UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. 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
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5.00 par value New York Stock Exchange
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Preferred Stock, 4 1/2% Series, $100 par value
(Title of Class)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. Approximately $1,906,866,000 of Common Stock and $10,335,000 of
Preferred Stock (excluding the 4 1/4% Series of Preferred Stock for which there
is no readily ascertainable market value) at March 23, 1995.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock.
Common Stock, $5.00 par value 61,760,853
(Class) (Outstanding at March 29, 1995)
Documents Incorporated by Reference:
Part Document
III Portions of the Company's Definitive Proxy Statement for
the Annual Meeting of Shareholders to be held May 2, 1995.
<PAGE>1
WESTERN RESOURCES, INC.
FORM 10-K
December 31, 1994
TABLE OF CONTENTS
Description Page
PART I
Item 1. Business 3
Item 2. Properties 19
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 21
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 24
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 65
PART III
Item 10. Directors and Executive Officers of the
Registrant 65
Item 11. Executive Compensation 65
Item 12. Security Ownership of Certain Beneficial
Owners and Management 65
Item 13. Certain Relationships and Related Transactions 65
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 66
Signatures 70
<PAGE>2
PART I
ITEM 1. BUSINESS
GENERAL
Western Resources, Inc. is a combination electric and natural gas public
utility engaged in the generation, transmission, distribution and sale of
electric energy in Kansas and the purchase, transmission, distribution,
transportation and sale of natural gas in Kansas and Oklahoma. As used herein,
the terms "Company and Western Resources" include its wholly-owned subsidiaries,
Astra Resources, Inc. (Astra Resources), Kansas Gas and Electric Company (KG&E)
since March 31, 1992, KPL Funding Corporation (KFC), and Mid Continent Market
Center, Inc. (Market Center). KG&E owns 47 percent of Wolf Creek Nuclear
Operating Corporation, the operating company for Wolf Creek Generating Station
(Wolf Creek). Corporate headquarters of the Company is located at 818 Kansas
Avenue, Topeka, Kansas 66612. At December 31, 1994, the Company had 4,330
employees.
The Company conducts its non-regulated business through Astra Resources.
Astra Resources' non-regulated businesses include natural gas compression,
marketing, processing and gathering services, and investments in energy and
technology related businesses.
To capitalize on opportunities in the non-regulated natural gas industry,
the Company, through the Market Center, is establishing a natural gas market
center in Kansas. The Market Center will provide natural gas transportation,
storage, and gathering services, as well as balancing, and title transfer
capability. Upon approval from the
Kansas Corporation Commission (KCC), the Company intends
to transfer certain natural gas transmission assets having a value of
approximately $52.1 million to the Market Center. In addition, the Company
intends to extend credit to the Market Center enabling the Market Center to
borrow up to an aggregate principal amount of $25 million on a term basis to
construct new facilities and $5 million on a revolving credit basis for working
capital. The Market Center will provide no notice natural gas transportation
and storage services to the Company under a long-term contract.
The Company will continue to operate and maintain the Market Center's
assets under a separate contract.
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. United Cities purchased the Company's natural gas
distribution system in and around the City of Palmyra, Missouri for $665,000 in
cash.
<PAGE>3
As a result of the sales of the Missouri Properties, as described in Note 2
of the Notes to Consolidated Financial Statements, the Company recognized a gain
of approximately $19.3 million, net of tax, ($0.31 per share) and ceased
recording the results of operations for the Missouri Properties during the first
quarter of 1994. Consequently, the Company's results of operations for the
twelve months ended December 31, 1994 are not comparable to the results of
operations for the same periods ending December 31, 1993 and 1992.
The following table reflects, through the dates of the sales of the
Missouri Properties, the approximate operating revenues and operating income
for the years ended December 31, 1994, 1993, and 1992, and net utility plant
at December 31, 1993 and 1992, related to the Missouri Properties (see Notes 2
and 4 of the Notes to Consolidated Financial Statements included herein):
1994 1993 1992
Percent Percent Percent
of Total of Total of Total
Amount Company Amount Company Amount Company
(Dollars in Thousands, Unaudited)
Operating revenues. .$ 77,008 4.8% $349,749 18.3% $299,202 19.2%
Operating income. . . 4,997 1.9% 20,748 7.1% 11,177 4.7%
Net utility plant . . - - 296,039 6.6% 272,126 6.1%
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.
On March 31, 1992, the Company through its wholly-owned subsidiary KCA
Corporation (KCA), acquired all of the outstanding common and preferred stock
of Kansas Gas and Electric Company for $454 million in cash and 23,479,380
shares of common stock (the Merger). The Company also paid approximately $20
million in costs to complete the Merger. Simultaneously, KCA and Kansas Gas
and Electric Company merged and adopted the name of Kansas Gas and Electric
Company (KG&E).
Additional information relating to the Merger can be found in Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note 3 of Notes to Consolidated Financial Statements.
The following information includes the operations of KG&E since March 31,
1992 and excludes the activities related to the Missouri Properties following
the sales of those properties in the first quarter of 1994.
The percentages of Total Operating Revenues and Operating Income Before
Income Taxes attributable to the Company's electric and natural gas operations
for the past five years were as follows:
Total Operating Income
Operating Revenues Before Income Taxes
Year Electric Natural Gas Electric Natural Gas
1994 69% 31% 97% 3%
1993 58% 42% 85% 15%
1992 57% 43% 89% 11%
1991 41% 59% 84% 16%
1990 40% 60% 85% 15%
<PAGE>4
The difference between the percentage of electric operating revenues to
total operating revenues and the percentage of electric operating income to
total operating income as compared to the same percentages for natural gas
operations is due to the Company's level of investment in plant and its fuel
costs in each of these segments. The reduction in the percentages for the
natural gas operations in 1994 is due to the sales of the Missouri Properties.
The increase in the percentages for the electric operations in 1992 is due to
the Merger.
The amount of the Company's plant in service (net of accumulated
depreciation) at December 31, for each of the past five years was as follows:
Year Electric Natural Gas Total
(Dollars in Thousands)
1994 $3,676,347 $496,753 $4,173,100
1993 3,641,154 759,619 4,400,773
1992 3,645,364 696,036 4,341,400
1991 1,080,579 628,751 1,709,330
1990 1,092,548 567,435 1,659,983
For discussion regarding competition in the electric utility industry and
the potential impact on the Company, see Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations, Other Information,
Competition.
ELECTRIC OPERATIONS
General
The Company supplies electric energy at retail to approximately 594,000
customers in 462 communities in Kansas. These include Wichita, Topeka,
Lawrence, Manhattan, Salina, and Hutchinson. The Company also supplies
electric energy at wholesale to the electric distribution systems of 67
communities and 5 rural electric cooperatives. The Company has contracts for
the sale, purchase or exchange of electricity with other utilities. The
Company also receives a limited amount of electricity through parallel
generation.
The Company's electric sales for the last five years were as follows
(includes KG&E since March 31, 1992):
1994 1993 1992 1991 1990
(Thousands of MWH)
Residential 5,003 4,960 3,842 2,556 2,403
Commercial 5,368 5,100 4,473 3,051 2,952
Industrial 5,410 5,301 4,419 1,947 1,954
Wholesale and
Interchange 3,899 4,525 3,028 1,669 913
Other 106 103 91 315* 907
------ ------ ------ ----- -----
Total 19,786 19,989 15,853 9,538* 9,129
* Includes cumulative effect to January 1, 1991, of a change in revenue
recognition. The cumulative effect of this change increased electric
sales by 256,000 MWH for 1991.
<PAGE>5
The Company's electric revenues for the last five years were as follows
(includes KG&E since March 31, 1992):
1994 1993 1992 1991 1990
(Dollars in Thousands)
Residential $ 388,271 $ 384,618 $296,917 $160,831 $152,509
Commercial 334,059 319,686 271,303 149,152 146,001
Industrial 265,838 261,898 211,593 78,138 79,225
Wholesale and
Interchange 106,243 118,401 98,183 70,262 39,585
Other 27,370 19,934 4,889 13,456 46,387
---------- ---------- -------- -------- --------
Total $1,121,781 $1,104,537 $882,885 $471,839 $463,707
Capacity
The aggregate net generating capacity of the Company's system is presently
5,230 megawatts (MW). The system comprises interests in 22 fossil fueled
steam generating units, one nuclear generating unit (47 percent interest),
seven combustion peaking turbines and one diesel generator located at eleven
generating stations. Two units of the 22 fossil fueled units have been
"mothballed" for future use (see Item 2. Properties).
The Company's 1994 peak system net load occurred August 25, 1994 and
amounted to 3,720 MW. The Company's net generating capacity together with
power available from firm interchange and purchase contracts, provided a
capacity margin of approximately 25 percent above system peak responsibility
at the time of the peak.
The Company and ten companies in Kansas and western Missouri have agreed
to provide capacity (including margin), emergency and economy services for
each other. This arrangement is called the MOKAN Power Pool. The pool
participants also coordinate the planning of electric generating and
transmission facilities.
The Company is one of 47 members of the Southwest Power Pool (SPP). SPP's
responsibility is to maintain system reliability on a regional basis. The
region encompasses areas within the eight states of Kansas, Missouri,
Oklahoma, New Mexico, Texas, Louisiana, Arkansas, and Mississippi.
In 1994, the Company joined the Western Systems Power Pool (WSPP). Under
this arrangement, over 50 electric utilities and marketers throughout the
western United States have agreed to market energy and to provide transmission
services. WSPP's intent is to increase the efficiency of the interconnected
power systems operations over and above existing operations. Services
available include short-term and long-term economy energy transactions, unit
commitment service, firm capacity and energy sales, energy exchanges, and
transmission service by intermediate systems.
In January 1994, the Company entered into an agreement with Oklahoma
Municipal Power Authority (OMPA), whereby, the Company received a prepayment
of approximately $41 million for capacity (42 MW) and transmission charges
through the year 2013.
During 1994, KG&E entered into an agreement with Midwest Energy, Inc.
(MWE), whereby KG&E will provide MWE with peaking capacity of 61 MW through
<PAGE>6
the year 2008. KG&E also entered into an agreement with Empire District
Electric Company (Empire), whereby KG&E will provide Empire with peaking and
base load capacity (20 MW in 1994 increasing to 80 MW in 2000) through the
year 2000.
In January 1995, the Company entered into an agreement with Empire,
whereby the Company will provide Empire with peaking and base load capacity
(10 MW in 1995 increasing to 162 MW in 2000) through the year 2010. The
agreement is subject to regulatory approval and termination by Empire prior to
January 1, 1996, provided that Empire is required by the KCC or Missouri
Public Service Commission, pursuant to complaints filed by Ahlstrom
Development Corporation (Ahlstrom) before those agencies, to accept Ahlstrom's
offer to sell power to Empire from generating units to be constructed.
Future Capacity
The Company does not contemplate any significant expenditures in
connection with construction of any major generating facilities through the
turn of the century (see Item 7. Management's Discussion and Analysis,
Liquidity and Capital Resources). Although the Company's management believes,
based on current load-growth projections and load management programs, it will
maintain adequate capacity margins through 2000, in view of the lead time
required to construct large operating facilities, the Company may be required
before 2000 to consider whether to reschedule the construction of Jeffrey
Energy Center (JEC) Unit 4 or alternatively either build or acquire other
capacity.
Fuel Mix
The Company's coal-fired units comprise 3,228 MW of the total 5,230 MW of
generating capacity and the Company's nuclear unit provides 545 MW of
capacity. Of the remaining 1,457 MW of generating capacity, units that can
burn either natural gas or oil account for 1,365 MW, and the remaining units
which burn only oil or diesel fuel account for 92 MW (see Item 2. Properties).
During 1994, low sulfur coal was used to produce 76 percent of the
Company's electricity. Nuclear produced 18 percent and the remainder was
produced from natural gas, oil, or diesel fuel. During 1995, based on the
Company's estimate of the availability of fuel, coal will be used to produce
approximately 78 percent of the Company's electricity and nuclear will be used
to produce approximately 18 percent.
The Company's fuel mix fluctuates with the operation of nuclear powered
Wolf Creek which has an 18-month refueling and maintenance schedule. The 18-
month schedule permits uninterrupted operation every third calendar year. In
mid-September 1994, Wolf Creek was taken off-line for its seventh refueling
and maintenance outage. The refueling outage took approximately 47 days to
<PAGE>
complete, during which time electric demand was met primarily by the Company's
coal-fired generating units. There is no refueling outage scheduled for 1995.
Nuclear
The owners of Wolf Creek have on hand or under contract 63 percent of the
uranium required for operation of Wolf Creek through the year 2001. The
balance is expected to be obtained through spot market and contract purchases.
<PAGE>7
Contractual arrangements are in place for 100 percent of Wolf Creek's
uranium enrichment requirements for 1995-1997, 90 percent for 1998-1999, 95
percent for 2000-2001, and 100 percent for 2005-2014. The balance of the
1998-2004 requirements is expected to be obtained through a combination of
spot market and contract purchases. The decision not to contract for the full
enrichment requirements is one of cost rather than availability of service.
Contractual arrangements are in place for the conversion of uranium to
uranium hexafluoride sufficient to meet Wolf Creek's requirements through 1996
as well as the fabrication of fuel assemblies to meet Wolf Creek's
requirements through 2012.
The Nuclear Waste Policy Act of 1982 established schedules, guidelines and
responsibilities for the Department of Energy (DOE) to develop and construct
repositories for the ultimate disposal of spent fuel and high-level waste.
The DOE has not yet constructed a high-level waste disposal site and has
announced that a permanent storage facility may not be in operation prior to
2010 although an interim storage facility may be available earlier. Wolf
Creek contains an on-site spent fuel storage facility which, under current
regulatory guidelines, provides space for the storage of spent fuel through
2006 while still maintaining full core off-load capability. The Company
believes adequate additional storage space can be obtained, as necessary.
The Company along with the other co-owners of Wolf Creek are among 14
companies that filed a lawsuit on June 20, 1994, seeking an interpretation of
the DOE's obligation to begin accepting spent nuclear fuel for disposal in
1998. The DOE has filed a motion to have this case dismissed. The issue to
be decided in this case is whether DOE must begin accepting spent fuel in 1998
or at a future date.
Coal
The three coal-fired units at JEC have an aggregate capacity of 1,775 MW
(Company's 84 percent share) (see Item 2. Properties). The Company has a
long-term coal supply contract with Amax Coal West, Inc. (AMAX), a subsidiary
of Cyprus Amax Coal Company, to supply low sulfur coal to JEC from AMAX's
Eagle Butte Mine or an alternate mine source of AMAX's Belle Ayr Mine, both
located in the Powder River Basin in Campbell County, Wyoming. The contract
expires December 31, 2020. The contract contains a schedule of minimum annual
delivery quantities based on MMBtu provisions. The coal to be supplied is
surface mined and has an average Btu content of approximately 8,300 Btu per
pound and an average sulfur content of .43 lbs/MMBtu (see Environmental
Matters). The average delivered cost of coal for JEC was approximately $1.13
per MMBtu or $18.55 per ton during 1994.
Coal is transported from Wyoming under a long-term rail transportation
contract with Burlington Northern (BN) and Union Pacific (UP) to JEC through
December 31, 2013. Rates are based on net load carrying capabilities of each
rail car. The Company provides 890 aluminum rail cars, under a 20 year lease,
to transport coal to JEC.
The two coal-fired units at La Cygne Station have an aggregate generating
capacity of 678 MW (KG&E's 50 percent share) (see Item 2. Properties). The
operator, Kansas City Power & Light Company (KCPL), maintains coal contracts
summarized in the following paragraphs.
<PAGE>8
La Cygne 1 uses low sulfur Powder River Basin coal which is supplied under
a variety of spot market transactions, discussed below. Illinois or
Kansas/Missouri coal is blended with the Powder River Basin coal and is
secured from time to time under spot market arrangements. La Cygne 1 uses a
blend of 85 percent Powder River Basin coal.
La Cygne 2 and additional La Cygne 1 Powder River Basin coal is supplied
through several contracts, expiring at various times through 1998. This low
sulfur coal had an average Btu content of approximately 8,500 Btu per pound
and a maximum sulfur content of .50 lbs/MMBtu (see Environmental Matters).
For 1994, KCPL secured Powder River Basin coal from two primary sources;
Carter Mining Company's Caballo Mine, a subsidiary of Exxon Coal USA; and
Caballo Rojo Inc's Caballo Rojo Mine, a subsidiary of Drummond Inc.
Transportation is covered by KCPL through its Omnibus Rail Transportation
Agreement with BN and Kansas City Southern Railroad through December 31, 1995.
An alternative rail transportation agreement with Western Railroad Property,
Inc. (WRPI), a partnership between UP and Chicago Northwestern (CNW), lasts
through December 31, 1995. A new five-year coal transportation agreement is
being negotiated to provide transportation beyond 1995.
During 1994, the average delivered cost of all coal procured for La Cygne
1 was approximately $0.78 per MMBtu or $14.11 per ton and the average
delivered cost of Powder River Basin coal for La Cygne 2 was approximately
$0.73 per MMBtu or $12.30 per ton.
The coal-fired units located at the Tecumseh and Lawrence Energy Centers
have an aggregate generating capacity of 775 MW (see Item 2. Properties). The
Company contracted with Cyprus Amax Coal Company's Foidel Creek Mine located
in Routt County, Colorado for low sulfur coal through December 31, 1998.
During 1994, the average delivered cost of coal for the Lawrence units was
approximately $1.15 per MMBtu or $25.59 per ton and the average delivered cost
of coal for the Tecumseh units was approximately $1.15 per MMBtu or $25.64 per
ton. This coal is transported by Southern Pacific Lines and Atchison and
Topeka Santa Fe Railway Company. The coal supplied from Cyprus has an average
Btu content of approximately 11,200 Btu per pound and an average sulfur
content of .38 lbs/MMBtu (see Environmental Matters). The Company
anticipates that the Cyprus agreement will supply the minimum requirements of
the Tecumseh and Lawrence Energy Centers and supplemental coal requirements
will continue to be supplied from coal markets in Wyoming, Utah, Colorado
and/or New Mexico.
Natural Gas
The Company uses natural gas as a primary fuel in its Gordon Evans, Murray
Gill, Abilene, and Hutchinson Energy Centers and in the gas turbine units at
its Tecumseh generating station. Natural gas is also used as a supplemental
fuel in the coal-fired units at the Lawrence and Tecumseh generating stations.
Natural gas for Gordon Evans and Murray Gill Energy Centers is supplied under
a firm contract that runs through 1995 by Kansas Gas Supply (KGS). After
1995, the Company expects to use the spot market to purchase most of the
natural gas needed to fuel these generating stations. Natural gas for the
Company's Abilene and Hutchinson stations is supplied from the Company's main
system (see Natural Gas Operations). Natural gas for the units at the
Lawrence and Tecumseh stations is supplied through the WNG system under a
short-term spot market agreement.
<PAGE>9
Oil
The Company uses oil as an alternate fuel when economical or when
interruptions to natural gas make it necessary. Oil is also used as a
supplemental fuel at each of the coal plants. All oil burned by the Company
during the past several years has been obtained by spot market purchases. At
December 31, 1994, the Company had approximately 3 million gallons of No. 2
and 14 million gallons of No. 6 oil which is believed to be sufficient to meet
emergency requirements and protect against lack of availability of natural gas
and/or the loss of a large generating unit.
Other Fuel Matters
The Company's contracts to supply fuel for its coal- and natural gas-fired
generating units, with the exception of JEC, do not provide full fuel
requirements at the various stations. Supplemental fuel is procured on the
spot market to provide operational flexibility and, when the price is
favorable, to take advantage of economic opportunities.
On March 26, 1992, in connection with the Merger, the KCC approved the
elimination of the Energy Cost Adjustment Clause (ECA) for most Kansas retail
electric customers of both the Company and KG&E effective April 1, 1992. The
provisions for fuel costs included in base rates were established at a level
intended by the KCC to equal the projected average cost of fuel through August
1995 and to include recovery of costs provided by previously issued orders
relating to coal contract settlements. Any increase or decrease in fuel costs
from the projected average will impact the Company's earnings.
Set forth in the table below is information relating to the weighted
average cost of fuel used by the Company.
KPL Plants 1994 1993 1992 1991 1990
Per Million Btu:
Coal $1.13 $1.13 $1.30 $1.33 $1.33
Gas 2.66 2.71 2.15 1.72 1.50
Oil 4.27 4.41 4.19 4.25 4.63
Cents per KWH Generation 1.32 1.31 1.49 1.52 1.53
KG&E Plants 1994 1993 1992 1991 1990
Per Million Btu:
Nuclear $0.36 $0.35 $0.34 $0.32 $0.34
Coal 0.90 0.96 1.25 1.32 1.32
Gas 1.98 2.37 1.95 1.74 1.96
Oil 3.90 3.15 4.28 4.13 3.01
Cents per KWH Generation 0.89 0.93 0.98 1.09 1.01
Environmental Matters
The Company currently holds all Federal and state environmental approvals
required for the operation of its generating units. The Company believes it
is presently in substantial compliance with all air quality regulations
(including those pertaining to particulate matter, sulfur dioxide and nitrogen
oxides (NOx)) promulgated by the State of Kansas and the Environmental
Protection Agency (EPA).
<PAGE>10
The Federal sulfur dioxide standards, applicable to the Company's JEC and
La Cygne 2 units, prohibit the emission of more than 1.2 pounds of sulfur
dioxide per million Btu of heat input. Federal particulate matter emission
standards applicable to these units prohibit: (1) the emission of more than
0.1 pounds of particulate matter per million Btu of heat input and (2) an
opacity greater than 20 percent. Federal NOx emission standards applicable to
these units prohibit the emission of more than 0.7 pounds of NOx per million
Btu of heat input.
The JEC and La Cygne 2 units have met: (1) the sulfur dioxide standards
through the use of low sulfur coal (see Coal); (2) the particulate matter
standards through the use of electrostatic precipitators; and (3) the NOx
standards through boiler design and operating procedures. The JEC units are
also equipped with flue gas scrubbers providing additional sulfur dioxide and
particulate matter emission reduction capability.
The Kansas Department of Health and Environment regulations, applicable to
the Company's other generating facilities, prohibit the emission of more than
2.5 pounds of sulfur dioxide per million Btu of heat input at the Company's
Lawrence generating units and 3.0 pounds at all other generating units. There
is sufficient low sulfur coal under contract (see Coal) to allow compliance
with such limits at Lawrence, Tecumseh and La Cygne 1 for the life of the
contracts. All facilities burning coal are equipped with flue gas scrubbers
and/or electrostatic precipitators.
The Clean Air Act Amendments of 1990 (the Act) require a two-phase
reduction in sulfur dioxide and oxides of 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 installed
continuous monitoring and reporting equipment at a total cost of approximately
$10 million. 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 owners have applied for an early
substitution permit to bring the co-owned La Cygne Station under the Phase I
regulations.
The NOx and toxic limits, which were not set in the law, will be specified
in future EPA regulations. NOx regulations for Phase II units and Phase I
group 2 units are mandated in the Act. The EPA's proposed NOx regulations
were ruled invalid by the U.S. Court of Appeals for the District of Columbia
Circuit in November, 1994 and until such time as the EPA resubmits new
proposed regulations, the Company will be unable to determine its compliance
options or related compliance costs.
All of the Company's generating facilities are in substantial compliance
with the Best Practicable Technology and Best Available Technology regulations
issued by EPA pursuant to the Clean Water Act of 1977. Most EPA regulations
are administered in Kansas by the Kansas Department of Health and Environment.
Additional information with respect to Environmental Matters is discussed
in Note 7 of the Notes to Consolidated Financial Statements included herein.
<PAGE>11
NATURAL GAS OPERATIONS
General
At December 31, 1994, the Company supplied natural gas at retail to
approximately 643,000 customers in 362 communities and at wholesale to eight
communities and two utilities in Kansas and Oklahoma. The natural gas systems
of the Company consist of distribution systems in both states purchasing
natural gas from various suppliers and transported by interstate pipeline
companies and the main system, an integrated storage, gathering, transmission
and distribution system. The Company also transports gas for its large
commercial and industrial customers purchasing gas on the spot market. The
Company earns approximately the same margin on the volume of gas transported
as on volumes sold except where limited discounting occurs in order to retain
the customer's load.
As discussed previously, on January 31, 1994, the Company sold
substantially all of its Missouri natural gas distribution properties and
operations to Southern Union and sold the remaining Missouri Properties to
United Cities on February 28, 1994. Additional information with respect to
the impact of the sales of the Missouri Properties is set forth in Notes 2 and
4 of the Notes to Consolidated Financial Statements.
The percentage of total natural gas deliveries, including transportation
and operating revenues for 1994, by state were as follows:
Total Natural Total Natural Gas
Gas Deliveries(1) Operating Revenues(1)
Kansas 84.1% 80.5%
Missouri 12.4% 15.5%
Oklahoma 3.5% 4.0%
The Company's natural gas deliveries for the last five years were as
follows:
1994(1) 1993 1992 1991 1990
(Thousands of MCF)
Residential 64,804 110,045 93,779 97,297 95,247
Commercial 26,526 47,536 40,556 47,075 43,973
Industrial 605 1,490 2,214 2,655 3,207
Other 43 41 94 14,960(2) 1,361
Transportation 51,059 73,574 68,425 78,055 72,623
------- ------- ------- ------- -------
Total 143,037 232,686 205,068 240,042(2) 216,411
<PAGE>12
The Company's natural gas revenues for the last five years were as
follows:
1994(1) 1993 1992 1991 1990
(Dollars in Thousands)
Residential $332,348 $529,260 $440,239 $433,871 $439,956
Commercial 125,570 209,344 169,470 182,486 176,279
Industrial 3,472 7,294 7,804 10,546 12,994
Other 11,544 30,143 27,457 33,434 31,323
Transportation 23,228 28,781 28,393 30,002 25,496
-------- -------- -------- -------- --------
Total $496,162 $804,822 $673,363 $690,339 $686,048
(1) Information reflects the sales of the Missouri Properties effective
January 31, and February 28, 1994.
(2) Includes cumulative effect to January 1, 1991, of a change in revenue
recognition. The cumulative effect of this change increased natural
gas sales by 14,838,000 MCF for 1991.
In compliance with orders of the state commissions applicable to all
natural gas utilities, the Company has established priority categories for
service to its natural gas customers. The highest priority is for residential
and small commercial customers and the lowest for large industrial customers.
Natural gas delivered by the Company from its main system for use as fuel for
electric generation is classified in the lowest priority category.
Interstate System
The Company distributes natural gas at retail to approximately 513,000
customers located in central and eastern Kansas and northeastern Oklahoma.
The largest cities served in 1994 were Wichita and Topeka, Kansas and
Bartlesville, Oklahoma. The Company purchases all the natural gas it delivers
to these customers direct from producers and marketers of natural gas. The
Company has transportation agreements with WNG, a non-affiliated pipeline
transmission company, which have terms varying in length from one to twenty
years for delivery of this gas. WNG transported 51.6 BCF under these
agreements in 1994 and 33.5 BCF in 1993.
The Company purchases this gas from various suppliers under contracts
expiring at various times. The Company purchased approximately 52.2 BCF or
89.3% of its natural gas supply from these sources in 1994 and 77.8 BCF or
52.9% during 1993. Approximately 86.3 BCF of natural gas is made available
annually under these contracts with approximately 76.0 BCF available under
contracts which extend beyond the year 2000. The Company has limited rights
to substitute spot gas for this gas under contract. In October 1994, the
Company executed a long-term gas purchase contract (Base Contract) and a
peaking supply contract with Amoco Production Company for the purpose of
meeting the requirements of the customers served from the Company's interstate
pipeline system. The Company anticipates that the Base Contract will supply
between 45% and 60% of the Company's demand served by the WNG pipeline system.
The Company also purchases natural gas for the interstate system from
intrastate pipelines and spot market suppliers under short-term contracts.
These sources totalled 3.8 BCF and 5.2 BCF for 1994 and 1993 representing 6.5%
and 3.5% of the system requirements, respectively. These volumes were
transported by Panhandle Eastern Pipeline Company (Panhandle), Northern
Natural Gas Company, and Natural Gas Pipeline Company of America.
<PAGE>13
During 1994 and 1993, approximately 8.0 BCF and 7.1 BCF, respectively,
were transferred from the Company's main system to serve a portion of Wichita,
Kansas. These system transfers represent 13.7% and 4.9%, respectively, of the
interstate system supply.
The average wholesale cost per thousand cubic feet (MCF) purchased for the
distribution systems for the past five years was as follows:
Interstate Pipeline Supply
(Average Cost per MCF)
1994 1993 1992 1991 1990
WNG $ - $3.57 $3.64 $3.61 $3.84
Other 3.32 3.01 2.30 2.36 2.14
Total Average Cost 3.32 3.23 2.88 3.02 3.10
The increase in the total average cost per MCF in 1994 from 1993 reflects
increased prices in the spot market and increased transportation costs.
Main System
The Company serves approximately 130,000 customers in central and north
central Kansas with natural gas supplied through the main system. The
principal market areas include Salina, Manhattan, Junction City, Great Bend,
McPherson and Hutchinson, Kansas.
Natural gas for the Company's main system is purchased from a combination
of direct wellhead production, from the outlet of natural gas processing
plants, and from interstate pipeline interconnects all within the State of
Kansas. Such purchases are transported entirely through Company owned
transmission lines in Kansas.
As discussed under GENERAL, the Company is developing the Market Center
and intends to transfer certain natural gas transmission assets having a value
of approximately $52.1 million to the Market Center. Natural gas purchased
for the Company's main system customer requirements will be transported and/or
stored by the Market Center upon approval from the KCC. The Company retains a
priority right to capacity on the Market Center necessary to serve the main
system customers. The Company will have the opportunity to negotiate for the
purchase of natural gas with producers or marketers utilizing Market Center
services, which will increase the potential supply available to meet main
system customer demands.
During 1994, the Company purchased approximately 17.1 BCF of natural gas
from Mesa Operating Limited Partnership (Mesa). This compares with
approximately 15.6 BCF of natural gas (including 2.5 BCF of make-up
deliveries) from Mesa pursuant to a contract expiring May 31, 1995 (the
Hugoton Contract). These purchases represent approximately 62.7% and 53.7%,
respectively, of the Company's main system requirements during such periods.
Pursuant to the Hugoton Contract, the Company expects to purchase
approximately 9 BCF of natural gas constituting approximately 37% of the
Company's main system requirements through May 31, 1995.
The Company has issued a request for proposal for natural gas contracts
ranging from one to five years, to replace the gas previously purchased under
the expiring Mesa contract. The Company has received interest in serving this
<PAGE>14
supply requirement from multiple producers and marketers and believes it will
be able to replace the requirements previously served by the Mesa contract
with adequate supplies at market based prices.
Spivey-Grabs field in south-central Kansas supplied approximately 4.8 BCF
of natural gas in both 1994 and 1993, constituting 17.6% and 16.6%,
respectively, of the main system's requirements during such periods. Such
natural gas is supplied pursuant to contracts with producers in the
Spivey-Grabs field, most of which are for the life of the field, and under
which the Company expects to receive approximately 5 BCF or 17% of natural gas
in 1995.
Other sources of gas for the main system of 2.9 BCF or 10.5% of the system
requirements were purchased from or transported through interstate pipelines
during 1994. The remainder of the supply for the main system during 1994 and
1993 of 2.5 BCF and 4.2 BCF representing 9.2% and 14.5%, respectively, was
purchased directly from producers or gathering systems.
During 1994 and 1993, approximately 8.0 BCF and 7.1 BCF, respectively, of
the total main system supply was transferred to the Company's interstate
system (see Interstate Pipeline Supply).
The Company believes there is adequate natural gas available under
contract or otherwise available to meet the currently anticipated needs of the
main system customers.
The main system's average wholesale cost per MCF purchased for the past
five years was as follows:
Natural Gas Supply - Main System
(Average Cost per MCF)
1994 1993 1992 1991 1990
Mesa-Hugoton Contract $1.81 $1.78(1) $1.47(2) $1.36(3) $1.47(4)
Other 2.92 2.69 2.66 2.68 2.54
Total Average Cost 2.23 2.20 2.00 1.94 1.98
(1) Includes 2.5 BCF @ $1.31/MCF of make-up deliveries.
(2) Includes 2.1 BCF @ $1.31/MCF of make-up deliveries.
(3) Includes 1.5 BCF @ $1.31/MCF of make-up deliveries.
(4) Includes 1.6 BCF @ $1.12/MCF and 1.8 BCF @ $1.31/MCF of make-up
deliveries.
The load characteristics of the Company's natural gas customers creates
relatively high volume demand on the main system during cold winter days. To
assure peak day service to high priority customers the Company owns and
operates and has under contract natural gas storage facilities (see Item 2.
Properties).
Environmental Matters
For information with respect to Environmental Matters see Note 7 of Notes
to Consolidated Financial Statements included herein.
<PAGE>15
SEGMENT INFORMATION
Financial information with respect to business segments is set forth in
Note 14 of the Notes to Consolidated Financial Statements included herein.
FINANCING
The Company's ability to issue additional debt and equity securities is
restricted under limitations imposed by the charter and the Mortgage and Deed
of Trust of Western Resources and KG&E.
Western Resources' mortgage prohibits additional first mortgage bonds from
being issued (except in connection with certain refundings) unless the
Company's net earnings available for interest, depreciation and property
retirement for a period of 12 consecutive months within 15 months preceding
the issuance are not less than the greater of twice the annual interest
charges on, or ten percent of the principal amount of, all first mortgage
bonds outstanding after giving effect to the proposed issuance. Based on the
Company's results for the 12 months ended December 31, 1994, approximately
$356 million principal amount of additional first mortgage bonds could be
issued (8.75% interest rate assumed).
Western Resources bonds may be issued, subject to the restrictions in the
preceding paragraph, on the basis of property additions not subject to an
unfunded prior lien and on the basis of bonds which have been retired. As of
December 31, 1994, the Company had approximately $499 million of net bondable
property additions not subject to an unfunded prior lien entitling the Company
to issue up to $299 million principal amount of additional bonds. As of
December 31, 1994, no additional bonds could be issued on the basis of retired
bonds.
KG&E's mortgage prohibits additional KG&E first mortgage bonds from being
issued (except in connection with certain refundings) unless KG&E's net
earnings before income taxes and before provision for retirement and
depreciation of property for a period of 12 consecutive months within 15
months preceding the issuance are not less than two and one-half times the
annual interest charges on, or ten percent of the principal amount of, all
KG&E first mortgage bonds outstanding after giving effect to the proposed
issuance. Based on KG&E's results for the 12 months ended December 31, 1994,
approximately $743 million principal amount of additional KG&E first mortgage
bonds could be issued (8.75% interest rate assumed).
KG&E bonds may be issued, subject to the restrictions in the preceding
paragraph, on the basis of property additions not subject to an unfunded prior
lien and on the basis of bonds which have been retired. As of December 31,
1994, KG&E had approximately $1.3 billion of net bondable property additions
not subject to an unfunded prior lien entitling KG&E to issue up to $909
million principal amount of additional KG&E bonds.
The most restrictive provision of the Company's charter permits the
issuance of additional shares of preferred stock without certain specified
preferred stockholder approval only if, for a period of 12 consecutive months
within 15 months preceding the issuance, net earnings available for payment of
interest exceed one and one-half times the sum of annual interest requirements
plus dividend requirements on preferred stock after giving effect to the
proposed issuance. After giving effect to the annual interest and dividend
<PAGE>16
requirements on all debt and preferred stock outstanding at December 31, 1994,
such ratio was 2.17 for the 12 months ended December 31, 1994.
REGULATION AND RATES
The Company is subject as an operating electric utility to the
jurisdiction of the KCC and as a natural gas utility to the jurisdiction of
the KCC and the Corporation Commission of the State of Oklahoma (OCC), which
have general regulatory authority over the Company's rates, extensions and
abandonments of service and facilities, valuation of property, the
classification of accounts and various other matters.
The Company is subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC) and KCC with respect to the issuance of
securities. There is no state regulatory body in Oklahoma having jurisdiction
over the issuance of the Company's securities.
Additionally, the Company is subject to the jurisdiction of the FERC,
including jurisdiction as to rates with respect to sales of electricity for
resale. The Company is not engaged in the interstate transmission or sale of
natural gas which would subject it to the regulatory provisions of the Natural
Gas Act. KG&E is also subject to the jurisdiction of the Nuclear Regulatory
Commission as to nuclear plant operations and safety.
Additional information with respect to Rate Matters and Regulation as set
forth in Note 5 of Notes to Consolidated Financial Statements is included
herein.
EMPLOYEE RELATIONS
As of December 31, 1994, the Company had 4,330 employees. The Company did
not experience any strikes or work stoppages during 1994. The Company's
current contracts with its two electric unions were negotiated in 1993 and
expire June 30, 1995. The two contracts cover approximately 2,130 employees.
The Company has contracts with three other unions representing approximately
640 employees. These contracts were negotiated in 1992 and will expire June
6, 1996.
<PAGE>17
<TABLE>
EXECUTIVE OFFICERS OF THE COMPANY
<CAPTION>
Other Offices or Positions
Name Age Present Office Held During Past Five Years
<S> <C> <C> <C>
John E. Hayes, Jr. 57 Chairman of the Board,
President, and Chief
Executive Officer
William E. Brown 55 President and Chief President and Chief Operating Officer-
Executive Officer-KPL KPL Division (1990)
(since October 1990) Executive Vice President and Chief
Operating Officer (1987 to 1990)
James S. Haines, Jr. 48 Executive Vice President Group Vice President-KG&E
and Chief Administrative
Officer (since March 1992)
Steven L. Kitchen 49 Executive Vice President Senior Vice President, Finance
and Chief Financial and Accounting
Officer (since March 1990)
John K. Rosenberg 49 Executive Vice President
and General Counsel
Carl M. Koupal, Jr. 41 Executive Vice President Vice President, Corporate
Corporate Communications, Marketing, and Economic Development
Marketing, and Economic (1992 to 1994)
Development Director, Economic Development, (1985
(since January, 1995) to 1992) Jefferson City, Missouri
Kent R. Brown 49 President and Chief Group Vice President-KG&E
Executive Officer-KG&E
(since April 1992)
Jerry D. Courington 49 Controller
Executive officers serve at the pleasure of the Board of Directors. There are no
family relationships among any of the officers, nor any arrangements or
understandings between any officer and other persons pursuant to which he/she was
appointed as an officer.
</TABLE>
<PAGE>18
ITEM 2. PROPERTIES
The Company owns or leases and operates an electric generation,
transmission, and distribution system in Kansas, a natural gas integrated
storage, gathering, transmission and distribution system in Kansas, and a
natural gas distribution system in Kansas and Oklahoma.
During the five years ended December 31, 1994, the Company's gross
property additions totalled $923,801,000 and retirements were $176,678,000.
ELECTRIC FACILITIES
Unit Year Principal Unit Capacity
Name No. Installed Fuel (MW) (2)
Abilene Energy Center:
Combustion Turbine 1 1973 Gas 65
Gordon Evans Energy Center:
Steam Turbines 1 1961 Gas--Oil 150
2 1967 Gas--Oil 367
Hutchinson Energy Center:
Steam Turbines 1 1950 Gas 18
2 1950 Gas 17
3 1951 Gas 28
4 1965 Gas 196
Combustion Turbines 1 1974 Gas 51
2 1974 Gas 49
3 1974 Gas 54
4 1975 Oil 89
Jeffrey Energy Center (84%):
Steam Turbines 1 1978 Coal 587
2 1980 Coal 600
3 1983 Coal 588
La Cygne Station (50%):
Steam Turbines 1 1973 Coal 343
2 1977 Coal 335
Lawrence Energy Center:
Steam Turbines 2 1952 Gas 0 (1)
3 1954 Coal 56
4 1960 Coal 113
5 1971 Coal 370
Murray Gill Energy Center:
Steam Turbines 1 1952 Gas--Oil 46
2 1954 Gas--Oil 74
3 1956 Gas--Oil 107
4 1959 Gas--Oil 105
<PAGE>19
Unit Year Principal Unit Capacity
Name No. Installed Fuel (MW) (2)
Neosho Energy Center:
Steam Turbines 3 1954 Gas--Oil 0 (1)
Tecumseh Energy Center:
Steam Turbines 7 1957 Coal 88
8 1962 Coal 148
Combustion Turbines 1 1972 Gas 19
2 1972 Gas 19
Wichita Plant:
Diesel Generator 5 1969 Diesel 3
Wolf Creek Generating Station (47%):
Nuclear 1 1985 Uranium 545
-----
Total 5,230
(1) These units have been "mothballed" for future use.
(2) Based on MOKAN rating.
The Company jointly-owns Jeffrey Energy Center (84%), La Cygne Station
(50%) and Wolf Creek Generating Station (47%).
NATURAL GAS COMPRESSOR STATIONS AND STORAGE FACILITIES
The Company's transmission and storage facility compressor stations, all
located in Kansas, as of December 31, 1994, are as follows:
Mfr Ratings
of MCF/Hr
Capacity at
Driving Type of Mfr hp 14.65 Psia
Location Units Year Installed Fuel Ratings at 60F
Abilene . . . . . 4 1930 Gas 4,000 5,920
Bison . . . . . . 1 1951 Gas 440 316
Brehm Storage . . 2 1982 Gas 800 486
Calista . . . . . 3 1987 Gas 4,400 7,490
Hope. . . . . . . 1 1970 Electric 600 44
Hutchinson. . . . 2 1989 Gas 1,600 707
Manhattan . . . . 1 1963 Electric 250 313
Marysville. . . . 1 1964 Electric 250 202
McPherson . . . . 1 1972 Electric 3,000 7,040
Minneola. . . . . 5 1952 - 1978 Gas 9,650 14,018
Pratt . . . . . . 3 1963 - 1983 Gas 1,700 3,145
Spivey. . . . . . 4 1957 - 1964 Gas 7,200 1,368
Ulysses . . . . . 12 1949 - 1981 Gas 26,630 15,244
Yaggy Storage . . 3 1993 Electric 7,500 5,000
<PAGE>20
The Company owns and operates an underground natural gas storage facility,
the Brehm field in Pratt County, Kansas. This facility has a working storage
capacity of approximately 1.6 BCF. The Company withdrew up to 6,230 MCF per
day from this field to meet 1994 winter peaking requirements.
The Company owns and operates an underground natural gas storage field,
the Yaggy field in Reno County, Kansas. This facility has a working storage
capacity of approximately 2 BCF. The Company withdrew up to 52,700 MCF per
day from this field to meet 1994 winter peaking requirements.
The Company has contracted with WNG for additional underground storage in
the Alden field in Kansas. The contract, expiring March 31, 1998, enables the
Company to supply customers with up to 75 million cubic feet per day of gas
supply during winter peak periods. See Item I. Business, Gas Operations for
proven recoverable gas reserve information.
ITEM 3. LEGAL PROCEEDINGS
In March, 1995, the litigation between the Company and the Bishop Group,
Ltd., and other entities affiliated with the Bishop Group, raising breach of
certain gas supply contracts as set forth in Note 4 of the Notes to
Consolidated Financial Statements, was settled with the realignment of the
commercial relationship between the parties. The resolution of this matter is
not expected to have a material adverse impact on the Company.
Additional information on legal proceedings involving the Company is set
forth in Note 4 of Notes to Consolidated Financial Statements included herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Stock Trading
Western Resources common stock, which is traded under the ticker symbol
WR, is listed on the New York Stock Exchange. As of March 1, 1995, there were
43,454 common shareholders of record. For information regarding quarterly
common stock price ranges for 1994 and 1993, see Note 16 of Notes to
Consolidated Financial Statements included herein.
<PAGE>21
Dividend Policy
Western Resources common stock is entitled to dividends when and as
declared by the Board of Directors. At December 31, 1994, the Company's
retained earnings were restricted by $857,600 against the payment of dividends
on common stock. However, prior to the payment of common dividends, dividends
must be first paid to the holders of preferred stock and second to the holders
of preference stock based on the fixed dividend rate for each series.
Dividends have been paid on the Company's common stock throughout the
Company's history. Quarterly dividends on common stock normally are paid on
or about the first of January, April, July, and October to shareholders of
record as of about the third day of the preceding month. Dividends increased
four cents per common share in 1994 to $1.98 per share. In January 1995, the
Board of Directors declared a quarterly dividend of 50 1/2 cents per common
<PAGE>
share, an increase of one cent over the previous quarter. Based on currently
projected operating results, the Company does not anticipate a material change
in its dividend policy or payout ratio (approximately 70 percent in 1994) in
1995. Future dividends depend upon future earnings, the financial condition
of the Company and other factors. For information regarding quarterly
dividend declarations for 1994 and 1993, see Note 16 of Notes to Consolidated
Financial Statements included herein.
<PAGE>22
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
Year Ended December 31, 1994(1) 1993 1992(2) 1991 1990
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Income Statement Data:
Operating revenues:
Electric . . . . . . . . . . . $1,121,781 $1,104,537 $ 882,885 $ 471,839 $ 463,707
Natural gas. . . . . . . . . . 496,162 804,822 673,363 690,339 686,048
---------- ---------- ---------- ---------- ----------
Total operating revenues . . 1,617,943 1,909,359 1,556,248 1,162,178 1,149,755
Operating expenses . . . . . . . 1,348,397 1,617,296 1,317,079 1,032,557 1,017,765
Allowance for funds used during
construction . . . . . . . . . 2,667 2,631 2,002 1,070 1,181
Income before cumulative effect
of accounting change . . . . . 187,447 177,370 127,884 72,285 79,619
Cumulative effect to January 1,
1991, of change in revenue
recognition. . . . . . . . . . - - - 17,360 -
---------- ---------- ---------- ---------- ----------
Net income . . . . . . . . . . . 187,447 177,370 127,884 89,645 79,619
Earnings applicable to common
stock. . . . . . . . . . . . . 174,029 163,864 115,133 83,268 77,875
December 31, 1994(1) 1993 1992(2) 1991 1990
(Dollars in Thousands)
Balance Sheet Data:
Gross plant in service . . . . . $5,963,366 $6,222,483 $6,033,023 $2,535,448 $2,421,562
Construction work in progress. . 85,290 80,192 68,041 17,114 20,201
Total assets . . . . . . . . . . 5,189,618 5,412,048 5,438,906 2,112,513 2,016,029
Long-term debt and preference
stock subject to mandatory
redemption . . . . . . . . . . 1,507,028 1,673,988 2,077,459 690,612 595,524
Year Ended December 31, 1994(1) 1993 1992(2) 1991 1990
Common Stock Data:
Earnings per share before
cumulative effect of
accounting change. . . . . . . $ 2.82 $ 2.76 $ 2.20 $ 1.91 $ 2.25
Cumulative effect to January 1,
1991, of change in revenue
recognition per share. . . . . - - - .50 -
------ ------ ------ ------ ------
Earnings per share . . . . . . . $ 2.82 $ 2.76 $ 2.20 $ 2.41 $ 2.25
Dividends per share. . . . . . . $ 1.98 $ 1.94 $ 1.90 $ 2.04(3) $ 1.80
Book value per share . . . . . . $23.93 $23.08 $21.51 $18.59 $18.25
Average shares outstanding(000's) 61,618 59,294 52,272 34,566 34,566
Interest coverage ratio (before
income taxes, including
AFUDC) . . . . . . . . . . . . 3.42 2.79 2.27 2.69 2.86
Ratio of Earnings to Fixed
Charges. . . . . . . . . . . . 2.65 2.36 2.02 2.98 2.74
Ratio of Earnings to Combined
Fixed Charges and Preferred
and Preference Dividend
Requirements . . . . . . . . . 2.37 2.14 1.84 2.61 2.64
(1) Information reflects the sales of the Missouri Properties (Note 2).
(2) Information reflects the merger with KG&E on March 31, 1992 (Note 3).
(3) Includes special, one-time dividend of $0.18 per share paid February 28, 1991.
</TABLE>
<PAGE>23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
GENERAL: Earnings were $2.82 per share of common stock based on
61,617,873 average common shares for 1994, an increase from $2.76 in 1993 on
59,294,091 average common shares. Net income for 1994 increased to $187.4
million compared to $177.4 million in 1993. The increase in net income and
earnings per share is a result of the gain on the sale of the Company's
natural gas distribution properties and operations in the State of Missouri,
reduced interest expense, and higher electric sales combined with lower fuel
costs.
Dividends increased four cents per common share in 1994 to $1.98 per
share. In January 1995, the Board of Directors declared a quarterly dividend
of 50 1/2 cents per common share, an increase of one cent over the previous
quarter. Based on currently projected operating results, the Company does not
anticipate a material change in its dividend policy or payout ratio
(approximately 70 percent in 1994) in 1995.
The book value per share was $23.93 at December 31, 1994, compared to
$23.08 at December 31, 1993. The 1994 closing stock price of $28 5/8 was 120
percent of book value. There were 61,617,873 common shares outstanding at
December 31, 1994.
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. United Cities purchased the Company's
natural gas distribution system in and around the City of Palmyra, Missouri,
for $665,000 in cash.
As a result of the sales of the Missouri Properties, as described in Note
2 of the Notes to Consolidated Financial Statements, the Company recognized a
gain of approximately $19.3 million, net of tax, ($0.31 per share) and ceased
recording the results of operations for the Missouri Properties during the
first quarter of 1994. Consequently, the Company's results of operations for
the twelve months ended December 31, 1994 are not comparable to the results of
operations for the same periods ending December 31, 1993 and 1992.
<PAGE>24
The following table reflects, through the dates of the sales of the
Missouri Properties, the approximate operating revenues and operating income
for the years ended December 31, 1994, 1993, and 1992, and net utility plant
at December 31, 1993 and 1992, related to the Missouri Properties (see Note
2):
1994 1993 1992
Percent Percent Percent
of Total of Total of
Total
Amount Company Amount Company Amount Company
(Dollars in Thousands, Unaudited)
Operating revenues. .$ 77,008 4.8% $349,749 18.3% $299,202 19.2%
Operating income. . . 4,997 1.9% 20,748 7.1% 11,177 4.7%
Net utility plant . . - - 296,039 6.6% 272,126 6.1%
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.
For additional information regarding the sales of the Missouri Properties
and the pending litigation see Notes 2 and 4 of the Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES: The Company's liquidity is a function of
its ongoing construction program, designed to improve facilities which provide
electric and natural gas service and meet future customer service
requirements.
During 1994, construction expenditures for the Company's electric system
were approximately $152 million and nuclear fuel expenditures were
approximately $21 million. It is projected that adequate capacity margins
will be maintained without the addition of any major generating facilities
through the turn of the century. The construction expenditures for
improvements on the natural gas system, including the Company's service line
replacement program, were approximately $65 million during 1994.
Capital expenditures for 1995 through 1997 are anticipated to be as
follows:
Electric Nuclear Fuel Natural Gas
(Dollars in Thousands)
1995. . . . . $131,300 $ 21,400 $ 45,700
1996. . . . . 114,500 8,100 58,700
1997. . . . . 108,500 24,000 58,100
These expenditures are estimates prepared for planning purposes and are
subject to revisions from time to time (see Note 7).
The Company's net cash flows to capital expenditures was 97 percent for
1994 and during the last five years has averaged 98 percent. The Company
anticipates all of its cash requirements for capital expenditures through 1997
will be provided from net cash flows.
<PAGE>25
The Company's capital needs through 1999 for bond maturities and cash
sinking fund requirements for bonds and preference stock are approximately
$156 million. This capital will be provided from internal and external
sources available under then existing financial conditions.
The embedded cost of long-term debt was 7.6% at December 31, 1994, a
decrease from 8.1% at December 31, 1993. The decrease was primarily
accomplished through refinancing of higher cost debt.
The Company's short-term financing requirements are satisfied, as needed,
through the sale of commercial paper, short-term bank loans and borrowings
under unsecured lines of credit maintained with banks. At December 31, 1994,
short-term borrowings amounted to $308.2 million, of which $157.2 million was
commercial paper (see Notes 6 and 11). At December 31, 1994, the Company had
bank credit arrangements available of $145 million.
The Company's short-term debt balance at December 31, 1994, decreased
approximately $132.7 million from December 31, 1993. The decrease is
primarily a result of the use of the proceeds from the sales of the Missouri
Properties and the issuance, on January 20, 1994, of $100 million of Kansas
Gas and Electric Company (KG&E) first mortgage bonds, 6.20% Series due January
15, 2006.
In January 1994, the Company entered into an agreement with Oklahoma
Municipal Power Authority (OMPA). Under the agreement, the Company received a
prepayment of approximately $41 million for which the Company will provide
capacity and transmission services to OMPA through the year 2013.
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, due 2023.
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 Securities
(MATES) totalling $75.5 million were sold on behalf of the Company and three
series of MATES totalling $46.4 million were sold on behalf of KG&E. The rate
on these bonds was 2.95% for the initial auction period. The interest rates
are being reset periodically via an auction process. As of December 31, 1994,
the rates on these bonds ranged from 3.94% to 4.10%. The net proceeds from
the new issues, together with available cash, were used to refund five series
of pollution control bonds totalling $121.9 million bearing interest rates
between 5 7/8% and 6.8%.
On October 5, the Company extended the term of its $350 million revolving
credit facility which will now expire on October 5, 1999.
On November 1, 1994, KG&E terminated a long-term agreement which contained
provisions for the sale of accounts receivable and unbilled revenues, and
phase-in revenues (see Note 11).
<PAGE>26
The Company has a Customer Stock Purchase Plan (CSPP) and a Dividend
Reinvestment and Stock Purchase Plan (DRIP). Shares issued under the CSPP and
DRIP may be either original issue shares or shares purchased on the open
market.
The Company's capital structure at December 31, 1994, was 49 percent
common stock equity, 6 percent preferred and preference stock, and 45 percent
long-term debt. The capital structure at December 31, 1994, including
short-term debt and current maturities of long-term debt, was 45 percent
common stock equity, 5 percent preferred and preference stock, and 50 percent
debt. As of December 31, 1994, the Company's bonds were rated "A3" by Moody's
Investors Service, "A-" by Standard & Poor's Ratings Group, and "A-" by Fitch
Investors Service.
RESULTS OF OPERATIONS
The following is an explanation of significant variations from prior year
results in revenues, operating expenses, other income and deductions, interest
charges and preferred and preference dividend requirements. The results of
operations of the Company include the activities of KG&E since the merger on
March 31, 1992, and exclude the activities related to the Missouri Properties
following the sales of those properties in the first quarter of 1994.
For additional information regarding the sales of the Missouri Properties
and the pending litigation, see Notes 2 and 4 of the Notes to Consolidated
Financial Statements. Additional information relating to changes between
years is provided in the Notes to Consolidated Financial Statements.
REVENUES
The operating revenues of the Company are based on sales volumes and rates
authorized by certain state regulatory commissions and the Federal Energy
Regulatory Commission (FERC). Rates, charged for the sale and delivery of
natural gas and electricity, are designed to recover the cost of service and
allow investors a fair rate of return. Future natural gas and electric sales
will be affected by weather conditions, competition from other generating
sources, competing fuel sources, customer conservation efforts, and the
overall economy of the Company's service area.
The Kansas Corporation Commission (KCC) order approving the merger with
KG&E on March 31, 1992 (Merger), provided a moratorium on increases, with
certain exceptions, in the Company's jurisdictional electric and natural gas
rates until August 1995. The KCC ordered refunds totalling $32 million to the
combined companies' customers to share with customers the Merger-related cost
savings achieved during the moratorium period. Refunds of $8.5 million were
made in April 1992 and December 1993 and the remaining refund of $15 million
was made in September 1994 (see Note 3).
On March 26, 1992, in connection with the Merger, the KCC approved the
elimination of the Energy Cost Adjustment Clause for most Kansas retail
electric customers of both the Company and KG&E effective April 1, 1992. The
fuel costs are now included in base rates and were established at a level
intended by the KCC to equal the projected average cost of fuel through August
<PAGE>27
1995. Any variance in fuel costs from the projected average will impact the
Company's earnings.
Future natural gas revenues will be reduced as a result of the sales of
the Missouri Properties. The Consolidated Statements of Income include
revenues of $77 million for the portion of the first quarter of 1994 prior to
the sales of the Missouri Properties, $350 million for 1993 and $299 million
for 1992. Following the sales of the Missouri Properties and during 1995 and
beyond, there will be no revenues related to the Missouri Properties (see Note
2).
1994 Compared to 1993: Electric revenues increased two percent during
1994 primarily as a result of a four percent increase in commercial and
industrial electric sales. Residential electric sales increased one percent
despite four percent cooler temperatures during the primary air conditioning
load months of June, July, and August. Partially offsetting these increases
in electric revenues was a fourteen percent decrease in wholesale and
interchange sales as a result of higher than normal sales in 1993 to other
utilities while their generating units were down due to the flooding of 1993.
Natural gas revenues and sales decreased significantly in 1994 as a result
of the sales of the Missouri Properties in the first quarter of 1994 (see Note
2). Also contributing to the decrease in natural gas revenues were reduced
natural gas sales for space heating as a result of much warmer temperatures
during the winter season of 1994 compared to 1993.
1993 Compared to 1992: Electric revenues increased significantly in 1993
as a result of the Merger. Also contributing to the increase was increased
electric sales for space heating, resulting from colder winter temperatures in
the first quarter of 1993, and increased sales for cooling load, resulting
from warmer temperatures in the second and third quarters of 1993. KG&E
electric revenues of $617 million have been included in the Company's 1993
electric revenues. This compares to KG&E revenues of $424 million, from April
1, 1992, through December 31, 1992, included in the Company's 1992 electric
revenues. Partially offsetting these increases in electric revenues was the
amortization of the Merger-related customer refund.
Electric revenues for 1993 compared to pro forma revenues for 1992, giving
effect to the Merger as if it had occurred at January 1, 1992, would have
increased as a result of the warmer summer and colder winter temperatures in
1993. Retail sales of kilowatt hours on a pro forma comparative basis
increased from approximately 14.6 billion for 1992 to approximately 15.5
billion for 1993, or six percent.
Natural gas revenues for 1993 increased approximately 20 percent as a
result of increased sales caused by colder winter temperatures, the full
impact of increased retail natural gas rates (see Note 5), and an 11 percent
increase in the unit cost of gas passed on to customers through the purchased
gas adjustment clauses (PGA). The colder winter temperatures are reflected in
a 17 percent increase in natural gas sales to residential customers.
<PAGE>28
OPERATING EXPENSES
1994 Compared to 1993: Total operating expenses decreased 17 percent
during 1994 primarily as a result of the sales of the Missouri Properties
(Note 2). Also contributing to the decrease were lower fuel costs for
electric generation and reduced natural gas purchases as a result of lower
sales caused by milder winter temperatures in 1994 compared to 1993.
Partially offsetting the decreases in operating expenses was higher income
tax expense. As of 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 Generating Station. The completion of
the amortization of these deferred income tax reserves increased income tax
expense and thereby reduced net income by approximately $12 million in 1994,
and in the future will reduce net income by this same amount each year.
1993 Compared to 1992: Operating expenses increased for 1993 primarily as
a result of the Merger. KG&E operating expenses of $470 million have been
included in the Company's operating expenses for the year ended December 31,
1993. This compares to KG&E operating expenses of $316 million, from April 1,
1992, through December 31, 1992, included in the Company's 1992 operating
expenses.
Other factors, excluding the Merger, contributing to the increase in
operating expenses were higher fuel and purchased power expenses caused by
increased electric sales to meet cooling load and increased natural gas
purchases caused by a 16 percent increase in natural gas sales and an 11
percent higher unit cost of gas which is passed on to customers through the
PGA.
Also contributing to the increase were higher general taxes due to
increases in plant, the property tax assessment ratio, and higher mill levies.
A constitutional amendment in Kansas changed the assessment on utility
property from 30 to 33 percent. As a result of this change the Company had an
increased property tax expense of approximately $6.1 million in 1993.
Partially offsetting the increases were savings as a result of the Merger
and reduced net lease expense for La Cygne 2 resulting from refinancing of
secured facility bonds (see Note 10).
OTHER INCOME AND DEDUCTIONS: Other income and deductions, net of taxes,
was higher for the twelve months ended December 31, 1994 compared to 1993 due
to the recognition of the gain on the sales of the Missouri Properties of
approximately $19.3 million, net of tax, (see Note 2). Partially offsetting
this increase was increased interest expense on corporate-owned life insurance
(COLI) borrowings. Also partially offsetting the increase was the recognition
of income in 1993 from death proceeds from COLI policies.
Other income and deductions, net of taxes, increased $1.3 million in 1993
compared to 1992. KG&E other income and deductions, net of taxes, of $19
million have been included in the Company's total for 1993 compared to $17
million in 1992 from April 1, through December 31, 1992. Income from KG&E's
COLI totalled $8 million in 1993.
<PAGE>29
INTEREST CHARGES AND PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS:
Total interest charges decreased 17 percent for the twelve months ended
December 31, 1994, as a result of lower debt balances and the refinancing of
higher cost debt, as well as increased COLI borrowings which interest is
reflected in Other Income and Deductions, on the Consolidated Statements of
Income. The Company's embedded cost of long-term debt decreased to 7.6% at
December 31, 1994, compared to 8.1% and 8.2% at December 31, 1993 and 1992,
respectively, primarily as a result of the refinancing of higher cost debt.
Partially offsetting these decreases in interest expense were higher
interest rates on short-term borrowings.
Interest charges for 1993 were higher than 1992 as a result of the Merger.
KG&E interest charges of $59 million for 1993 were included in the Company's
total interest charges compared to $53 million for the nine months ended
December 31, 1992. The full twelve month effect of interest on debt to
acquire KG&E also contributed to the increase in total interest charges. The
increased interest charges were partially offset through lower debt balances
and reduced interest charges from refinancing higher cost long-term debt and
lower interest rates on variable-rate debt.
MERGER IMPLEMENTATION: In accordance with the KCC Merger order,
amortization of the acquisition adjustment will commence August 1995. The
amortization will amount to approximately $20 million (pre-tax) per year for
40 years. The Company can recover the amortization of the acquisition
adjustment through cost savings under a sharing mechanism approved by the KCC
as described in Note 3 of the Notes to the Consolidated Financial Statements.
While the Company has achieved savings from the Merger, there is no assurance
that the savings achieved will be sufficient to, or the cost savings sharing
mechanism will operate as to, fully offset the amortization of the acquisition
adjustment.
OTHER INFORMATION
INFLATION: Under the ratemaking procedures prescribed by the regulatory
commissions to which the Company is subject, only the original cost of plant
is recoverable in revenues as depreciation. Therefore, because of inflation,
present and future depreciation provisions are inadequate for purposes of
maintaining the purchasing power invested by common shareholders and the
related cash flows are inadequate for replacing property. The impact of this
ratemaking process on common shareholders is mitigated to the extent
depreciable property is financed with debt that can be repaid with dollars of
less purchasing power. While the Company has experienced relatively low
inflation in the recent past, the cumulative effect of inflation on operating
costs may require the Company to seek regulatory rate relief to recover these
higher costs.
FERC ORDER NO. 636: In 1992 the FERC issued Order No. 636 (FERC 636)
which the FERC intended to complete the deregulation of natural gas production
and facilitate competition in the gas transportation industry. FERC 636 has
affected the Company in several ways. The rules provide greater protection
for pipeline companies by providing for recovery of all fixed costs through
contracts with local distribution companies and other customers choosing to
transport gas on a firm (non-interruptible) basis. The order also separates
the purchase of natural gas from the transportation and storage of natural
<PAGE>30
gas, shifting additional responsibility to distribution companies for the
provision (through purchase and/or storage) of long-term gas supply and
transportation to distribution points. Under the new rules, distribution
companies elect the amount and type of services taken from pipelines. The
Company may be liable to one or more of its pipeline suppliers for costs
related to the transition from its traditional natural gas sales service to
the restructured services required by FERC 636. The Company believes
substantially all of these costs will be recovered from its customers and any
additional transition costs will be immaterial to the Company's financial
position or results of operations. For additional information regarding FERC
636 costs, see Note 5 of the Notes to Consolidated Financial Statements.
ENVIRONMENTAL: The Company has taken a proactive position with respect to
the potential environmental liability associated with former manufactured gas
sites and has an agreement with the Kansas Department of Health and
Environment to systematically evaluate these sites in Kansas (see Note 7).
Although the Company currently has no Phase I affected units under the
Clean Air Act of 1990, the Company has applied for an early substitution
permit to bring the co-owned La Cygne Station under the Phase I guidelines.
The oxides of nitrogen (NOx) and air toxic limits, which were not set in law,
will be specified in future Environmental Protection Agency (EPA) regulations.
The EPA's proposed NOx regulations were ruled invalid by the U.S. Court of
Appeals for the District of Columbia Circuit in November, 1994 and until such
time as the EPA resubmits new proposed regulations, the Company will be unable
to determine its compliance options or related compliance costs (see Note 7).
COMPETITION: As a regulated utility, the Company currently has limited
direct competition for retail electric service in its certified service area.
However, there is competition, based largely on price, from the generation, or
potential generation, of electricity by large commercial and industrial
customers, and independent power producers.
The 1992 Energy Policy Act (Act) requires increased efficiency of energy
usage and has affected the way electricity is marketed. The Act also provides
for increased competition in the wholesale electric market by permitting the
FERC to order third party access to utilities' transmission systems and by
liberalizing the rules for ownership of generating facilities. As part of the
Merger, the Company agreed to open access of its transmission system for
wholesale transactions. During 1994, wholesale electric revenues represented
less than ten percent of the Company's total electric revenues.
Operating in this competitive environment could place pressure on utility
profit margins and credit quality. Wholesale and industrial customers may
threaten to pursue cogeneration, self-generation, retail wheeling,
municipalization or relocation to other service territories in an attempt to
obtain reduced energy costs. Increasing competition has resulted in credit
rating agencies applying more stringent guidelines when making utility credit
rating determinations.
The Company is providing reduced electric rates for industrial expansion
projects and economic development projects in an effort to maintain and
increase electric load. In 1994, The Boeing Company announced it would
<PAGE>31
develop its 777 jetliner in Wichita and Cessna Aircraft Company announced it
would build a production plant in Independence, Kansas along with expanding
its Wichita facilities, with an addition of 2,000 jobs.
In order to retain its current electric load, the Company has and will
continue to negotiate with some of its larger industrial customers, who are
able to develop cogeneration facilities, for long-term contracts although some
negotiated rates may result in reduced margins for the Company. During 1996,
the Company will lose a major industrial customer to cogeneration resulting in
a reduction to pre-tax earnings of approximately $7 to $8 million or 7 to 8
cents per share. This customer's decision to develop its own cogeneration
project was based partially on factors other than energy cost.
To capitalize on opportunities in the non-regulated natural gas industry,
the Company, through its wholly-owned subsidiary Mid Continent Market Center,
Inc. (Market Center), is establishing a natural gas market center in Kansas.
The Market Center will provide natural gas transportation, storage, and
gathering services, as well as balancing, and title transfer capability. Upon
approval from the KCC, the Company intends to transfer certain natural gas
transmission assets having a value of approximately $52.1 million to the
Market Center. In addition, the Company intends to extend credit to the
Market Center enabling the Market Center to borrow up to an aggregate
principal amount of $25 million on a term basis to construct new facilities
and $5 million on a revolving credit basis for working capital. The Market
Center will provide no notice natural gas transportation and storage services
to the Company under a long-term contract. The Company will continue to
operate and maintain the Market Center's assets under a separate contract.
<PAGE>32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS PAGE
Report of Independent Public Accountants 35
Financial Statements:
Consolidated Balance Sheets, December 31, 1994 and 1993 36
Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992 37
Consolidated Statements of Cash Flows for the years ended
1994, 1993 and 1992 38
Consolidated Statements of Taxes for the years ended
December 31, 1994, 1993 and 1992 39
Consolidated Statements of Capitalization, December 31, 1994
and 1993 40
Consolidated Statements of Common Stock Equity for the years
ended December 31, 1994, 1993 and 1992 41
Notes to Consolidated Financial Statements 42
SCHEDULES OMITTED
The following schedules are omitted because of the absence of the
conditions under which they are required or the information is included in the
financial statements and schedules presented:
I, II, III, IV, and V.
<PAGE>33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Western Resources, Inc.:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of Western Resources, Inc., and subsidiaries as
of December 31, 1994 and 1993, and the related consolidated statements of
income, cash flows, taxes and common stock equity for each of the three years
in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not
audit the financial statements of Kansas Gas and Electric Company, a wholly-
owned subsidiary of Western Resources, Inc., as of and for the year ended
December 31, 1992, which statements reflect assets and revenues of 61 percent
and 27 percent, respectively, of the consolidated totals for 1992. Those
statements were audited by other auditors whose report has been furnished to
us and our opinion, insofar as it relates to the amounts included for that
entity, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Western Resources, Inc., and subsidiaries
as of December 31, 1994 and 1993, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
As explained in Note 13 to the consolidated financial statements,
effective January 1, 1992, the Company changed its method of accounting for
income taxes. As explained in Note 8 to the consolidated financial
statements, effective January 1, 1993, the Company changed its method of
accounting for postretirement benefits. As explained in Note 8 to the
consolidated financial statements, effective January 1, 1994, the Company
changed its method of accounting for postemployment benefits.
ARTHUR ANDERSEN
LLP
Kansas City, Missouri,
January 25, 1995
<PAGE>34
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
1994(1) 1993
(Dollars in Thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT (Notes 1 and 9):
Electric plant in service . . . . . . . . . . . . . . . . $5,226,175 $5,110,617
Natural gas plant in service. . . . . . . . . . . . . . . 737,191 1,111,866
---------- ----------
5,963,366 6,222,483
Less - Accumulated depreciation . . . . . . . . . . . . . 1,790,266 1,821,710
---------- ----------
4,173,100 4,400,773
Construction work in progress . . . . . . . . . . . . . . 85,290 80,192
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . . 39,890 29,271
---------- ----------
Net utility plant. . . . . . . . . . . . . . . . . . . 4,298,280 4,510,236
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . . . . . . . . . 74,017 61,497
Decommissioning trust (Note 7). . . . . . . . . . . . . . 16,944 13,204
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 13,556 10,658
---------- ----------
104,517 85,359
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents (Note 1). . . . . . . . . . . . 2,715 1,217
Accounts receivable and unbilled revenues (net) (Note 1). 219,760 238,137
Fossil fuel, at average cost. . . . . . . . . . . . . . . 38,762 30,934
Gas stored underground, at average cost . . . . . . . . . 45,222 51,788
Materials and supplies, at average cost . . . . . . . . . 56,145 55,156
<PAGE>
Prepayments and other current assets. . . . . . . . . . . 27,932 34,128
---------- ----------
390,536 411,360
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes (Note 13). . . . . . . . . . 101,886 111,159
Deferred coal contract settlement costs (Note 5). . . . . 33,606 40,522
Phase-in revenues (Note 5). . . . . . . . . . . . . . . . 61,406 78,950
Corporate-owned life insurance (net) (Note 1) . . . . . . 16,967 4,743
Other deferred plant costs. . . . . . . . . . . . . . . . 31,784 32,008
Unamortized debt expense. . . . . . . . . . . . . . . . . 58,237 55,999
Other (Note 5). . . . . . . . . . . . . . . . . . . . . . 92,399 81,712
---------- ----------
396,285 405,093
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $5,189,618 $5,412,048
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see Statements). . . . . . . . . . . . . . . $3,006,341 $3,121,021
---------- ----------
CURRENT LIABILITIES:
Short-term debt (Note 6) . . . . . . . . . . . . . . . . . 308,200 440,895
Long-term debt due within one year (Note 11) . . . . . . . 80 3,204
Accounts payable. . . . . . . . . . . . . . . . . . . . . 130,616 172,338
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 86,966 46,076
Accrued interest and dividends. . . . . . . . . . . . . . 61,069 65,825
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 69,025 65,492
---------- ----------
655,956 793,830
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes (Note 13) . . . . . . . . . . . . . 971,014 968,637
Deferred investment tax credits (Note 13) . . . . . . . . 137,651 150,289
Deferred gain from sale-leaseback (Note 10) . . . . . . . 252,341 261,981
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 166,315 116,290
---------- ----------
1,527,321 1,497,197
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 7)
TOTAL CAPITALIZATION AND LIABILITIES. . . . . . . . . . $5,189,618 $5,412,048
========== ==========
(1) Information reflects the sales of the Missouri Properties (Note 2).
The Notes to Consolidated Financial Statements are an integral part of this statement.
</TABLE>
<PAGE>35
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31,
1994(1) 1993 1992(2)
(Dollars in Thousands
Except Per Share Amounts)
<S> <C> <C>
OPERATING REVENUES (Notes 1 and 5):
Electric. . . . . . . . . . . . . . . . . . . . . . . $1,121,781 $1,104,537 $ 882,885
Natural gas . . . . . . . . . . . . . . . . . . . . . 496,162 804,822 673,363
---------- ---------- ----------
Total operating revenues. . . . . . . . . . . . . . 1,617,943 1,909,359 1,556,248
---------- ---------- ----------
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . 220,766 237,053 190,653
Nuclear fuel. . . . . . . . . . . . . . . . . . . . 13,562 13,275 10,126
Power purchased . . . . . . . . . . . . . . . . . . . 15,438 16,396 14,819
Natural gas purchases . . . . . . . . . . . . . . . . 312,576 500,189 403,326
Other operations. . . . . . . . . . . . . . . . . . . 303,391 349,160 296,642
Maintenance . . . . . . . . . . . . . . . . . . . . . 113,186 117,843 101,611
Depreciation and amortization . . . . . . . . . . . . 151,630 164,364 144,013
Amortization of phase-in revenues . . . . . . . . . . 17,544 17,545 13,158
Taxes (see Statements):
Federal income. . . . . . . . . . . . . . . . . . . 76,477 62,420 34,905
State income. . . . . . . . . . . . . . . . . . . . 19,145 15,558 7,095
General . . . . . . . . . . . . . . . . . . . . . . 104,682 123,493 100,731
---------- ---------- ----------
Total operating expenses. . . . . . . . . . . . . 1,348,397 1,617,296 1,317,079
---------- ---------- ----------
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . 269,546 292,063 239,169
---------- ---------- ----------
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . (5,354) 7,841 9,308
Gain on sales of Missouri Properties (Note 2) . . . . 30,701 - -
Miscellaneous (net) . . . . . . . . . . . . . . . . . 12,838 18,418 18,976
Income taxes (net) (see Statements) . . . . . . . . . (4,329) (777) (4,098)
---------- ---------- ----------
Total other income and deductions . . . . . . . . 33,856 25,482 24,186
---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . 303,402 317,545 263,355
---------- ---------- ----------
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . 98,483 123,551 117,464
Other . . . . . . . . . . . . . . . . . . . . . . . . 20,139 19,255 20,009
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . (2,667) (2,631) (2,002)
---------- ---------- ----------
Total interest charges. . . . . . . . . . . . . . 115,955 140,175 135,471
---------- ---------- ----------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . 187,447 177,370 127,884
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . 13,418 13,506 12,751
---------- ---------- ----------
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . $ 174,029 $ 163,864 $ 115,133
========== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . 61,617,873 59,294,091 52,271,932
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . $ 2.82 $ 2.76 $ 2.20
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . $ 1.98 $ 1.94 $ 1.90
(1) Information reflects the sales of the Missouri Properties (Note 2).
(2) Information reflects the merger with KG&E on March 31, 1992 (Note 3).
The Notes to Consolidated Financial Statements are an integral part of this statement.
</TABLE>
<PAGE>36
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
1994(1) 1993 1992(2)
(Dollars in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 187,447 $ 177,370 $ 127,884
Depreciation and amortization . . . . . . . . . . . . . . 151,630 164,364 144,013
Other amortization (including nuclear fuel) . . . . . . . 10,905 11,254 8,930
Gain on sales of utility plant (net of tax) . . . . . . . (19,296) - -
Deferred taxes and investment tax credits (net) . . . . . (16,555) 27,686 26,900
Amortization of phase-in revenues . . . . . . . . . . . . 17,544 17,545 13,158
Corporate-owned life insurance. . . . . . . . . . . . . . (17,246) (21,650) (14,704)
Amortization of gain from sale-leaseback. . . . . . . . . (9,640) (9,640) (7,231)
Changes in other working capital items (net of effects
from the sales of the Missouri Properties):
Accounts receivable and unbilled revenues (net)(Note 1) (75,630) (15,536) (12,227)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . (7,828) 18,073 14,990
Gas stored underground. . . . . . . . . . . . . . . . . (5,403) (37,144) 4,522
Accounts payable. . . . . . . . . . . . . . . . . . . . (41,682) (43,169) (10,194)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 20,756 7,485 (52,185)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 12,813 (3,165) (19,433)
Changes in other assets and liabilities . . . . . . . . . 60,964 (18,569) 21,508
---------- ---------- ----------
Net cash flows from operating activities. . . . . . . . 268,779 274,904 245,931
---------- ---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . 237,696 237,631 202,493
Merger with KG&E. . . . . . . . . . . . . . . . . . . . . - - 473,752
Utility investment. . . . . . . . . . . . . . . . . . . . - 2,500 -
Sales of utility plant. . . . . . . . . . . . . . . . . . (402,076) - -
Non-utility investments (net) . . . . . . . . . . . . . . 9,041 14,271 29,099
Corporate-owned life insurance policies . . . . . . . . . 26,418 27,268 20,233
Death proceeds of corporate-owned life insurance policies - (10,160) (6,789)
---------- ---------- ----------
Net Cash flows (from) used in investing activities. . . (128,921) 271,510 718,788
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . (132,695) 218,670 42,825
Bank term loan issued for Merger with KG&E. . . . . . . . - - 480,000
Bank term loan retired. . . . . . . . . . . . . . . . . . - (230,000) (250,000)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . 235,923 223,500 485,000
Bonds retired . . . . . . . . . . . . . . . . . . . . . . (223,906) (366,466) (236,966)
Revolving credit agreements (net) . . . . . . . . . . . . (115,000) (35,000) -
Other long-term debt (net). . . . . . . . . . . . . . . . (67,893) 7,043 14,498
Borrowings against life insurance policies (net). . . . . 42,175 183,260 (5,649)
Common stock issued (net) . . . . . . . . . . . . . . . . - 125,991 -
Preference stock issued . . . . . . . . . . . . . . . . . - - 50,000
Preference stock redeemed . . . . . . . . . . . . . . . . - (2,734) (2,600)
Bank term loan issuance expenses. . . . . . . . . . . . . - - (10,753)
Dividends on preferred, preference, and common stock. . . (134,806) (127,316) (99,440)
---------- ---------- ----------
Net cash flows from (used in) financing activities. . . (396,202) (3,052) 466,915
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . 1,498 342 (5,942)
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 1,217 875 6,817
---------- ---------- ----------
End of the period . . . . . . . . . . . . . . . . . . . . $ 2,715 $ 1,217 $ 875
========== ========== ==========
COMPONENTS OF MERGER WITH KG&E:
Assets acquired . . . . . . . . . . . . . . . . . . . . . $3,142,455
Liabilities assumed . . . . . . . . . . . . . . . . . . . (2,076,821)
Common stock issued . . . . . . . . . . . . . . . . . . . (589,920)
----------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . 475,714
Less cash acquired. . . . . . . . . . . . . . . . . . . . (1,962)
----------
Net cash paid . . . . . . . . . . . . . . . . . . . . . . $ 473,752
==========
(1) Information reflects the sales of the Missouri Properties (Note 2).
(2) Information reflects the merger with KG&E on March 31, 1992 (Note 3).
The Notes to Consolidated Financial Statements are an integral part of this statement.
</TABLE>
<PAGE>37
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
Year Ended December 31,
1994(1) 1993 1992(2)
(Dollars in Thousands)
<S> <C> <C> <C>
FEDERAL INCOME TAXES:
Payable currently . . . . . . . . . . . . . . . . . . . . $ 98,748 $ 41,200 $ 16,687
Deferred taxes arising from:
Depreciation and other property related items . . . . . 29,506 25,552 25,163
Energy and purchased gas adjustment clauses . . . . . . 9,764 (8,192) (4,180)
Unbilled revenues . . . . . . . . . . . . . . . . . . . - - 2,458
Natural gas line survey and replacement program . . . . (313) 355 (1,106)
Missouri Property sales . . . . . . . . . . . . . . . . (36,343) - -
Prepaid power sale. . . . . . . . . . . . . . . . . . . (13,759) - -
Other . . . . . . . . . . . . . . . . . . . . . . . . . (800) 6,166 4,121
Amortization of investment tax credits. . . . . . . . . . (6,739) (1,982) (4,918)
-------- -------- --------
Total Federal income taxes. . . . . . . . . . . . . . 80,064 63,099 38,225
-------- -------- --------
Less:
Federal income taxes applicable to non-operating items:
Missouri Property sales . . . . . . . . . . . . . . . . 9,485 - -
Other . . . . . . . . . . . . . . . . . . . . . . . . . (5,898) 679 3,320
-------- -------- --------
Total Federal income taxes applicable to
non-operating items . . . . . . . . . . . . . . . . 3,587 679 3,320
-------- -------- --------
Total Federal income taxes charged to operations. . 76,477 62,420 34,905
-------- -------- --------
STATE INCOME TAXES:
Payable currently . . . . . . . . . . . . . . . . . . . . 17,758 9,869 2,522
Deferred (net). . . . . . . . . . . . . . . . . . . . . . 2,129 5,787 5,352
-------- -------- --------
Total State income taxes. . . . . . . . . . . . . . . 19,887 15,656 7,874
-------- -------- --------
Less:
State income taxes applicable to non-operating items. . . 742 98 779
-------- -------- --------
Total State income taxes charged to operations. . . 19,145 15,558 7,095
-------- -------- --------
GENERAL TAXES:
Property and other taxes. . . . . . . . . . . . . . . . . 86,687 84,583 68,643
Franchise taxes . . . . . . . . . . . . . . . . . . . . . 5,116 22,878 19,583
Payroll taxes . . . . . . . . . . . . . . . . . . . . . . 12,879 16,032 12,505
-------- -------- --------
Total general taxes charged to operations . . . . . 104,682 123,493 100,731
-------- -------- --------
TOTAL TAXES CHARGED TO OPERATIONS . . . . . . . . . . . . . $200,304 $201,471 $142,731
======== ======== ========
The effective income tax rates set forth below are computed by dividing total Federal and State
income taxes by the sum of such taxes and net income. The difference between the effective rates
and the Federal statutory income tax rates are as follows:
Year Ended December 31, 1994(1) 1993 1992(2)
EFFECTIVE INCOME TAX RATE . . . . . . . . . . . . . . . . . 35.3% 31.0% 27.0%
EFFECT OF:
Additional depreciation . . . . . . . . . . . . . . . . . (1.4) (2.9) (5.1)
Accelerated amortization of certain deferred taxes. . . . .7 6.0 7.6
State income taxes. . . . . . . . . . . . . . . . . . . . (4.6) (4.0) (2.6)
Amortization of investment tax credits. . . . . . . . . . 2.4 2.7 3.4
Corporate-owned life insurance. . . . . . . . . . . . . . 2.1 3.0 2.9
Other differences . . . . . . . . . . . . . . . . . . . . .5 (.8) .8
---- ---- ----
STATUTORY FEDERAL INCOME TAX RATE . . . . . . . . . . . . . 35.0% 35.0% 34.0%
==== ==== ====
(1) Information reflects the sales of the Missouri Properties (Note 2).
(2) Information reflects the merger with KG&E on March 31, 1992 (Note 3).
The Notes to Consolidated Financial Statements are an integral part of this statement.
</TABLE>
<PAGE>38
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
December 31,
1994 1993
(Dollars in Thousands)
<S> <C> <C>
COMMON STOCK EQUITY (see Statements):
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
61,617,873 shares. . . . . . . . . . . . . . . . . $ 308,089 $ 308,089
Paid-in capital. . . . . . . . . . . . . . . . . . . 667,992 667,738
Retained earnings. . . . . . . . . . . . . . . . . . 498,374 446,348
---------- ----------
1,474,455 49% 1,422,175 45%
---------- ----------
CUMULATIVE PREFERRED AND PREFERENCE STOCK (Note 12):
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 (Note 11):
First mortgage bonds . . . . . . . . . . . . . . . . 841,000 842,466
Pollution control bonds. . . . . . . . . . . . . . . 521,922 508,440
Other pollution control obligations. . . . . . . . . - 13,980
Revolving credit agreements. . . . . . . . . . . . . - 115,000
Other long-term agreement. . . . . . . . . . . . . . - 53,913
Less:
Unamortized premium and discount (net) . . . . . . 5,814 6,607
Long-term debt due within one year . . . . . . . . 80 3,204
---------- ----------
1,357,028 45% 1,523,988 49%
---------- ----------
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . $3,006,341 100% $3,121,021 100%
========== ==========
The Notes to Consolidated Financial Statements are an integral part of this statement.
</TABLE>
<PAGE>39
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
<CAPTION>
Common Paid-in Retained
Stock Capital Earnings
(Dollars in Thousands)
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1991, 34,566,170 shares. . . . . $172,831 $ 87,099 $382,519
Net income. . . . . . . . . . . . . . . . . . . . . . 127,884
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (12,751)
Common stock, $1.90 per share . . . . . . . . . . . (99,135)
Expenses on preference stock. . . . . . . . . . . . . 14 (14)
Issuance of 23,479,380 shares of common stock
in the merger with KG&E . . . . . . . . . . . . . . 117,397 472,523
-------- -------- --------
BALANCE DECEMBER 31, 1992, 58,045,550 shares. . . . . 290,228 559,636 398,503
Net income. . . . . . . . . . . . . . . . . . . . . . 177,370
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (13,506)
Common stock, $1.94 per share . . . . . . . . . . . (116,019)
Expenses on common and preference stock . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . 187,447
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (13,418)
Common stock, $1.98 per share . . . . . . . . . . . (122,003)
Expenses on common stock. . . . . . . . . . . . . . . (228)
Distribution of common stock under the Customer
Stock Purchase Plan . . . . . . . . . . . . . . . . 482
-------- -------- --------
BALANCE DECEMBER 31, 1994, 61,617,873 shares. . . . . $308,089 $667,992 $498,374
======== ======== ========
The Notes to Consolidated Financial Statements are an integral part of this statement.
</TABLE>
<PAGE>40
WESTERN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: The Consolidated Financial Statements of Western Resources, Inc.
(the Company, Western Resources), include the accounts of its wholly-owned
subsidiaries, Astra Resources, Inc. (Astra), Kansas Gas and Electric Company
(KG&E) since March 31, 1992 (see Note 3), KPL Funding Corporation (KFC), and
Mid Continent Market Center, Inc. (Market Center). KG&E owns 47 percent of
Wolf Creek Nuclear Operating Corporation (WCNOC), the operating company for
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 operations of Astra, KFC, and Market Center were not material
to the Company's results of operations. The Company is conducting its utility
business as KPL, Gas Service, and through its wholly-owned subsidiary, KG&E.
The Company is conducting its non-utility business through Astra.
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), the Oklahoma Corporation Commission (OCC), and
the Federal Energy Regulatory Commission (FERC).
Utility Plant: Utility plant is stated at cost. For constructed plant,
cost includes contracted services, direct labor and materials, indirect
charges for engineering, supervision, general and administrative costs, and an
allowance for funds used during construction (AFUDC). The AFUDC rate was
4.08% in 1994, 4.10% in 1993, and 5.99% in 1992. The cost of additions to
utility plant and replacement units of property is capitalized. Maintenance
costs and replacement of minor items of property are charged to expense as
incurred. When units of depreciable property are retired, they are removed
from the plant accounts and the original cost plus removal charges less
salvage are charged to accumulated depreciation.
Depreciation: Depreciation is provided on the straight-line method based
on estimated useful lives of property. Composite provisions for book
depreciation approximated 2.87% during 1994, 3.02% during 1993, and 3.03%
during 1992 of the average original cost of depreciable property.
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.
Cash paid for interest and income taxes for each of the three years ended
December 31, are as follows:
1994 1993 1992
(Dollars in Thousands)
Interest on financing activities (net of
amount capitalized). . . . . . . . . . . $134,785 $171,734 $128,505
Income taxes . . . . . . . . . . . . . . . 90,229 49,108 24,966
<PAGE>41
Income Taxes: Income tax expense includes provisions for income taxes
currently payable and deferred income taxes calculated in conformance with
income tax laws, regulatory orders, and Statement of Financial Accounting
Standards No. 109 (SFAS 109) (see Note 13).
Investment tax credits previously deferred are being amortized to income
over the life of the property which gave rise to the credits.
Revenues: The Company accrues estimated unbilled electric and natural gas
revenues. This method of recognizing revenues best matches revenues with
costs of services provided to customers and also conforms the Company's
accounting treatment of unbilled revenues with the tax treatment of such
revenues. Unbilled revenues represent the estimated amount customers will be
billed for service provided from the time meters were last read to the end of
the accounting period. Unbilled revenues of $61 million and $99 million are
recorded as a component of accounts receivable and unbilled revenues (net) on
the Consolidated Balance Sheets as of December 31, 1994 and 1993,
respectively.
The Company had reserves for doubtful accounts receivable of $3.4 million
and $4.3 million at December 31, 1994 and 1993, respectively.
Fuel Costs: The cost of nuclear fuel in process of refinement,
conversion, enrichment, and fabrication is recorded as an asset at original
cost and is amortized to expense based upon the quantity of heat produced for
the generation of electricity. The accumulated amortization of nuclear fuel
in the reactor at December 31, 1994 and 1993, was $13.6 million and $17.4
million, respectively.
Cash Surrender Value of Life Insurance Contracts: The following amounts
related to corporate-owned life insurance contracts (COLI), primarily with one
highly rated major insurance company, are recorded in Corporate-owned Life
Insurance (net) on the Consolidated Balance Sheets:
1994 1993
(Dollars in Millions)
Cash surrender value of contracts. . . $ 408.9 $ 326.3
Borrowings against contracts . . . . . (391.9) (321.6)
------- -------
COLI (net). . . . . . . . . . $ 17.0 $ 4.7
======= =======
The COLI borrowings will be repaid upon receipt of proceeds from death
benefits under contracts. The Company recognizes increases in the cash
surrender value of contracts, resulting from premiums and investment earnings
on a tax free basis, and the tax deductible interest on the COLI borrowings in
Corporate-owned Life Insurance (net) on the Consolidated Statements of Income.
Interest expense related to KG&E's COLI for 1994, 1993, and the nine months
ended December 31, 1992, was $21.0 million, $11.9 million, and $5.3 million,
respectively.
As approved by the KCC, the Company is using a portion of the net income
stream generated by COLI policies purchased in 1993 and 1992 by the Company
(see Note 8) to offset Statement of Financial Accounting Standards No. 106
(SFAS 106) and Statement of Financial Accounting Standards No. 112 (SFAS 112)
expenses.
Reclassifications: Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
<PAGE>42
2. SALES 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 sale agreement provided for
estimated amounts in the sale price calculation to be adjusted to actual as of
January 31, 1994, within 120 days of closing. Disputes with respect to
proposed adjustments based upon differences between estimates and actuals were
to be resolved within 60 days of submission of the disputes by Southern Union
or submitted to arbitration by an accounting firm to be agreed to by both
parties. Southern Union proposed a number of adjustments to the purchase
price, some of which the Company has disputed. The Company maintains the
disputed adjustments are not permitted under the sale agreement. In the
opinion of the Company's management, the resolution of these purchase price
adjustments will not have a material impact on the Company's financial
position or results of operations. For information regarding litigation in
connection with the sale of the Missouri Properties to Southern Union, see
Note 4.
United Cities purchased the Company's natural gas distribution system in
and around the City of Palmyra, Missouri for $665,000 in cash.
During the first quarter of 1994, the Company recognized a gain of
approximately $19.3 million, net of tax, on the sales of the Missouri
Properties. As of the respective dates of the sales of the Missouri
Properties, the Company ceased recording the results of operations, and
removed the assets and liabilities from the Consolidated Balance Sheet related
to the Missouri Properties. The gain is reflected in Other Income and
Deductions, on the Consolidated Statements of Income.
The following table reflects the approximate operating revenues and
operating income for the years ended December 31, 1994, 1993, and 1992, and
net utility plant at December 31, 1993 and 1992, related to the Missouri
Properties:
1994 1993 1992
Percent Percent Percent
of Total of Total of Total
Amount Company Amount Company Amount Company
(Dollars in Thousands, Unaudited)
Operating revenues. .$ 77,008 4.8% $349,749 18.3% $299,202 19.2%
Operating income. . . 4,997 1.9% 20,748 7.1% 11,177 4.7%
Net utility plant . . - - 296,039 6.6% 272,126 6.1%
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.
<PAGE>43
3. ACQUISITION AND MERGER
On March 31, 1992, the Company, through its wholly-owned subsidiary KCA
Corporation (KCA), acquired all of the outstanding common and preferred stock
of Kansas Gas and Electric Company for $454 million in cash and 23,479,380
shares of common stock (the Merger). The Company also paid $20 million in
costs to complete the Merger. Simultaneously, KCA and Kansas Gas and Electric
Company merged and adopted the name of Kansas Gas and Electric Company (KG&E).
The Merger was accounted for as a purchase. For income tax purposes the tax
basis of the KG&E assets was not changed by the Merger.
As the Company acquired 100 percent of the common and preferred stock of
KG&E, the Company recorded an acquisition premium of $490 million on the
Consolidated Balance Sheet for the difference in purchase price and book
value. This acquisition premium and related income tax requirement of $311
million under SFAS 109 have been classified as plant acquisition adjustment in
Electric Plant in Service on the Consolidated Balance Sheets. Under the
provisions of orders of the KCC, the acquisition premium is recorded as an
acquisition adjustment and not allocated to the other assets and liabilities
of KG&E.
In the November 1991 KCC order approving the Merger, a mechanism was
approved to share equally between the shareholders and ratepayers the cost
savings generated by the Merger in excess of the revenue requirement needed to
allow recovery of the amortization of a portion of the acquisition adjustment,
including income tax, calculated on the basis of a purchase price of KG&E's
common stock at $29.50 per share. The order provides an amortization period
for the acquisition adjustment of 40 years commencing in August 1995, at which
time the full amount of cost savings is expected to have been implemented.
Merger savings will be measured by application of an inflation index to
certain pre-merger operating and maintenance costs at the time of the next
Kansas rate case. While the Company has achieved savings from the Merger,
there is no assurance that the savings achieved will be sufficient to, or the
cost savings sharing mechanism will operate as to, fully offset the
amortization of the acquisition adjustment. The order further provides a
moratorium on increases, with certain exceptions, in the Company's Kansas
electric and natural gas rates until August 1995. The KCC ordered refunds
totalling $32 million to the combined companies' customers to share with
customers the Merger-related cost savings achieved during the moratorium
period. Refunds of $8.5 million were made in April 1992 and December 1993 and
the remaining refund of $15 million was made in September 1994.
The KCC order approving the Merger required the legal reorganization of
KG&E so that it was no longer held as a separate subsidiary after January 1,
1995, unless good cause was shown why such separate existence should be
maintained. The Securities and Exchange Commission (SEC) order relating to
the Merger granted the Company an exemption under the Public Utility Holding
Company Act (PUHCA) until January 1, 1995. The Company has been granted
regulatory approval from the KCC which eliminates the requirement for a
combination. As a result of the sales of the Missouri Properties, the Company
is now exempt from regulation as a holding company under Section 3(a)(1) of
the PUHCA.
As the Merger did not occur until March 31, 1992, the twelve months ended
December 31, 1992, results of operations for the Company reported in its
statements of income, cash flows, and common stock equity reflect KG&E's
results of operations for only the nine months ended December 31, 1992. Pro
<PAGE>44
forma revenues of $1.7 billion, operating income of $269 million, net income
of $132 million and earnings per share of $2.03 for the year ended December
31, 1992 give effect to the Merger as if it had occurred at January 1, 1992.
This pro forma information is not necessarily indicative of the results of
operations that would have occurred had the Merger been consummated on January
1, 1992, nor is it necessarily indicative of future operating results.
4. LEGAL PROCEEDINGS
On June 1, 1994, Southern Union filed an action against the Company, The
Bishop Group, Ltd., and other entities affiliated with The Bishop Group, in
the Federal District Court for the Western District of Missouri (the Court)
(Southern Union Company v. Western Resources, Inc. et al., Case No. 94-509-CV-
W-1) alleging, among other things, breach of the Missouri Properties sale
agreement relating to certain gas supply contracts between the Company and
various Bishop entities that Southern Union assumed, and requesting
unspecified monetary damages as well as declaratory relief. On August 1,
1994, the Company filed its answer and counterclaim denying all claims
asserted against it by Southern Union and requesting declaratory judgment with
respect to certain adjustments in the purchase price for the Missouri
Properties proposed by Southern Union and disputed by the Company. On August
24, 1994, Southern Union filed claims against the Company for alleged purchase
price adjustments totalling $19 million. The Company subsequently agreed that
approximately $4 million of the purchase price adjustments were subject to
arbitration. On January 18, 1995, the Court held the remaining $15 million of
proposed adjustments to the purchase price were subject to arbitration under
the sale agreement. In the opinion of the Company's management, the disputed
adjustments are not proper adjustments to the purchase price. For additional
information regarding the sales of the Missouri Properties see Note 2.
On August 15, 1994, the Bishop entities filed an answer and claims against
Southern Union and the Company alleging, among other things, breach of those
certain gas supply contracts. The Bishop entities claimed damages up to $270
million against the Company and Southern Union. The Company's management
believes that through the sale agreement, Southern Union assumed all
liabilities arising out of or related to gas supply contracts associated with
the Missouri Properties. The Company's management also believes it is not
liable for any claims asserted against it by the Bishop entities and will
vigorously defend such claims.
The Company received a civil investigative demand from the U.S. Department
of Justice seeking certain information in connection with the department's
investigation "to determine whether there is, has been, or may be a violation
of the Sherman Act Sec. 1-2" with respect to the natural gas business in
Kansas and Missouri. The Company is cooperating with the Department of
Justice, but is not aware of any violation of the antitrust laws in connection
with its business operations.
The Company and its subsidiaries are involved in various other legal and
environmental proceedings. Management believes that adequate provision has
been made within the Consolidated Financial Statements for these other matters
and accordingly believes their ultimate dispositions will not have a material
adverse effect upon the business, financial position, or results of operations
of the Company.
<PAGE>45
5. RATE MATTERS AND REGULATION
The Company, under rate orders from the KCC, OCC and the FERC, recovers
increases in fuel and natural gas costs through fuel adjustment clauses for
wholesale and certain retail electric customers and various purchased gas
adjustment clauses (PGA) for natural gas customers. The KCC and the OCC
require the annual difference between actual gas cost incurred and cost
recovered through the application of the PGA be deferred and amortized through
rates in subsequent periods.
Elimination of the Energy Cost Adjustment Clause (ECA): On March 26,
1992, in connection with the Merger, the KCC approved the elimination of the
ECA for most Kansas retail electric customers of both the Company and KG&E
effective April 1, 1992. The provisions for fuel costs included in base rates
were established at a level intended by the KCC to equal the projected average
cost of fuel through August 1995, and to include recovery of costs provided by
previously issued orders relating to coal contract settlements. Any variance
in fuel costs from the projected average will impact the Company's earnings.
FERC Proceedings: On August 19, 1994, Williams Natural Gas Company (WNG)
filed a revised application with the FERC to direct bill approximately $14.7
million of FERC Order No. 636 (FERC 636) transition costs to the Company
related to natural gas sales service in Kansas and Oklahoma. These costs are
currently being recovered from the Company's current Kansas and Oklahoma
customers. The Company believes any future transition costs ultimately will
be recovered through charges to its customers, and any unrecovered transition
costs will not be material to the Company's financial position or results of
operations. For additional information with respect to FERC 636 see
Management's Discussion and Analysis.
On October 5, 1994, WNG filed an application with the FERC to direct bill
to the Company up to $30.4 million of settlement costs paid to Amoco related
to litigation between WNG and Amoco regarding the proper price to be paid for
gas purchased by WNG from Amoco. The proposed direct bill is related to
natural gas service rendered by the Company in Kansas and Oklahoma. At
December 31, 1994, $14.2 million of these costs have been billed to the
Company. The Company believes substantially all of these costs and any future
settlement costs ultimately will be recovered through charges to its Kansas
and Oklahoma customers, and any unrecovered settlement costs will not be
material to the Company's financial position or results of operations.
KCC Proceedings: On December 22, 1994, the Company, in conjunction with
the Market Center, filed an application with the KCC to form a natural gas
market center in Kansas. The Market Center will provide natural gas
transportation, storage, and gathering services, as well as balancing, and
title transfer capability. Upon approval from the KCC, the Company intends to
transfer certain natural gas transmission assets having a value of
approximately $52.1 million to the Market Center. In addition, the Company
intends to extend credit to the Market Center enabling the Market Center to
borrow up to an aggregate principal amount of $25 million on a term basis to
construct new facilities and $5 million on a revolving credit basis for
working capital. The Market Center will provide no notice natural gas
transportation and storage services to the Company under a long-term contract.
The Company will continue to operate and maintain the Market Center's assets
under a separate contract.
<PAGE>46
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 December 31, 1994,
approximately $7.2 million of these deferrals have been included in Deferred
Charges and Other Assets, Other, 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 $3.1 million
of these deferred costs remain in Deferred Charges and Other Assets, Other, on
the Consolidated Balance Sheet at December 31, 1994, with the balance being
included in rates and amortized to expense during a 43-month period,
commencing January 1, 1992.
Tight Sands: In December 1991 the KCC, and the OCC approved agreements
authorizing the Company to refund to customers approximately $40 million of
the proceeds of the Tight Sands antitrust litigation settlement to be
collected on behalf of Western Resources' natural gas customers. To secure
the refund of settlement proceeds, the Commissions authorized the
establishment of an independently administered trust to collect and maintain
cash receipts received under Tight Sands settlement agreements and provide for
the refunds made. The trust has a term of ten years.
Rate Stabilization Plan: In 1988, the KCC issued an order requiring the
accrual of phase-in revenues be discontinued by KG&E effective December 31,
1988. Effective January 1, 1989, KG&E began amortizing the phase-in revenue
asset on a straight-line basis over 9 1/2 years. At December 31, 1994,
approximately $61 million of deferred phase-in revenues remained on the
Consolidated Balance Sheet.
Coal Contract Settlements: In March 1990, the KCC issued an order
allowing KG&E to defer its share of a 1989 coal contract settlement with the
Pittsburg and Midway Coal Mining Company amounting to $22.5 million. This
amount was recorded as a deferred charge and is included in Deferred Charges
and Other Assets on the Consolidated Balance Sheet. The settlement resulted
in the termination of a long-term coal contract. The KCC permitted KG&E to
recover this settlement as follows: 76 percent of the settlement plus a return
over the remaining term of the terminated contract (through 2002) and 24
percent to be amortized to expense with a deferred return equivalent to the
carrying cost of the asset.
In February 1991, KG&E paid $8.5 million to settle a coal contract lawsuit
with AMAX Coal Company and recorded the payment as a deferred charge in
Deferred Charges and Other Assets on the Consolidated Balance Sheet. The KCC
approved the recovery of the settlement plus a return, equivalent to the
carrying cost of the asset, over the remaining term of the terminated contract
(through 1996).
FERC Order No. 528: In 1990, the FERC issued Order No. 528 which
authorized new methods for the allocation and recovery of take-or-pay
settlement costs by natural gas pipelines from their customers. Settlements
were reached between the Company's two largest gas pipelines and their
customers in FERC proceedings related to take-or-pay issues. The settlements
address the allocation of take-or-pay settlement costs between the pipelines
and their customers. However, the amount which one of the pipelines will be
<PAGE>47
allowed to recover is yet to be determined. Litigation continues between the
Company and a former upstream pipeline supplier to one of the Company's
pipeline suppliers concerning the amount of such costs which may ultimately be
allocated to the Company's pipeline supplier. The Company's share of any
costs allocated to the Company's pipeline supplier will be charged to the
Company. Due to the uncertainty concerning the amount to be recovered by the
Company's current suppliers and of the outcome of the litigation between the
Company and its current pipeline's upstream supplier, the Company is unable to
estimate its future liability for take-or-pay settlement costs. However, the
KCC has approved mechanisms which are designed to allow the Company to recover
these take-or-pay costs from its customers.
6. 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. Information concerning these
arrangements for the years ended December 31, 1994, 1993, and 1992, is set
forth below:
Year Ended December 31, 1994 1993 1992
(Dollars in Thousands)
Lines of credit at year end. . . . $145,000(1) $145,000 $250,000(2)
Short-term debt out-
standing at year end . . . . . . 308,200 440,895 222,225
Weighted average interest rate on debt outstanding at year
end (including fees) . . . . . . 6.25% 3.67% 4.70%
Maximum amount of short-
term debt outstanding during
the period. . . .. . . . . . . . $485,395 $443,895 $263,900
Monthly average short-term debt. . 214,180 347,278 179,577
Weighted daily average interest
rates during the year
(including fees) . . . . . . . . 4.63% 3.44% 4.90%
(1) Decreased to $121 million in January 1995.
(2) Decreased to $155 million in January 1993.
In connection with the commitments, the Company has agreed to pay certain
fees to the banks. Available lines of credit and the unused portion of the
revolving credit facility are utilized to support the Company's outstanding
short-term debt.
7. COMMITMENTS AND CONTINGENCIES
As part of its ongoing operations and construction program, the Company
has commitments under purchase orders and contracts which have an unexpended
balance of approximately $77 million at December 31, 1994. Approximately $32
million is attributable to modifications to upgrade the three turbines at
Jeffrey Energy Center to be completed by December 31, 1998. Plans for future
construction of utility plant are discussed in the Management's Discussion and
Analysis section.
<PAGE>48
In January 1994, the Company entered into an agreement with Oklahoma
Municipal Power Authority (OMPA). Under the agreement, the Company received a
prepayment of approximately $41 million for which the Company will provide
capacity and transmission services to OMPA through the year 2013.
Manufactured Gas Sites: The Company was previously associated with 20
former manufactured gas sites located in Kansas which may contain coal tar and
other potentially harmful materials. These sites were operated decades ago by
predecessor companies, and were owned by the Company for a period of time
after operations had ceased. The Company and the Kansas Department of Health
and Environment (KDHE) conducted preliminary assessments of the sites at a
cost of approximately $500,000. The results of the preliminary investigations
determined the Company does not have a connection to four of the sites. Of
the remaining 16 sites, the site investigation and risk assessment field work
of the highest priority site was completed in 1994 at a total cost of
approximately $450,000. The Company has not received the final report so as
to determine the extent of contamination and the amount of any possible
remediation.
The Company and KDHE entered into a consent agreement governing all future
work at these sites. The terms of the consent agreement will allow the
Company to investigate the 16 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
manufactured gas 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 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.
Superfund Sites: The Company has been identified as one of numerous
potentially responsible parties in four hazardous waste sites listed by the
EPA as Superfund sites. One site is a groundwater contamination site in
Wichita, Kansas (Wichita site), two are soil contamination sites in Missouri
(Missouri sites), and one site is a solid waste land-fill located in
Edwardsville, Kansas (Edwardsville site). Settlement agreements releasing the
Company from liability for future response or costs have been entered into at
the Edwardsville site and one of the Missouri sites. The Company's obligation
at the remaining Missouri site and the Wichita site appears to be limited
based on the Company's experience at similar sites given its limited exposure
and settlement costs. In the opinion of the Company's management, the
resolution of these matters will not have a material impact on the Company's
financial position or 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 installed continuous monitoring and reporting equipment at a total
cost of approximately $10 million. The Company does not expect additional
<PAGE>49
equipment to reduce sulfur emissions to be necessary under Phase II. Although
the Company currently has no Phase I affected units, the owners have applied
for an early substitution permit to bring the co-owned La Cygne Station under
the Phase I regulations.
The NOx and air toxic limits, which were not set in the law, will be
specified in future EPA regulations. The EPA's proposed NOx regulations were
ruled invalid by the U.S. Court of Appeals for the District of Columbia
Circuit and until such time as the EPA resubmits new proposed regulations, the
Company will be unable to determine its compliance options or related
compliance costs.
Other Environmental Matters: 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 related to the Missouri
Properties purchased by Southern Union 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.
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 and amounted to $3.8
million for 1994, $3.5 million for 1993, and $1.6 million for 1992.
The Company along with the other co-owners of Wolf Creek are among 14
companies that filed a lawsuit on 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 dismissed. The issue to be decided in this case is whether DOE
must begin accepting spent fuel in 1998 or at a future date. Wolf Creek
contains an on-site spent fuel storage facility which, under current
regulatory guidelines, provides space for the storage of spent fuel through
the year 2006 while still maintaining full core off-load capability. The
Company believes adequate additional storage space can be obtained as
necessary.
Decommissioning: On June 9, 1994, the KCC issued an order approving the
decommissioning costs 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 in
accordance with the KCC order. 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 1994 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%.
<PAGE>50
The Company's investment in the decommissioning fund, including
reinvested earnings was $16.9 million and $13.2 million at December 31, 1994
and December 31, 1993, respectively. These amounts are reflected in
Decommissioning Trust, and the related liability is included in Deferred
Credits and Other Liabilities, Other, on the Consolidated Balance Sheets.
The Company carries $118 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 $8.9 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 major 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 Company's share of any remaining proceeds can be
used for property damage up to $1.2 billion (Company's share) and premature
decommissioning costs up to $118 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 catastrophic accident or extended outage at
Wolf Creek. Any substantial losses not covered by insurance, to the extent
not recoverable through rates, would have a material adverse effect on the
Company's financial condition and results of operations.
<PAGE>51
Federal Income Taxes: During 1991, the Internal Revenue Service (IRS)
completed an examination of KG&E's federal income tax returns for the years
1984 through 1988. In April 1992, KG&E received the examination report and
upon review filed a written protest in August 1992. In October 1993, KG&E
received another examination report for the years 1989 and 1990 covering the
same issues identified in the previous examination report. Upon review of
this report, KG&E filed a written protest in November 1993. The most
significant proposed adjustments reduce the depreciable basis of certain
assets and investment tax credits generated. Management believes there are
significant questions regarding the theory, computations, and sampling
techniques used by the IRS to arrive at its proposed adjustments, and also
believes any additional tax expense incurred or loss of investment tax credits
will not be material to the Company's financial position and results of
operations. Additional income tax payments, if any, are expected to be offset
by investment tax credit carryforwards, alternative minimum tax credit
carryforwards, or deferred tax provisions.
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, 1994, WCNOC's nuclear fuel commitments (Company's share) were
approximately $12.6 million for uranium concentrates expiring at various times
through 1997, $122.9 million for enrichment expiring at various times through
2014, and $56.5 million for fabrication through 2012. At December 31, 1994,
the Company's coal and natural gas contract commitments in 1994 dollars under
the remaining terms of the contracts were approximately $3 billion and $9
million, respectively. The largest coal contract 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.
Energy Act: As part of the 1992 Energy Policy Act, a special assessment
is being collected from utilities for a uranium enrichment, decontamination,
and decommissioning fund. The Company's portion of the assessment for Wolf
Creek is approximately $7 million, payable over 15 years. Management expects
such costs to be recovered through the ratemaking process.
8. EMPLOYEE BENEFIT PLANS
Pension: The Company maintains noncontributory defined benefit pension
plans covering substantially all employees. Pension benefits are based on
years of service and the employee's compensation during the five highest paid
consecutive years out of ten before retirement. The Company's policy is to
fund pension costs accrued, subject to limitations set by the Employee
Retirement Income Security Act of 1974 and the Internal Revenue Code.
<PAGE>52
The following tables provide information on the components of pension
cost, funded status, and actuarial assumptions for the Company's pension
plans:
Year Ended December 31, 1994 1993 1992
(Dollars in Thousands)
Pension Cost:
Service cost. . . . . . . . . . $ 10,197 $ 9,778 $ 9,847
Interest cost on projected
benefit obligation. . . . . . 29,734 35,688 29,457
(Gain) loss on plan assets. . . 7,351 (64,113) (38,967)
Deferred investment gain (loss) (38,457) 29,190 7,705
Net amortization. . . . . . . . 245 (669) (948)
Net pension cost. . . . . . $ 9,070 $ 9,874 $ 7,094
December 31, 1994 1993 1992
(Dollars in Thousands)
Reconciliation of Funded Status:
Actuarial present value of
benefit obligations:
Vested . . . . . . . . . . . $278,545 $353,023 $316,100
Non-vested . . . . . . . . . 19,132 26,983 19,331
Total. . . . . . . . . . . $297,677 $380,006 $335,431
Plan assets (principally debt
and equity securities) at
fair value . . . . . . . . . . . $375,521 $490,339 $452,372
Projected benefit obligation . . . 378,146 468,996 424,232
Funded status. . . . . . . . . . . (2,625) 21,343 28,140
Unrecognized transition asset. . . (2,205) (2,756) (3,092)
Unrecognized prior service costs . 47,796 64,217 55,886
Unrecognized net gain. . . . . . . (56,079) (108,783) (106,486)
Accrued pension costs. . . . . . . $(13,113) $(25,979) $(25,552)
Year Ended December 31, 1994 1993 1992
Actuarial Assumptions:
Discount rate. . . . . . . . . . 8.0-8.5% 7.0-7.75% 8.0-8.5%
Annual salary increase rate. . . 5.0% 5.0% 6.0%
Long-term rate of return . . . . 8.0-8.5% 8.0-8.5% 8.0-8.5%
Retirement and Voluntary Separation Plans: In January 1992, the Board of
Directors approved early retirement plans and voluntary separation programs.
The voluntary early retirement plans were offered to all vested participants
in the Company's defined pension plan who reached the age of 55 with 10 or
more years of service on or before May 1, 1992. Certain pension plan
improvements were made, including a waiver of the actuarial reduction factors
for early retirement and a cash incentive payable as a monthly supplement up
to 60 months or as a lump sum payment. Of the 738 employees eligible for the
early retirement option, 531, representing ten percent of the combined
Company's work force, elected to retire on or before the May 1, 1992,
deadline. Seventy-one of those electing to retire were employees of KG&E
acquired March 31, 1992 (see Note 3). Another 67 employees, with 10 or more
years of service, elected to participate in the voluntary separation program.
Of those, 29 were employees of KG&E. In addition, 68 employees received
<PAGE>53
Merger-related severance benefits, including 61 employees of KG&E. The
actuarial cost, based on plan provisions for early retirement and voluntary
separation programs, and Merger-related severance benefits for the KG&E
employees were considered in purchase accounting for the Merger. The
actuarial cost of the former Kansas Power and Light Company employees, of
approximately $11 million, was expensed in 1992.
Postretirement: The Company adopted the provisions of Statement of
Financial Accounting Standards No. 106 (SFAS 106) in the first quarter of
1993. This statement requires the accrual of postretirement benefits other
than pensions, primarily medical benefit costs, during the years an employee
provides service.
Based on actuarial projections and adoption of the transition method of
implementation which allows a 20-year amortization of the accumulated benefit
obligation, SFAS 106 expense was approximately $12.4 million and $26.5 million
for 1994 and 1993, respectively. The Company's total SFAS 106 obligation was
approximately $114.6 million and $166.5 million at December 31, 1994 and 1993
respectively. The reduction in both the 1994 obligation and expense is
primarily the result of the sales of the Missouri Properties. To mitigate the
impact of SFAS 106 expense, the Company has implemented programs to reduce
health care costs. In addition, the Company received an order from the KCC
permitting the initial deferral of SFAS 106 expense. 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 COLI. To the extent SFAS 106 expense exceeds
income from the COLI program, this excess is being deferred (in accordance
with the provisions of the FASB Emerging Issues Task Force Issue No. 92-12)
and will be offset by income generated through the deferral period by the COLI
program. Should the income stream generated by the COLI program not be
sufficient to offset the deferred SFAS 106 expense, the KCC order allows
recovery of such deficit through the ratemaking process.
Prior to the adoption of SFAS 106, the Company's policy was to recognize
the cost of retiree health care and life insurance benefits as expense when
claims and premiums for life insurance policies were paid. The cost of
providing health care and life insurance benefits to 2,928 retirees was $8.1
million in 1992.
The following table summarizes the status of the Company's postretirement
plans for financial statement purposes and the related amounts included in the
Consolidated Balance Sheets:
December 31, 1994 1993
(Dollars in Thousands)
Reconciliation of Funded Status:
Actuarial present value of postretirement
benefit obligations:
Retirees. . . . . . . . . . . . . . . . . . . $ 68,570 $ 111,499
Active employees fully eligible . . . . . . . 13,549 11,848
Active employees not fully eligible . . . . . 32,484 43,109
Unrecognized prior service cost . . . . . . . 9,391 18,195
Unrecognized transition obligation. . . . . . (117,967) (160,731)
Unrecognized net gain (loss). . . . . . . . . 14,489 (7,100)
Balance sheet liability . . . . . . . . . . . . . $ 20,516 $ 16,820
<PAGE>54
Year Ended December 31, 1994 1993
Assumptions:
Discount rate . . . . . . . . . . . . . . . . . 8.0-8.5 % 7.75%
Annual compensation increase rate . . . . . . . 5.0 % 5.0 %
Expected rate of return . . . . . . . . . . . . 8.5 % 8.5 %
For measurement purposes, an annual health care cost growth rate of 12%
was assumed for 1994, decreasing 1% per year to 5% in 2001 and thereafter.
The health care cost trend rate has a significant effect on the projected
benefit obligation. Increasing the trend rate by 1% each year would increase
the present value of the accumulated projected benefit obligation by $4.7
million and the aggregate of the service and interest cost components by $0.3
million.
Postemployment: The Company adopted Statement of Financial Accounting
Standards No. 112 (SFAS 112) in the first quarter of 1994, which established
accounting and reporting standards for postemployment benefits. The statement
requires the Company to recognize the liability to provide postemployment
benefits when the liability has been incurred. The Company received an order
from the KCC permitting the initial deferral of SFAS 112 expense. To mitigate
the impact SFAS 112 expense will have on rate increases, the Company will
include in the future computation of cost of service the actual SFAS 112
transition costs and expenses and an income stream generated from COLI. The
1994 expense under SFAS 112 was approximately $2.7 million. At December 31,
1994, the Company's SFAS 112 liability recorded on the Consolidated Balance
Sheet was approximately $8.4 million.
Savings: The Company maintains savings plans in which substantially all
employees participate. The Company matches employees' contributions up to
specified maximum limits. The funds of the plans are deposited with a trustee
and invested at each employee's option in one or more investment funds,
including a Company stock fund. The Company's contributions were $5.1
million, $5.8 million, and $5.4 million for 1994, 1993, and 1992,
respectively.
Missouri Property Sale: Effective January 31, 1994, the Company
transferred a portion of the assets and liabilities of the Company's pension
plan to a pension plan established by Southern Union. The amount of assets
transferred equal the projected benefit obligation for employees and retirees
associated with Southern Union's portion of the Missouri Properties plus an
additional $9 million.
<PAGE>55
9. JOINT OWNERSHIP OF UTILITY PLANTS
Company's Ownership at December 31, 1994
In-Service Invest- Accumulated Net Per-
Dates ment Depreciation (MW) cent
(Dollars in Thousands)
La Cygne 1 (a) Jun 1973 $ 152,816 $ 98,124 343 50
Jeffrey 1 (b) Jul 1978 276,689 122,721 587 84
Jeffrey 2 (b) May 1980 285,579 109,743 600 84
Jeffrey 3 (b) May 1983 387,646 134,199 588 84
Wolf Creek (c) Sep 1985 1,376,335 317,311 545 47
(a) Jointly owned with Kansas City Power & Light Company (KCPL)
(b) Jointly owned with UtiliCorp United Inc.
(c) Jointly owned with KCPL and Kansas Electric Power Cooperative, Inc.
Amounts and capacity represent the Company's share. The Company's share
of operating expenses of the plants in service above, as well as such expenses
for a 50 percent undivided interest in La Cygne 2 (representing 335 MW
capacity) sold and leased back to the Company in 1987, are included in
operating expenses on the Consolidated Statements of Income. The Company's
share of other transactions associated with the plants is included in the
appropriate classification in the Company's Consolidated Financial Statements.
10. LEASES
At December 31, 1994, the Company had leases covering various property and
equipment. Certain lease agreements meet the criteria, as set forth in
Statement of Financial Accounting Standards No. 13, for classification as
capital leases.
Rental payments for capital and operating leases and estimated rental
commitments are as follows:
Capital Operating
Year Ended December 31, Leases Leases
(Dollars in Thousands)
1992 $ 2,426 $ 52,701
1993 3,272 55,011
1994 2,987 55,076
Future Commitments:
1995 3,783 48,524
1996 3,627 46,211
1997 1,511 42,851
1998 - 41,464
1999 - 39,955
Thereafter - 753,062
Total $ 8,921 $972,067
Less Interest 784
Net obligation $ 8,137
In 1987, KG&E sold and leased back its 50 percent undivided interest in
the La Cygne 2 generating unit. The La Cygne 2 lease has an initial term of
29 years, with various options to renew the lease or repurchase the 50 percent
undivided interest. KG&E remains responsible for its share of operation and
<PAGE>56
maintenance costs and other related operating costs of La Cygne 2. The lease
is an operating lease for financial reporting purposes.
As permitted under the La Cygne 2 lease agreement, the Company in 1992
requested the Trustee Lessor to refinance $341.1 million of secured facility
bonds of the Trustee and owner of La Cygne 2. The transaction was requested
to reduce recurring future net lease expense. In connection with the
refinancing on September 29, 1992, a one-time payment of approximately $27
million was made by the Company which has been deferred and is being amortized
over the remaining life of the lease and included in operating expense as part
of the future lease expense. At December 31, 1994, approximately $24.8
million of this deferral remained on the Consolidated Balance Sheet.
Future minimum annual lease payments, included in the table above,
required under the La Cygne 2 lease agreement are approximately $34.6 million
for each year through 1999 and $680 million over the remainder of the lease.
The gain of approximately $322 million realized at the date of the sale of
La Cygne 2 has been deferred for financial reporting purposes, and is being
amortized ($9.6 million per year) over the initial lease term in proportion to
the related lease expense. KG&E's lease expense, net of amortization of the
deferred gain and a one-time payment, was approximately $22.5 million for 1994
and 1993, and $20.6 million for the nine months ended December 31, 1992.
11. LONG-TERM DEBT
The amount of first mortgage bonds authorized by the Western Resources
Mortgage and Deed of Trust, dated July 1, 1939, as supplemented, is unlimited.
The amount of first mortgage bonds authorized by the KG&E Mortgage and Deed of
Trust, dated April 1, 1940, as supplemented, is limited to a maximum of $2
billion. Amounts of additional bonds which may be issued are subject to
property, earnings, and certain restrictive provisions of each Mortgage.
On January 20, 1994, KG&E issued $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 (GSC) 8 1/2% Series First Mortgage
Bonds due 1997. In addition, the Company had the GSC Mortgage and Deed of
Trust discharged.
Debt discount and expenses are being amortized over the remaining lives of
each issue. The Western Resources and KG&E improvement and maintenance fund
requirements for certain first mortgage bond series can be met by bonding
additional property. With the retirement of certain Western Resources and
KG&E pollution control series bonds, there are no longer any bond sinking fund
requirements. During 1995, $80 thousand of bonds will be redeemed, during
1996, $16 million of bonds will mature and $125 million of bonds will mature
in 1999.
On November 1, 1994, the Company terminated a long-term 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. Amounts
related to receivables were accounted for as sales while those related to
phase-in revenues were accounted for as collateralized borrowings. At
December 31, 1993, outstanding receivables amounting to $56.8 million were
<PAGE>57
considered sold under the agreement. The weighted average interest rate,
including fees, on this agreement was 4.6% for 1994, 3.7% for 1993, and 6.6%
for the nine months ended December 31, 1992.
In January 1993, the Company renegotiated its $600 million bank term loan
and revolving credit facility used to finance the Merger into a $350 million
revolving credit facility, secured by KG&E common stock. On October 5, 1994,
the Company extended the term of this facility to expire on October 5, 1999.
The unused portion of the revolving credit facility may be used to provide
support for outstanding short-term debt. At December 31, 1994, there was no
outstanding balance under the facility.
<PAGE>58
Long-term debt outstanding at December 31, 1994 and 1993, was as follows:
1994 1993
(Dollars in Thousands)
Western Resources
First mortgage bond series:
7 1/4% due 1999. . . . . . . . . . . . . 125,000 125,000
7 5/8% due 1999. . . . . . . . . . . . . - 19,000
8 7/8% due 2000. . . . . . . . . . . . . 75,000 75,000
7 1/4% due 2002. . . . . . . . . . . . . 100,000 100,000
8 1/8% due 2007. . . . . . . . . . . . . - 30,000
8 5/8% due 2017. . . . . . . . . . . . . - 50,000
8 1/2% due 2022. . . . . . . . . . . . . 125,000 125,000
7.65% due 2023. . . . . . . . . . . . . 100,000 100,000
525,000 624,000
Pollution control bond series:
5.90 % due 2007. . . . . . . . . . . . . - 31,000
6 3/4% due 2009. . . . . . . . . . . . . - 45,000
Variable due 2032 (1). . . . . . . . . . 45,000 -
Variable due 2032 (2). . . . . . . . . . 30,500 -
6% due 2033. . . . . . . . . . . . . 58,500 58,500
134,000 134,500
KG&E
First mortgage bond series:
5 5/8% due 1996. . . . . . . . . . . . . 16,000 16,000
7.60 % due 2003. . . . . . . . . . . . . 135,000 135,000
6 1/2% due 2005. . . . . . . . . . . . . 65,000 65,000
6.20 % due 2006. . . . . . . . . . . . . 100,000 -
316,000 216,000
Pollution control bond series:
6.80 % due 2004. . . . . . . . . . . . . - 14,500
5 7/8% due 2007. . . . . . . . . . . . . - 21,940
6% due 2007. . . . . . . . . . . . . - 10,000
5.10 % due 2023. . . . . . . . . . . . . 13,982 -
Variable due 2027 (3). . . . . . . . . . 21,940 -
7.0 % due 2031. . . . . . . . . . . . . 327,500 327,500
Variable due 2032 (4). . . . . . . . . . 14,500 -
Variable due 2032 (5). . . . . . . . . . 10,000 -
387,922 373,940
GSC
First mortgage bond series:
8 1/2 % due 1997. . . . . . . . . . . . . - 2,466
- 2,466
Other pollution control obligations. . . . - 13,980
Revolving credit agreement . . . . . . . . - 115,000
Other long-term agreement. . . . . . . . . - 53,913
Less:
Unamortized debt discount. . . . . . . . 5,814 6,607
Long-term debt due within one year . . . 80 3,204
$1,357,028 $1,523,988
Rates at December 31, 1994: (1) 3.94%, (2) 4.05%, (3) 4.10%,
(4) 4.10% and (5) 4.10%
<PAGE>59
12. COMMON STOCK AND CUMULATIVE PREFERRED AND PREFERENCE STOCK
The Company's Restated Articles of Incorporation, as amended, provides for
85,000,000 authorized shares of common stock. At December 31, 1994,
61,617,873 shares were outstanding.
The Company has a Customer Stock Purchase Plan (CSPP) and a Dividend
Reinvestment and Stock Purchase Plan (DRIP). Shares issued under the CSPP and
DRIP may be either original issue shares or shares purchased on the open
market. At December 31, 1994, 2,031,794 shares were available under the CSPP
registration statement and 1,183,323 shares were available under the DRIP
registration statement.
Not subject to mandatory redemption: The cumulative preferred stock is
redeemable in whole or in part on 30 to 60 days notice at the option of the
Company.
Subject to mandatory redemption: The mandatory sinking fund provisions of
the 8.50% Series preference stock require the Company to redeem 50,000 shares
annually beginning on July 1, 1997, at $100 per share. The Company may, at
its option, redeem up to an additional 50,000 shares on each July 1, at $100
per share. The 8.50% Series also is redeemable in whole or in part, at the
option of the Company, subject to certain restrictions on refunding, at a
redemption price of $106.80, $106.23 and $105.67 per share beginning July 1,
1994, 1995 and 1996, respectively.
The mandatory sinking fund provisions of the 7.58% Series preference stock
require the Company to redeem 25,000 shares annually beginning on April 1,
2002, and each April 1 through 2006 and the remaining shares on April 1, 2007,
all at $100 per share. The Company may, at its option, redeem up to an
additional 25,000 shares on each April 1 at $100 per share. The 7.58% Series
also is redeemable in whole or in part, at the option of the Company, subject
to certain restrictions on refunding, at a redemption price of $106.06,
$105.31, and $104.55 per share beginning April 1, 1994, 1995, and 1996,
respectively.
13. INCOME TAXES
The Company adopted the provisions of SFAS 109 in the first quarter of
1992. KG&E adopted the provisions of SFAS 96 in 1987 and SFAS 109 in 1992.
These statements require the Company to establish deferred tax assets and
liabilities, as appropriate, for all temporary differences, and to adjust
deferred tax balances to reflect changes in tax rates expected to be in effect
during the periods the temporary differences reverse.
In accordance with various rate orders received from the KCC and the OCC,
the Company has not yet collected through rates the amounts necessary to pay a
significant portion of the net deferred income tax liabilities. As management
believes it is probable that the net future increases in income taxes payable
will be recovered from customers through future rates, it has recorded a
deferred asset for these amounts. These assets are also a temporary
difference for which deferred income tax liabilities have been provided.
Accordingly, the adoption of SFAS 109 did not have a material impact on the
Company's results of operations.
<PAGE>60
At December 31, 1994, the Company has alternative minimum tax credits
generated prior to April 1, 1992, which carryforward without expiration, of
$41.2 million which may be used to offset future regular tax to the extent the
regular tax exceeds the alternative minimum tax. These credits have been
applied in determining the Company's net deferred income tax liability and
corresponding deferred future income taxes at December 31, 1994.
Deferred income taxes result from temporary differences between the
financial statement and tax basis of the Company's assets and liabilities. The
sources of these differences and their cumulative tax effects are as follows:
December 31, 1994
Debits Credits Total
(Dollars in Thousands)
Sources of Deferred Income Taxes:
Accelerated depreciation and
other property items . . . . . . $ - $ (661,433) $ (661,433)
Energy and purchased gas
adjustment clauses . . . . . . . - (1,441) (1,441)
Phase-in revenues. . . . . . . . . - (27,677) (27,677)
Natural gas line survey and
replacement program. . . . . . . - (4,083) (4,083)
Deferred gain on sale-leaseback. . 110,556 - 110,556
Alternative minimum tax credits. . 41,163 - 41,163
Deferred coal contract
settlements. . . . . . . . . . . - (12,966) (12,966)
Deferred compensation/pension
liability. . . . . . . . . . . . 12,284 - 12,284
Acquisition premium. . . . . . . . - (318,190) (318,190)
Deferred future income taxes . . . - (101,886) (101,886)
Loss on reacquisition of debt. . . - (10,792) (10,792)
Prepaid power sale . . . . . . . . 16,878 - 16,878
Other. . . . . . . . . . . . . . . - (13,427) (13,427)
Total Deferred Income Taxes. . . . . $ 180,881 $(1,151,895) $ (971,014)
December 31, 1993
Debits Credits Total
(Dollars in Thousands)
Sources of Deferred Income Taxes:
Accelerated depreciation and
other property items . . . . . . $ - $ (653,592) $ (653,592)
Energy and purchased gas
adjustment clauses . . . . . . . 2,452 - 2,452
Phase-in revenues. . . . . . . . . - (35,573) (35,573)
Natural gas line survey and
replacement program. . . . . . . - (7,721) (7,721)
Deferred gain on sale-leaseback. . 116,186 - 116,186
Alternative minimum tax credits. . 39,882 - 39,882
Deferred coal contract
settlements. . . . . . . . . . . - (14,980) (14,980)
Deferred compensation/pension
liability. . . . . . . . . . . . 11,301 - 11,301
Acquisition premium. . . . . . . . - (301,394) (301,394)
Deferred future income taxes . . . - (111,159) (111,159)
Loss on reacquisition of debt. . . - (9,298) (9,298)
Other. . . . . . . . . . . . . . . - (4,741) (4,741)
Total Deferred Income Taxes. . . . . $ 169,821 $(1,138,458) $(968,637)
<PAGE>61
14. SEGMENTS OF BUSINESS
The Company is a public utility engaged in the generation, transmission,
distribution, and sale of electricity in Kansas and the transportation,
distribution, and sale of natural gas in Kansas and Oklahoma.
Year Ended December 31, 1994(1) 1993 1992(2)
(Dollars in Thousands)
Operating revenues:
Electric. . . . . . . . . . . $1,121,781 $1,104,537 $ 882,885
Natural gas . . . . . . . . . 496,162 804,822 673,363
1,617,943 1,909,359 1,556,248
Operating expenses excluding
income taxes:
Electric. . . . . . . . . . . 768,317 791,563 632,169
Natural gas . . . . . . . . . 484,458 747,755 642,910
1,252,775 1,539,318 1,275,079
Income taxes:
Electric. . . . . . . . . . . 100,078 73,425 41,184
Natural gas . . . . . . . . . (4,456) 4,553 816
95,622 77,978 42,000
Operating income:
Electric. . . . . . . . . . . 253,386 239,549 209,532
Natural gas . . . . . . . . . 16,160 52,514 29,637
$ 269,546 $ 292,063 $ 239,169
Identifiable assets at
December 31:
Electric. . . . . . . . . . . $4,346,312 $4,231,277 $4,390,117
Natural gas . . . . . . . . . 654,483 1,040,513 918,729
Other corporate assets(3) . . 188,823 140,258 130,060
$5,189,618 $5,412,048 $5,438,906
Other Information--
Depreciation and amortization:
Electric. . . . . . . . . . . $ 123,696 $ 126,034 $ 105,842
Natural gas . . . . . . . . . 27,934 38,330 38,171
$ 151,630 $ 164,364 $ 144,013
Maintenance:
Electric. . . . . . . . . . . $ 88,162 $ 87,696 $ 73,104
Natural gas . . . . . . . . . 25,024 30,147 28,507
$ 113,186 $ 117,843 $ 101,611
Capital expenditures:
Electric. . . . . . . . . . . $ 152,384 $ 137,874 $ 95,465
Nuclear fuel. . . . . . . . . 20,590 5,702 15,839
Natural gas . . . . . . . . . 64,722 94,055 91,189
$ 237,696 $ 237,631 $ 202,493
(1)Information reflects the sales of the Missouri Properties (Note 2).
(2)Information reflects the merger with KG&E on March 31, 1992 (Note 3).
(3)Principally cash, temporary cash investments, non-utility assets, and
deferred charges.
<PAGE>62
The portion of the table above related to the Missouri Properties is as
follows:
1994 1993 1992
(Dollars in Thousands, Unaudited)
Natural gas revenues. . . . . . . . . $ 77,008 $349,749 $299,202
Operating expenses excluding
income taxes. . . . . . . . 69,114 326,329 288,558
Income taxes. . . . . . . . . . . . . 2,897 2,672 (533)
Operating income. . . . . . . . . . . 4,997 20,748 11,177
Identifiable assets . . . . . . . . . - 398,464 361,612
Depreciation and amortization . . . . 1,274 12,668 13,172
Maintenance . . . . . . . . . . . . . 1,099 10,504 9,640
Capital expenditures. . . . . . . . . 3,682 38,821 36,669
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value as set forth in Statement of Financial Accounting Standards No.
107:
Cash and Cash Equivalents-
The carrying amount approximates the fair value because of the short-term
maturity of these investments.
Decommissioning Trust-
The fair value of the decommissioning trust is based on quoted market
prices at December 31, 1994 and 1993.
Variable-rate Debt-
The carrying amount approximates the fair value because of the short-term
variable rates of these debt instruments.
Fixed-rate Debt-
The fair value of the fixed-rate debt is based on the sum of the
estimated value of each issue taking into consideration the interest
rate, maturity, and redemption provisions of each issue.
Redeemable Preference Stock-
The fair value of the redeemable preference stock is based on the sum of
the estimated value of each issue taking into consideration the dividend
rate, maturity, and redemption provisions of each issue.
The estimated fair values of the Company's financial instruments are as
follows:
Carrying Value Fair Value
December 31, 1994 1993 1994 1993
(Dollars in Thousands)
Cash and cash
equivalents. . . . . . . $ 2,715 $ 1,217 $ 2,715 $ 1,217
Decommissioning trust. . . 16,944 13,204 16,633 13,929
Variable-rate debt . . . . 822,045 931,352 822,045 931,352
Fixed-rate debt. . . . . . 1,240,982 1,364,886 1,171,866 1,473,569
Redeemable preference
stock. . . . . . . . . . 150,000 150,000 155,375 160,780
<PAGE>63
The fair value estimates presented herein are based on information
available as of December 31, 1994 and 1993. These fair value estimates have
not been comprehensively revalued for the purpose of these financial
statements since that date, and current estimates of fair value may differ
significantly from the amounts presented herein.
16. QUARTERLY RESULTS (UNAUDITED)
The amounts in the table are unaudited but, in the opinion of management,
contain all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of such periods. The
business of the Company is seasonal in nature and, in the opinion of
management, comparisons between the quarters of a year do not give a true
indication of overall trends and changes in operations.
First Second Third Fourth
(Dollars in Thousands, except Per Share Amounts)
1994(1)
Operating revenues. . . . . . . $538,372 $341,132 $379,213 $359,226
Operating income. . . . . . . . 73,782 53,899 83,884 57,981
Net income. . . . . . . . . . . 66,133 30,247 57,679 33,388
Earnings applicable to
common stock. . . . . . . . . 62,779 26,892 54,324 30,034
Earnings per share. . . . . . . $ 1.02 $ 0.44 $ 0.88 $ 0.48
Dividends per share . . . . . . $ 0.495 $ 0.495 $ 0.495 $ 0.495
Average common shares
outstanding . . . . . . . . . 61,618 61,618 61,618 61,618
Common stock price:
High. . . . . . . . . . . . . $ 34 7/8 $ 29 3/4 $ 29 5/8 $ 29 1/4
Low . . . . . . . . . . . . . $ 28 1/4 $ 26 1/8 $ 26 3/4 $ 27 3/8
1993
Operating revenues. . . . . . . $579,581 $400,411 $419,018 $510,349
Operating income. . . . . . . . 85,950 60,282 81,225 64,606
Net income. . . . . . . . . . . 54,814 30,723 56,807 35,026
Earnings applicable to
common stock. . . . . . . . . 51,468 27,320 53,405 31,671
Earnings per share. . . . . . . $ 0.89 $ 0.47 $ 0.90 $ 0.51
Dividends per share . . . . . . $ 0.485 $ 0.485 $ 0.485 $ 0.485
Average common shares
outstanding . . . . . . . . . 58,046 58,046 59,441 61,603
Common stock price:
High. . . . . . . . . . . . . $ 35 3/4 $ 36 1/8 $ 37 1/4 $ 37
Low . . . . . . . . . . . . . $ 30 3/8 $ 32 3/4 $ 35 $ 32 3/4
(1) Information reflects the sales of the Missouri Properties (Note 2).
<PAGE>64
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the Company's Directors required by Item 10 is
set forth in the Company's definitive proxy statement for its 1995 Annual
Meeting of Shareholders to be filed with the Commission. Such information is
incorporated herein by reference to the material appearing under the caption
Election of Directors in the proxy statement to be filed by the Company with
the Commission. See EXECUTIVE OFFICERS OF THE COMPANY on page 19 for the
information relating to the Company's Executive Officers as required by Item
10.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is set forth in the Company's
definitive proxy statement for its 1995 Annual Meeting of Shareholders to be
filed with the Commission. Such information is incorporated herein by
reference to the material appearing under the captions Information Concerning
the Board of Directors, Executive Compensation, Compensation Plans, and Human
Resources Committee Report in the proxy statement to be filed by the Company
with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is set forth in the Company's
definitive proxy statement for its 1995 Annual Meeting of Shareholders to be
filed with the Commission. Such information is incorporated herein by
reference to the material appearing under the caption Beneficial Ownership of
Voting Securities in the proxy statement to be filed by the Company with the
Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>65
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following financial statements are included herein.
FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets, December 31, 1994 and 1993
Consolidated Statements of Income, for the years ended December 31, 1994,
1993 and 1992
Consolidated Statements of Cash Flows, for the years ended December 31,
1994, 1993 and 1992
Consolidated Statements of Taxes, for the years ended December 31, 1994,
1993 and 1992
Consolidated Statements of Capitalization, December 31, 1994 and
1993
Consolidated Statements of Common Stock Equity, for the years ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
SCHEDULES
Schedules omitted as not applicable or not required under the Rules of
regulation S-X: I, II, III, IV, and V
REPORTS ON FORM 8-K
Form 8-K dated January 25, 1995.
<PAGE>66
EXHIBIT INDEX
All exhibits marked "I" are incorporated herein by reference.
Description
3(a) -Restated Articles of Incorporation of the Company, as amended I
May 25, 1988. (filed as Exhibit 4 to Registration Statement
No. 33-23022)
3(b) -Certificate of Correction to Restated Articles of Incorporation. I
(filed as Exhibit 3(b) to the December 1991 Form 10-K)
3(c) -Amendment to the Restated Articles of Incorporation, as amended
May 5, 1992 (filed electronically)
3(d) -Amendments to the Restated Articles of Incorporation of the I
Company (filed as Exhibit 3 to the June 1994 Form 10-Q)
3(e) -By-laws of the Company, as amended July 15, 1987. (filed as I
Exhibit 3(d) to the December 1987 Form 10-K)
3(f) -Certificate of Designation of Preference Stock, 8.50% Series, I
without par value. (filed as Exhibit 3(d) to the December
1993 Form 10-K)
3(g) -Certificate of Designation of Preference Stock, 7.58% Series, I
without par value. (filed as Exhibit 3(e) to the December
1993 Form 10-K)
4(a) -Mortgage and Deed of Trust dated July 1, 1939 between the Company I
and Harris Trust and Savings Bank, Trustee. (filed as Exhibit
4(a) to Registration Statement No. 33-21739)
4(b) -First through Fifteenth Supplemental Indentures dated July 1, I
1939, April 1, 1949, July 20, 1949, October 1, 1949, December 1,
1949, October 4, 1951, December 1, 1951, May 1, 1952, October 1,
1954, September 1, 1961, April 1, 1969, September 1, 1970,
February 1, 1975, May 1, 1976 and April 1, 1977, respectively.
(filed as Exhibit 4(b) to Registration Statement No. 33-21739)
4(c) -Sixteenth Supplemental Indenture dated June 1, 1977. (filed as I
Exhibit 2-D to Registration Statement No. 2-60207)
4(d) -Seventeenth Supplemental Indenture dated February 1, 1978. I
(filed as Exhibit 2-E to Registration Statement No. 2-61310)
4(e) -Eighteenth Supplemental Indenture dated January 1, 1979. (filed I
as Exhibit (b) (1)-9 to Registration Statement No. 2-64231)
4(f) -Nineteenth Supplemental Indenture dated May 1, 1980. (filed as I
Exhibit 4(f) to Registration Statement No. 33-21739)
4(g) -Twentieth Supplemental Indenture dated November 1, 1981. (filed I
as Exhibit 4(g) to Registration Statement No. 33-21739)
4(h) -Twenty-First Supplemental Indenture dated April 1, 1982. (filed I
as Exhibit 4(h) to Registration Statement No. 33-21739)
4(i) -Twenty-Second Supplemental Indenture dated February 1, 1983. I
(filed as Exhibit 4(i) to Registration Statement No. 33-21739)
4(j) -Twenty-Third Supplemental Indenture dated July 2, 1986. (filed I
as Exhibit 4(j) to Registration Statement No. 33-12054)
4(k) -Twenty-Fourth Supplemental Indenture dated March 1, 1987. (filed I
as Exhibit 4(k) to Registration Statement No. 33-21739)
4(l) -Twenty-Fifth Supplemental Indenture dated October 15, 1988. I
(filed as Exhibit 4 to the September 1988 Form 10-Q)
4(m) -Twenty-Sixth Supplemental Indenture dated February 15, 1990. I
(filed as Exhibit 4(m) to the December 1989 Form 10-K)
<PAGE>67
Description
4(n) -Twenty-Seventh Supplemental Indenture dated March 12, 1992. I
(filed as exhibit 4(n) to the December 1991 Form 10-K)
4(o) -Twenty-Eighth Supplemental Indenture dated July 1, 1992. I
(filed as exhibit 4(o) to the December 1992 Form 10-K)
4(p) -Twenty-Ninth Supplemental Indenture dated August 20, 1992. I
(filed as exhibit 4(p) to the December 1992 Form 10-K)
4(q) -Thirtieth Supplemental Indenture dated February 1, 1993. I
(filed as exhibit 4(q) to the December 1992 Form 10-K)
4(r) -Thirty-First Supplemental Indenture dated April 15, 1993. I
(filed as exhibit 4(r) to Form S-3, Registration Statement
No. 33-50069)
4(s) -Thirty-Second Supplemental Indenture dated April 15, 1994,
(filed electronically)
Instruments defining the rights of holders of other long-term debt not
required to be filed as exhibits will be furnished to the Commission
upon request.
10(a) -A Rail Transportation Agreement among Burlington Northern I
Railroad Company, the Union Pacific Railroad Company and the
Company (filed as Exhibit 10 to the June 1994 Form 10-Q)
10(b) -Agreement between the Company and AMAX Coal West Inc. I
effective March 31, 1993. (filed as Exhibit 10(a) to the
December 1993 Form 10-K)
10(c) -Agreement between the Company and Williams Natural Gas Company I
dated October 1, 1993. (filed as Exhibit 10(b) to the
December 1993 Form 10-K)
10(d) -Agreement between the Company and Williams Natural Gas Company I
dated October 1, 1993. (filed as Exhibit 10(c) to the
December 1993 Form 10-K)
10(e) -Agreement between the Company and Williams Natural Gas Company I
dated October 1, 1993. (filed as Exhibit 10(d) to the
December 1993 Form 10-K)
10(f) -Executive Salary Continuation Plan of The Kansas Power and Light I
Company, as revised, effective May 3, 1988. (filed as Exhibit
10(b) to the September 1988 Form 10-Q)
10(g) -Letter of Agreement between The Kansas Power and Light Company I
and John E. Hayes, Jr., dated November 20, 1989. (filed as
Exhibit 10(w) to the December 1989 Form 10-K)
10(h) -Amended Agreement and Plan of Merger by and among The Kansas I
Power and Light Company, KCA Corporation, and Kansas Gas and
Electric Company, dated as of October 28, 1990, as amended by
Amendment No. 1 thereto, dated as of January 18, 1991. (filed
as Annex A to Registration Statement No. 33-38967)
10(i) -Deferred Compensation Plan (filed as Exhibit 10(i) to the I
December 1993 Form 10-K)
10(j) -Long-term Incentive Plan (filed as Exhibit 10(j) to the I
December 1993 Form 10-K)
10(k) -Short-term Incentive Plan (filed as Exhibit 10(k) to the I
December 1993 Form 10-K)
10(l) -Outside Directors' Deferred Compensation Plan (filed as Exhibit I
10(l) to the December 1993 Form 10-K)
<PAGE>68
Description
12 -Computation of Ratio of Consolidated Earnings to Fixed Charges.
(filed electronically)
16 -Letter re Change in Certifying Accountant. (filed as Exhibit 16 I
to the Current Report on Form 8-K dated March 8, 1993)
21 -Subsidiaries of the Registrant. (filed electronically)
23(a) -Consent of Independent Public Accountants, Arthur Andersen LLP
(filed electronically)
23(b) -Consent of Independent Public Accountants, Deloitte & Touche LLP
(filed electronically)
27 -Financial Data Schedules (filed electronically)
99 -Kansas Gas and Electric Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (filed electronically)
<PAGE>69
SIGNATURE
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WESTERN RESOURCES, INC.
March 29, 1995 By JOHN E. HAYES, JR.
John E. Hayes, Jr., Chairman of the
Board,
President, and Chief Executive Officer
<PAGE>70
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
Chairman of the Board, President,
JOHN E. HAYES, JR. and Chief Executive Officer March 29, 1995
(John E. Hayes, Jr.) (Principal Executive Officer)
Executive Vice President and
S. L. KITCHEN Chief Financial Officer March 29, 1995
(S. L. Kitchen) (Principal Financial and
Accounting Officer)
FRANK J. BECKER
(Frank J. Becker)
GENE A. BUDIG
(Gene A. Budig)
C. Q. CHANDLER
(C. Q. Chandler)
THOMAS R. CLEVENGER
(Thomas R. Clevenger)
JOHN C. DICUS Directors March 29, 1995
(John C. Dicus)
DAVID H. HUGHES
(David H. Hughes)
RUSSELL W. MEYER, JR.
(Russell W. Meyer, Jr.)
JOHN H. ROBINSON
(John H. Robinson)
MARJORIE I. SETTER
(Marjorie I. Setter)
LOUIS W. SMITH
(Louis W. Smith)
KENNETH J. WAGNON
(Kenneth J. Wagnon)
<PAGE>71
Exhibit 3(c)
CERTIFICATE OF AMENDMENT TO THE
RESTATED ARTICLES OF INCORPORATION, AS AMENDED, OF
THE KANSAS POWER AND LIGHT COMPANY
We, William E. Brown, President and Chief Executive Officer,
KPL Division, and Richard D. Terrill, Secretary of the above
named corporation, a corporation organized and existing under
the laws of the State of Kansas, do hereby certify that at a
meeting of the Board of Directors of said corporation, the board
adopted a resolution setting forth the following amendment to
the Articles of Incorporation and declaring their advisability:
Further Resolved, That the following amendment of
Articles II of the Company's Restated Articles of
Incorporation be, and it hereby is proposed and declared
advisable:
The following paragraph be included as a
replacement for the existing paragraph of
Article II and read as follows:
The name of the surviving corporation is and
shall be Western Resources, Inc.
We further certify that thereafter, pursuant to said
resolution, and in accordance with the by-laws of the
corporation and the laws of the State of Kansas, the Board of
Directors called a meeting of stockholders for consideration of
the proposed amendments, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, the
stockholders convened and considered the proposed amendments.
We further certify that at the meeting a majority of the
stockholders entitled to vote voted in favor of the proposed
amendments. We further certify that the amendments were duly
adopted in accordance with the provisions of K.S.A. 17-6602, as
amended.<PAGE>
We further certify that the capital of said corporation will
not be reduced under or by reason of said amendments.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed
the seal of said corporation the 8th day of May, 1992.
William E. Brown
(William E. Brown)
President and
Chief Executive Officer
KPL Division
Richard D. Terrill
(Richard D. Terrill)
Secretary
STATE OF KANSAS )
)
COUNTY OF SHAWNEE )
Be it remembered that before me, a Notary Public in and for the
aforesaid county and state, personally appeared William E.
Brown, President and Chief Executive Officer, KPL Division, and
Richard D. Terrill, Secretary of the corporation named in this
document, who are known to me to be the same persons who
executed the foregoing certificate, and duly acknowledged the
execution of the same this 8th day of May, 1992.
Kathy J. Pope
Notary Public
Exhibit 4(s)
[CONFORMED]
=================================================================
WESTERN RESOURCES, INC.
TO
HARRIS TRUST AND SAVINGS BANK
as Trustee
_______________________
THIRTY-SECOND SUPPLEMENTAL INDENTURE, as corrected*
Dated as of April 15, 1994
First Mortgage Bonds, 7-1/2% Pollution Control Revenue Refunding
City of St. Marys Series Due April 15, 2032
First Mortgage Bonds, 7-1/2% Pollution Control Revenue Refunding
City of Wamego Series Due April 15, 2032
=================================================================
* Correcting certain redemption terms in Article III from those
originally filed in the Thirty-Second Supplemental Indendture
filed in the office of the Register of Deeds of Shawnee County,
Kansas (filed on April 25, 1994, Vol. 2888, page 380), and Office
of Secretary of State of Kansas (filed on April 25, 1994 and
indexed at No. 2015935); and filed in the office of the Secretary
of State of Oklahoma (filed April 25, 1994, Vol. 135, pages
34215-34251 mortgage and deed of trust public service
corporations record).
TABLE OF CONTENTS*
PAGE
Parties 1
Recitals 1
Granting Clause 3
Habendum 5
Exceptions and Reservations 5
Grant in Trust 5
General Covenant 5
ARTICLE I.
DESCRIPTION OF BONDS OF THE THIRTY-FIRST AND
THIRTY-SECOND SERIES.
Sec. 1. General description of Bonds of the
Thirty-First and Thirty-Second Series 5
Sec. 2. Denominations of Bonds of the Thirty-First
and Thirty-Second Series and privilege
of exchange 7
Sec. 3. Form of Bonds of the Thirty-First Series 8
Form of Trustee's Certificate 11
Sec. 4. Form of Bonds of the Thirty-Second Series 12
Form of Trustee's Certificate 15
Sec. 5. Execution and form of temporary Bonds of the
Thirty-First and Thirty-Second Series 15
ARTICLE II.
ISSUE OF BONDS OF THE THIRTY-FIRST AND THIRTY-SECOND
SERIES.
Sec. 1. Limitations as to principal amount 16
Sec. 2. Execution and delivery of Bonds of the
Thirty-First and Thirty-Second Series 16
* Note: The Table of Contents is not part of this Supplemental
Indenture and should not be considered as such. It is included
only for purposes of convenience.
i
PAGE
ARTICLE III.
REDEMPTION.
Sec. 1. Redemption of Bonds of the Thirty-First
Series 16
Sec. 2. Redemption of Bonds of the Thirty-Second
Series 17
Sec. 3. Article VIII of Original Indenture control 19
Sec. 4. Article V of Original Indenture controlling 19
Sec. 5. Bonds redeemed pursuant to Section 1 or 2
may be used to authenticate and deliver
additional Bonds under Original Indenture 19
Sec. 6. Notice to Trustee by St. Marys Trustee
or Wamego Trustee 19
ARTICLE IV.
ADDITIONAL COVENANTS.
Sec. 1. Title to mortgaged property 19
Sec. 2. To retire certain portions of Bonds upon
release of all or substantially all of
the gas properties 19
Sec. 3. To retire certain portions of Bonds upon
release of all or substantially all of
the electric properties 20
Sec. 4. To pay principal, premium, if any, and interest 21
ii
PAGE
ARTICLE V.
AMENDMENTS OF RATIO OF BONDS ISSUABLE TO
PROPERTY ADDITIONS AND OF CERTAIN OTHER
RATIOS. AMENDMENT OF NET EARNINGS TEST.
USE OF FACSIMILE SIGNATURES. RESERVATION
OF RIGHT TO AMEND ARTICLE XV.
Sec. 1. So long as Bonds of the Thirty-First and
Thirty-Second Series remain outstanding:
Bonds issuable on basis only of 60% of
net bondable value of property additions
not subject to an unfunded prior lien 21
Amendment of definition of net bondable
value of property additions not subject
to an unfunded prior lien 21
Monies deposited with Trustee under
Section 5(a) of Article III of the
Original Indenture may not be withdrawn
in an amount in excess of 60% of net
bondable value of property additions
not subject to an unfunded prior lien,
notwithstanding provisions of Section
3(a) of Article VIII of the Original
Indenture 21
Amendment of definition of net bondable
value of property additions subject to
an unfunded prior lien 21
Amendment of covenants in Sections 14
and 16 of Article IV and Section 1 of
Article XII of the Original Indenture
with respect to acquisition of property
subject to an unfunded prior lien 22
Net earnings test--definition of net
earnings available for interest,
depreciation and property retirement
and minimum charge for depreciation 22
Amendment of Articles III, IV and XII
of the Original Indenture 23
Sec. 2. Facsimile signatures 24
Sec. 3. Reservation of right by Company to amend
Article XV of Original Indenture so as to
substitute 60% for 80% whenever it appears 24
Sec. 4. Reservation of right by Company to amend
Article XV of Original Indenture to add
a Section 9 24
iii
PAGE
ARTICLE VI.
MISCELLANEOUS PROVISIONS.
Sec. 1. Acceptance of Trust 25
Sec. 2. Responsibility and duty of Trustee 25
Sec. 3. Parties to include successors and assigns 26
Sec. 4. Benefits restricted to parties and to
holders of Bonds and coupons 26
Sec. 5. Execution in counterparts 26
Sec. 6. Titles of Articles not part of the
Thirty-Second Supplemental Indenture 26
TESTIMONIUM 27
SIGNATURES AND SEALS 27
ACKNOWLEDGMENTS 29
APPENDIX A
DESCRIPTION OF PROPERTIES A-1
iv
THIRTY-SECOND SUPPLEMENTAL INDENTURE, dated as of the 15th day
of April, Nineteen Hundred and Ninety-Four, made by and between
Western Resources, Inc., formerly The Kansas Power and Light
Company, a corporation organized and existing under the laws of
the State of Kansas (hereinafter called the ``Company''), party
of the first part, and Harris Trust and Savings Bank, a
corporation organized and existing under the laws of the State
of Illinois whose mailing address is 111 West Monroe Street,
P.O. Box 755, Chicago, Illinois 60690 (hereinafter called the
``Trustee''), as Trustee under the Mortgage and Deed of Trust
dated July 1, 1939, hereinafter mentioned, party of the second
part;
WHEREAS, the Company has heretofore executed and delivered to
the Trustee its Mortgage and Deed of Trust, dated July 1, 1939
(hereinafter referred to as the ``Original Indenture''), to
provide for and to secure an issue of First Mortgage Bonds of
the Company, issuable in series, and to declare the terms and
conditions upon which the Bonds are to be issued thereunder;
and
WHEREAS, the Company has heretofore executed and delivered to
the Trustee thirty-one Supplemental Indentures supplemental to
said Original Indenture, of which twenty-nine provided for the
issuance thereunder of series of the Company's First Mortgage
Bonds, and there is set forth below information with respect to
such Supplemental Indentures as have provided for the issuance
of Bonds, and the principal amount of Bonds which remain
outstanding as of April 15, 1994.
<TABLE>
<CAPTION>
Supplemental Series of
Indenture First Mort- Principal Principal
Hereinafter gage Bonds Amount Amount
Called Date Provided For Issued Outstanding
<S> <C> <C> <C> <C>
Supplemental Indenture July 1, 1939 3-1/2% Series $26,500,000 None
Due 1969
Second Supplemental April 1, 1949 2-7/8% Series 10,000,000 None
Indenture Due 1979
Fourth Supplemental October 1, 1949 2-3/4% Series 6,500,000 None
Indenture Due 1979
Fifth Supplemental December 1, 1949 2-3/4% Series 32,500,000 None
Indenture Due 1984
Seventh Supplemental December 1, 1951 3-1/4% Series 5,250,000 None
Indenture Due 1981
Eighth Supplemental May 1, 1952 3-1/4% Series 4,750,000 None
Indenture Due 1982
Ninth Supplemental October 1, 1954 3-1/8% Series 8,000,000 None
Indenture Due 1984
Tenth Supplemental September 1, 1961 4-3/4% Series 13,000,000 None
Indenture Due 1991
Eleventh Supplemental April 1, 1969 7-5/8% Series 19,000,000 None
Indenture Due 1999
Twelfth Supplemental September 1, 1970 8-3/4% Series 20,000,000 None
Indenture Due 2000
Thirteenth Supplemental February 1, 1975 8-5/8% Series 35,000,000 None
Indenture Due 2005
Fourteenth Supplemental May 1, 1976 8-5/8% Series 45,000,000 None
Indenture Due 2006
Fifteenth Supplemental April 1, 1977 5.90% Pollution $32,000,000 $30,500,000*
Indenture Control Series
Due 2007
Sixteenth Supplemental June 1, 1977 8-1/8% Series 30,000,000 None
Indenture Due 2007
Seventeenth Supplemental February 1, 1978 8-3/4% Series 35,000,000 None
Indenture Due 2008
Eighteenth Supplemental January 1, 1979 6-3/4% Pollution 45,000,000 45,000,000*
Indenture Control Series
Due 2009
Nineteenth Supplemental May 1, 1980 8-1/4% Pollution 45,000,000 None
Indenture Control Series
Due 1983
Twentieth Supplemental November 1, 1981 16.95% Series 25,000,000 None
Indenture Due 1988
Twenty-First Supplemental April 1, 1982 15% Series 60,000,000 None
Indenture Due 1992
Twenty-Second Supplemental February 1, 1983 9-5/8% Pollution 58,500,000 None
Indenture Control Series
Due 2013
Twenty-Third Supplemental July 1, 1986 8-1/4% Series 60,000,000 None
Indenture Due 1996
Twenty-Fourth Supplemental March 1, 1987 8-5/8% Series 50,000,000 None
Indenture Due 2017
Twenty-Fifth Supplemental October 15, 1988 9.35% Series 75,000,000 None
Indenture Due 1998
Twenty-Sixth Supplemental February 15, 1990 8-7/8% Series 75,000,000 75,000,000
Indenture Due 2000
Twenty-Seventh March 12, 1992 7.46% Demand 370,000,000 None
Supplemental Indenture Series
Twenty-Eighth Supplemental July 1, 1992 7-1/4% Series 125,000,000 125,000,000
Indenture Due 1999
8-1/2% Series 125,000,000 125,000,000
Due 2022
Twenty-Ninth Supplemental August 20, 1992 7-1/4% Series 100,000,000 100,000,000
Indenture Due 2002
Thirtieth Supplemental February 1, 1993 6% Pollution 58,500,000 58,500,000
Indenture Control Revenue
Refunding Series
Due 2033
Thirty-First Supplemental April 15, 1993 7.65% Series 100,000,000 100,000,000
Indenture Due 2023
</TABLE>
* Upon the issuance of the Thirty-First Series and Thirty-Second
Series pursuant to this Supplemental Indenture and deposit of
the proceeds plus additional funds from the Company with the
St. Marys and Wamego Trustees, these series will no longer be
outstanding.
; and
WHEREAS, the Company is entitled at this time to have
authenticated and delivered additional bonds in substitution for
Bonds to be retired, upon compliance with the provisions of
Article III of the Original Indenture, as amended; and
WHEREAS, the Company desires by this Thirty-Second Supplemental
Indenture to supplement the Original Indenture and to provide for
the creation of two new series of bonds under the Original
Indenture to be designated ``First Mortgage Bonds, 7-1/2%
Pollution Control Revenue Refunding City of St. Marys Series Due
2032'' and ``7-1/2% Pollution Control Revenue Refunding City of
Wamego Series Due 2032'' (hereinafter called ``Bonds of the
Thirty-First Series'' and ``Bonds of the Thirty-Second Series,''
respectively); and the Original Indenture provides that certain
terms and provisions, as determined by the Board of Directors of
the Company, of the Bonds of any particular series may be
expressed in and provided by the execution of an appropriate
supplemental indenture; and
WHEREAS, the Company in the exercise of the powers and authority
conferred upon and reserved to it under the provisions of the
Original Indenture and indentures supplemental thereto, and
pursuant to appropriate resolutions of its Board of Directors,
has duly resolved and determined to make, execute and deliver to
the Trustee a supplemental indenture in the form hereof for the
purposes herein provided; and
WHEREAS, all conditions and requirements necessary to make this
Thirty-Second Supplemental Indenture a valid, binding and legal
instrument have been done, performed and fulfilled, and the
execution and delivery hereof have been in all respects duly
authorized;
NOW, THEREFORE, THIS INDENTURE WITNESSETH: That, in
consideration of the premises and of the mutual covenants herein
contained and of the sum of One Dollar duly paid by the Trustee
to the Company at or before the time of the execution of these
presents, and of other valuable considerations, the receipt
whereof is hereby acknowledged, and in order further to secure
the payment of the principal of and interest and premium, if any,
on all Bonds at any time issued and outstanding under the
Original Indenture as amended by all indentures supplemental
thereto (hereinafter sometimes collectively called the
``Indenture'') according to their tenor, purport and effect, and
to declare certain terms and conditions upon and subject to which
Bonds are to be issued and secured, the Company has executed and
delivered this Supplemental Indenture, and by these presents
grants, bargains, sells, warrants, aliens, releases, conveys,
assigns, transfers, mortgages, pledges, sets over and ratifies
and confirms unto Harris Trust and Savings Bank, as Trustee, and
to its successors in trust under the Indenture forever, all and
singular the following described properties (in addition to all
other properties heretofore specifically subjected to the lien of
the Indenture and not heretofore released from the lien thereof),
that is to say:
FIRST.
All and singular the rents, real estate, chattels real,
easements, servitudes, and leaseholds and other interests in real
estate of the Company, or which, subject to the provisions of
Article XII of the Original Indenture, the Company may hereafter
acquire, including, among other things, the property described in
Appendix A hereto under the caption ``First'', which description
is hereby incorporated herein by reference and made a part hereof
as if fully set forth herein, together with all improvements of
any type located thereon.
SECOND.
Also all transmission and distribution systems used for the
transmission and distribution of electricity, steam, water, gas
and other agencies for light, heat, cold or power, or any other
purpose whatever, whether underground or overhead or on the
surface or otherwise, of the Company, or which, subject to the
provisions of Article XII of the Original Indenture, the Company
may hereafter acquire, including all poles, posts, wires, cables,
conduits, mains, pipes, tubes, drains, furnaces, switchboards,
transformers, insulators, meters, lamps, fuses, junction boxes,
water pumping stations, regulator stations, town border metering
stations and other electric, steam, water and gas fixtures and
apparatus.
THIRD.
Also all franchises and all permits, ordinances, easements,
privileges and immunities and licenses, all rights to construct,
maintain and operate overhead, surface and underground systems
for the distribution and transmission of electricity, gas, water
or steam for the supply to itself or others of light, heat, cold
or power or any other purpose whatsoever, all rights-of-way, all
waters, water rights and flowage rights and all grants and
consents, now owned by the Company or, subject to the provisions
of Article XII of the Original Indenture, which it may hereafter
acquire.
Also all inventions, patent rights and licenses of every kind now
owned by the Company or, subject to the provisions of Article XII
of the Original Indenture, which it may hereafter acquire.
FOURTH.
Also, subject to the provisions of Article XII of the Original
Indenture, all other property, real, personal and mixed (except
as therein or herein expressly excepted) of every nature and kind
and wheresoever situated now or hereafter possessed by or
belonging to the Company, or to which it is now, or may at any
time hereafter be, in any manner entitled at law or in equity.
FIFTH.
Also, subject to the provisions of Article XII of the Original
Indenture, all property, real, personal or mixed (except as
therein or herein expressly excepted or limited) of every nature
and kind and wheresoever located now possessed by or belonging to
the Company, or to which it is now in any matter entitled at law
or in equity, owned by The Gas Service Company (hereinafter
``GSC'') on July 1, 1985 immediately prior to the merger of GSC
with and into the Company, such property (the ``GSC Properties'')
being (a) identified and referenced, and described, in Appendix B
to the Twenty-Third Supplemental Indenture and in Appendix A
hereto, if any, and (b) deemed to include (i) all betterments,
extensions, improvements, additions, repairs, renewals,
replacements, substitutions and alterations to, upon, for and of
the GSC Properties and all property (including rights,
franchises, licenses, easements, leases and contracts) held or
acquired for use or used upon or in connection with or
appertaining to the GSC Properties or any part thereof; (ii) all
property acquired or constructed with the proceeds of any
insurance on any part of the GSC Properties released from the
lien of this Indenture or taken by exercise of the power of
eminent domain; and (iii) all property acquired to maintain and
preserve and keep the GSC Properties in good repair, working
order and condition, all of which are, for the purpose of
describing and identifying the GSC Properties, fully incorporated
herein by reference thereto.
SIXTH.
Together with all and singular, the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the
aforesaid property or any part thereof, with the reversion and
reversions, remainder and remainders, tolls, rents, revenues,
issues, income, products and profits thereof, and all the estate,
right, title, interest and claim whatsoever, at law and in
equity, which the Company now has or may hereafter acquire in and
to the aforesaid property and franchises and every part and
parcel thereof.
EXPRESSLY EXCEPTING AND EXCLUDING, HOWEVER, all properties of the
character excepted from the lien of the Original Indenture.
TO HAVE AND TO HOLD all said properties, real, personal and
mixed, mortgaged, pledged and conveyed by the Company as
aforesaid, or intended so to be, unto the Trustee and its
successors and assigns forever;
SUBJECT, HOWEVER, to the exceptions and reservations hereinabove
referred to, to existing leases other than leases which by their
terms are subordinate to the lien of the Indenture, to existing
liens upon rights-of-way for transmission or distribution line
purposes, as defined in Article I of the Original Indenture; and
any extensions thereof, and subject to existing easements for
streets, alleys, highways, rights-of-way and railroad purposes
over, upon and across certain of the property hereinbefore
described and subject also to all the terms, conditions,
agreements, covenants, exceptions and reservations expressed or
provided in the deeds or other instruments respectively under and
by virtue of which the Company acquired the properties
hereinabove described and to undetermined liens and charges, if
any, incidental to construction or other existing permitted liens
as defined in Article I of the Original Indenture.
IN TRUST, NEVERTHELESS, upon the terms and trusts in the Original
Indenture, and the indentures supplemental thereto, including
this Thirty-Second Supplemental Indenture, set forth, for the
equal and proportionate benefit and security of all present and
future holders of the Bonds and coupons issued and to be issued
thereunder, or any of them, without preference of any of said
Bonds and coupons of any particular series over the Bonds and
coupons of any other series by reason of priority in the time of
issue, sale or negotiation thereof, or by reason of the purpose
of issue or otherwise howsoever, except as otherwise provided in
Section 2 of Article IV of the Original Indenture.
AND IT IS HEREBY COVENANTED, DECLARED AND AGREED, by and between
the parties hereto for the benefit of those who shall hold the
Bonds and coupons, or any of them, to be issued under the
Indenture as follows:
ARTICLE I.
Description of Bonds of the Thirty-First and Thirty-Second
Series.
SECTION 1.
The thirty-first and thirty-second series of Bonds to be
executed, authenticated and delivered under and secured by the
Original Indenture shall be Bonds of the Thirty-First and Thirty-
Second Series. The Bonds of the Thirty-First and Thirty-Second
Series shall be designated as ``First Mortgage Bonds, 7-1/2%
Pollution Control Revenue Refunding City of St. Marys Series Due
2032'' and ``First Mortgage Bonds, 7-1/2% Pollution Control
Revenue Refunding City of Wamego Series Due 2032,'' respectively,
of the Company. The Bonds of the Thirty-First and Thirty-Second
Series shall be executed, authenticated and delivered in
accordance with the provisions of, and shall in all respects be
subject to, all of the terms, conditions and covenants of the
Original Indenture, as amended, and subject to all the terms,
conditions and covenants of this Supplemental Indenture.
Bonds of the Thirty-First and Thirty-Second Series shall each
mature April 15, 2032 and shall each bear interest at the rate of
seven and a half percent (7-1/2%) per annum payable on the
interest payment date for the St. Marys Refunding Bonds (as
defined below) commencing June 7, 1994, in the case of Bonds of
the Thirty-First Series, and the Wamego Refunding Bonds (as
defined below) commencing June 14, 1994, in the case of Bonds of
the Thirty-Second Series. Every Bond of the Thirty-First and
Thirty-Second Series shall be dated the date of authentication
except that, notwithstanding the provisions of Section 6 of
Article II of the Original Indenture, if any Bond of the Thirty-
First or Thirty Second Series shall be authenticated at any time
subsequent to the record date (as hereinafter in this Section
defined) for any interest payment date but prior to the day
following such interest payment date, it shall be dated as of the
day following such interest payment date, provided, however, that
if at the time of authentication of any Bond of the Thirty-First
or Thirty-Second Series interest shall be in default on any Bonds
of the Thirty-First or Thirty-Second Series, such Bond shall be
dated as of the day following the interest payment date to which
interest has previously been paid in full or made available for
payment in full on outstanding Bonds of the Thirty-First or
Thirty-Second Series, as the case may be, or, if no interest has
been paid or made available for payment, as of the date of
initial authentication and delivery of such Bond. Every Bond of
the Thirty-First Series shall bear interest from the interest
payment date for the St. Marys Refunding Bonds next preceding the
date thereof, unless such Bond of the Thirty-First Series shall
be dated prior to June 7, 1994, in which case it shall bear
interest from April 28, 1994. Every Bond of the Thirty-Second
Series shall bear interest from the interest payment date with
respect to the Wamego Refunding Bonds next preceding the date
thereof, unless such Bond of the Thirty-Second Series shall be
dated prior to June 14, 1994, in which case it shall bear
interest from April 28, 1994.
The person in whose name any Bond of the Thirty-First or Thirty-
Second Series is registered at the close of business on any
record date with regard to any interest payment shall be entitled
to receive the interest payable thereon on such interest payment
date notwithstanding the cancellation of such Bond upon the
transfer or exchange thereof subsequent to such record date and
prior to the day following such interest payment date, unless the
Company shall default in the payment of the interest due on such
interest payment date, in which case such defaulted interest
shall be paid to the person in whose name such Bond is registered
on the date of payment of such defaulted interest. The term
``record date'' as used in this Section with regard to any
interest payment date shall mean the record date with respect to
the St. Marys Refunding Bonds (in the case of the Thirty-First
Series) or the Wamego Refunding Bonds (in the case of the Thirty-
Second Series) next preceding such interest payment date. The
Bonds of the Thirty-First and Thirty-Second Series shall be
payable as to principal, premium, if any, and interest, in any
coin or currency of the United States of America which at the
time of payment is legal tender for public and private debts, at
the agency of the Company in the City of Chicago, Illinois.
All Bonds of the Thirty-First Series shall be pledged by the
Company with the St. Marys Trustee (as defined herein) to secure
the payment of the principal of, and up to 7-1/2% per annum of
the interest on the City of St. Marys, Kansas, Pollution Control
Revenue Refunding Bonds (Western Resources, Inc. Project) Series
1994 (referred to herein as the "St. Marys Refunding Bonds")
issued pursuant to the Indenture of Trust, dated as of April 15,
1994 (the "St. Marys Indenture"), from the City of St. Marys,
Kansas, to Chemical Bank, as trustee thereunder (the "St. Marys
Trustee"). The obligation of the Company to make payments with
respect to the principal of and interest on Bonds of the Thirty-
First Series (including without limitation upon redemption
pursuant to Article III of this Supplemental Indenture) shall be
fully or partially, as the case may be, satisfied and discharged
to the extent that, at the time that any such payment shall be
due, the then due principal of and interest on the St. Marys
Refunding Bonds shall have been fully or partially paid, or there
shall be held by the St. Marys Trustee pursuant to the St. Marys
Indenture sufficient available funds to fully or partially pay
the then due principal of and interest on the St. Marys Refunding
Bonds. The Trustee may conclusively presume that the obligation
of the Company to make payments with respect to the principal of
and interest on Bonds of the Thirty-First Series shall have been
fully satisfied and discharged unless and until the Trustee shall
have received a written notice from the St. Marys Trustee, signed
by its President, a Vice President or a Trust Officer, stating
(i) that timely payment of the principal of or interest on the
St. Marys Refunding Bonds required to be made by the Company has
not been made, (ii) that there are not sufficient available funds
held by the St. Marys Trustee pursuant to the St. Marys Indenture
to make such payment and (iii) the amount of funds, in addition
to available funds held by the St. Marys Trustee pursuant to the
St. Marys Indenture, required to make such payment.
Notwithstanding any other provisions of this Supplemental
Indenture, interest on the Bonds of the Thirty-First Series shall
be deemed fully satisfied and discharged as provided herein even
if the interest rate on Bonds of the Thirty-First Series may be
higher or lower than the interest rate on the St. Marys Refunding
Bonds at the time interest on the St. Marys Refunding Bonds is
paid.
All Bonds of the Thirty-Second Series shall be pledged by the
Company with the Wamego Trustee (as defined herein) to secure the
payment of the principal of, and up to 7-1/2% per annum of the
interest on the City of Wamego, Kansas, Pollution Control Revenue
Refunding Bonds (Western Resources, Inc. Project) Series 1994
(referred to herein as the "Wamego Refunding Bonds") issued
pursuant to the Indenture of Trust, dated as of April 15, 1994
(the "Wamego Indenture"), from the City of Wamego, Kansas, to
Chemical Bank, as trustee thereunder (the "Wamego Trustee"). The
obligation of the Company to make payments with respect to the
principal of and interest on Bonds of the Thirty-Second Series
(including without limitation upon redemption pursuant to Article
III of this Supplemental Indenture) shall be fully or partially,
as the case may be, satisfied and discharged to the extent that,
at the time that any such payment shall be due, the then due
principal of and interest on the Wamego Refunding Bonds shall
have been fully or partially paid, or there shall be held by the
Wamego Trustee pursuant to the Wamego Indenture sufficient
available funds to fully or partially pay the then due principal
of and interest on the Wamego Refunding Bonds. The Trustee may
conclusively presume that the obligation of the Company to make
payments with respect to the principal of and interest on Bonds
of the Thirty-Second Series shall have been fully satisfied and
discharged unless and until the Trustee shall have received a
written notice from the Wamego Trustee, signed by its President,
a Vice President or a Trust Officer, stating (i) that timely
payment of the principal of or interest on the Wamego Refunding
Bonds required to be made by the Company has not been made, (ii)
that there are not sufficient available funds held by the Wamego
Trustee pursuant to the Wamego Indenture to make such payment and
(iii) the amount of funds, in addition to available funds held by
the Wamego Trustee pursuant to the Wamego Indenture, required to
make such payment. Notwithstanding any other provisions of this
Supplemental Indenture, interest on the Bonds of the Thirty-
Second Series shall be deemed fully satisfied and discharged as
provided herein even if the interest rate on Bonds of the Thirty-
Second Series may be higher or lower than the interest rate on
the Wamego Refunding Bonds at the time interest on the Wamego
Refunding Bonds is paid.
SECTION 2.
The Bonds of the Thirty-First and Thirty-Second Series shall be
registered bonds without coupons of the denominations of $5,000
and of any multiples of $5,000, numbered consecutively from R1
upwards. Bonds of the Thirty-First and Thirty-Second Series may
each be exchanged for other bonds within their respective Series
in authorized denominations and in the same aggregate principal
amounts, without charge, except for any tax or governmental
charge imposed in connection with such interchange.
SECTION 3.
The Bonds of the Thirty-First Series, and the Trustee's
Certificate with respect thereto, shall be substantially in the
following forms, respectively:
[FORM OF BOND OF THE THIRTY-FIRST SERIES]
This bond is not transferable, except to a successor trustee
under the Indenture of Trust, dated as of April 15, 1994, of the
City of St. Marys, Kansas, to Chemical Bank, as Trustee, or to
effect a substitution of mortgage bonds as permitted under the
Pledge Agreement dated as of April 15, 1994 between Western
Resources, Inc. and Chemical Bank, as Trustee.
WESTERN RESOURCES, INC.
(Incorporated under the laws of the State of
Kansas)
FIRST MORTGAGE BOND, 7-1/2% POLLUTION CONTROL
REVENUE REFUNDING CITY OF ST. MARYS SERIES DUE 2032
DUE APRIL 15, 2032
No. _______ $_________________
WESTERN RESOURCES, INC., a corporation organized and existing
under the laws of the State of Kansas (hereinafter called ``the
Company'', which term shall include any successor corporation as
defined in the Indenture hereinafter referred to), for value
received, hereby promises to pay to ___________________________
or registered assigns, on the 15th day of April, 2032, the sum of
________________________ Dollars in any coin or currency of the
United States of America which at the time of payment is legal
tender for public and private debts, and to pay interest thereon
in like coin or currency from the interest payment date with
respect to the St. Marys Refunding Bonds (as defined below) next
preceding the date of this Bond (unless this Bond shall be dated
prior to June 7, 1994, in which case it shall bear interest from
April 28, 1994) at the rate of seven and a half percent (7-1/2%)
per annum, payable on the interest payment date with respect to
the St. Marys Refunding Bonds, commencing June 7, 1994 (on which
date interest from April 28, 1994 will be payable), until
maturity, or, if this Bond shall be duly called for redemption,
until the redemption date, or, if the Company shall default in
the payment of the principal hereof, until the Company's
obligation with respect to the payment of such principal shall be
discharged as provided in the Indenture hereinafter mentioned.
The interest payable on any interest payment date as aforesaid
will be paid to the person in whose name this Bond is registered
on the record date established for the St. Marys Refunding Bonds
next preceding such interest payment date, unless the Company
shall default in the payment of the interest due on such interest
payment date, in which case such defaulted interest shall be paid
to the person in whose name this Bond is registered on the date
of payment of such defaulted interest. Principal of and premium,
if any, and interest on, this Bond are payable at the agency of
the Company in the City of Chicago, Illinois in immediately
available funds.
This Bond is one of a duly authorized issue of Bonds of the
Company (herein called the ``Bonds''), in unlimited aggregate
principal amount, of the series hereinafter specified, all issued
and to be issued under and equally secured by a Mortgage and Deed
of Trust, dated July 1, 1939, executed by the Company to Harris
Trust and Savings Bank (herein called the ``Trustee''), as
Trustee, as amended by the indentures supplemental thereto
including the indenture supplemental thereto dated as of
April 15, 1994 (herein called the ``Supplemental Indenture''),
between the Company and the Trustee (said Mortgage and Deed of
Trust, as so amended, being herein called the ``Indenture'') to
which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the properties mortgaged and
pledged, the nature and extent of the security, the rights of the
bearers or registered owners of the Bonds and of the Trustee in
respect thereto, and the terms and conditions upon which the
Bonds are, and are to be, secured. The Bonds may be issued in
series, for various principal sums, may mature at different
times, may bear interest at different rates and may otherwise
vary as in the Indenture provided. This Bond is one of a series
designated as the ``First Mortgage Bonds, 7-1/2% Pollution
Control Revenue Refunding City of St. Marys Series Due 2032''
(herein called ``Bonds of the Thirty-First Series'') of the
Company, issued under and secured by the Indenture executed by
the Company to the Trustee.
All Bonds of the Thirty-First Series shall be pledged by the
Company with the St. Marys Trustee (as defined herein) to secure
the payment of the principal of, and up to 7-1/2% of the interest
on the City of St. Marys, Kansas, Pollution Control Revenue
Refunding Bonds (Western Resources, Inc. Project) Series 1994
(referred to herein as the "St. Marys Refunding Bonds") issued
pursuant to the Indenture of Trust, dated as of April 15, 1994
(the "St. Marys Indenture"), from the City of St. Marys, Kansas,
to Chemical Bank, as trustee thereunder (the "St. Marys
Trustee"). The obligation of the Company to make payments with
respect to the principal of and interest on Bonds of the Thirty-
First Series (including without limitation upon redemption
pursuant to Article III of the Supplemental Indenture) shall be
fully or partially, as the case may be, satisfied and discharged
to the extent that, at the time that any such payment shall be
due, the then due principal of and interest on the St. Marys
Refunding Bonds shall have been fully or partially paid, or there
shall be held by the St. Marys Trustee pursuant to the St. Marys
Indenture sufficient available funds to fully or partially pay
the then due principal of and interest on the St. Marys Refunding
Bonds. The Trustee may conclusively presume that the obligation
of the Company to make payments with respect to the principal of
and interest on Bonds of the Thirty-First Series shall have been
fully satisfied and discharged unless and until the Trustee shall
have received a written notice from the St. Marys Trustee, signed
by its President, a Vice President or a Trust Officer, stating
(i) that timely payment of the principal of or interest on the
St. Marys Refunding Bonds required to be made by the Company has
not been made, (ii) that there are not sufficient available funds
held by the St. Marys Trustee pursuant to the St. Marys Indenture
to make such payment and (iii) the amount of funds, in addition
to available funds held by the St. Marys Trustee pursuant to the
St. Marys Indenture, required to make such payment.
Notwithstanding any other provisions of this Bond or the
Supplemental Indenture, interest on the Bonds of the Thirty-First
Series shall be deemed fully satisfied and discharged as provided
herein and therein even if the interest rate on Bonds of the
Thirty-First Series may be higher or lower than the interest rate
on the St. Marys Refunding Bonds at the time interest on the St.
Marys Refunding Bonds is paid.
To the extent permitted by, and as provided in the Indenture,
modifications or alterations of the Indenture or of any indenture
supplemental thereto, and of the rights and obligations of the
Company and of the holders of the Bonds and coupons, may be made
with the consent of the Company by an affirmative vote of not
less than 80% in principal amount of the Bonds entitled to vote
then outstanding, at a meeting of Bondholders called and held as
provided in the Indenture or, in lieu of a meeting, by written
consent received by the Trustee of holders of 80% or more in
principal amount of Bonds outstanding, and by an affirmative vote
or written consent of not less than 80% in principal amount of
the Bonds of any series entitled to vote or consent then
outstanding and affected by such modification or alteration, in
case one or more but less than all of the series of Bonds then
outstanding under the Indenture are so affected. The Company has
reserved the right to amend the Indenture without any consent or
other action by holders of any series of Bonds created after June
1, 1975, including Bonds of the Thirty-First Series, to provide
that the Indenture may be modified or altered with the consent of
the holders of 60% in aggregate principal amount of the Bonds and
if less than all series of Bonds are affected with the consent
also of the holders of 60% in aggregate principal amount of the
Bonds of each series so affected. No modification or alteration
shall be made which will affect the terms of payment of the
principal of or premium, if any, or interest on, this Bond, which
are unconditional. The Company has also reserved the right to
make certain amendments to the Indenture, without any consent or
other action by holders of the Bonds of this series, to the
extent necessary from time to time to qualify the Indenture under
the Trust Indenture Act of 1939, all as more fully provided in
the Indenture.
The Bonds of the Thirty-First Series are subject to redemption as
provided in the Supplemental Indenture.
In case an event of default, as defined in the Indenture, shall
occur, the principal of all of the Bonds at any such time
outstanding under the Indenture may be declared or may become due
and payable, upon the conditions and in the manner and with the
effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders
of a majority in principal amount of the Bonds outstanding.
This Bond is transferable by the registered owner hereof, in
person or by duly authorized attorney, on the books of the
Company to be kept for that purpose at the agency of the Company
in the City of Chicago, Illinois, upon surrender and cancellation
of this Bond and on presentation of a duly executed written
instrument of transfer, and thereupon a new registered Bond or
Bonds of the same series, of the same aggregate principal amount
and in authorized denominations will be issued to the transferee
or transferees in exchange herefor; and this Bond, with or
without others of like form and series, may in like manner be
exchanged for one or more new registered Bonds of the same series
of other authorized denominations but of the same aggregate
principal amount; all upon payment of the charges and subject to
the terms and conditions set forth in the Indenture.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this Bond, or for any claim based
hereon or on the Indenture or any indenture supplemental thereto,
against any incorporator, or against any stockholder, director or
officer, past, present or future, of the Company, or of any
predecessor or successor corporation, as such, either directly or
through the Company or any such predecessor or successor
corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty
or otherwise, all such liability, whether at common law, in
equity, by any constitution, statute or otherwise, of
incorporators, stockholders, directors or officers being released
by every owner hereof by the acceptance of this Bond and as part
of the consideration for the issue hereof, and being likewise
released by the terms of the Indenture.
This Bond shall not be entitled to any benefit under the
Indenture or any indenture supplemental thereto, or become valid
or obligatory for any purpose, until Harris Trust and Savings
Bank, the Trustee under the Indenture, or a successor trustee
thereto under the Indenture, shall have signed the form of
certificate endorsed hereon.
IN WITNESS WHEREOF, WESTERN RESOURCES, INC. has caused this Bond
to be signed in its name by its Chairman of the Board, President
and Chief Executive Officer or a Vice President, manually or by
facsimile, and its corporate seal (or a facsimile thereof) to be
hereto affixed and attested by its Secretary or an Assistant
Secretary, manually or by facsimile.
Dated:
WESTERN RESOURCES, INC.
By_____________________
Attest:
____________________________
[FORM OF TRUSTEE'S CERTIFICATE]
This Bond is one of the Bonds, of the series designated herein,
described in the within-mentioned Mortgage and Deed of Trust of
July 1, 1939 and Supplemental Indenture dated as of April 15 ,
1994.
HARRIS TRUST AND SAVINGS BANK,
Trustee,
By__________________________
SECTION 4.
The Bonds of the Thirty-Second Series, and the Trustee's
Certificate with respect thereto, shall be substantially in the
following forms, respectively:
[FORM OF BOND OF THE THIRTY-SECOND SERIES]
This bond is not transferable, except to a successor trustee
under the Indenture of Trust, dated as of April 15, 1994, of the
City of Wamego, Kansas, to Chemical Bank, as Trustee, or to
effect a substitution of mortgage bonds as permitted under the
Pledge Agreement dated as of April 15, 1994 between Western
Resources, Inc. and Chemical Bank, as Trustee.
WESTERN RESOURCES, INC.
(Incorporated under the laws of the State of Kansas)
FIRST MORTGAGE BOND, 7-1/2% POLLUTION CONTROL
REVENUE REFUNDING CITY OF WAMEGO SERIES DUE 2032
Due April 15, 2032
No. _______ $_________________
WESTERN RESOURCES, INC., a corporation organized and existing
under the laws of the State of Kansas (hereinafter called ``the
Company'', which term shall include any successor corporation as
defined in the Indenture hereinafter referred to), for value
received, hereby promises to pay to ___________________________
or registered assigns, on the 15th day of April, 2032, the sum of
________________________ Dollars in any coin or currency of the
United States of America which at the time of payment is legal
tender for public and private debts, and to pay interest thereon
in like coin or currency from the interest payment date with
respect to the Wamego Refunding Bonds (as defined below) next
preceding the date of this Bond (unless this Bond shall be dated
prior to June 14, 1994, in which case it shall bear interest from
April 28, 1994) at the rate of seven and a half percent (7-1/2%)
per annum, payable on the interest payment date with respect to
the Wamego Refunding Bonds, commencing June 14, 1994 (on which
date interest from April 28, 1994 will be payable), until
maturity, or, if this Bond shall be duly called for redemption,
until the redemption date, or, if the Company shall default in
the payment of the principal hereof, until the Company's
obligation with respect to the payment of such principal shall be
discharged as provided in the Indenture hereinafter mentioned.
The interest payable on any interest payment date as aforesaid
will be paid to the person in whose name this Bond is registered
on the record date established for the Wamego Refunding Bonds
next preceding such interest payment date, unless the Company
shall default in the payment of the interest due on such interest
payment date, in which case such defaulted interest shall be paid
to the person in whose name this Bond is registered on the date
of payment of such defaulted interest. Principal of and premium,
if any, and interest on, this Bond are payable at the agency of
the Company in the City of Chicago, Illinois in immediately
available funds.
This Bond is one of a duly authorized issue of Bonds of the
Company (herein called the ``Bonds''), in unlimited aggregate
principal amount, of the series hereinafter specified, all issued
and to be issued under and equally secured by a Mortgage and Deed
of Trust, dated July 1, 1939, executed by the Company to Harris
Trust and Savings Bank (herein called the ``Trustee''), as
Trustee, as amended by the indentures supplemental thereto
including the indenture supplemental thereto dated as of
April 15, 1994 (herein called the ``Supplemental Indenture''),
between the Company and the Trustee (said Mortgage and Deed of
Trust, as so amended, being herein sometimes called the
``Indenture'') to which Indenture and all indentures supplemental
thereto reference is hereby made for a description of the
properties mortgaged and pledged, the nature and extent of the
security, the rights of the bearers or registered owners of the
Bonds and of the Trustee in respect thereto, and the terms and
conditions upon which the Bonds are, and are to be, secured. The
Bonds may be issued in series, for various principal sums, may
mature at different times, may bear interest at different rates
and may otherwise vary as in the Indenture provided. This Bond
is one of a series designated as the ``First Mortgage Bonds, 7-
1/2% Pollution Control Revenue Refunding City of Wamego Series
Due 2032'' (herein called ``Bonds of the Thirty-Second Series'')
of the Company, issued under and secured by the Indenture
executed by the Company to the Trustee.
All Bonds of the Thirty-Second Series shall be pledged by the
Company with the Wamego Trustee (as defined herein) to secure the
payment of the principal of, and up to 7-1/2% per annum of the
interest on the City of Wamego, Kansas, Pollution Control Revenue
Refunding Bonds (Western Resources, Inc. Project) Series 1994
(referred to herein as the "Wamego Refunding Bonds") issued
pursuant to the Indenture of Trust, dated as of April 15, 1994
(the "Wamego Indenture"), from the City of Wamego, Kansas, to
Chemical Bank, as trustee thereunder (the "Wamego Trustee"). The
obligation of the Company to make payments with respect to the
principal of and interest on Bonds of the Thirty-Second Series
(including without limitation upon redemption pursuant to Article
III of the Supplemental Indenture) shall be fully or partially,
as the case may be, satisfied and discharged to the extent that,
at the time that any such payment shall be due, the then due
principal of and interest on the Wamego Refunding Bonds shall
have been fully or partially paid, or there shall be held by the
Wamego Trustee pursuant to the Wamego Indenture sufficient
available funds to fully or partially pay the then due principal
of and interest on the Wamego Refunding Bonds. The Trustee may
conclusively presume that the obligation of the Company to make
payments with respect to the principal of and interest on Bonds
of the Thirty-Second Series shall have been fully satisfied and
discharged unless and until the Trustee shall have received a
written notice from the Wamego Trustee, signed by its President,
a Vice President or a Trust Officer, stating (i) that timely
payment of the principal of or interest on the Wamego Refunding
Bonds required to be made by the Company has not been made, (ii)
that there are not sufficient available funds held by the Wamego
Trustee pursuant to the Wamego Indenture to make such payment and
(iii) the amount of funds, in addition to available funds held by
the Wamego Trustee pursuant to the Wamego Indenture, required to
make such payment. Notwithstanding any other provisions of this
Bond or the Supplemental Indenture, interest on the Bonds of the
Thirty-Second Series shall be deemed fully satisfied and
discharged as provided herein and therein even if the interest
rate on Bonds of the Thirty-Second Series may be higher or lower
than the interest rate on the Wamego Refunding Bonds at the time
interest on the Wamego Refunding Bonds is paid.
To the extent permitted by, and as provided in the Indenture,
modifications or alterations of the Indenture or of any indenture
supplemental thereto, and of the rights and obligations of the
Company and of the holders of the Bonds and coupons, may be made
with the consent of the Company by an affirmative vote of not
less than 80% in principal amount of the Bonds entitled to vote
then outstanding, at a meeting of Bondholders called and held as
provided in the Indenture or, in lieu of a meeting, by written
consent received by the Trustee of holders of 80% or more in
principal amount of Bonds outstanding, and by an affirmative vote
or written consent of not less than 80% in principal amount of
the Bonds of any series entitled to vote or consent then
outstanding and affected by such modification or alteration, in
case one or more but less than all of the series of Bonds then
outstanding under the Indenture are so affected. The Company has
reserved the right to amend the Indenture without any consent or
other action by holders of any series of Bonds created after June
1, 1975, including Bonds of the Thirty-Second Series, to provide
that the Indenture may be modified or altered with the consent of
the holders of 60% in aggregate principal amount of the Bonds and
if less than all series of Bonds are affected with the consent
also of the holders of 60% in aggregate principal amount of the
Bonds of each series so affected. No modification or alteration
shall be made which will affect the terms of payment of the
principal of or premium, if any, or interest on, this Bond, which
are unconditional. The Company has also reserved the right to
make certain amendments to the Indenture, without any consent or
other action by holders of the Bonds of this series, to the
extent necessary from time to time to qualify the Indenture under
the Trust Indenture Act of 1939, all as more fully provided in
the Indenture.
The Bonds of the Thirty-Second Series are subject to redemption
as provided in the Supplemental Indenture.
In case an event of default, as defined in the Indenture, shall
occur, the principal of all of the Bonds at any such time
outstanding under the Indenture may be declared or may become due
and payable, upon the conditions and in the manner and with the
effect provided in the Indenture. The Indenture provides that
such declaration may in certain events be waived by the holders
of a majority in principal amount of the Bonds outstanding.
This Bond is transferable by the registered owner hereof, in
person or by duly authorized attorney, on the books of the
Company to be kept for that purpose at the agency of the Company
in the City of Chicago, Illinois, upon surrender and cancellation
of this Bond and on presentation of a duly executed written
instrument of transfer, and thereupon a new registered Bond or
Bonds of the same series, of the same aggregate principal amount
and in authorized denominations will be issued to the transferee
or transferees in exchange herefor; and this Bond, with or
without others of like form and series, may in like manner be
exchanged for one or more new registered Bonds of the same series
of other authorized denominations but of the same aggregate
principal amount; all upon payment of the charges and subject to
the terms and conditions set forth in the Indenture.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this Bond, or for any claim based
hereon or on the Indenture or any indenture supplemental thereto,
against any incorporator, or against any stockholder, director or
officer, past, present or future, of the Company, or of any
predecessor or successor corporation, as such, either directly or
through the Company or any such predecessor or successor
corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty
or otherwise, all such liability, whether at common law, in
equity, by any constitution, statute or otherwise, of
incorporators, stockholders, directors or officers being released
by every owner hereof by the acceptance of this Bond and as part
of the consideration for the issue hereof, and being likewise
released by the terms of the Indenture.
This Bond shall not be entitled to any benefit under the
Indenture or any indenture supplemental thereto, or become valid
or obligatory for any purpose, until Harris Trust and Savings
Bank, the Trustee under the Indenture, or a successor trustee
thereto under the Indenture, shall have signed the form of
certificate endorsed hereon.
IN WITNESS WHEREOF, WESTERN RESOURCES, INC. has caused this Bond
to be signed in its name by its Chairman of the Board, President
and Chief Executive Officer or a Vice President, manually or by
facsimile, and its corporate seal (or a facsimile thereof) to be
hereto affixed and attested by its Secretary or an Assistant
Secretary, manually or by facsimile.
Dated:
WESTERN RESOURCES, INC.
By____________________
Attest:
____________________________
[FORM OF TRUSTEE'S CERTIFICATE]
This Bond is one of the Bonds, of the series designated herein,
described in the within-mentioned Mortgage and Deed of Trust of
July 1, 1939 and Supplemental Indenture dated as of April 15,
1994.
HARRIS TRUST AND SAVINGS BANK,
Trustee,
By_________________________
SECTION 5. Until Bonds of the Thirty-First and Thirty-Second
Series in definitive form are ready for delivery, the Company may
execute, and upon its request in writing the Trustee shall
authenticate and deliver, in lieu thereof, Bonds of the Thirty-
First and Thirty-Second Series in temporary form, as provided in
Section 9 of Article II of the Original Indenture.
ARTICLE II.
Issue of Bonds of the Thirty-First and Thirty-Second Series.
SECTION 1. The total principal amount of Bonds of the Thirty-
First and Thirty-Second Series which may be authenticated and
delivered hereunder is not limited except as the Original
Indenture and this Supplemental Indenture limit the principal
amount of Bonds which may be issued thereunder.
SECTION 2. Bonds of the Thirty-First and Thirty-Second Series
for the aggregate principal amount of Forty-Five Million Dollars
($45,000,000) and Thirty Million Five Hundred Thousand Dollars
($30,500,000), respectively, may forthwith be executed by the
Company and delivered to the Trustee and shall be authenticated
by the Trustee and delivered (either before or after the filing
or recording hereof) to or upon the order of the Company, upon
receipt by the Trustee of the resolutions, certificates,
instruments and opinions required by Article III and Article
XVIII of the Original Indenture, as amended.
ARTICLE III.
Redemption.
SECTION 1. Upon the redemption, in whole or in part, of the St.
Marys Refunding Bonds, Bonds of the Thirty-First Series shall be
redeemed in whole or in like part. To effect the redemption of
Bonds of the Thirty-First Series, the St. Marys Trustee shall
deliver to the Trustee (and mail a copy thereof to the Company) a
written demand (hereinafter referred to as a ``St. Marys
Redemption Demand'') for the redemption of Bonds of the Thirty-
First Series equal in principal amount to the principal amount of
the St. Marys Refunding Bonds to be redeemed. The St. Marys
Redemption Demand shall be signed by the President, a Vice
President, an Assistant Vice President or a Trust Officer of the
St. Marys Trustee and shall state: (1) the aggregate principal
amount of the St. Marys Refunding Bonds then outstanding under
the St. Marys Indenture; (2) the principal amount of the St.
Marys Refunding Bonds to be redeemed; (3) the interest thereon to
be payable on the redemption date; (4) the redemption date and
that notice thereof has been given as required in the St. Marys
Indenture; (5) in the case of an optional redemption of the St.
Marys Refunding Bonds, that the Company has informed the
St. Marys Trustee that the Company intends to deposit sufficient
available funds with the St. Marys Trustee pursuant to the St.
Marys Indenture to effect such redemption; and (6) that the
Trustee is thereby instructed to call for redemption Bonds of the
Thirty-First Series equal in principal amount to the principal
amount of the St. Marys Bonds specified in (2) above. The St.
Marys Redemption Demand shall also contain a waiver of notice of
such redemption by the St. Marys Trustee, as holder of all Bonds
of the Thirty-First Series then outstanding. The Trustee may
conclusively presume the statements contained in the St. Marys
Redemption Demand to be correct.
Except as provided in the next sentence, redemption of Bonds of
the Thirty-First Series shall be at the principal amount of the
Bonds to be redeemed, together with accrued interest to the
redemption date, and such amount shall become and be due and
payable on the redemption date. In the event the St. Marys
Refunding Bonds bear interest at a Long-Term Interest Rate (as
defined in the St. Marys Indenture), the Bonds of the Thirty-
First Series will be redeemable as follows: If the St. Marys
Refunding Bonds bear interest at the Long-Term MATES Rate (as
defined in the St. Marys Indenture), the Bonds of the Thirty-
First Series shall be redeemable at the same percentages of their
principal amount and during the same call periods as are
established under the St. Marys Indenture, plus accrued interest
to the date of redemption. If, on the date the St. Marys
Refunding Bonds begin to bear a Long-Term Interest Rate
(``Effective Date''), the length of the Long-Term Interest Rate
Period falls within one of the entries in the Long-Term Interest
Rate Period column, the Bonds of the Thirty-First Series will not
be redeemable for the number of years after the Effective Date
shown in the No-call Period column. After the No-call Period,
the Bonds of the Thirty-First Series may be redeemed at the
percentage of the principal amount shown in the Initial Premium
column. The premium will decline every six months by one-half of
one percentage point until the Bonds of the Thirty-First Series
are redeemable without premium.
Long-Term Interest Rate Period
But Less Than No-Call Initial
Greater Than Or Equal To Period Premium
15 years N/A 10 years 102 %
10 years 15 years 7 years 101.5
7 years 10 years 5 years 101
4 years 7 years 3 years 101
3 years 4 years 2 years 100.5
2 years 3 years 1 year 100.5
1 year 2 years 1 year 100
The Company hereby covenants that it shall notify the Trustee no
later than thirty days after the date, if any, on which the St.
Marys Refunding Bonds commence bearing a Long-Term Interest Rate,
such notice to set forth the Long-Term Interest Rate Period then
in effect for the St. Marys Refunding Bonds; and of any change to
the redemption table if different from above.
The Company hereby covenants that if a St. Marys Redemption
Demand shall be delivered to the Trustee, the Company, except as
otherwise provided in Section 1 of Article I of this Supplemental
Indenture, will deposit, on or before the redemption date, with
the Trustee, in accordance with Article V of the Indenture, an
amount in cash sufficient to redeem the Bonds of the Thirty-First
Series so called for redemption.
SECTION 2.
Upon the redemption, in whole or in part, of the City of Wamego
Refunding Bonds, Bonds of the Thirty-Second Series shall be
redeemed in whole or in like part. To effect the redemption of
Bonds of the Thirty-Second Series, the Wamego Trustee under the
Wamego Indenture shall deliver to the Trustee (and mail a copy
thereof to the Company) a written demand (hereinafter referred to
as a ``Wamego Redemption Demand'') for the redemption of Bonds of
the Thirty-Second Series equal in principal amount to the
principal amount of the Wamego Refunding Bonds to be redeemed.
The Wamego Redemption Demand shall be signed by the President, a
Vice President, an Assistant Vice President or a Trust Officer of
the Wamego Trustee and shall state: (1) the aggregate principal
amount of the Wamego Refunding Bonds then outstanding under the
Wamego Indenture; (2) the principal amount of the Wamego
Refunding Bonds to be redeemed; (3) the interest thereon to be
payable on the redemption date; (4) the redemption date and that
notice thereof has been given as required in the Wamego
Indenture; (5) in the case of an optional redemption of the
Wamego Refunding Bonds, that the Company has informed the Wamego
Trustee that the Company intends to deposit sufficient available
funds with the Wamego Trustee pursuant to the Wamego Indenture to
effect such redemption; and (6) that the Trustee is thereby
instructed to call for redemption Bonds of the Thirty-Second
Series equal in principal amount to the principal amount of the
Wamego Refunding Bonds specified in (2) above. The Wamego
Redemption Demand shall also contain a waiver of notice of such
redemption by the Wamego Trustee, as holder of all Bonds of the
Thirty-Second Series then outstanding. The Trustee may
conclusively presume the statements contained in the Wamego
Redemption Demand to be correct.
Except as provided in the next sentence, redemption of Bonds of
the Thirty-Second Series shall be at the principal amount of the
Bonds to be redeemed, together with accrued interest to the
redemption date, and such amount shall become and be due and
payable on the redemption date. In the event the Wamego
Refunding Bonds bear interest at a Long-Term Interest Rate (as
defined in the Wamego Indenture), the Bonds of the Thirty-Second
Series will be redeemable as follows: If the Wamego Refunding
Bonds bear interest at the Long-Term MATES Rate (as defined in
the Wamego Indenture), the Bonds of the Thirty-Second Series
shall be redeemable at the same percentages of their principal
amount and during the same call periods as are established under
the Wamego Indenture, plus accrued interest to the date of
redemption. If, on the date the Wamego Refunding Bonds begin to
bear a Long-Term Interest Rate (``Effective Date''), the length
of the Long-Term Interest Rate Period falls within one of the
entries in the Long-Term Interest Rate Period column, the Bonds
of the Thirty-Second Series will not be redeemable for the number
of years after the Effective Date shown in the No-call Period
column. After the No-call Period, the Bonds may be redeemed at
the percentage of the principal amount shown in the Initial
Premium column. The premium will decline every six months by
one-half of one percentage point until the Bonds of the Thirty-
Second Series are redeemable without premium.
Long-Term Interest Rate Period
But Less Than No-Call Initial
Greater Than Or Equal To Period Premium
15 years N/A 10 years 102 %
10 years 15 years 7 years 101.5
7 years 10 years 5 years 101
4 years 7 years 3 years 101
3 years 4 years 2 years 100.5
2 years 3 years 1 year 100.5
1 year 2 years 1 year 100
The Company hereby covenants that it shall notify the Trustee no
later than thirty days after the date, if any, on which the
Wamego Refunding Bonds commence bearing a Long-Term Interest
Rate, such notice to set forth the Long-Term Interest Rate Period
then in effect for the Wamego Refunding Bonds; and of any change
to the redemption table if different from above.
The Company hereby covenants that if a Wamego Redemption Demand
shall be delivered to the Trustee, the Company, except as
otherwise provided in Section 1 of Article I of this Supplemental
Indenture, will deposit, on or before the redemption date, with
the Trustee, in accordance with Article V of the Indenture, an
amount in cash sufficient to redeem the Bonds of the Thirty-
Second Series so called for redemption.
SECTION 3.
The Bonds of the Thirty-First and Thirty-Second Series shall be
redeemable pursuant to Section 8 of Article VIII of the Original
Indenture, from time to time prior to maturity subject to the
terms and conditions of Section 1 and Section 2, respectively, of
this Article II.
SECTION 4.
The provisions of Article V of the Original Indenture shall be
applicable to redemptions of Bonds of the Thirty-First and
Thirty-Second Series pursuant to the provisions of Section 1 or 2
of this Article III; provided, however, that with respect to any
redemption of Bonds of the Thirty-First and Thirty-Second Series
pursuant to such Section 1 or 2, an election to redeem shall be
made in the manner provided in such Section 1 or 2, respectively,
and notice of redemption shall be given or waived as provided in
such Section 1 or 2, respectively. The principal amount of Bonds
of the Thirty-First or Thirty-Second Series to be redeemed on any
partial redemption shall be an authorized denomination thereof.
SECTION 5.
Any Bonds of the Thirty-First or Thirty-Second Series redeemed
pursuant to Section 1 or 2 of this Article III are hereby
expressly permitted to be used as refundable Bonds for the
execution, authentication and delivery of additional Bonds
pursuant to Section 6 of Article III of the Original Indenture.
SECTION 6.
Any written notice to the Trustee from the St. Marys Trustee or
the Wamego Trustee shall be signed by an officer of the St. Marys
Trustee or the Wamego Trustee, as the case may be, duly
authorized by such purpose.
ARTICLE IV.
Additional Covenants.
The Company hereby covenants, warrants and agrees:
SECTION 1.
That the Company is lawfully seized and possessed of all of the
mortgaged property described in the granting clauses of this
Supplemental Indenture; that it has good, right and lawful
authority to mortgage the same as provided in this Supplemental
Indenture; and that such mortgaged property is, at the actual
date of the initial issue of the Bonds of the Thirty-First and
Thirty-Second Series, free and clear of any deed of trust,
mortgage, lien, charge or encumbrance thereon or affecting the
title thereto prior to the Indenture, except as set forth in the
granting clauses of the Original Indenture, the Fifteenth
Supplemental Indenture, the Eighteenth Supplemental Indenture,
the Twenty-Sixth Supplemental Indenture, the Twenty-Eighth
Supplemental Indenture, the Twenty-Ninth Supplemental Indenture,
the Thirtieth Supplemental Indenture, the Thirty-First
Supplemental Indenture or this Supplemental Indenture.
SECTION 2.
So long as any Bonds of the Thirty-First or Thirty-Second Series
are outstanding, in the event that all or substantially all of
the gas properties (either with or without including the gas
property in the City of Atchison, Kansas) shall have been
released as an entirety from the lien of the Original Indenture,
the Company will, at any time or from time to time within six
months after the date of such release, retire Bonds outstanding
under the Original Indenture in an aggregate principal amount
equal to the lesser of
(a)the fair value of the gas properties so released
pursuant to Section 3 of Article VII of the Original
Indenture, as stated in the engineer's certificate
required by Section 3(b) of said Article VII, and the
proceeds of the gas properties so released pursuant to
Section 5 of said Article VII, less the amount of moneys,
deposited with the Trustee pursuant to Section 3(d), 4(d)
and 5 of said Article VII on such release, withdrawn or
reduced pursuant to Section 1 of Article VIII of the
Original Indenture simultaneously with or within three
months after such release; or
(b)the greater of
(i)Nine Million Dollars ($9,000,000) plus One
Hundred Seventy-Five Thousand Dollars ($175,000) for
each full year (disregarding any period less than a
full year) beginning with July 1, 1949, and ending
on the date of such release, less One Million Seven
Hundred Thousand Dollars ($1,700,000), or
(ii)One-half of the fair value of the gas properties
so released, as stated in the engineer's certificate
required by Section 3(b) of Article VII of the
Original Indenture, and one-half of the proceeds of
the gas properties so released pursuant to Section 5
of said Article VII.
Such retirement of Bonds shall be effected in either one or
both of the following methods:
(aa)By the withdrawal pursuant to Section 2 of Article
VIII of the Original Indenture of any moneys deposited
with the Trustee pursuant to Sections 3(d), 4(d) and 5 of
Article VII of the Original Indenture upon such release;
or
(bb)By causing the Trustee to purchase or redeem bonds,
pursuant to Section 8 of Article VIII of the Original
Indenture, out of any moneys deposited with the Trustee
pursuant to Sections 3(d), 4(d) and 5 of Article VII of
the Original Indenture upon such release.
SECTION 3.
So long as any Bonds of the Thirty-First or Thirty-Second Series
are outstanding, in the event all or substantially all of the
electric properties shall have been released as an entirety from
the lien of the Original Indenture, the Company will, at any time
or from time to time within six months after the date of such
release, retire Bonds outstanding under the Original Indenture in
an aggregate principal amount equal to the fair value of the
electric properties so released pursuant to Section 3 of Article
VII of the Original Indenture, as stated in the engineer's
certificate required by Section 3(b) of said Article VII, and the
proceeds of the electric properties so released pursuant to
Section 5 of said Article VII. Such retirement of Bonds shall be
effected in either one or both of the following methods:
(a)By the withdrawal pursuant to Section 2 of Article VIII
of the Original Indenture of any moneys deposited with the
Trustee pursuant to Sections 3(d), 4(d) and 5 of Article
VII of the Original Indenture upon such release; or
(b)By causing the Trustee to purchase or redeem bonds,
pursuant to Section 8 of Article VIII of the Original
Indenture, out of any moneys deposited with the Trustee
pursuant to Sections 3(d), 4(d) and 5 of Article VII of
the Original Indenture upon such release.
The Bonds to be so retired shall include a principal amount of
Bonds of each Series then outstanding in the same ratio to the
aggregate principal amount of all Bonds so retired as the
aggregate principal amount of all Bonds of each Series
outstanding immediately prior to such release bears to the total
principal amount of all Bonds then outstanding.
SECTION 4.
Subject to the provisions of the fourth and fifth paragraphs of
Section 1 of Article I of this Supplemental Indenture, the
Company hereby covenants, warrants and agrees that it will
punctually pay or cause to be paid the principal, premium, if
any, and interest to become due in respect of all the Bonds of
the Thirty-First and Thirty-Second Series according to the
respective terms thereof.
ARTICLE V.
Amendments of Ratio of Bonds Issuable to Property Additions and
of Certain Other Ratios. Amendment of Net Earnings Test.
Use of Facsimile Signatures. Reservation of Right to Amend
Article XV.
SECTION 1.
So long as any of the Bonds of the Thirty-First or Thirty-Second
Series shall remain outstanding:
(1) Notwithstanding the provisions of Section 4 of Article III of
the Original Indenture, no Bonds shall be authenticated and
delivered pursuant to the provisions of Article III of the
Original Indenture and issued upon the basis of net bondable
value of property additions for an aggregate principal amount in
excess of sixty percent (60%) of the net bondable value of
property additions not subject to an unfunded prior lien.
For the purposes of Subsections (e) and (f) of the definition of
``net bondable value of property additions not subject to an
unfunded prior lien'', contained in Article I of the Original
Indenture, and Subdivisions 8 and 9 of clause (a) of Section 4 of
Article III of the Original Indenture, in all computations made
with respect to a period subsequent to April 1, 1949, the
deductions therein referred to shall in each case be ten-sixths
(10/6ths) of the respective amounts mentioned, in lieu of ten-
sevenths (10/7ths).
(2) Notwithstanding the provisions of Section 3(a) of Article
VIII of the Original Indenture, no moneys received by the Trustee
pursuant to Section 5(a) of Article III of the Original Indenture
shall be paid over by the Trustee in an amount in excess of sixty
percent (60%) of the net bondable value of property additions not
subject to an unfunded prior lien, and for the purposes of
Section 3 of Article VII of the Original Indenture, the amount of
cash required to be deposited by the Company pursuant to
Subsection (d) of said Section 3 of Article VII, shall not be
reduced in an amount in excess of sixty percent (60%) of the net
bondable value of property additions not subject to an unfunded
prior lien.
(3) For the purposes of clauses (c) and (d) of the definition of
``net bondable value of property additions subject to an unfunded
prior lien'', contained in Article I of the Original Indenture,
and Subsection 7 of clause (a) of Section 4 of Article III of the
Original Indenture, in all computations made with respect to a
period subsequent to April 1, 1949, the deductions therein
referred to shall in each case be ten-sixths (10/6ths) of the
respective amounts mentioned, in lieu of ten-sevenths (10/7ths).
(4) Subsection (a) of Section 14, clauses (1) and (2) of
Subsection (a) of Section 16 of Article IV and clause (1) of
Subsection (b) of Section 1 of Article XII of the Original
Indenture shall be deemed amended by substituting the words
``sixty percent (60%)'' for ``seventy percent (70%)'' where they
appear in said provisions of the Original Indenture.
(5) The definition of the term ``net earnings available for
interest, depreciation and property retirement'', as contained in
Article I of the Original Indenture, shall be deemed to mean the
net earnings of the Company ascertained as follows:
(a) The total operating revenues of the Company and the
net non-operating revenues of the properties of the
Company shall be ascertained.
(b) From the total, determined as provided in Subsection
(a), there shall be deducted all operating expenses,
including all salaries, rentals, insurance, license and
franchise fees, expenditures for repairs and maintenance,
taxes (other than income, excess profits and other taxes
measured by or dependent on net taxable income),
depreciation as shown on the books of the Company or an
amount equal to the minimum provision for depreciation as
hereinafter defined, whichever is greater, but excluding
all property retirement appropriations, all interest and
sinking fund charges, amortization of stock and debt
discount and expense or premium and further excluding any
charges to income or otherwise for the amortization of
plant or property accounts or of amounts transferred
therefrom.
(c) The balance remaining after the deduction of the total
amount computed pursuant to Subsection (b) from the total
amount computed pursuant to Subsection (a) shall
constitute the ``net earnings of the Company available for
interest'', provided that not more than fifteen percent
(15%) of the net earnings of the Company available for
interest may consist of the aggregate of (i) net non-
operating income, (ii) net earnings from mortgaged
property other than property of the character of property
additions and (iii) net earnings from property not subject
to the lien of this Indenture.
(d) No income received or accrued by the Company from
securities and no profits or losses from the sale of
capital assets shall be included in making the
computations aforesaid.
(e) In case the Company shall have acquired any acquired
plant or systems or shall have been consolidated or merged
with any other corporation, within or after the particular
period for which the calculation of net earnings of the
Company available for interest, depreciation and property
retirement is made, then, in computing the net earnings of
the Company available for interest, depreciation and
property retirement, there may be included, to the extent
they may not have been otherwise included, the net
earnings or net losses of such acquired plant or system or
of such other corporation, as the case may be, for the
whole of such period. The net earnings or net losses of
such property additions, or of such other corporation for
the period preceding such acquisition or such
consolidation or merger, shall be ascertained and computed
as provided in the foregoing subsections of this
definition as if such acquired plant or system had been
owned by the Company during the whole of such period, or
as if such other corporation had been consolidated or
merged with the Company prior to the first day of such
period.
(f) In case the Company shall have obtained the release of
any property pursuant to Section 3 of Article VII of the
Original Indenture, of a fair value in excess of Five
Hundred Thousand Dollars ($500,000), as shown by the
engineer's certificate required by said Section 3, or
shall have obtained the release of any property pursuant
to Section 5 of Article VII of the Original Indenture, the
proceeds of which shall have exceeded Five Hundred
Thousand Dollars ($500,000), within or after the
particular period for which the calculation of net
earnings of the Company available for interest,
depreciation and property retirement is made, then, in
computing the net earnings of the Company available for
interest, depreciation and property retirement, the net
earnings or net losses of such property for the whole of
such period shall be excluded to the extent practicable on
the basis of actual earnings and expenses of such property
or on the basis of such estimates of the earnings and
expenses of such property as the signers of an officers'
certificate filed with the Trustee pursuant to Section
3(b) of Article III or Section 16 of Article IV of the
Original Indenture shall deem proper.
The term ``minimum charge for depreciation'' as used
herein shall mean an amount equal to (a) fifteen percent
(15%) of the total operating revenues of the Company after
deducting therefrom an amount equal to the aggregate cost
to the Company of electric energy, gas and water purchased
for resale to others and rentals paid for, or other
payments made for the use of, property owned by others and
leased to or operated by the Company, the maintenance of
which and depreciation on which are borne by the owners,
less (b) an amount equal to the expenditures for
maintenance and repairs to the plants and property of the
Company and included or reflected in its operating expense
accounts.
The terms ``net earnings of property available for
interest, depreciation and property retirement'' and ``net
earnings of another corporation available for interest,
depreciation and property retirement'' as contained in
Article I of the Original Indenture, when used with
respect to any property or with respect to another
corporation, shall mean the net earnings of such property
or the net earnings of such other corporation, as the case
may be, computed in the manner provided in Subsections
(a), (b), (c) and (d) hereof.
(6) Notwithstanding the provisions of clauses (1) and (2) of
subsection (b) of Article III, and Subsection (b) of Section 14
of Article IV, and Subsection (b) of Section 16 of Article IV and
clause (2) of Subsection (b) of Section 1 of Article XII of the
Original Indenture, the computation of net earnings required
therein shall be made as provided in Subsection (5) of this
Section 1, and the net earnings tests required in said mentioned
provisions of Articles III, IV and XII of the Original Indenture
shall be based on two times the annual interest charges described
in such provisions, instead of two and one-half times such
charges, but shall not otherwise affect such provisions or
relieve from the requirements therein pertaining to ten percent
(10%) of the principal amount of bonds therein described.
SECTION 2.
All of the Bonds of the Thirty-First and Thirty-Second Series and
of any series initially issued after the initial issuance of
Bonds of the Thirty-First and Thirty-Second Series shall, from
time to time, be executed on behalf of the Company by its
Chairman of the Board, President and Chief Executive Officer or
one of its Vice Presidents whose signature, notwithstanding the
provisions of Section 12 of Article II of the Original Indenture,
may be by facsimile, and its corporate seal (which may be in
facsimile) shall be thereunto affixed and attested by its
Secretary or one of its Assistant Secretaries whose signature,
notwithstanding the provisions of the aforesaid Section 12, may
be by facsimile.
In case any of the officers who have signed or sealed any of the
Bonds of the Thirty-First or Thirty-Second Series or of any
series initially issued after the initial issuance of Bonds of
the Thirty-First or Thirty-Second Series manually or by facsimile
shall cease to be such officers of the Company before such Bonds
so signed and sealed shall have been actually authenticated by
the Trustee or delivered by the Company, such Bonds nevertheless
may be authenticated, issued and delivered with the same force
and effect as though the person or persons who so signed or
sealed such Bonds had not ceased to be such officer or officers
of the Company; and also any such Bonds may be signed or sealed
by manual or facsimile signature on behalf of the Company by such
persons as at the actual date of the execution of any of such
Bonds shall be the proper officers of the Company, although at
the nominal date of any such Bond any such person shall not have
been such officer of the Company.
SECTION 3.
The Company reserves the right, subject to appropriate corporate
action, but without consent or other action by holders of bonds
of any series created after June 1, 1975, to make such amendments
to the Original Indenture, as supplemented, as shall be necessary
in order to amend Article XV thereof so as to substitute ``sixty
percent (60%)'' for ``eighty percent (80%)'' wherever appearing
in said Article XV.
SECTION 4.
The Company reserves the right, subject to appropriate corporate
action, but without any consent or other action by holders of
bonds of any series created after June 1, 1975, to make such
amendments to the Original Indenture, as supplemented, as shall
be necessary in order to amend Article XV thereof by adding
thereto a Section 9 to read as follows:
``SECTION 9.
(A) Anything in this Article XV contained to the contrary
notwithstanding, the Trustee shall receive the written consent
(in any number of instruments of similar tenor executed by
bondholders or by their attorneys appointed in writing) of the
holders of sixty per centum (60%) or more in principal amount of
the bonds outstanding hereunder, and, if the rights of one or
more, but less than all, series of bonds then outstanding are to
be affected by action taken pursuant to such consent, then also
by consent of the holders of at least sixty per centum (60%) in
principal amount of each series of bonds so to be affected and
outstanding hereunder (at the time the last such needed consent
is delivered to the Trustee) in lieu of the holding of a meeting
pursuant to this Article XV and in lieu of all action at such a
meeting and with the same force and effect as a resolution duly
adopted in accordance with the provisions of Section 6 of this
Article XV.
``(B)Instruments of consent shall be witnessed or in the
alternative may (a) have the signature guaranteed by a bank or
trust company or a registered dealer in securities, (b) be
acknowledged before a Notary Public or other officer authorized
to take acknowledgements, or (c) have their genuineness otherwise
established to the satisfaction of the Trustee.
``The amount of bonds payable to bearer, and the series and
serial numbers thereof, held by a person executing an instrument
of consent (or whose attorney has executed an instrument of
consent in his behalf), and the date of his holding the same, may
be proved by exhibiting the bonds to and obtaining a certificate
executed by (i) any bank or trust or insurance company, or (ii)
any trustee, secretary, administrator or other proper officer of
any pension, welfare, hospitalization or similar fund or funds,
or (iii) the United States of America, any Territory thereof, the
District of Columbia, any State of the United States, any
municipality in any State of the United States or any public
instrumentality of the United States, or of any State or of any
Territory or (iv) any other person or corporation satisfactory to
the Trustee. A bondholder in any of the foregoing categories may
sign a certificate in his own behalf.
``Each such certificate shall be dated and shall state, in
effect, that, as of the date thereof, a coupon bond or bonds
bearing a specified serial number or numbers was deposited with
or exhibited to the signer of such certificate. The holding by
the person named in any such certificate of any bond specified
therein shall be presumed to continue unless (1) any certificate
bearing a later date issued in respect of the same bond shall be
produced, (2) the bond specified in such certificate (or any bond
or bonds issued in exchange or substitution for such bond) shall
be produced by another holder, or (3) the bond specified in such
certificate shall be registered as to principal in the name of
another holder or shall have been surrendered in exchange for a
fully registered bond registered in the name of another holder.
The Trustee may nevertheless, in its discretion, require further
proof in cases where it deems further proof desirable. The
ownership of registered bonds shall be proved by the registry
books.
``(C) Until such time as the Trustee shall receive the written
consent of the necessary per centum in principal amount of the
bonds required by the provisions of Subsection (A) above for
action contemplated by such consent, any holder of a bond, the
serial number of which is shown by the evidence to be included in
the bonds the holders of which have consented to such action,
may, by filing written notice with the Trustee at its principal
office and upon proof of holding as provided in Subsection (B)
above, revoke such consent so far as it concerns such bond.
Except as aforesaid, any such action taken by the holder of any
bond shall be conclusive and binding upon such holder and upon
all future holders of such bond (and any bond issued in lieu
thereof or exchanged therefor), irrespective of whether or not
any notation of such consent is made upon such bond, and in any
event any action taken by the holders of the percentage in
aggregate principal amount of the bonds specified in Subsection
(A) above in connection with such action shall be conclusively
binding upon the Company, the Trustee and the holders of all the
bonds.''
ARTICLE VI.
Miscellaneous Provisions.
SECTION 1.
The Trustee accepts the trusts herein declared, provided, created
or supplemented and agrees to perform the same upon the terms and
conditions herein and in the Original Indenture, as amended, set
forth and upon the following terms and conditions.
SECTION 2.
The Trustee shall not be responsible in any manner whatsoever for
or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein,
all of which recitals are made by the Company solely. In general
each and every term and condition contained in Article XIII of
the Original Indenture, as amended by the Second Supplemental
Indenture, shall apply to and form part of this Supplemental
Indenture with the same force and effect as if the same were
herein set forth in full with such omissions, variations and
insertions, if any, as may be appropriate to make the same
conform to the provisions of this Supplemental Indenture.
SECTION 3.
Whenever in this Supplemental Indenture either of the parties
hereto is named or referred to, such reference shall, subject to
the provisions of Articles XII and XIII of the Original
Indenture, be deemed to include the successors and assigns of
such party, and all the covenants and agreements in this
Supplemental Indenture contained by or on behalf of the Company,
or by or on behalf of the Trustee, shall, subject as aforesaid,
bind and inure to the respective benefits of the respective
successors and assigns of such parties, whether so expressed or
not.
SECTION 4.
Nothing in this Supplemental Indenture, expressed or implied, is
intended or shall be construed, to confer upon, or to give to,
any person, firm or corporation, other than the parties hereto
and the holders of the Bonds and coupons outstanding under the
Indenture, any right, remedy or claim under or by reason of this
Supplemental Indenture or any covenant, condition, stipulation,
promise or agreement hereof, and all the covenants, conditions,
stipulations, promises and agreements in this Supplemental
Indenture contained by and on behalf of the Company shall be for
the sole and exclusive benefit of the parties hereto, and of the
holders of the Bonds and of the coupons outstanding under the
Indenture.
SECTION 5.
This Supplemental Indenture may be executed in several
counterparts, and all such counterparts executed and delivered,
each as an original, shall constitute but one and the same
instrument.
SECTION 6.
The Titles of the several Articles of this Supplemental Indenture
shall not be deemed to be any part thereof.
IN WITNESS HEREOF, WESTERN RESOURCES, INC., party hereto of the
first part, has caused its corporate name to be hereunto affixed,
and this instrument to be signed and sealed by its Chairman of
the Board, President and Chief Executive Officer or a Vice
President, and its corporate seal to be attested by its Secretary
or an Assistant Secretary for and in its behalf, and HARRIS TRUST
AND SAVINGS BANK, party hereto of the second part, has caused its
corporate name to be hereunto affixed, and this instrument to be
signed and sealed by its Chairman of the Board, President, Chief
Executive Officer or a Vice President and its corporate seal to
be attested by its Secretary or an Assistant Secretary, all as of
the day and year first above written.
(CORPORATE SEAL) Western Resources, Inc.
By: /s/ Steven L. Kitchen
Steven L. Kitchen
Executive Vice
President and
Chief Financial
Officer
ATTEST:
/s/ Richard D. Terrill
Richard D. Terrill
Secretary
Executed, sealed and delivered by
WESTERN RESOURCES, INC.
in the presence of:
/s/ Stacy F. Kramer
Stacy F. Kramer
/s/ Robert J. Knott
Robert J. Knott
(CORPORATE SEAL) Harris Trust and Savings Bank,
As Trustee,
By: /s/ J.J. Powell
J.J. Powell
Vice President
ATTEST:
/s/ C. Potter
C. Potter
Assistant Secretary
Executed, sealed and delivered by
HARRIS TRUST AND SAVINGS BANK
in the presence of:
/s/ M.E. Onischak
M.E. Onischak
/s/ K. Richardson
Keith Richardson
State of Kansas )
: ss.:
County of Shawnee )
Be It Remembered, that on this 20th day of April, 1994, before
me, the undersigned, a Notary Public within and for the County
and State aforesaid, personally came Steven L. Kitchen and
Richard D. Terrill, of Western Resources, Inc., a corporation
duly organized, incorporated and existing under the laws of the
State of Kansas, who are personally known to me to be such
officers, and who are personally known to me to be the same
persons who executed as such officers the within instrument of
writing, and such persons duly acknowledged the execution of the
same to be the act and deed of said corporation.
In Witness Whereof, I have hereunto subscribed my name and
affixed my official seal on the day and year last above written.
/s/ Regina I. Degarmo
Regina I. Degarmo
Notary Public
My Commission Expires August 4, 1997
State of Illinois )
:ss.:
County of Cook )
Be It Remembered, that on this 20th day of April, 1994, before
me, the undersigned, a Notary Public within and for the County
and State aforesaid, personally came J.J. Powell and C. Potter,
of Harris Trust and Savings Bank, a corporation duly organized,
incorporated and existing under the laws of the State of
Illinois, who are personally known to me to be such officers, and
who are personally known to me to be the same persons who
executed as such officers the within instrument of writing, and
such persons duly acknowledged the execution of the same to be
the act and deed of said corporation.
/s/ T. Muzquiz
T. Muzquiz
Notary Public, State of Illinois
My Commission Expires 7/12/97
State of Kansas )
: ss.:
County of Shawnee )
Be It Remembered, that on this 20th day of April, 1994, before
me, the undersigned, a Notary Public within and for the County
and State aforesaid, personally came Steven L. Kitchen and
Richard D. Terrill, of Western Resources, Inc., a corporation
duly organized, incorporated and existing under the laws of the
State of Kansas, who are personally known to me to be such
officers, being by me respectively duly sworn, did each say that
the said Steven L. Kitchen is Executive Vice President and Chief
Financial Officer and that the said Richard D. Terrill is
Secretary of said corporation, that the consideration of and for
the foregoing instrument was actual and adequate, that the same
was made and given in good faith, for the uses and purposes
therein set forth and without any intent to hinder, delay, or
defraud creditors or purchasers.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed my official seal on the day and year last above written.
/s/ Regina I. Degarmo
Regina I. Degarmo
Notary Public
My Commission Expires August 4, 1997
APPENDIX A
to
THIRTY-SECOND SUPPLEMENTAL INDENTURE
Dated as of April 15, 1994
Western Resources, Inc.
to
Harris Trust and Savings Bank
________________
DESCRIPTION OF PROPERTIES
LOCATED IN THE STATE OF KANSAS
FIRST
PARCELS OF REAL ESTATE
DICKINSON COUNTY
Electric Substation Site
A tract of land located in the Northeast Quarter (NE/4)
of Section Thirty-one (31), Township Eleven (11) South,
Range Four (4) East of the 6th P.M., said tract more
particularly described as follows: Beginning at the
Northeast corner of said Northeast Quarter; thence South
a distance of 255 feet; thence West a distance of 255
feet; thence North a distance of 255 feet; thence East a
distance of 255 feet to the point of beginning.
MONTGOMERY COUNTY
Electric Substation Site
Beginning at the NE Corner of the SW/4 of the NW/4 of
Section 26, Township 32 South, Range 15 East, thence West
530 feet; South 300 feet; East 530 feet; North 300 feet
to the point of beginning.
RENO COUNTY
Electric Substation Site
A tract of land in the Northwest Quarter of Section 21,
Township 24 South, Range 10 West of the 6th Principal
Meridian described as follows:
Commencing at the Northwest corner of the Northwest
Quarter of Section 21, Township 24 South, Range 10 West
of the 6th Principal Meridian for the point of beginning;
thence East along the North line of said Northwest
Quarter 210.00 feet; thence with a deflection angle 90
degrees 00 minutes 00 seconds South 320.00 feet; thence
with a deflection angle 90 degrees 00 minutes 00 seconds
West 210 feet; thence with a deflection angle 90 degrees
00 minutes 00 seconds North along the West line of said
Northwest Quarter 320.00 feet to the point of beginning
in Reno County, Kansas.
Electric Substation Site
Lots 4, 5, and 6, Block 1, Original Townsite, City of
Arlington, Reno County, Kansas, according to the duly
recorded Plat thereof.
SUMNER COUNTY
Office (Wellington, Kansas)
A tract beginning 198 feet North and 422.2 feet East of
the Southwest corner of the Northeast Quarter of Section
11, Township 32 South, Range 1 West of the Sixth
Principal Meridian, Sumner County, Kansas; thence East
327.2 feet to a point; thence Northwesterly 231.73 feet
to a point 396 feet North and 622.2 feet East of said
corner of said Quarter Section; thence West 200 feet;
thence South 198 feet to the point of beginning.
Exhibit 12
<TABLE>
WESTERN RESOURCES, INC.
Computations of Ratio of Earnings to Fixed Charges and
Computations of Ratio of Earnings to Combined Fixed Charges
and Preferred and Preference Dividend Requirements
(Thousands of Dollars)
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Net Income. . . . . . . . . . . . . . $177,370 $127,884 $ 89,645 $ 79,619 $ 72,778
Taxes on Income . . . . . . . . . . . 78,755 46,099 42,527 36,736 35,171
Net Income Plus Taxes. . . . . . 256,125 173,983 132,172 116,355 107,949
Fixed Charges:
Interest on Long-Term Debt. . . . . 123,551 117,464 51,267 51,542 46,378
Interest on Other Indebtedness. . . 19,255 20,009 10,490 11,022 8,742
Interest on Corporate-owned
Life Insurance Borrowings . . . . 16,252 5,294 - - -
Interest Applicable to
Rentals . . . . . . . . . . . . . 28,827 27,429 5,089 4,426 4,673
Total Fixed Charges . . . . . . 187,885 170,196 66,846 66,990 59,793
Preferred and Preference Dividend
Requirements:
Preferred and Preference Dividends. 13,506 12,751 6,377 1,744 1,857
Income Tax Required . . . . . . . . 5,997 4,596 3,025 805 897
Total Preferred and Preference
Dividend Requirements . . . . . . 19,503 17,347 9,402 2,549 2,754
Total Fixed Charges and Preferred and
Preference Dividend Requirements. . 207,388 187,543 76,248 69,539 62,547
Earnings (1). . . . . . . . . . . . . $444,010 $344,179 $199,018 $183,345 $167,742
Ratio of Earnings to Fixed Charges. . 2.36 2.02 2.98 2.74 2.81
Ratio of Earnings to Combined Fixed
Charges and Preferred and Preference
Dividend Requirements . . . . . . . 2.14 1.84 2.61 2.64 2.68
(1) Earnings are deemed to consist of net income to which has been added income taxes
(including net deferred investment tax credit) and fixed charges. Fixed charges consist
of all interest on indebtedness, amortization of debt discount and expense, and the
portion of rental expense which represents an interest factor. Preferred and preference
dividend requirements consist of an amount equal to the pre-tax earnings which would be
required to meet dividend requirements on preferred and preference stock.
</TABLE>
<PAGE>
Exhibit 21
WESTERN RESOURCES, INC.
Subsidiaries of the Registrant
State of Date
Subsidiary Incorporation Incorporated
1) Kansas Gas and Electric Company Kansas October 9, 1990
Wolf Creek Nuclear Operating
Corporation Delaware April 14, 1986
Mid America Services Company Kansas June 10, 1988
2) Astra Resources, Inc. Kansas October 8, 1990
Astra Gas Company Delaware November 2, 1992
Astra Resources
International, Inc. Texas January 27, 1993
Astra Resources Compression, Inc. Texas December 11, 1991
Gas Service Energy Corporation Delaware December 19, 1975
Astra Financial Services, Inc. Kansas October 8, 1990
Astra Limited Partners, Inc. Kansas October 8, 1990
Astra Resources Marketing Company Kansas May 23, 1984
3) KPL Funding Corporation Kansas January 8, 1991
4) Mid Continent Market Center, Inc. Kansas December 13, 1994
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statements File No. 33-57435 on Form S-8 and Nos. 33-49467,
33-49505, 33-49553, and 33-50069 on Form S-3.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
March 10, 1995
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Annual Report on Form 10-K of Western Resources,
Inc. for the year ended December 31, 1994 of our report dated January 29, 1993
appearing in the Annual Report on Form 10-K of Kansas Gas and Electric Company
for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> UT EXHIBIT 27
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AT DECEMBER 31, 1994 AND THE STATEMENT
OF INCOME AND THE STATEMENT OF CASH FLOWS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4298280
<OTHER-PROPERTY-AND-INVEST> 104517
<TOTAL-CURRENT-ASSETS> 390536
<TOTAL-DEFERRED-CHARGES> 396285
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5189618
<COMMON> 308089
<CAPITAL-SURPLUS-PAID-IN> 667992
<RETAINED-EARNINGS> 498374
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1474455
150000
24858
<LONG-TERM-DEBT-NET> 1357028
<SHORT-TERM-NOTES> 151000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 157200
<LONG-TERM-DEBT-CURRENT-PORT> 80
0
<CAPITAL-LEASE-OBLIGATIONS> 4857
<LEASES-CURRENT> 3281
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1866859
<TOT-CAPITALIZATION-AND-LIAB> 5189618
<GROSS-OPERATING-REVENUE> 1617943
<INCOME-TAX-EXPENSE> 99951
<OTHER-OPERATING-EXPENSES> 1252775
<TOTAL-OPERATING-EXPENSES> 1348397
<OPERATING-INCOME-LOSS> 269546
<OTHER-INCOME-NET> 33856
<INCOME-BEFORE-INTEREST-EXPEN> 303402
<TOTAL-INTEREST-EXPENSE> 115955
<NET-INCOME> 187447
13418
<EARNINGS-AVAILABLE-FOR-COMM> 174029
<COMMON-STOCK-DIVIDENDS> 122003
<TOTAL-INTEREST-ON-BONDS> 98483
<CASH-FLOW-OPERATIONS> 268779
<EPS-PRIMARY> 2.82
<EPS-DILUTED> 0
</TABLE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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) (Zip Code)
Registrant's telephone number, including area code 316/261-6611
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock.
Common Stock, No par value 1,000 Shares
(Title of each class) (Outstanding at March 29, 1995)
Indicated 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
Registrant meets the conditions of General Instruction J(1)(a)(b) to Form 10-K
for certain wholly-owned subsidiaries and is therefore filing an abbreviated
form.
<PAGE> 2
KANSAS GAS AND ELECTRIC COMPANY
FORM 10-K
December 31, 1994
TABLE OF CONTENTS
Description Page
PART I
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 44
PART III
Item 10. Directors and Executive Officers of the
Registrant 45
Item 11. Executive Compensation 46
Item 12. Security Ownership of Certain Beneficial
Owners and Management 46
Item 13. Certain Relationships and Related Transactions 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 47
Signatures 50
<PAGE> 3
PART I
ITEM 1. BUSINESS
ACQUISITION AND MERGER
On March 31, 1992, Western Resources, Inc. (formerly The Kansas Power and
Light Company) (Western Resources) 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). Western
Resources also paid approximately $20 million in costs to complete the Merger.
Simultaneously, KCA and Kansas Gas and Electric Company merged and adopted
the name Kansas Gas and Electric Company (the Company, KG&E).
Additional information relating to the Merger can be found in Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note 1 of the Notes to Financial Statements.
GENERAL
The Company is an electric public utility engaged in the generation,
transmission, distribution and sale of electric energy in the southeastern
quarter of Kansas including the Wichita metropolitan area. The Company owns
47 percent of Wolf Creek Nuclear Operating Corporation, the operating company
for Wolf Creek Generating Station (Wolf Creek). Corporate headquarters of the
Company is located in Wichita, Kansas. The Company has no gas properties. At
December 31, 1994, the Company had no employees. All employees are provided
by Western Resources.
For discussion regarding competition in the electric utility industry and
the potential impact on the Company, see Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations, Other Information,
Competition included herein.
The Company's business is subject to seasonal fluctuations with the peak
period occurring during the summer. Approximately one-third of residential
kilowatthour sales occur in the third quarter. Accordingly, earnings and
revenue information for any quarterly period should not be considered as a
basis for estimating results of operations for a full year.
Discussion of other factors affecting the Company are set forth in the
Notes to Financial Statements and Management's Discussion and Analysis
included herein.
ELECTRIC OPERATIONS
General
The Company supplies electric energy at retail to approximately 272,000
customers in 139 communities in Kansas. The Company also supplies electric
energy to 27 communities and 1 rural electric cooperative, and has contracts
for the sale, purchase or exchange of electricity with other utilities at
wholesale.
<PAGE> 4
The Company's electric sales for the last five years were as follows:
1994 1993 1992 1991 1990
(Thousands of MWH)
Residential 2,384 2,386 2,102 2,341 2,270
Commercial 2,068 1,991 1,892 1,908 1,838
Industrial 3,371 3,323 3,248 3,194 3,093
Wholesale and
Interchange 1,590 2,004 1,267 1,168 1,688
Other 45 45 46 46 48
----- ----- ----- ----- -----
Total 9,458 9,749 8,555 8,657 8,937
The Company's electric revenues for the last five years were as follows:
1994 1993 1992 1991 1990
(1)
(Dollars in Thousands)
Residential $220,067 $219,069 $194,142 $219,907 $214,544
Commercial 167,499 162,858 154,005 155,847 151,098
Industrial 181,119 179,256 174,226 172,953 168,294
Wholesale and
Interchange 38,750 45,843 28,086 29,989 36,152
Other 12,445 9,971 3,792 16,272 16,553
-------- -------- -------- -------- --------
Total $619,880 $616,997 $554,251 $594,968 $586,641
(1) See Note 4 of the Notes to Financial Statements for impact
of rate refund orders.
Capacity
The aggregate net generating capacity of the Company's system is presently
2,498 megawatts (MW). The system comprises interests in twelve fossil fueled
steam generating units, one nuclear generating unit (47 percent interest) and
one diesel generator, located at seven generating stations. One of the twelve
fossil fueled units has been "mothballed" for future use (see Item 2.
Properties).
The Company's 1994 peak system net load occurred on July 1, 1994 and
amounted to 1,747 MW. The Company's net generating capacity together with
power available from firm interchange and purchase contracts, provided a
capacity margin of approximately 27 percent above system peak responsibility
at the time of the peak.
The Company and ten companies in Kansas and western Missouri have agreed
to provide capacity (including margin), emergency and economy services for
each other. This arrangement is called the MOKAN Power Pool. The pool
participants also coordinate the planning of electric generating and
transmission facilities.
The Company is one of 47 members of the Southwest Power Pool (SPP). SPP's
responsibility is to maintain system reliability on a regional basis. The
region encompasses areas within the eight states of Kansas, Missouri,
Oklahoma, New Mexico, Texas, Louisiana, Arkansas, and Mississippi.
In 1994, the Company joined the Western Systems Power Pool (WSPP). Under
this arrangement, over 50 electric utilities and marketers throughout the
western
<PAGE> 5
United States have agreed to market energy and to provide transmission
services. WSPP's intent is to increase the efficiency of the interconnected
power systems operations over and above existing operations. Services
available include short-term and long-term economy energy transactions, unit
commitment service, firm capacity and energy sales, energy exchanges, and
transmission service by intermediate systems.
During 1994, the Company entered into an agreement with Midwest Energy,
Inc. (MWE), whereby the Company will provide MWE with peaking capacity of 61
megawatts through the year 2008. The Company also entered into an agreement
with Empire District Electric Company (Empire), whereby the Company will
provide Empire with peaking and base load capacity (20 megawatts in 1994
increasing to 80 megawatts in 2000) through the year 2000.
Future Capacity
The Company does not contemplate any significant expenditures in
connection with construction of any major generating facilities through the
turn of the century (see Item 7. Management's Discussion and Analysis,
Liquidity and Capital Resources). The Company has capacity available which
may not be fully utilized by growth in customer demand for at least 5 years.
The Company continues to market this capacity and energy to other utilities.
Fuel Mix
The Company's coal-fired units comprise 1,101 MW of the total 2,498 MW of
generating capacity and the Company's nuclear unit provides 545 MW of
capacity. Of the remaining 852 MW of generating capacity, units that can burn
either natural gas or oil account for 849 MW, and the remaining unit which
burns only diesel fuel accounts for 3 MW (see Item 2. Properties).
During 1994, low sulfur coal was used to produce 56% of the Company's
electricity. Nuclear produced 34 percent and the remainder was produced from
natural gas, oil, or diesel fuel. During 1995, based on the Company's
estimate of the availability of fuel, coal will to be used to produce
approximately 58 percent of the Company's electricity and nuclear will be used
to produce 36 percent.
The Company's fuel mix fluctuates with the operation of nuclear powered
Wolf Creek which has an 18-month refueling and maintenance schedule. The 18-
month schedule permits uninterrupted operation every third calendar year. In
mid-September 1994, Wolf Creek was taken off-line for its seventh refueling
and maintenance outage. The refueling outage took approximately 47 days to
complete, during which time electric demand was met primarily by the Company's
coal-fired generating units. There is no refueling outage scheduled for 1995.
Nuclear
The owners of Wolf Creek have on hand or under contract 63 percent of the
uranium required for operation of Wolf Creek through the year 2001. The
balance is expected to be obtained through spot market and contract purchases.
Contractual arrangements are in place for 100 percent of Wolf Creek's
uranium enrichment requirements for 1995-1997, 90 percent for 1998-1999, 95
percent for
<PAGE> 6
2000-2001 and 100 percent for 2005-2014. The balance of the 1998-2004
requirements is expected to be obtained through a combination of spot market
and contract purchases. The decision not to contract for the full enrichment
requirements is one of cost rather than availability of service.
Contractual arrangements are in place for the conversion of uranium to
uranium hexafluoride sufficient to meet Wolf Creek's requirements through 1996
as well as the fabrication of fuel assemblies to meet Wolf Creek's
requirements through 2012.
The Nuclear Waste Policy Act of 1982 established schedules, guidelines and
responsibilities for the Department of Energy (DOE) to develop and construct
repositories for the ultimate disposal of spent fuel and high-level waste.
The DOE has not yet constructed a high-level waste disposal site and has
announced that a permanent storage facility may not be in operation prior to
2010 although an interim storage facility may be available earlier. Wolf
Creek contains an on-site spent fuel storage facility which, under current
regulatory guidelines, provides space for the storage of spent fuel through
2006 while still maintaining full core off-load capability. The Company
believes adequate additional storage space can be obtained, as necessary.
The Company along with the other co-owners of Wolf Creek are among 14
companies that filed a lawsuit on June 20, 1994, seeking an interpretation of
the DOE's obligation to begin accepting spent nuclear fuel for disposal in
1998. The DOE has filed a motion to have this case dismissed. The issue to
be decided in this case is whether DOE must begin accepting spent fuel in 1998
or at a future date.
Coal
The three coal-fired units at Jeffrey Energy Center (JEC) have an
aggregate capacity of 423 MW (KG&E's 20 percent share) (see Item 2.
Properties). Western Resources, the operator of JEC, and KG&E, have a long-
term coal supply contract with Amax Coal West, Inc. (AMAX), a subsidiary of
Cyprus Amax Coal Company, to supply low sulfur coal to JEC from AMAX's Eagle
Butte Mine or an alternate mine source of AMAX's Belle Ayr Mine, both located
in the Powder River Basin in Campbell County, Wyoming. The contract expires
December 31, 2020. The contract contains a schedule of minimum annual
delivery quantities based on MMBtu provisions. The coal to be supplied is
surface mined and has an average Btu content of approximately 8,300 Btu per
pound and an average sulfur content of .43 lbs/MMBtu (see Environmental
Matters). The average delivered cost of coal for JEC was approximately $1.13
per MMBtu or $18.55 per ton during 1994.
Coal is transported by Western Resources from Wyoming under a long-term
rail transportation contract with Burlington Northern (BN) and Union Pacific
(UP) to JEC through December 31, 2013. Rates are based on net load carrying
capabilities of each rail car. Western Resources provides 890 aluminum rail
cars, under a 20 year lease, to transport coal to JEC.
The two coal-fired units at La Cygne Station have an aggregate generating
capacity of 678 MW (KG&E's 50 percent share) (see Item 2. Properties). The
operator, Kansas City Power & Light Company (KCPL), maintains coal contracts
as discussed in the following paragraphs.
<PAGE> 7
La Cygne 1 uses low sulfur Powder River Basin coal which is supplied under
a variety of spot market transactions, discussed below. Illinois or
Kansas/Missouri coal is blended with the Powder River Basin coal and is
secured from time to time under spot market arrangements. La Cygne 1 uses a
blend of 85 percent Powder River Basin coal.
La Cygne 2 and additional La Cygne 1 Powder River Basin coal is supplied
through several contracts expiring at various times through 1998. This low
sulfur coal had an average Btu content of approximately 8,500 Btu per pound
and a maximum sulfur content of .50 lbs/MMBtu (see Environmental Matters).
For 1994, KCPL secured Powder River Basin coal from two sources; Carter Mining
Company's Caballo Mine, a subsidiary of Exxon Coal USA; and Caballo Rojo Inc's
Caballo Rojo Mine, a subsidiary of Drummond Inc. Transportation is covered by
KCPL through its Omnibus Rail Transportation Agreement with BN and Kansas City
Southern Railroad through December 31, 1995. An alternative rail
transportation agreement with Western Railroad Property, Inc. (WRPI), a
partnership between UP and Chicago Northwestern (CNW), lasts through December
31, 1995. A new five-year coal transportation agreement is being negotiated
to provide transportation beyond 1995.
During 1994, the average delivered cost of all coal procured for La Cygne
1 was approximately $0.78 per MMBtu or $14.11 per ton and the average
delivered cost of Powder River Basin coal for La Cygne 2 was approximately
$0.73 per MMBtu or $12.30 per ton.
Natural Gas
The Company uses natural gas as a primary fuel in its Gordon Evans and
Murray Gill Energy Centers. Natural gas for these generating stations is
supplied under a firm contract that runs through 1995 by Kansas Gas Supply
(KGS). After 1995, the Company expects to use the spot market to purchase
most of the natural gas needed to fuel these generating stations. Short-term
economical spot market purchases from the Williams Natural Gas (WNG) system
provide the Company flexible natural gas supply arrangements to meet
operational needs.
Oil
The Company uses oil as an alternate fuel when economical or when
interruptions to natural gas make it necessary. Oil is also used as a
supplemental fuel at each of the coal plants. All oil burned by the Company
during the past several years has been obtained by spot market purchases. At
December 31, 1994, the Company had approximately 715 thousand gallons of No. 2
oil and 11 million gallons of No. 6 oil which is believed to be sufficient to
meet emergency requirements and protect against lack of availability of
natural gas and/or the loss of a large generating unit.
Other Fuel Matters
The Company's contracts to supply fuel for its coal- and natural gas-fired
generating units, with the exception of JEC, do not provide full fuel
requirements at the various stations. Supplemental fuel is procured on the
spot market to provide operational flexibility and, when the price is
favorable, to take advantage of economic opportunities.
<PAGE> 8
On March 26, 1992, in connection with the Merger, the Kansas Corporation
Commission (KCC) approved the elimination of the Energy Cost Adjustment Clause
(ECA) for most Kansas retail customers of the Company effective April 1, 1992.
The provisions for fuel costs included in base rates were established at a
level intended by the KCC to equal the projected average cost of fuel through
August 1995 and to include recovery of costs provided by previously issued
orders relating to coal contract settlements and storm damage recovery. Any
increase or decrease in fuel costs from the projected average will impact the
Company's earnings.
Set forth in the table below is information relating to the weighted
average cost of fuel used by the Company.
1994 1993 1992 1991 1990
Per Million Btu:
Nuclear $0.36 $0.35 $0.34 $0.32 $0.34
Coal 0.90 0.96 1.25 1.32 1.32
Gas 1.98 2.37 1.95 1.74 1.96
Oil 3.90 3.15 4.28 4.13 3.01
Cents per KWH Generation 0.89 0.93 0.98 1.09 1.01
Environmental Matters
The Company currently holds all Federal and State environmental approvals
required for the operation of its generating units. The Company believes it
is presently in substantial compliance with all air quality regulations
(including those pertaining to particulate matter, sulfur dioxide and oxides
of nitrogen (NOx)) promulgated by the State of Kansas and the Environmental
Protection Agency (EPA).
The Federal sulfur dioxide standards applicable to the Company's JEC and
La Cygne 2 units, prohibit the emission of more than 1.2 pounds of sulfur
dioxide per million Btu of heat input. Federal particulate matter emission
standards applicable to these units prohibit: (1) the emission of more than
0.1 pounds of particulate matter per million Btu of heat input and (2) an
opacity greater than 20 percent. Federal NOx emission standards applicable to
these units prohibit the emission of more than 0.7 pounds of NOx per million
Btu of heat input.
The JEC and La Cygne 2 units have met: (1) the sulfur dioxide standards
through the use of low sulfur coal (see Coal); (2) the particulate matter
standards through the use of electrostatic precipitators; and (3) the NOx
standards through boiler design and operating procedures. The JEC units are
also equipped with flue gas scrubbers providing additional sulfur dioxide and
particulate matter emission reduction capability.
The Kansas Department of Health and Environment regulations, applicable to
the Company's other generating facilities, prohibit the emission of more than
3.0 pounds of sulfur dioxide per million Btu of heat input at the Company's
generating units. The Company has sufficient low sulfur coal under contract
(see Coal) to allow compliance with such limits at La Cygne 1. All facilities
burning coal are equipped with flue gas scrubbers and/or electrostatic
precipitators.
The Clean Air Act Amendments of 1990 (the Act) require a two-phase
reduction in sulfur dioxide and NOx emissions effective in 1995 and 2000 and a
probable
<PAGE> 9
reduction in toxic emissions. To meet the monitoring and reporting
requirements under the acid rain program, the Company installed continuous
monitoring and reporting equipment at a total cost of approximately $2.3
million. 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 owners have applied for an early substitution
permit to bring the co-owned La Cygne Generating Station under the Phase I
regulations.
The NOx and toxic limits, which were not set in the law, will be specified
in future EPA regulations. NOx regulations for Phase II units and Phase I
group 2 units are mandated in the Act. The EPA's proposed NOx regulations
were ruled invalid by the U.S. Court of Appeals for the District of Columbia
Circuit in November 1994, and until such time as the EPA resubmits new
proposed regulations, the Company will be unable to determine its compliance
options or related compliance costs.
All of the Company's generating facilities are in substantial compliance
with the Best Practicable Technology and Best Available Technology regulations
issued by EPA pursuant to the Clean Water Act of 1977. Most EPA regulations
are administered in Kansas by the Kansas Department of Health and Environment.
Additional information with respect to Environmental Matters is discussed
in Note 3 of the Notes to Financial Statements.
FINANCING
The Company's ability to issue additional debt is restricted under
limitations imposed by the Mortgage and Deed of Trust of the Company.
The Company's mortgage prohibits additional first mortgage bonds from
being issued (except in connection with certain refundings) unless the
Company's net earnings before income taxes and before provision for retirement
and depreciation of property for a period of 12 consecutive months within 15
months preceding the issuance are not less than two and one-half times the
annual interest charges on, or 10% of the principal amount of, all first
mortgage bonds outstanding after giving effect to the proposed issuance.
Based on the Company's results for the 12 months ended December 31, 1994,
approximately $743 million principal amount of additional first mortgage bonds
could be issued (8.75 percent interest rate assumed).
KG&E bonds may be issued, subject to the restrictions in the preceding
paragraph, on the basis of property additions not subject to an unfunded prior
lien and on the basis of bonds which have been retired. As of December 31,
1994, the Company had approximately $1.3 billion of net bondable property
additions not subject to an unfunded prior lien entitling the Company to issue
up to $909 million principal amount of additional bonds.
REGULATION AND RATES
The Company is subject as an operating electric utility to the
jurisdiction of the KCC which has general regulatory authority over the
Company's rates, extensions and abandonments of service and facilities,
valuation of property, the classification of accounts and various other
matters. The Company is also
<PAGE> 10
subject to the jurisdiction of the FERC and the KCC with respect to the
issuance of the Company's securities.
Additionally, the Company is subject to the jurisdiction of the FERC,
including jurisdiction as to rates with respect to sales of electricity for
resale, and the Nuclear Regulatory Commission as to nuclear plant operations
and safety.
Additional information with respect to Regulation and Rates is discussed
in Notes 1 and 4 of the Notes to Financial Statements.
<PAGE> 11
EXECUTIVE OFFICERS OF THE COMPANY
Other Offices or Positions
Name Age Present Office Held During Past Five Years
Kent R. Brown 49 Chairman of the Board, Group Vice President
(since June 1992)
President and Chief
Executive Officer
(since March 1992)
Richard D. LaGree 64 Vice President, Field Vice President, Electric
Operations (since Distribution Operations,
April 1992) Western Resources, Inc.
Richard D. Terrill 40 Secretary, Treasurer Secretary and Attorney
and General Counsel
(since April 1992)
Executive officers serve at the pleasure of the Board of Directors. There are
no family relationships among any of the officers, nor any arrangements or
understandings between any officer and other persons pursuant to which he/she
was appointed as an officer.
<PAGE> 12
ITEM 2. PROPERTIES
The Company owns or leases and operates an electric generation,
transmission, and distribution system in Kansas.
During the five years ended December 31, 1994, the Company's gross
property additions totalled $358,486,000 and retirements were $130,238,000.
ELECTRIC FACILITIES
Unit Year Principal Unit Capacity
Name No. Installed Fuel (MW) (2)
Gordon Evans Energy Center:
Steam Turbines 1 1961 Gas--Oil 150
2 1967 Gas--Oil 367
Jeffrey Energy Center (20%):
Steam Turbines 1 1978 Coal 140
2 1980 Coal 143
3 1983 Coal 140
La Cygne Station (50%):
Steam Turbines 1 1973 Coal 343
2 1977 Coal 335
Murray Gill Energy Center:
Steam Turbines 1 1952 Gas--Oil 46
2 1954 Gas--Oil 74
3 1956 Gas--Oil 107
4 1959 Gas--Oil 105
Neosho Energy Center:
Steam Turbine 3 1954 Gas--Oil 0 (1)
Wichita Plant:
Diesel Generator 5 1969 Diesel 3
Wolf Creek Generating Station (47%):
Nuclear 1 1985 Uranium 545
-----
Total 2,498
(1) This unit has been "mothballed" for future use.
(2) Based on MOKAN rating.
The Company jointly-owns Jeffrey Energy Center (20%), La Cygne Station
(50%)
and Wolf Creek Generating Station (47%).
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
Information on legal proceedings involving the Company is set forth in
Note 10 of Notes to Financial Statements included herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information required by Item 4 is omitted pursuant to General Instruction
J(2)(c) to Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On March 31, 1992, Western Resources through its wholly-owned subsidiary
KCA, acquired all of the outstanding common and preferred stock of KG&E. As a
result, the Company's common stock was delisted from the New York Stock
Exchange and the Pacific Stock Exchange.
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
1994 1993 1992 1991 1990(1)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues . . . . . . . $ 619,880 $ 616,997 $ 554,251 $ 594,968 $ 586,641
Operating expenses . . . . . . . 470,869 469,616 424,089 468,885 447,355
Operating income . . . . . . . . 149,011 147,381 130,162 126,083 139,286
Net income . . . . . . . . . . . 104,526 108,103 77,981 53,602 64,184
Balance Sheet Data:
Gross electric plant in service. $3,390,406 $3,339,832 $3,293,365 $2,468,959 $2,435,090
Construction work in progress. . 32,874 28,436 29,634 13,612 14,760
Total assets . . . . . . . . . . 3,142,810 3,187,479 3,279,232 2,350,546 2,348,862
Long-term debt . . . . . . . . . 699,992 653,543 871,652 850,851 824,424
Interest coverage ratio (before
income taxes, including
AFUDC) . . . . . . . . . . . . 4.02 3.58 2.35 1.90 2.07
Ratio of Earnings to Fixed Charges 2.61 2.60 1.89 1.59 1.71
(1) See Note 1 of the Notes to Financial Statements for impact of rate refund orders.
</TABLE>
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
The results of operations for the years ended December 31, 1994 and 1993,
and the nine months ended December 31, 1992, included herein, refer to the
Company following the merger with Western Resources, Inc. (formerly The Kansas
Power and Light Company) through its wholly-owned subsidiary, KCA Corporation,
on March 31,
1992 (the Merger) (see Note 1).
Pro forma results of operations for the twelve months ended December 31,
1992 presented herein, give effect to the Merger as if it occurred on January
1, 1992 and were derived by combining the historical information for the three
month period ended March 31, 1992 and the nine month period ended December 31,
1992. Additional information relating to changes between years is provided in
the Notes to Financial Statements.
GENERAL: The Company had net income of $104.5 million for 1994 compared
to net income of $108.1 million in 1993. The decrease in net income is
primarily due to increases in income taxes as a result of the completion of
the accelerated amortization of certain deferred income tax reserves and the
receipt of death benefit proceeds from corporate-owned life insurance policies
in the third quarter of 1993. As of December 31, 1993, the Company had fully
amortized the deferred income tax reserves related to the allowance for funds
used during construction capitalized for Wolf Creek Generating Station (Wolf
Creek). The completion of the amortization of these deferred income tax
reserves increased income tax expense and thereby reduced net income by
approximately $12 million in 1994, and in the future will reduce net income by
this same amount each year.
LIQUIDITY AND CAPITAL RESOURCES: The Company's liquidity is a function of
its ongoing construction program, designed to improve facilities which provide
electric service and meet future customer service requirements.
During 1994, construction expenditures for the Company's electric system
were approximately $69 million and nuclear fuel expenditures were
approximately $21 million. It is projected that adequate capacity margins
will be maintained through the turn of the century. The construction program
is focused on providing service to new customers and improving present
electric facilities.
Capital expenditures for 1995 through 1997 are anticipated to be as
follows:
Electric Nuclear Fuel
(Dollars in Thousands)
1995. . . . . . . . . . $53,961 $ 21,400
1996. . . . . . . . . . 47,388 8,100
1997. . . . . . . . . . 42,453 24,000
These expenditures are estimates prepared for planning purposes and are
subject to revisions from time to time.
<PAGE> 15
The Company's net cash flows to capital expenditures exceeded 100 percent
for 1994 and during the last five years has also averaged in excess of 100
percent. The Company anticipates all of its cash requirements for capital
expenditures through 1997 will be provided from net cash flows. The Company
also has $16 million of bonds maturing through 1999 which will be provided
from internal and external sources available under then existing financial
conditions.
During 1994, the Company continued to take advantage of favorable long-
term interest rates by refinancing long-term debt issues. The embedded cost
of long-term debt was 7.3% at December 31, 1994, a decrease from 7.7% at
December 31, 1993.
On January 20, 1994, the Company issued $100 million of First Mortgage
Bonds, 6.20% Series due January 15, 2006. The net proceeds were used to
reduce short-term debt.
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, due 2023.
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 rates are being reset
periodically via an auction process. As of December 31, 1994, the rate on
these bonds was 4.10%. 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%.
On November 1, 1994, the Company terminated a long-term agreement which
contained provisions for the sale of accounts receivable and unbilled
revenues, and phase-in revenues (see Note 6).
In 1986, the Company purchased corporate-owned life insurance policies
(COLI) on certain of its employees. The annual cash outflow for the premiums
on these policies from 1992 through 1994 was approximately $27 million. See
Note 2 of the Notes to Financial Statements for additional information on the
accumulated cash surrender value. The borrowings are expected to produce
annual cash inflows, net of expenses, through the remaining life of the
policies. Borrowings against the policies will be repaid from death proceeds.
The Company's short-term financing requirements are satisfied, as needed,
through short-term bank loans and borrowings under other unsecured lines of
credit maintained with banks. At December 31, 1994, short-term borrowings
amounted to $50 million compared to $155.8 million at December 31, 1993. The
decrease is primarily the result of the issuance of the $100 million of bonds
on January 20, 1994 (see Note 5).
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.
<PAGE> 16
The Company's capital structure at December 31, 1994, was 64 percent
common stock equity and 36 percent long-term debt. The capital structure at
December 31, 1994, including short-term debt was 62 percent common stock
equity and 38 percent debt. As of December 31, 1994, the Company's bonds were
rated "A3" by Moody's Investors Service, "A-" by Standard & Poor's Ratings
Group, and "A-" by Fitch Investors Service.
RESULTS OF OPERATIONS
The following is an explanation of significant variations from prior year
results in revenues, operating expenses, other income and deductions, and
interest charges. Additional information relating to changes between years is
provided in the Notes to Financial Statements.
REVENUES
The operating revenues of the Company are based on sales volumes and rates
authorized by the Kansas Corporation Commission (KCC) and the Federal Energy
Regulatory Commission (FERC). Rates charged for the sale and delivery of
electricity are designed to recover the cost of service and allow investors a
fair rate of return. Future electric sales will continue to be affected by
weather conditions, competition from other generating sources, competing fuel
sources, customer conservation efforts and the overall economy of the
Company's service area.
The KCC order approving the Merger provided a moratorium on increases,
with certain exceptions, in the Company's electric rates until August 1995.
The KCC ordered refunds totalling $32 million to the combined companies'
(Western Resources and the Company) customers to share with customers the
Merger-related cost savings achieved during the moratorium period. Refunds of
approximately $4.9 (Company's portion) million were made in April 1992 and
December 1993 and the remaining refund of approximately $8.7 million
(Company's portion) was made in September 1994 (see Note 1).
On March 26, 1992, in connection with the Merger, the KCC approved the
elimination of the Energy Cost Adjustment Clause (ECA) for most retail
customers of the Company effective April 1, 1992. The fuel costs are now
included in base rates and were established at a level intended by the KCC to
equal the projected average cost of fuel through August 1995. Any increase or
decrease in fuel costs from the projected average will impact the Company's
earnings.
1994 Compared to 1993: Total operating revenues for 1994 of $619.9
million increased less than one percent from revenues of $617.0 million for
1993. The increase can be attributed to higher revenues in all retail
customer classes. While residential sales remained virtually unchanged,
commercial and industrial sales increased over two percent during 1994.
Partially offsetting these increases was a 21 percent decrease in wholesale
and interchange sales as a result of higher than normal sales in 1993 to other
utilities while their generating units were down due to the flooding of 1993.
<PAGE> 17
1993 Compared to 1992: Total operating revenues increased $62.7 million
or 11 percent in 1993 compared to 1992 pro forma revenues. The increase is
due to the return of near normal temperatures during 1993 compared to
unusually mild winter and summer temperatures in 1992. All customer classes
experienced increased sales volumes during 1993. The number of cooling degree
days recorded for the city of Wichita were 1,546 for 1993, a 23 percent
increase from 1992. Contributing to the increase in wholesale sales were
sales to neighboring utilities to meet peak demand periods while those
utilities' units were down as a result of the summer flooding.
Partially offsetting these increases in revenues was the amortization of
the Merger-related refund.
OPERATING EXPENSES
1994 Compared to 1993: Total operating expenses for 1994 of $470.9
million increased slightly from total operating expenses of $469.6 million for
1993. Federal and state income taxes increased $13.5 million and maintenance
expense increased three percent primarily as a result of the major boiler
overhaul of the Company's coal fired La Cygne 1 generating station.
The increase in income tax expense was due to the completion at December
31, 1993, of the accelerated amortization of deferred income tax reserves
related 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 tax expense and thereby reduced
net income by approximately $12 million in 1994, and in the future will reduce
net income by this same amount each year.
Partially offsetting the increases in total operating expenses were lower
fuel costs, due to decreased electric generation during 1994, and lower other
operations expense.
1993 Compared to 1992: Total operating expenses increased $45.5 million
or 11 percent in 1993 compared to 1992. Fuel and purchased power expenses
increased $21.4 million or 23 percent primarily due to increased generation
resulting from increased customer demand for electricity during the summer
peak season. Federal and state income taxes increased $28.6 million primarily
as a result of higher net income. General taxes increased $4.8 million
primarily due to an increase in plant, the property tax assessment ratio, and
higher mill levies.
Partially offsetting these increases in total operating expenses was a
decrease in other operations expense of $10.1 million primarily as a result of
merger-related savings for the entire year of 1993 and reduced net lease
expense for La Cygne 2 resulting from refinancing of the secured facility
bonds (see Note 7) compared to pro forma operating expenses of 1992.
<PAGE> 18
OTHER INCOME AND DEDUCTIONS: Other income and deductions, net of taxes,
decreased significantly in 1994 compared to 1993 primarily as a result of
increased interest expense on higher COLI borrowings. Interest on COLI
borrowings increased $9.1 million in 1994 compared to 1993. Also contributing
to the decrease was the receipt of death benefit proceeds from COLI policies
in the third quarter of 1993.
Other income and deductions, net of taxes, increased slightly in 1993
compared to 1992 due to the increased cash surrender values of COLI policies
and the receipt of death benefit proceeds. Partially offsetting these
increases was higher interest expense on COLI borrowings.
INTEREST CHARGES: Interest charges decreased 12 percent in 1994 compared
to 1993 primarily as a result of the refinancing of higher cost fixed-rate
debt. Also accounting for the decrease 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. The Company's embedded cost of long-term debt
decreased to 7.3% at December 31, 1994 compared to 7.7% and 7.8% at December
31, 1993 and 1992, respectively.
Interest charges decreased $12.4 million in 1993 compared to 1992 as the
Company continued to take advantage of lower interest rates on variable-rate
and fixed-rate debt by retiring and refinancing higher cost debt.
MERGER IMPLEMENTATION: In accordance with the KCC Merger order,
amortization of the acquisition adjustment will commence August 1995. The
amortization will amount to approximately $20 million (pre-tax) per year for
40 years. Western Resources and the Company (combined companies) can recover
the amortization of the acquisition adjustment through cost savings under a
sharing mechanism approved by the KCC as described in Note 1 of the Notes to
the Financial Statements. While the combined companies have achieved savings
from the Merger, there is no assurance that the savings achieved will be
sufficient to, or the cost savings sharing mechanism will operate as to, fully
offset the amortization of the acquisition adjustment.
OTHER INFORMATION
INFLATION: Under the ratemaking procedures prescribed by the regulatory
commissions to which the Company is subject, only the original cost of plant
is recoverable in revenues as depreciation. Therefore, because of inflation,
present and future depreciation provisions are inadequate for purposes of
maintaining the purchasing power invested by common shareholders and the
related cash flows are inadequate for replacing property. The impact of this
ratemaking process on common shareholders is mitigated to the extent
depreciable property is financed with debt that can be repaid with dollars of
less purchasing power. While the Company has experienced relatively low
inflation in the recent past, the cumulative effect of inflation on operating
costs may require the Company to seek regulatory rate relief to recover these
higher costs.
ENVIRONMENTAL: The Company has taken a proactive position with respect to
the potential environmental liability associated with former manufactured gas
sites and has an agreement with the Kansas Department of Health and
Environment (KDHE) to systematically evaluate these sites (see Note 3).
<PAGE> 19
Although the Company currently has no Phase I affected units under the
Clean Air Act of 1990, the Company has applied for an early substitution
permit to bring the co-owned La Cygne Station under the Phase I guidelines.
The oxides of nitrogen (NOx) and air toxic limits, which were not set in law,
will be specified in future Environmental Protection Agency (EPA) regulations.
The EPA's proposed NOx regulations were ruled invalid by the U.S. Court of
Appeals for the District of Columbia Circuit in November 1994, and until such
time as the EPA resubmits new proposed regulations, the Company will be unable
to determine its compliance options or related compliance costs (see Note 3).
COMPETITION: As a regulated utility, the Company currently has limited
direct competition for retail electric service in its certified service area.
However, there is competition, based largely on price, from the generation, or
potential generation, of electricity by large commercial and industrial
customers, and independent power producers.
The 1992 Energy Policy Act (Act) requires increased efficiency of energy
usage and has effected the way electricity is marketed. The Act also provides
for increased competition in the wholesale electric market by permitting the
FERC to order third party access to utilities' transmission systems and by
liberalizing the rules for ownership of generating facilities. As part of the
Merger, the Company agreed to open access of its transmission system for
wholesale transactions. During 1994, wholesale revenues represented less than
seven percent of the Company's total revenues.
Operating in this competitive environment could place pressure on utility
profit margins and credit quality. Wholesale and industrial customers may
threaten to pursue cogeneration, self-generation, retail wheeling,
municipalization or relocation to other service territories in an attempt to
obtain reduced energy costs. Increasing competition has resulted in credit
rating agencies applying more stringent guidelines when making utility credit
rating determinations.
The Company is providing reduced electric rates for industrial expansion
projects and economic development projects in an effort to maintain and
increase electric load. In 1994, The Boeing Company announced it would
develop its 777 jetliner in Wichita and Cessna Aircraft Company announced it
would build a production plant in Independence, Kansas along with expanding
its Wichita facilities, with an addition of 2,000 jobs.
In order to retain its current electric load, the Company has and will
continue to negotiate with some of its larger industrial customers, who are
able to develop cogeneration facilities, for long term contracts although some
negotiated rates may result in reduced margins for the Company. During 1996,
the Company will lose a major industrial customer to cogeneration resulting in
a reduction to pre-tax earnings of approximately $7 to $8 million. This
customer's decision to develop its own cogeneration project was based
partially on factors other than energy cost.
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS PAGE
Report of Independent Public Accountants 21
Financial Statements:
Balance Sheets, December 31, 1994 and 1993 23
Statements of Income for the year ended December 31, 1994 24
and 1993 (Successor), the nine months ended December 31, 1992
(Successor), and the three months ended March 31, 1992
(Predecessor)
Statements of Cash Flows for the years ended December 31, 1994 25
and 1993 (Successor), the period March 31 to December 31, 1992
(Successor), and the three months ended March 31, 1992
(Predecessor)
Statements of Taxes for the years ended December 31, 1994 26
and 1993 (Successor), the nine months ended December 31, 1992
(Successor), and the three months ended March 31, 1992
(Predecessor)
Statements of Capitalization, December 31, 1994 and 1993 27
Statements of Common Stock Equity for the years ended 28
December 31, 1994 and 1993 (Successor), the nine months ended
December 31, 1992 (Successor), and the three months ended
March 31, 1992 (Predecessor)
Notes to Financial Statements 29
SCHEDULES OMITTED
The following schedules are omitted because of the absence of the
conditions under which they are required or the information is included
in the financial statements and schedules presented:
I, II, III, IV, and V.
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Kansas Gas and Electric Company:
We have audited the accompanying balance sheets and statements of
capitalization of Kansas Gas and Electric Company (a wholly-owned subsidiary
of Western Resources, Inc.) as of December 31, 1994 and 1993, and the related
statements of income, cash flows, taxes, and common stock equity for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kansas Gas and Electric
Company as of December 31, 1994 and 1993, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
As explained in Note 8 to the financial statements, effective January 1, 1993,
the Company changed its method of accounting for postretirement benefits.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
January 25, 1995
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
Kansas Gas and Electric Company:
We have audited the 1992 financial statements of Kansas Gas and Electric
Company (a wholly-owned subsidiary of Western Resources, Inc.) listed in the
accompanying table of contents. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of the Company's operations and its cash flows for the
periods indicated in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
January 29, 1993
<PAGE> 23
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant in service (Notes 2 and 12). . . . . . . . $3,390,406 $3,339,832
Less - Accumulated depreciation . . . . . . . . . . . . . 833,953 790,843
---------- ----------
2,556,453 2,548,989
Construction work in progress . . . . . . . . . . . . . . 32,874 28,436
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . . 39,890 29,271
---------- ----------
Net utility plant . . . . . . . . . . . . . . . . . . . 2,629,217 2,606,696
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Decommissioning trust (Note 3). . . . . . . . . . . . . . 16,944 13,204
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 11,561 10,941
---------- ----------
28,505 24,145
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents (Note 2). . . . . . . . . . . . 47 63
Accounts receivable and unbilled revenues (net)(Note 6) . 67,833 11,112
Advances to parent company (Note 14). . . . . . . . . . . 64,393 192,792
Fossil fuel, at average cost, . . . . . . . . . . . . . . 13,752 7,594
Materials and supplies, at average cost . . . . . . . . . 30,921 29,933
Prepayments and other current assets. . . . . . . . . . . 16,662 14,995
---------- ----------
193,608 256,489
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes (Note 9) . . . . . . . . . . 102,789 102,789
Deferred coal contract settlement costs (Note 4). . . . . 17,944 21,247
Phase-in revenues (Note 4). . . . . . . . . . . . . . . . 61,406 78,950
Other deferred plant costs. . . . . . . . . . . . . . . . 31,784 32,008
Corporate-owned life insurance (net) (Note 2) . . . . . . 9,350 45
Unamortized debt expense. . . . . . . . . . . . . . . . . 27,777 27,365
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 40,430 37,745
---------- ----------
291,480 300,149
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,142,810 $3,187,479
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see Statements) . . . . . . . . . . . . . . $1,925,196 $1,899,221
---------- ----------
CURRENT LIABILITIES:
Short-term debt (Note 5). . . . . . . . . . . . . . . . . 50,000 155,800
Long-term debt due within one year (Note 6) . . . . . . . - 238
Accounts payable. . . . . . . . . . . . . . . . . . . . . 49,093 51,095
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 15,737 12,185
Accrued interest. . . . . . . . . . . . . . . . . . . . . 8,337 7,381
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 11,160 9,427
---------- ----------
134,327 236,126
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes (Notes 1 and 9) . . . . . . . . . . 689,169 646,159
Deferred investment tax credits (Note 9). . . . . . . . . 74,841 78,048
Deferred gain from sale-leaseback (Note 7). . . . . . . . 252,341 261,981
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 66,936 65,944
---------- ----------
1,083,287 1,052,132
COMMITMENTS AND CONTINGENCIES (Notes 3 and 10) ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $3,142,810 $3,187,479
========== ==========
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE> 24
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
<CAPTION>
Year Ended December 31,
1992
Pro Forma April 1 | January 1
1994 1993 1992 to Dec. 31 | to March 31
(Successor) |(Predecessor)
<S> <C> <C> <C> <C> | <C>
OPERATING REVENUES (Notes 2 and 4). . . . $ 619,880 $ 616,997 $ 554,251 $ 423,538 | $ 130,713
|
OPERATING EXPENSES: |
Fuel used for generation: |
Fossil fuel . . . . . . . . . . . . . 90,383 93,388 73,785 53,701 | 20,084
Nuclear fuel. . . . . . . . . . . . . 13,562 13,275 12,558 10,126 | 2,432
Power purchased . . . . . . . . . . . . 7,144 9,864 8,746 3,207 | 5,539
Other operations. . . . . . . . . . . . 115,060 118,948 129,083 91,436 | 37,647
Maintenance . . . . . . . . . . . . . . 47,988 46,740 46,702 35,956 | 10,746
Depreciation and amortization . . . . . 71,457 75,530 74,696 55,547 | 19,149
Amortization of phase-in revenues . . . 17,544 17,545 17,544 13,158 | 4,386
Taxes (see Statements): |
Federal income. . . . . . . . . . . . 50,212 39,553 16,305 17,523 | (1,218)
State income . . . . . . . . . . . . 12,427 9,570 4,264 4,732 | (468)
General . . . . . . . . . . . . . . . 45,092 45,203 40,406 30,155 | 10,251
--------- --------- --------- --------- | ---------
Total operating expenses. . . . . . 470,869 469,616 424,089 315,541 | 108,548
--------- --------- --------- --------- | ---------
OPERATING INCOME. . . . . . . . . . . . . 149,011 147,381 130,162 107,997 | 22,165
--------- --------- --------- --------- | ---------
OTHER INCOME AND DEDUCTIONS: |
Corporate-owned life insurance (net). . (5,354) 7,841 10,724 9,308 | 1,416
Miscellaneous (net) . . . . . . . . . . 5,079 9,271 7,873 9,417 | (1,544)
Income taxes (net) (see Statements) . . 7,290 2,227 191 (1,296) | 1,487
--------- --------- --------- --------- | ---------
Total other income and deductions . 7,015 19,339 18,788 17,429 | 1,359
--------- --------- --------- --------- | ---------
INCOME BEFORE INTEREST CHARGES. . . . . . 156,026 166,720 148,950 125,426 | 23,524
--------- --------- --------- --------- | ---------
INTEREST CHARGES: |
Long-term debt. . . . . . . . . . . . . 47,827 53,908 57,862 42,889 | 14,973
Other . . . . . . . . . . . . . . . . . 5,183 6,075 15,121 11,777 | 3,344
Allowance for borrowed funds used |
during construction (credit). . . . . (1,510) (1,366) (2,014) (1,181) | (833)
--------- --------- --------- --------- | ---------
Total interest charges. . . . . . . 51,500 58,617 70,969 53,485 | 17,484
--------- --------- --------- --------- | ---------
NET INCOME. . . . . . . . . . . . . . . . 104,526 108,103 77,981 71,941 | 6,040
|
PREFERRED DIVIDENDS . . . . . . . . . . . - - - - | 205
--------- --------- --------- --------- | ---------
EARNINGS APPLICABLE TO COMMON STOCK . . . $ 104,526 $ 108,103 $ 77,981 $ 71,941 | $ 5,835
========= ========= ========= ========= | =========
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE> 25
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<CAPTION>
Year Ended December 31,
1992
March 31 | January 1
1994 1993 to Dec. 31 | to March 31
(Successor) | (Predecessor)
<S> <C> <C> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net income. . . . . . . . . . . . . . . . . . . . . . $ 104,526 $ 108,103 $ 71,941 | $ 6,040
Depreciation and amortization . . . . . . . . . . . . 71,457 75,530 55,547 | 19,149
Other amortization (including nuclear fuel) . . . . . 10,905 11,254 8,930 | 1,352
Deferred taxes and investment tax credits (net) . . . 25,349 22,572 9,326 | (2,851)
Amortization of phase-in revenues . . . . . . . . . . 17,544 17,545 13,158 | 4,386
Corporate-owned life insurance. . . . . . . . . . . . (17,246) (21,650) (14,704) | (3,295)
Amortization of gain from sale-leaseback. . . . . . . (9,640) (9,640) (7,231) | (2,409)
Changes in working capital items: |
Accounts receivable and unbilled |
revenues (net) (Note 2) . . . . . . . . . . . . . (56,721) (569) 1,079 | 1,272
Fossil fuel . . . . . . . . . . . . . . . . . . . . (6,158) 8,507 4,425 | (1,858)
Accounts payable. . . . . . . . . . . . . . . . . . (2,002) (9,813) (7,216) | (6,100)
Interest and taxes accrued. . . . . . . . . . . . . 4,508 (9,053) (14,345) | 10,598
Other . . . . . . . . . . . . . . . . . . . . . . . (922) (2,191) (8,456) | 1,689
Changes in other assets and liabilities . . . . . . . (11,181) (16,530) (41,402) | (5,479)
--------- --------- --------- | ---------
Net cash flows from operating activities. . . . . 130,419 174,065 71,052 | 22,494
--------- --------- --------- | ---------
CASH FLOWS USED IN INVESTING ACTIVITIES: |
Additions to utility plant. . . . . . . . . . . . . . 89,880 66,886 53,138 | 11,496
Corporate-owned life insurance policies . . . . . . . 26,418 27,268 20,233 | 6,802
Death proceeds of corporate-owned life insurance. . . - (10,160) (6,789) | -
Other investments . . . . . . . . . . . . . . . . . . - - - | (552)
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 . . . 116,298 83,994 518,290 | 17,746
--------- --------- --------- | ---------
CASH FLOWS FROM FINANCING ACTIVITIES: |
Short-term debt (net) . . . . . . . . . . . . . . . . (105,800) 62,300 49,900 | 5,800
Advances to parent company (net). . . . . . . . . . . 128,399 (118,503) (74,289) | -
Bonds issued. . . . . . . . . . . . . . . . . . . . . 160,422 65,000 135,000 | -
Bonds retired . . . . . . . . . . . . . . . . . . . . (46,440) (140,000) (125,000) | -
Other long-term debt (net). . . . . . . . . . . . . . (67,893) 7,043 14,498 | (3,810)
Borrowings against life insurance policies (net). . . 42,175 183,260 (5,649) | 6,398
Revolving credit agreement (net). . . . . . . . . . . - (150,000) - | -
Other (net) . . . . . . . . . . . . . . . . . . . . . - - - | (17)
Dividends to parent company . . . . . . . . . . . . . (125,000) - - | -
Dividends on preferred and common stock . . . . . . . - - - | (13,535)
Issuance of KCA common stock. . . . . . . . . . . . . - - 453,670 | -
--------- --------- --------- | ---------
Net cash flows from (used in) financing activities (14,137) (90,900) 448,130 | (5,164)
--------- --------- --------- | ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . (16) (829) 892 | (416)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . 63 892 - | 2,378
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . $ 47 $ 63 $ 892 | $ 1,962
========= ========= ========= | =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
CASH PAID FOR: |
Interest on financing activities (net of amount |
capitalized) . . . . . . . . . . . . . . . . . . $ 68,544 $ 77,653 $ 63,451 | $ 11,635
Income taxes . . . . . . . . . . . . . . . . . . . . 28,509 29,354 14,225 | -
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE> 26
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF TAXES
(Dollars in Thousands)
<CAPTION>
Year Ended December 31,
1992
April 1 | January 1
1994 1993 to Dec. 31 | to March 31
(Successor) | (Predecessor)
<S> <C> <C> <C> | <C>
FEDERAL INCOME TAXES: |
Payable currently . . . . . . . . . . . . . . . . . $ 24,427 $ 19,220 $ 11,356 | $ (322)
Deferred (net). . . . . . . . . . . . . . . . . . . 23,002 16,691 8,633 | (1,785)
Investment tax credit-Deferral. . . . . . . . . . . - 4,900 946 | -
-Amortization. . . . . . . . . (3,208) (3,114) (2,400) | (777)
--------- --------- --------- | ---------
Total Federal income taxes . . . . . . . . . . . 44,221 37,697 18,535 | (2,884)
Less: |
Federal income taxes applicable |
to non-operating items . . . . . . . . . . . . . (5,991) (1,856) 1,012 | (1,666)
--------- --------- --------- | ---------
Total Federal income taxes charged to operations. . 50,212 39,553 17,523 | (1,218)
--------- --------- --------- | ---------
STATE INCOME TAXES: |
Payable currently . . . . . . . . . . . . . . . . . 5,574 5,104 2,869 | -
Deferred (net). . . . . . . . . . . . . . . . . . . 5,554 4,095 2,147 | (289)
--------- --------- --------- | ---------
Total State income taxes . . . . . . . . . . . . 11,128 9,199 5,016 | (289)
Less: |
State income taxes applicable |
to non-operating items . . . . . . . . . . . . . (1,299) (371) 284 | 179
--------- --------- --------- | ---------
Total State income taxes charged to operations. . . 12,427 9,570 4,732 | (468)
--------- --------- --------- | ---------
GENERAL TAXES: |
Property. . . . . . . . . . . . . . . . . . . . . . 40,104 38,432 26,380 | 8,622
Payroll and other taxes . . . . . . . . . . . . . . 4,988 6,771 3,775 | 1,629
--------- --------- --------- | ---------
Total general taxes charged to operations. . . . 45,092 45,203 30,155 | 10,251
--------- --------- --------- | ---------
TOTAL TAXES CHARGED TO OPERATIONS . . . . . . . . . . $ 107,731 $ 94,326 $ 52,410 | $ 8,565
========= ========= ========= | =========
Year Ended December 31,
Pro Forma
1994 1993 1992
EFFECTIVE INCOME TAX RATE . . . . . . . . . . . . . . 35% 30% 21%
Effect of:
Additional depreciation . . . . . . . . . . . . . . (1) (3) (4)
Accelerated amortization of deferred income
tax credits. . . . . . . . . . . . . . . . . . - 8 11
State income taxes, net of Federal benefit. . . . . (5) (4) (2)
Amortization of investment tax credits. . . . . . . 2 2 2
Corporate-owned life insurance. . . . . . . . . . . 4 5 6
Other items (net) . . . . . . . . . . . . . . . . . - (3) -
---- ---- ----
STATUTORY FEDERAL INCOME TAX RATE . . . . . . . . . . 35% 35% 34%
==== ==== ====
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE> 27
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Dollars in Thousands)
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
COMMON STOCK EQUITY (Note 1):
(see Statements)
Common stock, without par value, authorized and issued
1,000 shares. . . . . . . . . . . . . . . . . . . . . . . $1,065,634 $1,065,634
Retained earnings . . . . . . . . . . . . . . . . . . . . . 159,570 180,044
---------- ----------
Total common stock equity . . . . . . . . . . . . . . . . 1,225,204 64% 1,245,678 66%
</TABLE>
<TABLE>
LONG-TERM DEBT (Note 6):
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 -
7.0% 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). . . . . . . . . . 3,930 4,052
Long-term debt due within one year. . . . . . . . . . . . - 238
---------- ----------
Total long-term debt . . . . . . . . . . . . . . . . . 699,992 36% 653,543 34%
---------- ----------
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . $1,925,196 100% $1,899,221 100%
========== ==========
(a) Market-Adjusted Tax Exempt Securities (MATES). The interest rate is reset
periodically via an auction process. As of December 31, 1994, the rate
on these bonds was 4.10%.
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE> 28
<TABLE>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF COMMON STOCK EQUITY
(Thousands of Dollars, Except Shares)
Years Ended December 31,
<CAPTION>
Other
Common Stock Paid-in Retained Treasury Stock
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 . . . . . . (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)
----------- ---------- ------ --------- ---------- --------- ----------
BALANCE MARCH 31, 1992
(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
----------- ---------- ------ --------- ---------- --------- ----------
Net income . . . . . . . . 104,526 104,526
Dividend to parent company (125,000) (125,000)
----------- ---------- ------ --------- ---------- --------- ----------
BALANCE DECEMBER 31, 1994. . 1,000 $1,065,634 $ - $ 159,570 - $ - $1,225,204
=========== ========== ====== ========= ========== ========= ==========
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
</TABLE>
<PAGE> 29
KANSAS GAS AND ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ACQUISITION AND MERGER
On March 31, 1992, Western Resources, Inc. (formerly The Kansas Power and
Light Company) (Western Resources) 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). Western
Resources also paid $20 million in costs to complete the Merger. The total
cost of the acquisition to Western Resources was $1.066 billion.
Simultaneously, KCA and KG&E merged and adopted the name of Kansas Gas and
Electric Company. The Merger was accounted for as a purchase. For income tax
purposes the tax basis of the Company's assets was not changed by the Merger.
In the accompanying statements, KG&E prior to the Merger is labeled as the
"Predecessor" and after the Merger as the "Successor". Throughout the notes
to financial statements, the "Company, KG&E" refers to both Predecessor and
Successor.
As Western Resources acquired 100% of the common and preferred stock of
KG&E, the Company recorded an acquisition premium of $490 million on the
balance sheet for the difference in purchase price and book value and
increased common stock equity to reflect the new cost basis of Western
Resources' investment in the Company. This acquisition premium and related
income tax requirement of $311 million under Statement of Financial Accounting
Standards No. 109 (SFAS 109) have been classified as plant acquisition
adjustment in electric plant in service on the balance sheets. Under the
provisions of the order of the Kansas Corporation Commission (KCC), the
acquisition premium is recorded as an acquisition adjustment and not allocated
to the other assets and liabilities of the Company.
The pro forma information for the year ended December 31, 1992 in the
accompanying financial statements gives effect to the Merger as if it occurred
on January 1, 1992, and was derived by combining the historical information
for the three month period ended March 31, 1992 and the nine month period
ended December 31, 1992. No purchase accounting adjustments were made for
periods prior to the Merger in determining pro forma amounts, other than the
elimination of preferred dividends, because such adjustments would be
immaterial. This pro forma information is not necessarily indicative of the
results of operations that would have occurred had the Merger been consummated
on January 1, 1992, nor is it necessarily indicative of future operating
results or financial position.
In the November 1991 KCC order approving the Merger, a mechanism was
approved to share equally between the shareholders and ratepayers the cost
savings generated by the Merger in excess of the revenue requirement needed to
allow recovery of the amortization of a portion of the acquisition adjustment,
including income tax, calculated on the basis of a purchase price of KG&E's
common stock at $29.50 per share. The order provides an amortization period
for the acquisition adjustment of 40 years commencing in August 1995, at which
time the full amount of cost savings is expected to have been implemented.
Merger savings will be measured by application of an inflation index to
certain pre-merger operating and maintenance costs at the time of the next
Kansas rate case. While Western Resources and the Company (combined
companies) have achieved savings from the Merger, there is no assurance that
the savings achieved will be sufficient to, or the cost savings sharing
<PAGE> 30
mechanism will operate as to fully offset the amortization of the acquisition
adjustment. The order further provides a moratorium on increases, with
certain exceptions, in the Company's Kansas electric rates until August 1995.
The KCC ordered refunds totalling $32 million to the combined companies'
customers to share with customers the Merger-related cost savings achieved
during the moratorium period. Refunds of approximately $4.9 (Company's share)
million for the Company were made in April 1992 and December 1993 and the
remaining refund of approximately $8.7 (Company's share )million was made in
September 1994.
The KCC order approving the Merger required the legal reorganization of
the Company so that it was no longer held as a separate subsidiary after
January 1, 1995, unless good cause was shown why such separate existence
should be maintained. The Securities and Exchange Commission order relating
to the Merger granted Western Resources an exemption under the Public Utility
Holding Company Act (PUHCA) until January 1, 1995. Western Resources has been
granted regulatory approval from the KCC which eliminates the requirement for
a combination. As a result of the sales of Western Resources' Missouri
Properties, Western Resources is now exempt from regulation as a holding
company under Section 3(a)(1) of the PUHCA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: The financial statements of KG&E include, through March 31,
1992, its 80% owned subsidiary, CIC Systems, Inc. (CIC). In April 1992, the
Company disposed of its 80% interest in CIC. KG&E owns 47 percent of Wolf
Creek Nuclear Operating Corporation (WCNOC), the operating company for 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 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 KCC and
the Federal Energy Regulatory Commission (FERC).
Utility Plant: Utility plant (including plant acquisition adjustment) is
stated at cost. For constructed plant, cost includes contracted services,
direct labor and materials, indirect charges for engineering, supervision,
general and administrative costs, and an allowance for funds used during
construction (AFUDC). The AFUDC rate was 4.07% for 1994, 4.41% for 1993,
6.51% for the nine months ended December 31, 1992, and 6.70% for the three
months ended March 31, 1992. The cost of additions to utility plant and
replacement units of property is capitalized. Maintenance costs and
replacement of minor items of property are charged to expense as incurred.
When units of depreciable property are retired, they are removed from the
plant accounts and the original cost plus removal charges less salvage are
charged to accumulated depreciation.
Depreciation: Depreciation is provided on the straight-line method based
on estimated useful lives of property. Composite provisions for book
depreciation approximated 2.7% during 1994, 2.9% during 1993, 2.9% during the
nine months ended December 31, 1992, and 3.0% during the three months ended
March 31, 1992 of the average original cost of depreciable property.
<PAGE> 31
Cash and Cash Equivalents: For purposes of the Statements of Cash Flows,
cash and cash equivalents include cash on hand and highly liquid
collateralized debt instruments purchased with maturities of three months or
less.
Income Taxes: Income tax expense includes provisions for income taxes
currently payable and deferred income taxes calculated in conformance with
income tax laws, regulatory orders and Statement of Financial Accounting
Standards No. 109 (SFAS 109) (see Note 9).
Investment tax credits previously deferred are being amortized to income
over the life of the property which gave rise to the credits.
Revenues: Operating revenues include amounts actually billed for
services rendered and an accrual of estimated unbilled revenues. Unbilled
revenues represent the estimated amount customers will be billed for service
provided from the time meters were last read to the end of the accounting
period. Unbilled revenues of $21.4 and $22.3 million at December 31, 1994 and
1993, respectively, are recorded as a component of accounts receivable on the
balance sheets. At December 31, 1993, certain amounts of unbilled revenues
were sold (see Note 6).
The Company had reserves for doubtful accounts receivable of $1.9 and
$3.0 million at December 31, 1994 and 1993, respectively.
Fuel Costs: The cost of nuclear fuel in process of refinement,
conversion, enrichment, and fabrication is recorded as an asset at original
cost and is amortized to expense based upon the quantity of heat produced for
the generation of electricity. The accumulated amortization of nuclear fuel
in the reactor at December 31, 1994 and 1993, was $13.6 and $17.4 million,
respectively.
Cash Surrender Value of Life Insurance Contracts: The following amounts
related to corporate-owned life insurance contracts (COLI), primarily with one
highly rated major insurance company, are recorded on the balance sheets:
1994 1993
(Dollars in Millions)
Cash surrender value of contracts. . . $320.6 $269.0
Borrowings against contracts . . . . . 311.2 (269.0)
------ ------
COLI (net) . . . . . . . . . . . . $ 9.4 $ 0.0
====== ======
The COLI borrowings will be repaid upon receipt of proceeds from death
benefits under contracts. The Company recognizes increases in the cash
surrender value of contracts, resulting from premiums and investment earnings
on a tax free basis, and the tax deductible interest on the COLI borrowings in
Corporate-owned Life Insurance (net) on the Statements of Income. Interest
expense included in corporate-owned life insurance (net) on the statements of
income was $21.0 million for 1994, $11.9 million for 1993, $5.3 million for
the nine months ended December 31, 1992, and $1.9 million for the three months
ended March 31, 1992.
<PAGE> 32
Reclassifications: Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
3. COMMITMENTS AND CONTINGENCIES
Manufactured Gas Sites: The Company was previously associated with six
former manufactured gas sites which 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.
The Company and KDHE entered into a consent agreement governing all
future work at the four remaining sites. The terms of the consent agreement
will allow the Company to 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 permitted another Kansas utility to
recover 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 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 and amounted to $3.8
million for 1994, $3.5 million for 1993, $1.6 million for the nine months
ended December 31, 1992, and $.5 million for the three months ended March 31,
1992.
The Company along with the other co-owners of Wolf Creek are among 14
companies that filed a lawsuit on 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 dismissed. The issue to be decided in this case is whether DOE
must begin accepting spent fuel in 1998 or at a future date. Wolf Creek
contains an on-site spent fuel storage facility which, under current
regulatory guidelines, provides space for the storage of spent fuel through
the year 2006 while still maintaining full core off-load capability. The
Company believes adequate additional storage space can be obtained as
necessary.
<PAGE> 33
Decommissioning: On June 9, 1994, the KCC issued an order approving the
decommissioning costs 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 from 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 in
accordance with the KCC order. 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 1994 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 $16.9 million and $13.2 million at December 31, 1994
and December 31, 1993, respectively. These amounts are reflected in
Decommissioning Trust, and the related liability is included in Deferred
Credits and Other Liabilities, Other, on the Balance Sheets.
The Company carries $118 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 $8.9 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 major 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 Company's share of any remaining proceeds can be
used for property damage up to $1.2 billion (Company's share) and premature
decommissioning costs up to $118 million (Company's share) in excess of funds
previously collected for decommissioning (as discussed under
"Decommissioning").
<PAGE> 34
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 or liabilities resulting from an accident or
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, would 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 installed continuous monitoring and reporting equipment at a total
cost of approximately $2.3 million. 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 owners have applied
for an early substitution permit to bring the co-owned La Cygne Station under
the Phase I regulations.
The NOx and air toxic limits, which were not set in the law, will be
specified in future EPA regulations. The EPA's proposed NOx regulations were
ruled invalid by the U.S. Court of Appeals for the District of Columbia
Circuit in November 1994, and until such time as the EPA resubmits new
proposed regulations, the Company will be unable to determine its compliance
options or related compliance costs.
Federal Income Taxes: During 1991, the Internal Revenue Service (IRS)
completed an examination of the Company's federal income tax returns for the
years 1984 through 1988. In April 1992, the Company received the examination
report and upon review filed a written protest in August 1992. In October
1993, the Company received another examination report for the years 1989 and
1990 covering the same issues identified in the previous examination report.
Upon review of this report, the Company filed a written protest in November
1993. The most significant proposed adjustments reduce the depreciable basis
of certain assets and investment tax credits generated. Management believes
there are significant questions regarding the theory, computations, and
sampling techniques used by the IRS to arrive at its proposed adjustments, and
also believes any additional tax expense incurred or loss of investment tax
credits will not be material to the Company's financial position and results
of operations. Additional income tax payments, if any, are expected to be
offset by investment tax credit carryforwards, alternative minimum tax credit
carryforwards, or deferred tax provisions.
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, 1994, WCNOC's nuclear fuel commitments (Company's share) were
<PAGE> 35
approximately $12.6 million for uranium concentrates expiring at various times
through 1997, $122.9 million for enrichment expiring at various times through
2014, and $56.5 million for fabrication through 2012. At December 31, 1994,
the Company's coal and natural gas contract commitments in 1994 dollars under
the remaining term of the contracts are $721 million and $9 million,
respectively. The largest coal contract was renegotiated in early 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 purchases will be made to obtain
adequate fuel supplies.
Energy Act: As part of the 1992 Energy Policy Act, a special assessment
is being collected from utilities for a uranium enrichment decontamination and
decommissioning fund. The Company's portion of the assessment for Wolf Creek
is approximately $7 million, payable over 15 years. Management expects such
costs to be recovered through the ratemaking process.
4. RATE MATTERS AND REGULATION
Elimination of the Energy Cost Adjustment Clause (ECA): On March 26,
1992, in connection with the Merger, the KCC approved the elimination of the
ECA for most retail customers effective April 1, 1992. The provisions for
fuel costs included in base rates were established at a level intended by the
KCC to equal the projected average cost of fuel through August 1995, and to
include recovery of costs provided by previously issued orders relating to
coal contract settlements and storm damage recovery discussed below. Any
increase or decrease in fuel costs from the projected average will impact the
Company's earnings.
Rate Stabilization Plan: In 1988, the KCC issued an order requiring that
the accrual of phase-in revenues be discontinued effective December 31, 1988.
Effective January 1, 1989, the Company began amortizing the phase-in revenue
asset on a straight-line basis over 9-1/2 years. At December 31, 1994
approximately $61 million of deferred phase-in revenues remained on the
Balance Sheet.
Coal Contract Settlements: In March 1990, the KCC issued an order
allowing the Company to defer its share of a 1989 coal contract settlement
with the Pittsburg and Midway Coal Mining Company amounting to $22.5 million.
This amount was recorded as a deferred charge on the balance sheets. The
settlement resulted in the termination of a long-term coal contract. The KCC
permitted the Company to recover this settlement as follows: 76% of the
settlement plus a return over the remaining term of the terminated contract
(through 2002) and 24% to be amortized to expense with a deferred return
equivalent to the carrying cost of the asset. Approximately $18 million of
this deferral remains on the balance sheet at December 31, 1994.
In February 1991, the Company paid $8.5 million to settle a coal contract
lawsuit with AMAX Coal Company and recorded the payment as a deferred charge
on the Company's Balance Sheet. In July 1991, the KCC approved the recovery
of the settlement plus a return equivalent to the carrying cost of the asset,
over the remaining term of the terminated contract (through 1996).
<PAGE> 36
5. SHORT-TERM BORROWINGS
The Company's short-term financing requirements are satisfied through
short-term bank loans and uncommitted loan participation agreements. Maximum
short-term borrowings outstanding during 1994 and 1993 were $172.3 million on
January 4, 1994 and $175.8 million on December 14, 1993. The weighted average
interest rates, including fees, were 4.5% for 1994, 3.5% for 1993, 6.4% for
the nine months ended December 31, 1992, and 7.1% for the three months ended
March 31, 1992.
6. LONG-TERM DEBT
The amount of first mortgage bonds authorized by the KG&E Mortgage and
Deed of Trust (Mortgage) dated April 1, 1940, as supplemented, is limited to a
maximum of $2 billion. Amounts of additional bonds which may be issued are
subject to property, earnings, and certain restrictive provisions of the
Mortgage. Electric plant is subject to the lien of the Mortgage except for
transportation equipment.
Debt discount and expenses are being amortized over the remaining lives
of each issue. The improvement and maintenance fund requirements for certain
first mortgage bond series can be met by bonding additional property. The
sinking fund requirements for certain pollution control series bonds can be
met only through the acquisition and retirement of outstanding bonds.
On November 1, 1994, the Company terminated a long-term 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. Amounts
related to receivables were accounted for as sales while those related to
phase-in revenues were accounted for as collateralized borrowings. At
December 31, 1993, outstanding receivables amounting to $56.8 million, were
considered sold under the agreement. The weighted average interest rate,
including fees, on this agreement was 4.6% for 1994, 3.7% for 1993, 6.6% for
the nine months ended December 31, 1992, and 7.9% for the three months ended
March 31, 1992.
7. SALE-LEASEBACK OF LA CYGNE 2
In 1987, the Company sold and leased back its 50 percent undivided
interest in the La Cygne 2 generating unit. The lease has an initial term of
29 years, with various options to renew the lease or repurchase the 50 percent
undivided interest. The Company remains responsible for its share of
operation and maintenance costs and other related operating costs of La Cygne
2. The lease is an operating lease for financial reporting purposes.
As permitted under the lease agreement, the Company in 1992 requested the
Trustee Lessor to refinance $341.1 million of secured facility bonds of the
Trustee and owner of La Cygne 2. The transaction was requested to reduce
recurring future net lease expense. In connection with the refinancing on
September 29, 1992, a one-time payment of approximately $27 million was made
by the Company which has been deferred and is being amortized over the
remaining life of the lease and included in operating expense as part of the
future lease expense. At December 31, 1994, approximately $24.8 million of
this deferral remained on the Balance Sheet.
<PAGE> 37
Future minimum annual lease payments required under the lease agreement
are approximately $34.6 million for each year through 1999 and $680 million
over the remainder of the lease.
The gain of approximately $322 million realized at the date of the sale
has been deferred for financial reporting purposes, and is being amortized
over the initial lease term in proportion to the related lease expense. The
Company's lease expense, net of amortization of the deferred gain and a one-
time payment, was approximately $22.5 million for 1994 and 1993, $20.6 million
for the nine months ended December 31, 1992, and $7.5 million for the three
months ended March 31, 1992.
8. EMPLOYEE BENEFIT PLANS
Pension: The Company maintains noncontributory defined benefit pension
plans covering substantially all employees of the Company prior to the Merger.
Pension benefits are based on years of service and the employee's compensation
during the five highest paid consecutive years out of ten before retirement.
The Company's
policy is to fund pension costs accrued, subject to limitations set by the
Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.
The following table provides information on the components of pension
cost for the Company's pension plans (dollars in millions):
1992
April 1 | Jan.1 to
1994 1993 to Dec.31 | March 31
(Successor)|(Predecessor)
Pension Cost: |
Service cost . . . . . . . . . . $ 3.7 $ 3.2 $ 2.5 | $ .8
Interest cost on projected |
benefit obligation . . . . . . 9.7 9.5 6.7 | 2.1
(Gain) loss on plan assets . . . 2.1 (14.1) (5.8) | (9.0)
Net amortization & deferral. . . (11.4) 4.9 (1.0) | 6.7
------ ------ ------ | ------
Net pension cost . . . . . . . $ 4.1 $ 3.5 $ 2.4 | $ .6
====== ====== ====== ======
The following table sets forth the plans' actuarial present value and
funded status at November 30, 1994 and 1993 (the plan years) and a
reconciliation of such status to the December 31, 1994, 1993, and 1992
financial statements (dollars in millions):
1994 1993 1992
Reconciliation of Funded Status:
Actuarial present value of
benefit obligations:
Vested. . . . . . . . . . . . . . . $ 94.0 $ 95.2 $ 82.9
Non-vested. . . . . . . . . . . . . 6.3 6.1 3.6
------ ------ ------
Total . . . . . . . . . . . . . . $100.3 $101.3 $ 86.5
====== ====== ======
<PAGE> 38
Plan assets at November 30 (principally
debt and equity securities)
at fair value . . . . . . . . . . . . . $115.4 $119.9 $113.7
Projected benefit obligation
at November 30 . . . . . . . . . . . . (125.4) (125.5) (110.8)
------ ------ ------
Funded status at November 30. . . . . . . (10.0) (5.6) 2.9
Unrecognized transition asset . . . . . . (1.5) (1.7) (2.0)
Unrecognized prior service costs. . . . . 9.6 12.4 12.1
Unrecognized net gain . . . . . . . . . . (11.1) (20.6) (26.1)
------ ------ -------
Accrued pension costs at December 31. . . $(13.0) $(15.5) $(13.1)
====== ====== =======
Year Ended December 31, 1994 1993 1992
Actuarial Assumptions:
Discount rate . . . . . . . . . . 8.0-8.5 % 7.0-7.75% 8.0-8.5 %
Annual salary increase rate . . . 5.0 % 5.0 % 6.0 %
Long-term rate of return. . . . . 8.0-8.5 % 8.0-8.5 % 8.0-8.5 %
Retirement and Voluntary Separation Plans: In January 1992, the Board of
Directors approved an early retirement plan and a voluntary separation
program. The voluntary early retirement plan was offered to all vested
participants of the Company's defined benefit pension plan who reached the age
of 55 with 10 or more years of service on or before May 1, 1992. Certain
pension plan improvements were made including a waiver of the actuarial
reduction factors for early retirement and a cash incentive payable as a
monthly supplement up to 60 months or a lump sum payment. Of the 111
employees eligible for the early retirement option, 71, representing 6% of the
Company's work force, elected to retire on or before the May 1, 1992,
deadline. Another 29 employees, with 10 or more years of service, elected to
participate in the voluntary separation program. In addition, 61 employees
received Merger-related severance benefits. The actuarial cost, based on plan
provisions for early retirement and voluntary separation programs, and Merger-
related severance benefits, was approximately $3.9 million of which $1.8
million was included in the pension liability at December 31, 1992. The
actuarial cost was considered in purchase accounting for the Merger (See Note
1).
Postretirement: Western Resources adopted the provisions of Statement of
Financial Accounting Standards No. 106 (SFAS 106) in the first quarter of
1993. This statement requires the accrual of postretirement benefits other
than pensions, primarily medical benefits costs, during the years an employee
provides service.
Based on actuarial projections and adoption of the transition method of
implementation which allows a 20-year amortization of the accumulated benefit
obligation, the annual expense to be allocated to the Company under SFAS 106
was approximately $3.8 million in 1994 and $3.4 million in 1993. The
Company's total obligation to be allocated from Western Resources was
approximately $25.3 million and $23.9 million at December 31, 1994 and 1993,
respectively. To mitigate the impact of SFAS 106 expense, Western Resources
implemented programs to reduce health care costs. In addition, the KCC issued
an order permitting the initial deferral of SFAS 106 expense. To mitigate the
impact SFAS 106 expense will have on rate increases, Western Resources will
include in the future computation of SFAS 106 expense allocated to the Company
for computation of cost of service and
<PAGE> 39
expense recognition, the actual SFAS 106 expense and an income stream
generated from corporate-owned life insurance policies (COLI) purchased in
1993 and 1992. To the extent SFAS 106 expense exceeds income from the COLI
program, this excess will be deferred (as allowed by FASB Emerging Issues Task
Force Issue No. 92-12) and offset by income generated through the deferral
period by the COLI program. Should the income stream generated by the COLI
program not be sufficient to offset the deferred SFAS 106 expense, the KCC
order allows recovery of such deficit through the ratemaking process by the
Company.
Prior to the adoption of SFAS 106 the Company's policy was to recognize
expenses as claims were paid. The costs of benefits were $0.8 million for the
nine months ended December 31, 1992 and $0.2 million for the three months
ended March 31, 1992.
The following table summarizes the status of the Company's postretirement
plans for financial statement purposes and the related amount included in the
balance sheet:
December 31, 1994 1993
(Dollars in Millions)
Reconciliation of Funded Status:
Actuarial present value of postretirement
benefit obligations:
Retirees. . . . . . . . . . . . . . . . . . . $ 12.9 $ 12.4
Active employees fully eligible . . . . . . . 3.0 2.5
Active employees not fully eligible . . . . . 9.4 9.0
Unrecognized prior service cost . . . . . . . (3.2) (.1)
Unrecognized transition obligation. . . . . . (19.3) (20.4)
Unrecognized net gain (loss). . . . . . . . . .9 (1.7)
------ ------
Balance sheet liability . . . . . . . . . . . . . $ 3.7 $ 1.7
====== ======
Year Ended December 31, 1994 1993
Assumptions:
Discount rate. . . . . . . . . . . . . . . . . 8.0-8.5 % 7.75%
Annual compensation increase rate. . . . . . . 5.0 % 5.0 %
Expected rate of return. . . . . . . . . . . . 8.5 % 8.5 %
For measurement purposes, an annual health care cost growth rate of 12%
was assumed for 1994, decreasing 1% per year to 5% by 2001 and thereafter.
The health care cost trend rate has a significant effect on the projected
benefit obligation. Increasing the trend rate by 1% each year would increase
the present value of the accumulated projected benefit obligation by $.3
million and the aggregate of the service and interest cost components by
$26,000.
Savings Plans: Effective January 1, 1995, the Company's 401(k) savings
plans were merged with Western Resources savings plans. Prior to the merger
of the savings plans, funds of the plans were deposited with a trustee and
invested at each employee's option in one or more investment funds, including
a Western Resources common stock fund. The Company's contributions were $1.8
million for 1994, $2.0 million for 1993, $1.7 million for the nine months
ended December 31, 1992, and $0.2 million for the three months ended March 31,
1992.
<PAGE> 40
9. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 96
(SFAS 96) in 1987. This statement required the Company to establish deferred
tax assets and liabilities, as appropriate, for all temporary differences, and
to adjust deferred tax balances to reflect changes in tax rates expected to be
in effect during the periods the temporary differences reverse. SFAS 96 was
superseded by SFAS 109 issued in February 1992 and the Company adopted the
provisions of that standard prospectively in the first quarter of 1992. The
accounting for SFAS 109 is substantially the same as SFAS 96.
In accordance with various rate orders received from the KCC, the Company
has not yet collected through rates the amounts necessary to pay a significant
portion of the net deferred income tax liabilities. As management believes it
is probable that the net future increases in income taxes payable will be
recovered from customers through future rates, it has recorded a deferred
asset for these amounts. These assets are also a temporary difference for
which deferred income tax liabilities have been provided. Accordingly, the
adoption of SFAS 109 did not have a material effect on the Company's results
of operations.
At December 31, 1994, the Company has alternative minimum tax credits
generated prior to April 1, 1992, which carryforward without expiration, of
$41.2 million which may be used to offset future regular tax to the extent the
regular tax exceeds the alternative minimum tax. These credits have been
applied in determining the Company's net deferred income tax liability and
corresponding deferred future income taxes at December 31, 1994.
Beginning April 1, 1992, the Company is part of the consolidated income
tax return of Western Resources. However, the Company determines its income
tax provisions on a separate company basis.
Deferred income taxes result from temporary differences between the
financial statement and tax basis of the Company's assets and liabilities.
The sources of these differences and their cumulative tax effects are as
follows:
<TABLE>
December 31, 1994
Debits Credits Total
(Dollars in Thousands)
<S> <C> <C> <C>
Sources of Deferred Income Taxes:
Accelerated depreciation and
other property items . . . . . . $ - $ (381,800) $ (381,800)
Energy and purchased gas
adjustment clauses . . . . . . . 2,245 - 2,245
Phase-in revenues. . . . . . . . . - (27,677) (27,677)
Deferred gain on sale-leaseback. . 110,556 - 110,556
Alternative minimum tax credits. . 41,163 - 41,163
Deferred coal contract
settlements. . . . . . . . . . . - (6,703) (6,703)
Deferred compensation/pension
liability. . . . . . . . . . . . 9,676 - 9,676
Acquisition premium. . . . . . . . - (317,610) (317,610)
Deferred future income taxes . . . - (102,789) (102,789)
Loss on reacquisition of debt. . . - (4,103) (4,103)
Prepaid power sale . . . . . . . . 1,577 1,577
Other. . . . . . . . . . . . . . . - (13,704) (13,704)
----------- ----------- -----------
Total Deferred Income Taxes. . . . . $ 165,217 $ (854,386) $ (689,169)
</TABLE> =========== =========== ===========
<PAGE> 41
<TABLE>
December 31, 1993
Debits Credits Total
(Dollars in Thousands)
<S> <C> <C> <C>
Sources of Deferred Income Taxes:
Accelerated depreciation and
other property items . . . . . . $ - $ (356,494) $ (356,494)
Energy and purchased gas
adjustment clauses . . . . . . . 3,257 - 3,257
Phase-in revenues. . . . . . . . . - (35,573) (35,573)
Deferred gain on sale-leaseback. . 116,186 - 116,186
Alternative minimum tax credits. . 39,882 - 39,882
Deferred coal contract
settlements. . . . . . . . . . . - (7,797) (7,797)
Deferred compensation/pension
liability. . . . . . . . . . . . 10,856 - 10,856
Acquisition premium. . . . . . . . - (300,814) (300,814)
Deferred future income taxes . . . - (102,789) (102,789)
Loss on reacquisition of debt. . . - (4,508) (4,508)
Other. . . . . . . . . . . . . . . - (8,365) (8,365)
----------- ----------- -----------
Total Deferred Income Taxes. . . . . $ 170,181 $ (816,340) $ (646,159)
=========== =========== ===========
</TABLE>
10. LEGAL PROCEEDINGS
The Company is involved in various legal and environmental proceedings.
Management believes that adequate provision has been made within the financial
statements for these matters and accordingly believes their ultimate
dispositions will not have a material adverse effect upon the financial
position or results of operations of the Company.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value as set forth in Statement of Financial Accounting
Standards No. 107:
Cash and Cash Equivalents-
The carrying amount approximates the fair value because of the short-
term maturity of these investments.
Decommissioning Trust-
The fair value of the decommissioning trust is based on quoted market
prices at December 31, 1994 and 1993.
Variable-rate Debt-
The carrying amount approximates the fair value because of the short-
term variable rates of these debt instruments.
Fixed-rate Debt-
The fair value of the fixed-rate debt is based on the sum of the
estimated value of each issue taking into consideration the coupon
rate, maturity, and redemption provisions of each issue.
The estimated fair values of the Company's financial instruments are as
follows:
<PAGE> 42
<TABLE>
Carrying Value Fair Value
December 31, 1994 1993 1994 1993
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Cash and cash
equivalents. . . . . . . $ 47 $ 63 $ 47 $ 63
Decommissioning trust. . . 16,944 13,204 16,633 13,929
Variable-rate debt . . . . 407,645 478,743 407,645 478,743
Fixed-rate debt. . . . . . 657,482 603,920 623,331 660,750
</TABLE>
<TABLE>
12. JOINT OWNERSHIP OF UTILITY PLANTS
Company's Ownership at December 31, 1994
In-Service Invest- Accumulated Net Per-
Dates ment Depreciation (MW) cent
(Dollars in Thousands)
<S> <C> <C> <C> <C>
La Cygne 1 (a) Jun 1973 $ 152,816 $ 98,124 343 50
Jeffrey 1 (b) Jul 1978 65,467 30,333 140 20
Jeffrey 2 (b) May 1980 66,475 26,921 143 20
Jeffrey 3 (b) May 1983 95,421 33,491 140 20
Wolf Creek (c) Sep 1985 1,376,335 317,311 545 47
(a) Jointly owned with Kansas City Power & Light Company (KCPL)
(b) Jointly owned with Western Resources and UtiliCorp United Inc.
(c) Jointly owned with KCPL and Kansas Electric Power Cooperative, Inc.
Amounts and capacity represent the Company's share. The Company's share
of operating expenses of the plants in service above, as well as such expenses
for a 50 percent undivided interest in La Cygne 2 (representing 335 MW
capacity) sold and leased back to the Company in 1987, are included in
operating expenses in the Statements of Income. The Company's share of other
transactions associated with the plants is included in the appropriate
classification in the Company's financial statements.
</TABLE>
13. QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in Thousands)
The amounts in the table are unaudited but, in the opinion of management,
contain all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of such periods. The
business of the Company is seasonal in nature and, in the opinion of
management, comparisons between the quarters of a year do not give a true
indication of overall trends and changes in operations.
<PAGE> 43
<TABLE>
1994
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
<S> <C> <C> <C> <C>
Operating revenues. . . . . $139,087 $189,202 $154,987 $136,604
Operating income. . . . . . 33,607 56,978 33,548 24,878
Net income. . . . . . . . . 22,212 45,481 23,623 13,210
1993
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
Operating revenues. . . . . $136,097 $191,941 $150,478 $138,481
Operating income. . . . . . 26,188 52,874 35,545 32,774
Net income. . . . . . . . . 13,692 46,406 24,274 23,731
</TABLE>
14. RELATED PARTY TRANSACTIONS
Subsequent to the Merger, the cash management function, including cash
receipts and disbursements, for KG&E has been assumed by Western Resources.
As a result, the proceeds of cash collections, including short-term
borrowings, less disbursements related to KG&E transactions have been recorded
by the Companies through an intercompany account which, at December 31, 1994,
resulted in a net advance by KG&E to Western Resources of $64.4 million.
Certain of the Company's operating expenses have been allocated from Western
Resources. These expenses are allocated, depending on the nature of the
expense, based on allocation studies, net investment, number of customers,
and/or other appropriate allocators. Management believes such allocation
procedures are reasonable. During 1994, the Company declared a dividend to
Western Resources of $125 million.
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with accountants on accounting and financial
disclosure. Information relating to a change in accountants is incorporated
by reference from the Company's Current Report on Form 8-K dated March 8,
1993.
<PAGE> 45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Western Resources, Inc. owns 100 percent of the Company's outstanding
common stock.
A Director
Business Experience Since 1988 and Other Continuously
Name Age Directorships Other Than The Company Since
Kent R. Brown 49 Chairman of the Board (since June 1992), 1992
President and Chief Executive Officer
(since March 1992), and prior to that
Group Vice President
Directorships
Bank IV Wichita
Robert T. Crain 69 Owner, Crain Realty, Co., Fort Scott, 1992(b)
(a) Kansas
Directorships
Citizens National Bank
Ft. Scott Industries, Inc.
Anderson E. 61 President, Jackson Mortuary, Wichita, 1994
Jackson Kansas
Donald A. 61 President, Maupintour, Inc., Lawrence, 1992(b)
Johnston Kansas (Escorted Tours and Travel)
(a) Directorships
Commerce Bank, Lawrence
Maupintour, Inc.
Steven L. 49 Executive Vice President and Chief 1992
Kitchen Financial Officer, Western Resources,
Inc.
Glenn L. 69 Retired Vice President - Nuclear of the 1992(b)
Koester Company
James J. Noone 74 Attorney and retired Administrative Judge 1992(b)
(a) for the District Court of Sedgwick
County, Kansas
Marilyn B. 45 President (since October 1993) and prior 1994
Pauly to that Executive Vice President,
Bank IV Wichita, Wichita, Kansas
Directorships
Farmers Mutual Alliance Insurance Company
<PAGE> 46
A Director
Business Experience Since 1988 and Other Continuously
Name Age Directorships Other Than The Company Since
Newton C. Smith 73 Physician and Surgeon, Arkansas City, 1992(b)
Kansas
Richard D. Smith 61 President, Range Oil Company 1993
Directorships
Bank IV Kansas
(a) Member of the Audit Committee of which Mr. Johnston is Chairman.
The Audit Committee has responsibility for the investigation and
review of the financial affairs of the Company and its relations
with independent accountants.
(b) Mr. Crain, Mr. Johnston, Mr. Koester, Mr. Noone, and Mr. Newton
Smith were directors of the former Kansas Gas & Electric Company
since 1981, 1980, 1986, 1986, and 1985, respectively.
Outside Directors are paid $3,750 per quarter retainer and are paid an
attendance fee of $600 for Directors' meetings ($300 if attending by phone).
A committee attendance fee of $800 is paid to the outside Director Audit
Committee Chairman, and $500 to other outside Committee members. All outside
Directors are reimbursed mileage and expenses while attending Directors' and
Committee Meetings.
During 1994, the Board of Directors met seven times and the Audit
Committee met two times. Each director attended at least 75% of the total
number of Board and Committee meetings held while he/she served as a director
or a member of the committee, except Mr. Richard D. Smith who attended 71% of
such meetings.
Other information required by Item 10 is omitted pursuant to General
Instruction J(2)(c) to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 is omitted pursuant to General
Instruction J(2)(c) to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 is omitted pursuant to General
Instruction J(2)(c) to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is omitted pursuant to General
Instruction J(2)(c) to Form 10-K.
<PAGE> 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following financial statements are included herein under Item 8.
FINANCIAL STATEMENTS
Balance Sheets, December 31, 1994 and 1993
Statements of Income for the year ended December 31, 1994 and 1993
(Successor), the nine months ended December 31, 1992 (Successor),
and the three months ended March 31, 1992 (Predecessor)
Statements of Cash Flows for the year ended December 31, 1994 and 1993
(Successor), the period March 31 to December 31, 1992 (Successor),
and the three months ended March 31, 1992 (Predecessor)
Statements of Taxes for the year ended December 31, 1994 and 1993
(Successor), the nine months ended December 31, 1992 (Successor),
and the three months ended March 31, 1992 (Predecessor)
Statements of Capitalization, December 31, 1994 and 1993
Statements of Common Stock Equity for the year ended December 31, 1994
and 1993 (Successor), the nine months ended December 31, 1992
(Successor), and the three months ended March 31, 1992 (Predecessor)
Notes to Financial Statements
REPORTS ON FORM 8-K
None
<PAGE> 48
EXHIBIT INDEX
All exhibits marked "I" are incorporated herein by reference.
Description
2(a) Agreement and Plan of Merger (Filed as Exhibit 2 to Form 10-K I
for the year ended December 31, 1990, File No. 1-7324)
2(b) Amendment No. 1 to Agreement and Plan of Merger (Filed as I
Exhibit 2 to Form 10-K for the year ended December 31, 1990,
File No. 1-7324)
3(a) Articles of Incorporation (Filed as Exhibit 3(a) to Form 10-K I
for the year ended December 31, 1992, File No. 1-7324)
3(b) Certificate of Merger of Kansas Gas and Electric Company into I
KCA Corporation (Filed as Exhibit 3(b) to Form 10-K
for the year ended December 31, 1992, File No. 1-7324)
3(c) By-laws as amended (Filed as Exhibit 3(c) to Form 10-K I
for the year ended December 31, 1992, File No. 1-7324)
4(c)1 Mortgage and Deed of Trust, dated as of April 1, 1940 to I
Guaranty Trust Company of New York (now Morgan Guaranty Trust
Company of New York) and Henry A. Theis (to whom W. A. Spooner
is successor), Trustees, as supplemented by thirty-eight
Supplemental Indentures, dated as of June 1, 1942, March 1, 1948,
December 1, 1949, June 1, 1952, October 1, 1953, March 1, 1955,
February 1, 1956, January 1, 1961, May 1, 1966, March 1, 1970,
May 1, 1971, March 1, 1972, May 31, 1973, July 1, 1975,
December 1, 1975, September 1, 1976, March 1, 1977, May 1, 1977,
August 1, 1977, March 15, 1978, January 1, 1979, April 1, 1980,
July 1, 1980, August 1, 1980, June 1, 1981, December 1, 1981,
May 1, 1982, March 15, 1984, September 1, 1984 (Twenty-ninth
and Thirtieth), February 1, 1985, April 15, 1986, June 1, 1991
March 31, 1992, December 17, 1992, August 24, 1993, January 15,
1994 and March 1, 1994, (Filed, respectively, as Exhibit A-1 to
Form U-1, File No. 70-23; Exhibits 7(b) and 7(c), File No. 2-7405;
Exhibit 7(d), File No. 2-8242; Exhibit 4(c), File No. 2-9626;
Exhibit 4(c), File No. 2-10465; Exhibit 4(c), File No. 2-12228;
Exhibit 4(c), File No. 2-15851; Exhibit 2(b)-1, File No. 2-24680;
Exhibit 2(c), File No. 2-36170; Exhibits 2(c) and 2(d), File
No. 2-39975; Exhibit 2(d), File No. 2-43053; Exhibit 4(c)2 to
Form 10-K, for December 31, 1989, File No. 1-7324; Exhibit 2(c),
File No. 2-53765; Exhibit 2(e), File No. 2-55488; Exhibit 2(c),
File No. 2-57013; Exhibit 2(c), File No. 2-58180; Exhibit 4(c)3
to Form 10-K for December 31, 1989, File No. 1-7324; Exhibit 2(e),
File No. 2-60089; Exhibit 2(c), File No. 2-60777; Exhibit 2(g), File
No. 2-64521; Exhibit 2(h), File No. 2-66758; Exhibits 2(d) and
2(e), File No. 2-69620; Exhibits 4(d) and 4(e), File No. 2-75634;
Exhibit 4(d), File No. 2-78944; Exhibit 4(d), File No. 2-87532;
Exhibits 4(c)4, 4(c)5 and 4(c)6 to Form 10-K for December 31,
1989, File No. 1-7324; Exhibits 4(c)2 and 4(c)3 to Form 10-K for
<PAGE> 49
Description
December 31, 1992, File No. 1-7324; Exhibit 4(b) to Form S-3,
File No. 33-50075; Exhibits 4(c)2 and 4(c)3 to Form 10-K for
December 31, 1993, File No. 1-7324)
4(c)2 Thirty-ninth Supplemental Indenture dated as of April 15, 1994,
to the Company's Mortgage and Deed of Trust (Filed electronically)
Instruments defining the rights of holders of other long-term debt not
required to be filed as exhibits will be furnished to the Commission
upon request.
10(a)1 Severance Agreement (Filed as Exhibit 10(a)1 to Form 10-K for the I
year ended December 31, 1990, File No. 1-7324)
10(a)2 Severance Agreement (Filed as Exhibit 10(a)2 to Form 10-K for the I
year ended December 31, 1990, File No. 1-7324)
10(a)3 Severance Agreement (Filed as Exhibit 10(a)3 to Form 10-K for the I
year ended December 31, 1990, File No. 1-7324)
10(b) La Cygne 2 Lease (Filed as Exhibit 10(a) to Form 10-K for the year I
ended December 31, 1988, File No. 1-7324)
10(b)1 Amendment No. 3 to La Cygne 2 Lease Agreement dated as of September I
29, 1992 (Filed as Exhibit 10(b)1 to Form 10-K for the year ended
December 31, 1992, File No. 1-7324)
10(c) Outside Directors' Deferred Compensation Plan (Filed as Exhibit I
10(c) to the Form 10-K for the year ended December 31, 1993,
File No. 1-7324)
12 Computation of Ratio of Consolidated Earnings to Fixed Charges.
(Filed electronically)
16 Letter re Change in Certifying Accountant (Filed as Exhibit 16 to I
the Current Report on Form 8-K dated March 8, 1993)
23(a) Consent of Independent Public Accountants, Arthur Andersen LLP
(Filed electronically)
23(b) Consent of Independent Public Accountants, Deloitte & Touche LLP
(Filed electronically)
<PAGE> 50
SIGNATURE
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
KANSAS GAS AND ELECTRIC COMPANY
March 29, 1995 By KENT R. BROWN
Kent R. Brown, Chairman of the Board,
President and Chief Executive Officer
<PAGE> 49
