<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant / /
Filed by party other than the registrant /x/
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
/ / Definitive proxy statement Rule 14a-6(e)(2))
/ / Definitive additional materials
/x/ Soliciting material pursuant to
Rule 14a-11(c) or Rule 14a-12
KANSAS CITY POWER & LIGHT COMPANY
(Name of Registrant as Specified In Its Charter)
WESTERN RESOURCES, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-
6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)4 and 0-
11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
(1) Amount Previously Paid:
(2) Form Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
<PAGE> 1
[Description of Material]
Synergies Quantification Regarding the Western Resources/KCPL Merger<PAGE>
<PAGE> 1
Deloitte & Touche Consulting Group
Western Resources/KCPL Synergies Quantification
April 1996
[Western Resources Logo]
<PAGE>
<PAGE> 2
This document has been prepared to support the evaluation of certain
strategic options and is solely intended for Western Resources' use. The
information contained herein represents the estimated results of future
events which may or may not occur and is based on the best available
information at the time of its development. The information contained
herein is preliminary and subject to change.
<PAGE>
<PAGE> 3
Western Resources/KCPL Synergies Quantification [Header Appears on Every Page]
(Header Appears on Every Page)
CONTENTS
- Executive Summary - X
- Approach
- Assumptions
- Synergies Summary
- Additional Unquantified Opportunities
- Synergies Comparison to Other Transactions
<PAGE>
<PAGE> 4
EXECUTIVE SUMMARY
[text contained in box]
Development of Estimated Savings
- Savings estimates intended to be conservative
- Limits on data comprehensiveness
- Limits on total cost visibility
- Adjusted for WRI stand-alone initiatives
- Savings areas limited to merger-related categories
- Savings estimates recognize location and volume factors
- Operational and cost focus
[text contained in box]
Methodology of Savings Estimation
- Internal working group in conjunction with external assistance
- Utilization of publicly available information and internal WRI
data
- Identification of potential synergies areas
- Quantification of potential individuals synergies based on
direct analysis and prior transaction experience
- Identification of additional synergies areas not quantifiable
based on available data
- Comparison of estimated overall synergies to previous
transactions
<PAGE>
<PAGE> 5
EXECUTIVE SUMMARY
Assumptions
Timing
- - Savings period of 1998 through 2007
- - All savings, except Information Services personnel and capacity
deferrals, fully available January 1, 1998
Organization
- - Operating utility with separate operating divisions and consolidated
administrative and support functions
- - Administrative and support functions, centralized by function, and
located among operating divisions to maintain local presence
Synergies
- - Reflect merger-related opportunities only
Stand-Alone Initiatives
- - Recognize planned WRI actions on a stand-alone basis
Position Reductions
- - Multiple programs utilized for personnel reductions
- - Position reduction programs consistent with recent experience
<PAGE>
<PAGE> 6
Preliminary
EXECUTIVE SUMMARY
Ten-Year Synergies Summary
Savings Before Costs to Achieve
1998-2007 Total ($ Millions)
[set forth in bar chart]
1998 - $ 70
1999 - $ 80
2000 - $ 94
2001 - $101
2002 - $108
2003 - $111
2004 - $117
2005 - $124
2006 - $131
2007 - $138
Ten Year Total Savings
1998-2007
Costs to
Gross Savings Achieve(1) Net Savings
$1,073 ($30) $1,043
(1) Does not include $88 million of transaction costs
(2) Using 8.5% discount rate
(3) Assumes a 3.5% constant growth rate
Savings Distribution
[set forth in pie chart]
Corporate & Administrative Programs 21.7%
Nonfuel Purchasing 22.3%
Capacity Deferrals 5.3%
Revenue-Related Taxes 0.7%
Electric Dispatch 6.0%
Labor 44.0%
Present Value Analysis(2)
1996 NPV of 10-year savings $595
1996 NPV of terminal value(3) $1,072
1996 Total NPV $1,667
<PAGE>
<PAGE> 7
Preliminary
EXECUTIVE SUMMARY
Recent Announcements
[set forth in bar charts]
Position Reductions
(% of Total Company)
(WRI/KLT 7.3%)
Low 3.4%
Average 8.5%
High 11.0%
Nonfuel O&M Savings - Year 5
(% of Nonfuel Expenses)
(WRI/KLT 10.7%)
Low 5.0%
Average 9.5%
High 15.3%
Fuel Savings - Year 5
(% of Fuel Expense)
(WRI/KLT 1.2%)
Low 0.0%
Average 1.0%
High 3.8%
(1) Includes last nine announced transactions for which information is available
Source: Regulatory Filings
<PAGE>
<PAGE> 8
CONTENTS
- Executive Summary
- Approach - X
- Assumptions
- Synergies Summary
- Additional Unquantified Opportunities
- Synergies Comparison to Other Transactions
<PAGE>
<PAGE> 9
APPROACH
Development of Estimated Savings
- - Savings estimates intended to be conservative
- Limits on comprehensiveness
- Limits on available cost information
- - Adjusted for WRI stand-alone initiatives
- - Savings areas limited to merger-related categories
- - Savings estimates recognize location and volume factors
- Operations and cost focus
<PAGE>
<PAGE> 10
APPROACH
Methodology for Savings Estimation
- - Internal working group in conjunction with external assistance
- - Utilization of publicly available information and internal WRI data
- - Identification of potential synergies areas
- - Quantification of potential synergies based on direct analysis and
prior transaction experience
- - Identification of additional synergies areas not quantifiable based
on available data
- - Comparison of estimated synergies to previous transactions
<PAGE>
<PAGE> 11
Illustrative
APPROACH
Focus is Only on Savings Directly Related to a Merger
Savings Categories
Created Savings Examples
Duplication Avoidance -- Shareholder Services
Economies of Scale -- Procurement
Expenditure Avoidance -- MIS
Operational Efficiency -- Field Operations
Enabled Savings -- Examples
Skill Transfer -- Waste Disposal
Technology Transfer -- Information Management
Philosophy Modification -- Outage Scheduling
Developed Savings -- Examples
Organizational
Streamlining -- Spans of Control
Work Reduction -- Activity Avoidance
Performance Realignment -- Centralization
Contractual Arrangements -- Outsourcing
<PAGE>
<PAGE> 12
APPROACH
Savings Quantified Represent Areas for Which Information Is
Publicly Available
[set forth in bar chart]
Preliminary Merger Savings -- Public Data - approximately 3/5
Areas Quantified
Additional Quantification of -- Management Insight -
Preliminary Merger Savings approximately 1/5
Areas
Unquantified Merger Savings -- Nonpublic Data - approximately 1/5
Areas
Total Merger Savings -- 5/5
Potential
<PAGE>
<PAGE> 13
CONTENTS
- - Executive Summary
- - Approach
- - Assumptions - X
- - Synergies Summary
- - Additional Unquantified Opportunities
- - Synergies Comparison to Other Transactions
<PAGE>
<PAGE> 14
Timing
- - Savings period of 1998 through 2007
- - All savings, except Information Services personnel and capacity
deferrals, fully available January 1, 1998
Organization
- - Operating utility with separate operating divisions and consolidated
administrative and support functions
- - Administrative and support functions, centralized by function, and
located among operating divisions to maintain local presence
Synergies
- - Reflect merger related opportunities only
Stand-Alone Initiatives
- - Recognize planned WRI actions on a standalone basis
Position Reductions
- - Multiple programs utilized for personnel reductions
- - Position reduction programs consistent with recent experience
<PAGE>
<PAGE> 15
CONTENTS
- - Approach
- - Assumptions
- - Synergies Summary - X
- - Additional Opportunities
- - Synergies Comparison to Other Transactions
<PAGE>
<PAGE> 16
Preliminary
SYNERGIES SUMMARY
Ten-Year Synergies Summary
Savings Before Costs to Achieve
1998-2007 Total ($ Millions)
1998 $70
1999 $80
2000 $94
2001 $101
2002 $108
2003 $111
2004 $117
2005 $124
2006 $131
2007 $138
Ten Year Total Savings
1998-2007
Gross Savings Costs to Achieve(1) Net Savings
$1,073 ($30) $1,043
(1) Does not include $88 million of transaction costs
(2) Using 8.5% discount rate
(3) Assumes a 3.5% constant growth rate
Savings Distribution
Labor 44.0%
Nonfuel Purchasing 22.3%
Corporate & Administrative Programs 21.7%
Electric Dispatch 6.0%
Capacity Deferrals 5.3%
Revenue-Related Taxes 0.7%
Present Value Analysis(2)
1996 NPV of 10-year savings $595
1996 NPV of terminal value(3) $1,072
1996 Total NPV $1,667
<PAGE>
<PAGE> 17
Preliminary
SYNERGIES SUMMARY
Ten-Year Summary
1998-2007 Total ($ Millions)
[set forth in bar chart]
Corporate and Administrative Labor $249
Field & Field-Related Labor $106
Generation & Support Labor $117
Corporate & Administrative Programs $233
Purchasing Economies (Nonfuel) $239
Capacity Deferrals $57
Electric Dispatch $64
Revenue-Related Taxes $8
Gross Estimated Synergies $1,073
Costs to Achieve ($30)
Net Estimated Synergies $1,043
<PAGE>
<PAGE> 18
Preliminary
SYNERGIES SUMMARY
Labor
<TABLE>
<CAPTION>
Reductions
Premerger % of Merged
Staffing by Functional Area WRI KLT Combined Net Total Total
<S> <C> <C> <C> <C> <C> <C>
Corporate and Administrative Labor:
-Executive Management 13 7 20 5 25.0% 15
-Legal 29 25 54 15 27.8% 39
-External Relations 24 22 46 12 27.0% 34
-Finance, Accounting and Planning 132 101 233 75 32.1% 158
-Human Resources 50 45 95 30 31.5% 65
-Information Systems 153 67 220 50 22.7% 170
-Administrative and Support 232 163 395 77 19.5% 318
Total Corporate and Administrative Labor 633 430 1,063 264 24.8% 799
Field and Field-Related Labor:
-Customer Service, Marketing and Sales 590 397 987 75 7.6% 912
-Electric Transmission and Distribution 1,140 926 2,066 75 3.6% 1,991
-Gas Operations 87 0 87 0 0% 87
-Gas Transmission and Distribution 633 0 633 0 0% 633
Total Field and Field-Related Labor 2,450 1,323 3,773 150 4.0% 3,623
Generation and Support Labor:
-Fossil Generation 824 521 1,345 50 3.7% 1,295
-Nuclear Generation 492 492 984 25 2.5% 959
-Electric System Technical Support 48 54 102 42 41.1% 60
Total Generation and Support Labor 1,364 1,067 2,431 117 4.8% 2,314
Total Labor 4,447 2,820 7,267 531 7.3% 6,736
</TABLE>
<PAGE>
<PAGE> 19
Preliminary
SYNERGIES SUMMARY
Corporate and Administrative Labor - Summary
[set forth in box form]
WRI Position:
WRI has 633 or 14.2% Corporate and Administrative FTEs out of a total of
4,447 regulated utility FTEs.
KLT Position:
KLT has 430 or 15.2% Corporate and Administrative FTEs out to a total of
2,821 regulated utility FTEs based on identification within an industry
benchmarking study.
Functions Included:
Corporate and Administrative employees include Executive Management, Legal,
External Relations, Finance, Accounting and Planning, Human Resources,
Information Systems and Administrative & Support Services.
Rationale for Savings:
Reductions in personnel result through the elimination of duplicative and
overlapping Corporate and Administrative functions performed by the two
companies. Savings do not include potential reengineering or downsizing
opportunities which may be available to each company.
Ten Year Savings ($000):
- - Total FTE Reduction 264
- - Capital Savings $18,208
- - O&M Savings $234,685
- - O&M Revenue Requirements Savings $13,976
- - O&M and Revenue Requirements Savings $248,660
Basis for Calculation:
The two companies' functional departments (excluding contractors) were
aligned through the use of internal (WRI) and industry study information
(KLT). WRI personnel were reduced by 25 total in Finance, Accounting and
Planning and Information Systems as the result of pre-merger initiatives
planned by WRI. Merger-related reductions total 264, or 25% of combined
Corporate and Administrative personnel. Average salaries by function were
determined for WRI and were loaded for benefits at 34.5% based on
information from WRI.
Salaries for KLT were estimated by comparing WRI and KLT's total average
salary as provided in public information (USR). On average, KLT's salaries
are 14% higher than WRI's. This premium was assumed constant across all
functions to arrive at a weighted average salary for each function.
Loaded salaries were escalated at 4.3% annually based on salary increases
of 4.0% and benefits escalation of 5.0%. A capitalization percentage of
7.2% was used based on WRI's internal data (0% salary and 28% benefits).
Executive Management: Savings occur as a result of reduction of personnel
managing overlapping or common responsibility areas. Average 1995 loaded
salary is $137,671. Reduction is 5 FTEs, or 25% of total, as compared to
29% in recent transactions.
Legal: Savings will result from elimination of duplicative SEC, general
corporate, and regulatory legal work. Levelizing of work will also help
reduce legal personnel. KLT personnel are estimated based on discussions
with WRI management. Average 1995 loaded salary is $85,471. Reduction is 15
FTEs, or 28% of total, as compared to an average of 13% in recent
transactions. The difference is due to the larger combined legal
complement for WRI and KLT compared to other companies.
External Relations: Savings occur as a result of reduction of personnel in
duplicative operations, e.g., public relations, communications, to be
consolidated upon combination. Average 1995 loaded salary is $71,173.
Reduction is 12 FTEs, or 27% of total, as compared to an average of 23% in
recent transactions. The difference is principally due to geographic
proximity which supports local governmental affairs coverage in eastern
Kansas and more efficient consolidation of production facilities for
communications.
<PAGE>
<PAGE> 20
Preliminary
SYNERGIES SUMMARY
Corporate and Administrative Labor - Summary (Continued)
[set forth in box form]
Corporate and Administrative Labor Reduction Summary
1998 Reductions
Pre-merger % of Merged
Function WRI KLT Combined Net Total Total
Executive Management 13 7 20 5 25.0% 15
Legal 29 25 54 15 27.8% 39
External Relations 24 22 46 12 27.0% 34
Finance/Acct/Planning 132 101 233 75 32.1% 158
Human Resources 50 45 95 30 31.5% 65
Information Systems 153 67 220 50(1) 22.7% 170
Administrative and Support 232 163 395 77 19.5% 318
Total 633 430 1,063 264 24.8% 799
Key Assumptions:
- - Uniform relationship of WRI/KLT salaries across functions.
- - Functional consolidation to occur by 1/98, except MIS, which will
consolidate by 1/99.
Open Points:
- - Span of control opportunities not addressed due to lack of
information.
Basis for Calculation (Continued):
Finance, Accounting and Planning: Savings occur as a result of overlapping
work activities in those subfunctions which are not volume-driven e.g.,
budgeting, investor relations. Average 1995 loaded salary is $72,277.
Reduction is 75 FTEs, or 32% of total, as compared to an average of 25% in
recent transactions. The difference in largely due to the relative
staffing level between WRI/KLT and commonality of function scope.
Human Resources: Savings occur as a result of overlapping work in many
subfunctions, including compensation, benefits, training, labor relations,
etc., which allow for consolidation of duplicative staff functions.
Average 1995 loaded salary is $74,689. Reduction is 30 FTEs, or 32% of
total, as compared to an average of 22% in recent transactions. The
difference is largely due to the relative staffing level between WRI/KLT
and commonality of function scope.
Information Systems: Savings occur as a result of duplicative information
systems development and operations personnel. The data center type operations
are assumed combined with WRI's. Average 1995 loaded salary is $67,715.
Reduction is 50 FTEs (25 FTEs in 1998 and 25 FTEs in 1999), or 23% of total,
as compared to an average of 23% in recent transactions.
Administrative and Support Services: This function includes purchasing,
materials management & stores, transportation, real estate, facilities
maintenance, and records management, among others. Savings occur as a
result of reductions of personnel in duplicative operations to be
consolidated upon combination (e.g., purchasing). Average 1995 loaded
salary is $59,684. Reduction is 77 FTEs, or 19% of total, as compared to
an average of 10% in recent transactions. The difference reflects
geographic proximity and a greater ability to share physical facilities
than other companies.
__________
(1) Information Systems reductions phased-in over 2 years.
<PAGE>
<PAGE> 21
Preliminary
SYNERGIES SUMMARY
Field and Field-Related Labor - Summary
[set forth in box form]
WRI Position:
WRI has 2,450 Field & Field-Related FTEs, or 55.1% out of a total of 4,447
regulated utility FTEs.
KLT Position:
KLT has 1,323 Field & Field-Related FTEs, or 46.9% out of a total of 2,821
regulated utility FTEs based on identification within an industry
benchmarking study.
Functions Included:
Field and Field-Related employees are located in Customer Service,
Marketing and Sales, and Electric Transmission and Distribution. Gas
Operations and Gas Transmission and Distribution are not directly affected
as KLT has no gas operations. However, certain resources in the Mission
area are anticipated to be shared, e.g. supervision.
Rationale for Savings:
Savings in Field and Field-Related Labor occur due to consolidation and
reconfiguration of personnel performing certain activities both in the
field and in headquarters positions dedicated to field support.
Ten-Year Savings ($000):
- - Total FTE Reduction 150
- - Capital Savings $41,817
- - O&M Savings $73,699
- - Revenue Requirements Savings $32,327
- - O&M and Revenue Requirement Savings $106,025
Basis for Calculation:
The two companies' functional departments (excluding contractors) were
aligned through the use of internal (WRI) and industry study information
(KLT). Merger-related reductions total 150, or 4.0% of combined Field and
Field-Related personnel. Average salaries by function were determined for
WRI and were loaded for benefits at 34.5% based on information from WRI.
Salaries for KLT were estimated by comparing WRI and KLT's total average
salary as provided in public information (USR). On average, KLT's salaries
are 14% higher than WRI's. This premium was assumed constant across all
functions to arrive at a weighted average salary for each function.
Loaded salaries were escalated at 4.3% annually based on salary increases
of 4.0% and benefits escalation of 5.0%. A capitalization percentage of
36.2% was used based on WRI's internal data (39% salary and 28% benefits).
Customer Service, Marketing and Sales: This function includes both field
representatives in district operations, customer call centers, meter
reading rates and regulatory, marketing research, bill collection,
remittance and processing, and marketing and sales functions, among others.
Based on a December 1995 study by WRI, the combined company could reduce
its call center personnel by 25 as a result of a reduction in the number of
calls from customers in the overlapping service areas and from smoothing of
peak calling periods from consolidation of the call center staffing. Call
centers would need to be linked through telecommunication, not
consolidated, to achieve these savings. An additional savings of 15
personnel results from the consolidation of certain functions in offices in
Eastern Kansas (Mission, Ottawa, Olathe, Shawnee Mission). Remainder of
personnel reductions, 35, occur in the field-related support activities due
to duplication of related activities (e.g. marketing support, regulatory).
Average 1995 loaded salary is $48,556. Total reductions are 75, or 8% of
total, as compared to an average of 7% in recent transactions.
<PAGE>
<PAGE> 22
Preliminary
SYNERGIES SUMMARY
Field and Field-Related Labor -- Summary (Continued)
[set forth in box form]
1998 Reductions Merged
Function WRI KLT Pre- Net % of Total
merger Total
Combined
Customer Svc/
Marketing/Sales 590 397 987 75 7.6% 912
Electric
Transmission/
Distribution 1,140 926 2,066 75 3.6% 1,991
Gas Operations 87 0 87 0 0% 87
Gas Transmission/
Distribution 633 0 633 0 0% 633
Total 2,450 1,323 3,773 150 4.0% 3,623
Basis for Calculation (Continued):
Electric Transmission and Distribution: Savings occur in subfunctions,
such as major facilities and construction and engineering and support, as a
result of reconfigured geographic coverage area responsibility, potential
utilization of mobile construction and other specialized crews, and reduced
need for supervisory personnel among the offices in Eastern Kansas (Olathe,
Ottawa, Mission, Shawnee, Mission). Average 1995 loaded salary is $63,041.
Reduction is 75 FTEs, or 4% of total, as compared to an average of 3% in
recent transactions. The difference relates to geographic proximity of
certain offices compared to other companies.
Key Assumptions:
- - Uniform relationship of WRI/KLT salaries and functions.
- - Synergy savings occur primarily in non-direct project or job areas of
electric field & field-related operations.
- - Functional consolidation to occur by 1/98.
- - Personnel can extend geographic coverage and share work load.
Open Points:
- - Span of control opportunities not addressed due to lack of
information.
- - Reconfiguration of in-house vs. contractor utilization.
<PAGE>
<PAGE> 23
Preliminary
SYNERGIES SUMMARY
Generation and Support Labor - Summary
[set forth in box form]
WRI Position:
WRI has 1,364, or 30.7% Generation Labor FTEs out of a total of 4,447
regulated utility FTEs. FTEs include only WRI's position of total
personnel at jointly-owned facilities.
KLT Position:
KLT has 1,067, or 37.8% Generation FTEs out of a total of 2,821 regulated
utility FTEs based on identification within an industry benchmarking study.
FTEs include only KLT's portion of total personnel at jointly-owned
facilities.
Functions Included:
Generation and Support Labor includes Fossil Generation, Nuclear
Generation, and Electric System Technical Support.
Ten Year Savings ($000):
- - Total FTE Reduction 117
- - Capital Savings $14,941
- - O&M Savings $105,552
- - Revenue Requirements Savings $11,550
- - O&M and Revenue Requirements Savings $117,102
Rationale for Savings:
Reductions in personnel result from the elimination of duplicative and
overlapping Generation and Support Labor functions performed by the two
companies, primarily in support positions, such as engineering.
Basis for Calculation:
The two companies' functional departments (excluding contractors) were
aligned through the use of internal (WRI) and industry study information
(KLT). Merger-related reductions total 117, or 4.8% of combined Generation
and Support Labor personnel. Average salaries by function were determined
for WRI and were loaded for benefits at 34.5% based on information from
WRI.
Salaries for KLT were estimated by comparing WRI and KLT's total average
salary as provided in public information (USR). On average, KLT's salaries
are 14% higher than WRI's. This premium was assumed constant across all
functions to arrive at a weighted average salary for each function.
Loaded salaries were escalated at 4.3% annually based on salary increases
of 4.0% and benefits escalation of 5.0%. A capitalization percentage of
12.4% was used based on WRI's internal data (7% salary and 28% benefits).
Fossil Generation: Savings occur as a result of reduction of duplicative
personnel in support functions, primarily engineering support, as well as
through use of specialized or roving maintenance crews. Average 1995
loaded salary of $65,214. Reduction is 50 FTEs, or 4% of total, as
compared to an average of approximately 3% in recent transactions. The
difference reflects the common fuel mix and similarity in generation.
<PAGE>
<PAGE> 24
Preliminary
SYNERGIES SUMMARY
Generation and Support Labor - Summary (Continued)
[set forth in box form]
Generation and Support Labor Reduction Summary
Pre-merger 1998 Reductions Merged
Function WRI KLT Combined Net % of Total Total
Fossil Generation 824 521 1,345 50 3.7% 1,295
Nuclear Generation 492 492 984 25 2.5% 959
Electric Systems
Tech Support 48 54 102 42 41.1% 2,314
Total 1,364 1,067 2,431 117 4.8% 2,314
Basis for Calculation (Continued):
Electric System Technical Support: Savings result from the consolidation
of dispatch centers, bulk power marketing, engineering support and SCADA
operations. Average 1995 loaded salary of $86,690. Reduction is 42 FTEs,
or 41% of total, as compared to an average of 12% in recent transactions.
The difference reflects geographic proximity and ability to use a single
control center and avoid duplication in wholesale marketing within the same
region.
Nuclear Generation: Savings occur from the combination of non-safety
related personnel. Reductions are incremental to current owners' effort to
streamline operations. Average 1995 loaded salary is $73,147. Reduction
is 25, or 3% of total, as compared to an average of 3% in recent
transactions.
Key Assumptions:
- - Uniform relationship of WRI/KLT salaries across functions.
- - Preponderance of coal facilities across both systems will allow for
work levelization and greater degree of standardization in the
future.
- - Functional consolidation to occur by 1/98.
Open Points:
- - Location of non-site specific engineers.
- - Span of control opportunities not addressed due to lack of
information.
- - Reconfiguration of in-house vs. contractor utilization (Fossil
Generation).
<PAGE>
<PAGE> 25
Preliminary
SYNERGIES SUMMARY
Corporate and Administrative Labor Position Reductions
[set forth in bar chart]
Comparison to Range of Staffing Reductions in Other Transactions
Executive Management
Reduction percentage used -- 25%
Range of staffing reductions -- 12% - 43%
Average reduction percentage -- 29%
Legal
Reduction percentage used -- 28%
Range of staffing reductions -- 0% - 30%
Average reduction percentage -- 13%
Administrative and Support
Reduction percentage used -- 19%
Range of staffing reductions -- 5% - 29%
Average reduction percentage -- 10%
External Relations
Reduction percentage used -- 27%
Range of staffing reductions -- 0% - 31%
Average reduction percentage -- 23%
Finance, Accounting and Planning
Reduction percentage used -- 32%
Range of staffing reductions -- 18% - 44%
Average reduction percentage -- 25%
Human Resources
Reduction percentage used -- 32%
Range of staffing reductions -- 5% - 41%
Average reduction percentage -- 22%
Information Systems
Reduction percentage used -- 23%
Range of staffing reductions -- 14 - 57%
Average reduction percentage -- 23%
<PAGE>
<PAGE> 26
Preliminary
SYNERGIES SUMMARY
Field and Field-Related/Generation and Support Labor Position Reductions
Comparison to Range of Staffing
Reductions in Other Transactions
Gas Operations
Reduction percentage used -- 0%
Range of staffing reductions -- 0% - 29%
Average reduction percentage -- 9%
Gas Transmission and Distribution
Reduction percentage used -- 0%
Range of staffing reductions -- 0% - 12%
Average reduction percentage -- 4%
Oil/Gas Power Supply(1)
Reduction percentage used -- 0%
Range of staffing reductions -- 0% - 7%
Average reduction percentage -- 1%
Coal Power Supply(1)
Reduction percentage used -- 4%
Range of staffing reductions -- 0% - 9%
Average reduction percentage -- 4%
Gas Turbine/Diesel Power Supply
Reduction percentage used -- 0%
Range of staffing reductions -- 0%
Average reduction percentage -- 0%
Hydro Power Supply
Reduction percentage used -- 0%
Range of staffing reductions -- 0% - 24%
Average reduction percentage -- .5%
Nuclear Power Supply
Reduction percentage used -- 3%
Range of staffing reductions -- 0% - 20%
Average reduction percentage -- 3%
Customer Service, Marketing and Sales
Reduction percentage used -- 8%
Range of staffing reductions -- 3% - 20%
Average reduction percentage -- 7%
Electric Transmissions Distribution
Reduction percentage used -- 4%
Range of staffing reductions -- 0% - 11%
Average reduction percentage -- 3%
Electric Systems Technical Support
Reduction percentage used -- 41%
Range of staffing reductions -- 0% - 26%
Average reduction percentage -- 12%
(1) Coal Power Supply indicates all non-nuclear generation labor for
WRI-KLT analysis.
<PAGE>
<PAGE> 27
Preliminary
SYNERGIES SUMMARY
Administrative and General Overhead
[set forth in box form]
WRI Position:
WRI's total administrative and general overhead costs (account 921) for
1994 were $18.8 million, and the average annual 1991-1994 cost is $13.9
million. Average variable per employee cost is $8,809.
KLT Position:
KLT's total administrative and general overhead costs (account 921) for
1994 were $6.2 million. Average variable per employee cost is $5,748.
Ten Year Savings ($000):
- - Capital Savings $ 0
- - O&M Savings $25,782
- - Revenue Requirements Savings $ 0
- - O&M and Revenue Requirements Savings $25,782
Rationale for Savings:
Administrative and general overhead costs include office supplies,
telephone expenses, employee business expenses, facilities costs, and other
miscellaneous costs. Examples of variable administrative and general
overhead costs include office supplies, telephone expenses, and business
expenses. Administrative and general overhead will decrease as corporate
positions are eliminated.
Basis for Calculation:
Variable costs were estimated at 40% of total administrative and general
overhead costs based on prior transactions. Based on a review of public
data, the weighted average variable cost per employee for WRI and KLT
totaled $7,569. This figure was applied to the number of corporate and
administrative personnel reductions to estimate savings.
Key Assumptions:
- - Similar costs are captured in the public data for both companies.
- - Variable cost portion similar to other companies.
Open Points:
- - Analysis of internal data for WRI Account 921 costs not performed due
to lack of information.
<PAGE>
<PAGE> 28
Preliminary
SYNERGIES SUMMARY
Benefits Administration
[set forth in box form]
WRI Position:
WRI's actual 1994 total benefits costs are $35.0 million. Estimated
pre-merger initiatives (primarily vendor consolidation) of $2.3 million
reduce benefits costs to $32.7 million. Benefits cost per employee is
$6,997. Administrative cost detail is unavailable.
KLT Position:
KLT's budgeted 1994 total benefits costs excluding one time early
retirements costs of $22.5 million are $22.1 million. Adjusted benefits
cost per employee is $9,474. Administrative cost detail is unavailable.
Ten Year Savings ($000):
- - Capital Savings $5,438
- - O&M Savings $13,983
- - Revenue Requirements Savings $4,159
- - O&M and Revenue Requirements Savings $18,142
Rationale for Savings:
Cost savings can occur in several areas, primarily driven by increased
purchasing power in negotiating third party administration fees. Savings
are also available by reducing the dollar cost of benefits provided by the
combined company and through purchasing leverage from the combination of
plans.
Basis for Calculation:
Combined benefit costs were reduced to reflect merger personnel reductions
to avoid double-counting savings. The combined company's administration
costs were estimated at 6% of the total based on other transactions and
were reduced based on this experience (25%) to reflect the renegotiation of
administration fees. In addition, total benefit costs were reduced by a
nominal amount (1%) to reflect increased purchasing leverage. 28% of
savings are capitalized based on WRI internal information.
Key Assumptions:
- - Combination of plans and acquisition of a single provider by 1/98.
- - Renegotiation of dollar cost of benefits provided.
- - Does not assume increase or decrease in level of benefits provided.
Open Points:
- - Detailed information on benefits costs and engagements.
<PAGE>
<PAGE> 29
Preliminary
SYNERGIES SUMMARY
Insurance
[set forth in box form]
WRI Position:
WRI's 1995 non-nuclear property insurance costs were $2.0 million. Excess
liability insurance costs are $0.9 million in 1996. D&O liability costs are
$0.4 million in 1996.
KLT Position:
KLT's 1994 property insurance costs were $3.4 million. Nuclear insurance
was estimated at $1.7 million based on industry data, for 1994 net
non-nuclear property insurance of $1.7 million. Excess liability insurance
costs were estimated to be $0.5 million in 1996. D&O liability costs were
estimated to be $0.2 million in 1996.
Ten Year Savings ($000):
- - Capital Savings $ 0
- - O&M Savings $12,774
- - Revenue Requirements Savings $ 0
- - O&M and Revenue Requirements Savings $12,774
Rationale for Savings:
The combined company will be able to extend its non-nuclear insurance with
its carriers over a larger asset and loss experience base which will reduce
its overall cost. Combination of the insurance programs will also allow
reassessment of needed coverage levels and related deductibles based on the
loss experience and risk profile of the combined company.
Basis for Calculation:
Insurance savings were estimated at 15% of the combined insurance costs for
property insurance and 20% of the excess liability insurance costs based on
discussions with brokers and other companies' experience in previous
transactions. Savings have ranged from 10% to 46% per category in previous
transactions, including greater than 15% in property insurance reduction,
greater than 20% in excess liability insurance reduction from the KPL/KGE
merger, and 75% of the smaller company's D&O liability premium.
Key Assumptions:
- - Total insurance program to be administered as a combined company
rather than as two separate entities.
- - Similar risk management philosophies at both companies.
- - Combination of each insurance coverage with a single broker.
- - Nuclear property insurance estimated at $3,000/MW based on previous
transactions.
Open Points:
- - Detail cost data re: nuclear property insurance.
<PAGE>
<PAGE> 30
Preliminary
SYNERGIES SUMMARY
Information Systems (O&M/PCs)
[set forth in box form]
WRI Position:
Currently has an inventory of approximately 4,600 personal computers
consisting of desk top and laptop versions, resulting in a ratio of
employees to computers of approximately 1:1. Each personal computer is
leased at a cost with $1,500 per year for hardware and $1,150 per year for
required software.
Currently spends approximately $9.7 million annually for data center
operations, including mainframe lease, maintenance, software, supplies and
property taxes.
KLT Position: Currently planning on upgrading data center hardware. Annual
non-labor operating costs are estimated to be $7.3 million.
Ten Year Savings ($000):
- - Capital Savings $ 0
- - O&M Savings $61,199
- - Revenue Requirements Savings $ 0
- - O&M and Revenue Requirements Savings $61,199
Rationale for Savings:
Cost savings will be realized from the avoidance of the leasing of PCs due
to the reduced number of FTEs.
Savings will also occur due to elimination of software leases and
maintenance fees required to provide software support on the Pcs utilized
by professional and technical support personnel.
Data center savings will result from the consolidation of the two
stand-alone data centers into a single center.
Basis for Calculation:
PC savings were estimated from the corporate and administrative labor
headcount reductions multiplied by the savings per personal computer
(hardware and software).
Data center savings were estimated by increasing WRI's current costs by 30%
to incorporate KLT's operations, then eliminating KLT's non-labor operating
expenses.
Key Assumptions:
- - Utilized WRI data as basis for KLT costs.
- - PC ratio of 1:1 for WRI corporate and technical support employees to
KLT.
- - Annual lease cost for personal computer will continue at $1,500/year.
- - Annual lease cost for software will continue at $1,150/year.
- - WRI can handle KLT's data center operations with a 30% increase in
costs.
- - KLT's non-labor data center costs are approximately 75% of WRI's
costs
Open Points:
- - Backup center disposition or disaster recovery capability not
quantified.
<PAGE>
<PAGE> 31
Preliminary
SYNERGIES SUMMARY
Information Systems - Capital
[set forth in box form]
WRI Position:
Major information systems currently planned and/or under development
include Custom Bill Printing Capabilities ($550,000 in 1998), Real Time
Pricing and Special Contracting Capabilities ($525,000 in 1998), GIS
Development and Map Scanning ($2.5 million in 1998), HRIS development
($300,000 in 1998), and ongoing system development costs of $3 million per
year beginning in 2000.
KLT Position:
Based on WRI input, it is believed that KLT is currently operating on
antiquated Legacy systems that need updating to other productivity and
technological attributes to support competitive market strategies.
Currently in the first year of a four year development phase of a $35
million Customer Service Support System and currently has automated meter
reading capabilities through CellNet.
Ten Year Savings ($000):
- - Capital Savings $67,836
- - O&M Savings $ 0
- - Revenue Requirements Savings $71,355
- - O&M and Revenue Requirements Savings $71,355
Rationale for Savings: Capital savings will result from the avoidance and
elimination of duplicate system development expenditures and the extension
of existing information systems across the combined company. Additionally,
the combined entity will avoid system development cost going forward and
realize the benefits of developing applications on a common platform rather
than each company expending capital separately.
Basis for Calculation:
Parallel effort for specific systems, e.g., CIS by KLT can be avoided.
Projected capital expenditures associated with the development of
duplicative systems and future application development have been converted
to revenue requirements assuming a 5 year depreciable life converting to a
25% annual fixed charge rate. WRI future expenditures beyond 2000 used as a
proxy for KLT expenditures and assumed that efforts are parallel and
avoidable.
Key Assumptions:
- - Existing parallel system development efforts would be discontinued in
the near term.
- - Systems currently in place or near development completion are
adequate for the combined entity.
- - Ongoing duplicative system development costs will occur at an
estimated $4.5 million per year beginning in 2000 ($3.0 million in IS
budget and $1.5 million of other system development costs, primarily
in transmission, distribution and dispatch).
- - GIS map scanning savings is 95% of the remaining $2.5 million
expenditures with 8.2% of overlapping territory (Johnson County).
Open Points:
- - Detailed cost data for future expenditures.
<PAGE>
<PAGE> 32
Preliminary
SYNERGIES SUMMARY
Professional Services
[set forth in box form]
WRI Position:
1996 budgeted costs of S8.4 million include $571,000 in auditing, $1.1
million in legal, and $6.7 million in other professional fees.
KLT Position:
KLT spent $2.7 million on professional services in 1994, and an average of
$3.4 million annually over the 1991 - 1994 period. 1996 audit fees were
estimated to be $306,000 based on WRI's ratio of audit fees to total
revenues applied to KLT's revenues. Legal and other professional fees were
estimated from WRI's ratio of these fees to the total professional fees
excluding audit.
Rationale for Savings:
The combined company will consolidate and reduce professional services
activities through economies of scope and elimination of non-recurring
duplicate services and increased utilization of a broader skill base.
Audit cost savings are similar with additional audit services (e.g., bond
issuance letters, pension plan audits, stock issuances) reduced as a result
of consolidation. Similar legal expenditures (regulatory and corporate) can
be reduced due to redundancy and duplication.
Ten Year Savings ($000):
- - Capital Savings $ 0
- - O&M Savings $15,568
- - Revenue Requirements Savings $ 0
- - O&M and Revenue Requirements Savings $15,568
Basis for Calculation:
Methodology based on experience in prior transactions. Savings for audit fees
are based upon estimated audit fees for a combined company. Legal services were
reduced for corporate and certain regulatory expenses based on WRI
composition (50% of KLT's costs) on the basis that duplicative activities
can be combined, more work can be performed inhouse, and external
professional fees can be reduced due to increased purchasing power and
internal expertise of the combined entity. Other professional fees were
reduced based on experience in similar transactions and reflect 10% of
combined cost.
Key Assumptions:
- - Purchasing economies result from increased size of the combined
company (e.g., audit).
- - Services are obtained on an ongoing basis at the current level.
- - KLT uses same proportion of professional services as WRI.
Open Points:
- - Detailed cost data for KLT for audit, other professional and legal
services.
<PAGE>
<PAGE> 33
Preliminary
SYNERGIES SUMMARY
Facilities
[set forth in box form]
WRI Position:
WRI's internal data indicates that each employee requires approximately 297
square feet of gross office space. Rental rates for WRI's corporate
offices range from $11 to $17 per square foot per year.
KLT Position:
Market rates for KLT's downtown office facility are approximately $18 per
square foot per year, based on data obtained from area brokers.
Ten Year Savings ($000):
- - Capital Savings $ 0
- - O&M Savings $17,110
- - Revenue Requirements Savings $ 0
- - O&M and Revenue Requirements Savings $17,110
Rationale for Savings:
Due to headcount reductions from the combination of WRI and KLT, less
office space will be required by the new company. Reconfiguration would
allow subleasing of available excess space to third-party tenants or
discontinuation of leases at termination.
Basis for Calculation:
Market rents were estimated at $15/square foot per year in 1996 based on
current WRI leases and information on market conditions obtained from area
brokers. Savings per affected employee were based upon WRI's 297 square
feet per employee and the $15 per square foot. Affected employees include
264 corporate reductions as well as 50 reductions in support functions at
the generating facilities and reductions of 35 customer service and 35
electric transmission and distribution. The estimated per square foot
savings was applied to the corporate reduction in square footage
requirements to determine savings.
Key Assumptions:
- - Class A rental rates used for cost estimates.
- - Cost reductions in square footage will occur at average market rental
rates.
- - Reductions in square footage can be sublet.
- - KLT's square footage per employee is similar to WRI's.
Open Points:
- - Ability to sublet space or terminate lease uncertain.
- - Potential savings from dispatch center closure.
<PAGE>
<PAGE> 34
Preliminary
SYNERGIES SUMMARY
Shareholder Services
[set forth in box form]
WRI Position:
1994 actual non-labor expenditures for shareholder services were $1.1
million. Anticipated pre-merger costs are adjusted to $O.9 million due to
insourcing of $0.2 million of shareholder services. Expenditures consist
primarily of Annual Report Costs, Proxy Solicitation, Postage, Annual
Shareholder Meeting, Stock Listing Fees, and Stock Transfer Fees. Cost per
shareholder, based on 44,037 shareholders is $21.32.
KLT Position:
1994 actual expenditures for shareholder services were $1.0 million.
Expenditures consist primarily of Annual Report Costs, Proxy Solicitation,
Postage, Annual Shareholder Meeting, Stock Listing Fees, and Stock Transfer
Fees. Cost per shareholder, based on 31,613 shareholders is $32.43.
Ten Year Savings ($000):
- - Capital Savings $ 0
- - O&M Savings $4,425
- - Revenue Requirements Savings $ 0
- - O&M and Revenue Requirements Savings $4,425
Rationale for Savings:
Cost savings will result through the elimination of duplicative shareholder
related activities such as conducting the annual shareholder meeting, proxy
solicitation and payment of stock exchange fees. The combination will
reduce incremental costs per additional shareholder due to economies of
scale. Cost will also be reduced because of shareholder overlap.
Basis for Calculation:
KLT's cost per shareholder was reduced to WRI's cost per shareholder, after
consideration of an estimated 10% overlap in shareholders between the two
companies. Regression analysis of cost per shareholder versus number of
shareholders on a combined basis validates analysis.
Key Assumptions:
- - 10% shareholder overlap, or approximately 3,161 shareholders.
- - Approximately 67% of total shareholder cost for KLT is non-labor.
Open Points:
- - Estimating incremental shareholder average cost for WRI likely
underestimates savings potential.
<PAGE>
<PAGE> 35
Preliminary
SYNERGIES SUMMARY
Advertising
[set forth in box form]
WRI Position:
WRI's advertising expense for 1994 was $1.3 million based on FERC
information. Costs include institutional and goodwill advertising only.
KLT Position:
KLT's advertising expense for 1994 was $58,000 based on FERC information.
Costs include institutional and goodwill advertising only.
Ten Year Savings ($000):
- - Capital Savings $ 0
- - O&M Savings $562
- - Revenue Requirements Savings $ 0
- - O&M and Revenue Requirements Savings $562
Rationale for Savings:
Combined operations will allow for optimization of media coverage including
the combination of advertising initiatives in overlapping media and
locations. Duplicative advertisement design and production requirements
will also be eliminated.
Basis for Calculation:
Savings were limited to production costs only absent greater detail. The
majority (75%) of these costs will be avoided through use of a single
facility.
Key Assumptions:
- - Advertising programs have comparable intended markets.
Open Points:
- - Detailed cost data for WRI and KLT advertising expenditures.
<PAGE>
<PAGE> 36
Preliminary
SYNERGIES SUMMARY
Association Dues
[set forth in box form]
WRI Position:
WRI spent $1.2 million on association dues in 1994, including an estimated
$323,000 in EEI dues. No further detail was provided.
KLT Position:
KLT spent $0.9 million on association dues in 1994, including an estimated
$268,000 in EEI dues. No further detail was available.
Ten Year Savings ($000):
- - Capital Savings $ 0
- - O&M Savings $1,399
- - Revenue Requirements Savings $ 0
- - O&M and Revenue Requirements Savings $1,399
Rationale for Savings:
Cost savings will result from reduced incremental cost of association dues
based on prescribed formulas used to determine applicable dues.
Basis for Calculation:
Cost savings were estimated for EEI only by applying the declining block
formula to the statistics of the combined company versus the sum of the
estimated stand-alone fees.
Key Assumptions:
- - EEI formula remaining in place.
Open Points:
- - Additional detail on non-EEI dues.
<PAGE>
<PAGE> 37
Preliminary
SYNERGIES SUMMARY
Postage and Monthly Bill Costs
[set forth in box form]
WRI Position:
WRI currently follows a monthly billing practice. Typical costs to produce
a bill include data center space, insurance, utilities, operating system
software, bill stock forms, envelopes, printer ribbons, and inserter
maintenance.
KLT Position:
Not available.
Rationale for Savings:
Savings occur due to reduced number of bills to be printed, and mailed to
customers in the overlapping territory. There are an estimated 100,000
customers in the overlapping area who would only be sent one bill by the
merged company, instead of the two bills currently sent by WRI and KLT.
Ten Year Savings ($000):
- - Capital Savings $ 0
- - O&M Savings $4,528
- - Revenue Requirements Savings $ 0
- - O&M and Revenue Requirements Savings $4,528
Basis for Calculation:
Monthly bill cost per customer was estimated at $0.31 based on a recent
study for another utility:
$0.08 to produce the bill:
- Floor space
- MVS operating system
- Outside envelope
- Return envelope
- Printer ribbons
- Inserter maintenance
- Insurance, utilities, etc.
$0.23 for postage
The total cost to send a bill ($0.31) was then multiplied by 100,000
(number of bills that could be avoided) and by 12 months to calculate
savings.
Key Assumptions:
- - Billing study costs are representative of KLT and WRI's costs.
- - Overlapping customers receive single invoices.
- - Overlapping rural customers not included due to unavailability of
data and lack of materiality.
- - Assumes maximum numbers of customers in each overlapping community
are dual customers.
Open Points:
- - Confirmation of estimated cost per bill.
<PAGE>
<PAGE> 38
Preliminary
SYNERGIES SUMMARY
Purchasing Economies (Procurement & Inventory)
[set forth in box form]
WRI Position:
WRI's non-fuel non-nuclear electric-related inventory in plant materials
and operating supplies account is $54.5 million as of 12/31/94.
Annual non-fuel purchases are estimated to be $177.2 million, based on a
3.25 inventory turn ratio, and after considering $3 million in pre-merger
initiatives expected to result primarily from vendor consolidation.
KLT Position:
KLT's non fuel non-nuclear inventory of plant materials and operating
supplies is $44.2 million as of 12/31/94.
Annual non-fuel purchases are estimated to be $143.7 million, based on
WRI's 3.25 inventory turn ratio.
Ten Year Savings ($000):
Procurement Inventory Total
- - Capital Savings $102,556 $4,938 $107,494
- - O&M Savings $102,556 $ 0 $102,556
- - Revenue Requirements Savings $ 80,863 $7,406 $ 88,269
- - O&M and Revenue
Requirements Savings $183,419 $7,406 $190,825
Rationale for Savings:
Savings will be realized from increased standardization, higher order
volumes and vendor consolidation. A combined entity would also realize a
one-time inventory reduction due to inventory duplication in non-
engineered equipment.
Basis for Calculation:
Savings for both procurement and inventory are based on experiences in
previous transactions. Materials, tools, and supply inventories were
combined and reduced by 5% with an assumed 15% inventory carrying charge.
This savings results from inventory duplication.
Annual procurement for non-fuel purchases were combined and reduced by 5%
based on continued purchase volumes and previous experience. This savings
results from vendor consolidation and increased purchasing power due to
higher volume orders for common materials. 50% of procurement savings were
capitalized based on experience in previous transactions.
Key Assumptions:
- - Historical purchases are indicative of future levels.
- - 3.25x inventory turn ratio includes purchases that go directly to the
field and do not hit inventory.
Open Points:
- - Confirmation of capitalization % for WRI.
- - Confirmation of KLT purchases.
<PAGE>
<PAGE> 39
Preliminary
SYNERGIES SUMMARY
Contract Services
[set forth in box form]
WRI Position:
WRI's contract services are budgeted at $46.6 million in 1996 based on
internal data. WRI's contract services are approximately 15% of base O&M
expense (excluding fuel and purchasing power), which is consistent with
industry data.
KLT Position:
Based on WRI's estimated ratio of 15% of base O&M (excluding fuel and
purchased power), KLT's contract services were estimated to be $41.1
million in 1994.
Ten Year Savings ($000):
- - Capital Savings $31,403
- - O&M Savings $23,497
- - Revenue Requirements Savings $24,761
- - O&M and Revenue Requirements Savings $48,258
Rationale for Savings:
Contract services include such items as plant maintenance and construction
contractors, tree trimming, trenching, paving, and engineering, among
others. Consolidating contractor requirements and contract terms will
enable the combined company to negotiate lower per contractor costs and
achieve economies of scale.
Basis for Calculation:
Consolidation of vendors will result in lower unit costs based on larger
umbrella contracts with relevant contractors. The methodology is based on
experience in prior transactions with respect to potential opportunities.
A savings of 5% of the combined company's contract service was utilized to
reflect the continued purchasing power of WRI and KLT. Approximately 57%
of WRI's contract services are budgeted to be capitalized.
Key Assumptions:
- - Contractor use comparable between companies.
- - WRI's internal data captures all contract services.
Open Points:
- - Detailed cost data on KLT.
<PAGE>
<PAGE> 40
Preliminary
SYNERGIES SUMMARY
Capacity Deferral
[set forth in box form]
WRI Position:
WRI has adequate margins through 2000 with purchases and sales used to
balance individual companies. Purchases include 23 MW from KLT as well as
90 MW in 1994. No capacity additions other than purchases are projected
other than a new 87MW CT and reactivation of Neosho (70MW) in 2000-1.
KLT Position:
KLT has purchased power of 15-17 MW from Gardner, 41 MW from the Associated
Electric Cooperative, 160 MW from Public Service Company of Oklahoma and
150 and 500 MW of unspecified purchases. 618 MW are purchased in 1996-
1998, 617 MW are purchased in 1999, 267 MW are purchased in 2000-2002, and
266 MW are purchased in 2003. Planned additions include a 136 MW CT in
1997-8, 3 CTs (408 MW) in 2000-2002, and another 136 MW CT in 2004.
Savings ($000):
2000 1998-2007
- - Capital Savings $38,748 $38,748
- - O&M Savings $ 968 $ 7,744
- - Revenue Requirements Savings $ 6,200 $49,600
- - O&M and Revenue
Requirements Savings $ 7,168 $57,344
Rationale for Savings:
Load diversity from different load and peaking profiles between KLT and WRI
systems will provide for a 1% reduction in combined vs. stand alone peaks
that allows planned capacity additions to be avoided from interchange of
existing capacity and/or energy.
Basis for Calculation:
Long term capacity requirements can be reduced by 1% or approximately 87
MW. This amount is based on maintaining the MOKAN Pool requirement for
reserve margin. Savings are limited by KLT commitment to 1998 CT - without
commitment WRI surplus could defer capacity as early as 1998.
Key Assumptions:
- - Used MOKAN forecasts to estimate capacity plans.
- - Eliminate 87 MW of capacity from 2000-2007 - corresponds with first
controllable capacity addition.
- - CT capacity cost - $375/kW in 1995 dollars.
- - Carrying Charge - 16% Rev. Req. (this includes AFUDC) 2.5% O&M.
- - Combined entities would file on consolidated basis with MOKAN.
Open Issues:
- - Potential to enhance synergies by selling additional capacity from
1998 to 2000.
- - Achieving savings enhanced upon reporting to MOKAN as a single
entity.
<PAGE>
<PAGE> 41
Preliminary
SYNERGIES SUMMARY
Electric Dispatch
[set forth in box form]
WRI Position:
Approximate capacity mix is 62% coal, 10% nuclear, and 28% gas. The 1994
generation mix is 75% coal, 20% nuclear, 5% gas. Jeffrey Energy Center
represents 35% of system capacity, and has a 7 million ton minimum burn
coal contract through 2014. Tecumseh and Lawrence Energy Centers require
higher BTU/higher cost coal, contracts expire end of 1998. Aggressive
economy purchaser and seller, with 1994 off-system sales of almost 4,000
GWh.
KLT Position:
Approximate capacity mix is 67% coal, 18% nuclear, and 16% oil/gas. The
1994 generation mix is 75% coal and 25% nuclear. Most of KLT's coal
purchase is on short-term or spot rates, resulting in currently favorable
coal costs (i.e. less than $1.00/BTU). Aggressive economy seller, with
1994 off-system sales of approximately 4,800 GWh. Better positioned both
geographically and economically to exploit Eastern markets.
Savings ($000):
1998 1998-2007
- - Dispatch Savings $2,818 $45,752
- - Spinning Reserve & Unit
Commitment Savings $ 830 $ 9,737
- - Coal Purchase Savings $ 665 $ 8,905
- - Total Fuel & Dispatch Savings $4,313 $64,393
Rationale for Savings:
Joint dispatch would enable systems to optimize plant loading above and
beyond level currently achieved through bulk power market participation.
More efficient commitment of units to meet load and spinning reserve
obligations - i.e., less need to overcommit. Ability to leverage coal
suppliers and transporters could result in lower coal costs.
Basis for Calculation:
Using 1994 data, a simple hourly dispatch was simulated for 36 sample days,
with bulk power market activity in market included to extent possible.
Utilizing 2004 forecast peak data and planned capacity additions, a second
simulation was run to interpolate real growth over the forecast period.
Fuel costs were escalated at 3.5%. ENPRO's simulations were used as
proxy/guide for commitment/spinning reserve savings (50MW was determined as
savings level). Projected fuel supply and transportation costs for
Tecumseh and Lawrence were reduced 2.5% upon expiration of current
contracts and revision of purchasing strategy across the WRI/KLT system
capitalizing on KLT capabilities and higher purchase volumes.
Key Assumptions:
- - Model relies primarily on Form 1 Data and Form 714 Data supplemented
by review with WRI personnel.
- - Experience suggests savings may be understated because of coal
procurement capability of KLT and geographic proximity.
- - Savings growth limited to inflation at 3.5% after 2004.
Open Issues:
- - Complete dispatch analysis to be conducted.
- - Maintenance scheduling not quantified.
<PAGE>
<PAGE> 42
Preliminary
SYNERGIES SUMMARY
Revenue-Related Taxes
[set forth in box form]
WRI Position:
WRI is not subject to a gross receipts tax.
KLT Position:
Based on KLT's 1994 FERC Form 1, Missouri has an approximate 5% gross
receipts tax.
Savings ($000):
- - Capital Savings $ 0
- - O&M Savings $ 0
- - Tax Savings $7,565
- - Revenue Requirements Savings $ 0
- - O&M and Revenue Requirements Savings $7,565
Rationale for Savings:
Cost savings created by the merger will ultimately reduce the overall
revenues received by the combined company. Subsequently, the combined
company will be required to pay less in taxes on the combined revenue base.
Basis for Calculation:
KLT's Missouri customers' rates will decrease approximately $13.5 million
in 1998, based on the regulatory plan. This amount will grow by
approximately 2.5% annually. Savings are based on 5% of this amount.
Key Assumptions:
- - Effective tax rates remain constant throughout the forecast period.
- - $13.5 million (1998), adjusted for 2.5% annual growth, returned to
customers each year.
Open Issues:
- - None.
<PAGE>
<PAGE> 43
Preliminary
SYNERGIES SUMMARY
Costs to Achieve
[set forth in box form]
WRI Position:
Not applicable as stand alone.
KLT Position:
Not applicable as stand alone.
Rationale for Costs:
Merger savings, in some instances, require a certain level of out of pocket
expenditures to be achieved. Transaction costs were included in analysis.
Total Cost ($000):
- - O&M - Costs $30,171
Basis for Calculation:
- - Position Reductions - $15.7 million from 1998-1999, considering an
attrition rate of 1%, 9 months of salary, payroll taxes of 9% and
medical benefits of 14.5%
- - System Integration - $5.0 million in 1998-1999 for systems
integration.
- - Facilities Integration - $2.0 million in 1998, includes field
integration as well as HQ integration.
- - Directors and Officers Tail Coverage Liability - $1.5 million in 1998
for continuing liability coverage for former directors.
- - Internal & External Communications - $1.0 million in 1998 to educate
customers, employees regarding combinations.
- - Retraining - $1.0 million in 1998 to retrain employees (meter
readers, customer service, etc.) as a result of new positions.
- - Transition Costs - $1.0 million in 1998 for external assistance to
facilitate integration of individual entities.
- - Relocation costs - $3.0 million in 1998 for relocation of employees
based on an estimated 150 affected personnel at $20,000 per
relocation. Costs are based on actual experience in KPL/KGE merger.
Key Assumptions:
- - Total cost to achieve is recognized when incurred.
- - Nature of costs will be similar to that of experienced in KPL/KGE
merger.
- - Does not include $88 million of transaction costs (including $58
million in break-up fees).
Open Points:
- - None.
<PAGE>
<PAGE> 44
CONTENTS
- Executive Summary
- Approach
- Assumptions
- Synergies Summary
- Additional Unquantified Opportunities - X
- Synergies Comparison to Other Transactions
<PAGE>
<PAGE> 45
ADDITIONAL OPPORTUNITIES
Additional Unquantified Savings Opportunities Are Potentially Available
[set forth in chart form]
Current conservatism
- - Financing cost -- medium
- - Spans of control -- medium
- - Equipment disposition -- low
- - Fuel inventory -- low
- - Fleet operations -- low
- - Other corporate programs -- low
- - Transmission & distribution capital -- medium
- - Facilities sale -- medium
- - Maintenance scheduling -- low
- - MOKAN reserve margin -- high
- - Average salary levels -- low
- - Post-1998 expenditures -- medium
- - Nonmerger related opportunities -- high
- - Revenue enhancement -- medium
<PAGE>
<PAGE> 47
Preliminary
ADDITIONAL OPPORTUNITIES
Ten-Year Summary
1998-2007 Total ($ Millions)
[set forth in bar chart]
CURRENTLY ESTIMATED
Corporate and Administrative Labor $249
Field & Field-Related Labor $106
Generation & Support Labor $117
Corporate & Administrative Programs $233
Purchasing Economies (Nonfuel) $239
Capacity Deferrals $57
Electric Dispatch $64
Revenue-Related Taxes $8
Gross Estimated Synergies $1,073
Costs to Achieve ($30)
UNESTIMATED
Net Estimated Synergies $1,043
Additional Opportunities ?
Total Potential Net Synergies $1,043+
<PAGE>
<PAGE> 48
CONTENTS
- Executive Summary
- Approach
- Assumptions
- Synergies Summary
- Additional Unqualified Opportunities
- Synergies Comparison to Other Transactions - X
<PAGE>
<PAGE> 49
SYNERGIES COMPARISON TO ANNOUNCED TRANSACTIONS
Source: Regulatory filings Preliminary
Position Reductions
(% of Total Company)
Low - 0.9%
Average 6.9%
High 11.5%
WRI/KLT - 7.3%
CE/TE 3.4%
PPL/UPL 11.5%
NU/PSNH 0.9%
SCE/SDG&E 5.1%
KCPL/KGE 5.5%
KPL/KGE 6.6%
IPC/IPS 5.8%
ETR/GSU Not Applicable
CGE/PSI 4.2%
IPL/PSI 9.6%
IEL&P/IS Not Applicable
CSW/EPE 2.6%
WWP/SPR 8.5%
MWR/IIGE 6.0%
NSP/WEC 10.1%
UE/CIPS 3.4%
PSCo/SPS 8.8%
PECO/PPL 9.5%
BGE/PEPCO 11.0%
PSPL/WEC 8.7%
WPL/IES 10.8%
<PAGE>
<PAGE> 50
Nonfuel O&M Savings - Year 5
(% of Nonfuel Expense)
Low 1.7%
Average 7.3%
High 15.3%
WRI/KLT - 10.7%
CE/TE 6.2%
PPL/UPL 5.9%
NU/PSNH 1.7%
SCE/SDG&E 5.2%
KCPL/KGE 4.2%
KPL/KGE 6.9%
IPC/IPS 6.1%
ETR/GSU 4.2%
CGE/PSI 7.2%
IPL/PSI 13.1%
IEL&P/IS 4.1%
CSW/EPE 2.3%
WWP/SPR 10.1%
MWR/IIGE 5.7%
NSP/WEC 15.3%
UE/CIPS 5.4%
PSCo/SPS 5.0%
PECO/PPL 9.9%
BGE/PEPCO 14.3%
PSPL/WEC 9.4%
WPL/IPC/IES 10.6%
<PAGE>
<PAGE> 51
Fuel Savings - Year 5
(% of Fuel Expense)
Low 0.0%
Average 1.8%
High 8.6%
WRI/KLT - 1.2%
CE/TE 2.4%
PPL/UPL 8.6%
NU/PSNH 1.0%
SCE/SDG&E 0.1%
KCPL/KGE 4.6%
KPL/KGE 2.1%
IPC/IPS 0.5%
ETR/GSU 3.4%
CGE/PSI 1.0%
IPL/PSI 0.0%
IEL&P/IS 4.1%
CSW/EPE 0.1%
WWP/SPR 0.1%
MWR/IIGE 0.2%
NSP/WEC 1.7%
UE/CIPS 1.7%
PSCo/SPS 3.8%
PECO/PPL 0.3%
BGE/PEPCO 0.0%
PSPL/WEC 0.0%
WPL/IPC/IES 1.4%
<PAGE>
<PAGE> 52
Preliminary
SYNERGIES COMPARISON TO ANNOUNCED TRANSACTIONS
Recent Announcements
Position Reductions
(% of Total Company)
WRI/KLT - 7.3%
Low 3.4%
Average 8.5%
High 11.0%
Nonfuel O&M Savings - Year 5
(% of Nonfuel Expenses)
WRI/KLT - 10.7%
Low - 5.0%
Average 9.5%
High 15.3%
Fuel Savings - Year 5
(% of Fuel Expense)
WRI/KLT - 1.2%
Low - 0.0%
Average 1.0%
High 3.8%
(1) Includes last nine announced transactions for which information is
available.
Source: Regulatory Filings<PAGE>
<PAGE> 53
SHARES OF KANSAS CITY POWER & LIGHT COMPANY ("KCPL")
COMMON STOCK HELD BY WESTERN RESOURCES, INC. ("WESTERN RESOURCES"), ITS
DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF WESTERN RESOURCES AND CERTAIN OTHER PERSONS WHO MAY
SOLICIT PROXIES, AND CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND KCPL
Western Resources may solicit proxies against the KCPL/UtiliCorp
United Inc. merger. The participants in this solicitation may include
Western Resources, the directors of Western Resources (Frank J. Becker,
Gene A. Budig, C.Q. Chandler, Thomas R. Clevenger, John C. Dicus, John E.
Hayes, Jr., David H. Hughes, Russell W. Meyer, Jr., John H. Robinson, Louis
W. Smith, Susan M. Stanton, Kenneth J. Wagnon and David C. Wittig), and the
following executive officers and employees of Western Resources or its
subsidiaries: Steven L. Kitchen (E.V.P. and C.F.O.), Carl M. Koupal, Jr.
(E.V.P. and CAO), John K. Rosenberg (E.V.P. and G.C.), Jerry D. Courington
(Controller), James T. Clark (V.P.), William G. Eliason (V.P.), Thomas L.
Grennan (V.P.), Richard M. Haden (E.V.P.), Norman E. Jackson (E.V.P.),
James A. Martin (V.P.), Hans E. Mertens (V.P.), Carl A. Ricketts (V.P.),
David E. Roth (V.P.), Mark A. Ruelle (V.P.), Edward H. Schaub (V.P.),
Thomas E. Shea (Treasurer), Richard D. Terrill (Secretary), William B.
Moore (President, KGE), Steven A. Millstein (President, Westar Consumer),
Rita A. Sharpe (V.P., Westar Business), Kenneth T. Wymore (President,
Westar Business), C. Bob Cline (President, Westar Capital), Fred M. Bryan
(President, KPL), Roderick S. Donovan (V.P., Westar Gas Marketing),
Catherine A. Forbes, Hal L. Jensen, Lisa A. Walsh, Donald W. Bartling,
Michael L. Faler, Clyde R. Hill, Leroy P. Wages, David R. Phelps, Wayne
Kitchen, Glen A. Scott, Jr., Kelly B. Harrison, Marcus J. Ramirez, Anita J.
Hunt, Ira W. McKee, Jr., Michael D. Clark (Controller, Westar Business),
Douglas J. Henry, Annette M. Beck, C.W. Underkofler, Carol E. Deason, James
N. Wishart, Gregory M. Wright, Richard D. Kready, Michel' J. Philipp, Greg
A. Greenwood, Carolyn A. Starkey, Bruce A. Akin, James J. Ludwig, Bruce R.
Burns, Kelly D. Foley, Robin D. Brown, Rechell L. Smith, Shari L. Gentry,
Gay V. Crawford, Susan K. Reese, Don W. Whitlock, Denise A Schumaker, Duane
D. Goertz, Robert J. Knott, Judith A. Wilt and Lori A. Finney.
As of April 19, 1996, Western Resources had no security holdings in
KCPL. Robert L. Rives, a person who will solicit proxies, is the
beneficial owner of 500 shares of common stock, no par value, of KCPL (the
"KCPL Common Stock"). Western Resources director Susan M. Stanton serves
as co-trustee of two trusts, which beneficially own 7,900 shares of KCPL
Common Stock. No trading activity has occurred with respect to any of such
stock during the last two years. Western Resources director C.Q. Chandler
is Chairman of the board of directors of INTRUST Financial Corporation.
INTRUST Bank, a subsidiary of INTRUST Financial Corporation, holds in ten
trust accounts an aggregate of 5,468 shares of KCPL Common Stock. Wayne
Kitchen is the beneficial owner of 400 shares of KCPL Common Stock.
Other than as set forth, herein, as of the date of this employee
update, neither Western Resources nor any of its directors, executive
officers or other representatives or employees of Western Resources, or
other persons known to Western Resources, who may solicit proxies has any
security holdings in KCPL. Western Resources disclaims beneficial
ownership of any securities of KCPL held by any pension plan of Western
Resources or by any affiliate of Western Resources.
Although Salomon Brothers Inc, financial advisors to Western
Resources, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Salomon Brothers Inc, Gregg S. Polle
(Managing Director), Arthur H. Tildesley, Jr. (Director), Terence G. Kawaja
(Vice President) and Anthony R. Whittemore (Associate), in each case of
Salomon Brothers Inc, may assist Western Resources in such a solicitation.
Salomon Brothers Inc engages in a full range of investment banking,
securities trading, market-making and brokerage services for institutional
and individual clients. In the normal course of their business, Salomon
Brothers Inc may trade securities of KCPL for their own account and the
account of their customers and, accordingly, may at any time hold a long or
short position in such securities. As of April 19, 1996, Salomon Brothers
Inc did not hold any securities of KCPL.
Except as disclosed above, to the knowledge of Western Resources,
none of Western Resources, the directors or executive officers of Western
Resources or the employees or other representatives of Western Resources
named above has any interest, direct or indirect, by security holdings or
otherwise, in KCPL.
A registration statement relating to the Western Resources securities
referred to in this employee update has been filed with the Securities and
Exchange Commission but has not yet become effective. Such securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This employee update shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
