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.
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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.
During 1997 WRI's principal business consisted of the production,
purchase, transmission, distribution and sale of electricity and the
transportation and sale of natural gas. WRI provided retail electric service
to approximately 334,000 industrial, commercial, and residential customers in
323 Kansas communities. WRI also provided wholesale electric generation and
transmission services to numerous municipal customers located in Kansas and,
through interchange agreements, to surrounding integrated systems. In 1997
WRI's natural gas utility operations distributed natural gas in Kansas and
northeastern Oklahoma to approximately 650,000 retail customers. Effective
November 30, 1997, WRI contributed all of its natural gas operations to ONEOK,
Inc. As a result all information contained herein pertaining to WRI's natural
gas operations relate to the eleven months ended November 30, 1997. WRI's
subsidiaries (as defined in the Act) 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
is a wholly owned subsidiary of WRI. KGE provides electric services to
customers in the southeastern portion of Kansas, including the Wichita
metropolitan area. At December 31, 1997, KGE rendered electric services at
retail to approximately 280,000 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. KG&E's subsidiaries are:
i. Wolf Creek Nuclear Operating Corporation ("WCNOC"), a Delaware
Corporation, with principal offices at 1550 Oxen Lane, N.E.,
Burlington, Kansas 66839. WCNOC is owned 47% by KG&E and
operates the Wolf Creek Generating Station on behalf of the
plant's owners.
ii. Mid-America Services Company, a Kansas corporation, with
principal offices at 120 E. 1st Street, Wichita, Kansas 67201, is
currently dormant.
B. The Wing Group, Limited Co., a Delaware corporation, with
principal offices at 1610 Woodstead Court, The Woodlands, Texas 77380. The
Wing Group, Limted Co., a wholly owned subsidiary of WRI, is a developer of
international power generation projects. The Wing Group's subsidiaries are:
i. The Wing Group International, Inc., a Cayman Islands corporation
with principal offices in the Cayman Islands. The Wing Group
International, Inc. is a developer of power generation projects
in China.
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ii. Wing Capital L.L.C., a Delaware limited liability company with
principal offices at 1610 Woodstead Court, Suite 220, The
Woodlands, Texas 77380. Wing Capital, L.L.C. is a limited
liability company organized to develop municipal power projects
in the United States.
iii. Wing Thailand, Inc., is a Delaware corporation with principal
offices at 1610 Woodstead Court, Suite 220, The Woodlands, Texas
77380. Wing Thailand, Inc. develops power generation projects in
Thailand.
iv. The Wing Group Limited Company PAC, a Delaware corporation with
principal offices at 1610 Woodstead Court, Suite 220, The
Woodlands, Texas 77380. The Wing Group Limited Company PAC is
engaged in those activities which a Political Action Committee
may do pursuant to such laws and regulations.
C. Westar Capital, Inc. ("Westar Capital"), a Kansas corporation
with principal offices at 818 Kansas Avenue, Topeka, Kansas 66612, is a
wholly owned subsidiary of WRI. Westar Capital is a holding company for
certain non-regulated business subsidiaries of WRI. Westar Capital's
subsidiaries are:
i. 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 12%
of Hanover's common stock and uses the equity method to account
for the investment.
ii. Network Holdings, Inc., a Delaware corporation with principal
offices at 14275 Midway Road, Suite 440, Dallas, Texas 75244, is
a holding company for Network Multi-Family Security Company.
a. Network Multi-Family Security Corporation, a Delaware
corporation with principal offices at 14275 Midway Road,
Suite 400, Dallas, Texas. Network Multi-Family Security
Corporation is a provider of multi-family electronic
monitored security services.
iii. Onsite Energy Corporation, a Delaware corporation with principal
offices at 701 Palomar Airport Road, Suite 200, Comlsbad,
California 92009. Onsite is a provider of energy-related
services to commercial and industrial customers. Westar Capital,
Inc. owns approximately 30.2% of Onsite common and convertible
preferred stock and uses the equity method to account for the
investment.
iv. Protection One, Inc., a Delaware corporation, with principal
offices at 6011 Bristol Parkway, Culver City, California 90230.
Protection One, Inc. is a holding company for monitored security
alarm businesses. Westar Capital, Inc. owns approximately 83% of
Protection One.
a. Centennial Security Holdings, Inc., a Delaware corporation,
with principal offices at 332 Main Street, Madison, New
Jersey 07940. Centennial Security Holdings, Inc. is a
holding company for monitored alarm security companies.
(i) Centennial Security, Inc., a Delaware corporation,
with principal offices at 332 Main Street, Madison,
New Jersey 07940. Centennial Security Holdings, Inc.
is a provider of home security services.
(ii) Radar, Inc., an Ohio corporation, with principal
offices at 332 Main Street, Madison, New Jersey
07940. Radar, Inc. is a provider of home security
services.
b. Protection One Alarm Monitoring, Inc., a Delaware
corporation with principal offices at 6011 Bristol Parkway,
Culver City, California 90230. Protection One Alarm
Monitoring, Inc. is a provider of home security services.
c. Westar Security, Inc. ("Westar Security"), a Kansas
corporation, with principal offices at 4221 West John
Carpenter Freeway, Irving, Texas 75063. Westar Security is
a holding company for certain security-related subsidiaries
of Protection One, Inc. Westar Security's subsidiaries
which are all engaged in the monitored security business
are:
(i) Guardian International, Inc. a Nevada corporation,
with principal offices at Hollywood, Florida. Westar
Security owns approximately 45% of Guardian and uses
the equity method to account for its investment.
(ii) Safeguard Alarms, Inc., a Missouri corporation, with
principal offices at 14227 W. 95th Street, Lenexa,
Kansas 66225.
(iii) Secure America Alarm Systems, Inc., a Kansas
corporation, with principal offices at 14227 W. 95th
Street, Lenexa, Kansas 66215.
(iv) Security Monitoring Services, Inc., a Florida
corporation, with principal offices at 725 South
State Road 434, Longwood, Florida 32752.
a. Nexstar, Inc., a Florida corporation with
principal offices at 725 South State Road 434,
Longwood, Florida 32752.
(v) Sentry Protective Alarms, Inc., a California
corporation with principal offices at 14227 W. 95th
Street, Lenexa, Kansas 66215.
(vi) Sentry Protective Alarms, Inc., a Kansas corporation
with principal offices at 14227 W. 95th Street,
Lenexa, Kansas 66215.
(vii) Westar Security Services, Inc., a Kansas corporation,
with principal offices at 1324 S. Kansas Avenue,
Topeka, Kansas 66612.
d. WestSec, Inc., a Kansas corporation with principal offices
at 4221 West John Carpenter Freeway, Irving, Texas 75063.
WestSec, Inc. is engaged in the business of monitored home
and business security systems.
i. WestSec Mass. Inc., a Massachusetts corporation with
principal offices at 335 Bear Hill Road, Watham,
Massachusetts 02154. WestSec, Mass. Inc. is engaged
in the business of monitored home and business
security systems.
v. Westar Communications, Inc., a Kansas corporation, with principal
offices at 1324 S. Kansas Avenue, Topeka, Kansas 66612. Westar
Communications, Inc. operates a paging system in Kansas.
vi. Westar Limited Partners, Inc., a Kansas corporation, with
principal offices at 818 Kansas Avenue, Topeka, Kansas 66612.
Westar Limited Partners, Inc. participates in limited
partnerships and investments of Westar Capital, Inc.
a. Oakwood Manor, L.P., a Kansas limited partnership, is a low
income housing project, in which Westar Limited is a 99%
limited partner.
b. Thunderbird Limited, III, L.P., a Kansas limited
partnership, is a low income housing project in which
Westar Limted is a 82% limited partner.
c. Thunderbird Montery, L.P., a Kansas limited partnership, is
a low income housing project in which Westar Limited is a
99% limited partner.
d. Valence, L.L.C., a Kansas limited liability company, with
principal offices at 7001 Oxford Street, Minneapolis,
Minnesota 55426. Valence, L.L.C., develops, manufactures,
produces and distributes electronic parts, equipment and
products in which Westar Limited has a 40% interest.
vii. Wing Columbia, L.L.C., a Delaware limited liability company with
principal offices at 1610 Woodstead Court, Suite 220, The
Woodlands, Texas 77380. Wing Columbia, L.L.C. is a limited
liability company which is a holding company for EWG's.
a. Merilectrica I S.A., a sociedad anonima formed under the
laws of the Republic of Columbia with principal offices in
Columbia, South America. This Company is the general
partner of Merilectrica I S.A. Cia S.C.A. E.S.P., an EWG
and 36.75% owned by Wing Columbia L.L.C.
D. Westar Energy, Inc. ("Westar Energy"), a Kansas corporation, with
principal offices at 818 Kansas Avenue, Topeka, Kansas 66612. Westar Energy,
Inc. provides energy services to large commercial and industrial customers.
Westar Energy's subsidiaries are:
i. Westar Electric Marketing, Inc., a Kansas corporation, with
principal offices at 818 Kansas Ave., Topeka, Kansas 66612.
Westar Electric Marketing, Inc. is currently dormant.
ii. Westar Energy Investments, Inc., a Kansas corporation, with
principal offices at 818 Kansas Avenue, Topeka, Kansas 66612.
Westar Energy Investments, Inc. holds energy-related investments.
E. Western Resources (Bermuda) Limited, a Bermuda Limited Liability
Company with principal offices at Clarendon House, Two Church Street,
Hamilton HM 11, Bermuda. Western Resources (Bermuda) Limited is a holding
company to hold the interest of WRI in CPI-Western Power Holdings, Ltd. and
other potential international projects. Western Resources (Bermuda)'s
subsidiaries are:
i. CPI-Western Power Holdings, Ltd., a Bermuda Limited Liability
Company. Western Resources, Inc. (Bermuda) owns 50% of CPI-
Western Power Holdings, Ltd. a master joint venture which
develops power generation projects in China.
a. Western Resources International, Limited is a limited
liability company organized under the laws of the Cayman
Islands. Western Resources International Limited develops
power generation projects in China and is a holding company
for EWG's in China.
ii. Western Resources I (Cayman Islands) Limited is a limited
liability company organized under the laws of the Cayman Islands.
Western Resources I (Cayman Islands) Limited develops power
generation projects.
iii. Western Resources II (Cayman Islands) Limited is a limited
liability company organized under the laws of the Cayman Islands.
Western Resources II (Cayman Islands) Limited develops power
generation projects.
F. Wing Turkey, Inc. is a Delaware corporation with principal
offices at 1610 Woodstead Court, Suite 220, The Woodlands, Texas 77380. Wing
Turkey, Inc. is a holding company for potential power projects in Turkey.
i. Wing International, Limited is a Texas limited liabiilty
corporation with principal offices at 1610 Woodstead Court, Suite
220, The Woodlands, Texas 77380. Wing International, Limited is
a holding company for an EWG in Turkey.
G. Western Resources Capital I and II, Delaware business trusts were
established for the purpose of issuing securities.
H. Contract Compression, Inc., a Texas corporation is currently
dormant.
I. Gas Service Energy Corporation, a Delaware corporation, is
currently dormant.
J. KPL Funding, Inc., a Kansas corporation, is currently dormant.
K. Rangeline, Inc., a Kansas corporation is currently dormant.
L. The Kansas Power and Light Company, a Kansas corporation, is
currently dormant.
M. The Comfort Zone, Inc., a Kansas corporation is currently
dormant.
N. Westar Financial Services, Inc., a Kansas corporation is
currently dormant.
O. 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................... 470
JEC Unit 2, near St. Marys................... 470
JEC Unit 3, near St. Marys................... 461
Lawrence Energy Center, near Lawrence........ 557
Tecumseh Energy Center, near Tecumseh........ 238
Subtotal........................... 2,196
Gas/Oil
Hutchinson Energy Center, near Hutchinson.... 488
Abilene Energy Center, near Abilene.......... 66
Tecumseh Energy Center, near Tecumseh........ 39
Subtotal........................... 593
Total Accredited Capacity 2,789 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
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 ................. 547
Coal
LaCygne Unit 1, near LaCygne ................ 343
LaCygne Unit 2, near LaCygne ................ 334
JEC Unit 1, near St. Mary's ................. 147
JEC Unit 2, near St. Mary's ................. 147
JEC Unit 3, near St. Mary's ................. 144
Subtotal .......................... 1,115
Gas/Oil
Gordon Evans, Wichita ....................... 534
Murray Gill, Wichita ........................ 331
Subtotal .......................... 865
Diesel
Wichita, Wichita ............................ 3
Total Accredited Capacity 2,530 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
the State of Kansas.
3(a). For the year ended December 31, 1997, WRI sold 8,669,926,000 Kwh
of electric energy at retail, 3,233,232,000 Kwh of electric energy at
wholesale, and 91,314,000 Mcf of natural gas at retail. For the year ended
December 31, 1997, KGE sold 8,263,674,000 Kwh of electric energy at retail
and 2,100,888,000 Kwh of electric energy at wholesale.
(b). During 1997, neither WRI nor its subsidiaries distributed or
sold electric energy at retail outside the State of Kansas. During 1997, WRI
distributed or sold at retail 3,342,000 Mcf of natural gas in the state of
Oklahoma, representing 5.2% of the retail natural gas sales of WRI.
(c). During 1997, WRI sold, at wholesale, 755,786 Kwh of electric
energy to adjoining public utilities through interconnections at the Kansas
state line. During 1997, KGE sold, at wholesale, 1,403,003 Kwh of electric
energy to adjoining public utilities through interconnections at the Kansas
state line. During 1997, neither WRI or KGE sold natural or manufactured gas
at wholesale outside the state of Kansas or at the Kansas state line.
(d). During 1997, WRI purchased 925,909 Kwh of electric energy from
outside the State of Kansas or at the Kansas state line. During 1997, WRI
purchased 3,486,201 Mcf of natural gas outside the state of Kansas or at the
state line. During 1997, KGE purchased 870,936 Kwh of electric energy from
outside the State of Kansas or at the Kansas State line.
4. The following information for the reporting period with respect
to claimant and each interest it holds directly or indirectly in an EWG or a
foreign utility company, stating monetary amounts in United States dollars:
4.1(a). Name, location, business address and description of the
facilities used by the EWG or foreign utility company for the generation,
transmission and distribution of electric energy for sale or for the
distribution at retail of natural or manufactured gas.
Name of EWG: Merilectrica I S.A.
Address: Apartado Aereo 12203
Calles 5A #39 Room 194
Medellin, Columbia
Name of EWG TLC International LDC
Address: c/o W. S. Walker & Co.
Claredonian house
P.O. Box 265
Georgetown Grand Cayman's, Cayman Islands
Location: Barrancabermeja, Santander, Columbia
Facility: 160 MW single-cycle gas fired electric
generating plant under construction.
4.1(b). Name of each system company that holds an interest in such
EWG or foreign utility company; and description of the interest held.
Wing Colombia, L.L.C., a Delaware limited liability company owns
36.3825% directly and .36382% indirectly of Merilectrica I S.A. & Cia
S.C.A. E.S.P., ("Merilectrica") a Colombian comandita and operator of
the plant, and 36.75% of TLC International LDC, ("TLC") a Cayman
limited duration company, and eventual owner and lessor of the
equipment installed in the plant. US$1,450,258. Merilectrica will
lease the equipment from TLC and will own the balance of the plant.
4.1(c). Type and amount of capital invested, directly or
indirectly, by the holding company claiming exemption; any direct or indirect
guarantee of the security of the EWG or foreign utility company by the
holding company claiming exemption; and any debt or other financial
obligation for which there is recourse, directly or indirectly, to the
holding company claiming exemption or another system company, other than the
EWG or foreign utility company.
Capital Invested: Approximately US $1,450,258
Guarantee: None
Other Obligations: Two letters of credit totalling $21,322,516
supporting the construction of the project
exist under which Westar Capital, Inc., a
wholly owned subsidiary of the claimant is
ultimately responsible.
4.1(d). Capitalization and earnings of the EWG or foreign utility
company during the reporting period.
Capitalization: Merilectrica - US$3,966,749
TLC - US$100
Earnings: None.
4.1(e). Identify any service, sales or construction contract(s)
between the EWG or foreign utility company and a system company, and describe
the services to be rendered or goods sold and fees or revenues under such
agreement(s).
None
4.2(a). Name, located, business address and description of the
facilities used by the EWG or foreign utility company for the generation,
transmission and distribution of electric energy for sale or for the
distribution at retail of natural or manufactured gas.
Name of EWG: Zhengzhou Dengwei Power Co., Ltd.
Address: Yangcheng Industrial Zone
Dengfeng Industrial Zone,
Dengfeng Municipality, Henan Province
Location: Dengfeng Municipality, Henan Province, People's
Republic of China.
Facility: 55 MW coal-fired generating unit.
4.2(b). Name of each system company that holds an interest in such
EWG or foreign utility company; and description of the interest held.
Western Resources International Limited acquired a 49% equity interest
in Zhenzhou Denwei Power Co., Ltd., effective January 1, 1998.
Application for EWG status filed March 2, 1998.
4.2(c) Type and amount of capital invested, directly or
indirectly, by the holding company claiming exemption; any direct or indirect
guarantee of the security of the EWG or foreign utility company by the
holding company claiming exemption; and any debt or other financial
obligation for which there is recourse, directly or indirectly, to the
holding company claiming exemption or another system company, other than the
EWG or foreign utility company.
Capital Invested: Approximately US$5.2 million as
registered paid-in capital. Shareholder loan
of approximately US$7.9 million payable in
equal annual installments over a 20 year term.
Guarantees: None.
Other Obligations: None.
4.2(d). Capitalization and earnings of the EWG or foreign utility
company during the reporting period.
Capitalization: Registered (paid-in) Capital (approximately
US$10.7 million).
Earnings: None.
4.2(e). Identify any service, sales or construction contract(s)
between the EWG or foreign utility company and a system company, and describe
the services to be rendered or goods sold and fees or revenues under such
agreement(s).
None.
4.3(a). Name, location, business address and description of the
facilities used by the EWG or foreign utility company for the generation,
transmission and distribution of electric energy for sale or for the
distribution at retail of natural or manufactured gas.
Name of EWG: Zhengzhou Dengyuan Power Co. Ltd.
Address: Yangcheng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic
of China.
Location: Dengfeng Municipality, Henan Province, People's
Republic of China.
Facility: 55 MW coal-fired generating unit.
4.3(b). Name of each system company that holds an interest in such
EWG or foreign utility company; and description of the interest held.
Western Resources International Limited acquired 49% equity interest in
Zhengzhou Dwngyuan Power Co., Ltd. effective January 1, 1998.
Application for EWG status filed March 2, 1998.
4.3(c). Type and amount of capital invested, directly or
indirectly, by the holding company claiming exemption; any direct or indirect
guarantee of the security of the EWG or foreign utility company by the
holding company claiming exemption; and any debt or other financial
obligation for which there is recourse, directly or indirectly, to the
holding company claiming exemption or another system company, other than the
EWG or foreign utility company.
Capital Invested: Approximately US$4.9 million cash as registered
paid-in capital. Shareholder loan of
approximately US$9.8 million payable in equal
annual installments over a 20-year term.
Guarantees: None.
Other Obligations: None.
4.3(d). Capitalization and earnings of the EWG or foreign utility
company during the reporting period.
Capitalization: Registered (paid-in) Capital (approximately
US$10 million).
Earnings: None.
4.3(e). Identify any service, sales or construction contract(s)
between the EWG or foreign utility company and a system company, and describe
the services to be rendered or goods sold and fees or revenues under such
agreement(s).
None
4.4(a). Name, located, business address and description of the
facilities used by the EWG or foreign utility company for the generation,
transmission and distribution of electric energy for sale or for the
distribution at retail of natural or manufactured gas.
Name of EWG: Trakya Elektrik Uretim Ve Ticaret A.S.
Address: P.K. 13
Marmara Ereglsi 59740 Tekirdag
Location: Botas Tesisleri Mevkii
Sultankoy Beledesi
Marmara Ereglisi 59740 Tekirdag
Turkey
Facility: 478 MW combined cycle gas turbine under
construction with four 154 kv substations.
4.4(b). Name of each system company that holds an interest in such
EWG or foreign utility company; and description of the interest held.
Wing International, Ltd., a Texas limited liability company owns
9% of the project.
4.4(c). Type and amount of capital invested, directly or
indirectly, by the holding company claiming exemption; any direct or indirect
guarantee of the security of the EWG or foreign utility company by the
holding company claiming exemption; and any debt or other financial
obligation for which there is recourse, directly or indirectly, to the
holding company claiming exemption or another system company, other than the
EWG or foreign utility company.
Capital Invested: Approximately US$5,903,769 as paid in capital.
Approximately US$1,175,602 subordinated debt.
Guarantees: None.
Other Obligations: Wing Turkey, Inc. (a wholly owned subsidiary of
the claimant and 99% parent of Wing
International, Ltd.) is a party to the "Wing
Turkey Guarantee Agreement" along with Trakya
Elektrik and Chase Manhattan Bank (as Offshore
Collateral Agent) and ABN AMRO Bank (as Funding
Agent). Under this agreement, the equity
contributions and subordinated debt
contributions, agreed to in the "Equity Funding
Agreement" are guaranteed.
4.4(d). Capitalization and earnings of the EWG or foreign utility
company during the reporting period.
Capitalization: Approximately US$68,158,573
Earnings: None.
4.4(e) Identify any service, sales or construction contract(s)
between the EWG or foreign utility company and a system company, and describe
the services to be rendered or goods sold and fees or revenues under such
agreement(s).
None.
The above-named claimant has caused this statement to be duly executed
on its behalf by its authorized officer on this 27th day of February, 1998.
Western Resources, Inc.
By: /s/ Richard D. Terrill
Richard D. Terrill
Secretary and Associate
General Counsel
<PAGE>
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
913-575-1936 (FAX)<PAGE>
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:
<PAGE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1997
(Dollars in Thousands)
<CAPTION>
Kansas Gas Westar
Western and Capital
Resources Electric Consolidated
<S> <C> <C> <C>
ASSETS (Exhibit A-2)
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . $ 840 $ 43 $ 75,648
Accounts receivable (net) . . . . . . . . 229,879 66,654 25,645
Accounts receivable - associated companies 279,881 72,558 -
Notes receivable - associated companies - - -
Inventories and supplies (net). . . . . . 42,438 41,019 2,941
Marketable securities . . . . . . . . . . 4,760 - 70,498
Prepaid expenses and other. . . . . . . . 1,933 17,165 6,101
Total Current Assets. . . . . . . . . . 559,731 197,439 180,833
PROPERTY, PLANT AND EQUIPMENT, NET. . . . . 1,205,359 2,565,175 15,994
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . 596,206 - -
Subscriber accounts . . . . . . . . . . . - - 549,152
Goodwill (net). . . . . . . . . . . . . . - - 841,196
Regulatory assets . . . . . . . . . . . . 101,853 278,568 -
Other . . . . . . . . . . . . . . . . . . 1,932,289 75,926 55,323
Total Other Assets. . . . . . . . . . . 2,630,348 354,494 1,445,671
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 4,395,438 $ 3,117,108 $ 1,642,498
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ - $ 21,217
Short-term debt . . . . . . . . . . . . . 191,500 45,000 -
Accounts payable. . . . . . . . . . . . . 59,934 81,986 8,720
Accounts payable- associated companies . 72,569 - 274,292
Notes payable - associated companies. . . 226,804 - -
Accrued liabilities . . . . . . . . . . . 130,654 32,745 85,502
Accrued income taxes. . . . . . . . . . . 21,928 4,212 1,826
Other . . . . . . . . . . . . . . . . . . 15,350 4,032 69,571
Total Current Liabilities . . . . . . . 718,739 167,975 461,128
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . 1,176,770 684,128 337,159
Western Resources obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely company
subordinated debentures . . . . . . . . - - -
Deferred income taxes and credits . . . . 298,282 820,838 (53,308)
Minority interests. . . . . . . . . . . . - - 164,379
Deferred gain from sale-leaseback . . . . - 221,779 -
Other . . . . . . . . . . . . . . . . . . 124,701 87,909 46,831
Total Long-term Liabilities . . . . . . 1,599,753 1,814,654 495,061
COMMITMENTS AND CONTINGENCIES
SHAREOWNERS' EQUITY:
Cumulative preferred and preference stock 74,858 - -
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
65,409,603 and 64,625,259 shares,
respectively. . . . . . . . . . . . . . 327,048 1,065,634 1
Paid-in capital . . . . . . . . . . . . . 760,553 - 278,210
Retained earnings . . . . . . . . . . . . 914,487 68,845 395,979
Net change in unrealized gain on equity
securities (net). - - 12,119
Total Shareowners' Equity . . . . . . . 2,076,946 1,134,479 686,309
TOTAL LIABILITIES & SHAREOWNERS' EQUITY . . $ 4,395,438 $ 3,117,108 $ 1,642,498
</TABLE>
<PAGE>
<TABLE>
<PAGE> Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1997
(Dollars in Thousands)
(Continued)
<CAPTION>
Westar
Energy The Wing
Consolidated Wing Group Turkey
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . $ - $ 76 $ 1
Accounts receivable (net) . . . . . . . . 87 616 2,382
Accounts receivable - associated companies - (11,306) (557)
Notes receivable - associated companies - - -
Inventories and supplies (net). . . . . . - - -
Marketable securities . . . . . . . . . . - - -
Prepaid expenses and other. . . . . . . . - 276 8
Total Current Assets. . . . . . . . . . 87 (10,338) 1,834
PROPERTY, PLANT AND EQUIPMENT, NET. . . . . - - -
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . - - -
Subscriber accounts . . . . . . . . . . . - - -
Goodwill (net). . . . . . . . . . . . . . - 12,967 -
Regulatory assets . . . . . . . . . . . . - - -
Other . . . . . . . . . . . . . . . . . . - 6,569 2,628
Total Other Assets. . . . . . . . . . . - 19,536 2,628
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 87 $ 9,198 $ 4,462
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ - $ -
Short-term debt . . . . . . . . . . . . . - - -
Accounts payable. . . . . . . . . . . . . 380 146 -
Accounts payable - associated companies . (6,054) - -
Notes payable - associated companies. . . - - -
Accrued liabilities . . . . . . . . . . . 527 19 -
Accrued income taxes. . . . . . . . . . . (330) (218) (58)
Other . . . . . . . . . . . . . . . . . . 1 152 -
Total Current Liabilities . . . . . . . (5,476) 99 (58)
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . - - 4,798
Western Resources obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely company
subordinated debentures . . . . . . . . - - -
Deferred income taxes and credits . . . . 36 (283) -
Minority interests. . . . . . . . . . . . - - -
Deferred gain from sale-leaseback . . . . - - -
Other . . . . . . . . . . . . . . . . . . 80 - -
Total Long-term Liabilities . . . . . . 116 (283) 4,798
COMMITMENTS AND CONTINGENCIES
SHAREOWNERS' EQUITY:
Cumulative preferred and preference stock - - -
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
65,409,603 and 64,625,259 shares,
respectively. . . . . . . . . . . . . . 1 - -
Paid-in capital . . . . . . . . . . . . . 21,140 13,804 2
Retained earnings . . . . . . . . . . . . (15,694) (4,422) (280)
Net change in unrealized gain on equity
securities (net). - - -
Total Shareowners' Equity . . . . . . . 5,447 9,382 (278)
TOTAL LIABILITIES & SHAREOWNERS' EQUITY . . $ 87 $ 9,198 $ 4,462
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1997
(Dollars in Thousands)
(Continued)
<CAPTION>
Western Western
Resources Consolidating Resources
Capital I & II Entries Consolidated
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . $ - $ - $ 76,608
Accounts receivable (net) . . . . . . . . - (220) 325,043
Accounts receivable - associated companies - (340,576) -
Notes receivable - associated companies . 226,804 (226,804) -
Inventories and supplies (net). . . . . . - - 86,398
Marketable securities . . . . . . . . . . - - 75,258
Prepaid expenses and other. . . . . . . . - 25,483
Total Current Assets. . . . . . . . . . 226,804 (567,600) 588,790
PROPERTY, PLANT AND EQUIPMENT, NET. . . . . - - 3,786,528
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . - - 596,206
Subscriber accounts . . . . . . . . . . . - - 549,152
Goodwill (net). . . . . . . . . . . . . . - - 854,163
Regulatory assets . . . . . . . . . . . . - - 380,421
Other . . . . . . . . . . . . . . . . . . - (1,851,035) 221,700
Total Other Assets. . . . . . . . . . . - (1,851,035) 2,601,642
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 226,804 $(2,418,635) $ 6,976,960
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ - $ 21,217
Short-term debt . . . . . . . . . . . . . - - 236,500
Accounts payable. . . . . . . . . . . . . - - 151,166
Accounts payable- associated companies . - (340,807) -
Notes payable - associated companies. . . - (226,804) -
Accrued liabilities . . . . . . . . . . . - - 249,447
Accrued income taxes. . . . . . . . . . . - - 27,360
Other . . . . . . . . . . . . . . . . . . - - 89,106
Total Current Liabilities . . . . . . . - (567,611) 774,796
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . - (21,000) 2,181,855
Western Resources obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely company
subordinated debentures . . . . . . . . 220,000 - 220,000
Deferred income taxes and credits . . . . - - 1,065,565
Minority interests. . . . . . . . . . . . - - 164,379
Deferred gain from sale-leaseback . . . . - - 221,779
Other . . . . . . . . . . . . . . . . . . - - 259,521
Total Long-term Liabilities . . . . . . 220,000 (21,000) 4,113,099
COMMITMENTS AND CONTINGENCIES
SHAREOWNERS' EQUITY:
Cumulative preferred and preference stock - - 74,858
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
65,409,603 and 64,625,259 shares,
respectively . . . . . . . . . . . . . 6,804 (1,072,440) 327,048
Paid-in capital . . . . . . . . . . . . . - (313,156) 760,553
Retained earnings . . . . . . . . . . . . - (444,428) 914,487
Net change in unrealized gain on equity
securities (net). . . . . . . . . . . . - - 12,119
Total Shareowners' Equity . . . . . . . 6,804 (1,830,024) 2,089,065
TOTAL LIABILITIES & SHAREOWNERS' EQUITY . $ 226,804 $(2,418,635) $ 6,976,960
</TABLE>
<PAGE>
<TABLE> Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1997
(Dollars in Thousands,
except Per Share Amounts)
<CAPTION>
Kansas Gas Westar
Western and Capital
Resources Electric Consolidated
<S> <C> <C> <C>
(Exhibit A-2)
SALES:
Energy. . . . . . . . . . . . . . . . . . . . $ 1,116,399 $ 614,445 $ 1,344
Security. . . . . . . . . . . . . . . . . . . - - 152,347
Total Sales . . . . . . . . . . . . . . . . 1,116,399 614,445 153,691
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . 578,872 129,594 240
Security. . . . . . . . . . . . . . . . . . . - - 38,800
Total Cost of Sales . . . . . . . . . . . . 578,872 129,594 39,040
GROSS PROFIT. . . . . . . . . . . . . . . . . . 537,527 484,851 114,651
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . 179,155 180,153 1,428
Depreciation and amortization . . . . . . . . 86,424 123,423 41,279
Selling, general and administrative expense . 121,137 57,267 124,964
Write-off of deferred merger costs. . . . . . 48,008 - -
Security asset impairment charge. . . . . . . - - 40,144
Total Operating Expenses. . . . . . . . . . 434,724 360,843 207,815
INCOME FROM OPERATIONS. . . . . . . . . . . . . 102,803 124,008 (93,164)
OTHER INCOME (EXPENSE):
Gain on sale of Tyco securities . . . . . . . - - 864,253
Investment earnings . . . . . . . . . . . . . 475,287 - 20,684
Intercompany interest revenues. . . . . . . . 50,946 - -
Minority interest . . . . . . . . . . . . . . - - 4,737
Other . . . . . . . . . . . . . . . . . . . . 11,861 (4,022) 20,767
Total Other Income (Expense). . . . . . . . 538,094 (4,022) 910,441
INCOME BEFORE INTEREST AND TAXES. . . . . . . . 640,897 119,986 817,277
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . 62,270 46,062 11,310
Interest expense on short-term debt and other 70,308 4,388 50,669
Total Interest Expense. . . . . . . . . . . 132,578 50,450 61,979
INCOME BEFORE INCOME TAXES. . . . . . . . . . . 508,319 69,536 755,298
INCOME TAXES. . . . . . . . . . . . . . . . . . 14,225 17,408 342,739
NET INCOME. . . . . . . . . . . . . . . . . . . 494,094 52,128 412,559
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . 4,919 - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ 489,175 $ 52,128 $ 412,559
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . 65,127,803
EARNINGS PER AVERAGE COMMON
SHARE OUTSTANDING . . . . . . . . . . . . . . $ 7.51
</TABLE>
<PAGE>
<TABLE> Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1997
(Dollars in Thousands,
except Per Share Amounts)
(Continued)
<CAPTION> Westar
Energy The Wing
Consolidated Wing Group Turkey
<S> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . $ 240,264 $ - $ -
Security. . . . . . . . . . . . . . . . . . . - - -
Total Sales . . . . . . . . . . . . . . . . 240,264 - -
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . 219,618 - -
Security. . . . . . . . . . . . . . . . . . . - - -
Total Cost of Sales . . . . . . . . . . . . 219,618 - -
GROSS PROFIT. . . . . . . . . . . . . . . . . . 20,646 - -
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . 3,175 4,233 -
Depreciation and amortization . . . . . . . . 1,689 717 -
Selling, general and administrative expense . 8,364 - 147
Write-off of deferred merger costs. . . . . . - - -
Security asset impairment charge. . . . . . . - - -
Total Operating Expenses. . . . . . . . . . 13,228 4,950 147
INCOME FROM OPERATIONS. . . . . . . . . . . . . 7,418 (4,950) (147)
OTHER INCOME (EXPENSE):
Gain on sale of Tyco securities . . . . . . . - - -
Investment earnings . . . . . . . . . . . . . - - (128)
Intercompany interest revenues. . . . . . . . - - -
Minority interest . . . . . . . . . . . . . . - - -
Other . . . . . . . . . . . . . . . . . . . . (374) (1) 114
Total Other Income (Expense). . . . . . . . (374) (1) (14)
INCOME BEFORE INTEREST AND TAXES. . . . . . . . 7,044 (4,951) (161)
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . - -
Interest expense on short-term debt and other (75) - 135
Total Interest Expense. . . . . . . . . . . (75) - 135
INCOME BEFORE INCOME TAXES. . . . . . . . . . . 7,119 (4,951) (296)
INCOME TAXES. . . . . . . . . . . . . . . . . . 2,850 (1,490) (58)
NET INCOME. . . . . . . . . . . . . . . . . . . 4,269 (3,461) (238)
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ 4,269 $ (3,461) $ (238)
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1997
(Dollars in Thousands,
except Per Share Amounts)
(Continued)
<CAPTION>
Western Western
Resources Consolidating Resources
Capital I&II MCMC Entries Consolidated
<S> <C> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . $ - $ 26,966 $ - $ 1,999,418
Security. . . . . . . . . . . . . . . . . . - - - 152,347
Total Sales . . . . . . . . . . . . . . . - 26,966 - 2,151,765
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . - - - 928,324
Security. . . . . . . . . . . . . . . . . . - - - 38,800
Total Cost of Sales . . . . . . . . . . . - - - 967,124
GROSS PROFIT. . . . . . . . . . . . . . . . . - 26,966 - 1,184,641
OPERATING EXPENSES:
Operating and maintenance expense . . . . . - 15,768 - 383,912
Depreciation and amortization . . . . . . . - 3,193 - 256,725
Selling, general and administrative expense - 1,048 - 312,927
Write-off of deferred merger costs. . . . . - - - 48,008
Security asset impairment charge. . . . . . - - - 40,144
Total Operating Expenses. . . . . . . . . - 20,009 - 1,041,716
INCOME FROM OPERATIONS. . . . . . . . . . . . - 6,957 - 142,925
OTHER INCOME (EXPENSE):
Gain on sale of Tyco securities . . . . . . - - - 864,253
Investment earnings . . . . . . . . . . . . - - (470,197) 25,646
Intercompany interest revenues. . . . . . . 18,634 - (69,580) -
Minority interest . . . . . . . . . . . . . - - - 4,737
Other . . . . . . . . . . . . . . . . . . . - 310 (252) 28,403
Total Other Income (Expense). . . . . . . 18,634 310 (540,029) 923,039
INCOME BEFORE INTEREST AND TAXES. . . . . . . 18,634 7,267 (540,029) 1,065,964
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . - - (253) 119,389
Interest exp. on short-term debt and other. - (84) (51,505) 73,836
Total Interest Expense. . . . . . . . . . - (84) (51,758) 193,225
INCOME BEFORE INCOME TAXES. . . . . . . . . . 18,634 7,351 (488,271) 872,739
INCOME TAXES. . . . . . . . . . . . . . . . . - 2,971 - 378,645
NET INCOME. . . . . . . . . . . . . . . . . . 18,634 4,380 (488,271) 494,094
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . 18,075 - (18,075) 4,919
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . $ 559 $ 4,380 $ (470,196) $ 489,175
AVERAGE COMMON SHARES OUTSTANDING . . . . . . 65,127,803
EARNINGS PER AVERAGE COMMON
SHARE OUTSTANDING . . . . . . . . . . . . . $ 7.51
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1997
(Dollars in Thousands)
<CAPTION>
Kansas Gas Westar
Western and Capital
Resources Electric Consolidated
(Exhibit A-2)
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . $ 562,121 $ 116,717 $ (17,767)
ADD:
Net income. . . . . . . . . . . . . . . 494,094 52,128 412,559
Total . . . . . . . . . . . . . . . . 1,056,215 168,845 394,792
DEDUCT:
Realignment of Subsidiary . . . . . . . . - - (1,187)
Cash dividends:
Preferred and preference stock. . . . . 4,919 - -
Common stock. . . . . . . . . . . . . . 136,809 100,000 -
Total . . . . . . . . . . . . . . . . 141,728 100,000 (1,187)
BALANCE AT END OF PERIOD. . . . . . . . . $ 914,487 $ 68,845 $ 395,979
Westar The
Energy Wing Wing
Consolidated Group Turkey
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . $ 4,487 $ (961) $ (42)
ADD:
Net income. . . . . . . . . . . . . . . 4,269 (3,461) (238)
Total . . . . . . . . . . . . . . . . 8,756 (4,422) (280)
DEDUCT:
Realignment of Subsidiary . . . . . . . . 24,450 - -
Cash dividends:
Preferred and preference stock. . . . . - - -
Common stock. . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . 24,450 - -
BALANCE AT END OF PERIOD. . . . . . . . . $ (15,694) $ (4,422) $ (280)
Western Western
Resources Consolidating Resources
Capital I & II MCMC Entries Consolidated
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . $ - $ 4,707 $ (107,141) $ 562,121
ADD:
Net income. . . . . . . . . . . . . . . 18,634 4,380 (488,271) 494,094
Total . . . . . . . . . . . . . . . . 18,634 9,087 (595,412) 1,056,215
DEDUCT:
Realignment of Subsidiary . . . . . . . . - 9,087 (32,350) -
Cash dividends:
Preferred and preference stock. . . . . 18,075 - (18,075) 4,919
Common stock. . . . . . . . . . . . . . 559 - (100,559) 136,809
Total . . . . . . . . . . . . . . . . 18,634 9,087 (150,984) 141,728
BALANCE AT END OF PERIOD. . . . . . . . . $ - $ - $ (444,428) $ 914,487
</TABLE>
<PAGE>
<TABLE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1997
(Dollars in Thousands)
<CAPTION>
Protection Westar
Westar One Network Limited
Capital Consolidated Holding Inc Partners
<S> <C> <C> <C> <C>
ASSETS (Exhibit A-3)
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ 4 $ 75,556 $ - $ -
Accounts receivable (net). . . . . . . . . 1,303 20,302 3,259 557
Inventories and supplies (net) . . . . . . (32) 556 2,338 -
Marketable securities. . . . . . . . . . . 64,797 5,701 - -
Prepaid expenses and other . . . . . . . . 2,481 3,487 128 -
Total Current Assets . . . . . . . . . . 68,553 105,602 5,725 557
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . 465 14,934 369 -
OTHER ASSETS:
Subscriber accounts . . . . . . . . . . . - 538,318 10,834 -
Goodwill (net). . . . . . . . . . . . . . - 682,180 158,603 -
Other . . . . . . . . . . . . . . . . . . 985,352 9,174 - 5,003
Total Other Assets. . . . . . . . . . . 985,352 1,229,672 169,437 5,003
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 1,054,370 $ 1,350,208 $ 175,531 $ 5,560
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ 21,217 $ - $ -
Accounts payable. . . . . . . . . . . . . (147) 6,235 2,568 -
Accounts payable- associated companies . 273,964 - - 587
Notes payable - associated companies. . . (4,812) - - 5,072
Accrued liabilities . . . . . . . . . . . 5 83,200 2,248 -
Accrued income taxes. . . . . . . . . . . 26,807 (25,200) - 259
Other . . . . . . . . . . . . . . . . . . 16,226 53,303 - -
Total Current Liabilities . . . . . . . 312,043 138,755 4,816 5,918
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . - 337,159 - -
Deferred income taxes and credits . . . . 12,474 (60,911) (3,188) (1,699)
Minority interests. . . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . 43,544 1,230 2,057 -
Total Long-term Liabilities . . . . . . 56,018 277,478 (1,131) (1,699)
SHAREOWNERS' EQUITY:
Common stock, par value $1 per share. . . 1 834 1 1
Paid-in capital . . . . . . . . . . . . . 278,210 983,082 171,280 3,750
Retained earnings . . . . . . . . . . . . 395,979 (49,941) 565 (2,410)
Net change in unrealized gain on equity
securities (net). 12,119 - - -
Total Shareowners' Equity . . . . . . . 686,309 933,975 171,846 1,341
TOTAL LIABILITIES & SHAREOWNERS' EQUITY . . $ 1,054,370 $ 1,350,208 $ 175,531 $ 5,560
</TABLE>
<PAGE>
<TABLE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1997
(Dollars in Thousands)
(Continued)
<CAPTION>
Westar Westar Westar
Financial Communica- Consolidating Capital
Services tions Entries Consolidated
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ 1 $ 87 $ - $ 75,648
Accounts receivable (net). . . . . . . . . 22 202 - 25,645
Inventories and supplies (net) . . . . . . - 79 - 2,941
Marketable securities. . . . . . . . . . . - - - 70,498
Prepaid expenses and other . . . . . . . . - 5 - 6,101
Total Current Assets . . . . . . . . . . 23 373 - 180,833
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . - 226 - 15,994
OTHER ASSETS:
Subscriber accounts . . . . . . . . . . . - - - 549,152
Goodwill (net). . . . . . . . . . . . . . - 413 - 841,196
Other . . . . . . . . . . . . . . . . . . - - (944,206) 55,323
Total Other Assets. . . . . . . . . . . - 413 (944,206) 1,445,671
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 23 $ 1,012 $ (944,206) $ 1,642,498
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ - $ - $ 21,217
Accounts payable. . . . . . . . . . . . . - 64 - 8,720
Accounts payable- associated companies . 40 (299) - 274,292
Notes payable - associated companies. . . (260) - - -
Accrued liabilities . . . . . . . . . . . - 49 - 85,502
Accrued income taxes. . . . . . . . . . . - (40) - 1,826
Other . . . . . . . . . . . . . . . . . . - 42 - 69,571
Total Current Liabilities . . . . . . . (220) (184) - 461,128
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . - - - 337,159
Deferred income taxes and credits . . . . 8 8 - (53,308)
Minority interests. . . . . . . . . . . . - - 164,379 164,379
Other . . . . . . . . . . . . . . . . . . - - - 46,831
Total Long-term Liabilities . . . . . . 8 8 164,379 495,061
SHAREOWNERS' EQUITY:
Common stock, par value $1 per share. . . 1 1 (838) 1
Paid-in capital . . . . . . . . . . . . . - 1,127 (1,159,239) 278,210
Retained earnings . . . . . . . . . . . . 234 60 51,492 395,979
Net change in unrealized gain on equity
securities (net). - - - 12,119
Total Shareowners' Equity . . . . . . . 235 1,188 (1,108,585) 686,309
TOTAL LIABILITIES & SHAREOWNERS' EQUITY . . $ 23 $ 1,012 $ (944,206) $ 1,642,498
</TABLE>
<PAGE>
<TABLE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1997
(Dollars in Thousands)
<CAPTION>
Protection
Westar One Network
Capital Consolidated Holding Inc.
<S> <C> <C> <C>
(Exhibit A-3)
SALES:
Energy. . . . . . . . . . . . . . . . . . . . $ - $ - $ -
Security. . . . . . . . . . . . . . . . . . . - 144,773 7,574
Total Sales . . . . . . . . . . . . . . . . - 144,773 7,574
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . - - -
Security. . . . . . . . . . . . . . . . . . . - 35,670 3,130
Total Cost of Sales . . . . . . . . . . . . - 35,670 3,130
GROSS PROFIT. . . . . . . . . . . . . . . . . . - 109,103 4,444
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . 68 1,308 -
Depreciation and amortization . . . . . . . . 72 39,822 1,285
Selling, general and administrative expense . 45,115 77,203 1,777
Security asset impairment charge. . . . . . . - 40,144 -
Total Operating Expenses. . . . . . . . . . 45,255 158,477 3,062
INCOME FROM OPERATIONS. . . . . . . . . . . . . (45,255) (49,374) 1,382
OTHER INCOME (EXPENSE):
Gain on sale of Tyco securities . . . . . . . 864,253 - -
Investment earnings . . . . . . . . . . . . . (5,317) - -
Minority interest . . . . . . . . . . . . . . - - -
Other . . . . . . . . . . . . . . . . . . . . 24,662 (1,571) -
Total Other Income (Expense). . . . . . . . 883,598 (1,571) -
INCOME BEFORE INTEREST AND TAXES. . . . . . . . 838,343 (50,945) 1,382
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . - 11,310 -
Interest expense on short-term debt and other 49,990 20,018 -
Total Interest Expense. . . . . . . . . . . 49,990 31,328 -
INCOME BEFORE INCOME TAXES. . . . . . . . . . . 788,353 (82,273) 1,382
INCOME TAXES. . . . . . . . . . . . . . . . . . 375,794 (32,970) 817
NET INCOME. . . . . . . . . . . . . . . . . . . 412,559 (49,303) 565
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ 412,559 $ (49,303) $ 565
</TABLE>
<PAGE>
<TABLE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1997
(Dollars in Thousands)
(Continued)
<CAPTION>
Westar Westar Western
Communica- Limited Consolidating Capital
tions Partners Entries Consolidated
<S> <C> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . $ 1,344 $ - $ - $ 1,344
Security. . . . . . . . . . . . . . . . . . - - - 152,347
Total Sales . . . . . . . . . . . . . . . 1,344 - - 153,691
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . 240 - - 240
Security. . . . . . . . . . . . . . . . . . - - - 38,800
Total Cost of Sales . . . . . . . . . . . 240 - - 39,040
GROSS PROFIT. . . . . . . . . . . . . . . . . 1,104 - - 114,651
OPERATING EXPENSES:
Operating and maintenance expense . . . . . 50 2 - 1,428
Depreciation and amortization . . . . . . . 100 - - 41,279
Selling, general and administrative expense 869 - - 124,964
Security asset impairment charge. . . . . . - - - 40,144
Total Operating Expenses. . . . . . . . . 1,019 2 - 207,815
INCOME FROM OPERATIONS. . . . . . . . . . . . 85 (2) - (93,164)
OTHER INCOME (EXPENSE):
Gain on sale of Tyco securities . . . . . . - - - 864,253
Investment earnings . . . . . . . . . . . . - - 26,001 20,684
Minority interest . . . . . . . . . . . . . - - 4,737 4,737
Other . . . . . . . . . . . . . . . . . . . (3) (2,321) - 20,767
Total Other Income (Expense). . . . . . . (3) (2,321) 30,738 910,441
INCOME BEFORE INTEREST AND TAXES. . . . . . . 82 (2,323) 30,738 817,277
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . - - - 11,310
Interest exp. on short-term debt and other. - - (19,339) 50,669
Total Interest Expense. . . . . . . . . . - - (19,339) 61,979
INCOME BEFORE INCOME TAXES. . . . . . . . . . 82 (2,323) 50,077 755,298
INCOME TAXES. . . . . . . . . . . . . . . . . 32 (934) - 342,739
NET INCOME. . . . . . . . . . . . . . . . . . 50 (1,389) 50,077 412,559
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . - - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . $ 50 $ (1,389) $ 50,077 $ 412,559
</TABLE>
<PAGE>
<TABLE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1997
(Dollars in Thousands)
<CAPTION>
Protection Westar
Westar One Network Communica-
Capital Consolidated Holding Inc tions
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . . $ (17,767) $ - $ - $ -
ADD:
Net income. . . . . . . . . . . . . . . . . 412,559 (49,303) 565 50
Total . . . . . . . . . . . . . . . . . . 394,792 (49,303) 565 50
DEDUCT:
Realignment of Subsidiary . . . . . . . . . . (1,187) 638 - (10)
Cash dividends:
Preferred and preference stock. . . . . . . - - - -
Common stock. . . . . . . . . . . . . . . . - - - -
Total . . . . . . . . . . . . . . . . . . (1,187) 638 - (10)
BALANCE AT END OF PERIOD. . . . . . . . . . . $ 395,979 $ (49,941) $ 565 $ 60
Westar Westar Westar
Limited Financial Consolidating Capital
Partners Services Entries Consolidated
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . . $ (1,021) $ 234 $ 787 $ (17,767)
ADD:
Net income. . . . . . . . . . . . . . . . . (1,389) - 50,077 412,559
Total . . . . . . . . . . . . . . . . . . (2,410) 234 50,864 394,792
DEDUCT:
Realignment of Subsidiary . . . . . . . . . . - - (628) (1,187)
Cash dividends:
Preferred and preference stock. . . . . . . - - - -
Common stock. . . . . . . . . . . . . . . . - - - -
Total . . . . . . . . . . . . . . . . . . - - (628) (1,187)
BALANCE AT END OF PERIOD. . . . . . . . . . . $ (2,410) $ 234 $ 51,492 $ 395,979
</TABLE>
<PAGE>
<TABLE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1997
(Dollars in Thousands)
<CAPTION>
Westar
Protection Security
One WestSec Consolidated
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ 69,803 $ 3,950 $ 1,172
Accounts receivable (net). . . . . . . . . 8,318 8,656 1,862
Inventories and supplies (net) . . . . . . 98 282 (87)
Marketable securities. . . . . . . . . . . 5,701 - -
Prepaid expenses and other . . . . . . . . 649 28,013 23
Total Current Assets . . . . . . . . . . 84,569 40,901 2,970
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . 11,679 1,732 1,139
OTHER ASSETS:
Subscriber accounts . . . . . . . . . . . 229,366 261,195 5,359
Goodwill (net). . . . . . . . . . . . . . 439,179 198,064 22,554
Regulatory assets . . . . . . . . . . . . 41,706 19,775 -
Other . . . . . . . . . . . . . . . . . . 18,814 - -
Total Other Assets. . . . . . . . . . . 729,065 479,034 27,913
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 825,313 $ 521,667 $ 32,022
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ 21,208 $ 9
Accounts payable. . . . . . . . . . . . . 879 2,060 215
Accrued liabilities . . . . . . . . . . . 35,505 38,862 1,632
Accrued income taxes. . . . . . . . . . . - - -
Other . . . . . . . . . . . . . . . . . . 35,289 14,121 2,194
Total Current Liabilities . . . . . . . 71,673 76,251 4,050
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . 295,426 41,695 38
Deferred income taxes and credits . . . . - 10,871 (546)
Other . . . . . . . . . . . . . . . . . . 703 - -
Total Long-term Liabilities . . . . . . 296,129 52,566 (508)
SHAREOWNERS' EQUITY:
Equity in Investments . . . . . . . . . . (94,435) 73,076 -
Preferred stock, par value $.10 per share - - -
Common stock, par value $.01 per share. . 834 - -
Paid-in capital . . . . . . . . . . . . . 552,236 365,739 29,624
Retained earnings . . . . . . . . . . . . (1,124) (45,965) (1,144)
Total Shareowners' Equity . . . . . . . 457,511 392,850 28,480
TOTAL LIABILITIES & SHAREOWNERS' EQUITY . . $ 825,313 $ 521,667 $ 32,022
</TABLE>
<PAGE>
<TABLE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1997
(Dollars in Thousands)
(Continued)
<CAPTION>
Protection
Consolidating One
Centennial Entries Consolidated
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ 631 $ - $ 75,556
Accounts receivable (net). . . . . . . . . 1,466 - 20,302
Inventories and supplies (net) . . . . . . 263 - 556
Marketable securities. . . . . . . . . . . - - 5,701
Prepaid expenses and other . . . . . . . . 2 (25,200) 3,487
Total Current Assets . . . . . . . . . . 2,362 (25,200) 105,602
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . 384 - 14,934
OTHER ASSETS:
Subscriber accounts . . . . . . . . . . . 42,398 - 538,318
Goodwill (net). . . . . . . . . . . . . . 53,267 (30,884) 682,180
Regulatory assets . . . . . . . . . . . . 9,755 (71,236) -
Other . . . . . . . . . . . . . . . . . . - (9,640) 9,174
Total Other Assets. . . . . . . . . . . 105,420 (111,970) 1,229,672
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 108,166 $ (136,960) $ 1,350,208
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ - $ 21,217
Accounts payable. . . . . . . . . . . . . 3,081 - 6,235
Accounts payable- associated companies . 1,000 (1,000) -
Accrued liabilities . . . . . . . . . . . 7,201 83,200
Accrued income taxes. . . . . . . . . . . - (25,200) (25,200)
Other . . . . . . . . . . . . . . . . . . 1,699 53,303
Total Current Liabilities . . . . . . . 12,981 (26,200) 138,755
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . - - 337,159
Deferred income taxes and credits . . . . - (71,236) (60,911)
Other . . . . . . . . . . . . . . . . . . 527 - 1,230
Total Long-term Liabilities . . . . . . 527 (71,236) 277,478
SHAREOWNERS' EQUITY:
Equity in Investments . . . . . . . . . . - 21,359 -
Preferred stock, par value $.10 per share 1 (1) -
Common stock, par value $.01 per share. . - - 834
Paid-in capital . . . . . . . . . . . . . 111,269 (75,786) 983,082
Retained earnings . . . . . . . . . . . . (16,612) 14,904 (49,941)
Total Shareowners' Equity . . . . . . . 94,658 (39,524) 933,975
TOTAL LIABILITIES & SHAREOWNERS' EQUITY . . $ 108,166 $ (136,960) $ 1,350,208
</TABLE>
<PAGE>
<TABLE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1997
(Dollars in Thousands)
<CAPTION>
Westar
Protection Security
One WestSec Consolidated
<S> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . $ - $ - $ -
Security. . . . . . . . . . . . . . . . . . . 10,812 113,818 17,492
Total Sales . . . . . . . . . . . . . . . . 10,812 113,818 17,492
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . - - -
Security. . . . . . . . . . . . . . . . . . . 3,285 23,922 7,453
Total Cost of Sales . . . . . . . . . . . . 3,285 23,922 7,453
GROSS PROFIT. . . . . . . . . . . . . . . . . . 7,527 89,896 10,039
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . 764 148 396
Depreciation and amortization . . . . . . . . 3,743 34,564 908
Selling, general and administrative expense . 2,261 66,993 7,139
Security asset impairment charge. . . . . . . - 40,144 -
Total Operating Expenses. . . . . . . . . . 6,768 141,849 8,443
INCOME FROM OPERATIONS. . . . . . . . . . . . . 759 (51,953) 1,596
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . (48,179) - -
Other . . . . . . . . . . . . . . . . . . . . (1,528) 1,382 (1,425)
Total Other Income (Expense). . . . . . . . (49,707) 1,382 (1,425)
INCOME BEFORE INTEREST AND TAXES. . . . . . . . (48,948) (50,571) 171
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . 325 10,985 -
Interest expense on short-term debt and other - 18,456 1,562
Total Interest Expense. . . . . . . . . . . 325 29,441 1,562
INCOME BEFORE INCOME TAXES. . . . . . . . . . . (49,273) (80,012) (1,391)
INCOME TAXES. . . . . . . . . . . . . . . . . . 30 (33,000) -
NET INCOME. . . . . . . . . . . . . . . . . . . (49,303) (47,012) (1,391)
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ (49,303) $ (47,012) $ (1,391)
</TABLE>
<PAGE>
<TABLE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1997
(Dollars in Thousands)
(Continued)
<CAPTION>
Protection
Consolidating One
Centennial Entries Consolidated
<S> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . $ - $ - $ -
Security. . . . . . . . . . . . . . . . . . . 2,651 - 144,773
Total Sales . . . . . . . . . . . . . . . . 2,651 - 144,773
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . - - -
Security. . . . . . . . . . . . . . . . . . . 1,010 - 35,670
Total Cost of Sales . . . . . . . . . . . . 1,010 - 35,670
GROSS PROFIT. . . . . . . . . . . . . . . . . . 1,641 - 109,103
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . - - 1,308
Depreciation and amortization . . . . . . . . 607 - 39,822
Selling, general and administrative expense . 810 - 77,203
Security asset impairment charge. . . . . . . - - 40,144
Total Operating Expenses. . . . . . . . . . 1,417 - 158,477
INCOME FROM OPERATIONS. . . . . . . . . . . . . 224 - (49,374)
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . - 48,179 -
Other . . . . . . . . . . . . . . . . . . . . - - (1,571)
Total Other Income (Expense). . . . . . . . - 48,179 (1,571)
INCOME BEFORE INTEREST AND TAXES. . . . . . . . 224 48,179 (50,945)
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . - - 11,310
Interest expense on short-term debt and other - - 20,018
Total Interest Expense. . . . . . . . . . . - - 31,328
INCOME BEFORE INCOME TAXES. . . . . . . . . . . 224 48,179 (82,273)
INCOME TAXES. . . . . . . . . . . . . . . . . . - - (32,970)
NET INCOME. . . . . . . . . . . . . . . . . . . 224 48,179 (49,303)
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ 224 $ 48,179 $ (49,303)
</TABLE>
<PAGE>
<TABLE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1997
(Dollars in Thousands)
Westar
Protection Security
One WestSec Consolidation
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . . $ - $ 1,047 $ 247
ADD:
Net income. . . . . . . . . . . . . . . . . (1,124) (47,012) (1,391)
Total . . . . . . . . . . . . . . . . . . (1,124) (45,965) (1,144)
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . . . - - -
Common stock. . . . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . . . - - -
BALANCE AT END OF PERIOD. . . . . . . . . . . $ (1,124) $ (45,965) $ (1,144)
Protection
Consolidating One
Centennial Entries Consolidated
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . . $ (16,836) $ 15,542 $ -
ADD:
Net income. . . . . . . . . . . . . . . . . 224 - (49,303)
Total . . . . . . . . . . . . . . . . . . (16,612) 15,542 (49,303)
DEDUCT:
Realignment of Subsidiary . . . . . . . . . . - 638 638
Cash dividends:
Preferred and preference stock. . . . . . . - - -
Common stock. . . . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . . . - 638 638
BALANCE AT END OF PERIOD. . . . . . . . . . . $ (16,612) $ 14,904 $ (49,941)
</TABLE>
<PAGE>
WESTERN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Western Resources, Inc. (the company) is a
publicly traded holding company. The company's primary business activities
are providing electric generation, transmission and distribution services to
approximately 614,000 customers in Kansas; providing security alarm
monitoring services to approximately 950,000 customers located throughout the
United States, providing natural gas transmission and distribution services
to approximately 1.4 million customers in Oklahoma and Kansas through its
investment in ONEOK Inc. (ONEOK) and investing in international power
projects. Rate regulated electric service is provided by KPL, a division of
the company and Kansas Gas and Electric Company (KGE), a wholly-owned
subsidiary. Security services are primarily provided by Protection One, Inc.
(Protection One), a publicly-traded, 82.4%-owned subsidiary.
Principles of Consolidation: The company prepares its financial
statements in conformity with generally accepted accounting principles. The
accompanying consolidated financial statements include the accounts of
Western Resources and its wholly-owned and majority-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated. Common
stock investments that are not majority-owned are accounted for using the
equity method when the company's investment allows it the ability to exert
significant influence.
The company currently applies accounting standards for its rate
regulated electric business that recognize the economic effects of rate
regulation in accordance with Statement of Financial Accounting Standards
No. 71, "Accounting for the Effects of Certain Types of Regulation",
(SFAS 71) and, accordingly, has recorded regulatory assets and liabilities
when required by a regulatory order or when it is probable, based on
regulatory precedent, that future rates will allow for recovery of a
regulatory asset.
The financial statements require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, to
disclose contingent assets and liabilities at the balance sheet dates and to
report amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents: The company considers highly liquid
collateralized debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Available-for-sale Securities: The company classifies marketable equity
securities accounted for under the cost method as available-for-sale. These
securities are reported at fair value based on quoted market prices.
Unrealized gains and losses, net of the related tax effect, are reported as a
separate component of shareowners' equity until realized.
At December 31, 1997, an unrealized gain of $12 million (net of
deferred taxes of $13 million) was included in shareowners' equity. These
securities had a fair value of approximately $65 million and a cost of
approximately $40 million at December 31, 1997. There were no
available-for-sale securities held at December 31, 1996.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost. For utility 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 5.80% in 1997, 5.70% in 1996 and 6.31% in 1995.
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 value are charged to accumulated depreciation.
In accordance with regulatory decisions made by the KCC, the acquisition
premium of approximately $801 million resulting from the acquisition of KGE
in 1992 is being amortized over 40 years. The acquisition premium is
classified as electric plant in service. Accumulated amortization through
December 31, 1997 totaled $47.9 million.
Depreciation: Utility plant is depreciated on the straight-line method at
rates approved by regulatory authorities. Utility plant is depreciated on an
average annual composite basis using group rates that approximated 2.89%
during 1997, 2.97% during 1996 and 2.84% during 1995. Nonutility property,
plant and equipment of approximately $20 million is depreciated on a
straight-line basis over the estimated useful lives of the related assets.
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, 1997 and 1996, was $20.9 million and $25.3
million, respectively.
Subscriber Accounts: The direct costs incurred to install a security
system for a customer are capitalized. These costs include the costs of
accounts purchased, the estimated fair value at the date of the acquisition
for accounts acquired in business combinations, equipment, direct labor and
other direct costs for internally generated accounts. These costs are
amortized on a straight-line basis over the average expected life of a
subscriber account, currently ten years. It is the company's policy to
periodically evaluate subscriber account attrition utilizing historical
attrition experience.
Goodwill: Goodwill, which represents the excess of the purchase price
over the fair value of net assets acquired, is generally amortized on a
straight-line basis over 40 years.
Regulatory Assets and Liabilities: Regulatory assets represent probable
future revenue associated with certain costs that will be recovered from
customers through the ratemaking process. The company has recorded these
regulatory assets in accordance with Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation." If the company were required to terminate application of that
statement for all of its regulated operations, the company would have to
record the amounts of all regulatory assets and liabilities in its
Consolidated Statements of Income at that time. The company's earnings would
be reduced by the total net amount in the table below, net of applicable
income taxes. Regulatory assets reflected in the consolidated financial
statements at December 31, 1997 are as follows:
December 31, 1997 1996
(Dollars in Thousands)
Recoverable taxes. . . . . . . . . . . . $212,996 $217,257
Debt issuance costs. . . . . . . . . . . 75,336 78,532
Deferred employee benefit costs. . . . . 37,875 40,834
Deferred plant costs . . . . . . . . . . 30,979 31,272
Coal contract settlement costs . . . . . 16,032 21,037
Other regulatory assets. . . . . . . . . 7,203 8,794
Phase-in revenues. . . . . . . . . . . . - 26,317
Deferred cost of natural gas purchased . - 21,332
Service line replacement . . . . . . . . - 12,921
Total regulatory assets . . . . . . . . $380,421 $458,296
Recoverable income taxes: Recoverable income taxes represent amounts due
from customers for accelerated tax benefits which have been flowed through
to customers and are expected to be recovered when the accelerated tax
benefits reverse.
Debt issuance costs: Debt reacquisition expenses are amortized over the
remaining term of the reacquired debt or, if refinanced, the term of the
new debt. Debt issuance costs are amortized over the term of the
associated debt.
Deferred employee benefit costs: Deferred employee benefit costs will be
recovered from income generated from the company's Affordable Housing Tax
Credit (AHTC) investment program.
Deferred plant costs: Disallowances related to the Wolf Creek nuclear
generating facility.
Coal contract settlement costs: The company deferred costs associated with
the termination of certain coal purchase contracts. These costs are being
amortized over periods ending in 2002 and 2013.
The company expects to recover all of the above regulatory assets in
rates. The regulatory assets noted above, with the exception of some coal
contract settlement costs and debt issuance costs, other than the refinancing
of the La Cygne 2 lease, are not included in rate base and, therefore, do not
earn a return. On November 30, 1997, deferred costs associated with the
service line replacement program and the deferred cost of natural gas
purchased were transferred to ONEOK. Phase-in revenues were fully amortized
in 1997.
Minority Interests: Minority interests represent the minority
shareowner's proportionate share of the shareowners' equity and net income of
Protection One.
Revenues: Energy revenues are recognized as services are rendered and
include estimated amounts for energy delivered but unbilled at the end of
each year. Unbilled revenues of $37 million and $83 million are recorded as a
component of accounts receivable (net) on the Consolidated Balance Sheets at
December 31, 1997 and 1996, respectively. Security revenues are recognized
when installation of an alarm system occurs and when monitoring or other
security-related services are provided.
The company's recorded reserves for doubtful accounts receivable totaled
$23.4 million and $6.3 million at December 31, 1997 and 1996, respectively.
Income Taxes: Deferred tax assets and liabilities are recognized for
temporary differences in amounts recorded for financial reporting purposes
and their respective tax bases. Investment tax credits previously deferred
are being amortized to income over the life of the property which gave rise
to the credits
Affordable Housing Tax Credit Program (AHTC): The company has received
authorization from the KCC to invest up to $114 million in AHTC investments.
At December 31, 1997, the company had invested approximately $17 million to
purchase AHTC investments in limited partnerships. The company is committed
to investing approximately $55 million more in AHTC investments by January 1,
2000. These investments are accounted for using the equity method. Based
upon an order received from the KCC, income generated from the AHTC
investment, primarily tax credits, will be used to offset costs associated
with postretirement and postemployment benefits offered to the company's
employees. Tax credits are recognized in the year generated.
Risk Management: To minimize the risk from market fluctuations in the
price of electricity, the company utilizes financial and commodity
instruments (derivatives) to reduce price risk. Gains or losses on
derivatives associated with firm commitments are recognized as adjustments to
cost of sales or revenues when the associated transactions affect earnings.
Gains or losses on derivatives associated with forecasted transactions are
recognized when such forecasted transactions affect earnings. If a
derivative instrument is terminated early because it is probable that a
transaction or forecasted transaction will not occur, any gain or loss as of
such date is immediately recognized in earnings. If such derivatives are
terminated early for other economic reasons, any gain or loss as of the
termination date is deferred and recorded when the associated transaction or
forecasted transaction affects earnings.
New Pronouncements: In 1997, the company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). Basic
earnings per share is calculated based upon the average weighted number of
common shares outstanding during the period. There were no significant
amounts of dilutive securities outstanding at December 31, 1997, 1996 and
1995.
Effective January 1, 1997, the company adopted the provisions of Statement
of Position (SOP) 96-1, "Environmental Remediation Liabilities". This
statement provides authoritative guidance for recognition, measurement,
display and disclosure of environmental remediation liabilities in financial
statements. Adoption of this statement did not have a material adverse
effect upon the company's overall financial position or results of
operations.
Reclassifications: Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
2. GAIN ON SALE OF EQUITY SECURITIES
During 1996, the company acquired 27% of the common shares of ADT Limited,
Inc. (ADT) and made an offer to acquire the remaining ADT common shares. ADT
rejected this offer and in July 1997, ADT merged with Tyco International Ltd.
(Tyco). ADT and Tyco completed their merger by exchanging ADT common stock
for Tyco common stock.
Following the ADT and Tyco merger, the company's equity investment in ADT
became an available-for-sale security. During the third quarter of 1997, the
company sold its Tyco common shares for approximately $1.5 billion. The
company recorded a pre-tax gain of $864 million on the sale and recorded tax
expense of approximately $345 million in connection with this gain.
3. SECURITY ALARM MONITORING BUSINESS PURCHASES
In 1997 the company acquired three monitored security alarm companies.
Each acquisition was accounted for as a purchase and, accordingly, the
operating results for each acquired company has been included in the
company's consolidated financial statements since the date of acquisition.
Preliminary purchase price allocations have been made based upon the fair
value of the net assets acquired. The company acquired Network Multi-Family
Security Corporation (Network Multi-Family) in September, 1997 for
approximately $171 million and acquired Centennial Holdings, Inc.
(Centennial) in November 1997 for approximately $94 million. The company
also acquired an approximate 82.4% equity interest in Protection One in
November, 1997.
Protection One is a publicly traded security company. The company paid
approximately $258 million in cash and contributed all of its existing net
security assets, other than Network Multi-Family, in exchange for its
ownership interest in Protection One. Amounts contributed included funds
used to pay existing Protection One common shareowners, option holders and
warrant holders a dividend of $7.00 per common share. The company has an
option to purchase up to 2.8 million additional common shares of Protection
One for $15.50 per share. The option period extends to a date not later than
October 31, 1999. The company assigned approximately $278 million of the
total purchase price to subscriber accounts and approximately $620 million to
goodwill. The subscriber accounts are being amortized over ten years and
goodwill is being amortized over 40 years.
Consideration paid, assets acquired and liabilities assumed in connection
with these security acquisitions is summarized as follows:
(Dollars in Thousands)
Fair valued of assets acquired,
net of cash acquired $1,001,094
Cash paid, net of cash acquired
of $88,822 (438,717)
Total liabilities assumed $ 562,377
The following unaudited, pro forma information for the company's security
business segment has been prepared assuming the Centennial, Network Multi-Family
and Protection One acquisitions occurred at the beginning of each
period.
1997 1996
(Dollars in Thousands,
except per share data)
Net Revenues $284,411 $241,841
Net Loss (47,290) (24,762)
Net Loss per Share ($0.73) ($0.39)
The pro forma financial information is not necessarily indicative of the
results of operations had the entities been combined for the entire period,
nor do they purport to be indicative of results which will be obtained in the
future.
In December 1997, Protection One recorded a special non-recurring charge
of approximately $40 million. Approximately $28 million of this charge
reflects the elimination of redundant facilities and activities and the
write-off of inventory and other assets which are no longer of continuing
value to Protection One. The remaining $12 million of this charge reflects
the estimated costs to transition all security alarm monitoring operations to
the Protection One brand. Protection One intends to complete these exit
activities by the fourth quarter of 1998.
In January 1998, Protection One announced that it will acquire the
monitored security alarm business of Multimedia Security Services, Inc.
(Multimedia Security) for approximately $220 million in cash. The
acquisition is expected to close in the first quarter of 1998. Multimedia
Security has approximately 140,000 subscribers concentrated primarily in
California, Florida, Kansas, Oklahoma and Texas.
On February 4, 1998, Protection One exercised its option to acquire the
stock of Network Holdings, Inc., the parent company of Network Multi-Family,
from the company for approximately $178 million. The company expects
Protection One to borrow money from a revolving credit agreement provided by
Westar Capital, a subsidiary of Western Resources, to purchase Network
Multi-Family.
4. STRATEGIC ALLIANCE WITH ONEOK INC.
In November 1997, the company completed its strategic alliance with ONEOK.
The company contributed substantially all of its regulated and non-regulated
natural gas business to ONEOK in exchange for a 45% ownership interest in
ONEOK.
The company's ownership interest in ONEOK is comprised of approximately
3.1 million common shares and approximately 19.9 million convertible
preferred shares. If all the preferred shares were converted, the company
would own approximately 45% of ONEOK's common shares presently outstanding.
The agreement with ONEOK allows the company to appoint two members to ONEOK's
board of directors. The company will account for its common ownership in
accordance with the equity method of accounting. Subsequent to the formation
of the strategic alliance, the consolidated energy revenues, related cost of
sales and operating expenses for the company's natural gas business have been
replaced by investment earnings in ONEOK.
5. MERGER AGREEMENT WITH KANSAS CITY POWER & LIGHT COMPANY
The original merger agreement signed with KCPL on February 7, 1997 is
currently being renegotiated and the regulatory approval process for the
original merger agreement has been suspended. In December 1997,
representatives of our financial advisor indicated that they believed it was
unlikely that they would be in a position to issue a required fairness
opinion for the merger on the basis of the previously announced terms. The
company cannot predict the timing or the ultimate outcome of these
discussions.
Given the status of the KCPL transaction, we have reviewed the deferred
costs and have determined that for accounting purposes, $48 million of the
deferred costs should be expensed. These costs were expensed in the fourth
quarter of 1997.
6. INVESTMENTS IN SUBSIDIARIES
The consolidated financial statements include the company's equity
investments in ONEOK, Guardian International (Guardian) and Onsite Energy
Corporation (Onsite). The company's equity investments, net of the
amortization of goodwill in these entities, at December 31, 1997 and equity
in earnings in 1997, are as follows:
Ownership Equity
Percentage Investment in Earnings
(Dollars in Thousands)
ONEOK Inc. (1) 45% $596,206 $1,970
Guardian (2) 41% 9,174 $25
Onsite (3) 30% 3,312 -
(1) Includes equity earnings on the company's common stock investment between
ONEOK and the company.
(2) The company acquired a common and convertible preferred stock interest in
Guardian, a Florida-based security alarm monitoring company, during October
1997, in exchange for cash.
(3) The company acquired a common and convertible preferred stock interest in
Onsite, a California energy services company, during October, 1997, in
exchange for cash and certain energy service assets of the company.
Summarized combined financial information for the company's equity
investments is presented below.
December 31, 1997
(Dollars in Thousands)
Balance Sheet:
Current assets . . . . . . . $ 535,348
Non-current assets . . . . . 1,771,900
Current liabilities. . . . . 445,770
Non-current liabilities. . . 737,975
Equity . . . . . . . . . . . 1,123,503
Year ended
December 31, 1997
(Dollars in Thousands)
Income Statement:
Revenues . . . . . . . . . . $1,241,164
Operating expenses . . . . . 1,147,866
Net income . . . . . . . . . 57,248
Balance sheet and income statement information is presented as of and for
the most recent twelve-month period for which public information is
available. ONEOK's balance sheet and income statement information is
presented as of and for the twelve months ended November 30, 1997. Guardian
and Onsite's balance sheet and income statement information is presented as
of and for the twelve months ended September 30, 1997. The company cannot
give any assurance as to the accuracy of the information so obtained.
During 1997, the company's equity investment in ADT was converted to an
available-for-sale security investment in Tyco. The company recognized
equity in earnings from the ADT investment of $24 million and $7 million in
1997 and 1996, respectively. At December 31, 1996, the company's 27%
investment in ADT was approximately $597 million.
7. COMMITMENTS AND CONTINGENCIES
As part of its ongoing operations and construction program, the company
has commitments under purchase orders and contracts which have an unexpended
balance of approximately $87.8 million at December 31, 1997.
International Power Project Commitments: The company has ownership
interests in international power generation projects under construction in
Colombia and the Republic of Turkey and in existing power generation
facilities in the People's Republic of China. In 1998, commitments are not
expected to exceed $53 million. Currently, equity commitments beyond 1998
approximate $88 million.
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. At December 31,
1997, the costs incurred for preliminary site investigation and risk
assessment have been minimal. In accordance with the terms of the strategic
alliance with ONEOK, ownership of twelve of these sites and the
responsibility for clean-up of these sites were transferred to ONEOK. The
ONEOK agreement limits our future liability to an immaterial amount. Our
share of ONEOK income could be impacted by these costs.
Clean Air Act: The company must comply with the provisions of The Clean
Air Act Amendments of 1990 that require a two-phase reduction in certain
emissions. The company has installed continuous monitoring and reporting
equipment to meet the acid rain requirements. The company does not expect
material capital expenditures to be required to meet Phase II sulfur dioxide
and nitrogen oxide requirements.
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.
In February 1997, the KCC approved the 1996 Decommissioning Cost Study.
Based on the study, the company's share of WCNOC's decommissioning costs,
under the immediate dismantlement method, is estimated to be approximately
$624 million during the period 2025 through 2033, or approximately $192
million in 1996 dollars. These costs were calculated using an assumed
inflation rate of 3.6% over the remaining service life from 1996 of 29 years.
Decommissioning costs are currently being charged to operating expenses in
accordance with the prior KCC orders. Electric rates charged to customers
provide for recovery of these decommissioning costs over the life of Wolf
Creek. Amounts expensed approximated $3.7 million in 1997 and will increase
annually to $5.6 million in 2024. These expenses are deposited in an
external trust fund. The average after tax expected return on trust assets
is 5.7%.
The company's investment in the decommissioning fund, including reinvested
earnings approximated $43.5 million and $33.0 million at December 31, 1997
and December 31, 1996, respectively. Trust fund earnings accumulate in the
fund balance and increase the recorded decommissioning liability.
The SEC staff has questioned the way electric utilities recognize, measure
and classify decommissioning costs for nuclear electric generating stations
in their financial statements. In response to the SEC's questions, the
Financial Accounting Standards Board is reviewing the accounting for closure
and removal costs, including decommissioning of nuclear power plants. If
current accounting practices for nuclear power plant decommissioning are
changed, the following could occur:
- The company's annual decommissioning expense could be higher than in
1997
- The estimated cost for decommissioning could be recorded as a
liability (rather than as accumulated depreciation)
- The increased costs could be recorded as additional investment in the
Wolf Creek plant
The company does not believe that such changes, if required, would
adversely affect its operating results due to its current ability to recover
decommissioning costs through rates.
Nuclear Insurance: 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.
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. The remaining balance is provided by an
assessment plan mandated by the NRC. Under this plan, the Owners are jointly
and severally subject to a retrospective assessment of up to $79.3 million
($37.3 million, company's share) in the event there is a major nuclear
incident involving any of the nation's licensed reactors. This assessment is
subject to an inflation adjustment based on the Consumer Price Index and
applicable premium taxes. There is a limitation of $10 million ($4.7
million, company's share) in retrospective assessments per incident, per
year.
The Owners carry decontamination liability, premature decommissioning
liability and property damage insurance for Wolf Creek totaling approximately
$2.8 billion ($1.3 billion, company's share). This insurance is provided by
Nuclear Electric Insurance Limited (NEIL). 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. Premature
decommissioning coverage applies only if an accident at WCNOC exceeds $500
million in property damage and decommissioning expenses and only after trust
funds have been exhausted.
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 $9
million per year.
Although the company maintains various insurance policies to provide
coverage for potential losses and liabilities resulting from an accident or
an extended outage, the company's insurance coverage may not be adequate to
cover the costs that could result from a catastrophic accident or extended
outage at Wolf Creek. Any substantial losses not covered by insurance, to
the extent not recoverable through rates, would have a material adverse
effect on the company's financial condition and results of operations.
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, 1997, WCNOC's
nuclear fuel commitments (company's share) were approximately $9.9 million
for uranium concentrates expiring at various times through 2001, $35.1
million for enrichment expiring at various times through 2003 and $67.4
million for fabrication through 2025.
At December 31, 1997, the company's coal contract commitments in 1997
dollars under the remaining terms of the contracts were approximately $2.4
billion. The largest coal contract expires in 2020, with the remaining coal
contracts expiring at various times through 2013.
8. RATE MATTERS AND REGULATION
KCC Rate Proceedings: In January 1997, the KCC approved an agreement that
reduced electric rates for both KPL and KGE. Significant terms of the
agreement are as follows:
- The company made permanent an interim $8.7 million rate reduction
implemented by KGE in May 1996. This reduction was effective February
1, 1997.
- The company reduced KGE's annual rates by $36 million effective
February 1, 1997.
- The company reduced KPL's annual rates by $10 million effective
February 1, 1997.
- The company rebated $5 million to all of it electric customers in
January 1998.
- The company will reduce KGE's annual rates by an additional $10 million
on June 1, 1998.
- The company will rebate an additional $5 million to all of its electric
customers in January 1999.
- The company will reduce KGE's annual rates by an additional $10 million
on June 1, 1999.
All rate decreases are cumulative, meaning that future rate decreases are
in addition to previous decreases. Rebates are one-time events and do not
influence future rates.
9. LEGAL PROCEEDINGS
On January 8, 1997, Innovative Business Systems, Ltd. (IBS) filed suit
against the company and Westinghouse Electric Corporation (WEC), Westinghouse
Security Systems, Inc. (WSS) and WestSec, Inc. (WestSec), a wholly-owned
subsidiary of the company established to acquire the assets of WSS, in Dallas
County, Texas district court (Cause No 97-00184) alleging, among other
things, breach of contract by WEC and interference with contract against the
company in connection with the sale by WEC of the assets of WSS to the
company. IBS claims that WEC improperly transferred software owned by IBS to
the company and that the company is not entitled to its use. The company has
demanded WEC defend and indemnify it. WEC and the company have denied IBS'
allegations and are vigorously defending against them. Management does not
believe that the ultimate disposition of this matter will have a material
adverse effect upon the company's or Protection One's overall financial
condition or results of operations.
The company and its subsidiaries are involved in various other legal,
environmental and regulatory proceedings. Management believes that adequate
provision has been made and accordingly believes that the ultimate
dispositions of these matters will not have a material adverse effect upon
the company's overall financial position or results of operations.
10. EMPLOYEE BENEFIT PLANS
Pension: The company maintains qualified noncontributory defined benefit
pension plans covering substantially all utility employees. Pension benefits
are based on years of service and the employee's compensation during the five
highest paid consecutive years out of ten before retirement. The company's
policy is to fund pension costs accrued, subject to limitations set by the
Employee Retirement Income Security Act of 1974 and the Internal Revenue
Code.
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 funded status and actuarial assumptions for the
company:
Year Ended December 31, 1997 1996 1995
(Dollars in Thousands)
SFAS 87 Expense:
Service cost. . . . . . . . . . $ 11,337 $ 11,644 $ 11,059
Interest cost on projected
benefit obligation. . . . . . 35,836 34,003 32,416
(Gain) loss on plan assets. . . (113,287) (65,799) (102,731)
Deferred investment gain (loss) 73,731 30,119 70,810
Net amortization. . . . . . . . 1,084 2,140 1,132
Other . . . . . . . . . . . . . 519 - -
Net expense . . . . . . . . $ 9,220 $ 12,107 $ 12,686
December 31, 1997 1996 1995
(Dollars in Thousands)
Reconciliation of Funded Status:
Actuarial present value of
benefit obligations:
Vested . . . . . . . . . . . $365,809 $347,734 $331,027
Non-vested . . . . . . . . . 21,024 23,220 21,775
Total. . . . . . . . . . . $386,833 $370,954 $352,802
Plan assets (principally debt
and equity securities) at
fair value . . . . . . . . . . . $584,792 $495,993 $444,608
Projected benefit obligation . . . 462,964 483,862 456,707
Funded status. . . . . . . . . . . 121,828 12,131 (12,099)
Unrecognized transition asset. . . (369) (448) (527)
Unrecognized prior service costs . 39,763 62,434 57,087
Unrecognized net (gain). . . . . . (193,313) (103,132) (75,312)
Accrued liability. . . . . . . . $(32,091) $(29,015) $(30,851)
Year Ended December 31, 1997 1996 1995
Actuarial Assumptions:
Discount rate. . . . . . . . . . 7.5% 7.5% 7.5%
Annual salary increase rate. . . 3.5-4.75% 4.75% 4.75%
Long-term rate of return . . . . 9.0-9.25% 8.5-9.0% 8.5-9.0%
Postretirement and Postemployment Benefits: The company accrues the cost
of postretirement benefits, primarily medical benefit costs, during the years
an employee provides service. The company accrues postemployment benefits
when the liability has been incurred.
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 expense approximated $16.6 million, $16.4
million and $15.0 million for 1997, 1996 and 1995, respectively. The
company's total postretirement benefit obligation approximated $83.7 million
and $123.0 million at December 31, 1997 and 1996, respectively. 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, 1997 1996 1995
(Dollars in Thousands)
Reconciliation of Funded Status:
Actuarial present value of postretirement
benefit obligations:
Retirees. . . . . . . . . . . . . . $ 53,910 $ 76,588 $81,402
Active employees fully eligible . . 6,814 10,060 7,645
Active employees not fully eligible 22,949 36,345 34,144
Total . . . . . . . . . . . . . . 83,673 122,993 123,191
Fair value of plan assets . . . . . . . 118 78 46
Funded status . . . . . . . . . . . . . (83,555) (122,915)
(123,145)
Unrecognized prior service cost . . . . (4,592) (8,157)
(8,900)
Unrecognized transition obligation. . . 60,146 104,920 111,443
Unrecognized net (gain) . . . . . . . . (828) (8,137)
(7,271)
Accrued postretirement benefit costs $(28,829) $(34,289)
$(27,873)
Year Ended December 31, 1997 1996 1995
Actuarial Assumptions:
Discount rate . . . . . . . . . . 7.5% 7.5% 7.5%
Annual salary increase rate . . . 4.75% 4.75% 4.75%
Expected rate of return . . . . . 9.0% 9.0% 9.0%
For measurement purposes, an annual health care cost growth rate of 9% was
assumed for 1997, decreasing one percent per year to five percent in 2001 and
thereafter. The health care cost trend rate has a significant effect on the
projected benefit obligation. Increasing the trend rate by one percent each
year would increase the present value of the accumulated projected benefit
obligation by $3.5 million and the aggregate of the service and interest cost
components by $0.3 million.
In accordance with an order from the KCC, the company has deferred
postretirement and postemployment expenses in excess of actual costs paid.
In 1997 the company received authorization from the KCC to invest in AHTC
investments. Income from the AHTC investments will be used to offset the
deferred and incremental costs associated with postretirement and
postemployment benefits offered to the company's employees. The income
generated from the AHTC investments replaces the income stream from COLI
contracts purchased in 1992 and 1993 which was used for the same purpose.
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 $5.0
million, $4.6 million and $5.1 million for 1997, 1996 and 1995, respectively.
Protection One also maintains a savings plan. Contributions, made at
Protection One's election, are allocated among participants based upon the
respective contributions made by the participants through salary reductions
during the year. Protection One's matching contributions may be made in
Protection One common stock, in cash or in a combination of both stock and
cash. Protection One's matching contribution to the plan for 1997 was
$34,000.
Protection One maintains a qualified employee stock purchase plan that
allows eligible employees to acquire shares of Protection One common shares
at 85% of fair market value of the common stock. A total of 650,000 shares
of common stock have been reserved for issuance in this program.
Stock Based Compensation Plans: The company has two stock-based
compensation plans, a long-term incentive and share award plan (LTISA Plan)
and a long-term incentive program (LTI Program). The company accounts for
these plans under Accounting Principles Board Opinion No. 25 and the related
Interpretations. Had compensation cost been determined pursuant to Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), the company would have recognized additional
compensation costs during 1997, 1996 and 1995. However, recognition of the
compensation costs would not have been material to the Consolidated
Statements of Income nor would these costs have affected basic earnings per
share.
The LTISA Plan was implemented to help ensure that managers and board
members (Plan Participants) were properly incented to increase shareowner
value. It was established to replace the company's LTI Program, discussed
below. Under the LTISA Plan, the company may grant awards in the form of
stock options, dividend equivalents, share appreciation rights, restricted
shares, restricted share units, performance shares and performance share
units to Plan Participants. Up to three million shares of common stock may
be granted under the LTISA Plan.
The LTISA Plan granted 459,700 and 205,700 stock options and 459,700 and
205,700 dividend equivalents to Plan Participants during 1997 and 1996,
respectively. The exercise price of the stock options granted was $30.75 and
$29.25 in 1997 and 1996, respectively. These options vest in nine years.
Accelerated vesting allows stock options to vest within three years,
dependent upon certain company performance factors. The options expire in
approximately ten years. The weighted-average grant-date fair value of the
dividend equivalent was $6.21 and $5.82 in 1997 and 1996, respectively. The
value of each dividend equivalent is calculated as a percentage of the
accumulated dividends that would have been paid or payable on a share of
company common stock. This percentage ranges from zero to 100%, based upon
certain company performance factors. The dividend equivalents expire after
nine years from the date of grant. All stock options and dividend
equivalents granted were outstanding at December 31, 1997.
The fair value of stock options and dividend equivalents were estimated on
the date of grant using the Black-Scholes option-pricing model. The model
assumed a dividend yield of 6.58% and 6.33%, expected volatility of 13.56%
and 14.12%; and an expected life of 9.0 and 8.7 years for 1997 and 1996,
respectively. Additionally, the stock option model assumed a risk-free
interest rate of 6.72% and 6.45% for 1997 and 1996, respectively. The
dividend equivalent model assumed a risk-free interest rate of 6.36% and
6.61% for 1997 and 1996, respectively, an award percentage of 100% and a
dividend accumulation period of five years.
The LTI Program is a performance-based stock plan which awards performance
shares to executive officers (Program Participants) of the company equal in
value to 10% of the officer's annual base compensation. Each performance
share is equal in value to one share of the company's common stock. Each
Program Participant may be entitled to receive a common stock distribution
based on the value of performance shares awarded multiplied by a distribution
percentage not to exceed 110%. This distribution percentage is based upon
the Program Participants' and the company's performance. Program
Participants also receive cash equivalent to dividends on common stock for
performance shares awarded.
In 1995, the company granted 14,756 performance shares, with a
weighted-average fair value of $28.81. The fair value of each performance
share is based on market price at the date of grant. No performance shares
were granted in 1997 or 1996. At December 31, 1997, shares granted in 1995
no longer have a remaining contractual life and will be paid in March 1998.
11. PROTECTION ONE STOCK WARRANTS AND OPTIONS
Protection One has outstanding stock warrants and options which were
considered reissued and exercisable upon the company's acquisition of
Protection One on November 24, 1997. In lieu of adjusting the number of
outstanding options and warrants, holders of options or warrants received a
$7 per share equivalent cash payment in the acquisition. Stock option
activity subsequent to the acquisition was as follows:
Warrants
and Options Price Range
Balance at November 24, 1997. . . . . . 2,198,389 $0.05-$16.375
Granted . . . . . . . . . . . . . . . . - -
Exercised . . . . . . . . . . . . . . . (306) $ 0.05
Surrendered . . . . . . . . . . . . . . - -
Balance at December 31, 1997. . . . . . 2,198,083 $0.05-$16.375
Stock options and warrants outstanding at December 31, 1997 are as follows:
Number Weighted Weighted
Range of Outstanding Average Average
Exercise and Remaining Life Exercise
Price Exercisable (Years) Price
$ 5.875-$ 9.125 244,560 8 $ 6.566
$ 8.000-$10.313 444,000 8 $ 8.076
$12.125-$16.375 148,000 8 $14.857
$ 9.50 278,000 9 $ 9.50
$15.00 50,000 9 $15.00
$ 0.05 1,425 9 $ 0.05
$ 3.633 103,697 4 $ 3.633
$ 0.167 462,001 6 $ 0.167
$ 6.60 466,400 8 $ 6.60
The company holds a call option for an additional 2,750,238 shares of
Protection One, exercisable at a price of $15.50. The option expires no
later than October 31, 1999.
Certain options outstanding have been issued as incentive awards to
directors, officers, and key employees in accordance with Protection One's
1994 Stock Option Plan. Had the fair value based method been used to
determine compensation expense for these stock options, recognition of the
compensation costs would not have been material.
12. 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 "Disclosures about Fair Value of Financial Instruments".
Cash and cash equivalents, short-term borrowings and variable-rate debt
are carried at cost which approximates fair value. The decommissioning trust
is recorded at fair value and is based on the quoted market prices at
December 31, 1997 and 1996. The fair value of fixed-rate debt, redeemable
preference stock and other mandatorily redeemable securities is estimated
based on quoted market prices for the same or similar issues or on the
current rates offered for instruments of the same remaining maturities and
redemption provisions. The estimated fair values of contracts related to
commodities have been determined using quoted market prices of the same or
similar securities.
The recorded amount of accounts receivable and other current financial
instruments approximate fair value.
The fair value estimates presented herein are based on information
available at December 31, 1997 and 1996. 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. Because a substantial portion of the
company's operations are regulated, the company believes that any gains or
losses related to the retirement of debt or redemption of preferred
securities would not have a material effect on the company's financial
position or results of operations.
The carrying values and estimated fair values of the company's financial
instruments are as follows:
Carrying Value Fair Value
December 31, 1997 1996 1997 1996
(Dollars in Thousands)
Decommissioning trust. . $ 43,514 $ 33,041 $ 43,514 $ 33,041
Fixed-rate debt. . . . . 1,744,743 1,224,743 1,826,739 1,260,722
Redeemable preference
stock. . . . . . . . . 50,000 50,000 51,750 52,500
Other mandatorily
redeemable securities. 220,000 220,000 226,088 214,800
The company is involved in both the marketing of electricity and risk
management services to wholesale electric customers and the purchase of
electricity for the company's retail customers. In addition to the purchase
and sale of electricity, the company engages in price risk management
activities, including the use of forward contracts, futures, swap agreements
and put and call options. The availability and use of these types of
contracts allow the company to manage and hedge its contractual commitments,
reduce its exposure relative to the volatility of cash market prices and take
advantage of selected arbitrage opportunities via open positions. Such open
positions during 1997, were not material to the company's financial position
or results of operations.
In general, the company does not seek to take significant commodity risk
for the purpose of generating margins in the ordinary course of its trading
activities. The company has established a risk management policy designed to
limit the company's exposure to price risk, and it continually monitors and
reviews this policy to ensure that it is responsive to changing business
conditions. This policy requires that, in general, positions taken with
derivatives be offset by positions in physical transactions or other
derivatives. Due to the illiquid nature of the emerging electric markets,
net open positions in terms of price, volume and specified delivery point can
occur.
December 31, 1997 1996
(Dollars in Thousands)
Notional Notional
Volumes Estimated Gain/ Volumes Estimated Gain/
(MWH's) Fair Value (loss) (mmbtu's) Fair Value (loss)
Forward
contracts 359,200 $9,086 $202 - - -
Options 924,000 $1,790 ($329) - - -
Natural gas
futures - $ - $ - 6,540,000 $16,032 $2,061
Natural gas
swaps - $ - $ - 2,344,000 $ 5,500 $1,315
In November 1997, the company contributed its natural gas marketing
business to ONEOK. As a result, the company did not have any natural gas
futures or natural gas swaps as of December 31, 1997.
13. COMMON STOCK, PREFERRED STOCK, PREFERENCE STOCK,
AND OTHER MANDATORILY REDEEMABLE SECURITIES
The company's Restated Articles of Incorporation, as amended, provide for
85,000,000 authorized shares of common stock. At December 31, 1997,
65,409,603 shares were outstanding.
The company has a Direct Stock Purchase Plan (DRIP). Shares issued under
the DRIP may be either original issue shares or shares purchased on the open
market. The company has issued original issue shares under DRIP from January
1, 1995 until October 15, 1997. On November 1, 1997, DRIP began issuing
shares purchased on the open market. During 1997, a total of 837,549 shares
were issued under DRIP including 784,344 original issue shares and 53,205
shares purchased on the open market. At December 31, 1997, 1,244,617 shares
were available under the DRIP registration statement.
Preferred Stock 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.
Preference Stock Subject to Mandatory Redemption: 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 $103.79, $103.03
and $102.27 per share beginning April 1, 1997, 1998 and 1999, 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. These distributions are recorded as interest
expense. 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).
On July 31, 1996, Western Resources Capital II, a wholly-owned trust, of
which the sole asset is subordinated debentures of the company, sold in a
public offering, 4.8 million shares of 8-1/2% Cumulative Quarterly Income
Preferred Securities, Series B, for $120 million. The trust interests
represented by the preferred securities are redeemable at the option of
Western Resources Capital II, on or after July 31, 2001, at $25 per preferred
security plus accumulated and unpaid distributions. Holders of the
securities are entitled to receive distributions at an annual rate of 8-1/2%
of the liquidation preference value of $25. Distributions are payable
quarterly and in substance are tax deductible by the company. These
distributions are recorded as interest expense. The sole asset of the trust
is $124 million principal amount of 8-1/2% Deferrable Interest Subordinated
Debentures, Series B due July 31, 2036.
In addition to the company's obligations under the Subordinated
Debentures, the company has agreed to guarantee, on a subordinated basis,
payment of distributions on the preferred securities. These undertakings
constitute a full and unconditional guarantee by the company of the trust's
obligations under the preferred securities.
14. LEASES
At December 31, 1997, the company had leases covering various property and
equipment. The company currently has no significant capital leases.
Rental payments for operating leases and estimated rental commitments are
as follows:
Operating
Year Ended December 31, Leases
(Dollars in Thousands)
1995 $ 63,353
1996 63,181
1997 71,126
Future Commitments:
1998 66,998
1999 59,634
2000 53,456
2001 50,303
2002 49,999
Thereafter 655,558
Total $935,948
In 1987, KGE sold and leased back its 50% 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%
undivided interest. KGE remains responsible for its share of operation and
maintenance costs and other related operating costs of La Cygne 2. The lease
is an operating lease for financial reporting purposes. The company
recognized a gain on the sale which was deferred and is being amortized over
the initial lease term.
In 1992, the company deferred costs associated with the refinancing of the
secured facility bonds of the Trustee and owner of La Cygne 2. These costs
are being amortized over the life of the lease and are included in operating
expense. Approximately $21.4 million of this deferral remained on the
Consolidated Balance Sheet at December 31, 1997.
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 2002 and $576.6 million over the remainder of the
lease. KGE's lease expense, net of amortization of the deferred gain and
refinancing costs, was approximately $27.3 million for 1997 and $22.5 million
for 1996 and 1995.
15. LONG-TERM DEBT
The amount of the company's first mortgage bonds authorized by its
Mortgage and Deed of Trust, dated July 1, 1939, as supplemented, is
unlimited. The amount of KGE's 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. During the years 1998 through 2002, $125 million of bonds will
mature in 1999, $75 million of bonds will mature in 2000 and $100 million of
bonds will mature in 2002 and a cash sinking fund payment of $2.5 million is
required in 2002. No other bonds will mature and there are no cash sinking
fund requirements for preference stock or bonds during this time period.
Long-term debt outstanding is as follows at December 31:
1997 1996
(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 58,420
133,920 133,920
KGE
First mortgage bond series:
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
300,000 300,000
Pollution control bond series:
5.10 % due 2023. . . . . . . . . . . . . 13,757 13,822
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
387,697 387,762
Revolving credit agreement . . . . . . . . . - 275,000
Western Resources 6 7/8% unsecured
senior notes due 2004. . . . . . . . . . . 370,000 -
Western Resources 7 1/8% unsecured
senior notes due 2009 . . . . . . . . . . 150,000 -
Protection One 6.4% senior subordinated
discount notes due 2005. . . . . . . . . 171,926 -
Protection One 6.75% convertible senior
subordinated discount notes due 2003. . . 102,500 -
Other long-term agreements . . . . . . . . . 67,748 65,190
Less:
Unamortized debt discount. . . . . . . . 5,719 5,289
Long-term debt due within one year . . . 21,217 -
Long-term debt (net). . . . . . . . . . . . $2,181,855 $1,681,583
Rates at December 31, 1997: (1) 4.00%, (2) 4.05%, (3) 3.95%,
(4) 3.85% and (5) 3.89%
16. SHORT-TERM DEBT
The company has arrangements with certain banks to provide unsecured
short-term lines of credit on a committed basis totaling approximately $773
million. The agreements provide the company with the ability to borrow at
different market-based interest rates. The company pays commitment or
facility fees in support of these lines of credit. Under the terms of the
agreements, the company is required, among other restrictions, to maintain a
total debt to total capitalization ratio of not greater than 65% at all
times. The unused portion of these lines of credit are used to provide
support for commercial paper.
In addition, the company has agreements with several banks to borrow on an
uncommitted, as available, basis at money-market rates quoted by the banks.
There are no costs, other than interest, for these agreements. The company
also uses commercial paper to fund its short-term borrowing requirements.
Information regarding the company's short-term borrowings, comprised of
borrowings under the credit agreements, bank loans and commercial paper, is
as follows:
December 31, 1997 1996 1995
(Dollars in Thousands)
Borrowings outstanding at year end:
Lines of credit $ - $525,000 $ -
Bank loans 161,000 162,300 177,600
Commercial paper notes 75,500 293,440 25,850
Total $236,500 $980,740 $203,450
Weighted average interest rate on
debt outstanding at year end
(including fees) 6.28% 5.94% 6.02%
Weighted average short-term debt
outstanding during the year $787,507 $491,136 $301,871
Weighted daily average interest
rates during the year
(including fees) 5.93% 5.72% 6.15%
Unused lines of credit supporting
commercial paper notes $772,850 $447,850 $121,075
17. INCOME TAXES
Income tax expense is composed of the following components at December 31:
1997 1996 1995
(Dollars in Thousands)
Currently Payable:
Federal. . . . . . . . . $336,150 $54,644 $50,674
State. . . . . . . . . . 72,143 20,280 17,003
Deferred:
Federal. . . . . . . . . (19,766) 14,808 22,911
State. . . . . . . . . . (3,217) (615) 601
Amortization of Investment
Tax Credits . . . . . . . (6,665) (6,758) (6,809)
Total Income Tax Expense . $378,645 $82,359 $84,380
Under SFAS 109, temporary differences gave rise to deferred tax assets and
deferred tax liabilities as follows at December 31:
1997 1996
(Dollars in Thousands)
Deferred tax assets:
Deferred gain on sale-leaseback. . . . . $ 97,634 $ 99,466
Security business deferred tax assets. . 103,054 -
Other. . . . . . . . . . . . . . . . . . 94,008 30,195
Total deferred tax assets. . . . . . . $ 294,696 $ 129,661
Deferred Tax Liabilities:
Accelerated depreciation and other . . . $ 625,176 $ 654,102
Acquisition premium. . . . . . . . . . . 299,162 307,242
Deferred future income taxes . . . . . . 213,658 217,257
Other. . . . . . . . . . . . . . . . . . 112,555 61,432
Total deferred tax liabilities . . . . $1,250,551 $1,240,033
Investment Tax Credits . . . . . . . . . . $ 109,710 $ 125,528
Accumulated deferred income taxes, net . . $1,065,565 $1,235,900
In accordance with various rate orders, the company has not yet collected
through rates certain accelerated tax deductions which have been passed on to
customers. As management believes it is probable that the net future
increases in income taxes payable will be recovered from customers, 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.
The effective income tax rates set forth below are computed by dividing
total federal and state income taxes by the sum of such taxes and net income.
The difference between the effective tax rates and the federal statutory
income tax rates are as follows:
Year Ended December 31, 1997 1996 1995
(Dollars in Thousands)
Effective Income Tax Rate 43.4% 32.8% 31.8%
Effect of:
State income taxes (5.0) (5.1) (4.3)
Amortization of investment tax credits 0.8 2.7 2.5
Corporate-owned life insurance policies 0.9 3.7 3.2
Accelerated depreciation flow through
and amortization, net (0.4) (.2) (.2)
Adjustment to tax provision (3.7) - -
Other (1.0) 1.1 2.0
Statutory Federal Income Tax Rate 35.0% 35.0% 35.0%
18. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment at December
31:
1997 1996
(Dollars in Thousands)
Electric plant in service $5,564,695 $5,448,489
Natural gas plant in service - 834,330
5,564,695 6,282,819
Less - Accumulated depreciation 1,895,084 2,058,596
3,669,611 4,224,223
Construction work in progress 60,006 93,834
Nuclear fuel (net) 40,696 38,461
Net Utility Plant 3,770,313 4,356,518
Non-utility plant in service 20,237 41,965
Less - Accumulated depreciation 4,022 14,466
Net Plant $3,786,528 $4,384,017
The carrying value of long-lived assets, including intangibles are
reviewed for impairment whenever events or changes in circumstances indicate
they may not be recoverable.
19. JOINT OWNERSHIP OF UTILITY PLANTS
Company's Ownership at December 31, 1997
In-Service Invest- Accumulated Net Per-
Dates ment Depreciation (MW) cent
(Dollars in Thousands)
La Cygne 1 (a) Jun 1973 $ 162,400 $109,481 343 50
Jeffrey 1 (b) Jul 1978 291,624 131,397 617 84
Jeffrey 2 (b) May 1980 290,468 121,854 617 84
Jeffrey 3 (b) May 1983 403,046 153,084 605 84
Wolf Creek (c) Sep 1985 1,380,660 399,551 547 47
(a) Jointly owned with KCPL
(b) Jointly owned with UtiliCorp United Inc.
(c) Jointly owned with KCPL and Kansas Electric Power Cooperative, Inc.
Amounts and capacity presented above 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% undivided interest in La Cygne 2 (representing 334
MW capacity) sold and leased back to the company in 1987, are included in
operating expenses on the Consolidated Statements of Income. The company's
share of other transactions associated with the plants is included in the
appropriate classification in the company's Consolidated Financial
Statements.
20. SEGMENTS OF BUSINESS
The company is a diversified energy and security alarm monitoring service
company principally engaged in the generation, transmission, distribution and
sale of electricity in Kansas and a security alarm monitoring provider for
residential and multi-family units operating in 48 states in the U.S. through
Protection One, a subsidiary of the company.
Electric consists of the company's regulated electric utility business.
Natural gas includes the company's regulated and non-regulated natural gas
business. Security alarm monitoring includes the company's security alarm
monitoring business activities, including installation activities. Energy
related includes the company's international power development projects and
other domestic energy related services.
Year Ended December 31, 1997 1996 1995
(Dollars in Thousands)
Sales:
Electric. . . . . . . . . . . $1,160,166 $1,197,441 $1,146,869
Natural gas(1). . . . . . . . 739,059 797,021 436,692
Security alarm monitoring . . 152,347 8,546 344
Energy related. . . . . . . . 100,193 43,819 160,369
2,151,765 2,046,827 1,744,274
Income from operations:
Electric. . . . . . . . . . . 207,026 347,097 360,321
Natural gas(1). . . . . . . . 27,840 43,111 8,457
Security alarm monitoring . . (48,442) (3,553) (787)
Energy related. . . . . . . . (43,499) 1,898 5,730
$ 142,925 $ 388,553 $ 373,721
Identifiable assets at
December 31:
Electric. . . . . . . . . . . $4,640,322 $4,735,335 $4,740,817
Natural gas(1). . . . . . . . - 724,302 623,198
Security alarm monitoring . . 1,504,738 488,849 5,615
Energy related. . . . . . . . 831,900 699,295 121,047
$6,976,960 $6,647,781 $5,490,677
Depreciation and amortization:
Electric. . . . . . . . . . . $ 183,339 $ 170,094 $ 150,997
Natural gas(1). . . . . . . . 29,941 28,011 25,075
Security alarm monitoring . . 41,179 944 45
Energy related. . . . . . . . 2,266 2,282 1,713
$ 256,725 $ 201,331 $ 177,830
Capital expenditures:
Electric. . . . . . . . . . . $ 159,760 $ 138,475 $ 179,090
Natural gas(1). . . . . . . . 47,151 57,128 62,901
Security alarm monitoring . . 45,163 - -
Energy related. . . . . . . . 47,845 - -
$ 299,919 $ 195,603 $ 241,991
(1) On November 30, 1997 the company contributed substantially all of the
operations and financial position of the natural gas segment in exchange for
an equity interest in ONEOK.
21. 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)
1997
Sales . . . . . . . . . . . . . $626,198 $454,006 $559,996 $511,565
Income from operations(1) . . . 103,297 57,498 110,391 (128,261)
Net income(1),(2) . . . . . . . 41,033 24,335 508,372 (79,646)
Earnings applicable to
common stock. . . . . . . . . 39,803 23,106 507,142 (80,876)
Basic earnings per share. . . . $ 0.61 $ 0.36 $ 7.77 $ (1.23)
Dividends per share . . . . . . $ 0.525 $ 0.525 $ 0.525 $ 0.525
Average common shares
outstanding . . . . . . . . . 64,807 65,045 65,243 65,408
Common stock price:
High. . . . . . . . . . . . . $ 31.50 $ 32.75 $ 35.00 $ 43.438
Low . . . . . . . . . . . . . $ 30.00 $ 29.75 $ 32.31 $ 33.625
1996
Sales . . . . . . . . . . . . . $555,623 $436,123 $490,175 $564,906
Income from operations. . . . . 95,475 73,196 129,504 90,378
Net income. . . . . . . . . . . 44,789 28,746 62,949 32,466
Earnings applicable to
common stock. . . . . . . . . 41,434 25,392 56,049 31,236
Basic earnings per share. . . . $ 0.66 $ 0.40 $ 0.87 $ 0.48
Dividends per share . . . . . . $ 0.515 $ 0.515 $ 0.515 $ 0.515
Average common shares
outstanding . . . . . . . . . 63,164 63,466 64,161 64,523
Common stock price:
High. . . . . . . . . . . . . $ 34.875 $ 30.75 $ 30.75 $ 31.75
Low . . . . . . . . . . . . . $ 29.25 $ 28.00 $ 28.25 $ 28.625
(1) During the fourth quarter of 1997, the company expensed deferred costs of
approximately $48 million associated with the original KCPL merger.
Protection One recorded a special charge to income of approximately $40
million.
(2) During the third quarter of 1997, the company recorded a pre-tax gain of
approximately $864 million upon selling its Tyco common stock.
<TABLE> <S> <C>
<ARTICLE> OPUR3
<CIK> 0000054507
<NAME> WESTERN RESOURCES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-ASSETS> 6,976,960
<TOTAL-OPERATING-REVENUES> 142,925
<NET-INCOME> 494,094
</TABLE>
Exhibit 99
EXHIBIT C
Western Resources, Inc.
(a Kansas corporation, "WRI")
Westar Capital, Inc.
(a Kansas corporation, "Westar")
The Wing Group, Limited Company
(a Delaware corporation, "Wing")
Wing Columbia, L.L.C., (a Delaware Limited Liability Company), 99%
owned by Westar Capital, Inc., 1% owned by Wing.
TLC International LDC, (a Cayman Islands limited duration
company) 36.75% owned by Wing Columbia, L.L.C.
Merilectrica I S.A., (a sociedad anonima formed under the
laws of the Republic of Columbia). This Company is the
general partner of Merilectrica I S.A. Cia S.C.A. E.S.P.,
36.75% owned by Wing Columbia, L.L.C.
Merilectrica I S.A. Cia S.C.A. E.S.P., (a sociedad en
comandita por acciones organized under the law of the
Republic of Columbia), 36.75 owned by Wing Columbia,
L.L.C.
Western Resources (Bermuda) Limited (a Bermuda Limited Liability
Company).
CPI-Western Power Holdings, Ltd., a Bermuda Limited Liability
Company. 50% owned by Western Resources, Inc. (Bermuda).
Western Resources International, Limited (a Cayman Islands Limited
Liability Company).
Zhengzhou Dengwai Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International
Limited
Zhengzhou Dengyuan Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International
Limited
Wing Turkey, Inc. (a Delaware corporation)
Wing International, Ltd. (a Texas Limited Liability
Company), 99% owned by Wing Turkey, Inc. and 1% owned by The
Wing Group, Limited Co.
Trakya Elektrik Uretim Ve Ticaret A.S. (a joint stock
company under the laws of the Republic of Turkey), 9% owned
by Wing International, Ltd.
