SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 May 8, 1995
Common Stock, $5.00 par value 61,887,278
<page 2>
WESTERN RESOURCES, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4 - 5
Consolidated Statements of Cash Flows 6 - 7
Consolidated Statements of Capitalization 8
Consolidated Statements of Common Stock Equity 9
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Part II. Other Information
Item 4. Submission of Matters to a Vote to Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
<page 3>
WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
1995 1994
(Unaudited)
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . $5,261,016 $5,226,175
Natural gas plant in service. . . . . . . . . . . . . . 750,950 737,191
---------- ----------
6,011,966 5,963,366
Less - Accumulated depreciation . . . . . . . . . . . . 1,828,447 1,790,266
---------- ----------
4,183,519 4,173,100
Construction work in progress . . . . . . . . . . . . . 80,274 85,290
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 42,263 39,890
---------- ----------
Net utility plant. . . . . . . . . . . . . . . . . . 4,306,056 4,298,280
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . . . . . . . . 73,238 74,017
Decommissioning trust . . . . . . . . . . . . . . . . . 17,827 16,944
Other . . . . . . . . . . . . . . . . . . . . . . . . . 10,965 13,556
---------- ----------
102,030 104,517
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . 3,116 2,715
Accounts receivable and unbilled revenues (net) . . . . 214,863 219,760
Fossil fuel, at average cost. . . . . . . . . . . . . . 41,646 38,762
Gas stored underground, at average cost . . . . . . . . 24,519 45,222
Materials and supplies, at average cost . . . . . . . . 55,834 56,145
Prepayments and other current assets. . . . . . . . . . 41,727 27,932
---------- ----------
381,705 390,536
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . . 101,886 101,886
Deferred coal contract settlement costs . . . . . . . . 32,025 33,606
Phase-in revenues . . . . . . . . . . . . . . . . . . . 57,020 61,406
Corporate-owned life insurance (net). . . . . . . . . . 46,497 16,967
Other deferred plant costs. . . . . . . . . . . . . . . 31,723 31,784
Unamortized debt expense. . . . . . . . . . . . . . . . 56,971 58,237
Other . . . . . . . . . . . . . . . . . . . . . . . . . 80,715 92,399
---------- ----------
406,837 396,285
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $5,196,628 $5,189,618
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . . $3,017,600 $3,006,341
---------- ----------
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . 280,063 308,200
Long-term debt due within one year. . . . . . . . . . . - 80
Accounts payable. . . . . . . . . . . . . . . . . . . . 96,183 130,616
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 147,288 86,966
Accrued interest and dividends. . . . . . . . . . . . . 59,491 61,069
Other . . . . . . . . . . . . . . . . . . . . . . . . . 63,917 69,025
---------- ----------
646,942 655,956
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . 962,917 971,014
Deferred investment tax credits . . . . . . . . . . . . 137,345 137,651
Deferred gain from sale-leaseback . . . . . . . . . . . 249,931 252,341
Other . . . . . . . . . . . . . . . . . . . . . . . . . 181,893 166,315
---------- ----------
1,532,086 1,527,321
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 5)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $5,196,628 $5,189,618
========== ==========
The Notes to Consolidated Financial Statements are an integral part of these statements.
<page 4>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
1995 1994(1)
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 253,258 $ 251,497
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 164,288 286,875
---------- ----------
Total operating revenues. . . . . . . . . . . . . . . . 417,546 538,372
---------- ----------
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 46,931 52,640
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 4,688 3,863
Power purchased . . . . . . . . . . . . . . . . . . . . . 3,549 2,351
Natural gas purchases . . . . . . . . . . . . . . . . . . 101,738 198,652
Other operations. . . . . . . . . . . . . . . . . . . . . 75,820 77,563
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 26,842 26,497
Depreciation and amortization . . . . . . . . . . . . . . 38,397 39,308
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 17,494 22,092
State income. . . . . . . . . . . . . . . . . . . . . . 4,657 5,222
General . . . . . . . . . . . . . . . . . . . . . . . . 24,527 32,016
---------- ----------
Total operating expenses. . . . . . . . . . . . . . . 349,029 464,590
---------- ----------
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 68,517 73,782
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (1,716) (1,235)
Gain on sale of Missouri Properties (see Note 2). . . . . - 30,701
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 3,662 2,367
Income taxes (net). . . . . . . . . . . . . . . . . . . . 1,182 (8,945)
---------- ----------
Total other income and deductions . . . . . . . . . . 3,128 22,888
---------- ----------
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 71,645 96,670
---------- ----------
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 23,846 26,691
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 7,087 4,515
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (863) (669)
---------- ----------
Total interest charges. . . . . . . . . . . . . . . . 30,070 30,537
---------- ----------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 41,575 66,133
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 3,355 3,354
---------- ----------
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 38,220 $ 62,779
========== ==========
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,746,996 61,617,873
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ .62 $ 1.02
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ .505 $ .495
(1) Information reflects the sales of the Missouri Properties (Note 2).
The Notes to Consolidated Financial Statements are an integral part of these statements.
<page 5>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
March 31,
1995 1994(1)
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $1,123,542 $1,104,763
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 373,575 763,387
---------- ----------
Total operating revenues. . . . . . . . . . . . . . . . 1,497,117 1,868,150
---------- ----------
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 215,057 231,291
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 14,387 14,431
Power purchased . . . . . . . . . . . . . . . . . . . . . 16,636 14,149
Natural gas purchases . . . . . . . . . . . . . . . . . . 215,662 489,235
Other operations. . . . . . . . . . . . . . . . . . . . . 301,648 341,328
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 113,531 117,415
Depreciation and amortization . . . . . . . . . . . . . . 150,719 162,762
Amortization of phase-in revenues . . . . . . . . . . . . 17,544 17,545
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 71,879 64,668
State income. . . . . . . . . . . . . . . . . . . . . . 18,580 16,330
General . . . . . . . . . . . . . . . . . . . . . . . . 97,193 119,101
---------- ----------
Total operating expenses. . . . . . . . . . . . . . . 1,232,836 1,588,255
---------- ----------
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 264,281 279,895
---------- ----------
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (5,835) 5,137
Gain on sale of Missouri Properties (see Note 2). . . . . - 30,701
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 14,133 15,082
Income taxes (net). . . . . . . . . . . . . . . . . . . . 5,798 (8,456)
---------- ----------
Total other income and deductions . . . . . . . . . . 14,096 42,464
---------- ----------
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 278,377 322,359
---------- ----------
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 95,638 117,154
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 22,711 19,037
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (2,861) (2,521)
---------- ----------
Total interest charges. . . . . . . . . . . . . . . . 115,488 133,670
---------- ----------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 162,889 188,689
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 13,419 13,514
---------- ----------
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 149,470 $ 175,175
========== ==========
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,649,712 60,174,937
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 2.42 $ 2.91
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 1.99 $ 1.95
(1) Information reflects the sales of the Missouri Properties (Note 2).
The Notes to Consolidated Financial Statements are an integral part of these statements.
<page 6>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
1995 1994(1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 41,575 $ 66,133
Depreciation and amortization . . . . . . . . . . . . . . 38,397 39,308
Other amortization (including nuclear fuel) . . . . . . . 3,534 2,806
Gain on sales of utility plant (net of tax) . . . . . . . (940) (19,296)
Deferred taxes and investment tax credits (net) . . . . . (9,489) (62,412)
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Corporate-owned life insurance. . . . . . . . . . . . . . (4,976) (4,519)
Amortization of gain from sale-leaseback. . . . . . . . . (2,410) (2,410)
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . 4,897 (57,247)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . (2,884) (5,466)
Gas stored underground. . . . . . . . . . . . . . . . . 20,703 29,705
Accounts payable . . . . . . . . . . . . . . . . . . . (34,433) (41,438)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 59,701 122,167
Other . . . . . . . . . . . . . . . . . . . . . . . . . 7,961 (7,218)
Changes in other assets and liabilities . . . . . . . . . 10,205 111,629
----------- ----------
Net cash flows from operating activities. . . . . . . 136,227 176,128
----------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . 51,171 44,506
Sales of utility plant. . . . . . . . . . . . . . . . . . (1,583) (402,076)
Non-utility investments (net) . . . . . . . . . . . . . . 2,651 668
Corporate-owned life insurance policies . . . . . . . . . 28,352 281
----------- ----------
Net cash flows (from) used in investing activities. . 80,591 (356,621)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . (28,137) (320,480)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . - 113,982
Bonds retired . . . . . . . . . . . . . . . . . . . . . . (105) (101,466)
Revolving credit agreements (net) . . . . . . . . . . . . - (115,000)
Other long-term debt (net). . . . . . . . . . . . . . . . - (67,893)
Borrowings against life insurance policies (net). . . . . 2,674 645
Common stock issued . . . . . . . . . . . . . . . . . . . 4,188 -
Dividends on preferred, preference and common stock . . . (33,855) (33,239)
----------- ----------
Net cash flows (used in) from financing activities. . (55,235) (523,451)
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . 401 9,298
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 2,715 1,217
----------- ----------
End of the period . . . . . . . . . . . . . . . . . . . . $ 3,116 $ 10,515
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 33,396 $ 31,979
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 130 -
(1) Information reflects the sales of the Missouri Properties (Note 2).
The Notes to Consolidated Financial Statements are an integral part of these statements.
<page 7>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
March 31,
1995 1994(1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 162,889 $ 188,689
Depreciation and amortization . . . . . . . . . . . . . . . 150,719 162,762
Other amortization (including nuclear fuel) . . . . . . . . 11,633 12,184
Gain on sales of utility plant (net of tax) . . . . . . . . (940) (19,296)
Deferred taxes and investment tax credits (net) . . . . . . 36,368 (42,798)
Amortization of phase-in revenues . . . . . . . . . . . . . 17,544 17,545
Corporate-owned life insurance. . . . . . . . . . . . . . . (17,703) (22,015)
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) . . . . . (13,486) (46,338)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (5,246) 2,087
Gas stored underground. . . . . . . . . . . . . . . . . . (14,405) (10,113)
Accounts payable. . . . . . . . . . . . . . . . . . . . . (34,677) (30,726)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . (41,710) 87,961
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 27,992 2,773
Changes in other assets and liabilities . . . . . . . . . . (40,460) 112,956
---------- ----------
Net cash flows from operating activities . . . . . . . 228,878 406,031
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 244,361 240,070
Utility investment. . . . . . . . . . . . . . . . . . . . . - 2,500
Sales of utility plant. . . . . . . . . . . . . . . . . . . (1,583) (402,076)
Non-utility investments (net) . . . . . . . . . . . . . . . 11,024 7,419
Corporate-owned life insurance policies . . . . . . . . . . 54,489 27,119
Death proceeds of corporate-owned life insurance policies . - (10,157)
---------- ----------
Net cash flows (from) used in investing activities. . . 308,291 (135,125)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . 159,648 (205,285)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 121,941 278,982
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (122,545) (409,432)
Revolving credit agreement (net). . . . . . . . . . . . . . - (360,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . - (13,980)
Borrowings against life insurance policies (net). . . . . . 44,204 183,284
Common stock issued (net) . . . . . . . . . . . . . . . . . 4,188 125,991
Preference stock redeemed . . . . . . . . . . . . . . . . . - (2,734)
Dividends on preferred, preference and common stock . . . . (135,422) (129,574)
---------- ----------
Net cash flows (used in) from financing activities. . . 72,014 (532,748)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (7,399) 8,408
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . . 10,515 2,107
---------- ----------
End of the period . . . . . . . . . . . . . . . . . . . . . $ 3,116 $ 10,515
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . . $ 136,202 $ 162,744
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 90,359 49,108
(1) Information reflects the sales of the Missouri Properties (Note 2).
The Notes to Consolidated Financial Statements are an integral part of these statements.
<page 8>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Dollars in Thousands)
March 31, December 31,
1995 1994
(Unaudited)
COMMON STOCK EQUITY (see statement):
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
61,760,853 and 61,617,873 shares, respectively . $ 308,804 $ 308,089
Paid-in capital. . . . . . . . . . . . . . . . . . 671,465 667,992
Retained earnings. . . . . . . . . . . . . . . . . 505,404 498,374
---------- ----------
1,485,673 49% 1,474,455 49%
---------- ----------
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 . . . . . . . . . . . . . . . 841,000 841,000
Pollution control bonds. . . . . . . . . . . . . . 521,817 521,922
Less:
Unamortized premium and discount (net) . . . . . 5,748 5,814
Long-term debt due within one year . . . . . . . - 80
---------- ----------
1,357,069 45% 1,357,028 45%
---------- ----------
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . $3,017,600 100% $3,006,341 100%
========== ==========
The Notes to Consolidated Financial Statements are an integral part of these statements.
<page 9>
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
(Dollars in Thousands)
(Unaudited)
Common Paid-in Retained
Stock Capital Earnings
BALANCE DECEMBER 31, 1993, 61,617,873 shares . . . . $308,089 $667,738 $446,348
Net income. . . . . . . . . . . . . . . . . . . . . . 66,133
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (3,354)
Common stock, $0.495 per share. . . . . . . . . . . (30,500)
Expenses on common stock. . . . . . . . . . . . . . . (224)
-------- -------- --------
BALANCE MARCH 31, 1994, 61,617,873 shares . . . . . . 308,089 667,514 478,627
Net income. . . . . . . . . . . . . . . . . . . . . . 121,314
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (10,064)
Common stock, $1.485 per share. . . . . . . . . . . (91,503)
Expenses on common stock. . . . . . . . . . . . . . . (4)
Distribution of common stock under the Customer
Stock Purchase Plan . . . . . . . . . . . . . . . . 482
-------- -------- --------
BALANCE DECEMBER 31, 1994, 61,617,873 shares. . . . . 308,089 667,992 498,374
Net income. . . . . . . . . . . . . . . . . . . . . . 41,575
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (3,355)
Common stock, $0.505 per share. . . . . . . . . . . (31,190)
Issuance of 142,980 shares of common stock. . . . . . 715 3,473
-------- -------- --------
BALANCE MARCH 31, 1995, 61,760,853 shares . . . . . . $308,804 $671,465 $505,404
======== ======== ========
The Notes to Consolidated Financial Statements are an integral part of these statements.
<page 10>
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.
(Astra Resources), Kansas Gas and Electric Company (KG&E), KPL Funding
Corporation (KFC), and Mid Continent Market Center Inc. (MCMC). 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 operations of Astra Resources, KFC, and MCMC were not
material to the Company's results of operations. The Company is conducting
its utility business as KPL, Gas Service, and through its wholly-owned
subsidiary, KG&E. The Company is conducting its non-utility business through
Astra Resources.
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 March 31, 1995 and December 31, 1994, and the
results of its operations for the three and twelve month periods ended March
31, 1995 and 1994. These condensed consolidated financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the Company's 1994 Annual Report on Form 10-K and the KG&E Annual
Report on Form 10-K incorporated by reference in the Company's 1994 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), Oklahoma Corporation Commission, 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 consolidated balance
sheets:
March 31, December 31,
1995 1994
(Dollars in Millions)
Cash surrender value of contracts $441.1 $408.9
Borrowings against contracts (394.6) (391.9)
COLI (net) $ 46.5 $ 17.0
The COLI borrowings will be repaid upon receipt of proceeds from death
benefits under contracts. Increases in the cash surrender value of contracts,
resulting from premiums and investment earnings, are recognized as income on a
tax free basis in Corporate-owned Life Insurance (net) on the Consolidated
<page 11>
Statements of Income. For the three and twelve months ended March 31, 1995,
income from increases in cash surrender value, net of premium and
administrative expenses, and income from death proceeds was $3.9 million and
$16.1 million, respectively, compared to $3.5 million and $19.9 million for
the three and twelve months ended March 31, 1994, respectively. Interest
expense on COLI borrowings is recorded as a tax deductible expense in
Corporate-owned Life Insurance (net) on the Consolidated Statements of Income.
For the three and twelve months ended March 31, 1995, interest expense on COLI
borrowings was $5.6 million and $21.9 million, respectively, compared to $4.7
million and $14.8 million for the three and twelve months ended March 31,
1994, respectively.
As approved by the KCC, the Company is using a portion of the net income
stream generated by COLI policies purchased in 1993 and 1992 by the Company to
offset Statement of Financial Accounting Standards No. 106 (SFAS 106) and
Statement of Financial Accounting Standards No. 112 (SFAS 112) expenses.
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.
2. SALES 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. The sale agreement
provided for estimated amounts in the sale price calculation to be adjusted to
actual. Southern Union proposed a number of adjustments to the purchase
price, some of which the Company disputed. The disputed items were submitted
to an arbitrator in February 1995. Based on the decision of the arbitrator
rendered in April 1995, Southern Union paid the Company $3.6 million,
including interest, for the disputed items. For information regarding
litigation in connection with the sale of the Missouri Properties to Southern
Union, see Note 3.
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. As of the respective dates of the sales of the Missouri
Properties, 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 three and twelve months ended March 31, 1994 Consolidated
Statements of Income.
<page 12>
The Company's operating revenues and operating income for the three and
twelve months ended March 31, 1995, do not include any results related to the
Missouri Properties.
The following table reflects the approximate operating revenues
(unaudited) and operating income (unaudited) related to the Missouri
Properties for the three and twelve months ended March 31, 1994, through the
sale to Southern Union on January 31, 1994 and United Cities on February 28,
1994:
March 31, 1994
3 months ended 12 months ended
(Dollars in Thousands)
Operating Revenues. . . . . . . . $77,008 $284,813
Percent of Total Company. . . . 14.3% 15.2%
Operating Income. . . . . . . . . $4,997 $14,426
Percent of Total Company. . . . 6.8% 5.2%
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. LEGAL PROCEEDINGS
On June 1, 1994, Southern Union filed an action against the Company, The
Bishop Group, Ltd., and other entities affiliated with The Bishop Group, in
the Federal District Court for the Western District of Missouri (the Court)
(Southern Union Company v. Western Resources, Inc. et al., Case No. 94-509-CV-
W-1) alleging, among other things, breach of the Missouri Properties sale
agreement relating to certain gas supply contracts between the Company and
various Bishop entities that Southern Union assumed, and requesting
unspecified monetary damages as well as declaratory relief. On August 1,
1994, the Company filed its answer and counterclaim denying all claims
asserted against it by Southern Union and requesting declaratory judgment with
respect to certain adjustments in the purchase price for the Missouri
Properties proposed by Southern Union and disputed by the Company. On August
24, 1994, Southern Union filed claims against the Company for alleged purchase
price adjustments totalling $19 million. The Company subsequently agreed that
approximately $4 million of the purchase price adjustments were subject to
arbitration. On January 18, 1995, the Court held the remaining $15 million of
proposed adjustments to the purchase price were subject to arbitration under
the sale agreement. The disputed items were submitted to an arbitrator in
February 1995. Based on the decision of the arbitrator rendered in April
1995, Southern Union paid the Company $3.6 million including interest, for the
disputed items. For additional information regarding the sales of the
Missouri Properties, see Note 2.
On August 15, 1994, the Bishop entities filed an answer and claims
against Southern Union and the Company alleging, among other things, breach of
those certain gas supply contracts. The Bishop entities claimed damages up to
$270 million against the Company and Southern Union. In March, 1995 this
litigation between the Company and the Bishop entities was settled with the
realignment of the commercial relationship between the parties. The
resolution of this matter is not expected to have a material adverse impact on
the Company.
<page 13>
The Company received a civil investigative demand from the U.S.
Department of Justice seeking certain information in connection with the
department's investigation "to determine whether there is, has been, or may be
a violation of the Sherman Act Sec. 1-2" with respect to the natural gas
business in Kansas and Missouri. The Company is cooperating with the
Department of Justice, but is not aware of any violation of the antitrust laws
in connection with its business operations.
The Company and its subsidiaries are involved in various other legal and
environmental proceedings. Management believes that adequate provision has
been made within the Consolidated Financial Statements for these other matters
and accordingly believes their ultimate dispositions will not have a material
adverse effect upon the business, financial position, or results of operations
of the Company.
4. RATE MATTERS AND REGULATION
KCC Rate Proceedings: On January 24, 1992, the KCC issued an order
allowing the Company to defer 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 March 31, 1995,
approximately $8.7 million of these deferrals have been included in Deferred
Charges and Other Assets, Other, on the Consolidated Balance Sheet.
5. 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 $77 million at December 31, 1994. Approximately $32
million was attributable to modifications to upgrade the three turbines at
Jeffrey Energy Center to be completed by December 31, 1998.
In January 1994, the Company entered into an agreement with Oklahoma
Municipal Power Authority (OMPA). Under the agreement, the Company received a
prepayment of approximately $41 million for which the Company will provide
capacity and transmission services to OMPA through the year 2013.
Manufactured Gas Sites: The Company was previously associated with 20
former manufactured gas sites located in Kansas which may contain coal tar and
other potentially harmful materials. These sites were operated decades ago by
predecessor companies, and were owned by the Company for a period of time
after operations had ceased. The Company and the Kansas Department of Health
and Environment (KDHE) conducted preliminary assessments of the sites at a
cost of approximately $500,000. The results of the preliminary investigations
determined the Company does not have a connection to four of the sites. Of
the remaining 16 sites, the site investigation and risk assessment field work
of the highest priority site was completed in 1994 at a total cost of
approximately $450,000. The Company has not received the final report so as
to determine the extent of contamination and the amount of any possible
remediation.
<page 14>
The Company and KDHE entered into a consent agreement governing all
future work at these sites. The terms of the consent agreement will allow the
Company to investigate the 16 sites and set remediation priorities based upon
the results of the investigations and risk analysis. The prioritized sites
will be investigated over a 10 year period. The agreement will allow the
Company to set mutual objectives with the KDHE in order to expedite effective
response activities and to control costs and environmental impact. The
Company is aware of other utilities in Region VII of the EPA (Kansas,
Missouri, Nebraska, and Iowa) which have incurred remediation costs for
manufactured gas sites ranging between $500,000 and $10 million, depending on
the site, and that the KCC has issued an accounting order which will permit
another Kansas utility to recover its 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 required and number of years over which
the remediation must be completed.
Superfund Sites: The Company is one of numerous potentially responsible
parties at a groundwater contamination site in Wichita, Kansas (Wichita site)
which is listed by the EPA as a Superfund site. The Company has previously
been associated with other Superfund sites of which the Company's liability
has been classified as de minimis and any potential obligations have been
settled at minimal cost. The Company's obligation at the Wichita site appears
to be limited based on the Company's experience at similar sites given its
limited exposure and settlement costs. In the opinion of the Company's
management, the resolution of this matter will not have a material impact on
the Company's financial position or 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 installed continuous monitoring and reporting equipment at a total
cost of approximately $10 million. The Company does not expect additional
equipment to reduce sulfur emissions to be necessary under Phase II. Although
the Company has no units subject to Phase I regulations, the owners obtained
an early substitution permit to bring the co-owned La Cygne Station under the
Phase I regulations.
The NOx and air toxic limits, which were not set in the law, will be
specified in future EPA regulations. The EPA's proposed NOx regulations were
ruled invalid by the U.S. Court of Appeals for the District of Columbia
Circuit and until such time as the EPA resubmits new proposed regulations, the
Company will be unable to determine its compliance options or related
compliance costs.
Other Environmental Matters: 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 related to the Missouri
Properties purchased by Southern Union 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.
<page 15>
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 on 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 DOE has filed a motion to
have this case dismissed. The issue to be decided in this case is whether DOE
must begin accepting spent fuel in 1998 or at a future date. Wolf Creek
contains an on-site spent fuel storage facility which, under current
regulatory guidelines, provides space for the storage of spent fuel through
the year 2006 while still maintaining full core off-load capability. The
Company believes adequate additional storage space can be obtained as
necessary.
Decommissioning: On June 9, 1994, the KCC issued an order approving the
decommissioning costs of the 1993 Wolf Creek Decommissioning Cost Study which
estimates the Company's share of Wolf Creek decommissioning costs, under the
immediate dismantlement method, to be approximately $595 million primarily
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.
Decommissioning costs are being charged to operating expenses in
accordance with the KCC order. Electric rates charged to customers provide
for recovery of these decommissioning costs over the life of Wolf Creek.
Amounts so expensed ($3.5 million in 1994 increasing annually to $5.5 million
in 2024) and earnings on trust fund assets are deposited in an external trust
fund. The assumed return on trust assets is 5.9%.
The Company's investment in the decommissioning fund, including
reinvested earnings was $17.8 million and $16.9 million at March 31, 1995 and
December 31, 1994, respectively. These amounts are reflected in
Decommissioning Trust, and the related liability is included in Deferred
Credits and Other Liabilities, Other, on the Consolidated Balance Sheets.
The Company carries $118 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 $8.9 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
<page 16>
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 major nuclear
incident involving any of the nation's licensed reactors. This assessment is
subject to an inflation adjustment based on the Consumer Price Index and
applicable premium taxes. There is a limitation of $10 million ($4.7 million,
Company's share) in retrospective assessments per incident, per year.
The Owners carry decontamination liability, premature decommissioning
liability, and property damage insurance for Wolf Creek totalling
approximately $2.8 billion ($1.3 billion, Company's share). This insurance is
provided by a combination of "nuclear insurance pools" ($500 million) and
Nuclear Electric Insurance Limited (NEIL) ($2.3 billion). In the event of an
accident, insurance proceeds must first be used for reactor stabilization and
site decontamination. The Company's share of any remaining proceeds can be
used for property damage up to $1.2 billion (Company's share) and premature
decommissioning costs up to $118 million (Company's share) in excess of funds
previously collected for decommissioning (as discussed under
"Decommissioning").
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 $13 million per year.
Although the Company maintains various insurance policies to provide
coverage for potential losses and liabilities resulting from an accident or an
extended outage, the Company's insurance coverage may not be adequate to cover
the costs that could result from a catastrophic accident or extended outage at
Wolf Creek. Any substantial losses not covered by insurance, to the extent
not recoverable through rates, would have a material adverse effect on the
Company's financial position and results of operations.
Federal Income Taxes: During 1991, the Internal Revenue Service (IRS)
completed an examination of KG&E's federal income tax returns for the years
1984 through 1988. In October 1993, KG&E received another examination report
for the years 1989 and 1990 covering the same issues identified in the
previous examination report. In April 1995, after approximately four years of
negotiations with the Appeals Office of the IRS, KG&E reached agreement on the
ultimate disposition of the issues raised in the examination reports. Based
on the settlement agreement, management believes that adequate tax reserves
have been provided and the settlement will have no effect on the Company's
financial position or results of operations.
Fuel Commitments: To supply a portion of the fuel requirements for its
generating plants, the Company has entered into various commitments to obtain
nuclear fuel, coal, and natural gas. Some of these contracts contain
provisions for price escalation and minimum purchase commitments. At December
31, 1994, WCNOC's nuclear fuel commitments (Company's share) were
approximately $12.6 million for uranium concentrates expiring at various times
through 1997, $122.9 million for enrichment expiring at various times through
2014, and $56.5 million for fabrication through 2012. At December 31, 1994,
the Company's coal and natural gas contract commitments in 1994 dollars under
<page 17>
the remaining terms of the contracts were approximately $3 billion and $9
million, respectively. The largest coal contract expires in 2020, with the
remaining coal contracts expiring at various times through 2013. The majority
of natural gas contracts expire in 1995 but have 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.
Energy Act: As part of the 1992 Energy Policy Act, a special assessment
is being collected from utilities for a uranium enrichment, decontamination,
and decommissioning fund. The Company's portion of the assessment for Wolf
Creek is approximately $7 million, payable over 15 years. Management expects
such costs to be recovered through the ratemaking process.
6. INCOME TAXES
Total income tax expense included in the Consolidated Statements of
Income reflects the Federal statutory rate of 35%. The Federal statutory rate
produces effective income tax rates of 33.8% and 35.6% for the three month
periods and 34.7% for the twelve month periods ended March 31, 1995 and 1994,
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.
<page 18>
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 1994 Annual Report on Form 10-K. The
following updates the information provided in the 1994 Annual Report on Form
10-K and analyzes the changes in the results of operations between the three
and twelve month periods ended March 31, 1995 and comparable periods of 1994.
As a result of the sales of the Missouri Properties, as described in
Note 2, Sales of Missouri Natural Gas Distribution Properties, of the Notes to
Consolidated Financial Statements, 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 operating revenues and operating income for the
three and twelve months ended March 31, 1995, do not include any results
related to the Missouri Properties and are not fully comparable to the results
of operations for the same periods ending March 31, 1994.
The following table reflects the approximate operating revenues
(unaudited) and operating income (unaudited) related to the Missouri
Properties for the three and twelve months ended March 31, 1994, through the
sale to Southern Union on January 31, 1994 and United Cities on February 28,
1994:
March 31, 1994
3 months ended 12 months ended
(Dollars in Thousands)
Operating Revenues. . . . . . . . $77,008 $284,813
Percent of Total Company. . . . 14.3% 15.2%
Operating Income. . . . . . . . . $4,997 $14,426
Percent of Total Company. . . . 6.8% 5.2%
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.
For additional information regarding the sales of the Missouri Properties
and the pending litigation see Note 2 and Note 3 of the Notes to Consolidated
Financial Statements.
<page 19>
FINANCIAL CONDITION
General: Net income for the first quarter of 1995 was $42 million, down
from net income of $66 million for the same period of 1994. The Company
earned $0.62 per share of common stock for the first quarter of 1995, a
decrease of $0.40 per share from the first quarter of 1994. The decrease in
net income and earnings per share is primarily due to the inclusion, in the
first quarter of 1994, of the gain on the sales of, and operating income from,
the Missouri Properties prior to the sales in the first quarter of 1994.
Operating revenues were $418 million and $538 million for the three
months ended March 31, 1995 and 1994, respectively. The decrease in revenues
is caused by lower natural gas revenues as a result of the sales of the
Missouri Properties, mild winter temperatures, resulting in lower natural gas
sales in the first quarter of 1995 compared to 1994, and a lower unit cost of
natural gas. Changes in the unit cost of natural gas are passed on to
customers through purchased gas adjustment clauses (PGA).
Net income for the twelve months ended March 31, 1995, was $163 million
compared to $189 million the same period of 1994. The Company earned $2.42
per share of common stock for the twelve months ended March 31, 1995, a
decrease of $0.49 per share from the comparable period of 1994. The decrease
in net income and earnings per share is primarily due to the inclusion of the
gain on the sales of, and operating income from, the Missouri Properties prior
to the sales in the first quarter of 1994.
Operating revenues were $1.5 billion for the twelve months ended March
31, 1995 compared to $1.9 billion for the same period of 1994. The decrease
in revenues is a result of the sales of the Missouri Properties, mild winter
temperatures in the first quarter of 1995 compared to 1994, and a lower unit
cost of natural gas passed on to customers through the PGA.
A quarterly dividend of $0.505 per share was declared in the first
quarter of 1995, for an indicated annual rate of $2.02 per share. The book
value per share was $24.06 at March 31, 1995, up from $23.93 at December 31,
1994. There were 61,746,996 and 61,617,873 average shares outstanding for
the first quarter of 1995 and 1994, respectively.
Liquidity and Capital Resources: The Company's short-term financing
requirements are satisfied, as needed, through the sale of commercial paper,
short-term bank loans and borrowings under unsecured lines of credit
maintained with banks. At March 31, 1995, short-term borrowings amounted to
$280 million, of which $151 million was commercial paper.
RESULTS OF OPERATIONS
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.
<page 20>
The following table reflects changes in electric sales for the three and
twelve months ended March 31, 1995 from the comparable periods of 1994.
Increase (decrease) in electric sales volumes:
3 Months 12 Months
ended ended
Residential (2.2)% 2.2%
Commercial 2.1% 4.2%
Industrial 6.5% 4.3%
Total retail sales 2.3% 3.6%
Wholesale and interchange (22.3)% (24.8)%
Total electric sales (3.8)% (3.2)%
Electric revenues increased less than one percent for the three months
ended March 31, 1995 compared to 1994. The slight increase was due to
increased commercial and industrial sales. Partially offsetting these
increases were lower residential and wholesale and interchange sales.
Residential sales were down because of milder temperatures during the first
quarter of 1995, which was seven percent warmer than the first quarter of
1994. Wholesale and interchange sales were lower because of the mild weather
and decreased demand from other utilities. Also offsetting the increase from
commercial and industrial sales was an additional $1.6 million of amortization
of the final merger refund for the three months ended March 31, 1995 compared
to 1994.
Electric revenues increased nearly two percent for the twelve months
ended March 31, 1995, primarily as a result of increased retail sales
resulting from customer growth. Partially offsetting higher electric revenue
from increased retail sales were lower wholesale and interchange sales, and an
additional $4.8 million of amortization of the merger refund for the twelve
months ended March 31, 1995 compared to 1994. The decrease in wholesale and
interchange sales was primarily due to higher sales during the twelve months
ended March 31, 1994 to other utilities while their generating units were down
due to the 1993 floods.
The following table reflects changes in natural gas sales for the three
and twelve months ended March 31, 1995 from the comparable periods of 1994.
Increase (decrease) in natural gas sales volumes:
Excluding Including
Missouri Operations Missouri Operations
3 Months 12 Months 3 Months 12 Months
ended ended ended ended
Residential (7.1)% (13.1)% (30.9)% (44.7)%
Commercial (9.3)% (12.5)% (36.2)% (48.3)%
Industrial (28.0)% (44.3)% (36.2)% (53.8)%
Transportation 1.0 % 8.8 % (20.2)% (30.3)%
Total Deliveries 0.1 % (3.6)% (25.4)% (39.3)%
Natural gas revenues and sales decreased significantly for the three and
twelve months ended March 31, 1995 compared to the same periods of 1994 as a
result of the sales of the Missouri Properties in the first quarter of 1994.
<page 21>
Excluding natural gas sales related to the Missouri Properties, prior to
the sales of those properties in the first quarter of 1994, natural gas
revenues would have also been lower for the three and twelve months ended
March 31, 1995. This decrease was a result of seven percent warmer winter
temperatures in the first quarter of 1995 compared to 1994, and a lower unit
cost of natural gas which is passed on to customers through the PGA. The unit
cost of natural gas sold during the three and twelve months ended March 31,
1995 was significantly lower than the same periods of 1994.
Operating Expenses: Total operating expenses decreased 25 percent and 22
percent for the three and twelve months ended March 31, 1995 compared to the
same periods of 1994. These decreases were primarily the result of the sales
of the Missouri Properties.
Also contributing to the decreased operating expenses for the three and
twelve months ended was lower fossil fuel expense, resulting from decreased
electric generation, and decreased natural gas purchases, resulting from a
lower unit cost of natural gas. As discussed previously, the decreased
generation was primarily due to lower sales to wholesale and interchange
customers.
Income tax expense was higher for the twelve months ended March 31, 1995.
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 $9 million for the twelve months ended March 31, 1995
compared to 1994.
Other Income and Deductions: Other income and deductions, net of taxes,
was significantly lower for the three and twelve months ended March 31, 1995
compared to 1994 due to the recognition of the gain on the sales of the
Missouri Properties, of approximately $19.3 million, net of tax, during the
first quarter of 1994.
Also contributing to the decrease in Other Income for the twelve months
ended was additional interest expense on increased COLI borrowings.
Interest Charges and Preferred and Preference Dividend Requirements:
Total interest charges decreased two percent for the three months ended and 14
percent for the twelve months ended March 31, 1995 from the comparable periods
in 1994. The decrease was 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 Statements of
Income. Partially offsetting these decreases were higher interest rates on
short-term borrowings.
<page 22>
OTHER INFORMATION
Merger Implementation: In accordance with the KCC Merger order,
amortization of the acquisition adjustment will commence August 1995. The
amortization will amount to approximately $20 million (pre-tax) per year for
40 years. The Company can recover the amortization of the acquisition
adjustment through cost savings under a sharing mechanism approved by the KCC.
While the Company has achieved savings from the Merger, there is no assurance
that the savings achieved will be sufficient to, or the cost savings sharing
mechanism will operate as to, fully offset the amortization of the acquisition
adjustment.
Early Retirement: In April 1995, the Company announced a voluntary early
retirement program for employees 55 years of age and older with a minimum of
10 years of service as of July 1, 1995. Approximately 420 employees are
eligible for the voluntary retirement program. Although the Company is not
able to predict the cost of the early retirement program at this time, the
total cost, assuming all 420 eligible employees accept early retirement, would
be approximately $9 million in the second quarter of 1995 with cost savings
estimated to be approximately $12 million for 1995. The Company anticipates
approximately 50 percent of the eligible employees will accept early
retirement.
<page 23>
WESTERN RESOURCES, INC.
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of shareholders was held on May 2, 1995. At
the meeting the shareholders, representing 51,860,513 shares either in
person or by proxy, voted to:
Elect the following directors to serve a term of three years:
Votes
For Against
David H. Hughes 50,948,032 830,061
John H. Robinson 51,043,253 830,061
Susan M. Stanton 50,991,699 830,061
Kenneth J. Wagnon 51,138,548 830,061
Item 5. Other Information
Structural Realignment: In April 1995 the Company announced it was
creating generation, transmission, and retail marketing groups to support its
strategic goals in its regulated business and better serve its customers and
compete more effectively in the changing energy marketplace.
In addition, the Company is creating two new unregulated companies to
complement Astra Resources, the Company's unregulated natural gas operation.
Astra Power will be responsible for the Company's activities in the
unregulated electric business, including opportunities in energy marketing and
in the independent power production market. Astra Services will develop new
consumer products and services and will seek out investment opportunities that
capitalize on the Company's competitive strengths.
Rate Plans: In April 1995, the Company announced it intends to file a
proposal with the KCC in the summer of 1995 to increase the depreciation on
the assets of Wolf Creek Generating Station by $56 million annually for seven
years beginning in 1996. As a result, the Company will also seek to reduce
electric rates for KG&E customers by approximately $9 million annually for the
same seven year period. In addition, the Company also intends to file a $36
million rate increase request for its Kansas natural gas properties in the
summer of 1995. The increase is being sought to recover costs associated with
the service line replacement program as well as other operating costs.
<page 24>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10(a) - Western Resources, Inc. Executive Salary
Continuation Plan, as revised March 15, 1995
Exhibit 10(b) - Executive Salary Continuation Plan Agreement
between Western Resources, Inc. and
John E. Hayes, Jr.
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Kansas Gas and Electric Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995
(b) Reports on Form 8-K: None
<page 25>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Western Resources, Inc.
Date May 8, 1995 By S. L. KITCHEN
S. L. Kitchen, Executive Vice President
and Chief Financial Officer
Date May 8, 1995 By JERRY D. COURINGTON
Jerry D. Courington,
Controller