FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-7324
KANSAS GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
KANSAS 48-1093840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
P.O. Box 208
Wichita, Kansas 67201
(Address of principal executive offices)
(316) 261-6611
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 10, 1994
Common Stock (No par value) 1,000
Registrant meets the conditions of General Instruction H(1)(a) and (b) to Form
10-Q and is therefore filing this form with a reduced disclosure format.
<PAGE>
KANSAS GAS AND ELECTRIC COMPANY
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets 3
Statements of Income 4 - 6
Statements of Cash Flows 7 - 8
Statements of Capitalization 9
Statements of Common Stock Equity 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE>
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . . $3,381,637 $3,339,832
Less - Accumulated depreciation . . . . . . . . . . . . . 847,431 790,843
2,534,206 2,548,989
Construction work in progress . . . . . . . . . . . . . . 32,052 28,436
Nuclear fuel (net) . . . . . . . . . . . . . . . . . . . 37,909 29,271
Net utility plant . . . . . . . . . . . . . . . . . . . 2,604,167 2,606,696
OTHER PROPERTY AND INVESTMENTS:
Decommissioning trust . . . . . . . . . . . . . . . . . . 15,951 13,204
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 12,344 10,941
28,295 24,145
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . 57 63
Accounts receivable and unbilled revenues (net) (Note 8). 59,168 11,112
Advances to parent company. . . . . . . . . . . . . . . . 195,552 192,792
Fossil fuel, at average cost, . . . . . . . . . . . . . . 13,652 7,594
Materials and supplies, at average cost . . . . . . . . . 30,730 29,933
Prepayments and other current assets. . . . . . . . . . . 19,049 14,995
318,208 256,489
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . . . 102,766 102,789
Deferred coal contract settlement costs . . . . . . . . . 18,773 21,247
Phase-in revenues . . . . . . . . . . . . . . . . . . . . 65,792 78,950
Other deferred plant costs. . . . . . . . . . . . . . . . 31,840 32,008
Corporate-owned life insurance (net) . . . . . . . . . . 8,830 45
Unamortized debt expense. . . . . . . . . . . . . . . . . 28,317 27,365
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 43,186 37,745
299,504 300,149
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,250,174 $3,187,479
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . . . $2,027,955 $1,899,221
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . . 42,300 155,800
Long-term debt due within one year. . . . . . . . . . . . - 238
Accounts payable. . . . . . . . . . . . . . . . . . . . . 48,366 51,095
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 48,290 12,185
Accrued interest. . . . . . . . . . . . . . . . . . . . . 14,147 7,381
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 10,434 9,427
163,537 236,126
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . . 648,997 646,159
Deferred investment tax credits . . . . . . . . . . . . . 75,643 78,048
Deferred gain from sale-leaseback . . . . . . . . . . . . 254,751 261,981
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 79,291 65,944
1,058,682 1,052,132
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $3,250,174 $3,187,479
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
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<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
1994 1993
<S> <C> <C>
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . $ 189,202 $ 191,941
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . 27,727 28,590
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . 3,638 4,179
Power purchased . . . . . . . . . . . . . . . . . . . . 1,376 5,674
Other operations. . . . . . . . . . . . . . . . . . . . 26,092 29,918
Maintenance . . . . . . . . . . . . . . . . . . . . . . 9,957 11,606
Depreciation and amortization . . . . . . . . . . . . . 19,141 18,837
Amortization of phase-in revenues . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . 23,521 19,534
State income. . . . . . . . . . . . . . . . . . . . . 5,575 4,477
General . . . . . . . . . . . . . . . . . . . . . . . 10,811 11,866
Total operating expenses. . . . . . . . . . . . . . 132,224 139,067
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . 56,978 52,874
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . (1,728) 5,969
Miscellaneous (net) . . . . . . . . . . . . . . . . . . 833 864
Income taxes (net). . . . . . . . . . . . . . . . . . . 2,137 1,357
Total other income and deductions . . . . . . . . . 1,242 8,190
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . 58,220 61,064
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . 11,934 13,752
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,249 1,247
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . (444) (341)
Total interest charges. . . . . . . . . . . . . . . 12,739 14,658
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . $ 45,481 $ 46,406
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
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<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . $ 480,793 $ 480,900
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . 71,662 70,607
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . 11,733 9,028
Power purchased . . . . . . . . . . . . . . . . . . . . 4,869 9,043
Other operations. . . . . . . . . . . . . . . . . . . . 84,677 92,627
Maintenance . . . . . . . . . . . . . . . . . . . . . . 35,187 33,572
Depreciation and amortization . . . . . . . . . . . . . 57,402 56,512
Amortization of phase-in revenues . . . . . . . . . . . 13,158 13,158
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . 41,594 32,786
State income. . . . . . . . . . . . . . . . . . . . . 10,160 7,692
General . . . . . . . . . . . . . . . . . . . . . . . 34,947 34,682
Total operating expenses. . . . . . . . . . . . . . 365,389 359,707
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . 115,404 121,193
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . (3,721) 9,337
Miscellaneous (net) . . . . . . . . . . . . . . . . . . 3,641 8,382
Income taxes (net). . . . . . . . . . . . . . . . . . . 5,375 314
Total other income and deductions . . . . . . . . . 5,295 18,033
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . 120,699 139,226
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . 36,032 41,753
Other . . . . . . . . . . . . . . . . . . . . . . . . . 3,721 4,211
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . (1,368) (1,149)
Total interest charges. . . . . . . . . . . . . . . 38,385 44,815
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . $ 82,314 $ 94,411
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Twelve Months Ended
September 30,
1994 1993
<S> <C> <C>
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . . $ 616,890 $ 607,958
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . 94,443 86,776
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . . 15,980 12,966
Power purchased . . . . . . . . . . . . . . . . . . . . . . 5,690 10,397
Other operations. . . . . . . . . . . . . . . . . . . . . . 110,998 121,436
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . 48,355 47,569
Depreciation and amortization . . . . . . . . . . . . . . . 76,420 74,443
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . . 48,361 33,995
State income. . . . . . . . . . . . . . . . . . . . . . . 12,038 7,939
General . . . . . . . . . . . . . . . . . . . . . . . . . 45,468 44,418
Total operating expenses. . . . . . . . . . . . . . . . 475,298 457,483
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . . 141,592 150,475
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . . (5,217) 11,748
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . . 4,530 10,747
Income taxes (net). . . . . . . . . . . . . . . . . . . . . 7,288 (416)
Total other income and deductions . . . . . . . . . . . 6,601 22,079
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . . 148,193 172,554
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . 48,187 55,910
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,585 8,164
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . . (1,585) (1,459)
Total interest charges. . . . . . . . . . . . . . . . . 52,187 62,615
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,006 $ 109,939
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
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<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 82,314 $ 94,411
Depreciation and amortization . . . . . . . . . . . . . . . 57,402 56,512
Other amortization (including nuclear fuel) . . . . . . . . 8,390 8,208
Deferred income taxes and investment tax credits (net). . . 14,442 5,515
Amortization of phase-in revenues . . . . . . . . . . . . . 13,158 13,158
Corporate-owned life insurance. . . . . . . . . . . . . . . (13,600) (18,586)
Amortization of gain from sale-leaseback. . . . . . . . . . (7,230) (7,230)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) (Note 8). (48,056) (39,849)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (6,058) 4,645
Accounts payable. . . . . . . . . . . . . . . . . . . . . (2,729) (4,578)
Interest and taxes accrued. . . . . . . . . . . . . . . . 42,871 36,171
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (3,844) (4,006)
Changes in other assets and liabilities . . . . . . . . . . (18,165) (10,738)
Net cash flows from operating activities . . . . . . . 118,895 133,633
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 65,646 43,364
Corporate-owned life insurance policies . . . . . . . . . . 24,588 25,687
Death proceeds of corporate-owned life insurance policies . - (10,160)
Net cash flows used in investing activities. . . . . . 90,234 58,891
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (113,500) (31,500)
Advances to parent company (net). . . . . . . . . . . . . . (2,760) (27,374)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 160,422 65,000
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (46,440) (65,000)
Revolving credit agreement (net). . . . . . . . . . . . . . - (150,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . (67,893) (46,870)
Borrowings against life insurance policies (net). . . . . . 41,504 182,079
Net cash flows from (used in) financing activities . . (28,667) (73,665)
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . (6) 1,077
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . . . . 63 892
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . $ 57 $ 1,969
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 50,157 $ 57,889
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 21,658 13,417
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
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<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Twelve Months Ended
September 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 96,006 $ 109,939
Depreciation and amortization . . . . . . . . . . . . . . . 76,420 74,443
Other amortization (including nuclear fuel) . . . . . . . . 11,436 11,160
Deferred income taxes and investment tax credits (net). . . 31,499 9,501
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Corporate-owned life insurance. . . . . . . . . . . . . . . (16,664) (22,710)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,640) (9,640)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) (Note 8). (8,776) (6,987)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (2,196) 9,973
Accounts payable. . . . . . . . . . . . . . . . . . . . . (7,964) 8,428
Interest and taxes accrued. . . . . . . . . . . . . . . . (2,353) 4,691
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (2,029) (8,453)
Changes in other assets and liabilities . . . . . . . . . . (23,957) (26,739)
Net cash flows from operating activities. . . . . . . . . 159,327 171,150
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 89,168 68,807
Corporate-owned life insurance policies . . . . . . . . . . 26,169 21,032
Death proceeds of corporate-owned life insurance policies . - (10,912)
Net cash flows used in investing activities. . . . . 115,337 78,927
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (19,700) (40,900)
Advances to parent company (net). . . . . . . . . . . . . . (93,889) (97,629)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 160,422 200,000
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (121,440) (190,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . (13,980) (230)
Revolving credit agreement (net). . . . . . . . . . . . . . - (150,000)
Borrowings against life insurance policies (net). . . . . . 42,685 176,713
Net cash flows from (used in) financing activities . . (45,902) (102,046)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (1,912) (9,823)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . . . . 1,969 11,792
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . $ 57 $ 1,969
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 69,921 $ 81,573
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 37,595 27,642
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
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<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
COMMON STOCK EQUITY:
(See Statements of Common Stock Equity)
Common stock, without par value, authorized and issued
1,000 shares . . . . . . . . . . . . . . . . . . . . . . $1,065,634 $1,065,634
Retained earnings. . . . . . . . . . . . . . . . . . . . . 262,358 180,044
Total common stock equity. . . . . . . . . . . . . . . . 1,327,992 65% 1,245,678 66%
</TABLE>
<TABLE>
LONG-TERM DEBT:
First Mortgage Bonds:
<S> <C> <C> <C> <C> <C>
Series Due 1994 1993
5-5/8% 1996 $ 16,000 $ 16,000
7.6% 2003 135,000 135,000
6-1/2% 2005 65,000 65,000
6.20% 2006 100,000 -
316,000 216,000
Pollution Control Bonds:
6.80% 2004 - 14,500
5-7/8% 2007 - 21,940
6% 2007 - 10,000
5.10% 2023 13,982 -
Variable (a) 2027 21,940 -
7% 2031 327,500 327,500
Variable (a) 2032 14,500 -
Variable (a) 2032 10,000 -
387,922 373,940
Total bonds . . . . . . . . . . . . . . . . . . . . . . 703,922 589,940
Other Long-Term Debt:
Pollution control obligations:
5-3/4% series 2003 - 13,980
Other long-term agreement 1995 - 53,913
Total other long-term debt. . . . . . . . . . . . . . - 67,893
Less:
Unamortized premium and discount (net) . . . . . . . . . 3,959 4,052
Long-term debt due within one year . . . . . . . . . . . - 238
Total long-term debt. . . . . . . . . . . . . . . . . 699,963 35% 653,543 34%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . $2,027,955 100% $1,899,221 100%
(a) Market-Adjusted Tax Exempt Securities (MATES). The interest rate is being reset
periodically via an auction process. As of September 30, 1994, the rates ranged from
3.15% to 3.19% for these bonds.
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
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<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF COMMON STOCK EQUITY
(Thousands of Dollars, Except Shares)
(Unaudited)
<CAPTION>
Common Stock Treasury Stock
Other
Paid-in Retained
Shares Amount Capital Earnings Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1991. . 40,997,745 637,003 284 170,598 (9,996,426) (199,255) 608,630
(Predecessor)
Net income 6,040 6,040
Cash dividends:
Common stock-$0.43 per
share. . . . . . . . . (13,330) (13,330)
Preferred stock. . . . . (205) (205)
Employee stock plans . . . (12) (966) (12)
Merger of KG&E with KCA. . (40,997,745) (636,991) (284) (163,103) 9,997,392 199,255 (601,123)
MARCH 31, 1992
Subtotal-KG&E (Predecessor). -0- -0- -0- -0- -0- -0- -0-
KCA common stock issued. . 1,000 $1,065,634 - - - - $1,065,634
Net income . . . . . . . . $ 71,941 71,941
BALANCE DECEMBER 31, 1992. . 1,000 1,065,634 - 71,941 - - 1,137,575
(Successor)
Net Income . . . . . . . . 108,103 108,103
BALANCE DECEMBER 31, 1993. . 1,000 $1,065,634 $ - $ 180,044 - $ - $1,245,678
(Successor)
Net Income . . . . . . . . 82,314 82,314
BALANCE SEPTEMBER 30, 1994 . 1,000 $1,065,634 $ - $ 262,358 - $ - $1,327,992
(Successor)
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
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KANSAS GAS AND ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES AND OTHER INFORMATION
General. On March 31, 1992, Western Resources, Inc., formerly The Kansas
Power and Light Company, (Western Resources, Parent Company) through its
wholly-owned subsidiary KCA Corporation (KCA), acquired all of the outstanding
common and preferred stock of Kansas Gas and Electric Company (KG&E) for $454
million in cash and 23,479,380 shares of Western Resources common stock (the
Merger).
The Company owns 47% of the Wolf Creek Nuclear Operating Corporation
(WCNOC), the operating company for the Wolf Creek Generating Station (Wolf
Creek). The Company records its proportionate share of all transactions of
WCNOC as it does other jointly-owned facilities.
The financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the accompanying condensed
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
the Company as of September 30, 1994, and December 31, 1993, and the results
of its operations for the three, nine and twelve month periods ended September
30, 1994 and 1993. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's 1993 Annual Report on Form 10-K.
The accounting policies of the Company are in accordance with generally
accepted accounting principles as applied to regulated public utilities. The
accounting and rates of the Company are subject to requirements of the Kansas
Corporation Commission (KCC) and the Federal Energy Regulatory Commission.
Cash Surrender Value of Life Insurance Contracts. The following amounts
related to corporate-owned life insurance (COLI) contracts, primarily with one
highly rated major insurance company, are recorded on the balance sheets
(millions of dollars):
September 30, December 31,
1994 1993
Cash surrender value of contracts $319.3 $269.0
Borrowings against contracts (310.5) (269.0)
COLI (net) $ 8.8 $ 0.0
Interest expense included in other income and deductions, net of taxes,
related to COLI for the three, nine, and twelve months ended September 30,
1994, was $5.6, $15.4, and $20.1 million, respectively. Interest expense for
the three, nine, and twelve months ended September 30, 1993, was $3.3, $6.2,
and $7.9 million, respectively.
<PAGE>
Statements of Cash Flows. For purposes of the statements of cash flows,
the Company considers highly liquid collateralized debt instruments purchased
with a maturity of three months or less to be cash equivalents.
Reclassifications. Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
2. SHORT-TERM DEBT
The Company's short-term financing requirements are satisfied through
short-term bank loans and borrowings under unsecured lines of credit
maintained with banks. At September 30, 1994, the Company had bank credit
arrangements available of $35 million. Effective October 1, 1994, the Company
reduced its bank credit arrangements to $24 million.
3. COMMITMENTS AND CONTINGENCIES
Environmental. The Company was previously associated with six former
manufactured gas sites which may contain coal tar and other potentially
harmful materials. The Company and the Kansas Department of Health and
Environment (KDHE) conducted preliminary assessments of these sites at minimal
cost. The results of the preliminary investigations determined the Company
does not have a connection to two of the sites.
Under a consent agreement with the KDHE governing all future work at the
four remaining sites, the Company will investigate these sites and set
remediation priorities based upon the results of the investigations and risk
analysis. The prioritized sites will be investigated over a 10 year period.
The agreement will allow the Company to set mutual objectives with the KDHE in
order to expedite effective response activities and to control costs and
environmental impact. The Company is aware of other utilities in Region VII
of the EPA (Kansas, Missouri, Nebraska, and Iowa) which have incurred
remediation costs for such sites ranging between $500,000 and $10 million,
depending on the site and that the KCC has issued an accounting order which
will permit another Kansas utility to recover a portion of its remediation
costs through rates. To the extent that such remediation costs are not
recovered through rates, the costs could be material to the Company's
financial position or results of operations depending on the degree of
remediation required and number of years over which the remediation must be
completed.
Spent Nuclear Fuel Disposal. Under the Nuclear Waste Policy Act of 1982,
the U.S. Department of Energy (DOE) is responsible for the ultimate storage
and disposal of spent nuclear fuel removed from nuclear reactors. Under a
contract with the DOE for disposal of spent nuclear fuel, the Company pays a
quarterly fee to DOE of one mill per kilowatthour on net nuclear generation.
These fees are included as part of nuclear fuel expense.
The Company along with the other co-owners of Wolf Creek are among 14
companies that filed a lawsuit June 20, 1994, seeking an interpretation of the
DOE's obligation to begin accepting spent nuclear fuel for disposal in 1998.
The Federal Nuclear Waste Policy Act requires DOE ultimately to accept and
dispose of nuclear utilities' spent fuel. The DOE has filed a motion to have
this case
<PAGE>
dismissed. The issue to be decided in this case is whether DOE must begin
accepting spent fuel in 1998 or at a future date.
Decommissioning. On June 9, 1994, the KCC issued an order approving the
decommissioning cost of the 1993 Wolf Creek Decommissioning Cost Study which
estimates the Company's share of Wolf Creek decommissioning costs, under the
immediate dismantlement method, to be approximately $595 million primarily
during the period 2025 through 2033, or approximately $174 million in 1993
dollars. These costs were calculated using an assumed inflation rate of 3.45%
over the remaining service life, in 1993, of 32 years.
Decommissioning costs are being charged to operating expenses. Electric
rates charged to customers provide for recovery of these decommissioning costs
over the life of Wolf Creek. Amounts so expensed ($3.5 million in 1993
increasing annually to $5.5 million in 2024) and earnings on trust fund assets
are deposited in an external trust fund. The assumed return on trust assets
is 5.9%.
The Company's investment in the decommissioning fund, including
reinvested earnings was $16.0 and $13.2 million at September 30, 1994 and
December 31, 1993, respectively. These amounts are reflected in OTHER
PROPERTY AND INVESTMENTS, Decommissioning Trust, and the related liability is
included in DEFERRED CREDITS AND OTHER LIABILITIES, Other, on the balance
sheets.
The Company carries $117 million in premature decommissioning insurance.
The insurance coverage has several restrictions. One of these is that it can
only be used if Wolf Creek incurs an accident exceeding $500 million in
expenses to safely stabilize the reactor, to decontaminate the reactor and
reactor station site in accordance with a plan approved by the Nuclear
Regulatory Commission (NRC), and to pay for on-site property damages. If the
amount designated as decommissioning insurance is needed to implement the NRC-
approved plan for stabilization and decontamination, it would not be available
for decommissioning purposes.
Nuclear Insurance. The Price-Anderson Act limits the combined public
liability of the owners of nuclear power plants to $9.0 billion for a single
nuclear incident. The Wolf Creek owners (Owners) have purchased the maximum
available private insurance of $200 million and the balance is provided by an
assessment plan mandated by the NRC. Under this plan, the Owners are jointly
and severally subject to a retrospective assessment of up to $79.3 million
($37.3 million, Company's share) in the event there is a nuclear incident
involving any of the nation's licensed reactors. This assessment is subject
to an inflation adjustment based on the Consumer Price Index and applicable
premium taxes. There is a limitation of $10 million ($4.7 million, Company's
share) in retrospective assessments per incident per year.
The Owners carry decontamination liability, premature decommissioning
liability, and property damage insurance for Wolf Creek totalling
approximately $2.8 billion ($1.3 billion, Company's share). This insurance is
provided by a combination of "nuclear insurance pools" ($500 million) and
Nuclear Electric Insurance Limited (NEIL) ($2.3 billion). In the event of an
accident, insurance proceeds must first be used for reactor stabilization and
site decontamination. The remaining proceeds from the $2.8 billion insurance
coverage ($1.3 billion, Company's share), if any, can be used for property
damage up to $1.2 billion
<PAGE>
(Company's share) and premature decommissioning costs up to $117 million
(Company's share) in excess of funds previously collected for decommissioning
(as discussed under "Decommissioning").
The Owners also carry additional insurance with NEIL to cover costs of
replacement power and other extra expenses incurred during a prolonged outage
resulting from accidental property damage at Wolf Creek. If losses incurred
at any of the nuclear plants insured under the NEIL policies exceed premiums,
reserves, and other NEIL resources, the Company may be subject to
retrospective assessments of approximately $13 million per year.
Although the Company maintains various insurance policies to provide
coverage for potential losses and liabilities resulting from an accident or an
extended outage, the Company's insurance coverage may not be adequate to cover
the costs that could result from a major accident or extended outage at Wolf
Creek. Any substantial losses not covered by insurance, to the extent not
recoverable through rates, could have a material adverse effect on the
Company's financial condition and results of operations.
Clean Air Act. The Clean Air Act Amendments of 1990 (the Act) require a
two-phase reduction in sulfur dioxide and oxides of nitrogen (NOx) emissions
effective in 1995 and 2000 and a probable reduction in toxic emissions. To
meet the monitoring and reporting requirements under the acid rain program,
the Company is installing continuous emission monitoring and reporting
equipment at a total cost of approximately $2.3 million. At December 31,
1993, the Company had completed approximately $850 thousand of these capital
expenditures with the remaining $1.4 million of capital expenditures to be
completed in 1994. The Company does not expect additional equipment to reduce
sulfur emissions to be necessary under Phase II. Although the Company
currently has no Phase I affected units, the Company applied for an early
substitution permit to bring the co-owned La Cygne Generating Station under
the Phase I guidelines.
The NOx and toxic limits, which were not set in the law, will be
specified in future EPA regulations. Until such time as the Phase I group 1
NOx regulations are final, the Company will be unable to determine its
compliance options or related compliance costs.
Fuel Commitments. To supply a portion of the fuel requirements for its
generating plants, the Company has entered into various commitments to obtain
nuclear fuel, coal and natural gas. Some of these contracts contain
provisions for price escalation and minimum purchase commitments. At
December 31, 1993, WCNOC's nuclear fuel commitments (Company's share) were
approximately $18.0 million for uranium concentrates expiring at various times
through 1997, $123.6 million for enrichment expiring at various times through
2014 and $45.5 million for fabrication through 2012. At December 31, 1993,
the Company's coal and natural gas contract commitments in 1993 dollars under
the remaining term of the contracts were $666 million and $20.4 million,
respectively. The largest coal contract was renegotiated early in 1993 and
expires in 2020 with the remaining coal contracts expiring at various times
through 2013. The majority of natural gas contracts expire in 1995 with
automatic one-year extension provisions. In the normal course of business,
additional commitments and spot market purchase will be made to obtain
adequate fuel supplies.
For additional information with respect to Commitments and Contingencies
see <PAGE>
Note 3, COMMITMENTS AND CONTINGENCIES of the Notes to Financial Statements in
the Company's 1993 Annual Report on Form 10-K.
4. LEGAL PROCEEDINGS
For information with respect to Legal Proceedings see Note 10, LEGAL
PROCEEDINGS of the Notes to Financial Statements in the Company's 1993 Annual
Report on Form 10-K.
5. RATE MATTERS AND REGULATION
For information with respect to Rate Matters and Regulation see Note 4
RATE MATTERS AND REGULATION of the Notes to Financial Statements in the
Company's 1993 Annual Report on Form 10-K.
6. INCOME TAXES
Total income tax expense included in the Statements of Income reflects
the Federal statutory rate of 35% since January 1, 1993 and 34% for all prior
periods. The Federal statutory rate produces effective income tax rates of
37.2% and 32.8% for the three month periods, and 36.0% and 29.8% for the nine
month periods and 35.6% and 27.8% for the twelve month periods ended September
30, 1994 and 1993, respectively. The effective income tax rates vary from the
Federal statutory rate due to the permanent differences, including the
amortization of investment tax credits.
For additional information with respect to Income Taxes see Note 9,
INCOME TAXES of the Notes to Financial Statements in the Company's 1993 Annual
Report on Form 10-K.
7. EMPLOYEE BENEFIT PLANS
Postemployment. The Company adopted the provisions of Statement of
Financial Accounting Standards No. 112 (SFAS 112), in the first quarter of
1994. This statement requires the Company to recognize the liability to
provide postemployment benefits when the liability has been incurred. To
mitigate the impact adopting SFAS 112 will have on rate increases, the Company
received an order from the KCC permitting the initial deferral of SFAS 112
transition costs and expenses and its inclusion in the future computation of
cost of service net of and income stream generated from corporate-owned life
insurance. At September 30, 1994, the Company's SFAS 112 liability recorded
on the balance sheet was approximately $594,000.
8. LONG-TERM DEBT
The Company had a long-term debt agreement which contained provisions for
the sale of accounts receivable and unbilled revenues (receivables) and phase-
in revenues up to a total of $180 million. This agreement was terminated on
November 1, 1994. Amounts related to receivables were accounted for as sales
<PAGE>
while those related to phase-in revenues were accounted for as collateralized
borrowings. Additional receivables were continually sold to replace those
collected. At September 30, 1994 and December 31, 1993, outstanding
receivables amounting to $20.1 million and $56.8 million, respectively, were
considered sold under the agreement.
For additional information with respect to Long-Term Debt see Note 6,
LONG-TERM DEBT of the Notes to Financial Statements in the Company's 1993
Annual Report on Form 10-K.
<PAGE>
KANSAS GAS AND ELECTRIC COMPANY
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with Item 7 of the
Company's Annual Report on Form 10-K for 1993.
The following updates the information provided in the 1993 Form 10-K, and
analyzes the changes in the results of operations between the three, nine and
twelve month periods ended September 30, 1994 and comparable periods of 1993.
FINANCIAL CONDITION
General. Net income for the third quarter of 1994 was $45.5 million
compared to $46.4 million for the same period of 1993. The two percent
decrease in net income can be attributed to decreased residential and
wholesale and interchange sales and higher income tax expense. Residential
sales decreased as a result of cooler temperatures in 1994 compared to 1993.
Wholesale and interchange sales were lower because the third quarter 1993
reflected higher sales to other utilities that had generating units down due
to the flooding of 1993.
Income tax expense increased as a result of the completion of the
accelerated amortization of certain deferred income tax reserves. As of
December 31, 1993, the Company had fully amortized these deferred income tax
reserves related to the allowance for borrowed funds used during construction
capitalized for Wolf Creek. The absence of the amortization of these deferred
income tax reserves reduces net income by approximately $3 million per quarter
or approximately $12 million per year.
Net income for the nine and twelve months ending September 30, 1994, of
$82.3 million and $96.0 million, decreased from net income of $94.4 and $109.9
million for the comparable periods of 1993, respectively. The decrease in net
income is primarily due to increases in income taxes as a result of the
absence of the amortization of the above mentioned deferred income tax
reserves and the receipt of death benefit proceeds from corporate-owned life
insurance policies in the third quarter of 1993.
Liquidity and Capital Resources. The KG&E common and preferred stock was
redeemed in connection with the Merger, leaving 1,000 shares of common stock
held by Western Resources. The debt structure of the Company and available
sources of funds were not affected by the Merger.
Effective October 1, 1994, the Company reduced its bank credit
arrangements from $35 million to $24 million.
On April 28, 1994, three series of Market-Adjusted Tax Exempt Securities
totalling $46.4 million were sold on behalf of the Company at a rate of 2.95%
for the initial auction period. The interest rate is being reset periodically
via
<PAGE>
an auction process. As of September 30, 1994, the rates on these bonds ranged
from 3.15% to 3.19%. The net proceeds from the new issues, together with
available cash, were used to refund three series of Pollution Control Bonds
totalling $46.4 million bearing interest rates between 5 7/8% and 6.8%.
In 1986 the Company purchased corporate-owned life insurance policies
(COLI) on certain of its employees. For the nine months ended September 30,
1994, the Company increased its borrowings against the accumulated cash
surrender values of the policies by $39.9 million and received $1.6 million
from increased borrowings on Wolf Creek Nuclear Operating Company policies.
OPERATING RESULTS
The following discussion explains variances for the three, nine and
twelve months ended September 30, 1994 to the comparable periods of 1993.
Revenues. The Company's revenues vary with levels of usage as a result
of changing weather conditions during comparable periods and are sensitive to
seasonal fluctuations between consecutive periods.
Increase (decrease) in electric sales volumes:
3 Months 9 Months 12 Months
Ended Ended Ended
Residential (8.8)% (2.1)% (1.0)%
Commercial 4.8% 2.6% 1.0%
Industrial 3.6% 0.5% (0.8)%
Total Retail (0.5)% 0.2% (0.4)%
Wholesale & interchange (53.9)% (0.5)% 17.2%
Total electric sales (12.5)% 0.1% 2.8%
Revenues for the third quarter of 1994 were $189.2 million down one
percent from the 1993 third quarter revenues of $191.9 million. The decrease
was due primarily to decreased residential sales as the Company's service
territory experienced cooler summer temperatures during 1994 as compared to
last year, reducing the customer demand for air conditioning load. Wholesale
and interchange revenues were also lower because during the third quarter of
1993 the Company had higher sales to other utilities while their generating
units were down due to the flooding of 1993.
Revenues for the nine months ended September 30, 1994, of $480.8 million,
were virtually unchanged from revenues of $480.9 million for the comparable
period of 1993.
Revenues for the twelve months ended September 30, 1994, increased
approximately one percent to $616.9 million, from revenues of $608.0 million
for the comparable period of 1993. The increase can be attributed to higher
revenues in all customer classes.
Operating Expenses. Total operating expenses for the three months ended
September 30, 1994, of $132.2 million decreased approximately five percent
from total operating expenses of $139.1 million for the comparable period of
1993.
<PAGE>
The decrease is primarily attributed to reduced operations and maintenance
expense and a $4.3 million decrease in purchased power expense as a result of
lower sales resulting from the decrease in demand from residential and
wholesale customers during the third quarter of 1994 as compared to 1993.
Total operating expenses increased approximately two percent for the nine
months ended September 30, 1994 compared to the same period of 1993. The
increase is primarily due to an increase of $11.3 million in federal and state
income taxes and a $1.6 million increase in maintenance expense as a result of
the major boiler overhaul of the Company's coal fired La Cygne 1 during the
second quarter of 1994.
Total operating expenses increased approximately four percent for the
twelve months ended September 30, 1994 compared to the same period of 1993.
The increase is primarily the result of a $10.7 million increase in fuel
expense due to increased electric generation caused by the increase in
customer demand and $18.5 million increase in federal and state income taxes.
The increase in federal income taxes for the three, nine and twelve
months ended September 30, 1994 was due to the completion at December 31,
1993, of the accelerated amortization of deferred income tax reserves relating
to the allowance for borrowed funds used during construction capitalized for
Wolf Creek. The completion of the amortization of these deferred income tax
reserves increased income taxes and thereby reduced net income by
approximately $3 million and $9 million for the quarter and nine months ended
September 30, 1994, respectively.
Wolf Creek Generating Station (Wolf Creek) operates on an eighteen month
refueling cycle. Wolf Creek began its seventh refueling and maintenance
outage in mid September 1994. The outage took approximately 47 days. The
operations and maintenance expenses associated with the refueling are being
deferred and then amortized over eighteen months.
Other Income and Deductions. Other income and deductions, net of taxes,
decreased significantly for the three, nine and twelve months ended September
30, 1994, compared to the same period in 1993 primarily as a result of
increased interest expense on higher COLI borrowings. For the nine and twelve
months ended September 30, 1994, interest on COLI borrowings has increased
$8.8 million and $13.2 million compared to the same periods of 1993,
respectively. Also contributing to the decrease was the receipt of death
benefit proceeds from COLI policies in the third quarter of 1993.
Interest Expense. Interest expense decreased $1.9 million, $6.4 million
and $10.4 million for the three, nine and twelve months ended September 30,
1994 compared to the same periods of 1993, respectively. The decreases
resulted primarily from lower interest rates on variable-rate debt and the
refinancing of higher cost fixed-rate debt. Also accounting for the decrease
in interest expense was the impact of increased COLI borrowings which reduce
the need for other long-term debt and thereby reduced interest expense. COLI
interest is reflected in Other Income and Deductions on the income statement.
<PAGE>
KANSAS GAS AND ELECTRIC COMPANY
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements 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 Gas and Electric Company
Date November 10, 1994 By Richard D. Terrill
Richard D. Terrill,
Secretary, Treasurer and
General Counsel
<TABLE> <S> <C>
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1994 AND THE STATEMENT OF INCOME AND THE STATEMENT OF
CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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