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 September 30, 1997
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 (785) 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 October 20, 1997
Common Stock, $5.00 par value 65,409,603
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 18
Part II. Other Information
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)
September 30, December 31,
1997 1996
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . $5,528,702 $5,448,489
Natural gas plant in service. . . . . . . . . . . . . . 870,060 834,330
6,398,762 6,282,819
Less - Accumulated depreciation . . . . . . . . . . . . 2,168,092 2,058,596
4,230,670 4,224,223
Construction work in progress . . . . . . . . . . . . . 93,103 93,834
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 39,160 38,461
Net utility plant. . . . . . . . . . . . . . . . . . 4,362,933 4,356,518
INVESTMENTS AND OTHER PROPERTY:
Investment in ADT (net) . . . . . . . . . . . . . . . . - 590,102
Security business and other investments . . . . . . . . 834,997 584,647
Decommissioning trust . . . . . . . . . . . . . . . . . 42,081 33,041
877,078 1,207,790
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . 553,707 3,724
Accounts receivable and unbilled revenues (net) . . . . 264,113 318,966
Fossil fuel, at average cost. . . . . . . . . . . . . . 31,609 39,061
Gas stored underground, at average cost . . . . . . . . 47,492 30,027
Materials and supplies, at average cost . . . . . . . . 60,811 66,167
Prepayments and other current assets. . . . . . . . . . 30,838 36,503
988,570 494,448
DEFERRED CHARGES AND OTHER ASSETS:
Regulatory asset - recoverable taxes. . . . . . . . . . 259,537 217,257
Regulatory assets . . . . . . . . . . . . . . . . . . . 240,523 241,039
Other . . . . . . . . . . . . . . . . . . . . . . . . . 139,870 130,729
639,930 589,025
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $6,868,511 $6,647,781
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statements):
Common stock equity . . . . . . . . . . . . . . . . . . $2,132,586 $1,624,680
Cumulative preferred and preference stock . . . . . . . 74,858 74,858
Western Resources obligated mandatorily redeemable
preferred securities of subsidiary trusts holding
solely company subordinated debentures. . . . . . . . 220,000 220,000
Long-term debt (net). . . . . . . . . . . . . . . . . . 1,907,087 1,681,583
4,334,531 3,601,121
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . 105,722 980,740
Long-term debt due within one year. . . . . . . . . . . 20,682 -
Accounts payable. . . . . . . . . . . . . . . . . . . . 144,229 180,540
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 367,153 83,813
Accrued interest and dividends. . . . . . . . . . . . . 66,548 70,193
Other . . . . . . . . . . . . . . . . . . . . . . . . . 64,674 36,806
769,008 1,352,092
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . 1,168,541 1,110,372
Deferred investment tax credits . . . . . . . . . . . . 120,489 125,528
Deferred gain from sale-leaseback . . . . . . . . . . . 224,736 233,060
Other . . . . . . . . . . . . . . . . . . . . . . . . . 251,206 225,608
1,764,972 1,694,568
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $6,868,511 $6,647,781
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
September 30,
1997 1996
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 392,602 $ 355,459
Natural gas and other . . . . . . . . . . . . . . . . . . 167,392 134,713
Total operating revenues. . . . . . . . . . . . . . . . 559,994 490,172
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 73,295 69,046
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 6,388 6,299
Power purchased . . . . . . . . . . . . . . . . . . . . . 4,540 7,584
Natural gas purchases . . . . . . . . . . . . . . . . . . 43,356 36,229
Other operations. . . . . . . . . . . . . . . . . . . . . 202,305 146,486
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 25,995 17,039
Depreciation and amortization . . . . . . . . . . . . . . 56,966 46,179
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 25,890 29,892
State income. . . . . . . . . . . . . . . . . . . . . . 6,300 8,021
General . . . . . . . . . . . . . . . . . . . . . . . . 23,802 25,424
Total operating expenses. . . . . . . . . . . . . . . 473,223 396,585
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 86,771 93,587
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (2,811) 2,648
Equity in earnings of investees and other (net) . . . . . (5,234) 5,766
Gain on sale of securities. . . . . . . . . . . . . . . . 864,253 -
Income taxes (net). . . . . . . . . . . . . . . . . . . . (386,156) 399
Total other income and deductions . . . . . . . . . . 470,052 8,813
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 556,823 102,400
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 28,493 25,464
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 20,547 14,763
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (589) (776)
Total interest charges. . . . . . . . . . . . . . . . 48,451 39,451
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 508,372 62,949
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 1,230 6,900
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 507,142 $ 56,049
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 65,243,406 64,161,329
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 7.77 $ .87
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ .525 $ .515
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 935,306 $ 918,675
Natural gas and other . . . . . . . . . . . . . . . . . . 704,888 563,240
Total operating revenues. . . . . . . . . . . . . . . . 1,640,194 1,481,915
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 185,283 190,634
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 18,678 13,674
Power purchased . . . . . . . . . . . . . . . . . . . . . 19,085 22,481
Natural gas purchases . . . . . . . . . . . . . . . . . . 259,635 236,313
Other operations. . . . . . . . . . . . . . . . . . . . . 537,573 425,732
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 80,627 72,030
Depreciation and amortization . . . . . . . . . . . . . . 164,209 131,594
Amortization of phase-in revenues . . . . . . . . . . . . 13,158 13,158
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 52,365 56,700
State income. . . . . . . . . . . . . . . . . . . . . . 13,931 15,784
General . . . . . . . . . . . . . . . . . . . . . . . . 71,145 75,935
Total operating expenses. . . . . . . . . . . . . . . 1,415,689 1,254,035
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 224,505 227,880
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (6,280) (1,101)
Equity in earnings of investees and other (net) . . . . . 19,764 16,835
Gain on sale of securities. . . . . . . . . . . . . . . . 864,253 -
Income taxes (net). . . . . . . . . . . . . . . . . . . . (380,614) 1,384
Total other income and deductions . . . . . . . . . . 497,123 17,118
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 721,628 244,998
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 75,858 78,568
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 74,405 32,338
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (2,375) (2,392)
Total interest charges. . . . . . . . . . . . . . . . 147,888 108,514
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 573,740 136,484
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 3,689 13,609
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 570,051 $ 122,875
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 65,033,517 63,598,963
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 8.77 $ 1.93
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 1.575 $ 1.545
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
September 30,
1997 1996
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $1,214,064 $1,177,649
Natural gas and other . . . . . . . . . . . . . . . . . . 991,034 761,607
Total operating revenues. . . . . . . . . . . . . . . . 2,205,098 1,939,256
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 240,639 238,536
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 24,966 18,251
Power purchased . . . . . . . . . . . . . . . . . . . . . 24,196 26,584
Natural gas purchases . . . . . . . . . . . . . . . . . . 378,077 328,621
Other operations. . . . . . . . . . . . . . . . . . . . . 719,836 560,042
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 107,719 99,356
Depreciation and amortization . . . . . . . . . . . . . . 216,337 175,660
Amortization of phase-in revenues . . . . . . . . . . . . 17,544 17,545
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 65,722 68,987
State income. . . . . . . . . . . . . . . . . . . . . . 17,182 18,859
General . . . . . . . . . . . . . . . . . . . . . . . . 92,262 99,039
Total operating expenses. . . . . . . . . . . . . . . 1,904,480 1,651,480
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 300,618 287,776
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (7,428) 2,016
Special charges from ADT. . . . . . . . . . . . . . . . . (18,181) -
Equity in earnings of investees and other (net) . . . . . 34,652 26,839
Gain on sale of securities. . . . . . . . . . . . . . . . 864,253 -
Income taxes (net). . . . . . . . . . . . . . . . . . . . (379,008) 4,298
Total other income and deductions . . . . . . . . . . 494,288 33,153
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 794,906 320,929
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 103,031 102,488
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 88,877 39,182
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (3,208) (3,705)
Total interest charges. . . . . . . . . . . . . . . . 188,700 137,965
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 606,206 182,964
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 4,919 16,964
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 601,287 $ 166,000
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 64,904,715 63,385,462
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 9.26 $ 2.62
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 2.09 $ 2.05
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)
Nine Months Ended
September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 573,740 $ 136,484
Depreciation and amortization . . . . . . . . . . . . . . 174,539 140,130
Amortization of nuclear fuel. . . . . . . . . . . . . . . 14,910 10,694
Amortization of phase-in revenues . . . . . . . . . . . . 13,158 13,158
Corporate-owned life insurance policies . . . . . . . . . (20,649) (23,334)
Amortization of gain from sale-leaseback. . . . . . . . . (8,324) (7,230)
Gain on sale of securities. . . . . . . . . . . . . . . . (864,253) -
Deferred acquisition costs. . . . . . . . . . . . . . . . (12,453) (18,396)
Equity in earnings of investees . . . . . . . . . . . . . (25,791) (19,359)
Changes in other working capital items:
Accounts receivable and unbilled revenues (net) . . . . 54,853 24,610
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 7,452 10,551
Gas stored underground. . . . . . . . . . . . . . . . . (17,465) (19,559)
Accounts payable . . . . . . . . . . . . . . . . . . . (36,311) (37,316)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 275,527 38,315
Other . . . . . . . . . . . . . . . . . . . . . . . . . 35,309 6,252
Changes in other assets and liabilities . . . . . . . . . (29,695) (23,479)
Net cash flows from operating activities. . . . . . . 134,547 231,521
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . 158,361 137,980
Sales of securities . . . . . . . . . . . . . . . . . . . (1,495,825) -
Security business acquisitions. . . . . . . . . . . . . . 171,081 10,785
Purchase of ADT common stock. . . . . . . . . . . . . . . - 478,777
Security business and other investments (net) . . . . . . 62,997 32,530
Corporate-owned life insurance policies . . . . . . . . . 25,104 53,265
Death proceeds of corporate-owned life insurance policies (2,388) (9,010)
Net cash flows used in (from) investing activities. . (1,080,670) 704,327
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . (875,018) 442,950
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . 520,000 -
Bonds retired . . . . . . . . . . . . . . . . . . . . . . (65) (16,135)
Revolving credit agreements (net) . . . . . . . . . . . . (275,000) 75,000
Other long-term debt issued . . . . . . . . . . . . . . . 1,770 200
Other mandatorily redeemable securities . . . . . . . . . - 120,000
Preference stock redeemed . . . . . . . . . . . . . . . . - (100,000)
Borrowings against life insurance policies. . . . . . . . 48,488 45,136
Repayment of borrowings against life insurance policies . (688) (4,611)
Common stock issued (net) . . . . . . . . . . . . . . . . 20,447 21,554
Dividends on preferred, preference and common stock . . . (105,168) (112,733)
Net cash flows from (used in) financing activities. . (665,234) 471,361
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . 549,983 (1,445)
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 3,724 2,414
End of the period . . . . . . . . . . . . . . . . . . . . $ 553,707 $ 969
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 166,177 $ 137,408
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 169,199 67,333
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
September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 606,206 $ 182,964
Depreciation and amortization . . . . . . . . . . . . . . . 225,037 180,747
Amortization of nuclear fuel. . . . . . . . . . . . . . . . 19,901 14,201
Amortization of phase-in revenues . . . . . . . . . . . . . 17,544 17,545
Corporate-owned life insurance policies . . . . . . . . . . (27,028) (12,780)
Amortization of gain from sale-leaseback. . . . . . . . . . (10,734) (9,639)
Gain on sale of securities. . . . . . . . . . . . . . . . . (864,253) -
Deferred acquisition costs. . . . . . . . . . . . . . . . . (25,575) (18,396)
Equity in earnings of investees . . . . . . . . . . . . . . (15,805) (19,359)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (17,231) (20,703)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . 12,582 1,072
Gas stored underground. . . . . . . . . . . . . . . . . . 173 (1,472)
Accounts payable. . . . . . . . . . . . . . . . . . . . . 16,358 10,470
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 263,921 (19,396)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 47,382 15,183
Changes in other assets and liabilities . . . . . . . . . . (70,166) (22,663)
Net cash flows from operating activities . . . . . . . 178,312 297,774
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 219,890 208,064
Sales of securities . . . . . . . . . . . . . . . . . . . . (1,495,825) -
Security business acquisitions. . . . . . . . . . . . . . . 528,831 10,785
Purchase of ADT . . . . . . . . . . . . . . . . . . . . . . 110,585 478,777
Security business and other investments (net) . . . . . . . 37,030 33,811
Corporate-owned life insurance policies . . . . . . . . . . 25,846 54,394
Death proceeds of corporate-owned life insurance policies . (4,031) (19,343)
Net cash flows used in (from) investing activities. . . (577,674) 766,488
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (540,678) 318,785
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 520,000 -
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (65) (16,135)
Revolving credit agreement (net). . . . . . . . . . . . . . (125,000) 125,000
Other long-term debt issued . . . . . . . . . . . . . . . . 1,570 200
Other mandatorily redeemable securities . . . . . . . . . . - 220,000
Preference stock redeemed . . . . . . . . . . . . . . . . . - (100,000)
Borrowings against life insurance policies (net). . . . . . 49,330 46,688
Repayment of borrowings against life insurance policies . . (1,040) (9,880)
Common stock issued (net) . . . . . . . . . . . . . . . . . 32,105 31,008
Dividends on preferred, preference and common stock . . . . (139,470) (147,665)
Net cash flows from financing activities. . . . . . . . (203,248) 468,001
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . 552,738 (713)
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . . 969 1,682
End of the period . . . . . . . . . . . . . . . . . . . . . $ 553,707 $ 969
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . . $ 199,404 $ 162,070
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 168,558 82,149
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1997 1996
COMMON STOCK EQUITY (see statement):
Common stock, par value $5 per share,
Authorized 85,000,000 shares, outstanding
65,276,430 and 64,625,259 shares, respectively . $ 326,382 $ 323,126
Paid-in capital. . . . . . . . . . . . . . . . . . 756,624 739,433
Retained earnings. . . . . . . . . . . . . . . . . 1,029,704 562,121
Unrealized gain on securities
available-for-sale (net of $18,253 tax). . . . . 19,876 -
2,132,586 49% 1,624,680 45%
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
74,858 2% 74,858 2%
WESTERN RESOURCES OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST
HOLDING SOLELY COMPANY
SUBORDINATED DEBENTURES. . . . . . . . . . . . . 220,000 5% 220,000 6%
LONG-TERM DEBT:
First mortgage bonds . . . . . . . . . . . . . . . 1,345,000 825,000
Pollution control bonds. . . . . . . . . . . . . . 521,617 521,682
Revolving credit agreements. . . . . . . . . . . . - 275,000
Other long-term debt . . . . . . . . . . . . . . . 66,960 65,190
Less:
Unamortized premium and discount (net) . . . . . 5,808 5,289
Long-term debt due within one year . . . . . . . 20,682 -
1,907,087 44% 1,681,583 47%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . $4,334,531 100% $3,601,121 100%
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 Other
BALANCE DECEMBER 31, 1995,
62,855,961 shares . . . . . . . . . . . . . $314,280 $697,962 $ 540,868
Net income. . . . . . . . . . . . . . . . . . 136,484
Cash dividends:
Preferred and preference stock. . . . . . . (13,609)
Common stock, $1.545 per share. . . . . . . (98,336)
Issuance of 1,380,954 shares of
common stock. . . . . . . . . . . . . . . . 6,904 31,754 (1,247)
BALANCE SEPTEMBER 30, 1996,
64,236,915 shares . . . . . . . . . . . . . 321,184 729,716 564,160
Net income. . . . . . . . . . . . . . . . . . 32,466
Cash dividends:
Preferred and preference stock. . . . . . . (1,230)
Common stock, $.515 per share . . . . . . . (33,275)
Issuance of 388,344 shares of
common stock. . . . . . . . . . . . . . . . 1,942 9,717
BALANCE DECEMBER 31, 1996,
64,625,259 shares . . . . . . . . . . . . . 323,126 739,433 562,121
Net income. . . . . . . . . . . . . . . . . . 573,740
Unrealized gain on securities
available-for-sale (net of $18,253 tax) . . $19,876
Cash dividends:
Preferred and preference stock. . . . . . . (3,689)
Common stock, $1.575 per share. . . . . . . (102,468)
Issuance of 651,171 shares of
common stock. . . . . . . . . . . . . . . . 3,256 17,191
BALANCE SEPTEMBER 30, 1997,
65,276,430 shares . . . . . . . . . . . . . $326,382 $756,624 $1,029,704 $19,876
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,
Westar Security, Inc. (Westar Security), a wholly-owned subsidiary which
provides monitored electronic security services, Westar Energy, Inc., a
wholly-owned subsidiary which provides non-regulated energy services, Westar
Capital, Inc. (Westar Capital), a wholly-owned subsidiary which holds equity
investments in security, technology and energy-related companies, The Wing Group
Limited (The Wing Group), a wholly-owned developer of international power
projects, and Mid Continent Market Center, Inc. (Market Center), a wholly-owned
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 dates, 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 1996 Annual
Report on Form 10-K and the KGE 1996 Annual Report on Form 10-K.
The company currently applies accounting standards that recognize the
economic effects of rate regulation pursuant to Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation", (SFAS 71) and, accordingly, has recorded regulatory assets and
liabilities related to its generation, transmission and distribution operations.
The Kansas Legislature has created a Retail Wheeling Task Force (the Task
Force) to study the implications of a deregulated and more competitive market
for electric services. The Task Force is primarily composed of legislators,
regulators, consumer advocates and representatives from the electric industry.
A draft bill under consideration by the Task Force would implement competition
for retail electric service beginning July 1, 2001. The Task Force is also
evaluating how certain investments which were approved and incurred under the
existing regulatory model should be recovered. Certain of these investments may
not be recoverable. These investments are commonly referred to as "stranded
costs". At this date, it is not possible to predict the results of the Task
Force's effect or the impact it may have on the company.
There can be no assurance at this time that stranded costs will be fully
recoverable if open competition is initiated in the electric utility market. In
the event the company determines that it no longer meets the criteria set forth
in SFAS 71, the accounting impact would be an extraordinary non-cash charge to
operations of an amount that would be material. Criteria that give rise to the
discontinuance of SFAS 71 include, (1) increasing competition that restricts the
company's ability to establish prices to recover specific costs, and (2) a
significant change in the manner in which rates are set by regulators from a
cost-based regulation to another form of regulation. The company periodically
reviews these criteria to ensure the continuing application of SFAS 71 is
appropriate. Based on current evaluation of the various factors and conditions
that are expected to impact future cost recovery, the company believes that its
net regulatory assets are probable of future recovery. Any regulatory changes
that would require the company to discontinue SFAS 71 based upon competitive or
other events may significantly impact the recoverability of the company's net
regulatory assets and certain utility plant investments, particularly the Wolf
Creek facility. At this time, the effect of competition and the amount of
regulatory assets which could be recovered in such an environment cannot be
predicted. See Note 7 for further discussion on regulatory assets.
Environmental Remediation: Effective January 1, 1997, the company adopted
the provisions of Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities". This statement provides authoritative guidance for recognition,
measurement, display, and disclosure of environmental remediation liabilities in
financial statements. The company's best current estimate of the most likely
range of remediation costs to be incurred based upon limited current
information presently available is approximately $2 million to $19 million.
Additional information and testing could result in costs significantly below or
in excess of the amounts noted above to be incurred. The KCC has permitted
another Kansas utility to recover certain remediation costs through rates.
Clean up costs will depend upon the degree of remediation required and number of
years over which the remediation must be completed. Management believes that
adequate provision has been made for these costs and accordingly believes that
the ultimate disposition of this matter will not have a material adverse effect
upon the company's overall financial position or results of operations.
Available-for-sale Security: Pursuant to Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," (SFAS 115) the company classifies marketable equity securities
accounted for under the cost method as available-for-sale. Unrealized gains and
losses, net of the related tax effect, are reported as a separate component of
stockholders' equity until realized. Unrealized losses deemed to be other than
temporary are charged to earnings. Realized gains and losses on sales of
securities are recognized in net income. At September 30, 1997, the fair market
value of securities available-for-sale was $77.7 million. This investment is
included in Security business and other investments on the Consolidated Balance
Sheets.
Affordable Housing Tax Credit Program (AHTC): The company received
authorization from the KCC to invest up to $114 million in AHTC investments. At
September 30, 1997, the company had invested approximately $8.5 million to
purchase limited partnership interests. These investments are accounted for
using the equity method and are presented with Security business and other
investments on the Consolidated Balance Sheets. Income generated from the AHTC
investment, primarily tax credits that will be recognized in the year generated,
will be used to offset the deferred and incremental costs associated with
postretirement and postemployment benefits offered to the company's employees.
The income generated from the AHTC investment replaces the income stream from
Corporate Owned Life Insurance (COLI) contracts purchased in 1992 and 1993 which
was used for this same purpose. The COLI contracts were negatively affected by
legislation passed in 1996 that eliminated certain tax benefits associated with
these contracts by 1999. If the AHTC investments do not produce sufficient
income to offset postretirement and postemployment costs, the company has the
ability to seek recovery of these costs through the rate making process.
Regulatory precedents established by the KCC lead the company to believe that
any such costs which are not offset will be allowed to be recovered in rates.
The legislation passed in 1996 affecting COLI had minimal impact on the
company's COLI contracts entered into prior to 1992. COLI assets are included
in Deferred charges and other assets - Other on the Consolidated Balance Sheets.
See Notes 9 and 12 of the Consolidated Financial Statements of the company's
1996 Annual Report on 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. MERGER AGREEMENT WITH KANSAS CITY POWER & LIGHT COMPANY
On February 7, 1997, Kansas City Power & Light Company (KCPL) and the
company entered into an agreement whereby KCPL would be combined with the
company. The merger agreement provides for a tax-free, stock-for-stock
transaction valued at approximately $2 billion. Under terms of the agreement,
KCPL shareowners will receive $32 of company common stock per KCPL common share,
subject to an exchange ratio collar of not less than .917 to no more than 1.100
common shares. Consummation of the KCPL Merger is subject to customary
conditions including obtaining the approval of KCPL's and the company's
shareowners and various regulatory agencies. The company expects to be able to
close the KCPL Merger in mid-1998.
The KCPL Merger will result in a company with approximately $9.5 billion
in total assets, $2.1 billion in annual revenues after consummation of the
strategic alliance with ONEOK, Inc. (ONEOK), and more than 8,000 megawatts of
electric generation resources on a consolidated basis.
The KCPL Merger 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 the
consolidated 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 customers in western Missouri and
eastern Kansas. KCPL and the company have joint interests in certain electric
generating assets, including Wolf Creek.
The company estimates it will incur approximately $50 million of
transaction costs associated with the KCPL Merger. The company will expense
these costs in the first reporting period subsequent to closing the KCPL
Merger.
3. STRATEGIC ALLIANCE WITH ONEOK INC.
On December 12, 1996, the company and ONEOK announced an agreement to form
a strategic alliance combining the natural gas assets of both companies. Under
the agreement for the proposed strategic alliance, the company will contribute
its regulated and non-regulated natural gas business to a new company (New
ONEOK) in exchange for a 45% equity interest. During the third quarter of 1997,
the strategic alliance was approved by the OCC and ONEOK shareowners. On
October 15, 1997, the KCC issued an order approving the strategic alliance on
terms agreed to among the parties. Approval for the strategic alliance is still
pending with the FERC and the Securities and Exchange Commission. The company
is working towards consummation of the transaction during the fourth quarter of
1997.
For additional information on the Strategic Alliance with ONEOK, see Note
6 of the company's 1996 Annual Report on Form 10-K.
4. SECURITY BUSINESS TRANSACTIONS
On July 30, 1997, Protection One, Inc. (Protection One), a publicly held
security monitoring service provider, and the company entered into an agreement
to combine the security assets of both companies. Under the agreement, the
company will contribute its security business assets, approximately $250 million
in cash and additional funding for a special dividend to current Protection One
shareowners of $7.00 per share and per common share equivalent in exchange for
an 80.1% equity interest on a fully-diluted basis. The aggregate amount of this
dividend is expected to approximate $117 million. Protection One will assume
approximately $65 million in debt. The company and Protection One have agreed
that certain security acquisitions that may occur prior to closing may be
contributed to Protection One by the company. The value of such acquisitions
would reduce the cash payable to Protection One at the closing up to $250
million. An unsecured note would be issued to the company by Protection One for
amounts greater than $250 million. Interest on this note would be fixed at 10%.
The proposed transaction is subject to satisfaction of customary
conditions, including approval by Protection One shareowners. The company
expects to consummate this transaction during the fourth quarter of 1997.
On September 23, 1997, the company acquired Network Multi-Family Security
Corporation, a multi-family electronic monitored security provider, for
approximately $171 million. The company has recorded this acquisition as a
purchase. A preliminary purchase price allocation has been made based upon the
estimated fair value of the net assets acquired.
5. GAIN ON SALE OF SECURITIES
During 1996, the company acquired approximately 25% of the common shares
of ADT Limited (ADT) and made an offer to acquire the remaining ADT common
shares it did not already own. This offer was rejected by ADT and on July 2,
1997, ADT merged with Tyco International, Inc. (Tyco). The merger was completed
in a stock for stock transaction. The amount of Tyco shares held following the
merger represented less than 10% of the total Tyco common shares outstanding.
The company classified its Tyco common stock as "available-for-sale" securities
following the merger pursuant to SFAS 115. During the third quarter of 1997,
the company sold all of its Tyco common shares and recorded a material gain on
the sale. ADT and the company have dismissed all litigation related to the
company's offer for ADT.
6. LEGAL PROCEEDINGS
On January 8, 1997, Innovative Business Systems, Ltd. (IBS) filed suit
against the company and Westinghouse Electric Corporation (WEC), Westinghouse
Security Systems, Inc. (WSS), and WestSec, Inc. (WestSec), a wholly-owned
subsidiary of the company established to acquire the assets of WSS, in Dallas
County, Texas district court (Cause No 97-00184) alleging, among other things,
breach of contract by WEC and interference with contract against the company in
connection with the sale by WEC of the assets of WSS to the company. IBS claims
that WEC improperly transferred software owned by IBS to the company and that
the company is not entitled to its use. The company has demanded WEC defend and
indemnify it. WEC and the company have denied IBS' allegations and are
vigorously defending against them. While the loss of use of the license could
have a material impact on the operations of WestSec, management does not believe
that the ultimate disposition of this matter will have a material adverse effect
upon the company's overall financial condition or results of operations.
The company and its subsidiaries are involved in various other legal,
environmental, and regulatory proceedings. Management believes that adequate
provision has been made and accordingly believes that the ultimate dispositions
of these matters will not have a material adverse effect upon the company's
overall financial position or results of operations.
7. RATE MATTERS AND REGULATION
Utility expenses and credits recognized as regulatory assets and
liabilities on the Consolidated Balance Sheets are recognized in income as the
related amounts are included in service rates and recovered from or refunded to
customers in utility revenues. The company expects to recover the following
regulatory assets in rates:
September 30, December 31,
1997 1996
(Dollars in Thousands)
Coal contract settlement costs $ 17,285 $ 21,037
Service line replacement 9,045 12,921
Post employment/retirement benefits 49,151 40,834
Deferred plant costs 31,052 31,272
Phase-in revenues 13,159 26,317
Debt issuance costs 76,288 78,532
Deferred cost of gas purchased 36,105 21,332
Other regulatory assets 8,438 8,794
Total $240,523 $241,039
See Note 9 included in the company's 1996 Annual Report on Form 10-K for
additional information regarding regulatory assets.
On November 27, 1996, the KCC issued a Suspension Order and on December 3,
1996, an order was issued which suspended, subject to refund, the collection of
costs related to purchases from Kansas Pipeline Partnership (KPP) included in
the company's cost of gas rider (COGR). On July 29, 1997, the KCC approved a
settlement agreement between the company and certain entities affiliated with
The Bishop Group, Ltd. (Bishop Entities), including KPP, and the KCC staff which
settles all major outstanding issues between the company and the Bishop
Entities. The settlement did not have a material impact on the company's
financial position or results of operations. The settlement agreement also
terminates several proceedings before the KCC, including the investigation of
the company's purchasing practices and the resulting suspension of the company's
COGR in the December 3, 1996 order. Dismissal of the KCC investigation ends the
suspension and eliminates any potential refund liability for gas costs related
to purchases from KPP included in the company's COGR. On October 9, 1997, the
KCC issued an order suspending, subject to refund, payments made from the
company to KPP under the terms of the settlement agreement. Management does not
expect the ultimate resolution of this suspension order to have a significant
impact upon the company's financial position or results of operations.
On May 30, 1997, the company and KCPL jointly filed applications with the
KCC and the Missouri Public Service Commission asking for approval of a
combination of the two companies.
On September 18, 1997, the company and KCPL jointly filed an application
with the FERC to approve the merger.
See Note 3 for discussion on regulatory proceedings related to the
strategic alliance with ONEOK.
8. 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 ten 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. As of September 30,
1997, the costs incurred for site investigation and risk assessment have been
minimal. Since the site investigations are preliminary, no formal agreement on
costs to be incurred has been reached, but minimum potential liability would not
be material to the financial statements. An accrual for these environmental
contingencies has not been reflected in the accompanying financial statements.
In accordance with the terms of the ONEOK agreement, ownership of twelve of the
aforementioned sites will be transferred to New ONEOK upon closing. The ONEOK
agreement limits the company's liabilities to an immaterial amount for future
remediation of these sites.
Investment Commitments: During 1996, The Wing Group obtained ownership
interests in independent power generation projects under construction in The
Republic of Turkey and Colombia. The Wing Group or other non-regulated company
subsidiaries are committed to future funding of equity interests in these
projects. In 1997, commitments are not expected to exceed $31 million. The
company has also committed $132 million to power generation projects in the
People's Republic of China, $12 million to power generation projects in Turkey,
and $9 million to power generation projects in India through the year 2000.
For additional information on Commitments and Contingencies, see Note 8 of
the company's 1996 Annual Report on Form 10-K.
9. 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 44.7%, 43.6%, and 42.8% for the three, nine, and
twelve month periods ended September 30, 1997 compared to 37.4%, 34.9%, and
34.7% for the three, nine, and twelve month periods ended September 30, 1996.
The increase in the effective tax rate for each of the periods ended September
30, 1997 is primarily attributable to the non-regulated gain realized on the
sale of Tyco stock and certain tax contingencies.
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 1996 Annual Report on Form 10-K. The following updates the
information provided in the 1996 Annual Report on Form 10-K and analyzes certain
changes in the results of operations between the three, nine, and twelve month
periods ended September 30, 1997 and comparable periods of 1996.
Certain matters discussed in this Form 10-Q are "forward-looking
statements" intended to qualify for the safe harbors from liability established
by the Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the company "believes," "anticipates,"
"expects" or words of similar import. Similarly, statements that describe the
company's future plans, objectives, expectations or goals are also
forward-looking statements. Such statements address future events and
conditions concerning capital expenditures, earnings, litigation, rate and other
regulatory matters, the pending KCPL Merger, the strategic alliance with ONEOK,
pending security business transactions, liquidity and capital resources,
interest rates, environmental matters, changing weather conditions, nuclear
operations, and accounting matters. Actual results in each case could differ
materially from those currently anticipated in such statements, by reason of
factors such as electric utility restructuring, including the ongoing state and
federal activities; future economic conditions; developments in the legislative,
regulatory and competitive markets in which the company operates; and other
circumstances affecting anticipated operations, revenues and costs.
FINANCIAL CONDITION
General: Net income for the third quarter of 1997 was $508.4 million, up
from net income of $62.9 million for the same period of 1996. The company
earned $7.77 per share of common stock for the third quarter of 1997, an
increase of $6.90 per share from $.87 per share for the third quarter of 1996.
The gain on the sale of the Tyco stock resulted in a gain of approximately $7.98
per common share for the third quarter of 1997. Without giving effect to the
transaction charges and other direct costs related to the Tyco sale, security
business operating results, and certain tax contingencies and other items
totaling approximately $.92 per share, earnings per share from operations were
reduced by approximately $.16 for the third quarter of 1997 compared to the same
period of 1996 due to the effect of the electric rate reduction implemented in
February, 1997. Operating revenues were $560 million and $490 million for the
three months ended September 30, 1997 and 1996, respectively.
Net income for the nine and twelve months ended September 30, 1997, was
$573.7 million and $606.2 million, respectively, compared to $136.5 million and
$183.0 million for the same periods of 1996. The company earned $8.77 and
$9.26
per share of common stock, respectively, for the nine and twelve months ended
September 30, 1997 compared to $1.93 and $2.62 for the comparable periods
of 1996. The gain on the sale of the Tyco stock, given the change in the number
of average shares outstanding for the respective periods, resulted in per share
gains of approximately $8.01 and $8.02 for the nine and twelve months ended
September 30, 1997, respectively. Without giving effect to the transaction
charges and other direct costs related to the Tyco sale, security business
operating results, and certain tax contingencies and other items totaling
approximately $1.03 and $1.30, respectively, for the nine and twelve months
ended September 30, 1997, earnings per share from operations were reduced by
approximately $.14 and $.08, respectively, for the nine and twelve months ended
September 30, 1997, due to the effect of the electric rate reduction implemented
in February, 1997 which was partially offset by a gas rate increase implemented
July 11, 1996. Operating revenues were $1.6 billion and $2.2 billion for the
nine and twelve months ended September 30, 1997, respectively. These revenues
compare to $1.5 billion and $1.9 billion for the same periods of 1996.
The changes 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 $0.525 per share was declared in the third quarter
of 1997, for an indicated annual rate of $2.10 per share. The book value per
share was $32.67 at September 30, 1997, up from $25.14 at December 31, 1996.
There were 65,243,406 and 64,161,329 average shares outstanding for the third
quarter of 1997 and 1996, respectively.
Liquidity and Capital Resources: During 1996, the company acquired
approximately 25% of the common shares of ADT and made an offer to acquire the
remaining ADT common shares it did not already own. This offer was rejected by
ADT and on July 2, 1997, ADT merged with Tyco. The merger was completed in a
stock for stock transaction. The amount of Tyco shares held following the
merger represented less than 10% of the total Tyco common shares outstanding.
The company classified its Tyco common stock as "available-for-sale" securities
following the merger pursuant to SFAS 115. During the third quarter of 1997,
the company sold all of its Tyco common shares for approximately $1.5 billion in
net proceeds and recorded a material gain on the sale. The company used a
portion of these proceeds to decrease its short-term debt balance by
approximately $875 million from December 31, 1996. The taxes related to the
gain on the sale of Tyco stock will also be paid with proceeds from the sale.
The remainder of the proceeds from the sale of Tyco stock will be used for
corporate acquisitions and other corporate purposes. The company had $553.7
million of cash and cash equivalents at September 30, 1997.
The company acquired Network Multi-Family Security Corporation, a
multi-family electronic monitored security provider, for approximately $171
million on September 23, 1997.
At September 30, 1997, the company had $44 million committed to AHTC
investments, of which $8.5 million has been used to purchase limited partnership
interests. The remaining $35.5 million will be funded by January 1, 2000. See
Note 1 of the Notes to Consolidated Financial Statements for additional
information.
The company anticipates paying approximately $117 million for a special
dividend to current Protection One shareowners upon consummation of the
agreement with Protection One in the fourth quarter. For further discussion
about the agreement with Protection One, see Note 4 of the Notes to Consolidated
Financial Statements.
In the first quarter of 1998, the company will repay $20.7 million of
current maturities of long-term debt related to the company's non-regulated
business.
The company currently has committed to fund approximately $184 million in
power generation projects in Colombia, Turkey, the People's Republic of China
and India through the year 2000.
The company estimates it will incur approximately $50 million of
transaction costs associated with the KCPL Merger. The company will expense
these costs in the first reporting period subsequent to closing the
KCPL Merger.
On August 6, 1997, the company issued $370 million of First Mortgage Bonds,
6 7/8% Convertible Series due 2004 and $150 million of First Mortgage Bonds, 7
1/8% Convertible Series due 2009. Net proceeds were used to reduce short-term
debt.
Each issue of First Mortgage Bonds is convertible, solely at the option of
the company, into senior notes, which will be unsecured obligations of the
company, having the same principal amount, interest rate and maturity date of
the First Mortgage Bonds. The company may exercise its conversion right at any
time and may do so if, among other things, it is necessary or desirable in
connection with the transactions that require the release of property from the
lien of the mortgage under which the First Mortgage Bonds were issued. By
converting the First Mortgage Bonds, the company will be able to satisfy certain
requirements under the mortgage to retire bonds in order to obtain the release
of all or substantially all of its gas properties, which release will be
required in order to consummate the strategic alliance with ONEOK described in
Note 3 of the Notes to Consolidated Financial Statements.
At September 30, 1997, the company had bank credit arrangements available
of $773 million, of which $0 was outstanding. The company canceled two facility
agreements totaling $200 million on September 30, 1997, at which time the
company had $0 borrowed under each facility.
In addition to the $773 million in bank credit arrangements, a subsidiary
of the company has issued a letter of credit for $85 million to a debt holder of
a non-regulated business unit. At September 30, 1997, there was $0 outstanding
under this letter.
The company maintained a $350 million revolving credit agreement that was
to expire on October 5, 1999. The company canceled the revolving credit
facility on September 30, 1997, at which time the company had $0 borrowed under
the facility.
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 September 30, 1997,
short-term borrowings amounted to $105.7 million, of which $70.7 million was
commercial paper and the balance was from uncommitted bank loans.
In September 1997, as a result of the company's reduction of short-term
debt, the company was removed from CreditWatch with Standard and Poor's Ratings
Group (S&P) and removed from FitchAlert Negative with Fitch Investors Service.
On October 14, 1997, S&P upgraded the company's first mortgage bonds from BBB+
to A-.
RESULTS OF OPERATIONS
Revenues: The company's electric and natural gas 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, the electric rate reduction which was implemented on February 1,
1997, changes in the industry, changes in the regulatory environment,
competition from other sources of energy, competing fuel sources, customer
conservation efforts, wholesale demand, and the overall economy of the company's
service area.
The following table reflects changes in electric sales for the three, nine
and twelve months ended September 30, 1997 from the comparable periods of 1996.
Increase (Decrease) in electric sales volumes:
3 Months 9 Months 12 Months
ended ended ended
Residential 11.0% 1.8% 2.7%
Commercial 7.4% 2.1% 2.9%
Industrial 2.6% 0.0% (0.6)%
Other 10.8% 5.3% 4.0%
Total retail sales 7.2% 1.3% 1.7%
Wholesale and interchange (20.3)% (3.2)% 10.9%
Total electric sales 0.3% 0.2% 3.9%
Electric revenues increased 10.4% for the three months ended September 30,
1997 compared to 1996. The increase is largely due to revenues of $32 million
from the expansion of power marketing activity in 1997. This expansion has
resulted in increased energy purchases and sales made in areas outside of the
company's traditional marketing territory. The company became involved in
electric power marketing to prepare for the anticipated deregulation of the
electric utility industry. For the three, nine and twelve months ended
September 30, 1997, the power marketing activity had an immaterial impact on
operating income.
Electric revenues from customers increased $21 million due to higher demand
for air conditioning load and customer growth, compared to the same quarter last
year. This increase was offset by an electric rate reduction implemented on
February 1, 1997, that negatively impacted third quarter revenues by an amount
estimated at $16 million.
Electric revenues were higher 1.8% and 3.1%, respectively for the nine and
twelve months ended September 30, 1997 compared to the same periods of 1996.
These increases were primarily due to power marketing revenues discussed above.
Partially offsetting these revenues was decreased retail revenues as a result of
the electric rate reduction implemented on February 1, 1997.
Regulated and non-regulated natural gas revenues increased $4 million or
3.1% for the three months ended September 30, 1997 compared to September 30,
1996 primarily as a result of as-available gas sales. Regulated and
non-regulated natural gas revenues increased $52 million or 9.4% and $126
million or 16.9%, respectively, for the nine and twelve months ended September
30, 1997 compared to the same periods of 1996 as a result of higher gas costs
passed onto customers through the COGR, increased as-available gas sales, the
gas revenue increase ordered by the KCC on July 11, 1996 and higher market
prices of gas sold by the company's wholly-owned subsidiary Westar Gas
Marketing.
When the alliance with ONEOK is complete, the company will contribute its
regulated and non-regulated natural gas business to New ONEOK in exchange for a
45% equity interest. See Note 3 of the Notes to the Consolidated Financial
Statements.
Due to the company's expansion into other non-regulated businesses,
primarily the monitored security business, the company's other revenue increased
$28 million, $90 million, and $103 million for the three, nine and twelve months
ended September 30, 1997, respectively compared to the same periods ending
September 30, 1996.
Operating Expenses: Total operating expenses increased 19.3% for the three
months ended September 30, 1997 compared to the same period of 1996. The
increase is primarily attributable to the operations of the company's
non-regulated subsidiaries, the amortization of intangible assets related to the
company's non-regulated subsidiary acquisitions and power marketing expenses.
Total operating expenses increased 12.9% and 15.3% for the nine and twelve
months ended September 30, 1997 compared to the same periods of 1996. Increases
in these periods are primarily attributable to the operations of the company's
non-regulated subsidiaries, the amortization of intangible assets related to the
company's subsidiary acquisitions and power marketing expenses.
Other Income and Deductions: Other income and deductions, net of taxes,
increased $461.2 million, $480.0 million, and $461.1 million for the three,
nine, and twelve months ended September 30, 1997 compared to same periods of
1996. These increases are attributable to the non-regulated gain on the sale of
Tyco stock.
The increase in income taxes (net) resulted from the taxes related to the
gain on the sale of Tyco stock and additional provisions for certain tax
contingencies.
Equity in earnings of investees was $5.6 million lower for the three months
ended September 30, 1997 compared to the same period of 1996 due to the
reclassification of the company's equity investment in ADT in July, 1997 to an
as-available-for-sale security following the merger between ADT and Tyco. See
Note 3 of the Notes to Consolidated Financial Statements for further
information.
Interest Charges and Preferred and Preference Dividend Requirements: Total
interest charges increased 23%, 36%, and 37% for the three, nine, and twelve
months ended September 30, 1997 from the comparable periods in 1996,
respectively. These increases reflect interest paid on higher short-term debt
balances to finance the company's investment in ADT and the purchase of WSS.
The increases also reflect interest payments related to the company's
mandatorily redeemable preference stock which was issued in December of 1995 and
July of 1996. Partially offsetting the higher interest charges were lower
preferred and preference dividends due to the redemption of preference stock in
July 1996. See discussion above in Liquidity and Capital Resources regarding
higher short-term debt balances.
WESTERN RESOURCES, INC.
Part II Other Information
Item 5. Other Information
Proposed acquisition of Centennial Security Holdings, Inc.: On October
2, 1997, the company entered into an agreement to acquire Centennial
Security Holdings, Inc. (Centennial) for approximately $92 million in
cash, subject to adjustment. Centennial is based in Madison, New Jersey
and provides monitored security services to more than 50,000 customers
in Ohio, Michigan, New Jersey, New York, and Pennsylvania. The company
expects to consummate this transaction in November, 1997.
Security Company Transactions: See Note 4 of the Notes to the
Consolidated Financial Statements.
Merger Agreement with Kansas City Power & Light Company: See Note 2 of
the Notes to Consolidated Financial Statements.
Strategic Alliance with ONEOK Inc.: See Note 3 of the Notes to the
Consolidated Financial Statements.
Rate Plans: See Note 7 of the Notes to the Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 12 - Computation of Ratio of Consolidated Earnings to
Fixed Charges for 12 Months Ended September 30,
1997 (filed electronically)
Exhibit 27 - Financial Data Schedule (filed electronically)
(b) Reports on Form 8-K:
Form 8-K filed July 25, 1997 - Pro forma financial statements
of the company and KCPL as of March 31, 1997.
Form 8-K filed August 1, 1997 - Pro forma financial statements
Of the company and KCPL as of June 30, 1997.
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 October 20, 1997 By /s/ S. L. KITCHEN
S. L. Kitchen, Executive Vice President
and Chief Financial Officer
Date October 20, 1997 By /s/ JERRY D. COURINGTON
Jerry D. Courington,
Controller
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
September 30, Year Ended December 31,
1997 1996 1995 1994 1993 1992
Net Income . . . . . . . . . . . $ 606,206 $168,950 $181,676 $187,447 $177,370 $127,884
Taxes on Income. . . . . . . . . 461,912 86,102 83,392 99,951 78,755 46,099
Net Income Plus Taxes. . . . 1,068,118 255,052 265,068 287,398 256,125 173,983
Fixed Charges:
Interest on Long-Term Debt . . 103,031 105,741 95,962 98,483 123,551 117,464
Interest on Other Indebtedness 70,802 34,685 27,487 20,139 19,255 20,009
Interest on Other Mandatorily
Redeemable Securities. . . . 18,075 12,125 372 - - -
Interest on Corporate-owned
Life Insurance Borrowings. . 34,683 35,151 32,325 26,932 16,252 5,294
Interest Applicable to
Rentals. . . . . . . . . . . 32,906 32,965 31,650 29,003 28,827 27,429
Total Fixed Charges. . . . 259,497 220,667 187,796 174,557 187,885 170,196
Preferred and Preference Dividend
Requirements:
Preferred and Preference
Dividends. . . . . . . . . . 4,919 14,839 13,419 13,418 13,506 12,751
Income Tax Required. . . . . . 3,748 7,562 6,160 7,155 5,997 4,596
Total Preferred and
Preference Dividend
Requirements . . . . . . 8,667 22,401 19,579 20,573 19,503 17,347
Total Fixed Charges and Preferred
and Preference Dividend
Requirements. . . . . . . . . 268,164 243,068 207,375 195,130 207,388 187,543
Earnings (1) . . . . . . . . . . $1,327,615 $475,719 $452,864 $461,955 $444,010 $344,179
Ratio of Earnings to Fixed
Charges . . . . . . . . . . . . 5.12 2.16 2.41 2.65 2.36 2.02
Ratio of Earnings to Combined Fixed
Charges and Preferred and Preference
Dividend Requirements. . . . . 4.95 1.96 2.18 2.37 2.14 1.84
(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
9-MOS
DEC-31-1997
SEP-30-1997
PER-BOOK
4,362,933
877,078
988,570
639,930
0
6,868,511
326,382
756,624
1,029,704
2,132,586
270,000
24,858
1,907,087
35,009
0
70,713
0
0
0
0
2,448,134
6,868,511
1,640,194
446,910
1,349,393
1,415,689
224,505
497,123
721,628
147,888
573,740
3,689
570,051
102,468
75,858
134,547
8.77
0
