FORM U-3A-2
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
Statement by Holding Company Claiming
Exemption Under Rule 2 from the
Provisions of the Public Utility Holding
Company Act of 1935
Western Resources, Inc.
<PAGE> Western Resources, Inc. ("WRI") hereby files with the Securities and
Exchange Commission, pursuant to Rule 2, its statement claiming exemption as a
holding company from the provisions of the Public Utility Holding Company Act
of 1935 (the "Act") and submits the following information:
1. WRI is a Kansas corporation whose principal executive offices are
located at 818 Kansas Ave., Topeka, Kansas, 66612. WRI's mailing address is
P.O. Box 889, Topeka, Kansas 66601.
WRI's principal business consists of the production, purchase,
transmission, distribution and sale of electricity and the transportation and
sale of natural gas. Currently, WRI provides retail electric service to
approximately 326,000 industrial, commercial, and residential customers in 323
Kansas communities. WRI also provides wholesale electric generation and
transmission services to numerous municipal customers located in Kansas and,
through interchange agreements, to surrounding integrated systems. As a
natural gas utility, WRI distributes gas in Kansas and northeastern Oklahoma.
WRI provides natural gas service to approximately 648,000 retail customers.
WRI's subsidiaries are as follows:
A. Kansas Gas and Electric Company ("KGE"), a Kansas
corporation, with its principal offices at 120 East First Street,
Wichita, Kansas, 67201. KGE provides electric services to customers in
the southeastern portion of Kansas, including the Wichita metropolitan
area. At December 31, 1995, it rendered electric services at retail to
approximately 275,000 residential, commercial and industrial customers
and provided wholesale electric generation and transmission services to
numerous municipal customers located in Kansas, and through interchange
agreements, to surrounding integrated systems. KGE does not own or
operate any gas properties.
<page1>KG&E's subsidiaries are:
Wolf Creek Nuclear Operating Corproation ("WCNOC"), a
Delaware Corporation, with principal offices at 1550 Oxen Lane,
N.E., Burlington, Kansas. WCNOC is owned 47% by KG&E and
operates the Wolf Creek Generating Station on behalf of the
plant's owners.
Mid-America Services Company, a Kansas corporation, with
principal offices at 120 E. 1st Street, Wichita, Kansas is
currently dormant.
B. Westar Capital, Inc.("Westar Capital"),a Kansas corporation, with
principal offices at 1021 Main, Houston, Texas, 77002. Westar Capital
concentrates in the areas of natural gas gathering, processing, compression
and marketing.
Westar Capital's subsidiaries are:
Westar Limited Partners, Inc., a Kansas corporation, with
principal offices at 1021 Main Street, Ste. 1270, Houston, Texas.
Westar Limited Partners, Inc. participates in limited
partnerships related to the business of Western Resources, Inc.
Westar Financial Services, Inc. (formerly Astra Financial
Services, Inc.), a Kansas corporation, with principal offices at
1021 Main Street, Ste. 1270, Houston, Texas. Westar Financial
Services, Inc. is engaged in the funding of activities of other
subsidiaries of Western Resources, Inc.
Westar Gas Marketing, Inc. (formerly Astra Resources
Marketing, Inc.), a Kansas corporation, with principal offices at
1100 SW Wanamaker Road, Ste. 101, Topeka, Kansas. Westar Gas
Marketing, Inc. arranges natural gas purchasing, transportation,
and delivery for natural gas users.
<page2>
Westar Gas Company (formerly Astra Gas Company), a Delaware
corporation, with principal offices at 1021 Main Street, Ste.
1270, Houston, Texas. Westar Gas Company gathers and processes
natural gas in Oklahoma and Kansas.
Indian Basin Venture I & II, New Mexico joint ventures,
with principal offices at 1021 Main Street, Ste. 1270, Houston,
Texas. Indian Basin Ventures operates a gas processing plant in
New Mexico.
Triark Gathering Company, an Oklahoma joint venture, with
principal offices at 207 E. Main, Ste. 213, Wilburton, Oklahoma.
Triark operates natural gas gathering facilities in Oklahoma.
Hanover Compressor Company, a Delaware corporation, with
principal offices at 12001 N. Houston Rosslyn, Houston, Texas,
77086. Hanover Compressor Company offers compression services to
the natural gas industry. Westar Capital owns approximately 24%
of Hanover's common stock and uses the equity method to account
for the investment.
C. Westar Business Services, Inc. ("Westar Business"), a Kansas
corporation, with principal offices at 818 Kansas Avenue, Topeka, Kansas.
Westar Business provides services to large commercial and industrial
customers.
Westar Business's subsidiaries are:
Westar Electric Marketing, Inc., a Kansas corporation, with
principal offices at 818 Kansas Ave., Topeka, Kansas. Westar
Electric Marketing, Inc. arranges electric marketing and
brokering to commercial and industrial customers on a wholesale
level.
<page3>
Westar Sales, Inc., a Kansas corporation, with principal
offices at 818 Kansas Ave., Topeka, Kansas. Westar Sales, Inc.
is a provider of energy related services to commercial and
industrial customers.
D. Westar Consumer Services, Inc. ("Westar Consumer"), a Kansas
corporation, with principal offices at 818 Kansas Ave., Topeka, Kansas.
Westar Consumer identifies and develops consumer products and services
related to the energy business.
Westar Consumer's subsidiaries are:
Westar Communications, Inc., a Kansas corporation, with
principal offices at 818 Kansas Ave., Topeka, Kansas. Westar
Communications, Inc. was established to acquire a paging system
provider operating in Kansas.
E. Mid-Continent Market Center, a Kansas corporation, with principal
offices at 818 Kansas Ave., Topeka, Kansas. Mid-Continent Market Center
offers natural gas transportation, wheeling, parking, balancing and storage
services to natural gas producers.
F. Western Resources Capital 1, a Delaware business trust was
established for the purpose of issuing preferred securities.
G. Westar Security Services, Inc., a Kansas corporation, with
principal offices at 818 Kansas Ave., Topeka, Kansas. Westar Security
Services, Inc. is engaged in the business of monitored home and business
security systems.
H. Gas Service Energy Corporation, a Delaware corporation, is
currently dormant.
I. KPL Funding, Inc., a Kansas corporation, is currently dormant.
J. The Kansas Power and Light Company, a Kansas corporation, was
<page4>
established for the purpose of preserving the former corporate name of WRI.
K. WR Services, Inc., a Kansas corporation, is currently dormant.
2(a). The principal electric generating stations of WRI, all of which
are located in Kansas, are as follows:
Accredited
Capacity - MW
Name and Location (WRI's Share)
Coal
JEC Unit 1, near St. Marys................... 447
JEC Unit 2, near St. Marys................... 470
JEC Unit 3, near St. Marys................... 450
Lawrence Energy Center, near Lawrence........ 539
Tecumseh Energy Center, near Tecumseh........ 236
Subtotal........................... 2,142
Gas/Oil
Hutchinson Energy Center, near Hutchinson.... 492
Abilene Energy Center, near Abilene.......... 66
Tecumseh Energy Center, near Tecumseh........ 39
Subtotal........................... 597
Total Accredited Capacity 2,739 MW
WRI maintains 19 interconnections with other public utilities to permit
direct extra-high voltage interchange. It is a member of the MOKAN Power
Pool consisting of eleven utilities in Kansas and western Missouri. WRI is
also a member of the Southwest Power Pool, the regional coordinating council
for electric utilities throughout the south-central United States.
WRI owns a transmission and distribution system which enables it to
supply its service area. Transmission and distribution lines, in general,
are located by permit or easement on public roads and streets or the lands of
others. All such transmission and distribution systems are located within
the State of Kansas. In addition, WRI owns and operates transmission,
distribution and other facilities related to supplying natural gas service to
<page5>
its customers in Kansas and Oklahoma.
2(b). The principal electric generating stations of KGE, all of which
are located in Kansas, are as follows:
Accredited
Capacity - MW
Name and Location (KGE's Share)
Nuclear
Wolf Creek, near Burlington ................. 548
Coal
LaCygne Unit 1, near LaCygne ................ 341
LaCygne Unit 2, near LaCygne ................ 331
JEC Unit 1, near St. Mary's ................. 140
JEC Unit 2, near St. Mary's ................. 147
JEC Unit 3, near St. Mary's ................. 141
Subtotal .......................... 1,100
Gas/Oil
Gordon Evans, Wichita ....................... 517
Murray Gill, Wichita ........................ 333
Subtotal .......................... 850
Diesel
Wichita, Wichita ............................ 3
Total Accredited Capacity 2,501 MW
KGE maintains 17 interconnections with other public utilities to permit
direct extra-high voltage interchange. It is a member of the MOKAN Power
Pool consisting of eleven utilities in Kansas and western Missouri. KGE is
also a member of the Southwest Power Pool, the regional coordinating council
for electric utilities throughout the south-central United States.
KGE owns a transmission and distribution system which enables it to
supply its service area. Transmission and distribution lines, in general,
are located by permit or easement on public roads and streets or the lands of
others. All such transmission and distribution systems are located within
<page6>
the State of Kansas.
3(a). For the year ended December 31, 1995, WRI sold 8,201,717,000 Kwh
of electric energy at retail, 2,719,584,000 Kwh of electric energy at
wholesale, and 94,681,000 Mcf of natural gas at retail. For the year ended
December 31, 1995, KGE sold 8,066,643,000 Kwh of electric energy at retail
and 1,292,203,000 Kwh of electric energy at wholesale. All of KGE's sales
were within the State of Kansas.
(b). During 1995, neither WRI nor its subsidiaries distributed or
sold electric energy at retail outside the State of Kansas. During 1995, WRI
distributed or sold at retail 3,995,000 Mcf of natural gas in the state of
Oklahoma, representing 4.2% of the retail natural gas sales of WRI.
(c). During 1995, WRI sold, at wholesale, 179,364,000 Kwh of electric
energy to adjoining public utilities through interconnections at the Kansas
state line. During 1995, KGE sold, at wholesale, 394,890,000 Kwh of electric
energy to adjoining public utilities through interconnections at the Kansas
state line. During 1995, neither WRI or KGE sold natural or manufactured gas
at wholesale outside the state of Kansas or at the Kansas state line.
(d). During 1995, WRI purchased 375,973,000 Kwh of electric energy
from outside the State of Kansas or at the Kansas state line. During 1995,
WRI purchased 3,427,703 Mcf of natural gas outside the state of Kansas or at
the state line. During 1995, KGE purchased 192,446,000 Kwh of electric
energy from outside the State of Kansas or at the Kansas State line.
4. Neither WRI nor its subsidiaries hold, directly or indirectly, any
interest in an EWG or a foreign utility company.
<page7>
The above-named claimant has caused this statement to be duly executed on its
behalf by its authorized officer on this 29th day of February, 1996.
Western Resources, Inc.
By: Richard D. Terrill
Richard D. Terrill
Secretary and Associate
General Counsel
Corporate Seal
Name, title and address of officer to whom notices and correspondence
concerning this statement should be addressed:
Richard D. Terrill
Secretary and Associate General Counsel
Western Resources, Inc.
P.O. Box 889
818 Kansas Avenue
Topeka, Kansas 66601
913-575-6322
913-575-8136 (FAX)<PAGE>
<page8>
EXHIBIT A
A consolidating statement of income and surplus of the claimant and its
subsidiary companies for the last calendar year, together with a
consolidating balance sheet of claimant and its subsidiary companies as of
the close of such calendar year:
<page9>
<TABLE> Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1995
(Dollars in Thousands)
<CAPTION>
Kansas Gas Westar Westar
Western and Capital Security
Resources Electric MCMC Consolidated Services
(Exhibit A-2)
<S> <C> <C> <C> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . $1,913,146 $3,427,928 $ - $ - $ -
Natural gas plant in service. . . . . . . 683,150 - 104,303 - -
2,596,296 3,427,928 104,303 - -
Less - Accumulated depreciation . . . . . 983,101 893,728 49,691 - -
1,613,195 2,534,200 54,612 - -
Construction work in progress . . . . . . 50,974 40,810 8,617 - -
Nuclear fuel (net). . . . . . . . . . . . - 53,942 - - -
Net utility plant. . . . . . . . . . . 1,664,169 2,628,952 63,229 - -
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . 1,278,366 196 - 85,026 2,000
Decommissioning trust . . . . . . . . . . - 25,070 - - -
Other . . . . . . . . . . . . . . . . . . 212 7,689 - 1,324 -
1,278,578 32,955 - 86,350 2,000
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . 155 53 407 1,680 22
Accounts receivable and
unbilled revenues (net) . . . . . . . . 146,060 76,490 377 33,773 115
Accounts receivable - associated companies 1,523 34,948 2,595 - -
Notes receivable - associated companies . 55,300 - - - -
Fossil fuel, at average cost. . . . . . . 37,220 17,522 - - -
Gas stored underground (average cost) . . 28,106 - - - -
Materials and supplies (average cost) . . 25,767 31,458 - 721 50
Prepayments and other current assets. . . 5,196 17,128 339 (1,730) 33
299,327 177,599 3,718 34,444 220
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . 73,697 208,367 412 - -
Deferred coal contract
settlement costs. . . . . . . . . . . . 12,662 14,612 - - -
Phase-in revenues . . . . . . . . . . . . - 43,861 - - -
Corporate-owned life insurance (net). . . 36,864 7,279 - - -
Other deferred plant costs. . . . . . . . - 31,539 - - -
Unamortized debt expense. . . . . . . . . 31,076 25,605 - - -
Other . . . . . . . . . . . . . . . . . . 69,850 32,645 (4) - -
224,149 363,908 408 - -
TOTAL ASSETS . . . . . . . . . . . . . $3,466,223 $3,203,414 $ 67,355 $ 120,794 $ 2,220
CAPITALIZATION AND LIABILITIES
CAPITALIZATION. . . . . . . . . . . . . . . $2,435,149 $1,870,159 $ 47,062 $ 40,633 $ 1,967
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . 153,450 50,000 - - -
Long-term debt due within one year. . . . - 16,000 - - -
Notes payable - associated companies. . . 103,093 - 9,065 43,110 -
Accounts payable. . . . . . . . . . . . . 69,137 50,783 91 28,965 114
Accounts payable - associated companies . 36,767 - - 43 -
Accrued taxes . . . . . . . . . . . . . . 48,717 17,766 405 1,900 2
Accrued interest and dividends. . . . . . 54,254 7,903 - 1,203 -
Other . . . . . . . . . . . . . . . . . . 33,251 6,608 65 575 28
498,669 149,060 9,626 75,796 144
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . 354,943 800,934 9,405 2,188 -
Deferred investment tax credits . . . . . 58,069 72,970 1,247 - -
Deferred gain from sale-leaseback . . . . - 242,700 - - -
Other . . . . . . . . . . . . . . . . . . 119,393 67,591 15 2,177 109
532,405 1,184,195 10,667 4,365 109
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES. . $3,466,223 $3,203,414 $ 67,355 $ 120,794 $ 2,220
</TABLE>
<page10> Exhibit A-1
<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1995
(Dollars in Thousands)
(Continued)
<CAPTION>
Westar
Consumer Western GSEC and Western
Services Resources KPL Eliminating Resources
Consolidated Capital I Funding Entries Consolidated
<S> <C> <C> <C> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . $ - $ $ - $ - $ 5,341,074
Natural gas plant in service. . . . . . . - - - - 787,453
- - - - 6,128,527
Less - Accumulated depreciation . . . . . - - - - 1,926,520
- - - - 4,202,007
Construction work in progress . . . . . . - - - - 100,401
Nuclear fuel (net). . . . . . . . . . . . - - - - 53,942
Net utility plant. . . . . . . . . . . - - - - 4,356,350
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . 2,814 - - (1,278,358) 90,044
Decommissioning trust . . . . . . . . . . - - - - 25,070
Other . . . . . . . . . . . . . . . . . . - - - - 9,225
2,814 - - (1,278,358) 124,339
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . 97 - - - 2,414
Accounts receivable and
unbilled revenues (net) . . . . . . . . 477 - - - 257,292
Accounts receivable - associated companies - 103,093 11 (142,170) -
Notes receivable - associated companies . - - - (55,300) -
Fossil fuel, at average cost. . . . . . . - - - - 54,742
Gas stored underground (average cost) . . - - - - 28,106
Materials and supplies (average cost) . . - - - - 57,996
Prepayments and other current assets. . . 7 - - - 20,973
581 103,093 11 (197,470) 421,523
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . - - - - 282,476
Deferred coal contract
settlement costs. . . . . . . . . . . . - - - - 27,274
Phase-in revenues . . . . . . . . . . . . - - - - 43,861
Corporate-owned life insurance (net). . . - - - - 44,143
Other deferred plant costs. . . . . . . . - - - - 31,539
Unamortized debt expense. . . . . . . . . - - - - 56,681
Other . . . . . . . . . . . . . . . . . . - - - - 102,491
- - - - 588,465
TOTAL ASSETS . . . . . . . . . . . . . $ 3,395 $ 103,093 $ 11 $(1,475,828) $ 5,490,677
CAPITALIZATION AND LIABILITIES
CAPITALIZATION. . . . . . . . . . . . . . . $ (485) $ 103,093 $ 11 $(1,278,358) $ 3,219,231
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . - - - - 203,450
Long-term debt due within one year. . . . - - - - 16,000
Notes payable - associated companies. . . 3,125 - - (158,393) -
Accounts payable. . . . . . . . . . . . . 104 - - - 149,194
Accounts payable - associated companies . 788 - - (37,598) -
Accrued taxes . . . . . . . . . . . . . . (221) - - - 68,569
Accrued interest and dividends. . . . . . - - - (1,203) 62,157
Other . . . . . . . . . . . . . . . . . . 15 - - (276) 40,266
3,811 - - (197,470) 539,636
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . - - - - 1,167,470
Deferred investment tax credits . . . . . - - - - 132,286
Deferred gain from sale-leaseback . . . . - - - - 242,700
Other . . . . . . . . . . . . . . . . . . 69 - - - 189,354
69 - - - 1,731,810
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES. . $ 3,395 $ 103,093 $ 11 $(1,475,828) $ 5,490,677
</TABLE>
<page11> Exhibit A-1
<TABLE> WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1995
(Dollars in Thousands,
except Per Share Amounts)
<CAPTION>
Kansas Gas Westar Westar
Western and Capital Security
Resources Electric MCMC Consolidated Services
(Exhibit A-2)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . $ 522,027 $ 623,868 $ - $ - $ -
Natural gas . . . . . . . . . . . . . . . 426,176 - - - -
Total operating revenues. . . . . . . . 948,203 623,868 - - -
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . 131,402 80,592 - - -
Nuclear fuel. . . . . . . . . . . . . . - 19,425 - - -
Power purchased . . . . . . . . . . . . . 11,162 4,577 - - -
Natural gas purchases . . . . . . . . . . 263,790 - - - -
Other operations. . . . . . . . . . . . . 199,403 117,876 - - -
Maintenance . . . . . . . . . . . . . . . 60,585 48,056 - - -
Depreciation and amortization . . . . . . 77,236 79,679 - - -
Amortization of phase-in revenues . . . . - 17,545 - - -
Taxes
Federal income. . . . . . . . . . . . . 21,802 48,330 - - -
State income. . . . . . . . . . . . . . 5,845 12,543 - - -
General . . . . . . . . . . . . . . . . 50,598 46,241 - - -
Total operating expenses. . . . . . . 821,823 474,864 - - -
OPERATING INCOME. . . . . . . . . . . . . . 126,380 149,004 - - -
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . - (2,668) - - -
Miscellaneous (net) . . . . . . . . . . . 16,830 4,884 1,262 947 (2)
Equity earnings of subsidiary companies . 112,606 - - - -
Income taxes (net). . . . . . . . . . . . (3,958) 9,086 - - -
Total other income and deductions . . . 125,478 11,302 1,262 947 (2)
INCOME BEFORE INTEREST CHARGES. . . . . . . 251,858 160,306 1,262 947 (2)
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . 48,889 47,073 - - -
Other . . . . . . . . . . . . . . . . . . 22,669 5,190 - - -
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . (1,376) (2,830) - - -
Total interest charges. . . . . . . . 70,182 49,433 - - -
NET INCOME. . . . . . . . . . . . . . . . . 181,676 110,873 1,262 947 (2)
PREFERRED AND PREFERENCE DIVIDENDS. . . . . 13,419 - - - -
EARNINGS APPLICABLE TO COMMON STOCK . . . . $ 168,257 $ 110,873 $ 1,262 $ 947 $ (2)
AVERAGE COMMON SHARES OUTSTANDING . . . . . 62,157,125
EARNINGS PER AVERAGE COMMON
SHARE OUTSTANDING . . . . . . . . . . . . $ 2,71
</TABLE>
<page12> Exhibit A-1
<TABLE> WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1995
(Dollars in Thousands,
except Per Share Amounts)
(Continued)
<CAPTION>
Westar
Consumer Western GSEC and Western
Services Resources KPL Eliminating Resources
Consolidated Capital I Funding Entries Consolidated
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . $ - $ - $ - $ - $ 1,145,895
Natural gas . . . . . . . . . . . . . . . - - - - 426,176
Total operating revenues. . . . . . . . - - - - 1,572,071
OPERATING EXPENSES:
Fuel used for generation
Fossil fuel . . . . . . . . . . . . . . - - - - 211,994
Nuclear fuel. . . . . . . . . . . . . . - - - - 19,425
Power purchased . . . . . . . . . . . . . - - - - 15,739
Natural gas purchases . . . . . . . . . . - - - - 263,790
Other operations. . . . . . . . . . . . . - - - - 317,279
Maintenance . . . . . . . . . . . . . . . - - - - 108,641
Depreciation and amortization . . . . . . - - - - 156,915
Amortization of phase-in revenues . . . . - - - - 17,545
Taxes:
Federal income. . . . . . . . . . . . . - - - - 70,132
State income. . . . . . . . . . . . . . - - - - 18,388
General . . . . . . . . . . . . . . . . - - - - 96,839
Total operating expenses. . . . . . . - - - - 1,296,687
OPERATING INCOME. . . . . . . . . . . . . . - - - - 275,384
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . - - - - (2,668)
Miscellaneous (net) . . . . . . . . . . . (486) 12 - - 23,447
Equity earnings of subsidiary companies . - - (112,606) -
Income taxes (net). . . . . . . . . . . . - - - - 5,128
Total other income and deductions . . . (486) 12 - (112,606) 25,907
INCOME BEFORE INTEREST CHARGES. . . . . . . (486) 12 - (112,606) 301,291
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . - - - - 95,962
Other . . . . . . . . . . . . . . . . . . - - - - 27,859
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . - - - - (4,206)
Total interest charges. . . . . . . . - - - - 119,615
NET INCOME. . . . . . . . . . . . . . . . . (486) 12 - (112,606) 181,676
PREFERRED AND PREFERENCE DIVIDENDS. . . . . - - - - 13,419
EARNINGS APPLICABLE TO COMMON STOCK . . . . $ (486) $ 12 $ - $ (112,606) $ 168,257
AVERAGE COMMON SHARES OUTSTANDING . . . . . 62,157,125
EARNINGS PER AVERAGE COMMON
SHARE OUTSTANDING . . . . . . . . . . . . $ 2,71
</TABLE>
<page13>
<TABLE> Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1995
(Dollars in Thousands)
<CAPTION>
Kansas Gas Westar Westar
Western and Capital Security
Resources Electric MCMC Consolidated Services
(Exhibit A-2)
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . $ 498,374 $ 159,570 $ - $ 3,544 $ -
ADD:
Net income. . . . . . . . . . . . . . . . 181,676 110,873 1,262 947 (2)
Total . . . . . . . . . . . . . . . . . 680,050 270,443 1,262 4,491 (2)
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . . 13,419 - - - -
Common stock. . . . . . . . . . . . . . . 125,763 150,000 - - -
Total . . . . . . . . . . . . . . . . . 139,182 150,000 - - -
BALANCE AT END OF PERIOD. . . . . . . . . . $ 540,868 $ 120,443 $ 1,262 $ 4,491 $ (2)
Westar
Consumer Western GSEC and Western
Servies Resources KPL Eliminating Resources
Consolidated Capital I Funding Entries Consolidated
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . $ - $ - $ 2,410 $ (165,524) $ 498,374
ADD:
Net income. . . . . . . . . . . . . . . . (486) 12 - (112,606) 181,676
Total . . . . . . . . . . . . . . . . . (486) 12 2,410 (278,130) 680,050
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . . - - - - 13,419
Common stock. . . . . . . . . . . . . . . - - - (150,000) 125,763
Total . . . . . . . . . . . . . . . . . - - - (150,000) 139,182
BALANCE AT END OF PERIOD. . . . . . . . . . $ (486) $ 12 $ 2,410 $ (128,130) $ 540,868
</TABLE>
<page14>
<TABLE> Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1995
(Dollars in Thousands)
<CAPTION>
Westar Westar Westar
Westar Financial Limited Gas
Capital Services Partners Marketing
<S> <C> <C> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . $ - $ - $ - $ -
Natural gas plant in service. . . . . . . . - - - -
- - - -
Less - Accumulated depreciation . . . . . . - - - -
- - - -
Construction work in progress . . . . . . . - - - -
Nuclear fuel (net). . . . . . . . . . . . . - - - -
Net utility plant. . . . . . . . . . . . - - - -
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . . 87,892 260 7,417 5,678
Decommissioning trust . . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . . 81 - 326 424
87,973 260 7,743 6,102
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . 90 1 89 1,378
Accounts receivable and
unbilled revenues (net) . . . . . . . . . - - - 31,816
Accounts receivable - associated companies. - - - -
Notes receivable - associated companies . . - - - -
Fossil fuel, at average cost. . . . . . . . - - - -
Gas stored underground (average cost) . . . - - - -
Materials and supplies (average cost) . . . - - - 721
Prepayments and other current assets. . . . 928 22 637 (1,342)
1,018 23 726 32,573
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . - - - -
Deferred coal contract
settlement costs. . . . . . . . . . . . . - - - -
Phase-in revenues . . . . . . . . . . . . . - - - -
Corporate-owned life insurance (net). . . . - - - -
Other deferred plant costs. . . . . . . . . - - - -
Unamortized debt expense. . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . . - - - -
- - - -
TOTAL ASSETS . . . . . . . . . . . . . . $ 88,991 $ 283 $ 8,469 $ 38,675
CAPITALIZATION AND LIABILITIES
CAPITALIZATION. . . . . . . . . . . . . . . . $ 40,633 $ 236 $ 2,514 $ 7,130
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . - - - -
Long-term debt due within one year. . . . . - - - -
Notes payable - associated companies. . . . 43,110 - 5,674 4,086
Accounts payable. . . . . . . . . . . . . . 3,214 - - 24,039
Accounts payable - associated companies . . 43 - - -
Accrued taxes . . . . . . . . . . . . . . . 61 - - 196
Accrued interest and dividends. . . . . . . 1,203 - 137 211
Other . . . . . . . . . . . . . . . . . . . 544 39 94 359
48,175 39 5,905 28,891
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . 1 1 50 866
Deferred investment tax credits . . . . . . - - - -
Deferred gain from sale-leaseback . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . . 182 7 - 1,788
183 8 50 2,654
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES. . . $ 88,991 $ 283 $ 8,469 $ 38,675
</TABLE>
<page15>
<TABLE> Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1995
(Dollars in Thousands)
(Continued)
Westar Westar
Gas Co Consolidating Capital
Consolidated Entries Consolidated
<S> <C> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . $ - $ - $ -
Natural gas plant in service. . . . . . . . - - -
- - -
Less - Accumulated depreciation . . . . . . - - -
- - -
Construction work in progress . . . . . . . - - -
Nuclear fuel (net). . . . . . . . . . . . . - - -
Net utility plant. . . . . . . . . . . . - - -
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . . 15,882 (32,103) 85,026
Decommissioning trust . . . . . . . . . . . - - -
Other . . . . . . . . . . . . . . . . . . . 499 (6) 1,324
16,381 (32,109) 86,350
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . 122 - 1,680
Accounts receivable and
unbilled revenues (net) . . . . . . . . . 1,957 - 33,773
Accounts receivable - associated companies. - - -
Notes receivable - associated companies . . - - -
Fossil fuel, at average cost. . . . . . . . - - -
Gas stored underground (average cost) . . . - - -
Materials and supplies (average cost) . . . - - 721
Prepayments and other current assets. . . . 481 (2,456) (1,730)
2,560 (2,456) 34,444
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . - - -
Deferred coal contract
settlement costs. . . . . . . . . . . . . - - -
Phase-in revenues . . . . . . . . . . . . . - - -
Corporate-owned life insurance (net). . . . - - -
Other deferred plant costs. . . . . . . . . - - -
Unamortized debt expense. . . . . . . . . . - - -
Other . . . . . . . . . . . . . . . . . . . - - -
- - -
TOTAL ASSETS . . . . . . . . . . . . . . $ 18,941 $ (34,565) $ 120,794
CAPITALIZATION AND LIABILITIES
CAPITALIZATION. . . . . . . . . . . . . . . . $ 12,202 $ (22,082) $ 40,633
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . - - -
Long-term debt due within one year. . . . . - - -
Notes payable - associated companies. . . . - (9,760) 43,110
Accounts payable. . . . . . . . . . . . . . 1,712 - 28,965
Accounts payable - associated companies . . - - 43
Accrued taxes . . . . . . . . . . . . . . . 3,320 (1,677) 1,900
Accrued interest and dividends. . . . . . . 20 (368) 1,203
Other . . . . . . . . . . . . . . . . . . . 64 (525) 575
5,116 (12,330) 75,796
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . 1,415 (145) 2,188
Deferred investment tax credits . . . . . . - - -
Deferred gain from sale-leaseback . . . . . - - -
Other . . . . . . . . . . . . . . . . . . . 208 (8) 2,177
1,623 (153) 4,365
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES. . . $ 18,941 $ (34,565) $ 120,794<PAGE>
</TABLE>
<page16>
<TABLE> Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1995
(Dollars in Thousands,
except Per Share Amounts)
<CAPTION>
Westar Westar Westar
Westar Financial Limited Gas
Capital Services Partners Marketing
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . $ - $ - $ - $ -
Natural gas . . . . . . . . . . . . . . . . - - - -
Total operating revenues. . . . . . . . . - - - -
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . - - - -
Nuclear fuel. . . . . . . . . . . . . . . - - - -
Power purchased . . . . . . . . . . . . . . - - - -
Natural gas purchases . . . . . . . . . . . - - - -
Other operations. . . . . . . . . . . . . . - - - -
Maintenance . . . . . . . . . . . . . . . . - - - -
Depreciation and amortization . . . . . . . - - - -
Amortization of phase-in revenues . . . . . - - - -
Taxes:
Federal income. . . . . . . . . . . . . . - - - -
State income. . . . . . . . . . . . . . . - - - -
General . . . . . . . . . . . . . . . . . - - - -
Total operating expenses. . . . . . . . - - - -
OPERATING INCOME. . . . . . . . . . . . . . . - - - -
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . - - - -
Gain on sales of Missouri Properties. . . . - - - -
Miscellaneous (net) . . . . . . . . . . . . 947 (33) (26) (3,665)
Equity earnings of subsidiary companies . . - - - -
Income taxes (net). . . . . . . . . . . . . - - - -
Total other income and deductions . . . . 947 (33) (26) (3,665)
INCOME BEFORE INTEREST CHARGES. . . . . . . . 947 (33) (26) (3,665)
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . . - - - -
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . - - - -
Total interest charges. . . . . . . . . - - - -
NET INCOME. . . . . . . . . . . . . . . . . . 947 (33) (26) (3,665)
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . - - - -
EARNINGS APPLICABLE TO COMMON STOCK . . . . . $ 947 $ (33) $ (26) $ (3,665)
</TABLE>
<page17> Exhibit A-2
<TABLE> WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1995
(Dollars in Thousands,
except Per Share Amounts)
(Continued)
<CAPTION>
Westar Westar
Gas Co Consolidating Capital
Consolidated Entries Consolidated
<S> <C> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . $ - $ - $ -
Natural gas . . . . . . . . . . . . . . . . - - -
Total operating revenues. . . . . . . . . - - -
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . - - -
Nuclear fuel. . . . . . . . . . . . . . . - - -
Power purchased . . . . . . . . . . . . . . - - -
Natural gas purchases . . . . . . . . . . . - - -
Other operations. . . . . . . . . . . . . . - - -
Maintenance . . . . . . . . . . . . . . . . - - -
Depreciation and amortization . . . . . . . - - -
Amortization of phase-in revenues . . . . . - - -
Taxes:
Federal income. . . . . . . . . . . . . . - - -
State income. . . . . . . . . . . . . . . - - -
General . . . . . . . . . . . . . . . . . - - -
Total operating expenses. . . . . . . . - - -
OPERATING INCOME. . . . . . . . . . . . . . . - - -
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . - - -
Gain on sales of Missouri Properties. . . . - - -
Miscellaneous (net) . . . . . . . . . . . . 2,951 773 947
Equity earnings of subsidiary companies . . - - -
Income taxes (net). . . . . . . . . . . . . - - -
Total other income and deductions . . . . 2,951 773 947
INCOME BEFORE INTEREST CHARGES. . . . . . . . 2,951 773 947
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . - - -
Other . . . . . . . . . . . . . . . . . . . - - -
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . - - -
Total interest charges. . . . . . . . . - - -
NET INCOME. . . . . . . . . . . . . . . . . . 2,951 773 947
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . - - -
EARNINGS AVAILABLE TO COMMON STOCK. . . . . . $ 2,951 $ 773 $ 947
</TABLE>
<page18> Exhibit A-2
<TABLE>
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1995
(Dollars in Thousands)
<CAPTION>
Westar Westar Westar
Westar Financial Limited Gas
Capital Services Partners Marketing
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . . $ 3,544 $ 267 $ (1,211) $ 2,401
ADD:
Net income. . . . . . . . . . . . . . . . . 947 (33) (26) (3,665)
Total . . . . . . . . . . . . . . . . . . 4,491 234 (1,237) (1,264)
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . . . - - - -
Common stock. . . . . . . . . . . . . . . . - - - -
Total . . . . . . . . . . . . . . . . . . - - - -
BALANCE AT END OF PERIOD. . . . . . . . . . . $ 4,491 $ 234 $ (1,237) $ (1,264)
Westar Westar
Gas Co Consolidating Capital
Consolidated Entries Consolidated
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . . $ 4,310 $ (5,767) $ 3,544
ADD:
Net income. . . . . . . . . . . . . . . . . 2,951 773 947
Total . . . . . . . . . . . . . . . . . . 7,261 (4,994) 4,491
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . . . - - -
Common stock. . . . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . . . - - -
BALANCE AT END OF PERIOD. . . . . . . . . . . $ 7,261 $ (4,994) $ 4,491
</TABLE>
<page19>
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) and its wholly-owned subsidiaries, include KPL, a rate-regulated
electric and gas division of the Company, Kansas Gas and Electric
Company (KGE), a rate-regulated electric utility and wholly-owned subsidiary
of the Company, the Westar companies, non-utility subsidiaries, and Mid
Continent Market Center, Inc. (Market Center), a regulated gas transmission
service provider. KGE 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 non-utility subsidiaries were not material to the Company's overall
results of operations.
The Company is an investor-owned holding company. The Company is engaged
principally in the production, purchase, transmission, distribution and sale
of electricity and the delivery and sale of natural gas. The Company serves
approximately 601,000 electric customers in eastern and central Kansas and
approximately 648,000 natural gas customers in Kansas and northeastern
Oklahoma. The Company's non-utility subsidiaries which market natural gas
primarily to large commercial and industrial customers, provide other
energy-related products and services and provide electronic security services.
The Company prepares its financial statements in conformity 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). The financial statements
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
The Company follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards No. 71 "Accounting for the
Effects of Certain Types of Regulations" (SFAS 71). This pronouncement
requires deferral of certain costs and obligations based upon approvals
received from regulators to permit recovery or require refund of these costs
and revenues in future periods. Consequently, the recorded net book value of
certain assets and liabilities may be different than that which would
otherwise be recorded by unregulated enterprises. On a continuing basis, the
Company reviews the continued applicability of SFAS 71 based on the current
regulatory and competitive environment. Although recent developments suggest
the electric generation industry may become more competitive, the degree to
which regulatory oversight of the Company will be lifted and competition will
be permitted is uncertain. Currently, there are no proceedings or actions at
the KCC to open the Company's electric markets to greater competition. As a
result, the Company continues to believe that accounting under SFAS 71 is
appropriate. If the Company were to determine that the use of SFAS 71 were
no longer appropriate, it would be required to write-off the deferred costs
and obligations that represent regulatory assets and
<page20>
liabilities referred to above. It may also be necessary for the Company to
reduce the carrying value of a portion of its plant and equipment to the
extent that it is expected to become impaired. At this time, it is not
possible to estimate the amount of the Company's plant and equipment, if any,
that would be considered unrecoverable in such circumstances, as the effect
of any future competition on the Company's rates is not clear at this time.
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
6.31% in 1995, 4.08% in 1994, and 4.10% in 1993. The cost of additions to
utility plant and replacement units of property are 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.
In accordance with regulatory decisions made by the KCC, amortization of
the acquisition premium of approximately $801 million resulting from the KGE
purchase began in August of 1995. The premium is being amortized over 40
years and has been classified as electric plant in service. Accumulated
amortization through December 31, 1995 totals $6.7 million.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121).
This Statement imposes stricter criteria for regulatory assets by requiring
that such assets be probable of future recovery at each balance sheet date.
The Company will adopt this standard on January 1, 1996 and does not expect
that adoption will have a material impact on the financial position or
results of operations based on the Company's current regulatory structure.
This conclusion may change in the future if increases in competition
influence regulation and wholesale and retail pricing in the electric
industry.
Depreciation: Depreciation is provided on the straight-line method based
on estimated useful lives of property. Composite provisions for book
depreciation approximated 2.84% during 1995, 2.87% during 1994, and 3.02%
during 1993 of the average original cost of depreciable property. The
methods and rates of depreciation used by the Company have not varied
materially from the methods and rates which would have been used if the
Company were not regulated and not subject to the provisions prescribed by
SFAS 71. In the past, the methods and rates have been determined by
depreciation studies and approved by the various regulatory bodies. The
Company periodically evaluates its depreciation rates considering the past
and expected future experience in the operation of its facilities. The
Company has proposed to more rapidly recover the Company's investment in
assets of Wolf Creek to reduce the capital costs of Wolf Creek Generating
Station to a level more closely paralleling that of fossil-fueled generating
facilities. For information regarding such proposal, see Note 4.
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.
<page21>
Income Taxes: The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" (SFAS 109). Under SFAS 109, deferred tax assets and
liabilities are recognized based on temporary differences in amounts recorded
for financial reporting purposes and their respective tax bases (See Note
12).
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 for both electric and natural gas services
include estimated amounts for services rendered but unbilled at the end of
each year. Unbilled revenues of $66 million and $61 million are recorded as
a component of accounts receivable and unbilled revenues (net) on the
Consolidated Balance Sheets as of December 31, 1995 and 1994, respectively.
The Company's recorded reserves for doubtful accounts receivable totaled
$4.9 million and $3.4 million at December 31, 1995 and 1994, respectively.
Investments: The Company records its investment and ownership percentage
of earnings or losses of an investee utilizing the equity method of
accounting when the Company's ownership interest allows it to exert
significant influence over the operations of the investee.
In December 1995, a non-regulated subsidiary's net assets were exchanged
for a 20% equity interest in a corporation supplying gas compression units
to natural gas producers. This investment is valued at approximately $56
million, and is included in net non-utility investments on the Consolidated
Balance Sheets as of December 31, 1995.
Debt Issuance and Reacquisition Expense: Debt premium, discount and
issuance expenses are amortized over the life of each issue. Under
regulatory procedures, debt reacquisition expenses are amortized over the
remaining life of the reacquired debt or, if refinanced, the life of the new
debt.
Risk Management: The Company is exposed to price risk from fluctuating
natural gas prices resulting from gas marketing activities of a non-regulated
subsidiary. This subsidiary utilizes various financial instruments to
mitigate much of its exposure to fluctuating market prices of commodities.
These financial instruments are designated as hedges and as such, gains or
losses associated with these financial instruments are deferred until the
commodity being hedged is delivered.
At December 31, 1995, this subsidiary had entered into natural gas
financial instruments with a contractual volume of 11.05 BCF expiring through
2000. The market value of these instruments as of December 31, 1995 was $2.7
million more than the contract value.
<page22>
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, 1995 and 1994, was $28.5 million and $13.6
million, respectively.
Cash Surrender Value of Life Insurance Contracts: The following amounts
related to corporate-owned life insurance contracts (COLI) are recorded in
Corporate-owned Life Insurance (net) on the Consolidated Balance Sheets:
1995 1994
(Dollars in Millions)
Cash surrender value of contracts. . . $ 479.9 $ 408.9
Borrowings against contracts . . . . . (435.8) (391.9)
COLI (net). . . . . . . . . . $ 44.1 $ 17.0
Income is recorded for increases in cash surrender value and net death
proceeds. Interest expense is recognized for COLI borrowings except for
certain contracts entered into in 1993 and 1992. The net income generated
from COLI contracts purchased prior to 1992 including the tax benefit of the
interest deduction and premium expenses are recorded as Corporate-owned Life
Insurance (net) on the Consolidated Statements of Income. The income from
increases in cash surrender value and net death proceeds was $22.7 million in
1995, $15.6 million in 1994, and $19.7 million in 1993. The interest expense
deduction taken was $25.4 million for 1995, $21.0 million for 1994, and $11.9
million for 1993.
The COLI contracts entered into in 1993 and 1992 were established to
mitigate the cost of postretirement and postemployment benefits. As approved
by the KCC, the Company is using the net income stream generated by these
COLI policies to offset the costs of postretirement and postemployment
benefits. A significant portion of this income stream relates to the tax
deduction currently taken for interest incurred on contract borrowings under
these COLI policies. The amount of the interest deduction used to offset
these benefits costs was $7.0 million for 1995, $5.8 million for 1994, and
$4.5 million for 1993.
Federal legislation is pending, which, if enacted, may substantially
reduce or eliminate the tax deduction for interest on COLI borrowings, and
thus reduce a significant portion of the net income stream generated by the
COLI contracts (See Note 7).
Reclassifications: Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
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."
The portion of the Missouri Properties purchased by Southern Union was
sold for $404 million. For information regarding litigation in connection
with the
<page23>
sale of the Missouri Properties to Southern Union, see Note 3. United Cities
purchased the Company's natural gas distribution system in and around the
City of Palmyra, Missouri for $665,000.
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 included in the Company's consolidated results for the years
ended December 31, 1994 and 1993, and net utility plant at December 31, 1993,
related to the Missouri Properties:
1994 1993
Percent Percent
of Total of Total
Amount Company Amount Company
(Dollars in Thousands, Unaudited)
Operating revenues. . . . $ 77,008 4.8% $349,749 18.3%
Operating income. . . . . 4,997 1.9% 20,748 7.1%
Net utility plant . . . . - - 296,039 6.6%
Separate audited financial information was not kept by the Company for the
Missouri Properties. This unaudited financial information is based on
assumptions and allocations of expenses of the Company as a whole.
3. 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,
alleging, among other things, breach of the Missouri Properties sale
agreement relating to certain gas supply contracts between the Company and
various Bishop entities. Southern Union assumed these contracts upon the
sale of the Missouri Properties and requested 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
including claims related to the purchase price of the Missouri Properties.
The disputed purchase price adjustments were submitted to an arbitrator in
February 1995. Based on the decision of the arbitrator rendered in April
1995, Southern Union paid the Company $3.6 million including interest. For
additional information regarding the sales of the Missouri Properties, see
Note 2.
In April, 1995, Southern Union filed its amended complaint against the
Company, alleging a variety of new theories in support of its revised damage
claims. Southern Union now claims that it has overpaid the Company from
between $38 to $53 million dollars for the Missouri Properties. The Company
has filed its amended answer denying each and every claim made by Southern
Union in its amended complaint. The Company has filed motions for summary
judgment against the amended complaint. The resolution of this matter is not
expected to have a material adverse impact on the Company.
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
<page24>
gas supply contracts. The Bishop entities claimed damages up to $270 million
against the Company and Southern Union. On March 1, 1995 this litigation
between the Company and the Bishop entities was jointly dismissed with
prejudice and the parties exchanged mutual releases of any and all claims.
The gas supply contracts at issue in the above litigation were canceled.
The agreements between the Company and the Bishop entities resolved
disputes between them in regulatory proceedings before the KCC, the Missouri
Public Service Commission, and the FERC.
Subject to the approval of the KCC, the Company has entered into five
new gas supply contracts with certain Bishop entities which are currently
regulated by the KCC. A contested hearing was held for the approval of those
contracts. While the case was under consideration by the KCC, the FERC
issued an order under which it extended jurisdiction over the Bishop
entities. On November 3, 1995, the KCC stayed its consideration of the
contracts between the Company and the Bishop entities until the FERC takes
final appealable action on its assertion of jurisdiction over the Bishop
entities. The settlement of the parties' disputes is not contingent upon the
KCC's approval of these contracts.
The Company and its subsidiaries are involved in various other legal,
environmental, and regulatory 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 Company's overall financial
position or results of operations.
4. RATE MATTERS AND REGULATION
The Company, under rate orders from the KCC, OCC, and 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.
KCC Rate Proceedings: On August 17, 1995, the Company filed with the KCC
a request to more rapidly recover its investment in its assets of Wolf Creek
over the next seven years. If the request is granted, depreciation expense
for Wolf Creek will increase by approximately $50 million for each of the
next seven years. As a result of this proposal, the Company will also seek
to reduce electric rates for KGE customers by approximately $9 million
annually for the same seven year period based upon this accelerated
depreciation expense.
The request also reduces the annual depreciation expense by approximately
$11 million for electric transmission, distribution and certain generating
plant assets to reflect the effect of increasing useful lives of these
properties. Hearings before the KCC on the depreciation changes and
voluntary rate reductions are expected to occur in May 1996.
In addition, the Company filed a $36 million annual rate increase request
for its Kansas natural gas properties. The increase is being sought to
recover costs associated with its service line replacement program as well as
other increased operating costs (See discussion below regarding KCC order
issued on January 24, 1992). <page25>
On January 26, 1996, the KCC staff submitted testimony related to this rate
increase recommending an increase of current gas rates of approximately $34
million annually. Management believes its initial request of approximately
$36 million is reasonable. The ultimate decision related to the Company's
request resides with the KCC. Hearings before the KCC on the gas rate
increase proposal are scheduled to begin February 12, 1996, with approval of
new permanent rates expected to become effective in April 1996.
On June 30, 1995, the KCC granted a certificate authorizing the
business operations of the Market Center. The Market Center, which began
operations on July 1, 1995, provides natural gas transportation, storage, and
gathering services, as well as balancing, and title transfer capability.
The Company transferred certain natural gas transmission assets having a net
book value of approximately $50 million to the Market Center.
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, 1995,
approximately $14.2 million of these deferrals have been included in Deferred
Charges and Other Assets, Other, on the Consolidated Balance Sheet.
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 ordered the accrual of phase-in
revenues to be discontinued by KGE effective December 31, 1988. KGE began
amortizing the phase-in revenue asset on a straight-line basis over 9 1/2 years
beginning January 1, 1989. At December 31, 1995, approximately $44 million
of deferred phase-in revenues remain to be recovered.
Coal Contract Settlements: In March 1990, the KCC issued an order
allowing KGE 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 KGE 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, KGE 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).
5. SHORT-TERM DEBT
The Company's short-term financing requirements are satisfied, through the
sale of
<page26>
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, 1995, 1994, and 1993, is set forth below:
Year Ended December 31, 1995 1994 1993
(Dollars in Thousands)
Lines of credit at year end. . . . $121,075 $145,000 $145,000
Short-term debt out-
standing at year end . . . . . . 203,450 308,200 440,895
Weighted average interest rate
on debt outstanding at year
end (including fees) . . . . . . 6.02% 6.25% 3.67%
Maximum amount of short-
term debt outstanding during
the period. . . .. . . . . . . . $355,615 $485,395 $443,895
Monthly average short-term debt. . 301,871 214,180 347,278
Weighted daily average interest
rates during the year
(including fees) . . . . . . . . 6.15% 4.63% 3.44%
In connection with the above arrangements, 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.
6. 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 $92 million at December 31, 1995. Approximately $20
million is attributable to modifications to upgrade the three turbines at
Jeffrey Energy Center to be completed by December 31, 1998.
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.<PAGE>
<page27>
Investment: On December 22, 1995 the Company entered into Stock Purchase
and Equity Agreements with another corporation to acquire up to 30.8 million
common shares of ADT Limited (ADT). ADT's principal business is providing
electronic security services. On January 26, 1996, the Company purchased
15.4 million of such ADT common shares for $215.6 million ($14 per share).
The Company has an option to purchase the remaining 15.4 million common
shares held by the corporation through May 1997 at the higher of $14 per
share or the market price as defined.
The selling corporation has granted the Company an irrevocable voting
proxy with respect to the option shares during the option period. The shares
purchased and the option shares represent approximately 24% of ADT's common
equity. The Company intends to account for its investment in ADT using the
equity method of accounting.
Manufactured Gas Sites: The Company has been associated with 15 former
manufactured gas sites located in Kansas which may contain coal tar and other
potentially harmful materials. The Company and the Kansas Department of
Health and Environment (KDHE) entered into a consent agreement governing all
future work at the 15 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 costs incurred for site investigation and risk assessment in 1995 and
1994 were minimal. The Company is aware of other Midwestern utilities which
have incurred remediation costs ranging between $500,000 and $10 million per
site. 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 required and number of years over which the remediation must be
completed.
Superfund Sites: The Company is one of numerous potentially responsible
parties at a groundwater contamination site in Wichita, Kansas (Wichita site)
which is listed by the EPA as a Superfund site. The Company has previously
been associated with other Superfund sites of which the Company's liability
has been classified as de minimis and any potential obligations have been
settled at minimal cost. In 1994, the Company settled Superfund obligations
at three sites for a total of $57,500. The Company's obligation at the
Wichita site appears to be limited based on this experience. In the opinion
of the Company's management, the resolution of this matter is not expected to
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 certain 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 from 1993 through 1995. The Company does not
expect additional equipment acquisitions or other material expenditures to be
needed to meet Phase II SO2 requirements.
Other Environmental Matters: As part of the sale of the Company's
Missouri Properties to Southern Union, Southern Union assumed responsibility
for any environmental matters related to the Missouri Properties. The Company
may be liable for up to a maximum of $7.5 million for 15 years after the date
of the sale under a sharing arrangement with Southern Union for environmental
matters pending or discovered within the two year period ended January 31,
1996.
<page28>
Decommissioning: The company accrues decommissioning costs over the
expected life of the Wolf Creek generating facility. The accrual is based on
estimated unrecovered decommissioning costs which consider inflation over the
remaining estimated life of the generating facility and are net of expected
earnings on amounts recovered from customers and deposited in an external
trust fund.
On June 9, 1994, the KCC issued an order approving the estimated
decommissioning costs as determined by a 1993 Wolf Creek Decommissioning Cost
Study to be recovered in rates. The cost study estimated the Company's share
of decommissioning costs to be $595 million or approximately $174 million in
1993 dollars. The decommissioning costs are currently expected to be
incurred during the period 2025 through 2033. These costs were calculated
using an assumed inflation rate of 3.45% and an average after tax expected
return on trust fund assets of 5.9%. Decommissioning costs are being charged
to operating expenses in accordance with the KCC order. Amounts expensed
approximated $3.6 million in 1995 and will increase annually to $5.5 million
in 2024.
The Company's investment in the decommissioning fund, including
reinvested earnings approximated $25.0 million and $16.9 million at December
31, 1995 and December 31, 1994, respectively. Trust fund earnings accumulate
in the fund balance and increase the recorded decommissioning liability.
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 staff of the SEC has questioned certain current accounting practices
used by nuclear electric generating station owners regarding the recognition,
measurement and classification of decommissioning costs for nuclear electric
generating stations. In response to these questions, the Financial Accounting
Standards Board (FASB) is expected to issue new accounting standards for
removal costs, including decommissioning in 1996. If current electric
utility industry accounting practices for such decommissioning costs are
changed: (1) annual decommissioning expenses could increase, (2) the
estimated present value of decommissioning costs could be recorded as a
liability rather than as accumulated depreciation, and (3) trust fund income
from the external decommissioning trusts could be reported as investment
income rather than as a reduction to decommissioning expense. When revised
accounting guidance is issued, the Company will also have to evaluate its
effect on accounting for removal costs of other long-lived assets. At this
time, the Company is not able to predict what effect such changes would have
on results of operations, financial position, or related regulatory practices
until the final issuance of revised accounting guidance.
The Company carries premature decommissioning insurance which 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. This decommissioning insurance will only be
available if the insurance funds are not needed to implement the NRC-approved
plan for stabilization and decontamination.
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. If this liability limitation is insufficient, the U.S.
Congress will consider taking whatever action is necessary to compensate the
public for valid claims. 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
<page29>
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 totaling
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 or premature decommissioning costs up to $1.3
billion (Company's share). Premature decommissioning insurance cost recovery
is 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 under the current policies of approximately $11
million.
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.
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 and coal. Some of these contracts contain provisions for price
escalation and minimum purchase commitments. At December 31, 1995, WCNOC's
nuclear fuel commitments (Company's share) were approximately $15.3 million
for uranium concentrates expiring at various times through 2001, $120.8
million for enrichment expiring at various times through 2014, and $72.7
million for fabrication through 2025. At December 31, 1995, the Company's
coal contract commitments in 1995 dollars under the remaining terms of the
contracts were approximately $2.5 billion. The largest coal contract expires
in 2020, with the remaining coal contracts expiring at various times through
2013.
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.
7. EMPLOYEE BENEFIT PLANS
Pension: The Company maintains qualified noncontributory defined benefit
pension plans covering substantially all employees. Pension benefits are
based on years of
<page30>
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.
Salary Continuation: The Company maintains a non-qualified Executive
Salary Continuation Program for the benefit of certain management employees,
including executive officers.
The following tables provide information on the components of pension and
salary continuation costs under Statement of Financial Accounting Standards
No. 87 "Employers' Accounting for Pension Plans" (SFAS 87), funded status and
actuarial assumptions for the Company:
Year Ended December 31, 1995 1994 1993
(Dollars in Thousands)
SFAS 87 Expense:
Service cost. . . . . . . . . . $ 11,059 $ 10,197 $ 9,778
Interest cost on projected
benefit obligation. . . . . . 32,416 29,734 35,688
(Gain) loss on plan assets. . . (102,731) 7,351 (64,113)
Deferred investment gain (loss) 70,810 (38,457) 29,190
Net amortization. . . . . . . . 1,132 245 (669)
Net expense . . . . . . . . $ 12,686 $ 9,070 $ 9,874
December 31, 1995 1994 1993
(Dollars in Thousands)
Reconciliation of Funded Status:
Actuarial present value of
benefit obligations:
Vested . . . . . . . . . . . $331,027 $278,545 $353,023
Non-vested . . . . . . . . . 21,775 19,132 26,983
Total. . . . . . . . . . . $352,802 $297,677 $380,006
Plan assets (principally debt
and equity securities) at
fair value . . . . . . . . . . . $444,608 $375,521 $490,339
Projected benefit obligation . . . 456,707 378,146 468,996
Funded status. . . . . . . . . . . (12,099) (2,625) 21,343
Unrecognized transition asset. . . (527) (2,205) (2,756)
Unrecognized prior service costs . 57,087 47,796 64,217
Unrecognized net gain. . . . . . . (75,312) (56,079) (108,783)
Accrued liability. . . . . . . . $(30,851) $(13,113) $(25,979)
Year Ended December 31, 1995 1994 1993
Actuarial Assumptions:
Discount rate. . . . . . . . . . 7.5% 8.0-8.5% 7.0-7.75%
Annual salary increase rate. . . 4.75% 5.0% 5.0%
Long-term rate of return . . . . 8.5-9.0% 8.0-8.5% 8.0-8.5%
Postretirement: The Company adopted the provisions of Statement of
Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106) in the first quarter
of 1993. This statement requires the
<page31>
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, postretirement benefits expenses approximated $15.0 million and
$12.4 million for 1995 and 1994, respectively. The Company's total
postretirement benefit obligation approximated $123.2 million and $114.6
million at December 31, 1995 and 1994 respectively. In addition, the Company
received an order from the KCC permitting the initial deferral of SFAS 106
expense in excess of amounts previously recognized. To mitigate the impact
incremental SFAS 106 expense will have on rate increases, the Company will
include in the future computation of cost of service the actual
postretirement benefits expenses and an income stream generated from COLI
contracts purchased in 1993 and 1992. To the extent postretirement benefits
expenses exceed 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. Because these expenses were deferred, there was
no effect on the results of continuing operations in 1995. At December 31,
1995, approximately $25.3 million of postretirement expenses had been
deferred pursuant to the KCC order. Pending federal legislation may
substantially reduce or eliminate tax benefits associated with COLI
contracts. If this legislation is enacted or should the income stream
generated by the COLI program not be sufficient to offset postretirement
benefit costs on an accrual basis, the KCC order allows the Company to seek
recovery of such deficit through the ratemaking process. Regulatory
precedents established by the KCC generally permit the accrual costs of
postretirement benefits to be recovered in rates.
The following table summarizes the status of the Company's postretirement
benefit plans for financial statement purposes and the related amounts
included in the Consolidated Balance Sheets:
December 31, 1995 1994
(Dollars in Thousands)
Reconciliation of Funded Status:
Actuarial present value of postretirement
benefit obligations:
Retirees. . . . . . . . . . . . . . . . . . . $ 81,402 $ 68,570
Active employees fully eligible . . . . . . . 7,645 13,549
Active employees not fully eligible . . . . . 34,144 32,484
Total . . . . . . . . . . . . . . . . . . . 123,191 114,603
Fair value of plan assets. . . . . . . . . . . . 46 -
Funded Status . . . . . . . . . . . . . . . . . . 123,145 114,603
Unrecognized prior service cost . . . . . . . . . 8,900 9,391
Unrecognized transition obligation. . . . . . . . (111,443) (117,967)
Unrecognized net gain . . . . . . . . . . . . . . 7,271 14,489
Accrued post-retirement benefit costs . . . . . . $ 27,873 $ 20,516
Year Ended December 31, 1995 1994
Actuarial Assumptions:
Discount rate . . . . . . . . . . . . . . . . . 7.5 % 8.0-8.5 %
Annual salary increase rate . . . . . . . . . . 4.75 % 5.0 %
Expected rate of return . . . . . . . . . . . . N/A 8.5 %
For measurement purposes, an annual health care cost growth rate of 11%
was assumed
<page32>
for 1995, 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 $4.3 million
and the aggregate of the service and interest cost components by $0.4
million.
Postemployment: The Company adopted Statement of Financial Accounting
Standards No. 112 "Employers' Accounting for Postemployment Benefits" (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 contracts purchased in 1993
and 1992. At December 31, 1995 approximately $8.3 million of postemployment
expenses had been deferred pursuant to the KCC order. Pending federal
legislation may substantially reduce or eliminate tax benefits associated
with COLI contracts. If this legislation is enacted or should the income
stream generated by the COLI program not be sufficient to offset
postemployment benefit costs on an accrual basis, the KCC order allows the
Company to seek recovery of such deficit through the ratemaking process.
Regulatory precedents established by the KCC generally permit the accrual
costs of postemployment benefits to be removed in rates. The 1995 and 1994
expense under SFAS 112 was approximately $3.6 million and $2.7 million,
respectively. At December 31, 1995 and 1994, the Company's SFAS 112
liability recorded on the Consolidated Balance Sheets was approximately $8.7
million and $8.4 million, respectively.
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, $5.1 million, and $5.8 million for 1995, 1994, and 1993,
respectively.
8. JOINT OWNERSHIP OF UTILITY PLANTS
Company's Ownership at December 31, 1995
In-Service Invest- Accumulated Net Per-
Dates ment Depreciation (MW) cent
(Dollars in Thousands)
La Cygne 1 (a) Jun 1973 $ 155,566 $ 99,133 341 50
Jeffrey 1 (b) Jul 1978 285,357 116,771 587 84
Jeffrey 2 (b) May 1980 289,443 109,858 617 84
Jeffrey 3 (b) May 1983 389,157 143,862 591 84
Wolf Creek (c) Sep 1985 1,371,878 335,941 548 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
<page33>
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.
9. LEASES
At December 31, 1995, the Company had leases covering various property and
equipment. Certain lease agreements in 1994 and 1993 met the criteria, as
set forth in Statement of Financial Accounting Standards No. 13, "Accounting
for Leases", for classification as capital leases. Capital lease payments
were $3.0 million and $3.3 million in 1994 and 1993, respectively. At
December 31, 1995, the Company had no capital leases.
Rental payments for operating leases and estimated rental commitments are
as follows:
Operating
Year Ended December 31, Leases
(Dollars in Thousands)
1993 55,011
1994 55,076
1995 63,353
Future Commitments:
1996 55,992
1997 49,892
1998 45,069
1999 41,882
2000 41,292
Thereafter 721,744
Total $955,871
In 1987, KGE 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. KGE remains responsible for its share of operation and
<page34>
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, 1995,
approximately $23.7 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 2000 and $646 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. KGE's lease expense, net of amortization of
the deferred gain and a one-time payment, was approximately $22.5 million for
1995, 1994, and 1993.
10. 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 KGE 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.
Debt discount and expenses are being amortized over the remaining lives of
each issue. The Western Resources and KGE 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
KGE pollution control series bonds, there are no longer any bond sinking fund
requirements. During 1996, $16 million of bonds will mature. $125 million
of bonds will mature in 1999 and $75 million of bonds will mature in 2000.
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 KGE 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, 1995, there was $50
million outstanding under the facility.
<page35>
Long-term debt outstanding at December 31, 1995 and 1994, was as follows:
1995 1994
(Dollars in Thousands)
Western Resources
First mortgage bond series:
7 1/4% due 1999. . . . . . . . . . . . . 125,000 125,000
8 7/8% due 2000. . . . . . . . . . . . . 75,000 75,000
7 1/4% due 2002. . . . . . . . . . . . . 100,000 100,000
8 1/2% due 2022. . . . . . . . . . . . . 125,000 125,000
7.65% due 2023. . . . . . . . . . . . . 100,000 100,000
525,000 525,000
Pollution control bond series:
Variable due 2032 (1). . . . . . . . . . 45,000 45,000
Variable due 2032 (2). . . . . . . . . . 30,500 30,500
6% due 2033. . . . . . . . . . . . . 58,420 58,500
133,920 134,000
KGE
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. . . . . . . . . . . . . 100,000 100,000
316,000 316,000
Pollution control bond series:
5.10 % due 2023. . . . . . . . . . . . . 13,957 13,982
Variable due 2027 (3). . . . . . . . . . 21,940 21,940
7.0 % due 2031. . . . . . . . . . . . . 327,500 327,500
Variable due 2032 (4). . . . . . . . . . 14,500 14,500
Variable due 2032 (5). . . . . . . . . . 10,000 10,000
387,897 387,922
Revolving Credit Agreement 50,000 -
Less:
Unamortized debt discount. . . . . . . . 5,554 5,814
Long-term debt due within one year . . . 16,000 80
$1,391,263 $1,357,028
Rates at December 31, 1995: (1) 4.05%, (2) 4.049%, (3) 4.00%,
(4) 3.925% and (5) 4.00%
11. COMMON STOCK, PREFERRED STOCK, PREFERENCE STOCK,
AND OTHER MANDATORILY REDEEMABLE SECURITIES
The Company's Restated Articles of Incorporation, as amended, provides for
85,000,000 authorized shares of common stock. At December 31, 1995,
62,855,961 shares were outstanding.
The Company has a Dividend Reinvestment and Stock Purchase Plan (DRIP).
Shares issued under the DRIP may be either original issue shares or shares
purchased on the open market. At December 31, 1995, 3,017,627 shares were
available under the DRIP registration statement.
<page36>
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 $106.23, $105.67, and $105.10 per share beginning July 1,
1995, 1996 and 1997, 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 $105.31,
$104.55, and $103.79 per share beginning April 1, 1995, 1996, and 1997,
respectively.
Other Mandatorily Redeemable Securities: On December 14, 1995, Western
Resources Capital I, a wholly-owned trust, issued four million preferred
securities of 7 7/8% Cumulative Quarterly Income Preferred Securities, Series
A, for $100 million. The trust interests represented by the preferred
securities are redeemable at the option of Western Resources Capital I, on or
after December 11, 2000, at $25 per preferred security plus accrued interest
and unpaid dividends. Holders of the securities are entitled to receive
distributions at an annual rate of 7 7/8% of the liquidation preference value
of $25. Distributions are payable quarterly, and in substance are tax
deductible by the Company. The sole asset of the trust is $103 million
principal amount of 7 7/8% Deferrable Interest Subordinated Debentures,
Series A due December 11, 2025 (the Subordinated Debentures).
In addition to the Company's obligations under the Subordinated
Debentures, the Company has agreed, pursuant to a guarantee issued to the
trust, the provisions of the trust agreement establishing the trust and a
related expense agreement to guarantee on a subordinated basis payment of
distributions on the preferred securities (but not if the trust does not have
sufficient funds to pay such distributions) and to pay all of the expenses of
the trust (collectively, the "Back-up Undertakings"). Considered together the
Back-up Undertakings.
The security obligations constitute a full and unconditional guarantee by
the Company of the trust obligations under the preferred securities. The
securities are shown as Western Resources Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust holding solely Subordinated
Debentures on the Consolidated Statements of Capitalization.
12. INCOME TAXES
Under SFAS 109, temporary differences gave rise to deferred tax assets and
deferred tax liabilities at December 31, 1995 and 1994, respectively, as
follows:
Deferred Tax Assets: 1995 1994
(Dollars in Thousands)
<page37>
Deferred gain on sale-leaseback. . . . . $ 105,007 $ 110,556
Alternative Minimum tax carry forwards . 18,740 41,163
Other. . . . . . . . . . . . . . . . . . 30,789 29,162
Total Deferred Tax Assets. . . . . . . $ 154,536 $ 180,881
Deferred Tax Liabilities:
Accelerated Depreciation & Other . . . . $ 653,134 $ 661,433
Acquisition Premium. . . . . . . . . . . 315,513 318,190
Deferred Future Income Taxes . . . . . . 328,881 324,625
Other. . . . . . . . . . . . . . . . . . 70,883 70,386
Total Deferred Tax Liabilities. . . . $1,368,410 $1,374,634
Accumulated Deferred
Income Taxes, Net $1,213,874 $1,193,753
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.
At December 31, 1995, the Company has alternative minimum tax credits
generated prior to April 1, 1992, which carry forward without expiration, of
$18.7 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, 1995.
13. 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, 1995 1994(1) 1993
(Dollars in Thousands)
Operating revenues:
Electric. . . . . . . . . . . $1,145,895 $1,121,781 $1,104,537
Natural gas . . . . . . . . . 426,176 496,162 804,822
1,572,071 1,617,943 1,909,359
Operating expenses excluding
income taxes:
Electric. . . . . . . . . . . 788,900 768,317 791,563
Natural gas . . . . . . . . . 419,267 484,458 747,755
1,208,167 1,252,775 1,539,318
Income taxes:
Electric. . . . . . . . . . . 94,042 100,078 73,425
Natural gas . . . . . . . . . (5,522) (4,456) 4,553
88,520 95,622 77,978
Operating income:
Electric. . . . . . . . . . . 262,953 253,386 239,549
Natural gas . . . . . . . . . 12,431 16,160 52,514
$ 275,384 $ 269,546 $ 292,063
Identifiable assets at
December 31:
<page38>
Electric. . . . . . . . . . . $4,470,359 $4,346,312 $4,231,277
Natural gas . . . . . . . . . 712,858 654,483 1,040,513
Other corporate assets(2) . . 353,864 411,562 140,258
$5,537,081 $5,412,357 $5,412,048
Other Information--
Depreciation and amortization:
Electric. . . . . . . . . . . $ 133,421 $ 123,696 $ 126,034
Natural gas . . . . . . . . . 23,494 27,934 38,330
156,915 $ 151,630 $ 164,364
Maintenance:
Electric. . . . . . . . . . . $ 87,942 $ 88,162 $ 87,696
Natural gas . . . . . . . . . 20,699 25,024 30,147
$ 108,641 $ 113,186 $ 117,843
Capital expenditures:
Electric. . . . . . . . . . . $ 153,931 $ 152,384 $ 137,874
Nuclear fuel. . . . . . . . . 28,465 20,590 5,702
Natural gas . . . . . . . . . 54,431 64,722 94,055
$ 236,827 $ 237,696 $ 237,631
(1)Information reflects the sales of the Missouri Properties (Note 2).
(2)Principally cash, temporary cash investments, non-utility assets, and
deferred charges.
The portion of the table above related to the Missouri Properties is as
follows:
1994 1993
(Dollars in Thousands, Unaudited)
Natural gas revenues. . . . . . . . . $ 77,008 $349,749
Operating expenses excluding
income taxes. . . . . . . . 69,114 326,329
Income taxes. . . . . . . . . . . . . 2,897 2,672
Operating income. . . . . . . . . . . 4,997 20,748
Identifiable assets . . . . . . . . . - 398,464
Depreciation and amortization . . . . 1,274 12,668
Maintenance . . . . . . . . . . . . . 1,099 10,504
Capital expenditures. . . . . . . . . 3,682 38,821
14. 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 carrying amount is recorded at the fair value of the decommissioning
trust and is based on quoted market prices at December 31, 1995 and 1994.
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
<page39>
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.
Other Mandatorily Redeemable Securities-
The fair value of the other mandatorily redeemable securities 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 carrying values and estimated fair values of the Company's financial
instruments are as follows:
Carrying Value Fair Value
December 31, 1995 1994 1995 1994
(Dollars in Thousands)
Cash and cash
equivalents. . . . . . . $ 2,414 $ 2,715 $ 2,414 $ 2,715
Decommissioning trust. . . 25,069 16,944 25,069 16,633
Variable-rate debt . . . . 811,190 822,045 811,190 822,045
Fixed-rate debt. . . . . . 1,240,877 1,240,982 1,294,365 1,171,866
Redeemable preference
stock. . . . . . . . . . 150,000 150,000 160,405 155,375
Other Mandatorily
Redeemable Securities. . 100,000 - 102,000 -
The fair value estimates presented herein are based on information
available as of December 31, 1995 and 1994. 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.
Certain subsidiaries of the Company use financial instruments to hedge
price fluctuations in their portfolios of commodity transactions. The
financial instruments used include futures and options traded on the New York
Mercantile Exchange and swaps and options traded in the over-the-counter
market. These subsidiaries are subject to credit risk on its
over-the-counter transactions and monitors the creditworthiness of its
counterparties, which consist primarily of large financial institutions.
15. 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)
1995
Operating revenues. . . . . . . $417,546 $333,380 $423,860 $397,285
Operating income. . . . . . . . 68,517 48,029 99,429 59,409
Net income. . . . . . . . . . . 41,575 21,716 71,905 46,480
Earnings applicable to
common stock. . . . . . . . . 38,220 18,362 68,550 43,125
<page40>
Earnings per share. . . . . . . $ 0.62 $ 0.30 $ 1.10 $ 0.69
Dividends per share . . . . . . $ 0.505 $ 0.505 $ 0.505 $ 0.505
Average common shares
outstanding . . . . . . . . . 61,747 61,886 62,244 62,712
Common stock price:
High. . . . . . . . . . . . . $ 33 3/8 $ 32 1/2 $ 32 7/8 $ 34
Low . . . . . . . . . . . . . $ 28 5/8 $ 30 1/4 $ 29 3/4 $ 31
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
(1) Information reflects the sales of the Missouri Properties (Note 2).
<page41>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR3
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-ASSETS> 5,490,677
<TOTAL-OPERATING-REVENUES> 1,572,071
<NET-INCOME> 181,676
</TABLE>
