WESTERN RESOURCES INC /KS, 10-Q, 2000-08-14

WESTERN RESOURCES INC /KS
10-Q, 2000-08-14
ELECTRIC & OTHER SERVICES COMBINED

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<PAGE>

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 June 30, 2000
-----------------------------------------------

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 August 10, 2000
----------------------------- ------------------------------
Common Stock, $5.00 par value 69,348,909
<PAGE>

WESTERN RESOURCES, INC.
INDEX

Page No.
--------
Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets 4

Consolidated Statements of Income 5 - 6

Consolidated Statements of Comprehensive Income 7

Consolidated Statements of Cash Flows 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 20

Item 3. Quantitative and Qualitative Disclosures About
Market Risk 33

Part II. Other Information

Item 1. Legal Proceedings 34

Item 2. Changes in Securities and Use of Proceeds 34

Item 3. Defaults Upon Senior Securities 34

Item 4. Submission of Matters to a Vote of Security Holders 34

Item 5. Other Information 35

Item 6. Exhibits and Reports on Form 8-K 35

Signatures 36

2
<PAGE>

WESTERN RESOURCES, INC.

FORWARD-LOOKING STATEMENTS

Certain matters discussed 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, liquidity and
capital resources, litigation, rate and other regulatory matters, outcome of the
Securities and Exchange Commission (SEC) staff's review of Protection One
accounting issues, possible corporate restructurings, mergers, acquisitions,
dispositions, compliance with debt covenants, interest and dividends, Protection
One's financial condition and its impact on our consolidated results,
environmental matters, changing weather, nuclear operations, ability to enter
new markets successfully and capitalize on growth opportunities in non-regulated
businesses, events in foreign markets in which investments have been made,
accounting matters, and the overall economy of our service area. What happens in
each case could vary materially from what we expect because of such things as
electric utility deregulation, ongoing municipal, state and federal activities,
such as the Wichita municipalization proceedings; future economic conditions;
legislative and regulatory developments; regulatory and competitive markets; and
other circumstances affecting anticipated operations, sales and costs.

3
<PAGE>

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

June 30, December 31,
2000 1999
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 6,643 $ 12,444
Restricted cash . . . . . . . . . . . . . . . . . . . . . 19,472 14,558
Accounts receivable (net) . . . . . . . . . . . . . . . . 245,031 229,200
Inventories and supplies (net). . . . . . . . . . . . . . 117,954 112,392
Marketable securities . . . . . . . . . . . . . . . . . . 5,182 177,128
Prepaid expenses and other. . . . . . . . . . . . . . . . 63,453 57,246
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . . . 457,735 602,968
---------- ----------

PROPERTY, PLANT AND EQUIPMENT (NET) . . . . . . . . . . . . 3,956,678 3,889,444
---------- ----------

OTHER ASSETS:
Restricted cash . . . . . . . . . . . . . . . . . . . . . 36,535 -
Investment in ONEOK . . . . . . . . . . . . . . . . . . . 589,758 590,109
Customer accounts (net) . . . . . . . . . . . . . . . . . 1,071,991 1,138,902
Goodwill (net). . . . . . . . . . . . . . . . . . . . . . 1,071,439 1,102,157
Regulatory assets . . . . . . . . . . . . . . . . . . . . 373,776 366,004
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 418,286 318,622
---------- ----------
Total Other Assets. . . . . . . . . . . . . . . . . . . 3,561,785 3,515,794
---------- ----------

TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $7,976,198 $8,008,206
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt. . . . . . . . . . . $ 45,687 $ 111,667
Short-term debt . . . . . . . . . . . . . . . . . . . . . 209,000 705,421
Accounts payable. . . . . . . . . . . . . . . . . . . . . 146,393 132,834
Accrued liabilities . . . . . . . . . . . . . . . . . . . 202,740 226,786
Accrued income taxes. . . . . . . . . . . . . . . . . . . 56,866 40,328
Deferred security revenues. . . . . . . . . . . . . . . . 57,081 61,148
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 119,204 73,011
---------- ----------
Total Current Liabilities . . . . . . . . . . . . . . . 836,971 1,351,195
---------- ----------

LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . . . . . . . . . 3,317,672 2,883,066
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. . . . . 992,177 982,548
Minority interests. . . . . . . . . . . . . . . . . . . . 195,724 193,499
Deferred gain from sale-leaseback . . . . . . . . . . . . 192,208 198,123
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 295,207 279,451
---------- ----------
Total Long-term Liabilities . . . . . . . . . . . . . . 5,212,988 4,756,687
---------- ----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Cumulative preferred stock. . . . . . . . . . . . . . . . 24,858 24,858
Common stock, par value $5 per share, authorized
150,000,000 shares, outstanding 68,910,419 and
67,401,657 shares, respectively. . . . . . . . . . . . . 344,568 341,508
Paid-in capital . . . . . . . . . . . . . . . . . . . . . 826,524 820,945
Retained earnings . . . . . . . . . . . . . . . . . . . . 732,684 691,016
Accumulated other comprehensive income (net). . . . . . . (2,345) 37,788
Treasury stock, at cost, 3,214 and 900,000 shares,
respectively . . . . . . . . . . . . . . . . . . . . . . (50) (15,791)
---------- ----------
Total Shareholders' Equity. . . . . . . . . . . . . . . 1,926,239 1,900,324
---------- ----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . $7,976,198 $8,008,206
========== ==========

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

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

<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 418,691 $ 325,341
</TABLE>

4
<PAGE>

<TABLE>
<S> <C> <C>
Security. . . . . . . . . . . . . . . . . . . . . . . . . . 130,590 150,801
---------- ----------
Total Sales . . . . . . . . . . . . . . . . . . . . . . . 549,281 476,142
---------- ----------
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . 172,963 109,853
Security. . . . . . . . . . . . . . . . . . . . . . . . . . 43,177 41,882
---------- ----------
Total Cost of Sales . . . . . . . . . . . . . . . . . . . 216,140 151,735
---------- ----------

GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . . 333,141 324,407
---------- ----------
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . . . . 82,651 89,397
Depreciation and amortization . . . . . . . . . . . . . . . 106,688 86,768
Selling, general and administrative expense . . . . . . . . 77,061 75,018
Write-off international development activities. . . . . . . - (4,930)
---------- ----------
Total Operating Expenses. . . . . . . . . . . . . . . . . 266,400 246,253
---------- ----------

INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . 66,741 78,154
---------- ----------
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . . . . . . . . 32,857 15,876
Minority interests. . . . . . . . . . . . . . . . . . . . . 919 1,149
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 896 (358)
---------- ----------
Total Other Income (Expense). . . . . . . . . . . . . . 34,672 16,667
---------- ----------

EARNINGS BEFORE INTEREST AND TAXES. . . . . . . . . . . . . . 101,413 94,821
---------- ----------
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . . . . 48,966 60,519
Interest expense on short-term debt and other . . . . . . . 23,346 12,979
---------- ----------
Total Interest Expense. . . . . . . . . . . . . . . . . 72,312 73,498
---------- ----------

EARNINGS BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . 29,101 21,323
---------- ----------

INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 3,909 2,834
---------- ----------

NET INCOME BEFORE EXTRAORDINARY GAIN. . . . . . . . . . . . . 25,192 18,489
---------- ----------

EXTRAORDINARY GAIN, NET OF TAX. . . . . . . . . . . . . . . . 17,347 -
---------- ----------

NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . 42,539 18,489
---------- ----------

PREFERRED DIVIDENDS . . . . . . . . . . . . . . . . . . . . . 282 282
---------- ----------

EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 42,257 $ 18,207
========== ==========

AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . 68,731,435 66,639,224

BASIC EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING:
Earnings available for common stock before
extraordinary gain. . . . . . . . . . . . . . . . . . . . $ 0.36 $ 0.27
Extraordinary gain. . . . . . . . . . . . . . . . . . . . . 0.25 -
---------- ----------
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 0.61 $ 0.27
========== ==========

DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . . $ .30 $ .535

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

5
<PAGE>

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

<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 753,521 $ 637,376
Security. . . . . . . . . . . . . . . . . . . . . . . . . . 279,931 299,348
---------- ----------
Total Sales . . . . . . . . . . . . . . . . . . . . . . . 1,033,452 936,724
---------- ----------

COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . 300,588 216,506
Security. . . . . . . . . . . . . . . . . . . . . . . . . . 91,753 83,156
---------- ----------
Total Cost of Sales . . . . . . . . . . . . . . . . . . . 392,341 299,662
---------- ----------

GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . . 641,111 637,062
---------- ----------

OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . . . . 168,293 168,479
Depreciation and amortization . . . . . . . . . . . . . . . 213,056 170,538
Selling, general and administrative expense . . . . . . . . 162,669 146,886
Write-off international development activities. . . . . . . - (4,930)
---------- ----------
Total Operating Expenses. . . . . . . . . . . . . . . . . 544,018 480,973
---------- ----------

INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . 97,093 156,089
---------- ----------

OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . . . . . . . . 150,925 37,444
Minority interests. . . . . . . . . . . . . . . . . . . . . 308 1,850
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,410 545
---------- ----------
Total Other Income (Expense). . . . . . . . . . . . . . 152,643 39,839
---------- ----------

EARNINGS BEFORE INTEREST AND TAXES. . . . . . . . . . . . . . 249,736 195,928
---------- ----------

INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . . . . 100,408 119,290
Interest expense on short-term debt and other . . . . . . . 41,930 25,008
---------- ----------
Total Interest Expense. . . . . . . . . . . . . . . . . 142,338 144,298
---------- ----------

EARNINGS BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . 107,398 51,630
---------- ----------

INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 40,882 12,394
---------- ----------

NET INCOME BEFORE EXTRAORDINARY GAIN . . . . . . . . . . . . 66,516 39,236
---------- ----------

EXTRAORDINARY GAIN, NET OF TAX. . . . . . . . . . . . . . . . 35,839 -
---------- ----------

NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . 102,355 39,236
---------- ----------

PREFERRED DIVIDENDS . . . . . . . . . . . . . . . . . . . . . 564 564
---------- ----------

EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 101,791 $ 38,672
========== ==========

AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . 68,232,780 66,365,731

BASIC EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING:
---------------------------------------------------
EARNINGS AVAILABLE FOR COMMON STOCK BEFORE EXTRAORDINARY GAIN $ 0.97 $ 0.58
EXTRAORDINARY GAIN. . . . . . . . . . . . . . . . . . . . . . 0.52 -
---------- ---------
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 1.49 $ 0.58
========== =========

DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . . $ 0.835 $ 1.07

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

6
<PAGE>

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

Three Months Ended
June 30,
---------------------
2000 1999
-------- -------
<S> <C> <C>
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $42,539 $18,489
------- -------
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX:
Unrealized holding (losses)/gains on marketable
securities arising during the period. . . . . . . . . . (1,353) 6,215
Less: Reclassification adjustment for (gains)/losses
included in net income. . . . . . . . . . . . . . . . . (17,369) 140
------- -------
Unrealized (losses)/gain on marketable securities (net) . (18,722) 6,355
Unrealized (loss) on currency translation . . . . . . . . (1,486) (439)
------- -------
Other comprehensive (loss) income, before tax . . . . . (20,208) 5,916
------- -------

INCOME TAX BENEFIT/(EXPENSE) . . . . . . . . . . . . . . . 11,315 (2,350)
------- -------

OTHER COMPREHENSIVE (LOSS)/INCOME, NET OF TAX . . . . . . . ( 8,893) 3,566
------- -------

COMPREHENSIVE INCOME. . . . . . . . . . . . . . . . . . . . $33,646 $22,055
======= =======

Six Months Ended
June 30,
---------------------
2000 1999
-------- -------

NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $102,355 $39,236
-------- -------

OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX:
Unrealized holding gains/(losses) on marketable
securities arising during the period. . . . . . . . . . 44,863 (15,167)
Less: Reclassification adjustment for (gains)/losses
included in net income. . . . . . . . . . . . . . . . . (115,629) 140
-------- -------
Unrealized loss on marketable securities (net). . . . . . (70,766) (15,027)
Unrealized (loss) on currency translation . . . . . . . . (1,035) (1,541)
-------- -------
Other comprehensive (loss), before tax. . . . . . . . . (71,801) (16,568)
-------- -------

INCOME TAX BENEFIT . . . . . . . . . . . . . . . . . . . . 31,668 6,663
-------- -------

OTHER COMPREHENSIVE (LOSS), NET OF TAX . . . . . . . (40,133) (9,905)
-------- -------

COMPREHENSIVE INCOME. . . . . . . . . . . . . . . . . . . . $62,222 $29,331
======== =======

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

7
<PAGE>

WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>

Six Months Ended
June 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 102,355 $ 39,236
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary gain. . . . . . . . . . . . . . . . . . . . (35,839) -
Depreciation and amortization . . . . . . . . . . . . . . 213,056 170,538
Amortization of gain on sale-leaseback. . . . . . . . . . (5,915) (5,915)
Equity in earnings from investments . . . . . . . . . . . (7,200) (6,492)
Gain on sale of marketable securities . . . . . . . . . . (115,629) -
Minority interests . . . . . . . . . . . . . . . . . . . (308) (1,850)
Accretion of discount note interest . . . . . . . . . . . (5,981) (3,345)
Write-off international development activities. . . . . . - (4,930)
Change in restricted cash . . . . . . . . . . . . . . . . (50,440) -
Changes in working capital items:
Accounts receivable (net) . . . . . . . . . . . . . . . (14,257) (6,329)
Inventories and supplies. . . . . . . . . . . . . . . . (5,562) (16,128)
Prepaid expenses and other. . . . . . . . . . . . . . . (7,781) (27,122)
Accounts payable. . . . . . . . . . . . . . . . . . . . 13,559 (6,107)
Accrued liabilities . . . . . . . . . . . . . . . . . . (24,046) (12,786)
Accrued income taxes. . . . . . . . . . . . . . . . . . 16,538 456
Deferred revenue. . . . . . . . . . . . . . . . . . . . (4,232) 6,218
Other . . . . . . . . . . . . . . . . . . . . . . . . . (4,045) (11,116)
Changes in other assets and liabilities . . . . . . . . . 1,559 (5.006)
----------- -----------
Net cash flows from operating activities. . . . . . . 65,832 109,322
----------- -----------

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Additions to property, plant and equipment (net). . . . . (170,357) (88,619)
Customer account acquisitions . . . . . . . . . . . . . . - (154,571)
Security alarm monitoring acquisitions, net of cash
acquired . . . . . . . . . . . . . . . . . . . . . . . (20,943) (20,722)
Purchases of marketable securities. . . . . . . . . . . . - (11,999)
Proceeds from sale of marketable securities . . . . . . . 217,062 21,699
Investment in Paradigm. . . . . . . . . . . . . . . . . . - (32,009)
Other investments (net) . . . . . . . . . . . . . . . . . 5,589 (9,342)
----------- -----------
Net cash flows from (used in) investing activities. . 31,351 (295,563)
----------- -----------

CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . (496,421) 109,918
Proceeds of long-term debt. . . . . . . . . . . . . . . . 606,087 136,479
Retirements of long-term debt . . . . . . . . . . . . . . (176,343) (178)
Issuance of common stock issued (net) . . . . . . . . . . 8,639 18,497
Cash dividends paid . . . . . . . . . . . . . . . . . . . (57,606) (71,496)
Reissuance of treasury stock. . . . . . . . . . . . . . . 21,847 -
Acquisition of treasury stock . . . . . . . . . . . . . . (9,187) -
----------- -----------
Net cash flows (used in) from financing activities. . (102,984) 193,220
----------- -----------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS. . . . ( 5,801) 6,979

CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 12,444 16,394
----------- -----------
End of the period . . . . . . . . . . . . . . . . . . . . $ 6,643 $ 23,373
=========== ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized . . . . . . . . . . . . . . . . . . . . . . $ 179,660 $ 152,311
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 3,793 831

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

8
<PAGE>

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

Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CUMULATIVE PREFERRED STOCK:
Par value $100 per share,
authorized 600,000 shares,
outstanding -
4 1/2% Series, 138,576 shares. . $ 13,858 $ 13,858 $ 13,858 $ 13,858
4 1/4% Series, 60,000 shares . . 6,000 6,000 6,000 6,000
5% Series, 50,000 shares . . . . 5,000 5,000 5,000 5,000
---------- ---------- ---------- ----------
Beginning balance. . . . . . . . . 24,858 24,858 24,858 24,858
Redemption of preferred stock. . . - - - -
---------- ---------- ----------- ----------
Ending balance . . . . . . . . . . 24,858 24,858 24,858 24,858
---------- ---------- ---------- ----------

COMMON STOCK:
Beginning balance. . . . . . . . . 344,568 330,768 341,508 329,548
Issuance of common stock . . . . . - 5,076 3,060 6,296
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . 344,568 335,844 344,568 335,844
---------- ---------- ---------- ----------

PAID-IN-CAPITAL:
Beginning balance. . . . . . . . . 823,645 779,809 820,945 775,337
Issuance on common stock . . . . . 2,879 22,051 5,579 26,523
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . 826,524 801,860 826,524 801,860
---------- ---------- ---------- ----------

RETAINED EARNINGS:
Beginning balance. . . . . . . . . 712,948 808,678 691,016 823,590
Net income . . . . . . . . . . . . 42,539 18,489 102,355 39,236
Dividends on preferred stock . . . (282) (282) (564) (564)
Dividends on common stock. . . . . (20,651) (35,555) (57,042) (70,932)
Issuance of treasury stock . . . . (1,870) - (3,081) -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . 732,684 791,330 732,684 791,330
---------- ---------- ---------- ----------

ACCUMULATED OTHER COMPREHENSIVE
INCOME (NET):
Beginning balance. . . . . . . . . 6,548 (3,963) 37,788 9,508
Unrealized (loss)/gain on
equity securities. . . . . . . . (18,722) 6,355 (70,766) (15,027)
Unrealized (loss) on

currency translation . . . . . . (1,486) (439) (1,035) (1,541)
Income tax benefit/(expense) . . . 11,315 (2,350) 31,668 6,663
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . (2,345) (397) (2,345) (397)
---------- ---------- ---------- ----------

TREASURY STOCK:
Beginning balance. . . . . . . . . (14,373) - (15,791) -
Issuance of treasury stock . . . . 14,323 - 24,928 -
Purchase of treasury stock . . . . - - (9,187) -
---------- ---------- ---------- ----------
Ending balance . . . . . . . . . . (50) - (50) -
---------- ---------- ---------- ----------

TOTAL SHAREHOLDERS' EQUITY . . . . . $1,926,239 $1,953,495 $1,926,239 $1,953,495
========== ========== ========== ==========

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

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

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9
<PAGE>

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 634,000 customers in Kansas and providing monitored
services to approximately 1.6 million customers in North America, the United
Kingdom and continental Europe. 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 in North America are provided by
Protection One, Inc. (Protection One), a publicly-traded, approximately
85%-owned subsidiary. Monitored services in the United Kingdom and continental
Europe are provided by Protection One International, Inc. and Protection One UK,
Plc. (collectively referred to as Protection One Europe) which are 100% owned by
the company. 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. The company's
investments in Protection One, Protection One Europe and ONEOK are owned by
Westar Capital, Inc. (Westar Capital), a wholly-owned subsidiary.

Principles of Consolidation: The company's unaudited consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States 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 1999
Annual Report on Forms 10-K and 10-K/A. See Note 10 below regarding discussions
with the SEC staff concerning certain accounting matters.

In management's opinion, all adjustments, consisting only of normal
recurring adjustments considered necessary for a fair presentation of the
financial statements, have been included. The results of operations for the
three and six months ended June 30, 2000, are not necessarily indicative of the
results to be expected for the full year.

New Pronouncements: In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS
133, as amended, is effective for fiscal years beginning after June 15, 2000.
SFAS 133 cannot be applied retroactively. The company is currently evaluating
commodity contracts and financial instruments to determine what, if any, effect
adopting SFAS 133 might have on its financial statements. The company has not
yet quantified all effects of adopting SFAS 133 on its financial statements;
however, SFAS 133 could increase volatility in earnings and other comprehensive
income. The company plans to adopt SFAS 133 as of January 1, 2001.

Goodwill: Goodwill represents the excess of the purchase price over the
fair value of net assets acquired. Protection One historically amortized
goodwill on a straight-line basis over 40 years. In the first quarter of 2000,
Protection One re-evaluated the original assumptions and rationale utilized in
the establishment of the estimated useful life of goodwill. Protection One
concluded that due to continued losses, increased levels of attrition
experienced in 1999 and other factors, the estimated useful life of goodwill
should be reduced from 40 years to 20 years. As of January 1, 2000, the
remaining goodwill, net of accumulated amortization, is being amortized over its
remaining useful life based on a 20-year life. Protection One Europe made a
similar change. Based on Protection One's and Protection One Europe's existing
account

10
<PAGE>

bases at January 1, 2000, the company anticipates that this will result
in an increase in aggregate annual goodwill amortization of approximately $34
million.

The change in estimate resulted in additional goodwill amortization for
the three months ended June 30, 2000, of approximately $8.8 million. The
resulting reduction to net income was $6.9 million. For the six months ended
June 30, 2000, the resulting additional goodwill amortization was $17.2 million,
resulting in a reduction to net income of $13.3 million.

Restricted Cash: The company's restricted cash consists primarily of
cash held in escrow pursuant to the terms of a pre-paid capacity and
transmission agreement, certain letters of credit and one of Protection One's
1998 acquisitions.

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

2. CORPORATE RESTRUCTURING AND STRATEGIC ALTERNATIVES

On March 28, 2000, the company's board of directors approved the
separation of its electric and non-electric utility businesses. On May 18, 2000,
the company announced that its board of directors had authorized management to
explore strategic alternatives for the company's electric utility operations
which consist of KPL and KGE. The company's management currently expects to
identify a strategic partner for the electric utility operations prior to year
end. The impact of these transactions on the company's financial position and
operating results cannot be determined until the final terms and timing of the
transactions are determined. The company can give no assurance as to whether or
when the separation or the strategic transaction may occur.

3. DIVIDEND POLICY

The company's board of directors reviews the company's dividend policy
from time to time. Among the factors the board of directors considers in
determining the company's dividend policy are earnings, cash flows,
capitalization ratios, competition, financial loan covenants and regulatory
conditions. In March 2000, the company announced a new dividend policy of a
quarterly dividend of $0.30 per share, or $1.20 per share on an annual basis as,
and when, declared by the board of directors. On July 3, 2000, the second
quarter dividend was paid at the rate of $0.30 per common share.

4. DEBT

On April 28, 2000, the company filed a shelf registration statement
with the SEC to register $500 million of first mortgage bonds. The registration
statement became effective May 8, 2000. The proceeds of the sale of the
securities, if and when issued, would be used to pay off a new term loan before
they would be available for other purposes as required by the term loan
agreement.

11
<PAGE>

On June 28, 2000, the company entered into a $600 million, multi-year
term loan that replaced two revolving credit facilities which matured on June
30, 2000. The proceeds of the term loan were used to retire short term debt. The
term loan is secured by first mortgage bonds of the company and KGE and has a
maturity date of March 17, 2003.

Maturities of the term loan through March 17, 2003, are as follows:

Principal
Amount
Year (Dollars in Thousands)
-----------------------------------------
2000 . . . . . . . . . . . $ 3,000
2001 . . . . . . . . . . . 6,000
2002 . . . . . . . . . . . 6,000
2003 . . . . . . . . . . . 585,000

The terms of the loan contain requirements for maintaining certain
consolidated leverage ratios, interest coverage ratios and consolidated debt to
capital ratios. The company is in compliance with all of these requirements.

Interest on the term loan is payable on the expiration date of each
borrowing under the facility or quarterly if the term of the borrowing is
greater than three months. The weighted average interest rate, including fees,
on the term loan is currently 10.35%.

The company also has an arrangement with certain banks to provide a
revolving credit facility on a committed basis totaling $500 million. The
facility is secured by first mortgage bonds of the company and KGE and expires
on March 17, 2003.

For additional information on financial arrangements, see Note 12 to
Consolidated Financial Statements.

5. GAIN ON EXTINGUISHMENT OF DEBT

In the second quarter of 2000, Westar Capital purchased $45.1 million
face value of Protection One bonds in the open market. These debt securities
were transferred to Protection One in exchange for cash and the settlement of
certain intercompany payables and receivables. Protection One also purchased
$24.5 million face value of its bonds on the open market in the second quarter
of 2000. An extraordinary gain of $17.3 million, net of tax of $9.3 million, was
recognized on these retirements.

6. MARKETABLE SECURITIES

During the second quarter of 2000, the company sold the remaining
portion of its investment in a gas compression company and realized a gain of
$17.4 million.

7. INCOME TAXES

The company has recorded income tax benefits for the interim periods
using the effective tax rate method. Under this method, the company computes the
tax related to year-to-date income, except for significant unusual or
extraordinary items, at an estimated annual effective tax rate. The company
individually computes and recognizes, when the transaction occurs, income tax
related to significant unusual or extraordinary items, such as the gain on
marketable securities recorded in 2000. The company anticipates an effective
annual tax rate of 30.9% based on the effective tax rate method described above.
The company's effective income tax rates for the three and six month periods
ended June 30, 2000, were 13.4% and 38.1% compared to 13.3% and 24.0% for the
three and six month periods ended June 30, 1999.

The difference between the company's effective tax rate and the
statutory rate is primarily attributable to a change in estimate of the annual
expected effective tax rate for 2000 and due to various other factors. These
factors include the tax benefit of excluding from taxable income, in accordance
with IRS rules, 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, the amortization of non-deductible
goodwill, the tax benefits from corporate-owned life insurance and the deduction
for state income taxes.

12
<PAGE>

8. RATE MATTERS AND REGULATION

City of Wichita Proceeding: In December 1999, the City Council of
Wichita, Kansas, authorized the hiring of an outside consultant to determine the
feasibility of creating a municipal electric utility to replace KGE as the
supplier of electricity in Wichita. In 1999, KGE's rates were 5% below the
national average for retail customers and the average rates charged to retail
customers in territories served by our KPL division were 19% lower than KGE's
rates. Customers within the Wichita metropolitan area account for approximately
25% of our total energy sales. KGE has an exclusive franchise with the City of
Wichita to provide retail electric service that expires March 2002. Under Kansas
law, KGE will continue to have the exclusive right to serve the customers in
Wichita following the expiration of the franchise, assuming the system is not
municipalized. See also "FERC Proceedings" below regarding a complaint filed
with the Federal Energy Regulatory Commission (FERC) against us by the City of
Wichita.

KCC Proceeding: On March 16, 2000, the Kansas Industrial Consumers
(KIC), an organization of commercial and industrial users of electricity in
Kansas, filed a complaint with the Kansas Corporation Commission (KCC)
requesting an investigation of Western Resources' and KGE's rates. The KIC
alleges that these rates are not based on current costs. Western Resources, KGE
and the KCC staff reached an agreement on August 8, 2000, for Western Resources
and KGE to file a rate case on or before November 25, 2000. As a result, on
August 8, 2000, Western Resources, KGE and the KCC Staff filed a motion with the
KCC to approve the agreement and requested an order disposing of the KIC
complaint.

FERC Proceeding: In September 1999, the City of Wichita filed a
complaint with the Federal Energy Regulatory Commission (FERC) against the
company, alleging improper affiliate transactions between KPL and KGE. The City
of Wichita is asking that the FERC equalize the generation costs between KPL and
KGE, in addition to other matters. The FERC has issued an order setting this
matter for hearing and has referred the case to a settlement judge. The hearing
has been suspended pending settlement discussions between the parties. These
settlement talks continue with additional discussions scheduled to be held
before the settlement judge in early September 2000. The company believes that
the City of Wichita's complaint is without merit and intends to defend against
it vigorously.

13
<PAGE>

9. LEGAL PROCEEDINGS

The Securities and Exchange Commission (SEC) commenced a private
investigation in 1997 relating to, among other things, 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.

The company, its subsidiary Westar Capital, 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, "Ronald Cats, et al., v. Protection One,
Inc., et. al.", No. CV 99-3755 DT (RCx). Pursuant to an Order dated August 2,
1999, four pending purported class actions were consolidated into a single
action. In March 2000, plaintiffs filed a Second Consolidated Amended Class
Action Complaint (the Amended Complaint). Plaintiffs purport to bring the action
on behalf of a class consisting of all purchasers of publicly traded securities
of Protection One, including common stock and notes, during the period of
February 10, 1998, through November 12, 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 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 Capital 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. On June 12, 2000,
the company, Protection One and the other defendants filed motions to dismiss in
part the Amended Complaint. These motions are currently pending. 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. See also Note 8 for
discussion of regulatory proceedings.

1O. COMMITMENTS AND CONTINGENCIES

SEC Review: As the company has previously disclosed, Protection One,
our approximately 85%-owned subsidiary, has been advised by the Staff of the
Division of Corporation Finance of the Securities and Exchange Commission that,
in its

14
<PAGE>

view, there are errors in Protection One's previously filed financial statements
that are material and which, in the view of the Staff, have had the effect of
inflating reported earnings commencing with the year ended December 31, 1997.
Protection One has had extensive discussions and held meetings with the Staff,
and exchanged numerous letters extending over a period of more than 18 months,
about the purchase price allocated to intangible customer accounts in the
Multifamily and Westinghouse Security Systems acquisitions, the methodology
Protection One has used to amortize intangible customer accounts and other
matters. In Protection One's Form 10-Q for the quarter ended September 30 1999,
it disclosed that Protection One restated its financial statements for 1998 and
for the quarters ended March 31, 1999, and June 30, 1999, to reallocate portions
of the initial purchase price for acquired businesses in its Multifamily
business segment. The reallocations involved an increase of the amount allocated
to customer accounts by $19 million, a reduction of goodwill by $13 million and
an increase in deferred taxes payable by $6 million. In addition, following the
conclusion of a comprehensive review of Protection One's amortization policy
undertaken during the third quarter of 1999, Protection One changed the method
it had historically used for amortizing the cost of customer accounts for its
North American and European customer pools. The method used for these pools
changed from a straight-line amortization over ten years to a ten-year 130%
declining balance method in the case of the North America pool and a 125%
declining balance method in the case of the Europe pool. The adoption of the
declining balance method effectively shortened the estimated expected average
customer life of these two customer pools. For further discussion of these
changes and their effect on Protection One's and Western Resources' financial
results, see Protection One's and the company's Forms 10-Q for the quarter ended
September 30, 1999.

Following the announcement of these changes, Protection One had no
further communications from the Staff until April 4, 2000, when, in response to
its inquiry concerning processing of filings by Protection One, the Staff
resumed its inquiry on these matters.

In a letter from the SEC Staff to Protection One dated May 16, 2000,
the Staff stated that "the information that [Protection One] provided strongly
suggests the presence of departures from GAAP in Western Resources' accounting
for the acquisition of [Westinghouse Security Systems], and in the subsequent
accounting for those acquired assets by [Protection One]." More specifically,
the Staff's letter states that it is concerned that Western Resources and
Protection One "improperly inflated" reported earnings following the
Westinghouse Security Systems acquisition. This letter also contains comments
and requests for information concerning the initial and final valuation of
Westinghouse Security Systems' customer accounts, the $12.75 million write down
of the value of customer accounts acquired from Westinghouse Security Systems
that was recorded in the fourth quarter of 1997, shortening of the estimated
life of customer accounts acquired from Westinghouse Security Systems no later
than the end of 1997 and the valuation of acquired alarm monitoring software.

Protection One responded by letter dated May 31, 2000, to each of the
comments contained in the Staff`s May 16th letter, indicated its strong
disagreement with the views of the Staff and stated its belief that there are no
issues of "inflated earnings," "departures from GAAP," or "errors" in its
historic financial statements. The company's and Protection One's independent
public accountants, Arthur Andersen LLP, indicated they concurred with the
accounting decisions of Protection One.

After another exchange of letters in June as a result of which
Protection

15
<PAGE>

One supplied more information to the Staff, on July 6, 2000, Protection One
personnel and their advisors met with members of the Staff.

Thereafter, in a letter to Protection One dated July 7, 2000, the Staff
stated that Protection One's financial statements should be "revised to reflect
corrections of accounting errors and revisions of disclosures" as more fully
discussed in the July 7th letter. The Staff's letter discussed six areas which
it believed required changes. Four of those areas related to the acquisition of
the security business of Westinghouse. The remaining two areas related to the
accounting for ordinary amortization of security accounts and the accounting for
the effects of unanticipated customer attrition. Among other things, the Staff
stated its view that aspects of Protection One's accounting for the acquisition
of the Westinghouse security business "could" be indicative of "manipulative
intent" a statement with which the company and Protection One strongly disagree.

By letter dated July 25, 2000, Protection One advised the Staff of
Protection One's strong disagreement with the views of the Staff regarding these
accounting matters. Arthur Andersen LLP has reviewed the correspondence, been
consulted on responses to the SEC and have confirmed to the SEC staff that they
are not aware of modifications needed to fairly present the company's or
Protection One's historical financial statements.

On July 25, 2000, the Staff advised Protection One orally that this
matter had been referred to the Enforcement Division of the SEC for
consideration. Protection One has not been contacted by the Staff of the
Division of Enforcement. By letter dated July 27, 2000, the Division of
Corporation Finance Staff advised Protection One that they had reviewed
Protection One's letter of July 25th, but had concluded "that any new
information provided in [the letter] only confirms the views expressed in our
July 7th letter." Accordingly, the Division of Corporation Finance repeated its
request that Protection One amend its filings "in a manner that is fully
responsive to our July 7th letter without further delay." The Staff advised that
if amendments were not filed promptly, they would consider what action, if any,
would be appropriate under the circumstances. In Protection One's July 25th
letter, Protection One had requested the opportunity to meet again together with
more senior members of the Staff to discuss these matters further. A meeting
with the Staff is being arranged.

At present, neither the company nor Protection One are able to predict
the outcome of our disagreements with the Staff. To date, Protection One's
discussions with the Staff have occurred over 18 months and the process of
resolving these matters could extend over a protracted period. Were the company
and Protection One to make revisions to its financial statements, based upon its
understanding of the Staff's request (the Staff has never indicated what values
alternative to the ones used by Protection One it would find to be acceptable),
such revisions would result in a material adverse effect on our financial
position and results of operations. Neither the company nor Protection One can
predict what action the Staff may take, including enforcement action, that will
further impact Western Resources or its financial statements, or the effect or
timing of any such action if taken.

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

16
<PAGE>

the investigations and risk analysis. At June 30, 2000, 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 rate allowances do not cover these potential contingencies.

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 and payments to plan participants. The
related liability decreased approximately $12.8 million for the six month period
ended June 30, 2000, as a result of payments under the plan.

Decommissioning: On September 1, 1999, Wolf Creek submitted the 1999
Decommissioning Cost Study to the KCC for approval. The KCC approved the 1999
Decommissioning Cost Study on April 26, 2000. Based on the study, the company's
share of Wolf Creek's decommissioning costs, under the immediate dismantlement
method, is estimated to be approximately $631 million during the period 2025
through 2034, or approximately $221 million in 1999 dollars. These costs were
calculated using an assumed inflation rate of 3.6% over the remaining service
life from 1999 of 26 years. On May 26, 2000, the company filed an application
with the KCC requesting approval of the funding of the company's decommissioning
trust on this basis.

For additional information on Commitments and Contingencies, see Note
12 to Consolidated Financial Statements in the company's 1999 Annual Report on
Forms 10-K and 10-K/A.

11. SEGMENTS OF BUSINESS

The company 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.

Our electric utility business is comprised of Fossil Generation,
Nuclear Generation and Power Delivery. Fossil Generation produces power for sale
internally to the Power Delivery segment and externally to wholesale customers.
A component of our Fossil Generation segment is power marketing which attempts
to minimize market fluctuation risk, enhance system reliability and optimize
usage of our power plant assets. Nuclear Generation represents the company's 47%
ownership in the Wolf Creek nuclear generating facility. This segment has only
internal sales because it provides all of its power to its co-owners. The Power
Delivery segment consists of the transmission and distribution of power to the
company's retail customers in Kansas and the customer service provided to these
customers. Monitored Services represents the company's security alarm monitoring
business in North America, the United Kingdom and continental Europe. Other
represents the company's non-utility operations and natural gas investment.

The accounting policies of the segments are substantially the same as
those described in the summary of significant accounting policies in the
company's 1999 Annual Report on Forms 10-K and 10-K/A. The company evaluates
segment performance based on earnings before interest and taxes.

17
<PAGE>

Three Months Ended June 30, 2000:
<TABLE>
<CAPTION>

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. . . $ 157,509 $ - $ 260,820 $ 130,590 $ 353 $ 9 $ 549,281
Internal sales. . . 135,433 29,313 70,533 - - (235,279) -
Earnings before
interest and taxes 65,489 (2,858) 29,555 (19,441) 32,225 (3,557) 101,413
Interest expense. . 72,312
Earnings before
income taxes . . . 29,101

Three Months Ended June 30, 1999:
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (2)Other Items Total
---------- ---------- ---------- --------- ---------- ----------- ----------
(Dollars in Thousands)
External sales. . . $ 78,140 $ - $ 246,881 $ 150,801 $ 323 $ (3) $ 476,142
Internal sales. . . 137,724 20,598 70,269 - - (228,591) -
Earnings before
interest and taxes 46,696 (11,114) 23,842 13,975 23,510 (2,088) 94,821
Interest expense. . 73,498
Earnings before
income taxes . . . 21,323

Six Months Ended June 30, 2000:
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (3)Other Items Total
---------- ---------- --------- ---------- ---------- ----------- ---------
(Dollars in Thousands)
External sales. . . $ 258,273 $ - $ 494,551 $ 279,931 $ 686 $ 11 $1,033,452
Internal sales. . . 263,825 58,793 137,903 - - (460,521) -
Earnings before
interest and taxes 110,841 (8,204) 42,012 (36,672) 148,374 (6,615) 249,736
Interest expense. . 142,338
Earnings before
income taxes . . . 107,398

Six Months Ended June 30, 1999:
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (4)Other Items Total
---------- ---------- ---------- --------- ---------- ----------- ----------
(Dollars in Thousands)
External sales. . . $ 157,502 $ - $ 479,220 $ 299,348 $ 654 $ - $ 936,724
Internal sales. . . 263,385 49,816 139,649 - - (452,850) -
Earnings before
interest and taxes 93,921 (15,339) 39,473 31,518 51,322 (4,967) 195,928
Interest expense. . 144,298
Earnings before
income taxes . . . 51,630
</TABLE>

(1) Earnings before interest and taxes includes investment earnings of $32.9
million.
(2) Earnings before interest and taxes includes investment earnings of $15.9
million.
(3) Earnings before interest and taxes includes investment earnings of $150.9
million.
(4) Earnings before interest and taxes includes investment earnings of $37.4
million.

12. SUBSEQUENT EVENTS

On July 28, 2000, the company and KGE entered into an agreement to
sell, on an ongoing basis, all of their accounts receivable arising from the
sale of electricity to WR Receivables Corporation, a special purpose entity
wholly owned

18
<PAGE>

by the company. The agreement expires on July 26, 2001, and is annually
renewable upon agreement by both parties. The special purpose entity has sold
and, subject to certain conditions, may from time to time sell, up to $125
million (and upon request, subject to certain conditions, up to $175 million) of
an undivided fractional ownership interest in the pool of receivables to a
third-party, multi-seller receivables funding entity affiliated with a lender.
Proceeds of approximately $115 million were received on the date of sale.

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<PAGE>

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

INTRODUCTION

The following Management's Discussion and Analysis of Financial
Condition and Results of Operations updates the information provided in the 1999
Annual Reports on Forms 10-K and 10-K/A and should be read in conjunction with
those reports. In this section we discuss the general financial condition and
operating results for Western Resources, Inc. (the company) and its
subsidiaries. We explain:

- What factors impact our business
- What our earnings and costs were for the three and six months ending
June 30, 2000, and 1999
- 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.

SUMMARY OF SIGNIFICANT ITEMS

Corporate Restructuring and Strategic Alternatives

On March 28, 2000, our board of directors approved the separation of
our electric and non-electric utility businesses. On May 18, 2000, we announced
that our board of directors had authorized management to explore strategic
alternatives for our electric utility operations which consist of KPL and KGE.
Our management currently expects to identify a strategic partner for our
electric utility operations prior to year end. The impact of these transactions
on our financial position and operating results cannot be determined until the
final terms and timing of the transactions are determined. We can give no
assurance as to whether or when the separation or the strategic transaction may
occur.

Gain on Extinguishment of Debt

Marketable Securities

During the second quarter of 2000, we sold the remaining portion of our
investment in a gas compression company and realized a gain of $17.4 million.

Monitored Services Change in Estimate of Useful Life of Goodwill

In the first quarter of 2000, Protection One re-evaluated the original
assumptions and rationale utilized in the establishment of the estimated useful
life of goodwill. Protection One concluded that due to continued losses,

20
<PAGE>

increased levels of attrition experienced in 1999 and other factors, the
estimated useful life of goodwill should be reduced from 40 years to 20 years.
As of January 1, 2000, the remaining goodwill, net of accumulated amortization,
is being amortized over its remaining useful life based on a 20-year life.
Protection One International, Inc. and Protection One UK, Plc. (collectively
referred to as Protection One Europe) made a similar change. Based on Protection
One's and Protection One Europe's existing account bases at January 1, 2000, we
anticipate that this will result in an increase in aggregate annual goodwill
amortization of approximately $34 million.

OPERATING RESULTS

Western Resources Consolidated

Our business is segmented based on differences in products and
services, production processes, and management responsibility. Based on this
approach, we have identified four reportable segments: Fossil Generation,
Nuclear Generation, Power Delivery and Monitored Services. We also have other
non-utility operations and our ONEOK investment that are discussed in "Other
Results" below when changes are material.

Our electric utility business is comprised of Fossil Generation,
Nuclear Generation and Power Delivery. Fossil Generation produces power for sale
internally to the Power Delivery segment and externally to wholesale customers.
A component of our Fossil Generation segment is power marketing which attempts
to minimize market fluctuation risk, enhance system reliability and optimize
usage of our power plant assets. Nuclear Generation represents our 47% ownership
in the Wolf Creek nuclear generating facility. This segment has only internal
sales because it provides all of its power to its co-owners. The Power Delivery
segment consists of the transmission and distribution of power to our retail
customers in Kansas and the customer service provided to these customers.
Monitored Services represents our security alarm monitoring business in North
America, the United Kingdom and continental Europe.

Basic earnings per share were $0.61 for the three months ended June 30,
2000, compared to $0.27 for the three months ended June 30, 1999. Basic earnings
per share were $1.49 for the six months ended June 30, 2000, compared to $0.58
for the six months ended June 30, 1999. These significant increases are
primarily attributable to increased investment earnings from the sale of our
investments in a gas compression company and other marketable securities, the
extraordinary gain on the retirement of Protection One bonds, and improved
electric operations. Partially offsetting these increases were accounting
changes and operating losses from our monitored services segment. See "Monitored
Services" below for further discussion of these factors and their overall
impact.

Overview of Utility Operations

The following table reflects the increases/(decreases) in electric
sales volumes, excluding power marketing, for the three and six months ended
June 30, 2000, from the comparable periods of 1999.

21
<PAGE>

<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999 % Change
------ ------ --------
(Thousands of Megawatthours)
<S> <C> <C> <C>
Residential. . . . . 1,370 1,210 13.3%
Commercial . . . . . 1,548 1,492 3.8%
Industrial . . . . . 1,475 1,423 3.7%
Other. . . . . . . . 27 27 - %
----- ----- -------
Total retail . . . 4,420 4,152 6.5%
Wholesale. . . . . . 1,581 1,298 21.8%
----- ----- -------
Total. . . . . . . 6,001 5,450 10.1%
===== ===== =======

Six Months Ended June 30,
2000 1999 % Change
------ ------ --------
(Thousands of Megawatthours)
Residential. . . . . 2,593 2,411 7.6%
Commercial . . . . . 2,967 2,885 2.8%
Industrial . . . . . 2,851 2,788 2.3%
Other. . . . . . . . 54 54 - %
------ ------ -------
Total retail . . . 8,465 8,138 4.0%
Wholesale. . . . . . 3,254 2,495 30.4%
------ ------ -------
Total. . . . . . . 11,719 10,633 10.2%
====== ====== =======
</TABLE>

Three Months Ended June 3O, 2OOO, Compared to Three Months Ended June
3O, 1999: Utility operating sales increased $93.3 million, from $325.0 million
to $418.3 million, primarily due to higher retail and wholesale sales volumes
and higher power marketing sales. Partially offsetting the increase in sales
were higher cost of sales of $63.1 million. The higher cost of sales was due to
higher power marketing expense, increased purchased power expense and higher
fuel expense incurred to meet the demand for more electricity. Income from
operations increased $30.6 million and earnings before interest and taxes (EBIT)
increased $32.8 million primarily as a result of increased utility sales.

Six Months Ended June 3O, 2OOO, Compared to Six Months Ended June 3O,
1999: Utility operating sales increased $116.1 million, from $636.7 million to
$752.8 million. Partially offsetting the increase in sales were higher cost of
sales of $84.0 million. The higher cost of sales was due to higher power
marketing expense, increased purchased power expense and higher fuel expense
incurred to meet the demand for more electricity. Income from operations
increased $23.0 million and EBIT increased $26.6 million primarily as a result
of the increased utility sales.

Business Segments - Utility Operations: The following table reflects
key information for our electric utility business segments:

Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Fossil Generation: (Dollars in Thousands)
External sales. . . . . . .. $157,509 $ 78,140 $258,273 $157,502
Internal sales. . . . . . .. 135,433 137,724 263,825 263,385
EBIT. . . . . . . . . . . .. 65,489 46,696 110,841 93,921
Nuclear Generation: (1)
Internal sales. . . . . . .. $ 29,313 $ 20,598 $ 58,793 $ 49,816
EBIT. . . . . . . . . . . .. (2,858) (11,114) (8,204) (15,339)

Power Delivery:

22
<PAGE>

External sales. . . . . . .. $260,820 $246,881 $494,551 $479,220
Internal sales. . . . . . .. 70,533 70,269 137,903 139,649
EBIT. . . . . . . . . . . .. 29,555 23,842 42,012 39,473

(1) Our 47% share of Wolf Creek's operating results.

Fossil Generation

Three Months Ended June 3O, 2OOO, Compared to Three Months Ended June
3O, 1999: Fossil Generation's external sales consist of the power produced and
purchased for sale to wholesale customers. External sales increased $79.4
million primarily due to power marketing sales which were $64.5 million, or
158%, higher. We had more wholesale market opportunities because we now have a
larger trading operation which has increased our involvement in the market. Our
involvement in the wholesale market varies from quarter to quarter based on
current marketing opportunities and availability of generation.

Also contributing to the higher external sales were 22% higher
wholesale sales volumes. The increase in wholesale sales was caused primarily by
our increased involvement in the wholesale market, the availability of our
generating units and increased generating capacity. In June 2000, we added
additional peaking capacity by placing two 74 MW combustion turbine generators
into operation which allowed us to better meet increased demand for electricity.

Fossil Generation's internal sales consist of the power produced for
sale to Power Delivery. The internal transfer price for these sales is based on
an assumed competitive market price for capacity and energy.

Electric cost of sales were $63.1 million higher primarily due to
higher power marketing expense of $54.3 million, a 150% increase. The remaining
increase in electric cost of sales is due to higher fossil fuel expense and
higher purchased power expense used to meet the demand for more electricity.

Six Months Ended June 3O, 2OOO, Compared to Six Months Ended June 3O,
1999: External sales increased $100.8 million primarily due to power marketing
sales which were $58.7 million, or 66%, higher. We had more wholesale market
opportunities because we now have a larger trading operation which has increased
our involvement in the market.

Also contributing to the higher external sales were higher wholesale
and system hedging sales. Wholesale sales volumes were 30% higher primarily
because of our increased involvement in the wholesale market, the availability
of our generating units and the new generation capacity as discussed above.

At certain times, we enter into transactions to reduce exposure
relative to the volatility of cash market prices. System hedging sales and cost
of sales represent the settlement of such transactions. These hedging
transactions resulted in a loss of approximately $0.7 million for the six months
ended June 30, 2000.

Electric cost of sales were $84 million higher primarily due to higher
power marketing expense of $46.6 million, a 56% increase. In addition, we had
higher purchased power expense of $23 million, or 262%, primarily due to an
increased number of system hedging transactions. We incurred an increase in
fossil fuel expense of $14.5 million, or 12%, to meet the demand for more
electricity.

23
<PAGE>

Nuclear Generation

Nuclear Generation has only internal sales because it provides all of
its power to its co-owners: KGE, Kansas City Power and Light Company, and Kansas
Electric Power Cooperative, Inc. Internal sales are priced at the internal
transfer price that Nuclear Generation charges to Power Delivery. EBIT is
negative because internal sales are less than Wolf Creek's costs.

Internal sales and EBIT improved for the three and six months ended
June 30, 2000, compared to the same periods in 1999 because Wolf Creek has had
no outages for the six months ended June 30, 2000. During the second quarter of
1999, Wolf Creek had a 36-day scheduled refueling and maintenance outage.

Wolf Creek has a scheduled refueling and maintenance outage
approximately every 18 months. During an outage, Wolf Creek produces no power.
The next outage is scheduled in September 2000. At that time, internal sales,
EBIT and nuclear fuel expense are expected to decrease.

Power Delivery

The Power Delivery segment's external sales consist of the transmission
and distribution of power to our electric customers and the customer service
provided to them. Internal sales consist of the intra-segment transfer price
charged to Fossil Generation and Nuclear Generation for the use of the
distribution lines and transformers.

Three Months Ended June 3O, 2OOO, Compared to Three Months Ended June
3O, 1999: External sales increased $14.0 million, or 6%. Our service territory
had 28% more cooling degree days which resulted in a 13% increase in residential
sales volumes. EBIT increased $5.7 million also due to higher retail sales
volumes.

Six Months Ended June 3O, 2OOO, Compared to Six Months Ended June 3O,
1999: External sales increased $15.3 million, or 3%. We experienced an 8%
increase in residential sales volumes due to a 28% increase in cooling degree
days. EBIT increased $2.5 million also due to higher retail sales volumes.

Monitored Services

Protection One and Protection One Europe comprise our monitored
services business. The results discussed below reflect monitored services on a
stand-alone basis. These results do not take into consideration Protection One's
minority interest of approximately 15% at June 30, 2000, and June 30, 1999.

Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(Dollars in Thousands)
External sales. . . . . . . . . $130,590 $150,801 $279,931 $299,348
EBIT. . . . . . . . . . . . . . (19,441) 13,975 (36,672) 31,518

Three Months Ended June 3O, 2OOO, Compared to Three Months Ended June
3O, 1999: Sales decreased by $20.2 million primarily due to a decline in
Protection One's customer base. Our monitored services segment had a net
decrease of 91,000 customers from June 30, 1999 to June 30, 2000. The decrease
in customers is primarily attributable to the significant decrease in the number
of accounts being purchased by Protection One from dealers which has not yet
been offset by

24
<PAGE>

growth from other customer acquisition strategies. In addition to the decrease
in sales related to the decline in customer base, Protection One issued more
customer credits during the period.

Protection One does not expect its customer acquisitions to replace all
accounts lost through attrition at least through the remainder of 2000.
Accordingly, Protection One's total customer base is likely to decline based
upon historical rates of attrition which is likely to result in declining
revenues. Protection One's current focus remains on the completion of its
current infrastructure projects, the development of cost effective marketing
programs and the generation of positive cash flow, all of which Protection One
believes will build the foundation for future growth.

EBIT decreased $33.4 million primarily due to lower sales and higher
depreciation and amortization expense.

Depreciation and amortization expense increased $17.0 million due to
the change in customer amortization method from a 10-year straight line method
to a 10-year declining balance method and the change in estimate of the useful
life of goodwill from 40 years to 20 years. Additionally, Protection One's
depreciation expense increased due to accelerated depreciation of the general
ledger and accounts receivable systems installed in 1999. Protection One has
decided to move to another general ledger and accounts receivable system in
2000.

Six Months Ended June 3O, 2OOO, Compared to Six Months Ended June 3O,
1999: Sales decreased $19.4 million primarily due to a decline in Protection
One's customer base and the issuance of more customer credits as discussed
above.

EBIT decreased $68.2 million due to lower sales, higher cost of sales,
higher depreciation and amortization expense and higher selling, general and
administrative expenses.

Cost of sales increased $8.6 million due to increased compensation
costs for additional personnel hired to improve the level of customer service at
Protection One's monitoring stations, an increase in the cost of parts and
materials, and increased telecom and vehicle costs.

Depreciation and amortization expense increased $37.1 million primarily
due to the change in customer amortization method from a 10-year straight line
method to a 10-year declining balance method and the change in estimate of
useful life of goodwill from 40 years to 20 years. Additionally, Protection
One's depreciation expense increased due to accelerated depreciation of the
general ledger and accounts receivable systems installed in 1999. Protection One
has decided to move to another general ledger and accounts receivable system in
2000.

Selling, general and administrative expenses increased $6.7 million
primarily due to an increase in Protection One's bad debt and collection
expenses as a result of an increased focus on collecting aged trade receivables.
Protection One also had an increase in subcontract expense which was primarily
for outside information technology support for the installation of new financial
and monitoring software that began in November 1999.

OTHER RESULTS

We have other sources of income and expense not directly related to our
operations, as outlined below.

25
<PAGE>

Other Income (Expenses)

Three Months Ended June 3O, 2OOO, Compared to Three Months Ended June
3O, 1999: The increase in other income is primarily related to a $17.4 million
gain on the sale of our remaining investment in a gas compression company.

Six Months Ended June 3O, 2OOO, Compared to Six Months Ended June 3O,
1999: The increase in other income is primarily related to a $91.1 million gain
on the sale of our remaining investment in a gas compression company and a $24.5
million gain on the sale of other marketable securities.

Interest Expense

Three Months Ended June 3O, 2OOO, Compared to Three Months Ended June
3O, 1999: We reduced long-term debt during 1999 and during the first and second
quarter of 2000 causing long-term debt interest expense to decrease by $10.2
million. We retired $125 million of first mortgage bonds during 1999 and we
repurchased and retired $224.9 million face value of Protection One bonds in the
fourth quarter of 1999 and during the first and second quarters of 2000. On June
28, 2000, we entered into a $600 million, multi-year term loan that increased
our long-term debt balance. For more information on this new term loan, see the
Liquidity and Capital Resources section below.

Short-term debt interest expense was $10.4 million higher due to
increased short-term borrowings under our credit facilities.

Six Months Ended June 3O, 2OOO, Compared to Six Months Ended June 3O,
1999: Our long-term debt interest expense decreased by $17.6 million because of
reduced long-term debt as discussed above.

Short-term debt interest expense was $16.9 million higher due to
increased short-term borrowings under our credit facilities.

Income Taxes

We have recorded income tax benefits for the interim periods using the
effective tax rate method. Under this method, we compute the tax related to
year-to-date income, except for significant unusual or extraordinary items, at
an estimated annual effective tax rate. We individually compute and recognize,
when the transaction occurs, income tax related to significant unusual or
extraordinary items, such as the gain on marketable securities recorded in 2000.
We anticipate an effective annual tax rate of 30.9% based on the effective tax
rate method described above. Our effective income tax rates for the three and
six months ended June 30, 2000, were 13.4% and 38.1% compared to 13.3% and 24.0%
for the three and six months ended June 30, 1999.

The difference between our effective tax rate and the statutory rate is
primarily attributable to a change in estimate of the annual expected effective
tax rate for 2000 and various other factors. These factors include the tax
benefit of excluding from taxable income, in accordance with IRS rules, 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, the amortization of non-deductible goodwill, the tax benefits from
corporate-owned life insurance and the deduction for state income taxes.

26
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The following discussion explains significant factors in liquidity and
capital resources at June 30, 2000.

We had $6.6 million in cash and cash equivalents. We consider cash
equivalents to be highly liquid debt instruments purchased with a maturity of
three months or less. We also had $19.5 million of restricted cash classified as
a current asset. The current asset portion of our restricted cash consists
primarily of cash held in escrow as required by certain letters of credit and
the terms of one of Protection One's 1998 acquisitions. In addition, we had
$36.5 million of restricted cash classified as a long-term asset which consists
primarily of cash held in escrow required by the terms of a pre-paid capacity
and transmission agreement.

Current maturities of long-term debt were $45.7 million. Short-term
debt outstanding was approximately $209.0 million.

On April 28, 2000, we filed a shelf registration statement with the SEC
to register $500 million of first mortgage bonds. The registration statement
became effective May 8, 2000. The proceeds of the sale of the securities, if and
when issued, would be used to pay off a new term loan before they would be
available for other purposes as required by our term loan agreement.

On June 28, 2000, we entered into a $600 million, multi-year term loan
that replaced two revolving credit facilities which matured on June 30, 2000.
The proceeds of the term loan were used to retire short term debt. The term loan
is secured by first mortgage bonds of the company and KGE and has a maturity
date of March 17, 2003.

Maturities of the term loan through March 17, 2003, are as follows:

On July 28, 2000, we and KGE entered into an agreement to sell, on an

27
<PAGE>

ongoing basis, all of our accounts receivable arising from the sale of
electricity to WR Receivables Corporation, a special purpose entity wholly owned
by the company. The agreement expires on July 26, 2001, and is annually
renewable upon agreement by both parties. The special purpose entity has sold
and, subject to certain conditions, may from time to time sell, up to $125
million (and upon request, subject to certain conditions, up to $175 million) of
an undivided fractional ownership interest in the pool of receivables to a
third-party, multi-seller receivables funding entity affiliated with a lender.
Proceeds of approximately $115 million were received on the date of sale.

Cash Flows from Operating Activities

Cash provided by operations decreased approximately $44 million
primarily due to income taxes paid on the gain on the sale of marketable
securities in 2000.

Cash Flows from Investing Activities

Investing activities provided net cash flow of $31 million in the first
six months of 2000. The proceeds on sale of marketable securities of
approximately $217 million was offset by $170 million of capital additions which
included costs associated with two new combustion turbine generators which were
placed in service in June 2000.

Investing activities used net cash flow of $296 million in the first
six months of 1999 due primarily to Protection One's use of approximately $175
million for customer account and security alarm business acquisition.

Cash Flows from Financing Activities

We had a net use of cash for financing activities totaling $103 million
in the first six months of 2000 due primarily to net payments on short term and
long term debt. In June 2000, we received $600 million of proceeds on a multi-
year term loan, which was used to replace two revolving credit facilities, which
matured at the end of the second quarter. The proceeds from the sale of
marketable securities was also used to reduce short term debt, to retire $75
million in current maturities of first mortgage bonds and to purchase and retire
Protection One bonds.

We had net cash provided from financing activities totaling $193
million in the first six months of 1999 due primarily to proceeds of short term
and long term debt of $246 million.

Debt Repurchase Plan

We may from time-to-time purchase our and Protection One's debt and
equity securities in the open market or through negotiated transactions. The
timing and terms of purchases, and the amount of debt actually purchased, will
be determined by the company based on market conditions and other factors.

Dividend Policy

Our board of directors reviews our dividend policy from time to time.
Among the factors the board of directors considers in determining our dividend
policy are earnings, cash flows, capitalization ratios, competition, financial
loan covenants and regulatory conditions. In March 2000, we announced a new
dividend policy of a quarterly dividend of $0.30 per share, or $1.20 per share
on an annual basis as, and when, declared by the board of directors. On July 3,
2000, the second quarter dividend was paid at the rate of $0.30 per common
share.

28
<PAGE>

OTHER INFORMATION

Electric Utility

KCC Proceeding: On March 16, 2000, the Kansas Industrial Consumers
(KIC), an organization of commercial and industrial users of electricity in
Kansas, filed a complaint with the Kansas Corporation Commission (KCC)
requesting an investigation of Western Resources' and KGE's rates. The KIC
alleges that these rates are not based on current costs. Western Resources, KGE
and the KCC staff reached an agreement on August 8, 2000, for Western Resources
and KGE to file a rate case on or before November 25, 2000. As a result, on
August 8, 2000, we, KGE and the KCC Staff filed a motion with the KCC to approve
the agreement and requested an order disposing of the KIC complaint.

FERC Proceeding: In September 1999, the City of Wichita filed a
complaint with the FERC against us, alleging improper affiliate transactions
between KPL and KGE. The City of Wichita is asking that the FERC equalize the
generation costs between KPL and KGE, in addition to other matters. The FERC has
issued an order setting this matter for hearing and has referred the case to a
settlement judge. The hearing has been suspended pending settlement discussions
between the parties. These settlement talks continue with additional discussions
scheduled to be held before the settlement judge in early September 2000. We
believe that the City of Wichita's complaint is without merit and intend to
defend against it vigorously.

Nuclear Decommissioning: On September 1, 1999, Wolf Creek submitted the
1999 Decommissioning Cost Study to the KCC for approval. The KCC approved the
1999 Decommissioning Cost Study on April 26, 2000. Based on the study, our share
of Wolf Creek's decommissioning costs, under the immediate dismantlement method,
is estimated to be approximately $631 million during the period 2025 through
2034, or approximately $221 million in 1999 dollars. These costs were calculated
using an assumed inflation rate of 3.6% over the remaining service life from
1999 of 26 years. On May 26, 2000, we filed an application with the KCC
requesting approval of the funding of our decommissioning trust on this basis.

Monitored Services Business

Attrition: Customer attrition for our monitored services business is
summarized below:

Customer Account Attrition
----------------------------------------
June 30, 2000 June 30, 1999
------------------- -------------------

29
<PAGE>

Annualized Trailing Annualized Trailing
Second Twelve Second Twelve
Quarter Month Quarter Month
---------- -------- ---------- --------
North America . . . . . . . 14.2% 15.5% 15.9% 11.9%
Europe (a). . . . . . . . . 8.9% 10.1% 8.7% (a)
Multifamily . . . . . . . . 16.1% 9.9% 9.7% 5.9%

(a) European operations were acquired in 1998.

Protection One experienced high levels of attrition for North America
in 1999 with quarterly annualized attrition reaching peak levels of 15.9%, 19.1%
and 16.3% in the second, third and fourth quarters. The quarterly annualized
attrition rate for North America in the first quarter of 2000 was 11.9% as
compared to 11.2% in the first quarter of 1999. The quarterly annualized
attrition rate for North America in the second quarter of 2000 increased to
14.2% from 11.9% in the first quarter, but decreased from the 1999 second
quarter attrition rate of 15.9%. Protection One's management believes the
general decline in attrition for North America from the peak levels in 1999 is a
result of efforts to improve customer service and collections of outstanding
accounts. The increase in the attrition rate for Multifamily in the second
quarter of 2000 is due to nonpayment of approximately 7,000 customers related to
one developer. Had these accounts not attrited, the annualized quarterly
attrition for Multifamily would have been approximately 7.2% and the twelve
months trailing attrition percentage for Multifamily would have been
approximately 7.5%. Protection One is pursuing contractual remedies for the
nonpayment of these accounts.

Our monitored services segment had a net decrease of 91,000 customers
from June 30, 1999 to June 30, 2000. The decrease in customers is primarily
attributable to the significant decrease in the number of accounts being
purchased by Protection One from dealers which has not yet been offset by
purchases from other customer acquisition strategies.

SEC Review: As we have previously disclosed, Protection One, our
approximately 85%-owned subsidiary, has been advised by the Staff of the
Division of Corporation Finance of the Securities and Exchange Commission that,
in its view, there are errors in Protection One's previously filed financial
statements that are material and which, in the view of the Staff, have had the
effect of inflating reported earnings commencing with the year ended December
31, 1997. Protection One has had extensive discussions and held meetings with
the Staff, and exchanged numerous letters extending over a period of more than
18 months, about the purchase price allocated to intangible customer accounts in
the Multifamily and Westinghouse Security Systems acquisitions, the methodology
Protection One has used to amortize intangible customer accounts and other
matters. In Protection One's Form 10-Q for the quarter ended September 30 1999,
it disclosed that Protection One restated its financial statements for 1998 and
for the quarters ended March 31, 1999, and June 30, 1999, to reallocate portions
of the initial purchase price for acquired businesses in its Multifamily
business

30
<PAGE>

segment. The reallocations involved an increase of the amount allocated to
customer accounts by $19 million, a reduction of goodwill by $13 million and an
increase in deferred taxes payable by $6 million. In addition, following the
conclusion of a comprehensive review of Protection One's amortization policy
undertaken during the third quarter of 1999, Protection One changed the method
it had historically used for amortizing the cost of customer accounts for its
North American and European customer pools. The method used for these pools
changed from a straight-line amortization over ten years to a ten-year 130%
declining balance method in the case of the North America pool and a 125%
declining balance method in the case of the Europe pool. The adoption of the
declining balance method effectively shortened the estimated expected average
customer life of these two customer pools. For further discussion of these
changes and their effect on Protection One's and Western Resources' financial
results, see Protection One's and our Forms 10-Q for the quarter ended September
30, 1999.

Protection One responded by letter dated May 31, 2000, to each of the
comments contained in the Staff`s May 16th letter, indicated its strong
disagreement with the views of the Staff and stated its belief that there are no
issues of "inflated earnings," "departures from GAAP," or "errors" in its
historic financial statements. Our and Protection One's independent public
accountants, Arthur Andersen LLP, indicated they concurred with the accounting
decisions of Protection One.

After another exchange of letters in June as a result of which
Protection One supplied more information to the Staff, on July 6, 2000,
Protection One personnel and their advisors met with members of the Staff.

31
<PAGE>

of the Westinghouse security business "could" be indicative of "manipulative
intent" a statement with which we and Protection One strongly disagree.

By letter dated July 25, 2000, Protection One advised the Staff of
Protection One's strong disagreement with the views of the Staff regarding these
accounting matters. Arthur Andersen LLP has reviewed the correspondence, been
consulted on responses to the SEC and have confirmed to the SEC staff that they
are not aware of modifications needed to fairly present our or Protection One's
historical financial statements.

At present, neither we nor Protection One are able to predict the
outcome of our disagreements with the Staff. To date, Protection One's
discussions with the Staff have occurred over 18 months and the process of
resolving these matters could extend over a protracted period. Were we and
Protection One to make revisions to our financial statements, based upon our
understanding of the Staff's request (the Staff has never indicated what values
alternative to the ones used by Protection One it would find to be acceptable),
such revisions would result in a material adverse effect on our financial
position and results of operations. Neither we nor Protection One can predict
what action the Staff may take, including enforcement action, that will further
impact us or our financial statements, or the effect or timing of any such
action if taken.

Market Risk

During the six months ended June 30, 2000, our balance in marketable
securities declined approximately $171.9 million from December 31, 1999, due to
the sale of a significant portion of our marketable security portfolio.

The value of our marketable security portfolio has declined
significantly and we do not expect to be materially impacted by changes in the
market prices of our remaining investments. We have not experienced any other
significant changes in our exposure to market risk since December 31, 1999.

New Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133, as amended, is
effective for fiscal years beginning after June 15, 2000. SFAS 133 cannot be
applied retroactively. We are currently evaluating commodity contracts and
financial instruments to determine what, if any, effect adopting SFAS 133 might

32
<PAGE>

have on our financial statements. We have not yet quantified all effects of
adopting SFAS 133 on our financial statements; however, SFAS 133 could increase
volatility in earnings and other comprehensive income. We plan to adopt SFAS 133
as of January 1, 2001.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------

Information relating to the market risk disclosure is set forth in
Other Information of Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations included herein.

33
<PAGE>

WESTERN RESOURCES, INC.
Part II Other Information

ITEM 1. LEGAL PROCEEDINGS
--------------------------

The company, its subsidiary Westar Capital, 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, "Ronald Cats, et al., v. Protection One,
Inc., et. al.", No. CV 99-3755 DT (RCx). Pursuant to an Order dated August 2,
1999, four pending purported class actions were consolidated into a single
action. In March 2000, plaintiffs filed a Second Consolidated Amended Class
Action Complaint (the Amended Complaint). Plaintiffs purport to bring the action
on behalf of a class consisting of all purchasers of publicly traded securities
of Protection One, including common stock and notes, during the period of
February 10, 1998, through November 12, 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 (GAAP). Plaintiffs allege, among
other things, that former employees of Protection One 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 Capital 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. On June 12, 2000,
the company, Protection One and other defendants filed motions to dismiss in
part the Amended Complaint. These motions are currently pending. 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.

For other proceedings affecting the company, see Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations which
is incorporated herein by reference.

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
------------------------------------------------------------

The company's Annual Meeting of Shareholders was held on June 15, 2000.

34
<PAGE>

At the meeting, the shareholders, representing 57,894,289 shares either in
person or by proxy, voted to:

Elect the following directors to serve a term a three years:

Votes
-----------------------
For Against
---------- ---------
Charles Q. Chandler, IV . . . . 52,006,375 5,887,914
John C. Dicus . . . . . . . . . 51,983,117 5,911,172
Owen F. Leonard . . . . . . . . 51,946,018 5,948,271

The following directors will continue to serve their unexpired terms:
Gene A. Budig, John C. Nettels, Jr., David C. Wittig, Frank J. Becker, Louis W.
Smith, and Jane Dresner Sadaka.

ITEM 5. OTHER INFORMATION
--------------------------

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

(a) Exhibits:

Exhibit 12 - Computation of Ratio of Consolidated Earnings
to Fixed Charges for Six Months Ended
June 30, 2000 (filed electronically)

Exhibit 27 - Financial Data Schedule (filed electronically)

(b) Reports on Form 8-K filed during the quarter ended June 30, 2000:

Form 8-K filed April 10, 2000 - Press release announcing Western
Resources may from time-to-time purchase its debt securities and
preferred stock.

Form 8-K filed May 18, 2000 - Press release announcing Western
Resources' board of directors authorized management to explore a
variety of strategic alternatives for its electric utility
operations.

35
<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 August 14, 2000 By /s/ JAMES A.MARTIN
-------------------------------- ------------------------------------
JAMES A.MARTIN
Senior Vice President
and Treasurer

Date August 14, 2000 By /s/ LEROY P. WAGES
-------------------------------- ------------------------------------
Leroy P. Wages, Controller