FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] 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 1-7324
KANSAS GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
KANSAS 48-1093840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 208
WICHITA, KANSAS 67201
(Address of Principal Executive Offices)
316/261-6611
(Registrant's telephone number, including area code)
Indicated 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 2, 1995
Common Stock (No par value) 1,000 Shares
Registrant meets the conditions of General Instruction H(1)(a) and (b) to Form
10-Q and is therefore filing this form with a reduced disclosure format.
<PAGE 2>
KANSAS GAS AND ELECTRIC COMPANY
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets 3
Statements of Income 4 - 6
Statements of Cash Flows 7 - 8
Statements of Capitalization 9
Statements of Common Stock Equity 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Part II. Other Information
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
<PAGE 3>
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1995 1994
(Unaudited)
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . . $3,417,291 $3,390,406
Less - Accumulated depreciation . . . . . . . . . . . . . 867,597 833,953
2,549,694 2,556,453
Construction work in progress . . . . . . . . . . . . . . 35,759 32,874
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . . 41,414 39,890
Net utility plant . . . . . . . . . . . . . . . . . . . 2,626,867 2,629,217
OTHER PROPERTY AND INVESTMENTS:
Decommissioning trust . . . . . . . . . . . . . . . . . . 19,381 16,944
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 7,592 11,561
26,973 28,505
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . 72 47
Accounts receivable and unbilled revenues (net) . . . . . 67,980 67,833
Advances to parent company . . . . . . . . . . . . . . . 91,904 64,393
Fossil fuel, at average cost. . . . . . . . . . . . . . . 16,609 13,752
Materials and supplies, at average cost . . . . . . . . . 30,903 30,921
Prepayments and other current assets. . . . . . . . . . . 31,168 16,662
238,636 193,608
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes . . . . . . . . . . . . . . 102,789 102,789
Deferred coal contract settlement costs . . . . . . . . . 16,282 17,944
Phase-in revenues . . . . . . . . . . . . . . . . . . . . 52,634 61,406
Other deferred plant costs. . . . . . . . . . . . . . . . 31,662 31,784
Corporate-owned life insurance (net). . . . . . . . . . . 7,036 9,350
Unamortized debt expense. . . . . . . . . . . . . . . . . 26,685 27,777
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 36,909 40,430
273,997 291,480
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,166,473 $3,142,810
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see Statements) . . . . . . . . . . . . . . $1,946,667 $1,925,196
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . . 25,000 50,000
Long-term debt due within one year. . . . . . . . . . . . 16,000 -
Accounts payable. . . . . . . . . . . . . . . . . . . . . 54,926 49,093
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 23,150 15,737
Accrued interest. . . . . . . . . . . . . . . . . . . . . 8,158 8,337
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 10,325 11,160
137,559 134,327
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . . 680,498 689,169
Deferred investment tax credits . . . . . . . . . . . . . 74,595 74,841
Deferred gain from sale-leaseback . . . . . . . . . . . . 247,520 252,341
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 79,634 66,936
1,082,247 1,083,287
COMMITMENTS AND CONTINGENCIES (Note 2)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $3,166,473 $3,142,810
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
<PAGE 4>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
June 30,
1995 1994
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 144,747 $ 154,987
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 19,167 23,096
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 5,076 4,232
Power purchased . . . . . . . . . . . . . . . . . . . . . 523 2,241
Other operations. . . . . . . . . . . . . . . . . . . . . 31,794 27,954
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 12,359 13,890
Depreciation and amortization . . . . . . . . . . . . . . 18,316 19,142
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 8,208 11,604
State income . . . . . . . . . . . . . . . . . . . . . 2,387 2,875
General . . . . . . . . . . . . . . . . . . . . . . . . 11,752 12,019
Total operating expenses. . . . . . . . . . . . . . . 113,968 121,439
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 30,779 33,548
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (1,821) (758)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 731 1,950
Income taxes (net) . . . . . . . . . . . . . . . . . . . 2,184 1,451
Total other income and deductions . . . . . . . . . . 1,094 2,643
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 31,873 36,191
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 11,783 12,005
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,107 1,119
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (584) (556)
Total interest charges. . . . . . . . . . . . . . . . 12,306 12,568
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 19,567 $ 23,623
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
<PAGE 5>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1995 1994
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 283,304 $ 291,591
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 37,396 43,935
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 9,764 8,095
Power purchased . . . . . . . . . . . . . . . . . . . . . 1,206 3,493
Other operations. . . . . . . . . . . . . . . . . . . . . 62,199 58,585
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 24,626 25,230
Depreciation and amortization . . . . . . . . . . . . . . 36,669 38,261
Amortization of phase-in revenues . . . . . . . . . . . . 8,772 8,772
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 15,478 18,073
State income . . . . . . . . . . . . . . . . . . . . . 4,462 4,585
General . . . . . . . . . . . . . . . . . . . . . . . . 23,386 24,136
Total operating expenses. . . . . . . . . . . . . . . 223,958 233,165
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 59,346 58,426
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (3,537) (1,993)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 2,830 2,808
Income taxes (net) . . . . . . . . . . . . . . . . . . . 3,819 3,238
Total other income and deductions . . . . . . . . . . 3,112 4,053
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 62,458 62,479
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 23,551 24,098
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,612 2,472
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (1,144) (924)
Total interest charges. . . . . . . . . . . . . . . . 25,019 25,646
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 37,439 $ 36,833
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
<PAGE 6>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
June 30,
1995 1994
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 611,593 $ 619,629
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 83,844 95,306
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 15,231 16,521
Power purchased . . . . . . . . . . . . . . . . . . . . . 4,857 9,988
Other operations. . . . . . . . . . . . . . . . . . . . . 118,674 114,824
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 47,384 50,004
Depreciation and amortization . . . . . . . . . . . . . . 69,865 76,116
Amortization of phase-in revenues . . . . . . . . . . . . 17,544 17,545
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 47,617 44,374
State income . . . . . . . . . . . . . . . . . . . . . 12,304 10,940
General . . . . . . . . . . . . . . . . . . . . . . . . 44,342 46,523
Total operating expenses. . . . . . . . . . . . . . . 461,662 482,141
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 149,931 137,488
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (6,898) 2,480
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 5,101 4,561
Income taxes (net) . . . . . . . . . . . . . . . . . . . 7,871 6,508
Total other income and deductions . . . . . . . . . . 6,074 13,549
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 156,005 151,037
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 47,280 50,005
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,323 5,583
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (1,730) (1,482)
Total interest charges. . . . . . . . . . . . . . . . 50,873 54,106
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 105,132 $ 96,931
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
<PAGE 7>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 37,439 $ 36,833
Depreciation and amortization . . . . . . . . . . . . . . . 36,669 38,261
Other amortization (including nuclear fuel) . . . . . . . . 7,388 5,867
Gain on sales of utility plant (net of tax) . . . . . . . . (951) -
Deferred taxes and investment tax credits (net) . . . . . . (10,360) 4,319
Amortization of phase-in revenues . . . . . . . . . . . . . 8,772 8,772
Corporate-owned life insurance. . . . . . . . . . . . . . . (8,665) (8,830)
Amortization of gain from sale-leaseback. . . . . . . . . . (4,821) (4,820)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (147) (46,211)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (2,857) (5,479)
Accounts payable. . . . . . . . . . . . . . . . . . . . . 5,833 9,008
Interest and taxes accrued. . . . . . . . . . . . . . . . 6,605 13,670
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (12,881) (12,120)
Changes in other assets and liabilities . . . . . . . . . . 9,254 (1,436)
Net cash flows from operating activities. . . . . . . . 71,278 37,834
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 40,556 47,306
Sales of utility plant. . . . . . . . . . . . . . . . . . . (1,723) -
Corporate-owned life insurance policies . . . . . . . . . . 25,639 24,008
Death proceeds of corporate-owned life insurance. . . . . . (250) -
Net cash flows used in investing activities . . . . . . 64,222 71,314
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (25,000) (130,600)
Advances to parent company (net). . . . . . . . . . . . . . (27,511) 77,214
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . - 160,422
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (25) (46,440)
Other long-term debt (net). . . . . . . . . . . . . . . . . - (67,893)
Borrowings against life insurance policies (net). . . . . . 45,505 40,791
Net cash flows from (used in) financing activities . . . (7,031) 33,494
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . 25 14
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 47 63
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 72 $ 77
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 48,809 $ 43,809
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 18,100 18,400
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
<PAGE 8>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 105,132 $ 96,931
Depreciation and amortization . . . . . . . . . . . . . . . 69,865 76,116
Other amortization (including nuclear fuel) . . . . . . . . 12,426 13,730
Gain on sales of utility plant (net of tax) . . . . . . . . (951) -
Deferred taxes and investment tax credits (net) . . . . . . 10,670 21,396
Amortization of phase-in revenues . . . . . . . . . . . . . 17,544 17,545
Corporate-owned life insurance. . . . . . . . . . . . . . . (17,081) (22,379)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,641) (9,640)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (10,657) (34,638)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (3,536) (1,027)
Accounts payable. . . . . . . . . . . . . . . . . . . . . (5,177) 3,262
Interest and taxes accrued. . . . . . . . . . . . . . . . (2,557) 294
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (1,683) (14,054)
Changes in other assets and liabilities . . . . . . . . . . (491) 3,360
Net cash flows from operating activities. . . . . . . . 163,863 150,896
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 83,130 91,679
Sales of utility plant. . . . . . . . . . . . . . . . . . . (1,723) -
Corporate-owned life insurance policies . . . . . . . . . . 28,049 26,650
Death proceeds of corporate-owned life insurance. . . . . . (250) (10,158)
Net cash flows used in investing activities . . . . . . 109,206 108,171
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (200) (61,000)
Advances to parent company (net). . . . . . . . . . . . . . 23,674 (82,080)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . - 225,422
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (25) (186,440)
Other long-term debt (net). . . . . . . . . . . . . . . . . - (13,980)
Borrowings against life insurance policies (net). . . . . . 46,889 223,430
Revolving credit agreement (net). . . . . . . . . . . . . . - (150,000)
Dividends to parent company . . . . . . . . . . . . . . . . (125,000) -
Net cash flows from (used in) financing activities . . . (54,662) (44,648)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . (5) (1,923)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 77 2,000
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 72 $ 77
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 73,544 $ 82,541
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 28,209 40,254
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
<PAGE 9>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Dollars in Thousands)
June 30, December 31,
1995 1994
(Unaudited)
COMMON STOCK EQUITY (see Statements):
Common stock, without par value, authorized and issued
1,000 shares. . . . . . . . . . . . . . . . . . . . . . . $1,065,634 $1,065,634
Retained earnings . . . . . . . . . . . . . . . . . . . . . 197,009 159,570
Total common stock equity . . . . . . . . . . . . . . . . 1,262,643 65% 1,225,204 64%
LONG-TERM DEBT:
First Mortgage Bonds:
Series Due 1995 1994
5-5/8% 1996 $ 16,000 $ 16,000
7.6% 2003 135,000 135,000
6-1/2% 2005 65,000 65,000
6.20% 2006 100,000 100,000
316,000 316,000
Pollution Control Bonds:
5.10% 2023 13,957 13,982
Variable (a) 2027 21,940 21,940
7.0% 2031 327,500 327,500
Variable (a) 2032 14,500 14,500
Variable (a) 2032 10,000 10,000
387,897 387,922
Total bonds. . . . . . . . . . . . . . . . . . . . . . 703,897 703,922
Less:
Unamortized premium and discount (net). . . . . . . . . . 3,873 3,930
Long-term debt due within one year. . . . . . . . . . . . 16,000 -
Total long-term debt . . . . . . . . . . . . . . . . . 684,024 35% 699,992 36%
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . $1,946,667 100% $1,925,196 100%
(a) Market-Adjusted Tax Exempt Securities (MATES). As of June 30, 1995, the rates
on these bonds were 3.90%.
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
<PAGE 10>
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF COMMON STOCK EQUITY
(Dollars in Thousands)
(Unaudited)
Common Retained
Stock Earnings
BALANCE DECEMBER 31, 1992, 1,000 shares. . . . . . . $1,065,634 $ 71,941
Net income . . . . . . . . . . . . . . . . . . . . . 108,103
BALANCE DECEMBER 31, 1993, 1,000 shares. . . . . . . 1,065,634 180,044
Net income . . . . . . . . . . . . . . . . . . . . . 104,526
Dividend to parent company . . . . . . . . . . . . . (125,000)
BALANCE DECEMBER 31, 1994, 1,000 shares. . . . . . . 1,065,634 159,570
Net Income . . . . . . . . . . . . . . . . . . . . . 37,439
Balance June 30, 1995, 1,000 shares . . . . . . . . $1,065,634 $ 197,009
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
<PAGE 11>
KANSAS GAS AND ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES AND OTHER INFORMATION
General: On March 31, 1992, Western Resources, Inc. (Western Resources)
through its wholly-owned subsidiary KCA Corporation (KCA), acquired all of the
outstanding common and preferred stock of Kansas Gas and Electric Company
(KG&E) for $454 million in cash and 23,479,380 shares of Western Resources
common stock (the Merger). Simultaneously, KCA and KG&E merged and adopted
the name of Kansas Gas and Electric Company (the Company).
The Company 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.
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
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, 1995 and December 31, 1994, and the results of its
operations for the three, six and twelve month periods ended June 30, 1995 and
1994. These condensed 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.
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.
Cash Surrender Value of Life Insurance Contracts: The following amounts
related to corporate-owned life insurance contracts (COLI), primarily with one
highly rated major insurance company, are recorded on the balance sheets:
June 30, December 31,
1995 1994
(Dollars in Millions)
Cash surrender value of contracts. . $363.7 $320.6
Borrowings against contracts . . . . (356.7) (311.2)
COLI (net) . . . . . . . . . . . $ 7.0 $ 9.4
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 Statements of
Income. For the three, six and twelve months ended June 30, 1995, income from
<PAGE 12>
increases in cash surrender value, net of premium and administrative expenses
and income from death proceeds, was $4.2 million, $8.1 million and $16.0
million, respectively, compared to $4.3 million, $7.8 million and $20.6
million for the three, six and twelve months ended June 30, 1994,
respectively. Interest expense on COLI borrowings is recorded as a tax
deductible expense in Corporate-owned Life Insurance (net) on the Statements
of Income. For the three, six and twelve months ended June 30, 1995, interest
expense on COLI borrowings was $6.0 million, $11.7 million and $22.9 million,
respectively, compared to $5.0 million, $9.8 million and $18.1 million for the
three, six, and twelve months ended June 30, 1994, respectively.
Statements of Cash Flows: For purposes of the Statements of Cash Flows,
cash and cash equivalents include cash on hand and highly liquid
collateralized debt instruments purchased with maturities of three months or
less.
2. COMMITMENTS AND CONTINGENCIES
Manufactured Gas Sites: The Company was previously associated with six
former manufactured gas sites located in Kansas which may contain coal tar and
other potentially harmful materials. The Company and the Kansas Department of
Health and Environment (KDHE) conducted preliminary assessments of these sites
at minimal cost. The results of the preliminary investigations determined the
Company does not have a connection to two of the sites.
The Company and KDHE entered into a consent agreement governing all
future work at the four remaining sites. The terms of the consent agreement
will allow the Company to investigate these sites and set remediation
priorities based upon the results of the investigations and risk analysis.
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 costs incurred for site investigation and risk
assessment are expected to be minimal in 1995. 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 KCC has permitted 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 and number of years over which the
remediation must be completed.
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
<PAGE 13>
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 $19.4 million and $16.9 million at June 30, 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 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
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.
<PAGE 14>
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.
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 $2.3 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, continue to
be subject to the EPA's rules-making procedures. The Company will follow the
development of these regulations and establish compliance strategies as
appropriate.
Federal Income Taxes: During 1991, the Internal Revenue Service (IRS)
completed an examination of the Company's federal income tax returns for the
years 1984 through 1988. In October 1993, the Company received another
examination report for the years 1989 and 1990 covering the same issues
identified in the previous examination report. In April 1995, the Company
reached agreement with the IRS 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.
<PAGE 15>
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
the remaining terms of the contracts were $721 million and $9 million,
respectively. The largest coal contract was renegotiated in early 1993 and
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.
3. INCOME TAXES
Total income tax expense included in the Statements of Income reflects
the Federal statutory rate of 35 percent. The Federal statutory rate produces
effective income tax rates of 30.1% and 35.5% for the three month periods,
30.1% and 34.5% for the six month periods, and 33.1% and 33.5% for the twelve
months ended June 30, 1995 and 1994, respectively. The effective income tax
rates vary from the Federal statutory rate due to the permanent differences,
including the amortization of investment tax credits, and accelerated
amortization of certain deferred income taxes.
<PAGE 16>
KANSAS GAS AND ELECTRIC COMPANY
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 Item 7 of the
Company's Annual Report on Form 10-K for 1994.
The following updates the information provided in the 1994 Form 10-K, and
analyzes the changes in the results of operations between the three, six and
twelve month periods ended June 30, 1995 and comparable periods of 1994.
FINANCIAL CONDITION
General: The Company had net income of $19.6 million for the second
quarter of 1995 compared to $23.6 million for the second quarter in 1994. The
decrease in net income was primarily due to lower revenues as a result of
decreased sales in all retail customer classes. The mild spring temperatures
experienced during 1995, as compared to 1994, reduced the demand for air
conditioning load.
Net income for the six and twelve months ended June 30, 1995, was $37.4
million and $105.1 million, respectively, compared to $36.8 million and $96.9
million for the comparable periods of 1994, respectively. The increase in net
income is primarily due to lower fuel and purchased power expenses as a result
of the decrease in electric generation caused by the decrease in sales to
residential and wholesale and interchange customers.
Liquidity and Capital Resources: The KG&E common and preferred stock was
redeemed in connection with the Merger, leaving 1,000 shares of common stock
held by Western Resources. The debt structure of the Company and available
sources of funds were not affected by the Merger.
The Company's short-term financing requirements are satisfied through
short-term bank loans and borrowings under unsecured lines of credit
maintained with banks. At June 30, 1995, short-term borrowing amounted to $25
million compared to $50 million at December 31, 1994.
In 1986 the Company purchased corporate-owned life insurance policies on
certain of its employees. On June 1, 1995, the Company increased its
borrowings against the accumulated cash surrender values of the policies by
$42.4 million.
OPERATING RESULTS
The following discussion explains variances for the three, six and twelve
months ended June 30, 1995, to the comparable periods of 1994.
<PAGE 17>
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.
Increase (decrease) in electric sales volumes:
3 Months 6 Months 12 Months
Ended Ended Ended
Residential (18.3)% (11.2)% (6.6)%
Commercial (3.0)% (0.9)% 2.9%
Industrial (0.6)% 4.2% 4.1%
Total Retail (6.5)% (1.8)% 0.4%
Wholesale & Interchange (4.0)% (29.1)% (44.4)%
Total electric sales (6.2)% (7.3)% (10.0)%
Revenues for the second quarter of 1995 decreased approximately seven
percent to $144.7 million, compared to second quarter 1994 revenues of $155.0
million, primarily due to decreased sales in all retail customer classes. The
cooler spring temperatures experienced in the Company's service territory
during the second quarter of 1995 decreased the number of cooling degree days
by 55 percent, as compared to the second quarter of last year, which reduced
customer demand for air conditioning load. Also contributing to the decrease
was an additional $1 million (Company's share) of amortization of the final
merger refund for the three months ended June 30, 1995 compared to 1994.
Revenues for the six and twelve months ended June 30, 1995, of $283.3
million and $611.6 million, decreased from revenues of $291.6 million and
$619.6 million for the comparable periods of 1994, respectively. The decrease
is largely due to decreased sales to residential and wholesale and interchange
customers. Sales to residential customers were lower primarily due to mild
winter and spring temperatures during 1995 as compared to 1994. The decrease
in wholesale and interchange sales was primarily due to the higher sales
during the twelve months ended June 30 1994 to other utilities while their
generating units were down as a result of the 1993 floods. Also contributing
to the decrease was an additional $1.9 million and $3.4 million, respectively,
(Company's share) of amortization of the final merger refund.
Operating Expenses: Total operating expenses decreased $7.5 million,
$9.2 million and $20.5 million for the three, six and twelve months ended June
30, 1995 compared to the same periods of 1994, respectively. These decreases
are attributable to decreases in fuel and purchase power expenses as a result
of the decrease in electric generation due to lower sales to residential and
wholesale and interchange customers. Partially offsetting these decreases was
the expense related to the early retirement programs discussed below.
Partially offsetting the decreases for the twelve months ended June 30,
1995, was increased federal income taxes due to the completion at December 31,
1993, of the accelerated amortization of deferred income tax reserves relating
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 $6 million for the twelve months ended June 30, 1995 compared to
1994.
<PAGE 18>
Other Income and Deductions: Other income and deductions, net of taxes,
decreased for the three, six and twelve months ended June 30, 1995, compared
to the same periods of 1994 primarily as a result of increased interest
expense on higher COLI borrowings.
Partially offsetting these decreases was a $1.6 million gain realized
from the sale of rail cars during the first quarter of 1995.
Interest Expense: Interest expense decreased approximately two percent
for the three and six months ended and six percent for the twelve months ended
June 30, 1995 compared to the same periods of 1994, respectively. These
decreases resulted primarily from lower interest rates on variable-rate debt
due to refinancing of higher cost fixed-rate debt. Also accounting for the
decrease was the impact of increased COLI borrowings which reduced the need
for other long-term debt and thereby reduced interest expense. COLI interest
is reflected in Other Income and Deductions on the Statements of Income.
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 (after tax) per year for
40 years. Western Resources and the Company (combined companies) can recover
the amortization of the acquisition adjustment through cost savings under a
sharing mechanism approved by the KCC. While the combined companies have
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, Western Resources 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. Of the approximately 420
employees who were eligible for the voluntary retirement program, 216
accepted. Although the Company has no employees, costs of the early
retirement program along with any cost savings realized by Western Resources
will be allocated to the Company.
In the second quarter of 1995, $5.5 million ($1.3 million Company's
share). related to the early retirement program was recorded as expense.
Western Resources estimates the cost savings for the program to be
approximately $9.9 million ($2.3 million Company's share) annually.
WCNOC also offered a voluntary early retirement program for employees 55
years of age and older with a minimum of 5 years of service as of June 1,
1995. The total cost of the program for the 56 of the 70 eligible employees
who accepted early retirement was approximately $2.1 million (Company's
share). WCNOC estimates the cost savings from the program to be approximately
$1.7 million (Company's share) annually.
<PAGE 19>
KANSAS GAS AND ELECTRIC COMPANY
Part II Other Information
Item 5. Other Information
Rate Plan: 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 $59 million annually for seven years
beginning in 1996. As a result, the Company will also seek to reduce electric
rates for its customers by approximately $9 million annually for the same
seven year period.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE 20>
SIGNATURE
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.
KANSAS GAS AND ELECTRIC COMPANY
August 2, 1995 By Richard D. Terrill
Richard D. Terrill
Secretary, Treasurer and
General Counsel