SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission File Number 1-3523
WESTERN RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)
KANSAS 48-0290150
(State or Other Jurisdiction of (Employer
Incorporation or Organization) Identification No.)
818 KANSAS AVENUE, TOPEKA, KANSAS 66612
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number Including Area Code (785) 575-6300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at MayAugust 12, 1998
Common Stock, $5.00 par value 65,538,87165,704,348
WESTERN RESOURCES, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4 - 56
Consolidated Statements of Comprehensive Income 67
Consolidated Statements of Cash Flows 78 - 89
Consolidated Statements of Cumulative Preferred
and Preference Stock 910
Consolidated Statements of Common Shareowners' Equity 1011
Notes to Consolidated Financial Statements 1112
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1516
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 23
Part II. Other Information
Item 3. Defaults Upon Senior Securities 2224
Item 4. Submission of Matters to a Vote of Security Holders 2224
Item 5. Other Information 2225
Item 6. Exhibits and Reports on Form 8-K 2225
Signatures 23
27
WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31,June 30, December 31,
1998 1997
ASSETS
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 13,87617,738 $ 76,608
Accounts receivable (net) . . . . . . . . . . . . . . . . 179,764251,406 325,043
Inventories and supplies (net). . . . . . . . . . . . . . 92,19594,418 86,398
Marketable securities . . . . . . . . . . . . . . . . . . 90,522126,642 75,258
Prepaid expenses and other. . . . . . . . . . . . . . . . 22,24039,484 25,483
Total Current Assets. . . . . . . . . . . . . . . . . . 398,597529,688 588,790
PROPERTY, PLANT AND EQUIPMENT, NET. . . . . . . . . . . . . 3,770,2843,771,197 3,786,528
OTHER ASSETS:
Investment in ONEOK . . . . . . . . . . . . . . . . . . . 610,318614,378 596,206
Subscriber accounts . . . . . . . . . . . . . . . . . . . 737,316796,537 549,152
Goodwill (net). . . . . . . . . . . . . . . . . . . . . . 1,066,3311,127,099 854,163
Regulatory assets . . . . . . . . . . . . . . . . . . . . 379,784379,370 380,421
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 244,259226,551 221,700
Total Other Assets. . . . . . . . . . . . . . . . . . . 3,038,0083,143,935 2,601,642
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $7,206,889$7,444,820 $6,976,960
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt. . . . . . . . . . . $ 8,80022,040 $ 21,217
Short-term debt . . . . . . . . . . . . . . . . . . . . . 462,250728,041 236,500
Accounts payable. . . . . . . . . . . . . . . . . . . . . 96,031144,668 151,166
Accrued liabilities . . . . . . . . . . . . . . . . . . . 287,171273,690 249,447
Accrued income taxes. . . . . . . . . . . . . . . . . . . 37,79526,492 27,360
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 133,327140,175 89,106
Total Current Liabilities . . . . . . . . . . . . . . . 1,025,3741,335,106 774,796
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . . . . . . . . . 2,162,4702,086,664 2,181,855
Western Resources obligated mandatorily redeemable
preferred securities of subsidiary trusts holding
solely company subordinated debentures. . . . . . . . . 220,000 220,000
Deferred income taxes and investment tax credits. . . . . 1,068,6931,051,630 1,065,565
Minority interests. . . . . . . . . . . . . . . . . . . . 167,512209,205 164,379
Deferred gain from sale-leaseback . . . . . . . . . . . . 218,822215,865 221,779
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 251,999275,722 259,521
Total Long-term Liabilities . . . . . . . . . . . . . . 4,089,4964,059,086 4,113,099
COMMITMENTS AND CONTINGENCIES
SHAREOWNERS' EQUITY:
Cumulative preferred and preference stock . . . . . . . . 74,85824,858 74,858
Common stock, par value $5 per share, authorized
85,000,000 shares, outstanding 65,409,60365,572,902 and
65,409,603 shares, respectively. . . . . . . . . . . . . 327,048327,865 327,048
Paid-in capital . . . . . . . . . . . . . . . . . . . . . 760,553766,453 760,553
Retained earnings . . . . . . . . . . . . . . . . . . . . 908,730906,676 914,487
Accumulated other comprehensive income (net) . . . . . . 20,83024,776 12,119
Total Shareowners' Equity . . . . . . . . . . . . . . . 2,092,0192,050,628 2,089,065
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY . . . . . . . . . $7,206,889$7,444,820 $6,976,960
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)Thousands, Except per Share Amounts)
(Unaudited)
Three Months Ended
March 31,June 30,
1998 1997
SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 305,548366,260 $ 593,912422,786
Security. . . . . . . . . . . . . . . . . . . . . . . . . 76,795 32,286. 97,041 31,220
Total Sales . . . . . . . . . . . . . . . . . . . . . . 382,343 626,198. 463,301 454,006
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . 106,260 296,696. 140,199 173,551
Security. . . . . . . . . . . . . . . . . . . . . . . . . 23,993 19,054. 31,480 14,922
Total Cost of Sales . . . . . . . . . . . . . . . . . . 130,253 315,750. 171,679 188,473
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . 252,090 310,448. 291,622 265,533
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . . . 76,329 93,341. 78,539 98,078
Depreciation and amortization . . . . . . . . . . . . . . 61,637 60,678. 69,640 60,844
Selling, general and administrative expense . . . . . . . 47,538 53,132. 62,833 49,112
Total Operating Expenses. . . . . . . . . . . . . . . . 185,504 207,151. 211,012 208,034
INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . . . 66,586 103,297. 80,610 57,499
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . . . . . . . 14,552 10,766. 8,913 9,919
Minority interest . . . . . . . . . . . . . . . . . . . . (213) (272). (962) (299)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 9,036 (418). 20,035 18,215
Total Other Income (Expense). . . . . . . . . . . . . 23,375 10,076. 27,986 27,835
INCOME BEFORE INTEREST AND TAXES. . . . . . . . . . . . . . 89,961 113,373. 108,596 85,334
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . . . 38,957 23,795. 39,282 23,570
Interest expense on short-term debt and other . . . . . . 11,443 25,690. 15,617 28,168
Total Interest Expense. . . . . . . . . . . . . . . . 50,400 49,485. 54,899 51,738
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . 39,561 63,888. 53,697 33,596
INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . 9,093 22,855. 20,469 9,261
NET INCOME BEFORE EXTRAORDINARY GAIN. . . . . . . . . . . . . 33,228 24,335
EXTRAORDINARY GAIN, NET OF TAX. . . . . . . . . . . . . . . . 1,591 -
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 30,468 41,033. 34,819 24,335
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 1,230 1,230. 1,797 1,229
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 29,23833,022 $ 39,80323,106
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 65,409,603 64,807,081. 65,542,815 65,045,268
BASIC EARNINGS PER AVERAGE COMMON SHARE
OUTSTANDINGEARNINGS AVAILABLE FOR COMMON STOCK BEFORE EXTRAORDINARY GAIN $ .48 $ .36
EXTRAORDINARY GAIN. . . . . . . . . . . . . . . . . . . . . . .02 -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 0.45.50 $ 0.61.36
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . . $ .535 $ .525
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)Thousands, Except per Share Amounts)
(Unaudited)
TwelveSix Months Ended
March 31,June 30,
1998 1997
SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . $1,711,054 $2,077,047. $ 671,807 $1,016,698
Security. . . . . . . . . . . . . . . . . . . . . . . . . 196,856 40,354. 173,836 63,506
Total Sales . . . . . . . . . . . . . . . . . . . . . . 1,907,910 2,117,401. 845,643 1,080,204
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . 737,888 903,730. 246,459 470,247
Security. . . . . . . . . . . . . . . . . . . . . . . . . 43,739 22,601. 55,473 33,976
Total Cost of Sales . . . . . . . . . . . . . . . . . . 781,627 926,331. 301,932 504,223
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . 1,126,283 1,191,070. 543,711 575,981
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . . . 366,900 377,089. 154,867 191,419
Depreciation and amortization . . . . . . . . . . . . . . 257,684 213,911. 131,278 121,522
Selling, general and administrative expense . . . . . . . 307,333 203,695. 110,371 102,244
Total Operating Expenses. . . . . . . . . . . . . . . . . 396,516 415,185
INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . 147,195 160,796
OTHER INCOME (EXPENSE):
Investment earnings . . . . . . . . . . . . . . . . . . . . 23,465 20,685
Minority interest . . . . . . . . . . . . . . . . . . . . . (1,174) (571)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,071 17,797
Total Other Income (Expense). . . . . . . . . . . . . . 51,362 37,911
INCOME BEFORE INTEREST AND TAXES. . . . . . . . . . . . . . . 198,557 198,707
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . . . . 78,239 47,365
Interest expense on short-term debt and other . . . . . . . 27,060 53,858
Total Interest Expense. . . . . . . . . . . . . . . . . 105,299 101,223
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . . 93,258 97,484
INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 29,562 32,116
NET INCOME BEFORE EXTRAORDINARY GAIN . . . . . . . . . . . . 63,696 65,368
EXTRAORDINARY GAIN, NET OF TAX. . . . . . . . . . . . . . . . 1,591 -
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . 65,287 65,368
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . . 3,027 2,459
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 62,260 $ 62,909
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . 65,476,577 64,926,833
BASIC EARNINGS PER COMMON SHARE
EARNINGS AVAILABLE FOR COMMON STOCK BEFORE EXTRAORDINARY GAIN $ .93 $ .97
EXTRAORDINARY GAIN. . . . . . . . . . . . . . . . . . . . . . .02 -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ .95 $ .97
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . . $ 1.07 $ 1.05
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except per Share Amounts)
(Unaudited)
Twelve Months Ended
June 30,
1998 1997
SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . $1,654,527 $2,064,354
Security. . . . . . . . . . . . . . . . . . . . . . . . . . 262,677 70,931
Total Sales . . . . . . . . . . . . . . . . . . . . . . . 1,917,204 2,135,285
COST OF SALES:
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . 704,536 906,389
Security. . . . . . . . . . . . . . . . . . . . . . . . . . 60,297 37,208
Total Cost of Sales . . . . . . . . . . . . . . . . . . . 764,833 943,597
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . . 1,152,371 1,191,688
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . . . . 347,360 377,031
Depreciation and amortization . . . . . . . . . . . . . . . 266,481 226,076
Selling, general and administrative expense . . . . . . . . 321,054 207,903
Write-off of deferred merger costs. . . . . . . . . . . . . 48,008 -
Security asset impairment charge. . . . . . . . . . . . . . 40,144 -
Total Operating Expenses. . . . . . . . . . . . . . . . 1,020,069 794,695. 1,023,047 811,010
INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . . . 106,214 396,375. 129,324 380,678
OTHER INCOME (EXPENSE):
Gain on sale of Tyco securities . . . . . . . . . . . . . . 864,253 -
Special charges from ADT. . . . . . . . . . . . . . . . . . - (18,181)
Investment earnings . . . . . . . . . . . . . . . . . . . 29,432 28,123. 28,426 32,117
Minority interest . . . . . . . . . . . . . . . . . . . . 4,796 (270). 4,134 (340)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 37,857 10,766. 39,676 28,683
Total Other Income (Expense). . . . . . . . . . . . . 936,338 20,438. 936,489 42,279
INCOME BEFORE INTEREST AND TAXES. . . . . . . . . . . . . . 1,042,552 416,813. 1,065,813 422,957
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . . . 134,551 103,037. 150,263 100,002
Interest expense on short-term debt and other . . . . . . 59,589 65,340. 47,038 83,093
Total Interest Expense. . . . . . . . . . . . . . . . 194,140 168,377. 197,301 183,095
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . 848,412 248,436. 868,512 239,862
INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . 364,883 83,242. 376,091 79,079
INCOME BEFORE EXTRAORDINARY GAIN. . . . . . . . . . . . . . . 492,421 160,783
EXTRAORDINARY GAIN. . . . . . . . . . . . . . . . . . . . . . 1,591 -
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 483,529 165,194. 494,012 160,783
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 4,919 12,714. 5,486 10,589
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 478,610488,526 $ 152,480150,194
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 65,276,370 64,238,154. 65,400,416 64,631,972
BASIC EARNINGS PER AVERAGE COMMON SHARE
OUTSTANDINGEARNINGS AVAILABLE FOR COMMON STOCK BEFORE EXTRAORDINARY GAIN $ 7.45 $ 2.32
EXTRAORDINARY GAIN. . . . . . . . . . . . . . . . . . . . . . .02 -
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . $ 7.337.47 $ 2.372.32
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . . $ 2.112.12 $ 2.07
The Notes to Consolidated Financial Statements are an integral part of these statements.
/TABLE
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
1998 1997
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $30,468 $41,033
Other comprehensive income, before tax:
Unrealized gain on equity securities. . . . . . . . . . . 14,465 -
Income tax expense. . . . . . . . . . . . . . . . . . . . . 5,754 -
Other comprehensive income, net of tax. . . . . . . . . . . 8,711 -
Comprehensive income. . . . . . . . . . . . . . . . . . . . $39,179 $41,0332.08
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
March 31,
1998 1997
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $483,529 $165,194
Other comprehensive income, before tax:
Unrealized gain on equity securities. . . . . . . . . . . 39,713 -
Income tax expense. . . . . . . . . . . . . . . . . . . . . 18,883 -
Other comprehensive income, net of tax. . . . . . . . . . . 20,830 -
Comprehensive income. . . . . . . . . . . . . . . . . . . . $504,359 $165,194
The Notes to Consolidated Financial Statements are an integral part of these statements.
/TABLE
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
June 30,
1998 1997
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 34,819 $ 24,335
Other comprehensive income, before tax:
Unrealized gain on equity securities. . . . . . . . . . . 6,552 -
Income tax expense. . . . . . . . . . . . . . . . . . . . . 2,606 -
Other comprehensive income, net of tax. . . . . . . . . . . 3,946 -
Comprehensive income. . . . . . . . . . . . . . . . . . . . $ 38,765 $ 24,335
Six Months Ended
June 30,
1998 1997
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 65,287 $ 65,368
Other comprehensive income, before tax:
Unrealized gain on equity securities. . . . . . . . . . . 21,018 -
Income tax expense. . . . . . . . . . . . . . . . . . . . . 8,361 -
Other comprehensive income, net of tax. . . . . . . . . . . 12,657 -
Comprehensive income. . . . . . . . . . . . . . . . . . . . $ 77,944 $ 65,368
Twelve Months Ended
June 30,
1998 1997
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $494,012 $160,783
Other comprehensive income, before tax:
Unrealized gain on equity securities. . . . . . . . . . . 46,266 -
Income tax expense. . . . . . . . . . . . . . . . . . . . . 21,490 -
Other comprehensive income, net of tax. . . . . . . . . . . 24,776 -
Comprehensive income. . . . . . . . . . . . . . . . . . . . $518,788 $160,783
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 65,287 $ 65,368
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary gain. . . . . . . . . . . . . . . . . . . . (1,591) -
Depreciation and amortization . . . . . . . . . . . . . . 131,278 121,522
Equity in earnings from investments . . . . . . . . . . . (5,502) (25,791)
Changes in working capital items (net of effects
from acquisitions):
Accounts receivable (net) . . . . . . . . . . . . . . . 75,816 41,290
Inventories and supplies. . . . . . . . . . . . . . . . (7,089) 4,349
Marketable securities . . . . . . . . . . . . . . . . . (51,384) -
Prepaid expenses and other. . . . . . . . . . . . . . . (34,458) (2,005)
Accounts payable. . . . . . . . . . . . . . . . . . . . (8,801) (27,038)
Accrued liabilities . . . . . . . . . . . . . . . . . . (5,844) (9,470)
Accrued income taxes. . . . . . . . . . . . . . . . . . 24,332 (7,945)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 29,392 20,088
Changes in other assets and liabilities . . . . . . . . . 27,803 (13,439)
Net cash flows from operating activities. . . . . . . . . . 239,239 166,929
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (net). . . . . (69,547) (102,736)
Customer account acquisition. . . . . . . . . . . . . . . (126,589) (21,134)
Security alarm monitoring acquisitions,
net of cash acquired. . . . . . . . . . . . . . . . . . (361,039) -
Proceeds from issuance of stock by subsidiary (net) . . . 45,565 -
Other investments (net) . . . . . . . . . . . . . . . . . (68,601) (5,958)
Net cash flows (used in) investing activities . . . . (580,211) (129,828)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . 491,541 291,918
Proceeds of long-term debt. . . . . . . . . . . . . . . . 7,818 1,406
Retirements of long-term debt . . . . . . . . . . . . . . (102,179) (276,470)
Issuance of common stock (net). . . . . . . . . . . . . . 6,717 13,996
Redemption of preference stock. . . . . . . . . . . . . . (50,000) -
Cash dividends paid . . . . . . . . . . . . . . . . . . . (71,795) (69,776)
Net cash flows from (used in) financing activities. . 282,102 (38,926)
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . (58,870) (1,825)
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 76,608 3,724
End of the period . . . . . . . . . . . . . . . . . . . . $ 17,738 $ 1,899
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 119,076 $ 130,152
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 23,595 41,430
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 494,012 $ 160,783
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary gain. . . . . . . . . . . . . . . . . . . . (1,591) -
Depreciation and amortization . . . . . . . . . . . . . . 266,481 226,076
Gain on sale of securities. . . . . . . . . . . . . . . . (864,253) -
Equity in earnings from investments . . . . . . . . . . . (5,116) (23,376)
Write-off of deferred merger costs. . . . . . . . . . . . 48,008 -
Security asset impairment charge. . . . . . . . . . . . . 40,144 -
Changes in working capital items (net of effects
from acquisitions):
Accounts receivable (net) . . . . . . . . . . . . . . . 48,682 (31,476)
Inventories and supplies. . . . . . . . . . . . . . . . (8,189) 4,149
Marketable securities . . . . . . . . . . . . . . . . . (61,845) -
Prepaid expenses and other. . . . . . . . . . . . . . . (23,223) 15,225
Accounts payable. . . . . . . . . . . . . . . . . . . . (30,061) 5,499
Accrued liabilities . . . . . . . . . . . . . . . . . . 68,697 (3,876)
Accrued income taxes. . . . . . . . . . . . . . . . . . 42,146 29,924
Other . . . . . . . . . . . . . . . . . . . . . . . . . 720 19,329
Changes in other assets and liabilities . . . . . . . . . (28,110) (83,410)
Net cash flows from (used in) operating activities. . (13,498) 318,847
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (net). . . . . (177,549) (213,302)
Customer account acquisition. . . . . . . . . . . . . . . (150,618) (21,134)
Proceeds from sale of securities. . . . . . . . . . . . . 1,533,530 -
Security alarm monitoring acquisitions
net of cash acquired. . . . . . . . . . . . . . . . . . (799,756) (368,535)
Proceeds from issuance of stock by subsidiary (net) . . . 45,565 -
Purchase of ADT common stock. . . . . . . . . . . . . . . - (145,842)
Other investments (net) . . . . . . . . . . . . . . . . . (107,961) (7,760)
Net cash flows from (used in) investing activities. . 343,211 (756,573)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . (544,617) 532,903
Proceeds of long-term debt. . . . . . . . . . . . . . . . 526,412 226,386
Retirements of long-term debt . . . . . . . . . . . . . . (119,686) (226,470)
Issuance of other mandatorily redeemable securities . . . - 120,000
Issuance of common stock (net). . . . . . . . . . . . . . 17,763 31,105
Redemption of preference stock. . . . . . . . . . . . . . (50,000) (100,000)
Cash dividends paid . . . . . . . . . . . . . . . . . . . (143,746) (145,803)
Net cash flows (used in) from financing activities. . (313,874) 438,121
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . 15,839 395
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 1,899 1,504
End of the period . . . . . . . . . . . . . . . . . . . . $ 17,738 $ 1,899
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 182,392 $ 205,297
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 386,713 59,018
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the fourth quarter of 1997 the company contributed the net
assets of its natural gas business totaling approximately $594 million
to ONEOK in exchange for a 45% ownership interest in ONEOK.
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CUMULATIVE PREFERRED AND PREFERENCE STOCK
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
1998 1997
CUMULATIVE PREFERRED AND PREFERENCE STOCK:
Preferred stock not subject to mandatory redemption,
Par value $100 per share, authorized
600,000 shares, outstanding -
4 1/2% Series, 138,576 shares. . . . . . . . . . $ 13,858 $ 13,858
4 1/4% Series, 60,000 shares . . . . . . . . . . 6,000 6,000
5% Series, 50,000 shares . . . . . . . . . . . . 5,000 5,000
24,858 24,858
Preference stock subject to mandatory redemption,
Without par value, $100 stated value,
Authorized 4,000,000 shares, outstanding -
7.58% Series, 500,000 shares . . . . . . . . . . - 50,000
TOTAL CUMULATIVE PREFERRED AND PREFERENCE STOCK. . . . $ 24,858 $ 74,858
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREOWNERS' EQUITY
(Dollars in Thousands)
(Unaudited)
Accumulated
Other
Comprehensive
Common Paid-in Retained Income
Stock Capital Earnings (net)
BALANCE DECEMBER 31, 1996, 64,625,259 shares. . . . . $323,126 $739,433 $562,121 $ -
Net income. . . . . . . . . . . . . . . . . . . . . . 65,368
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (2,459)
Common stock, $1.05 per share . . . . . . . . . . . (68,204)
Issuance of 456,494 shares of common stock. . . . . . 2,282 11,714
BALANCE JUNE 30, 1997, 65,081,753 shares. . . . . . . 325,408 751,147 556,826 -
Net income. . . . . . . . . . . . . . . . . . . . . . 428,726
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (2,460)
Common stock, $1.05 per share . . . . . . . . . . . (68,605)
Expenses on common stock. . . . . . . . . . . . . . . (5)
Issuance of 327,850 shares of common stock. . . . . . 1,640 9,411
Net change in unrealized gain on equity securities
(net of tax effect of $13,129) . . . . . . . . . . . ________ ________ 12,119
BALANCE DECEMBER 31, 1997, 65,409,603 shares. . . . . 327,048 760,553 914,487 12,119
Net income. . . . . . . . . . . . . . . . . . . . . . 65,287
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (3,027)
Common stock, $1.07 per share . . . . . . . . . . . (70,071)
Issuance of 163,299 shares of common stock. . . . . . 817 5,900
Net change in unrealized gain on equity securities
(net of tax effect of $8,361). . . . . . . . . . . . 12,657
BALANCE JUNE 30, 1998, 65,572,902 shares. . . . . . . $327,865 $766,453 $906,676 $ 24,776
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Western Resources, Inc. (the company) is a
publicly traded holding company. The company's primary business activities are
providing electric generation, transmission and distribution services to
approximately 614,000 customers in Kansas; providing security alarm monitoring
services to approximately 1.3 million customers located throughout the United
States, providing natural gas transmission and distribution services to
approximately 1.4 million customers in Oklahoma and Kansas through its
investment in ONEOK Inc. (ONEOK) and investing in international power projects.
Rate regulated electric service is provided by KPL, a division of the company
and KGE, a wholly-owned subsidiary. Security alarm monitoring services are
provided by Protection One, Inc. (Protection One), a publicly-traded,
approximately 85%-owned subsidiary.
Principles of Consolidation: The company's unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance with
the instructions to Form 10-Q. Accordingly, certain information and footnote
disclosures normally included in financial statements presented in accordance
with generally accepted accounting principles have been condensed or omitted.
These consolidated financial statements and notes should be read in conjunction
with the financial statements and the notes included in the company's 1997
Annual Report on Form 10-K/A.
New Pronouncements: Effective January 1, 1998, the company adopted the
provisions of Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130). This statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This statement established accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
133 requires that all derivatives be recognized as either assets or liabilities
in the balance sheet and that these instruments be measured at fair value. The
company will adopt SFAS 133 no later than January 1, 2000. Management is
presently evaluating the impact that adoption of SFAS 133 will have on the
company's financial position and results of operations.
Reclassifications: Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
2. MERGER AGREEMENT WITH KANSAS CITY POWER & LIGHT COMPANY (KCPL)
On February 7, 1997, the company signed a merger agreement with KCPL by
which KCPL would be merged with and into the company in exchange for company
stock. In December 1997, representatives of the company's financial advisor
indicated that they believed it was unlikely that they would be in a position to
issue a fairness opinion required for the merger on the basis of the previously
announced terms.
On March 18, 1998, the company and KCPL agreed to a restructuring of their
February 7, 1997, merger agreement which will result in the formation of Westar
Energy, a new regulated electric utility company. Under the terms of the merger
agreement, the electric utility operations of the company will be transferred to
KGE, and KCPL and KGE will be merged into NKC, Inc., a subsidiary of the
company. NKC, Inc. will be renamed Westar Energy. In addition, under the terms
of the merger agreement, KCPL shareowners will receive $23.50 of company common
stock per KCPL share, subject to a collar mechanism, and one share of Westar
Energy common stock per KCPL share. Upon consummation of the combination, the
company will own approximately 80.1% of the outstanding equity of Westar Energy
and KCPL shareowners will own approximately 19.9%. As part of the combination,
Westar Energy will assume all of the electric utility related assets and
liabilities of the company, KCPL and KGE.
Westar Energy will assume $2.7 billion in debt, consisting of $1.9 billion
of indebtedness for borrowed money of the company and KGE, and $800 million from
KCPL. Long-term debt of Western Resources and KGE was $2.1 billion at June 30,
1998. Under the terms of the merger agreement, it is intended that the company
will be released from its obligations with respect to the company's debt to be
assumed by Westar Energy.
Pursuant to the merger agreement, the company has agreed, among other
things, to call for redemption all outstanding shares of its 4 1/2% Series
Preferred Stock, par value $100 per share, 4 1/4% Series Preferred Stock, par
value $100 per share, and 5% Series Preferred Stock, par value $100 per share.
Consummation of the merger is subject to customary conditions. On July 30,
1998 the company's shareowners and the shareowners of KCPL voted to approve the
amended merger agreement at special meetings of shareowners. The company
estimates the transaction to close by mid-1999, subject to receipt of all
necessary approvals from regulatory and government agencies.
On August 7, 1998 the company and KCPL filed an amended application with
the Federal Energy Regulatory Commission (FERC) to approve the Western
Resources/KCPL merger and the formation of Westar Energy.
KCPL is a public utility company engaged in the generation, transmission,
distribution, and sale of electricity to customers in western Missouri and
eastern Kansas. The company, KCPL and KGE have joint interests in certain
electric generating assets, including Wolf Creek.
At June 30, 1998, the company had deferred approximately $7 million related
to the KCPL transaction. These costs will be included in the determination of
total consideration upon consummation of the transaction.
3. INVESTMENT IN ONEOK, INC.
In November 1997, the company completed its strategic alliance with ONEOK.
The company contributed substantially all of its regulated and non-regulated
natural gas business to ONEOK in exchange for a 45% ownership interest in ONEOK.
The company accounts for its common ownership of ONEOK in accordance with the
equity method of accounting.
For additional information on the Strategic Alliance with ONEOK, see Note
4 of the company's 1997 Annual Report on Form 10-K/A.
4. INVESTMENT IN PROTECTION ONE, INC.
Protection One has completed various acquisitions comprising over 500,000
subscribers at various times during the six months ended June 30, 1998.
On August 7, 1998, Protection One acquired approximately 65.6% of the
outstanding shares of Compagnie Europeene de Telesecurite (CET) for
approximately $94 million. CET is a French security alarm monitoring company
with approximately 60,000 subscribers located primarily in France, Belgium,
Germany, Switzerland, and the Netherlands.
For additional information on the Investment in Protection One and the
Security Alarm Monitoring Business, see Note 3 of the company's 1997 Annual
Report on Form 10-K/A.
5. LEGAL PROCEEDINGS
On January 8, 1997, Innovative Business Systems, Ltd. (IBS) filed suit
against the company and Westinghouse Electric Corporation (WEC), Westinghouse
Security Systems, Inc. (WSS) and WestSec, Inc. (WestSec), a wholly-owned
subsidiary of the company established to acquire the assets of WSS, in Dallas
County, Texas district court (Cause No 97-00184) alleging, among other things,
breach of contract by WEC and interference with contract against the company in
connection with the sale by WEC of the assets of WSS to the company. IBS claims
that WEC improperly transferred software owned by IBS to the company and that
the company is not entitled to its use. The company has demanded WEC defend and
indemnify it. WEC and the company have denied IBS' allegations and are
vigorously defending against them. Management does not believe that the
ultimate disposition of this matter will have a material adverse effect upon the
company's overall financial condition or results of operations.
The Securities and Exchange Commission (SEC) has commenced a private
investigation relating, among other things, to the timeliness and adequacy of
disclosure filings with the SEC by the company with respect to securities of ADT
Ltd. The company is cooperating with the SEC staff in the production of records
relating to the investigation.
The company and its subsidiaries are involved in various other legal,
environmental, and regulatory proceedings. Management believes that adequate
provision has been made and accordingly believes that the ultimate dispositions
of these matters will not have a material adverse effect upon the company's
overall financial position or results of operations.
6. COMMITMENTS AND CONTINGENCIES
International Power Project Commitments: The company has ownership
interests in international power generation projects under construction in
Colombia and the Republic of Turkey and in existing power generation facilities
in the People's Republic of China. In 1998, commitments are not expected to
exceed $51 million. Currently, equity commitments beyond 1998 approximate $9
million.
Manufactured Gas Sites: The company has been associated with 15 former
manufactured gas sites located in Kansas which may contain coal tar and other
potentially harmful materials. The company and the Kansas Department of Health
and Environment (KDHE) entered into a consent agreement governing all future
work at the 15 sites. The terms of the consent agreement will allow the company
to investigate these sites and set remediation priorities based upon the
results of the investigations and risk analysis. At June 30, 1998, the costs
incurred for preliminary site investigation and risk assessment have been
minimal. In accordance with the terms of the strategic alliance with ONEOK,
ownership of twelve of these sites and the responsibility for clean-up of these
sites were transferred to ONEOK. The ONEOK agreement limits our future
liability to an amount immaterial to the company's financial condition or
results of operations. However, our share of ONEOK income could be adversely
affected by these costs.
Affordable Housing Tax Credit Program (AHTC): At June 30, 1998, the
company had invested approximately $44.9 million to purchase AHTC investments in
limited partnerships. The company is committed to investing approximately $44.7
million more in AHTC investments by April 1, 2001.
For additional information on Commitments and Contingencies, see Note 7 of
the company's 1997 Annual Report on Form 10-K/A.
7. INCOME TAXES
Total income tax expense included in the Consolidated Statements of Income
reflects the Federal statutory rate of 35%. The Federal statutory rate produces
effective income tax rates of 36.3%, 30.8% and 43.1% for the three, six and
twelve month periods ended June 30, 1998 compared to 27.9%, 33.1% and 33.1% for
the three, six and twelve month periods ended June 30, 1997. The effective
income tax rates vary from the Federal statutory rate due to permanent
differences, including dividend income, the amortization of investment tax
credits, amortization of goodwill, and accelerated amortization of certain
deferred income taxes.
WESTERN RESOURCES, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
In Management's Discussion and Analysis we explain the general financial
condition and the operating results for Western Resources, Inc. and its
subsidiaries. We explain:
- What factors affect our business
- What our earnings and costs were for the three, six and twelve month
periods ending June 30, 1998 and 1997
- Why these earnings and costs differed from period to period
- How our earnings and costs affect our overall financial condition
- Any other items that particularly affect our financial condition or
earnings
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations updates the information provided in the 1997 Annual
Report on Form 10-K/A and should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
company's 1997 Annual Report on Form 10-K/A.
FORWARD-LOOKING STATEMENTS: Certain matters discussed here and elsewhere
in this Form 10-Q are "forward-looking statements." The Private Securities
Litigation Reform Act of 1995 has established that these statements qualify for
safe harbors from liability. Forward-looking statements may include words like
we "believe," "anticipate," "expect" or words of similar meaning.
Forward-looking statements describe our future plans, objectives, expectations
or goals. Such statements address future events and conditions concerning
capital expenditures, earnings, litigation, rate and other regulatory matters,
possible corporate restructurings, mergers, acquisitions, dispositions,
liquidity and capital resources, interest and dividend rates, environmental
matters, changing weather, nuclear operations, ability to enter new markets
successfully and capitalize on growth opportunities in nonregulated businesses,
and accounting matters. What happens in each case could vary materially from
what we expect because of such things as electric utility deregulation,
including ongoing state and federal activities; future economic conditions;
legislative developments; our regulatory and competitive markets; and other
circumstances affecting anticipated operations, sales and costs.
FINANCIAL CONDITION
GENERAL: Sales increased $9 million primarily due to increased electric
sales because of warmer than normal weather and stronger sales from our
monitored security business for the three months ended June 30, 1998. Partially
offsetting this increase was no gas sales for the quarter due to the transfer of
our natural gas assets to ONEOK in November 1997. Net income increased $10
million and basic earnings per share increased $0.14 per share for the three
months ended June 30, 1998 due to increased electric sales because of warmer
than normal weather, earnings from our natural gas investment and stronger
earnings from our monitored
security business.
Sales decreased $235 million, net income decreased less than 1% and basic
earnings per share decreased $0.02 per share for the six months ended June 30,
1998 due to the transfer of our natural gas business to ONEOK in November 1997
and the gain on the sale of a non-strategic equity investment during the second
quarter of 1997.
Sales decreased $218 million for the twelve months ended June 30, 1998 due
to the transfer of our natural gas business to ONEOK in November 1997. Net
income increased $333 million and basic earnings per share increased $5.15 for
the twelve months ended June 30, 1998 due to the pre-tax gain on the sale of the
Tyco common stock of $864 million, or $7.97 of basic earnings per share,
recorded in the third quarter of 1997. Partially offsetting these increases was
the special non-recurring charge in December 1997 to expense $48 million of
deferred KCPL Merger costs, and the special non-recurring charge in December
1997 of approximately $40 million recorded by Protection One.
A quarterly dividend of $0.535 per share was declared in the second quarter
of 1998, for an indicated annual rate of $2.14 per share. The book value per
share was $30.89 at June 30, 1998, up from $30.79 at December 31, 1997. There
were 65,542,815 and 65,045,268 average shares outstanding for the second quarter
of 1998 and 1997.
OPERATING RESULTS
The following explains significant changes from prior year results in
sales, cost of sales, operating expenses, other income (expense), interest
expense, income taxes and preferred and preference dividends.
Energy sales, cost of sales and operating expenses have decreased
significantly for the three, six and twelve months ended June 30, 1998 due to
the transfer of our natural gas business assets to ONEOK Inc. in November 1997.
Security sales, cost of sales and operating expenses have increased
significantly for the three, six and twelve months ended June 30, 1998 due
primarily to our acquisition of Protection One in November 1997.
SALES: Energy sales include electric sales, power marketing sales, natural
gas sales and other insignificant energy-related sales. Certain state
regulatory commissions and the FERC authorize rates for our electric sales. Our
energy sales vary with levels of energy deliveries. Changing weather affects
the amount of energy our customers use. Very hot summers and very cold winters
prompt more demand, especially among our residential customers. Mild weather
reduces demand.
Many things will affect our future energy sales. They include:
- The weather
- Our electric rates
- Competitive forces
- Customer conservation efforts
- Wholesale demand
- The overall economy of our service area
Electric sales increased 33.4% for the three months ended June 30, 1998 due
to increased residential energy deliveries as a result of warmer spring
temperatures and revenues of $65 million from our power marketing activity. Our
involvement in electric power marketing takes advantage of increased competitive
opportunities in the wholesale electric utility industry. We are involved in
both the marketing of electricity and risk management services to wholesale
electric customers and the purchase of electricity for our retail customers.
Our margin from power marketing activity is significantly less than our margins
on other energy sales. Our power marketing activity has resulted in energy
purchases and sales made in areas outside of our historical marketing territory.
Through June 30, 1998, this additional power marketing activity has had an
insignificant effect on operating income. This sales increase was partially
offset by our reduced electric rates implemented February 1, 1997. Power
marketing sales are also impacted by the availability of generating units and
purchased power from other companies. Due to warmer than normal weather
throughout the Midwest and lack of power available for purchase on the wholesale
market, the wholesale power market has seen extreme volatility in prices and
availability. This volatility could impact our cost of power purchases and
impact our ability to participate in power trades.
Electric sales increased 23.7% for the six months ended June 30, 1998 due
to increased residential energy deliveries as a result of warmer spring
temperatures and revenues of $112 million from our power marketing activity.
This increase was partially offset by our reduced electric rates implemented on
February 1, 1997 and on June 1, 1998.
Electric sales increased 15.4% for the twelve months ended June 30, 1998
because of $182 million included from our power marketing activity. This
increase was partially offset by a 7.3% decrease in wholesale and interchange
sales and our reduced electric rates implemented on February 1, 1997 and on June
1, 1998.
The following table reflects the increases in electric energy deliveries
for retail customers for the three, six and twelve months ended June 30, 1998
from the comparable periods of 1997.
3 Months 6 Months 12 Months
ended ended ended
Residential. . . . . 18.3% 10.0% 7.5%
Commercial . . . . . 10.1% 6.9% 6.3%
Industrial . . . . . 2.7% 2.8% 3.7%
Other. . . . . . . . (0.7)% 0.8% 0.7%
Total retail . . . 9.8% 6.3% 5.7%
Security alarm monitoring business sales increased $66 million for the
three months ended, $110 million for the six months ended, and $192 million for
the twelve months ended June 30, 1998. These increases are primarily due to our
acquisition of Protection One on November 24, 1997 and Protection One's
continued growth and acquisitions during the first half of 1998.
COST OF SALES: Items included in energy cost of sales are fuel expense,
purchased power expense (electricity we purchase from others for resale), power
marketing expense and natural gas purchased. Items included in security alarm
monitoring cost of sales are the cost of direct monitoring and the cost of
installing security monitoring equipment that is not capitalized.
Energy business cost of sales were lower by 19% for the three months ended,
48% for the six months ended and 22% for the twelve months ended June 30, 1998.
These decreases were primarily due to the transfer of our natural gas business
assets to ONEOK in November 1997. Partially offsetting these decreases was
increased power marketing expense of $63 million for the three months ended,
$110 million for the six months ended and $181 million for the twelve months
ended June 30, 1998.
Security alarm monitoring cost of sales increased 111% for the three months
ended, 63% for the six months ended and 62% for the twelve months ended June 30,
1998. The increases are primarily a result of our acquisition of Protection One
on November 24, 1997 and Protection One's addition of several service centers
resulting from acquisition activity during the first half of 1998.
OPERATING EXPENSES
OPERATING AND MAINTENANCE EXPENSE: Total operating and maintenance expense
decreased 20% for the three months, 19% for the six months, and 8% for the
twelve months ended June 30, 1998 primarily due to the transfer of our natural
gas business assets to ONEOK in November 1997.
DEPRECIATION AND AMORTIZATION EXPENSE: Depreciation and amortization
expense increased 15% for the three months, 8% for the six months, and 18% for
the twelve months ended June 30, 1998. These increases are primarily
attributable to the amortization of capitalized security alarm monitoring
accounts and goodwill from our security alarm monitoring business. Partially
offsetting these increases were reductions in amortization expense for certain
regulatory assets which were fully amortized in December 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: Selling, general and
administrative expense increased 28% for the three months ended June 30, 1998
and increased 8% for the six months ended June 30, 1998 primarily due to
increased selling, general and administrative expense from our expansion into
the security alarm monitoring business through acquisitions. Also contributing
to the increase was storm related restoration expenses. Partially offsetting
the increase was decreased selling, general and administrative expense due to
the transfer of our natural gas business assets to ONEOK in November 1997.
Higher security alarm monitoring business selling, general and
administrative expense caused a 54% increase in total selling general and
administrative expense for the twelve months ended June 30, 1998. This increase
is due primarily to our expansion into the security alarm monitoring business
through acquisitions. Partially offsetting this increase was decreased selling,
general and administrative expense due to the transfer of our natural gas
business assets to ONEOK in November 1997.
OTHER: Two additional items affected total operating expenses for the
twelve months ended June 30, 1998. We recorded a special non-recurring charge
in December 1997 to expense $48 million of deferred KCPL Merger costs.
Protection One recorded a special non-recurring charge of approximately $40
million in December 1997, to reflect the phase out of certain business
activities which are no longer of continuing value to Protection One, to
eliminate redundant facilities and activities and to bring all customers under
the Protection One
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 30,468 $ 41,033
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 61,637 60,678
Equity in earnings from investments . . . . . . . . . . . (5,576) (13,177)
Changes in working capital items (net of effects
from acquisitions):
Accounts receivable (net) . . . . . . . . . . . . . . . 146,248 47,424
Inventories and supplies. . . . . . . . . . . . . . . . (5,709) 22,364
Marketable securities . . . . . . . . . . . . . . . . . (15,264) -
Prepaid expenses and other. . . . . . . . . . . . . . . 3,348 7,540
Accounts payable. . . . . . . . . . . . . . . . . . . . (56,099) (65,354)
Accrued liabilities . . . . . . . . . . . . . . . . . . 12,112 13,238
Accrued income taxes. . . . . . . . . . . . . . . . . . 10,435 17,937
Other . . . . . . . . . . . . . . . . . . . . . . . . . 20,532 2,718
Changes in other assets and liabilities . . . . . . . . . 11,606 (18,622)
Net cash flows from operating activities. . . . . . . 213,738 115,779
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (net). . . . . (33,908) (39,737)
Customer account acquisition. . . . . . . . . . . . . . . (64,703) (3,356)
Security alarm monitoring acquisitions,
net of cash acquired. . . . . . . . . . . . . . . . . . (274,030) -
Other investments (net) . . . . . . . . . . . . . . . . . (59,041) (18,799)
Net cash flows (used in) investing activities . . . . (431,682) (61,892)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . 225,750 245,997
Proceeds of long-term debt. . . . . . . . . . . . . . . . 764 1,407
Retirements of long-term debt . . . . . . . . . . . . . . (35,732) (275,607)
Issuance of common stock (net). . . . . . . . . . . . . . - 7,386
Cash dividends paid . . . . . . . . . . . . . . . . . . . (35,570) (34,505)
Net cash flows from (used in) financing activities. . 155,212 (55,322)
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . (62,732) (1,435)
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 76,608 3,724
End of the period . . . . . . . . . . . . . . . . . . . . $ 13,876 $ 2,289
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:brand.
OTHER INCOME (EXPENSE)
Other income (expense) includes miscellaneous income and expenses not
directly related to our operations. Other income included a gain from
Protection One's repurchase of certain contracts of $10.2 million for the three
months ended and $13.4 million for the six months ended June 30, 1998. Also
included in other income was investment earnings of approximately $9 million for
the three months ended and approximately $23 million for the six months ended
June 30, 1998 from our 45% ownership in ONEOK. Other income for the second
quarter of 1997 included investment earnings of approximately $10 million
primarily from our investment in ADT and included a gain on the sale of a
non-strategic equity investment of $11.5 million.
Other income for the twelve months ended June 30, 1998 increased due to the
gain on the sale of Tyco common stock of $864 million during the third quarter
of 1997.
INTEREST EXPENSE
Interest expense includes the interest we paid on outstanding debt.
Interest expense increased 6% for the three months, 4% for the six months and 8%
for the twelve months ended June 30, 1998. Interest recorded on long-term debt
increased $50 million or 50% for the twelve months ended June 30, 1998 due to
the issuance of $520 million in senior unsecured notes in November 1997. A
decline in short-term debt interest expense in the second half of 1997 partially
offset the increase in long-term debt interest expense. We used the proceeds
from the sale of Tyco common stock and the $520 million in senior unsecured
notes to reduce our short-term debt balance.
INCOME TAXES
Income tax expense for the three months ended June 30, 1998 increased $11
million. Income tax expense for the six months ended June 30, 1998 decreased $3
million or 8%. Income tax expense for the twelve months ended June 30, 1998
increased $297 million due to the gain from the sale of Tyco common stock.
Partially offsetting this increase was lower operating income.
EXTRAORDINARY GAIN
In June 1998, Protection One redeemed a portion of its discount notes which
resulted in an extraordinary gain, net of tax, of approximately $1.6 million.
PREFERRED AND PREFERENCE DIVIDENDS
Preferred and preference dividends decreased 48% for the twelve months
ended June 30, 1998 due to the dividend paid associated with the redemption of
our 8.50% preference stock due 2016 on July 1, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, we had $18 million in cash and cash equivalents. We
consider highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. Our cash and cash equivalents decreased
$59 million from December 31, 1997, due to a decrease in cash held by Protection
One. Protection One used its cash for security alarm monitoring business
acquisitions. Other than operations, our primary source of short-term cash is
from short-term bank loans, unsecured lines of credit and the sale of commercial
paper. At June 30, 1998, we had approximately $728 million of short-term debt
outstanding, of which $573 million was commercial paper. An additional $246
million of short-term debt was available from committed credit arrangements.
On April 1, 1998, we redeemed our 7.58% Preference Stock due 2007 at a
premium, including dividends, for $53 million.
In July 1998, we issued $30 million of 6.8% Senior Notes due July 15,
2018. The notes are unsecured and unsubordinated obligations of the company.
In July 1998, we filed a shelf registration for $800 million in senior,
unsecured obligations of the company. In August 1998, we issued $400 million of
6.25% Putable/Callable Notes due on August 15, 2018, putable/callable on August
15, 2003 under this shelf agreement. Proceeds from these issuances will be
used to reduce short-term debt incurred in connection with investments in
unregulated operations, the redemption of preferred securities and other general
corporate purposes.
Protection One issued approximately 42.8 million shares of common stock in
public offerings and private placements for net proceeds of $403 million in June
1998. Westar Capital, a wholly-owned subsidiary of Western Resources, acquired
approximately 37.6 million of these shares in exchange for cash and the
repayment of borrowings under a Senior Credit Facility between Westar Capital
and Protection One. Cash proceeds from the offering were used to redeem
additional long-term debt. Protection One anticipates a private placement of
$300 million of Senior Notes during August 1998. Proceeds from these notes will
be used to repay indebtedness on an existing credit facility.
Net cash flows from operating activities increased approximately $72
million for the six months ended June 30, 1998 due primarily to receivables
associated with our natural gas business as part of the strategic alliance with
ONEOK.
MERGERS AND ACQUISITIONS
MERGER AGREEMENT WITH KANSAS CITY POWER & LIGHT COMPANY: On February 7,
1997, the company signed a merger agreement with KCPL by which KCPL would be
merged with and into the company in exchange for company stock. In December
1997, representatives of the company's financial advisor indicated that they
believed it was unlikely that they would be in a position to issue a fairness
opinion required for the merger on the basis of the previously announced terms.
On March 18, 1998, we and KCPL agreed to a restructuring of our February
7, 1997, merger agreement which will result in the formation of Westar Energy,
a new regulated electric utility company. Under the terms of the merger
agreement, our electric utility operations will be transferred to KGE, and KCPL
and KGE will be merged into NKC, Inc., a subsidiary of the company. NKC, Inc.
will be renamed Westar Energy. In addition, under the terms of the merger
agreement, KCPL shareowners will receive $23.50 of Western Resources common
stock per KCPL share, subject to a collar mechanism, and one share of Westar
Energy common stock per KCPL share. Upon consummation of the combination, we
will own approximately 80.1% of the outstanding equity of Westar Energy and KCPL
shareowners will own approximately 19.9%. As part of the combination, Westar
Energy will assume all of the electric utility related assets and liabilities of
Western Resources, KCPL and KGE.
Westar Energy will assume $2.7 billion in debt, consisting of $1.9 billion
of indebtedness for borrowed money of Western Resources and KGE, and $800
million from KCPL. Long-term debt of Western Resources and KGE was $2.1 billion
at June 30, 1998. Under the terms of the merger agreement, it is intended that
we will be released from our obligations with respect to our debt to be assumed
by Westar Energy.
Pursuant to the merger agreement, we have agreed, among other things, to
call for redemption all outstanding shares of our 4 1/2% Series Preferred Stock,
par value $100 per share, 4 1/4% Series Preferred Stock, par value $100 per
share, and 5% Series Preferred Stock, par value $100 per share.
Consummation of the merger is subject to customary conditions. On July 30,
1998 the company's shareowners and the shareowners of KCPL voted to approve the
amended merger agreement at special meetings of shareowners. The company
estimates the transaction to close by mid-1999, subject to receipt of all
necessary approvals from regulatory and government agencies.
On August 7, 1998 the company and KCPL filed an amended application with
the Federal Energy Regulatory Commission to approve the Western Resources/KCPL
merger and the formation of Westar Energy.
KCPL is a public utility company engaged in the generation, transmission,
distribution, and sale of electricity to customers in western Missouri and
eastern Kansas. We, KCPL and KGE have joint interests in certain electric
generating assets, including Wolf Creek. Following the closing of the
combination, Westar Energy is expected to have approximately one million
electric utility customers in Kansas and Missouri, approximately $8.2 billion in
assets and the ability to generate more than 8,000 megawatts of electricity.
SECURITY ALARM MONITORING BUSINESS PURCHASES: Protection One has completed
various acquisitions comprising over 500,000 subscribers during the six months
ended June 30, 1998.
On August 7, 1998, Protection One acquired approximately 65.6% of the
outstanding shares of Compagnie Europeene de Telesecurite (CET) for
approximately $94 million. CET is a French security alarm monitoring company
with approximately 60,000 subscribers located primarily in France, Belgium,
Germany, Switzerland, and the Netherlands.
OTHER INFORMATION
YEAR 2000 ISSUE: We are currently addressing the effect of the Year 2000
Issue on our reporting systems and operations. We face the Year 2000 Issue
because many computer systems and applications abbreviate dates by eliminating
the first two digits of the year, assuming that these two digits are always
"19". On January 1, 2000, some computer programs may incorrectly recognize the
date as January 1, 1900. Some computer systems may incorrectly process critical
financial and operational information, or stop processing altogether because of
the date abbreviation. Calculations using the year 2000 will affect computer
applications before January 1, 2000.
We have recognized the potential adverse effects the Year 2000 Issue could
have on our company. In 1996, we established a formal Year 2000 remediation
program to investigate and correct these problems in the main computer systems
of our company. In 1997, we expanded the program to include all business units
and departments of our company. The goal of our program is to identify and
assess every critical system potentially affected by the Year 2000 date change
and to repair or replace those systems found to be incompatible with Year 2000
dates.
We have completed approximately 75% of our contingency plan for all
business units and departments of our company with the exception of WCNOC and
Protection One. WCNOC is currently pursuing their own contingency plan and
their management does not believe that WCNOC will be substantially impacted.
Protection One plans to complete their contingency plan in 1999. Our
contingency plan includes pre-established action plans to work around any
unforeseen operational impacts surrounding the century date change.
We have identified four major areas of risk: 1) Vendors and suppliers, 2)
Banks and Financial Institutions, 3) Telecommunications, including phone systems
and cellular phones and 4) Large customers. We are addressing these risks in
our contingency plans and expect no significant operational impact on our
ability to serve our customers, pay suppliers, or operate other areas of our
business.
We plan to have our Year 2000 readiness efforts substantially completed by
the end of 1998, excluding WCNOC and Protection One. WCNOC is pursuing their
own Year 2000 plan. Protection One will continue their review through January
1, 2000, particularly with respect to acquisitions of security businesses that
include additional computer systems and equipment. We currently estimate that
total costs to update all of our systems for year 2000 compliance will be
approximately $12 million. As of June 30, 1998 we have expensed approximately
$3 million of these costs and based on what we now know, we expect to incur the
remaining $9 million by the end of 1999.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
WESTERN RESOURCES, INC.
Part II Other Information
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The company's Annual Meeting of Shareholders was held on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 56,591 $ 58,813
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 161 7,044
The Notes to Consolidated Financial Statements are an integral part of these statements.
/TABLE
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 483,529 $ 165,194
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 257,684 213,911
Gain on sale of securities. . . . . . . . . . . . . . . . (864,253) -
Equity in earnings from investments . . . . . . . . . . . (17,804) (18,772)
Write-off of deferred merger costs. . . . . . . . . . . . 48,008 -
Security asset impairment charge. . . . . . . . . . . . . 40,144 -
Changes in working capital items (net of effects
from acquisitions):
Accounts receivable (net) . . . . . . . . . . . . . . . 112,980 13,594
Inventories and supplies. . . . . . . . . . . . . . . . (24,824) (340)
Marketable securities . . . . . . . . . . . . . . . . . (25,725) -
Prepaid expenses and other. . . . . . . . . . . . . . . 5,038 10,414
Accounts payable. . . . . . . . . . . . . . . . . . . . (39,043) (24,421)
Accrued liabilities . . . . . . . . . . . . . . . . . . 63,945 (862)
Accrued income taxes. . . . . . . . . . . . . . . . . . 2,367 16,988
Other . . . . . . . . . . . . . . . . . . . . . . . . . 9,230 2,238
Changes in other assets and liabilities . . . . . . . . . (39,125) (91,427)
Net cash flows from operating activities. . . . . . . 12,151 286,517
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (net). . . . . (204,909) (197,503)
Customer account acquisition. . . . . . . . . . . . . . . (106,510) (3,356)
Proceeds from sale of securities. . . . . . . . . . . . . 1,533,530 -
Security alarm monitoring acquisitions
net of cash acquired. . . . . . . . . . . . . . . . . . (712,747) (368,535)
Purchase of ADT common stock. . . . . . . . . . . . . . . - (145,842)
Other investments (net) . . . . . . . . . . . . . . . . . (85,560) (16,799)
Net cash flows from (used in) investing activities. . 423,804 (732,035)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . (764,487) 884,437
Proceeds of long-term debt. . . . . . . . . . . . . . . . 519,357 (48,593)
Retirements of long-term debt . . . . . . . . . . . . . . (54,102) (291,607)
Issuance of other mandatorily redeemable securities . . . - 120,000
Issuance of common stock (net). . . . . . . . . . . . . . 17,656 27,070
Redemption of preference stock. . . . . . . . . . . . . . - (100,000)
Cash dividends paid . . . . . . . . . . . . . . . . . . . (142,792) (146,450)
Net cash flows (used in) from financing activities. . (424,368) 444,857
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . 11,587 (661)
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 2,289 2,950
End of the period . . . . . . . . . . . . . . . . . . . . $ 13,876 $ 2,289
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 168,413 $ 191,652
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 59,809 66,120
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the fourth quarter of 1997 the company contributed the net
assets of its natural gas business totaling approximately $594 million
to ONEOK in exchange for a 45% ownership interest in ONEOK.
The Notes to Consolidated Financial Statements are an integral part of these statements.
/TABLE
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CUMULATIVE PREFERRED AND PREFERENCE STOCK
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
1998 1997
CUMULATIVE PREFERRED AND PREFERENCE STOCK:
Preferred stock not subject to mandatory redemption,
Par value $100 per share, authorized
600,000 shares, outstanding -
4 1/2% Series, 138,576 shares. . . . . . . . . . $ 13,858 $ 13,858
4 1/4% Series, 60,000 shares . . . . . . . . . . 6,000 6,000
5% Series, 50,000 shares . . . . . . . . . . . . 5,000 5,000
24,858 24,858
Preference stock subject to mandatory redemption,
Without par value, $100 stated value,
Authorized 4,000,000 shares, outstanding -
7.58% Series, 500,000 shares . . . . . . . . . . 50,000 50,000
TOTAL CUMULATIVE PREFERRED AND PREFERENCE STOCK. . . . $ 74,858 $ 74,858
The Notes to Consolidated Financial Statements are an integral part of these statements.
/TABLE
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREOWNERS' EQUITY
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Accumulated
Other
Comprehensive
Common Paid-in Retained Income
Stock Capital Earnings (net)
BALANCE DECEMBER 31, 1996, 64,625,259 shares. . . . . $323,126 $739,433 $562,121 $ -
Net income. . . . . . . . . . . . . . . . . . . . . . 41,032
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (1,230)
Common stock, $0.525 per share. . . . . . . . . . . (34,041)
Issuance of 246,887 shares of common stock. . . . . . 1,235 6,151
BALANCE MARCH 31, 1997, 64,872,146 shares . . . . . . 324,361 745,584 567,882 -
Net income. . . . . . . . . . . . . . . . . . . . . . 453,062
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (3,689)
Common stock, $1.575 per share. . . . . . . . . . . (102,768)
Expenses on common stock (5)
Issuance of 537,457 shares of common stock. . . . . . 2,687 14,974
Net change in unrealized gain on equity securities
(net of tax effect of $13,129) . . . . . . . . . . . ________ ________ 12,119
BALANCE DECEMBER 31, 1997, 65,409,603 shares. . . . . 327,048 760,553 914,487 12,119
Net income. . . . . . . . . . . . . . . . . . . . . . 30,468
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (1,230)
Common stock, $0.535 per share. . . . . . . . . . . (34,995)
Net change in unrealized gain on equity securities
(net of tax effect of $5,754). . . . . . . . . . . . 8,711
BALANCE MARCH 31, 1998, 65,409,603 shares . . . . . . $327,048 $760,553 $908,730 $ 20,830
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Western Resources, Inc. (the company) is a
publicly traded holding company. The company's primary business activities are
providing electric generation, transmission and distribution services to
approximately 614,000 customers in Kansas; providing security alarm monitoring
services to approximately 1.2 million customers located throughout the United
States, providing natural gas transmission and distribution services to
approximately 1.4 million customers in Oklahoma and Kansas through its
investment in ONEOK Inc. (ONEOK) and investing in international power projects.
Rate regulated electric service is provided by KPL, a division of the company
and KGE, a wholly-owned subsidiary. Security services are provided by
Protection One, Inc. (Protection One), a publicly-traded, approximately
82%-owned subsidiary.
Principles of Consolidation: The company's unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance with
the instructions to Form 10-Q. Accordingly, certain information and footnote
disclosures normally included in financial statements presented in accordance
with generally accepted accounting principles have been condensed or omitted.
These consolidated financial statements and notes should be read in conjunction
with the financial statements and the notes included in the company's 1997
Annual Report on Form 10-K/A.
New Pronouncements: Effective January 1, 1998, the company adopted the
provisions of Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130). This statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements.
Reclassifications: Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
2. MERGER AGREEMENT WITH KANSAS CITY POWER & LIGHT COMPANY
On February 7, 1997, the company signed a merger agreement with KCPL by
which KCPL would be merged with and into the company in exchange for company
stock. In December 1997, representatives of the company's financial advisor
indicated that they believed it was unlikely that they would be in a position to
issue a fairness opinion required for the merger on the basis of the previously
announced terms.
On March 18, 1998, the company and KCPL agreed to a restructuring of their
February 7, 1997, merger agreement which will result in the formation of Westar
Energy, a new regulated electric utility company. Under the terms of the merger
agreement, the electric utility operations of the company will be transferred to
KGE, and KCPL and KGE will be merged into NKC, Inc., a subsidiary of the
company. NKC, Inc. will be renamed Westar Energy. In addition, under the terms
of the merger agreement, KCPL shareowners will receive $23.50 of company common
stock per KCPL share, subject to a collar mechanism, and one share of Westar
Energy
common stock per KCPL share. Upon consummation of the combination, the company
will own approximately 80.1% of the outstanding equity of Westar Energy and KCPL
shareowners will own approximately 19.9%. As part of the combination, Westar
Energy will assume all of the electric utility related assets and liabilities of
the company, KCPL and KGE.
Westar Energy will assume $2.7 billion in debt, consisting of $1.9 billion
of indebtedness for borrowed money of the company and KGE, and $800 million of
debt of KCPL. Long-term debt of Western Resources and KGE was $2.1 billion at
March 31, 1998. Under the terms of the merger agreement, it is intended that
the company will be released from its obligations with respect to the company's
debt to be assumed by Westar Energy.
Pursuant to the merger agreement, the company has agreed, among other
things, to call for redemption all outstanding shares of its 4 1/2% Series
Preferred Stock, par value $100 per share, 4 1/4% Series Preferred Stock, par
value $100 per share, and 5% Series Preferred Stock, par value $100 per share.
Consummation of the merger is subject to customary conditions including
obtaining the approval of the company's and KCPL's shareowners and various
regulatory agencies. The company estimates the transaction to close by
mid-1999, subject to receipt of all necessary approvals.
KCPL is a public utility company engaged in the generation, transmission,
distribution, and sale of electricity to customers in western Missouri and
eastern Kansas. The company, KCPL and KGE have joint interests in certain
electric generating assets, including Wolf Creek.
On March 23, 1998 the company and KCPL filed a letter informing the FERC
that it had signed a revised merger agreement, dated March 18, 1998. The
company sent similar letters on March 24, 1998 to the Kansas Corporation
Commission (KCC) and the Missouri Public Service Commission (MPSC). The company
and KCPL will submit appropriate modifications to the merger filings at FERC,
the KCC and the MPSC as soon as practicable.
At March 31, 1998, the company had deferred approximately $6 million
related to the KCPL transaction. These costs will be included in the
determination of total consideration upon consummation of the transaction.
3. INVESTMENT IN ONEOK, INC.
In November 1997, the company completed its strategic alliance with ONEOK.
The company contributed substantially all of its regulated and non-regulated
natural gas business to ONEOK in exchange for a 45% ownership interest in ONEOK.
The company accounts for its common ownership of ONEOK in accordance with the
equity method of accounting.
For additional information on the Strategic Alliance with ONEOK, see Note
4 of the company's 1997 Annual Report on Form 10-K/A.
4. INVESTMENT IN PROTECTION ONE, INC.
Effective January 1, 1998, Protection One acquired the stock of Network
Holdings, Inc., the parent company of Network Multi-Family, from the company for
approximately $180 million. Protection One borrowed money under a revolving
credit agreement provided by Westar Capital, a subsidiary of the company, to
purchase Network Multi-Family.
On March 2, 1998, Protection One acquired the assets comprising the
monitored security alarm business of Multimedia Security Services, Inc.
(Multimedia Security) for approximately $233 million in cash. Multimedia
Security had approximately 140,000 subscribers concentrated primarily in
California, Florida, Kansas, Oklahoma and Texas.
On March 17, 1998, Protection One acquired the stock of Comsec Narragansett
Security, Inc. (Comsec) for approximately $45 million in cash and assumed
approximately $15 million in debt. Comsec has approximately 30,000 subscribers
located primarily in Connecticut, Maine, Massachusetts, and New Hampshire.
The acquisitions of Multimedia Security and Comsec have been accounted for
as purchases. Preliminary allocations of the purchase price for each
acquisition have been made based on the estimated fair value of the net assets
acquired. These acquisitions do not materially affect the company's financial
position or results of operations.
For additional information on the Investment in Protection One and the
Security Alarm Monitoring Business, see Note 3 of the company's 1997 Annual
Report on Form 10-K/A.
5. LEGAL PROCEEDINGS
On January 8, 1997, Innovative Business Systems, Ltd. (IBS) filed suit
against the company and Westinghouse Electric Corporation (WEC), Westinghouse
Security Systems, Inc. (WSS) and WestSec, Inc. (WestSec), a wholly-owned
subsidiary of the company established to acquire the assets of WSS, in Dallas
County, Texas district court (Cause No 97-00184) alleging, among other things,
breach of contract by WEC and interference with contract against the company in
connection with the sale by WEC of the assets of WSS to the company. IBS claims
that WEC improperly transferred software owned by IBS to the company and that
the company is not entitled to its use. The company has demanded WEC defend
and indemnify it. WEC and the company have denied IBS' allegations and are
vigorously defending against them. Management does not believe that the
ultimate disposition of this matter will have a material adverse effect upon the
company's overall financial condition or results of operations.
The Securities and Exchange Commission (SEC) has commenced a private
investigation relating, among other things, to the timeliness and adequacy of
disclosure filings with the SEC by the company with respect to securities of ADT
Ltd. The company is cooperating with the SEC staff in the production of records
relating to the investigation.
The company and its subsidiaries are involved in various other legal,
environmental, and regulatory proceedings. Management believes that adequate
provision has been made and accordingly believes that the ultimate dispositions
of these matters will not have a material adverse effect upon the company's
overall financial position or results of operations.
6. COMMITMENTS AND CONTINGENCIES
International Power Project Commitments: The company has ownership
interests in international power generation projects under construction in
Colombia and the Republic of Turkey and in existing power generation facilities
in the People's Republic of China. In 1998, commitments are not expected to
exceed $61 million. Currently, equity commitments beyond 1998 approximate $88
million.
Manufactured Gas Sites: The company has been associated with 15 former
manufactured gas sites located in Kansas which may contain coal tar and other
potentially harmful materials. The company and the Kansas Department of Health
and Environment (KDHE) entered into a consent agreement governing all future
work at the 15 sites. The terms of the consent agreement will allow the company
to investigate these sites and set remediation priorities based upon the results
of the investigations and risk analysis. At March 31, 1998, the costs incurred
for preliminary site investigation and risk assessment have been minimal. In
accordance with the terms of the strategic alliance with ONEOK, ownership of
twelve of these sites and the responsibility for clean-up of these sites were
transferred to ONEOK. The ONEOK agreement limits our future liability to an
amount immaterial to the company's financial condition or results of operations.
However, our share of ONEOK income could be adversely affected by these costs.
Affordable Housing Tax Credit Program (AHTC): At March 31, 1998, the
company had invested approximately $40.6 million to purchase AHTC investments in
limited partnerships. The company is committed to investing approximately $40.5
million more in AHTC investments by January 1, 2000.
For additional information on Commitments and Contingencies, see Note 7 of
the company's 1997 Annual Report on Form 10-K/A.
7. INCOME TAXES
Total income tax expense included in the Consolidated Statements of Income
reflects the Federal statutory rate of 35%. The Federal statutory rate produces
effective income tax rates of 23.0% and 43.0% for the three and twelve month
periods ended March 31, 1998 compared to 35.9% and 33.5% for the three and
twelve month periods ended March 31, 1997. The effective income tax rates vary
from the Federal statutory rate due to permanent differences, including dividend
income, the amortization of investment tax credits, and accelerated amortization
of certain deferred income taxes.
WESTERN RESOURCES, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
In Management's Discussion and Analysis we explain the general financial
condition and the operating results for Western Resources, Inc. and its
subsidiaries. We explain:
- What factors affect our business
- What our earnings and costs were for the three and twelve month
periods ending March 31, 1998 and 1997
- Why these earnings and costs differed from period to period
- How our earnings and costs affect our overall financial condition
- Any other items that particularly affect our financial condition or
earnings
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations updates the information provided in the 1997 Annual
Report on Form 10-K/A and should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
company's 1997 Annual Report on Form 10-K/A.
FORWARD-LOOKING STATEMENTS: Certain matters discussed here and elsewhere
in this Form 10-Q are "forward-looking statements." The Private Securities
Litigation Reform Act of 1995 has established that these statements qualify for
safe harbors from liability. Forward-looking statements may include words like
we "believe," "anticipate," "expect" or words of similar meaning.
Forward-looking statements describe our future plans, objectives, expectations
or goals. Such statements address future events and conditions concerning
capital expenditures, earnings, litigation, rate and other regulatory matters,
possible corporate restructurings, mergers, acquisitions, dispositions,
liquidity and capital resources, interest and dividend rates, environmental
matters, changing weather, nuclear operations and accounting matters. What
happens in each case could vary materially from what we expect because of such
things as electric utility deregulation, including ongoing state and federal
activities; future economic conditions; legislative developments; our regulatory
and competitive markets; and other circumstances affecting anticipated
operations, sales and costs.
FINANCIAL CONDITION
GENERAL: Sales, cost of sales, operating expenses, net income and basic
earnings per share were significantly reduced for the three months ended March
31, 1998 due to the effects of restructuring our natural gas interests in the
strategic alliance with ONEOK as of November 30, 1997. The restructuring
reduced first quarter earnings by $0.22 per share when compared to prior year,
which we anticipate will be made up by earnings from our ONEOK investment in the
second and third quarters. Each quarter, earnings from our 45% ownership in
ONEOK will be recorded in our other income section of our Consolidated
Statements of Income. Our investment income stream is expected to fluctuate
less each quarter without the seasonal swings typical of the natural gas
distribution business.
For the three months ended March 31, 1998, sales decreased 39%, net income
decreased 26% and basic earnings per share decreased 26%. Sales also decreased
10% for the twelve months ended March 31, 1998 due primarily to the transfer of
our natural gas assets to ONEOK.
Net income increased $318 million and basic earnings per share increased
$4.96 for the twelve months ended March 31, 1998 due to the pre-tax gain on the
sale of the Tyco common stock of $864 million, or $7.97 of basic earnings per
share, recorded in the third quarter of 1997. Partially offsetting this increase
was the special non-recurring charge in December 1997 to expense $48 million of
deferred KCPL Merger costs, the special non-recurring charge in December 1997 of
approximately $40 million recorded by Protection One and our reduced electric
rates implemented on February 1, 1997.
A quarterly dividend of $0.535 per share was declared in the first quarter
of 1998, for an indicated annual rate of $2.14 per share. The book value per
share was $30.84 at March 31, 1998, up from $30.79 at December 31, 1997. There
were 65,409,603 and 64,807,081 average shares outstanding for the first quarter
of 1998 and 1997.
OPERATING RESULTS
The following explains significant changes from prior year results in
sales, cost of sales, operating expenses, other income (expense), interest
expense, income taxes and preferred and preference dividends.
Energy sales, cost of sales and operating expenses have decreased
significantly from prior year due to the transfer of our natural gas business
assets to ONEOK Inc. as of November 30, 1997.
SALES: Energy sales include electric sales, power marketing sales, natural
gas sales and other insignificant energy-related sales. Certain state
regulatory commissions and the FERC authorize rates for our electric sales.
Our energy sales vary with levels of energy deliveries. Changing weather
affects the amount of energy our customers use. Very hot summers and very cold
winters prompt more demand, especially among our residential customers. Mild
weather reduces demand.
Many things will affect our future energy sales. They include:
- The weather
- Our electric rates
- Competitive forces
- Customer conservation efforts
- Wholesale demand
- The overall economy of our service area
Electric sales increased 13.8% for the three months ended March 31, 1998
because of revenues of $47 million from the expansion of power marketing
activity in 1997. Our involvement in electric power marketing takes advantage
of increased competitive opportunities in the wholesale electric utility
industry. We are involved in both the marketing of electricity and risk
management services to wholesale electric customers and the purchase of
electricity for our retail customers. Our margin from power marketing activity
is significantly less than our margins on other energy sales. Our power
marketing activity has resulted in energy purchases and sales made in areas
outside of our historical marketing
territory. Through March 31, 1998, this additional power marketing activity has
had an insignificant effect on operating income. This sales increase was
partially offset by a 25.7% decrease in traditional wholesale sales and our
reduced electric rates implemented February 1, 1997. Reduced electric rates
lowered first quarter 1998 sales by an estimated $5 million.
Electric sales increased 5.9% for the twelve months ended March 31, 1998
because of $117 million included from our power marketing activity. This
increase was partially offset by decreases in sales from all customer classes
because of our reduced electric rates implemented February 1, 1997.
The following table reflects the increases in electric energy deliveries
for retail customers for the three and twelve months ended March 31, 1998 from
the comparable periods of 1997.
3 Months 12 Months
ended ended
Residential 1.7% 1.6%
Commercial 3.6% 3.0%
Industrial 2.9% 3.1%
Other 2.2% 1.2%
Total retail 2.7% 2.6%
For the three and twelve months ended March 31, 1998, natural gas sales
have significantly decreased due to the transfer of our natural gas business
assets to ONEOK on November 30, 1997.
Security alarm monitoring business sales increased $45 million for the
three months ended March 31, 1998 and $157 million for the twelve months ended
March 31, 1998. This increase is primarily because of our purchase of the
assets of Westinghouse Security Systems on December 30, 1996, our acquisition
of Network Multi-Family in September 1997, our acquisition of Protection One on
November 24, 1997, and Protection One's acquisitions of Multimedia Security and
Comsec in the first quarter of 1998.
COST OF SALES: Items included in energy cost of sales are fuel expense,
purchased power expense (electricity we purchase from others for resale), power
marketing expense and natural gas purchased. Items included in security alarm
monitoring cost of sales are the cost of direct monitoring and the cost of
installing security monitoring equipment that is not capitalized.
Energy business cost of sales were 64% lower for the three months ended
March 31, 1998 and 18% lower for the twelve months ended March 31, 1998
primarily due to the transfer of our natural gas business assets to ONEOK on
November 30, 1997. Partially offsetting these decreases was increased power
marketing expense of $47 million and $118 million for the three and twelve
month periods ending March 31, 1998.
Security alarm monitoring cost of sales increased 26% and 94% for the three
and twelve month periods ending March 31, 1998. The increase is primarily a
result of the purchase of the assets of Westinghouse Security Systems on
December 30, 1996, our acquisition of Network Multi-Family in September 1997
and our acquisition of Protection One on November 24, 1997. Security alarm
monitoring cost of sales also increased for the three months ended March 31,
1998 due to the addition of several service centers resulting from acquisition
activity and additional installation activities from Protection One's first
quarter acquisitions.
OPERATING EXPENSES
OPERATING AND MAINTENANCE EXPENSE: Total operating and maintenance expense
decreased 18% for the three months ended March 31, 1998 due to the transfer of
our natural gas business assets to ONEOK on November 30, 1997. Partially
offsetting this decrease was increased operating and maintenance expense for our
electric business. Operating and maintenance expense decreased three percent
for the twelve months ended March 31, 1998.
DEPRECIATION AND AMORTIZATION EXPENSE: Depreciation and amortization
expense increased two percent for the three months and 20% for the twelve months
ending March 31, 1998. The increase for the twelve months is primarily
attributable to the amortization of capitalized security alarm monitoring
accounts and goodwill for our security alarm monitoring business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: Selling, general and
administrative expense has decreased 11% for the three months ended March 31,
1998 due to the transfer of our natural gas business assets to ONEOK Inc. as of
November 30, 1997 and due to lower selling, general and administrative expense
for our electric business. Partially offsetting these decreases was increased
selling, general and administrative expense from Protection One due primarily
to our purchase of the assets of Westinghouse Security Systems on December 30,
1996, our acquisition of Network Multi-Family in September 1997, our
acquisition of Protection One on November 24, 1997 and Protection One's
acquisitions of Multimedia Security and Comsec in the first quarter of 1998.
Higher security alarm monitoring business selling, general and
administrative expense caused a 51% increase in total selling general and
administrative expense for the twelve months ended March 31, 1998. The security
alarm monitoring business increase is primarily because of security business
acquisitions discussed in the previous paragraph. Partially offsetting this
increase was decreased selling, general and administrative expense due to the
transfer of our natural gas business assets to ONEOK as of November 30, 1997.
OTHER: Two additional items affected total operating expenses for the
twelve months ended March 31, 1998. We recorded a special non-recurring charge
in December 1997 to expense $48 million of deferred KCPL Merger costs.
Protection One recorded a special non-recurring charge of approximately $40
million in December 1997, to reflect the phase out of certain business
activities which are no longer of continuing value to Protection One, to
eliminate redundant facilities and activities and to bring all customers under
the Protection One brand.
OTHER INCOME (EXPENSE)
Other income (expense) includes miscellaneous income and expenses not
directly related to our operations. Other income increased approximately $13
million for the three months ended March 31, 1998. Other income for that
quarter included investment earnings of approximately $15 million from our 45%
ownership in ONEOK. Other income for the first quarter of 1997 included
investment earnings of approximately $11 million primarily from our investment
in ADT which was converted to Tyco stock and sold in the third quarter of 1997.
The gain on the sale of Tyco common stock increased other income $864 million
for the twelve months ended March 31, 1998.
INTEREST EXPENSE
Interest expense includes the interest we paid on outstanding debt.
Interest expense increased two percent for the three months and 15% for the
twelve months ended March 31, 1998. Interest recorded on long-term debt
increased $32 million or 31% for the twelve months ended March 31, 1998 due to
the issuance of $520 million in senior unsecured notes. A decline in short-term
debt interest expense in the second half of 1997 partially offset the increase
in long-term debt interest expense. We used the proceeds from the sale of Tyco
common stock and the $520 million in senior unsecured notes to reduce our
short-term debt balance.
INCOME TAXES
Income tax expense for the twelve months ended March 31, 1998 increased
$282 million due to the gain from the sale of Tyco common stock. Partially
offsetting this increase was lower operating income. Income taxes for the three
months ended March 31, 1998 decreased $14 million or 60%.
PREFERRED AND PREFERENCE DIVIDENDS
Preferred and preference dividends decreased 61% for the twelve months
ended March 31, 1998 because we redeemed all of our 8.50% preference stock due
2016 on July 1, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, we had $14 million in cash and cash equivalents. We
consider highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. Our cash and cash equivalents decreased
$63 million from December 31, 1997, due to a decrease in cash held by Protection
One. Protection One used its cash for security alarm monitoring business
acquisitions. Other than operations, our primary source of short-term cash is
from short-term bank loans, unsecured lines of credit and the sale of commercial
paper. At March 31, 1998, we had approximately $462 million of short-term debt
outstanding, of which $397 million was commercial paper. An additional $357
million of short-term debt was available from committed credit arrangements.
On April 1, 1998, we redeemed our 7.58% Preference Stock due 2007 at a
premium, including dividends, for $53 million.
Net cash flows from operating activities increased $98 million due
primarily to receivables associated with our natural gas business as part of the
strategic alliance with ONEOK.
On April 17, 1998, Protection One filed with the SEC a shelf registration
on Form S-3 related to $400 million of equity and/or debt securities to be
issued by Protection One from time to time as determined by market conditions.
MERGERS AND ACQUISITIONS
MERGER AGREEMENT WITH KANSAS CITY POWER & LIGHT COMPANY: On February 7,
1997, the company signed a merger agreement with KCPL by which KCPL would be
merged with and into the company in exchange for company stock. In December
1997, representatives of the company's financial advisor indicated that they
believed it was unlikely that they would be in a position to issue a fairness
opinion required for the merger on the basis of the previously announced terms.
On March 18, 1998, we and KCPL agreed to a restructuring of our February
7, 1997, merger agreement which will result in the formation of Westar Energy,
a new regulated electric utility company. Under the terms of the merger
agreement, our electric utility operations will be transferred to KGE, and KCPL
and KGE will be merged into NKC, Inc., a subsidiary of the company. NKC, Inc.
will be renamed Westar Energy. In addition, under the terms of the merger
agreement, KCPL shareowners will receive $23.50 of Western Resources common
stock per KCPL share, subject to a collar mechanism, and one share of Westar
Energy common stock per KCPL share. Upon consummation of the combination, we
will own approximately 80.1% of the outstanding equity of Westar Energy and KCPL
shareowners will own approximately 19.9%. As part of the combination, Westar
Energy will assume all of the electric utility related assets and liabilities of
Western Resources, KCPL and KGE.
Westar Energy will assume $2.7 billion in debt, consisting of $1.9 billion
of indebtedness for borrowed money of Western Resources and KGE, and $800
million of debt of KCPL. Long-term debt of Western Resources and KGE was $2.1
billion at March 31, 1998. Under the terms of the merger agreement, it is
intended that we will be released from our obligations with respect to our debt
to be assumed by Westar Energy.
Pursuant to the merger agreement, we have agreed, among other things, to
call for redemption all outstanding shares of our 4 1/2% Series Preferred Stock,
par value $100 per share, 4 1/4% Series Preferred Stock, par value $100 per
share, and 5% Series Preferred Stock, par value $100 per share.
Consummation of the merger is subject to customary conditions including
obtaining the approval of our and KCPL's shareowners and various regulatory
agencies. We estimate the transaction to close by mid-1999, subject to receipt
of all necessary approvals.
KCPL is a public utility company engaged in the generation, transmission,
distribution, and sale of electricity to customers in western Missouri and
eastern Kansas. We, KCPL and KGE have joint interests in certain electric
generating assets, including Wolf Creek. Following the closing of the
combination, Westar Energy is expected to have approximately one million
electric utility customers in Kansas and Missouri, approximately $8.2 billion in
assets and the ability to generate more than 8,000 megawatts of electricity.
On March 23, 1998 we and KCPL filed a letter informing the FERC that we had
signed a revised merger agreement, dated March 18, 1998. We sent similar
letters on March 24, 1998 to the KCC and the MPSC. We and KCPL will submit
appropriate modifications to the merger filings at FERC, the KCC and the MPSC
as soon as practicable.
SECURITY ALARM MONITORING BUSINESS PURCHASES: Effective January 1, 1998,
Protection One acquired the stock of Network Holdings, Inc., the parent company
of Network Multi-Family, from the company for approximately $180 million.
Protection One borrowed money under a revolving credit agreement provided by
Westar Capital, a subsidiary of the company, to purchase Network Multi-Family.
On March 2, 1998, Protection One acquired the assets comprising the
monitored security alarm business of Multimedia Security for approximately $233
million in cash. Multimedia Security has approximately 140,000 subscribers
concentrated primarily in California, Florida, Kansas, Oklahoma and Texas.
On March 17, 1998, Protection One acquired the stock of Comsec for
approximately $45 million in cash and assumed approximately $15 million in debt.
Comsec has approximately 30,000 subscribers located primarily in Connecticut,
Maine, Massachusetts, and New Hampshire.
The acquisitions of Multimedia Security and Comsec have been accounted for
as purchases. Preliminary allocations of the purchase price for each
acquisition have been made based on the estimated fair value of the net assets
acquired. These acquisitions do not materially impact the company's financial
position or results of operations.
WESTERN RESOURCES, INC.
Part II Other Information
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3 - Restated Articles of Incorporation of the
company, as amended May 12, 1998
(filed electronically)
Exhibit 12 - Computation of Ratio of Consolidated Earnings
to Fixed Charges for 12 Months Ended
March 31, 1998 (filed electronically)
Exhibit 27 - Financial Data Schedule (filed electronically)
(b) Reports on Form 8-K:
Form 8-K filed January 5, 1998 - Press release regarding merger
with Kansas City Power and Light Company.
Form 8-K filed March 23, 1998 - Amended and Restated Agreement
and Plan of Merger between the company and KCPL, dated as of
March 18, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Western Resources, Inc.
Date May 12, 1998 By /s/ S. L. KITCHEN
S. L. Kitchen, Executive Vice President
and Chief Financial Officer
Date May 11, 1998. At
the meeting the shareholders, representing 56,782,713 shares either in person or
by proxy, voted to:
Elect the following directors to serve a term of three years:
Votes
For Against
Thomas R. Clevenger. . . . . . 55,510,932 1,274,196
David H. Hughes. . . . . . . . 55,371,073 1,410,506
David C. Wittig. . . . . . . . 55,536,871 1,244,561
The following directors will continue to serve their unexpired terms: Frank
J. Becker, C. Q. Chandler, John C. Dicus, John E. Hayes, Jr., Russell W. Meyer,
Jr., and Louis W. Smith.
Amend the Restated Articles of Incorporation to eliminate cumulative
voting.
Votes
For Against Abstain
38,334,811 8,004,340 1,294,728
The company held a Special Meeting of Shareowners on July 30, 1998. At the
meeting the shareowners, representing 52,231,780 shares either in person or by
proxy, voted to:
Approve and adopt the Amended and Restated Agreement and Plan of Merger,
dated March 18, 1998 by and among Western Resources, Kansas Gas and Electric
Company, NKC, Inc., and Kansas City Power and Light Company and the transactions
contemplated thereby providing, among other things, for the issuance of a number
of shares of Western Resources Common Stock sufficient to satisfy the terms of
the merger agreement and the transfer by Western Resources of substantially all
of its assets, as provided for in the Joint Proxy Statement/Prospectus.
Votes
For Against Abstain
50,765,561 864,981 601,238
Amend the Restated Articles of Incorporation of Western Resources to
increase, immediately prior to the share issuance, the number of authorized
shares of Western Resources Common Stock from 85,000,000 shares to 300,000,000
shares.
Votes
For Against Abstain
47,312,657 4,146,324 772,799
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3 - Certificate of Amendment to the Restated
Articles of Incorporation, as amended, of the
company on May 12, 1998 (filed with the March
31, 1998 Form 10-Q)
Exhibit 4.1 - Debt Securities Indenture dated August 1, 1998
between the company and Bankers Trust
Company, Trustee (filed electronically)
Exhibit 4.2 - Form of Note for $400 million 6.25%
Putable/Callable Notes due August 15, 2018,
Putable/Callable August 15, 2003 (filed
electronically)
Exhibit 10.1 - Transaction Confirmation for $400 million 6.25%
Putable/Callable Notes due August 15, 2018,
Putable/Callable August 15, 2003 (filed
electronically)
Exhibit 10.2 - Amendment to Letter Agreement between the
company and David C. Wittig, dated April 27,
1995 (filed electronically)
Exhibit 10.3 - Form of Split Dollar Insurance Agreement (filed
electronically)
Exhibit 12 - Computation of Ratio of Consolidated Earnings
to Fixed Charges for 12 Months Ended June
30, 1998 (filed electronically)
Exhibit 27 - Financial Data Schedule (filed electronically)
(b) Reports on Form 8-K:
Form 8-K filed July 13, 1998 - Kansas City Power and Light
Company's December 31, 1997 Form 10-K and March 31, 1998
Form 10-Q.
Form 8-K filed August 3, 1998 - Press release reporting second
quarter earnings issued July 30, 1998, press release
announcing approval by shareholders of Kansas City Power and
Light Company merger agreement issued on July 30, 1998
Form 8-K filed August 6, 1998 - Kansas City Power and Light
Company's June 30, 1998 Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Western Resources, Inc.
Date August 12, 1998 By /s/ S. L. KITCHEN
S. L. Kitchen, Executive Vice President
and Chief Financial Officer
Date August 12, 1998 By /s/ JERRY D. COURINGTON
Jerry D. Courington,
Controller