and out-of-pocket costs incurred in connection with such proceeding, in addition to any other relief it may be granted.
(iv) For purposes of this Agreement, (A) the term "Subsidiary" shall mean any Entity in which the Company, directly or indirectly, owns or controls fifty percent (50%) or more of the outstanding voting interests therein, and (B) the term "Entity" shall mean any corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization whatsoever.
(c) Proprietary Information
(i) The Employee agrees that all information and know-how, whether or not in writing, of a private, secret or confidential nature concerning the Business or the financial affairs of the Company or any Subsidiary (collectively, "Proprietary Information") is and shall be the exclusive property of the Company or the Subsidiary, if any and as the case may be. By way of illustration, but not limitation, Proprietary Information may include inventions, products, processes, methods, techniques, formulas, compositions, compounds, projects, developments, plans, research data, clinical data, financial data, personnel data, computer programs, and customer and supplier lists. The Employee will not disclose any Proprietary Information to others outside the Company and the Subsidiaries, if any, (other than as necessary for the performance of the Employee's duties hereunder) or use the same for a ny unauthorized purposes without written approval by an officer of the Company, either during or after his employment, unless and until such Proprietary Information has become public knowledge without fault by the Employee.
(ii) The Employee agrees that all files, letters, memoranda, reports, records, data, sketches, drawings, laboratory notebooks, program listings, or other written, photographic, or other tangible material containing Proprietary Information, whether created by the Employee or others, which shall come into his custody or possession, shall be and are the exclusive property of the Company or the Subsidiary, if any and as the case may be, to be used by the Employee only in the performance of his duties for the Company.
(iii) The Employee agrees that his obligation not to disclose or use Proprietary Information also extends to such types of information, know-how, records and tangible property of customers of the Company or any Subsidiary, suppliers to the Company or any Subsidiary, or other third parties, who may have disclosed or entrusted the same to the Company, to any Subsidiary or to the Employee in the course of the respective business of the Company or any Subsidiary.
(d) Developments.
(i) The Employee will make full and prompt disclosure to the Company of all inventions, improvements, discoveries, methods, developments, software, and works of authorship, whether patentable or not, which are created, made, conceived or reduced to practice by the Employee or under his direction or jointly with others during his employment by the Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as "Developments").
(ii) The Employee agrees to assign and does hereby assign to the Company all his right, title and interest in and to all Developments and all related patents, patent applications, copyrights and copyright applications. However, this Section 7(d) shall not apply to Developments which do not relate to the present or planned business or research and development of the Company or any Subsidiary and which are made and conceived by the Employee not during normal working hours, not on the Company's premises and not using the Company's tools, devices, equipment or Proprietary Information.
(iii) The Employee agrees to cooperate fully with the Company, both during and after his employment with the Company (but at Company's sole cost and expense), with respect to the procurement, maintenance and enforcement, of copyrights and patents (both in the United States and foreign countries) relating to Developments. The Employee shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignment of proprietary rights, and powers of attorney, which are necessary or appropriate in order to protect the Company's rights and interests in any Development.
(e) Other Agreements. The Employee hereby represents that he is not bound by the terms of any agreement with any previous employer or other party (other than prior agreements with the Company) to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. The Employee further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company.
8. Indemnity. Company agrees to indemnify, defend and hold the Employee harmless from and against any and all claims, liabilities, damages, and other losses, costs or expenses, arising from or in connection with the performance of his duties by the Employee or the Employee's status as an officer and employee of Company, during the Employment Period to the maximum extent permitted by law.
9. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective (a) upon personal delivery or (b) on the third business day after deposit in the United States Post Office, by registered or certified mail, postage prepaid,
addressed to the other party at the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.
11. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral relating to the subject matter of this Agreement, including, without limitation, the Previous Employment Agreement.
12. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee.
13. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of Pennsylvania.
14. Disputes; Venue.
(a) All claims, disputes, questions and controversies arising out of or related to this Agreement, including the interpretation of any provision of this Agreement, or the Company's employment of the Employee (collectively, the "Claims"), which cannot be resolved informally, shall be settled exclusively by arbitration in accordance with the employment dispute resolution arbitration procedures of the American Arbitration Association then in effect, except as such procedures may be modified by this Agreement or by mutual consent of the parties to the arbitration proceedings. The award rendered with respect to the arbitration proceedings shall be final and binding upon the parties to the arbitration proceedings. Judgment thereon may be entered in any court having jurisdiction. Each party shall bear its own expenses in connection with the preparation for the presentation of its case at the arbitration proceedings. The fees an d expenses of the arbitrator(s) and all other expenses of the arbitration (except those referred to in the sentence immediately preceding) shall be borne equally by the parties to such arbitration.
(b) Any arbitration proceedings under Section 14(a) hereof shall take place in the greater Pittsburgh, Pennsylvania metropolitan areas, or such other location as the parties may agree upon and shall be governed by the laws of the State of Pennsylvania. The arbitrator shall be selected from a list of five (5) arbitrators provided by the American Arbitration Association. Alternate strikes shall be made to the list commencing with the party requesting arbitration until a single name remains. That individual shall be the arbitrator for the matter. After the arbitrator has been selected, the parties may obtain reasonable discovery in aid of the arbitration by way of: (i) exchange of copies of all documents in the possession, custody or control of a party and relevant to the matter in dispute; (ii) written interrogatories for the purpose of determining the name and address of each witness proposed to be called by a party and a brief description of the relevant information each such witness is expected to provide; and (iii) such further discovery, including depositions, as the arbitrator may determine is appropriate after taking into consideration the nature of the dispute and the amount in controversy. Post-hearing briefs shall
be permitted. The arbitration award shall be in writing and shall specify the factual and legal basis for the award.
(c) As used herein, the term "Claims" shall include, without limitation, (i) claims for breach of contract, (ii) tort claims arising out of the employment relationship, (iii) claims for discrimination under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act and the Pennsylvania Human Rights Act (including but not limited to discrimination on the basis of race, sex, religion, national origin, age or disability), and (iv) claims for violation of any other federal, state or other governmental law, statute, regulation or ordinance designed to protect employees.
(d) All actions or proceedings with respect to enforcing the provisions of Section 14 hereof, including without limitation the entry of judgment on any arbitration award, shall be instituted only in any state or federal court sitting in Allegheny County, Pennsylvania, and by execution and delivery of this Agreement, the parties irrevocably and unconditionally subject to the jurisdiction (both subject matter and personal) of each such court and irrevocably and unconditionally waive: (i) any objection that the parties might now or hereafter have to the venue of any of such court; and (ii) any claim that any action or proceeding brought in any such court has been brought in an inconvenient forum.
15. Successors and Assigns; No Assignment without Consent.
(a) This Agreement shall be binding upon and inure to the benefit of both parties and their respective heirs, executors, successors and assigns. However, neither party may assign or otherwise transfer this Agreement, or any of the their respective rights, duties, obligations or liabilities hereunder, whether voluntarily, involuntarily or by operation of law, without the prior written consent by the other party. Any such purported assignment or transfer shall be null and void, and shall be a material breach of this Agreement.
(b) Notwithstanding the provisions of Section 15(a), however, the Company may assign or otherwise transfer this Agreement, and all of its rights, duties, obligations and liabilities hereunder, whether voluntarily, involuntarily or by operation of law, without the consent of the Employee, to any Entity that acquires or otherwise succeeds to all or substantially all of the business and assets of the Company.
16. Waiver. No delay or omission by either party in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by a party on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.
17. Captions and Headings. The captions of the Sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any Section of this Agreement.
18. Severability. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.
19. Counterparts. This Agreement may be executed in a number of counterparts and all of such counterparts executed by the Company or the Employee, shall constitute one and the same agreement, and it shall not be necessary for all parties to execute the same counterpart hereof.
20. Facsimile Signatures. The parties hereby agree that, for purposes of the execution of this Agreement, facsimile signatures shall constitute original signatures.
21. Incorporation by Reference. The preamble and recitals to this Agreement are hereby incorporated by reference and made a part hereof.
22. Guarantee by CE. The Employee acknowledges and agrees that the Guaranty provided by Custom Energy, L.L.C. (now known as Custom Energy Holdings, L.L.C.) (the "Guarantor") pursuant to the Previous Employment Agreement shall not be applicable to this Agreement and has no further force and effect, and that the Guarantor is a third party beneficiary of this Section 22.
23. Guarantee by KLTES. The payment of the Severance Payments that arise as a result of the Employee terminating the employment of the Employee by the Company pursuant to this Agreement pursuant to Section 5(a)(iii) above shall be guaranteed by KLT Energy Services Inc. ("KLTES"), to the extent provided in the Guaranty attached hereto as Exhibit A (the "Guaranty").
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.
STRATEGIC ENERGY, L.L.C.
By: /s/ Gregory J. Orman
Name: Gregory J. Orman
Title: Managemnet Committee Representative
/s/ Richard M. Zomnir
RICHARD M. ZOMNIR
EXHIBIT A
KLTES GUARANTEE
Exhibit 10.1.z
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (the "Agreement") is made and entered into as of December 23, 2002 by and between Digital Teleport, Inc. ("DTI"), the Official Unsecured Creditors Committee of Digital Teleport, Inc. (the "Committee"), KLT Inc. ("KLTI"), KLT Telecom Inc. ("KLTT") (KLTI and KLTT are hereinafter collectively referred to as "KLT"), Kansas City Power & Light Company ("KCPL"), and Great Plains Energy Incorporated ("GPE") with reference to the following recitals:
WHEREAS, on December 31, 2001 (the "Petition Date"), in the Eastern District of Missouri, St. Louis division, chapter 11 bankruptcy cases were commenced pursuant to the United States Bankruptcy Code, 11 U.S.C. (section symbol) 101 et. seq (the "Code") by: (a) DTI, assigned Case No. 01-54369-399 (the "Case"); (b) DTI's parent corporation, DTI Holdings, Inc. ("Holdings") assigned Case No. 01-54370-399 (the "Holdings Case"); and (c) DTI's affiliate Digital Teleport of Virginia, Inc. ("Virginia") assigned Case No. 01-54371-399 (the "Virginia Case"); and
WHEREAS, in the Case, the Committee was appointed by the office of the United States Trustee pursuant to 11 U.S.C. (section symbol) 1102; and
WHEREAS, during the course of the Case, the Committee and DTI investigated the acts of KLT, KCPL and GPE that occurred prior to the date hereof (the "Investigation"); and
WHEREAS, as a result of the Investigation, at a meeting held on December 5, 2002, and in certain other phone conversations on other dates, the Committee and DTI informed KLT, KCPL and GPE of certain alleged claims and causes of action they believed they could assert against, and/or otherwise had considered with respect to, KLT, KCPL and GPE in the Case (the "Causes"), which Causes KLT, KCPL and GPE contend are without merit; and
WHEREAS, in the Case, DTI has sought a buyer for substantially all of its assets to consummate a sale pursuant to 11 U.S.C. (section symbol) 363 (the "Sale") and also explored the possibility of a stand-alone reorganization; and
WHEREAS, as a result of DTI's efforts, CenturyTel Fiber Company II, LLC ("Century") has been identified as a potential buyer of DTI's assets (the "Assets") in the Sale; and
WHEREAS, a final execution version of the asset purchase agreement between Century and DTI dated December __, 2002 has been circulated (the "Asset Sale Agreement"); and
WHEREAS, in the Asset Sale Agreement, $3.8 million of the purchase price is to be escrowed subject to certain conditions (the "Escrow");
WHEREAS, it is anticipated that the Sale will be approved by the court presiding over the Case by entry of an order pursuant to 11 U.S.C. (section symbol) 363 (the "Sale Order");
WHEREAS, it is anticipated that upon closing of the Sale to Century or to a higher bidder in the Sale process and the full release of the Escrow to DTI, proceeds from the Sale plus DTI's cash on hand will total approximately $47 million (the "Anticipated Proceeds"); and
WHEREAS, in the Case, KLTT filed a proof of claim asserting a security interest in virtually all of DTI's assets to secure repayment of over $50 million of indebtedness (the "KLTT Claim"); and
WHEREAS, as part of the Investigation, the Committee and DTI assert that all or a portion of KLTT's security interest securing the KLTT Claim can be avoided pursuant to 11 U.S.C. (section symbol) 547, which assertion KLTT disputes; and
WHEREAS, in the Case, Gary Douglass ("Douglass") filed an unsecured proof of claim in the amount of $2,055,900.00 (the "Douglass Claim"); and
WHEREAS, in the Case, the Missouri Department of Revenue ("MODOR") filed a number of proofs of claim, including three priority proofs of claim in the aggregate amount of $2,848,445.68 (the three priority proofs of claim are hereinafter referred to as the "MODOR Claim"); and
WHEREAS, in the Case, DTI filed objections to the Douglass Claim and the MODOR Claim, and asserts that each claim should be disallowed in full and neither Douglass nor MODOR should have an allowed claim in the Case; and
WHEREAS, as a consequence of a settlement reached with Union Electric Co., d/b/a Ameren UE ("Ameren") and a court order that was entered in the Case approving the settlement (the "Ameren Settlement"), Ameren has an allowed unsecured claim in the Case in the amount of $8 million (the "Ameren Claim"); and
WHEREAS, in the Case, excluding the Douglass Claim, the MODOR Claim, the Ameren Claim, and the KLTT Claim, it is estimated that the total amount of allowed, non-priority unsecured claims against DTI is in the approximate amount of $10.3 million (the "Trade Claims"); and
WHEREAS, if KLT, KCPL and GPE are successful in their defense of the Causes, it is anticipated that the entirety of the Anticipated Proceeds would be distributed solely to KLTT; and
WHEREAS, if DTI and the Committee are successful in prosecuting the Causes against KLT, GPE and KCPL, it is anticipated that Trade Claims would be paid 100% of their claims from the Anticipated Proceeds plus interest thereon; and
WHEREAS, the parties to this Agreement believe that prosecution and defense of the Causes will be expensive, will take substantial periods of time, will likely delay distributions to creditors, and are subject to litigation risks for all parties hereto.
NOW, THEREFORE, in consideration of the premises, the covenants and the agreements hereinafter set forth, and intending to be legally bound (subject only to court approval as set forth hereafter), the parties hereto agree as follows:
AGREEMENT
1. Court Approval. In conjunction with execution of this Agreement, DTI and the Committee will file a joint motion seeking approval of the compromises set forth herein pursuant to Fed. R. Bankr. P. 9019 (the "Motion") and seeking entry of an order by the court presiding over the Case (the "Court") approving the compromises and agreements set forth herein (the "Settlement Order"). The Motion and the Settlement Order shall be in a form mutually satisfactory to DTI, the Committee, and KLT. Also, the Committee shall not object to any motion seeking approval of the compromises set forth in the Amended Ameren Settlement and seeking entry of an order by the Court approving the compromises and agreements set forth in the Amended Ameren Settlement. In the event such an Amended Ameren Settlement is entered and approved by the Court, then the term "Amended Ameren Claim" shall mean any allowed unsecured claim in the Case as provided in the A mended Ameren Settlement.
2. Division of Anticipated Proceeds. The Anticipated Proceeds shall be divided as follows:
(a) To the extent that the Douglass Claim and the MODOR Claim are resolved in the Case and disallowed in full, from the Anticipated Proceeds, the Trade Claims and any Amended Ameren Claim shall be paid, pro rata, the sum equal to 90% of the aggregate amount of the Trade Claims and the Amended Ameren Claim, if any, with the balance of the Anticipated Proceeds paid to KLTT.
(b) To the extent that DTI's objections to the Douglass Claim and the MODOR Claim are resolved in the Case and either or both claims are not disallowed in full, from the Anticipated Proceeds, the aggregate of the Trade Claims, any Amended Ameren Claim, any allowed Douglass Claim, and any allowed unsecured, non-priority portion of the MODOR Claim shall be paid, pro rata, the sum equal to: (i) 90% of the aggregate amount of the Trade Claims and the Amended Ameren Claim, if any; plus (ii) 50% of the aggregate amount of any allowed Douglass Claim; plus (iii) 50% of the aggregate amount of any allowed unsecured, non-priority portion of the MODOR Claim; minus (iv) 50% of any allowed priority amount of the MODOR Claim; with the balance of the Anticipated Proceeds paid to KLTT.
(c) Notwithstanding the provisions of subparagraphs (a) and (b) hereof, sufficient Anticipated Proceeds shall be paid to unsecured creditors to cause the Trade Claims and any Amended Ameren Claim to be paid, pro rata, the sum equal to 82.5% of the aggregate amount of the Trade Claims and the Amended Ameren Claim, if any, with the balance of the Anticipated Proceeds paid to KLTT.
(d) The Sale Order shall provide the authority to make, at the closing of the Sale, the payments set forth in this paragraph.
3. Failure of Sale to Close. Within sixty (60) days after the failure of the Sale to close, KLT, at KLT's option, may cause the payments set forth in paragraph 2 hereof to be made to unsecured creditors in any fashion and pursuant to any structure that KLT deems appropriate in its sole and absolute discretion; provided, however, that any such payments shall be made without condition and any such structure shall not give rise to any liability to any recipient of any such payment.
4. Full and Final Satisfaction. The payments to be made pursuant to the alternative mechanisms set forth in either paragraphs 2 or 3 of this Agreement to the Trade Claims, and on account of any Douglass Claim and any MODOR Claim, shall be in full and final satisfaction of all such claims that such creditors have or could assert in the Case.
5. Deconsolidation. The Committee shall not object to any motion filed by KLT and its affiliates seeking Court approval in the Holdings Case, the DTI Case, and/or the Virginia Case to: (a) cause Holdings and its subsidiaries to no longer be part of the consolidated tax group in which KLT and their affiliates are members and GPE is the parent corporation and taxpayer, and/or (b) take a worthless stock or asset deduction with respect to KLT's investment in Holdings and its subsidiaries.
6. Release.
(a) For KLT. Upon completion of the payments set forth in paragraphs 2 or 3 of this Agreement, DTI, the Committee, each member of the Committee (other than Oaktree Capital Management, LLC), the bankruptcy estate of DTI, their respective successors, predecessors, assigns, any chapter 7 or 11 trustees in the Case, and any parties claiming by, through or on behalf of any of them (collectively the "Releasors"), shall be deemed to have released, acquitted and forever discharged KLT, GPE, KCPL, and any and all corporations or other entities currently or previously a member of a consolidated tax group in which KLT were or are a member and GPE or KCPL is or was the parent corporation and taxpayer, and their respective predecessors, successors, employees, officers, directors, subsidiaries, affiliates, shareholders, partners, and assigns (collectively, the "KLT Releasees") from any and all causes of action, suits, controversies, claims, demands, obligations, or damages whatsoever, which the Releasors had, have, or could have had, against any of the KLT Releasees from the beginning of time to the date of this Agreement, in any way regarding, relating to or in connection with DTI based upon any theory at law or in equity, including but not limited to any theory based in whole or in part upon breach of contract, estoppel, avoidance under 11 U.S.C. (section symbol) 542-553, any provision of the Code, fraudulent transfer pursuant to any applicable non bankruptcy law, equitable subordination, third party beneficiary, tort, and fraud. In addition, acceptance of the payments described in paragraphs 2 or 3 hereof by any creditor in the Case shall constitute an accord and satisfaction of any and all claims that such creditor has, had, or may have against DTI and the KLT Releasees.
(b) For the Committee. Upon completion of the payments set forth in paragraphs 2 or 3 of this Agreement, the KLT Releasees shall be deemed to have released, acquitted and forever discharged the Committee, each member of the Committee (other than Oaktree Capital Management, LLC), the bankruptcy estate of DTI, any chapter 7 or 11 trustees in the Case, and their respective predecessors, successors, employees, officers, directors, subsidiaries, affiliates, shareholders, partners, and assigns (collectively, the "Committee Releasees") and DTI and its successors, predecessors and assigns (collectively, the "DTI Releasees") from any and all causes of action, suits, controversies, claims, demands, obligations, or damages whatsoever, which the KLT Releasees had, have, or could have had, against any of the Committee Releasees or any of the DTI Releasees from the beginning of time to the date of this Agreement, in any way regarding, relating to or in connection with DTI based upon any theory at law or in equity, including but not limited to any theory based in whole or in part upon breach of contract, estoppel, avoidance under 11 U.S.C. (section symbol) 542-553, any provision of the Code, fraudulent transfer pursuant to any applicable non bankruptcy law, equitable subordination, third party beneficiary, tort, and fraud.
7. Assignment of Claims and Rights. Any and all claims of DTI, the DTI bankruptcy estate and the Committee (that it, as a party in interest, could bring for or on behalf of the Debtor) against Richard Weinstein, any officer or director of DTI, or any other person or entity, are hereby assigned to KLTT.
8. Conditions Precedent. The obligations of KLT under this Agreement shall be subject to the satisfaction of the following conditions, which may be waived by KLT in their sole and absolute discretion:
(a) the closing of the Sale pursuant to terms materially the same as contained in the Asset Sale Agreement; and
(b) the Trade Claims plus any Amended Ameren Claim shall not exceed $12 million.
9. Mutual Cooperation. DTI, the Committee, KLT, GPE, and KCPL agree to cooperate fully and use their best efforts to carry out the terms of this Agreement, including obtaining approval of this Agreement, and entry of the Settlement Order by the Court at the first available time on the Court's docket after any notice periods required by Fed. R. Bankr. P. 2002. This cooperation shall include, but not be limited to, prosecution of DTI's pending objections to the claims of MODOR and Douglass.
10. Successor and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.
11. Notices. Unless otherwise provided herein, any notice, request, waiver, instruction, consent or document or other communication required or permitted to be given by this Agreement shall be effective only if it is in writing and (a) delivered by hand or sent by certified mail, return receipt requested, (b) if sent by a nationally-recognized overnight delivery service with delivery confirmed, or (c) if telexed or telecopied, with receipt confirmed as follows:
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DTI: |
Digital Teleport, Inc. |
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14567 N. Outer Forty Road, Suite 500 |
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Chesterfield, Missouri 63017 |
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Attn: President |
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Facsimile: (314) 880-1999 |
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with a copy to: |
Digital Teleport, Inc. |
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14567 N. Outer Forty Road, Suite 500 |
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Chesterfield, Missouri 63017 |
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Attn: General Counsel |
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Facsimile: (314) 880-1999 |
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and a copy to: |
Robert Richards, Esq. |
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Sonnenschein Nath & Rosenthal |
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Suite 8000 Sears Tower |
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233 South Wacker Drive |
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Chicago, IL 60606 |
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Facsimile: (312) 876-7934 |
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KLT: |
KLT Telecom Inc. |
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10740 Nall, Suite 230 |
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Overland Park, KS 66211 |
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Attn: President |
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Facsimile: (913) 967-4340 |
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with a copy to: |
KLT Inc. |
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10740 Nall, Suite 230 |
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Overland Park, Kansas 66211 |
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Attn: General Counsel |
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Facsimile: (913) 967-4340 |
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and a copy to: |
Mark Shaiken, Esq. |
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Stinson Morrison Hecker LLP |
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1201 Walnut, Suite 2800 |
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Kansas City, Missouri 64106 |
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Facsimile: (816) 691-3495 |
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Committee: |
Shalom L. Kohn |
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Sidley Austin Brown & Wood |
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Bank One Plaza |
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10 S. Dearborn St. |
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Chicago, Illinois 60603 |
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Facsimile: (312) 853-7036 |
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KCPL: |
Kansas City Power & Light Company |
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1201 Walnut, 20th Floor |
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Kansas City, Missouri 64106-2124 |
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Attention: General Counsel |
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Facsimile: (816) 556-2787 |
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GPE: |
Great Plains Energy Incorporated |
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1201 Walnut, 20th Floor |
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Kansas City, Missouri 64106-2124 |
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Attention: General Counsel |
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Facsimile: (816) 556-2787 |
The parties shall promptly notify each other of any change in their respective addresses or facsimile numbers or of the person or office to receive notices, requests or other communications under this Agreement. Notice shall be deemed to have been given as of the date when so personally delivered, the next day when delivered during business hours to an overnight delivery service properly addressed or when receipt of a facsimile is confirmed, as the case may be, unless the sending party has actual knowledge that such notice was not received by the intended recipient.
12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Missouri, without giving effect to choice of law principles of said state.
13. Multiple Counterparts / Facsimile Execution. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute but one and the same instrument. This Agreement may be executed by facsimile signatures which shall be deemed the same force and effect as an original signature.
14. Headings. The headings used in this Agreement are for convenience of reference only and shall in no way define, limit or describe the scope or intent of any provision of this Agreement.
15. Advice of Counsel. The parties hereto have reviewed and agreed to these terms after consultation with, and upon advice of, counsel.
16. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
17. Final Expression. This Agreement represents a final expression of the understandings between the parties hereto and this Agreement may not be contradicted by evidence of any prior oral agreement or of a contemporaneous oral agreement or understanding between the parties hereto.
18. No Amendments. No amendments to this Agreement shall be effective unless such amendment is in writing and signed by all parties hereto.
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19. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY EXPRESSLY UNCONDITIONALLY AND IRREVOCABLY WAIVE THE RIGHT TO A TRIAL BY JURY FOR ANY PROCEEDINGS ARISING OUT OF, UNDER OR IN CONNECTION WITH THE TERMS AND SUBJECT MATTER OF THIS AGREEMENT.
20. Retention of Jurisdiction. The court presiding over the Case shall retain jurisdiction to resolve any disputes arising under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
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DIGITAL TELEPORT, INC. |
KLT TELECOM INC. |
KLT INC. |
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Exhibit 10.1.aa
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of December 26, 2002 ("Execution Date"), by and between Digital Teleport, Inc. ("Seller"), CenturyTel Fiber Company II, LLC, a Missouri limited liability company ("Subsidiary"), and CenturyTel, Inc. ("Parent") (Subsidiary and Parent are collectively referred to herein as "Buyer").
Recitals
WHEREAS, Seller desires to sell and Buyer desires to buy substantially all of the assets of Seller as hereinafter described; and
WHEREAS, Seller is a debtor-in-possession in a case under Chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") pending in the United States Bankruptcy Court for the Eastern District of Missouri (the "Bankruptcy Court") as Case No. 01-54369-399 (the "Bankruptcy Case"); and
WHEREAS, Seller has been soliciting bids for Seller's assets, including the Assets to be sold pursuant to this Agreement and has determined that the offer of Buyer for the Assets set forth below is the highest and best offer received for those Assets and constitutes a fair and adequate purchase price;
WHEREAS, Parent desires to assure Seller of Buyer's ability to finance the transaction and to otherwise perform its obligations hereunder.
NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by all parties, the parties have agreed as follows:
Terms and Conditions
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the following respective meanings:
1.1 "Adjustment PP&E" shall mean the increase in the gross book value of all property plant and equipment on Seller's financial statements prepared in accordance with GAAP which increase occurred as a result of capital expenditures made by Seller between the Measurement Date and the Closing Date that were approved by Buyer to the extent required by the provisions of Section 5.3 hereof, and which capital expenditures fund either:
(i) the addition of bandwidth capacity to the Network for any purpose (other than capital expenditures for Cure Costs) (for example, "Overbuilds" described on Seller's capital expenditure budget), or
(ii) the construction of new fiber routes constructed to fulfill the obligations of Seller under any agreement for the sale of bandwidth transport and related services to a third party in the Seller's ordinary course of business (other than capital expenditures for Cure Costs) (for example, "Customer Connections" described in Seller's capital expenditure budget).
Adjustment PP&E shall not include any increase in the book value of all Property Plant and Equipment on Seller's financial statements prepared in accordance with GAAP which increase occurred as a result of capital expenditures made by Seller between the Measurement Date and the Closing Date, and which capital expenditures fund either:
(i) the ordinary course operations and maintenance of the Network or the Assets (for example, "Backbone", "Operations" and "Miscellaneous" items described in Seller's capital expenditure budget); or
(ii) Cure Costs to be paid by Seller (for example, "Customer Obligations" items described in Seller's Capital Expenditure budget).
1.2 "AGL Transaction" shall mean the sale or grant of IRU by Seller to AGL Networks, LLC ("AGL") of twelve (12) dark fibers along approximately 65 route miles of Seller's fiber optic network in St. Louis and Kansas City in exchange for the payment to Seller of approximately $4.8 million of IRU fees and periodic fiber maintenance payments pursuant to that certain agreement between Seller and AGL.
1.3 "Agreement" has the meaning set forth in the opening paragraph of this document.
1.4 "Applicable Law" shall mean any statute, law, rule, regulation or ordinance or any judgment, order, writ, injunction or decree of any Governmental Entity to which a specified Person or property is subject.
1.5 "Assets" shall mean, collectively, all of the assets of the Seller, including, without limitation: (i) the Network, (ii) the Intellectual Property, (iii) the Current Assets, (iv) the Personal Property, and (v) the Contracts & Leases but excluding the Excluded Assets.
1.6 "Assumed Liabilities" shall mean all obligations of Seller (i) arising post-Closing under the Contracts & Leases, (ii) Payables, (iii) accrued vacation and sick days for employees of the Seller who the Buyer may retain pursuant to Section 5.6, (iv) any Taxes required to transfer legal title of the Assets to Buyer, and (v) total Cure Costs, whether incurred prior to Closing or after Closing, in excess of Four Million Dollars ($4,000,000), but less than Five Million Dollars ($5,000,000), but shall exclude the Excluded Liabilities.
1.7 "Bankruptcy Case" and "Bankruptcy Code" have the meaning set forth in the recitals of this Agreement.
1.8 "Bankruptcy Court" has the meaning set forth in the recitals of this Agreement.
1.9 "Business" shall mean (i) Seller's business of providing telecommunications and data transport services, and (ii) the maintenance of the Network.
1.10 "Business Day" shall mean a date on which major banks are open for business in the City of St. Louis, Missouri.
1.11 "Buyer" has the meaning set forth in the first paragraph of this Agreement.
1.12 "Chapter 11 Expenses" shall mean costs incurred and expenses paid or payable by Seller in connection with the administration of the Bankruptcy Case, including, without limitation, (a) fees and expenses related to the Seller's DIP lending agreement, (b) obligations to pay professionals' fees and expenses in connection with the Bankruptcy Case (including, without limitation, fees of attorneys, accountants, investment bankers, financial advisors, and consultants retained by Seller or the Committee) and reimbursement of any expenses incurred by Seller prior to the Closing Date in connection therewith (including, without limitation, any obligations to pay any holdback of any such fees and expenses), (c) fees and expenses payable to the United States trustee under Section 1930 of title 28, United States Code and (d) expenses of members of the Committee.
1.13 "Closing" shall mean the consummation of the purchase and sale of assets and assumption of liabilities contemplated herein on the Closing Date.
1.14 "Closing Adjustment" shall mean the result of the following calculation:
(i) the Working Capital at the Closing Date, minus the Working Capital at the Measurement Date, plus
(ii) the Adjustment PP&E at the Closing Date, plus
(iii) the amount of Cure Costs paid by Seller prior to the Closing Date that exceeds Three Million Dollars ($3,000,000), but is less than Four Million Dollars ($4,000,000) (not including in each case the MoDOT Leased Bandwidth Cure Costs) minus
(iv) the amount of the IRU Proceeds received by Seller between the Measurement Date and the Closing Date, minus
(v) $1,000,000 for MoDOT Leased Bandwidth Cure Costs, minus
(vi) the amount of liabilities of Seller on the Measurement Date reflected in the line items "Customer Payments" and "Construction Deposits" on Seller's general ledger supporting the Financial Statements (other than those items included in the accounts receivable of Seller).
An example of the Closing Adjustment calculation is set forth on Schedule 1.14.
1.15 "Closing Date" shall mean the date on which the Closing occurs.
1.16 "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect on the Closing Date.
1.17 "Committee" shall mean the Official Committee of Unsecured Creditors appointed in the Bankruptcy Case.
1.18 "Continuing Employees" has the meaning set forth in Section 5.6(a).
1.19 "Contracts & Leases" shall mean all orders, contracts, supply agreements and leases to which Seller is a party, including, but not limited to the contracts listed on Schedule 1.19 and all contracts between Seller and its customers pursuant to which Seller provides assets, products or services. Contracts & Leases shall not include: (i) agreements rejected by Seller during the Bankruptcy Case or (ii) agreements of Seller which are not assumable and assignable over the objection of the counter-party to such agreements under Section 365(c) of the Bankruptcy Code, but only to the extent that a counter-party actually objects to the assumption and assignment of its respective agreement with Seller.
1.20 "Cure Costs" shall mean amounts payable either before or after the Closing Date on account of defaults which must be paid in order to effectuate the assumption by Seller and assignment to Buyer of the Contracts & Leases in accordance with Section 365 of the Bankruptcy Code and the Sale Order, including, without limitation, a $1,000,000 Closing Adjustment as agreed to by Seller and Buyer as the entire Cure Cost amount that Seller shall pay for the current value of the future leased bandwidth expense expected to be incurred by Buyer after the Closing Date to cure defaults relating to the delivery of telecommunications services by Seller to the MoDOT district offices in Willow Springs and Macon, Missouri under that certain Fiber Optic Cable on the Freeways Agreement between Seller and the Missouri Department of Transportation ("MoDOT Leased Bandwidth Cure Costs"). Buyer shall pay all MoDOT Leased Bandwidth Cure Amounts after the Closing Date and Buyer shall not be reimbursed through this Agreement for any MoDOT Leased Bandwidth Cure Costs exceeding the $1,000,000 included in the Closing Adjustment.
1.21 "Current Assets" shall mean the book value of all Assets which are classified as current assets on Seller's financial statements prepared in accordance with GAAP. Current Assets shall exclude: (i) the Excluded Assets, and (ii) prepaid Chapter 11 Expenses.
1.22 "Current Liabilities" shall mean the book value of all Assumed Liabilities that are classified as current liabilities on Seller's financial statements prepared in accordance with GAAP; provided, however, that Current Liabilities shall exclude amounts reflecting the Excluded Liabilities.
1.23 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
1.24 Excluded Assets" shall mean:
(i) any and all causes of action (including avoidance actions, inter-company claims, rights and causes of actions under the KLT Tax Sharing Agreement between Seller and KLT, claims against KLT and its affiliates, all other causes of action of Seller), other than
(a) product warranty claims,
(b) claims of Seller arising under or related to contracts assigned to Buyer as Assets,
(c) claims to enforce the Contracts & Leases or claims that third parties have infringed or are infringing any of the Intellectual Property,
(ii) cash and cash equivalents (including restricted cash),
(iii) tax refunds,
(iv) rights to the Purchase Price and other rights granted to Seller under this Agreement,
(v) rights to receive payments for the grant of title or IRU to fiber optic strands pursuant to the AGL Transaction, but excluding any periodic fiber maintenance payments or any other monies payable to Seller pursuant to the AGL Transaction, plus
(vi) any prepaid Chapter 11 Expenses.
1.25 "Excluded Liabilities" shall mean (i) all liabilities of Seller arising at any time out of, or in connection with, the Excluded Assets, (ii) all pre-closing liabilities, except Assumed Liabilities, (iii) Cure Costs (other than MoDOT Leased Bandwidth Cure Costs exceeding $1,000,000), whether incurred prior to Closing or after Closing, to the extent all Cure Costs (including such $1,000,000) are less than Four Million Dollars ($4,000,000) or more than Five Million Dollars ($5,000,000), and (iv) all liabilities set forth on Schedule 1.25.
1.26 "Execution Date" shall have the meaning set forth in the first paragraph of this Agreement.
1.27 "GAAP" shall mean generally accepted accounting principles in effect as of the time when and for the period as to which such accounting principles are to be applied, consistently applied.
1.28 "Governmental Entity" means any court or tribunal in any jurisdiction (domestic or foreign) or any public, governmental, legislative or regulatory body, agency, department, commission, board, bureau, or other authority or instrumentality (domestic or foreign), including but not limited to the Internal Revenue Service, Department of Labor, Department of Health and Human Services, Environmental Protection Agency, Department of Justice, Federal Communications Commission, Federal Trade Commission, or a Public Service Commission.
1.29 "Governmental Approvals" shall mean those approvals, authorization and exemptions from governmental entities and the making of all necessary registrations and filings (including filings with governmental entities) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding to prevent the Closing by, any governmental entity, which are required to be obtained or taken to consummate the transactions contemplated herein under applicable law.
1.30 "Intellectual Property" shall mean all intellectual property owned by Seller, including, without limitation, trade names, trade secrets and trademarks, which are useful in operating the Business, including, without limitation, those set forth on Schedule 1.30 hereto.
1.31 "IRS" means the U.S. Internal Revenue Service.
1.32 "KLT" shall mean KLT Telecom Inc.
1.33 "Material Adverse Change" shall mean any significant and substantial adverse change in the Business, prospects or financial condition of Seller as such shall exist on the Execution Date, excluding any change (i) resulting from general economic conditions in the U.S. or (ii) that affects the telecommunications industry as a whole, provided, however, that no Material Adverse Change shall be deemed to have occurred due to an amendment or termination of the IRU and Telecommunications Services Agreement with Hyperion Communications Long Haul, L.P. dated November 9, 1999 that reduces or eliminates revenues that Seller might have realized from that agreement, or the rejection of that agreement by either Seller or Hyperion in their respective Bankruptcy court.
1.34 "Measurement Date" shall mean September 30, 2002.
1.35 "Network" shall mean the conduit, fiber optic cable, equipment, buildings, electronic equipment and all bridge attachments, conduits, brackets, fixtures, anchors, splice boxes, fiber distribution centers and other hardware needed or used to fasten or support the fiber optic cable, conduit and equipment buildings of Seller's fiber optic network within the states of Missouri, Colorado, Arkansas, Kansas, Oklahoma, Tennessee, Nebraska, Iowa, Illinois, Indiana, Texas, Kentucky, Alabama and Georgia. As of October 31, 2002, the Network included, but was not limited to, those fiber and optronics listed on Schedule 1.35-1 attached hereto. Schedule 1.35-2 contains a map of the Network as of September 30, 2002. Schedule 1.35-3 contains tables depicting the total capacity (both used and unused) of the Network as of October 31, 2002. Network shall not include the fiber optic network assets that are the subject of the AGL Transaction.
1.36 "Network Operations Center" shall mean the portion of the real property located at 11111 Dorsett Road, Maryland Heights, Missouri including all buildings, improvements and fixtures, that is currently being leased by Seller.
1.37 "Payables" shall mean (i) liabilities associated with any amounts included in Current Liabilities for purposes of calculating Working Capital, and (ii) all other liabilities that arise or have arisen under the Contracts and Leases and for which payment is due after the Closing Date (other than total Cure Costs that are more than $4,000,000 but less than $5,000,000), and other than Chapter 11 Expenses.
1.38 "Permitted Liens" shall mean the liens and encumbrances described on Schedule 1.38.
1.39 "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, enterprise, unincorporated organization, Governmental Entity, or other entity.
1.40 "Personal Property" shall mean all tangible personal property used by Seller to conduct the Business including without limitation vehicles, tools, spare parts, fiber and other network equipment held for deployment, furniture, computers and other equipment.
1.41 "Regulatory Approvals" shall mean any approval of the Transaction required by the rules and regulations of any federal, state or local government agency.
1.42 "Sale Order" shall mean (i) an order of the Bankruptcy Court approving this Agreement and the transactions contemplated hereby, in accordance with section 363 of the Bankruptcy Code, which finds, among other things, that Buyer is a good-faith purchaser for value and otherwise entitles Buyer to the protections of section 363(m) of the Bankruptcy Code, for which the time for filing a notice of appeal has expired, and which order has not been reversed or modified on appeal or, if any such appeal is pending, such order shall not have been stayed, and (ii) an order or orders of the Bankruptcy Court approving the assumption and assignment of all Contracts & Leases by Seller pursuant to section 365 of the Bankruptcy Code. The Sale Order shall be in form and substance acceptable to Buyer in its reasonable discretion.
1.43 "Seller" has the meaning set forth in the first paragraph of this Agreement.
1.44 "Seller Bonus Plan" has the meaning set forth in Section 5.6(c).
1.45 "Seller 401(k) Plan" has the meaning set forth in Section 5.6(e).
1.46 "Seller Plans" has the meaning set forth in Section 3.11(a).
1.47 "Seller Welfare Plans" has the meaning set forth in Section 5.6(f)
1.48 "Subsidiary Welfare Plans" has the meaning set forth in Section 5.6(f).
1.49 "Tax" or "Taxes" shall mean any federal, state, county, local, foreign, and other income, profits, gains, net worth, sales and use, ad valorem, gross receipts, business and occupation, license, estimated, stamp, custom duties, occupation, property (real or personal), franchise, capital stock, license, excise, value added, payroll, employees, income withholding, social security, unemployment or other tax, imposition, duty, or similar levy by any governmental entity, and any penalty, addition to, or interest on the foregoing.
1.50 "Transaction" shall mean the sale of assets as contemplated by the terms of this Agreement.
1.51 "Working Capital" shall mean, as of the applicable date, the difference, if any, between: (i) the amount of the Current Assets, and (ii) the amount of the Current Liabilities.
ARTICLE II
PURCHASE OF ASSETS
2.1 Purchase; Purchase Price and Earnest Money.
(a) Purchase. Subject to the approval of this transaction by the Bankruptcy Court pursuant to the Sale Order, and upon the terms and subject to the conditions contained in this Agreement, Seller shall sell, assign, and deliver to Buyer, free and clear of all claims, interests, liens and encumbrances (except for the Permitted Liens) and Buyer shall purchase and accept, all right, title and interest of the Seller in and to the Assets.
(b) Purchase Price. Upon the terms and subject to the conditions set forth in this Agreement, Buyer shall pay to Seller Thirty-Eight million dollars ($38,000,000) in cash, plus the Closing Adjustment (whether a positive or negative number), if any ("Purchase Price").
(c) Assumption of Liabilities. At Closing, as additional consideration to Seller for the sale of the Assets, Buyer shall assume, and agree to pay, perform, fulfill and discharge, all Assumed Liabilities.
(d) Payment of Purchase Price. Buyer shall pay to Seller the Purchase Price (net of the Escrow Funds) by wire transfer of immediately available funds to the United States account or accounts designated by Seller no later than 3 p.m. Central Time on the Closing Date.
(e) Escrow. Concurrently with the execution of this Agreement Buyer is delivering to Regions Bank, N.A. (the "Escrow Agent"), a deposit in the amount of Three Million Eight Hundred Thousand Dollars ($3,800,000) (which, along with all accrued interest shall be the "Escrow Funds"). The Escrow Agent shall hold the Escrow Funds in an interest-bearing escrow account pursuant to the terms of the Escrow Agreement attached as Exhibit A. The Escrow Agent's fees and charges shall be paid one half by Buyer and one half by Seller. The Escrow Agreement shall provide that:
(i) The Escrow Funds will be returned to Buyer upon the earlier of:
(A) the failure to close the transactions as contemplated by this Agreement by July 15, 2003 for any reason other than Buyer's breach,
(B) the consummation of a transaction with an Overbidder pursuant to Article VIII, and
(C) the date upon which a Seller Plan as defined in Section 6.3(a) is approved by the Bankruptcy Court.
(ii) One hundred eighty (180) days following the Closing Date, the Escrow Funds shall be paid to Seller subject to reductions in an amount equal to the amount of any claims of Buyer for breaches of representations and warranties of Seller under this Agreement as provided in Article III and subject to the limitations contained in Article 9.1 hereof.
2.2 Estimate of Closing Adjustment at Closing. At least three (3) Business Days prior to the scheduled Closing Date, Seller shall provide to Buyer a projection of the Closing Adjustment that will exist at Closing. Seller will provide a copy of the same to the Committee and KLT. Seller and Buyer shall promptly confer in good faith to finalize the amount of the Closing Adjustment prior to the Closing Date and if they are unable to fully agree, then the Seller shall file a motion with the Bankruptcy Court outlining the items which are agreed to and the items which are not agreed to and the basis for the disagreement and the disputed items shall be determined by the Bankruptcy Court after notice and an opportunity for the Buyer and all parties in interest in the Bankruptcy Case to be heard.
2.3 No Assumption of Any Liabilities. It is understood and agreed that Buyer shall not assume or become liable directly, indirectly, contingently or otherwise for the payment of any debts, liabilities, losses, accounts payable, Taxes, bank indebtedness, mortgages, or other obligations of Seller of any nature whatsoever, whether related to the Assets or otherwise or for any other liabilities, whether the same are known or unknown, now existing or hereafter arising, of whatever nature or character, whether absolute or contingent, liquidated or disputed, except as expressly set forth herein. Buyer shall not have any successor liability related to Seller or the Assets.
2.4 Closing. Subject to the satisfaction or waiver of the conditions set forth herein, the Closing shall occur within five (5) Business Days following the satisfaction or waiver of all other conditions to Closing set forth in Article VII, in the offices of the Sonnenschein Nath and Rosenthal in St. Louis (or on such other date at such other time and place as the parties shall agree in writing).
2.5 "As Is" Transaction. Buyer hereby acknowledges and agrees that, except as otherwise expressly provided in this Agreement (and without in any respect impairing any of Seller's Representations and Warranties under Article III or its covenants under Articles V or VI), the Seller makes no representations or warranties whatsoever, express or implied, with respect to any matter relating to the Assets including, without limitation, income to be derived or expenses to be incurred in connection with the Assets, the physical condition of any personal Assets comprising a part of the Assets or which is the subject of any other lease or contract to be assumed by Buyer at the Closing, the environmental condition or other matter relating to the physical condition of any real Assets or improvements which are the subject of any real Assets lease to be assumed by Buyer at the Closing, the zoning of any such real Assets or improveme nts, the value of the Assets (or any portion thereof), the terms, amount, validity or enforceability of any assumed liabilities, the merchantability or fitness of the personal Assets or any other portion of the Assets for any particular purpose. Without in any way limiting the foregoing, subject to the representations, warranties and covenants expressly set forth in this Agreement Seller hereby disclaims any warranty, express or implied, of merchantability or fitness for any particular purpose as to any portion of the Assets. Buyer further acknowledges that Buyer has conducted an independent inspection and investigation of the physical condition of the Assets and all such other matters relating to or affecting the Assets as Buyer deemed necessary or appropriate and that in proceeding with its acquisition of the Assets, except for any representations and warranties and covenants expressly set forth in this Agreement, Buyer is doing so based solely upon such independent inspections and investigations. Accordin gly, subject to the representations, warranties and covenants expressly set forth in this Agreement Buyer will accept the Assets at the Closing "as is", "where is" and "with all faults".
2.6 Allocation of Purchase Price. At Closing, Buyer shall deliver an allocation (the "Allocation") of the Purchase Price in accordance with Section 1060 of the Code, which shall be reasonably acceptable to Seller. Buyer and Seller shall (i) be bound by the Allocation, (for tax purposes only, and not for any other purpose), (ii) act in a manner consistent with the Allocation in the preparation of financial statements and filing of all United States federal income tax returns (including, without limitation, filing Form 8594 with their United States federal income tax returns for the taxable year that includes the Closing Date) and in the course of any tax audit, tax review or tax litigation relating thereto, and (iii) take no position and cause their affiliates to take no position inconsistent with the Allocation for any tax purposes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as of the Execution Date and Closing Date as follows. For purposes of this Agreement "Knowledge" of Seller shall mean the knowledge of any of the Continuing Executives (defined in Section 7.3(f)).
3.1 Organization, Standing and Power. Seller is a corporation organized, validly existing and in good standing under the laws of the State of Missouri and has the requisite corporate power and authority to carry on its business as now being conducted, except where the failure to be so organized, existing or in good standing or to have such power or authority would not, individually or in the aggregate, have a material adverse effect on Seller.
3.2 Authority. Seller has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby upon entry of the Sale Order. The execution and delivery of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Seller, subject to the conditions set forth in this Agreement. This Agreement has been duly executed and delivered by Seller and constitutes the valid and binding obligation of Seller and is enforceable against Seller in accordance with its terms upon entry of the Sale Order and obtaining all Governmental Approvals.
3.3 Brokers. No broker, investment banker or other person engaged by Seller is entitled to any broker's, finder's or other similar fee or commission in connection with the transactions contemplated by this Agreement.
3.4 No Conflict. Subject to obtaining the Governmental Approvals and entry of the Sale Order by the Bankruptcy Court the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not (i) conflict with or result in a breach of the terms, conditions or provisions of any order of any court or other agency of government, the charter or bylaws of Seller, or (ii) result in the creation or imposition of any lien, charge or encumbrance of any kind whatsoever on any of the Assets.
3.5 Third Party Approvals. Except for (a) the Sale Order, and (b) the Governmental Approvals set forth on Schedule 3.5, for which the failure to obtain such approvals, individually or in the aggregate, would have a materially adverse effect on the Assets or Assumed Liabilities or materially impair or delay the ability of Seller to consummate the transactions contemplated hereby, the execution, delivery and performance by such Seller of this Agreement and the transactions contemplated hereby do not require any consents, waivers, authorizations or approvals of, or filings with, any third Persons which have not been obtained by Seller. Seller and Buyer will cooperate in all matters relating to obtaining the Governmental Approvals.
3.6 Title to Assets, Validity of Contracts. Except for those items that are not material to the operations of the Business and the Permitted Liens on Schedule 1.38, Seller holds free and clear title to or, has a valid leasehold interest in, all of the Assets and has not received any material claims of infringement against Seller related to the Intellectual Property. None of the material Contracts & Leases were terminated prior to the bankruptcy petition date of December 31, 2001. Except for those Contracts & Leases that are not material to the operations of the Business, each Contract and Lease is in full force and effect and no party is in breach thereunder (other than breaches that will be cured prior to the Closing Date). Except as would not have a material adverse effect on the operations of the Business, Schedule 3.6 hereto lists every Contract or Lease that either (i) requires the co nsent of a third party prior to assignment, or (ii) requires Seller or its assignee to pay to the counter-party or incur expenses in excess of $25,000 in cash annually.
3.7 Due Notice. Seller will serve notice of the hearing in the Bankruptcy Court regarding approval of this sale transaction on all creditors who are listed in Seller's bankruptcy schedules or who have filed proofs of claim in the Bankruptcy Case.
3.8 Financial Statements. Attached hereto as Schedule 3.8 are Seller's unaudited income statement, statement of cash flows and balance sheet for the nine (9) month period ended September 30, 2002 (collectively, the "Financial Statements"). The Financial Statements accurately reflect the results of operations and financial condition of Seller in all material respects as of and for the periods set forth therein. From the date of the Financial Statements there has not occurred a Material Adverse Change in Seller's Business.
3.9 Adequacy and Condition of Assets. Schedule 1.35-1 contains a list of the Network fiber and optronics Assets of the Seller utilized in the Business as of October 31, 2002, which is materially accurate in all respects. Schedule 1.19(a) contains a list of the material Contracts and Leases of Seller utilized in the Business (other than customer contracts) as of November 30, 2002, which is materially accurate in all respects. Schedule 1.19(b) sets forth a list of each customer contract that either generated in excess of $25,000 in revenue during the twelve-month period immediately prior to the date hereof or that is expected to generate in excess of $25,000 in revenue during the twelve months first following the date hereof. Schedule 1.35-2 contains a map of the Network routes as of November 30, 2002, and Schedule 1.35-3 contains tables depicting the total bandwidth transport capacity (both used and unused) of the Network as of October 31, 2002, which are materially accurate in all respects. Except as set forth on Schedule 3.9, the Network is in good operating condition and repair, ordinary wear and tear excepted and is useable in the ordinary course of business consistent with past practices. Except as would not result in a Material Adverse Change, Seller's operation of the Business and ownership of the Assets is and has been in material compliance with all Applicable Laws. Without limiting the generality of the foregoing, Seller has received no notice of and has no knowledge of any condition of any Asset or of any action of Seller that would constitute material violation of any Applicable Law related to the environment.
3.10 Employee Matters. Schedule 3.10 attached hereto is a list of every employee of Seller as of November 30, 2002, along with each such Employee's respective job title, service date, accrued vacation and sick days, annual salary and current bonus (including retention bonuses), target bonus after the Closing Date, and severance pay accrued or payable (or to be payable on or prior to the Closing Date).
3.11 Employee Benefits and Plans.
(a) Schedule 3.11 attached hereto lists each "employee benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any provision of ERISA, (ii) which is maintained, administered, or contributed to by Seller, and (iii) which covers any employee or former employee of Seller or under which Seller has any liability. In addition, Schedule 3.11 lists all deferred compensation plans, all supplemental death, disability, medical reimbursement, severance, bonus and all other employee benefit plans of any kind or character, whether written or oral, that Seller either participates in or maintains (the plans referenced in this sentence and the preceding sentence hereinafter referred to collectively as the "Seller Plans"). Seller has made available to Buyer accurate and complete copies of the Seller Plans (and, if appl icable, the related trust agreements) and all amendments thereto.
(b) The Seller's 401(k) Plan has received a favorable determination letter from the IRS, and is being maintained, in all material respects, in compliance with its terms and with the requirements prescribed by all Applicable Law.
(c) Seller has never maintained or contributed to a multi-employer plan as defined in Section 3(37) of ERISA, and has never maintained or contributed to a plan subject to Title IV of ERISA or the minimum funding standards of ERISA or the Code.
(d) Except as set forth on Schedule 3.11, Seller does not maintain or contribute to, and is not required to contribute to, any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Section 4980B of the Code or Sections 601-607 of ERISA).
(e) The requirements of Part 6 of Subtitle B of Title I of ERISA and of Section 4980B of the code have been met in all material respects with respect to each Seller Plan which is an Employee Welfare Benefit Plan. Seller agrees to provide upon reasonable request from Buyer a list of all "qualified beneficiaries", as such term is defined in Part 6 of Subtitle B of Title I of ERISA, under any Seller Plan who, because of a "qualifying event", as such term is defined in Part 6 of Subtitle B of Title I of ERISA, prior to the Closing, are currently entitled to elect continuing coverage under a Seller Plan which is a welfare benefit plan, and Seller agrees to provide, with respect to each such qualified beneficiary, such qualified beneficiary's name, address, date of qualifying event, continuation coverage premium payment history and cop ies of all notices provided by or on behalf of Seller related to such continuation coverage.
3.12 Cure Costs. To the knowledge of Seller (i) Cure Costs (other than MoDOT Leased Bandwidth Cure Costs) are not reasonably expected to exceed $3,000,000 and (ii) promptly following the Bankruptcy Court approval of the Bid Procedures Order Seller shall provide a notice of Proposed Assignment and Cure Amount to all parties to the Contracts and Leases pursuant to the Bankruptcy Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Each of Parent and Buyer represents and warrants to Seller as of the Execution Date and the Closing Date:
4.1 Organization, Standing and Power. Subsidiary is a limited liability company organized, validly existing, and in good standing under the laws of the State of Missouri and has the requisite power and authority to carry on its business as now being conducted and to effect the transactions contemplated hereunder.
4.2 Authority. Buyer has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of Buyer, subject to the conditions set forth in this Agreement. This Agreement has been duly and validly executed and delivered by Buyer and this Agreement constitutes the legal, valid and binding obligation of Buyer and is enforceable against Buyer in accordance with its terms upon obtaining all Governmental Approvals.
4.3 Consents and Approvals; No Violation. The execution and delivery of this Agreement by Buyer does not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, result in any violation of, or default (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation or the loss of a material benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Buyer or any of its subsidiaries under, any provision of (i) the charter or organizational document or bylaws of Buyer, (ii) any provision of the comparable charter or organizational documents of any of Buyer's subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, fran chise or license applicable to Buyer or any of its subsidiaries or (iv) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Buyer or any of its subsidiaries or any of their respective properties or assets, other than, in the case of clauses (ii), (iii) or (iv), any such violations, defaults, rights, liens, security interests, charges or encumbrances that, individually or in the aggregate, would not prevent the consummation of any of the transactions contemplated hereby in accordance with the terms of this Agreement. Except for the Governmental Approvals, no filing or registration with, or authorization, consent or approval of, any governmental entity is required by or with respect to Buyer or any of its subsidiaries in connection with the execution and delivery of this Agreement by Buyer or is necessary for the consummation of the transactions contemplated by this Agreement.
4.4 Actions and Proceedings. There are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending or, to the Knowledge of Buyer, threatened against or affecting Buyer or any of its subsidiaries or any of its or their present or former officers, directors, employees, consultants, agents or shareholders, as such, or any of its or their properties, assets or business relating to the transactions contemplated by this Agreement or which could have the effect of delaying or prohibiting the consummation of the transactions contemplated by this Agreement. For purposes of this Agreement, "Knowledge of Buyer," means the actual knowledge of the R. Stewart Ewing, Jr. and Stacey W. Goff of Buyer after due inquiry.
4.5 Brokers. No broker, investment banker or other person engaged by Buyer is entitled to any broker's, finder's or other similar fee or commission payable by the Seller in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer.
4.6 Financials. The unaudited financial statements of Parent provided to Seller dated as of September 30, 2002, fairly represent the financial position of Parent as of the date hereof and there has been no material adverse change in the Buyer since the date of such financials.
4.7 Financing. As of the Closing, Buyer will have sufficient funds available to consummate the transactions contemplated hereby and Buyer does not have any financing contingency with respect to the transactions contemplated hereby.
ARTICLE V
COVENANTS
5.1 Pre-Closing Covenants of Seller. Seller covenants to Buyer that after the Execution Date and prior to the Closing Date, except as contemplated by this Agreement:
(a) Consistent with custom and practice of the Business following the filing date of the Bankruptcy Case, and to the extent permitted or required by the funds available to support the Business, and to the extent limited by the proceedings of the Bankruptcy Case, Seller will
(i) operate in the ordinary course of business, and conduct, carry on and maintain and preserve the Business intact;
(ii) use commercially reasonable efforts to maintain and preserve its relationships with and the goodwill of suppliers, customers and others having business relations with the Business;
(iii) maintain the Assets, as well as books of account, records and files related to the conduct of the Business and its employees, and
(iv) use its commercially reasonable efforts to keep available to Buyer the employees of Seller;
(b) Section 5.1(a) shall not limit the ability of Seller to perform all acts contemplated by, or useful in consummating, the AGL Transaction and paying the Cure Costs;
(c) Seller will maintain itself as a duly licensed corporation in good standing under the laws of Missouri;
(d) Seller will seek to obtain entry of the Sale Order;
(e) Seller will seek to obtain entry of an order of the Bankruptcy Court putting in place auction and sale procedures pursuant to Section 363 of the Bankruptcy Code as described in Section 6.3(a) and in the form attached hereto ("Bid Procedure Order") as set forth on Schedule 5.1(e).
5.2 No Sale or Encumbrance of Assets. Except as set forth on Schedule 5.2, Seller will not sell or encumber any Assets; provided, however, that Seller, upon consent of Buyer, which consent shall not be unreasonably withheld, may enter into agreements in which Assets are sold or to which an indefeasible right of use is granted if that sale or grant of IRU is a term of a swap of assets with a third party performed by Seller to assist Seller to fulfill any existing, or reasonably anticipated, agreement for the sale of bandwidth transport and related services to a third party in the Seller's ordinary course of business. The cash proceeds received by Seller as a result of such sale shall, together with the proceeds from the sale of Assets since the Measurement Date, be defined as the "IRU Proceeds", provided, however, that IRU Proceeds shall not include proceeds from the AGL Transaction or the set tlement agreement with Qwest Communications.
5.3 No Material Contracts. Seller will not (i) enter into any agreement that requires Seller to unconditionally pay in excess of Twenty-Five Thousand Dollars ($25,000) in cash annually, unless such agreement is entered into to fulfill any existing, or reasonably anticipated, agreement for the sale of bandwidth transport and related services to a third party in the Seller's ordinary course of business or (ii) incur any cost Seller would propose to include in the calculation of Adjustment PP&E in excess of $50,000 without including a representative of Buyer in the Seller Capital Allocation Committee meeting such cost and obtaining consent of Buyer to such expenditure at that committee meeting, which consent shall not be unreasonably withheld provided, however, that Seller shall not be required to obtain the consent of Buyer for the capital expenditures set forth in Schedule 5.3. Buyer agrees that the capital ex penditures (i) made by Seller during the period between the Measurement Date and the execution of this Agreement that are of a nature described in the definition of Adjustment PP&E, and (ii) amounts expended after the date hereof on the capital projects set forth in Schedule 5.3, net of any proceeds received by third parties with respect to such capital projects, shall each be included in the calculation of Adjustment PP&E. Following the date of this Agreement, Seller shall provide to Buyer a weekly report of all capital expenditures approved by Seller during the preceding week.
5.4 No Employee Related Changes. Except as permitted by Seller's employee retention program as approved by the Bankruptcy Court, Seller will not establish any new or materially modify any existing employee benefits or compensation plans. Without limiting the foregoing, Seller will not materially increase compensation or benefits nor enter into or renew any employment or collective bargaining agreement.
5.5 Interim Information. Between the date hereof and the Closing Date Seller shall provide Buyer such information as Buyer may reasonably request regarding the Seller's business.
5.6 Employees and Employee Matters.
(a) Employment of Continuing Employees. All employees of Seller as of the Closing Date referred to as a "Continuing Employee" shall be employed by Buyer following the Closing Date at the same compensation as is disclosed on Schedule 3.10, at their same work location (exclusive of any retention bonus). During the period of one year following the Closing Date, Buyer shall immediately pay to any Continuing Employee whose employment in the Business is terminated by Buyer after the Closing Date without cause, the sum of fifteen percent (15%) of such terminated Continuing Employee's annual base salary, provided, however, that during the three (3) month period commencing on the Closing Date the Buyer shall not terminate the employment of, or decrease the compensation paid to, any Continuing Employee other than for cause.
(b) Recognition of Continuing Employee and Continuing Executives Service. On and after the Closing Date, Buyer shall recognize the service of each Continuing Employee and Continuing Executive for purposes of Buyer's employee service recognition program, for participation and vesting under the subsidiary 401(k) Plan, subsidiary vacation policy, the Subsidiary Welfare Plans for Continuing Employees and Continuing Executives, and any subsidiary severance pay policy applicable to Continuing Employees. Continuing Employees and Continuing Executives shall not be granted credit for service with Seller for purposes of any pension plan or post-retirement benefit plan provided by Buyer or any of its affiliates.
(c) Assumption of Obligation to Pay Bonuses. Except as otherwise expressly provided in this Agreement or the Employment Agreements (defined in Section 7.3(f)), Continuing Employees and Continuing Executives shall not accrue benefits under any employee benefit policies, plans, arrangements, programs, practices, or agreements of Seller after the Closing Date. For the year in which the Closing Date occurs, the Continuing Employees shall be paid any bonuses that would have been payable to such employees for that year had the Continuing Employees remained employees of Seller in accordance with the provisions of the policy, plan, arrangement, program, or agreement under which the bonus would have been paid (the "Seller Bonus Plan"). Seller shall pay to the Continuing Employees that portion of any such bonus that is attributable to service during such year on or before the Closing Date, and Buyer shall pay to the Cont inuing Employees that portion of any such bonus that is attributable to service during such year after the Closing Date in which such Continuing Employee is employed by Buyer. In determining the amount of the bonus to be paid by Buyer in accordance with the preceding sentence, Buyer shall establish criteria under which the bonus will be paid consistent with that provided to similarly situated employees in the industry.
(d) No Duplicate Benefits; Dependents and Beneficiaries. Nothing in this Agreement shall cause duplicate benefits to be paid or provided to or with respect to a Continuing Employee or Continuing Executive under any employee benefit policies, plans, arrangements, programs, practices, or agreements. References herein to a benefit with respect to a Continuing Employee or Continuing Executive shall include, where applicable, benefits with respect to any eligible dependents and beneficiaries of such Continuing Employee or Continuing Executive under the same benefit policy, plan, arrangement, program, practice or agreement.
(e) 401(k) Plan.
(i) Seller 401(k) Plan. As of the date of this Agreement, Continuing Employees and Continuing Executives participate in the Digital Teleport, Inc. 401(k) Plan (the "Seller 401(k) Plan").
(ii) Seller Obligations. Seller shall take all appropriate action to vest the Continuing Employees and Continuing Executives 100% in the Seller 401(k) Plan and to treat each Continuing Employee or Continuing Executive as a terminated employee under the terms of such plan. Alternatively, Seller shall terminate the Seller 401(k) Plan.
(iii) Buyer Obligations. Buyer shall take all actions necessary and appropriate to ensure that, as soon as possible after the Closing Date, Subsidiary maintains or adopts a 401(k) plan which covers the Continuing Employees and Continuing Executives with participation, vesting, elective deferral and matching contributions similar to that provided to the participants as the Seller 401(k) Plan, and which accepts direct rollovers from the Seller 401(k) Plan; provided, however, that the plan adopted or maintained by Subsidiary will not include annuity payment options and no rollover or transfer will be accepted which would cause the Subsidiary plan to be required to include any such option.
(f) Welfare Plans.
(i) Buyer shall take all action necessary and appropriate to ensure that, as soon as possible after the Closing Date, Subsidiary maintains or adopts, as of the Closing Date, one or more employee benefit plans, including pre-retirement medical, health, and dental plans, for the benefit of the Continuing Employees and Continuing Executives (the "Subsidiary Welfare Plans"). The Subsidiary Welfare Plans shall provide as of the Closing Date pre-retirement benefits to the Continuing Employees and Continuing Executives (and their dependents and beneficiaries) that, in the aggregate, are comparable to the pre-retirement benefits to which they were entitled under the corresponding employee welfare benefit plans maintained by Seller on the Closing Date (hereinafter referred to collectively as the "Seller Welfare Plans"). Buyer shall use its good faith best efforts to ensure that the Subsidiary Welfare Plans contain no restrictions on coverage for pre-existing condition s or requirements for evidence of insurability for Continuing Employees and Continuing Executives, and that Continuing Employees and Continuing Executives shall receive credit under the Subsidiary Welfare Plans for co-payments and payments under deductible limits made by them and for out-of-pocket maximums applicable to them during the plan year of the Seller Welfare Plan in accordance with the terms of such plan. As soon as possible as practicable after the Closing Date, Seller shall deliver to Buyer a list of the Continuing Employees and Continuing Executives who had credited service under a Seller Welfare Plan, together with each such Continuing Employee's and Continuing Executive's service, co-payment amounts, and deductible and out-of-pocket limits under such plan.
(ii) Seller, Buyer, the Seller Welfare Plans, and the Subsidiary Welfare Plans shall assist and cooperate with each other in the disposition of claims made under the Seller Welfare Plans, and in providing each other with any records, documents, or other information within its control or to which it has access that is reasonably requested by any other as necessary or appropriate to the disposition, settlement, or defense of such claims.
(g) Severance Pay.
(i) Seller shall, prior to the Closing Date, make full payment to its employees of all severance pay, retention bonus, and any other compensation related to this transaction or the termination of employment of any employee occurring prior to the Closing Date, and Buyer shall have no liability for any such amounts.
(h) Vacation, Holiday and Sick Leave.
(i) After the Closing Date, Subsidiary shall continue the vacation policy of Seller in effect as of the date of this Agreement. Continuing Employees and Continuing Executives shall be entitled to carry over unused vacation, and shall be given credit under Subsidiary's vacation policy for service with Seller. Subsidiary shall have the right to change, modify or amend the vacation policy applicable to Continuing Employees and Continuing Executives at any time after the Closing Date.
(ii) After the Closing Date, Subsidiary shall continue the holiday and sick leave policies of Seller in effect as of the date of this Agreement. Subsidiary shall have the right to change, modify or amend the holiday or sick leave policies applicable to Continuing Employees and Continuing Executives at any time after the Closing Date.
ARTICLE VI
COVENANTS OF BUYER AND SELLER
6.1 Approvals of Third Parties; Efforts.
(a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use commercially reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including, without limitation:
(i) the obtaining of all Government Approvals;
(ii) the obtaining of all other necessary consents, approvals or waivers from other third parties;
(iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other governmental entity vacated or reversed; and
(iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by this Agreement.
No party to this Agreement shall consent to any voluntary delay of the consummation of the transactions contemplated by this Agreement at the behest of any governmental entity without the consent of the other parties to this Agreement, which consent shall not be unreasonably withheld.
(b) Seller will use its commercially reasonable best efforts to cause or obtain the satisfaction of the conditions applicable to Seller specified in Sections 7.1 and 7.3 below.
(c) Buyer will use its reasonable best efforts to cause or obtain the satisfaction of the conditions applicable to Buyer specified in Sections 7.1 and 7.2 below.
6.2 Fees and Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby including, without limitation, the fees and disbursements of counsel, financial advisors and accountants, shall be paid by the party incurring such costs and expenses.
6.3 Bankruptcy Court Approvals
(a) Bankruptcy Court Approval of Bid Procedures. Promptly following the Execution Date (and in no event later than ten (10) Business Days thereafter), the Seller will file a motion with the Bankruptcy Court requesting the entry of the Bid Procedures Order (the "Bid Procedure Motion"):
(i) fixing the time, date, and location of a hearing (the "Approval Hearing") to approve Seller's consummation of this Agreement,
(ii) fixing the time and date of an auction (the "Auction") to be held at the offices of Sonnenschein, Nath & Rosenthal at which higher and better offers may be presented to the Seller,
(iii) providing that if
(A) Seller receives from a third party (other than Buyer) a higher and better offer at the Auction, as determined by Seller (after consultation with the Committee), and the transaction to sell the Assets to the such third party ("Overbidder") is subsequently consummated, or
(B) a plan of liquidation or plan of reorganization regarding Seller is subsequently confirmed by the Bankruptcy Court and such plan confirmation is not sought by Seller due to:
(a) Buyer's inability or unwillingness to fulfill its obligation to close the transaction contemplated herein;
(b) Buyer's breach or
(c) the inability to get required Governmental Approvals ("Seller Plan"),
then this Agreement shall terminate pursuant to Section 8.2 and Buyer shall be entitled to a flat fee (not dependent on amounts actually expended or incurred by Buyer) in cash or other immediately available funds in the amount of Seven Hundred Thousand Dollars and No Cents ($700,000) (the "Break-Up Fee"), payable at the time specified in Section 8.2 hereof,
(iv) providing that no prospective purchaser will be permitted to bid at the Auction unless:
(A) such prospective purchaser has been deemed "financially qualified" by Seller,
(B) such prospective purchaser shall have executed and delivered an asset purchase agreement substantially similar to this Agreement, and
(C) such prospective purchaser has delivered a deposit into escrow not less than the amount of the Escrow Funds,
(v) providing that no prospective purchaser who bids for the Assets at Auction shall be entitled to purchase the Assets unless such prospective purchaser offers to purchase the Assets for consideration which is at least Eight Hundred Thousand Dollars and No Cents ($800,000) (the "Initial Overbid") greater than the consideration set forth in this Agreement (including all cash, non-cash consideration and assumed liabilities) and otherwise on terms at least as favorable to the Seller as those set forth in this Agreement, and
(vi) providing that:
(A) after the Initial Overbid, all further overbids must be in increments of at least One Hundred Thousand Dollars and No Cents ($100,000),
(B) should overbidding take place, the Buyer shall have the right, but not the obligation, to participate in the overbidding and to be approved as the Overbidder at the Approval Hearing based upon any such overbid,
(C) should an Overbidder be approved at the hearing on the motion filed with the Bankruptcy Court requesting entry of the Sale Order ("Sale Motion"), Buyer shall, upon its receipt of the Break-Up Fee, deliver to such approved Overbidder all third party reports and studies resulting from Buyer's due diligence investigations, and
(D) until the closing of a transaction for the sale of the Assets to Buyer or the sale of the Assets to the Overbidder, all bids submitted at the Auction must be held open for acceptance by Seller and a subsequent sale of the Assets pursuant to such bid,
(vii) providing that Buyer shall not be entitled to any right to match the bid of the Overbidder, and
(viii) approving the form, manner, scope, and substance of notice regarding the proposed sale and Auction, including overbid procedures.
(b) Bankruptcy Court Approval of Sale Order. As soon as practicable following the conclusion of the Auction, Seller shall file with the Bankruptcy Court the Sale Motion.
(c) Notifications. Seller will in accordance with Applicable Law provide notice to claimants who may have claims against Seller.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
7.1 Conditions to Each Party's Obligations. The respective obligations of each party to effect the transactions contemplated by this Agreement shall be subject to the fulfillment on or prior to the Closing Date of the following conditions:
(a) No Order Preventing Transactions. No court or other governmental entity having jurisdiction over Seller or Buyer, or any of their respective subsidiaries, shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the transactions contemplated by this Agreement illegal.
(b) Entry of Orders. The form and the substance of the Bid Procedure Motion and the Sale Motion shall have been approved by Buyer, and the Bankruptcy Court shall have entered the Bid Procedure Order and the Sale Order without reducing the amount of the Break-Up Fee as specified in Section 6.3, or otherwise materially altering, amending or modifying the Bid Procedure Order or Sale Order in a manner materially adverse to Buyer.
(c) Regulatory Approvals. The parties shall have received all required Regulatory Approvals.
7.2 Conditions to Obligation of Seller. The obligation of Seller to effect the transactions contemplated by this Agreement shall be subject to the fulfillment on or prior to the Closing Date of the condition that Buyer shall have performed in all material respects each of its covenants and agreements contained in this Agreement required to be performed on or prior to the Closing Date, including payment of the Purchase Price, and each of the representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as if made on and as of such date.
7.3 Conditions to Obligations of Buyer. The obligations of Buyer to effect the transactions contemplated by this Agreement shall be subject to the fulfillment on or prior to the Closing Date of the following additional conditions:
(a) Performance of Obligations; Representations and Warranties. Seller shall have performed in all material respects each of its covenants and agreements contained in this Agreement required to be performed on or prior to the Closing Date, and each of the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as if made on and as of such date.
(b) Transfer and Assumption Documents. Seller shall convey title to Buyer to the Assets and Buyer shall assume the Assumed Liabilities by executing documents substantially in the form set forth on Exhibit B attached hereto.
(c) Other Closing Documents. Seller shall deliver lien releases from the liens filed by KLT on the Assets, and such other documents as Buyer may reasonably request at Closing.
(d) Cure Costs. Seller shall have delivered to Buyer evidence reasonably satisfactory to Buyer that all Cure Costs (not including the $1,000,000 Closing Adjustment for MoDOT Leased Bandwidth Cure Cost) less than Three Million Dollars ($3,000,000) (or to the extent Cure Costs exceed Four Million Dollars ($4,000,000) and Seller agrees to pay such Cure Costs then evidence for all Cure Costs assumed by Seller) have been paid or will be paid by Seller.
(e) Network Operations Center. Buyer and KLT shall have executed a lease with respect to the Network Operations Center in a form reasonably satisfactory to Buyer.
(f) Employment Agreements. Buyer and each of the persons listed on Schedule 7.3(f)(1) ("Continuing Executives") hereof shall enter into employment agreements substantially in the form attached hereto as Exhibit 7.3(f)(2) ("Employment Agreements").
ARTICLE VIII
TERMINATION, AMENDMENT, AND WAIVER
8.1 Termination. This Agreement may be terminated in writing at any time prior to the Closing Date:
(a) By Buyer, if:
(i) the Closing does not occur within forty-five (45) days after the later of:
(A) the date of entry of a final and nonappealable Sale Order, or
(B) the date that all Governmental Approvals have been obtained, and such failure to close is not due to a breach by Buyer, or
(ii) any condition to Closing has not been waived or satisfied by July 15, 2003, and such failure is not due to Buyer's breach of this Agreement.
(iii) any Material Adverse Change shall occur.
(b) By Seller, if:
(i) the Closing does not occur within forty-five (45) days after the later of:
(A) the date of entry of a final and nonappealable Sale Order, or
(B) the date that all Governmental Approvals have been obtained, and such failure is not due to a breach by Seller, or
(ii) any condition to Closing has not been waived or satisfied by July 15, 2003, and such failure is not due to Seller's breach of this Agreement.
(c) By Buyer or Seller if, before the Closing Date,
(i) the other party is in material breach of any representations, warranty, covenant or agreement contained herein and has not cured the same within 15 days written notice of such breach, or
(ii) Seller notifies Buyer that the total Cure Costs (not including MoDOT Leased Cure Costs) are expected to exceed Four Million Dollars ($4,000,000) and neither Party elects to pay such amount in excess of $4,000,000.
8.2 Overbid Termination.
(a) If either
(i) a transaction to sell the Assets to an Overbidder is consummated or
(ii) a Seller Plan is confirmed by the Bankruptcy Court, then
(A) this Agreement shall without further action by either party terminate,
(B) Escrow Agent shall immediately deliver to Buyer the Escrow Funds, and
(C) Buyer shall be entitled to the Break-Up Fee to the extent payable under Section 6.3(a)(iii) hereof.
(b) In the event this Agreement is terminated pursuant to this Section 8.2, Buyer shall be entitled to the Break-Up Fee to the extent payable under Section 6.3(a)(iii) hereof as liquidated damages and as Buyer's sole remedy in respect of such termination. The Break-Up Fee shall become due and payable upon the earlier to occur of:
(i) the consummation of the sale of the Assets to the Overbidder,
(ii) confirmation of a Seller Plan, or
(iii) such other date as may be fixed by order of the Bankruptcy Court.
8.3 Liability if Agreement Terminated. Termination of this Agreement shall not relieve any party of any liability for breaches of this Agreement prior to the date of termination.
ARTICLE IX
GENERAL PROVISIONS
9.1 Survival of Representations and Warranties; Indemnification.
(a) Liability of Seller for the representations and warranties made as of the Closing Date as set forth in this Agreement or in any schedule, exhibit or instrument delivered pursuant to this Agreement by Seller shall survive for a period of one hundred eighty (180) days following the Closing Date. Seller agrees to indemnify Buyer against any loss incurred as a result of Seller's material breach of any of those representations and warranties; provided, however, that:
(i) Buyer shall be required to notify Seller of any such breaches within one hundred eighty (180) days following the Closing Date;
(ii) Seller's obligation to indemnify shall be limited to the lesser of Buyer's actual loss or the amount of the Escrow Funds not previously paid to Seller, and
(iii) Buyer shall not be entitled to claim indemnification for any actual loss less than $10,000 per occurrence provided, however, that Buyer shall make no such indemnification claim unless such claims in excess of $10,000 exceed $100,000 in the aggregate.
(b) Notwithstanding anything to the contrary contained in this Agreement, the Buyer, Parent and the Seller acknowledge and agree:
(i) that the Escrow Account is the sole source of funding for any claims for indemnification by Buyer or Parent pursuant to this Agreement, and
(ii) that once any funds have been released out of the Escrow Account to the Seller as expressly contemplated by this Agreement, such funds shall cease to be subject to any claims for indemnification by Buyer or Parent pursuant to this Agreement or the Escrow Agreement.
(c) Each of Buyer and Seller shall provide prompt written notice to the other Party upon learning of either Party's breach of a representation, warranty or covenant contained herein.
9.2 Expenses. Each party shall pay its own expenses incident to this Agreement and the transactions hereby contemplated. In the event of any litigation between the parties arising out of this Agreement, the prevailing party shall be entitled to recover from the other party its court costs and reasonable attorneys' fees and expenses at the trial and all appellate levels.
9.3 Notices. Any notice, communication, request, reply or advice hereunder (a "Notice") must be in writing and shall be delivered by reputable overnight commercial courier service or hand delivery. Notice so given shall be effective when delivered on a Business Day before 5 p.m. Refusal of delivery shall be deemed to be receipt. Notice given in any other manner shall be effective when received by the party to whom it is given. For purposes of Notice, the addresses of the parties shall be as follows:
|
If to Seller: |
Digital Teleport, Inc. |
|
Attn: Paul Pierron, President |
|
|
14567 N. Outer Forty Road |
|
|
Chesterfield, MO 63017 |
|
|
With a copy to: |
Sidley Austin Brown & Wood |
|
Attn: Shalom Kohn |
|
|
787 Seventh Ave. |
|
|
New York, NY 10019 |
|
|
And a copy to: |
Digital Teleport, Inc. |
|
Attn: Daniel Davis, Sr. V.P. and General Counsel |
|
|
14567 N. Outer Forty Road |
|
|
Chesterfield, MO 63017 |
|
|
If to Buyer: |
CenturyTel, Inc. |
|
Attn: R. Stewart Ewing, Jr., Executive V.P. and CFO |
|
|
100 CenturyTel Drive |
|
|
Monroe, LA 71203 |
|
|
And a copy to: |
CenturyTel, Inc. |
|
Attn: Stacey W. Goff |
|
|
100 CenturyTel Drive |
|
|
Monroe, LA 71203 |
9.4 Section and Other Headings. Section or other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
9.5 Schedules and Exhibits. Each schedule and exhibit attached hereto shall be deemed to be a part of this Agreement to the same extent as if set forth verbatim in the body of this Agreement.
9.6 Enforcement. The laws of the State of Missouri shall govern the interpretation, validity, performance and enforcement of this Agreement, without reference to any conflict of law or choice of law provisions therein. If any provision of this Agreement should be held to be invalid or unenforceable, the validity and enforceability of the remaining provisions of this Agreement shall not be affected thereby.
9.7 Parties; No Third Party Beneficiaries. This Agreement shall be binding upon and enforceable against, and shall inure solely to the benefit of, the parties hereto and their respective successors and assigns. Nothing herein shall confer any rights or remedies to any person or entity which is not a party hereto.
9.8 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart.
9.9 Facsimile Signature. This Agreement may be executed and accepted by facsimile signature and any such signature shall be of the same force and effect as an original signature.
9.10 Further Assurances. Seller will execute such further documentation or take such further actions as Buyer may reasonably request to effectuate the transfer of the Assets and implement this Agreement.
9.11 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ANY RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY DISPUTE RELATED IN ANY WAY TO BUYER'S BID OR THIS AGREEMENT.
9.12 Exclusive Jurisdiction. Without limiting any party's right to appeal any order of the Bankruptcy Court, (a) the Bankruptcy Court shall retain exclusive jurisdiction to enforce the terms of this Agreement and to decide any claims or disputes which may arise or result from, or be connected with, this Agreement, any breach or default hereunder, or the transactions contemplated hereby, and (b) any and all claims, actions, causes of action, suits and Proceedings related to the foregoing shall be filed and maintained only in the Bankruptcy Court, and the parties hereby consent to and submit to the jurisdiction and venue of the Bankruptcy Court and shall receive notices at such locations as indicated in Section 9.3 hereof.
[remainder of page blank]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above.
CENTURYTEL, INC.
By: /s/Stacey W. Goff
Name: Stacy W. Goff
Title: Vice President
CENTURYTEL FIBER COMPANY II, LLC
By: /s/Stacey W. Goff
Name: Stacy W. Goff
Title: Vice President
SELLER
DIGITAL TELEPORT, INC.
By: /s/Paul Pierron
Name: Paul Pierron
Title: President and CEO
Exhibit 12.1
GREAT PLAINS ENERGY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
2002 2001 2000 1999 1998
(Thousands)
Income (loss) before extraordinary
item and cumulative effect of
changes in accounting principles $ 129,188 $ (40,043) $ 128,631 $ 81,915 $ 120,722
Add:
Equity investment losses 1,173 376 19,441 24,951 11,683
Minority interests in subsidiaries - (5,038) - 1 (2,222)
Income subtotal 130,361 (44,705) 148,072 106,867 130,183
Add:
Taxes on income 48,285 (35,914) 53,166 3,180 32,800
Kansas City earnings tax 635 583 421 602 864
Total taxes on income 48,920 (35,331) 53,587 3,782 33,664
Interest on value of leased
property 7,093 10,679 11,806 8,577 8,482
Interest on long-term debt 67,551 84,995 60,956 51,327 57,012
Interest on short-term debt 6,312 9,915 11,537 4,362 295
Mandatorily redeemable Preferred
Securities 12,450 12,450 12,450 12,450 12,450
Other interest expense
and amortization 3,760 5,188 2,927 3,573 4,457
Total fixed charges 97,166 123,227 99,676 80,289 82,696
Earnings before taxes on
income and fixed charges 276,447 43,191 301,335 190,938 246,543
Ratio of earnings to fixed charges 2.85 (a) 3.02 2.38 2.98
(a) An $80.0 million deficiency in earnings caused the ratio of earnings to
fixed charges to be less than a one-to-one coverage. A $195.8 million net
write-off before income taxes related to the bankruptcy filing of DTI was
recorded in 2001.
Exhibit 21.1
Subsidiaries of Great Plains Energy Incorporated (1)
|
Name of Company |
State of Incorporation |
|
|
Kansas City Power & Light Company |
Missouri |
|
|
KLT Inc. |
Missouri |
|
|
KLT Energy Services Inc. |
Missouri |
|
|
Custom Energy Holdings, L.L.C. |
Delaware |
|
|
Strategic Energy, L.L.C. |
Delaware |
(1) Certain subsidiaries of Great Plains Energy Incorporated have been omitted pursuant to Item 601(b)(21)(ii) of Regulation S-K. The indentation of the subsidiaries indicates ownership relationship to Great Plains Energy Incorporated.
Exhibit 23-1.a
CONSENT OF COUNSEL
As Executive Vice President-Corporate and Shared Services and Secretary of Great Plains Energy Incorporated, 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, 2002, and consent to the incorporation by reference of such statements in the Company's previously-filed Form S-3 Registration Statements (Registration No. 333-97263 and Registration No. 333-87190) and Form S-8 Registration Statements (Registration No. 33-45618 and Registration No. 333-98781).
/s/Jeanie Sell Latz
Jeanie Sell Latz
Kansas City, Missouri
February 28, 2003
Exhibit 23.1.b
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File Nos. 333-97263 and 333-87190) and Form S-8 (File
Nos. 33-45618 and 333-98781) of Great Plains Energy Incorporated of our report
dated February 5, 2002, except with respect to Note 13, as to which the date is
May 22, 2002, and except with respect to the to the 2001 and 2000 transitional
disclosures relating to the adoption of Statement of Financial Accounting
Standards No. 142 as described in Note 6, as to which the date is February 21,
2003, relating to the financial statements of Great Plain Energy Incorporated,
which appears in this Form 10-K. We also hereby consent to the incorporation by
reference in the above named registration statements of our report dated
February 5, 2002 relating to the financial statement schedule of Great Plains
Energy Incorporated, which also appears in this Form 10-K.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 28, 2003
Exhibit 23.1.c INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-97263 on Form S-3, Amendment No. 1 to Registration Statement No. 333-87190 on Form S-3, Registration Statement No. 333-98781 on Form S-8 and Registration Statement No. 33-45618 on Form S-8 of Great Plains Energy Incorporated of our report dated February 27, 2003 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to a change in accounting for goodwill and other intangible assets), appearing in this Annual Report on Form 10-K of Great Plains Energy Incorporated for the year ended December 31, 2002. /s/DELOITTE & TOUCHE LLP Kansas City, Missouri February 27, 2003
Exhibit 23.1.d INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-87190 and 333-97263 on Form S-3 of Great Plains Energy Incorporated and Registration Statement Nos. 333-98781 and 33-45618 of Great Plains Energy Incorporated on Form S-8 of our report dated January 30, 2002 (relating to the financial statements of DTI Holdings, Inc. and Subsidiaries (the "Company") not presented separately herein and which report expresses an unqualified opinion and includes explanatory paragraphs referring to the Company's filing for reorganization under Chapter 11 of the Federal Bankruptcy Code, substantial doubt about the Company's ability to continue as a going concern and an impairment charge recorded by the Company), appearing in the Annual Report on Form 10-K of Great Plains Energy Incorporated for the year ended December 31, 2002. /s/ DELOITTE & TOUCHE LLP St. Louis, Missouri February 27, 2003
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Great Plains Energy Incorporated, a Missouri corporation, does hereby constitute and appoint Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
|
/s/Bernard J. Beaudoin |
|
Bernard J. Beaudoin |
|
STATE OF MISSOURI |
) |
|
On this 4th day of February 2003, 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/she executed the same as his/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, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Great Plains Energy Incorporated, a Missouri corporation, does hereby constitute and appoint Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
|
/s/David L. Bodde |
|
David L. Bodde |
|
STATE OF MISSOURI |
) |
|
On this 4th day of February 2003, 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/she executed the same as his/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, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Great Plains Energy Incorporated, a Missouri corporation, does hereby constitute and appoint Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
|
/s/Mark A. Ernst |
|
Mark A. Ernst |
|
STATE OF MISSOURI |
) |
|
On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared Mark A. Ernst, 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/she executed the same as his/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, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Great Plains Energy Incorporated, a Missouri corporation, does hereby constitute and appoint Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
|
/s/Randall C. Ferguson, Jr. |
|
Randall C. Ferguson, Jr. |
|
STATE OF MISSOURI |
) |
|
On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared Randall C. Ferguson, 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/she executed the same as his/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, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Great Plains Energy Incorporated, a Missouri corporation, does hereby constitute and appoint Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
|
/s/William K. Hall |
|
William K. Hall |
|
STATE OF MISSOURI |
) |
|
On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared William K. Hall, 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/she executed the same as his/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, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Great Plains Energy Incorporated, a Missouri corporation, does hereby constitute and appoint Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
|
/s/Luis A. Jimenez |
|
Luis A. Jimenez |
|
STATE OF MISSOURI |
) |
|
On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared Luis A. Jimenez, 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/she executed the same as his/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, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Great Plains Energy Incorporated, a Missouri corporation, does hereby constitute and appoint Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
|
/s/James A. Mitchell |
|
James A. Mitchell |
|
STATE OF MISSOURI |
) |
|
On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared James A. Mitchell, 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/she executed the same as his/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, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Great Plains Energy Incorporated, a Missouri corporation, does hereby constitute and appoint Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
|
/s/William C. Nelson |
|
William C. Nelson |
|
STATE OF MISSOURI |
) |
|
On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared William C. Nelson, 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/she executed the same as his/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, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Great Plains Energy Incorporated, a Missouri corporation, does hereby constitute and appoint Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
|
/s/Linda H. Talbott |
|
Linda H. Talbott |
|
STATE OF MISSOURI |
) |
|
On this 4th day of February 2003, 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 he/she executed the same as his/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, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Great Plains Energy Incorporated, a Missouri corporation, does hereby constitute and appoint Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
|
/s/Robert H. West |
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Robert H. West |
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STATE OF MISSOURI |
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On this 4th day of February 2003, 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/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
Exhibit 99.1
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Great Plains Energy Incorporated (the "Company") for the annual period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Bernard J. Beaudoin, as Chairman of the Board, President and Chief Executive Officer of the Company, and Andrea F. Bielsker, as Senior Vice President - Finance, Chief Financial Officer and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his or her knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Bernard J. Beaudoin
Name: Bernard J. Beaudoin
Title: Chairman of the Board, President and Chief Executive Officer
Date: February 28, 2003
/s/Andrea F. Bielsker
Name: Andrea F. Bielsker
Title: Senior Vice President - Finance, Chief Financial Officer and Treasurer
Date: February 28, 2003
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 10.2.f
EXECUTION COPY
INSURANCE AGREEMENT
THIS INSURANCE AGREEMENT, dated December 5, 2002, is entered into by and between XL CAPITAL ASSURANCE INC., a New York stock insurance company ( "XLCA"), KANSAS CITY POWER & LIGHT COMPANY, a corporation duly organized under the laws of the State of Missouri (the "Company"), and THE BANK OF NEW YORK, a New York banking corporation (the "Trustee").
WHEREAS
, pursuant to and in accordance with the provisions of an Indenture of Trust dated as of December 1, 1993 (the "Original Indenture", and as amended and supplemented from time to time, the "Indenture") between the City of Burlington, Kansas (the "Issuer") and the Trustee, on December 7, 1993 the Issuer issued its Environmental Improvement Revenue Refunding Bonds (Kansas City Power & Light Company Project) Series 1993A and Series 1993B in the aggregate principal amount of $79,480,000 (the "Bonds") ; andWHEREAS, pursuant to an Equipment Sublease Agreement (the "Sublease"), dated as of December 1, 1993, between the Issuer and the Company, the Issuer leased the Project to the Company and the Company agreed to make subrental payments when due under the Indenture in accordance with the terms thereof (such terms heretofore undefined having the meanings given thereto in the Sublease); and
WHEREAS
, the Issuer has determined to amend the Original Indenture in order to secure the Bonds with bond insurance policies issued by XLCA; andWHEREAS, XLCA has issued financial guaranty insurance policies with respect to each series of the Bonds (collectively, the "Policy") which insures the payment of principal of and interest on the Bonds from the date hereof on the terms specified therein; and
WHEREAS, as a condition to the issuance of the Policy, XLCA requires that certain notices and other information be delivered from time to time by the Trustee and the Company and that certain rights be available to it in addition to those under the Indenture; and
WHEREAS, the Company and the Trustee understand that XLCA expressly requires the delivery of this Agreement as part of the consideration for the delivery by XLCA of the Policy;
NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution and delivery of the Policy, the Company, the Trustee and XLCA agree as follows:
ARTICLE I
DEFINITIONS; PREMIUM AND EXPENSES
SECTION 1.01. Definitions. Except as otherwise expressly provided herein or unless the context otherwise requires, the terms which are capitalized herein shall have the meanings specified in Annex A hereto.
SECTION 1.02 Premium. In consideration of XLCA agreeing to issue the Policy, the Company hereby agrees to pay to XLCA the Premium on the date of issuance of the Policy.
SECTION 1.03. Certain Other Expenses. The Company will pay all reasonable fees and disbursements of XLCA's and the Trustee's counsel related to any modification of this Agreement requested by the Company.
ARTICLE II
REIMBURSEMENT OBLIGATION; COVENANTS OF THE COMPANY
SECTION 2.01. Reimbursement Obligation.
(a) The Company agrees to reimburse XLCA, from any available funds, immediately and unconditionally upon demand for all amounts advanced by XLCA under the Policy. To the extent that any such payment due hereunder is not paid when due, interest shall accrue on such unpaid amounts at a rate equal to the Effective Interest Rate.
(b) The Company also agrees to reimburse XLCA immediately and unconditionally upon demand for all reasonable expenses incurred by XLCA in connection with the enforcement by XLCA of the Company's obligations under this Agreement, together with interest accruing at the Effective Interest Rate on any unpaid expenses from and including the date which is 30 days from the date a statement for such expenses is received by the Company to the date of payment. It is understood and agreed that the fees and expenses of any nationally recognized law firm shall be deemed reasonable for purposes of this paragraph.
SECTION 2.02. Covenants.
(a) Indebtedness to Total Capitalization. The Company shall at all times cause the ratio of (i) Indebtedness of the Company and its Consolidated Subsidiaries to (ii) Total Capitalization to be less than or equal to 0.68 to 1.0.
(b) Issuance Test Covenant. The Company will not issue any additional First Mortgage Bonds without the consent of XLCA if at the time of the calculation after giving effect to such issuance:
(i) The long term rating for such First Mortgage Bonds by S&P or Moody's will be at or below A- (negative outlook) or (negative credit watch) or A3 (negative outlook) or (negative credit watch), respectively and the proposed issuance would cause the proportion of First Mortgage Bonds to Total Indebtedness to exceed 50%.
(ii) The long term rating for such First Mortgage Bonds by S&P or Moody's will be at or above A- (stable outlook) or A3 (stable outlook), respectively and the proposed issuance would cause the proportion of First Mortgage Bonds to Total Indebtedness to exceed 75%;
Notwithstanding the foregoing, should the Company issue First Mortgage Bonds in excess of 50% of Total Indebtedness (such excess, "Excess First Mortgage Bonds") and should the long term rating assigned to First Mortgage Bonds subsequently be reduced by S&P or Moody's to or below A- (negative outlook) or (negative credit watch) or A3 (negative outlook) or (negative credit watch), respectively, the Company shall be under no obligation to replace its Excess First Mortgage Bonds with unsecured debt, but the consent of XLCA shall be required prior to the issuance of any additional First Mortgage Bonds.
SECTION 2.03. Unconditional Obligation. The obligations of the Company hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, irrespective of:
(a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Bonds or any of the Bond Documents;
(b) any exchange, release or nonperfection of any security interest in property securing the Bonds or this Agreement or any obligations hereunder;
(c) any circumstances which might otherwise constitute a defense available to, or discharge of, the Company or the Issuer under the Bond Documents or otherwise with respect to the Bonds; and
(d) whether or not the Company's obligations under the Bond Documents, or the obligations represented by the Bonds, are contingent or matured, disputed or undisputed, liquidated or unliquidated.
ARTICLE III
EVENTS OF DEFAULT; REMEDIES
SECTION 3.01. Events of Default. The following events shall constitute Events of Default hereunder:
(a) The Company shall fail to pay to XLCA any amount payable under Sections 1.02 and 2.01 hereof and such failure shall have continued for a period in excess of ten days (in the case of amounts payable under Sections 1.02 or 2.01(a) hereof) after receipt by the Company of written notice thereof or 60 days from the date a statement for such expenses is received by the Company (in the case of amounts payable under Section 2.01(b) hereof);
(b) The Company shall fail to observe the covenants identified in Section 2.02 hereof; provided, however, that no Event of Default shall be declared with respect to a failure to observe the covenant identified in Section 2.02(a) until the Company shall have had 30 days to correct said default or caused said default to be corrected within such period.
(c) Any material representation or warranty made by the Company hereunder or any material statement in the application for the Policy or any material report, certificate, financial statement or other instrument provided in connection with the Policy or herewith shall have been materially false at the time when made;
(d) Except as otherwise provided in this Section 3.01, the Company shall fail to perform any of its other obligations hereunder, provided that such failure continues for more than thirty (30) days after receipt by the Company of written notice of such failure to perform;
(e) The Company shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, paying agent, custodian, sequestrator or similar official for the Company or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or
(f) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Company, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver, paying agent, custodian, sequestrator or similar official for the Company or for a substantial part of its property; and such proceeding or petition shall continue undismissed for ninety (90) days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for ninety (90) days.
SECTION 3.02. Remedies. If an Event of Default shall occur and be continuing, then XLCA may take whatever action at law or in equity may appear necessary or desirable, including, without limitation, legal action for the specific performance of any covenant made by the Company to collect the amounts then due and thereafter to become due under this Agreement, or to enforce performance and observance of any obligation, agreement or covenant of the Company under this Agreement. All rights and remedies of XLCA under this Section 3.02 are cumulative and the exercise of any one remedy does not preclude the exercise of one or more other remedies available under this Agreement or now or hereafter existing at law or in equity.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Certain Rights of XLCA. While the Policy is in effect:
(a) the Company shall furnish to XLCA (to the attention of the Surveillance Department) as soon as practicable after the filing thereof, a copy of the 10-Ks and 10-Qs of the Company and a copy of any audited financial statements and annual reports of the Company; provided that the statements and reports (other than annual reports) required to be furnished by the Company pursuant to this clause shall be deemed furnished for such purpose upon becoming publicly available on the SEC's EDGAR web page;
(b) the Company will permit XLCA to discuss the affairs, finances and accounts of the Company with appropriate officers of the Company;
(c) the Trustee or the Company, as appropriate, shall furnish to XLCA (to the attention of the Surveillance Department) a copy of any notice to be given to the registered owners of the Bonds, including, without limitation, notice of any redemption of or defeasance of Bonds, and any certificate rendered pursuant to the Bond Documents relating to the security for the Bonds;
(d) the Trustee or the Company, as appropriate, shall notify XLCA (to the attention of the General Counsel Office) of any failure of the Company to provide relevant notices, certificates or other documents or information as required under the Bond Documents;
(e) at the written request of XLCA due to any material breach by the Trustee of the trust and responsibilities set forth in the Indenture, which breach is not cured by the Trustee within ten (10) Business Days of written notice of such breach from XLCA to the Trustee, the Trustee (subject to subsection (g) below) shall resign from its responsibilities under the Indenture; and
(f) XLCA shall receive prior written notice of any Trustee resignation and, notwithstanding any provision of the Indenture, no removal, resignation or termination of the Trustee, or any part of its responsibilities under the Indenture, shall take effect until a successor, acceptable to XLCA, shall be appointed and such successor shall have executed a document satisfactory to XLCA assenting to the obligations of the Trustee set forth herein. In the event that a successor Trustee cannot be identified within 60 days from the date the Trustee notifies the XLCA and the Company of its resignation, the Trustee will have the right to petition a court of competent jurisdiction for the appointment of a successor Trustee.
SECTION 4.02. Indemnification.
(a) The Company shall indemnify and hold XLCA harmless against any loss, fees, costs, liability or expense incurred without gross negligence or willful misconduct on the part of XLCA arising out of or in connection with the delivery of the Policy and its performance thereunder, including the costs and expenses of defense against any such claim of liability. The indemnification set forth herein shall survive the cancellation or expiration of the Policy and/or removal of XLCA.
(b) The Company shall indemnify and hold the Trustee harmless against any loss, fees, costs, liability or expense incurred without gross negligence or willful misconduct on the part of the Trustee arising out of or in connection with this Agreement, including the costs and expenses of defense against any such claim of liability. The indemnification set forth herein shall survive the cancellation or expiration of the Policy, the termination of this Agreement or the resignation or removal of the Trustee under the Indenture.
SECTION 4.03. Parties Interested Herein. Nothing in this Agreement expressed or implied is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the Company, the Trustee and XLCA, any right, remedy or claim under or by reason of this Agreement or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Agreement contained by and on behalf of the Company and XLCA shall be for the sole and exclusive benefit of the Company, the Trustee and XLCA.
SECTION 4.04. Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or terminated only with the prior written consent of the Company, the Trustee and XLCA. The Company hereby agrees that upon the written request of the Company, XLCA may make or consent to issue any substitute for the Policy to cure any ambiguity or formal defect or omission in the Policy which does not materially change the terms of the Policy nor adversely affect the rights of the owners of the Bonds, and this Agreement shall apply to such substituted Policy. XLCA shall deliver the original of such substituted Policy to the Trustee and agrees to deliver to the Company and to the company or companies, if any, rating the Bonds, a copy of such substituted Policy.
SECTION 4.05. Successors and Assigns; Descriptive Headings.
(a) This Agreement shall bind, and the benefits thereof shall inure to, the Company, the Trustee and XLCA and their respective successors and assigns; provided, that neither party hereto may transfer or assign any or all of its rights and obligations hereunder without the prior written consent of the other party hereto, which shall not be refused unreasonably. Notwithstanding the foregoing provisions of this Section 5.05(a), XLCA shall have the right the reinsure any portion of its exposure under the Policy to third party reinsurers.
(b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.
SECTION 4.06. Counterparts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which fully-executed counterparts shall be deemed to be an original instrument, and all of which shall constitute but one and the same instrument. Complete counterparts of this Agreement shall be lodged with the Company, the Trustee and XLCA.
SECTION 4.07. Term. This Agreement shall expire upon the earlier of (i) the expiration, or cancellation by the Company, of the Policy in accordance with the terms thereof, or (ii) the repayment in full to XLCA and the Trustee of any amounts due and owing to them by the Company under this Agreement or the Policy. The Company may cancel the Policy at any time provided that the Premium shall not be refundable for any reason.
SECTION 4.08. Exercise of Rights. No failure or delay on the part of XLCA to exercise any right, power or privilege under this Agreement and no course of dealing between XLCA and the Company or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which XLCA would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand.
SECTION 4.09. Waiver. The Company waives any defense that this Agreement was executed subsequent to the date of the Commitment, admitting and covenanting that such Commitment was delivered pursuant to the Company's request and in reliance on the Company's promise to execute this Agreement.
SECTION 4.10. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes any and all prior agreements and understandings of the parties hereto with respect to the subject matter hereof, including but not limited to the Commitment.
SECTION 4.11. Notices. All written notices to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telecopier machine owned or operated by a party hereto, when sent and confirmed in writing by such machine as having been received, addressed as specified below or at such other address as any of the parties hereto may from time to time specify in writing to the other:
If to the Company:
Kansas City Power & Light Company
1201 Walnut
Kansas City, Missouri 64106
Attention: Assistant Treasurer
Facsimile: (816) 556-2992
If to the Trustee:
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Attention: Corporate Trust Administration
Facsimile: (212) 815-3455
If to XLCA:
XL Capital Assurance Inc.
1221 Avenue of the Americas, 31st Floor
New York, New York 10020
Attention: Richard Heberton, Surveillance Department
Facsimile: 212-478-3587
and
Attention: Frederick B. Hnat, Esq., General Counsel
Facsimile: 212-478-3446
SECTION 4.12. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York.
SECTION 4.13. Concerning the Trustee.
(a) All of the rights, privileges, protections and immunities afforded the Trustee under the Bond Documents are hereby incorporated herein as if set forth herein in full.
(b) The recitals contained herein shall be taken as the statements of the Company and XLCA, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Agreement or the Policy.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.
KANSAS CITY POWER & LIGHT COMPANY
By: /s/ Andrea F. Bielsker
Name: Andrea F. Bielsker
Title: Senior Vice President - Finance,
Chief Financial Officer and Treasurer
THE BANK OF NEW YORK, as Trustee
By: /s/ Tae-Ho Chang
Name: (Alex) Tae-Ho Change
Title: Assistant Vice President
XL CAPITAL ASSURANCE INC.
By: /s/ Philip P. Henson
Name: Philip P. Henson
Title: Managing Director
ANNEX A
DEFINITIONS
For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires, all capitalized terms shall have the meaning as set out below.
"Agreement" means this Insurance Agreement.
"Attributable Indebtedness" means, on any date, (a) in respect of any Capital Lease Obligation of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a capital lease.
"Bond Documents" means, collectively, the Indenture, the Equipment Sublease Agreement and any other documents and instruments delivered in connection with the issuance of the Bonds.
"Bond Fund" has the meaning given thereto in the Indenture.
"Capital Lease Obligation" means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real or personal property, which obligations are or are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including SFAS No. 13 of the Financial Accounting Standards Board).
"Commitment" means the commitment letter, dated November 27, 2002, from XLCA to the Company, committing to issue the Policy in respect of the Bonds, subject to the terms and conditions thereof.
"Consolidated Subsidiaries" means, as to any Person, each Subsidiary of such Person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such Person in accordance with GAAP.
"Effective Interest Rate" means the "prime rate" announced by Citibank, N.A., from time to time, plus 2%.
"Event of Default" means any of the events of default set forth in Section 4.01 of this Agreement.
"First Mortgage Bonds" means bonds issued under the Mortgage Indenture.
"GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements of the Financial Accounting Standards Board.
"Guaranty Obligations" means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guarantying or having the economic effect of guarantying any Indebtedness or other obligation payable or performable by another Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or their obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv)&nb sp;entered into for the purpose of assuring in any other manner the obligees in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligees against loss in respect thereof (in whole or in part), or (b) any lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person; provided, however, that the term "Guaranty Obligation" shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guaranty Obligation is made or, if not stated or determinable, the maximum reasonable anticipated liability in respect thereof as determined by the guarantying Person in good faith.
"Indebtedness" means, as to any Person at a particular time, all of the following, without duplication, to the extent recourse may be had to the assets or properties of such Person in respect thereof:
(a) All obligations of such Person for borrowed money and all obligation of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) Any direct or contingent obligations of such Person in the aggregate in excess of $2,000,000 arising under letters of credit (including standby and commercial), banker's acceptances, bank guaranties, surety bonds and similar instruments;
(c) Net obligations under any Swap Contract in an amount equal to the Swap Termination Value thereof;
(d) All obligations of such Person to pay the deferred purchase price of property or services(except trade accounts payable arising, and accrued expenses incurred, in the ordinary course of business), and indebtedness (excluding prepaid interest thereon) secured by a lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such person;
(e) Capital Lease Obligations and Synthetic Lease Obligations;
(f) All Guaranty Obligations of such Person in respect of any other the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, unless such Indebtedness is non-recourse to such Person. It is understood and agreed that Indebtedness (including Guaranty Obligations) shall not include any obligations of the Company with respect to subordinated, deferrable interest debt securities, and any related securities issued by a trust or other special purpose entity in connection therewith, as long as the maturity date of such debt is subsequent to the maturity date of the Bonds; provided that the amount of mandatory principal amortization or defeasance of such debt prior to the maturity date of the Bonds shall be included in the definition of Indebtedness (such obligations, "Trust Preferred Obligations"). The amount of any Capital Lease Obligation or Synthetic Lease Obligation as of any date shall be deemed t o be the amount of Attributable Indebtedness in respect thereof as of such date.
"Indenture" has the meaning set forth in the first "Whereas" clause hereof.
"Interest Payment Date" has the meaning given thereto in the Indenture.
"Mortgage Indenture" means the General Mortgage Indenture and Deed of Trust, dated as of December 1, 1986 between the Company and United Missouri Bank, N.A. (formerly United Missouri Bank of Kansas City, N.A.) (the "Company Mortgage Trustee"), as supplemented by eight supplemental indentures including by the Eighth Supplemental Indenture dated as of December 1, 1993 (the "Eighth Supplemental Indenture") by which the First Mortgage Bonds were issued.
"Person" means an individual, partnership, limited liability company, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.
"Policy" has the meaning set forth in the fourth "Whereas" clause hereof.
"Premium" means the premium amount determined in accordance with the Commitment.
"Remarketing Agents" has the meaning given thereto in the Indenture.
"Shareholders' Equity" means, as of any date of determination, shareholders' equity of the Company on a consolidated basis as of that date determined in accordance with GAAP.
"Sublease" has the meaning set forth in the second "Whereas" clause hereof.
"Subsidiary" means, with respect to any Person, any corporation or other entity of which more than 50% of (i) the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) or (ii) other equity interest comparable to that described in the preceding clause(i) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries, or by one or more other Subsidiaries.
"Swap Contract" means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transaction, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, an y form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement.
"Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts, in each case as calculated by the Company in order to ensure compliance with Financial Accounting Standards Board Statement No. 133.
"Synthetic Lease Obligation" means the monetary obligation of a Person under (a) a so-called synthetic or off-balance sheet tax retention lease or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
"Total Capitalization" means Indebtedness of the Company and its Consolidated Subsidiaries plus the sum of (i) Shareholder's Equity and (ii) to the extent not otherwise included in Indebtedness or Shareholder's Equity, preferred and preference stock and securities of the Company and its Subsidiaries included in a consolidated balance sheet of the Company and its Subsidiaries in accordance with GAAP.
"Total Indebtedness" means short term debt plus the current maturities of long term debt plus long term debt.
Exhibit 12.2
KANSAS CITY POWER & LIGHT COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
2002 2001 2000 1999 1998
(Thousands)
Income before extraordinary item
and cumulative effect of changes
in accounting principle $ 98,699 $ 103,819 $ 128,631 $ 81,915 $ 120,722
Add:
Equity investment losses - 501 19,441 24,951 11,683
Minority interests in subsidiaries - (5,038) - 1 (2,222)
Income subtotal 98,699 99,282 148,072 106,867 130,183
Add:
Taxes on income 62,867 30,288 53,166 3,180 32,800
Kansas City earnings tax 635 583 421 602 864
Total taxes on income 63,502 30,871 53,587 3,782 33,664
Interest on value of leased
property 7,093 10,679 11,806 8,577 8,482
Interest on long-term debt 65,559 80,329 60,956 51,327 57,012
Interest on short-term debt 1,218 8,883 11,537 4,362 295
Mandatorily redeemable Preferred
Securities 12,450 12,450 12,450 12,450 12,450
Other interest expense
and amortization 3,772 5,188 2,927 3,573 4,457
Total fixed charges 90,092 117,529 99,676 80,289 82,696
Earnings before taxes on
income and fixed charges 252,293 247,682 301,335 190,938 246,543
Ratio of earnings to fixed charges 2.80 2.11 3.02 2.38 2.98
Exhibit 23-2.a
CONSENT OF COUNSEL
As Secretary 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, 2002, and consent to the incorporation by reference of such statements in the Company's previously-filed Form S-3 Registration Statement (Registration No. 333-18139).
/s/Jeanie Sell Latz
Jeanie Sell Latz
Kansas City, Missouri
February 28, 2003
Exhibit 23.2.b
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File No. 333-18139) of Kansas City Power & Light Company
(a wholly-owned subsidiary of Great Plains Energy Incorporated) of our report
dated February 5, 2002, except with respect to Note 13, as to which the date is
May 22, 2002, and except with respect to the to the 2001 transitional
disclosures relating to the adoption of Statement of Financial Accounting
Standards No. 142 as described in Note 6, as to which the date is February 21,
2003, relating to the financial statements of Kansas City Power & Light Company,
which appears in this Form 10-K. We also hereby consent to the incorporation by
reference in the above named registration statements of our report dated
February 5, 2002 relating to the financial statement schedule of Kansas City
Power & Light Company, which also appears in this Form 10-K.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 28, 2003
Exhibit 23.2.c INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-18139 on Form S-3 of Kansas City Power and Light Company of our report dated February 27, 2003 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to a change in accounting for goodwill and other intangible assets), appearing in this Annual Report on Form 10-K of Kansas City Power and Light Company for the year ended December 31, 2002. /s/DELOITTE & TOUCHE LLP Kansas City, Missouri February 27, 2003
Exhibit 23.2.d INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-18139 on Form S-3 of Kansas City Power & Light Company of our report dated January 30, 2002 (relating to the financial statements of DTI Holdings, Inc. and Subsidiaries (the "Company") not presented separately herein and which report expresses an unqualified opinion and includes explanatory paragraphs referring to the Company's filing for reorganization under Chapter 11 of the Federal Bankruptcy Code, substantial doubt about the Company's ability to continue as a going concern and an impairment charge recorded by the Company), appearing in the Annual Report on Form 10-K of Kansas City Power & Light Company for the year ended December 31, 2002. /s/ DELOITTE & TOUCHE LLP St. Louis, Missouri February 27, 2003
Exhibit 24.2
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 Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
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/s/Bernard J. Beaudoin |
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Bernard J. Beaudoin |
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STATE OF MISSOURI |
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On this 4th day of February 2003, 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/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
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 Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
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/s/David L. Bodde |
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David L. Bodde |
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STATE OF MISSOURI |
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On this 4th day of February 2003, 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/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
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 Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
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/s/Mark A. Ernst |
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Mark A. Ernst |
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STATE OF MISSOURI |
) |
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On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared Mark A. Ernst, 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/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
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 Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
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/s/Randall C. Ferguson, Jr. |
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Randall C. Ferguson, Jr. |
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STATE OF MISSOURI |
) |
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On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared Randall C. Ferguson, 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/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
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 Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
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/s/William K. Hall |
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William K. Hall |
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STATE OF MISSOURI |
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On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared William K. Hall, 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/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
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 Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
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/s/Luis A. Jimenez |
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Luis A. Jimenez |
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STATE OF MISSOURI |
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On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared Luis A. Jimenez, 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/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
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 Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
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/s/James A. Mitchell |
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James A. Mitchell |
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STATE OF MISSOURI |
) |
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On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared James A. Mitchell, 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/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
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 Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
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/s/William C. Nelson |
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William C. Nelson |
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STATE OF MISSOURI |
) |
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On this 4th day of February 2003, before me the undersigned, a Notary Public, personally appeared William C. Nelson, 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/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
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 Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
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/s/Linda H. Talbott |
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Linda H. Talbott |
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STATE OF MISSOURI |
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On this 4th day of February 2003, 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 he/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
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 Bernard J. Beaudoin 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; and any amendments thereto, 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 4th day of February 2003.
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/s/Robert H. West |
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Robert H. West |
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STATE OF MISSOURI |
) |
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On this 4th day of February 2003, 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/she executed the same as his/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.
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/s/Jacquetta L. Hartman |
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Notary Public |
My Commission Expires:
April 8, 2004
Exhibit 99.2
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Kansas City Power & Light Company (the "Company") for the annual period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Bernard J. Beaudoin, as Chairman of the Board and Chief Executive Officer of the Company, and Andrea F. Bielsker, as Senior Vice President - Finance, Chief Financial Officer and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his or her knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Bernard J. Beaudoin
Name: Bernard J. Beaudoin
Title: Chairman of the Board and Chief Executive Officer
Date: February 28, 2003
/s/Andrea F. Bielsker
Name: Andrea F. Bielsker
Title: Senior Vice President - Finance, Chief Financial Officer and Treasurer
Date: February 28, 2003
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.