SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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 (913) 575-6300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 11, 1994
Common Stock, $5.00 par value 61,617,873
WESTERN RESOURCES, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4 - 6
Consolidated Statements of Cash Flows 7 - 8
Consolidated Statements of Capitalization 9
Consolidated Statements of Common Stock Equity 10
Notes to Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Part II. Other Information
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
June 30, December 31,
1994 1993
(Unaudited)
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . $5,171,104 $5,110,617
Natural gas plant in service. . . . . . . . . . . . . . 713,732 1,111,866
5,884,836 6,222,483
Less - Accumulated depreciation . . . . . . . . . . . . 1,775,159 1,821,710
4,109,677 4,400,773
Construction work in progress . . . . . . . . . . . . . 83,457 80,192
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 39,173 29,271
Net utility plant. . . . . . . . . . . . . . . . . . 4,232,307 4,510,236
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . . . . . . . . 64,376 61,497
Decommissioning trust . . . . . . . . . . . . . . . . . 15,077 13,204
Other . . . . . . . . . . . . . . . . . . . . . . . . . 11,663 10,658
91,116 85,359
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . 1,689 1,217
Accounts receivable and unbilled revenues (net) . . . . 182,918 238,137
Fossil fuel, at average cost. . . . . . . . . . . . . . 40,225 30,934
Gas stored underground, at average cost . . . . . . . . 28,966 51,788
Materials and supplies, at average cost . . . . . . . . 56,007 55,156
Prepayments and other current assets. . . . . . . . . . 47,592 34,128
357,397 411,360
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . . 138,063 135,991
Deferred coal contract settlement costs . . . . . . . . 36,926 40,522
Phase-in revenues . . . . . . . . . . . . . . . . . . . 70,178 78,950
Corporate-owned life insurance (net). . . . . . . . . . 13,989 4,743
Other deferred plant costs. . . . . . . . . . . . . . . 31,896 32,008
Other . . . . . . . . . . . . . . . . . . . . . . . . . 81,152 112,879
372,204 405,093
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $5,053,024 $5,412,048
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . . $2,982,453 $3,121,021
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . 217,800 440,895
Long-term debt due within one year. . . . . . . . . . . - 3,204
Accounts payable. . . . . . . . . . . . . . . . . . . . 123,389 172,338
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 113,026 46,076
Accrued interest and dividends. . . . . . . . . . . . . 60,653 65,825
Other . . . . . . . . . . . . . . . . . . . . . . . . . 67,196 65,492
582,064 793,830
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . 893,642 968,637
Deferred investment tax credits . . . . . . . . . . . . 141,009 150,289
Deferred gain from sale-leaseback . . . . . . . . . . . 257,161 261,981
Other . . . . . . . . . . . . . . . . . . . . . . . . . 196,695 116,290
1,488,507 1,497,197
COMMITMENTS AND CONTINGENCIES (Notes 4, 5 and 6)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $5,053,024 $5,412,048
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Three Months Ended
June 30,
1994 1993
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 278,505 $ 266,583
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 62,627 133,828
Total operating revenues. . . . . . . . . . . . . . . . 341,132 400,411
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 53,553 54,790
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 4,232 2,142
Power purchased . . . . . . . . . . . . . . . . . . . . . 4,545 3,013
Natural gas purchases . . . . . . . . . . . . . . . . . . 34,479 77,438
Other operations. . . . . . . . . . . . . . . . . . . . . 76,866 84,227
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 29,392 28,971
Depreciation and amortization . . . . . . . . . . . . . . 38,169 40,768
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 12,645 11,144
State income. . . . . . . . . . . . . . . . . . . . . . 3,389 2,986
General . . . . . . . . . . . . . . . . . . . . . . . . 25,577 30,264
Total operating expenses. . . . . . . . . . . . . . . 287,233 340,129
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 53,899 60,282
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (758) 1,899
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 3,188 4,508
Income taxes (net). . . . . . . . . . . . . . . . . . . . 1,296 (592)
Total other income and deductions . . . . . . . . . . 3,726 5,815
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 57,625 66,097
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 24,132 31,457
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 4,155 4,621
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (909) (704)
Total interest charges. . . . . . . . . . . . . . . . 27,378 35,374
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 30,247 30,723
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 3,355 3,403
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 26,892 $ 27,320
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,617,873 58,045,550
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ .44 $ .47
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ .495 $ .485
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Six Months Ended
June 30,
1994 1993
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 530,002 $ 517,854
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 349,502 462,138
Total operating revenues. . . . . . . . . . . . . . . . 879,504 979,992
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 106,193 113,192
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 8,095 4,849
Power purchased . . . . . . . . . . . . . . . . . . . . . 6,896 7,611
Natural gas purchases . . . . . . . . . . . . . . . . . . 233,131 287,044
Other operations. . . . . . . . . . . . . . . . . . . . . 154,429 169,622
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 55,889 55,896
Depreciation and amortization . . . . . . . . . . . . . . 77,477 81,678
Amortization of phase-in revenues . . . . . . . . . . . . 8,772 8,772
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 34,737 30,988
State income. . . . . . . . . . . . . . . . . . . . . . 8,611 7,436
General . . . . . . . . . . . . . . . . . . . . . . . . 57,593 66,672
Total operating expenses. . . . . . . . . . . . . . . 751,823 833,760
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 127,681 146,232
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (1,993) 3,368
Gain on sale of Missouri Properties (see Note 2). . . . . 30,701 -
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 5,555 10,210
Income taxes (net). . . . . . . . . . . . . . . . . . . . (7,649) (1,857)
Total other income and deductions . . . . . . . . . . 26,614 11,721
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 154,295 157,953
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 50,823 64,545
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 8,670 9,354
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (1,578) (1,483)
Total interest charges. . . . . . . . . . . . . . . . 57,915 72,416
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 96,380 85,537
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 6,709 6,749
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 89,671 $ 78,788
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,617,873 58,045,550
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 1.46 $ 1.36
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ .99 $ .97
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Twelve Months Ended
June 30,
1994 1993
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $1,116,685 $1,058,375
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 692,186 762,530
Total operating revenues. . . . . . . . . . . . . . . . 1,808,871 1,820,905
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 230,054 225,375
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 16,521 12,808
Power purchased . . . . . . . . . . . . . . . . . . . . . 15,681 16,756
Natural gas purchases . . . . . . . . . . . . . . . . . . 446,276 461,270
Other operations. . . . . . . . . . . . . . . . . . . . . 333,967 326,175
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 117,836 115,745
Depreciation and amortization . . . . . . . . . . . . . . 160,163 161,872
Amortization of phase-in revenues . . . . . . . . . . . . 17,545 17,544
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 66,169 56,197
State income. . . . . . . . . . . . . . . . . . . . . . 16,733 12,508
General . . . . . . . . . . . . . . . . . . . . . . . . 114,414 117,768
Total operating expenses. . . . . . . . . . . . . . . 1,535,359 1,524,018
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 273,512 296,887
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . 2,480 7,377
Gain on sale of Missouri Properties (see Note 2). . . . . 30,701 -
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 13,762 18,227
Income taxes (net). . . . . . . . . . . . . . . . . . . . (6,568) (3,325)
Total other income and deductions . . . . . . . . . . 40,375 22,279
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 313,887 319,166
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 109,829 133,947
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 18,571 20,954
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (2,726) (2,737)
Total interest charges. . . . . . . . . . . . . . . . 125,674 152,164
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 188,213 167,002
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 13,466 13,667
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 174,747 $ 153,335
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,065,571 58,045,550
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 2.86 $ 2.64
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 1.96 $ 1.92
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Six Months Ended
June 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 96,380 $ 85,537
Depreciation and amortization . . . . . . . . . . . . . . . 77,477 81,678
Other amortization (including nuclear fuel) . . . . . . . . 5,867 3,391
Gain on sale of utility plant (net of tax). . . . . . . . . (19,296) -
Deferred taxes and investment tax credits (net) . . . . . . (56,276) 16,092
Amortization of phase-in revenues . . . . . . . . . . . . . 8,772 8,772
Corporate-owned life insurance. . . . . . . . . . . . . . . (8,830) (8,101)
Amortization of gain from sale-leaseback. . . . . . . . . . (4,820) (4,820)
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . . (38,787) 60,739
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (9,291) 11,677
Gas stored underground. . . . . . . . . . . . . . . . . . 10,854 (19,219)
Accounts payable . . . . . . . . . . . . . . . . . . . . (48,909) (76,744)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 46,816 14,757
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (8,955) (11,895)
Changes in other assets and liabilities . . . . . . . . . . 102,635 (27,261)
Net cash flows from operating activities. . . . . . . . 153,637 134,603
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 107,796 96,700
Sale of utility plant . . . . . . . . . . . . . . . . . . . (402,076) -
Non-utility investments . . . . . . . . . . . . . . . . . . 3,162 1,254
Corporate-owned life insurance policies . . . . . . . . . . 24,008 24,624
Net cash flows (from) used in investing activities. . . (267,110) 122,578
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (223,095) 145,948
Bank term loan retired. . . . . . . . . . . . . . . . . . . - (230,000)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 235,923 158,500
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (223,906) (149,000)
Revolving credit agreement (net). . . . . . . . . . . . . . (115,000) 175,000
Other long-term debt (net). . . . . . . . . . . . . . . . . (67,893) (46,870)
Borrowings against life insurance policies (net). . . . . . 40,791 621
Dividends on preferred, preference and common stock . . . . (67,095) (62,543)
Net cash flows from (used in) financing activities. . . (420,275) (8,344)
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . 472 3,681
CASH AND CASH EQUIVALENTS:
BEGINNING OF THE PERIOD . . . . . . . . . . . . . . . . . . 1,217 875
END OF THE PERIOD . . . . . . . . . . . . . . . . . . . . . $ 1,689 $ 4,556
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . . $ 78,906 $ 85,355
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 62,454 15,755
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Twelve Months Ended
June 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 188,213 $ 167,002
Depreciation and amortization . . . . . . . . . . . . . . . 160,163 161,872
Other amortization (including nuclear fuel) . . . . . . . . 13,730 9,363
Gain on sale of utility plant (net of tax). . . . . . . . . (19,296) -
Deferred taxes and investment tax credits (net) . . . . . . (44,682) 52,042
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Corporate-owned life insurance. . . . . . . . . . . . . . . (22,379) (15,972)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,640) (9,640)
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . . (115,062) (40,100)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (2,895) 27,976
Gas stored underground. . . . . . . . . . . . . . . . . . (7,071) (17,225)
Accounts payable. . . . . . . . . . . . . . . . . . . . . (15,334) 33,553
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 39,544 11,490
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (225) (2,215)
Changes in other assets and liabilities . . . . . . . . . . 111,327 (88,297)
Net cash flows from operating activities . . . . . . . 293,938 307,393
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 248,727 234,655
Utility investment. . . . . . . . . . . . . . . . . . . . . 2,500 -
Sale of utility plant . . . . . . . . . . . . . . . . . . . (402,076) -
Non-utility investments . . . . . . . . . . . . . . . . . . 16,179 23,825
Corporate-owned life insurance policies . . . . . . . . . . 26,650 20,632
Death proceeds of corporate-owned life insurance policies . (10,158) (754)
Net cash flows (from) used in investing activities. . . (118,178) 278,358
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (150,373) 168,173
Bank term loan retired. . . . . . . . . . . . . . . . . . . - (480,000)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 300,923 643,500
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (441,372) (385,466)
Revolving credit agreement (net). . . . . . . . . . . . . . (325,000) 175,000
Other long-term debt (net). . . . . . . . . . . . . . . . . (13,980) (14,860)
Common stock issued (net) . . . . . . . . . . . . . . . . . 125,991 -
Preference stock redeemed . . . . . . . . . . . . . . . . . (2,734) (2,600)
Borrowings against life insurance policies (net). . . . . . 223,430 (3,959)
Dividends on preferred, preference and common stock . . . . (131,868) (125,113)
Net cash flows from (used in) financing activities. . . (414,983) (25,325)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (2,867) 3,710
CASH AND CASH EQUIVALENTS:
BEGINNING OF THE PERIOD . . . . . . . . . . . . . . . . . . 4,556 846
END OF THE PERIOD . . . . . . . . . . . . . . . . . . . . . $ 1,689 $ 4,556
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . . $ 165,285 $ 155,806
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 95,807 16,794
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
June 30, December 31,
1994 1993
(Unaudited)
COMMON STOCK EQUITY (see statement):
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
61,617,873 shares. . . . . . . . . . . . . . . . $ 308,089 $ 308,089
Paid-in capital. . . . . . . . . . . . . . . . . . 667,510 667,738
Retained earnings. . . . . . . . . . . . . . . . . 475,017 446,348
1,450,616 49% 1,422,175 45%
CUMULATIVE PREFERRED AND PREFERENCE 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
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
8.50% Series, 1,000,000 shares. . . . . . . 100,000 100,000
150,000 150,000
174,858 6% 174,858 6%
LONG-TERM DEBT:
First mortgage bonds . . . . . . . . . . . . . . . 841,000 842,466
Pollution control bonds. . . . . . . . . . . . . . 521,922 508,440
Other pollution control obligations. . . . . . . . - 13,980
Revolving credit agreement . . . . . . . . . . . . - 115,000
Other long-term agreement. . . . . . . . . . . . . - 53,913
Less:
Unamortized premium and discount (net) . . . . . 5,943 6,607
Long-term debt due within one year . . . . . . . - 3,204
1,356,979 45% 1,523,988 49%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . $2,982,453 100% $3,121,021 100%
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
(Thousands of Dollars)
(Unaudited)
Common Paid-in Retained
Stock Capital Earnings
BALANCE DECEMBER 31, 1992, 58,045,550 shares. . . . . $290,228 $559,636 $398,503
Net income. . . . . . . . . . . . . . . . . . . . . . 85,537
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (6,749)
Common stock, $0.97 per share . . . . . . . . . . . (56,303)
Expenses on preference stock. . . . . . . . . . . . . (556)
BALANCE JUNE 30, 1993, 58,045,550 shares. . . . . . . 290,228 559,080 420,988
Net income. . . . . . . . . . . . . . . . . . . . . . 91,833
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (6,757)
Common stock, $0.97 per share . . . . . . . . . . . (59,716)
Expenses on common stock. . . . . . . . . . . . . . . (2,897)
Issuance of 3,572,323 shares of common stock. . . . . 17,861 111,555
BALANCE DECEMBER 31, 1993, 61,617,873 shares . . . . 308,089 667,738 446,348
Net income. . . . . . . . . . . . . . . . . . . . . . 96,380
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (6,709)
Common stock, $0.99 per share . . . . . . . . . . . (61,002)
Expenses on common stock. . . . . . . . . . . . . . . (228)
BALANCE JUNE 30, 1994, 61,617,873 shares . . . . . . $308,089 $667,510 $475,017
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES AND OTHER INFORMATION
General. The condensed consolidated financial statements of the Company
include the accounts of its wholly-owned subsidiaries, Astra Resources, Inc.,
Kansas Gas and Electric Company (KG&E), and KPL Funding Corporation. KG&E
owns 47% of the Wolf Creek Nuclear Operating Corporation (WCNOC), the
operating company for the Wolf Creek Generating Station (Wolf Creek). The
Company records its proportionate share of all transactions of WCNOC as it
does other jointly-owned facilities. All significant intercompany
transactions have been eliminated. The Company is doing its utility business
as KPL, Gas Service, and through its wholly-owned subsidiary, KG&E.
The financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the accompanying condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position of the Company as of June 30, 1994 and December 31, 1993, and the
results of its operations for the three, six, and twelve month periods ended
June 30, 1994 and 1993. These condensed consolidated financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Company's 1993 Annual Report on Form 10-K and the KG&E
Annual Report on Form 10-K incorporated by reference in the Company's 1993
Annual Report on Form 10-K.
The accounting policies of the Company are in accordance with generally
accepted accounting principles as applied to regulated public utilities. The
accounting and rates of the Company are subject to requirements of the Kansas
Corporation Commission (KCC) and the Federal Energy Regulatory Commission
(FERC).
Cash Surrender Value of Life Insurance Contracts. The following amounts
related to corporate-owned life insurance (COLI) contracts, primarily with one
highly rated major insurance company, are recorded on the balance sheets
(millions of dollars):
June 30, December 31,
1994 1993
Cash surrender value of contracts $404.6 $326.3
Borrowings against contracts (390.6) (321.6)
COLI (net) $ 14.0 $ 4.7
Consolidated Statements of Cash Flows. For purposes of the consolidated
statements of cash flows, the Company considers highly liquid collateralized
debt instruments purchased with a maturity of three months or less to be cash
equivalents.
Reclassifications. Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
2. SALE OF MISSOURI NATURAL GAS DISTRIBUTION PROPERTIES
On January 31, 1994, the Company sold substantially all of its Missouri
natural gas distribution properties and operations to Southern Union Company
(Southern Union). The Company sold the remaining Missouri properties to
United Cities Gas Company (United Cities) on February 28, 1994. The
properties sold to Southern Union and United Cities are referred to herein as
the "Missouri Properties." With the sales, the Company is no longer operating
as a utility in the State of Missouri.
The portion of the Missouri Properties purchased by Southern Union was
sold for an estimated sale price of $400 million, in cash, based on a
calculation as of December 31, 1993. The sale agreement provided for
estimated amounts in the sale price calculation to be adjusted to actual as of
January 31, 1994, within 120 days of closing. Disputes with respect to
proposed adjustments based upon differences between estimates and actuals were
to be resolved within 60 days of submission of the disputes (which were
submitted within 15 days of the adjustment proposals) or submitted to
arbitration by an accounting firm to be agreed to by both parties. Southern
Union proposed a number of adjustments to the purchase price which the Company
has disputed. A limited number of the adjustments may be subject to the
arbitration provisions of the sale agreement. The Company maintains that a
substantial number of the proposed adjustments are not permitted under the
sale agreement and are not subject to the arbitration provisions.
On June 1, 1994, Southern Union filed a lawsuit against the Company
regarding certain gas supply contracts assumed by Southern Union as part of
the sale of the Missouri Properties (see Note 5, LEGAL PROCEEDINGS). On
August 1, 1994, the Company filed its answer and counterclaim against Southern
Union taking exception to certain of Southern Union's proposed adjustments to
the purchase price that, in the Company's opinion, are not includable in the
arbitration process and not proper adjustments to the purchase price.
In the opinion of the Company's management the resolution of these
matters will not have a material impact on the Company's financial position or
results of operations.
United Cities purchased the Company's natural gas distribution system in
and around the City of Palmyra, Missouri, for $665,000 in cash.
During the first quarter of 1994, the Company recognized a gain of
approximately $19.3 million, net of tax, on the sale of the Missouri
Properties. Also during the first quarter, the Company ceased recording the
results of operations, and removed the assets and liabilities from the
consolidated balance sheet related to the Missouri Properties. The gain is
reflected in other income and deductions on the six and twelve months ended
June 30, 1994 consolidated income statements.
The Company's operating revenues and operating income for the second
quarter of 1994 do not include any results related to the Missouri Properties
following the sale of those properties in the first quarter of 1994. The
consolidated income statements for the six and twelve months ended June 30,
1994, include revenues and operating income (unaudited) related to the
Missouri Properties for a portion of these periods compared to a full six and
twelve months for June 30, 1993.
The following table reflects the approximate operating revenues
(unaudited) and operating income (unaudited) related to the Missouri
Properties for the three, six, and twelve months ended June 30, 1994 and 1993,
through the sale to Southern Union on January 31, 1994 and United Cities on
February 28, 1994 (millions of dollars):
Percent Percent
Operating of Total Operating of Total
Revenues Company Income Company
Three months ended June 30,
1994 $ 0 - $ 0 -
1993 $ 58.6 23.4% $ 0.2 0.6%
Six months ended June 30,
1994 $ 77.0 8.6% $ 5.7 4.4%
1993 $200.5 29.0% $ 12.2 15.7%
Twelve months ended June 30,
1994 $226.3 12.5% $ 14.2 5.2%
1993 $328.7 26.6% $ 16.9 11.3%
Net utility plant (unaudited) for the Missouri Properties, at December 31,
1993, approximated $296 million. This represents approximately seven percent
of the total Company net utility plant at December 31, 1993.
Separate audited financial information was not kept by the Company for
the Missouri Properties. This unaudited financial information is based on
assumptions and allocations of expenses of the Company as a whole.
3. SHORT-TERM DEBT
The Company's short-term financing requirements are satisfied through the
sale of commercial paper, short-term bank loans and borrowings under unsecured
lines of credit maintained with banks. At June 30, 1994, the Company had bank
credit arrangements available of $145 million.
4. COMMITMENTS AND CONTINGENCIES
As a part of its ongoing operations and construction program, the Company
had commitments under purchase orders and contracts which had an unexpended
balance of approximately $86 million at December 31, 1993. Approximately $36
million was attributable to modifications to upgrade the three turbines at
Jeffrey Energy Center to be completed by December 31, 1998.
Spent Nuclear Fuel Disposal. Under the Nuclear Waste Policy Act of 1982,
the U.S. Department of Energy (DOE) is responsible for the ultimate storage
and disposal of spent nuclear fuel removed from nuclear reactors. Under a
contract with the DOE for disposal of spent nuclear fuel, the Company pays a
quarterly fee to DOE of one mill per kilowatthour on net nuclear generation.
These fees are included as part of nuclear fuel expense.
The Company along with the other co-owners of Wolf Creek are among 14
companies that filed a lawsuit June 20, 1994, seeking an interpretation of the
DOE's obligation to begin accepting spent nuclear fuel for disposal in 1998.
The Federal Nuclear Waste Policy Act requires DOE ultimately to accept and
dispose of nuclear utilities' spent fuel. The issue to be decided in this
case is whether DOE must begin accepting spent fuel in 1998 or at a future
date.
Decommissioning. In 1988 the Company estimated that it would expend
approximately $725 million for its share of Wolf Creek decommissioning costs
primarily during the period from 2025 through 2031. Such costs, estimated to
be approximately $97 million in 1988 dollars, are currently authorized in
rates. These costs were calculated using an assumed inflation rate of 5.15%
over the remaining service life, in 1988, of 37 years.
Decommissioning costs, calculated in the 1988 estimate, are being charged
to operating expenses. Amounts so expensed ($3.5 million in 1993 increasing
annually to $5.5 million in 2024) and earnings on trust fund assets are
deposited in an external trust fund which, when fully funded (assuming a
return on trust assets of 7%) will be used solely for the physical
decommissioning of Wolf Creek (immediate dismantlement method). Electric
rates charged to customers provide for recovery of these decommissioning costs
over the life of Wolf Creek.
The Company's investment in the decommissioning fund, including
reinvested earnings was $15.1 and $13.2 million at June 30, 1994 and December
31, 1993, respectively. These amounts are reflected in OTHER PROPERTY AND
INVESTMENTS, Decommissioning Trust, and the related liability is included in
DEFERRED CREDITS AND OTHER LIABILITIES, Other, on the consolidated balance
sheets.
On June 9, 1994, the KCC issued an order approving the decommissioning
cost of a 1993 Wolf Creek Decommissioning Cost Study which estimates the
Company's share of Wolf Creek decommissioning costs to be approximately $595
million during the period 2025 through 2033, or approximately $174 million in
1993 dollars. These costs were calculated using an assumed inflation rate of
3.45% over the remaining service life, in 1993, of 32 years.
The KCC also scheduled a hearing to review the funding level for the
decommissioning trust. Management believes the current level of funding will
meet the requirements of the 1993 cost study and is requesting no change to
the current funding level.
The Company carries $164 million in premature decommissioning insurance.
The insurance coverage has several restrictions. One of these is that it can
only be used if Wolf Creek incurs an accident exceeding $500 million in
expenses to safely stabilize the reactor, to decontaminate the reactor and
reactor station site in accordance with a plan approved by the Nuclear
Regulatory Commission (NRC), and to pay for on-site property damages. If the
amount designated as decommissioning insurance is needed to implement the NRC-
approved plan for stabilization and decontamination, it would not be available
for decommissioning purposes.
Nuclear Insurance. The Price-Anderson Act limits the combined public
liability of the owners of nuclear power plants to $9.2 billion for a single
nuclear incident. The Wolf Creek owners (Owners) have purchased the maximum
available private insurance of $200 million and the balance is provided by an
assessment plan mandated by the NRC. Under this plan, the Owners are jointly
and severally subject to a retrospective assessment of up to $79.3 million
($37.3 million, Company's share) in the event there is a nuclear incident
involving any of the nation's licensed reactors. This assessment is subject
to an inflation adjustment based on the Consumer Price Index. There is a
limitation of $10 million ($4.7 million, Company's share) in retrospective
assessments per incident per year.
The Owners carry decontamination liability, premature decommissioning
liability, and property damage insurance for Wolf Creek totalling
approximately $2.8 billion ($1.3 billion, Company's share). This insurance is
provided by a combination of "nuclear insurance pools" ($1.3 billion) and
Nuclear Electric Insurance Limited (NEIL) ($1.5 billion). In the event of an
accident, insurance proceeds must first be used for reactor stabilization and
site decontamination. The remaining proceeds from the $2.8 billion insurance
coverage ($1.3 billion, Company's share), if any, can be used for property
damage up to $1.1 billion (Company's share) and premature decommissioning
costs up to $117.5 million (Company's share) in excess of funds previously
collected for decommissioning (as discussed under "Decommissioning"), with the
remaining $47 million (Company's share) available for either property damage
or premature decommissioning costs.
The Owners also carry additional insurance with NEIL to cover costs of
replacement power and other extra expenses incurred during a prolonged outage
resulting from accidental property damage at Wolf Creek. If losses incurred
at any of the nuclear plants insured under the NEIL policies exceed premiums,
reserves, and other NEIL resources, the Company may be subject to
retrospective assessments of approximately $9 million per year.
There can be no assurance that all potential losses or liabilities will
be insurable or that the amount of insurance will be sufficient to cover them.
Any substantial losses not covered by insurance, to the extent not recoverable
through rates, could have a material adverse effect on the Company's financial
condition and results of operations.
Clean Air Act. The Clean Air Act Amendments of 1990 (the Act) require a
two-phase reduction in sulfur dioxide and oxides of nitrogen (NOx) emissions
effective in 1995 and 2000 and a probable reduction in toxic emissions. To
meet the monitoring and reporting requirements under the acid rain program,
the Company is installing continuous monitoring and reporting equipment at a
total cost of approximately $10 million. At December 31, 1993, the Company
had completed approximately $4 million of these capital expenditures with the
remaining $6 million of capital expenditures to be completed in 1994 and 1995.
The Company does not expect additional equipment to reduce sulfur emissions to
be necessary under Phase II. The Company currently has no Phase I affected
units.
The NOx and toxic limits, which were not set in the law, will be
specified in future EPA regulations. The EPA has issued for public comment
preliminary NOx regulations for Phase I group 1 units. NOx regulations for
Phase II units and Phase I group 2 units are mandated in the Act to be
promulgated by January 1, 1997. Although the Company has no Phase I units,
the final NOx regulations for Phase I group 1 may allow for early compliance
for Phase II group 1 units. Until such time as the Phase I group 1 NOx
regulations are final, the Company will be unable to determine its compliance
options or related compliance costs.
Fuel Commitments. To supply a portion of the fuel requirements for its
generating plants, the Company has entered into various commitments to obtain
nuclear fuel, coal, and natural gas. Some of these contracts contain
provisions for price escalation and minimum purchase commitments. At December
31, 1993, WCNOC's nuclear fuel commitments (Company's share) were
approximately $18.0 million for uranium concentrates expiring at various times
through 1997, $123.6 million for enrichment expiring at various times through
2014, and $45.5 million for fabrication through 2012. At December 31, 1993,
the Company's coal and natural gas contract commitments in 1993 dollars under
the remaining term of the contracts were $2.8 billion and $20.4 million,
respectively. The largest coal contract was renegotiated early in 1993 and
expires in 2020 with the remaining coal contracts expiring at various times
through 2013. The majority of natural gas contracts continue through 1995
with automatic one-year extension provisions. In the normal course of
business, additional commitments and spot market purchases will be made to
obtain adequate fuel supplies.
Environmental. The Company has been associated with 20 former
manufactured gas sites which may contain coal tar and other potentially
harmful materials. These sites were operated decades ago by other companies,
and were acquired by the Company after they had ceased operation. The
Environmental Protection Agency (EPA) has performed preliminary assessments of
seven of these sites (EPA sites), four of which are under site investigation.
The Company has not received any indication from the EPA that further action
will be taken at the EPA sites, nor does the Company have reason to believe
there will be any fines or penalties related to these sites. The Company and
the Kansas Department of Health and Environment entered into a consent
agreement to conduct separate preliminary assessments of these sites. The
preliminary assessments of these sites have been completed at a total cost of
approximately $500,000. The Company has initiated site investigation and risk
assessment of the highest priority site and anticipates a total cost for site
investigations of approximately $500,000 to $700,000 in 1994. Until such time
that risk assessments are completed at this or the remaining sites, it will be
impossible to predict the cost of remediation. However, the Company is aware
of other utilities in Region VII of the EPA (Kansas, Missouri, Nebraska, and
Iowa) which have incurred remediation costs for such sites ranging between
$500,000 and $10 million, depending on the site. The Company is also aware
that the KCC has permitted another Kansas utility to recover a portion of the
remediation costs through rates. To the extent that such remediation costs
are not recovered through rates, the costs could be material to the Company's
financial position or results of operations depending on the degree of
remediation and number of years over which the remediation must be completed.
The Company has been identified as one of numerous potentially
responsible parties in five hazardous waste sites listed by the EPA as
Superfund sites. One site is a groundwater contamination site in Wichita,
Kansas, and two are oil soil contamination sites in Missouri. The other two
sites are solid waste land-fills located in Edwardsville and Hutchinson,
Kansas. The Company's obligation at these sites appears to be limited, and it
is the opinion of the Company's management that the resolution of these
matters will not have a material impact on the financial position of the
Company or results of operations.
As part of the sale of the Company's Missouri Properties to Southern
Union, Southern Union assumed responsibility under an agreement for any
environmental matters pending at the date of the sale or that may arise after
closing. For any environmental matters pending or discovered within two years
of the date of the agreement, and after pursuing several other potential
recovery options, the Company may be liable for up to a maximum of $7.5
million under a sharing arrangement with Southern Union provided for in the
agreement.
For more information with respect to Commitments and Contingencies, see
Note 4, COMMITMENTS AND CONTINGENCIES of the Company's 1993 Annual Report on
Form 10-K.
5. LEGAL PROCEEDINGS
On June 1, 1994, Southern Union filed an action against the Company and
others in the Federal District Court for the Western District of Missouri
(Southern Union Company v. Western Resources, Inc. et al., Case No 94-509-CV-
W-8) alleging, among other things, breach of contract relating to certain
assumed contracts, and requesting unspecified monetary damages as well as
declaratory relief. On August 1, 1994, the Company filed its answer and
counterclaim denying Southern Union's claims and requesting declaratory relief
with respect to certain adjustments in the purchase price for the Missouri
properties proposed by Southern Union and disputed by the Company. See Note
2, SALE OF MISSOURI NATURAL GAS DISTRIBUTION PROPERTIES.
For additional information with respect to Legal Proceedings see Note 15,
LEGAL PROCEEDINGS of the Company's 1993 Annual Report on Form 10-K.
6. RATE MATTERS AND REGULATION
On June 20, 1994, Williams Natural Gas Company (WNG) filed an application
with FERC to direct bill approximately $29.9 million of transition costs to
the Company related to natural gas sales service in Kansas, Missouri, and
Oklahoma. FERC issued an order authorizing the direct billing, subject to
refund, beginning July 20, 1994. The Company believes substantially all of
these costs and any future transition costs ultimately will be recovered
through charges to its current Kansas and Oklahoma and former Missouri
customers, and any unrecovered transition costs will not be material to the
Company's financial position or results of operations. For additional
information with respect to FERC Order No. 636 see Management's Discussion and
Analysis, OTHER INFORMATION of the Company's 1993 Annual Report on Form 10-K.
Gas Transportation Charges. On September 12, 1991, the KCC authorized
the Company to begin recovering, through the Purchase Gas Adjustment (PGA),
deferred supplier gas transportation costs of $9.9 million incurred through
December 31, 1990, based on a three-year amortization schedule. On December
30, 1991, the KCC authorized the Company to recover deferred transportation
costs of approximately $2.8 million incurred subsequent to December 31, 1990
through the PGA over a 32-month period. At June 30, 1994, approximately $2.6
million of these deferrals remain in other deferred charges on the
consolidated balance sheet.
KCC Rate Proceedings. On January 24, 1992, the KCC issued an order
allowing the Company to continue the deferral of service line replacement
program costs incurred since January 1, 1992, including depreciation, property
taxes, and carrying costs for recovery in the next general rate case. At June
30, 1994, approximately $4.6 million of these deferrals have been included in
other deferred charges on the consolidated balance sheet.
On December 30, 1991, the KCC approved a permanent natural gas rate
increase of $39 million annually and the Company discontinued the deferral of
accelerated line survey costs on January 1, 1992. Approximately $5.7 million
of deferred costs remain in other deferred charges on the consolidated balance
sheet at June, 30, 1994, with the balance being included in rates and
amortized to expense during a 43-month period, commencing January 1, 1992.
For additional information with respect to Rate Matters and Regulation
see Note 5, RATE MATTERS AND REGULATION of the Company's 1993 Annual Report on
Form 10-K.
7. INCOME TAXES
Total income tax expense included in the Consolidated Statements of
Income reflects the Federal statutory rate of 35% since January 1, 1993 and
34% for all prior periods. The Federal statutory rate produces effective
income tax rates of 33.4% and 32.4% for the three month periods, 34.9% and
32.0% for the six month periods, and 32.5% and 30.1% for the twelve month
periods ended June 30, 1994 and 1993, respectively. The effective income tax
rates vary from the Federal statutory rate due to permanent differences,
including the amortization of investment tax credits, and accelerated
amortization of certain deferred income taxes.
For additional information with respect to Income Taxes see Note 12,
INCOME TAXES of the Notes to Consolidated Financial Statements in the
Company's 1993 Annual Report on Form 10-K.
8. EMPLOYEE BENEFIT PLANS
The Company adopted Statement of Financial Accounting Standards No. 112
(SFAS 112) in the first quarter of 1994, which established accounting and
reporting standards for postemployment benefits. The statement requires the
Company to recognize the liability to provide postemployment benefits when the
liability has been incurred. To mitigate the impact adopting SFAS 112 will
have on rate increases, the Company received an order from the KCC permitting
the initial deferral of SFAS 112 transition costs and expenses and its
inclusion in the future computation of cost of service net of an income stream
generated from corporate-owned life insurance (COLI). At June 30, 1994, the
Company's SFAS 112 liability recorded on the consolidated balance sheet was
approximately $8.7 million.
At December 31, 1993, the Company's total Statement of Financial
Accounting Standards No. 106 (SFAS 106) obligation was approximately $166.5
million and the SFAS 106 expense was approximately $26.5 million for 1993.
With the sale of the Missouri Properties, the Company's SFAS 106 obligation at
December 31, 1993 would have been lower by approximately $40.1 million and the
1993 expense would have been $5.3 million lower. To mitigate the impact SFAS
106 expense will have on rate increases, the Company will include in the
future computation of cost of service the actual SFAS 106 expense and an
income stream generated from COLI. The extent SFAS 106 expense exceeds income
from the COLI program, this excess is being deferred to be offset by income
generated through the deferral period by the COLI program.
WESTERN RESOURCES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with MANAGEMENT'S
DISCUSSION AND ANALYSIS of the Company's 1993 Annual Report on Form 10-K.
The following updates the information provided in the 1993 Annual Report
on Form 10-K and analyzes the changes in the results of operations between the
three, six, and twelve month periods ended June 30, 1994 and comparable
periods of 1993.
As a result of the sale of the Missouri Properties, as described in Note
2, SALE OF MISSOURI NATURAL GAS DISTRIBUTION PROPERTIES, of the Notes to
Consolidated Financial Statements (Note 2), the Company recognized a gain of
approximately $19.3 million, net of tax, and ceased recording the results of
operations for the Missouri Properties during the first quarter of 1994.
Consequently, the Company's results of operations for the three, six, and
twelve months ended June 30, 1994 are not fully comparable to the results of
operations for the same periods ending June 30, 1993.
For additional information regarding the sale of the Missouri Properties
and the pending litigation see Note 2 and Note 5, LEGAL PROCEEDINGS, of the
Notes to Consolidated Financial Statements.
FINANCIAL CONDITION
General. Net income for the second quarter of 1994 was $30 million, down
slightly from net income of $31 million for the same period of 1993. The
Company earned $0.44 per share of common stock for the second quarter of 1994,
a decrease of $0.03 per share from the second quarter of 1993. There were
61,617,873 and 58,045,550 shares outstanding for the second quarter of 1994
compared to 1993, respectively.
The decrease in earnings is primarily a result of higher income taxes
caused by the completion of the KG&E accelerated amortization of certain
deferred income tax reserves. As of December 31, 1993, KG&E had fully
amortized these deferred income tax reserves related to the allowance for
borrowed funds used during construction capitalized for Wolf Creek. The
absence of the amortization of these deferred income tax reserves reduces net
income by approximately $3 million per quarter or approximately $12 million
per year.
Partially offsetting the decrease in net income for the quarter were
increased electric sales as a result of increased cooling load caused by
warmer weather in the second quarter of 1994 compared to 1993 as well as
reduced interest expense.
Operating revenues were $341 million and $400 million for the quarters
ended June 30, 1994 and 1993, respectively. The decrease in revenues is
primarily a result of the sale of the Missouri Properties (see Note 2).
Net income for the six and twelve months ended June 30, 1994, was $96
million and $188 million, respectively, compared to $86 million and $167
million for the comparable periods of 1993. The increase for both periods is
primarily the result of increased electric sales and the gain on the sale of
the Missouri Properties. Partially offsetting these increases was the
completion of the amortization of certain deferred income tax reserves
discussed previously.
Operating revenues were $880 million for the six months ended June 30,
1994 compared to $980 million for the same period of 1993. The decrease in
revenues is primarily a result of the sale of the Missouri Properties. For
the twelve months ended June 30, 1994, operating revenues of $1.8 billion were
down less than one percent from the same period of 1993.
The quarterly dividend rate is $0.495 per share, for an indicated annual
rate of $1.98 per share. The book value per share was $23.54 at June 30,
1994, up from $23.08 at December 31, 1993.
Liquidity and Capital Resources. The Company's short-term debt balance
at June 30, 1994, decreased approximately $223 million from December 31, 1993,
primarily as a result of the receipt of the proceeds from the sale of the
Missouri Properties and KG&E's issuance, on January 20, 1994, of $100 million
of first mortgage bonds.
On April 28, 1994, two series of Market-Adjusted Tax Exempt Securities
(MATES) totalling $75.5 million were sold on behalf of the Company at a rate
of 2.95% for the initial auction period. The interest rate is being reset
periodically via an auction process. As of June 30, 1994, the rate on these
bonds was 2.98% for $45 million and 2.9% for the remaining $30.5 million. The
net proceeds from the new issues, together with available cash, were used to
refund two series of pollution control bonds totalling $75.5 million bearing
interest rates of 5.9% and 6.75%.
On April 28, 1994, three series of MATES totalling $46.4 million were
sold on behalf of KG&E at a rate of 2.95% for the initial auction period. The
interest rate is being reset periodically via an auction process. As of June
30, 1994, the rate on these bonds was 2.86% for each series. The net proceeds
from the new issues, together with available cash, were used to refund three
series of pollution control bonds totalling $46.4 million bearing interest
rates between 5 7/8% and 6.8%.
In 1986 the KG&E purchased corporate-owned life insurance policies (COLI)
on certain of its employees. For the six months ended June 30, 1994, KG&E
increased its borrowings against the accumulated cash surrender values of the
policies by $39.2 million and received $1.6 million from increased borrowings
on Wolf Creek Nuclear Operating Company policies.
OPERATING RESULTS
Revenues. The Company's revenues vary with levels of usage as a result
of changing weather conditions during comparable periods and are sensitive to
seasonal fluctuations between consecutive periods. Future electric and
natural gas sales will continue to be affected by weather conditions,
competing fuel sources, wholesale demand, and the overall economy of the
Company's service area.
The following table reflects changes in electric sales for the three,
six, and twelve months ended June 30, 1994 from the comparable periods of
1993.
Changes in electric sales volumes:
3 Months 6 Months 12 Months
ended ended ended
Residential 15.0% 3.1% 6.1%
Commercial 5.1% 5.9% 4.3%
Industrial 3.9% 0.7% -
Total retail sales 7.5% 3.1% 3.3%
Wholesale and interchange 4.4% 19.5% 31.3%
Total electric sales 6.9% 6.3% 8.8%
Electric revenues increased four and two percent for the three and six
months ended June 30, 1994 compared to the same periods of 1993. These
increases are primarily attributable to increased sales for air conditioning
load as a result of above normal temperatures in the second quarter of 1994
compared to below normal temperatures in the second quarter of 1993.
Interchange and wholesale revenues increased as a result of additional
interchange customers. In February 1994, the Company was able to add new
interchange customers when it joined the Western Systems Power Pool which
opened additional markets for interchange power.
Electric revenues for the twelve months ended June 30, 1994, increased
six percent as a result of increased sales for air conditioning load in the
third quarter of 1993 and the second quarter of 1994 caused by warmer
temperatures in both quarters compared to the prior year.
Also contributing to the increase in revenues for the twelve months ended
is an increase in wholesale revenues as a result of other utilities' need for
power to meet peak demand periods while those utilities' units were out of
service due to the 1993 summer flooding and the addition of the new
interchange customers.
The following table reflects changes in natural gas sales for the three,
six, and twelve months ended June 30, 1994 from the comparable periods of
1993.
Changes in natural gas sales volumes (decrease):
3 Months 6 Months 12 Months
ended ended ended
Residential (56.5)% (34.2)% (20.8)%
Commercial (58.1)% (38.0)% (23.8)%
Industrial (72.8)% (65.3)% (63.0)%
Transportation (31.3)% (26.9)% (10.2)%
Total deliveries (47.3)% (33.3)% (18.6)%
Natural gas revenues and sales decreased significantly for the three,
six, and twelve months ended June 30, 1994 compared to the same periods of
1993 as a result of the sale of the Missouri Properties in the first quarter
of 1994 (see Note 2).
Also contributing to the decreases were lower natural gas sales for space
heating as a result of the milder temperatures during the 1994 heating season.
Partially offsetting these decreases was a higher unit gas cost being
recovered from customers through Purchased Gas Adjustment clauses (PGA).
Operating Expenses. Total operating expenses decreased 16 percent and
ten percent for the quarter and six months ended June 30, 1994 compared to the
same periods of 1993. This decrease is primarily the result of the sale of
the Missouri Properties (see Note 2).
Partially offsetting these decreases were higher nuclear fuel costs,
increased income tax expense, and a higher unit cost of gas which is passed on
to customers through the PGA. Nuclear fuel costs were higher for the quarter
and six months ended June 30, 1994, compared to 1993 as a result of the full
availability of Wolf Creek during these periods. Beginning March 5, 1993,
Wolf Creek was taken off-line for approximately 73 days for scheduled
refueling and maintenance.
As of December 31, 1993, KG&E had fully amortized its deferred income tax
reserves related to the allowance for borrowed funds used during construction
capitalized for Wolf Creek. The completion of the amortization of these
deferred income tax reserves increased income taxes and thereby reduced net
income by approximately $3 million and $6 million for the quarter and six
months ended June 30, 1994, respectively.
Also offsetting the decrease for the quarter ended June 30, 1994, were
increased purchased power expense and maintenance expense. Purchased power
expense increased as a result of higher sales and certain generating units
being down for maintenance. Maintenance expense was higher due to increased
maintenance performed at power plants.
Total operating expenses increased less than one percent for the twelve
months ended June 30, 1994. Contributing to this increase were higher fuel
costs, increased income tax expense and a higher unit cost of natural gas
which is passed on to customers through the PGA.
Fuel costs were higher for the twelve months ended June 30, 1994 compared
to 1993 as a result of increased electric generation to meet increased sales
and the full availability of Wolf Creek during this period. Income tax
expense increased as a result of higher net income and the completion of the
accelerated amortization of income tax reserves discussed previously.
Partially offsetting these increases for the twelve months ended were
lower natural gas purchases as a result of the sale of the Missouri Properties
(see Note 2) and lower natural gas sales for space heating as a result of the
milder temperatures during the 1994 heating season.
Other Income and Deductions. Other income and deductions, net of taxes,
was significantly lower for the quarter ended June 30, 1994 compared to 1993
as a result of increased interest expense on COLI borrowings.
Other income and deductions, net of taxes, was higher for the six and
twelve months ended June 30, 1994 compared to 1993 due to the recognizing of
the gain on the sale of the Missouri Properties of approximately $19.3
million, net of tax, (see Note 2). Partially offsetting these increases was
increased interest expense on COLI borrowings.
Interest Charges and Preferred and Preference Dividend Requirements.
Total interest charges decreased for the three, six, and twelve months ended
June 30, 1994 from the comparable periods in 1993, as a result of lower debt
balances and the refinancing of higher cost debt, as well as increased COLI
borrowings which interest is reflected in Other Income and Deductions on the
consolidated income statement.
WESTERN RESOURCES, INC.
Part II Other Information
Item 5. Other Information
On June 28, 1994, the Company announced a preliminary agreement with
Enron Gas Services Group (EGS) of Houston, Texas, to form an entity to develop
a natural gas market center for the mid-continent region of the U.S. The
market center will use the Company's existing intrastate pipeline facilities
to move natural gas between interstate pipelines to create a natural gas
marketplace with multiple supply sources and market outlets.
It is anticipated that the Company will be responsible for field
operations and gas control functions, while EGS will be responsible for
commercial operation. The companies also plan to enhance market center
service by offering various storage service from the Company's storage
facilities. The project will mean the addition of some facilities to the
natural gas transmission system. The center will not have separate staffing
and each company will perform its responsibilities within its current
corporate structure. The project investment will be shared by EGS and the
Company with costs being recovered through fees received from users. Retail
customers of the Company will not be charged any of these costs.
The Company and EGS are currently negotiating a definitive agreement.
The transaction is subject to various regulatory approvals.
For additional information see Item 1. BUSINESS, Natural Gas Operations,
included in the Company's 1993 Annual Report on Form 10-K.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3 - Amendments to the Restated Articles of Incorporation
of the Company (filed electronically)
Exhibit 10 - A Rail Transportation Agreement among Burlington
Northern Railroad Company, The Union Pacific Railroad
Company and the Company (filed electronically)
Exhibit 99 - Kansas Gas and Electric Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994 (filed
electronically)
(b) Reports on Form 8-K:
None
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 11, 1994 By S. L. Kitchen
S. L. Kitchen, Executive Vice President
and Chief Financial Officer
Date August 11, 1994 By Jerry D. Courington
Jerry D. Courington,
Controller