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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): July 28, 2000
WESTERN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
KANSAS 1-3523 48-0290150
(State or Other Jurisdiction of (Commission File Number) (Employer
Incorporation or Organization) Identification No.)
818 KANSAS AVENUE, TOPEKA, KANSAS 66612
(Address of Principal Executive Offices) (Zip Code)
(785) 575-6300
(Registrant's Telephone Number Including Area Code)
WESTERN RESOURCES, INC.
Item 5. Other Events
As we have previously disclosed, Protection One, Inc., our approximately
85%-owned subsidiary, has been advised by the Staff of the Division of
Corporation Finance of the Securities and Exchange Commission that, in its view,
there are errors in Protection One's previously filed financial statements that
are material and which, in the view of the Staff, have had the effect of
inflating reported earnings commencing with the year ended December 31, 1997.
Protection One has had extensive discussions and held meetings with the Staff,
and exchanged numerous letters extending over a period of more than 18 months,
about the purchase price allocated to intangible customer accounts in the
Multifamily and Westinghouse Security Systems acquisitions, the methodology
Protection One has used to amortize intangible customer accounts and other
matters. In Protection One's Form 10-Q for the quarter ended September 30 1999,
it disclosed that Protection One restated our financial statements for 1998 and
for the quarters ended March 31, 1999 and June 30, 1999 to reallocate portions
of the initial purchase price for acquired businesses in its Multifamily
business segment. The reallocations involved an increase of the amount allocated
to customer accounts by $19 million, a reduction of goodwill by $13 million and
an increase in deferred taxes payable by $6 million. In addition, following the
conclusion of a comprehensive review of Protection One's amortization policy
undertaken during the third quarter of 1999, Protection One changed the method
it had historically used for amortizing the cost of customer accounts for its
North American and Europe customer pools. The method used for these pools
changed from a straight-line amortization over ten years to a ten-year 130%
declining balance method in the case of the North America pool and a 125%
declining balance method in the case of the Europe pool. The adoption of the
declining balance method effectively shortened the estimated expected average
customer life of these two customer pools. For further discussion of these
changes and their effect on our financial results reference is made to our and
Protection One's Form 10-Q for the quarter ended September 30, 1999.
Following announcement of these changes, Protection One had no further
communications from the Staff until April 4, 2000 when in response to our
inquiry concerning processing of filings by Protection One the Staff resumed its
inquiry on these matters.
In a letter from the SEC Staff to Protection One dated May 16, 2000, the
Staff stated that "the information that [Protection One] provided strongly
suggests the presence of de-
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partures from GAAP in Western Resources' accounting for the acquisition of
[Westinghouse Security Systems], and in the subsequent accounting for those
acquired assets by [Protection One]." More specifically, the Staff's letter
states that it is concerned that Western Resources and Protection One
"improperly inflated" reported earnings following the Westinghouse Security
Systems acquisition. This letter also contains comments and requests for
information concerning the initial and final valuation of Westinghouse Security
Systems' customer accounts, the $12.75 million write down of the value of
customer accounts acquired from Westinghouse Security Systems that was recorded
in the fourth quarter of 1997, shortening of the estimated life of customer
accounts acquired from Westinghouse Security Systems no later than the end of
1997 and the valuation of acquired alarm monitoring software.
Protection One responded by letter dated May 31, 2000 to each of the
comments contained in the Staff`s May 16th letter, indicated its strong
disagreement with the views of the Staff and stated its belief that there are no
issues of "inflated earnings," "departures from GAAP," or "errors" in its
historic financial statements. Our and Protection One's independent public
accountants, Arthur Andersen LLP, indicated they concurred with the accounting
decisions of Protection One.
After another exchange of letters in June as a result of which Protection
One supplied more information to the Staff, on July 6, 2000, Protection One
personnel and their advisors met with members of the Staff.
Thereafter, in a letter to Protection One dated July 7, 2000, the Staff
stated that Protection One's financial statements should be "revised to reflect
corrections of accounting errors and revisions of disclosures" as more fully
discussed in the July 7th letter. The Staff's letter discussed six areas which
it believed required changes. Four of those areas relate to the acquisition of
the security business of Westinghouse. The remaining two areas related to the
accounting for ordinary amortization of security accounts and the accounting for
the effects of unanticipated customer attrition. Among other things, the Staff
stated its view that aspects of Protection One's accounting for the acquisition
of the Westinghouse security business "could" be indicative of "manipulative
intent"--a statement with which we and Protection One strongly disagree.
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By letter dated July 25, 2000, Protection One advised the Staff of
Protection One's strong disagreement with the views of the Staff regarding these
accounting matters. Arthur Andersen LLP has reviewed the correspondence, been
consulted on responses to the SEC and have confirmed to the SEC staff that they
are not aware of modifications needed to fairly present our or Protection One's
historical financial statements.
On July 25, 2000, the Staff advised Protection One orally that this matter
had been referred to the Enforcement Division of SEC for consideration.
Protection One has not been contacted by the staff of the Division of
Enforcement. By letter dated July 27, 2000, the Corporation Finance Staff
advised Protection One that they had reviewed Protection One's letter of July
25th, but had concluded "that any new information provided in [the letter] only
confirms the views expressed in our July 7th letter." Accordingly, the Division
of Corporation Finance repeated its request that Protection One amend its
filings "in a manner that is fully responsive to our July 7th letter without
further delay." The Staff advised that if amendments were not filed promptly,
they would consider what action, if any, would be appropriate under the
circumstances. In Protection One's July 25th letter, Protection One had
requested the opportunity to meet again together with more senior members of the
Staff to discuss these matters further--a meeting which the Staff in its July
27th letter indicated it would arrange.
At present, neither we nor Protection One are able to predict the outcome
of our disagreements with the Staff. To date, Protection One's discussions with
the Staff have occurred over 18 months and the process of resolving these
matters could extend over a protracted period. Were we and Protection One to
make revisions to our financial statements, based upon our understanding of the
Staff's request (the Staff has never indicated what values alternative to the
ones used by Protection One it would find to be acceptable to it), such
revisions would result in a material adverse effect on our financial position
and results of operations. Neither we nor Protection One can predict what action
the Staff may take, including enforcement action, that will further impact us or
our financial statements, or the effect or timing of any such action if taken.
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.
WESTERN RESOURCES, INC.
Date: July 28, 2000 By: /s/ James A. Martin
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James A. Martin
Vice President