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:
ITEM 1. Name, State of Organization, Location And Nature of Business of
Claimant And Every Subsidiary Thereof, Other Than Any Exempt Wholesale
Generator (EWG) or Foreign Utility Company.
WRI is a Kansas corporation whose principal executive offices are
located at 818 South Kansas Ave., Topeka, Kansas, 66612. WRI's mailing
address is P.O. Box 889, Topeka, Kansas 66601.
During 1998, WRI's principal business consisted of the production,
purchase, transmission, distribution and sale of electricity. WRI provided
retail electric service to approximately 340,000 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. 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, 1998, 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. KGE's subsidiary is as follows:
1. 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 KGE and operates
the Wolf Creek Generating Station on behalf of the plant's owners.
B. NKC, Inc., a Kansas corporation, with principal offices at 818 South
Kansas Avenue, Topeka, Kansas 66612. NKC, Inc., a wholly-owned
subsidiary of WRI, is a company established for the acquisition of
Kansas City Power & Light Company.
C. The Wing Group, Limited Co., a Delaware corporation, with principal
offices at 1610 Woodstead Court, Suite 220, The Woodlands, Texas 77380.
The Wing Group, Limited Co., a wholly-owned subsidiary of WRI, is a
developer of international power generation projects. The Wing Group's
subsidiaries are as follows:
1. 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.
2. 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.
3. 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.
4. 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.
D. Westar Capital, Inc. (Westar Capital), a Kansas corporation with
principal offices at 818 South 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 as follows:
1. 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 11.15% of
Hanover's common stock.
2. Onsite Energy Corporation, a Delaware corporation with principal
offices at 701 Palomar Airport Road, Suite 200, Carlsbad,
California 92009. Onsite is a provider of energy-related services
to commercial and industrial customers. Westar Capital, Inc. owns
approximately 35.28% of Onsite common and convertible preferred
stock.
3. Protection One, Inc., a Delaware corporation, with principal
offices at 600 Corporate Pointe, 12th Floor, Culver City,
California 90230. Protection One, Inc. is a holding company for
monitored security alarm businesses. Westar Capital, Inc. owns
approximately 85.44% of Protection One. Protection One, Inc.'s
subsidiaries are as follows:
a. Protection One Acquisition Holding Corporation, a Delaware
corporation with principal offices at 600 Corporate Pointe,
12th Floor, Culver City, California 90230. Protection One
Acquisition Holding Corp. is a company established in
connection with the acquisition of Lifeline Systems.
Protection One Acquisition Holding Corporation's subsidiaries
are as follows:
i. P-1 Merger Sub., Inc. (Delaware), a Delaware corporation
with principal offices at 600 Corporate Pointe, 12th Floor,
Culver City, California 90230. P-1 Merger Sub., Inc.
(Delaware) is a company established for the acquisition of
Lifeline Systems.
ii. P-1 Merger Sub, Inc. (Mass.), a Massachusetts corporation
with principal offices at 600 Corporate Pointe, 12th Floor,
Culver City, California 90230. P-1 Merger Sub., Inc.
(Mass.) is a company established for the acquisition of the
Lifeline Systems.
b. Protection One Alarm Monitoring, Inc., a Delaware corporation
with principal offices at 600 Corporate Pointe, 12th Floor,
Culver City, California 90230. Protection One Alarm Monitoring,
Inc. is a provider of home security services. Protection One
Alarm Monitoring, Inc.'s subsidiaries are as follows:
i. Comsec Narragansett Security, Inc., a Delaware corporation
with principal offices at 245 Hopmeadow St., Weatogue, CT
06089. Comsec Narragansett Security, Inc.'s subsidiaries
are as follows:
(1) Comsec Systems, Inc., a Delaware corporation with
principal offices at 245 Hopmeadow St., Weatogue, CT
06089.
(2) Comsec Systems of Mass, Inc., a Delaware corporation
with principal offices at 245 Hopmeadow St., Weatogue,
CT 06089.
(3) Comsec Systems of Eastern Mass., Inc., a Delaware
corporation with principal offices at 245 Hopmeadow
St., Weatogue, CT 06089.
ii. International Alarm Systems, Inc., a Florida corporation
with principal offices at 2301 West Sample Road, Building
3, Suite 1B, Pompano Beach, Florida 33073 (International
Alarm Systems, Inc. merged into Protection One Alarm
Monitoring,Inc. on January 11, 1999).
iii. 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.
iv. Protection One Alarm Monitoring of Mass., Inc., a Delaware
corporation with principal offices at 600 Corporate Pointe,
12th Floor, Culver City, CA 90230.
v. Protection One International, Inc., a Delaware corporation
with principal offices at 600 Corporate Pointe, 12th Floor,
Culver City, CA 90230. Protection One International,
Inc.'s subsidiaries are as follows:
(1) Protection One Canada, Inc., a corporation organized
under the laws of Ontario, Canada, with principal
offices at 1 Valleybrook Drive, Don Mills, Ontario,
M3B 2S7. Protection One Canada, Inc.'s subsidiary is
as follows:
(a) Canguard, Inc., a corporation organized under
the laws of Ontario, Canada, with principal
offices at 1 Valleybrook Dr., 1st Floor, Don
Mills, Ontario, M3B 2S7 Canada.
(2) Protection One France, EURL, a corporation organized
under the laws of France, with principal offices at
Techno-Parc du Griffon, 840, Route de la Seds, 13127
Vitrolles, France. Protection One France, EURL's
subsidiaries are as follows:
(a) Compagnie Europeenne de Telesecurite, S.A.
(CET) a corporation organized under the laws of
France, with principal offices at 140, boulevard
Malesherbes, 75017 Paris, France. CET's
subsidiaries are as follows:
(i) Actar, a corporation organized under the
laws of France, with principal offices at
21, rue Auguste Perret, 94808 Villejuif,
France. Actar's subsidiaries are as
follows:
(A) Aldus, a corporation organized under
the laws of France, with principal
offices at Techno-Parc du Griffon, 840,
Route dela Seds, 13127 Vitrolles,
France.
(B) Surveilance Electronique, a corporation
organized under the laws of France,
with principal offices at 133 route de
Versailles, 92410 Ville d'Avray,
France.
(ii) CET Benelux S.A., a corporation organized
under the laws of Belgium, with principal
offices at 440, boulevard Lambermont, 1030
Brussels, Belgium.
(iii) C.E.T. Swisse, a corporation organized under
the laws of Switzerland, with principal
offices at Nyon, Switzerland.
(iv) C.E.T. Technishe Sicherheirsdienste GmbH, a
corporation organized under the laws of
Germany, with principal offices at
Meerbusch, Germany.
(v) Croise Laroch, a corporation organized under
the laws of France, with principal offices
at 140, boulevard Malesherbes, 75017 Paris,
France. Croise Laroch's subsidiary is as
follows:
(A) E.S. Beveiliging B.V.B.A., a
corporation organized under the laws of
Belgium, with principal offices at 440,
boulevard Lambremont, 1030 Brussels,
Belgium.
(vi) Eurocontact, a corporation organized under
the laws of France, with principal offices
at Les Docks Atrium 102, 10, Place de la
Joliette, 13304 Marseille, Cedex 2.
(vii) Europ Telesecurite, a corporation organized
under the laws of France, with principal
offices at 1, rue de la Bonnette, 92230
Gennevilliers, France.
(viii) France Reseau Telesecurite (F.R.T.), a
corporation organized under the laws of
France, with principal offices at 140,
boulevard Malesherbes, 75017 Paris, France.
(3) Protection One U.K., Inc., a corporation organized
under the laws of the United Kingdom, with principal
offices at Protection House, The Loddon Business
Centre, Roentgen Road, Basingstoke, Hampshire RG24
8NG, United Kingdom.
vi. Protection One Investments, Inc., a Delaware corporation,
with principal offices at 6225 North State Highway 161,
Suite 400, Irving, Texas 75038. Protection One Investments
was established for the purpose of holding investments.
Protection One Investments, Inc.'s subsidiary is as
follows:
(1) Response USA, Inc., a Delaware corporation, with
principal offices at 11-H Princess Road,
Lawrenceville, New Jersey 08648. Response USA is a
provider of home security services. Protection One
Investments, Inc. owns approximately 11.65% of
Response USA, Inc's common stock.
vii. Security Monitoring Services, Inc., a Florida corporation
with principal offices at P.O. Box 800, Longwood Florida.
viii. Sentry Protective Alarms, Inc., a California corporation,
with principal offices at 14227 West 95th Street, Lenexa,
Kansas 66215.
4. Westar Aviation, Inc. a Kansas corporation with principal offices at
818 South Kansas Avenue, Topeka, Kansas 66612. Westar Aviation,
Inc. leases and maintains planes for corporate transportation
purposes.
5. 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.
6. Westar Limited Partners, Inc., a Kansas corporation, with principal
offices at 818 South Kansas Avenue, Topeka, Kansas 66612. Westar
Limited Partners, Inc. participates in limited partnerships and
investments of Westar Capital, Inc. Westar Limited Partners, Inc.
partnerships are as follows:
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 Limited 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.
7. Westar Limited Partners II, Inc., a Kansas corporation, with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612.
Westar Limited Partners, Inc. participates in limited partnerships
and investments of Westar Capital, Inc.
8. Wing Colombia, L.L.C., a Delaware limited liability company with
principal offices at 1610 Woodstead Court, Suite 220, The Woodlands,
Texas 77380. Wing Colombia, L.L.C. is a limited liability company
which is a holding company for EWG's. Wing Colombia, LLC's
subsidiaries are as follows:
a. Merilectrica I.S.A., a sociedad anonima organized under the laws
of the Republic of Colombia with principal offices in Colombia,
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 Colombia L.L.C.
b. TLC International LDC Cayman Is. Ltd, a corporation organized
under the laws of the Cayman Islands with principal offices at
x/o W.S. Walker & Co., Claredonian House, Georgetown Grand
Cayman's, Cayman Islands. This Company is an EWG and 36.75%
owned by Wing Colombia L.L.C.
E. Westar Energy, Inc. ("Westar Energy"), a Kansas corporation, with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612.
Westar Energy, Inc. provides energy services to large commercial and
industrial customers. Westar Energy's subsidiary is as follows:
1. Westar Energy Investments, Inc., a Kansas corporation, with principal
offices at 818 South Kansas Avenue, Topeka, Kansas 66612. Westar
Energy Investments, Inc. holds energy-related investments.
F. 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 as follows:
1. CPI-Western Power Holdings, Ltd., a Bermuda Limited Liability Company.
Western Resources Limited (Bermuda) owns 50% of CPI-Western Power
Holdings, Ltd. a master joint venture which develops power generation
projects in China. CPI-Western Power Holdings, Ltd's subsidiaries
are as follows:
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.
i. Zhengzhou Dengwai Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yangcheng
Industrial Zone, Dengfeng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic of China.
This company is an EWG and 49% owned by Western Resources
International Ltd.
ii. Zhengzhou Dengyuan Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yancheng
Industrial Zone, Dengfeng Municipality, Henan Province,
People's Republic of China. This company is an EWG and 49%
owned by Western Resources International Ltd.
iii. Zhengzhou Huadeng Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yangcheng
Industrial Zone, Dengfeng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic of China.
This company is an EWG and 49% owned by Western Resources
International Ltd effective January 1, 1999.
iv. Zhengzhou Huaxin Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yancheng
Industrial Zone, Dengfeng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic of China.
This company is an EWG and 49% owned by Western Resources
International Ltd effective January 1, 1999.
2. 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 was established to develop power
generation projects. Western Resources I (Cayman Island) Limited's
subsidiary is as follows:
a. 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 was established to
develop power generation projects.
G. Western Resources Capital I and II, are Delaware business trusts
established for the purpose of issuing securities.
H. 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. Wing Turkey,
Inc.'s subsidiaries are as follows:
1. Wing International, Limited is a Texas limited liability 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. Wing International, Limited's
investment is in:
a. Trakya Elektrik Uretim VE Ticaret A.S., a Turkey corporation with
principal offices at P.K. 13, Marmara Ereglsi 59740 Tekirdag.
This company is an EWG and 9% owned by Wing International Ltd.
I. Dormant Subsidiaries:
1. Contract Compression, Inc., a Texas corporation.
2. Gas Service Energy Corporation, a Delaware corporation.
3. KPL Funding, Inc., a Kansas corporation.
4. Rangeline, Inc., a Kansas corporation.
5. The Kansas Power and Light Company, a Kansas corporation.
6. The Comfort Zone, Inc., a Kansas corporation.
7. Westar Financial Services, Inc., a Kansas corporation.
8. WR Services, Inc., a Kansas corporation.
<PAGE>
ITEM 2. Description of The Properties of Claimant And Each of Its Subsidiary
Public Utility Company Used for the Generation, Transmission, and Distribution
of Electric Energy for Sale.
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..................... 474
JEC Unit 3, near St. Marys..................... 473
Lawrence Energy Center, near Lawrence.......... 572
Tecumseh Energy Center, near Tecumseh.......... 238
Subtotal................................. 2,227
Gas/Oil
Hutchinson Energy Center, near Hutchinson...... 406
Abilene Energy Center, near Abilene............ 66
Tecumseh Energy Center, near Tecumseh.......... 41
Subtotal........................... 513
Diesel
Hutchinson Energy Center ...................... 81
Total Accredited Capacity...................... 2,821 MW
WRI maintains 19 interconnections with other public utilities to permit
direct extra-high voltage interchange. 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.
<PAGE>
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 ....................... 148
JEC Unit 3, near St. Mary's ....................... 148
Subtotal............................... 1,120
Gas/Oil
Gordon Evans, Wichita ............................. 534
Murray Gill, Wichita............................... 331
Subtotal .............................. 865
Diesel
Wichita, Wichita................................... 3
Total Accredited Capacity ......................... 2,535 MW
KGE maintains 17 interconnections with other public utilities to permit
direct extra-high voltage interchange. 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.
ITEM 3. Information for the Last Calendar Year with Respect to Claimant and
Each of its Subsidiary Public Utility Companies.
A. Number of kwh. of electric energy sold (at retail or wholesale):
For the year ended December 31, 1998, WRI sold 9,148,059,000 Kwh of
electric energy at retail, 3,285,292,000 Kwh of electric energy at
wholesale. For the year ended December 31, 1998, KGE sold 8,781,628,000
Kwh of electric energy at retail and 1,540,546,000 Kwh of electric energy
at wholesale.
B. Number of kwh. of electric energy distributed at retail outside the State
in which each company is organized:
During 1998, neither WRI nor its subsidiaries distributed or sold electric
energy at retail outside the State of Kansas.
C. Number of kwh. of electric energy sold at wholesale outside the State in
which each company is organized:
During 1998, WRI sold, at wholesale, 522,660,672 Kwh of electric energy to
adjoining public utilities through interconnections at the Kansas state
line. During 1997, KGE sold, at wholesale, 792,112,280 Kwh of electric
energy to adjoining public utilities through interconnections at the
Kansas state line. During 1998, neither WRI or KGE sold natural or
manufactured gas at wholesale outside the state of Kansas or at the Kansas
state line.
D. Number of kwh. of electric energy purchased outside the State in which
each company is organized:
During 1998, WRI purchased 866,222,619 Kwh of electric energy from outside
the State of Kansas or at the Kansas state line. During 1998, KGE
purchased 833,776,000 Kwh of electric energy from outside the State of
Kansas or at the Kansas State line.
ITEM 4. 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.
4.1 Merilectrica/TLC International.
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, Colombia
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, Colombia
Facility: 160 MW single-cycle gas fired electric generating
plant.
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 owner and lessor of the equipment installed in the plant.
Merilectrica leases the equipment from TLC and owns the balance of the
plant.
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 $16,005,627
Guarantee: None
Other Obligations: Two letters of credit totaling $8,063,495
supporting the construction of the project exist
under which Westar Capital, Inc., a wholly owned
subsidiary of the claimant is ultimately
responsible.
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: Merilectrica - None
TLC - US$14,555,369
Earnings: None
E. Identify any service, sales or construction contract(s) between the EWG or
foreign utility company and a system company, and describe the services to
be rendered or goods sold and fees or revenues under such agreement(s):
None
<PAGE>
4.2 Zhengzhou Dengwei Power Co.
A. Name, location, business address and description of the facilities used by
the EWG or foreign utility company for the generation, transmission and
distribution of electric energy for sale or for the distribution at retail
of natural or manufactured gas:
Name of EWG: Zhengzhou Dengwei Power Co., Ltd.
Address: Yangcheng Industrial Zone
Dengfeng Industrial Zone,
Dengfeng Municipality, Henan Province
Location: Dengfeng Municipality, Henan Province, People's
Republic of China.
Facility: 55 MW coal-fired generating unit.
B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:
Western Resources International Limited acquired a 49% equity interest in
Zhenzhou Dengwei Power Co., Ltd., effective January 1, 1998.
C. Type and amount of capital invested, directly or indirectly, by the
holding company claiming exemption; any direct or indirect guarantee of
the security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:
Capital Invested: Approximately US$ 5.2 million as registered
paid-in capital. Shareholder loan of
approximately US$ 7.9 million payable in equal
annual installments over a 10-year term.
Guarantees: None
Other Obligations: None
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: None
Earnings: US $2.7 million.
E. Identify any service, sales or construction contract(s) between the EWG or
foreign utility company and a system company, and describe the services to
be rendered or goods sold and fees or revenues under such agreement(s):
None
4.3 Zhengzhou Dengyuan Power Co.
A. Name, location, business address and description of the facilities used by
the EWG or foreign utility company for the generation, transmission and
distribution of electric energy for sale or for the distribution at retail
of natural or manufactured gas:
Name of EWG: Zhengzhou Dengyuan Power Co. Ltd.
Address: Yangcheng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic
of China.
Location: Dengfeng Municipality, Henan Province, People's
Republic of China.
Facility: 55 MW coal-fired generating unit.
B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:
Western Resources International Limited acquired 49% equity interest in
Zhengzhou Dengyuan Power Co., Ltd. effective January 1, 1998.
C. Type and amount of capital invested, directly or indirectly, by the
holding company claiming exemption; any direct or indirect guarantee of
the security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:
Capital Invested: Approximately US$ 4.9 million cash as registered
paid-in capital. Shareholder loan of
approximately US$9.8 million payable in equal
annual installments over a 10-year term.
Guarantees: None
Other Obligations: None
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: None
Earnings: US$ 2.5 million.
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
<PAGE>
4.4 Zhengzhou Huadeng Power Co.
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 Huadeng Power Co. Ltd.
Address: Yangcheng Industrial Zone
Dengfeng Industrial Zone
Dengfeng Municipality, Henan Province, PRC
Location: Dengfeng Municipality, Henan Province, People's
Republic of China
Facility: 55 MW coal-fired generating unit
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
Zhengzhou Huadeng Power Co. Ltd., effective January 1, 1999.
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$ 4.4 million as registered
paid-in capital.
Guarantees: None
Other Obligations: None
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: Registered (paid) in Capital (approximately US$
8.9 million)
Earnings: None
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
<PAGE>
4.5 Zhengzhou Huaxin Power Co.
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 Huaxin Power Co. Ltd.
Address: Yangcheng Industrial Zone
Dengfeng Industrial Zone
Dengfeng Municipality, Henan Province, PRC
Location: Dengfeng Municipality, Henan Province, People's
Republic of China
Facility: 55 MW coal-fired generating unit
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
Zhengzhou Huaxin Power Co. Ltd., effective January 1, 1999.
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$ 4.4 million as registered
paid-in capital.
Guarantees: None
Other Obligations: None
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: Registered (paid-in) Capital (approximately US$
8.9 million)
Earnings: None
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
<PAGE>
4.6 Trakya Elektrik Uretim Ve Ticaret A.S.
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: 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.
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.
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$8,909,769 as paid in capital.
Approximately US$1,949,502 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.
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: Approximately US$68,158,573
Earnings: None.
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 ____ day of April, 1999.
Western Resources, Inc.
By: /s/ Richard D. Terrill
Richard D. Terrill
Vice President, Law and
Corporate Secretary
Name, title and address of officer to whom notices and correspondence
concerning this statement should be addressed:
Richard D. Terrill
Vice President, Law and Corporate Secretary
Western Resources, Inc.
P.O. Box 889
818 South Kansas Avenue
Topeka, Kansas 66601
(785)575-6322
(785)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, 1998
(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 . . . . . . . . $ (77) $ 41 $ 16,313
Restricted cash . . . . . . . . . . . . . - - 11,987
Accounts receivable (net) . . . . . . . . 882,758 130,918 (467,079)
Inventories and supplies (net). . . . . . 44,567 43,121 7,902
Marketable securities . . . . . . . . . . - - 288,077
Deferred tax asset . . . . . . . . . . . - - 49,543
Tax receivable . . . . . . . . . . . . . - - 5,886
Prepaid expenses and other. . . . . . . . 8,490 15,097 21,629
Total Current Assets. . . . . . . . . . 935,738 189,177 (65,742)
PROPERTY, PLANT AND EQUIPMENT, NET. . . . . 1,220,591 2,527,357 47,195
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . 608,467 - 6,627
Customer accounts (net) . . . . . . . . . - - 1,014,428
Goodwill (net). . . . . . . . . . . . . . - - 1,188,253
Deferred tax asset . . . . . . . . . . . - - 44,028
Regulatory assets . . . . . . . . . . . . 73,767 290,446 -
Other . . . . . . . . . . . . . . . . . . 1,935,752 50,991 56,195
Total Other Assets. . . . . . . . . . . 2,617,986 341,437 2,309,531
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 4,774,315 $ 3,057,971 $ 2,290,984
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ 125,000 $ - $ 40,838
Short-term debt . . . . . . . . . . . . . 312,472 - -
Accounts payable. . . . . . . . . . . . . 324,140 78,509 251,565
Accrued liabilities . . . . . . . . . . . 131,646 34,199 86,490
Accrued income taxes. . . . . . . . . . . (12,629) 29,599 23,272
Deferred revenue . . . . . . . . . . . . - - 57,703
Other . . . . . . . . . . . . . . . . . . 34,061 6,020 45,609
Total Current Liabilities . . . . . . . 914,690 148,327 505,477
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . 1,493,338 684,167 877,233
Western Resources obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely company
subordinated debentures . . . . . . . . - - -
Deferred income taxes and credits . . . . 296,193 785,116 (23,880)
Minority interests. . . . . . . . . . . . - - 205,822
Deferred gain from sale/leaseback . . . . - 209,951 -
Other . . . . . . . . . . . . . . . . . . 116,762 92,165 83,118
Total Long-term Liabilities . . . . . . 1,906,293 1,771,399 1,142,293
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Cumulative preferred and preference stock 24,858 - -
Common stock, par value $5 per share,
85,000,000 authorized shares,
65,909,442 outstanding shares . . . . . 329,547 1,065,634 5
Paid-in capital . . . . . . . . . . . . . 775,337 - 283,836
Retained earnings . . . . . . . . . . . . 823,590 72,611 349,865
Accumulated other comprehensive income . - - 9,508
Total Shareholders' Equity . . . . . . 1,953,332 1,138,245 643,214
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY . $ 4,774,315 $ 3,057,971 $ 2,290,984
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1998
(Dollars in Thousands)
(Continued)
<CAPTION>
WR The Wing
Bermuda Wing Group Turkey
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . $ 26 $ 90 $ 1
Restricted cash . . . . . . . . . . . . . - - -
Accounts receivable (net) . . . . . . . . (7,832) (17,069) 3,019
Inventories and supplies (net). . . . . . - - -
Marketable securities . . . . . . . . . . - - -
Deferred tax asset . . . . . . . . . . . - - -
Tax receivable . . . . . . . . . . . . . - - -
Prepaid expenses and other. . . . . . . . - 8 14
Total Current Assets. . . . . . . . . . (7,806) (16,971) 3,034
PROPERTY, PLANT AND EQUIPMENT, NET. . . . . - - -
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . - - -
Customer accounts (net) . . . . . . . . . - - -
Goodwill (net). . . . . . . . . . . . . . - - -
Deferred tax asset . . . . . . . . . . . - - -
Regulatory assets . . . . . . . . . . . . - - -
Other . . . . . . . . . . . . . . . . . . 9,996 (4) 4,469
Total Other Assets. . . . . . . . . . . 9,996 (4) 4,469
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 2,190 $ (16,975) $ 7,503
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ - $ -
Short-term debt . . . . . . . . . . . . . - - -
Accounts payable. . . . . . . . . . . . . - 2,434 -
Accrued liabilities . . . . . . . . . . . - 32 -
Accrued income taxes. . . . . . . . . . . 358 (2,237) 465
Deferred revenue . . . . . . . . . . . . - - -
Other . . . . . . . . . . . . . . . . . . - - -
Total Current Liabilities . . . . . . . 358 229 465
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . - - 8,326
Western Resources obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely company
subordinated debentures . . . . . . . . - - -
Deferred income taxes and credits . . . . (11,058) (13,530) (611)
Minority interests. . . . . . . . . . . . - - -
Deferred gain from sale/leaseback . . . . - - -
Other . . . . . . . . . . . . . . . . . . 1,500 22,700 -
Total Long-term Liabilities . . . . . . (9,558) 9,170 7,715
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Cumulative preferred and preference stock - - -
Common stock, par value $5 per share,
85,000,000 authorized shares,
65,909,442 outstanding shares . . . . . - - -
Paid-in capital . . . . . . . . . . . . . 27,590 13,805 2
Retained earnings . . . . . . . . . . . . (16,200) (40,179) (679)
Accumulated other comprehensive income . - - -
Total Shareholders' Equity . . . . . . 11,390 (26,374) (677)
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY . $ 2,190 $ (16,975) $ 7,503
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1998
(Dollars in Thousands)
(Continued)
<CAPTION>
Western Reclassi- Western
Resources fication Consolidating Resources
Capital I & II Entries Entries Consolidated
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . $ - $ - $ - $ 16,394
Restricted cash . . . . . . . . . . . . . - (11,987) - -
Accounts receivable (net) . . . . . . . . 226,804 - (528,804) 222,715
Inventories and supplies (net). . . . . . - - - 95,590
Marketable securities . . . . . . . . . . - - - 288,077
Deferred tax asset . . . . . . . . . . . - (49,543) - -
Tax receivable . . . . . . . . . . . . . - (5,886) - -
Prepaid expenses and other. . . . . . . . - 11,987 - 57,225
Total Current Assets. . . . . . . . . . 226,804 (55,429) (528,804) 680,001
PROPERTY, PLANT AND EQUIPMENT, NET. . . . . - - - 3,795,143
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . - - - 615,094
Customer accounts (net) . . . . . . . . . - - - 1,014,428
Goodwill (net). . . . . . . . . . . . . . - - - 1,188,253
Deferred tax asset . . . . . . . . . . . - (44,028) - -
Regulatory assets . . . . . . . . . . . . - - - 364,213
Other . . . . . . . . . . . . . . . . . . - - (1,763,103) 294,296
Total Other Assets. . . . . . . . . . . - (44,028) (1,763,103) 3,476,284
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 226,804 $ (99,457) $(2,291,907) $ 7,951,428
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ - $ - $ 165,838
Short-term debt . . . . . . . . . . . . . - - - 312,472
Accounts payable. . . . . . . . . . . . . - - (528,814) 127,834
Accrued liabilities . . . . . . . . . . . - - - 252,367
Accrued income taxes. . . . . . . . . . . - (5,886) - 32,942
Deferred revenue . . . . . . . . . . . . - - - 57,703
Other . . . . . . . . . . . . . . . . . . - - - 85,690
Total Current Liabilities . . . . . . . - (5,886) (528,814) 1,034,846
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . - - - 3,063,064
Western Resources obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely company
subordinated debentures . . . . . . . . 220,000 - - 220,000
Deferred income taxes and credits . . . . - (93,571) - 938,659
Minority interests. . . . . . . . . . . . - - - 205,822
Deferred gain from sale/leaseback . . . . - - - 209,951
Other . . . . . . . . . . . . . . . . . . - - - 316,245
Total Long-term Liabilities . . . . . . 220,000 (93,571) - 4,953,741
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Cumulative preferred and preference stock - - - 24,858
Common stock, par value $5 per share,
85,000,000 authorized shares,
65,909,442 outstanding shares . . . . . 6,804 - (1,072,442) 329,548
Paid-in capital . . . . . . . . . . . . . - - (325,233) 775,337
Retained earnings . . . . . . . . . . . . - - (365,418) 823,590
Accumulated other comprehensive income . - - - 9,508
Total Shareholders' Equity . . . . . . 6,804 - (1,763,093) 1,962,841
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY . $ 226,804 $ (99,457) $(2,291,907) $ 7,951,428
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1998
(Dollars in Thousands,
except Per Share Amounts)
<CAPTION>
Kansas Gas Westar
Western and Capital
Resources Electric Consolidated
(Exhibit A-2)
<S> <C> <C> <C>
SALES:
Energy . . . . . . . . . . . . . . . . . . . $ 963,238 $ 648,379 $ 1,355
Security . . . . . . . . . . . . . . . . . . - - 421,095
Total Sales . . . . . . . . . . . . . . . . 963,238 648,379 422,450
COST OF SALES:
Energy . . . . . . . . . . . . . . . . . . . 541,944 149,359 165
Security . . . . . . . . . . . . . . . . . . - - 131,791
Total Cost of Sales . . . . . . . . . . . . 541,944 149,359 131,956
GROSS PROFIT. . . . . . . . . . . . . . . . . . 421,294 499,020 290,494
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . 151,359 150,501 30,424
Depreciation and amortization . . . . . . . . 62,526 98,822 117,849
Selling, general and administrative expense . 70,749 60,277 131,876
Write-off international development
activities . . . . . . . . . . . . . . . . - - 26,838
Total Operating Expenses. . . . . . . . . . 284,634 309,600 306,987
INCOME FROM OPERATIONS. . . . . . . . . . . . . 136,660 189,420 (16,493)
OTHER INCOME (EXPENSE):
ONEOK investment income . . . . . . . . . . . 41,968 - -
Investment earnings . . . . . . . . . . . . . 1,799 - -
Intercompany interest revenues. . . . . . . . 21,159 - -
Minority interest . . . . . . . . . . . . . . - - 382
Other . . . . . . . . . . . . . . . . . . . . (293) 8,676 4,453
Total Other Income (Expense). . . . . . . . 64,633 8,676 4,835
EARNINGS BEFORE INTEREST AND TAXES . . . . . . 201,293 198,096 (11,658)
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . 94,625 45,990 30,240
Interest expense on short-term debt and other 50,940 3,369 22,401
Total Interest Expense. . . . . . . . . . . 145,565 49,359 52,641
INCOME BEFORE INCOME TAXES . . . . . . . . . . 55,728 148,737 (64,299)
INCOME TAXES. . . . . . . . . . . . . . . . . . 7,972 44,971 (12,321)
INCOME BEFORE EXTRAORDINARY GAIN . . . . . . . 47,756 103,766 (51,978)
EXTRAORDINARY GAIN, NET OF TAX . . . . . . . . - - 1,591
NET INCOME. . . . . . . . . . . . . . . . . . . 47,756 103,766 (50,387)
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . 3,591 - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ 44,165 $ 103,766 $ (50,387)
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1998
(Dollars in Thousands,
except Per Share Amounts)
(Continued)
<CAPTION>
Western
WR The Wing Resources
Bermuda Wing Group Turkey Capital I&II
<S> <C> <C> <C> <C>
SALES:
Energy . . . . . . . . . . . . . . . . . . . - - - -
Security . . . . . . . . . . . . . . . . . . - - - -
Total Sales . . . . . . . . . . . . . . . . - - - -
COST OF SALES:
Energy . . . . . . . . . . . . . . . . . . . - - - -
Security . . . . . . . . . . . . . . . . . . - - - -
Total Cost of Sales . . . . . . . . . . . . - - - -
GROSS PROFIT. . . . . . . . . . . . . . . . . . - - - -
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . - 5,208 - -
Depreciation and amortization . . . . . . . . 758 718 - -
Selling, general and administrative expense . 2 58 212 -
Write-off international development
activities . . . . . . . . . . . . . . . . 27,042 45,036 - -
Total Operating Expenses. . . . . . . . . . 27,802 51,020 212 -
INCOME FROM OPERATIONS. . . . . . . . . . . . . (27,802) (51,020) (212) -
OTHER INCOME (EXPENSE):
ONEOK investment income . . . . . . . . . . . - - - -
Investment earnings . . . . . . . . . . . . - - (233) -
Intercompany interest revenues. . . . . . . . - - - 18,634
Minority interest . . . . . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . . . 902 (2) 231 -
Total Other Income (Expense). . . . . . . . 902 (2) (2) 18,634
EARNINGS BEFORE INTEREST AND TAXES. . . . . . . (26,900) (51,022) (214) 18,634
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . - - - -
Interest expense on short-term debt and other - - 273 -
Total Interest Expense. . . . . . . . . . . - - 273 -
INCOME BEFORE INCOME TAXES . . . . . . . . . . (26,900) (51,022) (487) 18,634
INCOME TAXES. . . . . . . . . . . . . . . . . . (10,700) (15,266) (88) -
INCOME BEFORE EXTRAORDINARY GAIN . . . . . . . (16,200) (35,756) (399) 18,634
EXTRAORDINARY GAIN, NET OF TAX . . . . . . . . - - - -
NET INCOME. . . . . . . . . . . . . . . . . . . (16,200) (35,756) (399) 18,634
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . - - - 18,075
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ (16,200) $ (35,756) $ (399) $ 559
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1998
(Dollars in Thousands,
except Per Share Amounts)
(Continued)
<CAPTION>
Reclassi- Western
Westar fication Consolidating Resources
Energy Entries Entries Consolidated
<S> <C> <C> <C> <C>
SALES:
Energy . . . . . . . . . . . . . . . . . . (13) - - 1,612,959
Security . . . . . . . . . . . . . . . . . - - - 421,095
Total Sales . . . . . . . . . . . . . . . (13) - - 2,034,054
COST OF SALES:
Energy . . . . . . . . . . . . . . . . . . - - - 691,468
Security . . . . . . . . . . . . . . . . . - - - 131,791
Total Cost of Sales . . . . . . . . . . . - - - 823,259
GROSS PROFIT. . . . . . . . . . . . . . . . . (13) - - 1,210,795
OPERATING EXPENSES:
Operating and maintenance expense . . . . . 15 - - 337,507
Depreciation and amortization . . . . . . . - - - 280,673
Selling, general and administrative expense 11 - - 263,185
Write-off international development
activities . . . . . . . . . . . . . . . - - - 98,916
Total Operating Expenses. . . . . . . . . 26 - - 980,281
INCOME FROM OPERATIONS. . . . . . . . . . . . (39) - - 230,514
OTHER INCOME (EXPENSE):
ONEOK investment income . . . . . . . . . . - (41,968) - -
Investment earnings . . . . . . . . . . . . - 21,739 (1,566) 21,739
Intercompany interest revenues. . . . . . . - - (39,793) -
Minority interest . . . . . . . . . . . . . - - - 382
Other . . . . . . . . . . . . . . . . . . . 41 20,229 (30) 34,207
Total Other Income (Expense). . . . . . . 41 - (41,389) 56,328
EARNINGS BEFORE INTEREST AND TAXES . . . . . 2 - (41,389) 286,842
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . - - - 170,855
Interest exp. on short-term debt and other. - - (21,718) 55,265
Total Interest Expense. . . . . . . . . . - - (21,718) 226,120
INCOME BEFORE INCOME TAXES . . . . . . . . . 2 - (19,671) 60,722
INCOME TAXES. . . . . . . . . . . . . . . . . (11) - - 14,557
INCOME BEFORE EXTRAORDINARY GAIN . . . . . . 13 - (19,671) 46,165
EXTRAORDINARY GAIN, NET OF TAX . . . . . . . - - - 1,591
NET INCOME. . . . . . . . . . . . . . . . . . 13 - (19,671) 47,756
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . - - (18,075) 3,591
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . $ 13 $ - $ (1,596) $ 44,165
AVERAGE COMMON SHARES OUTSTANDING . . . . . . 65,633,743
BASIC EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING:
EARNINGS AVAILABLE FOR COMMON STOCK
BEFORE EXTRAORDINARY GAIN . . . . . . . . . $ 0.65
EXTRAORDINARY GAIN . . . . . . . . . . . . . $ 0.02
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . $ 0.67
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1998
(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
(Restated) . . . . . . . . . . . . . . . $ 919,911 $ 68,845 $ 401,403
ADD:
Net income. . . . . . . . . . . . . . . 47,756 103,766 (50,387)
Total . . . . . . . . . . . . . . . . 967,667 172,611 351,016
DEDUCT:
Realignment of Subsidiaries . . . . . . . - - 1,151
Cash dividends:
Preferred and preference stock. . . . . 3,591 - -
Common stock. . . . . . . . . . . . . . 140,486 100,000 -
Total . . . . . . . . . . . . . . . . 144,077 100,000 1,151
BALANCE AT END OF PERIOD. . . . . . . . . $ 823,590 $ 72,611 $ 349,865
The
WR Wing Wing
Bermuda Group Turkey
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD
(Restated) . . . . . . . . . . . . . . . $ - $ (4,423) $ (280)
ADD:
Net income. . . . . . . . . . . . . . . (16,200) (35,756) (399)
Total . . . . . . . . . . . . . . . . (16,200) (40,179) (679)
DEDUCT:
Realignment of Subsidiaries . . . . . . . - - -
Cash dividends:
Preferred and preference stock. . . . . - - -
Common stock. . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . - - -
BALANCE AT END OF PERIOD. . . . . . . . . $ (16,200) $ (40,179) $ (679)
Western Western
Resources Westar Consolidating Resources
Capital I & II Energy Entries Consolidated
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD
(Restated) . . . . . . . . . . . . . . . $ - $ (15,694) $ (449,851) $ 919,911
ADD:
Net income. . . . . . . . . . . . . . . 18,634 13 (19,671) 47,756
Total . . . . . . . . . . . . . . . . 18,634 (15,681) (469,522) 967,667
DEDUCT:
Realignment of subsidiaries . . . . . . . - 1,352 (2,503) -
Cash dividends:
Preferred and preference stock. . . . . 18,075 - (18,075) 3,591
Common stock. . . . . . . . . . . . . . 559 (17,033) (83,526) 140,486
Total . . . . . . . . . . . . . . . . 18,634 (15,681) (104,104) 144,077
BALANCE AT END OF PERIOD. . . . . . . . . $ - $ - $ (365,418) $ 823,590
</TABLE>
<PAGE>
<TABLE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1998
(Dollars in Thousands)
<CAPTION>
Protection Westar Westar
Westar One Limited Financial
Capital Consolidated Partners Services
<S> <C> <C> <C> <C>
ASSETS (Exhibit A-3)
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ 6,232 $ 10,025 $ 198 $ -
Restricted cash . . . . . . . . . . . . . - 11,987 - -
Accounts receivable (net). . . . . . . . . (526,163) 61,262 609 243
Inventories and supplies (net) . . . . . . - 7,895 - -
Marketable securities. . . . . . . . . . . 270,307 17,770 - -
Deferred tax asset . . . . . . . . . . . . - 49,543 - -
Tax receivable . . . . . . . . . . . . . . - 5,886 - -
Prepaid expenses and other . . . . . . . . (1,947) 23,472 - -
Total Current Assets . . . . . . . . . . (251,571) 187,840 807 243
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . - 46,959 - -
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . 6,627 - - -
Investment in Protection One . . . . . . 1,137,730 - - -
Customer accounts (net) . . . . . . . . . - 1,014,428 - -
Goodwill (net) . . . . . . . . . . . . . . - 1,187,862 - -
Deferred tax asset . . . . . . . . . . . . - 44,028 - -
Other . . . . . . . . . . . . . . . . . . 73,612 30,202 2,163 -
Total Other Assets . . . . . . . . . . . 1,217,969 2,276,520 2,163 -
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 966,398 $ 2,511,319 $ 2,970 $ 243
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt . . . $ - $ 40,838 $ - $ -
Accounts payable . . . . . . . . . . . . . 230,097 16,374 5,072 -
Accrued liabilities . . . . . . . . . . . 9,997 77,412 - -
Accrued income taxes . . . . . . . . . . . 26,411 - (2,153) -
Deferred revenue . . . . . . . . . . . . . - 57,703 - -
Other . . . . . . . . . . . . . . . . . . 1,914 43,664 - -
Total Current Liabilities . . . . . . . 268,419 235,991 2,919 -
LONG-TERM LIABILITIES:
Long-term debt (net) . . . . . . . . . . . (1) 926,784 - -
Deferred income taxes and credits . . . . (22,547) - (1,344) 8
Minority interests . . . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . 79,693 3,425 - -
Total Long-term Liabilities . . . . . . 57,145 930,209 (1,344) 8
SHAREHOLDERS' EQUITY:
Common stock, par value $1 per share . . . 1 1,268 1 1
Paid-in capital . . . . . . . . . . . . . 279,280 1,392,256 3,750 -
Retained earnings . . . . . . . . . . . . 349,865 (45,829) (2,356) 234
Accumulated other comprehensive income . . 11,688 (2,576) - -
Total Shareholders' Equity . . . . . . . 640,834 1,345,119 1,395 235
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY . . $ 966,398 $ 2,511,319 $ 2,970 $ 243
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1998
(Dollars in Thousands)
(Continued)
<CAPTION>
Westar Westar
Communica- Westar Consolidating Capital
tions Aviation Entries Consolidated
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ 6 $ (148) $ - $ 16,313
Restricted cash . . . . . . . . . . . . . - - - 11,987
Accounts receivable (net). . . . . . . . . 301 (2,357) (974) (467,079)
Inventories and supplies (net) . . . . . . 7 - - 7,902
Marketable securities. . . . . . . . . . . - - - 288,077
Deferred tax asset . . . . . . . . . . . . - - - 49,543
Tax receivable . . . . . . . . . . . . . . - - - 5,886
Prepaid expenses and other . . . . . . . . 55 49 - 21,629
Total Current Assets . . . . . . . . . . 369 (2,456) (974) (65,742)
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . 236 - - 47,195
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . - - - 6,627
Investment in Protection One . . . . . . . - - (1,137,730) -
Customer accounts (net) . . . . . . . . . - - - 1,014,428
Goodwill (net) . . . . . . . . . . . . . . 391 - - 1,188,253
Deferred tax asset . . . . . . . . . . . . - - - 44,028
Other . . . . . . . . . . . . . . . . . . - - (49,782) 56,195
Total Other Assets . . . . . . . . . . . 391 - (1,187,512) 2,309,531
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 996 $ (2,456) $ (1,188,486) $ 2,290,984
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt . . . $ - - $ - $ 40,838
Accounts payable . . . . . . . . . . . . . 33 (11) - 251,565
Accrued liabilities . . . . . . . . . . . 45 10 (974) 86,490
Accrued income taxes . . . . . . . . . . . (9) (977) - 23,272
Deferred revenue . . . . . . . . . . . . . - - - 57,703
Other . . . . . . . . . . . . . . . . . . 31 - - 45,609
Total Current Liabilities . . . . . . . 100 (978) (974) 505,477
LONG-TERM LIABILITIES:
Long-term debt (net) . . . . . . . . . . . - - (49,550) 877,233
Deferred income taxes and credits . . . . 3 - - (23,880)
Minority interests . . . . . . . . . . . . - - 205,822 205,822
Other . . . . . . . . . . . . . . . . . . - - - 83,118
Total Long-term Liabilities . . . . . . 3 - 156,272 1,142,293
SHAREHOLDERS' EQUITY:
Common stock, par value $1 per share . . . 1 1 (1,268) 5
Paid-in capital . . . . . . . . . . . . . 806 - (1,392,256) 283,836
Retained earnings . . . . . . . . . . . . 86 (1,479) 49,344 349,865
Accumulated other comprehensive income . . - - 396 9,508
Total Shareholders' Equity . . . . . . . 893 (1,478) (1,343,784) 643,214
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY . . $ 996 $ (2,456) $ (1,188,486) $ 2,290,984
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1998
(Dollars in Thousands)
<CAPTION>
Protection Westar Westar
Westar One Limited Financial
Capital Consolidated Partners Services
(Exhibit A-3)
<S> <C> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . $ - $ - $ - $ -
Security. . . . . . . . . . . . . . . . . . . - 421,095 - -
Total Sales . . . . . . . . . . . . . . . . - 421,095 - -
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . - - - -
Security. . . . . . . . . . . . . . . . . . . - 131,791 - -
Total Cost of Sales . . . . . . . . . . . . - 131,791 - -
GROSS PROFIT. . . . . . . . . . . . . . . . . . - 289,304 - -
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . 10,026 20,298 1 -
Depreciation and amortization . . . . . . . . 130 117,651 - -
Selling, general and administrative expense . 13,317 115,198 (1) -
Write-off international development
activities . . . . . . . . . . . . . . . . 26,838 - - -
Total Operating Expenses. . . . . . . . . . 50,311 253,147 - -
INCOME FROM OPERATIONS. . . . . . . . . . . . . (50,311) 36,157 - -
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . (3,458) - - -
Minority interest . . . . . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . . . 10,431 20,570 (2,002) -
Total Other Income (Expense). . . . . . . . 6,973 20,570 (2,002) -
EARNINGS BEFORE INTEREST AND TAXES . . . . . . (43,338) 56,727 (2,002) -
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . - 33,869 - -
Interest expense on short-term debt and other 21,159 22,121 - -
Total Interest Expense. . . . . . . . . . . 21,159 55,990 - -
INCOME BEFORE INCOME TAXES. . . . . . . . . . . (64,497) 737 (2,002) -
INCOME TAXES. . . . . . . . . . . . . . . . . . (14,110) 4,791 (2,056) -
INCOME BEFORE EXTRAORDINARY GAIN . . . . . . . (50,387) (4,054) 54 -
EXTRAORDINARY GAIN, NET OF TAX . . . . . . . . - 1,591 - -
NET INCOME. . . . . . . . . . . . . . . . . . . (50,387) (2,463) 54 -
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . - - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ (50,387) $ (2,463) $ 54 $ -
</TABLE>
<PAGE>
TABLE
<PAGE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1998
(Dollars in Thousands)
(Continued)
<CAPTION>
Westar Westar
Communica- Westar Consolidating Capital
tions Aviation Entries Consolidated
<S> <C> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . $ 1,355 $ - $ - $ 1,355
Security. . . . . . . . . . . . . . . . . . - - - 421,095
Total Sales . . . . . . . . . . . . . . . 1,355 - - 422,450
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . 165 - - 165
Security. . . . . . . . . . . . . . . . . . - - - 131,791
Total Cost of Sales . . . . . . . . . . . 165 - - 131,956
GROSS PROFIT. . . . . . . . . . . . . . . . . 1,190 - - 290,494
OPERATING EXPENSES:
Operating and maintenance expense . . . . . 46 53 - 30,424
Depreciation and amortization . . . . . . . 68 - - 117,849
Selling, general and administrative expense 958 2,404 - 131,876
Write-off international development
activities . . . . . . . . . . . . . . . - - - 26,838
Total Operating Expenses. . . . . . . . . 1,072 2,457 - 306,987
INCOME FROM OPERATIONS. . . . . . . . . . . . 118 (2,457) - (16,493)
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . - - 3,458 -
Minority interest . . . . . . . . . . . . . - - 382 382
Other . . . . . . . . . . . . . . . . . . . (38) - (24,508) 4,453
Total Other Income (Expense). . . . . . . (38) - (20,668) 4,835
EARNINGS BEFORE INTEREST AND TAXES . . . . . 80 (2,457) (20,668) (11,658)
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . - - (3,629) 30,240
Interest exp. on short-term debt and other. - - (20,879) 22,401
Total Interest Expense. . . . . . . . . . - - (24,508) 52,641
INCOME BEFORE INCOME TAXES. . . . . . . . . . 80 (2,457) 3,840 (64,299)
INCOME TAXES. . . . . . . . . . . . . . . . . 32 (978) - (12,321)
INCOME BEFORE EXTRAORDINARY GAIN . . . . . . 48 (1,479) 3,840 (51,978)
EXTRAORDINARY GAIN, NET OF TAX . . . . . . . - - - 1,591
NET INCOME. . . . . . . . . . . . . . . . . . 48 (1,479) 3,840 (50,387)
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . - - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . $ 48 $ (1,479) $ 3,840 $ (50,387)
</TABLE>
<PAGE>
TABLE
<PAGE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1998
(Dollars in Thousands)
<CAPTION>
Protection Westar
Westar One Network Limited
Capital Consolidated Holding Inc Partners
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD (Restated) . . $ 401,403 $ (43,366) $ 565 $ (2,410)
ADD:
Net income. . . . . . . . . . . . . . . . . (50,387) (2,463) - 54
Total . . . . . . . . . . . . . . . . . . 351,016 (45,829) 565 (2,356)
DEDUCT:
Realignment of subsidiaries . . . . . . . . . 1,151 - 565 -
Cash dividends:
Preferred and preference stock. . . . . . . - - - -
Common stock. . . . . . . . . . . . . . . . - - - -
Total . . . . . . . . . . . . . . . . . . 1,151 - 565 -
BALANCE AT END OF PERIOD. . . . . . . . . . . $ 349,865 $ (45,829) $ - $ (2,356)
Westar Westar
Financial Communica- Westar
Services tions Aviation
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD (Restated) . . $ 234 $ 60 $ -
ADD:
Net income. . . . . . . . . . . . . . . . . - 48 (1,479)
Total . . . . . . . . . . . . . . . . . . 234 108 (1,479)
DEDUCT:
Realignment of subsidiaries . . . . . . . . . - 22 -
Cash dividends:
Preferred and preference stock. . . . . . . - - -
Common stock. . . . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . . . - 22 -
BALANCE AT END OF PERIOD. . . . . . . . . . . $ 234 $ 86 $ (1,479)
Westar
Consolidating Capital
Entries Consolidated
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD (Restated) . . $ 44,917 $ 401,403
ADD:
Net income. . . . . . . . . . . . . . . . . 3,840 (50,387)
Total . . . . . . . . . . . . . . . . . . 48,757 351,016
DEDUCT:
Realignment of subsidiaries . . . . . . . . . (587) 1,151
Cash dividends:
Preferred and preference stock. . . . . . . - -
Common stock. . . . . . . . . . . . . . . . - -
Total . . . . . . . . . . . . . . . . . . (587) 1,151
BALANCE AT END OF PERIOD. . . . . . . . . . . $ 49,344 $ 349,865
</TABLE>
<PAGE>
TABLE
<PAGE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1998
(Dollars in Thousands)
<CAPTION>
Protection Network Protection One
One Alarm Multi-Family International,
Monitoring, Inc. Security Corp. Inc.
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ 4,425 $ 277 $ 5,323
Restricted cash . . . . . . . . . . . . . 11,987 - -
Accounts receivable (net). . . . . . . . . 41,710 3,143 15,776
Inventories and supplies (net) . . . . . . 4,245 3,361 289
Marketable securities. . . . . . . . . . . 17,770 - -
Deferred tax asset . . . . . . . . . . . - - -
Tax receivable . . . . . . . . . . . . . . 5,886 - -
Prepaid expenses and other . . . . . . . . 18,581 217 4,674
Total Current Assets . . . . . . . . . . 104,604 6,998 26,062
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . 39,406 1,237 6,316
OTHER ASSETS:
Customer accounts (net) . . . . . . . . . 925,683 18,235 70,505
Goodwill (net). . . . . . . . . . . . . . 856,512 197,069 165,798
Deferred tax asset . . . . . . . . . . . 131,790 - -
Other . . . . . . . . . . . . . . . . . . 191,078 - 32,620
Total Other Assets. . . . . . . . . . . 2,105,063 215,304 268,923
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 2,249,073 $ 223,539 $ 301,301
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ 13,089 $ - $ -
Accounts payable. . . . . . . . . . . . . 5,168 2,697 8,509
Accrued liabilities . . . . . . . . . . . 39,789 6,907 16,710
Deferred security revenues. . . . . . . . 55,969 - 1,734
Other . . . . . . . . . . . . . . . . . . 43,595 - 41,818
Total Current Liabilities . . . . . . . 157,610 9,604 68,771
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . 649,690 221,841 2,550
Other . . . . . . . . . . . . . . . . . . 37,917 1,722 57,068
Total Long-term Liabilities . . . . . . 687,607 223,563 59,618
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.10 per share 2 - -
Common stock, par value $.01 per share. . 1,268 1 -
Paid-in capital . . . . . . . . . . . . . 1,442,761 - 170,290
Retained earnings . . . . . . . . . . . . (38,570) (9,629) 4,078
Accumulated other comprehensive income . (1,605) - (1,456)
Total Shareholders' Equity . . . . . . . 1,403,856 (9,628) 172,912
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY . . $ 2,249,073 $ 223,539 $ 301,301
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1998
(Dollars in Thousands)
(Continued)
<CAPTION>
Protection
Consolidating One
Entries Consolidated
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ - $ 10,025
Restricted cash . . . . . . . . . . . . . - 11,987
Accounts receivable (net). . . . . . . . . 633 61,262
Inventories and supplies (net) . . . . . . - 7,895
Marketable securities. . . . . . . . . . . - 17,770
Deferred tax asset . . . . . . . . . . . . 49,543 49,543
Tax receivable . . . . . . . . . . . . . . - 5,886
Prepaid expenses and other . . . . . . . . - 23,472
Total Current Assets . . . . . . . . . . 50,176 187,840
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . - 46,959
OTHER ASSETS:
Customer accounts (net) . . . . . . . . . 5 1,014,428
Goodwill (net) . . . . . . . . . . . . . . (31,517) 1,187,862
Deferred tax asset . . . . . . . . . . . . (87,762) 44,028
Other . . . . . . . . . . . . . . . . . . (193,496) 30,202
Total Other Assets . . . . . . . . . . . (312,770) 2,276,520
TOTAL ASSETS . . . . . . . . . . . . . . . . $ (262,594) $ 2,511,319
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt . . . $ 27,749 $ 40,838
Accounts payable . . . . . . . . . . . . . - 16,374
Accrued liabilities . . . . . . . . . . . 14,006 77,412
Deferred security revenues . . . . . . . . - 57,703
Other . . . . . . . . . . . . . . . . . . (41,749) 43,664
Total Current Liabilities . . . . . . . 6 235,991
LONG-TERM LIABILITIES:
Long-term debt (net) . . . . . . . . . . . 52,703 926,784
Other . . . . . . . . . . . . . . . . . . (93,282) 3,425
Total Long-term Liabilities . . . . . . (40,579) 930,209
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.10 per share (2) -
Common stock, par value $.01 per share . . (1) 1,268
Paid-in capital . . . . . . . . . . . . . (220,795) 1,392,256
Retained earnings . . . . . . . . . . . . (1,708) (45,829)
Accumulated other comprehensive income . . 485 (2,576)
Total Shareholders' Equity . . . . . . . (222,021) 1,345,119
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY . . $ (262,594) $ 2,511,319
</TABLE>
<PAGE>
TABLE
<PAGE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1998
(Dollars in Thousands)
<CAPTION>
Protection Network Protection One
One Alarm Multi-Family International,
Monitoring, Inc. Security Corp. Inc.
<S> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . $ - $ - $ -
Security. . . . . . . . . . . . . . . . . . . 348,927 33,417 38,751
Total Sales . . . . . . . . . . . . . . . . 348,927 33,417 38,751
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . - - -
Security. . . . . . . . . . . . . . . . . . . 110,412 12,379 9,000
Total Cost of Sales . . . . . . . . . . . . 110,412 12,379 9,000
GROSS PROFIT. . . . . . . . . . . . . . . . . . 238,515 21,038 29,751
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . 20,290 - 8
Depreciation and amortization . . . . . . . . 107,478 6,162 4,011
Selling, general and administrative expense . 92,570 7,059 15,569
Total Operating Expenses. . . . . . . . . . 220,338 13,221 19,588
INCOME FROM OPERATIONS. . . . . . . . . . . . . 18,177 7,817 10,163
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . (5,551) - -
Other . . . . . . . . . . . . . . . . . . . . 20,481 - 89
Total Other Income (Expense). . . . . . . . 14,930 - 89
EARNINGS BEFORE INTEREST AND TAXES . . . . . . 33,107 7,817 10,252
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . 30,347 - 3,522
Interest expense on short-term debt and other 9,094 13,027 -
Total Interest Expense. . . . . . . . . . . 39,441 13,027 3,522
INCOME BEFORE INCOME TAXES. . . . . . . . . . . (6,334) (5,210) 6,730
INCOME TAXES. . . . . . . . . . . . . . . . . . (2,280) 4,419 2,652
INCOME BEFORE EXTRAORDINARY GAIN . . . . . . . (4,054) (9,629) 4,078
EXTRAORDINARY GAIN, NET OF TAX . . . . . . . . 1,591 - -
NET INCOME. . . . . . . . . . . . . . . . . . . (2,463) (9,629) 4,078
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ (2,463) $ (9,629) $ 4,078
</TABLE>
<PAGE>
TABLE
<PAGE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1998
(Dollars in Thousands)
(Continued)
<CAPTION>
Protection
Consolidating One
Entries Consolidated
<S> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . $ - $ -
Security. . . . . . . . . . . . . . . . . . . - 421,095
Total Sales . . . . . . . . . . . . . . . . - 421,095
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . - -
Security. . . . . . . . . . . . . . . . . . . - 131,791
Total Cost of Sales . . . . . . . . . . . . - 131,791
GROSS PROFIT. . . . . . . . . . . . . . . . . . - 289,304
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . - 20,298
Depreciation and amortization . . . . . . . . - 117,651
Selling, general and administrative expense . - 115,198
Total Operating Expenses. . . . . . . . . . - 253,147
INCOME FROM OPERATIONS. . . . . . . . . . . . . - 36,157
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . 5,551 -
Other . . . . . . . . . . . . . . . . . . . . - 20,570
Total Other Income (Expense). . . . . . . . 5,551 20,570
EARNINGS BEFORE INTEREST AND TAXES . . . . . . 5,551 56,727
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . - 33,869
Interest expense on short-term debt and other - 22,121
Total Interest Expense. . . . . . . . . . . - 55,990
INCOME BEFORE INCOME TAXES. . . . . . . . . . . 5,551 737
INCOME TAXES. . . . . . . . . . . . . . . . . . - 4,791
INCOME BEFORE EXTRAORDINARY GAIN . . . . . . . 5,551 (4,054)
EXTRAORDINARY GAIN, NET OF TAX . . . . . . . . - 1,591
NET INCOME. . . . . . . . . . . . . . . . . . . 5,551 (2,463)
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ 5,551 $ (2,463)
</TABLE>
<PAGE>
TABLE
<PAGE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1998
(Dollars in Thousands)
<CAPTION>
Protection Network Protection One
One Alarm Multi-Family International,
Monitoring, Inc. Security Corp. Inc.
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD (Restated) . . $ (41,658) $ - $ -
ADD:
Net income. . . . . . . . . . . . . . . . . (2,463) (9,629) 4,078
Total . . . . . . . . . . . . . . . . . . (44,121) (9,629) 4,078
DEDUCT:
Realignment of subsidiaries . . . . . . . . . (5,551) - -
Cash dividends:
Preferred and preference stock. . . . . . . - - -
Common stock. . . . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . . . (5,551) - -
BALANCE AT END OF PERIOD. . . . . . . . . . . $ (38,570) $ (9,629) $ 4,078
Protection
Consolidating One
Centennial Entries Consolidated
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD (Restated) . . $ (16,612) $ 14,904 $ (43,366)
ADD:
Net income. . . . . . . . . . . . . . . . . - 5,551 (2,463)
Total . . . . . . . . . . . . . . . . . . (16,612) 20,455 (45,829)
DEDUCT:
Realignment of subsidiaries . . . . . . . . . . (16,612) 22,163 -
Cash dividends:
Preferred and preference stock. . . . . . . - - -
Common stock. . . . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . . . (16,612) - -
BALANCE AT END OF PERIOD. . . . . . . . . . . $ - $ (1,708) $ (45,829)
</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 consumer services company. The company's primary business
activities are providing electric generation, transmission and distribution
services to approximately 620,000 customers in Kansas and providing monitored
services to approximately 1.5 million customers in North America, the United
Kingdom and Continental Europe. In addition, through the company's 45%
ownership interest in ONEOK, Inc. (ONEOK), natural gas transmission and
distribution services are provided to approximately 1.4 million customers in
Oklahoma and Kansas. Rate regulated electric service is provided by KPL, a
division of the company and Kansas Gas and Electric Company (KGE), a
wholly-owned subsidiary. Monitored services are provided by
Protection One, Inc. (Protection One), a publicly-traded, approximately
85%-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. Cumulative
unrealized gains and losses, net of the related tax effect, are reported as a
separate component of shareholders' equity until realized. Current changes in
unrealized gains and losses are reported as a component of other comprehensive
income.
<PAGE>
At December 31, 1998, an unrealized gain of $10 million (net of deferred
taxes of $12 million) was included in shareholders' equity. These securities
had a fair value of approximately $288 million and a cost of approximately $266
million at December 31, 1998. At December 31, 1997, an unrealized gain of
$12 million (net of deferred taxes of $13 million) was included in shareholders'
equity. These securities had a fair value of approximately $75 million and a
cost of approximately $50 million at December 31, 1997.
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 6.00% in 1998, 5.80% in 1997 and 5.70% in 1996.
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.
Inventories and supplies for the company's utility business are stated
at average cost.
In accordance with regulatory decisions made by the Kansas Corporation
Commission (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 as of December 31, 1998 and 1997 totaled $68.0 million
and $47.9 million, respectively.
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 2.88% during
1998, 2.89% during 1997 and 2.97% during 1996. Nonutility property, plant and
equipment of approximately $62 million at December 31, 1998 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, 1998
and 1997, was $39.5 million and $20.9 million, respectively.
Customer Accounts: Customer accounts are stated at cost. The cost
includes amounts paid to dealers and the estimated fair value of accounts
acquired in business acquisitions. Internal costs incurred in support of
acquiring customer accounts are expensed as incurred.
The cost of customer accounts is amortized on a straight-line basis over a
10-year period. It is Protection One's policy to evaluate acquired customer
account loss on a quarterly basis utilizing historical loss rates for the
customer accounts in total and, when necessary, adjust amortization over the
remaining useful life. The Securities and Exchange Commission (SEC) staff has
questioned the appropriateness of the current accounting method which Protection
One believes is consistent with industry
practices. A significant change in the amortization method would likely have a
<PAGE>
material effect on the company's results of operations. The accumulated
amortization of customer accounts as of December 31, 1998 and 1997 was
approximately $117 million and $29 million, respectively.
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. The accumulated amortization of goodwill as of
December 31, 1998 and 1997 approximated $32 million and $9 million,
respectively.
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 SFAS 71. 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
amount in the table below, net of applicable income taxes. Regulatory assets
reflected in the consolidated financial statements are as follows:
December 31, 1998 1997
(Dollars in Thousands)
Recoverable taxes. . . . . . . . . . . . $205,416 $212,996
Debt issuance costs. . . . . . . . . . . 73,635 75,336
Deferred employee benefit costs. . . . . 36,128 37,875
Deferred plant costs . . . . . . . . . . 30,657 30,979
Coal contract settlement costs . . . . . 12,259 16,032
Other regulatory assets, . . . . . . . . 6,118 7,203
Total regulatory assets . . . . . . . . $364,213 $380,421
Recoverable income taxes: Recoverable income taxes represent amounts due
from customers for accelerated tax benefits which have been previously
flowed through to customers and are expected to be recovered in the future
as 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 are
expected to
be recovered from income generated through the company's Affordable Housing
Tax Credit 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.
<PAGE>
The company expects to recover all of the above regulatory assets in rates.
A return is allowed on deferred plant costs and coal contract settlement costs
and approximately $53 million of debt issuance costs.
Minority Interests: Minority interests represent the minority
shareholders' proportionate share of the shareholders' equity and net income of
Protection One.
Sales: Energy sales are recognized as services are rendered and include
estimated amounts for energy delivered but unbilled at the end of each year.
Unbilled sales of $39 million and $37 million are recorded as a component of
accounts receivable (net) on the Consolidated Balance Sheets at December 31,
1998 and 1997, respectively.
Security sales are recognized when installation of an alarm system occurs and
when monitoring or other security-related services are provided.
The company's allowance for doubtful accounts receivable totaled $29.5
million and $8.4 million at December 31, 1998 and 1997, 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, 1998 and 1997, the company had invested approximately $65 million
and $17 million to purchase AHTC investments in limited partnerships. The
company is committed to investing approximately $25 million more in AHTC
investments by April 1, 2001. These investments are accounted for using the
equity method. Based upon an order received from the KCC, income generated
from the AHTC investments, primarily tax credits, will
be used to offset costs associated with postretirement and postemployment
benefits offered to the company's employees.
Risk Management: The company is involved in trading activities primarily to
minimize risk from market fluctuations, maintain a market presence and to
enhance system reliability. In these activities, the company utilizes a variety
of financial instruments, including forward contracts involving cash settlements
or physical delivery of an energy commodity, options, swaps which require
payments (or receipt of payments) from counterparties based on the differential
between specified prices for the related commodity and futures traded on
electricity and natural gas. For the company's trading operation, the company
accounts for these transactions at the time of
delivery or settlement, accruing in the interim only for net losses as they
become evident on firm purchase commitments.
Cash Surrender Value of Life Insurance: The following amounts related to
corporate-owned life insurance policies (COLI) are recorded in other long-term
assets
on the Consolidated Balance Sheets at December 31:
<PAGE>
1998 1997
(Dollars in Millions)
Cash surrender value of policies. . . . $587.5 $547.7
Borrowings against policies . . . . . . (558.5) (524.3)
COLI (net). . . . . . . . . . . . . . . $ 29.0 $ 23.4
Income is recorded for increases in cash surrender value and net death
proceeds for approximately 83% of the cash surrender value and 85% of the policy
borrowings at December 31, 1998. Interest incurred on amounts borrowed is
offset against policy income. Income recognized from death proceeds is highly
variable from
period to period. Death benefits recognized as other income approximated
$13.7 million in 1998, $0.6 million in 1997 and $5.5 million in 1996.
The balance of the policies were acquired to mitigate the cost of
postretirement and postemployment benefits, in accordance with an order from
the KCC.
New Pronouncements: Effective January 1, 1998, the company adopted the
provisions of Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130). This statement establishes standards for
reporting and display of comprehensive income and its components.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value.
SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and
assess the effectiveness of transactions that receive hedge accounting and is
effective for fiscal years beginning after June 15, 1999. SFAS 133 cannot be
applied retroactively. SFAS 133 must be applied to (a) derivative instruments
and (b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 and, at the
company's election, before January 1, 1998. The company will adopt SFAS 133 no
later than January 1, 2000. Management is presently evaluating the impact that
adoption of SFAS 133 will have on
the company's financial position and results of operations.
Adoption of SFAS 133, however, could increase volatility in earnings and other
comprehensive income.
In December 1998, the Emerging Issues Task Force reached consensus on Issue
No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities" (EITF Issue 98-10). EITF Issue 98-10 is effective for
fiscal years beginning after December 15, 1998. EITF Issue 98-10 requires
energy trading contracts to be recorded at fair value on the balance sheet, with
the changes in the fair value included in earnings. The company will adopt EITF
Issue 98-10 during 1999. Management does not expect the impact of adopting
EITF Issue 98-10 to be material to the company's
financial position or results of operations.
<PAGE>
Reclassifications: Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
2. RESTATEMENT OF 1997 FINANCIAL STATEMENTS
As a result of a decision by Protection One, an 85 percent owned
subsidiary, to restate its 1997 financial statements, the company has chosen to
restate its 1997 financial statements to conform to the changes adopted by
Protection One. This restatement resulted from decisions by Protection One:
- To expense as incurred, yard signs, including those which were removed
and replaced, following the decision to transition all monitored services
operations to the Protection One brand in the fourth quarter of 1997. The
costs of this yard sign change-out had previously been estimated and
accrued at December 31, 1997. This adjustment increased previously
reported net income by approximately $5.7 million and decreased current
liabilities by $12.3 million at December 31, 1997.
- To adjust certain purchase price allocations, reverse amounts which had
previously been accrued to transition new customers and adjust an
obligation to repurchase certain customer accounts sold under a financing
agreement to estimated fair value. These adjustments reduced net income
by approximately $0.3 million and reduced current liabilities by
approximately $22.2 million at December 31, 1997.
The total effect of the 1997 restatement was to increase previously
reported net income in 1997 by approximately $5.4 million ($0.08 per common
share) and increase previously reported retained earnings at December 31, 1997,
by the same amount. The restatement did not impact previously reported sales
and does not impact
the company's net cash flow. (See Note 22 for the impact of the restatement on
quarterly results for 1998).
3. 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.
On November 9, 1998, WEC settled this matter and the litigation was dismissed.
The SEC has commenced a private investigation relating, among other things,
to the timeliness and adequacy of disclosure filings with the SEC by the
company with respect to securities of ADT Ltd. The company is cooperating with
the SEC staff relating to the investigation.
<PAGE>
The company understands that class action lawsuits relating to the
Protection One restatement of 1997 and 1998 financial statements and subsequent
decrease in stock price were recently filed naming Protection One, Western
Resources and certain officers of Protection One. The company has not yet been
served with a copy of the lawsuits. The company cannot predict the outcome or
the effect of this litigation.
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.
4. MONITORED SERVICES BUSINESS
During 1998, the company continued its growth in the monitored services
business through its ownership in Protection One. Protection One experienced
rapid growth in its customer base as a result of several significant
acquisitions. The more significant acquisitions were Protection One's purchase
of the assets of Multimedia Security Services for approximately $233 million and
its purchase of the stock of Compagnie Europeenne de Telesecurite for
approximately $140 million. Each acquisition was accounted for as a purchase
and, accordingly, the operating results for each acquired company have been
included in the company's consolidated financial statements since the date of
acquisition. Total purchase consideration has been allocated to the
net assets acquired based on estimates of fair value. Protection One's
purchase price allocations for 1998 acquisitions are preliminary and may be
adjusted as additional information is obtained. During the first quarter of
1998, the company transferred its investment in Network Multi-Family to
Protection One at a cost that approximated $180 million.
Consideration paid, assets acquired and liabilities assumed in connection
with these and other acquisitions made by Protection One during 1998 were as
follows:
(Dollars in Thousands)
Fair value of assets acquired,
net of cash acquired . . . . . . $820,251
Cash paid, net of cash acquired. . 549,196
Total liabilities assumed. . . . . $271,055
The following table presents the unaudited pro forma financial information
considering Protection One's monitored services acquisitions in 1998 and 1997.
The pro forma information reflects the actual operating results of each company
prior to its acquisition and includes adjustments to interest expense,
intangible amortization, and income taxes. The table assumes acquisitions in
1998 occurred as of January 1, 1997. The 1997 acquisitions are assumed to have
occurred on January 1, 1996.
<PAGE>
Year Ended December 31, 1998 1997 1996
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Sales . . . . . . . . . . . $2,175,089 $2,462,849 $2,280,122
Earnings available for
common stock . . . . . . . 33,556 463,264 133,581
Earnings per share . . . . . $0.51 $7.11 $2.09
The unaudited 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 October 1998, Protection One announced an agreement to acquire Lifeline
Systems, Inc., (Lifeline) a leading provider of 24-hour personal emergency
response and support services in North America. Based on the average closing
price for the three trading days prior to April 8, 1999, the value of the
consideration to be paid under the merger agreement is approximately $129.2
million or $22.05 per Lifeline share in cash and stock. Lifeline has advised
Protection One that it is evaluating the restatement of Protection One's
financial statements. The consideration to be given in the Lifeline transaction
is by design variable and is subject to change within certain parameters until
the closing date. Interested parties should obtain the most recent
proxy/registration statement for further analysis of the transaction.
In December 1997, Protection One incurred charges of approximately $24
million to recognize higher than expected customer attrition and record costs
related to the acquisition of Protection One. These charges are as follows:
Impairment of customer accounts $12,750
Protection One merger related costs:
Inventory and other asset losses 3,558
Disposition of fixed assets 4,128
Closure of duplicate facilities 1,991
Severance compensation and benefits 1,865
11,542
Total charges $24,292
Impairment of customer accounts: Protection One wrote down the value of the
customer base of part of its business due to excess customer losses experienced
in 1997. The excess customer losses were due to (1) the effects of
transitioning the customer base from one service provider to another and, (2)
the relative quality of certain classes of customer accounts acquired in an
acquisition due to use of a prior aggressive marketing plan accompanied by
limited credit checking.
Inventory and other asset losses: Protection One reduced the value of
inventory held at branches due to conversion to the external Dealer Program as
its primary marketing channel.
Disposition of fixed assets: Protection One reduced the net book value of
computer and telecommunication equipment due to plans to migrate certain
monitoring, customer service and financial operations to new software and
hardware platforms in the
<PAGE>
first quarter of 1998. At December 31, 1998, Protection One continued to use
certain components of this equipment due to unplanned delays experienced in the
implementation of replacement systems. The remaining equipment is expected to
be fully retired in 1999.
Closure of duplicate facilities: Protection One committed to a plan to
close 38 branch locations in cities with two or more branches and where the
customer base did not justify such a large presence. At December 31, 1998, all
such locations were closed. The remaining amount accrued at December 31, 1998,
represents obligations
for vacated lease facilities and approximates $1 million.
Severance compensation and benefits: Upon the company's purchase of
approximately 82.4% of Protection One in November 1997, the affected employees
were notified of their severance package. Actual payments approximated the
amount accrued.
Protection One recognized a non-recurring gain in 1998 when customer
accounts were repurchased pursuant to a financing agreement. Terms of the
agreement required Protection One to purchase these accounts at fair value.
The purchase price negotiated was less than the estimated value. As a result,
a non-recurring gain which approximated $16 million was recorded as other
income.
5. RATE MATTERS AND REGULATION
KCC Rate Proceedings: In January 1997, the KCC entered an order reducing
electric rates for both KPL and KGE. Significant terms of the order 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 its electric customers in
January 1998.
- The company reduced KGE's annual rates by an additional $10 million
on June 1, 1998.
- The company rebated 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. Rebates are one-time events and do not
influence future rates.
<PAGE>
6. 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, 1998, 65,909,442
shares were outstanding.
The company has a Direct Stock Purchase Plan (DSPP). Shares issued under
the DSPP may be either original issue shares or shares purchased on the open
market. The company issued original issue shares under DSPP from January 1,
1995 until October 15, 1997. Between November 1, 1997 and March 16, 1998,
shares for DSPP were satisfied on the open market. All other shares have been
original issue shares. During 1998, a total of 653,570 shares were issued under
DSPP including 499,839 original issue shares and 153,731 shares purchased on the
open market. At December 31, 1998, 591,047 shares were available under the DSPP
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: On April 1, 1998, the
company redeemed the 7.58% Preference Stock due 2007 at a premium, including
dividends, for $53 million.
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.
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
discussed above, the company has agreed to guarantee, on a subordinated basis,
payment
<PAGE>
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.
7. 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 1999 through 2003, $125 million of bonds will
mature in 1999, $75 million of bonds will mature in 2000, $100 million of bonds
will mature in 2002 and $135 million of bonds will mature in 2003. No other
bonds will mature during this time period.
The company's unsecured debt represents general obligations that are not
secured by any of the company's properties or assets. Any unsecured debt will
be subordinated to all secured debt of the company, including it's first
mortgage bonds. The notes are structurally subordinated to all secured and
unsecured debt of the company's subsidiaries.
Long-term debt outstanding is as follows at December 31:
1998 1997
(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
<PAGE>
Pollution control bond series:
5.10% due 2023 . . . . . . . . . . . . . 13,673 13,757
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
387,613 387,697
Western Resources
6 7/8% unsecured senior notes due 2004 . 370,000 370,000
7 1/8% unsecured senior notes due 2009 . 150,000 150,000
6.80% unsecured senior notes due 2018. . 29,985 -
6.25% unsecured senior notes due 2018,
putable/callable 2003. . . . . . . . . 400,000 -
949,985 520,000
Protection One
Revolving credit facility. . . . . . . . 42,417 -
6.75% unsecured convertible senior
subordinated discount notes due 2003 . 53,950 102,500
13.625% unsecured senior
subordinated discount notes due 2005 . 125,590 171,926
7.375% unsecured senior notes due 2005 . 250,000 -
8.125% unsecured senior
subordinated notes due 2009. . . . . . 350,000 -
Customer repurchase agreement,
due 1998 . . . . . . . . . . . . . . . - 69,129
Recourse financing agreements (6). . . . 93,541 -
Other. . . . . . . . . . . . . . . . . . 2,574 -
918,072 343,555
Other long-term agreements . . . . . . . . 8,325 4,798
Unamortized debt premium . . . . . . . . . 13,918 -
Less:
Unamortized debt discount . . . . . . . . (7,931) (5,719)
Long-term debt due within one year . . . . (165,838) (21,217)
Long-term debt (net) . . . . . . . . . . . $3,063,064 $2,188,034
Rates at December 31, 1998: (1) 3.55%, (2) 3.45%, (3) 3.50%, (4) 3.75%
(5) 3.75% and (6) 15% implicit rate for operating lease agreements sold with
recourse - average term approximately 4 years.
Protection One maintains a $500 million revolving credit facility that
expires in December 2001. Under the terms of this agreement, Protection One
may, at its option, borrow at different market-based interest rates. At
December 31, 1998, $42.4 million was borrowed under this facility.
The senior subordinated discount notes of Protection One contain covenants
which, among other matters, limit Protection One's ability to incur certain
indebtedness, make restricted payments and merge, consolidate or sell assets.
<PAGE>
The convertible senior subordinated notes of Protection One are convertible
at any time into common stock at a price of $11.19 per share. The indenture
under which these notes were issued contains covenants which limit Protection
One's ability to incur certain indebtedness.
Among other restrictions, Protection One is required under the revolving
credit facility to maintain a ratio of earnings before interest, taxes,
depreciation and amortization (EBITDA) to interest expense of not less than 2.75
to one and total debt cannot be greater than 5 times annualized most recent
quarter EBITDA for 1999 and 4.5 times thereafter. In addition, in light of the
restatement of its financial statements, Protection One has obtained a bank
waiver for prior representations concerning its financial statements.
8. 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 3.2
million common shares and approximately 20.1 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 accounts 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.
9. SHORT-TERM DEBT
The company has arrangements with certain banks to provide unsecured
short-term lines of credit on a committed basis totaling approximately $821
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.
<PAGE>
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, 1998 1997
(Dollars in Thousands)
Borrowings outstanding at year end:
Bank loans. . . . . . . . . . . . $164,700 $161,000
Commercial paper notes. . . . . . 147,772 75,500
Total . . . . . . . . . . . . . $312,472 $236,500
Weighted average interest rate on
debt outstanding at year end
(including fees). . . . . . . . . 5.94% 6.28%
Weighted average short-term debt
outstanding during the year . . . $529,255 $787,507
Weighted daily average interest
rates during the year
(including fees). . . . . . . . . 5.93% 5.93%
Unused lines of credit supporting
commercial paper notes. . . . . . $820,900 $772,850
10. 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 $86.9 million at December 31, 1998.
Affordable Housing Tax Credit Program: At December 31, 1998, the company
had invested approximately $65 million to purchase AHTC investments in limited
partnerships. The company is committed to investing approximately $25 million
more in AHTC investments by April 1, 2001.
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, 1998, 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 the
company's future liability associated with these sites to an immaterial
amount. The company's investment earnings from ONEOK could be impacted by
these costs.
<PAGE>
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 Wolf Creek'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 expense 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 $3.8 million in 1998 and will increase annually to
$5.6 million in 2024. These amounts 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 $52.1 million and $43.5 million at December 31, 1998 and
1997, respectively. Trust fund earnings accumulate in the fund balance and
increase the recorded decommissioning liability.
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 1998
- 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 Price-Anderson Act limits the combined public
liability of the owners of nuclear power plants to $9.7 billion for a single
nuclear incident. If this liability limitation is insufficient, the U.S.
Congress will consider taking
<PAGE>
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 Nuclear Regulatory Commission (NRC). Under
this plan, the Owners are jointly and severally subject to a retrospective
assessment of up to $88.1 million ($41.4 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 in accordance with a plan by the NRC. The company's share of
any remaining proceeds can be used for property damage. If an accident at Wolf
Creek exceeds $500 million in property damage and decontamination expenses and
the decision is made to decommission the plant, the company's share of any
remaining proceeds can be used to make up a shortfall in the
decommissioning trust fund.
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 $7 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, 1998, Wolf Creek's
nuclear fuel commitments (company's share) were approximately $6.1 million for
uranium concentrates expiring at various times through 2001, $24.9 million for
enrichment expiring at various times through 2003 and $60.1 million for
fabrication through 2025.
At December 31, 1998, the company's coal contract commitments in 1998
dollars under the remaining terms of the contracts were approximately $2.3
billion. The largest coal contract expires in 2020, with the remaining coal
contracts expiring at various times through 2013.
<PAGE>
At December 31, 1998, the company's natural gas transportation commitments
in 1998 dollars under the remaining terms of the contracts was approximately
$30.3 million. The natural gas transportation contracts provide firm service
to the company's gas burning facilities expiring at various times through 2010.
11. INTERNATIONAL POWER DEVELOPMENT ACTIVITIES
During the fourth quarter of 1998, management decided to exit the
international power development business. This business had been conducted by
the company's wholly owned subsidiary, The Wing Group (Wing). The company
acquired Wing in February 1996 in an acquisition accounted for as a purchase.
Wing's principal office
was located near Houston, Texas and power development activities were primarily
conducted in emerging markets. The company has acquired a 50% interest in a
joint venture which has a 49% interest in four 55 MW generating facilities in
the People's Republic of China. The company also owns a 37.5% interest in a
160 MW merchant generating facility in Colombia, and a 9% interest in a 478 MW
power generating facility in the Republic of Turkey.
Unfavorable economic, political and regulatory developments in certain
emerging markets where development efforts were focused required management to
reexamine this business. In exiting this business, management has decided to
discontinue existing development efforts and cease future development activity.
The company had been spending approximately $10 million annually to fund
development efforts.
The company was required to record a charge to income as a result of
exiting this business. The charge to earnings has been presented as a separate
line item as a component of operating expenses in the accompanying Consolidated
Statements of Income. The detailed components of this charge are as follows:
(Dollars in Thousands)
Write-down equity investments to fair
market value . . . . . . . . . . . . . . . $57,030
Accrued exit fees, shut-down and
severance costs. . . . . . . . . . . . . . 22,900
Deferred development costs associated
with projects to be abandoned. . . . . . . 6,735
Unamortized goodwill associated with the
acquisition of Wing. . . . . . . . . . . . 12,251
Total charge. . . . . . . . . . . . . . $98,916
Overall negative economic, competitive and political factors, together with
currently anticipated cash flows, have reduced the value of certain equity
investments presently held. The decline in value of these investments required
management to write down the investments to fair market value. Management
considers this decline in value to be other than temporary. In assessing the
value, management talked to others with investment experience in emerging
markets and applied a discounted cash flow analysis to estimate fair market
value.
<PAGE>
In accordance with the exit plan, the company will discontinue all
development activity on February 1, 1999 and close all Wing offices. The
employees of Wing were notified prior to December 31, 1998, of their termination
effective February 1, 1999. Severance costs have been accrued for the
approximately 30 affected employees. The company's exit plan calls for all
significant aspects of the closure to be completed during 1999.
12. UNCONSOLIDATED SUBSIDIARIES
The company's investments in unconsolidated subsidiaries which are
accounted for by the equity method are as follows:
<TABLE>
<CAPTION>
Equity Earnings,
Ownership at Investment at Year Ended
December 31, December 31, December 31
1998 1998 1997 1998 1997
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
ONEOK, Inc. (1). . . . . . 45% $615,094 $596,206 $6,064 $1,970
Affordable Housing Tax
Credit limited
partnerships (2). . . . . 5% to 30% 89,618 51,571 - -
International companies
and joint ventures (3). . 37% to 50% 10,500 16,299 - -
Other. . . . . . . . . . . 32% - 3,312 (672) -
(1) The company also received approximately $40 million of preferred and common dividends
in 1998. Refer to Note 8 for further information regarding the company's strategic
alliance with ONEOK.
(2) Investment is aggregated. Individual investments are not significant. Based on an
order received by the KCC, equity earnings from these investments are used to offset
costs associated with postretirement and postemployment benefits offered to the
company's employees.
(3) Investment is aggregated. Individual investments are not significant. During 1998,
the company recognized a non-temporary decline in value of its foreign equity investments
as discussed in Note 11.
</TABLE>
The following summarized financial information for the company's investment
in ONEOK is presented as of and for the period ended November 30, 1998 and 1997,
the most recent period for which public information is available.
November 30, 1998 1997
(Dollars in Thousands)
Balance Sheet:
Current assets . . . . . $ 404,358 $ 532,681
Non-current assets . . . 2,091,797 1,761,561
Current liabilities. . . 338,466 443,080
Non-current liabilities. 993,668 729,920
Equity . . . . . . . . . 1,164,021 1,121,242
<PAGE>
Year Ended November 30, 1998 1997
(Dollars in Thousands)
Income Statement:
Revenues . . . . . . . . $1,908,713 $1,227,335
Operating expenses . . . 1,767,286 1,134,024
Net income . . . . . . . 103,525 59,614
13. 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.
The company also maintains a non-qualified Executive Salary Continuation Program
for the benefit of certain management employees, including executive officers.
Postretirement Benefits: The company accrues the cost of postretirement
benefits, primarily medical benefit costs, during the years an employee provides
service.
The following tables summarize the status of the company's pension and
other postretirement benefit plans:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
December 31, 1998 1997 1998 1997
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation, beginning of year. $462,964 $483,862 $ 83,673 $122,993
Service cost . . . . . . . . . . . . . 7,952 11,337 1,405 2,102
Interest cost. . . . . . . . . . . . . 31,278 35,836 5,763 9,098
Plan participants' contributions . . . - - 858 1,122
Benefits paid. . . . . . . . . . . . . (24,682) (27,764) (5,630) (10,167)
Assumption changes . . . . . . . . . . 36,268 (19,184) 6,801 -
Actuarial losses (gains) . . . . . . . 10,095 (1,532) (5,351) 4,421
Plan amendments. . . . . . . . . . . . - 6,866 - -
Curtailments, settlements and special
term benefits (1) . . . . . . . . . . (131,818) (26,457) - (45,896)
Benefit obligation, end of year. . . . $392,057 $462,964 $ 87,519 $ 83,673
Change in Plan Assets:
Fair value of plan assets,
beginning of year . . . . . . . . . . $584,792 $496,206 $ 118 $ 78
Actual return on plan assets . . . . . 66,106 113,235 6 3
Employer contribution. . . . . . . . . 2,197 2,220 5,679 10,204
Plan participants' contributions . . . - - - -
Benefits paid. . . . . . . . . . . . . (23,910) (26,869) (5,630) (10,167)
Settlements (1). . . . . . . . . . . . (187,654) - - -
Fair value of plan assets,
end of year . . . . . . . . . . . . . $441,531 $584,792 $ 173 $ 118
<PAGE>
Funded status. . . . . . . . . . . . . $ 49,474 $121,828 $(87,346) $(83,555)
Unrecognized net (gain)/loss . . . . . (104,023) (193,313) 1,814 (828)
Unrecognized transition
obligation, net . . . . . . . . . . 244 (369) 56,159 60,146
Unrecognized prior service cost. . . . 36,309 39,763 (4,131) (4,592)
Accrued postretirement benefit costs . $(17,996) $(32,091) $(33,504) $(28,829)
Actuarial Assumptions:
Discount rate. . . . . . . . . . . . . 6.75% 7.5% 6.75% 7.5%
Expected rate of return. . . . . . . . 9.0% 9.0% 9.0% 9.0%
Compensation increase rate . . . . . . 4.75% 4.75% 4.75% 4.75%
Components of net periodic benefit cost:
Service cost . . . . . . . . . . . . . $ 7,952 $ 11,337 $ 1,405 $ 2,102
Interest cost. . . . . . . . . . . . . 31,278 35,836 5,763 9,098
Expected return on plan assets . . . . (39,069) (39,556) (11) (4)
Amortization of unrecognized
transition obligation, net. . . . . . (32) (79) 3,988 6,202
Amortization of unrecognized prior
service costs . . . . . . . . . . . . 3,455 4,918 (461) (720)
Amortization of (gain)/loss, net . . . (5,885) (3,755) (396) (107)
Other. . . . . . . . . . . . . . . . . - 519 - -
Net periodic benefit cost. . . . . . . $ (2,301) $ 9,220 $ 10,288 $ 16,571
(1) The pension and postretirement benefit plans recorded a curtailment expense due to the
significant reduction in future years of service due to the transfer of employees to
ONEOK in November 1997. In July 1998, pension plan assets were transferred to ONEOK
resulting in a settlement loss.
</TABLE>
For measurement purposes, an annual health care cost growth rate of 8% was
assumed for 1998, decreasing 1% per year to 5% in 2001 and thereafter.
The health care cost trend rate has a significant effect on the projected
benefit obligation. Increasing the trend rate by 1% each year would increase
the present value of the accumulated projected benefit obligation by
$2.1 million and the aggregate of the service and interest cost components by
$0.2 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 corporate-owned life insurance contracts purchased in 1993 and 1992
which was used for the same purpose.
Savings: The company maintains savings plans in which substantially all
employees participate, with the exception of Protection One employees. 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 $3.8 million, $5.0 million and $4.6 million for
1998, 1997 and 1996, 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
<PAGE>
cash or in a combination of both stock and cash. Protection One's matching
contribution to the plan for 1998 and 1997 was $992,000 and $34,000,
respectively.
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, excluding Protection One, has
a long-term incentive and share award plan (LTISA Plan), which is a stock-based
compensation plan. The LTISA Plan was implemented to help ensure that key
employees and board members (Plan Participants) were properly incented to
increase shareholder value. 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.
Stock options and restricted shares under the LTISA plan are as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 665,400 $30.282 205,700 $29.250 - $ -
Granted. . . . . . . . . . . . 925,300 40.293 459,700 30.750 205,700 29.250
Exercised. . . . . . . . . . . - - - - - -
Forfeited. . . . . . . . . . . - - - - - -
Outstanding, end of year . . . 1,590,700 $36.106 665,400 $30.282 205,700 $29.250
Weighted-average fair value
of options granted during
the year . . . . . . . . . . $6.55 $3.00 $3.26
</TABLE>
Stock options and restricted shares issued and outstanding at December 31,
1998, are as follows:
<TABLE>
<CAPTION>
Number Weighted- Weighted-
Range of Issued Average Average
Exercise and Contractual Exercise
Price Outstanding Life in Years Price
<S> <C> <C> <C> <C>
Options:
1998. . . . . . . . . . $38.625-43.125 788,800 10.0 $40.581
1997. . . . . . . . . . 30.750 459,700 9.0 30.750
1996. . . . . . . . . . 29.250 205,700 7.7 29.250
1,454,200
Restricted shares:
1998. . . . . . . . . . 38.625 136,500 4.0 38.625
Total issued. . . . . 1,590,700
</TABLE>
An equal amount of dividend equivalents is issued to recipients of stock
options. The weighted-average grant-date fair value of the dividend equivalent
was $6.88 and $6.21 in 1998 and 1997, 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
<PAGE>
nine years from date of grant.
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 the following at December 31:
1998 1997
Dividend yield. . . . . . . . . . 6.16% 6.58%
Expected stock price volatility . 17.82% 13.56%
Risk-free interest rate:
Stock options . . . . . . . . . 4.87% 6.72%
Dividend equivalents (1). . . . 4.63% 6.36%
(1) Assuming an award percentage of 100% and dividend
accumulation period of five years.
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. The 1997
Long-Term Incentive Plan (the LTIP), approved by the Protection One stockholders
on November 24, 1997, provides for the award of incentive stock options to
directors, officers and key employees. Under the LTIP, 4.2 million shares are
reserved for issuance subject to such adjustment as may be necessary to reflect
changes in the number or kinds of shares of common stock or other securities of
Protection One. The LTIP provides for the granting of options that qualify as
incentive stock options under the Internal Revenue
Code and options that do not so qualify.
During 1998, Protection One granted options under the LTIP to purchase an
aggregate of 1,246,500 shares of common stock to employees, including 690,000
shares granted to officers of Protection One. Each option has a term of 10
years and vests 100% on the third anniversary of the option grant. The purchase
price of the shares issuable pursuant to the options is equal to (or greater
than) the fair market value of the common stock at the date of the option grant.
A summary of warrant and option activity for Protection One from the date
of the acquisition transaction is as follows:
December 31, 1998 1997
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding, beginning of year(1) 2,366,435 $ 5.805 2,366,741 $5.805
Granted . . . . . . . . . . . . . 1,246,500 11.033 - -
Exercised (109,595) 5.564 (306) 0.050
Forfeited . . . . . . . . . . . . (117,438) 10.770 - -
Adjustment to May 1995 warrants . 36,837 - - -
Outstanding, end of year. . . . . 3,422,739 $ 7.494 2,366,435 $5.805
<PAGE>
(1) There was no outstanding stock or options prior to November 24, 1997.
Stock options and warrants issued and outstanding at December 31, 1998, are
as follows:
Number Weighted- Weighted-
Range of Issued Average Average
Exercise and Remaining Life Exercise
Price Outstanding (Years) Price
Exercisable:
$ 6.375-$ 9.125 136,560 6 $ 6.588
8.000- 10.313 349,000 7 8.062
13.750- 15.500 142,000 7 14.883
9.500 217,000 8 9.500
15.000 50,000 8 15.000
14.268 50,000 3 14.268
3.633 103,697 2 3.633
0.167 428,400 5 0.167
3.890 786,277 6 3.890
0.050 305 8 0.050
2,263,239
Not Exercisable:
$11.033 1,120,500 9 $11.033
9.500- 12.500 39,000 9 11.942
1,159,500
Total outstanding 3,422,739
The company holds a call option for an additional 2,750,238 shares of
Protection One common stock, exercisable at a call price of $15.50 per share.
The option expires on the earlier of (i) 45 days following the last date on
which any Protection One convertible notes are still outstanding or
(ii) October 31, 1999.
The weighted average fair value of options granted during 1998 and
estimated on the date of grant was $6.87. The fair value was calculated using
the following assumptions:
Year ended
December 31, 1998
Dividend yield. . . . . . . . . 0.00%
Expected stock price volatility 61.72%
Risk free interest rate . . . . 5.50%
Expected option life. . . . . . 6 years
The company accounts for both the company's and Protection One's plans
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and the related interpretations. Had compensation expense been
determined pursuant to Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the company would have recognized
additional compensation costs during 1998, 1997 and 1996 as shown in the table
below.
<PAGE>
Year Ended December 31, 1998 1997 1996
(Dollars in Thousands, Except Per Share Amounts)
Earnings available for common stock:
As reported . . . . . . . . . . $44,165 $494,599 $154,111
Pro forma . . . . . . . . . . . 42,640 494,436 153,877
Earnings per common share
(basic and diluted):
As reported . . . . . . . . . . $0.67 $7.59 $2.41
Pro forma . . . . . . . . . . . 0.65 7.59 2.41
Split Dollar Life Insurance Program: The company has established a split
dollar life insurance program for the benefit of the company and certain of its
executives. Under the program, the company has purchased a life insurance
policy on the executive's life, and, upon the executive's death, the executive's
beneficiary is entitled to a death benefit in an amount equal to the face amount
of the policy reduced by the greater of (i) all premiums paid by the company or
(ii) the cash surrender value of the policy, which amount, at the death of the
executive, will be returned to the
company. The company retains an equity interest in the death benefit and cash
surrender value of the policy to secure this repayment obligation.
Subject to the conditions described below, beginning on the earlier of (i)
three years from the date of the policy or (ii) the first day of the next
calendar year following the date of the executive's retirement, the executive is
allowed to transfer to the company from time to time, in whole or in part, his
interest in the death benefit under the policy at a discount equal to $1 for
each $1.50 of the portion of the
death benefit for which the executive officer may designate the beneficiary,
subject to adjustment based on the total return to shareholders from the date of
the policy unless the participant retires from the company within six months of
the date of the participant's agreement. Any adjustment would result in an
exchange of no more than one dollar for each dollar of death benefit nor less
than one dollar for each two dollars of death benefit. The program has been
designed such that upon the executive's
death the company will recover its premium payments from the policy and any
amounts paid by the company to the executive for the transfer of his interest
in the death benefit. The cash surrender value of these policies has been
recorded in other assets. The insurance premium and the estimated value of the
executives' agreements have been expensed. The company has accrued
approximately $57 million at December 31, 1998 for
this program. Under current tax rules, payments to certain participants in
exchange for their interest in the death benefits may not be fully deductible by
the company for income tax purposes.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value as set forth in Statement of Financial Accounting Standards No. 107
"Disclosures about Fair Value of Financial Instruments".
<PAGE>
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,
1998 and 1997.
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 amounts 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, 1998 and 1997. 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, 1998 1997 1998 1997
(Dollars in Thousands)
Decommissioning trust. . $ 52,093 $ 43,514 $ 52,093 $ 43,514
Fixed-rate debt, net of
current maturities . . 2,956,692 2,019,103 3,076,709 2,101,167
Redeemable preference
stock. . . . . . . . . - 50,000 - 51,750
Other mandatorily
redeemable securities. 220,000 220,000 226,800 226,088
In its commodity price risk management activities, the company engages in
both trading and non-trading activities. In these activities, the company
utilizes a variety of financial instruments, including forward contracts
involving cash settlements or physical delivery of an energy commodity, options,
swaps which require payments (or receipt of payments) from counterparties based
on the differential between specified prices for the related commodity, and
futures traded on electricity and natural gas. For a discussion of the
accounting policy for these instruments, see Note 1.
The company is involved in trading activities primarily to minimize risk
from market fluctuations, maintain a market presence and to enhance system
reliability. Although the company attempts to balance its physical and
financial purchase and sale
<PAGE>
contracts in terms of quantities and contract terms, net open positions can
exist or are established due to the origination of new transactions and the
company's assessment of, and response to, changing market conditions.
The company uses derivatives for non-trading purposes primarily to reduce
exposure relative to the volatility of cash market prices.
December 31, 1998 1997
(Dollars in Thousands)
Notional Notional
Volumes Estimated Volumes Estimated
(MWH's) Fair Value (MWH's) Fair Value
Forward contracts:
Purchased. . . . 1,535,600 $46,361 359,200 $8,604
Sold . . . . . . 1,535,600 46,141 359,200 8,806
Options:
Purchased. . . . 148,800 $ 361 803,200 $1,607
Sold . . . . . . 64,000 195 120,800 512
Forward contracts and options had a net unrealized gain of $40,000 at
December 31, 1998, and a net unrealized loss of $127,000 at December 31, 1997.
15. 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.
<PAGE>
16. INCOME TAXES
Income tax expense is composed of the following components at December 31:
1998 1997 1996
(Dollars in Thousands)
Currently payable:
Federal. . . . . . . . . . . $ 52,993 $336,150 $54,644
State. . . . . . . . . . . . 10,881 72,143 20,280
Deferred:
Federal. . . . . . . . . . . (39,067) (15,945) 14,808
State. . . . . . . . . . . . (4,185) (2,696) (615)
Amortization of investment
tax credits . . . . . . . . . (6,065) (6,665) (6,758)
Total income tax expense . . . $ 14,557 $382,987 $82,359
Under SFAS 109, temporary differences gave rise to deferred tax assets and
deferred tax liabilities as follows at December 31:
1998 1997
(Dollars in Thousands)
Deferred tax assets:
Deferred gain on sale-leaseback. . . . . . . $ 92,427 $ 97,634
Monitored services deferred tax assets. . . . 132,802 98,712
Other. . . . . . . . . . . . . . . . . . . . 138,506 94,008
Total deferred tax assets. . . . . . . . . $ 363,735 $ 290,354
Deferred tax liabilities:
Accelerated depreciation and other . . . . . $ 615,492 $ 625,176
Acquisition premium. . . . . . . . . . . . . 291,156 299,162
Deferred future income taxes . . . . . . . . 206,114 213,658
Other. . . . . . . . . . . . . . . . . . . . 85,987 112,555
Total deferred tax liabilities . . . . . . $1,198,749 $1,250,551
Investment tax credits . . . . . . . . . . . . $ 103,645 $ 109,710
Accumulated deferred income taxes, net . . . . $ 938,659 $1,069,907
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 also are 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:
<PAGE>
Year Ended December 31, 1998 1997 1996
Effective income tax rate. . . . . . . . . 24.0% 43.4% 32.8%
Effect of:
State income taxes. . . . . . . . . . . . (4.5) (5.0) (5.1)
Amortization of investment tax credits. . 10.0 0.8 2.7
Corporate-owned life insurance policies . 15.0 0.9 3.7
Accelerated depreciation flow through
and amortization, net . . . . . . . . . (2.9) (0.4) (0.2)
Adjustment to tax provision . . . . . . . (11.3) (3.7) -
Dividends received deduction. . . . . . . 16.0 - -
Amortization of goodwill. . . . . . . . . (11.4) - -
Other . . . . . . . . . . . . . . . . . . 0.1 (1.0) 1.1
Statutory federal income tax rate. . . . . 35.0% 35.0% 35.0%
17. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment at December 31:
1998 1997
(Dollars in Thousands)
Electric plant in service. . . . . . . $5,646,176 $5,564,695
Less - accumulated depreciation. . . . 2,015,880 1,895,084
3,630,296 3,669,611
Construction work in progress. . . . . 77,927 60,006
Nuclear fuel (net) . . . . . . . . . . 39,497 40,696
Net utility plant. . . . . . . . . . 3,747,720 3,770,313
Non-utility plant in service . . . . . 62,324 20,237
Less - accumulated depreciation. . . . 14,901 4,022
Net property, plant and equipment. . $3,795,143 $3,786,528
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.
18. LEASES
At December 31, 1998, 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:
<PAGE>
Operating
Year Ended December 31, Leases
(Dollars in Thousands)
1996 . . . . . . . . . . . . . . $ 63,181
1997 . . . . . . . . . . . . . . 71,126
1998 . . . . . . . . . . . . . . 70,796
Future Commitments:
1999 . . . . . . . . . . . . . . 64,355
2000 . . . . . . . . . . . . . . 58,573
2001 . . . . . . . . . . . . . . 55,073
2002 . . . . . . . . . . . . . . 55,293
2003 . . . . . . . . . . . . . . 57,530
Thereafter . . . . . . . . . . . 650,893
Total. . . . . . . . . . . . . . $941,717
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 $20.3 million of this deferral remained on the
Consolidated Balance Sheet at December 31, 1998.
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, $39.4 million in 2003, and $537.2 million over the remainder
of the lease. KGE's lease expense, net of amortization of the deferred gain and
refinancing costs, was approximately $28.9 million for 1998, $27.3 million for
1997, and $22.5 million for 1996.
19. SEGMENTS OF BUSINESS
In 1998, the company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires the company to
define and report the company's business segments based on how management
currently evaluates its business. Management has segmented its business based
on differences in products and services, production processes, and management
responsibility. Based on this approach, the company has identified four
reportable segments: fossil generation, nuclear generation, power delivery
and monitored services.
<PAGE>
Fossil generation, nuclear generation and power delivery represent the
three business segments that comprise the company's regulated electric utility
business in Kansas. Fossil generation produces power for sale to external
wholesale customers outside the company's historical marketing territory and
internally to the power delivery segment. Power marketing is a component of the
company's fossil generation segment which attempts to minimize market
fluctuation risk, enhance system reliability and maintain a market presence.
Nuclear generation represents the company's 47% ownership in the Wolf Creek
nuclear generating facility. This segment does not have any external sales.
The power delivery segment consists of the transmission and distribution of
power to approximately 620,000 wholesale and retail customers in Kansas.
The company's monitored services business was expanded in November 1997
with the acquisition of a majority interest in Protection One. Protection One
provides monitored services to approximately 1.5 million customers in North
America, the United Kingdom, and Continental Europe.
Other represents the company's non-utility operations and natural gas
business.
The accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies. The company
evaluates segment performance based on earnings before interest and taxes.
Unusual items, such as charges to income, may be excluded from segment
performance depending on the nature of the charge or income. The company's
ONEOK investment, marketable securities investments and other equity method
investments do not represent operating segments of the company. The company
has no single external customer from which it receives ten percent or more
of its revenues.
<TABLE>
<CAPTION>
Year Ended December 31, 1998:
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (1)Other (2)Items Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
External sales. . . $ 525,974 $ - $1,085,711 $ 421,095 $ 1,342 $ (68) $2,034,054
Allocated sales . . 517,363 117,517 66,492 - - (701,372) -
Depreciation and
amortization . . . 53,132 39,583 68,297 117,651 2,010 - 280,673
Earnings before
interest and taxes 144,357 (20,920) 196,398 56,727 (101,988) 12,268 286,842
Interest expense. . 226,120
Earnings before
income taxes . . . 60,722
Identifiable assets 1,360,102 1,121,509 1,788,943 2,511,319 1,269,013 (99,458) 7,951,428
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997:
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery (3)Services (4,5)Other (6)Items Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
External sales. . . $ 208,836 $ - $1,021,212 $ 152,347 $ 769,416 $ (46) $2,151,765
Allocated sales . . 517,167 102,330 66,492 - - (685,989) -
Depreciation and
amortization . . . 53,831 65,902 63,590 41,179 32,223 - 256,725
Earnings before
interest and taxes 149,825 (60,968) 173,809 (38,517) 914,747 (62,583) 1,076,313
Interest expense. . 193,808
Earnings before
income taxes . . . 882,505
Identifiable assets 1,337,591 1,154,522 1,721,021 1,593,286 1,238,088 (84,958) 6,959,550
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996:
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (5)Other Items Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
External sales. . . $ 144,056 $ - $1,053,359 $ 8,546 $ 840,827 $ 39 $2,046,827
Allocated sales . . 518,199 100,592 71,492 - - (690,283) -
Depreciation and
amortization . . . 52,303 57,242 60,713 944 30,129 - 201,331
Earnings before
interest and taxes 188,173 (51,585) 218,936 (3,555) 62,385 (10,494) 403,860
Interest expense. . 152,551
Earnings before
income taxes . . . 251,309
Identifiable assets 1,330,048 1,190,335 1,637,980 488,849 2,000,569 - 6,647,781
(1) Earnings before interest and taxes (EBIT) includes investment earnings of $21.7 million and
write-off of international power development activities of $98.9 million.
(2) Identifiable assets includes eliminating and reclassing balances to consolidate the monitored
services business.
(3) EBIT includes monitored services special charge of $24.3 million.
(4) EBIT includes investment earnings of $37.8 million and gain on sale of Tyco securities of
$864.2 million.
(5) Includes natural gas operations. The company contributed substantially all of its natural
gas business in exchange for a 45% equity interest in ONEOK in November 1997.
(6) EBIT includes write-off of deferred merger costs of $48 million. Identifiable assets
includes eliminating and reclassing balances to consolidate the monitored services
business.
</TABLE>
Geographic Information: Prior to 1998, the company did not have
international sales or international property, plant and equipment. The
company's sales and property, plant and equipment as of and for the period
ending December 31, 1998 are as follows:
North America International
Operations Operations Total
(Dollars in Thousands)
External sales . . . . . $1,990,329 $43,725 $2,034,054
Property, plant and
equipment, net . . . . 3,787,872 7,271 3,795,143
<PAGE>
2O. JOINT OWNERSHIP OF UTILITY PLANTS
Company's Ownership at December 31, 1998
In-Service Invest- Accumulated Net Per-
Dates ment Depreciation (MW) cent
(Dollars in Thousands)
La Cygne 1 (a) Jun 1973 $ 162,756 $109,336 343 50
Jeffrey 1 (b) Jul 1978 297,020 134,054 617 84
Jeffrey 2 (b) May 1980 292,555 128,210 622 84
Jeffrey 3 (b) May 1983 405,054 160,671 621 84
Wolf Creek (c) Sep 1985 1,377,348 429,934 547 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.
21. MERGER AGREEMENT WITH KANSAS CITY POWER & LIGHT COMPANY
On February 7, 1997, the company signed a merger agreement with Kansas City
Power & Light Company (KCPL) by which KCPL would be merged with and into the
company in exchange for company stock. In December 1997, representatives of the
company's financial advisor indicated that they believed it was unlikely that
they would be in a position to issue a fairness opinion required for the merger
on the basis of the previously announced terms.
On March 18, 1998, the company and KCPL agreed to a restructuring of their
February 7, 1997, merger agreement which will result in the formation of Westar
Energy, a new regulated electric utility company. Under the terms of the merger
agreement, the electric utility operations of the company will be transferred to
KGE, and KCPL and KGE will be merged into NKC, Inc., a subsidiary of the
company. NKC, Inc. will be renamed Westar Energy. In addition, under the terms
of the merger agreement, KCPL shareholders will receive company common stock
which is subject to a collar mechanism of not less than .449 nor greater than
.722, provided the amount of company common stock received may not exceed
$30.00, and one share of Westar Energy common stock per KCPL share. The
estern Resources Index Price is the 20 day average of the high and low sale
prices for company common stock on the NYSE ending ten days prior to closing.
If the Western Resources Index Price is less than or equal to $29.78 on the
fifth day prior to the effective date of the combination, either party may
terminate the agreement. Upon consummation of the combination, the company will
own approximately 80.1% of the outstanding equity of Westar Energy and KCPL
shareholders will own approximately 19.9%.
As part of the combination, Westar Energy will assume all of the electric
utility <PAGE>
related assets and liabilities of the company, KCPL and KGE.
Westar Energy will assume $2.7 billion in debt, consisting of $1.9 billion
of indebtedness for borrowed money of the company and KGE, and $800 million from
KCPL. Long-term debt of the company, excluding Protection One, was $2.5 billion
at December 31, 1998, and $2.1 billion at December 31, 1997. Under the terms of
the merger agreement, it is intended that the company will be released from its
obligations with respect to the company's debt to be assumed by Westar Energy.
Pursuant to the merger agreement, the company has agreed, among other
things, to redeem all outstanding shares of its 4 1/2% Series Preferred Stock,
par value $100 per share, 4 1/4% Series Preferred Stock, par value $100 per
share, and 5% Series Preferred Stock, par value $100 per share.
Consummation of the merger is subject to customary conditions. On July 30,
1998, the company's shareholders and the shareholders of KCPL voted to approve
the amended merger agreement at special meetings of shareholders. The company
estimates the transaction to close in 1999, subject to receipt of all necessary
approvals from regulatory and government agencies.
In testimony filed in February 1999, the KCC staff recommended the merger
be approved but with conditions which we believe would make the merger
uneconomical.
The merger agreement allows the company to terminate the agreement if regulatory
approvals are not acceptable. The KCC is under no obligation to accept the KCC
staff recommendation. In addition, legislation has been proposed in Kansas that
could impact the transaction. The company does not anticipate the proposed
legislation to pass in its current form. The company is not able to predict
whether any of these initiatives will be adopted or their impact on the
transaction, which could be material.
On August 7, 1998, the company and KCPL filed an amended application with
the Federal Energy Regulatory Commission (FERC) to approve the Western
Resources/KCPL merger and the formation of Westar Energy.
The company has received procedural schedule orders in Kansas and Missouri.
These schedules indicate hearing dates beginning May 3, 1999, in Kansas and
July 26, 1999, in Missouri.
KCPL is a public utility company engaged in the generation, transmission,
distribution, and sale of electricity to customers in western Missouri and
eastern Kansas. The company, KCPL and KGE have joint interests in certain
electric generating assets, including Wolf Creek.
At December 31, 1998, the company had deferred approximately $14 million
related to the KCPL transaction. These costs will be included in the
determination of total consideration upon consummation of the transaction.
For additional information on the Merger Agreement with Kansas City Power &
Light Company, see the company's Registration Statement on Form S-4 filed on
June 9, 1998.
<PAGE>
22. 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 electric
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)
1998 (Restated)
Sales . . . . . . . . . . . . . $382,343 $463,301 $701,402 $487,008
Income from operations(1) . . . 64,795 72,314 156,307 (62,902)
Net income(1) . . . . . . . . . 29,813 31,006 71,422 (84,485)
Earnings applicable to
common stock. . . . . . . . . 28,583 29,209 71,140 (84,767)
Basic earnings per share. . . . $ 0.44 $ 0.45 $ 1.08 $ (1.29)
Dividends per share . . . . . . $ 0.535 $ 0.535 $ 0.535 $ 0.535
Average common shares
outstanding . . . . . . . . . 65,410 65,543 65,707 65,870
Common stock price:
High. . . . . . . . . . . . . $ 44.188 $ 42.688 $ 41.625 $ 43.250
Low . . . . . . . . . . . . . $ 40.000 $ 36.875 $ 37.688 $ 32.563
1997 (Restated)
Sales . . . . . . . . . . . . . $626,198 $454,006 $559,996 $511,565
Income from operations(2) . . . 103,297 57,498 110,391 (116,761)
Net income(2),(3) . . . . . . . 41,033 24,335 508,372 (74,222)
Earnings applicable to
common stock. . . . . . . . . 39,803 23,106 507,142 (75,452)
Basic earnings per share. . . . $ 0.61 $ 0.36 $ 7.77 $ (1.15)
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 $ 32.25 $ 33.625
(1) The loss in the fourth quarter of 1998, is primarily attributable to a
$99 million charge to income to exit the company's international power
development business.
(2) During the fourth quarter of 1997, the company expensed deferred costs
of approximately $48 million associated with the original KCPL merger
agreement. Protection One recorded a charge to income of approximately $24
million.
(3) During the third quarter of 1997, the company recorded a pre-tax gain of
approximately $864 million upon selling its Tyco common stock.
<PAGE>
The summarized information for the fourth quarter of 1997 and for each
quarter in 1998 have been revised to reflect a restatement at Protection One.
The restatement expenses yard signs previously capitalized and includes the
impact of reversing the accrual for the signage charge previously recorded at
December 31, 1997 (see Note 2). The impact of the adjustments made to the
company's previously reported quarterly results in 1998, net of tax and net of
the minority interest is as follows:
(Dollars in Thousands)
Expense yard signs as incurred $ 8,312
Increase bad debt provision 3,090
Other (554)
Decrease in net income $10,848
The impact of these adjustments on the quarterly results previously
reported is as follows. (Amounts are net of tax and net of minority interest):
Net Income
(dollars in thousands) Earnings Per Share
Increase (Decrease) Increase (Decrease)
1998 - First Quarter $ (655) $(0.01)
Second Quarter (3,813) (0.05)
Third Quarter (1,343) (0.02)
Fourth Quarter (5,037) (0.08)
1997 - Fourth Quarter $ 5,424 $0.08
<PAGE>
<TABLE> <S> <C>
<ARTICLE> OPUR3
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-ASSETS> 7951428
<TOTAL-OPERATING-REVENUES> 2034054
<NET-INCOME> 47756
</TABLE>
Exhibit 99
EXHIBIT C
Organizational Chart Showing the Relationship of Each EWG
to Associate Companies in The Holding Company System
Western Resources, Inc. (a Kansas corporation, "WRI").
Westar Capital, Inc. (a Kansas corporation, "Westar"), a wholly-owned
subsidiary of WRI.
The Wing Group, Limited Company (a Delaware corporation, "Wing"),
wholly-owned subsidiary of WRI.
Wing Colombia, 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 Colombia, L.L.C.
Merilectrica I S.A., (a sociedad anonima organized under the
laws of the Republic of Colombia). This Company is the general
partner of Merilectrica I S.A. Cia S.C.A. E.S.P., 36.75% owned
by Wing Colombia, 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
Colombia), 36.75 owned by Wing Colombia, L.L.C.
Western Resources (Bermuda) Limited (a Bermuda Limited Liability
Company), a wholly-owned subsidiary of WRI.
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), a wholly-owned subsidiary of CPI-
Western Power Holdings, Ltd.
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.
Zhengzhou Huadeng Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International Limited.
Zhengzhou Huaxin 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), a wholly-owned subsidiary of
WRI.
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.
