WESTERN RESOURCES INC /KS, 10-Q, 1999-11-12

WESTERN RESOURCES INC /KS
10-Q, 1999-11-12
ELECTRIC & OTHER SERVICES COMBINED

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
_____
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1999
-----------------------------------------------

_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _____________________ to ______________________

Commission File Number 1-3523

WESTERN RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)

KANSAS 48-0290150
(State or Other Jurisdiction of (Employer
Incorporation or Organization) Identification No.)

818 KANSAS AVENUE, TOPEKA, KANSAS 66612
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number Including Area Code (785) 575-6300

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Class Outstanding at November 12, 1999
- ----------------------------- --------------------------------
Common Stock, $5.00 par value 68,091,577

<PAGE>

WESTERN RESOURCES, INC.
INDEX

Page No.

Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets 3

Consolidated Statements of Income 4 - 5

Consolidated Statements of Comprehensive Income 6

Consolidated Statements of Cash Flows 7

Consolidated Statements of Cumulative Preferred Stock 8

Consolidated Statements of Shareholders' Equity 9

Notes to Consolidated Financial Statements 10

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19

Item 3. Quantitative and Qualitative Disclosures About
Market Risk 37

Part II. Other Information

Item 1. Legal Proceedings 38

Item 2. Changes in Securities and Use of Proceeds 38

Item 3. Defaults Upon Senior Securities 38

Item 4. Submission of Matters to a Vote of Security Holders 38

Item 5. Other Information 38

Item 6. Exhibits and Reports on Form 8-K 39

Signatures 40

<PAGE>

<TABLE>

WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<CAPTION>

September 30, December 31,
1999 1998
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 25,512 $ 16,394
Accounts receivable (net) . . . . . . . . . . . . . . . . 255,205 218,243
Inventories and supplies (net). . . . . . . . . . . . . . 104,956 95,590
Marketable securities . . . . . . . . . . . . . . . . . . 183,438 288,077
Prepaid expenses and other. . . . . . . . . . . . . . . . 66,837 57,225
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . . . 635,948 675,529
---------- ----------

PROPERTY, PLANT AND EQUIPMENT (NET) . . . . . . . . . . . . 3,845,333 3,799,916
---------- ----------

OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . . . . . . . . . 605,533 615,094
Customer accounts (net) . . . . . . . . . . . . . . . . . 1,164,412 1,014,428
Goodwill (net). . . . . . . . . . . . . . . . . . . . . . 1,115,852 1,188,253
Regulatory assets . . . . . . . . . . . . . . . . . . . . 358,258 364,213
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 349,618 293,995
---------- ----------
Total Other Assets. . . . . . . . . . . . . . . . . . . 3,593,673 3,475,983
---------- ----------

TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $8,074,954 $7,951,428
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt. . . . . . . . . . . $ 112,598 $ 165,838
Short-term debt . . . . . . . . . . . . . . . . . . . . . 480,955 312,472
Accounts payable. . . . . . . . . . . . . . . . . . . . . 103,039 127,834
Accrued liabilities . . . . . . . . . . . . . . . . . . . 247,432 252,367
Accrued income taxes. . . . . . . . . . . . . . . . . . . 80,078 32,942
Deferred security revenues. . . . . . . . . . . . . . . . 62,367 57,703
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 86,787 85,690
---------- ----------
Total Current Liabilities . . . . . . . . . . . . . . . 1,173,256 1,034,846
---------- ----------

LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . . . . . . . . . 3,145,828 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 investment tax credits. . . . . 924,789 938,659
Minority interests. . . . . . . . . . . . . . . . . . . . 197,247 205,822
Deferred gain from sale-leaseback . . . . . . . . . . . . 201,079 209,951
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 274,377 316,245
---------- ----------
Total Long-term Liabilities . . . . . . . . . . . . . . 4,963,320 4,953,741
---------- ----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Cumulative preferred stock. . . . . . . . . . . . . . . . 24,858 24,858
Common stock, par value $5 per share, authorized
85,000,000 shares, outstanding 67,674,202 and
65,909,442 shares, respectively. . . . . . . . . . . . . 338,371 329,548
Paid-in capital . . . . . . . . . . . . . . . . . . . . . 810,324 775,337
Retained earnings . . . . . . . . . . . . . . . . . . . . 803,594 823,590
Accumulated other comprehensive income (net) . . . . . . (38,769) 9,508
---------- ----------
Total Shareholders' Equity. . . . . . . . . . . . . . . 1,938,378 1,962,841
---------- ----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . $8,074,954 $7,951,428
========== ==========

The Notes to Consolidated Financial Statements are an integral part of these statements.

</TABLE>

<PAGE>

<TABLE>

WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>

Three Months Ended
September 30,
1999 1998
<S> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 495,867 $ 598,141
Security. . . . . . . . . . . . . . . . . . . . . . . . . . 153,131 103,261
---------- ----------
Total Sales . . . . . . . . . . . . . . . . . . . . . . . 648,998 701,402
---------- ----------

COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . 174,099 303,432
Security. . . . . . . . . . . . . . . . . . . . . . . . . . 49,812 32,555
---------- ----------
Total Cost of Sales . . . . . . . . . . . . . . . . . . . 223,911 335,987
---------- ----------

GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . . 425,087 365,415
---------- ----------

OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . . . . 84,715 82,376
Depreciation and amortization . . . . . . . . . . . . . . . 138,989 72,232
Selling, general and administrative expense . . . . . . . . 100,643 54,533
---------- ----------
Total Operating Expenses. . . . . . . . . . . . . . . . . 324,347 209,141
---------- ----------

INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . 100,740 156,274
---------- ----------

OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . . . . . . . . 12,216 14,026
Gain on sale of Mobile Services Group . . . . . . . . . . . 17,249 -
Minority interests. . . . . . . . . . . . . . . . . . . . . 6,533 (182)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,888) 1,546
---------- ----------
Total Other Income (Expense). . . . . . . . . . . . . . 34,110 15,390
---------- ----------

EARNINGS BEFORE INTEREST AND TAXES. . . . . . . . . . . . . . 134,850 171,664
---------- ----------

INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . . . . 61,045 43,465
Interest expense on short-term debt and other . . . . . . . 14,831 16,012
---------- ----------
Total Interest Expense. . . . . . . . . . . . . . . . . 75,876 59,477
---------- ----------

EARNINGS BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . 58,974 112,187
---------- ----------

INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 9,964 40,766
---------- ----------

NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . 49,010 71,421
---------- ----------

PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . . 282 282
---------- ----------

EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 48,728 $ 71,139
========== ==========

AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . 67,554,168 65,706,665

BASIC EARNINGS PER AVAILABLE COMMON SHARE OUTSTANDING . . . . $ .72 $ 1.08

DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . . $ .535 $ .535

The Notes to Consolidated Financial Statements are an integral part of these statements.

</TABLE>
4

<PAGE>

<TABLE>

WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1999 1998

<S> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . $1,133,243 $1,269,949
Security. . . . . . . . . . . . . . . . . . . . . . . . . . 452,480 277,097
---------- ----------
Total Sales . . . . . . . . . . . . . . . . . . . . . . . 1,585,723 1,547,046
---------- ----------

COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . 390,605 550,224
Security. . . . . . . . . . . . . . . . . . . . . . . . . . 132,968 88,028
---------- ----------
Total Cost of Sales . . . . . . . . . . . . . . . . . . . 523,573 638,252
---------- ----------

GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . . 1,062,150 908,794
---------- ----------

OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . . . . 253,194 241,927
Depreciation and amortization . . . . . . . . . . . . . . . 309,528 201,737
Selling, general and administrative expense . . . . . . . . 247,529 171,767
Write-off international development activities. . . . . . . (4,930) -
---------- ----------
Total Operating Expenses. . . . . . . . . . . . . . . . . 805,321 615,431
---------- ----------

INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . 256,829 293,363
---------- ----------

OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . . . . . . . . 49,661 52,439
Gain on sale of Mobile Services Group . . . . . . . . . . . 17,249 -
Minority interests. . . . . . . . . . . . . . . . . . . . . 8,382 (453)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,343) 15,362
---------- ----------
Total Other Income (Expense). . . . . . . . . . . . . . 73,949 67,348
---------- ----------

EARNINGS BEFORE INTEREST AND TAXES. . . . . . . . . . . . . . 330,778 360,711
---------- ----------

INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . . . . 180,335 121,376
Interest expense on short-term debt and other . . . . . . . 39,839 43,072
---------- ----------
Total Interest Expense. . . . . . . . . . . . . . . . . 220,174 164,448
---------- ----------

EARNINGS BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . 110,604 196,263
---------- ----------

INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 22,357 65,612
---------- ----------

NET INCOME BEFORE EXTRAORDINARY GAIN . . . . . . . . . . . . 88,247 130,651
---------- ----------

EXTRAORDINARY GAIN, NET OF TAX. . . . . . . . . . . . . . . . - 1,591
---------- ----------

NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . 88,247 132,242
---------- ----------

PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . . 847 3,309
---------- ----------

EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 87,400 $ 128,933
========== ==========

AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . 66,766,230 65,554,116

BASIC EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING:
EARNINGS AVAILABLE FOR COMMON STOCK BEFORE EXTRAORDINARY GAIN $ 1.31 $ 1.94
EXTRAORDINARY GAIN. . . . . . . . . . . . . . . . . . . . . . - .03
---------- ----------
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 1.31 $ 1.97
========== ==========

DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . . $ 1.605 $ 1.605

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

<PAGE>

<TABLE>

WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)

Three Months Ended
September 30,
1999 1998

<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 49,010 $ 71,421
-------- --------

Other comprehensive loss, before tax:
Unrealized holding losses on marketable
securities arising during the period. . . . . . . . . . (65,380) (38,541)
Less: Reclassification adjustment for gains
included in net income. . . . . . . . . . . . . . . . . (211) -
-------- --------
Unrealized loss on marketable securities (net). . . . . . (65,591) (38,541)
Unrealized gain on currency translation. . . . . . . . . 1,879 -
-------- --------
Other comprehensive loss, before tax. . . . . . . . . . . . (63,712) (38,541)
-------- --------

Income tax benefit. . . . . . . . . . . . . . . . . . . . . 25,340 15,337
-------- --------
Other comprehensive loss, net of tax. . . . . . . . . . . . (38,372) (23,204)
-------- --------

Comprehensive income. . . . . . . . . . . . . . . . . . . . $ 10,638 $ 48,217
======== ========

<CAPTION>
Nine Months Ended
September 30,
1999 1998

<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 88,247 $132,242
-------- --------

Other comprehensive loss, before tax:
Unrealized holding losses on marketable
securities arising during the period. . . . . . . . . . (80,546) (17,523)
Less: Reclassification adjustment for gains
included in net income. . . . . . . . . . . . . . . . . (72) -
-------- --------
Unrealized loss on marketable securities (net). . .. . . (80,618) (17,523)
Unrealized gain on currency translation. . . . . . . . . 338 -
-------- --------
Other comprehensive loss, before tax. . . . . . . . . . . . (80,280) (17,523)
-------- --------

Income tax benefit. . . . . . . . . . . . . . . . . . . . . 32,003 6,976
-------- --------
Other comprehensive loss, net of tax. . . . . . . . . . . . (48,277) (10,547)
-------- --------

Comprehensive income. . . . . . . . . . . . . . . . . . . . $ 39,970 $121,695
======== ========

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

<PAGE>

<TABLE>

WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1999 1998

<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 88,247 $ 132,242
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary gain. . . . . . . . . . . . . . . . . . . . - (1,591)
Depreciation and amortization . . . . . . . . . . . . . . 309,528 201,737
Amortization of gain on sale-leaseback. . . . . . . . . . (8,872) (8,871)
Equity in earnings from investments . . . . . . . . . . . (7,645) (3,828)
Gain on Sale of Mobile Services Group . . . . . . . . . . (17,249) -
Loss on Sale of Marketable Securities . . . . . . . . . . 4,608 -
Minority Interests . . . . . . . . . . . . . . . . . . . (8,382) 453
Accretion of discount note interest . . . . . . . . . . . (5,057) 4,635
Write-off international development activities. . . . . . (4,930) -
Changes in working capital items (net of effects from
acquisitions):
Accounts receivable (net) . . . . . . . . . . . . . . . (29,829) 14,621
Inventories and supplies. . . . . . . . . . . . . . . . (7,588) (1,967)
Prepaid expenses and other. . . . . . . . . . . . . . . (18,910) (16,628)
Accounts payable. . . . . . . . . . . . . . . . . . . . (24,795) 18,764
Accrued liabilities . . . . . . . . . . . . . . . . . . 9,139 (75,712)
Accrued income taxes. . . . . . . . . . . . . . . . . . 47,136 30,784
Other . . . . . . . . . . . . . . . . . . . . . . . . . (9,646) 40,110
Changes in other assets and liabilities . . . . . . . . . (44,717) 23,184
----------- -----------
Net cash flows from operating activities. . . . . . . 271,038 357,933
----------- -----------

CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (net). . . . . (186,569) (112,125)
Customer account acquisitions . . . . . . . . . . . . . . (207,657) (228,352)
Security alarm monitoring acquisitions, net of cash
acquired . . . . . . . . . . . . . . . . . . . . . . . (27,408) (554,230)
Proceeds from sale of Mobile Services Group, net of
cash paid . . . . . . . . . . . . . . . . . . . . . . 19,087 -
Purchases of marketable securities. . . . . . . . . . . . (11,999) (241,752)
Proceeds from sale of marketable securities . . . . . . . 30,946 -
Investment in Paradigm. . . . . . . . . . . . . . . . . . (32,009) -
Proceeds from issuance of stock by subsidiary (net) . . . - 45,565
Other investments (net) . . . . . . . . . . . . . . . . . 8,696 (76,468)
----------- -----------
Net cash flows (used in) investing activities . . . . (406,913) (1,167,362)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . 168,483 338,882
Proceeds of long-term debt. . . . . . . . . . . . . . . . 180,688 688,782
Retirements of long-term debt . . . . . . . . . . . . . . (125,422) (135,037)
Issuance of common stock issued (net) . . . . . . . . . . 29,487 13,035
Redemption of preference stock. . . . . . . . . . . . . . - (50,000)
Cash dividends paid . . . . . . . . . . . . . . . . . . . (108,243) (107,153)
----------- -----------
Cash flows from financing activities. . . . . . . . . 144,993 748,509
----------- -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . 9,118 (60,920)

CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 16,394 76,608
----------- -----------
End of the period . . . . . . . . . . . . . . . . . . . . $ 25,512 $ 15,688
=========== ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized . . . . . . . . . . . . . . . . . . . . . . $ 252,535 $ 180,058
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 1,065 32,138

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

<PAGE>

<TABLE>

WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CUMULATIVE PREFERRED STOCK
(Dollars in Thousands)
(Unaudited)

<CAPTION>
September 30, December 31,
1999 1998

<S> <C> <C>
Preferred stock not subject to mandatory redemption,
Par value $100 per share, authorized
600,000 shares, outstanding -
4 1/2% Series, 138,576 shares. . . . . . . . . . $ 13,858 $ 13,858
4 1/4% Series, 60,000 shares . . . . . . . . . . 6,000 6,000
5% Series, 50,000 shares . . . . . . . . . . . . 5,000 5,000
---------- ----------
Total Preferred Stock. . . . . . . . . . . . . . . . $ 24,858 $ 24,858
========== ==========

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

<PAGE>

<TABLE>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------

<S> <C> <C> <C> <C>
Cumulative Preferred and
Preference Stock:
Beginning balance. . . . . . . $ 24,858 $ 24,858 $ 24,858 $ 74,858
Redemption of preference stock - - - (50,000)
--------- --------- ---------- ---------
Ending balance . . . . . . . . 24,858 24,858 24,858 24,858
--------- --------- --------- ---------

Common Stock:
Beginning balance. . . . . . . 335,844 327,865 329,548 327,048
Issuance of common stock . . . 2,527 801 8,823 1,618
--------- --------- --------- ---------
Ending balance . . . . . . . . 338,371 328,666 338,371 328,666
--------- --------- --------- ---------

Paid-in-Capital:
Beginning balance. . . . . . . 801,860 766,453 775,337 760,553
Expenses on common stock . . . - - - -
Issuance on common stock . . . 8,464 5,517 34,987 11,417
--------- --------- --------- ---------
Ending balance . . . . . . . . 810,324 771,970 810,324 771,970
--------- --------- --------- ---------

Retained Earnings:
Beginning balance. . . . . . . 791,330 907,634 823,590 919,911
Net income . . . . . . . . . . 49,010 71,421 88,247 132,242
Dividends on preferred and
preference stock . . . . . . (282) (282) (847) (3,309)
Dividends on common stock. . . (36,464) (35,162) (107,396) (105,233)
--------- --------- --------- ---------
Ending balance . . . . . . . . 803,594 943,611 803,594 943,611
--------- --------- --------- ---------

Accumulated Other Comprehensive
Income (net):
Beginning balance. . . . . . . (397) 24,776 9,508 12,119
Unrealized loss on
equity securities. . . . . . (65,591) (38,541) (80,618) (17,523)
Unrealized gain on
currency translation . . . . 1,879 - 338 -
Income tax benefit . . . . . . 25,340 15,337 32,003 6,976
--------- --------- --------- ---------
Ending balance . . . . . . . . (38,769) 1,572 (38,769) 1,572
--------- --------- --------- ---------

Total Shareholders' Equity $1,938,378 $2,070,677 $1,938,378 $2,070,677
========= ========= ========= =========

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

<PAGE>

WESTERN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. 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 627,000 customers in Kansas and providing monitored
services to approximately 1.6 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's unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles (GAAP) for interim financial information and in accordance
with the instructions to Form 10-Q. Accordingly, certain information and
footnote disclosures normally included in financial statements presented in
accordance with GAAP have been condensed or omitted. These consolidated
financial statements and notes should be read in conjunction with the
Consolidated Financial Statements and the notes included in the company's 1998
Annual Report on Form 10-K.

In management's opinion, all adjustments necessary for a fair
presentation of the financial statements have been included. All adjustments are
normal recurring adjustments except for adjustments related to the change in
accounting method discussed below in Note 2. The results of operations for the
three and nine months ended September 30, 1999, are not necessarily indicative
of the results to be expected for the full year. Certain purchase price
allocations for acquisitions made in 1999 by Protection One were made on a
preliminary basis and are subject to change.

New Pronouncements: On January 1, 1999, the company adopted Emerging
Issues Task Force Issue No. 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities" (EITF Issue 98-10). 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. Adoption of EITF
98-10 resulted in a decrease in operating income of approximately $0.7 million
for the nine months ended September 30, 1999.

Reclassifications: Certain amounts in prior years have been reclassified to
conform with classifications used in the current year presentation.

<PAGE>

2. CHANGE IN ACCOUNTING PRINCIPLE

Protection One historically amortized the costs it allocated to its
customer accounts by using the straight-line method over a ten-year life. The
straight-line method, indicated in Accounting Principles Board Opinion No. 17 as
the appropriate method for such assets, has been the predominant method used to
amortize customer accounts in the monitored services industry. Protection One is
not aware of whether the economic life or rate of realization for Protection
One's customer accounts differs materially from other monitored services
companies.

The choice of a ten-year life was based on Protection One's estimates
and judgments about the amounts and timing of expected future revenues from
these assets, the rate of attrition of such revenue over customer life, and
average customer account life. Ten years was used because, in Protection One's
opinion, it would adequately match amortization cost with anticipated revenue
from those assets even though many accounts were expected to produce revenue
over periods substantially longer than ten years. Effectively, it expensed the
asset costs ratably over an "expected average cost life" that was shorter than
the expected life of the revenue stream, thus implicitly giving recognition to
projected revenues for a period beyond ten years.

Protection One has recently concluded a comprehensive review of its
amortization policy that was undertaken during the third quarter of 1999. This
review was performed specifically to evaluate the historic amortization policy
in light of the inherent declining revenue curve over the life of a pool of
customer accounts, and Protection One's historical attrition experience. After
completing the review, Protection One identified three distinct account pools,
each of which has distinct attributes that effect differing attrition
characteristics. The pools correspond to Protection One's North America,
Multifamily and Europe business segments. These separate pools will be used
going forward. For the North America and Europe pools, the analyzed data
indicated to Protection One's management that Protection One can expect
attrition to be greatest in years one through five of asset life and that a
change from a straight-line to a declining balance (accelerated) method would
more closely match future amortization cost with the estimated revenue stream
from these assets. Protection One has elected to change to that method. No
change was made to the method used for the Multifamily pool.

Adoption of the declining balance method effectively shortens the
estimated expected average customer life for these two customer pools, and does
so in a way that does not make it possible to distinguish the effect of a change
in method (straight-line to declining balance) from the change in estimated
lives. In such cases, GAAP requires that the effect of such a change be
recognized in operations in the period of the change, rather than as a
cumulative effect of a change in accounting principle. Accordingly, the effect
of the change in accounting principle increased amortization expense reported in
the third quarter by $47 million. Similarly, accumulated amortization recorded
on the balance sheet would have been approximately $41 million higher if
Protection One had historically used the declining balance method through the
end of the second quarter of 1999.

<PAGE>

3. INTERNATIONAL POWER DEVELOPMENT ACTIVITIES

The company terminated the employment of employees of The Wing Group
Limited Co. (Wing) during the first quarter of 1999, in accordance with the
company's previously announced plans to exit the international power development
business. In addition to these terminations, all development activity was
discontinued. Certain exit activities which occurred during the first half of
1999, as contemplated in the exit plan, included closing Wing offices and
handling other matters related to terminating the activity of this subsidiary.
Through September 30, 1999, approximately $16.8 million has been expended for
exit activities of which $13.4 million was incurred for employee settlement
costs and $0.8 million was incurred for severance costs. All amounts expended
during the nine months ended September 30, 1999, were charged to the exit cost
accruals established as of December 31, 1998. These exit cost accruals were
reduced by $4.9 million during the second quarter of 1999 due to the actual
employee settlement amounts being less than the amounts originally estimated.
The impact of this accrual reversal increased pre-tax income.

At September 30, 1999, approximately $1.2 million of accrued exit fees
and shut down costs are included in other current liabilities on the
accompanying Consolidated Balance Sheet. The company plans to complete all
significant aspects of this closure by the end of 1999.

4. MERGER AGREEMENT WITH KANSAS CITY POWER & LIGHT COMPANY (KCPL)

On September 28, 1999, the Kansas Corporation Commission (KCC) issued
an order in connection with the KCPL merger. On October 13, 1999, the company
filed a petition with the KCC for reconsideration of certain portions of the KCC
order. Other parties to the proceedings also requested reconsideration of the
KCC's order. On November 4, 1999, the KCC issued its order on reconsideration.
Significant terms of the KCC order are as follows:

- An electric rate moratorium of four years beginning on the date the
transaction closes
- Ability to retain all savings incurred during the moratorium period
- Ability to recover a portion of the remaining acquisition premium of
approximately $3.85 million per year for 35 years following the
completion of the rate moratorium
- A cap of $179.45 million for any future determination of stranded
costs which result from the merger
- Implementation of quality of service standards
- Ability to seek carrying charges on investments in new plant additions
during the rate moratorium period
- At the conclusion of the moratorium, Westar Energy, the new electric
company formed as a result of the merger, will be required to file
a consolidated cost of service study and separate cost of service
studies for each operating division.

<PAGE>

On September 2, 1999, the Missouri Public Service Commission (MPSC)
approved the merger of the company and KCPL. No further merger proceedings are
scheduled in Missouri. Significant terms of the MPSC order are as follows:

- An electric rate moratorium of three years beginning on the date the
transaction closes
- Westar Energy would make a one-time rate credit in the amount of $5
million to its Missouri retail customers at the beginning of the second
year of the merger
- Agreements between the company, KCPL, MPSC staff and the Office of
Public Counsel on quality of service standards and on cost allocation
methodology.

On September 14, 1999, the company and the Federal Energy Regulatory
Commission (FERC) staff filed a Settlement Agreement with the FERC in connection
with the KCPL merger. On October 21, 1999, the Settlement Agreement was
certified by a FERC administrative law judge and sent to the FERC for approval
without hearing. The company expects the receipt of a FERC order around the end
of the year. The FERC order is subject to a 30-day period in which requests for
rehearing may be made. The Settlement Agreement provides that the settlement
will become effective on the first day of the month following the date the FERC
order becomes final.

On November 1, 1999, the company received approval from the Nuclear
Regulatory Commission regarding the KCPL merger, the formation of Westar Energy,
and the transfer of the ownership licenses to Westar Energy.

Further requests for reconsideration and appeals could delay the
receipt of the final regulatory approvals discussed above. The company believes
that the merger could be finalized in the first quarter of 2000. The closing of
the merger is subject to the satisfaction or waiver of various regulatory and
other conditions and certain rights of termination as outlined in the merger
agreement.

Either party may terminate the merger if the merger does not close by
December 31, 1999, or if the Western Resources' Index Price is less than or
equal to $29.78 on the tenth day prior to closing. The Western Resources' Index
Price was $22.67 at November 8, 1999.

The company has deferred merger-related costs of $17.6 million as of
September 30, 1999.

For additional information on the Merger Agreement with KCPL, see Note
21 to the Consolidated Financial Statements in the company's 1998 Annual Report
on Form 10-K.

5. LEGAL PROCEEDINGS

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 in this investigation.

<PAGE>

The company, its subsidiary Westar Capital, Inc. (Westar), Protection
One, its subsidiary Protection One Alarm Monitoring, Inc. (Monitoring), and
certain present and former officers and directors of Protection One are
defendants in a purported class action litigation pending in the United States
District Court for the Central District of California, "David Lyons v.
Protection One, Inc., et. al.", No. CV 99-3755 DT (RCx). Pursuant to an Order
dated August 2, 1999 which consolidated four pending purported class actions,
the plaintiffs filed a single Consolidated Amended Class Action Complaint
(Amended Complaint) on October 15, 1999. The Amended Complaint asserts claims
under Section 11 of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934 against Protection One, Monitoring, and certain
present and former officers and directors of Protection One based on allegations
that various statements concerning Protection One's financial results and
operations for 1997 and 1998 were false and misleading and not in compliance
with GAAP. Plaintiffs allege, among other things, that former employees of
Protection One, including an unnamed former executive officer and an unnamed
former staff accountant, have reported that Protection One lacked adequate
internal accounting controls and that certain accounting information was
unsupported or manipulated by management in order to avoid disclosure of
accurate information. The Amended Complaint further asserts claims against the
company and Westar as controlling persons under Sections 11 and 15 of the
Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934. A claim is also asserted under Section 11 of the Securities Act of
1933 against Protection One's auditor, Arthur Andersen LLP. The Amended
Complaint seeks an unspecified amount of compensatory damages and an award of
fees and expenses, including attorneys' fees. The time for the defendants to
respond to the Amended Complaint has not yet expired. The company and Protection
One believe that all the claims asserted in the Amended Complaint are without
merit and intend to defend against them vigorously. The company and Protection
One cannot currently predict the impact of this litigation which could be
material.

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 disposition
of such matters will not have a material adverse effect upon the company's
overall financial position or results of operations.

6. COMMITMENTS AND CONTINGENCIES

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 September 30, 1999, 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, as recorded in investment earnings on the
accompanying Consolidated Income Statements, could be impacted by these costs if
insurance and

<PAGE>

rate allowances do not cover these potential contingencies.

Securities and Exchange Commission (SEC) Review of Protection One:
Protection One has been advised by the Division of Corporation Finance of the
SEC that, in the view of the staff, there are errors in Protection One's
financial statements which are material and which have had the effect of
inflating earnings commencing with the year 1997. Protection One has had
extensive discussions with the SEC staff about the methodology used by
Protection One to amortize customer accounts, the purchase price allocation to
customer accounts in the Network Multifamily acquisition, and other matters.
Protection One has restated its 1998 financial statements and its interim
financial statements for the quarters ended March 31, 1999, and June 30, 1999.
The company did not restate its financial statements due to the immaterial
impact of Protection One's restatement. In addition, Protection One has changed
the accounting principle used for the amortization of customer accounts. The SEC
staff has not indicated it concurs with, nor has the SEC staff determined not to
object to, the restatements or the change in accounting principle. The company
and Protection One cannot predict whether the SEC staff will make additional
comments or take other action that will further impact their financial
statements or the effect or timing of any such action.

Split Dollar Life Insurance Program: Obligations under the company's
split dollar life insurance program can increase and decrease based on the
company's total return to shareholders. The related liability decreased
approximately $0.8 million for the three month period and $10.5 million for the
nine month period ended September 30, 1999.

For additional information on Commitments and Contingencies, see Note
10 to Consolidated Financial Statements in the company's 1998 Annual Report on
Form 10-K.

7. DEBT

Protection One borrows to fund operations in excess of internally
generated cash under its senior credit facility. Protection One's ability to
borrow under the facility is subject to compliance with certain financial
covenants, including a leverage ratio of 5.0 to 1.0 and an interest coverage
ratio of 2.75 to 1.0. At year end 1999, the leverage ratio which Protection One
will be required to meet under the credit facility will be reduced to 4.5 to
1.0. As of September 30, 1999, the ratios were approximately 6.7 to 1.0 and 2.0
to 1.0.

<PAGE>

Protection One's public debt contains restrictions on providing certain forms of
credit support to the credit facility. Further, the company has not made a
determination whether it or an affiliate will provide any credit support to the
lenders under the facility. If Protection One's negotiations with its senior
credit facility lenders are not successful, Protection One will be in default
under the credit facility. If the lenders elect to accelerate the outstanding
indebtedness under the credit facility, the action would result in defaults
under the indentures governing certain of Protection One's outstanding notes and
the repayment of the notes could be accelerated if the defaults were not cured
within applicable grace periods. Protection One would not be able to repay its
indebtedness if repayment is accelerated. Even if the lenders elect not to
accelerate the outstanding indebtedness under the credit facility, Protection
One will likely experience shortfalls in liquidity which would adversely impact
Protection One's ability to meet its cash obligations and have a material
adverse effect upon Protection One's financial position and results of
operations. The company's credit facility contains a cross default provision
which would be triggered in the event of a Protection One default. If Protection
One is unable to maintain adequate liquidity, the company may choose to make
additional investments in Protection One, but it is not obligated to do so.
Protection One believes it will be able to address this matter in a manner so
that there is no default under the credit facility or significant impact on its
liquidity, but no assurances can be given that Protection One will be able to do
so or the terms thereof. See Note 10 for subsequent events concerning a review
of Protection One's capital structure and financial alternatives.

8. INCOME TAXES

Total income tax expense included in the Consolidated Statements of
Income reflects the Federal statutory rate of 35%. The Federal statutory rate
produces effective income tax rates of 16.9% and 20.2% for the three and nine
month periods ended September 30, 1999 compared to 36.3% and 33.4% for the three
and nine month periods ended September 30, 1998. The effective tax rate has been
reduced from 24.0% as of June 30, 1999, to 20.2% as of September 30, 1999, which
represents the currently expected effective tax rate for 1999. The benefit
recorded in the third quarter for this change in estimate approximated $3.9
million. This change in estimate was based on downward revisions in forecasted
earnings for 1999. The effective income tax rates vary from the Federal
statutory rate primarily due to the receipt of non-taxable proceeds from our
corporate owned life insurance policies, the tax benefit of excluding 70% of the
dividends received from ONEOK, the generation and utilization of tax credits
from Affordable Housing investments, the amortization of prior years' investment
tax credits, and the amortization of non-deductible goodwill.

<PAGE>

9. 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.

Three Months Ended September 30, 1999:
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (1)Other Items Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
External sales. . . $ 148,251 $ - $ 347,301 $ 153,131 $ 315 $ - $ 648,998
Allocated sales . . 158,141 28,987 84,366 - - (271,494) -
Earnings before
interest and taxes 82,383 (4,817) 94,084 (39,804) 6,202 (3,198) 134,850
Interest expense. . 75,876
Earnings before
income taxes . . . 58,974
Identifiable assets 1,435,237 1,093,946 1,802,385 2,605,665 1,218,474 (80,753) 8,074,954

<CAPTION>
Three Months Ended September 30, 1998:
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (2)Other Items Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
External sales. . . $ 241,264 $ - $ 356,537 $ 103,261 $ 340 $ $ 701,402
Allocated sales . . 148,284 29,375 16,623 - - (194,282) -
Earnings before
interest and taxes 34,379 (6,171) 117,468 18,297 6,069 1,622 171,664
Interest expense. . 59,477
Earnings before
income taxes . . . 112,187
Identifiable assets 1,342,544 1,115,205 1,899,984 2,389,955 1,345,607 (122,808) 7,970,487

<CAPTION>
Nine Months Ended September 30, 1999:
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (3)Other Items Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
External sales. . . $ 305,786 $ - $ 826,488 $ 452,480 $ 968 $ 1 $1,585,723
Allocated sales . . 421,493 78,803 224,048 - - (724,344) -
Earnings before
interest and taxes 176,304 (20,156) 133,557 (8,286) 57,524 (8,165) 330,778
Interest expense. . 220,174
Earnings before
income taxes . . . 110,604
Identifiable assets 1,435,237 1,093,946 1,802,385 2,605,665 1,218,474 (80,753) 8,074,954

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998:
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (4)Other Items Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
External sales. . . $ 417,785 $ - $ 851,189 $ 277,097 $ 987 $ (12) $1,547,046
Allocated sales . . 396,859 87,901 49,869 - - (534,629) -
Earnings before
interest and taxes 116,234 (15,703) 176,653 45,490 30,164 7,873 360,711
Interest expense. . 164,448
Earnings before
income taxes . . . 196,263
Identifiable assets 1,342,544 1,115,205 1,899,984 2,389,955 1,345,607 (122,808) 7,970,487

(1) Earnings before interest and taxes includes investment earnings of $12.2 million.
(2) Earnings before interest and taxes includes investment earnings of $14.0 million.
(3) Earnings before interest and taxes includes investment earnings of $49.7 million.
(4) Earnings before interest and taxes includes investment earnings of $52.4 million.
</TABLE>

1O. SUBSEQUENT EVENTS

In October 1999, the company and Protection One jointly announced a
review of the capital structure and financial alternatives for Protection One,
including: review of Protection One's capital structure; changes in financial
ownership interests, including spinning or splitting off some portion or all of
the company's interest; potential purchase of selected Protection One assets,
seeking new sources of debt and equity capital; refinancing existing debt; the
repurchase of Protection One debt by either Protection One or the company; and
other options.

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

In Management's Discussion and Analysis of Financial Condition and
Results of Operations we explain the general financial condition and the
operating results for Western Resources, Inc. and its subsidiaries. We explain:

- What factors impact our business
- What our earnings and costs were for the three and nine month periods
ending September 30, 1999, and 1998
- Why these earnings and costs differed from period to period
- How our earnings and costs affect our overall financial condition
- Any other items that particularly affect our financial condition or
earnings.

The following Management's Discussion and Analysis of Financial
Condition and Results of Operations updates the information provided in the 1998
Annual Report on Form 10-K and should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
1998 Annual Report on Form 10-K.

Forward-Looking Statements

Certain matters discussed here and elsewhere in this Form 10-Q are
"forward-looking statements." The Private Securities Litigation Reform Act of
1995 has established that these statements qualify for safe harbors from
liability. Forward-looking statements may include words like we "believe,"
"anticipate," "expect" or words of similar meaning. Forward-looking statements
describe our future plans, objectives, expectations, or goals. Such statements
address future events and conditions concerning capital expenditures, earnings,
litigation, rate and other regulatory matters, closing of the KCPL transaction,
successful integration of our and KCPL's businesses and achievement of
anticipated cost savings, the outcome of accounting issues being reviewed by the
SEC staff regarding Protection One, possible corporate restructurings, mergers,
acquisitions, dispositions, liquidity and capital resources, compliance with
debt covenants, interest and dividend rates, Year 2000 Issue, environmental
matters, changing weather, nuclear operations, ability to enter new markets
successfully and capitalize on growth opportunities in nonregulated businesses,
events in foreign markets in which investments have been made, and accounting
matters. What happens in each case could vary materially from what we expect
because of such things as electric utility deregulation, including ongoing state
and federal activities; future economic conditions; legislative and regulatory
developments; our regulatory and competitive markets; and other circumstances
affecting anticipated operations, sales and costs.

<PAGE>

OPERATING RESULTS

Western Resources, Inc. Consolidated

Three Months Ended September 3O, 1999 Compared to Three Months Ended
September 3O, 1998: Basic earnings per share for the third quarter in 1999 were
$0.72 per common share compared to $1.08 per common share in the third quarter
of 1998. The 33% decrease is primarily attributable to higher expenses at
Protection One including higher cost of sales, higher amortization of intangible
assets, increased selling, general and administrative expenses, and higher
interest expense. Partially offsetting these increased expenses was a gain on
the sale of Protection One's Mobile Services Group. See discussion below in
"Monitored Services Business Segment."

Nine Months Ended September 3O, 1999 Compared to Nine Months Ended
September 3O, 1998: Basic earnings per share for the nine months ended September
30, 1999, were $1.31 per common share compared to $1.97 per common share for the
same period in 1998. The primary reasons for this 34% decline are higher
expenses at Protection One including higher cost of sales, higher amortization
of intangible assets; higher selling, general and administrative expense; and
higher interest expense. Partially offsetting these increased expenses was a
gain on the sale of Protection One's Mobile Services Group. See discussion below
in "Monitored Services Business Segment."

Electric Utility

Net income from our electric utility business increased 26% and 14% for
the three and nine months ended September 30, 1999, compared to the same periods
last year due primarily to increased power marketing margin and increased
wholesale sales. In the summer of 1999, we had increased power plant
availability during hot weather when demand was high. Partially offsetting these
increases were lower retail sales due to weather which was 12% cooler during
third quarter 1999 compared to third quarter 1998.

The cumulative effect of the electric rate decreases implemented on
June 1, 1998, and June 1, 1999, reduced net income by $2 million for the three
months ended September 30, 1999, and $5 million for the nine months ended
September 30, 1999.

The following table reflects the (decreases)/increases in electric
sales volumes for the three and nine months ended September 30, 1999, from the
comparable periods of 1998.

Three Months Nine Months
Ended Ended
Residential. . . . . (5.1)% (5.8)%
Commercial . . . . . (1.8)% (0.4)%
Industrial . . . . . (1.2)% (1.9)%
Other. . . . . . . . (1.9)% (0.4)%
------- ------
Total retail . . . (2.9)% (2.7)%
Wholesale. . . . . . 12.6 % 11.1 %
Total. . . . . . . 0.4 % 0.2 %
======= ======

<PAGE>

Three Months Ended September 3O, 1999 Compared to Three Months Ended
September 3O, 1998: Electric sales, other than power marketing sales, increased
$10 million due to higher wholesale sales of $20 million. Due to warmer than
normal weather throughout the Midwest in July and increased availability of our
coal-fired generation stations, we were able to sell more electricity to
wholesale customers than in 1998. Conversely, in the summer of 1998, one of our
coal-fired generation units was unavailable for an extended period of time
reducing our wholesale sales capacity. This increase was offset by a decrease in
retail customer sales of $10 million due to cooler weather for the third quarter
1999 compared to the third quarter 1998 and the effect of the electric rate
decrease implemented on June 1, 1999.

Power marketing sales were $112 million, or 58%, lower and cost of
sales were $124 million, or 65%, lower due to lower sales volumes compared to
last year. In 1999 and 1998, the wholesale power market experienced extreme
volatility in prices and supply. This volatility impacts our cost of power
purchased and our participation in power trades.

Total operating expenses increased $6 million primarily due to
increased employee benefits expense, including the amortization of
post-employment benefits previously deferred in accordance with a regulatory
order.

Nine Months Ended September 3O, 1999 Compared to Nine Months Ended
September 3O, 1998: Electric sales, other than power marketing sales, decreased
$2 million due to lower retail electric sales of $25 million partially offset by
higher wholesale sales of $23 million. Retail sales were lower due to cooler
weather in 1999 compared to 1998 and the cumulative effect of the electric rate
decreases implemented on June 1, 1998, and June 1, 1999. Wholesale sales were
higher during the summer for the reasons discussed above.

Power marketing sales were $135 million, or 44%, lower and cost of
sales were $151 million, or 50%, lower due to lower sales volumes compared to
last year.

Electric cost of sales also reflected lower purchased power expense
offset by higher fossil fuel expense. We had lower purchased power expense in
1999 compared to 1998 because one of our coal-fired generation units was
unavailable for an extended period of time in the summer of 1998. This decrease
was partially offset by higher fossil fuel expense. Fossil fuel expense was
higher due to Wolf Creek being off-line for a scheduled refueling and
maintenance outage during the second quarter of 1999 and the availability in
1999 of the coal-fired generation unit that was unavailable in 1998. Coal-fired
generating stations were used to meet generation demands while Wolf Creek was
off-line. Coal is a more expensive fuel to use than nuclear fuel.

<PAGE>

We had $14 million higher operating expenses primarily due to higher
generating plant and distribution system maintenance costs of $8 million.
Slightly higher depreciation and amortization expense and selling, general and
administrative expense also contributed to the increased operating expenses.

Electric Utility Business Segments

We manage our electric utility business segments' performance based on
their earnings before interest and taxes (EBIT).

Allocated sales are external sales collected from customers by our
power delivery segment that are allocated to our fossil generation and nuclear
generation business segments based on demand and energy cost. The power delivery
segment consists of the transmission and distribution of power to our Kansas
electric customers and the customer service provided to them. The following
discussion identifies key factors affecting our electric business segments.

Fossil Generation

Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------------ ------------------
(Dollars in Thousands)
External sales. . . $148,251 $241,264 $305,786 $417,785
Allocated sales . . 158,141 148,284 421,493 396,859
EBIT. . . . . . . . 82,383 34,379 176,304 116,234

Fossil Generation's external sales reflect power produced for sale to
external wholesale customers outside our historical marketing territory and
internally to the power delivery segment.

Three Months Ended September 3O, 1999 Compared to Three Months Ended
September 3O, 1998: External sales decreased $93 million due to 58% lower power
marketing sales. This decrease was partially offset by higher wholesale sales of
$20 million due to the reasons discussed above in "Electric Utility." Allocated
sales and EBIT were higher due to an increase in the internal transfer price
Fossil Generation charged to Power Delivery.

Nine Months Ended September 3O, 1999 Compared to Nine Months Ended
September 3O, 1998: External sales decreased $112 million due to 44% lower power
marketing sales. This decrease was partially offset by higher wholesale sales of
$23 million due to reasons discussed above in "Electric Utility". Allocated
sales and EBIT were higher due to an increase in the internal transfer price
Fossil Generation charged to Power Delivery.

Nuclear Generation

Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------------ ------------------
(Dollars in Thousands)
Allocated sales . . $28,987 $29,375 $78,803 $87,901
EBIT. . . . . . . . (4,817) (6,171) (20,156) (15,703)

Nuclear Generation has no external sales because it provides all of its
power to its co-owners KGE, KCPL and Kansas Electric Power Cooperative, Inc. The
amounts above are our 47% share of Wolf Creek's operating results. Nuclear

<PAGE>

Generation's EBIT is negative because its transfer price is less than its fixed
costs.

Three Months Ended September 3O, 1999 Compared to Three Months Ended
September 3O, 1998: Allocated sales and EBIT did not materially change for the
three months ended September 30, 1999 compared to the same period of 1998.

Nine Months Ended September 3O, 1999 Compared to Nine Months Ended
September 3O, 1998: Allocated sales and EBIT decreased primarily due to the
scheduled refueling and maintenance outage at Wolf Creek during 1999.

Power Delivery

Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------------ ------------------
(Dollars in Thousands)
External sales. . . $347,301 $356,537 $826,488 $851,189
Allocated sales . . 84,366 16,623 224,048 49,869
EBIT. . . . . . . . 94,084 117,468 133,557 176,653

Three Months Ended September 3O, 1999 Compared to Three Months Ended
September 3O, 1998: External sales decreased $9 million primarily due to 3%
lower retail electric sales volumes, as discussed above in "Electric Utility."

Allocated sales were $68 million higher due to a change in the intra-
segment transfer pricing involving the use of the distribution lines and
transformers.

EBIT decreased $23 million primarily due to $9 million lower external
sales, $4 million higher demand charges allocated to Fossil Generation and $2
million in ancillary services fees allocated to Fossil Generation. No ancillary
services fees were allocated to Fossil Generation in 1998. Ancillary services
include voltage control, regulation and frequency response, and spinning
reserve.

Nine Months Ended September 3O, 1999 Compared to Nine Months Ended
September 3O, 1998: External sales decreased $25 million due primarily to 3%
lower retail electric sales volumes, as discussed above in "Electric Utility."

Allocated sales were $174 million higher due to a change in the intra-
segment transfer pricing involving the use of the distribution lines and
transformers.

EBIT decreased $43 million primarily due to $25 million lower external
sales, $12 million higher demand charges allocated to Fossil Generation and $6
million in ancillary services fees allocated to Fossil Generation. No ancillary
services fees were allocated to Fossil Generation in 1998.

<PAGE>

Monitored Services Business Segment

The results discussed below reflect Protection One on a stand-alone
basis and do not take into consideration the minority interest of about 15% at
September 30, 1999.

Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------------ ------------------
(Dollars in Thousands)
External sales. . . $153,131 $103,261 $452,480 $277,096
EBIT. . . . . . . . (39,804) 18,297 (8,286) 45,490

Compared to prior periods, external sales for the three and nine months
ended September 30, 1999, have increased significantly following Protection
One's acquisitions of security businesses in Europe in the second quarter and
late in the third quarter of 1998 and the continued growth of Protection One's
North America operations.

Three Months Ended September 3O, 1999 Compared to Three Months Ended
September 3O, 1998: Higher cost of sales, higher amortization of intangibles,
and higher selling, general and administrative expense lowered EBIT for the
three months ended September 30, 1999.

Cost of sales increased approximately $17 million primarily because of
Protection One's acquisitions of security businesses in Europe in the second
quarter and late in the third quarter of 1998 and increased staffing in
Protection One's North America customer care centers.

Amortization of intangibles and depreciation expense increased
approximately $65 million. Approximately $47 million, or 72%, of the increase is
related to Protection One's change in accounting principle as described in Note
2 to the Consolidated Financial Statements and in "Other Information" below. The
remainder of the increase is due primarily to Protection One's acquisitions of
security businesses in Europe in the second quarter and late in the third
quarter of 1998 and the continued growth of Protection One's North America
operations.

Selling, general and administrative expense increased approximately $27
million primarily due to Protection One's acquisitions of security businesses in
Europe in the second quarter and late in the third quarter of 1998. Other items
contributing to the increase included, higher professional fees, higher
provision for bad debt expense and additional costs associated with the dealer
program.

Additionally, EBIT was affected by non-recurring gains in other income.
In 1999, Protection One recognized an approximate $17 million gain on the sale
of its Mobile Services Group as discussed below in "Other Information." In 1998,
Protection One recorded an approximate $7 million gain primarily due to the
repurchase of customer contracts covered by a financing agreement.

Nine Months Ended September 3O, 1999 Compared to Nine Months Ended
September 3O, 1998: Higher cost of sales, higher amortization of intangibles,
and higher selling, general and administrative expense lowered EBIT for the nine
months ended September 30, 1999.

<PAGE>

Cost of sales increased approximately $45 million primarily because of
Protection One's acquisitions of security businesses in Europe in the second
quarter and late in the third quarter of 1998 and the continued growth of
Protection One's North America operations.

Amortization of intangibles and depreciation expense increased
approximately $104 million. Approximately $47 million, or 45%, of the increase
is related to Protection One's change in accounting principle described in Note
2 to the Consolidated Financial Statements and in "Other Information" below.

Selling, general and administrative expense increased approximately $65
million primarily due to Protection One's acquisitions of security businesses in
Europe in the second quarter and late in the third quarter of 1998 and the
continued growth of Protection One's North America operations.

Additionally, EBIT was affected by non-recurring gains in other income.
In 1999, Protection One recognized an approximate $17 million gain on the sale
of its Mobile Services Group as discussed below in "Other Information." In 1998,
Protection One recorded an approximate $21 million gain primarily due to the
repurchase of customer contracts covered by a financing agreement.

Western Resources, Inc. Consolidated

Other Income (Expense)

Other income (expense) includes miscellaneous income and expenses not
directly related to our operations.

Three Months Ended September 3O, 1999 Compared to Three Months Ended
September 3O, 1998: The increase in other income during 1999 is primarily
attributable to the sale of Protection One's Mobile Services Group on which
Protection One recognized a non-recurring gain of approximately $17 million.
Earnings on our investment in ONEOK increased $2 million over the same period
from 1998. Additionally, our recent investment in Paradigm in early 1999
generated $1 million in equity earnings. We recorded $4 million for the gain on
sale of part of our Hanover Compressor Company (Hanover) investment. In 1998,
our other income was generated primarily from a non-recurring gain of $7 million
primarily from the repurchase of customer contracts covered by a financing
arrangement and earnings from our ONEOK investment.

Nine Months Ended September 3O, 1999 Compared to Nine Months Ended
September 3O, 1998: The increase in other income during 1999 is primarily
attributable to the sale of Protection One's Mobile Services division in the
third quarter, on which Protection One recognized a non-recurring gain of $17
million. Earnings on our investment in ONEOK increased $3 million over the same
period from 1998. Additionally, our recent investment in Paradigm in early 1999
has generated $3 million in equity earnings through September 30, 1999. In 1998,
our other income was generated primarily from $14 million of COLI death
proceeds, a non-recurring gain of $21 million primarily from the repurchase of
customer contracts covered by a financing arrangement, and earnings from our
ONEOK investment.

<PAGE>

Interest Expense

Three Months Ended September 3O, 1999 Compared to Three Months Ended
September 3O, 1998: Interest expense increased approximately 28% because of
approximately $18 million more interest expense on long-term debt. The increase
primarily reflects the increased debt level at Protection One. The additional
debt was used to fund accounts purchased under the Dealer Program, acquisitions
of security businesses, and operations. Short-term debt interest expense was $1
million lower due to lower average balances of short-term debt in 1999.

Nine Months Ended September 3O, 1999 Compared to Nine Months Ended
September 3O, 1998: Interest expense increased 34% because Protection One
borrowed additional long-term debt to fund acquisitions and to acquire customer
accounts. Western Resources also had higher long-term debt interest expense
because of the 6.25% and 6.8% unsecured senior notes due 2018 that we issued in
third quarter of 1998. Short-term debt interest expense was $3 million lower due
to lower average balances of short-term debt in 1999.

Income Taxes

Three Months Ended September 3O, 1999 Compared to Three Months Ended
September 3O, 1998: Income tax expense decreased $31 million and the effective
tax rate decreased from 36% to 17%. These decreases are primarily due to lower
earnings before income taxes in 1999. Earnings before income taxes decreased
primarily due to a net loss from Protection One as discussed in "Monitored
Services Business Segment" and higher consolidated interest expense. The
effective income tax rates are affected by the receipt of non-taxable proceeds
from our corporate owned life insurance policies, the tax benefit of excluding
70% of the dividends received from ONEOK, the generation and utilization of tax
credits from Affordable Housing investments, the amortization of prior years'
investment tax credits, and the amortization of non-deductible goodwill.

Nine Months Ended September 3O, 1999 Compared to Nine Months Ended
September 3O, 1998: Income tax expense decreased $43 million and the effective
tax rate decreased from 33% to 20%. These decreases are primarily due to lower
earnings before income taxes in 1999. Earnings before income taxes decreased
primarily due to a net loss from Protection One as discussed in "Monitored
Services Business Segment" and higher consolidated interest expense. The
effective income tax rates are affected for the reasons listed above.

LIQUIDITY AND CAPITAL RESOURCES

We had $26 million in cash and cash equivalents at September 30, 1999.
We consider highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. At September 30, 1999, we had
approximately $481 million of short-term debt outstanding, of which $370 million
was commercial paper. We also have arrangements with certain banks to provide
unsecured short-term lines of credit on a committed basis totaling approximately
$821 million. The unused portion of these lines of credit are used to provide
support for commercial paper. Current maturities of long-term debt were $113
million at September 30, 1999.

<PAGE>

In July 1999, we announced a stock repurchase program for up to $25
million of our common stock. The program authorizes us to make purchases of our
common stock in the open market. The timing and terms of purchases, and the
number of shares actually purchased, will be determined by management based on
market conditions and other factors. The purchased shares would be held in
treasury and will be available for general corporate purposes or resale at a
future date, or will be retired. Any purchases will be financed with short-term
debt, or made from available funds. No shares have been purchased under this
program.

We may, from time-to-time, repurchase Protection One non-convertible
debt. We may spend up to $50 million for this purpose. The timing and terms of
purchases, and the amount of debt actually purchased, will be based on market
conditions and other factors. Purchases are expected to be made in the open
market or through negotiated transactions. As of September 30, 1999, Protection
One had approximately $708 million principal amount of non-convertible debt
outstanding.

The senior credit facility lenders have waived compliance with the
current leverage and interest coverage ratio covenants through December 3, 1999.
In connection with the waiver, the amount of the credit facility was reduced
from $500 million to $250 million. Protection One will not, absent successful
implementation of the alternatives discussed below, be in compliance with the
current leverage and interest coverage ratio covenants in the credit facility
following the expiration of the waiver. Protection One is discussing waivers or
amendments to the senior credit facility with the lenders and exploring other
alternatives to address these covenant restrictions and the reduced amount of
the credit facility, including selling assets to reduce debt or refinancing the
facility. The credit facility lenders have requested that Protection One obtain
credit support for the facility from us or one of our affiliates. Protection
One's public debt contains restrictions on providing certain forms of credit
support to the credit facility. Further, we have not made a determination
whether we or an affiliate will provide any credit support to the lenders under
the facility. If Protection One's negotiations with its senior credit facility
lenders are not successful, Protection One will be in default under the credit
facility. If the lenders elect to accelerate the outstanding indebtedness under
the credit facility, the action would result in defaults under the indentures
governing certain of Protection One's outstanding notes and the repayment of the
notes could be accelerated if the defaults were not cured within applicable
grace periods. Protection One would not be able to repay its indebtedness if
repayment is accelerated. Even if the lenders elect not to accelerate the
outstanding indebtedness under the credit facility, Protection One will likely
experience shortfalls in liquidity which would adversely impact Protection One's
ability to meet its cash obligations and have a material adverse effect upon
Protection One's financial position and results of operations. Our credit
facility contains a cross default provision which would be triggered in the
event of a Protection One default. If Protection One is unable to maintain
adequate liquidity, we may

<PAGE>

choose to make additional investments in Protection One, but we are not
obligated to do so. Protection One has been advised by its independent public
accountants that if the issues related to Protection One's facility have not
been resolved prior to the completion of their audit of Protection One's
financial statements for the year ending December 31, 1999, their auditors'
report on those financial statements may be qualified as being subject to the
ultimate outcome of that contingency. Protection One believes it will be able to
address this matter in a manner so that there is no default under the credit
facility or significant impact on its liquidity, but no assurances can be given
that Protection One will be able to do so or the terms thereof. See Note 10 to
the Consolidated Financial Statements for subsequent events concerning a review
of Protection One's capital structure and financial alternatives.

Standard & Poor's Ratings Group (S&P), Fitch Investors Service (Fitch)
and Moody's Investors Service (Moody's) are independent credit-rating agencies
that rate our debt securities. These ratings indicate the agencies' assessment
of our ability to pay interest and principal on these securities.

At September 30, 1999, ratings with these agencies were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Kansas Gas
Western Western and Electric Protection Protection
Resources' Western Resources' Company's One One
Mortgage Resources' Short-term Mortgage Senior Senior
Bond Unsecured Debt Bond Unsecured Subordinated
Rating Agency Rating Debt Rating Rating Debt Unsecured Debt
S&P A- BBB A-2 BBB+ BB B+
Fitch A- BBB+ F-2 A- BB B+
Moody's A3 Baa1 P-2 A3 Ba3 B2
</TABLE>

In response to the liquidity issues at Protection One discussed above
and uncertainty regarding consummation of the KCPL Merger, Moody's and S&P have
taken action on our securities ratings. Moody's announced in August 1999, that
the Western Resources and KGE long-term debt securities are on review, direction
uncertain. Moody's also took action on the Western Resources short-term debt
rating, placing it on review for possible downgrade.

In November 1999, S&P revised its CreditWatch implications on the
Western Resources and KGE ratings from positive to developing. Developing
implications indicate that ratings may be raised, lowered or affirmed. Fitch has
maintained the ratings of Western Resources and KGE bonds as on CreditWatch with
positive implications.

Cash Flows from Operating Activities

Cash from operations decreased 24% primarily because of receivables
collected in the first quarter of 1998 as part of the settlement of our
strategic alliance with ONEOK and reduced earnings in 1999.

Cash Flows Used In Investing Activities

Cash used in investing activities decreased 65% primarily due to more
acquisitions of monitored services companies and more purchases of marketable
securities in 1998.

<PAGE>

Cash Flows from Financing Activities

Cash from financing activities decreased 81% because we issued less
debt as a result of fewer acquisitions in the nine months ending September 30,
1999.

OTHER INFORMATION

Merger Agreement with Kansas City Power & Light Company

On September 28, 1999, the KCC issued an order in connection with the
KCPL merger. On October 13, 1999, we filed a petition with the KCC for
reconsideration of certain portions of the KCC order. Other parties to the
proceedings also requested reconsideration of the KCC's order. On November 4,
1999, the KCC issued its order on reconsideration. Significant terms of the KCC
order are as follows:

- An electric rate moratorium of four years beginning on the date the
transaction closes
- Ability to retain all savings incurred during the moratorium period
- Ability to recover a portion of the remaining acquisition premium of
approximately $3.85 million per year for 35 years following the
completion of the rate moratorium
- A cap of $179.45 million for any future determination of stranded
costs which result from the merger
- Implementation of quality of service standards
- Ability to seek carrying charges on investments in new plant additions
during the rate moratorium period.
- At the conclusion of the moratorium, Westar Energy, the new electric
company formed as a result of the merger, will be required to file a
consolidated cost of service study and separate cost of service studies
for each operating division.

On September 2, 1999, the MPSC approved our merger with KCPL. No
further merger proceedings are scheduled in Missouri. Significant terms of the
MPSC order are as follows:

- An electric rate moratorium of three years beginning on the date the
transaction closes
- Westar Energy would make a one-time rate credit in the amount of $5
million to its Missouri retail customers at the beginning of the second
year of the merger
- Agreements between the us, KCPL, MPSC staff and the Office of Public
Counsel on quality of service standards and on cost allocation
methodology.

On September 14, 1999, we and the FERC staff filed a Settlement
Agreement with the FERC in connection with the KCPL merger. On October 21, 1999,
the Settlement Agreement was certified by a FERC administrative law judge and
sent to the FERC for approval without hearing. We expect the receipt of a final
FERC order around the end of the year. The FERC order is subject to a 30-day
period in which requests for rehearing may be made. The Settlement Agreement
provides that the settlement will become effective on the first day of the month
following the date the FERC order becomes final.

<PAGE>

On November 1, 1999, we received approval from the NRC regarding the
KCPL merger, the formation of Westar Energy, and the transfer of the ownership
licenses to Westar Energy.

Further requests for reconsideration and appeals could delay the
receipt of the final regulatory approvals discussed above. We believe that the
merger could be finalized in the first quarter of 2000. The closing of the
merger is subject to the satisfaction or waiver of various regulatory and other
conditions and certain rights of termination as outlined in the merger
agreement.

We have deferred merger-related costs of $17.6 million as of September
30, 1999.

For additional information on the Merger Agreement with KCPL, see Note
21 to the Consolidated Financial Statements in the company's 1998 Annual Report
on Form 10-K.

Monitored Services Business

SEC Review: Protection One has been advised by the Division of
Corporation Finance of the SEC that, in the view of the staff, there are errors
in Protection One's financial statements which are material and which have had
the effect of inflating earnings commencing with the year 1997. Protection One
has had extensive discussions with the SEC staff about the methodology used by
Protection One to amortize customer accounts, the purchase price allocation to
customer accounts in the Network Multifamily acquisition, and other matters.
Protection One has restated its 1998 financial statements and its interim
financial statements for the quarters ended March 31, 1999, and June 30, 1999.
We did not restate our financial statements due to the immaterial impact of
Protection One's restatement. In addition, Protection One has changed the
accounting principle used for the amortization of customer accounts. The SEC
staff has not indicated it concurs with, nor has the SEC staff determined not to
object to, the restatements or the change in accounting principle. We and
Protection One cannot predict whether the SEC staff will make additional
comments or take other action that will further impact the financial statements
or the effect or timing of any such action.

Change in Accounting Principle: Protection One historically amortized
the costs it allocated to its customer accounts by using the straight-line
method over a ten-year life. The straight-line method, indicated in Accounting
Principles Board Opinion No. 17 as the appropriate method for such assets, has
been the predominant method used to amortize customer accounts in the monitored
services industry. Protection One is not aware of whether the economic life or
rate of realization for Protection One's customer accounts differs materially
from other monitored services companies.

<PAGE>

Protection One has recently concluded a comprehensive review of its
amortization policy that was undertaken during the third quarter of 1999. This
review was performed specifically to evaluate the historic amortization policy
in light of the inherent declining revenue curve over the life of a pool of
customer accounts, and Protection One's historical attrition experience. After
completing the review, Protection One identified three distinct account pools,
each of which has distinct attributes that effect differing attrition
characteristics. The pools correspond to Protection One's North America,
Multifamily and Europe business segments. These separate pools will be used
going forward. For the North America and Europe pools, the analyzed data
indicated to Protection One's management that Protection One can expect
attrition to be greatest in years one through five of asset life and that a
change from straight line to declining balance (accelerated) method would more
closely match future amortization cost with the estimated revenue stream from
these assets. Protection One has elected to change to that method. No change was
made to the method used for the Multifamily pool.

Attrition: During 1999, Protection One has experienced an increase in
customer attrition. Total attrition for the trailing twelve months ended
September 30, 1999 was 12.2% compared to 10.5% for the same period ended June
30, 1999. Annualized total attrition for the quarter ended September 30, 1999
was 16.0% compared to 14.3% for the quarter ended June 30, 1999.

<PAGE>

Customer attrition by Protection One's business segments for the period
ended September 30, 1999 is summarized below:

Customer Account Attrition
September 30, 1999
Annualized Trailing
Current Twelve
Quarter Month

North America . . . . . . 19.1% 14.2%
Europe. . . . . . . . . . 4.5% 4.8%
Multifamily . . . . . . . 7.6% 6.5%
Total Protection One. . 16.0% 12.2%

As the result of the attrition rates for Protection One's North America
account pool, Protection One intends to engage an appraiser to perform a current
lifing study to assess the impact of the 1999 customer service issues on the
estimated long-term revenues to be received from the current North America
account base. Upon completion of the study, Protection One will consider the
reasonableness of the value of its North America account base and the current
amortization rates. This could result in a change in amortization rate.
Protection One intends to perform an evaluation for potential impairment taking
into account the results of this study. Amounts involved may be material and
would represent a non-cash charge to earnings.

Sale of Mobile Services Group: The sale of Protection One's Mobile
Services Group to ATX Technologies (ATX) was announced on June 28, 1999 and
consummated on August 25, 1999. The sales price was approximately $20 million in
cash plus a note and a preferred stock investment in ATX. Protection One will
continue to deliver mobile services through a reseller arrangement with ATX. In
August, Protection One recorded a gain on the sale of approximately $11 million,
net of tax.

Dealer Program: In 1998, Protection One expanded the Dealer Program
(Dealer Program) for its North American single family residential market. As
part of the Dealer Program, Protection One entered into contracts with dealers,
typically independent alarm companies, providing for the purchase of customer
accounts generated by the dealer on an ongoing basis. Protection One currently
has a limited internal sales capability and relies on the Dealer Program for the
generation of substantially all new customer accounts except those acquired as
part of the acquisition of other security companies.

In the third quarter of 1999, Protection One continued to identify
steps that could be taken to reduce the cost of acquired accounts and reduce
attrition by acquiring higher quality accounts. As a result, Protection One
began notifying dealers that it does not intend to renew their contracts under
their current terms and conditions when they expire. The term of dealer
contracts ranges from one to five years and automatically renews unless notice
of non-renewal is given by either party as provided in the contract. Protection
One is attempting to renew contracts with terms providing for a lower cost for
acquired customer accounts based upon the multiple of monthly recurring revenue
and other revised terms that improve the quality of the acquired customer
accounts. Protection One cannot predict whether it will be successful in
renewing existing dealer contracts, or entering into contracts with new dealers,
on acceptable

<PAGE>

terms. This could result in a loss of dealers and fewer customer accounts
available for purchase. The failure to replace customer accounts could have a
material adverse impact on Protection One's financial condition. Efforts to date
have reduced the number of accounts being purchased from dealers each month from
25,000 in March to 10,600 in October.

Capital Structure Review: In October 1999, we and Protection One
jointly announced a review of the capital structure and financial alternatives
for Protection One, including: review of Protection One's capital structure;
changes in financial ownership interests, including spinning or splitting off
some portion or all of our interest; potential purchase of selected Protection
One assets by Western Resources; seeking new sources of debt and equity capital;
refinancing existing debt; the repurchase of Protection One debt by either
Protection One or Western Resources; and other options. It is anticipated the
review process will be completed by the end of the first quarter of 2000.

Investment in Hanover Compressor Company

As of September 30, 1999, we owned approximately 11% of the outstanding
common stock of Hanover through our Westar Capital subsidiary. We have
determined that this investment is not strategic to our ongoing business and are
reviewing our alternatives to monetize or liquidate this investment. During the
third quarter of 1999, we recorded a $4 million gain on the sale of part of our
Hanover investment.

Collective Bargaining Agreement

Our contract with the International Brotherhood of Electrical Workers
(IBEW) was due for renewal July 1, 1999. The contract covers approximately 1,440
employees who are currently working under the terms of the existing contract. We
had reached a tentative agreement with the IBEW leadership. The IBEW employees
did not ratify the agreement on October 27, 1999. Negotiations continue. We have
experienced no strikes or work stoppages as a result of the expiration of the
contract.

Competition

On August 10, 1999, the Wichita City Council adopted a resolution
authorizing a study to determine the feasibility of creating a municipal
electric utility. The Mayor of Wichita and the Wichita City Council are
exploring ways to reduce the cost of electric service in Wichita. KGE's rates
are currently 5% below the national average for retail customers, but 20% higher
than the average rates charged to retail customers in territories served by our
KPL division. KGE has an exclusive franchise with the City of Wichita that
expires March 2002. Customers within the City of Wichita account for
approximately 23% of the energy sales of Western Resources.

KGE will oppose any attempt by the City of Wichita to eliminate KGE as
the electric provider to Wichita customers. In order to municipalize KGE's
Wichita electric facilities, the City of Wichita would be required to purchase
KGE's facilities or build a separate independent system.

<PAGE>

Year 2OOO Issue

We are currently addressing the effect of the Year 2000 Issue on
information systems and operations. We face the Year 2000 Issue because many
computer systems and applications abbreviate dates by eliminating the first two
digits of the year, assuming that these two digits are always "19." On January
1, 2000, some computer programs may incorrectly recognize the date as January 1,
1900. Some computer systems and applications may incorrectly process critical
information or may stop processing altogether because of the date abbreviation.
Calculations using dates beyond December 31, 1999, may affect computer
applications before January 1, 2000.

Electric Utility Operations: We have completed the remediation and
testing of mission critical systems necessary to continue providing electric
service to our customers. On June 30, we reported to the North American Electric
Reliability Council (NERC), that based on its standards, we are 100% Year 2000
ready. However, additional testing and remediation of non-mission critical
systems, project administration and contingency planning will continue through
December 31, 1999. Based on manhours as a measure of work effort, we believe we
are approximately 93% complete with our readiness efforts.

The estimated progress of our departments and business units, exclusive
of Protection One and Wolf Creek Nuclear Operating Corporation (WCNOC), at
September 30, 1999, based on percentage of completion in manhours is as follows:

Mission
Total Critical
Department/Business Unit Systems Systems

Fossil Fuel . . . . . . . . . . 84% 100%
Power Delivery . . . . . . . . 82% 100%
Information Technology. . . . . 97% 100%
Administrative. . . . . . . . . 91% 100%

We estimate that total costs to update all of our electric utility
operating systems for Year 2000 readiness, excluding costs associated with WCNOC
discussed below, to be approximately $6.3 million, of which $3.8 million
represents IT costs and $2.5 million represents non-IT costs. As of September
30, 1999, we have expensed approximately $6.0 million of these costs, of which
$3.8 million represent IT costs and $2.2 million represent non-IT costs. We
expect to incur the remaining $0.3 million, which is substantially non-IT costs,
by the end of 1999.

Wolf Creek Nuclear Operating Corporation: The table below sets forth
estimates of the status of the components of WCNOC's Year 2000 readiness program
at September 30, 1999.

<PAGE>

Mission
Critical
Phase Systems

Identification and assessment of plant components . . . . . . . 100%
Identification and assessment of computers/software . . . . . . 100%
Identification and assessment of other areas . . . . . . . . . 100%
Identified critical remediations complete . . . . . . . . . . . 100%
Comprehensive testing guidelines . . . . . . . . . . . . . . . 100%
Comprehensive testing . . . . . . . . . . . . . . . . . . . . . 100%
Contingency planning guidelines . . . . . . . . . . . . . . . . 100%
Contingency planning individual plans . . . . . . . . . . . . . 100%

Additional non-mission critical remediations continue with approximately
92% completed at September 30, 1999. The remaining non-mission critical
remediations are scheduled to be completed by December 31, 1999.

WCNOC has estimated the costs to complete the Year 2000 project at $3.5
million ($1.7 million, our share). As of September 30, 1999, $3.1 million ($1.4
million, our share) had been spent on the project. A summary of the projected
costs and actual costs incurred through September 30, 1999, is as follows:

Projected Actual
Costs Costs
(Dollars in Thousands)

Wolf Creek Labor and Expenses. . $ 499 $ 484
Contractor Costs . . . . . . . . 1,254 924
Remediation Costs. . . . . . . . 1,763 1,661
------ ------
Total. . . . . . . . . . . . . $3,516 $3,069
====== ======

Approximately $3 million ($1.4 million, our share) of WCNOC's total
Year 2000 cost is purchased items and installation costs associated with
remediation. A significant reduction in overall total Year 2000 costs continue
to be realized as alternate remediation paths are identified, eliminating the
need for extensive equipment changeouts. All of these costs are being expensed
as they are incurred and are being funded on a daily basis along with our normal
costs of operations.

WCNOC has filed its Year 2000 plan and status report with the NRC. In
September 1999, the NRC informed WCNOC that it had satisfied the requirements
for Year 2000 readiness.

Monitored Services: Protection One has estimated the total cost to
update all critical operating systems for Year 2000 readiness to be
approximately $5.0 million. As of September 30, 1999, approximately $3.5 million
of these costs had been incurred. These costs include labor for both Protection
One employees and contract personnel used in the Year 2000 program and non-labor
costs for software tools used in the remediation and testing efforts,
replacement software, replacement hardware, replacement of embedded devices, and
other such costs associated with testing and replacement. Management continues
to review the projected costs associated with the Year 2000 readiness. To date,
the costs of the Year 2000 readiness program have been substantially
information-technology related. Non-information technology systems are highly
critical to Protection One's business, but are largely beyond Protection One's
ability to control.

<PAGE>

This includes telephones, electricity, water, transportation, and governmental
infrastructure.

The costs of the Year 2000 project and the date on which Protection One
plans to complete the Year 2000 modification, estimated to be during 1999, are
based on the best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans, and other factors. However, there can be no
guarantee that these estimates will be achieved; actual results could differ
materially from those plans. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.

Protection One's Year 2000 policy requires testing as a method for
verifying the Year 2000 readiness of business-critical items. For those items
that are impossible to test, other methods may be used to identify the readiness
status, provided adequate contingency plans are established to provide a work
around or backup for the item. Development of contingency plans commenced in
January 1999 and concluded in October 1999. Testing of contingency plans, and
mobilization for "Millennium Day", will conclude in the fourth quarter of 1999.
Protection One North America's equipment testing is scheduled to be completed by
December 20, 1999.

The table below summarizes the status of the components of Protection
One's Year 2000 Readiness Program as of September 30, 1999:

North American Network Multi- Protection One
Phase: Monitoring Family Europe

Identification and
assessment Completed Completed Completed
Remediation and unit
testing 95% Complete Completed 90% Complete
Comprehensive Y2K
readiness verification:
Guidelines and tools Completed Completed Completed
Testing 70% Complete Completed 85% Complete
Contingency planning:
Guidelines and tools Completed Completed Completed
Plan development Completed Completed 90% Complete
Contingency plan testing
and resourcing:
Guidelines and tools Completed Completed Completed
Testing and resourcing In progress In progress In progress
Sept-Nov Sept-Nov Sept-Nov
1999 1999 1999
Mobilization, alert, In progress In progress In progress
and standby Nov-Dec Nov-Dec Nov-Dec
1999 1999 1999

<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the three months ended September 30, 1999, the company's balance
in marketable securities declined approximately $65 million due to changes in
the market prices of the security portfolio. The company has not experienced any
other significant changes in its exposure to market risk since December 31,
1998. For additional information on the company's market risk, see the Form 10-K
dated December 31, 1998.

<PAGE>

WESTERN RESOURCES, INC.
Part II Other Information

ITEM 1. LEGAL PROCEEDINGS

The company, its subsidiary Westar Capital, Inc. (Westar), Protection
One, its subsidiary Protection One Alarm Monitoring, Inc. (Monitoring), and
certain present and former officers and directors of Protection One are
defendants in a purported class action litigation pending in the United States
District Court for the Central District of California, "David Lyons v.
Protection One, Inc., et. al.", No. CV 99-3755 DT (RCx). Pursuant to an Order
dated August 2, 1999 which consolidated four pending purported class actions,
the plaintiffs filed a single Consolidated Amended Class Action Complaint
(Amended Complaint) on October 15, 1999. The Amended Complaint asserts claims
under Section 11 of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934 against Protection One, Monitoring, and certain
present and former officers and directors of Protection One based on allegations
that various statements concerning Protection One's financial results and
operations for 1997 and 1998 were false and misleading and not in compliance
with generally accepted accounting principles. Plaintiffs allege, among other
things, that former employees of Protection One, including an unnamed former
executive officer and an unnamed former staff accountant, have reported that
Protection One lacked adequate internal accounting controls and that certain
accounting information was unsupported or manipulated by management in order to
avoid disclosure of accurate information. The Amended Complaint further asserts
claims against the company and Westar as controlling persons under Sections 11
and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. A claim is also asserted under Section 11 of
the Securities Act of 1933 against Protection One's auditor, Arthur Andersen
LLP. The Amended Complaint seeks an unspecified amount of compensatory damages
and an award of fees and expenses, including attorneys' fees. The time for the
defendants to respond to the Amended Complaint has not yet expired. The company
and Protection One believe that all the claims asserted in the Amended Complaint
are without merit and intends to defend against them vigorously. The company and
Protection One cannot currently predict the impact of this litigation which
could be material.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

Exhibit 3 - Certificate of Amendment to the Restated
Articles of Incorporation, as amended, of
Western Resources, Inc. dated July 21, 1999
(filed electronically)

Exhibit 12 - Computation of Ratio of Consolidated Earnings
to Fixed Charges for Nine Months Ended
September 30, 1999 (filed electronically)

Exhibit 18 - Letter Regarding Change in Accounting
Principles

Exhibit 27 - Financial Data Schedule (filed electronically)

(b) Reports on Form 8-K:

Form 8-K filed July 23, 1999 - Press release and employee update
reporting Western Resources and KCPL reach agreement in
Missouri. Press release and employee update reporting Western
Resources announces stock repurchase plan.

Form 8-K filed August 12, 1999 - Press release reporting Western
Resources second quarter earnings.

Form 8-K filed August 24, 1999 - Press release reporting Western
Resources and KCPL agreement reached with FERC staff.

Form 8-K filed October 12, 1999 - Press release reporting Western
Resources and BPU agreement reached in KCPL merger and power
market issues resolved at FERC.

Form 8-K filed October 12, 1999 - Press release reporting Western
Resources and Protection One's review of capital structure and
financial alternatives.

Form 8-K filed October 14, 1999 - Press release reporting Western
Resources filing of a petition for reconsideration with the
Kansas Corporation Commission (KCC) on the KCC order issued
September 28, 1999.

Form 8-K filed October 15, 1999 - Press release reporting a
preview of Western Resources's third-quarter results.

Form 8-K filed October 22, 1999 - Press release reporting the
certification of the FERC settlement agreement by a FERC judge,
and as a result, no hearings will be necessary.

Form 8-K filed November 8, 1999 - Press release reporting Western
Resources receives KCC order on the merger with KCPL.

<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Western Resources, Inc.

Date November 12, 1999 By /s/ WILLIAM B. MOORE
William B. Moore, Executive
Vice President, Chief Financial
Officer and Treasurer

Date November 12, 1999 By /s/ LEROY P. WAGES
Leroy P. Wages, Controller

<PAGE>

Exhibit 3

CERTIFICATE OF AMENDMENT TO RESTATED ARTICLES
OF INCORPORATION, AS AMENDED, OF
WESTERN RESOURCES, INC.

We, David C. Wittig, Chairman of the Board, President, and Chief Executive
Officer, and Richard D. Terrill, Executive Vice President, General Counsel and
Corporate Secretary of Western Resources, Inc., a corporation organized and
existing under the laws of the State of Kansas, do hereby certify that at a
meeting of the Board of Directors of said corporation, the board adopted
resolutions setting forth the following amendment to the Restated Articles of
Incorporation and declaring its advisability:

The first paragraph of Article VI to be amended and read as follows:

The amount of capital stock of this Corporation shall be 160,600,000
shares of which 150,000,000 shares is Common Stock of the par value of
Five Dollars ($5.00) each, 4,000,000 shares is Preference Stock
without par value, 600,000 shares is preferred stock of the par value
of One Hundred Dollars ($100) each and 6,000,000 shares is preferred
stock without par value, all such preferred stock being termed
'Preferred Stock.'

We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, pursuant to notice and in accordance with the statutes of the State of
Kansas, the shareholders at a meeting duly convened considered the proposed
amendment.

We further certify that at the annual meeting of shareholders held on June
30, 1999, a majority of common and preferred shares together entitled to vote,
voted in favor of the proposed amendment.

We further certify that the amendment was duly adopted in accordance with
the provision of K.S.A. 17-6602, as amended.
<PAGE>

We further certify that the capital of said corporation will not be reduced
under or by reason of said amendment.

IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of
said corporation the 21st day of July, 1999.

/s/ David C. Witig
David C. Wittig
Chairman of the Board, President
and Chief Executive Officer

/s/ Richard D. Terrill
Richard D. Terrill
Executive Vice President,
General Counsel and
Corporate Secretary

State of Kansas )
) ss.
County of Shawnee )

Be it remembered that before me, a Notary Public in and for the aforesaid
county and state, personally appeared David C. Wittig, Chairman of the Board,
President, and Chief Executive Officer, and Richard D. Terrill, Executive Vice
President, General Counsel and Corporate Secretary of the corporation named in
this document, who are known to me to be the same persons who executed the
foregoing certificate and duly acknowledge that execution of the same this 21st
day of July, 1999.

/s/ Merilee K. Martin
Notary Public

<TABLE>
Exhibit 12

WESTERN RESOURCES, INC.
Computations of Ratio of Earnings to Fixed Charges and
Computations of Ratio of Earnings to Combined Fixed Charges
and Preferred and Preference Dividend Requirements
(Dollars in Thousands)
<CAPTION>
Unaudited
Nine
Months
Ended
September 30, Year Ended December 31,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net Income . . . . . . . . . . . $ 88,247 $ 47,756 $ 499,518 $168,950 $181,676 $187,447
Taxes on Income. . . . . . . . . 22,357 14,557 382,987 86,102 83,392 99,951
Net Income Plus Taxes. . . . 110,604 62,313 882,505 255,052 265,068 287,398

Fixed Charges:
Interest on Long-Term Debt . . 180,335 170,855 119,972 105,741 95,962 98,483
Interest on Other Indebtedness 26,283 37,190 55,761 34,685 27,487 20,139
Interest on Other Mandatorily
Redeemable Securities. . . . 13,556 18,075 18,075 12,125 372 -
Interest on Corporate-owned
Life Insurance Borrowings. . 29,007 38,236 36,167 35,151 32,325 26,932
Interest Applicable to
Rentals. . . . . . . . . . . 26,832 32,796 34,514 32,965 31,650 29,003
Total Fixed Charges. . . . 276,013 297,152 264,489 220,667 187,796 174,557

Preferred and Preference Dividend
Requirements:
Preferred and Preference
Dividends. . . . . . . . . . 847 3,591 4,919 14,839 13,419 13,418
Income Tax Required. . . . . . 215 1,095 3,771 7,562 6,160 7,155
Total Preferred and
Preference Dividend
Requirements . . . . . . 1,062 4,686 8,690 22,401 19,579 20,573

Total Fixed Charges and Preferred
and Preference Dividend
Requirements. . . . . . . . . 277,075 301,838 273,179 243,068 207,375 195,130

Earnings (1) . . . . . . . . . . $386,617 $359,465 $1,146,994 $475,719 $452,864 $461,955

Ratio of Earnings to Fixed
Charges . . . . . . . . . . . . 1.40 1.21 4.34 2.16 2.41 2.65

Ratio of Earnings to Combined Fixed
Charges and Preferred and
Preference Dividend Requirements 1.40 1.19 4.20 1.96 2.18 2.37

(1) Earnings are deemed to consist of net income to which has been added income taxes (including net
deferred investment tax credit) and fixed charges. Fixed charges consist of all interest on
indebtedness, amortization of debt discount and expense, and the portion of rental expense which
represents an interest factor. Preferred and preference dividend requirements consist of an
amount equal to the pre-tax earnings which would be required to meet dividend requirements on
preferred and preference stock.
</TABLE>

Exhibit 18

Western Resources, Inc.

Re: Form 10-Q Report for the quarter ended September 30, 1999.

Gentlemen/Ladies:

This letter is written to meet the requirements of Regulation S-K calling for
a letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.

We have been informed that, as of July 1, 1999, Western Resources, Inc. and
Protection One Inc., an 85%-owned subsidiary of Western Resources, Inc.
(collectively, the Company) changed from the straight-line method of
accounting for amortizing customer acquisition costs for its North America and
Europe customer account pools to a declining balance (accelerated) method.
According to the management of the Company, this change was made to more
closely match future amortization cost with the estimated revenue stream from
these assets.

A complete coordinated set of financial and reporting standards for
determining the preferability of accounting principles among acceptable
alternative principles has not been established by the accounting profession.
Thus, we cannot make an objective determination of whether the change in
accounting described in the preceding paragraph is to a preferable method.
However, we have reviewed the pertinent factors, including those related to
financial reporting, in this particular case on a subjective basis, and our
opinion stated below is based on our determination made in this manner.

We are of the opinion that the Company's change in method of accounting is to
an acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under
the circumstances in this particular case. In arriving at this opinion, we
have relied on the business judgment and business planning of your management.

We have not audited the application of this change to the financial statements
of any period subsequent to December 31, 1998. Further, we have not examined
and do not express any opinion with respect to your financial statements for
the three and nine months ended September 30, 1999.

Very truly yours,

ARTHUR ANDERSEN LLP

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999 AND THE CONSOLIDATED
STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 25512
<SECURITIES> 183438
<RECEIVABLES> 287422
<ALLOWANCES> 32217
<INVENTORY> 104956
<CURRENT-ASSETS> 635948
<PP&E> 5972587
<DEPRECIATION> 2127254
<TOTAL-ASSETS> 8074954
<CURRENT-LIABILITIES> 1173256
<BONDS> 3145828
220000
24858
<COMMON> 338371
<OTHER-SE> 1575149
<TOTAL-LIABILITY-AND-EQUITY> 8074954
<SALES> 1585723
<TOTAL-REVENUES> 1585723
<CGS> 523573
<TOTAL-COSTS> 523573
<OTHER-EXPENSES> 805321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 220174
<INCOME-PRETAX> 110604
<INCOME-TAX> 22357
<INCOME-CONTINUING> 88247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88247
<EPS-BASIC> 1.31
<EPS-DILUTED> 1.31

</TABLE>