SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission File Number 1-3523
WESTERN RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)
KANSAS 48-0290150
(State or Other Jurisdiction of (Employer
Incorporation or Organization) Identification No.)
818 KANSAS AVENUE, TOPEKA, KANSAS 66612
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number Including Area Code (913) 575-6300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 14. 1996
Common Stock, $5.00 par value 64,187,150
WESTERN RESOURCES, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4 - 6
Consolidated Statements of Cash Flows 7 - 8
Consolidated Statements of Capitalization 9
Consolidated Statements of Common Stock Equity 10
Notes to Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Part II. Other Information
Item 4. Submission of Matters to a Vote to Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
1996 1995
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . $5,410,452 $5,341,074
Natural gas plant in service. . . . . . . . . . . . . . 809,613 787,453
6,220,065 6,128,527
Less - Accumulated depreciation . . . . . . . . . . . . 1,992,633 1,926,520
4,227,432 4,202,007
Construction work in progress . . . . . . . . . . . . . 71,458 100,401
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 49,415 53,942
Net utility plant. . . . . . . . . . . . . . . . . . 4,348,305 4,356,350
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . . . . . . . . 557,476 90,044
Decommissioning trust . . . . . . . . . . . . . . . . . 28,551 25,070
Other . . . . . . . . . . . . . . . . . . . . . . . . . 15,127 9,225
601,154 124,339
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . 1,504 2,414
Accounts receivable and unbilled revenues (net) . . . . 232,000 257,292
Fossil fuel, at average cost. . . . . . . . . . . . . . 46,369 54,742
Gas stored underground, at average cost . . . . . . . . 27,806 28,106
Materials and supplies, at average cost . . . . . . . . 55,845 57,996
Prepayments and other current assets. . . . . . . . . . 53,104 20,973
416,628 421,523
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . . 282,476 282,476
Deferred coal contract settlement costs . . . . . . . . 24,159 27,274
Phase-in revenues . . . . . . . . . . . . . . . . . . . 35,089 43,861
Corporate-owned life insurance (net). . . . . . . . . . 86,482 44,143
Other deferred plant costs. . . . . . . . . . . . . . . 31,406 31,539
Unamortized debt expense. . . . . . . . . . . . . . . . 54,446 56,681
Other . . . . . . . . . . . . . . . . . . . . . . . . . 107,131 102,491
621,189 588,465
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $5,987,276 $5,490,677
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement):
Common stock equity . . . . . . . . . . . . . . . . . . $1,582,257 $1,553,110
Cumulative preferred and preference stock . . . . . . . 74,858 174,858
Western Resources obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures. . . . . . . . . . . . 100,000 100,000
Long-term debt (net). . . . . . . . . . . . . . . . . . 1,341,279 1,391,263
3,098,394 3,219,231
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . 739,755 203,450
Long-term debt due within one year. . . . . . . . . . . - 16,000
Preference stock redeemable within one year . . . . . . 100,000 -
Accounts payable. . . . . . . . . . . . . . . . . . . . 132,010 149,194
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 57,571 68,569
Accrued interest and dividends. . . . . . . . . . . . . 65,778 62,157
Other . . . . . . . . . . . . . . . . . . . . . . . . . 36,753 40,266
1,131,867 539,636
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . 1,161,056 1,167,470
Deferred investment tax credits . . . . . . . . . . . . 128,881 132,286
Deferred gain from sale-leaseback . . . . . . . . . . . 237,880 242,700
Other . . . . . . . . . . . . . . . . . . . . . . . . . 229,198 189,354
1,757,015 1,731,810
COMMITMENTS AND CONTINGENCIES (Notes 3 and 5)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $5,987,276 $5,490,677
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
June 30,
1996 1995
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 294,231 $ 262,510
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 141,890 109,785
Total operating revenues. . . . . . . . . . . . . . . . 436,121 372,295
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 60,598 47,160
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 5,618 5,076
Power purchased . . . . . . . . . . . . . . . . . . . . . 6,852 2,095
Natural gas purchases . . . . . . . . . . . . . . . . . . 49,561 40,598
Other operations. . . . . . . . . . . . . . . . . . . . . 136,487 122,424
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 30,152 27,622
Depreciation and amortization . . . . . . . . . . . . . . 43,102 38,914
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 11,014 7,112
State income. . . . . . . . . . . . . . . . . . . . . . 3,952 2,426
General . . . . . . . . . . . . . . . . . . . . . . . . 25,379 24,591
Total operating expenses. . . . . . . . . . . . . . . 377,101 322,404
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 59,020 49,891
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (1,565) (1,821)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 5,332 2,324
Income taxes (net). . . . . . . . . . . . . . . . . . . . 2,296 1,124
Total other income and deductions . . . . . . . . . . 6,063 1,627
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 65,083 51,518
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 26,605 24,003
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 10,415 6,714
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (683) (915)
Total interest charges. . . . . . . . . . . . . . . . 36,337 29,802
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 28,746 21,716
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 3,354 3,354
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 25,392 $ 18,362
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 63,465,666 61,885,556
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ .40 $ .30
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ .515 $ .505
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 563,216 $ 515,768
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 428,527 299,902
Total operating revenues. . . . . . . . . . . . . . . . 991,743 815,670
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 121,588 94,091
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 7,375 9,764
Power purchased . . . . . . . . . . . . . . . . . . . . . 14,897 5,644
Natural gas purchases . . . . . . . . . . . . . . . . . . 200,084 142,336
Other operations. . . . . . . . . . . . . . . . . . . . . 279,246 223,175
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 54,991 54,464
Depreciation and amortization . . . . . . . . . . . . . . 85,415 77,285
Amortization of phase-in revenues . . . . . . . . . . . . 8,772 8,772
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 26,808 24,606
State income. . . . . . . . . . . . . . . . . . . . . . 7,763 7,083
General . . . . . . . . . . . . . . . . . . . . . . . . 50,511 49,118
Total operating expenses. . . . . . . . . . . . . . . 857,450 696,338
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 134,293 119,332
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (3,749) (3,537)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 11,069 5,062
Income taxes (net). . . . . . . . . . . . . . . . . . . . 985 2,306
Total other income and deductions . . . . . . . . . . 8,305 3,831
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 142,598 123,163
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 53,104 47,849
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 17,575 13,801
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (1,616) (1,778)
Total interest charges. . . . . . . . . . . . . . . . 69,063 59,872
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 73,535 63,291
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 6,709 6,709
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 66,826 $ 56,582
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 63,314,691 61,816,659
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 1.06 $ 0.92
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 1.03 $ 1.01
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
June 30,
1996 1995
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $1,193,343 $1,107,547
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 726,005 532,641
Total operating revenues. . . . . . . . . . . . . . . . 1,919,348 1,640,188
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 239,491 208,664
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 17,036 15,231
Power purchased . . . . . . . . . . . . . . . . . . . . . 24,992 14,186
Natural gas purchases . . . . . . . . . . . . . . . . . . 321,538 221,781
Other operations. . . . . . . . . . . . . . . . . . . . . 538,523 453,075
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 109,168 111,761
Depreciation and amortization . . . . . . . . . . . . . . 164,941 151,385
Amortization of phase-in revenues . . . . . . . . . . . . 17,545 17,544
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 74,516 66,346
State income. . . . . . . . . . . . . . . . . . . . . . 19,562 17,617
General . . . . . . . . . . . . . . . . . . . . . . . . 98,232 96,207
Total operating expenses. . . . . . . . . . . . . . . 1,625,544 1,373,797
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 293,804 266,391
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (2,880) (6,898)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 25,685 7,151
Income taxes (net). . . . . . . . . . . . . . . . . . . . 6,484 5,626
Total other income and deductions . . . . . . . . . . 29,289 5,879
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 323,093 272,270
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 101,218 95,510
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 34,020 25,269
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (4,065) (2,867)
Total interest charges. . . . . . . . . . . . . . . . 131,173 117,912
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 191,920 154,358
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 13,419 13,418
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 178,501 $ 140,940
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 62,903,857 61,716,449
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 2.84 $ 2.28
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 2.04 $ 2.00
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 73,535 $ 63,291
Depreciation and amortization . . . . . . . . . . . . . . 77,774 77,337
Other amortization (including nuclear fuel) . . . . . . . 5,668 7,388
Gain on sales of utility plant (net of tax) . . . . . . . - (951)
Deferred taxes and investment tax credits (net) . . . . . (6,052) (7,264)
Amortization of phase-in revenues . . . . . . . . . . . . 8,772 8,772
Corporate-owned life insurance. . . . . . . . . . . . . . (12,565) (23,806)
Amortization of gain from sale-leaseback. . . . . . . . . (4,820) (4,821)
Amortization of acquisition adjustment. . . . . . . . . . 12,781 -
Noncash earnings in equity of investees . . . . . . . . . (11,788) -
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . 25,292 40,917
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 8,373 (11,489)
Gas stored underground. . . . . . . . . . . . . . . . . 300 12,866
Accounts payable . . . . . . . . . . . . . . . . . . . (17,184) (12,845)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . (10,998) (11,015)
Other . . . . . . . . . . . . . . . . . . . . . . . . . (2,333) (3,750)
Changes in other assets and liabilities . . . . . . . . . (21,256) 13,942
Net cash flows from operating activities. . . . . . . 125,499 148,572
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . 86,906 107,191
Sales of utility plant. . . . . . . . . . . . . . . . . . - (1,723)
Non-utility investments (net) . . . . . . . . . . . . . . 448,281 9,455
Corporate-owned life insurance policies . . . . . . . . . 50,828 54,041
Death proceeds of corporate-owned life insurance policies - (287)
Net cash flows used in investing activities . . . . . 586,015 168,677
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . 536,305 (25,400)
Bonds retired . . . . . . . . . . . . . . . . . . . . . . (16,135) (105)
Revolving credit agreements (net) . . . . . . . . . . . . (50,000) 57,500
Other long-term debt issued . . . . . . . . . . . . . . . 20 -
Borrowings against life insurance policies. . . . . . . . 44,321 47,811
Repayment of borrowings against life insurance policies . - (115)
Common stock issued (net) . . . . . . . . . . . . . . . . 16,103 8,576
Dividends on preferred, preference and common stock . . . (71,008) (68,399)
Net cash flows from financing activities. . . . . . . 459,606 19,868
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . (910) (237)
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 2,414 2,715
End of the period . . . . . . . . . . . . . . . . . . . . $ 1,504 $ 2,478
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 94,557 $ 84,852
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 49,104 48,810
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 191,920 $ 154,358
Depreciation and amortization . . . . . . . . . . . . . . . 150,623 151,490
Other amortization (including nuclear fuel) . . . . . . . . 13,473 12,426
Gain on sales of utility plant (net of tax) . . . . . . . . - (951)
Deferred taxes and investment tax credits (net) . . . . . . 16,184 32,457
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Corporate-owned life insurance. . . . . . . . . . . . . . . (17,307) (48,885)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,639) (9,641)
Amortization of acquisition adjustment. . . . . . . . . . . 19,510 -
Noncash earnings in equity of investees . . . . . . . . . . (11,788) -
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (53,157) 4,074
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . 3,882 (10,026)
Gas stored underground. . . . . . . . . . . . . . . . . . 4,550 (3,391)
Accounts payable. . . . . . . . . . . . . . . . . . . . . 14,239 (5,618)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . (19,007) (37,075)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 9,596 18,018
Changes in other assets and liabilities . . . . . . . . . . (46,753) (11,066)
Net cash flows from operating activities . . . . . . . 283,871 263,714
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 216,542 237,091
Sales of utility plant. . . . . . . . . . . . . . . . . . . - (1,723)
Non-utility investments (net) . . . . . . . . . . . . . . . 454,234 15,334
Corporate-owned life insurance policies . . . . . . . . . . 51,962 56,451
Death proceeds of corporate-owned life insurance policies . (10,900) (287)
Net cash flows used in (from) investing activities. . . 711,838 306,866
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . 456,955 65,000
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (16,135) (105)
Revolving credit agreement (net). . . . . . . . . . . . . . (57,500) 57,500
Other long-term debt issued . . . . . . . . . . . . . . . . 20 -
Other mandatorily redeemable securities . . . . . . . . . . 100,000 -
Borrowings against life insurance policies (net). . . . . . 45,789 49,218
Repayment of borrowings against life insurance policies . . (5,269) (138)
Common stock issued (net) . . . . . . . . . . . . . . . . . 43,688 8,576
Dividends on preferred, preference and common stock . . . . (140,555) (136,110)
Net cash flows from (used in) financing activities. . . 426,993 43,941
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (974) 789
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . . 2,478 1,689
End of the period . . . . . . . . . . . . . . . . . . . . . $ 1,504 $ 2,478
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . . $ 146,253 $ 140,731
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 85,105 76,585
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
1996 1995
COMMON STOCK EQUITY (see statement):
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
63,847,133 and 62,855,961 shares, respectively . $ 319,235 $ 314,280
Paid-in capital. . . . . . . . . . . . . . . . . . 721,838 697,962
Retained earnings. . . . . . . . . . . . . . . . . 541,184 540,868
1,582,257 52% 1,553,110 48%
CUMULATIVE PREFERRED AND PREFERENCE STOCK:
Preferred stock not subject to mandatory redemption,
Par value $100 per share, authorized
600,000 shares, outstanding -
4 1/2% Series, 138,576 shares. . . . . . . . . 13,858 13,858
4 1/4% Series, 60,000 shares . . . . . . . . . 6,000 6,000
5% Series, 50,000 shares . . . . . . . . . . . 5,000 5,000
24,858 24,858
Preference stock subject to mandatory redemption,
Without par value, $100 stated value,
Authorized 4,000,000 shares, outstanding -
7.58% Series, 500,000 shares . . . . . . . . . 50,000 50,000
8.50% Series, 1,000,000 shares . . . . . . . . 100,000 100,000
Less:
Preference stock redeemable within one year 100,000 -
50,000 150,000
74,858 2% 174,858 6%
WESTERN RESOURCES OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST
HOLDING SOLELY COMPANY
SUBORDINATED DEBENTURES. . . . . . . . . . . . . 100,000 3% 100,000 3%
LONG-TERM DEBT:
First mortgage bonds . . . . . . . . . . . . . . . 825,000 841,000
Pollution control bonds. . . . . . . . . . . . . . 521,682 521,817
Revolving credit agreement . . . . . . . . . . . . - 50,000
Other long-term debt . . . . . . . . . . . . . . . 20 -
Less:
Unamortized premium and discount (net) . . . . . 5,423 5,554
Long-term debt due within one year . . . . . . . - 16,000
1,341,279 43% 1,391,263 43%
$3,098,394 100% $3,219,231 100%
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
(Dollars in Thousands)
(Unaudited)
Common Paid-in Retained
Stock Capital Earnings
BALANCE DECEMBER 31, 1994, 61,617,873 shares. . . . . $308,089 $667,992 $498,374
Net income. . . . . . . . . . . . . . . . . . . . . . 63,291
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (6,709)
Common stock, $1.01 per share . . . . . . . . . . . (62,450)
Issuance of 283,324 shares of common stock. . . . . . 1,417 7,159
BALANCE JUNE 30, 1995, 61,901,197 shares. . . . . . . 309,506 675,151 492,506
Net income. . . . . . . . . . . . . . . . . . . . . . 118,385
Cash dividends:
Preferred and preference stock. . . . . . . . . . . ( 6,709)
Common stock, $1.01 per share . . . . . . . . . . . (63,313)
Expenses on common stock. . . . . . . . . . . . . . . (772)
Issuance of 954,764 shares of common stock. . . . . . 4,774 23,583
BALANCE DECEMBER 31, 1995, 62,855,961 shares. . . . . 314,280 697,962 540,868
Net income. . . . . . . . . . . . . . . . . . . . . . 73,535
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (6,709)
Common stock, $1.03 per share . . . . . . . . . . . (65,263)
Issuance of 991,172 shares of common stock. . . . . . 4,955 23,876 (1.247)
BALANCE JUNE 30, 1996, 63,847,133 shares. . . . . . . $319,235 $721,838 $541,184
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES AND OTHER INFORMATION
General: The Consolidated Financial Statements of Western Resources,
Inc. (the Company) and its wholly-owned subsidiaries, include KPL, a
rate-regulated electric and gas division of the Company, Kansas Gas and
Electric Company (KGE), a rate-regulated electric utility and wholly-owned
subsidiary of the Company, the Westar companies and the Wing Group, non-utility
subsidiaries, and Mid Continent Market Center, Inc., a regulated gas
transmission service provider. KGE owns 47% of Wolf Creek Nuclear Operating
Corporation (WCNOC), the operating Company for Wolf Creek Generating Station
(Wolf Creek). The Company records its proportionate share of all transactions
of WCNOC as it does other jointly-owned facilities. All significant
intercompany transactions have been eliminated.
The Company prepares its financial statements in conformity 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), the Oklahoma
Corporation Commission (OCC), and the Federal Energy Regulatory Commission
(FERC). The financial statements require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, to
disclose contingent assets and liabilities at the balance sheet date, and to
report amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. These consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's 1995 Annual Report on Form 10-K and
the KGE Annual Report on Form 10-K incorporated by reference in the Company's
1995 Annual Report on Form 10-K.
On April 24, 1996, FERC issued its final rule on Order No. 888,
Promoting Wholesale Competition Through Open Access Non-discriminatory
Transmission Services by Public Utilities; Recovery of Stranded Costs by Public
Utilities and Transmitting Utilities. The Company has analyzed the effect of
this order on its operations and does not expect it to have a material adverse
effect.
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.
Cash Surrender Value of Life Insurance Contracts: The following amounts
related to corporate-owned life insurance contracts (COLI) are recorded in
Corporate-owned Life Insurance (net) on the Consolidated Balance Sheets:
June 30, December 31,
1996 1995
(Dollars in Millions)
Cash surrender value of contracts. . . $566.5 $479.9
Borrowings against contracts . . . . . (480.0) (435.8)
COLI (net). . . . . . . . . . $ 86.5 $ 44.1
Income is recorded for increases in cash surrender value and net death
proceeds. Interest expense is recognized for COLI borrowings except for
certain contracts entered into in 1993 and 1992. The net income generated
from COLI contracts purchased prior to 1992 including the tax benefit of the
interest deduction and premium expenses are recorded as Corporate-owned Life
Insurance (net) on the Consolidated Statements of Income. The income from
increases in cash surrender value and net death proceeds was $5.4 million,
$10.2 million, and $24.7 million for the three, six, and twelve months ended
June 30, 1996, respectively, compared to $4.2 million, $8.1 million, and $16.0
million for the three, six, and twelve months ended June 30, 1995,
respectively. The interest expense deduction taken was $7.0 million, $13.9
million, and $27.6 million for the three, six, and twelve months ended June
30, 1996, respectively, compared to $6.0 million, $11.7 million, and $22.9
million for the three, six, and twelve months ended June 30, 1995,
respectively.
The COLI contracts entered into in 1993 and 1992 were established to
mitigate the cost of postretirement and postemployment benefits. As approved
by the KCC, the Company is using the net income stream generated by these COLI
policies to offset the costs of postretirement and postemployment benefits. A
significant portion of this income stream relates to the tax deduction
currently taken for interest incurred on contract borrowings under these COLI
policies. The amount of the interest deduction used to offset these benefits
costs was $1.8 million, $3.9 million, and $7.9 million for the three, six,
and twelve months ended June 30, 1996, respectively, compared to $1.5 million,
$2.9 million, and $5.5 million for the three, six, and twelve months ended
June 30, 1995, respectively.
On August 2, 1996, Congress passed the Health Insurance Portability and
Accountability Act of 1996 which President Clinton has indicated that he
intends to sign. This act may substantially reduce or eliminate tax benefits
associated with the 1993 and 1992 COLI contracts. If this legislation is
enacted or should the income stream generated by the 1993 and 1992 COLI
contracts not be sufficient to offset postretirement and postemployment
benefit costs on an accrual basis, the KCC order allows the Company to seek
recovery of a deficiency through the ratemaking process. Regulatory
precedents established by the KCC generally permit the accrual costs of
postretirement and postemployment benefits to be recovered in rates. The act
is expected to have minimal impact on the Company's COLI contracts entered
into prior to 1992. See Note 5 to the Consolidated Financial Statements of
the Company's 1995 Form 10-K for additional disclosure.
Reclassifications: Certain amounts in prior years have been
reclassified to conform with classifications used in the current year
presentation.
2. PROPOSED MERGER WITH KANSAS CITY POWER & LIGHT COMPANY
On April 14, 1996, in a letter to Mr. A. Drue Jennings, Chairman of the
Board, President and Chief Executive Officer of Kansas City Power & Light
Company (KCPL), the Company proposed an offer to merge with KCPL.
On April 22, 1996, KCPL's Board of Directors rejected the Company's
proposal and announced its intention to proceed with a merger agreement
entered into on January 19, 1996 with UtiliCorp United Inc. (UCU). Following
the rejection of the April 14 offer, the Company filed proxy materials with
the Securities and Exchange Commission (SEC) for use in soliciting proxies
from KCPL shareholders
against the approval of the UCU/KCPL merger. The Company believes its offer
is financially superior for KCPL shareholders and is actively seeking to have
KCPL shareholders vote against the proposed UCU/KCPL merger. On April 22,
1996, the Company announced its intention to commence an offer to exchange
shares of Company common stock for each KCPL share (the Offer) and filed with
the SEC a registration statement on Form S-4 relating to such exchange offer.
On July 3, the registration statement became effective and on July 8, exchange
offer materials were mailed to KCPL shareholders.
The number of shares of Company common stock to be delivered per KCPL
share pursuant to the initial Offer would have been equal to the quotient
(rounded to the nearest 1/100,000) determined by dividing $28 by the average
of the high and low sales prices of Company common stock on the New York Stock
Exchange for each of the twenty consecutive trading days ending with the
second trading day immediately preceding the expiration of the Offer (the
Exchange Ratio), provided that the Exchange Ratio would not have been less
than 0.833 nor greater than 0.985. On May 6, 1996, the Company announced a
change in the terms of the Offer so that the Exchange Ratio would not be less
than 0.91 nor greater than 0.985, and presented the new offer to the KCPL
Board.
On June 17, 1996, the Company raised its Offer to $31 from $28 with an
exchange ratio of 0.933 to 1.1 shares of Company common stock for each KCPL
common share. The increased Offer, which remains a stock-for-stock
transaction, is valued at $1.9 billion. On June 24, 1996 KCPL's Board of
Directors also rejected this offer.
KCPL shareholders were scheduled to vote on the UCU/KCPL merger at their
annual shareholders' meeting on May 22, 1996. On May 20, 1996, KCPL announced
that it had reached a restructured merger agreement with UCU and canceled the
May 22, 1996 vote. The vote on the new transaction was scheduled for an
August 7, 1996, special shareholder meeting. On May 20 1996, KCPL also filed
suit against the Company and a KCPL shareholder in the Federal District Court
for the Western District of Missouri (the Court) for a declaratory order,
among other things, determining that the restructured transaction was legal
pursuant to Missouri law, that its adoption was not a breach of fiduciary
duty, and that a simple majority of shares voted would be required to approve
the transaction rather than the vote of two-thirds of all outstanding shares
required for approval of the original proposal.
On August 2, 1996, the Court denied KCPL's request with respect to the
requisite vote, holding a two-thirds vote of outstanding shares would be
required to approve the restructured transaction. As a result, KCPL postponed
the special shareholder meeting until August 16, 1996.
According to KCPL's quarterly report on Form 10-Q for the quarter ended
June 30, 1996, there were issued and outstanding 61,902,083 shares of KCPL
common stock.
The Company intends to acquire, after consummation of the Offer the
remaining KCPL shares pursuant to a merger of the Company and KCPL (the
Merger).
The Company has filed applications with the KCC and Missouri Public
Service Commission (MPSC) seeking approval of the Merger. The Company will
also need approval from the FERC and the Nuclear Regulatory Commission (NRC).
See Note 4 for discussion of rate proceedings.
The Company's proposal is designed to qualify as a pooling of interests
for financial reporting purposes. Under this method, the recorded assets and
liabilities of the Company and KCPL would be carried forward at historical
amounts to a combined balance sheet. Prior period operating results and
statements of financial position, cash flows and capitalization would be
restated to effect the combination for all periods presented.
KCPL is a public utility company engaged in the generation,
transmission, distribution, and sale of electricity to approximately 430,000
customers in western Missouri and eastern Kansas. KCPL and the Company have
joint interests in certain electric generating assets, including Wolf Creek.
Completion of the Offer and the Merger are subject to various
conditions, including approvals from shareholders, regulatory and other
governmental agencies.
As of June 30, 1996, the Company estimates it has incurred approximately
$12 million of transaction costs associated with the Merger. The Company
anticipates expensing all of these costs upon the closing of the Merger.
The merger proposal contains certain analyses and statements with
respect to the financial condition, results of operations and business of the
Company following the consummation of the Offer and the Merger, including
statements relating to the cost savings that will be realized from the Merger.
Such analyses and statements include forward looking statements with respect
to, among other things: (1) expected cost savings from the Merger; (2) normal
weather conditions; (3) future national and regional economic and competitive
conditions; (4) inflation rates; (5) regulatory treatment; (6) future
financial market conditions; (7) interest rates; (8) future business
decisions; and (9) other uncertainties, which though considered reasonable by
the Company, are beyond the Company's control and difficult to predict.
3. LEGAL PROCEEDINGS
On May 30, 1996, the Company and Southern Union Company settled the
ligation which had been pending between them since June 1, 1994, as reported
in the Company's Annual Report on Form 10-K. The case was dismissed with
prejudice by the District Court.
The resolution of this litigation will not have a material adverse
effect on the Company's financial condition and is within amounts previously
reserved by the Company.
The Company and its subsidiaries are involved in various other legal,
environmental, and regulatory 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 Company's overall financial position
or results of operations.
4. RATE MATTERS AND REGULATION
The Company, under rate orders from the KCC, OCC, and FERC, recovers
increases in fuel and natural gas costs through fuel adjustment clauses for
wholesale and certain retail electric customers and various purchased gas
adjustment clauses (PGA) for natural gas customers. The KCC and the OCC
require the annual difference between actual gas cost incurred and cost
recovered through the application of the PGA be deferred and amortized through
rates in subsequent periods.
KCC Rate Proceedings: On August 17, 1995, the Company and KGE filed
three proceedings with the KCC. The first sought a $36 million increase in
revenues from the Company's natural gas distribution business. In separate
dockets, the Company and KGE filed with the KCC a request to more rapidly
recover KGE's investment in its assets of Wolf Creek over the next seven years
by increasing depreciation by $50 million each year and a request to reduce
annual depreciation expense by approximately $11 million for electric
transmission, distribution and certain generating plant assets to reflect the
useful lives of these properties more accurately. The Company sought to
reduce electric rates for KGE customers by approximately $8.7 million annually
in each of the seven years of accelerated Wolf Creek depreciation.
On April 15, 1996, the KCC issued an order allowing a revenue increase
of $33.8 million in the Company's natural gas distribution business. On May 3,
1996, the Company filed a Petition for Reconsideration and on July 11, 1996,
the KCC issued its Order On Reconsideration allowing the revenue to be
increased to $34.4 million.
On May 23, 1996, the Company implemented an $8.7 million reduction to
KGE customers on an interim basis. On July 25, 1996, the KCC Staff, the
Company, and KGE entered into an agreement whereby KGE rates would be reduced
an additional $37.3 million and the current interim $8.7 million rate reduction
would become permanent upon final order in the proceeding. Other provisions
of the agreement include an $8.7 million annual KPL electric rate reduction
upon final order, a $10 million KGE annual rate reduction at January 1, 1998,
and a five year incentive rate mechanism requiring all regulated earnings in
excess of a 12% regulatory return on equity to be shared 50/50 between
customers and shareholders. The agreement specifies that the plan and
electric rates will remain in place five years subject to changes necessary to
reflect the effect of laws and/or edicts, or other material changes in
circumstances which have a substantial net impact upon the Company's utility
operations or revenues. On August 9, 1996, the Company, KGE, and the KCC
Staff were joined by the Citizens Utility Ratepayers Board and the City of
Wichita, Kansas in filing a motion to the KCC to approve the agreement.
On April 15, 1996, the Company filed an application with the KCC
requesting an order approving its proposal to merge with KCPL and for other
related relief. On July 29, 1996, the Company filed its First Amended
Application with the KCC in its proceeding for approval to merge with KCPL.
The amended application reflected the increase in the Company's offer for KCPL
from $28 to $31 per share and proposed an incentive rate mechanism requiring
all regulated earnings in excess of the merged Company's 12.61% return on
equity to be split among customers, shareholders, and additional depreciation
on Wolf Creek.
MPSC Proceedings: On May 3, 1996, the Company filed an application with
the MPSC requesting an order approving its proposal to merge with KCPL. The
application includes the same regulatory plan as proposed before the KCC and
includes an annual rate reduction of $21 million for KCPL retail electric
customers.
5. COMMITMENTS AND CONTINGENCIES
Manufactured Gas Sites: The Company has been associated with 15 former
manufactured gas sites located in Kansas which may contain coal tar and other
potentially harmful materials. The Company and the Kansas Department of
Health and Environment (KDHE) entered into a consent agreement governing all
future work at the 15 sites. The terms of the consent agreement will allow
the Company to investigate these sites and set remediation priorities based
upon the results of the investigations and risk analysis. 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 in 1995 were
minimal. The Company is aware of other Midwestern utilities which have
incurred remediation costs ranging between $500,000 and $10 million per 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 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. In 1994, the Company settled Superfund obligations
at three sites for a total of $57,500. No Superfund obligations have been
settled since 1994. The Company's obligation at the Wichita site appears to be
limited based on this experience. In the opinion of the Company's management,
the resolution of these matters is not expected to 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 certain 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 by the December 31, 1995 deadline. The Company expects some
additional equipment acquisitions and other expenditures to be needed to meet
Phase II sulfur dioxide requirements. Current estimated costs for Phase II
are approximately $5 million.
The nitrogen oxides and toxic limits, which were not set in the law,
were proposed by the EPA in January 1996. The Company is currently evaluating
the steps it will need to take in order to comply with the proposed new rules,
but is unable to determine its compliance options or related compliance costs
until the evaluation is finished later this year. The Company will have three
years to comply with the new rules.
Decommissioning: The Company accrues decommissioning costs over the
expected life of the Wolf Creek generating facility. The accrual is based on
estimated unrecovered decommissioning costs which consider inflation over the
remaining estimated life of the generating facility and are net of expected
earnings on amounts recovered from customers and deposited in an external
trust fund.
On June 9, 1994, the KCC issued an order approving the estimated
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 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 expensed approximated $3.6 million in 1995 and will increase annually
to $5.5 million in 2024. These expenses are deposited in an external trust
fund. The average after tax expected return on trust assets is 5.9%
The Company's investment in the decommissioning fund, including
reinvested earnings approximated $28.6 million and $25.1 million at June 30,
1996 and December 31, 1995, respectively. Trust fund earnings accumulate in
the fund balance and increase the recorded decommissioning liability. 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 staff of the SEC has questioned certain current accounting practices
used by nuclear electric generating station owners regarding the recognition,
measurement, and classification of decommissioning costs for nuclear electric
generating stations. In response to these questions, the FASB is expected to
issue new accounting standards for removal costs, including decommissioning,
in 1997. If current electric utility industry accounting practices for such
decommissioning costs are changed: (1) annual decommissioning expenses could
increase, (2) the estimated present value of decommissioning costs could be
recorded as a liability rather than as accumulated depreciation, and (3) trust
fund income from the external decommissioning trusts could be reported as
investment income rather than as a reduction to decommissioning expense.
When revised accounting guidance is issued, the Company will also have to
evaluate its effect on accounting for removal costs of other long-lived
assets. The Company is not able to predict what effect such changes would
have on results of operations, financial position, or related regulatory
practices until the final issuance of revised accounting guidance, but such
effect could be material.
The Company carries premature decommissioning insurance which 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 NRC, and to pay for on-site property damages.
This decommissioning insurance will only be available if the insurance funds
are not needed to implement the NRC-approved plan for stabilization and
decontamination.
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. If this liability limitation is insufficient, the U.S.
Congress will consider taking whatever action is necessary to compensate the
public for valid claims. 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.
The Owners carry decontamination liability, premature decommissioning
liability, and property damage insurance for Wolf Creek totaling 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 or premature decommissioning costs up to $1.3 billion
(Company's share). Premature decommissioning insurance cost recovery is
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 under the current policies of approximately $11
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 condition and 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, 1995, WCNOC's nuclear fuel commitments (Company's share) were
approximately $15.3 million for uranium concentrates expiring at various times
through 2001, $120.8 million for enrichment expiring at various times through
2014, and $72.7 million for fabrication through 2025. At December 31, 1995,
the Company's coal contract commitments in 1995 dollars under the remaining
terms of the contracts were approximately $2.5 billion. The largest coal
contract expires in 2020, with the remaining coal contracts expiring at
various times through 2013.
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 31.6%, 32.5%, and 31.9% for the three,
six, and twelve month periods ended June 30, 1996 compared to 29.2%, 32.3%,
and 34.3% for the three, six, and twelve month periods ended June 30, 1995.
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.
7. INVESTMENTS
During the first quarter of 1996, the Company purchased 30.8 million
common shares of ADT Limited (ADT) for approximately $444 million (average
price of $14.40 per share). In July of 1996, in order to obtain what the
Company considered to be favorable market prices for ADT shares, the Company
purchased an additional 1.3 million shares of ADT for approximately $25
million (average price of $18.91 per share). The shares purchased represent
approximately 24% of ADT's common equity. Goodwill of $282 million is
associated with this investment and is being amortized over 40 years. The
Company accounts for this investment using the equity method and includes the
investment in net non-utility investments on the accompanying Consolidated
Balance Sheets.
On July 1, 1996, ADT and Republic Industries, Inc. (Republic) announced
plans to combine, in which ADT would become a wholly-owned subsidiary of
Republic. Republic would exchange all 133.3 million shares of ADT stock for
its stock at the .92857 exchange ratio and anticipates issuing an additional
130 million shares of Republic stock at the close of the agreement. Under the
terms of the agreement, the Company would receive 29.8 million shares of
Republic common stock in exchange for its ADT stock.
The Company is considering its options with respect to ADT's proposed
amalgamation with Republic and has not yet made a final determination on this
matter. The Company may determine to oppose the Republic transaction and may
choose to exercise its appraisal rights under Bermuda law, although no final
decision by the Company has yet been taken. Should ADT consummate the
transaction with Republic, and the Company received Republic shares, in
connection therewith, the Company may decide to sell some or all of such
Republic shares.
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 Financial Condition and Results of
Operations in the Company's 1995 Annual Report on Form 10-K. The following
updates the information provided in the 1995 Annual Report on Form 10-K and
analyzes certain changes in the results of operations between the three, six,
and twelve month periods ended June 30, 1996 and comparable periods of 1995.
FINANCIAL CONDITION
General: Net income for the second quarter of 1996 was $28.7 million,
up from net income of $21.7 million for the same period of 1995. The Company
earned $0.40 per share of common stock for the second quarter of 1996, an
increase of $0.10 per share from the second quarter of 1995. Operating
revenues were $436 million and $372 million for the three months ended June
30, 1996 and 1995, respectively.
Net income for the six and twelve months ended June 30, 1996, was $73.5
million and $191.9 million, respectively, compared to $63.3 million and $154.4
million for the same periods of 1995. The Company earned $1.06 and $2.84 per
share of common stock, respectively, for the six and twelve months ended June
30, 1996 compared to $0.92 and $2.28 for the comparable periods of 1995.
Operating revenues were $1.0 billion and $1.9 billion for the six and twelve
months ended June 30, 1996, respectively. These revenues compare to $0.8
billion and $1.6 billion for the same periods of 1995.
The increases in net income, earnings per share, and operating revenues
are primarily due to the reasons discussed below in Results of Operations.
A quarterly dividend of $0.515 per share was declared in the second
quarter of 1996, for an indicated annual rate of $2.06 per share. The book
value per share was $24.78 at June 30, 1996, up from $24.71 at December 31,
1995. There were 63,465,666 and 61,885,556 average shares outstanding for
the second quarter of 1996 and 1995, 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 June 30, 1996, short-term borrowings amounted to
$740 million, of which $303 million was commercial paper. Short-term debt
increased from December 31, 1995 primarily as a result of the Company's
purchase of an approximate 24% common equity interest in ADT. (See Note 7 for
further discussion of the Company's investment in ADT.)
At June 30, 1996, the Company had bank credit arrangements available of
$322 million. On August 1, 1996, the available bank arrangements increased
to $423 million, of which $200 million was outstanding.
At the Company's' 1996 Annual Meeting of Shareholders, shareholders
voted to remove the 15% unsecured debt limitation from the Company's Articles of
Incorporation.
On July 1, 1996, four million shares of the Company's $25 par value
8.50% Preference Stock due 2016 were redeemed.
On July 31, 1996, Western Resources Capital II, a wholly owned trust, of
which the sole asset is subordinated debentures of the Company, sold in a
public offering 4.8 million preferred securities of 8-1/2% Cumulative
Quarterly Income Preferred Securities, Series B, for $120 million. The trust
interests represented by the preferred securities are redeemable at the option
of Western Resources Capital II, on or after July 31, 2001, at $25 per
preferred security plus accrued interest and unpaid dividends. Holders of the
securities are entitled to receive distributions at an annual rate of 8-1/2%
of the liquidation preference value of $25. Distributions are payable
quarterly, and in substance are tax deductible by the Company. The sole asset
of the trust is $124 million principal amount of 8-1/2% Deferrable Interest
Subordinated Debentures, Series B due July 31, 2036.
The securities will be shown as Western Resources Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trust holding solely
Subordinated Debentures (Other Mandatorily Redeemable Securities) on the
Consolidated Balance Sheets and Consolidated Statements of Capitalization.
See Note 7 of the Company's 1995 Annual Report on Form 10-K for additional
information.
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.
The following table reflects changes in electric sales for the three,
six, and twelve months ended June 30, 1996 from the comparable periods of
1995.
Increase in electric sales volumes:
3 Months 6 Months 12 Months
ended ended ended
Residential 20.0% 14.0% 12.7%
Commercial 8.9% 8.1% 5.7%
Industrial 3.4% 3.3% 4.0%
Total retail sales 9.9% 8.0% 7.2%
Wholesale and interchange 56.0% 38.4% 28.8%
Total electric sales 19.2% 14.1% 11.3%
Electric revenues increased over twelve percent for the three months
ended June 30, 1996 compared to 1995. The increase is largely due to
increased residential and wholesale and interchange (sales to other utilities)
sales as warm spring temperatures increased the demand for air conditioning
load, compared to last year. The Company's service territory experienced a
102% increase in the number of cooling degree days during the second quarter
of 1996, as compared to
the second quarter of 1995 and a 29% higher than normal number of cooling
degree days.
Electric revenues were higher nine percent and eight percent,
respectively for the six and twelve months ended June 30, 1996 compared to the
same periods of 1995. The increase was due to higher sales in all retail
customer classes and wholesale and interchange as a result of warmer spring
and colder winter temperatures experienced during the first six months of 1996
compared to 1995.
The following table reflects changes in natural gas sales for the three,
six, and twelve months ended June 30, 1996 from the comparable periods of
1995.
Increase (Decrease) in natural gas sales volumes:
3 Months 6 Months 12 Months
ended ended ended
Residential (7.8)% 13.3% 11.7%
Commercial (5.0)% 11.1% 8.2%
Industrial (27.9)% (10.2)% (8.6)%
Transportation (10.7)% (3.2)% (3.9)%
Total Deliveries (8.1)% 4.4% 9.8%
Natural gas revenues increased 14% for the three months end June 30,
1996 compared to June 30, 1995 as a result of as available gas sales (See the
Company's 1995 Annual Report on Form 10-K for additional explanation of as
available gas sales). Natural gas revenues increased 28% and 29% for the six
and twelve months ended June 30, 1996, respectively compared to the same
periods of 1995 as a result of colder winter temperatures.
Operating Expenses: Total operating expenses increased 17%, 23%, and
18% for the three, six, and twelve months ended June 30, 1996 compared to the
same periods of 1995. These increases are primarily attributable to the
amortization of the acquisition adjustment and increased fuel expense,
purchased power, and natural gas purchases due to Wolf Creek having been taken
off-line for its eighth refueling and maintenance outage during the first
quarter of 1996. Also contributing to the increases in fuel and purchased
power expenses was the increase in net generation due to the increase in
customer demand for air conditioning load during the second quarter of 1996.
The amortization of the acquisition adjustment associated with the
Company's 1992 acquisition of KGE, which began in August 1995, amounted to
$5.0 million, $10.0 million, and $16.7 million for the three, six, twelve
months ended June 30, 1996, respectively.
Partially offsetting the increase for the twelve months ended June 30,
1996 was cost savings from the July 1, 1995 early retirement programs which
recorded an expense of $7.6 million in the second quarter of 1995.
Other Income and Deductions: Other income and deductions, net of taxes,
increased $4.4 million and $4.5 million for the three and six months ended
June 30, 1996 compared to same periods of 1995. These increases are primarily
attributable to earnings from subsidiary investments.
Other income and deductions, net of taxes, increased $23.4 million for
the twelve months ended June 30, 1996 compared to 1995 as a result of earnings
from subsidiary investments and the receipt of death benefit proceeds under
COLI contracts during the fourth quarter of 1995. See Note 1 for additional
disclosure relating to COLI.
Interest Charges and Preferred and Preference Dividend Requirements:
Total interest charges increased 22 percent, 15 percent, and 11 percent for
the three, six, and twelve months ended June 30, 1996 from the comparable
periods in 1995, respectively. The increases for the three and six months
ended interest charges reflects interest paid on higher short-term debt
balances and balances under the Company's revolving credit agreement. The
increase in the twelve months interest charges was a result of interest paid
on higher short-term debt balances and distributions on mandatorily redeemable
preferred securities. See discussion above in Liquidity and Capital Resources
regarding higher short-term debt balances.
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 7, 1996.
At the meeting the shareholders, representing 52,037,563 shares either in person
or by proxy, voted to:
Elect the following directors to serve a term of three years:
Votes
For Against
Frank J. Becker 50,959,646 1,077,824
Gene A. Budig 50,810,020 1,228,831
C. Q. Chandler 50,883,155 1,154,315
Thomas R. Clevenger 50,918,248 1,119,222
David C. Wittig 50,919,401 1,117,154
The following directors will continue to serve their unexpired terms:
John C. Dicus, John E. Hayes, Jr., David H. Hughes, Russell W. Meyer, Jr.,
John H. Robinson, Louis W. Smith, Susan M. Stanton, and Kenneth J. Wagnon.
Adopt the 1996 Long Term Incentive and Share Award Plan as follows:
Votes
For Against Abstain
41,041,308 8,926,574 2,069,681
Amend the Articles of Incorporation by deleting certain provisions of
the Preferred Stock relating to unsecured indebtedness as follows:
Votes
For Against Abstain
Common and Preferred Stock 40,586,741 1,791,450 1,541,650
Preferred Stock 182,065 16,388 7,078
Item 5. Other Information
Proposed Merger with Kansas City Power & Light Company: See Note 2 of
the Notes to Consolidated Financial Statements.
Rate Plans: See Note 4 of the Consolidated Financial Statements.
Investments: See Note 7 of the Consolidated Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3(a) - Amendment to the Restated Articles of
Incorporation, as amended May 7, 1996
(filed electronically)
Exhibit 10(a) - Long-term Incentive and Share Award Plan
(filed electronically)
Exhibit 10(b) - Form of Employment Agreement with officers of
the Company (filed electronically)
Exhibit 12 - Computation of Ratio of Consolidated Earnings to Fixed
Charges for 12 Months Ended June 30, 1996 (filed
electronically)
Exhibit 27 - Financial Data Schedule (filed electronically)
Exhibit 99 - Kansas Gas and Electric Company's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1996 (filed electronically)
(b) Reports on Form 8-K:
Form 8-K dated April 14, 1996 - Press release regarding the Company's
offer to merge with KCPL.
Form 8-K dated April 22, 1996 - Press release regarding the Company's
offer to merge with KCPL.
Forms 8-K dated April 25, 1996 - Press release regarding the Company's
offer to merge with KCPL.
Forms 8-K dated April 26, 1996 - Press release regarding the Company's
offer to merge with KCPL.
Form 8-K dated April 29, 1996 - Press release regarding the Company's
offer to merge with KCPL.
Form 8-K dated May 3, 1996 - Press release regarding the Company's
offer to merge with KCPL.
Forms 8-K dated May 6, 1996 - Press release regarding the Company's
offer to merge with KCPL.
Form 8-K dated May 6, 1996 - Press release regarding the Company's
offer to merge with KCPL.
Form 8-K dated May 10, 1996 - Press release regarding the Company's
offer to merge with KCPL.
Form 8-K dated May 24, 1996 - Press release about the Company filing
testimony to the electric rate case at the KCC.
Form 8-K dated June 17, 1996 -Press release regarding the Company's
offer to merge with KCPL.
Form 8-K dated July 23, 1996 - 6/30/96 earnings release.
Form 8-K dated July 26, 1996 - Press release about KCC Staff and the
Company reaching agreement in rate case.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Western Resources, Inc.
Date August 14, 1996 By /s/ S. L. KITCHEN
S. L. Kitchen, Executive Vice President
and Chief Financial Officer
Date August 14, 1996 By /s/ JERRY D. COURINGTON
Jerry D. Courington,
Controller
Exhibit 3(a)
CERTIFICATE OF AMENDMENT TO RESTATED ARTICLES
OF INCORPORATION, AS AMENDED, OF
WESTERN RESOURCES, INC.
We, John E. Hayes, Jr., Chairman of the Board and Chief Executive
Officer and Richard D. Terrill, Secretary of Western Resources, Inc., a
corporation organized and existing under the laws of the State of Kansas, do
hereby certify that at a meeting of the Board of Directors of said
corporation, the board adopted resolutions setting forth the following
amendment to the Restated Articles of Incorporation and declaring its
advisability:
Article VI, Section A. to be amended by the deletion of
paragraph 6(c) subsection (iii) and renumber the
remaining subsections of Article VI.A.6(c).
We further certify that thereafter, pursuant to
said resolution, and in accordance with the by-laws of
the corporation and the laws of the State of Kansas,
pursuant to notice and in accordance with the statutes of
the State of Kansas, the shareholders at a meeting duly
convened considered the proposed amendment.
We further certify that at the meeting two-thirds
of the shares of preferred stock entitled to vote and a
majority of common and preferred shares together entitled
to vote, voted in favor of the proposed amendment.
We further certify that the amendment was duly
adopted in accordance with the provision of K.S.A.
17-6602, as amended.
We further certify that the capital of said
corporation will not be reduced under or by reason of
said amendment.
IN WITNESS WHEREOF, we have hereunto set our hands
and affixed the seal of said corporation the 14th day of
May, 1996.
________________________
John E. Hayes, Jr.
Chairman of the Board and
Chief Executive Officer
________________________
Richard D. Terrill
Secretary
State of Kansas )
) ss.
County of Shawnee )
Be it remembered that before me, a Notary Public in
and for the aforesaid county and state, personally
appeared John E. Hayes, Jr., Chairman of the Board and
Chief Executive Officer, and Richard D. Terrill,
Secretary of the corporation named in this document, who
are known to me to be the same persons who executed the
foregoing certificate and duly acknowledge that execution
of the same this 14th day of May, 1996.
________________________
Notary Public
Exhibit 10(a)
WESTERN RESOURCES, INC.
_______________________________________________________
LONG TERM INCENTIVE AND SHARE AWARD PLAN
(Effective January 1, 1996)
______________________________________________________
1. Purposes. The purposes of the 1996 Long Term Incentive and Share
Award Plan are to advance the interests of Western Resources, Inc. and its
shareholders by providing a means to attract, retain, and motivate employees
and directors of the Company and certain of its Subsidiaries and affiliates
upon whose judgment, initiative and efforts the continued success, growth and
development of the Company is dependent.
2. Definitions. For purposes of the Plan, the following terms shall
be defined as set forth below unless a different meaning is plainly required
by the context:
(a) "Affiliate" means any entity other than the Company and
its Subsidiaries that is designated by the Board or the Committee as a
participating employer under the Plan, provided that the Company directly or
indirectly owns at least 50% of the combined voting power of all classes of
stock of such entity or at least 50% of the ownership interests in such
entity.
(b) "Award" means any Option, SAR, Restricted Share,
Restricted Share Unit, Performance Share, Performance Unit, Dividend
Equivalent, or Other Share-Based Award granted to an Eligible Employee under
the Plan.
(c) "Award Agreement" means any written agreement, contract, or
other instrument or document evidencing an Award.
(d) "Beneficiary" means the person, persons, trust or trusts
which have been designated by such Participant in his or her most recent
written beneficiary designation filed with the Company to receive the benefits
specified under this Plan upon the death of the Participant, or, if there is
no designated Beneficiary or surviving designated Beneficiary, then the
person, persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as
amended from time to time. References to any provision of the Code shall be
deemed to include successor provisions thereto and regulations thereunder.
(g) "Committee" means the Human Resources Committee of the
Board, or such other Board committee as may be designated by the Board to
administer the Plan; provided, however, that the Committee shall consist of
two or more directors of the Company, each of whom is a "disinterested person"
within the meaning of Rule 16b-3 under the Exchange Act and an "outside
director" within the meaning of Section 162(m)(4)(c) of the Code.
(h) "Company" means Western Resources, Inc., a corporation
organized under the laws of the state of Kansas, or any successor
corporation.
( I ) "Director" means a non-employee member of the Board.
( j ) "Director's Share" means a share granted to a Director
under
Section 7.
(k) "Dividend Equivalent" means a right, granted under
Section 5(g), to receive cash, Shares, or other property equal in value to
dividends paid with respect to a specified number of Shares. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award, and may be paid currently or on a deferred basis.
(l) "Eligible Employee" means an employee of the Company or its
Subsidiaries and Affiliates, including any director who is an employee, who is
responsible for or contributes to the management, growth and/or profitability
of the business of the Company, its Subsidiaries or Affiliates.
(m) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time. References to any provision of the Exchange Act
shall be deemed to include successor provisions thereto and regulations
thereunder.
(n) "Fair Market Value" means, with respect to Shares or
other property, the fair market value of such Shares or other property
determined by such methods or procedures as shall be established from time to
time by the Committee. If the shares are listed on any established stock
exchange or on a national market system, unless otherwise determined by the
Committee in good faith, the Fair Market Value of Shares shall mean the mean
between the high and low selling prices per Share on the immediately
preceding date (or, if the Shares were not traded on that day, the next
preceding day that the Shares were traded) on the principal exchange on which
the Shares are traded, as such prices are officially quoted on such exchange.
(o) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(p) "NQSO" means any Option that is not an ISO.
(q) "Option" means a right, granted under Section 5(b), to
purchase Shares.
(r) "Other Share-Based Award" means a right, granted under
Section 5(h), that relates to or is valued by reference to Shares.
(s) "Participant" means an Eligible Employee or Director who
has been granted an Award or Director's Shares under the Plan.
(t) "Performance Share" means a performance share granted under
Section 5(f).
(u) "Performance Unit" means a performance unit granted under
Section 5(f).
(v) "Plan" means this 1996 Long Term Incentive and Share Award
Plan.
(w) "Restricted Shares" means an Award of Shares under Section
5(d) that may be subject to certain restrictions and to a risk of forfeiture.
(x) "Restricted Share Unit" means a right, granted under
Section 5(e), to receive Shares or cash at the end of a specified deferral
period.
(y) "Rule 16b-3" means Rule 16b-3, as from time to time in
effect and applicable to the Plan and Participants, promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange Act.
(z) "SAR" or "Share Appreciation Right" means the right,
granted under Section 5(c), to be paid an amount measured by the difference
between the exercise price of the right and the Fair Market Value of Shares
on the date of exercise of the right, with payment to be made in cash,
Shares, or property as specified in the Award or determined by the Committee.
(aa) "Shares" means common stock, $5.00 par value per
share, of the Company.
(bb) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if
each of the corporations (other than the last corporation in the unbroken
chain) owns shares possessing 100% or more of the total combined voting power
of all classes of stock in one of the other corporations in the chain.
3. Administration.
(a) Authority of the Committee. Except as provided in
subsection (e) of this Section 3, the Plan shall be administered by the
Committee, and the Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions
of the Plan:
i) to select Eligible Employees to whom Awards may
be granted;
(ii) to designate Affiliates;
(iii) to determine the type or types of Awards to be
granted to each Eligible Employee;
(iv) to determine the type and number of Awards to be
granted, the number of Shares to which an Award may relate, the terms and
conditions of any Award granted under the Plan (including, but not limited to,
any exercise price, grant price, or purchase price, and any bases for
adjusting such exercise, grant or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability, or settlement of an Award, and
waiver or accelerations thereof, and waivers of performance conditions
relating to an Award, based in each case on such considerations as the
Committee shall determine), and all other matters to be determined in
connection with an Award;
(v) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award may
be paid, in cash, Shares, other Awards, or other property, or an Award may be
canceled, forfeited, exchanged, or surrendered;
(vi) to determine whether, to what extent, and under
what circumstances cash, Shares, other Awards, or other property payable with
respect to an Award will be deferred either automatically, at the election of
the Committee, or at the election of the Participant;
(vii) to prescribe the form of each Award Agreement, which
need not be identical for each Participant;
(viii) to adopt, amend, suspend, waive, and rescind
such rules and regulations and appoint such agents as the Committee may deem
necessary or advisable to administer the Plan;
(ix) to correct any defect or supply any omission or
reconcile any inconsistency in the Plan and to construe and interpret the
Plan and any Award, rules and regulations, Award Agreement, or other
instrument hereunder,
(x) to accelerate the exercisability or vesting of all or
any portion of any Award or to extend the period during which an Award is
exercisable; and
(xi) to make all other decisions and determinations
as may be required under the terms of the Plan or as the Committee may deem
necessary or advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. The Committee
shall have sole discretion in exercising its authority under the Plan. Any
action of the Committee with respect to the Plan shall be final, conclusive,
and binding on all persons, including the Company, Subsidiaries, Affiliates,
Eligible Employees, any person claiming any rights under the Plan from or
through any Eligible Employee, and shareholders. The express grant of any
specific power to the Committee, and the taking of any action by the
Committee, shall not be construed as limiting any power or authority of the
Committee. The Committee may delegate to officers or managers of the Company
or any Subsidiary or Affiliate the authority, subject to such terms as the
Committee shall determine, to perform administrative functions and, with
respect to Awards granted to persons not subject to Section 16 of the Exchange
Act, to perform such other functions as the Committee may determine, to the
extent permitted under Rule 16b-3 (if applicable) and applicable law.
(c) Limitation of Liability. Each member of the Committee shall
be entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any officer or other employee of the
Company or any Subsidiary or Affiliate, the Company's independent certified
public accountants, or other professional retained by the Company to assist
in the administration of the Plan. No member of the Committee, nor any
officer or employee of the Company acting on behalf of the Committee, shall be
personally liable for any action, determination, or interpretation taken or
made in good faith with respect to the Plan, and all members of the Committee
and any officer or employee of the Company acting on their behalf shall, to
the extent permitted by law, be fully indemnified and protected by the Company
with respect to any such action, determination, or interpretation.
(d) Limitation on Committee's Discretion. Anything in this Plan to
the contrary notwithstanding, in the case of any Award which is intended to
qualify as "performance-based compensation" within the meaning of Section
162(m)(4)(C) of the Code, the Committee shall have no discretion to increase
the amount of compensation payable under the Award to the extent such an
increase would cause the Award to lose its qualification as such
performance-based compensation.
(e) Administration of Directors' Portion. Anything in this Plan to
the contrary notwithstanding, the portion of this Plan relating to Directors
shall be administrated by the full board. Since grants to Directors are
either automatic or based on the elections of Directors, this function will be
limited to interpretation and general administrative oversight.
4. Shares Subject to the Plan.
(a) Subject to adjustment as provided in Section 4(c) hereof,
the total number of Shares reserved for issuance in connection with Awards and
Director's Shares under the Plan shall be 3,000,000 . No Award or Director's
Shares may be granted if the number of Shares to which such Award or
Director's Share relates, when added to the number of Shares previously issued
under the Plan, exceeds the number of Shares reserved under the preceding
sentence. If any Awards or Director's Shares are forfeited, canceled,
terminated, exchanged or surrendered or such Award or Director's Shares is
settled in cash or otherwise terminates without a distribution of Shares to
the Participant, any Shares counted against the number of Shares reserved and
available under the Plan with respect to such Award or Director's Shares
shall, to the extent of any such forfeiture, settlement, termination,
cancellation, exchange or surrender, again be available for Awards or
Director's Shares under the Plan. Upon the exercise of any Award granted in
tandem with any other Awards, such related Awards shall be canceled to the
extent of the number of Shares as to which the Award is exercised. Subject
to adjustment as provided in Section 4(c) hereof, the maximum number of Shares
with respect to which Options or SARs may be granted during a calendar year
to any Eligible Employee under this Plan shall be 75,000 (seventy-five
thousand) Shares or with respect to Restricted Shares and Performance Shares
the equivalent of 15,000 shares during a calendar year.
(b) Any Shares distributed pursuant to an Award or Director's
Shares may consist, in whole or in part, of authorized and unissued Shares,
treasury Shares or Shares acquired by purchase in the open market or in
private transactions.
(c) In the event that the Committee shall determine that any
dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or event, affects the
Shares such that an adjustment is appropriate ln order to prevent dilution or
enlargement of the rlghts of Eligible Employees under the Plan, then the
Committee shall make such equitable changes or adjustments as it deems
appropriate and, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares which may thereafter be issued under the
Plan, (ii) the number and kind of shares, other securities or other
consideration issued or issuable in respect of outstanding Awards, and (iii)
the exercise price, grant price, or purchase price relating to any Award;
provided, however, in each case that, with respect to ISOs, such adjustment
shall be made in accordance with Section 424(h) of the Code, unless the
Committee determines otherwise. In addition, the Committee is authorized to
make adjustments in the terms and conditions of, and the criteria and
performance objectives included in, Awards in recognition of unusual or
non-recurring events (including, without limitation, events described in the
preceding sentence) affecting the Company or any Subsidiary or Affiliate or
the financial statements of the Company or any Subsidiary or Affiliate, or in
response to changes in applicable laws, regulations, or accounting principles;
provided, however, that, if an Award Agreement specifically so provides, the
Committee shall not have discretion to increase the amount of compensation
payable under the Award to the extent such an increase would cause the Award
to lose its qualification as performance-based compensation for purposes of
Section 162(m)(4)(C) of the Code and the regulations thereunder.
5. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions
set forth in this Section 5. In addition, the Committee may impose on any
Award or the exercise thereof, at the date of grant or thereafter (subject to
Section 9(d)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
regarding forfeiture of Awards or continued exercisability of Awards in the
event of termination of employment by the Eligible Employee.
(b) Options. The Committee is authorized to grant Options,
which may be NQSOs or ISOs, to Eligible Employees on the following terms and
conditions:
(i) Exercise Price. The exercise price per Share
purchasable under an Option shall be determined by the Committee, and the
Committee may, without limitation, set an exercise price that is based upon
achievement of performance criteria if deemed appropriate by the Committee.
(ii) Time and Method of Exercise. The Committee shall
determine at the date of grant or thereafter the time or times at which an
Option may be exercised in whole or in part (including, without limitation,
upon achievement of performance criteria if deemed appropriate by the
Committee), the methods by which such exercise price may be paid or deemed to
be paid (including, without limitation, broker-assisted exercise
arrangements), the form of such payment (including, without limitation, cash,
Shares, notes or other property), and the methods by which Shares will be
delivered or deemed to be delivered to Eligible Employees.
(iii) ISOs. The terms of any ISO granted under the Plan
shall comply in all respects with the provisions of Section 422 of the Code,
including but not limited to the requirement that the ISO shall be granted
within ten years from the earlier of the date of adoption or shareholder
approval of the Plan.
(c) SARs. The Committee is authorized to grant SARs (Share
Appreciation Rights) to Eligible Employees on the following terms and
conditions:
(I) Right to Payment. An SAR shall confer on the
Eligible Employee to whom it is granted a right to receive with respect to
each Share subject thereto, upon exercise thereof, the excess of (1) the Fair
Market value of one Share on the date of exercise (or if the Committee shall
so determine in the case of any such right, the Fair Market Value of one Share
at any time during a specified period before or after the date of exercise)
over (2) the exercise price of the SAR as determined by the Committee as of
the date of grant of the SAR (which, in the case of an SAR granted in tandem
with an Option, shall be equal to the exercise price of the underlying
Option).
(ii) Other Terms. The Committee shall determine, at the
time of grant or thereafter, the time or times at which an SAR may be
exercised in whole or in part, the method of exercise, method of settlement,
form of consideration payable in settlement, method by which Shares will be
delivered or deemed to be delivered to Eligible Employees, whether or not an
SAR shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Unless the Committee determines otherwise, a SAR (1)
granted in tandem with an NQSO may be granted at the time of grant of the
related NQSO or at any time thereafter, and (2) granted in tandem with an ISO
may only be granted at the time of grant of the related ISO.
(d) Restricted Shares. The Committee is authorized to grant
Restricted Shares to Eligible Employees on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Shares shall be
subject to such restrictions on transferability and other restrictions, if
any, as the Committee may impose at the date of grant or thereafter, which
restrictions may lapse separately or in combination at such times, under such
circumstances (including, without limitation, upon achievement of performance
criteria if deemed appropriate by the Committee), in such installments, or
otherwise, as the Committee may determine. Except to the extent restricted
under the Award Agreement relating to the Restricted Shares, an Eligible
Employee granted Restricted Shares shall have all of the rights of a
shareholder including, without limitation, the right to vote Restricted Shares
and the right to receive dividends thereon. The Committee must certify in
writing prior to the lapse of restrictions conditioned on achievement of
performance criteria that such performance criteria were in fact satisfied.
(ii) Forfeiture. Except as otherwise determined by the
Committee, at the date of grant or thereafter, upon termination of employment
during the applicable restriction period, Restricted Shares and any accrued
but unpaid dividends or Dividend Equivalents that are at that time subject to
restrictions shall be forfeited; provided, however, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Shares will be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in other
cases waive in whole or in part the forfeiture of Restricted Shares.
(iii) Certificates for Shares. Restricted Shares granted
under the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Shares are registered in
the name of the Eligible Employee, such certificates shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to such
Restricted Shares, and the Company shall retain physical possession of the
certificate.
(iv) Dividends. Dividends paid on Restricted Shares shall
be either paid at the dividend payment date or deferred for payment to such
date as determined by the Committee, in cash or in unrestricted Shares having
a Fair Market Value equal to the amount of such dividends. Shares distributed
in connection with a Share split or dividend in Shares, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Shares with respect to which
such Shares or other property has been distributed.
(e) Restricted Share Units. The Committee is authorized to
grant Restricted Share Units to Eligible Employees, subject to the following
terms and conditions:
(i) Award and Restrictions. Delivery of Shares or cash,
as the case may be, will occur upon expiration of the deferral period
specified for Restricted Share Units by the Committee (or, if permitted by the
Committee, as elected by the Eligible Employee). In addition, Restricted
Share Units shall be subject to such restrictions as the Committee may impose,
if any (including, without limitation, the achievement of performance criteria
if deemed appropriate by the Committee), at the date of grant or thereafter,
which restrictions may lapse at the expiration of the deferral period or at
earlier or later specified times, separately or in combination, in
installments or otherwise, as the Committee may determine. The Committee must
certify in writing prior to the lapse of restrictions conditioned on the
achievement of performance criteria that such criteria were in fact satisfied.
(ii) Forfeiture. Except as otherwise
determined by the Committee, at the date of grant or thereafter, upon
termination of employment (as determined under criteria established by the
Committee) during the applicable deferral period or portion thereof to which
forfeiture conditions apply (as provided in the Award Agreement evidencing the
Restricted Share Units), or upon failure to satisfy any other conditions
precedent to the delivery of Shares or cash to which such Restricted Share
Units relate, all Restricted Share Units that are at that time subject to
deferral or restriction shall be forfeited; provided, however, that the
Committee may provide, by rule or regulation or in any Award Agreement, or may
determine in any individual case, that restrictions or forfeiture conditions
relating to Restricted Share Units will be waived in whole or in part in the
event of termination resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Restricted Share
Units.
(f) Performance Shares and Performance Units. The Committee is
authorized to grant Performance Shares or Performance Units or both to
Eligible Employees on the following terms and conditions:
(i) Performance Period. The Committee shall determine a
performance period (the "Performance Period") of one or more years and shall
determine the performance objectives for grants of Performance Shares and
Performance Units. Performance objectives may vary from Eligible Employee to
Eligible Employee and shall be based upon such performance criteria as the
Committee may deem appropriate. Performance Periods may overlap and Eligible
Employees may participate simultaneously with respect to Performance Shares
and Performance Units for which different Performance Periods are prescribed.
(ii) Award Value. At the beginning of a Performance
Period, the Committee shall determine for each Eligible Employee or group of
Eligible Employees with respect to that Performance Period the range of number
of Shares, if any, in the case of Performance Shares, and the range of dollar
values, if any, in the case of Performance Units, which may be fixed or may
vary in accordance with such performance or other criteria specified by the
Committee, which shall be paid to an Eligible Employee as an Award if the
relevant measure of Company performance for the Performance Period is met.
(iii) Significant Events. If during the course of a
Performance Period there shall occur significant events as determined by the
Committee which the Committee expects to have a substantial effect on a
performance objective during such period, the Committee may revise such
objective; provided, however, that, if an Award Agreement so provides, the
Committee shall not have any discretion to increase the amount of compensation
payable under the Award to the extent such an increase would cause the Award
to lose its qualification as performance-based compensation for purposes of
Section 162(m)(4)(C) of the Code and the regulations thereunder.
(iv) Forfeiture. Except as otherwise determined by the
Committee, at the date of grant or thereafter, upon termination of employment
during the applicable Performance Period, Performance Shares and Performance
Units for which the Performance Period was prescribed shall be forfeited;
provided, however, that the Committee may provide, by rule or regulation or in
any Award Agreement, or may determine in an individual case, that restrictions
or forfeiture conditions relating to Performance Shares and Performance Units
will be waived in whole or in part in the event of terminations resulting from
specified causes, and the Committee may in other cases waive in whole or in
part the forfeiture of Performance Shares and Performance Units.
(v) Payment. Each Performance Share or Performance Unit
may be paid in whole Shares, or cash, or a combination of Shares and cash
either as a lump sum payment or in installments, all as the Committee shall
determine, at the time of grant of the Performance Share or Performance Unit
or otherwise, commencing as soon as practicable after the end of the relevant
Performance Period. The Committee must certify in writing prior to payment of
any Performance Share or Performance Unit that the performance objectives and
any other material items were in fact satisfied.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to Eligible Employees. The Committee may provide, at the
date of grant or thereafter, that Dividend Equivalents shall be paid or
distributed when accrued or shall be deemed to have been reinvested in
additional Shares, or other investment vehicles as the Committee may
specify, provided that Dividend Equivalents (other than freestanding Dividend
Equivalents) shall be subject to all conditions and restrictions of the
underlying Awards to which they relate.
(h) Other Share-Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant to Eligible Employees
such other Awards that may be denominated or payable in, valued in whole or in
part by reference to, or otherwise based on, or related to, Shares, as deemed
by the Committee to be consistent with the purposes of the Plan, including,
without limitation, unrestricted shares awarded purely as a "bonus" and not
subject to any restrictions or conditions, other rights convertible or
exchangeable into Shares, purchase rights for Shares, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Committee, and Awards valued by reference to the performance
of specified Subsidiaries or Affiliates. The Committee shall determine the
terms and conditions of such Awards at date of grant or thereafter. Shares
delivered pursuant to an Award in the nature of a purchase right granted under
this Section 5(h) shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation,
cash, Shares, notes or other property, as the Committee shall determine. Cash
awards, as an element of or supplement to any other Award under the Plan,
shall also be authorized pursuant to this Section 5(h).
6. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem and Substitute Awards.
Awards granted under the Plan may, in the discretion of the Committee, be
granted to Eligible Employees either alone or in addition to, in tandem with,
or in exchange or substitution for, any other Award granted under the Plan or
any award granted under any other plan or agreement of the Company, any
Subsidiary or Affiliate, or any business entity to be acquired by the Company
or a Subsidiary or Affiliate, or any other right of an Eligible Employee to
receive payment from the Company or any Subsidiary or Affiliate. Awards may
be granted in addition to or in tandem with such other Awards or awards, and
may be granted either at the same time as or a different time from the grant
of such other Awards or awards. The per Share exercise price of any Option,
grant price of any SAR, or purchase price of any other Award conferring a
right to purchase Shares which is granted, in connection with the substitution
of awards granted under any other plan or agreement of the Company or any
Subsidiary or Affiliate or any business entity to be acquired by the Company
or any Subsidiary or Affiliate, shall be determined by the Committee, in its
discretion.
(b) Terms of Awards. The term of each Award granted to an
Eligible Employee shall be for such period as may be determined by the
Committee; provided, however, that in no event shall the term of any ISO or
an SAR granted in tandem therewith exceed a period of ten years from the date
of its grant (or such shorter period as may be applicable under Section 422 of
the Code).
(c) Form of Payment Under Awards. Subject to the terms of the
Plan and any applicable Award Agreement, payments to be made by the Company or
a Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award
may be made in such forms as the Committee shall determine at the date of
grant or thereafter, including, without limitation, cash, Shares, or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis. The Committee may make rules relating to installment or
deferred payments with respect to Awards, including the rate of interest to be
credited with respect to such payments.
(d) Nontransferability. Unless otherwise set forth by the
Committee in an Award Agreement, Awards (except for vested shares) shall not
be transferable by an Eligible Employee except by will or the laws of descent
and distribution (except pursuant to a Beneficiary designation) and shall be
exercisable during the lifetime of an Eligible Employee only by such Eligible
Employee or his guardian or legal representative. An Eligible Employee's
rights under the Plan may not be pledged, mortgaged, hypothecated, or
otherwise encumbered, and shall not be subject to claims of the Eligible
Employees creditors.
7. Directors' Fees
(a) Stock Grant. Each Director Participant shall receive such portion
of his/her Director fees in Shares as shall be established from time to time
by the Board, with the remainder of such Director fees to be payable, in cash
or in Shares as elected by the Director Participant in accordance with Section
7(b) below.
(b) Election to Determine Percentage or Amount of Compensation to be
Paid in Stock. Each Director Participant shall have an opportunity to elect
to have the remaining portion of his/her Director fees paid in cash or shares,
or a combination thereof. Except for the initial election following adoption
of the plan or the Director's election to the Board, any such election shall
be made in writing and must be made at least six months before the services
are rendered giving rise to such compensation, and may not be changed
thereafter except as to compensation for services rendered at least six months
after any such election to change is made in writing. In the absence of such
an election, such remaining portion of the Director's fees shall be paid
entirely in cash. Nothing contained in this Section 7(b) shall be interpreted
in such a manner as would disqualify the Plan from treatment as a "formula
plan" under Rule 16b-3.
(c) Amount and Date of Payment for Stock Compensation.
(1) For any Plan Year in which a Director is a Participant for the
full Plan Year, any Stock compensation due a Director Participant pursuant to
Sections 7(a) shall be payable at the beginning of such plan year, and with
respect to Section 7(b) above shall be payable on a quarterly basis, with the
first such quarterly distribution being made on April 1 and succeeding
quarterly distributions being made on July 1, October 1, and January 1. The
amount of stock to be distributed to a Director Participant shall be
determined by dividing the Director Participant's required and elected dollar
amount of stock compensation by the Fair Market Value of the Shares.
(2) Notwithstanding the foregoing, for purposes of the 1996 Plan Year,
no stock distributions shall be made prior to receipt of all requisite
approvals; provided, however, that once the requisite approvals of the Plan
are received, the stock distributions shall be made as soon as practicable
thereafter and shall include any stock distributions which would have been
made had the requisite approvals been obtained on the Effective Date. The
stock distributions to be made in accordance with this Section 7(c)(2) shall
be valued in accordance with the provisions of Section 7(c)(1).
8. Change of Control Provisions.
(a) Acceleration of Exercisability and Lapse of Restrictions;
Cash-Out of Awards. In the event of a Change of Control, the following
acceleration and cash-out provisions shall apply unless otherwise provided by
the Committee at the time of the Award grant.
(i) All outstanding Awards pursuant to which the
Participant may have rights the exercise of which is restricted or limited,
shall become fully exercisable; unless the right to lapse of restrictions or
limitations is waived or deferred by a Participant prior to such lapse, all
restrictions or limitations (including risks of forfeiture and deferrals) on
outstanding Awards subject to restrictions or limitations under the Plan shall
lapse; and all performance criteria and other conditions to payment of Awards
under which payments of cash, Shares or other property are subject to
conditions shall be deemed to be achieved or fulfilled and shall be waived by
the Company.
(ii) For a period of up to 60 days following a Change in
Control, the Participant may elect to surrender any outstanding Award and to
receive, in full satisfaction therefor, a cash payment equal to the value of
such Award calculated on the basis of the Change of Control Price of any
Shares or the Fair Market Value of any property other than Shares relating to
such Award; provided, however, that in the case of an Incentive Stock Option,
or a Stock Appreciation Right granted in tandem therewith, the cash payment
shall be based upon the Fair Market Value of Shares on the date of exercise.
In the event that an Award is granted in tandem with another Award such that
the Participant's right to payment for such Award is an alternative to payment
of another Award, the Participant electing to surrender any such tandem Award
shall surrender all alternative Awards related thereto and receive payment for
the Award which produces the highest payment to the Participant. Except as
provided in Section 8(a)(iii), in no event will an Award be surrendered or a
Participant have the right to receive cash under this Section 8(a)(ii) with
respect to an Award if the Participant is subject to Section 16 of the
Exchange Act and at least six months shall not have elapsed from the date on
which the Participant was granted the Award before the date of the Change of
Control (unless this restriction is not at such time required under Rule
16b-3).
(iii) In the event that any Award is subject to limitations
under Section 8(a)(ii) at the time of a Change of Control, then, solely for
the purpose of determining the rights of the Participant with respect to such
Award, a Change of Control shall be deemed to occur at the close of business
on the first business day following the date on which the Award could be sold
without liability under Section 16 of the Exchange Act.
(b) Definitions of Certain Terms. For purposes of this Section
8, the following definitions, in addition to those set forth in Section 2,
shall apply:
(i) "Change of Control" means and shall be deemed to have
occurred if (a) any person (within the meaning of the Exchange Act), other
than the Company or a Related Party, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
Voting Securities representing 30 percent or more of the total voting power of
all the then-outstanding Voting Securities, (b) the individuals who, as of
the effective date of the Plan, constitute the Board of Directors of the
Company together with those who first become directors subsequent to such date
and whose recommendation, election or nomination for election to the Board was
approved by a vote of at least a majority of the directors then still in
office who either were directors as of the effective date of the Plan or whose
recommendation, election or nomination for election was previously so approved
(the "Continuing Directors"), cease for any reason to constitute a majority of
the members of the Board, (c) the shareholders of the Company approve a
merger, consolidation, recapitalization or reorganization of the Company,
reverse split of any class of Voting Securities, or an acquisition of
securities or assets by the Company, or consummation of any such transaction
if shareholder approval is not obtained, other than (i) any such transaction
which would result in more than 75 percent of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being beneficially owned by more than 75
percent of the holders of outstanding Voting Securities immediately prior to
the transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the transaction,
or (ii) any such transaction which would result in a Related Party
beneficially owning more than 50 percent of the voting securities of the
surviving entity outstanding immediately after such transaction, (d) the
shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets other than any such transaction
which would result in a Related Party owning or acquiring more than 50 percent
of the assets owned by the Company immediately prior to the transaction.
(ii) "Change of Control Price" means, with respect to a
Share, the higher of (a) the highest reported sales price of Shares on the New
York Stock Exchange during the 30 calender days preceding a Change of Control,
or (b) the highest price paid or offered in a transaction which either (i)
results in a Change of Control, or (ii) would be consummated but for another
transaction which results in a Change of Control and, if it were consummated,
would result in a Change of Control. With respect to clause (b) in the
preceding sentence, the "price paid or offered" will be equal to the sum of
(i) the face amount of any portion of the consideration consisting of cash or
cash equivalents and (ii) the fair market value of any portion of the
consideration consisting of real or personal property other than cash or cash
equivalents, as established by an independent appraiser selected by the
Committee.
(iii) "Related Party" means (a) a wholly-owned subsidiary
of the Company; or (b) an employee or group of employees of the Company or any
wholly-owned subsidiary of the Company; or (c) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
wholly-owned subsidiary of the Company; or (d) a corporation owned directly or
indirectly by the shareholders of the Company in substantially the same
proportion as their ownership of Voting Securities.
(iv) "Voting Securities or Security" means any securities
of the Company which carry the right to vote generally in the election of
directors.
9. General Provisions.
(a) Compliance with Legal and Trading Requirements. The Plan,
the granting and exercising of Awards or Director's Shares thereunder, and the
other obligations of the Company under the Plan and any Award Agreement, shall
be subject to all applicable federal and state laws, rules and regulations,
and to such approvals by any regulatory or governmental agency as may be
required. The Company, in its discretion, may postpone the issuance or
delivery of Shares under any Award or Director's Share until completion of
such stock exchange or market system listing or registration or qualification
of such Shares or other required action under any state or federal law, rule
or regulation as the Company may consider appropriate, and may require any
Participant to make such representations and furnish such information as it
may consider appropriate in connection with the issuance or delivery of Shares
in compliance with applicable laws, rules and regulations. No provisions of
the Plan shall be interpreted or construed to obligate the Company to register
any Shares under federal or state law.
(b) No Right to Continued Employment or Service. Neither the
Plan nor any action taken thereunder shall be construed as giving any employee
or director the right to be retained in the employ or service of the Company
or any of its Subsidiaries or Affiliates, nor shall it interfere in any way
with the right of the Company or any of its Subsidiaries or Affiliates to
terminate any employee's or director's employment or service at any time.
(c) Taxes. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Award granted, any payment relating to an
Award under the Plan, including from a distribution of Shares, or any payroll
or other payment to an Eligible Employee, amounts of withholding and other
taxes due in connection with any transaction involving an Award, and to take
such other action as the Committee may deem advisable to enable the Company
and Eligible Employees to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Shares or other property and to make
cash payments in respect thereof in satisfaction of an Eligible Employee's tax
obligations.
(d) Chanqes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of shareholders of the Company
or Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's shareholders to the extent such shareholder approval is required (i)
in order to insure that Awards granted under the Plan are exempt under Rule
16b-3 or (ii) under Section 422 of the Code; provided, however, that, without
the consent of an affected Participant, no amendment, alteration, suspension,
discontinuation, or termination of the Plan may impair the rights or, in any
other manner, adversely affect the rights of such Participant under any Award
or Director's Shares theretofore granted to him or her. Notwithstanding the
other provisions of this paragraph, Section 7 and the other provisions of this
Plan applicable to Director's Shares may not be amended more than once every
six months other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
(e) No Riqhts to Awards; No Shareholder Riqhts. No Eligible
Employee or employee shall have any claim to be granted any Award under the
Plan, and there is no obligation for uniformity of treatment of Eligible
Employees and employees. No Award shall confer on any Eligible Employee any
of the rights of a shareholder of the Company unless and until Shares are duly
issued or transferred to the Eligible Employee in accordance with the terms
of the Award.
(f) Unfunded Status of Awards. The Plan is intended to
constitute an "unfunded" plan for incentive compensation. With respect to any
payments not yet made to a Participant pursuant to an Award or Director's
Shares, nothing contained in the Plan or any Award or Director's Share shall
give any such Participant any rights that are greater than those of a general
creditor of the Company; provided, however, that the Committee may authorize
the creation of trusts or make other arrangements to meet the Company's
obligations under the Plan to deliver cash, Shares, other Awards, or other
property pursuant to any Award, which trusts or other arrangements shall be
consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
(g) Nonexclusivity of the Plan. Neither the adoption of the
Plan by the Board nor its submission to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of options and other awards
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
(h) Not Compensation for Benefit Plans. No Award payable under
this Plan shall be deemed salary or compensation for the purpose of computing
benefits under any benefit plan or other arrangement of the Company for the
benefit of its employees or directors unless the Company shall determine
otherwise.
(i) No Fractional Shares. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award or Director's Option. Cash
shall be paid in lieu of such fractional shares.
(j) Governing Law. The validity, construction, and effect of
the Plan, any rules and regulations relating to the Plan, and any Award
Agreement shall be determined in accordance with the laws of Kansas without
giving effect to principles of conflict of laws.
(k) Effective Date; Plan Termination. The Plan shall become
effective as of January 1, 1996, (the "Effective Date") upon approval by the
affirmative votes of the holders of a majority of voting securities of the
Company voting upon the adoption of the plan. The Plan shall terminate as to
future awards on the date which is ten (10) years after the Effective Date.
(l) Titles and Headings. The titles and headings of the
sections in the Plan are for convenience of reference only. In the event of
any conflict, the text of the Plan, rather than such titles or headings, shall
control.
Exhibit 10(b)
(Form of Employment Agreement)
Name
Western Resources, Inc.
818 Kansas Avenue
Topeka, Kansas 66612
Dear ___________________:
Western Resources, Inc., (the "Company") considers sound management
essential to protecting the interests of the Company and its shareholders.
The Company recognizes that the possibility of a change in control could arise
which may result in the distraction of management to the detriment of the
Company and its shareholders. It is important that you be able to advise the
Board whether a proposed change in control would be in the best interests of
the Company and its shareholders and to take action regarding such proposal as
the Board directs, without being influenced by the uncertainties of your own
situation.
To induce you to remain in the employ of the Company, this Agreement,
approved by the Board of Directors (the "Board"), sets forth the benefits
which will be provided to you if your employment is terminated subsequent to a
"change in control".
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below, the
Company or you may terminate your employment at any time, subject to this
Agreement.
(ii) If an offer is made by a Person for more than 30% of the
Company's outstanding securities ordinarily having the right to vote at
elections of directors ("Voting Securities"), you agree that you will not
leave the employ of the Company (other than for Disability or upon Retirement)
and will render the services contemplated in this agreement until such offer
has been abandoned or a change in control has occurred. "Person" shall mean
any individual, corporation, partnership, group, association or other
"person", as such term is used in Section 14(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), other than the Company, a wholly owned
subsidiary of the Company or any employee benefit plan(s) sponsored by the
Company or a subsidiary of the Company.
2. Term of Agreement. This Agreement shall continue until
January 1, 1998, and on such date and each January 1 thereafter, the term
shall be extended for one year unless at least 90 days prior to such January
1st date, the Company or you shall have given notice to cancel this Agreement.
Notwithstanding any such notice, this Agreement shall continue in effect for
12 months after a change in control which occurs during the term of this
Agreement, as extended. This Agreement shall terminate if your employment
terminates prior to a change in control.
3. Change in Control. A "change in control" shall be deemed to
have occurred when (a) any Person becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more
of the Voting Securities; (b) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease to constitute a majority thereof,
provided that any person who becomes a director by approval of at least three
quarters of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement in which such person is
named as a nominee for director, without objection to such nomination) shall
be considered a member of the Incumbent Board; (c) the approval of the
Company's stockholders of the merger or consolidation of the Company (other
than a merger or consolidation immediately following which the stockholders of
the Company immediately prior thereto own, directly or indirectly, more than
75% of the Voting Securities of the merged or consolidated company) and the
consummation of such transaction; (d) the liquidation or dissolution of the
Company; or (e) the sale of all or substantially all of the assets of the
Company. No change in control shall be deemed to have occurred by virtue of
any transaction which results in you, or a group of Persons which includes
you, acquiring, directly or indirectly, 30% or more of the voting power of the
Voting Securities.
4. Termination Following Change in Control. Upon a change in
control, you shall be entitled to the benefits provided in Section 5 hereof
upon the termination of your employment with the Company within 12 months
after such event, unless such termination is (a) because of your death or
Retirement, (b) by the Company for Cause or Disability or (c) by you other
than for Good Reason.
(i) Disability. Termination based on "Disability" shall mean
termination because of your absence from your duties on a full time basis for
180 consecutive days due to physical or mental illness, unless within 30 days
after Notice of Termination is given to you following such absence you shall
have returned to the full time performance of your duties.
(ii) Retirement. Termination based on "Retirement" shall mean
termination on or after your normal retirement date under the terms of The
Kansas Power and Light Company Retirement Plan (or any successor plan put into
effect prior to a change in control) (the "Retirement Plan").
(iii) Cause. Termination for "Cause" shall mean termination
upon (a) the willful and continued failure by you to perform substantially
your duties (unless due to physical or mental illness) after a demand for
substantial performance is delivered to you by the Chairman of the Board or
President of the Company which specifically identifies the manner in which you
have not substantially performed your duties, or (b) the willful engaging by
you in illegal conduct which is materially injurious to the Company.
"Willful" means in bad faith and without reasonable belief that your act or
omission was in, or not opposed to, the best interests of the Company. Any
act, or failure to act, based upon authority given by the Board or upon the
advice of counsel for the Company shall be deemed to be in the best interests
of the Company. Your attention to matters not directly related to the
business of the Company shall not provide a basis for termination for Cause if
the Company has approved such activities. You shall not be deemed to have
been terminated for Cause unless there shall have been delivered to you a
resolution by the affirmative vote of three quarters of the Board at a meeting
called for the purpose (after reasonable notice to you and an opportunity for
you, together with your counsel, to be heard before the Board) of determining
if you have been guilty of the conduct set forth above in (a) or (b) of this
paragraph (iii) and specifying the particulars thereof.
(iv) Good Reason. Termination for "Good Reason" shall mean
termination based on any of the following events, provided that you give the
Company written notice thereof within six months of the event constituting
"Good Reason":
(A) a determination by you that there has been an adverse change
in your status or position(s) as an officer of the Company as in effect
immediately prior to the change in control, including, without limitation, any
diminution in your responsibilities or the assignment to you of any
responsibilities which are inconsistent with such status or position(s), or
any removal of you from or any failure to reappoint or reelect you to such
position(s) (except in connection with the termination of your employment for
Cause, Disability or Retirement or as a result of your death or by you other
than for Good Reason);
(B) a reduction in your base salary as in effect immediately
prior to the change in control;
(C) the failure to continue in effect any Plan in which you are
participating at the time of the change in control (or Plans providing you
with at least substantially similar benefits) other than as a result of the
normal expiration of any such Plan under its terms as in effect at the time of
the change in control, or the taking of any action, or the failure to act, by
the Company which would adversely affect your continued participation in any
of such Plans on at least as favorable a basis to you as is the case on the
date of the change in control or which would materially reduce your benefits
in the future under any of such Plans or deprive you of any material benefit
enjoyed by you at the time of the change in control;
(D) the failure to credit you with the number of paid vacation
days to which you are then entitled under the normal vacation policy as in
effect immediately prior to the change in control;
(E) the Company's requiring you to be based anywhere other than
where your office is located immediately prior to the change in control except
for required travel on the Company's business to an extent substantially
consistent with the business travel obligations which you undertook prior to
the change in control;
(F) the failure of the Company to obtain from any successor the
assent to this Agreement contemplated by Section 6 hereof;
(G) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
paragraph (v) below (and, if applicable, paragraph (iii) above); and for
purposes of this Agreement, no such purported termination shall be effective;
or
(H) any refusal by the Company to continue to allow you to
engage in activities not directly related to the business of the Company
which, prior to the change in control, you were permitted by the Company to
engage in.
"Plan" shall mean any compensation plan such as an incentive, stock option or
restricted stock plan or any employee benefit plan such as a salary
continuation program, saving, deferred compensation, pension, profit sharing,
medical, disability, accident, or life insurance plan or a relocation plan or
policy or any other plan, program or policy of the Company intended to benefit
employees.
(v) Notice of Termination. Any purported termination following a
change in control shall be communicated by written Notice of Termination to
the other party hereto. A "Notice of Termination" shall indicate the specific
termination provision in this Agreement relied upon.
(vi) Date of Termination. "Date of Termination" following a change in
control shall mean (a) if your employment is to be terminated for Disability,
30 days after Notice of Termination is given (provided that you shall not have
returned to the performance of your duties on a full-time basis during such 30
day period), (b) if your employment is to be terminated by the Company for
Cause or by you pursuant to Sections 4(iv)(F) or 6 hereof or for any other
Good Reason, the date specified in the Notice of Termination, or (c) if your
employment is to be terminated by the Company for any reason other than Cause,
the date specified in the Notice of Termination shall be 90 days after the
Notice of Termination is given, unless an earlier date has been expressly
agreed to by you in writing.
In the case of termination for Cause, if you have not previously
expressly agreed in writing to the termination, then within 30 days after
receipt by you of the Notice of Termination, you may notify the Company that a
dispute exists concerning the termination, in which event the Date of
Termination shall be the date set either by mutual written agreement of the
parties or by the arbitrators in a proceeding as provided in Section 13
hereof. During the pendency of any such dispute, the Company will continue to
pay you your full compensation and benefits in effect just prior to the time
the Notice of Termination is given and until the dispute is resolved in
accordance with Section 13.
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) After a change in control if you fail to perform your duties
as a result of physical or mental illness, you shall continue to receive your
salary at the rate then in effect and any benefits or awards under any Plans
shall continue to accrue during such period, to the extent not inconsistent
with such Plans, until your employment is terminated under paragraphs 4(i) and
4(vi) hereof. Thereafter, your benefits shall be determined under the Plans
then in effect.
(ii) If your employment shall be terminated for Cause following a
change in control, the Company shall pay you your salary through the Date of
Termination at the rate in effect just prior to the time a Notice of
Termination is given plus any benefits or awards (including both the cash and
stock components) which have been earned. Thereupon the Company shall have no
further obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within 12 months after a
change in control, your employment shall be terminated (a) by the Company
other than for Cause, Disability or Retirement or (b) by you for Good Reason,
then the Company shall pay to you, by the fifth day following the Date of
Termination, without regard to any contrary provisions of any Plan, the
following:
(A) your base salary through the Date of Termination at
the rate in effect just prior to the time a Notice of Termination is given
plus (A) any accrued vacation pay and (B) a pro rata share of any benefits or
awards (including both the cash and stock components) which but for your
Termination would have been earned, but which have not yet been paid to you;
(B) two (2.99 for certain executive officers) times the
higher of (A) your annual base salary on the Date of Termination or (B) your
annual base salary in effect immediately prior to the change in control;
(C) two (2.99 for certain executive officers) times the
average of the incentive compensation (including both the cash and stock
components) awarded to you for the three completed bonus periods prior to the
Date of Termination;
(D) the actuarial equivalent of the amount by which your
total vested benefits under the Retirement Plan, computed as if you had two
(three for certain executive officers) additional years of benefit accrual
service, exceed your actual pension benefits. For this computation, your
final average salary shall be deemed to be your annual base compensation in
effect just prior to the time a Notice of Termination is given and the benefit
and accrual formulas and actuarial assumptions shall be no less favorable than
those in effect at the same time;
"Base salary" shall include any amounts deducted by the Company for your
account under any agreement with the Company or Section 125 and 401(k) of the
Internal Revenue Code of 1986, as amended, (the "Code").
[Mr. Wittig only:
(iv) Subject to Section 8 hereof, if within 12 months after a
change in control, your employment shall be terminated (a) by the Company
other than for Cause, Disability or Retirement or (b) by you for Good Reason,
then the Company shall vest you in the supplemental retirement benefit
referred to in the third paragraph of your Letter Agreement dated April 27,
1995.]
(iv) If, within 12 months after a change in control, your
employment shall be terminated (a) by the Company other than for Cause,
Disability or Retirement or (b) by you for Good Reason, then the Company shall
maintain in effect, for the continued benefit of you and your dependents until
the earliest of (a) two (three for certain executive officers) years after the
Date of Termination, (b) the commencement date of equivalent benefits from a
new employer or (c) your normal retirement date under the terms of the
Retirement Plan, all employee welfare benefit plans in which you were entitled
to participate immediately prior to the Date of Termination, provided that
your continued participation is possible under the provisions of such Plans
(and any applicable funding media) and you continue to pay your regular
contribution under such Plans. If your participation in any such Plan is
barred, the Company, at its expense, shall arrange to have issued individual
policies of insurance providing benefits substantially similar (on an
after-tax basis) to those which you otherwise would have been entitled to
receive or, if such insurance is not available at a reasonable cost, the
Company shall otherwise provide you and your dependents with equivalent
benefits (on an after-tax basis). You shall not be required to pay any amount
greater than you would have paid to participate in such Plans.
(v) Except as provided in paragraph (iv) above, the payment
provided for in this Section 5 shall not be reduced by any compensation earned
by you after the Date of Termination.
(vi) If the payments provided by Section 5(iii) hereof (the
"Agreement Payments") become subject to the tax (the "Excise Tax") imposed by
Section 4999 of the Code as in effect on the date of this Agreement (or any
similar tax), you will be responsible for the Excise Tax and the Company will
not pay you an additional amount (the "Gross-up Payment"). If, however, the
"Agreement Payments" become subject to the Excise Tax (or any similar tax) by
virtue of changes in the Code which occur after the date of this Agreement,
the Company shall pay to you at the time specified in Subsection (vii) below
a "Gross-up Payment" such that the net amount retained by you, after deduction
of any Excise Tax on the Total Payments (as hereinafter defined), and any
federal, state and local income tax and Excise Tax upon the Gross-up Payment
provided for by this subsection (vi) shall be equal to what the Total Payments
would have been had such changes in the Code not occurred.
For purposes of determining whether any of the Agreement Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (a) any other
payments or benefits received or to be received by you in connection with a
change in control or your termination of employment (under this Agreement or
any other agreement with the Company or any person whose actions result in a
change of control or any person affiliated with the Company) (which, together
with the Agreement Payments, shall constitute the "Total Payments") shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless
in the opinion of tax counsel selected by the Company's independent auditors
such other payments or benefits (in whole or in part) are not subject to the
Excise Tax, (b) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (1) the Total
Payments or (2) the amount of excess parachute payments within the meaning of
Section 280G(b)(1) of the Code (after applying clause (a), above), and (c) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the Gross-up Payment, you shall be deemed to
pay federal, state, and local income taxes at the highest applicable marginal
rate for the calendar year in which the Gross-up Payment is to be made net of
the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes. If the Excise Tax is finally
determined to be less than the amount taken into account at the time the
Gross-up Payment is made, you shall repay the portion attributable to such
reduction (plus the portion of the Gross-up Payment attributable to a
reduction in Excise Tax and/or a federal and state and local income tax
deduction), plus interest on the amount of such repayment at the rate provided
in Section 1274(b)(2)(B) of the Code. If the Excise Tax is later determined
to exceed the amount taken into account at the time the Gross-up Payment is
made, the Company shall make an additional gross-up payment (plus any interest
payable with respect to such excess at the rate provided in Section
1274(b)(2)(B) of the code) when such excess is finally determined.
(vii) The Gross-up Payment or portion thereof provided for in
Subsection (vi) above shall be paid not later than the thirtieth day following
payment of any amounts under section 5(iii); provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to you on such day an
estimate, as determined in good faith by the Company, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined, but in no event later than the
forty-fifth day after payment of any amounts under section 5(iii). If the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to you,
payable on the fifth day after demand by the Company (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code).
(viii) In the event it shall be determined by the Company's
independent auditor that the Agreement Payments would subject you to the
Excise Tax, it shall also be determined whether a certain reduction in the
Agreement Payments would result in an after-tax amount with a greater net
present value than would occur without such reduction. If so, the Agreement
Payments shall be reduced by the minimum amount necessary to obtain such
result.
If such reduced payments incorrectly result in an overpayment or
underpayment to you, the underpayment shall be promptly paid to you and, if an
overpayment shall have occurred, it shall be treated for all purposes as a
loan to you by the Company which you shall repay on the fifth day after demand
by the Company, in each case together with interest at the applicable rate
provided for in Section 1274(b)(2)(B) of the Code.
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
business days prior to the time a Person becomes a Successor, to have such
Person, in form satisfactory to you, assent to the fulfillment of the
Company's obligations under this Agreement. Failure of such Person to furnish
such assent by the later of (A) three business days prior to the time such
Person becomes a Successor or (B) two business days after such Person
receives a written request to so assent shall constitute Good Reason for
termination by you of your employment if a change in control occurs or has
occurred. "Successor" shall mean any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Voting Securities or otherwise.
(ii) This Agreement shall be enforceable by your personal or
legal representatives. If you should die while any amount would still be
payable to you hereunder if you had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to your designee or, if there be no such designee, to your
estate.
(iii) The "Company" shall include any continuing entity from any
business combination in which the Company ceases to exist.
7. Fees and Expenses; Mitigation.
(i) The Company shall reimburse you, on a current basis, for all
legal fees and related expenses incurred by you in connection with the
Agreement following a change in control, including, without limitation, (a)
all such fees and expenses, if any, incurred in contesting any termination of
your employment or incurred by you in seeking advice with respect to the
matters set forth in Section 8 hereof or (b) your seeking to enforce any
benefit provided by this Agreement, in each case, regardless of whether or not
your claim is upheld by a court of competent jurisdiction; provided, however,
you shall be required to repay any such amounts to the extent that a court
issues a final and non-appealable order determining that your position was
frivolous. In addition to the fees and expenses provided herein, you shall
also be paid interest on any disputed amount ultimately paid to you at the
prime rate announced from time to time by Chemical Bank, New York, from the
date payment should have been made until paid in full.
(ii) You shall not be required to mitigate any payment the
Company becomes obligated to make to you under this Agreement.
8. Taxes. All payments under this Agreement will be subject to
required withholding of federal, state and local income and employment taxes.
9. Survival. The respective obligations of, and benefits afforded
to, the Company and you as provided in Sections 5, 6(ii), 7, 8 and 14 of this
Agreement shall survive termination of this Agreement.
10. Notice. Notices and all other communications under this Agreement
shall be in writing and shall be deemed to have been duly given when mailed by
United States registered mail, return receipt requested, postage prepaid and
addressed, in the case of the Company, to the address set forth on the first
page of this Agreement or, in the case of the undersigned employee, to the
address set forth below his signature, provided that all notices to the
Company shall be directed to the attention of the Chairman of the Board or
President of the Company, with a copy to the Secretary of the Company, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed
to in a writing signed by you and the Chairman of the Board or President of
the Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Kansas.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
13. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration by
three arbitrators in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrators' award
in any court having jurisdiction; provided, however, that you shall be
entitled to seek specific performance of your right to be paid until the Date
of Termination during the pendency of any dispute or controversy arising under
or in connection with this Agreement. The Company shall bear all costs and
expenses arising in connection with any arbitration proceeding pursuant to
this Section 13.
14. Related Agreements. If any provision of any other agreement
between the Company or any of its subsidiaries and you shall, qualify or be
inconsistent with any provision of this Agreement, then, while this Agreement
remains in force, this Agreement shall control and such provision of such
other agreement shall be deemed to have no force or effect.
15. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this letter correctly sets forth our agreement, kindly sign and
return to the Company the enclosed copy of this letter.
Sincerely,
ACCEPTED:
_________________
Exhibit 12
WESTERN RESOURCES, INC.
Computations of Ratio of Earnings to Fixed Charges and
Computations of Ratio of Earnings to Combined Fixed Charges
and Preferred and Preference Dividend Requirements
(Dollars in Thousands)
Unaudited
Twelve
Months
Ended
June 30, Year Ended December 31,
1996 1995 1994 1993 1992 1991
Net Income . . . . . . . . . . . $191,920 $181,676 $187,447 $177,370 $127,884 $ 89,645
Taxes on Income. . . . . . . . . 87,594 83,392 99,951 78,755 46,099 42,527
Net Income Plus Taxes . . . 279,514 265,068 287,398 256,125 173,983 132,172
Fixed Charges:
Interest on Long-Term Debt . . 101,218 95,962 98,483 123,551 117,464 51,267
Interest on Other Indebtedness 29,961 27,487 20,139 19,255 20,009 10,490
Interest on Other Mandatorily
Redeemable Securities. . . . 4,059 372 - - - -
Interest on Corporate-owned
Life Insurance Borrowings. . 35,523 32,325 26,932 16,252 5,294 -
Interest Applicable to
Rentals. . . . . . . . . . . 31,645 31,650 29,003 28,827 27,429 5,089
Total Fixed Charges. . . . 202,406 187,796 174,557 187,885 170,196 66,846
Preferred and Preference Dividend
Requirements:
Preferred and Preference
Dividends. . . . . . . . . . 13,419 13,419 13,418 13,506 12,751 6,377
Income Tax Required. . . . . . 6,125 6,160 7,155 5,997 4,596 3,025
Total Preferred and Preference
Dividend Requirements. . . 19,544 19,579 20,573 19,503 17,347 9,402
Total Fixed Charges and Preferred
and Preference Dividend
Requirements. . . . . . . . . 221,950 207,375 195,130 207,388 187,543 76,248
Earnings (1) . . . . . . . . . . $481,920 $452,864 $461,955 $444,010 $344,179 $199,018
Ratio of Earnings to Fixed Charges 2.38 2.41 2.65 2.36 2.02 2.98
Ratio of Earnings to Combined Fixed
Charges and Preferred and Preference
Dividend Requirements. . . . . 2.17 2.18 2.37 2.14 1.84 2.61
(1) Earnings are deemed to consist of net income to which has been added income taxes (including
net deferred investment tax credit) and fixed charges. Fixed charges consist of all interest
on indebtedness, amortization of debt discount and expense, and the portion of rental expense
which represents an interest factor. Preferred and preference dividend requirements consist
of an amount equal to the pre-tax earnings which would be required to meet dividend
requirements on preferred and preference stock.
UT
1,000
6-MOS
DEC-31-1996
JUN-30-1996
PER-BOOK
4,348,305
601,154
416,628
621,189
0
5,987,276
319,235
721,838
541,184
1,582,257
150,000
24,858
1,341,279
436,800
0
302,955
0
100,000
0
0
2,049,127
5,987,276
991,743
33,586
822,879
857,450
134,293
8,305
142,598
69,063
73,535
6,709
66,826
65,263
53,104
125,499
1.06
0
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, 1996
[ ] 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 14, 1996
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.
KANSAS GAS AND ELECTRIC COMPANY
INDEX
Page
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 18
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Dollars in Thousands)
(unaudited)
June 30, December 31,
1996 1995
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . . $3,468,581 $3,427,928
Less - Accumulated depreciation . . . . . . . . . . . . . 936,700 893,728
2,531,881 2,534,200
Construction work in progress . . . . . . . . . . . . . . 26,808 40,810
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . . 49,415 53,942
Net utility plant . . . . . . . . . . . . . . . . . . . 2,608,104 2,628,952
OTHER PROPERTY AND INVESTMENTS:
Decommissioning trust . . . . . . . . . . . . . . . . . . 28,551 25,070
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 8,424 7,885
36,975 32,955
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . 88 53
Accounts receivable and unbilled revenues (net) . . . . . 81,652 76,490
Advances to parent company . . . . . . . . . . . . . . . 214,303 34,948
Fossil fuel, at average cost. . . . . . . . . . . . . . . 14,895 17,522
Materials and supplies, at average cost . . . . . . . . . 30,545 31,458
Prepayments and other current assets. . . . . . . . . . . 30,427 17,128
371,910 177,599
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes . . . . . . . . . . . . . . 208,367 208,367
Deferred coal contract settlement costs . . . . . . . . . 13,136 14,612
Phase-in revenues . . . . . . . . . . . . . . . . . . . . 35,089 43,861
Other deferred plant costs. . . . . . . . . . . . . . . . 31,406 31,539
Corporate-owned life insurance (net). . . . . . . . . . . 10,473 7,279
Unamortized debt expense. . . . . . . . . . . . . . . . . 24,513 25,605
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 42,376 32,645
365,360 363,908
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,382,349 $3,203,414
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (See Statements):
Common stock equity . . . . . . . . . . . . . . . . . . . $1,169,030 $1,186,077
Long-term debt (net). . . . . . . . . . . . . . . . . . . 684,006 684,082
1,853,036 1,870,159
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . . 250,000 50,000
Long-term debt due within one year. . . . . . . . . . . . - 16,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . 58,478 50,783
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 19,455 17,766
Accrued interest. . . . . . . . . . . . . . . . . . . . . 9,082 7,903
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 6,603 6,608
343,618 149,060
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . . 794,468 800,934
Deferred investment tax credits . . . . . . . . . . . . . 71,345 72,970
Deferred gain from sale-leaseback . . . . . . . . . . . . 237,880 242,700
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 82,002 67,591
1,185,695 1,184,195
COMMITMENTS AND CONTINGENCIES (Note 2)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $3,382,349 $3,203,414
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
June 30,
1996 1995
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 163,038 $ 144,747
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 21,828 19,167
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 5,618 5,076
Power purchased . . . . . . . . . . . . . . . . . . . . . 2,464 523
Other operations. . . . . . . . . . . . . . . . . . . . . 38,307 31,794
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 15,439 12,359
Depreciation and amortization . . . . . . . . . . . . . . 23,494 18,316
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 9,215 8,208
State income . . . . . . . . . . . . . . . . . . . . . 2,801 2,387
General . . . . . . . . . . . . . . . . . . . . . . . . 12,047 11,752
Total operating expenses. . . . . . . . . . . . . . . 135,599 113,968
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 27,439 30,779
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (1,565) (1,821)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 556 731
Income taxes (net). . . . . . . . . . . . . . . . . . . . 4,729 2,184
Total other income and deductions . . . . . . . . . . 3,720 1,094
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 31,159 31,873
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 11,583 11,783
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,694 1,107
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (371) (584)
Total interest charges. . . . . . . . . . . . . . . . 13,906 12,306
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 17,253 $ 19,567
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 308,072 $ 283,304
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 43,980 37,396
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 7,375 9,764
Power purchased . . . . . . . . . . . . . . . . . . . . . 6,824 1,206
Other operations. . . . . . . . . . . . . . . . . . . . . 69,676 62,199
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 27,338 24,626
Depreciation and amortization . . . . . . . . . . . . . . 46,862 36,669
Amortization of phase-in revenues . . . . . . . . . . . . 8,772 8,772
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 12,672 15,478
State income . . . . . . . . . . . . . . . . . . . . . 3,992 4,462
General . . . . . . . . . . . . . . . . . . . . . . . . 24,088 23,386
Total operating expenses. . . . . . . . . . . . . . . 251,579 223,958
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 56,493 59,346
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (3,749) (3,537)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 1,571 2,830
Income taxes (net). . . . . . . . . . . . . . . . . . . . 5,327 3,819
Total other income and deductions . . . . . . . . . . 3,149 3,112
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 59,642 62,458
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 23,299 23,551
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 4,369 2,612
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (979) (1,144)
Total interest charges. . . . . . . . . . . . . . . . 26,689 25,019
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 32,953 $ 37,439
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
June 30,
1996 1995
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 648,636 $ 611,593
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 87,176 83,844
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 17,036 15,231
Power purchased . . . . . . . . . . . . . . . . . . . . . 10,195 4,857
Other operations. . . . . . . . . . . . . . . . . . . . . 125,353 118,674
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 50,768 47,384
Depreciation and amortization . . . . . . . . . . . . . . 89,872 69,865
Amortization of phase-in revenues . . . . . . . . . . . . 17,545 17,544
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 45,524 47,617
State income . . . . . . . . . . . . . . . . . . . . . 12,073 12,304
General . . . . . . . . . . . . . . . . . . . . . . . . 46,943 44,342
Total operating expenses. . . . . . . . . . . . . . . 502,485 461,662
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 146,151 149,931
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (2,880) (6,898)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 3,625 5,101
Income taxes (net). . . . . . . . . . . . . . . . . . . . 10,594 7,871
Total other income and deductions . . . . . . . . . . 11,339 6,074
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 157,490 156,005
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 46,821 47,280
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 6,947 5,323
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (2,665) (1,730)
Total interest charges. . . . . . . . . . . . . . . . 51,103 50,873
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 106,387 $ 105,132
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 32,953 $ 37,439
Depreciation and amortization . . . . . . . . . . . . . . . 36,850 36,669
Other amortization (including nuclear fuel) . . . . . . . . 5,658 7,388
Gain on sales of utility plant (net of tax) . . . . . . . . - (951)
Deferred taxes and investment tax credits (net) . . . . . . (8,091) (10,360)
Amortization of phase-in revenues . . . . . . . . . . . . . 8,772 8,772
Corporate-owned life insurance. . . . . . . . . . . . . . . (12,593) (8,665)
Amortization of gain from sale-leaseback. . . . . . . . . . (4,820) (4,821)
Amortization of acquisition adjustment. . . . . . . . . . . 10,012 -
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (5,162) (147)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . 2,627 (2,857)
Accounts payable. . . . . . . . . . . . . . . . . . . . . 7,695 5,833
Interest and taxes accrued. . . . . . . . . . . . . . . . 2,868 6,605
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 10,076 (12,881)
Changes in other assets and liabilities . . . . . . . . . . (31,859) 9,254
Net cash flows from operating activities. . . . . . . . 54,986 71,278
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 31,314 40,556
Sales of utility plant. . . . . . . . . . . . . . . . . . . - (1,723)
Corporate-owned life insurance policies . . . . . . . . . . 22,468 25,639
Death proceeds of corporate-owned life insurance. . . . . . - (250)
Net cash flows used in investing activities . . . . . . 53,782 64,222
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . 200,000 (25,000)
Advances to parent company (net). . . . . . . . . . . . . . (179,355) (27,511)
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (16,135) (25)
Borrowings against life insurance policies. . . . . . . . . 44,321 45,578
Repayment of borrowings against life insurance policies . . - (73)
Dividends to parent company . . . . . . . . . . . . . . . . (50,000) -
Net cash flows from (used in) financing activities . . . (1,169) (7,031)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . 35 25
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 53 47
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 88 $ 72
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 50,652 $ 48,809
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 17,600 18,100
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 106,387 $ 105,132
Depreciation and amortization . . . . . . . . . . . . . . . 73,131 69,865
Other amortization (including nuclear fuel) . . . . . . . . 13,463 12,426
Gain on sales of utility plant (net of tax) . . . . . . . . - (951)
Deferred taxes and investment tax credits (net) . . . . . . 6,120 10,670
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Corporate-owned life insurance. . . . . . . . . . . . . . . (32,476) (17,081)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,639) (9,641)
Amortization of acquisition adjustment. . . . . . . . . . . 16,741 -
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (13,672) (10,657)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . 1,714 (3,536)
Accounts payable. . . . . . . . . . . . . . . . . . . . . 3,552 (5,177)
Interest and taxes accrued. . . . . . . . . . . . . . . . (2,770) (2,557)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 20,977 (1,683)
Changes in other assets and liabilities . . . . . . . . . . (26,588) (491)
Net cash flows from operating activities. . . . . . . . 174,485 163,863
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 84,696 83,130
Sales of utility plant. . . . . . . . . . . . . . . . . . . - (1,723)
Corporate-owned life insurance policies . . . . . . . . . . 27,176 28,049
Death proceeds of corporate-owned life insurance. . . . . . (10,333) (250)
Net cash flows used in investing activities . . . . . . 101,539 109,206
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . 225,000 (200)
Advances to parent company (net). . . . . . . . . . . . . . (122,399) 23,674
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (16,135) (25)
Borrowings against life insurance policies. . . . . . . . . 45,789 46,962
Repayment of borrowings against life insurance policies . . (5,185) (73)
Dividends to parent company . . . . . . . . . . . . . . . . (200,000) (125,000)
Net cash flows from (used in) financing activities . . . (72,930) (54,662)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . 16 (8)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 72 77
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 88 $ 72
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 73,651 $ 73,544
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 41,660 28,209
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
1996 1995
COMMON STOCK EQUITY (see Statements):
Common stock, without par value, authorized and issued
1,000 shares. . . . . . . . . . . . . . . . . . . . . . . $1,065,634 $1,065,634
Retained earnings . . . . . . . . . . . . . . . . . . . . . 103,396 120,443
Total common stock equity . . . . . . . . . . . . . . . . 1,169,030 63% 1,186,077 63%
LONG-TERM DEBT:
First Mortgage Bonds:
Series Due 1996 1995
5-5/8% 1996 $ - $ 16,000
7.6% 2003 135,000 135,000
6-1/2% 2005 65,000 65,000
6.20% 2006 100,000 100,000
300,000 316,000
Pollution Control Bonds:
5.10% 2023 13,822 13,957
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
387,762 387,897
Total bonds. . . . . . . . . . . . . . . . . . . . . . 687,762 703,897
Less:
Unamortized premium and discount (net). . . . . . . . . . 3,756 3,815
Long-term debt due within one year. . . . . . . . . . . . - 16,000
Total long-term debt . . . . . . . . . . . . . . . . . 684,006 37% 684,082 37%
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . $1,853,036 100% $1,870,159 100%
(a) Market-Adjusted Tax Exempt Securities (MATES). As of June 30, 1996, the rate
on these bonds ranged from 3.62% to 3.66%.
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF COMMON STOCK EQUITY
(Dollars in Thousands)
(Unaudited)
Common Retained
Stock Earnings
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 . . . . . . . . . . . . . . . . . . . . . 110,873
Dividend to parent company . . . . . . . . . . . . . (150,000)
BALANCE DECEMBER 31, 1995, 1,000 shares. . . . . . . 1,065,634 120,443
Net Income . . . . . . . . . . . . . . . . . . . . . 32,953
Dividend to parent company . . . . . . . . . . . . . (50,000)
BALANCE JUNE 30, 1996, 1,000 shares. . . . . . . . . $1,065,634 $ 103,396
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES AND OTHER INFORMATION
General: Kansas Gas and Electric Company (the Company, KGE) is a rate-
regulated electric utility and wholly-owned subsidiary of Western Resources,
Inc. (Western Resources). The Company is engaged in the production, purchase,
transmission, distribution, and sale of electricity. The Company serves
approximately 275,000 electric customers in southeastern Kansas.
On March 31, 1992, Western Resources through its wholly-owned subsidiary
KCA Corporation (KCA), acquired all of the outstanding common and preferred
stock of KGE. Simultaneously, KCA and KGE merged and adopted the name of KGE
(the Merger).
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 in its financial statements its proportionate
share of all transactions of WCNOC as it does other jointly-owned facilities.
The Company prepares its financial statements in conformity with
generally accepted accounting principles as applied to regulated public
utilities. The accounting and rates of the Company are subject to
requirements of the Kansas Corporation Commission (KCC) and the Federal Energy
Regulatory Commission (FERC). The financial statements require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, to disclose contingent assets and liabilities at the balance
sheet date, and to report amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 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, 1996 and
December 31, 1995, and the results of its operations for the three, six and
twelve month periods ended June 30, 1996 and 1995. These condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's 1995 Annual Report on Form 10-K.
On April 24, 1996, FERC issued its final rule on Order No. 888, Promoting
Wholesale Competition Through Open Access Non-discriminatory Transmission
Services by Public Utilities; Recovery of Stranded Costs by Public Utilities
and Transmitting Utilities. The Company has reviewed this order and does not
expect it to have a material effect on operations.
Cash Surrender Value of Life Insurance Contracts: The following amounts
related to corporate-owned life insurance contracts (COLI) are recorded in
Corporate-owned Life Insurance (net) on the balance sheets:
June 30, December 31,
1996 1995
(Dollars in Millions)
Cash surrender value of contracts. . $407.8 $360.3
Borrowings against contracts . . . . (397.3) (353.0)
COLI (net) . . . . . . . . . . . $ 10.5 $ 7.3
Income is recorded for increases in cash surrender value and net death
proceeds. Interest expense is recognized for COLI borrowings. The net income
generated from COLI contracts, including the tax benefit of the interest
deductions and premium expenses, are recorded as Corporate-owned Life
Insurance (net) on the Statements of Income. The income from increases in
cash surrender value and net death proceeds was $5.4 million, $10.2 million
and $24.7 million for the three, six and twelve months ended June 30, 1996,
respectively, compared to $4.2 million, $8.1 million and $16.0 million for the
three, six and twelve months ended 1995, respectively. The interest expense
deduction taken was $7.0 million, $13.9 million and $27.6 million for the
three, six and twelve months ended June 30, 1996, respectively, compared to
$6.0 million, $11.7 million and $22.9 million for the six and twelve months
ended 1995, respectively. On August 2, 1996, Congress passed the Health
Insurance Portability and Accountability Act of 1996 which President Clinton
has indicated that he intends to sign. The act is expected to have minimal
impact on the Company's COLI contracts.
Cash and Cash Equivalents: 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 has been associated with three former
manufactured gas sites which may contain coal tar and other potentially
harmful materials. The Company and the Kansas Department of Health and
Environment (KDHE) entered into a consent agreement governing all future work
at the three 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 in 1995 and 1994 were minimal. The
Company is aware of other Midwestern utilities which have incurred remediation
costs ranging between $500,000 and $10 million per 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.
Decommissioning: The Company accrues decommissioning costs over the
expected life of the Wolf Creek generating facility. The accrual is based on
estimated unrecovered decommissioning costs which consider inflation over the
remaining estimated life of the generating facility and are net of expected
earnings on amounts recovered from customers and deposited in an external
trust fund.
On June 9, 1994, the KCC issued an order approving the estimated
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 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 expensed approximated $3.6 million in 1995 and will increase annually
to $5.5 million in 2024. These expenses are deposited in an external trust
fund. The average after tax expected return on trust assets is 5.9%
The Company's investment in the decommissioning fund, including
reinvested earnings approximated $28.6 million and $25.1 million at June 30,
1996 and December 31, 1995, respectively. Trust fund earnings accumulate in
the fund balance and increase the recorded decommissioning liability. 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 staff of the Securities and Exchange Commission (SEC) has questioned
certain current accounting practices used by nuclear electric generating
station owners regarding the recognition, measurement and classification of
decommissioning costs for nuclear electric generating stations. In response to
these questions, the FASB is expected to issue new accounting standards for
removal costs, including decommissioning in 1997. If current electric utility
industry accounting practices for such decommissioning costs are changed: (1)
annual decommissioning expenses could increase, (2) the estimated present
value of decommissioning costs could be recorded as a liability rather than as
accumulated depreciation, and (3) trust fund income from the external
decommissioning trusts could be reported as investment income rather than as a
reduction to decommissioning expense. When revised accounting guidance is
issued, the Company will also have to evaluate its effect on accounting for
removal costs of other long-lived assets. The Company is not able to predict
what effect such changes would have on results of operations, financial
position, or related regulatory practices until the final issuance of revised
accounting guidance, but such effect could be material.
The Company carries premature decommissioning insurance which 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. This decommissioning insurance will only be
available if the insurance funds are not needed to implement the NRC-approved
plan for stabilization and decontamination.
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. If this liability limitation is insufficient, the U.S.
Congress will consider taking whatever action is necessary to compensate the
public for valid claims. 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.
The Owners carry decontamination liability, premature decommissioning
liability, and property damage insurance for Wolf Creek totaling 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 or premature decommissioning costs up to $1.3 billion
(Company's share). Premature decommissioning insurance cost recovery is
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 $11 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 certain 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 by the December 31, 1995 deadline. The Company expects some
additional equipment acquisitions and other expenditures to be needed to meet
Phase II sulfur dioxide requirements. Current estimated costs for Phase II
are approximately $5 million.
The nitrogen oxides and toxic limits, which were not set in the law, were
proposed by the EPA in January 1996. The Company is currently evaluating the
steps it will need to take in order to comply with the proposed new rules, but
is unable to determine its compliance options or related compliance costs
until the evaluation is finished later this year. The Company will have three
years to comply with the new rules.
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, 1995, WCNOC's nuclear fuel commitments (Company's share) were
approximately $15.3 million for uranium concentrates expiring at various times
through 2001, $120.8 million for enrichment expiring at various times through
2014, and $72.7 million for fabrication through 2025. At December 31, 1995,
the Company's coal and natural gas contract commitments in 1995 dollars under
the remaining terms of the contracts were $643 million. The largest coal
contract expires in 2020, with the remaining coal contracts expiring at
various times through 2013.
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 29.7% and 30.1% for the three month periods,
25.6% and 30.1% for the six month periods, and 30.6% and 33.1% for the twelve
month periods ended June 30, 1996 and 1995, 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.
4. RATE MATTERS AND REGULATION
KCC Rate Proceedings: On August 17, 1995, the Company filed with the KCC
a request to more rapidly recover its investment in its assets of Wolf Creek
over the next seven years. The request involved acceleration of depreciation
of Wolf Creek by $50 million for each of the next seven years. The Company
sought to reduce electric rates for its customers by approximately $8.7
million annually for the seven year period. The Company also requested to
extend the service life of certain of its transmission and distribution assets
for both the Company's and KPL's electric jurisdictions.
On May 23, 1996, the Company implemented the first $8.7 million reduction
on an interim basis. On July 25, 1996, the KCC Staff, Western Resources, and
the Company entered into an agreement whereby its rates would be reduced an
additional $37.3 million and the current interim $8.7 million rate reduction
would become permanent upon final order in the proceeding. Other provisions
of the agreement include an $8.7 million annual KPL electric rate reduction
upon final order, a $10 million annual KGE rate reduction at January 1, 1998,
and a five year incentive rate mechanism requiring all regulated earnings in
excess of a 12% regulatory return on equity to be shared 50/50 between
customers and shareholders. The agreement specifies that the plan and
electric rates will remain in place five years subject to changes necessary to
reflect the effect of laws and/or edicts, or other material changes in
circumstances which have a substantial net impact upon the Company's utility
operations or revenues. On August 9, 1996, Western Resources, the Company,
and the KCC Staff were joined by the Citizens Utility Ratepayers Board and the
City of Wichita, Kansas in filing a motion to the KCC to approve the
agreement.
On April 15, 1996, Western Resources filed an application with the KCC
requesting an order approving its proposal to merge with KCPL and for other
related relief. On July 29, 1996, Western Resources filed its First Amended
Application with the KCC in its proceeding for approval to merge with KCPL.
The amended application reflected the increase in Western Resources' offer for
KCPL from $28 to $31 per share and proposed an incentive rate mechanism
requiring all regulated earnings in excess of the merged Company's 12.61%
return on equity to be split among customers, shareholders, and additional
depreciation on Wolf Creek.
5. WESTERN RESOURCES' PROPOSED MERGER WITH KANSAS CITY POWER & LIGHT COMPANY
On April 14, 1996, in a letter to Mr. A. Drue Jennings, Chairman of the
Board, President and Chief Executive Officer of Kansas City Power & Light
Company (KCPL), Western Resources proposed an offer to merge with KCPL.
On April 22, 1996, KCPL's Board of Directors rejected the Western
Resources' proposal and announced its intention to proceed with a merger
agreement entered into on January 19, 1996 with UtiliCorp United Inc. (UCU).
Following the rejection of the April 14 offer, Western Resources filed proxy
materials with the SEC for use in soliciting proxies from KCPL shareholders
against the approval of the UCU/KCPL merger. Western Resources believes its
offer is financially superior for KCPL shareholders and is actively seeking to
have KCPL shareholders vote against the proposed UCU/KCPL merger. On April
22, 1996, Western Resources announced its intention to commence an offer to
exchange shares of Western Resources common stock for each KCPL share (the
Offer) and filed with the SEC a registration statement on Form S-4 relating to
such exchange offer. On July 3, the registration statement became effective
and on July 8, exchange offer materials were mailed to KCPL shareholders.
The number of shares of Western Resources common stock to be delivered
per KCPL share pursuant to the initial Offer would have been equal to the
quotient (rounded to the nearest 1/100,000) determined by dividing $28 by the
average of the high and low sales prices of Western Resources common stock on
the New York Stock Exchange for each of the twenty consecutive trading days
ending with the second trading day immediately preceding the expiration of the
Offer (the Exchange Ratio), provided that the Exchange Ratio would not have
been less than 0.833 nor greater than 0.985. On May 6, 1996, Western
Resources announced a change in the terms of the Offer so that the Exchange
Ratio would not be less than 0.91 nor greater than 0.985, and presented the
new offer to the KCPL Board.
On June 17, 1996, Western Resources raised its Offer to $31 from $28 with
an exchange ratio of 0.933 to 1.1 shares of Western Resources common stock for
each KCPL common share. The increased Offer, which remains a stock-for-stock
transaction, is valued at $1.9 billion. On June 24, 1996, KCPL's Board of
Directors also rejected this offer.
KCPL shareholders were scheduled to vote on the UCU/KCPL merger at their
annual shareholders' meeting on May 22, 1996. On May 20, 1996, KCPL announced
that it had reached a restructured merger agreement with UCU and canceled the
May 22, 1996 vote. The vote on the new transaction was scheduled for an
August 7, 1996, special shareholder meeting. On May 20, 1996 KCPL also filed
suit against Western Resources and a KCPL shareholder in the Federal District
Court for the Western District of Missouri (the Court) for a declaratory
order, among other things, determining that the restructured transaction was
legal pursuant to Missouri law, that its adoption was not a breach of
fiduciary duty, and that a simple majority of shares voted would be required
to approve the transaction rather than the vote of two-thirds of all
outstanding shares required for approval of the original proposal.
On August 2, 1996, the Court denied KCPL's request with respect to the
requisite vote, holding a two-thirds vote of outstanding shares would be
required to approve the restructured transaction. As a result, KCPL postponed
the special shareholder meeting until August 16, 1996.
According to KCPL's quarterly report on Form 10-Q for the quarter ended
June 30, 1996, there were issued and outstanding 61,902,083 shares of KCPL
common stock.
Western Resources intends to acquire, after consummation of the Offer,
the remaining KCPL shares pursuant to a merger of Western Resources and KCPL
(the Merger).
Western Resources has filed applications with the KCC and Missouri Public
Service Commission seeking approval of the Merger. Western Resources will
also need approval from the FERC and the NRC. See Note 4 for discussion of
rate proceedings.
Western Resources' proposal is designed to qualify as a pooling of
interests for financial reporting purposes. Under this method, the recorded
assets and liabilities of Western Resources and KCPL would be carried forward
at historical amounts to a combined balance sheet. Prior period operating
results and statements of financial position, cash flows and capitalization
would be restated to effect the combination for all periods presented.
KCPL is a public utility company engaged in the generation, transmission,
distribution, and sale of electricity to approximately 430,000 customers in
western Missouri and eastern Kansas. KCPL and Western Resources have joint
interests in certain electric generating assets, including Wolf Creek.
Completion of the Offer and the Merger are subject to various conditions,
including approvals from shareholders, regulatory and other governmental
agencies.
The merger proposal contains certain analyses and statements with respect
to the financial condition, results of operations and business of the Company
following the consummation of the Offer and the Merger, including statements
relating to the cost savings that will be realized from the Merger. Such
analyses and statements include forward looking statements with respect to,
among other things: (1) expected cost savings from the Merger; (2) normal
weather conditions; (3) future national and regional economic and competitive
conditions; (4) inflation rates; (5) regulatory treatment; (6) future
financial market conditions; (7) interest rates; (8) future business
decisions; and (9) other uncertainties, which though considered reasonable by
the Company, are beyond the Company's control and difficult to predict.
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 1995. The following updates certain
information provided in the 1995 Form 10-K, and analyzes the changes in the
results of operations between the three, six and twelve month periods ended
June 30, 1996 and comparable periods of 1995.
FINANCIAL CONDITION
General: The Company had net income of $17.3 million and $33.0 million
for the three and six months ended June 30, 1996 compared to $19.6 million and
$37.4 million for the same periods in 1995, respectively. The decreases in
net income were primarily due to the amortization of the acquisition
adjustment as a result of the Merger and higher operating expenses, resulting
from Wolf Creek's eighth refueling outage during the first quarter of 1996.
An increase in net generation due to customer demand for air conditioning load
during the second quarter of 1996 also contributed to higher operating
expenses. These higher expenses offset the increases in sales and revenues the
Company experienced during the three and six months ended June 30, 1996 as
compared to the same periods of 1995.
Net income for the twelve months ended June 30, 1996, of $106.4 million,
increased slightly from net income of $105.1 million for the comparable period
of 1995. The increase was primarily due to increased interchange (sales to
other utilities) and residential sales as a result of warmer spring
temperatures as compared to last year.
Liquidity and Capital Resources: All 1,000 shares of the Company's common
stock are held by Western Resources.
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, 1996, short-term borrowing amounted to
$250 million compared to $50 million at December 31, 1995.
During the second quarter of 1996, the Company increased its borrowings
against the accumulated cash surrender values of the corporate-owned life
insurance policies by $42.5 million and received $1.8 million from increased
borrowings on Wolf Creek Nuclear Operating Company policies.
OPERATING RESULTS
The following discussion explains variances for the three, six and twelve
months ended June 30, 1996, to the comparable periods of 1995.
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 sales will
continue to be affected by weather conditions, competing fuel sources,
wholesale demand, and the overall economy of the Company's service area.
The following table reflects changes in electric sales for the three, six
and twelve months ended June 30, 1996 from the comparable periods of 1995.
Increase in electric sales volumes:
3 Months 6 Months 12 Months
Ended Ended Ended
Residential 22.8% 15.9% 12.8%
Commercial 9.5% 7.5% 5.1%
Industrial 1.8% 2.6% 4.2%
Total Retail 9.3% 7.5% 6.9%
Wholesale & Interchange 117.4% 61.5% 30.5%
Total electric sales 25.2% 15.8% 10.3%
Revenues for the three and six months ended June 30, 1996, of $163.0
million and $308.1 million, increased approximately thirteen and nine percent
from revenues of $144.7 million and $283.3 million for the comparable periods
of 1995, respectively. These increases are largely due to increased
residential and interchange sales as a result of warmer spring temperatures
experienced during the second quarter of 1996 compared to 1995.
The Company's service territory experienced a 129% increase in the number
of cooling degree days during the second quarter of 1996, as compared to the
second quarter of 1995 and a 31% higher than normal number of cooling degree
days.
Revenues for the twelve months ended June 30, 1996, increased
approximately six percent to $648.6 million from revenues of $611.6 million
for the comparable period of 1995. The increase can also be attributed to
increased interchange and residential sales as a result of warmer spring
temperatures as discussed above.
Operating Expenses: Total operating expenses increased nineteen and
twelve percent for the three and six months ended June 30, 1996, respectively,
compared to the same periods of 1995. The increases are primarily
attributable to the amortization of the acquisition adjustment and increased
fuel, purchased power and other operating expenses due to Wolf Creek being
off-line for its eight refueling and maintenance outage. Also contributing to
the increases in fuel and operating expenses was the increase in net
generation due to increase in demand for air conditioning load from
residential customers during the spring months of 1996.
Total operating expenses increased approximately nine percent for the
twelve months ended June 30, 1996 compared to the same period of 1995. The
increase was due to the amortization of the acquisition adjustment and Wolf
Creek's refueling outage mentioned above.
The amortization of the acquisition adjustment, which began in August
1995, amounted to $5.0 million, $10.0 million and $16.7 million for the three,
six and twelve months ended June 30, 1996, respectively.
Other Income and Deductions: Other income and deductions, net of taxes,
increased for the three and six months ended June 30, 1996, compared to the
same periods of 1995 primarily as a result of the reclassification of income
taxes applicable to the amortization of acquisition adjustment.
Other income and deductions, net of taxes, increased to $11.3 million for
the twelve months ended June 30, 1996 from $6.1 million for the twelve months
ended June 30, 1995. The increase was primarily due to receipt of death
benefit proceeds under COLI contracts during the fourth quarter of 1995.
Interest Expense: Interest expense increased thirteen percent and seven
percent for the three and six months ended June 30, 1996, compared to the same
periods of 1995, respectively. These increases are attributable to higher
interest expense on short-term debt during the second quarter of 1996.
Interest expense for the twelve months ended June 30, 1996, remained
virtually unchanged, compared to the same period of 1995. An increase in
allowance for funds used during construction (AFUDC) charges due to a higher
AFUDC rate and the impact of increased COLI borrowings which reduce the need
for other long-term debt and thereby reducing interest expense were offset by
the increase in short-term debt interest expense.
OTHER INFORMATION
Amortization: In accordance with the KCC order relating to the
acquisition of the Company by Western Resources, amortization of the
acquisition adjustment commenced in August 1995. The amortization will amount
to approximately $20 million (pre-tax) per year for 40 years. Western
Resources and the Company can recover the amortization of the acquisition
adjustment through cost savings under a sharing mechanism approved by the KCC.
KANSAS GAS AND ELECTRIC COMPANY
Part II Other Information
Item 4. Submission of Matters to a Bote of Security Holders
Information required by Item 4 is omitted pursuant to General
Instruction H(2)(b) to Form 10-Q.
Item 5. Other Information
Proposed Merger of Western Resources with Kansas City Power & Light
Company: See Note 2 of the Notes to Financial Statements.
Rate Plans: See Note 4 of the Notes to Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges for
12 Months Ended June 30, 1996 (filed electronically)
Exhibit 27 - Financial Data Schedule (filed electronically)
(b) Reports on Form 8-K:
None
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 14, 1996 By /s/ Richard D. Terrill
Richard D. Terrill
Secretary, Treasurer and
General Counsel
