FORM U-3A-2
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
Statement by Holding Company Claiming
Exemption Under Rule 2 from the
Provisions of the Public Utility Holding
Company Act of 1935
WESTERN RESOURCES, INC.
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WESTERN RESOURCES, INC. ("WRI") hereby files with the Securities and
Exchange Commission, pursuant to Rule 2, its statement claiming exemption as a
holding company from the provisions of the Public Utility Holding Company Act of
1935 (the "Act") and submits the following information:
ITEM 1. Name, State of Organization, Location And Nature of Business of
Claimant And Every Subsidiary Thereof, Other Than Any Exempt Wholesale Generator
(EWG) or Foreign Utility Company.
WRI is a Kansas corporation whose principal executive offices are located
at 818 South Kansas Avenue, Topeka, Kansas 66612. WRI's mailing address is P.O.
Box 889, Topeka, Kansas 66601.
During 1999, WRI's principal business consisted of the production,
purchase, transmission, distribution and sale of electricity. WRI provided
retail electric service to approximately 341,000 industrial, commercial and
residential customers in 324 Kansas communities. WRI also provided wholesale
electric generation and transmission services to numerous municipal customers
located in Kansas and, through interchange agreements, to surrounding integrated
systems. WRI's subsidiaries (as defined in the Act) are as follows:
A. Kansas Gas and Electric Company ("KGE"), a Kansas corporation, with its
principal offices at 120 East First Street, Wichita, Kansas 67201 is a
wholly-owned subsidiary of WRI. KGE provides electric services to
customers in the southeastern portion of Kansas, including the Wichita
metropolitan area. At December 31, 1999, KGE rendered electric services at
retail to approximately 287,000 residential, commercial and industrial
customers and provided wholesale electric generation and transmission
services to numerous municipal customers located in Kansas, and through
interchange agreements, to surrounding integrated systems. KGE does not
own or operate any gas properties. KGE's subsidiary is as follows:
1. Wolf Creek Nuclear Operating Corporation ("WCNOC"), a Delaware
Corporation, with principal offices at 1550 Oxen Lane, N.E., Burlington,
Kansas 66839. WCNOC is owned 47% by KGE and operates the Wolf Creek
Generating Station on behalf of the plant's owners.
B. The Wing Group, Limited Co., a Delaware corporation, with principal offices
at 818 South Kansas Avenue, Topeka, Kansas 66612. The Wing Group, Limited
Co., a wholly-owned subsidiary of WRI, is a developer of international
power generation projects. The Wing Group, Limited Co.'s subsidiary is as
follows:
1. The Wing Group International, Inc., a Cayman Islands corporation with
principal offices in the Cayman Islands. The Wing Group International,
Inc. is a developer of power generation projects in China.
C. Westar Capital, Inc. ("Westar Capital"), a Kansas corporation with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612, is a
wholly-owned subsidiary of WRI. Westar Capital is a holding company for
certain non-regulated business subsidiaries of WRI. Westar Capital's
subsidiaries are as follows:
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1. Onsite Energy Corporation, a Delaware corporation with principal
offices at 701 Palomar Airport Road, Suite 200, Carlsbad, California
92009. Onsite is a provider of energy-related services to commercial
and industrial customers. Westar Capital, Inc. owns approximately 35.5%
of Onsite common and convertible preferred stock.
2. Protection One, Inc., a Delaware corporation, with principal offices at
6011 Bristol Parkway, Culver City, California 90230. Protection One,
Inc. is a holding company for monitored security alarm businesses.
Westar Capital, Inc. owns approximately 85% of Protection One, Inc.
Protection One, Inc.'s subsidiaries are as follows:
a. Protection One Investments, Inc., a Delaware corporation, with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612.
Protection One Investments was established for the purpose of holding
investments. (Note: Protection One Investments, Inc. was acquired by
Westar Capital, Inc. on 2/29/2000.)
b. Protection One Alarm Monitoring, Inc., a Delaware corporation with
principal offices at 6011 Bristol Parkway, Culver City, California
90230. Protection One Alarm Monitoring, Inc. is a provider of home
security services. Protection One Alarm Monitoring, Inc.'s
subsidiaries are as follows:
i. Network Multi-Family Security Corporation, a Delaware
corporation with principal offices at 14275 Midway Road,
Suite 400, Addison, Texas 75001. Network Multi-Family
Security Corporation is a provider of multi-family electronic
monitored security services.
ii. Protection One Alarm Monitoring of Mass., Inc., a Delaware
corporation with principal offices at 6011 Bristol Parkway,
Culver City, California 90230. Protection One Alarm Monitoring
of Mass., Inc. is a provider of security alarm services.
iii. Protection One Canada, Inc., a corporation organized under the
laws of Ontario, Canada, with principal offices at 1
Valleybrook Drive, Don Mills, Ontario, M3B 2S7, Canada.
Protection One Canada, Inc. is a provider of security alarm
services. Protection One Canada, Inc.'s subsidiary is as
follows:
(1) Canguard, Inc., a corporation organized under the laws
of Ontario, Canada, with principal offices at 1
Valleybrook Drive, 1st Floor, Don Mills, Ontario, M3B 2S7
Canada. Canguard, Inc. is a provider of security alarm
services.
iv. Security Monitoring Services, Inc., a Florida corporation with
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principal offices at 6225 N. State Highway 161, Suite 400,
Irving, Texas 75063. Security Monitoring Services, Inc. is a
provider of security alarm services.
v. Protection One (UK) plc, a public limited company organized
under the laws of the United Kingdom, with principal offices at
Protection House, The Loddon Business Centre, Roentgen Road,
Basingstoke, Hampshire RG24 8NG, United Kingdom. Protection
One (UK) plc is a provider of security alarm services. (Note:
Protection One (UK) plc was acquired by Westar Capital, Inc. on
2/29/2000.)
vi. Protection One International, Inc., a Delaware corporation with
principal offices at 818 South Kansas Avenue, Topeka, Kansas
66612. Protection One International, Inc. is a provider of
security alarm services. (Note: Protection One International,
Inc. was acquired by Westar Capital, Inc. on 2/29/2000.)
Protection One International, Inc.'s subsidiaries are as
follows:
(1) Protection One France, EURL, a corporation organized
under the laws of France, with principal offices at
Techno-Parc du Griffon, 840, Route de la Seds, 13127
Vitrolles, France. Protection One France, EURL is a
provider of security alarm services. Protection
One France, EURL's subsidiaries are as follows:
(a) Compagnie Europeenne de Telesecurite, S.A. ("CET")
a corporation organized under the laws of France,
with principal offices at 140, boulevard
Malesherbes, 75017 Paris, France. CET is a
provider of security alarm services. CET 's
subsidiaries are as follows:
(i) Actar, a corporation organized under the
laws of France, with principal offices at
21 rue Auguste Perret, 94808 Villejuif,
France. Actar is a provider of security
alarm services. Actar 's subsidiaries are
as follows:
(A) Orion Bataille, a corporation organized
under the laws of France, with
principal offices at 2 av de la
Bourdiniere, 22120 Yffigniac, France.
Orion Bataille is a provider of alarm
monitoring services.
(B) Surveilance Electronique, a corporation
organized under the laws of France,
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with principal offices at 133 route de
Versailles, 92410 Ville d'Avray,
France. Surveilance Electronique is a
provider of security alarm services.
(ii) CET Benelux S.A., a corporation organized
under the laws of Belgium, with principal
offices at 440, boulevard Lambermont, 1030
Brussels, Belgium, is a provider of security
alarm services. CET Benelux S.A. is 90% owned
by CET. The subsidiaries of CET Benelux S.A.
are as follows:
(A) CET Nederland, a corporation organized
under the laws of the Netherlands, with
principal offices at
Vreeswykscstraatweg, NL 3432 NA
Nieuwegein, Netherlands. CET Nederland
is a provider of alarm monitoring
services.
(B) E.S. Beveiliging, a corporation
organized under the laws of
Belgium, with principal offices at Bd
Lambermont 440, 1030 Bruxelles,
Belgium. E.S. Beveiliging installs
alarm monitoring systems.
(C) Consutron Nederland Teleshop BV, a
corporation organized under the laws of
the Netherlands, with principal offices
at Markendaalseweg 329/19, 4811 KB
Breda, Netherlands. Consutron Nederland
Teleshop BV administrates and installs
alarm monitoring systems.
(iii) C.E.T. (Suisse), S.A., a corporation
organized under the laws of Switzerland, with
principal offices at Nyon, Switzerland.
C.E.T. (Suisse), S.A. is a provider of
security alarm services. The subsidiary of
C.E.T. (Suisse), S.A. is as follows:
(A) Telra, a corporation organized
under the laws of Switzerland, with
principal offices at Chemin des Champs
Courbes 15, 1024 Ecublens, Switzerland.
Telra installs phone network alarm
systems.
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(iv) C.E.T. Germany (Sicherheirsdienste GmbH), a
corporation organized under the laws of
Germany, with principal offices at Am
Meerkamp 23, 40667 Meerbush, Germany, is a
provider of alarm monitoring services.
C.E.T. Germany (Sicherheirsdienste GmbH) is
95% owned by CET.
(v) Croise Laroche, a corporation organized under
the laws of France, with principal offices
at 140 boulevard Malesherbes, 75017 Paris,
France, is a provider of security alarm
services. Croise Laroche is 92.4% owned by
CET.
(vi) Eurocontact, a corporation organized under
the laws of France, with principal offices
at Les Docks Atrium 102, 10, Place de la
Joliette, 13304 Marseille, Cedex 2, France.
Eurocontact is a provider of security alarm
services.
(vii) France Reseau Telesecurite ("F.R.T."), a
corporation organized under the laws of
France, with principal offices at 140,
boulevard Malesherbes, 75017 Paris, France.
F.R.T. is a provider of security alarm
services.
(viii)Protection One Europe, a corporation
organized under the laws of France,
with principal offices at 16 rue Antonin
Raynaud, 92300 Levallois-Perret, France.
Protection One Europe is a provider of
residential alarm monitoring services.
(ix) Eurostation, a corporation organized under
the laws of France, with principal offices at
840 route de la Seds, Technoparc du Griffon,
13127 Vitrolles, France. Eurostation is a
security alarm monitoring station.
(x) E.D.E., a corporation organized under the
laws of France, with principal offices at
Espace Cristal, 89100 Saint-Clement, France.
E.D.E. provides monitoring assistance to
individuals.
3. Westar Aviation, Inc. a Kansas corporation with principal offices at
818 South Kansas Avenue, Topeka, Kansas 66612. Westar Aviation,
Inc. leases and maintains planes for corporate transportation
purposes.
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4. Westar Communications, Inc., a Kansas corporation, with principal
offices at 1324 S. Kansas Avenue, Topeka, Kansas 66612. Westar
Communications, Inc. operates a paging system in Kansas.
5. Westar Limited Partners, Inc., a Kansas corporation, with principal
offices at 818 South Kansas Avenue, Topeka, Kansas 66612. Westar
Limited Partners, Inc. participates in limited partnerships and
investments of Westar Capital, Inc.
6. Westar Limited Partners II, Inc., a Kansas corporation, with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612.
Westar Limited Partners, Inc. participates in limited partnerships
and investments of Westar Capital, Inc.
7. Wing Colombia, L.L.C., a Delaware limited liability company with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612.
Wing Colombia, L.L.C. is a holding company for EWG's. The subsidiaries
of Wing Columbia, L.L.C. are as follows:
a. Merilectrica I, S.A., a sociedad anonima organized under the laws
of the Republic of Colombia with principal offices in Colombia,
South America. This company is the general partner of
Merilectrica I, S.A. & Cia, S.C.A. E.S.P., an EWG and 36.75% owned
by Wing Colombia L.L.C.
b. TLC International LDC a limited duration company organized under the
laws of the Cayman Islands with principal offices at x/o W.S. Walker
& Co., Claredonian House, Georgetown Grand Cayman's, Cayman Islands.
This Company is an EWG and 36.75% owned by Wing Colombia L.L.C.
c. Merilectrica I, S.A. & Cia, S.C.A. E.S.P., a sociedad en comandita
por acciones organized under the law of the Republic of Colombia with
principal offices in Colombia, South America. This company is the
general partner of Merilectrica I, S.A. and 36.75% owned by Wing
Colombia L.L.C.
8. Westar Financial Services, Inc., a Kansas corporation, with principal
offices at 818 South Kansas Avenue, Topeka, Kansas 66612. Westar
Financial Services, Inc. holds certain investments of Westar Capital,
Inc.
a. Paradigm Direct, L.L.C., a Delaware limited liability company, with
principal offices at Two Executive Drive, Fort Lee, New Jersey 07024,
develops and manages marketing programs and strategies. Westar
Financial Services, Inc. owns approximately 40% of Paradigm Direct,
L.L.C.
D. Western Resources (Bermuda) Ltd., a Bermuda limited liability company
with principal offices at Clarendon House, Two Church Street, Hamilton HM
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11, Bermuda. Western Resources (Bermuda) Ltd. is a holding company to
hold the interest of WRI in CPI-Western Power Holdings Ltd. and other
potential international projects. Western Resources (Bermuda) Ltd.'s
subsidiaries are as follows:
1. CPI-Western Power Holdings Ltd., a Bermuda limited liability company.
Western Resources (Bermuda) Ltd. owns 50% of CPI-Western Power
Holdings Ltd. a master joint venture which develops power generation
projects in China. CPI-Western Power Holdings Ltd.'s subsidiaries
are as follows:
a. Western Resources International Limited is a limited liability
company organized under the laws of Mauritius. Western Resources
International Limited is a holding company for EWG's in China.
i. Zhengzhou Dengwai Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yangcheng
Industrial Zone, Dengfeng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic of China.
This company is an EWG and 49% owned by Western Resources
International Limited.
ii. Zhengzhou Dengyuan Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yancheng
Industrial Zone, Dengfeng Municipality, Henan Province,
People's Republic of China. This company is an EWG and 49%
owned by Western Resources International Limited.
iii. Zhengzhou Huadeng Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yangcheng
Industrial Zone, Dengfeng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic of China.
This company is an EWG and 49% owned by Western Resources
International Limited.
iv. Zhengzhou Huaxin Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yancheng
Industrial Zone, Dengfeng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic of China.
This company is an EWG and 49% owned by Western Resources
International Limited.
2. Western Resources I (Cayman Islands) Limited is a limited liability
company organized under the laws of the Cayman Islands with principal
offices at 818 South Kansas Avenue, Topeka, Kansas 66612. Western
Resources I (Cayman Islands) Limited was established to develop power
generation projects. Western Resources I (Cayman Island) Limited's
subsidiary is as follows:
a. Western Resources II (Cayman Islands) Limited is a limited
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liability company organized under the laws of the Cayman Islands with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612.
Western Resources II (Cayman Islands) Limited was established to
develop power generation projects.
E. Western Resources Capital I and II are Delaware business trusts with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612. Western
Resources Capital I and II were established for the purpose of issuing
securities.
F. Wing Turkey, Inc. is a Delaware corporation with principal offices at 818
South Kansas Avenue, Topeka, Kansas 66612. Wing Turkey, Inc. is a holding
company for potential power projects in Turkey. Wing Turkey, Inc.'s
subsidiaries are as follows:
1. Wing International, Ltd. is a Texas limited liability corporation
with principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612.
Wing International, Ltd. is a holding company for an EWG in Turkey.
Wing International, Ltd.'s investment is in:
a. Trakya Elektrik Uretim VE Ticaret A.S., a Republic of Turkey
corporation with principal offices at P.K. 13, Marmara Ereglsi 59740
Tekirdag. This company is an EWG and 9% owned by Wing International,
Ltd.
G. Westar Generating, Inc., a Kansas corporation, with principal offices at
818 South Kansas Avenue, Topeka, Kansas 66612. Westar Generating, Inc.
holds interests in electric power plants.
H. Westar Generating II, Inc., a Kansas corporation, with principal offices at
818 South Kansas Avenue, Topeka, Kansas 66612. Westar Generating II, Inc.
holds interests in electric power plants.
I. Dormant subsidiaries of WRI:
1. Contract Compression, Inc., a Texas corporation.
2. Gas Service Energy Corporation, a Delaware corporation.
3. KPL Funding, Inc., a Kansas corporation.
4. Rangeline, Inc., a Kansas corporation.
5. The Kansas Power and Light Company, a Kansas corporation.
6. The Comfort Zone, Inc., a Kansas corporation.
7. WR Services, Inc., a Kansas corporation.
8. Westar Energy, Inc., a Kansas corporation.
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9. Astra Resources, Inc., a Kansas corporation.
a. Westar Energy Investments, Inc., a Kansas corporation.
J. Dormant subsidiary of The Wing Group, Limited Co.:
1. Wing Thailand, Inc., a Delaware corporation.
K. Dormant subsidiaries of Protection One, Inc.:
1. Protection One Acquisition Holding Corporation, a Delaware corporation.
a. P-1 Merger Sub., Inc. (Delaware), a Delaware corporation.
b. P-1 Merger Sub., Inc. (Mass.), a Massachusetts corporation.
L. Dormant subsidiary of Protection One Alarm Monitoring, Inc.:
1. Protection One Security Limited, a private limited company organized
under the laws of the United Kingdom.
M. Dormant subsidiaries of Protection One (UK) plc:
1. Masco Holdings Limited, a private limited company organized under the
laws of the United Kingdom.
a. Masco Security Systems Limited, a private limited company organized
under the laws of the United Kingdom.
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ITEM 2. Description of The Properties of Claimant And Each of Its
Subsidiary Public Utility Company Used for the Generation, Transmission, and
Distribution of Electric Energy for Sale.
A. The principal electric generating stations of WRI, all of which are
located in Kansas, are as follows:
Accredited
Capacity - MW
Name and Location (WRI's Share)
Coal
JEC Unit 1, near St. Marys..................... 476
JEC Unit 2, near St. Marys..................... 474
JEC Unit 3, near St. Marys..................... 475
Lawrence Energy Center, near Lawrence.......... 572
Tecumseh Energy Center, near Tecumseh.......... 243
Subtotal................................. 2,240
Gas/Oil
Hutchinson Energy Center, near Hutchinson...... 415
Abilene Energy Center, near Abilene............ 70
Tecumseh Energy Center, near Tecumseh.......... 41
Subtotal........................... 526
Diesel
Hutchinson Energy Center ...................... 86
Wind
JEC Wind Turbine 1, near St. Marys............. 0.5
JEC Wind Turbine 2, near St. Marys............. 0.5
Subtotal........................... 1.0
Total Accredited Capacity...................... 2,853 MW
WRI maintains 10 interconnections with 6 other public utilities to permit
direct extra-high voltage interchange. WRI is also a member of the Southwest
Power Pool, the regional coordinating council for electric utilities throughout
the south-central United States.
WRI owns a transmission and distribution system which enables it to supply
its service area. Transmission and distribution lines, in general, are located
by permit or easement on public roads and streets or the lands of others. All
such transmission and distribution systems are located within the State of
Kansas.
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B. The principal electric generating stations of KGE, all of which are
located in Kansas, are as follows:
Accredited
Capacity - MW
Name and Location (KGE's Share)
Nuclear
Wolf Creek, near Burlington ....................... 550
Coal
LaCygne Unit 1, near LaCygne ...................... 344
LaCygne Unit 2, near LaCygne ...................... 337
JEC Unit 1, near St. Mary's ....................... 149
JEC Unit 2, near St. Mary's ....................... 148
JEC Unit 3, near St. Mary's ....................... 148
Subtotal............................... 1,126
Gas/Oil
Gordon Evans, Wichita ............................. 527
Murray Gill, Wichita............................... 332
Neosho, Neosho..................................... 67
Subtotal .............................. 926
Diesel
Wichita, Wichita................................... 3
Wind
JEC Wind Turbine 1, near St. Marys................. (a)
JEC Wind Turbine 2, near St. Marys................. (a)
Total Accredited Capacity ......................... 2,605 MW
(a) KGE's share is less than 0.5 MW
KGE maintains 9 interconnections with 5 other public utilities to permit
direct extra-high voltage interchange. KGE is also a member of the Southwest
Power Pool, the regional coordinating council for electric utilities throughout
the south-central United States.
KGE owns a transmission and distribution system which enables it to supply
its service area. Transmission and distribution lines, in general, are located
by permit or easement on public roads and streets or the lands of others. All
such transmission and distribution systems are located within the State of
Kansas.
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ITEM 3. Information for the Last Calendar Year with Respect to Claimant and
Each of its Subsidiary Public Utility Companies.
A. Number of KWH of electric energy sold (at retail or wholesale):
For the year ended December 31, 1999, WRI sold 8,996,335,000 KWH of
electric energy at retail, 3,785,226,000 KWH of electric energy at
wholesale. For the year ended December 31, 1999, KGE sold 8,607,403,000
KWH of electric energy at retail and 1,831,943,000 KWH of electric energy
at wholesale.
B. Number of KWH of electric energy distributed at retail outside the State
in which each company is organized:
During 1999, neither WRI nor its subsidiaries distributed or sold electric
energy at retail outside the State of Kansas.
C. Number of KWH of electric energy sold at wholesale outside the State in
which each company is organized:
During 1999, WRI sold, at wholesale, 1,358,147,000 KWH of electric energy
to adjoining public utilities through interconnections at the Kansas state
line. During 1999, KGE sold, at wholesale, 1,068,313,000 KWH of electric
energy to adjoining public utilities through interconnections at the
Kansas state line. During 1999, neither WRI or KGE sold natural or
manufactured gas at wholesale outside the state of Kansas or at the Kansas
state line.
D. Number of KWH of electric energy purchased outside the State in which
each company is organized:
During 1999, WRI purchased 148,516,000 KWH of electric energy from outside
the State of Kansas or at the Kansas state line. During 1999, KGE
purchased 230,192,000 KWH of electric energy from outside the State of
Kansas or at the Kansas state line.
ITEM 4. Information for the Reporting Period with Respect to Claimant and Each
Interest it Holds Directly or Indirectly in an EWG or a Foreign Utility Company.
4.1 Merilectrica/TLC International.
A. Name, location, business address and description of the facilities used by
the EWG or foreign utility company for the generation, transmission and
distribution of electric energy for sale or for the distribution at retail
of natural or manufactured gas:
Name of EWG: Merilectrica I, S.A.
Address: Apartado Aereo 12203
Calles 5A #39 Room 194
Medellin, Colombia
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Name of EWG TLC International LDC
Address: c/o W. S. Walker & Co.
Claredonian house
P.O. Box 265
Georgetown Grand Cayman's, Cayman Islands
Location: Barrancabermeja, Santander, Colombia
Facility: 160 MW single-cycle gas fired electric generating
plant.
B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:
Wing Colombia, L.L.C., a Delaware limited liability company owns 36.3825%
directly and 0.36382% indirectly of Merilectrica I, S.A. & Cia, S.C.A.
E.S.P., ("Merilectrica") a Colombian comandita and operator of the plant,
and 36.75% of TLC International LDC, ("TLC") a Cayman limited duration
company, and owner and lessor of the equipment installed in the plant.
Merilectrica leases the equipment from TLC and owns the balance of the
plant.
C. Type and amount of capital invested, directly or indirectly, by the
holding company claiming exemption; any direct or indirect guarantee of
the security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:
Capital Invested: Approximately US $16,005,627
Guarantees: None
Other Obligations: Two letters of credit totaling $8,063,495
supporting the construction of the project exist
under which Westar Capital, Inc., a wholly owned
subsidiary of the claimant is ultimately
responsible.
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: Merilectrica - $6,446,844
TLC - US $37,480,213
Earnings: $640,000
E. Identify any service, sales or construction contract(s) between the EWG or
foreign utility company and a system company, and describe the services to
be rendered or goods sold and fees or revenues under such agreement(s):
None
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4.2 Zhengzhou Dengwei Power Co.
A. Name, location, business address and description of the facilities used by
the EWG or foreign utility company for the generation, transmission and
distribution of electric energy for sale or for the distribution at retail
of natural or manufactured gas:
Name of EWG: Zhengzhou Dengwei Power Co., Ltd.
Address: Yangcheng Industrial Zone
Dengfeng Industrial Zone,
Dengfeng Municipality, Henan Province
Location: Dengfeng Municipality, Henan Province, People's
Republic of China.
Facility: 55 MW coal-fired generating unit.
B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:
Western Resources International Limited owns a 49% interest in
Zhenzhou Dengwei Power Co., Ltd.
C. Type and amount of capital invested, directly or indirectly, by the
holding company claiming exemption; any direct or indirect guarantee of
the security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:
Capital Invested: Approximately US $5.2 million as registered
paid-in capital. Shareholder loan of
approximately US $7.9 million payable in equal
annual installments over a 20-year term.
Guarantees: None
Other Obligations: None
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: US $10.5 million
Earnings: US $2.5 million
E. Identify any service, sales or construction contract(s) between the EWG or
foreign utility company and a system company, and describe the services to
be rendered or goods sold and fees or revenues under such agreement(s):
None
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4.3 Zhengzhou Dengyuan Power Co.
A. Name, location, business address and description of the facilities used by
the EWG or foreign utility company for the generation, transmission and
distribution of electric energy for sale or for the distribution at retail
of natural or manufactured gas:
Name of EWG: Zhengzhou Dengyuan Power Co., Ltd.
Address: Yangcheng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic
of China.
Location: Dengfeng Municipality, Henan Province, People's
Republic of China.
Facility: 55 MW coal-fired generating unit.
B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:
Western Resources International Limited owns a 49% interest in
Zhengzhou Dengyuan Power Co., Ltd.
C. Type and amount of capital invested, directly or indirectly, by the
holding company claiming exemption; any direct or indirect guarantee of
the security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:
Capital Invested: Approximately US $4.9 million cash as registered
paid-in capital. Shareholder loan of
approximately US $9.8 million payable in equal
annual installments over a 20-year term.
Guarantees: None
Other Obligations: None
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: US $9.8 million
Earnings: US $2.5 million
E. Identify any service, sales or construction contract(s) between the EWG or
foreign utility company and a system company, and describe the services to
be rendered or goods sold and fees or revenues under such agreement(s):
None
<PAGE>
<PAGE>
4.4 Zhengzhou Huadeng Power Co.
A. Name, location, business address and description of the facilities used by
the EWG or foreign utility company for the generation, transmission and
distribution of electric energy for sale or for the distribution at retail
of natural or manufactured gas:
Name of EWG: Zhengzhou Huadeng Power Co., Ltd.
Address: Yangcheng Industrial Zone
Dengfeng Industrial Zone
Dengfeng Municipality, Henan Province, PRC
Location: Dengfeng Municipality, Henan Province, People's
Republic of China
Facility: 55 MW coal-fired generating unit
B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:
Western Resources International Limited owns a 49% equity interest in
Zhengzhou Huadeng Power Co., Ltd.
C. Type and amount of capital invested, directly or indirectly, by the
holding company claiming exemption; any direct or indirect guarantee of
the security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:
Capital Invested: Approximately US $4.4 million as registered
paid-in capital.
Guarantees: None
Other Obligations: None
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: Registered paid-in Capital of approximately US
$8.9 million
Earnings: $0.6 million
E. Identify any service, sales or construction contract(s) between the EWG or
foreign utility company and a system company, and describe the services to
be rendered or goods sold and fees or revenues under such agreement(s):
None
<PAGE>
<PAGE>
4.5 Zhengzhou Huaxin Power Co.
A. Name, location, business address and description of the facilities used by
the EWG or foreign utility company for the generation, transmission and
distribution of electric energy for sale or for the distribution at retail
of natural or manufactured gas:
Name of EWG: Zhengzhou Huaxin Power Co., Ltd.
Address: Yangcheng Industrial Zone
Dengfeng Industrial Zone
Dengfeng Municipality, Henan Province, PRC
Location: Dengfeng Municipality, Henan Province, People's
Republic of China
Facility: 55 MW coal-fired generating unit
B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:
Western Resources International Limited owns a 49% equity interest in
Zhengzhou Huaxin Power Co. Ltd.
C. Type and amount of capital invested, directly or indirectly, by the
holding company claiming exemption; any direct or indirect guarantee of
the security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:
Capital Invested: Approximately US $4.4 million as registered
paid-in capital.
Guarantees: None
Other Obligations: None
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: Registered paid-in Capital of approximately US
$8.9 million
Earnings: $0.6 million
E. Identify any service, sales or construction contract(s) between the EWG or
foreign utility company and a system company, and describe the services to
be rendered or goods sold and fees or revenues under such agreement(s):
None
<PAGE>
<PAGE>
4.6 Trakya Elektrik Uretim Ve Ticaret A.S.
A. Name, location, business address and description of the facilities used by
the EWG or foreign utility company for the generation, transmission and
distribution of electric energy for sale or for the distribution at retail
of natural or manufactured gas:
Name of EWG: Trakya Elektrik Uretim Ve Ticaret A.S.
Address: P.K. 13
Marmara Ereglsi 59740 Tekirdag
Location: Botas Tesisleri Mevkii
Sultankoy Beledesi
Marmara Ereglisi 59740 Tekirdag
Turkey
Facility: 478 MW combined cycle gas turbine
with four 154 KV substations.
B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:
Wing International, Ltd., a Texas limited liability company owns 9% of the
project.
C. Type and amount of capital invested, directly or indirectly, by the
holding company claiming exemption; any direct or indirect guarantee of
the security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:
Capital Invested: Approximately US $10,388,379 as paid in capital.
Approximately US $2,139,130 subordinated debt.
Guarantees: Westar Capital, Inc. has issued standby letters
of credit totaling $3,651,150.
Other Obligations: Wing Turkey, Inc. (a wholly-owned subsidiary of
the claimant and 99% parent of Wing
International, Ltd.) is a party to the "Wing
Turkey Guarantee Agreement" along with Trakya
Elektrik and Chase Manhattan Bank (as Offshore
Collateral Agent) and ABN AMRO Bank (as Funding
Agent). Under this agreement, the equity
contributions and subordinated debt
contributions, agreed to in the "Equity Funding
Agreement" are guaranteed.
D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:
Capitalization: Approximately US $139,194,573
Earnings: None
<PAGE>
E. Identify any service, sales or construction contract(s) between the EWG or
foreign utility company and a system company, and describe the services to
be rendered or goods sold and fees or revenues under such agreement(s):
None
The above-named claimant has caused this statement to be duly executed on
its behalf by its authorized officer on this 28th day of April, 2000
Western Resources, Inc.
By: /s/ Richard D. Terrill
Richard D. Terrill
Executive Vice President,
General Counsel, and
Corporate Secretary
Name, title and address of officer to whom notices and correspondence
concerning this statement should be addressed:
Richard D. Terrill
Executive Vice President, General Counsel and Corporate Secretary
Western Resources, Inc.
P.O. Box 889
818 South Kansas Avenue
Topeka, Kansas 66601
(785)575-6322
(785)575-1936 (FAX)
<PAGE>
EXHIBIT A
A consolidating statement of income and surplus of the claimant and its
subsidiary companies for the last calendar year, together with a consolidating
balance sheet of claimant and its subsidiary companies as of the close of such
calendar year:
<PAGE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1999
(Dollars in Thousands)
<CAPTION>
Kansas Gas Westar Westar
Western and Capital Generating
Resources Electric Consolidated I
<S> <C> <C> <C> <C>
ASSETS (Exhibit A-2)
CURRENT ASSETS:
Cash and cash equivalents . . . . . . $ 2,203 $ 37 $ 11,432 $ -
Accounts receivable (net) . . . . . . 85,326 178,957 118,558 -
Inventories and supplies (net). . . . 53,258 46,179 12,955 -
Marketable securities . . . . . . . . - - 177,128 -
Prepaid expenses and other. . . . . . 17,971 19,103 31,093 -
Total Current Assets. . . . . . . . 158,758 244,276 351,166 -
PROPERTY, PLANT AND EQUIPMENT (NET) . . 1,254,583 2,480,696 62,777 23,612
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . 590,109 - - -
Customer accounts (net) . . . . . . . - - 1,138,902 -
Goodwill (net). . . . . . . . . . . . - - 1,102,157 -
Regulatory assets . . . . . . . . . . 133,596 232,408 - -
Other . . . . . . . . . . . . . . . . 2,890,293 106,449 31,292 -
Total Other Assets. . . . . . . . . 3,613,998 338,857 2,272,351 -
TOTAL ASSETS. . . . . . . . . . . . . . $ 5,027,339 $ 3,063,829 $ 2,686,294 $ 23,612
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. $ 78,657 $ - $ 33,010 $ -
Short-term debt . . . . . . . . . . . 705,421 - - -
Accounts payable. . . . . . . . . . . 370,302 76,996 23,298 -
Accrued liabilities . . . . . . . . . 115,849 28,052 82,901 -
Accrued income taxes. . . . . . . . . (35,184) 70,878 15,937 -
Deferred security revenues. . . . . . - - 61,148 -
Other . . . . . . . . . . . . . . . . 29,622 6,615 35,231 -
Total Current Liabilities . . . . . 1,264,667 182,541 251,525 -
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . 1,424,613 684,271 762,264 -
Western Resources obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely company
subordinated debentures . . . . . . - - - -
Deferred income taxes and credits . . 304,197 774,961 (82,797) -
Minority interests. . . . . . . . . . - - 193,499 -
Deferred gain from sale/leaseback . . - 198,123 - -
Other . . . . . . . . . . . . . . . . 133,538 101,428 44,485 -
Total Long-Term Liabilities . . . . 1,862,348 1,758,783 917,451 -
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Cumulative preferred stock. . . . . . . . 24,858 - - -
Common stock, par value $5 per share,
150,000,000 authorized shares,
67,401,657 outstanding shares . . . . . 341,508 1,065,634 1 1
Paid-in capital . . . . . . . . . . . . . 820,945 - 1,241,370 23,611
Retained earnings . . . . . . . . . . . . 691,016 56,871 238,159 -
Accumulated other comprehensive income . 37,788 - 37,788 -
Treasury stock, at cost, 900,000 shares . (15,791) - - -
Total Shareholders' Equity. . . . . . . . 1,900,324 1,122,505 1,517,318 23,612
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY. . $ 5,027,339 $ 3,063,829 $ 2,686,294 $ 23,612
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1999
(Dollars in Thousands)
(Continued)
<CAPTION>
Westar WR The Wing
Generating II Bermuda Wing Group Turkey
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . $ - $ 1,996 $ 159 $ -
Accounts receivable (net) . . . . . . . . - (4) - 1
Inventories and supplies (net). . . . . . - - - -
Marketable securities . . . . . . . . . . - - - -
Prepaid expenses and other. . . . . . . . - 1 - 253
Total Current Assets. . . . . . . . . . - 1,993 159 254
PROPERTY, PLANT AND EQUIPMENT (NET) . . . . 67,776 - - -
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . - - - -
Customer accounts (net) . . . . . . . . . - - - -
Goodwill (net). . . . . . . . . . . . . . - - - -
Regulatory assets . . . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . - 6,801 (36) 7,386
Total Other Assets. . . . . . . . . . . - 6,801 (36) 7,386
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 67,776 $ 8,794 $ 123 $ 7,640
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ - $ - $ -
Short-term debt . . . . . . . . . . . . . - - - -
Accounts payable. . . . . . . . . . . . . - - 260 -
Accrued liabilities . . . . . . . . . . . - - (16) -
Accrued income taxes. . . . . . . . . . . - 1,302 (12,380) (225)
Deferred security revenues. . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . - 1,163 380 -
Total Current Liabilities . . . . . . . - 2,465 (11,756) (225)
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . - - - 11,918
Western Resources obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely company
subordinated debentures . . . . . . . . - - - -
Deferred income taxes and credits . . . . - (11,163) (1,616) (1,035)
Minority interests. . . . . . . . . . . . - - - -
Deferred gain from sale/leaseback . . . . - - - -
Other . . . . . . . . . . . . . . . . . . - - - -
Total Long-Term Liabilities . . . . . . - (11,163) (1,616) 10,883
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Cumulative preferred stock. . . . . . . . - - - -
Common stock, par value $5 per share,
150,000,000 authorized shares,
67,401,657 outstanding shares . . . . . 1 - - -
Paid-in capital . . . . . . . . . . . . . 67,775 32,422 50,620 2,925
Retained earnings . . . . . . . . . . . . - (14,930) (37,125) (5,943)
Accumulated other comprehensive income . - - - -
Treasury stock, at cost, 900,000 shares . - - - -
Total Shareholders' Equity . . . . . . 67,776 17,492 13,495 (3,018)
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY. . $ 67,776 $ 8,794 $ 123 $ 7,640
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1999
(Dollars in Thousands)
(Continued)
<CAPTION>
Western Western
Resources Consolidating Resources
Capital I & II Entries Consolidated
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . $ - $ - $ 15,827
Accounts receivable (net) . . . . . . . . 226,804 (380,442) 229,200
Inventories and supplies (net). . . . . . - - 112,392
Marketable securities . . . . . . . . . . - - 177,128
Prepaid expenses and other. . . . . . . . - - 68,421
Total Current Assets. . . . . . . . . . 226,804 (380,442) 602,968
PROPERTY, PLANT AND EQUIPMENT (NET) . . . . - - 3,889,444
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . - - 590,109
Customer accounts (net) . . . . . . . . . - - 1,138,902
Goodwill (net). . . . . . . . . . . . . . - - 1,102,157
Regulatory assets . . . . . . . . . . . . - - 366,004
Other . . . . . . . . . . . . . . . . . . - (2,723,563) 318,622
Total Other Assets. . . . . . . . . . . - (2,723,563) 3,515,794
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 226,804 $(3,104,005) $ 8,008,206
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . $ - $ - $ 111,667
Short-term debt . . . . . . . . . . . . . - - 705,421
Accounts payable. . . . . . . . . . . . . - (338,022) 132,834
Accrued liabilities . . . . . . . . . . . - - 226,786
Accrued income taxes. . . . . . . . . . . - - 40,328
Deferred security revenues. . . . . . . . - - 61,148
Other . . . . . . . . . . . . . . . . . . - - 73,011
Total Current Liabilities . . . . . . . - (338,022) 1,351,195
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . - - 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 credits . . . . - 1 982,548
Minority interests. . . . . . . . . . . . - - 193,499
Deferred gain from sale/leaseback . . . . - - 198,123
Other . . . . . . . . . . . . . . . . . . - - 279,451
Total Long-Term Liabilities . . . . . . 220,000 1 4,756,687
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Cumulative preferred stock. . . . . . . . - - 24,858
Common stock, par value $5 per share,
150,000,000 authorized shares,
67,401,657 outstanding shares . . . . . 6,804 (1,072,441) 341,508
Paid-in capital . . . . . . . . . . . . . - (1,418,723) 820,945
Retained earnings . . . . . . . . . . . . - (237,032) 691,016
Accumulated other comprehensive income . - (37,788) 37,788
Treasury stock, at cost, 900,000 shares . - - (15,791)
Total Shareholders' Equity . . . . . . 6,804 (2,765,984) 1,900,324
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY . $ 226,804 $(3,104,005) $ 8,008,206
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1999
(Dollars in Thousands,
except Per Share Amounts)
<CAPTION>
Kansas Gas Westar Westar
Western and Capital Generating
Resources Electric Consolidated I
(Exhibit A-2)
<S> <C> <C> <C> <C>
SALES:
Energy . . . . . . . . . . . . . . . . $ 791,358 $ 638,340 $ 1,284 $ -
Security . . . . . . . . . . . . . . . - - 605,176 -
Total Sales . . . . . . . . . . . . . 791,358 638,340 606,460 -
COST OF SALES:
Energy . . . . . . . . . . . . . . . . 341,360 137,478 144 -
Security . . . . . . . . . . . . . . . - - 184,005 -
Total Cost of Sales . . . . . . . . . 341,360 137,478 184,149 -
GROSS PROFIT. . . . . . . . . . . . . . . 449,998 500,862 422,311 -
OPERATING EXPENSES:
Operating and maintenance expense . . . 147,567 161,953 27,548 -
Depreciation and amortization . . . . . 65,595 101,160 239,988 -
Selling, general and administrative
expense. . . . . . . . . . . . . . . 91,710 65,900 198,762 -
International power development costs . - - - -
Deferred merger costs . . . . . . . . . - - - -
Total Operating Expenses. . . . . . . 304,872 329,013 466,298 -
INCOME (LOSS) FROM OPERATIONS . . . . . . 145,126 171,849 (43,987) -
OTHER INCOME (EXPENSE):
Impairment of marketable securities . . - - (76,166) -
ONEOK investment income . . . . . . . . 44,444 - - -
Investment earnings . . . . . . . . . . (24,271) 10 (11,529) -
Minority interest . . . . . . . . . . . - - 12,934 -
Other . . . . . . . . . . . . . . . . . 3,811 (3,093) 13,356 -
Total Other Income (Expense). . . . . 23,984 (3,083) (61,405) -
EARNINGS BEFORE INTEREST AND TAXES . . . 169,110 168,766 (105,392) -
INTEREST EXPENSE:
Interest expense on long-term debt. . . 105,925 45,920 84,572 -
Interest expense on short-term debt
and other. . . . . . . . . . . . . . 54,057 3,598 - -
Total Interest Expense. . . . . . . . 159,982 49,518 84,572 -
(LOSS) EARNINGS BEFORE INCOME TAXES . . . 9,128 119,248 (189,964) -
INCOME TAX (BENEFIT) EXPENSE. . . . . . . (3,331) 34,987 (66,516) -
INCOME BEFORE EXTRAORDINARY GAIN . . . . 12,459 84,261 (123,448) -
EXTRAORDINARY GAIN, NET OF TAX . . . . . - - 11,742 -
NET INCOME (LOSS) . . . . . . . . . . . . 12,459 84,261 (111,706) -
PREFERRED AND PREFERENCE DIVIDENDS. . . . 1,129 - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . $ 11,330 $ 84,261 $ (111,706) $ -
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1999
(Dollars in Thousands,
except Per Share Amounts)
(Continued)
<CAPTION>
Westar
Generating WR The Wing
II Bermuda Wing Group Turkey
<S> <C> <C> <C> <C>
SALES:
Energy . . . . . . . . . . . . . . . . $ - $ - $ - $ -
Security . . . . . . . . . . . . . . . - - - -
Total Sales . . . . . . . . . . . . . - - - -
COST OF SALES:
Energy . . . . . . . . . . . . . . . . - - - -
Security . . . . . . . . . . . . . . . - - - -
Total Cost of Sales . . . . . . . . . - - - -
GROSS PROFIT. . . . . . . . . . . . . . . - - - -
OPERATING EXPENSES:
Operating and maintenance expense . . . - - - -
Depreciation and amortization . . . . . - 264 - -
Selling, general and administrative
expense. . . . . . . . . . . . . . . - - (4,695) 2,943
International power development costs . - - - -
Deferred merger costs . . . . . . . . . - - - -
Total Operating Expenses. . . . . . . - 264 (4,695) 2,943
INCOME (LOSS) FROM OPERATIONS . . . . . . - (264) 4,695 (2,943)
OTHER INCOME (EXPENSE):
Impairment of marketable securities . . - - - -
ONEOK investment income . . . . . . . . - - - -
Investment earnings . . . . . . . . . - 2,373 (32) (2,844)
Minority interest . . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . - - 160 -
Total Other Income (Expense). . . . . - 2,373 128 (2,844)
EARNINGS BEFORE INTEREST AND TAXES. . . . - 2,109 4,823 (5,787)
INTEREST EXPENSE:
Interest expense on long-term debt. . . - - - -
Interest expense on short-term debt
and other. . . . . . . . . . . . . . - - - 591
Total Interest Expense. . . . . . . . - - - 591
(LOSS) EARNINGS BEFORE INCOME TAXES . . . - 2,109 4,823 (6,378)
INCOME TAX (BENEFIT) EXPENSE. . . . . . . - 839 1,770 (1,113)
INCOME BEFORE EXTRAORDINARY GAIN . . . . - 1,270 3,053 (5,265)
EXTRAORDINARY GAIN, NET OF TAX . . . . . - - - -
NET INCOME (LOSS) . . . . . . . . . . . . - 1,270 3,053 (5,265)
PREFERRED AND PREFERENCE DIVIDENDS. . . . - - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . $ - $ 1,270 $ 3,053 $ (5,265)
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1999
(Dollars in Thousands,
except Per Share Amounts)
(Continued)
<CAPTION>
Western Western
Resources Consolidating Resources
Capital I&II Entries Consolidated
<S> <C> <C> <C>
SALES:
Energy . . . . . . . . . . . . . . . . $ - $ - $ 1,430,982
Security . . . . . . . . . . . . . . . - - 605,176
Total Sales . . . . . . . . . . . . . - - 2,036,158
COST OF SALES:
Energy . . . . . . . . . . . . . . . . - - 478,982
Security . . . . . . . . . . . . . . . - - 184,005
Total Cost of Sales . . . . . . . . . - - 662,987
GROSS PROFIT. . . . . . . . . . . . . . . - - 1,373,171
OPERATING EXPENSES:
Operating and maintenance expense . . . - - 337,068
Depreciation and amortization . . . . . - - 407,007
Selling, general and administrative
expense. . . . . . . . . . . . . . . - (11,968) 342,652
International power development
costs . . . . . . . . . . . . . . . . - (5,632) (5,632)
Deferred merger costs . . . . . . . . . - 17,600 17,600
Total Operating Expenses. . . . . . . - - 1,098,695
INCOME (LOSS) FROM OPERATIONS . . . . . . - - 274,476
OTHER INCOME (EXPENSE):
Impairment of marketable securities . . - - (76,166)
ONEOK investment income . . . . . . . . - (44,444) -
Investment earnings . . . . . . . . . . 18,634 53,638 35,979
Minority interest . . . . . . . . . . . - - 12,934
Other . . . . . . . . . . . . . . . . . - - 14,234
Total Other Income (Expense). . . . . 18,634 9,194 (13,019)
EARNINGS BEFORE INTEREST AND TAXES. . . . 18,634 9,194 261,457
INTEREST EXPENSE:
Interest expense on long-term debt. . . - - 236,417
Interest exp. on short-term debt
and other. . . . . . . . . . . . . . - (559) 57,687
Total Interest Expense. . . . . . . . - (559) 294,104
(LOSS) EARNINGS BEFORE INCOME TAXES . . . 18,634 9,753 (32,647)
INCOME TAX (BENEFIT) EXPENSE. . . . . . . - - (33,364)
INCOME BEFORE EXTRAORDINARY GAIN . . . . 18,634 9,753 717
EXTRAORDINARY GAIN, NET OF TAX . . . . . - - 11,742
NET INCOME (LOSS) . . . . . . . . . . . . 18,634 9,753 12,459
PREFERRED AND PREFERENCE DIVIDENDS. . . . 18,075 (18,075) 1,129
EARNINGS AVAILABLE FOR COMMON STOCK . . . $ 559 $ 27,828 $ 11,330
AVERAGE COMMON SHARES OUTSTANDING . . . . 67,080,281
BASIC EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING:
EARNINGS AVAILABLE FOR COMMON STOCK
BEFORE EXTRAORDINARY GAIN . . . . . . . . $ (0.01)
EXTRAORDINARY GAIN . . . . . . . . . . . . $ 0.18
EARNINGS AVAILABLE FOR COMMON STOCK. . . . $ 0.17
</TABLE>
<PAGE>
<TABLE>
Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1999
(Dollars in Thousands)
<CAPTION>
Kansas Gas Westar Westar
Western and Capital Generating
Resources Electric Consolidated I
(Exhibit A-2)
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . $ 823,590 $ 72,611 $ 349,865 $ -
ADD:
Net income (loss) . . . . . . . . . . . 12,459 84,261 (111,706) -
Realignment of subsidiaries . . . . . . - (1) - -
Total . . . . . . . . . . . . . . . . 836,049 156,871 238,159 -
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . 1,129 - - -
Common stock. . . . . . . . . . . . . . 143,904 100,000 - -
Total . . . . . . . . . . . . . . . . 145,033 100,000 - -
BALANCE AT END OF PERIOD. . . . . . . . . $ 691,016 $ 56,871 $ 238,159 $ -
Westar The
Generating WR Wing Wing
II Bermuda Group Turkey
BALANCE AT BEGINNING OF PERIOD. . . . . . $ - $ (16,200) $ (40,179) $ (679)
ADD:
Net income (loss) . . . . . . . . . . . - 1,270 3,053 (5,265)
Realignment of subsidiaries . . . . . . - - 1 1
Total . . . . . . . . . . . . . . . . - (14,930) (37,125) (5,943)
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . - - - -
Common stock. . . . . . . . . . . . . . - - - -
Total . . . . . . . . . . . . . . . . - - - -
BALANCE AT END OF PERIOD. . . . . . . . . $ - $ (14,930) $ (37,125) $ (5,943)
Western Western
Resources Consolidating Resources
Capital I & II Entries Consolidated
BALANCE AT BEGINNING OF PERIOD. . . . . . $ - $ (365,418) $ 823,590
ADD:
Net income (loss) . . . . . . . . . . . 18,634 9,753 12,459
Realignment of subsidiaries . . . . . . - (1) -
Total . . . . . . . . . . . . . . . . 18,634 (355,666) 836,049
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . 18,075 (18,075) 1,129
Common stock. . . . . . . . . . . . . . 559 (100,559) 143,904
Total . . . . . . . . . . . . . . . . 18,634 (118,634) 145,033
BALANCE AT END OF PERIOD. . . . . . . . . $ - $ (237,032) $ 691,016
</TABLE>
<PAGE>
<TABLE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1999
(Dollars in Thousands)
<CAPTION>
Protection Westar Westar
Westar One Limited Financial
Capital Consolidated Partners Services
<S> <C> <C> <C> <C>
ASSETS (Exhibit A-3)
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . $ 3,885 $ 7,658 $ - $ -
Restricted cash . . . . . . . . . . . - 11,175 - -
Accounts receivable (net). . . . . . . 7,339 71,716 557 23
Inventories and supplies (net) . . . . - 12,908 - -
Marketable securities. . . . . . . . . 170,464 6,664 - -
Deferred tax asset . . . . . . . . . . - 28,400 - -
Tax receivable . . . . . . . . . . . . - 31,056 - -
Prepaid expenses and other . . . . . . 50 16,803 - -
Total Current Assets . . . . . . . . 181,738 186,380 557 23
PROPERTY, PLANT AND EQUIPMENT (NET). . . - 60,912 - -
OTHER ASSETS:
Investment in Protection One . . . . 1,158,821 - - -
Note receivable in Protection One. . . 224,545 - - -
Customer accounts (net) . . . . . . . - 1,139,066 - -
Goodwill (net) . . . . . . . . . . . . - 1,101,788 - -
Deferred tax asset . . . . . . . . . . - 30,771 - -
Other . . . . . . . . . . . . . . . . 13,305 39,318 326 35,384
Total Other Assets . . . . . . . . . 1,396,671 2,310,943 326 35,384
TOTAL ASSETS . . . . . . . . . . . . . . $ 1,578,409 $ 2,558,235 $ 883 $ 35,407
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt . $ - $ 35,498 $ - $ -
Accounts payable . . . . . . . . . . . - 23,205 73 -
Accrued liabilities . . . . . . . . . 9,997 74,248 - -
Accrued income taxes . . . . . . . . . 20,656 - (2,591) 498
Deferred security revenues . . . . . . - 61,149 - -
Other . . . . . . . . . . . . . . . . 12,479 20,213 - -
Total Current Liabilities . . . . . 43,132 214,313 (2,518) 498
LONG-TERM LIABILITIES:
Long-term debt (net) . . . . . . . . . - 1,077,152 - -
Deferred income taxes and credits . . (22,353) - (1,253) 8
Minority interests . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . 40,312 4,173 - -
Total Long-Term Liabilities . . . . 17,959 1,081,325 (1,253) 8
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $1 per share . 1 1,269 1 1
Paid-in capital . . . . . . . . . . . 1,241,370 1,392,750 6,720 33,911
Retained earnings . . . . . . . . . . 238,159 (129,617) (2,067) 989
Accumulated other comprehensive income 37,788 (1,805) - -
Total Shareholders' Equity . . . . . 1,517,318 1,262,597 4,654 34,901
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,578,409 $ 2,558,235 $ 883 $ 35,407
</TABLE>
<PAGE>
<TABLE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1999
(Dollars in Thousands)
(Continued)
<CAPTION>
Westar Westar
Communica- Westar Consolidating Capital
tions Aviation Entries Consolidated
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . $ 6 $ (117) $ - $ 11,432
Restricted cash . . . . . . . . . . . - - (11,175) -
Accounts receivable (net). . . . . . . 156 - 38,767 118,558
Inventories and supplies (net) . . . . 47 - - 12,955
Marketable securities. . . . . . . . . - - - 177,128
Deferred tax asset . . . . . . . . . . - - (28,400) -
Tax receivable . . . . . . . . . . . . - - (31,056) -
Prepaid expenses and other . . . . . . 54 3,011 11,175 31,093
Total Current Assets . . . . . . . . 263 2,894 (20,689) 351,166
PROPERTY, PLANT AND EQUIPMENT (NET). . . 204 1,661 - 62,777
OTHER ASSETS:
Investment in Protection One . . . . . - - (1,158,821) -
Note receivable from Protection One. . - - (224,545) -
Customer accounts (net) . . . . . . . - - (164) 1,138,902
Goodwill (net) . . . . . . . . . . . . 369 - - 1,102,157
Deferred tax asset . . . . . . . . . . - - (30,771) -
Other . . . . . . . . . . . . . . . . - 250 (57,291) 31,292
Total Other Assets . . . . . . . . . 369 250 (1,471,592) 2,272,351
TOTAL ASSETS . . . . . . . . . . . . . . $ 836 $ 4,805 $ (1,492,281) $ 2,686,294
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt . $ - $ - $ (2,488) $ 33,010
Accounts payable . . . . . . . . . . . 37 (17) - 23,298
Accrued liabilities . . . . . . . . . 43 9 (1,396) 82,901
Accrued income taxes . . . . . . . . . (5) (2,621) - 15,937
Deferred security revenues . . . . . . - - (1) 61,148
Other . . . . . . . . . . . . . . . . 50 - 2,489 35,231
Total Current Liabilities . . . . . 125 (2,629) (1,396) 251,525
LONG-TERM LIABILITIES:
Long-term debt (net) . . . . . . . . . - - (314,888) 762,264
Deferred income taxes and credits . . (26) (2) (59,171) (82,797)
Minority interests . . . . . . . . . . - - 193,499 193,499
Other . . . . . . . . . . . . . . . . - - - 44,485
Total Long-Term Liabilities . . . . (26) (2) (180,560) 917,451
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $1 per share . 1 1 (1,273) 1
Paid-in capital . . . . . . . . . . . 690 11,407 (1,445,478) 1,241,370
Retained earnings . . . . . . . . . . 46 (3,972) 134,621 238,159
Accumulated other comprehensive
income. . . . . . . . . . . . . . . - - 1,805 37,788
Total Shareholders' Equity . . . . . 737 7,436 (1,310,325) 1,517,318
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 836 $ 4,805 $ (1,492,281) $ 2,686,294
</TABLE>
<PAGE>
<TABLE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1999
(Dollars in Thousands)
<CAPTION>
Protection Westar Westar
Westar One Limited Financial
Capital Consolidated Partners Services
<S> <C> <C> <C> <C>
(Exhibit A-3)
SALES:
Energy. . . . . . . . . . . . . . . . . $ - $ - $ - $ -
Security. . . . . . . . . . . . . . . . - 605,176 - -
Total Sales . . . . . . . . . . . . . - 605,176 - -
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . - - - -
Security. . . . . . . . . . . . . . . . - 184,006 - -
Total Cost of Sales . . . . . . . . . - 184,006 - -
GROSS PROFIT. . . . . . . . . . . . . . . - 421,170 - -
OPERATING EXPENSES:
Operating and maintenance expense . . . 5 27,451 2 -
Depreciation and amortization . . . . . 1,071 237,243 - -
Selling, general and administrative
expense. . . . . . . . . . . . . . . 1,804 185,989 6 -
Other monitored services charge . . . . - 5,809 - -
Total Operating Expenses. . . . . . . 2,880 456,492 8 -
INCOME (LOSS) FROM OPERATIONS . . . . . . (2,880) (35,322) (8) -
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . (158,300) - (51) 1,253
Minority interest . . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . - 12,869 - -
Total Other Income (Expense). . . . . (158,300) 12,869 (51) 1,253
(LOSS) EARNINGS BEFORE INTEREST
AND TAXES . . . . . . . . . . . . . . . (161,180) (22,453) (59) 1,253
INTEREST EXPENSE:
Interest expense on long-term debt. . . - 87,037 - -
Interest expense on short-term debt
and other. . . . . . . . . . . . . . - - - -
Total Interest Expense. . . . . . . . - 87,037 - -
(LOSS) EARNINGS BEFORE INCOME TAXES . . . (161,180) (109,490) (59) 1,253
INCOME TAX (BENEFIT) EXPENSE. . . . . . . (36,041) (28,276) (348) 498
INCOME BEFORE EXTRAORDINARY GAIN . . . . (125,139) (81,214) 289 755
EXTRAORDINARY GAIN (LOSS) NET OF TAX. . . 13,433 (1,691) - -
NET INCOME (LOSS) . . . . . . . . . . . . (111,706) (82,905) 289 755
PREFERRED AND PREFERENCE DIVIDENDS. . . . - - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . $ (111,706) $ (82,905) $ 289 $ 755
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1999
(Dollars in Thousands)
(Continued)
<CAPTION>
Westar Westar
Communica- Westar Consolidating Capital
tions Aviation Entries Consolidated
<S> <C> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . $ 1,284 $ - $ - $ 1,284
Security. . . . . . . . . . . . . . . . - - - 605,176
Total Sales . . . . . . . . . . . . . 1,284 - - 606,460
COST OF SALES:
Energy . . . . . . . . . . . . . . . . 144 - - 144
Security. . . . . . . . . . . . . . . . - - (1) 184,005
Total Cost of Sales . . . . . . . . . 144 - (1) 184,149
GROSS PROFIT. . . . . . . . . . . . . . . 1,140 - 1 422,311
OPERATING EXPENSES:
Operating and maintenance expense . . . 44 46 - 27,548
Depreciation and amortization . . . . . 113 - 1,561 239,988
Selling, general and administrative
expense. . . . . . . . . . . . . . . 1,060 4,094 5,809 198,762
Other monitored services charge . . . . - - (5,809) -
Total Operating Expenses. . . . . . . 1,217 4,140 1,561 466,298
INCOME (LOSS) FROM OPERATIONS . . . . . . (77) (4,140) (1,560) (43,987)
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . 12 - 69,391 (87,695)
Minority interest . . . . . . . . . . . - - 12,934 12,934
Other . . . . . . . . . . . . . . . . . - - 487 13,356
Total Other Income (Expense). . . . . 12 - 82,812 (61,405)
EARNINGS BEFORE INTEREST AND TAXES . . . (65) (4,140) 81,252 (105,392)
INTEREST EXPENSE:
Interest expense on long-term debt. . . - - (2,465) 84,572
Interest exp. on short-term debt
and other. . . . . . . . . . . . . . - - - -
Total Interest Expense. . . . . . . . - - (2,465) 84,572
(LOSS) EARNINGS BEFORE INCOME TAXES . . . (65) (4,140) 83,717 (189,964)
INCOME TAX (BENEFIT) EXPENSE. . . . . . . (25) (1,647) (677) (66,516)
INCOME BEFORE EXTRAORDINARY GAIN . . . . (40) (2,493) 84,394 (123,448)
EXTRAORDINARY GAIN, NET OF TAX . . . . . - - - 11,742
NET INCOME (LOSS) . . . . . . . . . . . . (40) (2,493) 84,394 (111,706)
PREFERRED AND PREFERENCE DIVIDENDS. . . . - - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . $ (40) $ (2,493) $ 84,394 $ (111,706)
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-2
WESTAR CAPITAL, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1999
(Dollars in Thousands)
<CAPTION>
Protection Westar
Westar One Limited
Capital Consolidated Partners
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . . $ 349,865 $ (45,829) $ (2,356)
ADD:
Net income (loss) . . . . . . . . . . . . . (111,706) (82,905) 289
Realignment of subsidiaries . . . . . . . . - (883) -
Total . . . . . . . . . . . . . . . . . . 238,159 (129,617) (2,067)
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . . . - - -
Common stock. . . . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . . . - - -
BALANCE AT END OF PERIOD. . . . . . . . . . . $ 238,159 $ (129,617) $ (2,067)
Westar Westar
Financial Communica- Westar
Services tions Aviation
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . . $ 234 $ 86 $ (1,479)
ADD:
Net income (loss) . . . . . . . . . . . . . 755 (40) (2,493)
Realignment of subsidiaries . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . . . 989 46 (3,972)
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . . . - - -
Common stock. . . . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . . . - - -
BALANCE AT END OF PERIOD. . . . . . . . . . . $ 989 $ 46 $ (3,972)
Westar
Consolidating Capital
Entries Consolidated
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . . . $ 49,344 $ 349,865
ADD:
Net income (loss) . . . . . . . . . . . . . 84,394 (111,706)
Realignment of subsidiaries . . . . . . . . 883 -
Total . . . . . . . . . . . . . . . . . . 134,621 238,159
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . . . - -
Common stock. . . . . . . . . . . . . . . . - -
Total . . . . . . . . . . . . . . . . . . - -
BALANCE AT END OF PERIOD. . . . . . . . . . . $ 134,621 $ 238,159
</TABLE>
<PAGE>
<TABLE> Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1999
(Dollars in Thousands)
<CAPTION>
Protection Network Protection One
One Alarm Multi-Family International,
Monitoring, Inc. Security Corp. Inc.
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . $ 5,780 $ - $ 2,660
Restricted cash . . . . . . . . . . . 9,770 - -
Accounts receivable (net). . . . . . . 46,556 3,291 16,679
Inventories and supplies (net) . . . . 4,160 4,551 3,216
Marketable securities. . . . . . . . . 6,664 - -
Deferred tax asset . . . . . . . . . 28,400 - -
Tax receivable . . . . . . . . . . . . 31,056 - -
Prepaid expenses and other . . . . . . 8,018 195 7,606
Total Current Assets . . . . . . . . 140,404 8,037 30,161
PROPERTY, PLANT AND EQUIPMENT (NET). . . 51,395 1,367 4,987
OTHER ASSETS:
Customer accounts (net) . . . . . . . 985,551 41,913 86,267
Goodwill (net). . . . . . . . . . . . 772,560 174,234 130,525
Deferred tax asset . . . . . . . . . 64,793 - 27,143
Other . . . . . . . . . . . . . . . . 142,397 126,216 111,630
Total Other Assets. . . . . . . . . 1,965,301 342,363 355,565
TOTAL ASSETS. . . . . . . . . . . . . . $ 2,157,100 $ 351,767 $ 390,713
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. $ 780 $ - $ 32,510
Accounts payable. . . . . . . . . . . 6,240 3,501 11,014
Accrued liabilities . . . . . . . . . 52,375 1,973 15,795
Deferred security revenues. . . . . . 55,037 878 1,251
Other . . . . . . . . . . . . . . . . 20,213 - -
Total Current Liabilities . . . . . 134,645 6,352 60,570
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . 741,226 151,849 120,305
Deferred tax liability (net). . . . . 17,985 10,854 32,620
Other . . . . . . . . . . . . . . . . 647 - 32,128
Total Long-Term Liabilities . . . . 759,858 162,703 185,053
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share. . 1,269 1 -
Paid-in capital . . . . . . . . . . . . . 1,392,750 201,744 143,551
Retained earnings . . . . . . . . . . . . (129,617) (19,033) 1,858
Accumulated other comprehensive income . (1,805) - (319)
Total Shareholders' Equity. . . . . . . 1,262,597 182,712 145,090
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY. . $ 2,157,100 $ 351,767 $ 390,713
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1999
(Dollars in Thousands)
(Continued)
<CAPTION>
Protection Protection
One Consolidating One
UK, Inc. Entries Consolidated
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ (782) $ - $ 7,658
Restricted cash . . . . . . . . . . . . . 1,405 - 11,175
Accounts receivable (net). . . . . . . . . 5,190 - 71,716
Inventories and supplies (net) . . . . . . 981 - 12,908
Marketable securities. . . . . . . . . . . - - 6,664
Deferred tax asset . . . . . . . . . . . . - - 28,400
Tax receivable . . . . . . . . . . . . . . - - 31,056
Prepaid expenses and other . . . . . . . . 984 - 16,803
Total Current Assets . . . . . . . . . . 7,778 - 186,380
PROPERTY, PLANT AND EQUIPMENT (NET). . . . . 3,163 - 60,912
OTHER ASSETS:
Customer accounts (net) . . . . . . . . . 25,335 - 1,139,066
Goodwill (net) . . . . . . . . . . . . . . 24,469 - 1,101,788
Deferred tax asset . . . . . . . . . . . . 294 (61,459) 30,771
Other . . . . . . . . . . . . . . . . . . 29,191 (370,116) 39,318
Total Other Assets . . . . . . . . . . . 79,289 (431,575) 2,310,943
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 90,230 $ (431,575) $ 2,558,235
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt . . . $ 2,212 $ (4) $ 35,498
Accounts payable . . . . . . . . . . . . . 2,450 - 23,205
Accrued liabilities . . . . . . . . . . . 4,105 - 74,248
Deferred security revenues . . . . . . . . 3,983 - 61,149
Other . . . . . . . . . . . . . . . . . . - - 20,213
Total Current Liabilities . . . . . . . 12,750 (4) 214,313
LONG-TERM LIABILITIES:
Long-term debt (net) . . . . . . . . . . . 35,166 28,606 1,077,152
Deferred tax liability (net) . . . . . . . - (61,459) -
Other . . . . . . . . . . . . . . . . . . - (28,602) 4,173
Total Long-Term Liabilities . . . . . . 35,166 (61,455) 1,081,325
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share . . - (1) 1,269
Paid-in capital . . . . . . . . . . . . . 50,911 (396,206) 1,392,750
Retained earnings . . . . . . . . . . . . (8,156) 25,331 (129,617)
Accumulated other comprehensive income . . (441) 760 (1,805)
Total Shareholders' Equity . . . . . . . 42,314 (370,116) 1,262,597
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY . . $ 90,230 $ (431,575) $ 2,558,235
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1999
(Dollars in Thousands)
Protection Network Protection One
One Alarm Multi-Family International,
Monitoring, Inc. Security Corp. Inc.
<S> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . $ - $ - $ -
Security. . . . . . . . . . . . . . . . . 403,269 38,901 137,178
Total Sales . . . . . . . . . . . . . . 403,269 38,901 137,178
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . - - -
Security. . . . . . . . . . . . . . . . . 121,521 11,014 38,325
Total Cost of Sales . . . . . . . . . . 121,521 11,014 38,325
GROSS PROFIT. . . . . . . . . . . . . . . . 281,748 27,887 98,853
OPERATING EXPENSES:
Operating and maintenance expense . . . . 26,405 313 -
Depreciation and amortization . . . . . . 198,264 9,507 25,129
Selling, general and administrative
expense . . . . . . . . . . . . . . . . 106,482 11,338 56,387
Other monitored services charge . . . . . 5,809 - -
Total Operating Expenses. . . . . . . . 336,960 21,158 81,516
(LOSS) INCOME FROM OPERATIONS . . . . . . . (55,212) 6,729 17,337
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . (12,455) - -
Other . . . . . . . . . . . . . . . . . . 12,659 - 210
Total Other Income (Expense). . . . . . 204 - 210
(LOSS) EARNINGS BEFORE INTEREST AND TAXES . (55,008) 6,729 17,547
INTEREST EXPENSE:
Interest expense on long-term debt. . . . 76,128 - 10,686
Interest expense on short-term debt
and other . . . . . . . . . . . . . . . (21,646) 11,280 8,156
Total Interest Expense. . . . . . . . . 54,482 11,280 18,842
(LOSS) EARNINGS BEFORE INCOME TAXES . . . . (109,490) (4,551) (1,295)
INCOME TAX (BENEFIT) EXPENSE. . . . . . . . (28,276) 3,971 1,432
INCOME BEFORE EXTRAORDINARY GAIN . . . . . (81,214) (8,522) (2,727)
EXTRAORDINARY GAIN (LOSS), NET OF TAX . . . (1,691) - -
NET INCOME (LOSS) . . . . . . . . . . . . . (82,905) (8,522) (2,727)
PREFERRED AND PREFERENCE DIVIDENDS. . . . . - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . $ (82,905) $ (8,522) $ (2,727)
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 1999
(Dollars in Thousands)
(Continued)
<CAPTION>
Protection Protection
One Consolidating One
U.K., Inc. Entries Consolidated
<S> <C> <C> <C>
SALES:
Energy. . . . . . . . . . . . . . . . . . . . $ - $ - $ -
Security. . . . . . . . . . . . . . . . . . . 25,828 - 605,176
Total Sales . . . . . . . . . . . . . . . . 25,828 - 605,176
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . - - -
Security. . . . . . . . . . . . . . . . . . . 13,146 - 184,006
Total Cost of Sales . . . . . . . . . . . . 13,146 - 184,006
GROSS PROFIT. . . . . . . . . . . . . . . . . . 12,682 - 421,170
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . 733 - 27,451
Depreciation and amortization . . . . . . . . 4,343 - 237,243
Selling, general and administrative
expense. . . . . . . . . . . . .. . . . . . 11,782 - 185,989
Other monitored services charge . . . . . . . - - 5,809
Total Operating Expenses. . . . . . . . . . 16,858 - 456,492
(LOSS) INCOME FROM OPERATIONS . . . . . . . . . (4,176) - (35,322)
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . - 12,455 -
Other . . . . . . . . . . . . . . . . . . . . - - 12,869
Total Other Income (Expense). . . . . . . . - 12,455 12,869
(LOSS) EARNINGS BEFORE INTEREST AND TAXES . . . (4,176) 12,455 (22,453)
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . 223 - 87,037
Interest expense on short-term debt
and other . . . . . . . . . . . . . . . . . 2,210 - -
Total Interest Expense. . . . . . . . . . . 2,433 - 87,037
(LOSS) EARNINGS BEFORE INCOME TAXES . . . . . . (6,609) 12,455 (109,490)
INCOME TAX (BENEFIT) EXPENSE. . . . . . . . . . - (5,403) (28,276)
INCOME BEFORE EXTRAORDINARY GAIN . . . . . . . (6,609) 17,858 (81,214)
EXTRAORDINARY GAIN (LOSS) NET OF TAX. . . . . . - - (1,691)
NET INCOME (LOSS) . . . . . . . . . . . . . . . (6,609) 17,858 (82,905)
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . - - -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . $ (6,609) $ 17,858 $ (82,905)
</TABLE>
<PAGE>
<TABLE>
<PAGE>
Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 1999
(Dollars in Thousands)
<CAPTION>
Protection Network Protection One
One Alarm Multi-Family International,
Monitoring, Inc. Security Corp. Inc.
<S> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD. . . . . . $ (38,570) $ (9,629) $ 4,078
ADD:
Net income (loss) . . . . . . . . . . . (65,047) (8,522) (2,727)
Realignment of subsidiaries . . . . . . (669) (882) 507
Total . . . . . . . . . . . . . . . . (104,286) (19,033) 1,858
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . - - -
Common stock. . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . - - -
BALANCE AT END OF PERIOD. . . . . . . . . $ (104,286) $ (19,033) $ 1,858
Protection Protection
One Consolidating One
U.K., Inc. Entries Consolidated
BALANCE AT BEGINNING OF PERIOD. . . . . . $ - $ (1,708) $ (45,829)
ADD:
Net income (loss) . . . . . . . . . . . (6,609) - (82,905)
Realignment of subsidiaries . . . . . . (1,547) 1,708 (883)
Total . . . . . . . . . . . . . . . . (8,156) - (129,617)
DEDUCT:
Cash dividends:
Preferred and preference stock. . . . . - - -
Common stock. . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . - - -
BALANCE AT END OF PERIOD. . . . . . . . . $ (8,156) $ - $ (129,617)
<PAGE>
<PAGE>
WESTERN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Western Resources, Inc. (the company) is a
publicly-traded, consumer services company. The company's primary business
activities are providing electric generation, transmission and distribution
services to approximately 628,000 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 are provided by Protection One,
Inc. (Protection One), a publicly-traded, approximately 85%-owned subsidiary.
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. Our investments in Protection One
and ONEOK are owned by Westar Capital, Inc. (Westar Capital), a wholly-owned
subsidiary.
Principles of Consolidation: The company prepares its financial statements
in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements include the accounts of
Western Resources and its wholly-owned and majority-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated. Common
stock investments that are not majority-owned are accounted for using the equity
method when the company's investment allows it the ability to exert significant
influence.
The company currently applies accounting standards for its rate regulated
electric business that recognize the economic effects of rate regulation in
accordance with Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation", (SFAS 71) and, accordingly, has
recorded regulatory assets and liabilities when required by a regulatory order
or when it is probable, based on regulatory precedent, that future rates will
allow for recovery of a regulatory asset.
Use of Management's Estimates: The preparation of financial statements
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Consolidated Statements of Cash Flows: For purposes of the Consolidated
Statements of Cash Flows, the company considers highly liquid collateralized debt
instruments purchased with a maturity of three months or less to be cash
equivalents. Cash paid for interest and income taxes for each of the years ended
December 31, are as follows:
<PAGE>
1999 1998 1997
(Dollars in Thousands)
Interest on financing activities
(net of amount capitalized) . . . . $298,802 $220,848 $193,468
Income taxes. . . . . . . . . . . . . 784 47,196 404,548
During 1997, the company contributed the net assets of its natural gas
business totaling approximately $594 million to ONEOK in exchange for an
ownership interest of 45% in ONEOK.
Available-for-sale Securities: The company classifies marketable equity and
debt securities accounted for under the cost method as available-for-sale. These
securities are reported at fair value based on quoted market prices. Cumulative,
temporary unrealized gains and losses, net of the related tax effect, are
reported as a separate component of shareholders' equity until realized. Current
temporary changes in unrealized gains and losses are reported as a component of
other comprehensive income.
The following table summarizes the company's investments in marketable
securities as of December 31:
Gross Unrealized
Cost Gains Losses Fair Value
1999: (Dollars in Thousands)
Equity securities. . . . . . $ 43,124 $70,407 $ (1,628) $111,903
Debt securities. . . . . . . 65,225 - - 65,225
Total. . . . . . . . . . . $108,349 $70,407 $ (1,628) $177,128
1998:
Equity securities. . . . . . $ 94,369 $45,685 $(10,182) $129,872
Debt securities. . . . . . . 172,129 - (13,924) 158,205
Total. . . . . . . . . . . $266,498 $45,685 $(24,106) $288,077
Proceeds from the sales of equity and debt securities were $73.5 million
in 1999 and $27.9 million in 1998. In 1997, the only available-for-sale security
sold was an investment in Tyco International common stock (See Note 18). The
gross realized gains from sales of equity and debt investments were $12.6 million
in 1999 and $2.0 million in 1998. The gross realized losses from sales of equity
and debt investments were $38.8 million in 1999 and $16.1 million in 1998.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost. For utility plant, cost includes contracted services, direct labor and
materials, indirect charges for engineering, supervision, general and
administrative costs and an allowance for funds used during construction (AFUDC).
The AFUDC rate was 6.00% in 1999, 6.00% in 1998 and 5.80% in 1997. The cost of
additions to utility plant and replacement units of property are capitalized.
Maintenance costs and replacement of minor items of property are charged to
expense as incurred. When units of depreciable property are retired, the
original cost and removal cost, less salvage value, are charged to accumulated
depreciation.
<PAGE>
In accordance with regulatory decisions made by the Kansas Corporation
Commission (KCC), the acquisition premium of approximately $801 million resulting
from the acquisition of KGE in 1992 is being amortized over 40 years. The
acquisition premium is classified as electric plant in service. Accumulated
amortization totaled $88.1 million as of December 31, 1999, and $68 million as
of December 31, 1998.
Depreciation: Utility plant is depreciated on the straight-line method at
rates approved by regulatory authorities. Utility plant is depreciated on an
average annual composite basis using group rates that approximated 2.92% during
1999, 2.88% during 1998 and 2.89% during 1997. Nonutility property, plant and
equipment is depreciated on a straight-line basis over the estimated useful lives
of the related assets.
Inventories and Supplies: Inventories and supplies for the company's
utility business are stated at average cost. Inventories, comprised of alarm
systems and parts, are stated at the lower of average cost or market.
Nuclear Fuel: The cost of nuclear fuel in process of refinement,
conversion, enrichment and fabrication is recorded as an asset at original cost
and is amortized to expense based upon the quantity of heat produced for the
generation of electricity. The accumulated amortization of nuclear fuel in the
reactor was $29.3 million at December 31, 1999, and $39.5 million at December 31,
1998.
Customer Accounts: Customer accounts are stated at cost. The cost includes
amounts paid to dealers and the estimated fair value of accounts acquired in
business acquisitions. Internal costs incurred in support of acquiring customer
accounts are expensed as incurred.
Protection One historically amortized the costs it allocated to its
customer accounts by using the straight-line method over a ten-year life. The
straight-line method, indicated in Accounting Principles Board Opinion No. 17 as
the appropriate method for such assets, has been the predominant method used to
amortize customer accounts in the monitored services industry. Protection One's
management is not aware of whether the economic life or the rate of realization
for Protection One's customer accounts differ materially from other monitored
services companies.
The choice of a ten-year life was based on Protection One's estimates and
judgments about the amounts and timing of expected future revenues from these
assets, the rate of attrition of such revenue over customer life, and average
customer account life. Ten years was used because, in Protection One's opinion,
it would adequately match amortization cost with anticipated revenue from those
assets even though many accounts were expected to produce revenue over periods
substantially longer than ten years. Effectively, it expensed the asset ratably
over an "expected average customer life" that was shorter than the expected life
of the revenue stream, thus implicitly giving recognition to projected revenues
for a period beyond ten years.
Protection One conducted a comprehensive review of its amortization policy
during the third quarter of 1999. This review was performed specifically to
evaluate the historic amortization policy in light of the inherent declining
revenue curve over the life of a pool of customer accounts and Protection One's
historical attrition experience. After completing the review, Protection One
identified three distinct pools, each of which has distinct attributes that
effect differing attrition characteristics. The pools correspond to Protection
One's North America, Multifamily and Europe business segments. For the North
America and Europe pools, the analyzed data indicated that Protection One can
expect attrition to be greatest in years one through five of asset life and that
a change from a straight-line to a declining balance (accelerated) method would
more closely match future amortization cost with the estimated revenue stream
from these assets. Protection One has elected to change to that method. No
change was made in the method used for the Multifamily pool.
Protection One's amortization rates for the North America and Europe
customer pools consider the average estimated remaining life and historical and
projected attrition rates. The average estimated remaining life for each
customer pool is as follows:
Average
Estimated
Remaining Life
Pool (Years) Method
North America 8-10 Ten-year 130% declining balance
Europe 10 Ten-year 125% declining balance
Multifamily 12 Ten-year straight-line
Adoption of the declining balance method effectively shortens the estimated
expected average customer life for these two customer pools, and does so in a way
that does not make it possible to distinguish the effect of a change in method
(straight-line to declining balance) from the change in estimated lives. In such
cases, generally accepted accounting principles require that the effect of such
a change be recognized in operations in the period of the change, rather than as
a cumulative effect of a change in accounting principle. Protection One changed
to the declining balance method in the third quarter of 1999. Accordingly, the
effect of the change in accounting principle increased Protection One's
amortization expense reported in the third quarter of 1999 by $47 million.
Protection One's accumulated amortization recorded on its balance sheet would
have been approximately $41 million higher, through the end of the second quarter
of 1999, if it had historically used the declining balance method.
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", long-lived assets
held and used by Protection One are evaluated for recoverability on a periodic
basis or as circumstances warrant. An impairment would be recognized when the
undiscounted expected future operating cash flows by customer pool derived from
customer accounts is less than the carrying value of capitalized customer
accounts and goodwill.
<PAGE>
Due to the high level of customer attrition experienced in 1999 and the
decline in market value of Protection One's publicly traded equity and debt
securities, Protection One performed an impairment test on its customer account
asset in the fourth quarter and concluded that no impairment has occurred.
Protection One also reevaluated its amortization estimates and concluded no
change was needed.
Goodwill: Goodwill represents the excess of the purchase price over the
fair value of net assets acquired by Protection One. Protection One has
historically amortized goodwill on a straight-line basis over 40 years. The
carrying value of goodwill was included in Protection One's evaluation of
recoverability of customer accounts. No reduction in the carrying value was
necessary at December 31, 1999.
In conjunction with the impairment test for customer accounts, Protection
One re-evaluated the original assumptions and rationale utilized in the
establishment of the carrying value and estimated useful life of goodwill.
Protection One concluded that due to continued losses and increased levels of
attrition experienced in 1999, 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, will be amortized over its remaining
useful life based on a 20-year life. On Protection One's existing account base,
Protection One anticipates that this will result in an increase in annual
goodwill amortization of approximately $34 million prospectively. Accumulated
amortization was $62.7 million and $31.1 million at December 31, 1999 and
December 31, 1998.
Regulatory Assets and Liabilities: Regulatory assets represent probable
future revenue associated with certain costs that will be recovered from
customers through the ratemaking process. The company has recorded these
regulatory assets in accordance with SFAS 71. If the company were required to
terminate application of that statement for all of its regulated operations, the
company would have to record the amounts of all regulatory assets and liabilities
in its Consolidated Statements of Income at that time. The company's earnings
would be reduced by the total amount in the table below, net of applicable income
taxes. Regulatory assets reflected in the consolidated financial statements are
as follows:
December 31, 1999 1998
(Dollars in Thousands)
Recoverable taxes. . . . . . . . . . . $218,239 $205,416
Debt issuance costs. . . . . . . . . . 68,239 73,635
Deferred employee benefit costs. . . . 36,251 36,128
Deferred plant costs . . . . . . . . . 30,306 30,657
Coal contract settlement costs . . . . 7,957 12,259
Other regulatory assets. . . . . . . . 5,012 6,118
Total regulatory assets. . . . . . . $366,004 $364,213
<PAGE>
Recoverable income taxes: Recoverable income taxes represent amounts
due from customers for accelerated tax benefits which have been
previously flowed through to customers and are expected to be
recovered in the future as the accelerated tax benefits reverse.
Debt issuance costs: Debt reacquisition expenses are amortized over
the remaining term of the reacquired debt or, if refinanced, the term
of the new debt. Debt issuance costs are amortized over the term of
the associated debt.
Deferred employee benefit costs: Deferred employee benefit costs
are expected to be recovered from income generated through the
company's Affordable Housing Tax Credit investment program.
Deferred plant costs: Disallowances related to the Wolf Creek nuclear
generating facility.
Coal contract settlement costs: The company deferred costs associated
with the termination of certain coal purchase contracts. These costs
are being amortized over periods ending in 2002 and 2013.
The company expects to recover all of the above regulatory assets in rates
charged to customers. A return is allowed on deferred plant costs and coal
contract settlement costs and approximately $49.1 million of debt issuance costs.
Minority Interests: Minority interests represent the minority
shareholders' proportionate share of the shareholders' equity and net loss of
Protection One.
Sales: Energy sales are recognized as services are rendered and include
estimated amounts for energy delivered but unbilled at the end of each year.
Unbilled sales of $44 million at December 31, 1999, and $38.8 million at December
31, 1998, are recorded as a component of accounts receivable (net) on the
Consolidated Balance Sheets.
Monitored services sales are recognized when monitoring, extended service
protection, patrol, repair and other services are provided. Deferred revenues
result from customers who are billed for monitoring, extended service protection
and patrol and alarm response services in advance of the period in which such
services are provided, on a monthly, quarterly or annual basis.
The company's allowance for doubtful accounts receivable totaled $35.8
million at December 31, 1999, and $29.5 million at December 31, 1998.
Income Taxes: Deferred tax assets and liabilities are recognized for
temporary differences in amounts recorded for financial reporting purposes and
their respective tax bases. Investment tax credits previously deferred are being
amortized to income over the life of the property which gave rise to the credits.
<PAGE>
The company has a tax sharing agreement with Protection One. This pro rata
tax sharing agreement allows Protection One to be reimbursed for tax benefits
utilized in the company's consolidated tax return.
Risk Management: The company is involved in trading activities primarily
to minimize risk from market fluctuations, maintain a market presence and to
enhance system reliability. In these activities, the company utilizes a variety
of financial instruments, including forward contracts involving cash settlements
or physical delivery of an energy commodity, options, swaps which require
payments (or receipt of payments) from counterparties based on the differential
between specified prices for the related commodity and futures traded on
electricity and natural gas. The change in market value of these energy trading
contracts is recorded on the Consolidated Balance Sheet, and included in
earnings.
The company is also exposed to commodity price changes outside of trading
activities. The company uses derivatives for non-trading purposes primarily to
reduce exposure relative to the volatility of cash market prices. The company
currently records the change in market value of these cash flow hedges on its
Consolidated Balance Sheet. The company does not recognize gains and losses in
net income until the period these options and forwards are settled.
The company has considered a number of risks and costs associated with the
future contractual commitments included in the company's energy portfolio. These
risks include credit risks associated with the financial condition of
counterparties, product location (basis) differentials and other risks which
management policy dictates. The counterparties in the company's portfolio are
primarily large energy marketers and major utility companies. The
creditworthiness of the company's counterparties could positively or negatively
impact the company's overall exposure to credit risk. The company maintains
credit policies with regard to its counterparties that, in management's view,
minimize overall credit risk.
Cash Surrender Value of Life Insurance: The following amounts related to
corporate-owned life insurance policies (COLI) are recorded in other long-term
assets on the Consolidated Balance Sheets at December 31:
1999 1998
(Dollars in Millions)
Cash surrender value of policies (1). . $642.4 $587.5
Borrowings against policies . . . . . . (608.3) (558.5)
COLI (net). . . . . . . . . . . . . . . $ 34.1 $ 29.0
(1) Cash surrender value of policies as presented represents the value of
the policies as of the end of the respective policy years and not as of
December 31, 1999 and 1998.
Income was recorded for increases in cash surrender value and net death
proceeds. Interest incurred on amounts borrowed is offset against policy income.
Income recognized from death proceeds is highly variable from period to period.
Death benefits recognized as other income approximated $1.4 million in 1999,
$13.7 million in 1998 and $0.6 in 1997.
<PAGE>
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). In June 1999, the
FASB issued Statement No. 137 "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133." SFAS 133
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in hybrid
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. With respect to hybrid contracts, a company may
elect to apply SFAS 133, as amended, to (1) all hybrid contracts, (2) only those
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997, or (3) only those hybrid contracts that were issued, acquired,
or substantively modified after December 31, 1998.
SFAS 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met and that
a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS 133, in part, allows special
hedge accounting for fair value and cash flow hedges. The company had no fair
value hedges as of December 31, 1999. SFAS 133 provides that the effective
portion of the gain or loss on a derivative instrument designated and qualifying
as a cash flow hedging instrument be reported as a component of other
comprehensive income and be reclassified into earnings in the same period or
periods during which the hedged forecasted transaction affects earnings. The
remaining gain or loss on the derivative instrument, if any, must be recognized
currently in earnings. If SFAS 133 were required to be applied to cash flow
hedges in place at December 31, 1999, changes in the fair value of options and
forwards would contribute approximately $1.3 million of additional loss to other
comprehensive income for the twelve months ended December 31, 1999, if these
hedges were 100% effective. The company is still in the process of evaluating
the effectiveness of these hedges.
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 of 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.
On January 1, 1999, the company adopted Emerging Issues Task Force Issue
No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities" (EITF Issue 98-10). EITF Issue 98-10 requires energy
trading contracts to be recorded at fair value on the balance sheet, with the
changes in the fair value included in earnings.
Reclassifications: Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
<PAGE>
2. MONITORED SERVICES BUSINESS
Protection One acquired a significant number of security companies in 1998
and 1997. The largest acquisitions included Protection One in November 1997,
Network Multifamily, Inc. (Multifamily) in January 1998, Multimedia Security
Services, Inc. in March 1998, and Compagnie Europeenne de Telesecurite (CET) in
October 1998. All companies acquired have been accounted for using the purchase
method. The principal assets acquired in the acquisitions are customer accounts.
The excess of the purchase price over the estimated fair value of the net assets
acquired is recorded as goodwill. The results of operations of each acquisition
have been included in the consolidated results of operations of Protection One
from the date of the acquisition.
The following table presents the unaudited pro forma financial information
considering Protection One's monitored services acquisitions in 1998 and 1997.
The pro forma information reflects the actual operating results of each company
prior to its acquisition and includes adjustments to interest expense, intangible
amortization, and income taxes. The table assumes acquisitions in 1998 and 1997
occurred as of January 1, 1997.
Year Ended December 31, 1998 1997
(Unaudited)
(Dollars in Thousands,
Except Per Share Data)
Sales . . . . . . . . . . . . . . . . . $2,175,089 $2,462,849
Earnings available for common stock . . 33,556 463,264
Earnings per share. . . . . . . . . . . $0.51 $7.11
The unaudited pro forma financial information is not necessarily indicative
of the results of operations had the entities been combined for the entire period
nor do they purport to be indicative of results which will be obtained in the
future.
During 1999, Protection One completed four acquisitions, all in the United
Kingdom, for a combined purchase price of approximately $32 million. Protection
One's purchase price allocations for the 1999 acquisitions are preliminary and
may be adjusted as additional information is obtained.
During the third quarter of 1999, Protection One sold the assets which
comprised its Mobile Services Group. Cash proceeds of this sale approximated $20
million and Protection One recorded a pre-tax gain of approximately $17.3
million.
In December 1997, Protection One incurred charges of $12.8 million to write
down the value of the customer account base due to excessive losses associated
with a specific acquisition and $11.5 million to reflect the closing of business
activities that were no longer of continuing value to the combined operations.
<PAGE>
3. MARKETABLE SECURITIES
During the fourth quarter of 1999, the company decided to sell its
remaining marketable security investments in paging industry companies. These
securities have been classified as available-for-sale; therefore, changes in
market value have been historically reported as a component of other
comprehensive income.
The market value for these securities declined during the last six to nine
months of 1999. The company determined that the decline in value of these
securities was other than temporary and a charge to earnings for the decline in
value was required at December 31, 1999. Therefore, the company recorded a non-
cash charge of $76.2 million in the fourth quarter of 1999. This charge to
earnings has been presented separately in the accompanying Consolidated
Statements of Income. See also Note 24 for subsequent events.
4. CUSTOMER ACCOUNTS
The following is a rollforward of the investment in customer accounts (at
cost) at December 31:
1999 1998
(Dollars in Thousands)
Beginning customer accounts, net. . . . . $1,031,956 $ 530,312
Acquisition of customer accounts. . . . . 333,195 601,063
Amortization of customer accounts . . . . (189,214) (89,893)
Non-cash charges against
purchase holdbacks. . . . . . . . . . . (37,035) (9,526)
Ending customer accounts, net . . . . . . $1,138,902 $1,031,956
Accumulated amortization of the investment in customer accounts at December
31, 1999 and 1998 was $307.6 million and $118.4 million.
In conjunction with certain purchases of customer accounts, Protection One
withholds a portion of the purchase price as a reserve to offset qualifying
losses of the acquired customer accounts for a specified period as provided for
in the purchase agreements, and as a reserve for purchase price settlements of
assets acquired and liabilities assumed. The estimated expected amount to be paid
at the end of the holdback period is capitalized and an equivalent current
liability established at the time of purchase.
The following is a rollforward of purchase holdbacks at December 31:
1999 1998
(Dollars in Thousands)
Balance, beginning of year. . . . . . . . $42,303 $11,444
Additions . . . . . . . . . . . . . 26,663 72,673
Non-cash charges against
customer accounts . . . . . . . . (37,035) (9,526)
Cash payments to sellers. . . . . . (11,718) (32,288)
Balance, end of year. . . . . . . . $20,213 $42,303
<PAGE>
Purchase holdback periods are negotiated between Protection One and sellers
or dealers, but typically range from zero to 12 months. At the end of the period
prescribed by the purchase holdback, Protection One verifies customer losses
experienced during the period and calculates a final payment to the seller or
dealer. The purchase holdback is extinguished at the time of final payment and
a corresponding adjustment is made in the customer intangible to the extent the
final payment varies from the estimated liability established at the time of
purchase.
5. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment at December 31:
1999 1998
(Dollars in Thousands)
Electric plant in service. . . . . . . $5,769,401 $5,646,176
Less - accumulated depreciation. . . . 2,141,037 2,015,880
3,628,364 3,630,296
Construction work in progress. . . . . 170,061 82,700
Nuclear fuel (net) . . . . . . . . . . 28,013 39,497
Net utility plant. . . . . . . . . . 3,826,438 3,752,493
Non-utility plant in service . . . . . 92,872 62,324
Less - accumulated depreciation. . . . 29,866 14,901
Net property, plant and equipment. . $3,889,444 $3,799,916
6. JOINT OWNERSHIP OF UTILITY PLANTS
Company's Ownership at December 31, 1999
In-Service Invest- Accumulated Net Per-
Dates ment Depreciation (MW) cent
(Dollars in Thousands)
La Cygne 1 (a) Jun 1973 $ 174,450 $ 113,415 344.0 50
Jeffrey 1 (b) Jul 1978 302,452 138,934 625.0 84
Jeffrey 2 (b) May 1980 294,502 128,865 622.0 84
Jeffrey 3 (b) May 1983 407,864 166,298 623.0 84
Jeffrey wind 1 (b) May 1999 855 17 0.5 84
Jeffrey wind 2 (b) May 1999 854 16 0.5 84
Wolf Creek (c) Sep 1985 1,378,238 460,880 550.0 47
(a) Jointly owned with KCPL
(b) Jointly owned with UtiliCorp United Inc.
(c) Jointly owned with KCPL and Kansas Electric Power Cooperative, Inc.
<PAGE>
Amounts and capacity presented above represent the company's share. The
company's share of operating expenses of the plants in service above, as well as
such expenses for a 50% undivided interest in La Cygne 2 (representing 337 MW
capacity) sold and leased back to the company in 1987, are included in operating
expenses on the Consolidated Statements of Income. The company's share of other
transactions associated with the plants is included in the appropriate
classification in the company's consolidated financial statements.
7. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
The company's investments which are accounted for by the equity method are
as follows:
</TABLE>
<TABLE>
<CAPTION> Equity Earnings,
Ownership at Investment at Year Ended
December 31, December 31, December 31
1999 1999 1998 1999 1998
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
ONEOK, Inc. (1). . . . . . 45% $590,109 $615,094 $6,945 $6,064
Affordable Housing Tax
Credit limited
partnerships (2). . . . . 13% to 29% 79,460 85,461 - -
Paradigm Direct. . . . . . 40% 35,385 - 1,254 -
International companies
and joint ventures (3). . 9% to 50% 18,724 10,500 - -
(1) The company also received approximately $41 million of preferred and common dividends in
1999.
(2) Investment is aggregated. Individual investments are not material. Based on an order
received by the KCC, equity earnings from these investments are used to offset costs
associated with postretirement and postemployment benefits offered to the company's
employees.
(3) Investment is aggregated. Individual investments are not material. During 1998, the
company recognized an other than temporary decline in value of its foreign equity
investments as discussed in Note 16.
</TABLE>
The following summarized financial information for the company's investment
in ONEOK is presented as of and for the periods ended December 31, 1999, and
November 30, 1998, the most recent periods for which public information is
available.
<PAGE>
December 31, November 30,
1999 1998
(Dollars in Thousands)
Balance Sheet:
Current assets . . . . . $ 593,721 $ 404,358
Non-current assets . . . 2,645,854 2,091,797
Current liabilities. . . 786,713 338,466
Non-current liabilities. 1,301,338 993,668
Equity . . . . . . . . . 1,151,524 1,164,021
December 31, November 30,
Twelve Months Ended 1999 1998
(Dollars in Thousands)
Income Statement:
Revenues . . . . . . . . $2,070,983 $1,896,178
Gross profit. . . . . . 760,209 645,606
Net income . . . . . . . 106,873 103,525
At December 31, 1999, the company's ownership interest in ONEOK is
comprised of approximately 2.3 million common shares and approximately 19.9
million convertible preferred shares. If all the preferred shares were
converted, the company would own approximately 45% of ONEOK's common shares
presently outstanding.
8. SHORT-TERM DEBT
The company has arrangements with certain banks to provide unsecured
short-term lines of credit on a committed basis totaling approximately $1.1
billion. The agreements provide the company with the ability to borrow at
different market-based interest rates. The company pays commitment or facility
fees in support of these lines of credit. Under the terms of the agreements,
the company is required, among other restrictions, to maintain a total debt to
total capitalization ratio of not greater than 65% at all times. The unused
portion of these lines of credit are used to provide support for commercial
paper, which is used to fund its short-term borrowing requirements.
Information regarding the company's short-term borrowings, comprised of
borrowings under the credit agreements, bank loans and commercial paper, is as
follows:
December 31, 1999 1998
(Dollars in Thousands)
Borrowings outstanding at year end:
Credit agreement. . . . . . . . . $ 50,000 $ -
Bank loans. . . . . . . . . . . . 120,000 164,700
Commercial paper notes. . . . . . 535,421 147,772
Total . . . . . . . . . . . . . $ 705,421 $312,472
Weighted average interest rate on
debt outstanding at year end
(including fees). . . . . . . . . 6.96% 5.94%
Weighted average short-term debt
outstanding during the year . . . $ 455,184 $529,255
Weighted daily average interest
rates during the year
(including fees). . . . . . . . . 5.76% 5.93%
Unused lines of credit supporting
commercial paper notes. . . . . . $1,021,000 $820,900
<PAGE>
The company borrowed $225 million in short-term debt in 1999 to fund Westar
Capital's revolving credit agreement to Protection One.
The company's interest expense on short-term debt was $57.7 million in
1999, $55.3 million in 1998 and $73.8 million in 1997.
The unsecured short-term lines of credit included three revolving credit
facilities with various banks as follows:
Amount Facility Termination Date
$300 million 364-day March 15, 2000
500 million 5-year March 17, 2003
250 million 6 1/2-month June 30, 2000
In March 2000, the company amended the $300 million facility to reduce the
commitment to $242 million and to extend the maturity date to June 30, 2000.
The company also amended all of these credit facilities to reflect the
possibility of borrowing from them rather than using them to provide support
for commercial paper borrowings.
Amendments to the credit facilities include increased pricing to reflect
credit quality and the potential drawn nature of credit facilities rather than
support for commercial paper, redefinition of the total debt to capital
financial covenant, limitation on use of proceeds from sale of first mortgage
bonds to pay off debt outstanding under the credit facilities before proceeds
may be used for other purposes, and a commitment to use the company's "best
efforts" to pledge first mortgage bonds to support its credit facilities if our
senior unsecured credit rating drops below "investment grade" (bonds rated below
BBB by S&P and Fitch and below Baa by Moody's as determined by Standard & Poor's
Ratings Group (S&P) and Moody's Investors Service (Moody's).
<PAGE>
9. LONG-TERM DEBT
Long-term debt outstanding is as follows at December 31:
1999 1998
(Dollars in Thousands)
Western Resources
First mortgage bond series:
7 1/4% due 1999 . . . . . . . . . . . . . . . . $ - $ 125,000
8 7/8% due 2000 . . . . . . . . . . . . . . . . 75,000 75,000
7 1/4% due 2002 . . . . . . . . . . . . . . . . 100,000 100,000
8 1/2% due 2022 . . . . . . . . . . . . . . . . 125,000 125,000
7.65% due 2023. . . . . . . . . . . . . . . . . 100,000 100,000
400,000 525,000
Pollution control bond series:
Variable due 2032, 4.80% at December 31, 1999 . 45,000 45,000
Variable due 2032, 4.54% at December 31, 1999 . 30,500 30,500
6% due 2033 . . . . . . . . . . . . . . . . . . 58,420 58,420
133,920 133,920
KGE
First mortgage bond series:
7.60% due 2003. . . . . . . . . . . . . . . . . 135,000 135,000
6 1/2% due 2005 . . . . . . . . . . . . . . . . 65,000 65,000
6.20% due 2006. . . . . . . . . . . . . . . . . 100,000 100,000
300,000 300,000
Pollution control bond series:
5.10% due 2023. . . . . . . . . . . . . . . . . 13,653 13,673
Variable due 2027, 4.25% at December 31, 1999 . 21,940 21,940
7.0% due 2031 . . . . . . . . . . . . . . . . . 327,500 327,500
Variable due 2032, 4.199% at December 31, 1999. 14,500 14,500
Variable due 2032, 4.30% at December 31, 1999 . 10,000 10,000
387,593 387,613
Western Resources
6 7/8% unsecured senior notes due 2004. . . . . 370,000 370,000
7 1/8% unsecured senior notes due 2009. . . . . 150,000 150,000
6.80% unsecured senior notes due 2018 . . . . . 29,783 29,985
6.25% unsecured senior notes due 2018,
putable/callable 2003 . . . . . . . . . . . . 400,000 400,000
949,783 949,985
Protection One
Senior credit facility due 2001, 6.8%
at December 31, 1998. . . . . . . . . . . . . - 42,417
Convertible senior subordinated notes
due 2003, fixed rate 6.75%. . . . . . . . . . 53,950 53,950
Senior subordinated discount notes due 2005,
effective rate of 6.4%. . . . . . . . . . . . 87,038 125,590
Senior unsecured notes due 2005,
fixed rate 7.375% . . . . . . . . . . . . . . 250,000 250,000
Senior subordinated notes due 2009,
fixed rate 8.125% . . . . . . . . . . . . . . 341,415 350,000
CET recourse financing agreements, average
effective rate 18% and 15%, respectively. . . 60,838 93,541
Other . . . . . . . . . . . . . . . . . . . . . 2,033 2,574
795,274 918,072
Other long-term agreements. . . . . . . . . . . . 21,895 8,325
Unamortized debt premium. . . . . . . . . . . . . 13,726 13,918
Less:
Unamortized debt discount . . . . . . . . . . . . (7,458) (7,931)
Long-term debt due within one year. . . . . . . . (111,667) (165,838)
Long-term debt (net). . . . . . . . . . . . . . . $2,883,066 $3,063,064
Debt discount and expenses are being amortized over the remaining lives of
each issue.
<PAGE>
The amount of the company's first mortgage bonds authorized by its Mortgage
and Deed of Trust, dated July 1, 1939, as supplemented, is unlimited. The
amount of KGE's first mortgage bonds authorized by the KGE Mortgage and Deed of
Trust, dated April 1, 1940, as supplemented, is limited to a maximum of
$2 billion. Amounts of additional bonds which may be issued are subject to
property, earnings and certain restrictive provisions of each mortgage.
The company's unsecured debt represents general obligations that are not
secured by any of the company's properties or assets. Any unsecured debt will
be subordinated to all secured debt of the company, including the first mortgage
bonds. The notes are structurally subordinated to all secured and unsecured
debt of the company's subsidiaries.
In December 1998, Protection One entered into a revolving credit facility
which provided for borrowings of up to $500 million, subsequently decreased to
$250 million, and was to expire in December 2001. As a result of Protection One
not meeting its debt covenants under this facility, in December 1999, Westar
Capital acquired the debt and assumed the lenders' obligations.
In 1998, Protection One issued $350 million of Unsecured Senior
Subordinated Notes. The notes are redeemable at Protection One's option, in
whole or in part, at a predefined price.
Protection One did not complete a required exchange offer during 1999. As
a result, the interest rate on this facility increased to 8.625% in June 1999.
If the exchange offer is completed, the interest rate will revert back
to 8.125%. Interest on this facility is payable semi-annually on January 15
and July 15.
In 1998, Protection One issued $250 million of Senior Unsecured Notes.
Interest is payable semi-annually on February 15 and August 15. The notes are
redeemable at Protection One's option, in whole or in part, at a predefined
price.
In 1995, Protection One issued $166 million of Unsecured Senior
Subordinated Discount Notes with a fixed interest rate of 13 5/8%. Interest
payments began in 1999 and are payable semi-annually on June 30 and December 31.
In connection with the acquisition of Protection One in 1997, these notes were
restated to fair value reflecting a current market yield of approximately 6.4%.
This resulted in bond premium being recorded to reflect the increase in value of
the notes as a result of the decline in interest rates since the note issuance.
The revaluation has no impact on the expected cash flow to existing noteholders.
In 1998, Protection One redeemed notes with a book value of $69.4 million
and recorded an extraordinary gain on the extinguishment of $1.6 million, net of
tax. The remaining notes are redeemable at Protection One's option in whole or
in part, at anytime on or after June 30, 2000, at a predefined price.
In 1996, Protection One issued $103.5 million of Convertible Senior
Subordinated Notes. Interest is payable semi-annually on March 15 and September
15. The notes are convertible at any time at a conversion price of $11.19 per
share. The notes are redeemable, at Protection One's option, at a specified
redemption price, beginning September 19, 1999.
<PAGE>
Protection One's subsidiary CET has recognized as a financing transaction
cash received through the sale of security equipment and future cash flows to be
received under security equipment operating lease agreements with customers to
a third-party financing company. A liability has been recorded for the proceeds
of these sales as the finance company has recourse to CET in the event of
nonpayment by customers of their equipment rental obligations. The average
implicit interest rate in the financing is 18% at December 31, 1999.
Accordingly, the liability is reduced, rental revenue is recognized, and
interest expense is being recorded as these recourse obligations are reduced
through the cash receipts paid to the financing company over the term of the
related equipment rental agreements which averages four years. The liability is
increased as new security monitoring equipment and equipment rental agreements
are sold to the finance company that have recourse provisions.
Protection One's debt instruments contain financial and operating covenants
which may restrict its ability to incur additional debt, pay dividends, make
loans or advances and sell assets. From September 30, 1999 through December 31,
1999, Protection One received waivers from compliance with the then-applicable
leverage and interest coverage ratio covenants under the senior credit facility.
At December 31, 1999 Protection One was in compliance with all financial
covenants governing its debt securities.
The indentures governing Protection One's debt securities require that
Protection One offer to repurchase the securities in certain circumstances
following a change of control.
In the fourth quarter 1999, Westar Capital purchased Protection One bonds
on the open market at amounts less than the carrying amount of the debt. The
company has recognized an extraordinary gain of $13.4 million, net of tax, at
December 31, 1999 related to the retirement of this debt.
Maturities of long-term debt through 2004 are as follows:
Principal
Year Amount
(Dollars in Thousands)
2000 . . . . . . . . $111,667
2001 . . . . . . . . 32,246
2002 . . . . . . . . 106,472
2003 . . . . . . . . 240,568
2004 . . . . . . . . 370,457
The company's interest expense on long-term debt was $236.4 million in
1999, $170.9 million in 1998 and $120 million in 1997.
<PAGE>
1O. EMPLOYEE BENEFIT PLANS
Pension: The company maintains qualified noncontributory defined benefit
pension plans covering substantially all utility employees. Pension benefits
are based on years of service and the employee's compensation during the five
highest paid consecutive years out of ten before retirement. The company's
policy is to fund pension costs accrued, subject to limitations set by the
Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.
The company also maintains a non-qualified Executive Salary Continuation Program
for the benefit of certain management employees, including executive officers.
Postretirement Benefits: The company accrues the cost of postretirement
benefits, primarily medical benefit costs, during the years an employee provides
service.
The following tables summarize the status of the company's pension and
other postretirement benefit plans:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
December 31, 1999 1998 1999 1998
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation, beginning of year. $392,057 $462,964 $ 87,519 $ 83,673
Service cost . . . . . . . . . . . . . 8,949 7,952 1,609 1,405
Interest cost. . . . . . . . . . . . . 26,487 31,278 5,854 5,763
Plan participants' contributions . . . - - 784 858
Benefits paid. . . . . . . . . . . . . (21,961) (24,682) (6,990) (5,630)
Assumption changes . . . . . . . . . . (49,499) 36,268 (9,458) 6,801
Actuarial losses (gains) . . . . . . . (4,608) 10,095 (31) (5,351)
Acquisitions . . . . . . . . . . . . . (676) - - -
Plan amendments. . . . . . . . . . . . - - - -
Curtailments, settlements and special
term benefits (1) . . . . . . . . . . - (131,818) - -
Benefit obligation, end of year. . . . $350,749 $392,057 $ 79,287 $ 87,519
Change in Plan Assets:
Fair value of plan assets,
beginning of year . . . . . . . . . . $441,531 $584,792 $ 173 $ 118
Actual return on plan assets . . . . . 85,079 66,106 10 6
Acquisitions . . . . . . . . . . . . . - - - -
Employer contribution. . . . . . . . . 2,882 2,197 6,284 5,679
Plan participants' contributions . . . - - 784 -
Benefits paid. . . . . . . . . . . . . (22,497) (23,910) (6,990) (5,630)
Settlements (1). . . . . . . . . . . . - (187,654) - -
Fair value of plan assets,
end of year . . . . . . . . . . . . . $506,995 $441,531 $ 261 $ 173
Funded status. . . . . . . . . . . . . $156,246 $ 49,474 $(79,026) $(87,346)
Unrecognized net (gain)/loss . . . . . (205,338) (104,023) (7,733) 1,814
Unrecognized transition
obligation, net . . . . . . . . . . 209 244 52,171 56,159
Unrecognized prior service cost. . . . 32,854 36,309 (3,730) (4,131)
Accrued postretirement benefit costs . $(16,029) $(17,996) $(38,318) $(33,504)
Actuarial Assumptions:
Discount rate. . . . . . . . . . . . . 7.75% 6.75% 7.75% 6.75%
Expected rate of return. . . . . . . . 9.0% 9.0% 9.0% 9.0%
Compensation increase rate . . . . . . 4.5% 4.75% 4.5% 4.75%
Components of net periodic benefit cost:
Service cost . . . . . . . . . . . . . $ 8,949 $ 7,952 $ 1,610 $ 1,405
Interest cost. . . . . . . . . . . . . 26,487 31,278 5,854 5,763
Expected return on plan assets . . . . (34,393) (39,069) (16) (11)
Amortization of unrecognized
transition obligation, net. . . . . . 34 (32) 3,987 3,988
Amortization of unrecognized prior
service costs . . . . . . . . . . . . 3,455 3,455 (466) (461)
Amortization of (gain)/loss, net . . . (3,477) (5,885) 129 (396)
Other. . . . . . . . . . . . . . . . . - - - -
Net periodic benefit cost. . . . . . . $ 1,055 $ (2,301) $ 11,098 $ 10,288
(1) In July 1998, pension plan assets were transferred to ONEOK resulting in a settlement loss.
</TABLE>
<PAGE>
For measurement purposes, an annual health care cost growth rate of 7.0%
was assumed for 1999, decreasing 1% per year to 5% in 2001 and thereafter. The
health care cost trend rate has a significant effect on the projected benefit
obligation. Increasing the trend rate by 1% each year would increase the
present value of the accumulated projected benefit obligation by $2.0 million
and the aggregate of the service and interest cost components by $0.2 million.
In accordance with an order from the KCC, the company has deferred
postretirement and postemployment expenses in excess of actual costs paid. In
1997, the company received authorization from the KCC to invest in AHTC
investments. Income from the AHTC investments will be used to offset the
deferred and incremental costs associated with postretirement and postemployment
benefits offered to the company's employees. The income generated from the AHTC
investments replaces the income stream from corporate-owned life insurance
contracts purchased in 1993 and 1992 which was used for the same purpose.
Savings: The company maintains savings plans in which substantially all
employees participate, with the exception of Protection One employees. The
company matches employees' contributions up to specified maximum limits. The
funds of the plans are deposited with a trustee and invested in the company
stock fund. The company's contributions were $3.7 million for 1999,
$3.8 million for 1998, and $5.0 million for 1997.
Protection One also maintains a savings plan. Contributions, made at
Protection One's election, are allocated among participants based upon the
respective contributions made by the participants through salary reductions
during the year. Protection One's matching contributions may be made in
Protection One common stock, in cash or in a combination of both stock and cash.
Protection One's matching contribution to the plan was $802,251 for 1999 and
$992,000 for 1998.
Protection One maintains a qualified employee stock purchase plan that
allows eligible employees to acquire shares of Protection One common shares at
85% of fair market value of the common stock. A total of 650,000 shares of
common stock have been reserved for issuance in this program.
<PAGE>
Stock Based Compensation Plans: The company, excluding Protection One, has
a long-term incentive and share award plan (LTISA Plan), which is a stock-based
compensation plan. The LTISA Plan was implemented as a means to attract, retain
and motivate employees and board members (Plan Participants). Under the LTISA
Plan, the company may grant awards in the form of stock options, dividend
equivalents, share appreciation rights, restricted shares, restricted share
units, performance shares and performance share units to Plan Participants. Up
to five million shares of common stock may be granted under the LTISA Plan.
Stock options and restricted shares under the LTISA plan are as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998 1997
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 1,590,700 $ 36.106 665,400 $30.282 205,700 $29.250
Granted. . . . . . . . . . . . 981,625 30.613 925,300 40.293 459,700 30.750
Exercised. . . . . . . . . . . - - - - - -
Forfeited. . . . . . . . . . . (153,690) 31.985 - - - -
Outstanding, end of year . . . 2,418,635 $34.139 1,590,700 $36.106 665,400 $30.282
Weighted-average fair value
of options granted during
the year . . . . . . . . . . $ 8.22 $ 9.12 $ 3.00
</TABLE>
Stock options and restricted shares issued and outstanding at December 31,
1999, are as follows:
<TABLE>
<CAPTION>
Number Weighted- Weighted-
Range of Issued Average Average
Exercise and Contractual Exercise
Price Outstanding Life in Years Price
<S> <C> <C> <C> <C>
Options:
1999. . . . . . . . . . $27.813-32.125 800,995 10.0 $30.815
1998. . . . . . . . . . 38.625-43.125 763,000 9.0 40.538
1997. . . . . . . . . . 30.750 414,520 8.0 30.750
1996. . . . . . . . . . 29.250 138,620 6.7 29.250
2,117,135
Restricted shares:
1999. . . . . . . . . . 27.813-32.125 165,000 9.0 29.616
1998. . . . . . . . . . 38.625 136,500 8.0 38.625
Total issued. . . . . 301,500
</TABLE>
<PAGE>
An equal amount of dividend equivalents is issued to recipients of stock
options. The weighted-average grant-date fair value of the dividend equivalent
was $3.28 in 1999, and $6.88 in 1998. The value of each dividend equivalent is
calculated by accumulating dividends that would have been paid or payable on a
share of company common stock. The dividend equivalents expire after nine years
from date of grant.
The fair value of stock options and dividend equivalents were estimated on
the date of grant using the Black-Scholes option-pricing model. The model
assumed the following at December 31:
1999 1998
Dividend yield. . . . . . . . . . 6.25% 6.32%
Expected stock price volatility . 16.56% 15.95%
Risk-free interest rate . . . . . 6.05% 5.67%
Protection One Stock Warrants and Options: Protection One has outstanding
stock warrants and options which were considered reissued and exercisable upon
the company's acquisition of Protection One on November 24, 1997. The 1997
Long- Term Incentive Plan (the LTIP), approved by the Protection One
stockholders on November 24, 1997, provides for the award of incentive stock
ptions to directors, officers and key employees. Under the LTIP, 4.2 million
shares are reserved for issuance subject to such adjustment as may be necessary
to reflect changes in the number or kinds of shares of common stock or other
securities of Protection One. The LTIP provides for the granting of options
that qualify as incentive stock options under the Internal Revenue Code and
options that do not so qualify.
A summary of options issued under the Plan by fiscal year is as follows:
Shares Granted Total Shares
to Officers Granted
1998 . . . 690,000 1,246,500
1999 . . . 399,700 1,092,908
Each option has a term of 10 years and vests ratably over three years. The
purchase price of the shares issuable pursuant to the options is equal to (or
greater than) the fair market value of the common stock at the date of the
option grant.
A summary of warrant and option activity for Protection One from November
1997 through December 31, 1999, is as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998 1997
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year(1) . . . . . . . . . 3,422,739 $ 7.494 2,366,435 $ 5.805 2,366,741 $5.805
Granted. . . . . . . . . . . . 1,092,908 7.905 1,246,500 11.033 - -
Exercised. . . . . . . . . . . - - (109,595) 5.564 (306) 0.050
Forfeited. . . . . . . . . . . (956,511) 10.124 (117,438) 10.770 - -
Adjustment to May 1995
warrants . . . . . . . . . . - - 36,837 - - -
Outstanding, end of year . . . 3,559,136 $12.252 3,422,739 $ 7.494 2,366,435 $5.805
(1) There was no outstanding stock or options prior to November 24, 1997.
</TABLE>
<PAGE>
Stock options and warrants issued and outstanding at December 31, 1999, are
as follows:
<TABLE>
<CAPTION>
Number Weighted- Weighted-
Range of Issued Average Average
Exercise and Contractual Exercise
Price Outstanding Life in Years Price
<S> <C> <C> <C> <C>
Exercisable:
Fiscal 1995 $ 6.375-$ 9.125 64,800 5.0 $ 6.491
Fiscal 1996 8.000- 10.313 178,400 6.0 8.031
Fiscal 1996 13.750- 15.500 69,000 6.0 14.924
Fiscal 1997 9.500 136,000 7.0 9.500
Fiscal 1997 15.000 25,000 7.0 15.000
Fiscal 1997 14.268 50,000 2.0 14.268
Fiscal 1998 11.000 367,499 8.0 11.000
Fiscal 1998 8.563 16,331 8.0 8.563
Fiscal 1999 8.928 87,600 9.0 8.928
KOP Warrants 3.633 103,697 1.0 3.633
1993 Warrants 0.167 428,400 4.0 0.167
1995 Note Warrants 3.890 786,277 5.0 3.890
Other 0.050 305 7.0 0.050
2,313,309
Not Exercisable:
1998 options $ 11.000 333,001 8.0 $11.000
1998 options 8.563 32,660 8.0 8.563
1999 options 8.928 686,500 9.0 8.928
1999 options 3.875- 6.125 193,666 9.0 5.855
1,245,827
Total outstanding 3,559,136
</TABLE>
The weighted average fair value of options granted during 1999 and 1998 and
estimated on the date of grant were $6.87 and $5.41. The fair value was
calculated using the following assumptions:
Year Ended December 31,
1999 1998
Dividend yield. . . . . . . . . 0.00% 0.00%
Expected stock price volatility 64.06% 61.72%
Risk free interest rate . . . . 6.76% 5.50%
Expected option life. . . . . . 6 years 6 years
Effect of Stock-Based Compensation on Earnings Per Share: The company
accounts for both the company's and Protection One's plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
the related interpretations. Had compensation expense been determined pursuant
<PAGE>
to Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," the company would have recognized additional compensation
costs during 1999, 1998 and 1997 as shown in the table below.
Year Ended December 31, 1999 1998 1997
(Dollars in Thousands, Except Per Share Amounts)
Earnings available for common stock:
As reported . . . . . . . . . . $11,330 $44,165 $494,599
Pro forma . . . . . . . . . . . 8,204 42,640 494,436
Earnings per common share
(basic and diluted):
As reported . . . . . . . . . . $0.17 $0.67 $7.59
Pro forma . . . . . . . . . . . 0.12 0.65 7.59
Split Dollar Life Insurance Program: The company has established a split
dollar life insurance program for the benefit of the company and certain of its
executives. Under the program, the company has purchased life insurance
policies on which the executive's beneficiary is entitled to a death benefit in
an amount equal to the face amount of the policy reduced by the greater of (i)
all premiums paid by the company or (ii) the cash surrender value of the policy,
which amount, at the death of the executive, will be returned to the company.
The company retains an equity interest in the death benefit and cash surrender
value of the policy to secure this repayment obligation.
Subject to certain conditions, each executive may transfer to the company
their interest in the death benefit based on a predetermined formula, beginning
no earlier than the first day of the calendar year following retirement or three
years from the date of the policy. The liability associated with this program
was $31.9 million as of December 31, 1999, and $57.9 million as of December 31,
1998. The obligations under this program can increase and decrease based on the
company's total return to shareholders. This liability decreased approximately
$10.5 million in 1999 based on the company's total return to shareholders.
There was no change in the liability in 1998. Under current tax rules,
payments to active employees in exchange for their interest in the death
benefits may not be fully deductible by the company for income tax purposes.
11. COMMON STOCK, PREFERRED STOCK, PREFERENCE STOCK, AND OTHER MANDATORILY
REDEEMABLE SECURITIES
The company's Restated Articles of Incorporation, as amended, provide for
150,000,000 authorized shares of common stock. At December 31, 1999, 67,401,657
shares were outstanding.
<PAGE>
The company has a Direct Stock Purchase Plan (DSPP). Shares issued under
the DSPP may be either original issue shares or shares purchased on the open
market. The company issued original issue shares under DSPP from January 1,
1995, until October 15, 1997. Between November 1, 1997 and March 16, 1998,
shares for DSPP were satisfied on the open market. All other shares have been
original issue shares. During 1998, a total of 653,570 shares were issued under
DSPP including 499,839 original issue shares and 153,731 shares purchased on the
open market. During 1999, a total of 1,819,856 original issue shares were
purchased from the company. At December 31, 1999, 2,771,191 shares were
available under the DSPP registration statement.
In 1999, the company purchased 900,000 shares of common stock at an average
price of $17.55 per share. The purchased shares were purchased with short-term
debt and available funds. The purchased shares are held in treasury and are
available for general corporate purposes, resale or retirement. These purchased
shares are shown as $15.8 million in treasury stock on the accompanying
Consolidated Balance Sheet.
Preferred Stock Not Subject to Mandatory Redemption: The cumulative
preferred stock is redeemable in whole or in part on 30 to 60 days notice at the
option of the company.
Preference Stock Subject to Mandatory Redemption: On April 1, 1998, the
company redeemed the 7.58% Preference Stock due 2007 at a premium, including
dividends, for $53 million. At December 31, 1999, and 1998, the company had no
preference stock outstanding.
Other Mandatorily Redeemable Securities: On December 14, 1995, Western
Resources Capital I, a wholly-owned trust, issued 4.0 million preferred
securities of 7-7/8% Cumulative Quarterly Income Preferred Securities, Series A,
for $100 million. The trust interests are redeemable at the option of Western
Resources Capital I on or after December 11, 2000, at $25 per preferred security
plus accrued interest and unpaid dividends. Holders of the securities are
entitled to receive distributions at an annual rate of 7-7/8% of the liquidation
preference value of $25. Distributions are payable quarterly and are tax
deductible by the company. These distributions are recorded as interest
expense. The sole asset of the trust is $103 million principal amount of 7-7/8%
Deferrable Interest Subordinated Debentures, Series A due December 11, 2025.
On July 31, 1996, Western Resources Capital II, a wholly-owned trust, of
which the sole asset is subordinated debentures of the company, sold in a public
offering, 4.8 million shares of 8-1/2% Cumulative Quarterly Income Preferred
Securities, Series B, for $120 million. The trust interests are redeemable at
the option of Western Resources Capital II, on or after July 31, 2001, at $25
per preferred security plus accumulated and unpaid distributions. Holders of
the securities are entitled to receive distributions at an annual rate of 8-1/2%
of the liquidation preference value of $25. Distributions are payable quarterly
and are tax deductible by the company. These distributions are recorded as
interest expense. The sole asset of the trust is $124 million principal amount
of 8-1/2% Deferrable Interest Subordinated Debentures, Series B due
July 31, 2036.
In addition to the company's obligations under the Subordinated Debentures
discussed above, the company has agreed to guarantee, on a subordinated basis,
payment of distributions on the preferred securities. These undertakings
constitute a full and unconditional guarantee by the company of the trust's
obligations under the preferred securities.
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
Purchase Orders and Contracts: As part of its ongoing operations and
construction program, the company has commitments under purchase orders and
contracts which have an unexpended balance of approximately $190 million at
December 31, 1999.
Manufactured Gas Sites: The company has been associated with 15 former
manufactured gas sites located in Kansas which may contain coal tar and other
potentially harmful materials. The company and the Kansas Department of Health
and Environment (KDHE) entered into a consent agreement governing all future
work at the 15 sites. The terms of the consent agreement will allow the company
to investigate these sites and set remediation priorities based upon the results
of the investigations and risk analysis. At December 31, 1999, the costs
incurred for preliminary site investigation and risk assessment have been
minimal. In accordance with the terms of the strategic alliance with ONEOK,
ownership of twelve of these sites and the responsibility for clean-up of these
sites were transferred to ONEOK. The ONEOK agreement limits the company's
future liability associated with these sites to an immaterial amount. The
company's investment earnings from ONEOK could be impacted by these costs.
Superfund Sites: In December 1999, the company was identified as one of
more than 1,000 potentially responsible parties at an EPA Superfund site in
Kansas City, Kansas (Kansas City site). The company has previously been
associated with other Superfund sites for which the company's liability has been
classified as de minimis and any potential obligations have been settled at
minimal cost. Since 1993, the company has settled Superfund obligations at
three sites for a total of $141,300. No Superfund obligations have been settled
since 1994. The company's obligation, if any, at the Kansas City site is
expected to be limited based upon previous experience and the limited nature of
the company's business transactions with the previous owners of the site. In
the opinion of the company's management, the resolution of this matter is not
expected to have a material impact on the company's financial position or
results of operations.
Clean Air Act: The company must comply with the provisions of The Clean Air
Act Amendments of 1990 that require a two-phase reduction in certain emissions.
The company has installed continuous monitoring and reporting equipment to meet
the acid rain requirements. The company does not expect material capital
expenditures to be required to meet Phase II sulfur dioxide and nitrogen oxide
requirements.
Decommissioning: The company accrues decommissioning costs over the
expected life of the Wolf Creek generating facility. The accrual is based on
estimated unrecovered decommissioning costs which consider inflation over the
remaining estimated life of the generating facility and are net of expected
earnings on amounts recovered from customers and deposited in an external trust
fund.
<PAGE>
In February 1997, the KCC approved the 1996 Decommissioning Cost Study.
Based on the study, the company's share of Wolf Creek's decommissioning costs,
under the immediate dismantlement method, is estimated to be approximately $624
million during the period 2025 through 2033, or approximately $192 million in
1996 dollars. These costs were calculated using an assumed inflation rate of
3.6% over the remaining service life from 1996 of 29 years. On September 1,
1999, Wolf Creek submitted the 1999 Decommissioning Cost Study to the KCC for
approval. Approval of this study by the KCC is pending. The company's share of
the cost for decommissioning in the 1999 study under the dismantlement method is
$221 million in 1999 dollars.
Decommissioning costs are currently being charged to operating expense in
accordance with the prior KCC orders. Electric rates charged to customers
provide for recovery of these decommissioning costs over the life of Wolf
Creek. Amounts expensed approximated $3.9 million in 1999 and will increase
annually to $5.6 million in 2024. These amounts are deposited in an external
trust fund. The average after-tax expected return on trust assets is 5.7% per
year.
The company's investment in the decommissioning fund, including reinvested
earnings approximated $58.3 million at December 31, 1999, and $52.1 million at
December 31, 1998. Trust fund earnings accumulate in the fund balance and
increase the recorded decommissioning liability.
Nuclear Insurance: The Price-Anderson Act limits the combined public
liability of the owners of nuclear power plants to $9.5 billion for a single
nuclear incident. If this liability limitation is insufficient, the U.S.
Congress will consider taking whatever action is necessary to compensate the
public for valid claims. The Wolf Creek owners (Owners) have purchased the
maximum available private insurance of $200 million. The remaining balance is
provided by an assessment plan mandated by the Nuclear Regulatory Commission
(NRC). Under this plan, the Owners are jointly and severally subject to a
retrospective assessment of up to $88.1 million ($41.4 million, company's share)
in the event there is a major nuclear incident involving any of the nation's
licensed reactors. This assessment is subject to an inflation adjustment based
on the Consumer Price Index and applicable premium taxes. There is a limitation
of $10 million ($4.7 million, company's share) in retrospective assessments per
incident, per year.
The Owners carry decontamination liability, premature decommissioning
liability and property damage insurance for Wolf Creek totaling approximately
$2.8 billion ($1.3 billion, company's share). This insurance is provided by
Nuclear Electric Insurance Limited (NEIL). In the event of an accident,
insurance proceeds must first be used for reactor stabilization and site
decontamination in accordance with a plan mandated by the NRC. The company's
share of any remaining proceeds can be used to pay for property damage or
decontamination expenses or, if certain requirements are met including
decommissioning the plant, toward a shortfall in the decommissioning trust
fund.
The Owners also carry additional insurance with NEIL to cover costs of
replacement power and other extra expenses incurred during a prolonged outage
resulting from accidental property damage at Wolf Creek. If losses incurred at
any of the nuclear plants insured under the NEIL policies exceed premiums,
reserves and other NEIL resources, the company may be subject to retrospective
assessments under the current policies of approximately $6 million per year.
<PAGE>
Although the company maintains various insurance policies to provide
coverage for potential losses and liabilities resulting from an accident or an
extended outage, the company's insurance coverage may not be adequate to cover
the costs that could result from a catastrophic accident or extended outage at
Wolf Creek. Any substantial losses not covered by insurance, to the extent not
recoverable through rates, would have a material adverse effect on the company's
financial condition and results of operations.
Fuel Commitments: To supply a portion of the fuel requirements for its
generating plants, the company has entered into various commitments to obtain
nuclear fuel and coal. Some of these contracts contain provisions for price
escalation and minimum purchase commitments. At December 31, 1999, Wolf Creek's
nuclear fuel commitments (company's share) were approximately $14 million for
uranium concentrates expiring at various times through 2003, $26 million for
enrichment expiring at various times through 2003 and $65.2 million for
fabrication through 2025.
At December 31, 1999, the company's coal contract commitments in 1999
dollars under the remaining terms of the contracts were approximately $2.3
billion. The largest coal contract expires in 2020, with the remaining coal
contracts expiring at various times through 2013.
At December 31, 1999, the company's natural gas transportation commitments
in 1999 dollars under the remaining terms of the contracts were approximately
$29.1 million. The natural gas transportation contracts provide firm service to
the company's gas burning facilities expiring at various times through 2010.
Protection One SEC Matters: As previously disclosed, Protection One has
been advised by the Division of Corporation Finance of the SEC that, in the view
of the staff, there are errors in Protection One's financial statements which
are material and which have had the effect of inflating earnings commencing with
the year 1997. Protection One has had extensive discussions with the SEC staff
about the methodology used by Protection One to amortize customer accounts, the
purchase price allocation to customer accounts in the Multifamily acquisition
and other matters. The SEC staff has not indicated it concurs with, nor has the
SEC staff determined not to object to, the restatements made in 1999 or the
change in accounting principle for customer accounts. Protection One cannot
predict whether the SEC staff will make additional comments or take other action
that will further impact its financial statements or the effect or timing of
any such action.
<PAGE>
13. LEGAL PROCEEDINGS
The 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 Principals (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 as controlling persons under Sections 11
and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. A claim is also asserted under Section 11 of
the Securities Act of 1933 against Protection One's auditor,
Arthur Andersen LLP. The Amended Complaint seeks an unspecified amount of
compensatory damages and an award of fees and expenses, including attorneys'
fees. The 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 14 for
discussion of the FERC proceeding regarding the City of Wichita complaint.
<PAGE>
14. RATE MATTERS AND REGULATION
KCC Proceedings: In January 1997, the KCC entered an order reducing
electric rates for both KPL and KGE. The order required KGE to reduce electric
rates by $65 million cumulative, phased in over three years beginning in 1997.
The order required KPL to reduce electric rates by $10 million in 1997 and issue
two one-time rebates of $5 million in January 1998, and January 1999.
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 KCC requesting an investigation of Western Resources' and KGE's rates.
The KIC alleges that these rates are not based on current costs. The company
will oppose this request vigorously but is unable to predict whether the KCC
will open an investigation.
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, a division of the company,
and KGE, a wholly-owned subsidiary of the company. The City of Wichita
requests the FERC to equalize the generation costs between KPL and KGE, in
addition to other matters. 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. The company
believes that the City of Wichita's complaint is without merit and intends to
defend against it vigorously.
15. LEASES
At December 31, 1999, the company had leases covering various property and
equipment. The company currently has no significant capital leases.
Rental payments for operating leases and estimated rental commitments are
as follows:
Operating
Year Ended December 31, Leases
(Dollars in Thousands)
Rental payments:
1997 . . . . . . . . . . . . . . $ 71,126
1998 . . . . . . . . . . . . . . 70,796
1999 . . . . . . . . . . . . . . 71,771
Future commitments:
2000 . . . . . . . . . . . . . . 68,431
2001 . . . . . . . . . . . . . . 64,100
2002 . . . . . . . . . . . . . . 59,090
2003 . . . . . . . . . . . . . . 59,655
2004 . . . . . . . . . . . . . . 52,899
Thereafter . . . . . . . . . . . 610,925
Total future commitments . . . $915,100
<PAGE>
In 1987, KGE sold and leased back its 50% undivided interest in the La
Cygne 2 generating unit. The La Cygne 2 lease has an initial term of 29 years,
with various options to renew the lease or repurchase the 50% undivided
interest. KGE remains responsible for its share of operation and maintenance
costs and other related operating costs of La Cygne 2. The lease is an
operating lease for financial reporting purposes. The company recognized a gain
on the sale which was deferred and is being amortized over the initial lease
term.
In 1992, the company deferred costs associated with the refinancing of the
secured facility bonds of the Trustee and owner of La Cygne 2. These costs are
being amortized over the life of the lease and are included in operating
expense. Approximately $19.1 million of this deferral remained on the
Consolidated Balance Sheet at December 31, 1999.
Future minimum annual lease payments, included in the table above, required
under the La Cygne 2 lease agreement are approximately $34.6 million for each
year through 2002, $39.4 million in 2003, $34.6 million in 2004, and $502.6
million over the remainder of the lease. KGE's lease expense, net of
amortization of the deferred gain and refinancing costs, was approximately $28.9
million for 1999, $28.9 million for 1998, and $27.3 million for 1997.
16. INTERNATIONAL POWER DEVELOPMENT COSTS
During the fourth quarter of 1998, management decided to exit the
international power development business. This business had been conducted by
the company's wholly owned subsidiary, The Wing Group (Wing). The company
recorded a $98.9 million charge to income in the fourth quarter of 1998 as a
result of exiting this business.
During 1999, the company terminated the employment of all employees, closed
offices, discontinued all development activities, and terminated all other
matters related to the activity of Wing in accordance with the terms of the exit
plan. These activities were substantially completed by December 31, 1999. The
actual costs incurred during 1999 to complete the exit plan approximated $16.9
million, which was $5.6 million less than the amount estimated at December 31,
1998. This was accounted for as a change in estimate in 1999.
At December 31, 1999, approximately $380,000 of accrued exit fees and shut-
down costs were included in other current liabilities on the accompanying
Consolidated Balance Sheet. This amount represents employee settlement and
severance costs expected to be paid in 2000.
The detailed components of the 1999 activity to exit this business are as
follows:
(Dollars in Thousands)
Accrued exit fees, shut-down and severance
costs, balance at December 31, 1998. . . . . . $22,900
Actual costs incurred. . . . . . . . . . . . . . (16,888)
Change in estimate . . . . . . . . . . . . . . . (5,632)
Accrued exit fees, change in estimate, shut-down and
severance costs, balance at December 31, 1999. . . .$ 380
<PAGE>
17. MERGER AGREEMENT WITH KANSAS CITY POWER & LIGHT COMPANY
On March 18, 1998, the company signed an Amended and Restated Plan of
Agreement and Plan of Merger with the Kansas City Power & Light Company (KCPL)
under which KGE, KPL, a division of Western Resources, and KCPL would have been
combined into a new company called Westar Energy, Inc. KCPL has notified the
company that it has terminated the contemplated transaction.
The company expensed costs related to the KCPL merger of approximately
$17.6 million at December 31, 1999 and approximately $48 million at December 31,
1997 associated with the original merger agreement.
18. GAIN ON SALE OF EQUITY SECURITIES
During 1996, the company acquired 27% of the common shares of ADT Limited,
Inc. (ADT) and made an offer to acquire the remaining ADT common shares. ADT
rejected this offer and in July 1997, ADT merged with Tyco International Ltd.
(Tyco). ADT and Tyco completed their merger by exchanging ADT common stock for
Tyco common stock.
Following the ADT and Tyco merger, the company's equity investment in ADT
became an available-for-sale security. During the third quarter of 1997, the
company sold its Tyco common shares for approximately $1.5 billion. The company
recorded a pre-tax gain of $864.2 million on the sale and recorded tax expense
of approximately $345 million in connection with this gain.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value as set forth in Statement of Financial Accounting Standards No. 107
"Disclosures about Fair Value of Financial Instruments."
Cash and cash equivalents, short-term borrowings and variable-rate debt are
carried at cost which approximates fair value. The decommissioning trust is
recorded at fair value and is based on the quoted market prices at December 31,
1999 and 1998. The fair value of fixed-rate debt and other mandatorily
redeemable securities is estimated based on quoted market prices for the same or
similar issues or on the current rates offered for instruments of the same
remaining maturities and redemption provisions. The estimated fair values of
contracts related to commodities have been determined using quoted market prices
of the same or similar securities.
The recorded amounts of accounts receivable and other current financial
instruments approximate fair value.
<PAGE>
The fair value estimates presented herein are based on information
available at December 31, 1999 and 1998. These fair value estimates have not
been comprehensively revalued for the purpose of these financial statements
since that date and current estimates of fair value may differ significantly
from the amounts presented herein. Because a substantial portion of the
company's operations are regulated, the company believes that any gains or
losses related to the retirement of debt would not have a material effect on the
company's financial position or results of operations.
The carrying values and estimated fair values of the company's financial
instruments are as follows:
Carrying Value Fair Value
December 31, 1999 1998 1999 1998
(Dollars in Thousands)
Decommissioning trust. . $ 58,286 $ 52,093 $ 58,286 $ 52,093
Fixed-rate debt, net of
current maturities . . 2,742,307 2,956,692 2,350,130 3,076,709
Other mandatorily
redeemable securities. 220,000 220,000 187,950 226,800
In its commodity price risk management activities, the company engages in
both trading and non-trading activities. In these activities, the company
utilizes a variety of financial instruments, including forward contracts
involving cash settlements or physical delivery of an energy commodity, options,
swaps which require payments (or receipt of payments) from counterparties based
on the differential between specified prices for the related commodity, and
futures traded on electricity and natural gas. For a discussion of the
accounting policy for these instruments, see Note 1.
The company is involved in trading activities primarily to minimize risk
from market fluctuations, to maintain a market presence and to enhance system
reliability. The company attempts to balance its physical and financial
purchase and sale contracts in terms of quantities and contract terms. Net open
positions can exist or are established due to the origination of new
transactions and the company's assessment of, and response to, changing market
conditions.
The company uses derivatives for non-trading purposes primarily to reduce
exposure relative to the volatility of cash market prices.
<PAGE>
The notional volumes and estimated fair values of the company's trading
forward contracts and options are as follows at December 31:
1999 1998
Notional Notional
Volumes Estimated Volumes Estimated
(MWH's) Fair Value (MWH's) Fair Value
(Dollars in Thousands)
Forward contracts:
Purchased. . . . . 496,800 $14,800 1,535,600 $46,361
Sold . . . . . . . 478,400 14,404 1,535,600 46,141
Options:
Purchased. . . . . 659,200 $ 5,079 148,800 $ 361
Sold . . . . . . . 336,480 6,013 64,000 195
Forward contracts and options had a net unrealized loss of $73,000 at
December 31, 1999, and a net unrealized gain of $40,000 at December 31, 1998.
The notional volumes and estimated fair values of the company's non-trading
forward contract and options for electric positions are as follows at December
31:
1999 1998
Notional Notional
Volumes Estimated Volumes Estimated
(MWH's) Fair Value (MWH's) Fair Value
(Dollars in Thousands)
Forward contracts:
Purchased. . . . . 640,800 $18,221 - -
Sold . . . . . . . 610,400 17,991 - -
Options:
Purchased. . . . . 285,600 $ 445 - -
Sold . . . . . . . 417,720 2,445 - -
Non-trading forward contracts and options for electric positions had a net
unrealized loss of $127,950 at December 31, 1999. No non-trading forward
contracts and options for electric positions were held at December 31, 1998.
The notional volumes and estimated fair values of the company's non-trading
forward contract and options for gas positions are as follows at December 31:
1999 1998
Notional Notional
Volumes Estimated Volumes Estimated
(MMBtu's) Fair Value (MMBtu's) Fair Value
(Dollars in Thousands)
Forward contracts:
Purchased. . . . . 13,010,000 $31,002 - -
Sold . . . . . . . 500,000 1,108 - -
Options:
Purchased. . . . . 6,000,000 $ 971 - -
Sold . . . . . . . 4,000,000 615 - -
Non-trading forward contracts and options for gas positions had a net
unrealized loss of $1,147,134 at December 31, 1999. No non-trading forward
contracts and options for gas positions were held at December 31, 1998.
<PAGE>
2O. INCOME TAXES
Income tax expense is composed of the following components at December 31:
1999 1998 1997
(Dollars in Thousands)
Currently payable:
Federal. . . . . . . . . . . $ 13,907 $52,993 $336,150
State. . . . . . . . . . . . 9,622 10,881 72,143
Deferred:
Federal. . . . . . . . . . . (44,257) (39,067) (15,945)
State. . . . . . . . . . . . (6,582) (4,185) (2,696)
Amortization of investment
tax credits . . . . . . . . . (6,054) (6,065) (6,665)
Total income tax expense
(benefit) . . . . . . . . . . $(33,364) $14,557 $382,987
Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", temporary differences gave rise to deferred tax assets and
deferred tax liabilities as follows at December 31:
1999 1998
(Dollars in Thousands)
Deferred tax assets:
Deferred gain on sale-leaseback. . . . . . . $ 87,220 $ 92,427
Monitored services deferred tax assets . . . 59,171 93,571
Other. . . . . . . . . . . . . . . . . . . . 125,563 138,506
Total deferred tax assets. . . . . . . . . $ 271,954 $ 324,504
Deferred tax liabilities:
Accelerated depreciation and other . . . . . $ 614,309 $ 613,730
Acquisition premium. . . . . . . . . . . . . 283,157 291,156
Deferred future income taxes . . . . . . . . 218,937 206,114
Other. . . . . . . . . . . . . . . . . . . . 40,508 48,518
Total deferred tax liabilities . . . . . . $1,156,911 $1,159,518
Investment tax credits . . . . . . . . . . . . $ 97,591 $ 103,645
Accumulated deferred income taxes, net . . . . $ 982,548 $ 938,659
In accordance with various rate orders, the company has not yet collected
through rates certain accelerated tax deductions which have been passed on to
customers. As management believes it is probable that the net future increases
in income taxes payable will be recovered from customers, it has recorded a
deferred asset for these amounts. These assets also are a temporary difference
for which deferred income tax liabilities have been provided.
<PAGE>
The effective income tax rates set forth below are computed by dividing
total federal and state income taxes by the sum of such taxes and net income.
The difference between the effective tax rates and the federal statutory income
tax rates are as follows:
Year Ended December 31, 1999 1998 1997
Effective income tax rate. . . . . . . . . (102.2%) 24.0% 43.4%
Effect of:
State income taxes. . . . . . . . . . . . (6.0) (4.5) (5.0)
Amortization of investment tax credits. . 18.5 10.0 0.8
Corporate-owned life insurance policies . 25.4 15.0 0.9
Affordable housing tax credits. . . . . . 28.5 2.1 -
Accelerated depreciation flow through
and amortization, net . . . . . . . . . (11.1) (2.9) (0.4)
Adjustment to tax provision . . . . . . . 3.9 (11.3) (3.7)
Dividends received deduction. . . . . . . 31.1 16.0 -
Amortization of goodwill. . . . . . . . . (17.6) (11.4) -
Other . . . . . . . . . . . . . . . . . . (5.5) (2.0) (1.0)
Statutory federal income tax rate. . . . . (35.0%) 35.0% 35.0%
21. RELATED PARTY
The company and ONEOK have shared services agreements in which facilities,
utility field work, information technology, customer support, bill processing,
and human resources services are provided to and billed to one another.
Payments for these services are based upon various hourly charges, negotiated
fees and out-of-pocket expenses. ONEOK paid the company $5.6 million in 1999
and $4.9 million in 1998, net of what the company owed ONEOK, for services.
In 1999, the company sold 984,000 shares of ONEOK stock to ONEOK as a
result of ONEOK's repurchase program. The company reduced its investment in
ONEOK for proceeds received from this sale. All such shares were required to be
sold to ONEOK in accordance with a Shareholder Agreement between the company and
ONEOK. The company's ownership interest remains at approximately 45%.
22. SEGMENTS OF BUSINESS
In 1998, the company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires the company to
define and report the company's business segments based on how management
currently evaluates its business. Management has segmented its business based
on differences in products and services, production processes, and management
responsibility. Based on this approach, the company has identified four
reportable segments: fossil generation, nuclear generation, power delivery and
monitored services.
<PAGE>
Fossil generation, nuclear generation and power delivery represent the
three business segments that comprise the company's regulated electric utility
business in Kansas. Fossil generation produces power for sale to external
wholesale customers outside the company's historical marketing territory and
internally to the power delivery segment. Power marketing is a component of the
company's fossil generation segment which attempts to minimize market
fluctuation risk, enhance system reliability and maintain a market presence.
Nuclear generation represents the company's 47% ownership in the Wolf Creek
nuclear generating facility. This segment does not have any external sales.
The power delivery segment consists of the transmission and distribution of
power to the company's wholesale and retail customers in Kansas and the customer
service provided to these customers.
The company's monitored services business was expanded in November 1997
with the acquisition of a majority interest in Protection One. Protection One
provides monitored services to approximately 1.6 million customers in North
America, the United Kingdom, and continental Europe.
Other represents the company's non-utility operations and natural gas
business.
The accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies. The company
evaluates segment performance based on earnings before interest and taxes.
Unusual items, such as charges to income, may be excluded from segment
performance depending on the nature of the charge or income. The company's
ONEOK investment, marketable securities investments and other equity method
investments do not represent operating segments of the company. The company has
no single external customer from which it receives ten percent or more of its
revenues.
<TABLE>
Year Ended December 31, 1999:
<CAPTION>
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (1)Other (2)Items Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
External sales. . . $ 365,311 $ - $1,064,385 $ 605,176 $ 1,284 $ 2 $2,036,158
Internal sales. . . 546,683 108,445 293,522 - - (948,650) -
Depreciation and
amortization . . . 55,320 39,629 71,717 238,803 1,448 90 407,007
Earnings before
interest and taxes 219,087 (25,214) 145,603 (24,013) (27,754) (26,252) 261,457
Interest expense. . 294,104
Earnings before
income taxes . . . (32,647)
Identifiable assets 1,476,716 1,083,344 1,783,937 2,558,235 1,165,145 (59,171) 8,008,206
</TABLE>
<PAGE>
<TABLE>
Year Ended December 31, 1998:
<CAPTION>
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery Services (3)Other (2)Items Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
External sales. . . $ 525,974 $ - $1,085,711 $ 421,095 $ 1,342 $ (68) $2,034,054
Internal sales. . . 517,363 117,517 66,492 - - (701,372) -
Depreciation and
amortization . . . 53,132 39,583 68,297 117,651 2,010 - 280,673
Earnings before
interest and taxes 144,357 (20,920) 196,398 56,727 (101,988) 12,268 286,842
Interest expense. . 226,120
Earnings before
income taxes . . . 60,722
Identifiable assets 1,360,102 1,121,509 1,788,943 2,511,319 1,269,013 (99,458) 7,951,428
</TABLE>
<TABLE>
Year Ended December 31, 1997:
<CAPTION>
Eliminating/
Fossil Nuclear Power Monitored Reconciling
Generation Generation Delivery (4)Services (5,6)Other (2,7)Items Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
External sales. . . $ 208,836 $ - $1,021,212 $ 152,347 $ 769,416 $ (46) $2,151,765
Internal sales. . . 517,167 102,330 66,492 - - (685,989) -
Depreciation and
amortization . . . 53,831 65,902 63,590 41,179 32,223 - 256,725
Earnings before
interest and taxes 149,825 (60,968) 173,809 (38,517) 914,747 (62,583) 1,076,313
Interest expense. . 193,808
Earnings before
income taxes . . . 882,505
Identifiable assets 1,337,591 1,154,522 1,721,021 1,593,286 1,238,088 (84,958) 6,959,550
(1) Earnings before interest and taxes (EBIT) includes investment earnings of $36.0 million,
an impairment of marketable securities of $76.2 million and the write-off of deferred
costs of $17.6 million.
(2) Identifiable assets includes eliminating and reclassing balances to consolidate the monitored
services business.
(3) Earnings before interest and taxes (EBIT) includes investment earnings of $21.7 million and
the write-off of international power development costs of $98.9 million.
(4) EBIT includes monitored services special charge of $24.3 million.
(5) EBIT includes investment earnings of $37.8 million and gain on sale of Tyco securities of
$864.2 million.
(6) Includes natural gas operations. The company contributed substantially all of its natural
gas business in exchange for a 45% equity interest in ONEOK in November 1997.
(7) EBIT includes write-off of deferred merger costs of $48 million.
</TABLE>
Geographic Information: Prior to 1998, the company did not have
international sales or international property, plant and equipment. The
company's sales and property, plant and equipment are as follows:
Year Ended December 31, 1999 1998
(Dollars in Thousands)
External sales:
North America operations. . . . . $1,873,152 $1,990,329
International operations. . . . . 163,006 43,725
Total . . . . . . . . . . . . . $2,036,158 $2,034,054
Property, plant and equipment, net:
North America operations. . . . . $3,881,294 $3,792,645
International operations. . . . . 8,150 7,271
Total . . . . . . . . . . . . . $3,889,444 $3,799,916
<PAGE>
23. QUARTERLY RESULTS (UNAUDITED)
The amounts in the table are unaudited but, in the opinion of management,
contain all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of such periods. The electric
business of the company is seasonal in nature and, in the opinion of management,
comparisons between the quarters of a year do not give a true indication of
overall trends and changes in operations.
First Second Third Fourth
(Dollars in Thousands, Except Per Share Amounts)
1999
Sales . . . . . . . . . . . . . $460,582 $476,142 $648,998 $450,436
Gross profit. . . . . . . . . . 312,655 324,407 425,087 311,022
Net income before
extraordinary gain(1). . . . 20,747 18,489 49,010 (87,529)
Net income(1) . . . . . . . . . 20,747 18,489 49,010 (75,787)
Basic earnings per share available
for common stock before
extraordinary gain. . . . . . $ 0.31 $ 0.27 $ 0.72 $ (1.31)
Cash dividend per common share. $ 0.535 $ 0.535 $ 0.535 $ 0.535
Market price per common share:
High. . . . . . . . . . . . . $ 33.875 $ 29.375 $ 27.125 $ 23.8125
Low . . . . . . . . . . . . . $ 26.6875 $ 23.75 $ 20.375 $ 16.8125
1998
Sales . . . . . . . . . . . . . $382,343 $463,301 $701,402 $487,008
Gross profit. . . . . . . . . . 252,040 291,338 365,415 302,002
Net income before
extraordinary gain(2). . . . 29,813 29,415 71,421 (84,484)
Net income(2) . . . . . . . . . 29,813 31,006 71,421 (84,484)
Basic earnings per share available
for common stock before
extraordinary gain. . . . . . $ 0.44 $ 0.42 $ 1.08 $ (1.29)
Cash dividend per common share. $ 0.535 $ 0.535 $ 0.535 $ 0.535
Market price per common share:
High. . . . . . . . . . . . . $ 44.188 $ 42.688 $ 41.625 $ 43.250
Low . . . . . . . . . . . . . $ 40.000 $ 36.875 $ 37.688 $ 32.563
(1) The effect of Protection One's change in accounting principle effected
income in the third quarter of 1999 by increasing amortization expense
by $47 million.
(2) The loss in the fourth quarter of 1998, is primarily attributable to a
$98.9 million charge to income to exit the company's international power
development business.
<PAGE>
24. SUBSEQUENT EVENTS
Marketable Securities: Through March 16, 2000, the company sold a
significant portion of an equity investment in a gas compression company and
realized a gain of $72.6 million.
In February 2000, Metrocall, Inc., a paging company whose securities were
included in our investment portfolio at December 31, 1999, made an announcement
that significantly increased the market value of paging company securities in
the public markets. During the first quarter of 2000, the remainder of these
paging securities were sold and a gain of $24.9 million was realized.
Retirement of Protection One Debt: In the first quarter of 2000, Westar
Capital, purchased an additional $46.3 million of Protection One bonds in the
open market and recognized an extraordinary gain of $14.4 million, net of tax.
Protection One European Operations: On February 29, 2000, Westar Capital
purchased the continental European and United Kingdom operations of Protection
One, and certain investments held by a subsidiary of Protection One for an
aggregate purchase price of $244 million. The basis of the net assets sold did
not change and no gain or loss was recorded for this related party transaction.
Terms of the agreement were approved by a special committee of outside directors
of Protection One. The special committee obtained a fairness opinion from an
investment banker.
Dividend Policy: The company's board of directors reviews the company's
dividend policy on an annual basis. Among the factors the board of directors
considers in determining the company's dividend policy are earnings, cash flows,
capitalization ratios, competition and regulatory conditions. In January 2000,
the company's board of directors declared a first-quarter 2000 dividend
of 53 1/2 cents per share. In March, the company announced a new dividend
policy that will result in quarterly dividends of $.30 per share or $1.20 per
share on an annual basis to be effective with the anticipated declaration of
the July 2000 dividend.
Corporate Restructuring: On March 28, 2000, the company's board of
directors approved the separation of its electric and non-electric utility
businesses. The separation is currently expected to be effected through an
exchange offer to be made to shareholders in the third quarter of 2000. The
exchange ratio will be described in materials furnished to shareholders upon
commencement of the exchange offer. The impact on the company's financial
position and operating results cannot be known until the exchange ratio is
determined. The company expects to complete the separation in the fourth
quarter of 2000, but no assurance can be given that the separation will be
completed.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> OPUR3
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-ASSETS> 8008206
<TOTAL-OPERATING-REVENUES> 2036158
<NET-INCOME> 12459
</TABLE>
Exhibit 99
EXHIBIT C
Organizational Chart Showing the Relationship of Each EWG
to Associate Companies in The Holding Company System
Western Resources, Inc. (a Kansas corporation, "WRI").
Westar Capital, Inc. (a Kansas corporation, "Westar"), a wholly-owned
subsidiary of WRI.
The Wing Group, Limited Company (a Delaware corporation, "Wing"),
wholly-owned subsidiary of WRI.
Wing Columbia, L.L.C., (a Delaware Limited Liability Company), 99%
owned by Westar Capital, Inc., 1% owned by Wing.
TLC International LDC, (a Cayman Islands limited duration
company) 36.75% owned by Wing Columbia, L.L.C.
Merilectrica I, S.A., (a sociedad anonima organized under the
laws of the Republic of Columbia). This Company is the general
partner of Merilectrica I, S.A. & Cia, S.C.A. E.S.P., 36.75%
owned by Wing Columbia, L.L.C.
Merilectrica I, S.A. & Cia, S.C.A. E.S.P., (a sociedad en
comandita por acciones organized under the law of the Republic
of Columbia), 36.75% owned by Wing Columbia, L.L.C.
Western Resources (Bermuda) Limited (a Bermuda limited liability
company), a wholly-owned subsidiary of WRI.
CPI-Western Power Holdings, Ltd., a Bermuda limited liability
company. 50% owned by Western Resources (Bermuda) Limited.
Western Resources International Limited (a Mauritius
limited liability company), a wholly-owned subsidiary of CPI-
Western Power Holdings, Ltd.
Zhengzhou Dengwai Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International
Limited.
Zhengzhou Dengyuan Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International
Limited.
<PAGE>
Zhengzhou Huadeng Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International
Limited.
Zhengzhou Huaxin Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International
Limited.
Wing Turkey, Inc. (a Delaware corporation), a wholly-owned subsidiary of
WRI.
Wing International, Ltd. (a Texas limited liability company), 99%
owned by Wing Turkey, Inc. and 1% owned by Wing.
Trakya Elektrik Uretim Ve Ticaret A.S. (a joint stock company
under the laws of the Republic of Turkey), 9% owned by Wing
International, Ltd.
<PAGE>
