SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 1-3523
WESTERN RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)
KANSAS 48-0290150
(State or Other Jurisdiction of (Employer
Incorporation or Organization) Identification No.)
818 KANSAS AVENUE, TOPEKA, KANSAS 66612
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number Including Area Code (913) 575-6300
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 May 11, 1994
Common Stock, $5.00 par value 61,617,873
<PAGE>
WESTERN RESOURCES, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4 & 5
Consolidated Statements of Cash Flows 6 & 7
Consolidated Statements of Capitalization 8
Consolidated Statements of Common Stock Equity 9
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
<PAGE>
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . $5,134,244 $5,110,617
Natural gas plant in service. . . . . . . . . . . . . . 703,048 1,111,866
5,837,292 6,222,483
Less - Accumulated depreciation . . . . . . . . . . . . 1,739,474 1,821,710
4,097,818 4,400,773
Construction work in progress . . . . . . . . . . . . . 83,879 80,192
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 31,361 29,271
Net utility plant. . . . . . . . . . . . . . . . . . 4,213,058 4,510,236
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . . . . . . . . 61,153 61,497
Decommissioning trust . . . . . . . . . . . . . . . . . 14,273 13,204
Other . . . . . . . . . . . . . . . . . . . . . . . . . 11,123 10,658
86,549 85,359
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . 10,515 1,217
Accounts receivable and unbilled revenues (net) . . . . 201,377 238,137
Fossil fuel, at average cost. . . . . . . . . . . . . . 36,400 30,934
Gas stored underground, at average cost . . . . . . . . 10,115 51,788
Materials and supplies, at average cost . . . . . . . . 54,024 55,156
Prepayments and other current assets. . . . . . . . . . 44,802 34,128
357,233 411,360
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . . 135,485 135,991
Deferred coal contract settlement costs . . . . . . . . 20,424 21,247
Phase-in revenues . . . . . . . . . . . . . . . . . . . 74,564 78,950
Corporate-owned life insurance (net). . . . . . . . . . 9,980 4,743
Other deferred plant costs. . . . . . . . . . . . . . . 31,952 32,008
Other . . . . . . . . . . . . . . . . . . . . . . . . . 108,599 132,154
381,004 405,093
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $5,037,844 $5,412,048
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . . $2,985,375 $3,121,021
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . 120,415 440,895
Long-term debt due within one year. . . . . . . . . . . 500 3,204
Accounts payable. . . . . . . . . . . . . . . . . . . . 130,860 172,338
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 188,377 46,076
Accrued interest and dividends. . . . . . . . . . . . . 60,662 65,825
Other . . . . . . . . . . . . . . . . . . . . . . . . . 64,151 65,492
564,965 793,830
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . 895,793 968,637
Deferred investment tax credits . . . . . . . . . . . . 142,688 150,289
Deferred gain from sale-leaseback . . . . . . . . . . . 259,571 261,981
Other . . . . . . . . . . . . . . . . . . . . . . . . . 189,452 116,290
1,487,504 1,497,197
COMMITMENTS AND CONTINGENCIES (Notes 4, 5 and 6)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $5,037,844 $5,412,048
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
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<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 251,497 $ 251,271
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 286,875 328,310
Total operating revenues. . . . . . . . . . . . . . . . 538,372 579,581
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 52,640 58,402
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 3,863 2,707
Power purchased . . . . . . . . . . . . . . . . . . . . . 2,351 4,598
Natural gas purchases . . . . . . . . . . . . . . . . . . 198,652 209,606
Other operations. . . . . . . . . . . . . . . . . . . . . 77,563 85,395
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 26,497 26,925
Depreciation and amortization . . . . . . . . . . . . . . 39,308 40,910
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 22,092 19,844
State income. . . . . . . . . . . . . . . . . . . . . . 5,222 4,450
General . . . . . . . . . . . . . . . . . . . . . . . . 32,016 36,408
Total operating expenses. . . . . . . . . . . . . . . 464,590 493,631
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 73,782 85,950
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (1,235) 1,469
Gain on sale of Missouri Properties (see Note 2). . . . . 30,701 -
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 2,367 5,703
Income taxes (net). . . . . . . . . . . . . . . . . . . . (8,945) (1,266)
Total other income and deductions . . . . . . . . . . 22,888 5,906
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 96,670 91,856
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 26,691 33,088
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 4,515 4,733
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (669) (779)
Total interest charges. . . . . . . . . . . . . . . . 30,537 37,042
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 66,133 54,814
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 3,354 3,346
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 62,779 $ 51,468
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,617,873 58,045,550
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 1.02 $ .89
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ .495 $ .485
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Twelve Months Ended
March 31,
1994 1993
<S> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $1,104,763 $1,028,595
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 763,387 733,614
Total operating revenues. . . . . . . . . . . . . . . . 1,868,150 1,762,209
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 231,291 216,416
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 14,431 12,833
Power purchased . . . . . . . . . . . . . . . . . . . . . 14,149 17,497
Natural gas purchases . . . . . . . . . . . . . . . . . . 489,235 439,817
Other operations. . . . . . . . . . . . . . . . . . . . . 341,328 332,847
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 117,415 113,814
Depreciation and amortization . . . . . . . . . . . . . . 162,762 161,964
Amortization of phase-in revenues . . . . . . . . . . . . 17,545 17,544
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 64,668 42,726
State income. . . . . . . . . . . . . . . . . . . . . . 16,330 9,126
General . . . . . . . . . . . . . . . . . . . . . . . . 119,101 115,190
Total operating expenses. . . . . . . . . . . . . . . 1,588,255 1,479,774
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 279,895 282,435
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . 5,137 10,777
Gain on sale of Missouri Properties (see Note 2). . . . . 30,701 -
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 15,082 24,660
Income taxes (net). . . . . . . . . . . . . . . . . . . . (8,456) (5,326)
Total other income and deductions . . . . . . . . . . 42,464 30,111
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 322,359 312,546
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 117,154 138,023
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 19,037 22,480
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (2,521) (2,671)
Total interest charges. . . . . . . . . . . . . . . . 133,670 157,832
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 188,689 154,714
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 13,514 13,585
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 175,175 $ 141,129
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 60,174,937 58,045,550
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 2.91 $ 2.43
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 1.95 $ 1.91
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 66,133 $ 54,814
Depreciation and amortization . . . . . . . . . . . . . . 39,308 40,910
Other amortization (including nuclear fuel) . . . . . . . 2,806 1,876
Gain on sale of utility plant (net of tax). . . . . . . . (19,296) -
Deferred taxes and investment tax credits (net) . . . . . (62,412) 8,072
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Corporate-owned life insurance. . . . . . . . . . . . . . (4,519) (4,154)
Amortization of gain from sale-leaseback. . . . . . . . . (2,410) (2,410)
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . (57,247) (26,445)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . (5,466) 10,520
Gas stored underground. . . . . . . . . . . . . . . . . 29,705 2,674
Accounts payable . . . . . . . . . . . . . . . . . . . (41,438) (53,881)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 122,167 41,691
Other . . . . . . . . . . . . . . . . . . . . . . . . . (7,218) (13,156)
Changes in other assets and liabilities . . . . . . . . . 111,629 (19,896)
Net cash flows from operating activities. . . . . . . 176,128 45,001
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . 44,506 42,067
Sale of utility plant . . . . . . . . . . . . . . . . . . (402,076) -
Non-utility investments . . . . . . . . . . . . . . . . . 668 7,520
Corporate-owned life insurance policies . . . . . . . . . 281 427
Net cash flows (from) used in investing activities. . (356,621) 50,014
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . (320,480) 103,475
Bank term loan retired. . . . . . . . . . . . . . . . . . - (230,000)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . 113,982 58,500
Bonds retired . . . . . . . . . . . . . . . . . . . . . . (101,466) (58,500)
Revolving credit agreement (net). . . . . . . . . . . . . (115,000) 210,000
Other long-term debt (net). . . . . . . . . . . . . . . . (67,893) (46,870)
Borrowings against life insurance policies (net). . . . . 645 621
Dividends on preferred, preference and common stock . . . (33,239) (30,981)
Net cash flows (used in) from financing activities. . (523,451) 6,245
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . 9,298 1,232
CASH AND CASH EQUIVALENTS:
BEGINNING OF THE PERIOD . . . . . . . . . . . . . . . . . 1,217 875
END OF THE PERIOD . . . . . . . . . . . . . . . . . . . . $ 10,515 $ 2,107
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 31,979 $ 40,969
Income taxes. . . . . . . . . . . . . . . . . . . . . . . - -
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Twelve Months Ended
March 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 188,689 $ 154,714
Depreciation and amortization . . . . . . . . . . . . . . . 162,762 161,964
Other amortization (including nuclear fuel) . . . . . . . . 12,184 10,805
Gain on sale of utility plant (net of tax). . . . . . . . . (19,296) -
Deferred taxes and investment tax credits (net) . . . . . . (42,798) 43,295
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Corporate-owned life insurance. . . . . . . . . . . . . . . (22,015) (18,858)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,640) (9,641)
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . . (46,338) (75,699)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . 2,087 21,312
Gas stored underground. . . . . . . . . . . . . . . . . . (10,113) 1,305
Accounts payable. . . . . . . . . . . . . . . . . . . . . (30,726) 20,035
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 87,961 (19,382)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,773 8,361
Changes in other assets and liabilities . . . . . . . . . . 112,956 (77,080)
Net cash flows from operating activities . . . . . . . 406,031 238,675
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 240,070 219,101
Utility investment. . . . . . . . . . . . . . . . . . . . . 2,500 -
Sale of utility plant . . . . . . . . . . . . . . . . . . . (402,076) -
Non-utility investments . . . . . . . . . . . . . . . . . . 7,419 31,669
Corporate-owned life insurance policies . . . . . . . . . . 27,119 20,663
Death proceeds of corporate-owned life insurance policies . (10,157) (6,792)
Net cash flows (from) used in investing activities. . . (135,125) 264,641
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (205,285) 157,300
Bank term loan retired. . . . . . . . . . . . . . . . . . . - (480,000)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 278,982 486,208
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (409,432) (295,466)
Revolving credit agreement (net). . . . . . . . . . . . . . (360,000) 210,000
Other long-term debt (net). . . . . . . . . . . . . . . . . (13,980) 24,920
Common stock issued (net) . . . . . . . . . . . . . . . . . 125,991 -
Preference stock issued (net) . . . . . . . . . . . . . . . - 50,000
Preference stock redeemed . . . . . . . . . . . . . . . . . (2,734) (2,600)
Borrowings against life insurance policies (net). . . . . . 183,284 (5,028)
Dividends on preferred, preference and common stock . . . . (129,574) (124,453)
Net cash flows (used in) from financing activities. . . (532,748) 20,881
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . 8,408 (5,085)
CASH AND CASH EQUIVALENTS:
BEGINNING OF THE PERIOD . . . . . . . . . . . . . . . . . . 2,107 7,192
END OF THE PERIOD . . . . . . . . . . . . . . . . . . . . . $ 10,515 $ 2,107
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . . $ 162,744 $ 151,752
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 49,108 24,953
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
COMMON STOCK EQUITY (see statement):
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
61,617,873 shares. . . . . . . . . . . . . . . . $ 308,089 $ 308,089
Paid-in capital. . . . . . . . . . . . . . . . . . 667,514 667,738
Retained earnings. . . . . . . . . . . . . . . . . 478,627 446,348
1,454,230 49% 1,422,175 45%
CUMULATIVE PREFERRED AND PREFERENCE STOCK:
Not subject to mandatory redemption,
Par value $100 per share, authorized
600,000 shares, outstanding -
4 1/2% Series, 138,576 shares . . . . . . . 13,858 13,858
4 1/4% Series, 60,000 shares. . . . . . . . 6,000 6,000
5% Series, 50,000 shares. . . . . . . . . . 5,000 5,000
24,858 24,858
Subject to mandatory redemption,
Without par value, $100 stated value,
authorized 4,000,000 shares,
outstanding -
7.58% Series, 500,000 shares. . . . . . . . 50,000 50,000
8.50% Series, 1,000,000 shares. . . . . . . 100,000 100,000
150,000 150,000
174,858 6% 174,858 6%
LONG-TERM DEBT:
First mortgage bonds . . . . . . . . . . . . . . . 841,000 842,466
Pollution control bonds. . . . . . . . . . . . . . 522,422 508,440
Other pollution control obligations. . . . . . . . - 13,980
Revolving credit agreement . . . . . . . . . . . . - 115,000
Other long-term agreement. . . . . . . . . . . . . - 53,913
Less:
Unamortized premium and discount (net) . . . . . 6,635 6,607
Long-term debt due within one year . . . . . . . 500 3,204
1,356,287 45% 1,523,988 49%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . $2,985,375 100% $3,121,021 100%
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
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<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Common Paid-in Retained
Stock Capital Earnings
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1992, 58,045,550 shares. . . . . $290,228 $559,636 $398,503
Net income. . . . . . . . . . . . . . . . . . . . . . 54,814
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (3,346)
Common stock, $0.485 per share . . . . . . . . . . (28,152)
Expenses on preference stock. . . . . . . . . . . . (487)
BALANCE MARCH 31, 1993, 58,045,550 shares . . . . . . 290,228 559,149 421,819
Net income. . . . . . . . . . . . . . . . . . . . . . 122,556
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (10,160)
Common stock, $1.455 per share. . . . . . . . . . . (87,867)
Expenses on common and preference stock . . . . . . (2,966)
Issuance of 3,572,323 shares of common stock. . . . . 17,861 111,555
BALANCE DECEMBER 31, 1993, 61,617,873 shares . . . . 308,089 667,738 446,348
Net income. . . . . . . . . . . . . . . . . . . . . . 66,133
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (3,354)
Common stock, $0.495 per share. . . . . . . . . . . (30,500)
Expenses on common stock. . . . . . . . . . . . . . (224)
BALANCE MARCH 31, 1994, 61,617,873 shares . . . . . . $308,089 $667,514 $478,627
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
WESTERN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES AND OTHER INFORMATION
General. The condensed consolidated financial statements of the Company
include the accounts of its wholly-owned subsidiaries, Astra Resources, Inc.,
Kansas Gas and Electric Company (KG&E), and KPL Funding Corporation. KG&E
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. All significant intercompany
transactions have been eliminated. The Company is doing business as KPL, Gas
Service, and through its wholly-owned subsidiary, KG&E.
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
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position of the Company as of March 31, 1994, and December 31, 1993, and the
results of its operations for the three and twelve month periods ended March
31, 1994 and 1993. These condensed consolidated 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 and the KG&E Annual
Report on Form 10-K incorporated by reference 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):
March 31, December 31,
1994 1993
Cash surrender value of contracts $360.5 $326.3
Prepaid COLI 28.4 11.9
Borrowings against contracts (350.6) (321.5)
COLI (net) $ 38.3 $ 16.7
Consolidated Statements of Cash Flows. For purposes of the consolidated
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. SALE OF MISSOURI NATURAL GAS DISTRIBUTION PROPERTIES
On January 31, 1994, the Company sold substantially all of its Missouri
natural gas distribution properties and operations to Southern Union Company
(Southern Union). The Company sold the remaining Missouri properties to
United Cities Gas Company (United Cities) on February 28, 1994. The
properties sold to Southern Union and United Cities are referred to herein as
the "Missouri Properties." With the sales, the Company is no longer operating
as a utility in the State of Missouri.
The portion of the Missouri Properties purchased by Southern Union was
sold for an estimated sale price of $400 million, in cash, based on a
calculation as of December 31, 1993. The final sale price will be calculated
as of January 31, 1994, within 120 days of closing. Any difference between the
estimated and final sale price will be adjusted through a payment to or from
the Company.
United Cities purchased the Company's natural gas distribution system in
and around the City of Palmyra, Missouri, for $665,000 in cash.
The Company recognized a gain of approximately $19.3 million, net of tax,
on the sale of the Missouri Properties. This gain is reflected in other
income and deductions on the consolidated income statement.
The operating revenues and operating income (unaudited) for the first
quarter of 1994, related to the Missouri Properties, approximated $77 million
and $6 million representing approximately 14 percent and eight percent,
respectively, of the Company's total. This compares to $141 million and $12
million representing approximately 24 percent and 14 percent, respectively, of
the Company's total for the first quarter of 1993. The first quarter of 1994
only included revenues and operating income (unaudited) related to the
Missouri Properties for a portion of the quarter compared to a full quarter in
1993. Net utility plant (unaudited) for the Missouri Properties, at December
31, 1993, approximated $296 million. This represents approximately seven
percent at December 31, 1993, of the total Company net utility plant.
Separate audited financial information was not kept by the Company for the
Missouri Properties. This unaudited financial information is based on
assumptions and allocations of expenses of the Company as a whole.
3. SHORT-TERM DEBT
The Company's short-term financing requirements are satisfied through the
sale of commercial paper, short-term bank loans and borrowings under unsecured
lines of credit maintained with banks. At March 31, 1994, the Company had
bank credit arrangements available of $145 million.
4. COMMITMENTS AND CONTINGENCIES
As a part of its ongoing operations and construction program, the Company
had commitments under purchase orders and contracts which had an unexpended
balance of approximately $86 million at December 31, 1993. Approximately $36
million was attributable to modifications to upgrade the three turbines at
Jeffrey Energy Center to be completed by December 31, 1998.
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.
Decommissioning. In 1988 the Company estimated that it would expend
approximately $725 million for its share of Wolf Creek decommissioning costs
primarily during the period from 2025 through 2031. Such costs, estimated to
be approximately $97 million in 1988 dollars, are currently authorized in
rates. These costs were calculated using an assumed inflation rate of 5.15%
over the remaining service life, in 1988, of 37 years.
Decommissioning costs, calculated in the 1988 estimate, are being charged
to operating expenses. 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 which, when fully funded (assuming a
return on trust assets of 7%) will be used solely for the physical
decommissioning of Wolf Creek (immediate dismantlement method). Electric
rates charged to customers provide for recovery of these decommissioning costs
over the life of Wolf Creek.
The Company's investment in the decommissioning fund, including
reinvested earnings was $14.3 and $13.2 million at March 31, 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 consolidated
balance sheets.
On September 1, 1993, WCNOC filed an application with the KCC for an
order approving a 1993 Wolf Creek Decommissioning Cost Study which estimates
the Company's share of Wolf Creek decommissioning costs at approximately $174
million in 1993 dollars. If approved by the KCC, management expects
substantially all such cost increases to be recovered through the ratemaking
process.
The Company carries $164 million in premature decommissioning insurance
in the event of a shortfall in the trust fund. 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 $9.3 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. 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" ($1.3 billion) and
Nuclear Electric Insurance Limited (NEIL) ($1.5 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 $1.1 billion (Company's share) and premature decommissioning
costs up to $117.5 million (Company's share) in excess of funds previously
collected for decommissioning (as discussed under "Decommissioning"), with the
remaining $47 million (Company's share) available for either property damage
or premature decommissioning costs.
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 $9 million per year.
There can be no assurance that all potential losses or liabilities will
be insurable or that the amount of insurance will be sufficient to cover them.
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 monitoring and reporting equipment at a
total cost of approximately $10 million. At December 31, 1993, the Company
had completed approximately $4 million of these capital expenditures with the
remaining $6 million of capital expenditures to be completed in 1994 and 1995.
The Company does not expect additional equipment to reduce sulfur emissions to
be necessary under Phase II. The Company currently has no Phase I affected
units.
The NOx and toxic limits, which were not set in the law, will be
specified in future EPA regulations. The EPA has issued for public comment
preliminary NOx regulations for Phase I group 1 units. NOx regulations for
Phase II units and Phase I group 2 units are mandated in the Act to be
promulgated by January 1, 1997. Although the Company has no Phase I units,
the final NOx regulations for Phase I group 1 may allow for early compliance
for Phase II group 1 units. 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 $2.8 billion 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 continue through 1995
with automatic one-year extension provisions. In the normal course of
business, additional commitments and spot market purchases will be made to
obtain adequate fuel supplies.
Environmental. The Company has been associated with 20 former
manufactured gas sites which may contain coal tar and other potentially
harmful materials. These sites were operated decades ago by other companies,
and were acquired by the Company after they had ceased operation. The
Environmental Protection Agency (EPA) has performed preliminary assessments of
seven of these sites (EPA sites), four of which are under site investigation.
The Company has not received any indication from the EPA that further action
will be taken at the EPA sites, nor does the Company have reason to believe
there will be any fines or penalties related to these sites. The Company and
the Kansas Department of Health and Environment entered into a consent
agreement to conduct separate preliminary assessments of these sites. The
preliminary assessments of these sites have been completed at a total cost of
approximately $500,000. The Company has initiated site investigation and risk
assessment of the highest priority site and anticipates a total cost for site
investigations of approximately $500,000 to $700,000 in 1994. Until such time
that risk assessments are completed at this or the remaining sites, it will be
impossible to predict the cost of remediation. However, 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. The Company is also aware
that the KCC has permitted another Kansas utility to recover a portion of the
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 and number of years over which the remediation must be completed.
The Company has been identified as one of numerous potentially
responsible parties in five hazardous waste sites listed by the EPA as
Superfund sites. One site is a groundwater contamination site in Wichita,
Kansas, and two are oil soil contamination sites in Missouri. The other two
sites are solid waste land-fills located in Edwardsville and Hutchinson,
Kansas. The Company's obligation at these sites appears to be limited, and it
is the opinion of the Company's management that the resolution of these
matters will not have a material impact on the financial position of the
Company or results of operations.
As part of the sale of the Company's Missouri Properties to Southern
Union, Southern Union assumed responsibility under an agreement for any
environmental matters pending at the date of the sale or that may arise after
closing. For any environmental matters pending or discovered within two years
of the date of the agreement, and after pursuing several other potential
recovery options, the Company may be liable for up to a maximum of $7.5
million under a sharing arrangement with Southern Union provided for in the
agreement.
For more information with respect to Commitments and Contingencies, see
Note 4, COMMITMENTS AND CONTINGENCIES of the Company's 1993 Annual Report on
Form 10-K.
5. LEGAL PROCEEDINGS
For information with respect to Legal Proceedings see Note 15, LEGAL
PROCEEDINGS of the Company's 1993 Annual Report on Form 10-K.
6. RATE MATTERS AND REGULATION
Gas Transportation Charges. On September 12, 1991, the KCC authorized
the Company to begin recovering, through the Purchase Gas Adjustment (PGA),
deferred supplier gas transportation costs of $9.9 million incurred through
December 31, 1990, based on a three-year amortization schedule. On December
30, 1991, the KCC authorized the Company to recover deferred transportation
costs of approximately $2.8 million incurred subsequent to December 31, 1990
through the PGA over a 32-month period. At March 31, 1994, approximately $3.2
million of these deferrals remain in other deferred charges on the
consolidated balance sheet.
KCC Rate Proceedings. On January 24, 1992, the KCC issued an order
allowing the Company to continue the deferral of service line replacement
program costs incurred since January 1, 1992, including depreciation, property
taxes, and carrying costs for recovery in the next general rate case. At
March 31, 1994, approximately $3.7 million of these deferrals have been
included in other deferred charges on the consolidated balance sheet.
On December 30, 1991, the KCC approved a permanent natural gas rate
increase of $39 million annually and the Company discontinued the deferral of
accelerated line survey costs on January 1, 1992. Approximately $7.0 million
of deferred costs remain in other deferred charges on the consolidated balance
sheet at March 31, 1994, with the balance being included in rates and
amortized to expense during a 43-month period, commencing January 1, 1992.
For additional information with respect to Rate Matters and Regulation
see Note 5, RATE MATTERS AND REGULATION of the Company's 1993 Annual Report on
Form 10-K.
7. INCOME TAXES
Total income tax expense included in the Consolidated 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 35.6% and 31.9% for the three month periods, and 34.7% and
27.5% for the twelve month periods ended March 31, 1994 and 1993,
respectively. The effective income tax rates vary from the Federal statutory
rate due to permanent differences, including the amortization of investment
tax credits, and accelerated amortization of certain deferred income taxes.
8. EMPLOYEE BENEFIT PLANS
The Company adopted Statement of Financial Accounting Standards No. 112
(SFAS 112), which established accounting and reporting standards for
postemployment benefits. The new 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 has 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 an income stream generated
from corporate-owned life insurance. At March 31, 1994, the Company's SFAS
112 liability recorded on the consolidated balance sheet was approximately
$8.6 million.
At December 31, 1993, the Company's total Statement of Financial
Accounting Standards No. 106 (SFAS 106) obligation was approximately $166.5
million and the 1993 SFAS 106 expense was approximately $26.5 million for
1993. To mitigate the impact SFAS 106 expense will have on rate increases,
the Company will include in the future computation of cost of service the
actual SFAS 106 expense and an income stream generated from corporate-owned
life insurance (COLI). The extent SFAS 106 expense exceeds income from the
COLI program, this excess is being deferred to be offset by income generated
through the deferral period by the COLI program. With the sale of the
Missouri Properties, the Company's SFAS 106 obligation at December 31, 1993
would have been lower by approximately $40.1 million and the 1993 expense
would have been $5.3 million lower.
<PAGE>
WESTERN RESOURCES, INC.
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 MANAGEMENT'S
DISCUSSION AND ANALYSIS of the Company's 1993 Annual Report on Form 10-K.
The following updates the information provided in the 1993 Annual Report
on Form 10-K and analyzes the changes in the results of operations between the
three and twelve month periods ended March 31, 1994, and comparable periods of
1993.
FINANCIAL CONDITION
General. The Company earned $1.02 per share of common stock for the
first quarter of 1994, an increase of $0.13 per share from the first quarter
of 1993. There were 61,617,873 and 58,045,550 shares outstanding for the
first quarter of 1994 compared to 1993, respectively. Net income for the
first quarter of 1994 was $66 million compared with net income of $55 million
for the same period of 1993. The increase in net income is attributable to
the gain on the sale of the Missouri Properties (see Note 2).
Operating revenues were $538 million and $580 million for the quarters
ended March 31, 1994 and 1993, respectively. The decrease in revenues is
primarily a result of the sale of the Missouri Properties (see Note 2).
The quarterly dividend rate is $0.495 per share, for an indicated annual
rate of $1.98 per share. The book value per share was $23.60 at March 31,
1994, up from $23.08 at December 31, 1993.
Liquidity and Capital Resources. The Company's short-term debt balance
at March 31, 1994, decreased approximately $320 million from December 31,
1993, primarily as a result of the receipt of the proceeds from the sale of
the Missouri Properties and KG&E's issuance, on January 20, 1994, of $100
million of First Mortgage Bonds, 6.20% Series due January 15, 2006.
On January 31, 1994, the Company redeemed the remaining $2,466,000
principal amount of Gas Service Company 8 1/2% Series First Mortgage Bonds due
1997.
On February 17, 1994, KG&E refinanced the City of La Cygne, Kansas, 5
3/4% Pollution Control Revenue Refunding Bonds Series 1973, $13,980,000
principal amount, with 5.10% Pollution Control Revenue Refunding Bonds Series
1994, $13,982,500 principal amount.
On March 4, 1994, the Company retired the following First Mortgage Bonds:
$19 million of 7 5/8% Series due April 1, 1999, $30 million of 8 1/8% Series
due June 1, 2007, and $50 million of 8 5/8% Series due March 1, 2017.
On April 28, 1994, two series of Market-Adjusted Tax Exempt Bonds
totalling $75.5 million were sold on behalf of the Company at a rate of 2.95%
for the initial auction period. The net proceeds from the new issues,
together with available cash, were used to refund two series of pollution
control bonds totalling $75.5 million bearing interest rates of 5.9% and
6.75%.
Also on April 28, 1994, three series of Market-Adjusted Tax Exempt Bonds
totalling $46.4 million were sold on behalf of KG&E at a rate of 2.95% for the
initial auction period. 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%.
OPERATING RESULTS
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. Future electric and
natural gas sales will continue to be affected by weather conditions,
competing fuel sources, wholesale demand, and the overall economy of the
Company's service area.
The following table reflects changes in electric sales for the three and
twelve months ended March 31, 1994, from the comparable period of 1993.
Changes in electric sales volumes (decrease):
3 Months 12 Months
ended ended
Residential (7.6)% 7.6%
Commercial 6.8 % 5.4%
Industrial (2.7)% 1.0%
Total retail sales (1.4)% 4.5%
Wholesale 34.3 % 35.9%
Total electric sales 5.7 % 10.6%
Electric revenues increased slightly for the quarter ended March 31, 1994
compared to the same period of 1993. Residential sales were lower for the
quarter as a result of milder weather compared to the first quarter of 1993.
This decrease was offset by increases in commercial and wholesale sales. The
increase in wholesale revenue is a result of increased interchange sales to
other utilities.
Electric revenues increased seven percent for the twelve months ended
March 31, 1994 compared to the same period of 1993. This increase is
primarily attributable to increased sales for air conditioning load as a
result of the return to near normal summer temperatures in the summer of 1993.
For the twelve months ended March 31, 1993, the Company experienced reduced
retail electric sales for air conditioning load as a result of the abnormally
mild summer temperatures in 1992. Also contributing to the increase in
revenues is an increase in wholesale revenues as a result of other utilities'
need for power to meet peak demand periods while those utilities' units were
out of service due to the 1993 summer flooding.
The following table reflects changes in natural gas sales for the three
and twelve months ended March 31, 1994, from the comparable period of 1993.
Changes in natural gas sales volumes (decrease):
3 Months 12 Months
ended ended
Residential (26.8)% (8.4)%
Commercial (31.5)% (12.9)%
Industrial (61.1)% (53.2)%
Transportation (23.8)% (2.6)%
Total deliveries (27.5)% (8.0)%
Natural gas revenues decreased 13 percent for the quarter ended March,
31, 1994, compared to the same period of 1993. This decrease occurred as a
result of the loss of revenue with the sale of the Missouri Properties (see
Note 2). Also contributing to the decrease were lower natural gas sales for
space heating as a result of the milder winter temperatures in 1994.
Partially offsetting the decrease was a significantly higher unit gas cost
being recovered from customers through Purchased Gas Adjustment clauses (PGA).
Natural gas revenues increased four percent for the twelve months ended
March 31, 1994, compared to the same period of 1993. The increase in revenues
is attributable to a higher unit cost of gas passed on to customers through
the PGA. Partially offsetting this increase was the loss of revenue related
to the sale of the Missouri Properties.
Operating Expenses. Total operating expenses decreased six percent for
the quarter ended March 31, 1994, compared to the same period of 1993. This
decrease is primarily the result of the sale of the Missouri Properties (see
Note 2). Also contributing to the decrease were lower fuel costs and
purchased power expenses as a result of the full availability of Wolf Creek
during the first quarter of 1994. Beginning March 5, 1993, Wolf Creek was
taken off-line for approximately 73 days for refueling and maintenance.
Partially offsetting these decreases was higher income tax expense.
Effective December 31, 1993, KG&E had fully amortized its deferred income tax
reserves related to the allowance for borrowed funds used during construction
capitalized for Wolf Creek. The loss of the amortization of these deferred
income tax reserves reduced net income by approximately $3 million in the
first quarter of 1994.
Total operating expenses increased seven percent for the twelve months
ended March 31, 1994. The increase is primarily the result of increased fuel
used for generation expenses and increased natural gas purchased expense. The
increase in fuel used for generation is a result of increased electric sales
in the summer of 1993, while the increase in natural gas purchases resulted
from a higher unit cost of gas passed on to customers through the PGA. Also
contributing to increased total operating expense was higher income tax
expense as a result of higher net income and the loss of the KG&E accelerated
amortization of deferred income tax reserves.
Other Income and Deductions. Other income and deductions, net of taxes,
was significantly higher for the three and twelve months ended March 31, 1994
compared to 1993 due to the recognizing of the gain on the sale of the
Missouri Properties of approximately $19.3 million, net of tax, (see Note 2).
The increase for the twelve months ended March 31, 1994, was partially offset
by the positive impact, for the twelve months ended March 31, 1993, of KG&E's
recovery of $4.3 million of a previously written-off investment recorded in
the second quarter of 1992.
Interest Charges and Preferred and Preference Dividend Requirements.
Total interest charges decreased significantly for the three and twelve months
ended March 31, 1994, from the comparable periods in 1993, as a result of
lower debt balances and the refinancing of higher cost debt.
<PAGE>
WESTERN RESOURCES, INC.
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of shareholders was held on May 3, 1994. At
the meeting the shareholders, representing 51,503,387 shares either in
person or by proxy, voted to:
(a) Elect the following directors to serve a term of three years:
Votes
For Against
John C. Dicus 50,876,827 626,560
John E. Hayes, Jr. 51,069,099 434,288
Russell W. Meyer, Jr. 51,118,132 385,255
Louis W. Smith 50,877,358 626,029
(b) Approve certain amendments to the Company's Articles of
Incorporation:
- Modifying certain definitions and eliminating references to the
merger with Kansas Electric Power Company, 49,989,685 votes
for, 574,522 votes against, 939,180 votes abstained or were
broker nonvotes;
- Pertaining to the purposes of the Corporation, notice of
amendments of the By-Laws, and changes in the size of the
Board, 40,725,271 votes for, 2,268,495 votes against,
8,509,621 votes abstained or were broker nonvotes;
- Pertaining to nominations of persons for Directors and business
to be conducted at the meetings of Shareholders, 37,921,350
votes for, 5,694,649 votes against, 7,887,388 votes abstained
or were broker nonvotes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 99 - Kansas Gas and Electric Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994 (filed
electronically)
(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.
Western Resources, Inc.
Date May 11, 1994 By S. L. Kitchen
S. L. Kitchen, Executive Vice President
and Chief Financial Officer
Date May 11, 1994 By Jerry D. Courington
Jerry D. Courington,
Controller
Exhibit 99
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 March 31, 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 May 11, 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 & 5
Statements of Cash Flows 6 & 7
Statements of Capitalization 8
Statements of Common Stock Equity 9
Notes to Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information
Item 4. Submission of Matters to a vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . $3,348,737 $3,339,832
Less - Accumulated depreciation . . . . . . . . . . . 810,242 790,843
2,538,495 2,548,989
Construction work in progress . . . . . . . . . . . . 33,849 28,436
Nuclear fuel (net) . . . . . . . . . . . . . . . . . 31,361 29,271
Net utility plant . . . . . . . . . . . . . . . . . 2,603,705 2,606,696
OTHER PROPERTY AND INVESTMENTS:
Decommissioning trust . . . . . . . . . . . . . . . . 14,273 13,204
Other . . . . . . . . . . . . . . . . . . . . . . . . 11,417 10,941
25,690 24,145
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . 65 63
Accounts receivable and unbilled revenues (net) . . . 38,068 11,112
Advances to parent company. . . . . . . . . . . . . . 130,945 192,792
Fossil fuel, at average cost, . . . . . . . . . . . . 12,256 7,594
Materials and supplies, at average cost . . . . . . . 30,588 29,933
Prepayments and other current assets. . . . . . . . . 9,441 14,995
221,363 256,489
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . 113,890 113,479
Deferred coal contract settlement costs . . . . . . . 20,424 21,247
Phase-in revenues . . . . . . . . . . . . . . . . . . 74,564 78,950
Other deferred plant costs. . . . . . . . . . . . . . 31,952 32,008
Corporate-owned life insurance (net) . . . . . . . . 4,200 45
Other . . . . . . . . . . . . . . . . . . . . . . . . 49,986 54,420
295,016 300,149
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $3,145,774 $3,187,479
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . $1,958,688 $1,899,221
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . 31,600 155,800
Long-term debt due within one year. . . . . . . . . . - 238
Accounts payable. . . . . . . . . . . . . . . . . . . 46,204 51,095
Accrued taxes . . . . . . . . . . . . . . . . . . . . 41,673 12,185
Accrued interest. . . . . . . . . . . . . . . . . . . 14,412 7,381
Other . . . . . . . . . . . . . . . . . . . . . . . . 9,419 9,427
143,308 236,126
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . 634,857 646,159
Deferred investment tax credits . . . . . . . . . . . 77,246 78,048
Deferred gain from sale-leaseback . . . . . . . . . . 259,571 261,981
Other . . . . . . . . . . . . . . . . . . . . . . . . 72,104 65,944
1,043,778 1,052,132
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . $3,145,774 $3,187,479
The NOTES TO CONSOLIDATED 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>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . $ 136,604 $ 138,481
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . 20,839 21,229
Nuclear fuel. . . . . . . . . . . . . . . . . . . . 3,863 2,707
Power purchased . . . . . . . . . . . . . . . . . . . 1,252 2,007
Other operations. . . . . . . . . . . . . . . . . . . 30,631 27,538
Maintenance . . . . . . . . . . . . . . . . . . . . . 11,340 10,865
Depreciation and amortization . . . . . . . . . . . . 19,119 18,838
Amortization of phase-in revenues . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . 6,469 5,217
State income. . . . . . . . . . . . . . . . . . . . 1,710 1,417
General . . . . . . . . . . . . . . . . . . . . . . 12,117 11,503
Total operating expenses. . . . . . . . . . . . . 111,726 105,707
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . 24,878 32,774
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . (1,235) 1,469
Miscellaneous (net) . . . . . . . . . . . . . . . . . 858 6,276
Income taxes (net). . . . . . . . . . . . . . . . . . 1,787 (1,554)
Total other income and deductions . . . . . . . . 1,410 6,191
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . 26,288 38,965
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . 12,093 14,104
Other . . . . . . . . . . . . . . . . . . . . . . . . 1,353 1,557
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . (368) (427)
Total interest charges. . . . . . . . . . . . . . 13,078 15,234
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . $ 13,210 $ 23,731
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
March 31,
1994 1993
<S> <C> <C>
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 615,120 $ 562,019
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 92,998 74,930
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 14,431 12,833
Power purchased . . . . . . . . . . . . . . . . . . . . . 9,109 5,214
Other operations. . . . . . . . . . . . . . . . . . . . . 122,041 118,974
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 47,215 46,821
Depreciation and amortization . . . . . . . . . . . . . . 75,811 74,385
Amortization of phase-in revenues . . . . . . . . . . . . 17,545 17,544
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 40,805 22,740
State income. . . . . . . . . . . . . . . . . . . . . . 9,863 6,149
General . . . . . . . . . . . . . . . . . . . . . . . . 45,817 41,658
Total operating expenses. . . . . . . . . . . . . . . 475,635 421,248
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 139,485 140,771
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . 5,137 10,777
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 3,853 15,693
Income taxes (net). . . . . . . . . . . . . . . . . . . . 5,568 (2,850)
Total other income and deductions . . . . . . . . . . 14,558 23,620
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 154,043 164,391
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 51,897 56,993
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,871 13,334
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (1,307) (1,608)
Total interest charges. . . . . . . . . . . . . . . . 56,461 68,719
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 97,582 $ 95,672
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 13,210 $ 23,731
Depreciation and amortization . . . . . . . . . . . . . . . 19,119 18,838
Other amortization (including nuclear fuel) . . . . . . . . 2,806 1,876
Deferred income taxes and investment tax credits (net). . . 1,907 2,364
Amortization of phase-in revenues . . . . . . . . . . . . . 4,386 4,386
Corporate-owned life insurance. . . . . . . . . . . . . . . (4,519) (4,154)
Amortization of gain from sale-leaseback. . . . . . . . . . (2,410) (2,410)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (26,956) (26,819)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (4,662) 3,426
Accounts payable. . . . . . . . . . . . . . . . . . . . . (4,891) (670)
Interest and taxes accrued. . . . . . . . . . . . . . . . 36,519 20,976
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 4,891 2,919
Changes in other assets and liabilities . . . . . . . . . . (4,998) (6,710)
Net cash flows from operating activities . . . . . . . 34,402 37,753
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 18,500 15,535
Corporate-owned life insurance policies . . . . . . . . . . 281 427
Net cash flows used in investing activities. . . . . . 18,781 15,962
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (124,200) 28,300
Advances to parent company (net). . . . . . . . . . . . . . 61,847 (3,885)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 113,982 -
Other long-term debt (net). . . . . . . . . . . . . . . . . (67,893) (46,870)
Borrowings against life insurance policies (net). . . . . . 645 621
Net cash flows used in financing activities. . . . . . (15,619) (21,834)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . 2 (43)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 63 892
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 65 $ 849
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 5,993 $ 10,986
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . - -
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Twelve Months Ended
March 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 97,582 $ 95,672
Depreciation and amortization . . . . . . . . . . . . . . . 75,811 74,385
Other amortization (including nuclear fuel) . . . . . . . . 12,184 10,805
Deferred income taxes and investment tax credits (net). . . 22,115 11,690
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Corporate-owned life insurance. . . . . . . . . . . . . . . (22,015) (18,858)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,640) (9,641)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (706) (25,740)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . 419 7,851
Accounts payable. . . . . . . . . . . . . . . . . . . . . 2,447 (7,886)
Interest and taxes accrued. . . . . . . . . . . . . . . . 6,490 6,631
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (16,700) (5,537)
Changes in other assets and liabilities . . . . . . . . . . (14,818) (48,111)
Net cash flows from operating activities. . . . . . . . . 170,714 108,805
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 69,851 68,673
Corporate-owned life insurance policies . . . . . . . . . . 27,119 20,663
Death proceeds of corporate-owned life insurance policies . (10,157) (6,792)
Merger:
Purchase of KG&E common stock-net of cash received. . . - 432,043
Purchase of KG&E preferred stock. . . . . . . . . . . . - 19,665
Net cash flows used in investing activities. . . . . 86,813 534,252
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (90,200) 78,200
Advances to parent company (net). . . . . . . . . . . . . . (52,771) (78,174)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 178,982 135,000
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (140,000) (125,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . (13,980) (32,372)
Borrowings against life insurance policies (net). . . . . . 183,284 (5,028)
Revolving credit agreement (net). . . . . . . . . . . . . . (150,000) -
Issuance of KCA common stock. . . . . . . . . . . . . . . . - 453,670
Net cash flows (used in) from financing activities . . . (84,685) 426,296
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (784) 849
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 849 -
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 65 $ 849
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 72,660 $ 74,437
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 24,854 14,225
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
<CAPTION>
March 31, 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. . . . . . . . . . . . . . . . . . . . . 193,254 180,044
Total common stock equity. . . . . . . . . . . . . . . . 1,258,888 64% 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 14,500
5-7/8% 2007 21,940 21,940
6% 2007 10,000 10,000
5.10% 2023 13,982 -
7.0% 2031 327,500 327,500
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) . . . . . . . . . . 4,122 4,052
Long-term debt due within one year . . . . . . . . . . . . - 238
Total long-term debt . . . . . . . . . . . . . . . . . . 699,800 36% 653,543 34%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . $1,958,688 100% $1,899,221 100%
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
<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 . . . . . . . . 13,210 13,210
BALANCE MARCH 31, 1994 . . . 1,000 $1,065,634 $ - $ 193,254 - $ - $1,258,888
(Successor)
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE>
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 March 31, 1994, and December 31, 1993, and the results of
its operations for the three and twelve month periods ended March 31, 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):
March 31, December 31,
1994 1993
Cash surrender value of contracts $273.9 $269.1
Prepaid COLI 4.7 9.5
Borrowings against contracts (269.7) (269.0)
COLI (net) $ 8.9 $ 9.6
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.
<PAGE>
Reclassifications. Certain amounts in prior periods 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 March 31, 1994, the Company had bank credit
arrangements available of $35 million.
3. COMMITMENTS AND CONTINGENCIES
Environmental. The Company and the Kansas Department of Health and
Environment entered into a consent agreement to perform preliminary
assessments of six former manufactured gas sites. The preliminary assessments
of these sites have been completed at minimal cost. Until such time that risk
assessments are completed at these sites, it will be impossible to predict the
cost of remediation. However, 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. The Company is also aware that the KCC has
permitted another Kansas utility to recover a portion of the 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 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.
Decommissioning. In 1988 the Company estimated that it would expend
approximately $725 million for its share of Wolf Creek decommissioning costs
primarily during the period from 2025 through 2031. Such costs, estimated to
be approximately $97 million in 1988 dollars, are currently authorized in
rates. These costs were calculated using an assumed inflation rate of 5.15%
over the remaining service life, in 1988, of 37 years.
Decommissioning costs, calculated in the 1988 estimate, are being charged
to operating expenses. 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 which, when fully funded (assuming a
return on trust assets of 7%) will be used solely for the physical
decommissioning of Wolf Creek (immediate dismantlement method). Electric
rates charged to customers provide for recovery of these decommissioning costs
over the life of Wolf Creek.
<PAGE>
The Company's investment in the decommissioning fund, including
reinvested earnings was $14.3 and $13.2 million at March 31, 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 consolidated
balance sheets.
On September 1, 1993, WCNOC filed an application with the KCC for an
order approving a 1993 Wolf Creek Decommissioning Cost Study which estimates
the Company's share of Wolf Creek decommissioning costs at approximately $174
million in 1993 dollars. If approved by the KCC, management expects
substantially all such cost increases to be recovered through the ratemaking
process.
The Company carries $164 million in premature decommissioning insurance
in the event of a shortfall in the trust fund. 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 $9.3 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. 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" ($1.3 billion) and Nuclear Electric
Insurance Limited (NEIL) ($1.5 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 $1.1 billion (Company's share) and premature decommissioning
costs up to $117.5 million (Company's share) in excess of funds previously
collected for decommissioning (as discussed under "Decommissioning"), with the
remaining $47 million (Company's share) available for either property damage
or premature decommissioning costs.
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 $9 million per year.
<PAGE>
There can be no assurance that all potential losses or liabilities will
be insured or that the amount of insurance will be sufficient to cover them.
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
position 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 and 1995. The Company does not expect additional equipment
to reduce sulfur emissions to be necessary under Phase II. The Company
currently has no Phase I affected units.
The NOx and toxic limits, which were not set in the law, will be
specified in future EPA regulations. The EPA has issued for public comment
preliminary NOx regulations for Phase I group 1 units. Regulations for Phase
II units and Phase I group 2 units are mandated in the Act to be promulgated
by January 1, 1997. Although the Company has no Phase I units, the final
regulations for Phase I group 1 may allow for early compliance for Phase II
group 1 units. 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 and 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 Note 3, COMMITMENTS AND CONTINGENCIES 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 in the Company's 1993 Annual Report on Form 10-K.
<PAGE>
5. RATE MATTERS AND REGULATION
For information with respect to Rate Matters and Regulation see Note 4
RATE MATTERS AND REGULATION 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
32.6% and 25.7% for the three month periods, and 31.6% and 24.9% for the
twelve month periods ended March 31, 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 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 month
periods ended March 31, 1994 and comparable periods of 1993.
FINANCIAL CONDITION
General. The Company had net income for the first quarter of 1994 of
$13.2 million compared to $23.7 million for the same period of 1993. The
decrease in income is primarily the result of the loss of the accelerated
amortization of certain deferred income tax reserves and decreased retail
electric sales as a result of milder winter temperatures in 1994 compared to
1993. Effective December 31, 1993, the Company had fully amortized its
deferred income tax reserves related to the allowance for borrowed funds used
during construction capitalized for Wolf Creek. The loss of the amortization
of these deferred income tax reserves reduced net income by approximately $3
million in the first quarter of 1994.
Net income for the twelve months ending March 31, 1994, of $97.6 million,
increased from net income of $95.7 million for the comparable period of 1993.
The increase in net income is primarily due to increased sales and lower
interest charges.
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.
The Company's short-term debt balance at March 31, 1994, decreased
approximately $124 million from December 31, 1993, primarily as a result of
the issuance, on January 20, 1994, of $100 million of First Mortgage Bonds,
6.20% Series due January 15, 2006.
On February 17, 1994, the Company refinanced the City of La Cygne,
Kansas,
5 3/4% Pollution Control Revenue Refunding Bonds Series 1973, $13,980,000
principal amount, with 5.10% Pollution Control Revenue Refunding Bonds Series
1994, $13,982,500 principal amount.
On April 28, 1994, three series of Market-Adjusted Tax Exempt Bonds
totalling $46.4 million were sold on behalf of the Company at a rate of 2.95%
for the initial auction period. 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%.
<PAGE>
OPERATING RESULTS
The following discussion explains variances for the three and twelve
months ended March 31, 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.
Changes in electric sales volumes (decrease):
3 Months 12 Months
Ended Ended
Residential (8.9)% 6.5%
Commercial 2.6% 4.5%
Industrial (6.0)% 0.6%
Total Retail (4.8)% 3.3%
Wholesale 140.1% 86.7%
Total electric sales 13.1% 15.5%
Revenues for the first quarter of 1994, of $136.6 million, were slightly
lower than the first quarter of 1993, of $138.5 million, due to the milder
winter temperatures experienced in the Company's service territory compared to
last year. Retail electric kilowatt hour sales for the quarter decreased due
primarily to the decrease in demand from residential customers for space
heating.
Partially offsetting these decreases was an increase in wholesale
revenues of $5.7 million as a result of an increase in interchange sales to
other utilities.
Revenues for the twelve months ended March 31, 1994, of $615.1 million,
increased approximately nine percent from revenues of $562.0 million for the
comparable period of 1993. The increase in revenues is primarily a result of
the $22.1 million increase in wholesale revenues as a result of other
utilities' need for power to meet peak demand periods while those utilities'
units were out of service due to the 1993 summer flooding. All customer
classes experienced increased sales volumes as summer temperatures returned to
near normal levels during 1993. Residential, commercial, and industrial
revenues increased $14.8, $7.3, and $3.6 million, respectively, as a result of
the increase in sales volume.
Operating Expenses. Total operating expenses increased approximately six
percent for the first quarter compared the same period of 1993. The increase
can be attributed primarily to a 23 percent increase in federal and state
income taxes, an 11 percent increase in other operations expense, and a five
percent increase in general taxes.
The increase in federal income taxes is due to the absence of the
accelerated amortization of deferred income tax reserves relating to the
allowance for borrowed funds used during construction capitalized for Wolf
Creek. This amortization was completed on December 31, 1993. The loss of the
amortization of these deferred income tax reserves reduced net income by
approximately $3 million in the first quarter of 1994. Other operations
<PAGE>
expense increased primarily due to increases in power supply expenses other
than fuel.
Total operating expenses increased approximately 13 percent for the
twelve months ended March 31, 1994, compared to the comparable period of 1993.
The increase is primarily the result of a $23.6 million increase in fuel
expense and purchased power due to increased electric generation caused by the
increase in customer demand, a $21.8 million increase in federal and state
income taxes, and higher general taxes of $4.2 million. The increase in
income taxes is a result of higher net income and the loss of the amortization
of the deferred income tax reserves related to Wolf Creek.
Other Income and Deductions. Other income and deductions, net of taxes,
decreased significantly for the three months ended March 31, 1994, compared to
the same period in 1993 primarily due to increased interest expense on COLI
borrowings.
Other income and deductions, net of taxes, decreased to $14.6 million for
the twelve months ended March 31, 1994 compared to $23.6 million for the
twelve months ended March 31, 1993. The decrease is primarily as a result of
increased interest expense on COLI borrowings. The decrease for 1994 also
reflects the positive impact, for the twelve months ended March 31, 1993, of
the recovery of $4.3 million of a previously written-off investment recorded
in the second quarter of 1992.
Interest Expense. Interest expense decreased approximately 14 percent
for the quarter and approximately 19 percent for the twelve months ended March
31, 1994, compared to the same periods of 1993. The decrease 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 during 1993, which reduce
the need for other long-term debt and thereby reduced interest expense.
<PAGE>
KANSAS GAS AND ELECTRIC COMPANY
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Information required by Item 4 is omitted pursuant to General Instruction
H(2)(b) to Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(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 May 11, 1994 By Richard D. Terrill
Richard D. Terrill,
Secretary, Treasurer and
General Counsel
