Exhibit 99.1
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On February 7, 1997, Kansas City Power and Light Company (KCPL) and Western
Resources, Inc. (Western Resources) entered into an agreement whereby KCPL would
be merged with and into Western Resources (Merger).
On March 14, 1997, Western Resources commenced an offer to exchange $22.50 of
Western Resources Common Stock and cash for each outstanding share of ADT
Limited (ADT) Common Stock not already owned by Western Resources or its
subsidiaries (ADT Offer). ADT shareowners would receive $10 cash plus 0.41494 of
a share of Western Resources Common Stock for each share of ADT Common Stock
tendered not already owned by Western Resources, based on the closing price of
Western Resources Common Stock on March 13, 1997. ADT shareowners would not,
however, receive more than 0.42017 shares of Western Resources Common Stock for
each share of ADT Common Stock.
Effective March 17, 1997 Tyco International Ltd. (Tyco) announced that they
had entered into a definitive merger agreement with ADT in a stock-for-stock
transaction. Based upon Tyco's closing stock price on April 1, 1997 of $54.875,
the terms of the agreement would result in a value of approximately $26 per
share to ADT shareholders. Western is currently reviewing the Tyco offer as well
as considering its alternatives to such offer and assessing its rights as an ADT
shareholder. At this date, the impact the Tyco offer will have on the ADT Offer
and Tyco's ability to consummate this transaction in accordance with the
specified terms is not known.
The purpose of the ADT Offer is to enable Western Resources to acquire
control of ADT. Western Resources presently intends, following consummation of
the ADT Offer, to propose and seek to have ADT effect the Amalgamation, pursuant
to which a newly created subsidiary of Western Resources incorporated under the
laws of Bermuda will amalgamate with and into ADT, with the amalgamated company
operating under the name of ADT (the Amalgamation).
The following unaudited pro forma combined financial information presents
the consolidated balance sheets and statements of income for the following: (i)
Western Resources and KCPL, assuming the Merger is accounted for as a pooling of
interests; and (ii) Western Resources, KCPL and ADT, assuming the Merger is
accounted for as a pooling of interests and the Amalgamation is accounted for as
a purchase.
ADT's results of operations and financial position have been presented for
the year ended December 31, 1996, as if the purchase was consummated on December
31, 1996. The unaudited pro forma combined statement of income adjusts the
historical amounts to reflect the Amalgamation as if it had occurred at the
beginning of 1996. The unaudited combined operating results of Western Resources
and KCPL have been presented for each of the last three fiscal years, because
the Merger will be accounted for as a pooling of interests. Pro Forma combined
information which includes ADT is presented for the most recent year ended since
the Amalgamation would be accounted for as a purchase.
The unaudited pro forma combined financial statements were prepared
utilizing the historical audited financial statements, including the notes
thereto, of Western Resources, KCPL and ADT. The information shown below should
be read in conjunction with the consolidated historical financial statements of
Western Resources, KCPL and ADT, as filed with the Securities and Exchange
Commission (SEC). The following information is being presented for illustrative
purposes only and is not necessarily indicative of the financial position or
operating results that would have occurred had the Amalgamation and the Merger
been consummated at the beginning of the periods for which the Merger and the
Amalgamation are being given effect, nor is it necessarily indicative of future
operating results or financial position.
The Merger
The Merger Agreement provides that each share of KCPL Common Stock will be
exchanged for $32.00 of Western Resources Common Stock, subject to certain
limitations. Pro forma shares outstanding and related earnings and dividends per
share information have been calculated assuming a Conversion Ratio of 1.05785
based on a closing price of $30.250 per share of Western Resources Common Stock
on February 28, 1997. The actual Conversion Ratio will be based on a 20 day
average of the Closing price of Western Resources Common Stock calculated for a
period beginning on the 29th business day prior to Closing and ending on the
tenth business day prior to Closing.
The Merger is assumed to generate substantial cost savings. The assumed
cost savings have not been reflected in the pro forma combined balance sheets
and statements of income. Transaction costs associated with the Merger including
fees for advisors, attorneys and other consultants and incremental direct costs
of completing the Merger are estimated to approximate $60 million.
There are no anticipated changes in either Western Resources' or KCPL's
accounting policies as a result of the Merger. Both companies accrue unbilled
revenue for energy delivered at the end of each reporting period, use composite
depreciation methods at group rates specified pursuant to regulation and have
certain other accounting policies which differ from each other as well as from
other commercial enterprises due to the nature of how regulators have allowed
certain costs to be recovered from customers.
Western Resources has joint interests with KCPL in the LaCygne Station and
Wolf Creek electric generating facilities. These generating facilities represent
approximately 23% of Western Resources' total generating capacity, 39% of KCPL's
total generating capacity and 29% of the combined company's total generating
capacity.
The Amalgamation
Western Resources currently owns approximately 38.3 million shares of ADT
Common Stock, or approximately 25% of the outstanding shares of ADT Common Stock
after giving effect to the exercise of the Republic Warrant. This represents a
$589.4 million investment, at cost, in ADT. Western Resources proposes to
acquire the remaining common equity interest of ADT for $22.50 per share of ADT
Common Stock, subject to adjustment, and account for such
acquisition as a purchase. ADT's shareholders would receive $12.50 of value in
Western Resources Common Stock, subject to certain limitations, and the balance
of the purchase price ($10.00 per share of ADT Common Stock) would be paid in
cash. The pro forma combined balance sheet assumes the recorded amounts of ADT's
assets and liabilities approximate their fair values. The preliminary purchase
price allocation was made using only publicly available information for ADT and
is subject to change. The pro forma combined financial statements do not give
effect to any anticipated cost savings or revenue enhancements that may result
from the Amalgamation.
During the first quarter of 1996, ADT recorded a non-cash charge of
approximately $744.7 million to recognize the impairment of certain long-lived
assets. The impairment charge was largely attributable to reducing the amount of
recorded goodwill and had no significant tax effect.
In September 1996, ADT acquired the entire equity interest in Automated
Security (Holdings) PLC, a United Kingdom company ("ASH")(the ASH Transaction).
ASH is engaged in the provision of electronic security services in North America
and Europe. The ASH Transaction was accounted for by ADT as a pooling of
interests. In connection with the ASH Transaction, ADT exchanged 7,034,940
shares of ADT Common Stock for the entire equity interest in ASH.
In November 1996, ADT's Chairman announced a plan to sell ADT's auto
auction business. Consistent with ADT's announcement, Western Resources also
plans to sell this business following the consummation of the Amalgamation since
it does not fit into Western Resources' long-term strategic plans and such sale
will allow management to focus on the delivery of security and energy services.
According to ADT's 1996 Annual Report on Form 10-K, the auto auction business of
ADT operates approximately 27 auction centers in the United States.
Substantially all of the vehicles sold at ADT auction centers are passenger cars
and light trucks. Heavy trucks and industrial vehicles comprise the balance of
its sales. Western Resources estimates the sale of the auto auction business
should generate after-tax proceeds of approximately $450 million based on an
estimated sales price of approximately $500 million. In March 1997, ADT's
Chairman announced that ADT had rescinded its prior plan to sell the auto
auction business. Western Resources, however, will continue its plan to dispose
of this business of ADT following consummation of the Amalgamation.
This cash sale is assumed to be completed at or near the closing of the
Amalgamation. The estimated fair value of the net proceeds to be received as a
result of this sale have been presented as property held for sale on the
unaudited pro forma combined balance sheet and a pro forma adjustment to
eliminate the operating results of the auto auction business is reflected in the
unaudited pro forma combined statement of income. Estimated amounts have been
disclosed based on Western Resources' expectation of value. Actual amounts could
differ substantially from these estimates.
Other Transactions
In December 1996 Western Resources and ONEOK announced the formation of a
proposed strategic alliance. Under the terms of the agreement, Western
Resources and ONEOK will each contribute essentially all of their natural gas
assets to a new company controlled by ONEOK. Following the completion of the
transaction, Western Resources will have a 45% equity interest in the combined
new company. The new natural gas assets and earnings from this business unit
will be replaced by equity investments, equity earnings and preferred dividends
after this transaction closes. The cash flows from the strategic alliance are
expected to exceed the cash flows historically provided to Western Resources by
these assets. The proposed transaction is expected to close following approval
by ONEOK's shareholders and appropriate regulatory approvals in the second half
of 1997.
On December 31, 1996 Western Resources purchased the assets of Westinghouse
Security Systems, Inc. Western Resources paid approximately $358 million,
subject to adjustment, and assumed certain liabilities in connection with this
purchase. This acquisition significantly expands the scope of Western Resources'
security operations. Based on a preliminary estimate of the purchase price
allocation approximately $275 million of goodwill has been recorded. Since the
transaction closed on December 31, 1996, no operating results have been included
on the accompanying pro forma combined statement of income for the year ended
December 31, 1996.
WESTERN RESOURCES AND KCPL
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1996
(in thousands)
ASSETS
Pro Forma
Western KCPL Total
(Historical) (Historical) Adjustments Combined
Current Assets:
Cash and cash equivalents . . . . . . . . . .$ 3,724 $ 23,571 $ - $ 27,295
Accounts receivable and unbilled
revenues (net). . . . . . . . . . . . . . . 318,966 63,206 - 382,172
Other current assets. . . . . . . . . . . . . 171,758 74,203 - 245,961
---------- ---------- -------- ----------
Total current assets . . . . . . . . . . 494,448 160,980 - 655,428
---------- ---------- -------- ----------
Property, Plant and Equipment, net . . . . . . . . 4,356,518 2,343,494 - 6,700,012
---------- ---------- -------- ----------
Deferred Charges and Other Assets:
Goodwill, net . . . . . . . . . . . . . . . . 306,960 - - 306,960
Regulatory asset-recoverable taxes. . . . . . 217,257 126,000 - 343,257
Regulatory assets . . . . . . . . . . . . . . 241,039 37,747 - 278,786
Other assets. . . . . . . . . . . . . . . . . 1,031,559 246,291 (30,000)(k) 1,247,850
---------- ---------- -------- ----------
Total deferred charges and other
assets . . . . . . . . . . . . . . . . 1,796,815 410,038 (30,000) 2,176,853
---------- ---------- -------- ----------
Total Assets . . . . . . . . . . . . . .$6,647,781 $2,914,512 $(30,000) $9,532,293
========== ========== ======== ==========
LIABILITIES AND CAPITALIZATION
Pro Forma
Western KCPL Total
(Historical) (Historical) Adjustments Combined
Current Liabilities:
Short-term debt . . . . . . . . . . . . . . .$ 980,740 $ - $ - $ 980,740
Long-term debt due within one year. . . . . . - 26,591 - 26,591
Accounts payable. . . . . . . . . . . . . . . 180,540 55,618 - 236,158
Other current liabilities . . . . . . . . . . 190,812 84,216 30,000(k) 305,028
---------- ---------- -------- ----------
Total current liabilities. . . . . . . . 1,352,092 166,425 30,000 1,548,517
---------- ---------- -------- ----------
Other Liabilities and Deferred Credits:
Deferred income taxes . . . . . . . . . . . . 1,110,372 643,189 - 1,753,561
Deferred investment tax credits . . . . . . . 125,528 67,107 - 192,635
Other . . . . . . . . . . . . . . . . . . . . 458,668 94,144 - 552,812
---------- ---------- -------- ----------
Total other liabilities and deferred
credits. . . . . . . . . . . . . . . . 1,694,568 804,440 - 2,499,008
---------- ---------- -------- ----------
Capitalization:
Long-term debt, net . . . . . . . . . . . . . 1,681,583 944,136 - 2,625,719
Company-obligated mandatorily redeemable
preferred securities. . . . . . . . . . . . 220,000 - - 220,000
Preferred and preference stock. . . . . . . . 74,858 89,062 - 163,920
Common equity . . . . . . . . . . . . . . . . 1,624,680 910,449 (60,000)(k) 2,475,129
---------- ---------- -------- ----------
Total capitalization . . . . . . . . . . 3,601,121 1,943,647 ( 60,000) 5,484,768
---------- ---------- -------- ----------
Total Liabilities and Capitalization . .$6,647,781 $2,914,512 $(30,000) $9,532,293
========== =========== ======== ==========
The accompanying Notes to Unaudited Pro Forma Combined
Financial Information are an integral part of this statement
and should be read in their entirety.
WESTERN RESOURCES AND KCPL
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1995
(in thousands)
ASSETS
Pro Forma
Western KCPL Total
(Historical) (Historical) Adjustments Combined
Current Assets:
Cash and cash equivalents . . . . . . . . . .$ 2,414 $ 28,390 $ - $ 30,804
Accounts receivable and unbilled
revenues (net). . . . . . . . . . . . . . . 257,292 64,668 - 321,960
Other current assets. . . . . . . . . . . . . 161,270 80,404 - 241,674
---------- ---------- -------- ----------
Total current assets . . . . . . . . . . 420,976 173,462 - 594,438
---------- ---------- -------- ----------
Property, Plant and Equipment, net . . . . . . . . 4,356,350 2,359,461 - 6,715,811
---------- ---------- -------- ----------
Deferred Charges and Other Assets:
Regulatory asset-recoverable taxes. . . . . . 282,476 123,000 - 405,476
Regulatory assets . . . . . . . . . . . . . . 262,393 38,342 - 300,735
Other assets. . . . . . . . . . . . . . . . . 168,482 188,241 - 356,723
---------- ---------- -------- ----------
Total deferred charges and other
assets . . . . . . . . . . . . . . . . 713,351 349,583 - 1,062,934
---------- ---------- -------- ----------
Total Assets . . . . . . . . . . . . . .$5,490,677 $2,882,506 $ - $8,373,183
========== ========== ======== ==========
LIABILITIES AND CAPITALIZATION
Pro Forma
Western KCPL Total
(Historical) (Historical) Adjustments Combined
Current Liabilities:
Short-term debt . . . . . . . . . . . . . . .$ 203,450 $ 19,000 $ - $ 222,450
Long-term debt due within one year. . . . . . 16,000 73,803 - 89,803
Accounts payable. . . . . . . . . . . . . . . 149,194 52,506 - 201,700
Other current liabilities . . . . . . . . . . 170,992 104,746 - 275,738
---------- ---------- -------- ----------
Total current liabilities. . . . . . . . 539,636 250,055 - 789,691
---------- ---------- -------- ----------
Other Liabilities and Deferred Credits:
Deferred income taxes . . . . . . . . . . . . 1,167,470 648,374 - 1,815,844
Deferred investment tax credits . . . . . . . 132,286 71,270 - 203,556
Other . . . . . . . . . . . . . . . . . . . . 432,054 88,720 - 520,774
---------- ---------- -------- ----------
Total other liabilities and deferred
credits. . . . . . . . . . . . . . . . 1,731,810 808,364 - 2,540,174
---------- ---------- -------- ----------
Capitalization:
Long-term debt, net . . . . . . . . . . . . . 1,391,263 835,713 - 2,226,976
Company-obligated mandatorily redeemable
preferred securities. . . . . . . . . . . . 100,000 - - 100,000
Preferred and preference stock. . . . . . . . 174,858 90,436 - 265,294
Common equity . . . . . . . . . . . . . . . . 1,553,110 897,938 - 2,451,048
---------- ---------- -------- ----------
Total capitalization . . . . . . . . . . 3,219,231 1,824,087 - 5,043,318
---------- ---------- -------- ----------
Total Liabilities and Capitalization . .$5,490,677 $2,882,506 $ - $8,373,183
========== =========== ======== ==========
The accompanying Notes to Unaudited Pro Forma Combined
Financial Information are an integral part of this statement
and should be read in their entirety.
WESTERN RESOURCES AND KCPL
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1996
(in thousands except per share data)
Pro Forma
Western KCPL Total
(Historical) (Historical) Adjustments Combined
Operating Revenues:
Electric. . . . . . . . . . . . . . . . . . .$1,197,433 $903,919 $ - $2,101,352
Natural gas . . . . . . . . . . . . . . . . . 849,386 - - 849,386
---------- -------- ------ ----------
Total operating revenues . . . . . . . . 2,046,819 903,919 - 2,950,738
Operating Expenses:
Cost of sales . . . . . . . . . . . . . . . . 648,299 192,960 - 841,259
Operations, administrative and selling. . . . 804,169 349,462 - 1,153,631
Depreciation and amortization . . . . . . . . 201,266 115,529 - 316,795
---------- -------- ------ ---------
Operating Income . . . . . . . . . . . . . . . . . 393,085 245,968 - 639,053
---------- -------- ------ ---------
Interest Expense . . . . . . . . . . . . . . . . . 149,326 58,083 - 207,409
Other Income (Expenses). . . . . . . . . . . . . . 11,293 (47,961) - (36,668)
---------- -------- ------ ----------
Income Before Income Taxes . . . . . . . . . . . . 255,052 139,924 - 394,976
Income Taxes . . . . . . . . . . . . . . . . . . . 86,102 31,753 - 117,855
---------- -------- ------ ----------
Net Income . . . . . . . . . . . . . . . . . . . . 168,950 108,171 - 277,121
Preferred and Preference Dividends . . . . . . . . 14,839 3,790 - 18,629
---------- -------- ------ ----------
Earnings Applicable to Common Stock. . . . . . . .$ 154,111 $104,381 $ - $ 258,492
========== ======== ====== ==========
Average Common Shares Outstanding. . . . . . . . . 63,834 61,902 3,581(i) 129,317
Earnings Per Average Common Share. . . . . . . . .$ 2.41 $ 1.69 $ 2.00
The accompanying Notes to Unaudited Pro Forma Combined
Financial Information are an integral part of this statement
and should be read in their entirety.
WESTERN RESOURCES AND KCPL
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1995
(in thousands except per share data)
Pro Forma
Western KCPL Total
(Historical) (Historical) Adjustments Combined
Operating Revenues:
Electric. . . . . . . . . . . . . . . . . . .$1,145,895 $885,955 $ - $2,031,850
Natural gas . . . . . . . . . . . . . . . . . 597,405 - - 597,405
---------- -------- ------ ----------
Total operating revenues . . . . . . . . 1,743,300 885,955 - 2,629,255
Operating Expenses:
Cost of sales . . . . . . . . . . . . . . . . 510,948 178,154 - 689,102
Operations, administrative and selling. . . . 684,616 353,859 - 1,038,475
Depreciation and amortization . . . . . . . . 177,830 109,832 - 287,662
--------- -------- ------ ----------
Operating Income . . . . . . . . . . . . . . . . . 369,906 244,110 - 614,016
--------- -------- ------ ----------
Interest Expense . . . . . . . . . . . . . . . . . 122,095 54,522 - 176,617
Other Income (Expenses). . . . . . . . . . . . . . 17,257 (199) - 17,058
--------- -------- ------ ----------
Income Before Income Taxes . . . . . . . . . . . . 265,068 189,389 - 454,457
Income Taxes . . . . . . . . . . . . . . . . . . . 83,392 66,803 - 150,195
--------- -------- ------ ----------
Net Income . . . . . . . . . . . . . . . . . . . . 181,676 122,586 - 304,262
Preferred and Preference Dividends . . . . . . . . 13,419 4,011 - 17,430
--------- -------- ------ ----------
Earnings Applicable to Common Stock. . . . . . . . $ 168,257 $118,575 $ - $ 286,832
========= ======== ====== ==========
Average Common Shares Outstanding. . . . . . . . . 62,157 61,902 3,581(i) 127,640
Earnings Per Average Common Share. . . . . . . . . $ 2.71 $ 1.92 $ 2.25
The accompanying Notes to Unaudited Pro Forma Combined
Financial Information are an integral part of this statement
and should be read in their entirety.
WESTERN RESOURCES AND KCPL
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1994
(in thousands except per share data)
Pro Forma
Western KCPL Total
(Historical) (Historical) Adjustments Combined
Operating Revenues:
Electric. . . . . . . . . . . . . . . . . . .$1,121,781 $868,272 $ - $1,990,053
Natural gas . . . . . . . . . . . . . . . . . 642,988 - - 642,988
---------- -------- ------ ----------
Total operating revenues . . . . . . . . 1,764,769 868,272 - 2,633,041
Operating Expenses:
Cost of sales . . . . . . . . . . . . . . . . 562,342 169,035 - 731,377
Operations, administrative and selling. . . . 656,813 371,134 - 1,027,947
Depreciation and amortization . . . . . . . . 174,942 107,463 - 282,405
--------- -------- ------ ----------
Operating Income . . . . . . . . . . . . . . . . . 370,672 220,640 - 591,312
--------- -------- ------ ----------
Interest Expense . . . . . . . . . . . . . . . . . 118,917 47,416 - 166,333
Other Income (Expenses). . . . . . . . . . . . . . 35,643 (2,072) - 33,571
--------- -------- ------ ----------
Income Before Income Taxes . . . . . . . . . . . . 287,398 171,152 - 458,550
Income Taxes . . . . . . . . . . . . . . . . . . . 99,951 66,377 - 166,328
--------- -------- ------ ----------
Net Income . . . . . . . . . . . . . . . . . . . . 187,447 104,775 - 292,222
Preferred and Preference Dividends . . . . . . . . 13,418 3,457 - 16,875
--------- -------- ------ ----------
Earnings Applicable to Common Stock. . . . . . . . $ 174,029 $101,318 $ - $ 275,347
========= ======== ====== ==========
Average Common Shares Outstanding. . . . . . . . . 61,618 61,903 3,581(i) 127,102
Earnings Per Average Common Share. . . . . . . . . $ 2.82 $ 1.64 $ 2.17
The accompanying Notes to Unaudited Pro Forma Combined
Financial Information are an integral part of this statement
and should be read in their entirety.
WESTERN RESOURCES, KCPL AND ADT
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1996
(in thousands)
ASSETS
Pro Forma
Western KCPL ADT Total
(Historical) (Historical) (Historical) Adjustments Combined
Current Assets:
Cash and cash equivalents . . . .$ 3,724 $ 23,571 $ 215,900 $ 165,120(a)(j)(k)(o) $ 408,315
Accounts receivable and unbilled
revenues (net). . . . . . . . . 318,966 63,206 210,700 (78,200)(o) 514,672
Other current assets. . . . . . . 171,758 74,203 156,200 (4,800)(o) _ 397,361
---------- ---------- --------- --------- ----------
Total current assets . . . . 494,448 160,980 582,800 82,120 _ 1,320,348
---------- ---------- --------- --------- ----------
Property, Plant and Equipment, net
Utility plant . . . . . . . . . . 4,356,518 2,343,494 - - 6,700,012
Subscriber systems(n) . . . . . . - - 1,215,500 - 1,215,500
Other . . . . . . . . . . . . . . - - 298,100 (227,900)(o) _ 70,200
---------- ---------- --------- -------- ----------
Total property, plant and
equipment, net . . . . . . 4,356,518 2,343,494 1,513,600 (227,900) _ 7,985,712
---------- ---------- --------- -------- ----------
Deferred Charges and Other Assets:
Goodwill, net . . . . . . . . . . 306,960 - 458,000 2,214,700(b) 2,979,660
Regulatory asset-recoverable
taxes . . . . . . . . . . . . . 217,257 126,000 - - 343,257
Regulatory assets . . . . . . . . 241,039 37,747 - - 278,786
Property held for sale. . . . . . - - - 450,000(o) 450,000
Other assets. . . . . . . . . . . 1,031,559 246,291 176,000 (622,998)(h)(k)(o) 830,852
---------- ---------- ---------- ---------- -----------
Total deferred charges and
other assets . . . . . . . 1,796,815 410,038 634,000 2,041,702 4,882,555
---------- ---------- ---------- ---------- -----------
Total Assets . . . . . . . .$6,647,781 $2,914,512 $2,730,400 $1,895,922 $14,188,615
========== ========== ========== ========== ===========
LIABILITIES AND CAPITALIZATION
Pro Forma
Western KCPL ADT Total
(Historical) (Historical) (Historical) Adjustments Combined
Current Liabilities:
Short-term debt . . . . . . . . .$ 980,740 $ - $ 209,200 $(622,700)(h)(o) $ 567,240
Long-term debt due within
one year. . . . . . . . . . . . - 26,591 - - 26,591
Accounts payable. . . . . . . . . 180,540 55,618 138,000 (60,300)(o) 313,858
Other current liabilities . . . . 190,812 84,216 293,600 15,000(k)(o) 583,628
--------- --------- ---------- --------- ----------
Total current liabilities. . .1,352,092 166,425 640,800 (668,000) 1,491,317
--------- --------- ---------- --------- ----------
Other Liabilities and Deferred
Credits:
Deferred income taxes. . . . . . .1,110,372 643,189 91,500 97,933 (f)(o) 1,942,994
Deferred investment tax
credits . . . . . . . . . . . . 125,528 67,107 - - 192,635
Other. . . . . . . . . . . . . . . 458,668 94,144 328,200 (6,200)(o) 874,812
--------- --------- ---------- --------- ----------
Total other liabilities
and deferred credits . . . .1,694,568 804,440 419,700 91,733 3,010,441
--------- --------- ---------- --------- ----------
Capitalization:
Long-term debt, net. . . . . . . .1,681,583 944,136 910,100 1,737,200(c)(o) 5,273,019
Company-obligated mandatorily
redeemable preferred
securities. . . . . . . . . . . 220,000 - - - 220,000
Preferred and preference stock . . 74,858 89,062 - - 163,920
Common equity. . . . . . . . . . .1,624,680 910,449 759,800 734,989(g)(j)(k)(o) 4,029,918
--------- ---------- ---------- ---------- -----------
Total capitalization . . . . .3,601,121 1,943,647 1,669,900 2,472,189 9,686,857
--------- ---------- ---------- ---------- -----------
Total Liabilities and
Capitalization . . . . . . $6,647,781 $2,914,512 $2,730,400 $1,895,922 $14,188,615
========== ========== ========== ========== ===========
The accompanying Notes to Unaudited Pro Forma Combined
Financial Information are an integral part of this statement
and should be read in their entirety.
WESTERN RESOURCES, KCPL AND ADT
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1996
(in thousands except per share data)
Pro Forma
Western KCPL ADT Total
(Historical) (Historical) (Historical) Adjustments Combined
Operating Revenues:
Electric. . . . . . . . . . . . .$1,197,433 $903,919 $ - $ - $2,101,352
Natural gas . . . . . . . . . . . 849,386 - - - 849,386
Security and other. . . . . . . . - - 1,704,000 (297,800)(o) 1,406,200
---------- -------- ---------- ---------- ----------
Total operating revenues . . . 2,046,819 903,919 1,704,000 (297,800) 4,356,938
Operating Expenses:
Cost of sales . . . . . . . . . . 648,299 192,960 920,000 (157,200)(o) 1,604,059
Operations, administrative and
selling . . . . . . . . . . . . 804,169 349,462 342,700 (102,400)(o) 1,393,931
Depreciation and amortization . . 201,266 115,529 224,800 43,400(d) 584,995
Restructuring and other
non-recurring charges . . . . . - - 982,000 (13,000)(o) 969,000
-------- -------- --------- -------- ---------
Operating Income (Loss) . . . . . . 393,085 245,968 (765,500) (68,600) (195,047)
-------- -------- --------- -------- --------
Interest Expense. . . . . . . . . . 149,326 58,083 73,500 70,080(e)(o) 350,989
Other Income (Expenses) . . . . . . 11,293 (47,961) 130,500 (7,198)(h) 86,634
-------- -------- --------- -------- ---------
Income (Loss) Before Income Taxes . 255,052 139,924 (708,500) (145,878) (459,402)
Income Taxes. . . . . . . . . . . . 86,102 31,753 (21,800) 88,433(f)(o) 184,488
-------- -------- --------- --------
Net Income (Loss) Before Extraordinary
Item (1). . . . . . . . . . . . . 168,950 108,171 (686,700) (234,311) (643,890)
Preferred and Preference
Dividends . . . . . . . . . . . . 14,839 3,790 - - 18,629
-------- ------- --------- -------- ---------
Earnings (Loss) Applicable to Common
Stock Before Extraordinary
Item. . . . . . . . . . . . . . . $154,111 $104,381 $(686,700) $(234,311) $(662,519)
======== ======== ========= ========= =========
Average Common Shares Outstanding . 63,834 61,902 137,114 (73,988)(i)(j) 188,862
Earnings (Loss) Per Average Common
Share Before Extraordinary
Item. . . . . . . . . . . . . . . $ 2.41 $ 1.69 $ (5.01) $ (3.51)
(1) ADT recorded an extraordinary item for the early extinguishment of debt in
September 1996.
The accompanying Notes to Unaudited Pro Forma Combined Financial Information are
an integral part of this statement and should be read in their entirety.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The pro forma adjustments have been made to the Unaudited Pro Forma
Combined Financial Information to reflect the following:
(a) To record the net effect of the following:
(i) The reduction in cash resulting from interest paid on short- and
long-term debt as described in note (e) below.
(ii) The receipt of approximately $300 million from the exercise of the
Republic Warrant.
(iii) The receipt of interest income earned on excess cash balances
primarily resulting from the exercise of the Republic Warrant at a
market-based, short-term rate of 4.5% on an annual basis.
(b) To record goodwill resulting from the Amalgamation. Other than the
auto auction assets discussed at (o) below, the net tangible assets of ADT are
expected to approximate their fair value. Goodwill is based upon the total
consideration paid in excess of the estimated fair value of the net assets
acquired. Goodwill is calculated assuming Western Resources acquires all
outstanding shares of ADT Common Stock which Western Resources and its
affiliates do not presently hold, the conversion of ADT's outstanding Liquid
Yield Option Notes ("LYONs") to shares of ADT Common Stock (see note (i)), the
exercise of the Republic Warrant (see note (iii)) and the exercise of all
outstanding options held principally by ADT's management, in each case for
$22.50 per share of ADT Common Stock. (See note (j) for a discussion of the
Republic Warrant and ADT anti-takeover devices.)
Calculation of total outstanding shares of ADT Common Stock, and shares of
ADT Common Stock to be purchased:
(millions,
except
price per
share)
Shares of ADT Common Stock outstanding. . . . . . . . . . . 141.4
Treasury shares (shares held by ADT Subsidiary) . . . . . . (3.2)
LYONs convertible debt (i). . . . . . . . . . . . . . . . . 21.9
Conversion of option shares (ii). . . . . . . . . . . . . . 7.3
Exercise of Republic Warrant (iii). . . . . . . . . . . . . 15.0
--------
Total shares of ADT Common Stock outstanding. . . . . . 182.4
Shares of ADT Common Stock already owned. . . . . . . . (38.3)
--------
Net shares of ADT Common Stock to be purchased. . . . . 144.1
Purchase price per share. . . . . . . . . . . . . . . . $ 22.50
--------
Total cost of shares of ADT Common Stock not presently owned $3,242.3
Plus: Basis in 38.3 million shares of ADT Common Stock
currently owned . . . . . . . . . . . . . . . . . . . . . 589.4
Plus: Estimated transaction costs . . . . . . . . . . . . . 40.0
--------
Total purchase price. . . . . . . . . . . . . . . . . . $3,871.7
Less: Estimated fair value of net assets acquired (iv). . . 1,130.5
Estimated goodwill. . . . . . . . . . . . . . . . . . . $2,741.2
Less: Existing ADT goodwill, net. . . . . . . . . . . . . . 458.0
Less: Incremental goodwill amortization for 1996. . . . . . 68.5
Adjustment. . . . . . . . . . . . . . . . . . . . . . . $2,214.7
========
(i) LYONs are exchangeable for shares of ADT Common Stock or redeemable for
cash at the option of the holder upon a change of control. Conversion
terms allow the holder to exchange each LYON for 28.23 shares of ADT
Common Stock. The pro forma calculation of total shares of ADT Common
Stock outstanding assumes the LYONs are converted to shares of ADT Common
Stock.
(ii) Conversion of approximately 17.3 million outstanding option shares held by
management has been calculated using the treasury stock method.
(iii) Exercise of the Republic Warrant to purchase 15.0 million shares of ADT
Common Stock. The pro forma calculation of total shares of ADT Common
Stock outstanding includes Republic's exercise of the Republic Warrant for
15 million shares at $20 per share. (See note (j) for a related
discussion.)
(iv) Includes estimated fair value of auto auction business of $450 million.
(c) To record the additional long-term debt to be incurred for the Cash
Consideration and to refinance short-term debt used to acquire existing shares
of ADT Common Stock, less the elimination of the LYONs convertible debt
securities which are expected to be converted to shares of ADT Common Stock.
in
(millions)
Additional long-term debt:
144.1 million shares of ADT Common Stock times $10.00 per
share cash consideration. . . . . . . . . . . . . . . . . $1,441.0
Plus: Permanent financing of Western Resources' existing
interest. . . . . . . . . . . . . . . . . . . . . . . 589.4
Estimated transaction costs . . . . . . . . . . . . . 40.0
Less: Estimated LYONs debt outstanding at
acquisition date. . . . . . . . . . . . . . . . . . . (326.8)
--------
Net additional debt . . . . . . . . . . . . . . . . . $1,743.6
========
(d) To record the amortization of goodwill created in the purchase of ADT
over a 40-year period. The annual goodwill amortization is expected to
approximate $68.5 million. The adjustment represents the difference between this
amount, the historical amount recorded by ADT and the amounts recognized by
Western Resources related to its investment in ADT.
(e) To record the net effect of interest expense resulting from the
following:
(i) The reduction of interest expense associated with the short-term debt
incurred by Western Resources to acquire its initial equity interest in ADT and
the increase in interest expense in connection with the issuance of additional
long-term debt as detailed in note (c) above to finance the exchange of shares
of ADT Common Stock for the Cash Consideration and refinance short-term debt
used to acquire shares of ADT Common Stock. (See note (c).) The interest rate on
such borrowings is expected to be approximately 8%. The assumed interest rate is
reasonable given current corporate bond rates for companies with credit ratings
similar to Western Resources.
A one-eighth percent change in interest on the net additional debt used
to finance the Amalgamation would impact the combined pro forma net income by
approximately $1.1 million on an annual basis. Pro forma earnings per share
would be impacted by approximately $0.01 per share on an annual basis.
(ii) The interest expense savings resulting from the conversion of the LYONs,
which accreted interest at a rate of 6.5%.
(iii) The interest income earned on excess cash balances primarily resulting
from the exercise of the Republic Warrant at a market-based, short-term rate of
4.5% on an annual basis.
(f) To adjust the income tax provision. The income tax provision exceeds
the federal statutory rate of 35% primarily due to the non-deductible goodwill
amortization and state income taxes.
(g) To reflect the net increase to common equity resulting from Western
Resources issuing additional Western Resources Common Stock needed to acquire
the net remaining shares of ADT Common Stock, to reflect the impact of the pro
forma adjustments and eliminate ADT's stand-alone equity.
(h) To reflect the elimination of the equity investment and related equity
earnings recorded by Western Resources for the 38.3 million shares of ADT Common
Stock presently held as an equity investment and the related short-term debt
incurred to finance this equity investment which is to be refinanced with
long-term debt. (See note (c).)
(i) To reflect the issuance of Western Resources Common Stock in connection
with the Merger and the Amalgamation:
(in thousands,
except price
per share)
Value of Consideration to be paid in Western Resources
Common Stock . . . . . . . . . . . . . . . . . . . . . . . $ 12.50
Divided by the price per share of Western Resources
Common Stock as of February 28, 1997. . . . . . . . . . . . $ 30.250
--------
Exchange Ratio . . . .. . . . . . . . . . . . . . . . . . .41322
Multiplied by net shares of ADT Common Stock to be
purchased by Western Resources. . . . . . . . . . . . . . . 144,100
Shares of Western Resources Common Stock needed to
acquire net shares of ADT Common Stock. . . . . . . . . . . 59,545
ADT average common shares outstanding . . . . . . . . . . . . 137,114
Less: Shares of Western Resources Common Stock
to be issued to ADT shareholders . . . . . . . . . . . . 59,545
--------
(77,569)
Plus: Additional shares of Western Resources
Common Stock to be issued to KCPL shareholders. . . . . . 3,581(*)
Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . (73,988)
(*) Pro forma shares and related earnings per share have been calculated
assuming a Conversion Ratio of 1.05785 based on the closing price per share of
Western Resources Common Stock on February 28, 1997 of $30.250. The actual
Conversion Ratio will be based on a 20-day average of the price of Western
Resources Common Stock calculated for a period beginning on the 29th business
day prior to Closing and ending on the tenth business day prior to Closing.
(j) On July 1, 1996, ADT entered into an agreement with Republic (the
"Republic Agreement"), pursuant to which a subsidiary of Republic was to be
amalgamated with and into ADT with ADT being the surviving company. Under the
terms of the Republic Agreement, ADT granted to Republic the Republic Warrant to
purchase 15,000,000 Shares at a purchase price of $20 per Share, subject to
adjustment. The Republic Warrant was to become exercisable for a period of six
months following the termination of the Republic Agreement. On September 30,
1996, ADT and Republic jointly announced the termination of the Republic
Agreement, citing uncertainty attributable to market conditions, and amended
the Republic Warrant to include certain restrictions on the issuance of shares
of ADT Common Stock pursuant thereto and the transfer of such shares by Republic
to persons with an interest in 10% or more of ADT. Western Resources has
commenced litigation challenging the validity of the Republic Warrant. On March
21, 1997, Republic announced its exercise of the Republic Warrant and remitted
$300 million to ADT. The unaudited pro forma combined financial information
reflects this exercise and the receipt of approximately $300 million.
As described herein, Western Resources is initiating steps to hold a
special meeting of the ADT Shareholders, and among other matters, Western
Resources will be soliciting proxies in favor of the removal of the present
members of the ADT Board of Directors and the election of the nominees of
Western Resources to the ADT Board, who will then take steps needed to either
redeem or amend a rights agreement (the "Rights Agreement"), pursuant to which
ADT declared a dividend of one right for each outstanding ADT share of common
stock on November 4, 1996, to make the Rights Agreement inapplicable to the ADT
Offer.
(k) To reflect Western Resources' and KCPL's estimated direct merger costs
of $60 million as a reduction to equity.
(l) Prior to the consummation of the Merger, KCPL must redeem its preferred
stock outstanding pursuant to the Merger Agreement. Because the basis of
accounting for the Merger is a pooling of interests, the effect of this
redemption is not required to be reflected in the unaudited pro forma combined
financial statements. The required redemption price, as of December 31, 1996, is
approximately $90 million applicable to KCPL Preferred Stock. The ongoing effect
of this redemption is anticipated to be immaterial.
(m) Intercompany transactions among Western Resources, KCPL and ADT are
immaterial.
(n) Amounts related to ADT's subscriber systems represent the historical
cost of equipment, installation labor and direct overheads capitalized upon
acquiring a new customer. In accordance with the provisions specified in APB No.
16, "Accounting for Business Combinations," Western Resources has allocated
value to the subscriber systems purchased from ADT at amounts that are believed
to approximate the fair value of the acquired customer base. Western Resources
believes the estimated fair value of ADT's historical balance for subscriber
systems assets approximates the fair value of the acquired customer base. This
amount will be amortized over the average customer life, which is estimated at
approximately 10 years.
(o) To reflect the following:
(i) Presentation of assets and liabilities related to ADT's auto auction
business as net property held for sale as Western Resources intends to sell such
business at, or near, the closing date of the Amalgamation. These assets have
been assigned a value of $450 million, equal to the estimated sales proceeds,
net of tax. The following reflects the reclassification of account balances to
properly reflect the fair value of assets following the sale of ADT's auto
auction business:
(in
millions)
Estimated sales proceeds, net of tax. . . . . . . . . $450.0
Less: Estimated net book value. . . . . . . . . . . . (349.2)
Estimated fair value of property held for
sale in excess of recorded amounts . . . . . . . . $100.8
(ii) Elimination of historical amounts recorded for the results of
operations related to ADT's auto auction business. The following amounts have
been eliminated to properly reflect the historical results of operations of
ADT's auto auction business as presented in ADT's 14(d) filing with the SEC
dated March 4, 1997:
For the year ended
December 31, 1996
(in thousands)
Operating revenues. . . . . . . . . . . . . . . . . . $ 297,800
Operating expenses. . . . . . . . . . . . . . . . . . (272,600)
---------
Operating income. . . . . . . . . . . . . . . . . . . $ 25,200
---------
Net income. . . . . . . . . . . . . . . . . . . . . . $ 6,400
=========
WESTERN RESOURCES AND KCPL SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION
Years Ended December 31,
1996 1995 1994
Pro Forma Combined (unaudited)
Ratio of earnings to fixed charges (1). . 2.37x 2.80x 2.99x
Ratio of earnings to combined fixed
charges and preferred dividend
requirements (1). . . . . . . . . . . . 2.17x 2.54x 2.69x
(1) Earnings are deemed to consist of net income to which has been added income
taxes (including net deferred investment tax credit) and fixed charges. Fixed
charges consist of all interest on indebtedness, amortization of debt discount
and expense, and the portion of rental expense which represents an interest
factor. Preferred and preference dividend requirements consist of an amount
equal to the pre-tax earnings which would be required to meet divided
requirements on preferred and preference stock.