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, 1994
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 November 10, 1994
Common Stock, $5.00 par value 61,617,873
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 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
September 30, December 31,
1994 1993
(Unaudited)
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . $5,212,122 $5,110,617
Natural gas plant in service. . . . . . . . . . . . . . 724,922 1,111,866
5,937,044 6,222,483
Less - Accumulated depreciation . . . . . . . . . . . . 1,806,795 1,821,710
4,130,249 4,400,773
Construction work in progress . . . . . . . . . . . . . 79,646 80,192
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 37,909 29,271
Net utility plant. . . . . . . . . . . . . . . . . . 4,247,804 4,510,236
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . . . . . . . . 72,815 61,497
Decommissioning trust . . . . . . . . . . . . . . . . . 15,951 13,204
Other . . . . . . . . . . . . . . . . . . . . . . . . . 12,128 10,658
100,894 85,359
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . 2,111 1,217
Accounts receivable and unbilled revenues (net) . . . . 162,093 238,137
Fossil fuel, at average cost. . . . . . . . . . . . . . 36,407 30,934
Gas stored underground, at average cost . . . . . . . . 42,601 51,788
Materials and supplies, at average cost . . . . . . . . 57,065 55,156
Prepayments and other current assets. . . . . . . . . . 31,547 34,128
331,824 411,360
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . . 101,863 111,159
Deferred coal contract settlement costs . . . . . . . . 35,124 40,522
Phase-in revenues . . . . . . . . . . . . . . . . . . . 65,792 78,950
Corporate-owned life insurance (net). . . . . . . . . . 14,464 4,743
Other deferred plant costs. . . . . . . . . . . . . . . 31,840 32,008
Unamortized debt expense. . . . . . . . . . . . . . . . 59,384 55,999
Other . . . . . . . . . . . . . . . . . . . . . . . . . 86,761 81,712
395,228 405,093
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $5,075,750 $5,412,048
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . . $3,006,823 $3,121,021
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . 219,300 440,895
Long-term debt due within one year. . . . . . . . . . . - 3,204
Accounts payable. . . . . . . . . . . . . . . . . . . . 103,841 172,338
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 140,218 46,076
Accrued interest and dividends. . . . . . . . . . . . . 58,958 65,825
Other . . . . . . . . . . . . . . . . . . . . . . . . . 55,791 65,492
578,108 793,830
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . 916,059 968,637
Deferred investment tax credits . . . . . . . . . . . . 139,330 150,289
Deferred gain from sale-leaseback . . . . . . . . . . . 254,751 261,981
Other . . . . . . . . . . . . . . . . . . . . . . . . . 180,679 116,290
1,490,819 1,497,197
COMMITMENTS AND CONTINGENCIES (Notes 4, 5 and 6)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $5,075,750 $5,412,048
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Three Months Ended
September 30,
1994 1993
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 338,812 $ 342,019
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 40,401 76,999
Total operating revenues. . . . . . . . . . . . . . . . 379,213 419,018
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 66,563 68,074
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 3,638 4,179
Power purchased . . . . . . . . . . . . . . . . . . . . . 2,760 6,908
Natural gas purchases . . . . . . . . . . . . . . . . . . 17,758 37,251
Other operations. . . . . . . . . . . . . . . . . . . . . 76,099 91,789
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 25,871 29,748
Depreciation and amortization . . . . . . . . . . . . . . 38,145 40,846
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 27,648 19,579
State income. . . . . . . . . . . . . . . . . . . . . . 6,832 4,978
General . . . . . . . . . . . . . . . . . . . . . . . . 25,629 30,055
Total operating expenses. . . . . . . . . . . . . . . 295,329 337,793
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 83,884 81,225
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (1,728) 5,969
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 2,059 4,729
Income taxes (net). . . . . . . . . . . . . . . . . . . . 2,027 (19)
Total other income and deductions . . . . . . . . . . 2,358 10,679
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 86,242 91,904
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 23,872 31,187
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,343 4,545
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (652) (635)
Total interest charges. . . . . . . . . . . . . . . . 28,563 35,097
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 57,679 56,807
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 3,355 3,402
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 54,324 $ 53,405
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,617,873 59,441,111
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ .88 $ .90
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ .495 $ .485
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Nine Months Ended
September 30,
1994 1993
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 868,814 $ 859,873
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 389,903 539,137
Total operating revenues. . . . . . . . . . . . . . . . 1,258,717 1,399,010
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 172,756 181,266
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 11,733 9,028
Power purchased . . . . . . . . . . . . . . . . . . . . . 9,656 14,519
Natural gas purchases . . . . . . . . . . . . . . . . . . 250,889 324,295
Other operations. . . . . . . . . . . . . . . . . . . . . 230,528 261,411
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 81,760 85,644
Depreciation and amortization . . . . . . . . . . . . . . 115,622 122,524
Amortization of phase-in revenues . . . . . . . . . . . . 13,158 13,158
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 62,385 50,567
State income. . . . . . . . . . . . . . . . . . . . . . 15,443 12,414
General . . . . . . . . . . . . . . . . . . . . . . . . 83,222 96,727
Total operating expenses. . . . . . . . . . . . . . . 1,047,152 1,171,553
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 211,565 227,457
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (3,721) 9,337
Gain on sale of Missouri Properties (see Note 2). . . . . 30,701 -
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 7,614 14,940
Income taxes (net). . . . . . . . . . . . . . . . . . . . (5,622) (1,877)
Total other income and deductions . . . . . . . . . . 28,972 22,400
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 240,537 249,857
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 74,695 95,732
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 14,013 13,899
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (2,230) (2,118)
Total interest charges. . . . . . . . . . . . . . . . 86,478 107,513
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 154,059 142,344
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 10,064 10,151
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 143,995 $ 132,193
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,617,873 58,515,849
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 2.34 $ 2.26
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 1.485 $ 1.455
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Twelve Months Ended
September 30,
1994 1993
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $1,113,478 $1,094,012
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 655,588 765,166
Total operating revenues. . . . . . . . . . . . . . . . 1,769,066 1,859,178
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 228,543 233,942
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 15,980 12,966
Power purchased . . . . . . . . . . . . . . . . . . . . . 11,533 18,445
Natural gas purchases . . . . . . . . . . . . . . . . . . 426,783 464,144
Other operations. . . . . . . . . . . . . . . . . . . . . 318,277 334,817
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 113,959 117,598
Depreciation and amortization . . . . . . . . . . . . . . 157,462 162,601
Amortization of phase-in revenues . . . . . . . . . . . . 17,545 17,544
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 74,238 61,578
State income. . . . . . . . . . . . . . . . . . . . . . 18,587 11,910
General . . . . . . . . . . . . . . . . . . . . . . . . 109,988 122,531
Total operating expenses. . . . . . . . . . . . . . . 1,492,895 1,558,076
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 276,171 301,102
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (5,217) 11,748
Gain on sale of Missouri Properties (see Note 2). . . . . 30,701 -
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 11,092 18,838
Income taxes (net). . . . . . . . . . . . . . . . . . . . (4,522) (2,907)
Total other income and deductions . . . . . . . . . . 32,054 27,679
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 308,225 328,781
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 102,514 129,754
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 19,369 20,132
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (2,743) (2,729)
Total interest charges. . . . . . . . . . . . . . . . 119,140 147,157
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 189,085 181,624
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 13,419 13,610
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 175,666 $ 168,014
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,614,235 58,397,308
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 2.85 $ 2.88
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 1.97 $ 1.93
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Nine Months Ended
September 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 154,059 $ 142,344
Depreciation and amortization . . . . . . . . . . . . . . . 115,622 122,524
Other amortization (including nuclear fuel) . . . . . . . . 8,390 8,208
Gain on sale of utility plant (net of tax). . . . . . . . . (19,296) -
Deferred taxes and investment tax credits (net) . . . . . . (35,005) 11,450
Amortization of phase-in revenues . . . . . . . . . . . . . 13,158 13,158
Corporate-owned life insurance. . . . . . . . . . . . . . . (13,600) (18,586)
Amortization of gain from sale-leaseback. . . . . . . . . . (7,230) (7,230)
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . . (17,963) 61,420
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (5,473) 17,655
Gas stored underground. . . . . . . . . . . . . . . . . . (2,782) (47,047)
Accounts payable . . . . . . . . . . . . . . . . . . . . (68,457) (81,415)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 74,008 54,585
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (7,067) (8,772)
Changes in other assets and liabilities . . . . . . . . . . 46,568 (13,068)
Net cash flows from operating activities. . . . . . . . 234,932 255,226
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 154,929 152,163
Sale of utility plant . . . . . . . . . . . . . . . . . . . (402,076) -
Non-utility investments . . . . . . . . . . . . . . . . . . 4,680 16,297
Corporate-owned life insurance policies . . . . . . . . . . 24,588 25,687
Death proceeds of corporate-owned life insurance policies . - (10,160)
Net cash flows (from) used in investing activities. . . (217,879) 183,987
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (221,595) 140,125
Bank term loan retired. . . . . . . . . . . . . . . . . . . - (230,000)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 235,923 223,500
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (223,906) (214,000)
Revolving credit agreement (net). . . . . . . . . . . . . . (115,000) (150,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . (67,893) (46,870)
Borrowings against life insurance policies (net). . . . . . 41,504 182,079
Common stock issued . . . . . . . . . . . . . . . . . . . . - 122,021
Dividends on preferred, preference and common stock . . . . (100,950) (94,083)
Net cash flows from (used in) financing activities. . . (451,917) (67,228)
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . 894 4,011
CASH AND CASH EQUIVALENTS:
BEGINNING OF THE PERIOD . . . . . . . . . . . . . . . . . . 1,217 875
END OF THE PERIOD . . . . . . . . . . . . . . . . . . . . . $ 2,111 $ 4,886
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . . $ 109,104 $ 139,485
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 72,204 27,648
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Twelve Months Ended
September 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 189,085 $ 181,624
Depreciation and amortization . . . . . . . . . . . . . . . 157,462 162,601
Other amortization (including nuclear fuel) . . . . . . . . 11,436 11,160
Gain on sale of utility plant (net of tax). . . . . . . . . (19,296) -
Deferred taxes and investment tax credits (net) . . . . . . (18,769) 42,051
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Corporate-owned life insurance. . . . . . . . . . . . . . . (16,664) (22,710)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,640) (9,640)
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . . (94,919) (27,677)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (5,055) 28,307
Gas stored underground. . . . . . . . . . . . . . . . . . 7,121 (40,322)
Accounts payable. . . . . . . . . . . . . . . . . . . . . (30,211) 25,871
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 26,908 15,313
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (1,460) 8,811
Changes in other assets and liabilities . . . . . . . . . . 41,067 (39,717)
Net cash flows from operating activities . . . . . . . 254,610 353,216
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 240,397 237,298
Utility investment. . . . . . . . . . . . . . . . . . . . . 2,500 -
Sale of utility plant . . . . . . . . . . . . . . . . . . . (402,076) -
Non-utility investments . . . . . . . . . . . . . . . . . . 2,654 35,868
Corporate-owned life insurance policies . . . . . . . . . . 26,169 21,032
Death proceeds of corporate-owned life insurance policies . - (10,912)
Net cash flows (from) used in investing activities. . . (130,356) 283,286
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (143,050) 126,950
Bank term loan retired. . . . . . . . . . . . . . . . . . . - (230,000)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 235,923 358,500
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (376,372) (341,466)
Revolving credit agreement (net). . . . . . . . . . . . . . - (150,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . (13,980) (230)
Common stock issued (net) . . . . . . . . . . . . . . . . . 3,970 122,021
Preference stock redeemed . . . . . . . . . . . . . . . . . (2,734) (2,600)
Borrowings against life insurance policies (net). . . . . . 42,685 176,713
Dividends on preferred, preference and common stock . . . . (134,183) (125,638)
Net cash flows from (used in) financing activities. . . (387,741) (65,750)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (2,775) 4,180
CASH AND CASH EQUIVALENTS:
BEGINNING OF THE PERIOD . . . . . . . . . . . . . . . . . . 4,886 706
END OF THE PERIOD . . . . . . . . . . . . . . . . . . . . . $ 2,111 $ 4,886
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . . $ 141,353 $ 172,779
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 93,664 28,685
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
September 30, December 31,
1994 1993
(Unaudited)
COMMON STOCK EQUITY (see statement):
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
61,617,873 shares. . . . . . . . . . . . . . . . $ 308,089 $ 308,089
Paid-in capital. . . . . . . . . . . . . . . . . . 667,992 667,738
Retained earnings. . . . . . . . . . . . . . . . . 498,840 446,348
1,474,921 49% 1,422,175 45%
CUMULATIVE PREFERRED AND PREFERENCE STOCK:
Not subject to mandatory redemption,
Par value $100 per share, authorized
600,000 shares, outstanding -
4 1/2% Series, 138,576 shares . . . . . . . 13,858 13,858
4 1/4% Series, 60,000 shares. . . . . . . . 6,000 6,000
5% Series, 50,000 shares. . . . . . . . . . 5,000 5,000
24,858 24,858
Subject to mandatory redemption,
Without par value, $100 stated value,
authorized 4,000,000 shares,
outstanding -
7.58% Series, 500,000 shares. . . . . . . . 50,000 50,000
8.50% Series, 1,000,000 shares. . . . . . . 100,000 100,000
150,000 150,000
174,858 6% 174,858 6%
LONG-TERM DEBT:
First mortgage bonds . . . . . . . . . . . . . . . 841,000 842,466
Pollution control bonds. . . . . . . . . . . . . . 521,922 508,440
Other pollution control obligations. . . . . . . . - 13,980
Revolving credit agreement . . . . . . . . . . . . - 115,000
Other long-term agreement. . . . . . . . . . . . . - 53,913
Less:
Unamortized premium and discount (net) . . . . . 5,878 6,607
Long-term debt due within one year . . . . . . . - 3,204
1,357,044 45% 1,523,988 49%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . $3,006,823 100% $3,121,021 100%
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
(Thousands of Dollars)
(Unaudited)
Common Paid-in Retained
Stock Capital Earnings
BALANCE DECEMBER 31, 1992, 58,045,550 shares. . . . . $290,228 $559,636 $398,503
Net income. . . . . . . . . . . . . . . . . . . . . . 142,344
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (10,151)
Common stock, $1.455 per share . . . . . . . . . . (84,456)
Expenses on preference stock. . . . . . . . . . . . . (556)
Issuance of 3,460,517 shares of common stock. . . . . 17,302 104,719
BALANCE SEPTEMBER 30, 1993, 61,506,067 shares . . . . 307,530 663,799 446,240
Net income. . . . . . . . . . . . . . . . . . . . . . 35,026
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (3,355)
Common stock, $0.97 per share . . . . . . . . . . . (31,563)
Expenses on common stock. . . . . . . . . . . . . . . (2,897)
Issuance of 111,806 shares of common stock. . . . . . 559 6,836
BALANCE DECEMBER 31, 1993, 61,617,873 shares . . . . 308,089 667,738 446,348
Net income. . . . . . . . . . . . . . . . . . . . . . 154,059
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (10,064)
Common stock, $1.485 per share. . . . . . . . . . . (91,503)
Expenses on common stock. . . . . . . . . . . . . . . (228)
Distribution of common stock under the Customer
Stock Purchase Plan . . . . . . . . . . . . . . . . 482
BALANCE SEPTEMBER 30, 1994, 61,617,873 shares . . . . $308,089 $667,992 $498,840
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 condensed consolidated financial statements of the Company
include the accounts of its wholly-owned subsidiaries, Astra Resources, Inc.
(Astra Resources), Kansas Gas and Electric Company (KG&E), and KPL Funding
Corporation. KG&E owns 47% of the Wolf Creek Nuclear Operating Corporation
(WCNOC), the operating company for the Wolf Creek Generating Station (Wolf
Creek). The Company records its proportionate share of all transactions of
WCNOC as it does other jointly-owned facilities. All significant intercompany
transactions have been eliminated. The Company is conducting its utility
business as KPL, Gas Service, and through its wholly-owned subsidiary, KG&E.
The Company is conducting its non-utility business through Astra Resources.
The financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the accompanying condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position of the Company as of September 30, 1994 and December 31, 1993, and
the results of its operations for the three, nine, and twelve month periods
ended September 30, 1994 and 1993. These condensed consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's 1993 Annual Report on Form 10-K and
the KG&E Annual Report on Form 10-K incorporated by reference in the Company's
1993 Annual Report on Form 10-K.
The accounting policies of the Company are in accordance with generally
accepted accounting principles as applied to regulated public utilities. The
accounting and rates of the Company are subject to requirements of the Kansas
Corporation Commission (KCC) and the Federal Energy Regulatory Commission
(FERC).
Cash Surrender Value of Life Insurance Contracts. The following amounts
related to corporate-owned life insurance (COLI) contracts, primarily with one
highly rated major insurance company, are recorded on the balance sheets
(millions of dollars):
September 30, December 31,
1994 1993
Cash surrender value of contracts $405.7 $326.3
Borrowings against contracts (391.2) (321.6)
COLI (net) $ 14.5 $ 4.7
Interest expense included in other income and deductions, net of taxes,
related to COLI for the three, nine, and twelve months ended September 30,
1994, was $5.6, $15.4, and $20.1 million, respectively. Interest expense for
the three, nine, and twelve months ended September 30, 1993, was $3.3, $6.2,
and $7.9 million, respectively.
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.
Reclassifications. Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
2. SALE OF MISSOURI NATURAL GAS DISTRIBUTION PROPERTIES
On January 31, 1994, the Company sold substantially all of its Missouri
natural gas distribution properties and operations to Southern Union Company
(Southern Union). The Company sold the remaining Missouri properties to
United Cities Gas Company (United Cities) on February 28, 1994. The
properties sold to Southern Union and United Cities are referred to herein as
the "Missouri Properties." With the sales, the Company is no longer operating
as a utility in the State of Missouri.
The portion of the Missouri Properties purchased by Southern Union was
sold for an estimated sale price of $400 million, in cash, based on a
calculation as of December 31, 1993. The sale agreement provided for
estimated amounts in the sale price calculation to be adjusted to actual as of
January 31, 1994, within 120 days of closing. Disputes with respect to
proposed adjustments based upon differences between estimates and actuals were
to be resolved within 60 days of submission of the disputes (which were
submitted within 15 days of the adjustment proposals) or submitted to
arbitration by an accounting firm to be agreed to by both parties. Southern
Union proposed a number of adjustments to the purchase price which the Company
has disputed. The Company maintains the disputed adjustments are not
permitted under the sale agreement and are not subject to the arbitration
provisions. In the opinion of the Company's management the resolution of
these purchase price adjustments will not have a material impact on the
Company's financial position or results of operations.
For information regarding litigation in connection with the sale of the
Missouri Properties to Southern Union, see Note 5, LEGAL PROCEEDINGS.
United Cities purchased the Company's natural gas distribution system in
and around the City of Palmyra, Missouri, for $665,000 in cash.
During the first quarter of 1994, the Company recognized a gain of
approximately $19.3 million, net of tax, on the sale of the Missouri
Properties. As of the respective dates of the sales of the Missouri
Properties, the Company ceased recording the results of operations, and
removed the assets and liabilities from the consolidated balance sheet related
to the Missouri Properties. The gain is reflected in other income and
deductions on the nine and twelve months ended September 30, 1994 consolidated
income statements.
The Company's operating revenues and operating income for the third
quarter of 1994 do not include any results related to the Missouri Properties
following the sale of those properties in the first quarter of 1994. The
consolidated income statements for the nine and twelve months ended September
30, 1994, include revenues and operating income (unaudited) related to the
Missouri Properties for a portion of these periods compared to the inclusion
of such revenues and operating income for the full nine and twelve months
ended September 30, 1993.
The following table reflects the approximate operating revenues
(unaudited) and operating income (unaudited) related to the Missouri
Properties for the three, nine, and twelve months ended September 30, 1994 and
1993, through the sale to Southern Union on January 31, 1994 and United Cities
on February 28, 1994 (millions of dollars):
Percent Percent
Operating of Total Operating of Total
Revenues Company Income Company
Three months ended
September 30,
1994 $ 0 - $ 0 -
1993 $ 34.0 8.1% $ (2.8) (3.4)%
Nine months ended
September 30,
1994 $ 77.0 6.1% $ 5.0 2.4%
1993 $234.5 16.8% $ 9.4 4.1%
Twelve months ended
September 30,
1994 $192.3 10.9% $ 16.3 5.9%
1993 $331.7 17.8% $ 16.0 5.3%
Net utility plant (unaudited) for the Missouri Properties, at December
31, 1993, approximated $296 million. This represents approximately seven
percent of the total Company net utility plant at December 31, 1993.
Separate audited financial information was not kept by the Company for
the Missouri Properties. This unaudited financial information is based on
assumptions and allocations of expenses of the Company as a whole.
3. SHORT-TERM DEBT
The Company's short-term financing requirements are satisfied through
the sale of commercial paper, short-term bank loans and borrowings under
unsecured lines of credit maintained with banks. At September 30, 1994, the
Company had bank credit arrangements available of $145 million.
4. COMMITMENTS AND CONTINGENCIES
As a part of its ongoing operations and construction program, the
Company had commitments under purchase orders and contracts which had an
unexpended balance of approximately $86 million at December 31, 1993.
Approximately $36 million was attributable to modifications to upgrade the
three turbines at Jeffrey Energy Center to be completed by December 31, 1998.
Spent Nuclear Fuel Disposal. Under the Nuclear Waste Policy Act of
1982, the U.S. Department of Energy (DOE) is responsible for the ultimate
storage and disposal of spent nuclear fuel removed from nuclear reactors.
Under a contract with the DOE for disposal of spent nuclear fuel, the Company
pays a quarterly fee to DOE of one mill per kilowatthour on net nuclear
generation. These fees are included as part of nuclear fuel expense.
The Company along with the other co-owners of Wolf Creek are among 14
companies that filed a lawsuit on June 20, 1994, seeking an interpretation of
the DOE's obligation to begin accepting spent nuclear fuel for disposal in
1998. The Federal Nuclear Waste Policy Act requires DOE ultimately to accept
and dispose of nuclear utilities' spent fuel. The DOE has filed a motion to
have this case dismissed. The issue to be decided in this case is whether DOE
must begin accepting spent fuel in 1998 or at a future date.
Decommissioning. On June 9, 1994, the KCC issued an order approving the
decommissioning cost of the 1993 Wolf Creek Decommissioning Cost Study which
estimates the Company's share of Wolf Creek decommissioning costs, under the
immediate dismantlement method, to be approximately $595 million primarily
during the period 2025 through 2033, or approximately $174 million in 1993
dollars. These costs were calculated using an assumed inflation rate of 3.45%
over the remaining service life, in 1993, of 32 years.
Decommissioning costs are being charged to operating expenses. Electric
rates charged to customers provide for recovery of these decommissioning costs
over the life of Wolf Creek. Amounts so expensed ($3.5 million in 1993
increasing annually to $5.5 million in 2024) and earnings on trust fund assets
are deposited in an external trust fund. The assumed return on trust assets
is 5.9%.
The Company's investment in the decommissioning fund, including
reinvested earnings was $16.0 and $13.2 million at September 30, 1994 and
December 31, 1993, respectively. These amounts are reflected in OTHER
PROPERTY AND INVESTMENTS, Decommissioning Trust, and the related liability is
included in DEFERRED CREDITS AND OTHER LIABILITIES, Other, on the consolidated
balance sheets.
The Company carries $117 million in premature decommissioning insurance.
The insurance coverage has several restrictions. One of these is that it can
only be used if Wolf Creek incurs an accident exceeding $500 million in
expenses to safely stabilize the reactor, to decontaminate the reactor and
reactor station site in accordance with a plan approved by the Nuclear
Regulatory Commission (NRC), and to pay for on-site property damages. If the
amount designated as decommissioning insurance is needed to implement the NRC-
approved plan for stabilization and decontamination, it would not be available
for decommissioning purposes.
Nuclear Insurance. The Price-Anderson Act limits the combined public
liability of the owners of nuclear power plants to $9.0 billion for a single
nuclear incident. The Wolf Creek owners (Owners) have purchased the maximum
available private insurance of $200 million and the balance is provided by an
assessment plan mandated by the NRC. Under this plan, the Owners are jointly
and severally subject to a retrospective assessment of up to $79.3 million
($37.3 million, Company's share) in the event there is a nuclear incident
involving any of the nation's licensed reactors. This assessment is subject
to an inflation adjustment based on the Consumer Price Index and applicable
premium taxes. There is a limitation of $10 million ($4.7 million, Company's
share) in retrospective assessments per incident per year.
The Owners carry decontamination liability, premature decommissioning
liability, and property damage insurance for Wolf Creek totalling
approximately $2.8 billion ($1.3 billion, Company's share). This insurance is
provided by a combination of "nuclear insurance pools" ($500 million) and
Nuclear Electric Insurance Limited (NEIL) ($2.3 billion). In the event of an
accident, insurance proceeds must first be used for reactor stabilization and
site decontamination. The remaining proceeds from the $2.8 billion insurance
coverage ($1.3 billion, Company's share), if any, can be used for property
damage up to $1.2 billion (Company's share) and premature decommissioning
costs up to $117 million (Company's share) in excess of funds previously
collected for decommissioning (as discussed under "Decommissioning").
The Owners also carry additional insurance with NEIL to cover costs of
replacement power and other extra expenses incurred during a prolonged outage
resulting from accidental property damage at Wolf Creek. If losses incurred
at any of the nuclear plants insured under the NEIL policies exceed premiums,
reserves, and other NEIL resources, the Company may be subject to
retrospective assessments of approximately $13 million per year.
Although the Company maintains various insurance policies to provide
coverage for potential losses and liabilities resulting from an accident or an
extended outage, the Company's insurance coverage may not be adequate to cover
the costs that could result from a major accident or extended outage at Wolf
Creek. Any substantial losses not covered by insurance, to the extent not
recoverable through rates, could have a material adverse effect on the
Company's financial condition and results of operations.
Clean Air Act. The Clean Air Act Amendments of 1990 (the Act) require a
two-phase reduction in sulfur dioxide and oxides of nitrogen (NOx) emissions
effective in 1995 and 2000 and a probable reduction in toxic emissions. To
meet the monitoring and reporting requirements under the acid rain program,
the Company is installing continuous monitoring and reporting equipment at a
total cost of approximately $10 million. At December 31, 1993, the Company
had completed approximately $4 million of these capital expenditures with the
remaining $6 million of capital expenditures to be completed in 1994. The
Company does not expect additional equipment to reduce sulfur emissions to be
necessary under Phase II. Although the Company currently has no Phase I
affected units, the Company applied for an early substitution permit to bring
the co-owned LaCygne Generating Station under the Phase I guidelines.
The NOx and toxic limits, which were not set in the law, will be
specified in future EPA regulations. Until such time as the Phase I group 1
NOx regulations are final, the Company will be unable to determine its
compliance options or related compliance costs.
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, 1993, WCNOC's nuclear fuel commitments (Company's share) were
approximately $18.0 million for uranium concentrates expiring at various times
through 1997, $123.6 million for enrichment expiring at various times through
2014, and $45.5 million for fabrication through 2012. At December 31, 1993,
the Company's coal and natural gas contract commitments in 1993 dollars under
the remaining term of the contracts were $2.8 billion and $20.4 million,
respectively. The largest coal contract was renegotiated early in 1993 and
expires in 2020 with the remaining coal contracts expiring at various times
through 2013. The majority of natural gas contracts continue through 1995
with automatic one-year extension provisions. In the normal course of
business, additional commitments and spot market purchases will be made to
obtain adequate fuel supplies.
Environmental. The Company was previously associated with 20 former
manufactured gas sites located in Kansas which may contain coal tar and other
potentially harmful materials. These sites were operated decades ago by other
companies, and may have been owned by the Company for a period of time after
they had ceased operation. The Company and the Kansas Department of Health
and Environment (KDHE) have conducted preliminary assessments of the sites at
a cost of approximately $500,000. The results of the preliminary
investigations determined the Company does not have a connection to four of
the sites. Of the remaining 16 sites, the Company has initiated site
investigation and risk assessment of the highest priority site and anticipates
a total cost for site investigations of approximately $500,000 to $700,000 in
1994.
The Company and KDHE entered into a consent agreement governing all
future work at these sites. The terms of the consent agreement will allow the
Company to investigate the 16 sites and set remediation priorities based upon
the results of the investigations and risk analysis. The prioritized sites
will be investigated over a 10 year period. The agreement will allow the
Company to set mutual objectives with the KDHE in order to expedite effective
response activities and to control costs and environmental impact. The
Company is aware of other utilities in Region VII of the EPA (Kansas,
Missouri, Nebraska, and Iowa) which have incurred remediation costs for
manufactured gas sites ranging between $500,000 and $10 million, depending on
the site, and that the KCC has issued an accounting order which will permit
another Kansas utility to recover a portion of 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.
The Company has been identified as one of numerous potentially
responsible parties in four hazardous waste sites listed by the EPA as
Superfund sites. One site is a groundwater contamination site in Wichita,
Kansas, and two are soil contamination sites in Missouri. The other site is a
solid waste land-fill located in Edwardsville, Kansas. The Company's
obligation at these sites appears to be limited based on the Company's
experience. In the opinion of the Company's management, the resolution of
these matters will not have a material impact on the financial position of the
Company or results of operations.
As part of the sale of the Company's Missouri Properties to Southern
Union, Southern Union assumed responsibility under an agreement for any
environmental matters related to the Missouri Properties purchased by Southern
Union pending at the date of the sale or that may arise after closing. For
any environmental matters pending or discovered within two years of the date
of the agreement, and after pursuing several other potential recovery options,
the Company may be liable for up to a maximum of $7.5 million under a sharing
arrangement with Southern Union provided for in the agreement.
For more information with respect to Commitments and Contingencies, see
Note 4, COMMITMENTS AND CONTINGENCIES of the Company's 1993 Annual Report on
Form 10-K.
5. LEGAL PROCEEDINGS
On June 1, 1994, Southern Union filed an action against the Company, The
Bishop Group, Ltd., and other entities affiliated with The Bishop Group, in
the Federal District Court for the Western District of Missouri (Southern
Union Company v. Western Resources, Inc. et al., Case No 94-509-CV-W-1)
alleging, among other things, breach of the Missouri Properties sale agreement
relating to certain gas supply contracts between the Company and various
Bishop entities that Southern Union assumed, and requesting unspecified
monetary damages as well as declaratory relief. On August 1, 1994, the
Company filed its answer and counterclaim denying all claims asserted against
it by Southern Union and requesting declaratory judgment with respect to
certain adjustments in the purchase price for the Missouri Properties proposed
by Southern Union and disputed by the Company. On August 24, 1994, Southern
Union filed claims against the Company for alleged purchase price adjustments
totalling $19 million. In the Company's opinion, the disputed adjustments are
not proper adjustments to the purchase price. See Note 2, SALE OF MISSOURI
NATURAL GAS DISTRIBUTION PROPERTIES.
On August 15, 1994, the Bishop entities filed an answer and claims
against Southern Union and the Company alleging, among other things, breach of
those certain gas supply contracts. The Bishop entities claimed damages up to
$270 million against the Company and Southern Union. The Company believes
that through the sale agreement Southern Union assumed all liabilities arising
out of or related to gas supply contracts associated with the Missouri
Properties. The Company also believes it is not liable for any claims
asserted against it by the Bishop entities and will vigorously defend such
claims.
The Company has received a civil investigative demand from the U.S.
Department of Justice seeking certain information in connection with the
department's investigation "to determine whether there is, has been, or may be
a violation of the Sherman Act Sec. 1-2" with respect to the natural gas
business in Kansas and Missouri. The Company is cooperating with the
Department of Justice, but is not aware of any violation of the antitrust laws
in connection with its business operations.
For additional information with respect to Legal Proceedings see Note
15, LEGAL PROCEEDINGS of the Company's 1993 Annual Report on Form 10-K.
6. RATE MATTERS AND REGULATION
On June 20, 1994, Williams Natural Gas Company (WNG) filed an
application with FERC to direct bill approximately $29.9 million of FERC Order
No. 636 transition costs to the Company related to natural gas sales service
in Kansas, Missouri, and Oklahoma. FERC issued an order authorizing the
direct billing, subject to refund, beginning July 20, 1994. The Company
believes substantially all of these costs and any future transition costs
ultimately will be recovered through charges to its current Kansas and
Oklahoma and former Missouri customers, and any unrecovered transition costs
will not be material to the Company's financial position or results of
operations. For additional information with respect to FERC Order No. 636 see
Management's Discussion and Analysis, OTHER INFORMATION of the Company's 1993
Annual Report on Form 10-K.
On October 5, 1994, WNG filed an application with FERC to direct bill to
the Company up to $30.4 million of settlement costs paid to Amoco Production
Company (Amoco) related to litigation between WNG and Amoco regarding the
proper price to be paid for gas purchased by WNG from Amoco. The proposed
direct bill is related to natural gas service rendered by the Company in
Kansas and Oklahoma. The Company believes substantially all of these costs
and any future settlement costs ultimately will be recovered through charges
to its Kansas and Oklahoma customers, and any unrecovered settlement costs
will not be material to the Company's financial position or results of
operations.
Gas Transportation Charges. On September 12, 1991, the KCC authorized
the Company to begin recovering, through the Purchase Gas Adjustment (PGA),
deferred supplier gas transportation costs of $9.9 million incurred through
December 31, 1990, based on a three-year amortization schedule. On December
30, 1991, the KCC authorized the Company to recover deferred transportation
costs of approximately $2.8 million incurred subsequent to December 31, 1990
through the PGA over a 32-month period. At September 30, 1994, approximately
$830 thousand of these deferrals remain in other deferred charges on the
consolidated balance sheet. In September, 1994 the Company received a refund
from the Panhandle Eastern Pipeline Company (Panhandle) of $1.4 million due to
the disallowance by FERC of some of Panhandle's charges in their rates billed
to the Company.
KCC Rate Proceedings. On January 24, 1992, the KCC issued an order
allowing the Company to continue the deferral of service line replacement
program costs incurred since January 1, 1992, including depreciation, property
taxes, and carrying costs for recovery in the next general rate case. At
September 30, 1994, approximately $5.7 million of these deferrals have been
included in other deferred charges on the consolidated balance sheet.
On December 30, 1991, the KCC approved a permanent natural gas rate
increase of $39 million annually and the Company discontinued the deferral of
accelerated line survey costs on January 1, 1992. Approximately $4.4 million
of deferred costs remain in other deferred charges on the consolidated balance
sheet at September, 30, 1994, with the balance being included in rates and
amortized to expense during a 43-month period, commencing January 1, 1992.
For additional information with respect to Rate Matters and Regulation
see Note 5, RATE MATTERS AND REGULATION of the Company's 1993 Annual Report on
Form 10-K.
7. INCOME TAXES
Total income tax expense included in the Consolidated Statements of
Income reflects the Federal statutory rate of 35% since January 1, 1993 and
34% for all prior periods. The Federal statutory rate produces effective
income tax rates of 36.5% and 30.2% for the three month periods, 35.6% and
31.3% for the nine month periods, and 34.4% and 29.6% for the twelve month
periods ended September 30, 1994 and 1993, respectively. The effective income
tax rates vary from the Federal statutory rate due to permanent differences,
including the amortization of investment tax credits, and accelerated
amortization of certain deferred income taxes.
For additional information with respect to Income Taxes see Note 12,
INCOME TAXES of the Notes to Consolidated Financial Statements in the
Company's 1993 Annual Report on Form 10-K.
8. EMPLOYEE BENEFIT PLANS
The Company adopted Statement of Financial Accounting Standards No. 112
(SFAS 112) in the first quarter of 1994, which established accounting and
reporting standards for postemployment benefits. The statement requires the
Company to recognize the liability to provide postemployment benefits when the
liability has been incurred. To mitigate the impact adopting SFAS 112 will
have on rate increases, the Company received an order from the KCC permitting
the initial deferral of SFAS 112 transition costs and expenses and its
inclusion in the future computation of cost of service net of an income stream
generated from corporate-owned life insurance (COLI). At September 30, 1994,
the Company's SFAS 112 liability recorded on the consolidated balance sheet
was approximately $8.9 million.
At December 31, 1993, the Company's total Statement of Financial
Accounting Standards No. 106 (SFAS 106) obligation was approximately $166.5
million and the SFAS 106 expense was approximately $26.5 million for 1993.
With the sale of the Missouri Properties, the Company's SFAS 106 obligation at
December 31, 1993 would have been lower by approximately $40.1 million and the
1993 expense would have been $5.3 million lower. To mitigate the impact SFAS
106 expense will have on rate increases, the Company will include in the
future computation of cost of service the actual SFAS 106 expense and an
income stream generated from COLI. To the extent SFAS 106 expense exceeds
income from the COLI program, this excess is being deferred and will be offset
by income generated through the deferral period by the COLI program in
accordance with the provisions of the FASB Emerging Issues Task Force Issue
No. 92-12.
9. LONG-TERM DEBT
The Company had a long-term debt agreement which contained provisions
for the sale of accounts receivable and unbilled revenues (receivables) and
phase-in revenues up to a total of $180 million. This agreement was
terminated on November 1, 1994. Amounts related to receivables were accounted
for as sales while those related to phase-in revenues were accounted for as
collateralized borrowings. Additional receivables were continually sold to
replace those collected. At September 30, 1994 and December 31, 1993,
outstanding receivables amounting to $20.1 million and $56.8 million,
respectively, were considered sold under the agreement.
On October 5, 1994, the Company extended its $350 million revolving
credit facility which will expire on October 5, 1999.
For additional information with respect to Long-Term Debt see Note 8,
LONG-TERM DEBT of the Notes to Financial Statements in the Company's 1993
Annual Report on Form 10-K.
WESTERN RESOURCES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with
MANAGEMENT'S DISCUSSION AND ANALYSIS of the Company's 1993 Annual Report on
Form 10-K.
The following updates the information provided in the 1993 Annual Report
on Form 10-K and analyzes the changes in the results of operations between the
three, nine, and twelve month periods ended September 30, 1994 and comparable
periods of 1993.
As a result of the sale of the Missouri Properties, as described in
Note 2, SALE OF MISSOURI NATURAL GAS DISTRIBUTION PROPERTIES, of the Notes to
Consolidated Financial Statements (Note 2), the Company recognized a gain of
approximately $19.3 million, net of tax, and ceased recording the results of
operations for the Missouri Properties during the first quarter of 1994.
Consequently, the Company's results of operations for the three, nine, and
twelve months ended September 30, 1994 are not fully comparable to the results
of operations for the same periods ending September 30, 1993.
For additional information regarding the sale of the Missouri Properties
and the pending litigation see Note 2 and Note 5, LEGAL PROCEEDINGS, of the
Notes to Consolidated Financial Statements.
FINANCIAL CONDITION
General. Net income for the third quarter of 1994 was $58 million, up
two percent from net income of $57 million for the same period of 1993. The
Company earned $0.88 per share of common stock for the third quarter of 1994,
a decrease of $0.02 per share from the third quarter of 1993. There were
61,617,873 and 59,441,111 average shares outstanding for the third quarter of
1994 compared to 1993, respectively.
The increase in net income is primarily due to lower operating expenses
as a result of the sale of the Missouri Properties and reduced interest
expense from lower debt balances. Partially offsetting the increase were
higher income taxes caused by the completion of the KG&E accelerated
amortization of certain deferred income tax reserves. As of December 31,
1993, KG&E had fully amortized these deferred income tax reserves related to
the allowance for borrowed funds used during construction capitalized for Wolf
Creek. The absence of the amortization of these deferred income tax reserves
reduces net income by approximately $3 million per quarter or approximately
$12 million per year.
Operating revenues were $379 million and $419 million for the three
months ended September 30, 1994 and 1993, respectively. The decrease in
revenues is caused by lower natural gas revenues as a result of the sale of
the Missouri Properties (see Note 2) and lower electric revenues resulting
from cooler summer temperatures in the third quarter of 1994 compared to 1993.
Net income for the nine and twelve months ended September 30, 1994, was
$154 million and $189 million, respectively, compared to $142 million and $182
million for the comparable periods of 1993. The increase for both periods is
primarily the result of increased electric sales, reduced interest costs, and
the gain on the sale of the Missouri Properties. Partially offsetting these
increases was the completion of the amortization of certain deferred income
tax reserves discussed previously.
Operating revenues were $1.3 billion and $1.8 billion, respectively, for
the nine and twelve months ended September 30, 1994 compared to $1.4 billion
and $1.9 billion for the same periods of 1993. The decrease in revenues is
primarily a result of the sale of the Missouri Properties.
The quarterly dividend rate is $0.495 per share, for an indicated annual
rate of $1.98 per share. The book value per share was $23.94 at September 30,
1994, up from $23.08 at December 31, 1993.
Liquidity and Capital Resources. The Company's short-term debt balance
at September 30, 1994, decreased approximately $222 million from December 31,
1993, primarily as a result of the use of the proceeds from the sale of the
Missouri Properties and the issuance, on January 20, 1994, of $100 million of
KG&E first mortgage bonds to retire such debt.
At September 30, 1994, the Company had bank credit arrangements
available of $145 million. On October 5, the Company extended its $350
million revolving credit facility which will now expire on October 5, 1999.
On April 28, 1994, two series of Market-Adjusted Tax Exempt Securities
(MATES) totalling $75.5 million were sold on behalf of the Company at a rate
of 2.95% for the initial auction period. The interest rate is being reset
periodically via an auction process. As of September 30, 1994, the rate on
these bonds was 3.25% for $45 million and 3.375% for the remaining $30.5
million. The net proceeds from the new issues, together with available cash,
were used to refund two series of pollution control bonds totalling $75.5
million bearing interest rates of 5.9% and 6.75%.
On April 28, 1994, three series of MATES totalling $46.4 million were
sold on behalf of KG&E at a rate of 2.95% for the initial auction period. The
interest rate is being reset periodically via an auction process. As of
September 30, 1994, the rate on these bonds ranged from 3.15% to 3.19%. The
net proceeds from the new issues, together with available cash, were used to
refund three series of pollution control bonds totalling $46.4 million bearing
interest rates between 5 7/8% and 6.8%.
In 1986 KG&E purchased corporate-owned life insurance policies (COLI) on
certain of its employees. For the nine months ended September 30, 1994, KG&E
increased its borrowings against the accumulated cash surrender values of the
policies by $39.9 million and received $1.6 million from increased borrowings
on Wolf Creek Nuclear Operating Company policies.
OPERATING RESULTS
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,
nine, and twelve months ended September 30, 1994 from the comparable periods
of 1993.
Increase (decrease) in electric sales volumes:
3 Months 9 Months 12 Months
ended ended ended
Residential (6.8)% (1.1)% -
Commercial 1.7% 4.2% 2.8%
Industrial 3.8% 1.8% 0.9%
Total retail sales (0.7)% 1.6% 1.2%
Wholesale and interchange (32.0)% (3.3)% 4.8%
Total electric sales (7.9)% 0.6% 2.0%
Electric revenues decreased one percent for the three months ended
September 30, 1994 compared to the same period of 1993. The decrease is due
to lower residential and wholesale and interchange sales. Residential sales
were down because of milder temperatures for the third quarter of 1994, which
was eight percent cooler than the third quarter of 1993. Wholesale and
interchange sales were lower because of high sales in the third quarter of
1993 to other utilities while their generating units were down due to the
flooding of 1993.
Electric revenues increased one percent for the nine months ended
September 30, 1994, primarily as a result of increased commercial and
industrial sales resulting from customer growth. Partially offsetting these
higher sales were lower residential and wholesale and interchange sales due to
the mild 1994 temperatures and one-time interchange sales as discussed
previously. Partially offsetting the loss of the one-time interchange sales
in 1993 was the addition of new interchange customers. In February 1994, the
Company joined the Western Systems Power Pool which opened additional markets
for interchange power.
Electric revenues for the twelve months ended September 30, 1994,
increased two percent as a result of higher revenues from all classes of
customers. Increased commercial sales had the largest impact on the increased
revenues.
The following table reflects changes in natural gas sales for the three,
nine, and twelve months ended September 30, 1994 from the comparable periods
of 1993.
Increase (decrease) in natural gas sales volumes (decrease):
3 Months 9 Months 12 Months
ended ended ended
Residential (47.3)% (35.4)% (23.3)%
Commercial (39.5)% (38.2)% (25.2)%
Industrial (49.1)% (61.5)% (68.0)%
Transportation (32.3)% (28.6)% (21.3)%
Total deliveries (37.2)% (34.0)% (23.5)%
Natural gas revenues and sales decreased significantly for the three,
nine, and twelve months ended September 30, 1994 compared to the same periods
of 1993 as a result of the sale of the Missouri Properties in the first
quarter of 1994 (see Note 2).
Also contributing to the decreases for the nine and twelve months ended
September 30, 1994 were lower natural gas sales for space heating as a result
of the milder temperatures during the 1994 heating season. Partially
offsetting these decreases was a higher unit gas cost being recovered from
customers through Purchased Gas Adjustment clauses (PGA).
Operating Expenses. Total operating expenses decreased 13 percent,
11 percent, and four percent for the three, nine, and twelve months ended
September 30, 1994 compared to the same periods of 1993. These decreases are
primarily the result of the sale of the Missouri Properties (see Note 2).
Also contributing to the decreased operating expenses for the three
months ended were lower fuel and purchased power expenses resulting from
decreased electric demand caused by the mild temperatures discussed
previously. Reduced operations and maintenance expenses, other than as a
result of the sale of the Missouri Properties, also decreased total operating
expense.
Partially offsetting the decreases for the nine and twelve month periods
were higher nuclear fuel costs, increased income tax expense, and a higher
unit cost of gas which is passed on to customers through the PGA. Nuclear
fuel costs were higher as a result of higher availability of Wolf Creek during
these periods. Beginning March 5, 1993, Wolf Creek was taken off-line for
approximately 73 days for scheduled refueling and maintenance.
Wolf Creek Generating Station (Wolf Creek) operates on an eighteen month
refueling cycle. Wolf Creek began its seventh refueling and maintenance
outage in mid September 1994. The outage took approximately 47 days. The
operations and maintenance expenses associated with the refueling are being
deferred and then amortized over eighteen months.
As of December 31, 1993, KG&E had fully amortized its deferred income
tax reserves related to the allowance for borrowed funds used during
construction capitalized for Wolf Creek. The completion of the amortization
of these deferred income tax reserves increased income taxes and thereby
reduced net income by approximately $3 million for the three months ended and
$9 million for the nine and twelve months ended September 30, 1994,
respectively.
Other Income and Deductions. Other income and deductions, net of taxes,
was significantly lower for the quarter ended September 30, 1994 compared to
1993 as a result of increased interest expense on COLI borrowings and the
receipt of death proceeds in the third quarter of 1993.
Other income and deductions, net of taxes, was higher for the nine and
twelve months ended September 30, 1994 compared to 1993 due to the recognizing
of the gain on the sale of the Missouri Properties of approximately $19.3
million, net of tax, (see Note 2). Partially offsetting these increases was
increased interest expense on COLI borrowings.
Interest Charges and Preferred and Preference Dividend Requirements. Total
interest charges decreased for the three, nine, and twelve months ended
September 30, 1994 from the comparable periods in 1993, as a result of lower
debt balances and the refinancing of higher cost debt, as well as increased
COLI borrowings which interest is reflected in Other Income and Deductions on
the consolidated income statement.
WESTERN RESOURCES, INC.
Part II Other Information
Item 5. Other Information
The transaction described in Item 5 of the Company's Quarterly Report of
Form 10-Q for the quarter ended June 30, 1994, was not consummated. The
Company will proceed on its own towards the development of a natural gas
market center for the mid-continent region of the U.S.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Kansas Gas and Electric Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994
(filed electronically)
(b) Reports on Form 8-K:
None
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 November 10, 1994 By S. L. Kitchen
S. L. Kitchen, Executive Vice
President
and Chief Financial Officer
Date November 10, 1994 By Jerry D. Courington
Jerry D. Courington,
Controller
UT
1,000
9-MOS
DEC-31-1994
SEP-30-1994
PER-BOOK
4,247,804
100,894
331,824
395,228
0
5,075,750
308,089
667,992
498,840
1,474,921
150,000
24,858
1,357,044
199,300
0
20,000
0
0
5,660
3,312
1,840,655
5,075,750
1,258,717
83,450
969,324
1,047,152
211,565
34,594
240,537
86,478
154,059
10,064
143,995
91,503
74,695
234,932
2.34
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 September 30, 1994
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 1-7324
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)
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 November 10, 1994
Common Stock (No par value) 1,000
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 No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets 3
Statements of Income 4 - 6
Statements of Cash Flows 7 - 8
Statements of Capitalization 9
Statements of Common Stock Equity 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Thousands of Dollars)
September 30, December 31,
1994 1993
(Unaudited)
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . . $3,381,637 $3,339,832
Less - Accumulated depreciation . . . . . . . . . . . . . 847,431 790,843
2,534,206 2,548,989
Construction work in progress . . . . . . . . . . . . . . 32,052 28,436
Nuclear fuel (net) . . . . . . . . . . . . . . . . . . . 37,909 29,271
Net utility plant . . . . . . . . . . . . . . . . . . . 2,604,167 2,606,696
OTHER PROPERTY AND INVESTMENTS:
Decommissioning trust . . . . . . . . . . . . . . . . . . 15,951 13,204
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 12,344 10,941
28,295 24,145
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . 57 63
Accounts receivable and unbilled revenues (net) (Note 8). 59,168 11,112
Advances to parent company. . . . . . . . . . . . . . . . 195,552 192,792
Fossil fuel, at average cost, . . . . . . . . . . . . . . 13,652 7,594
Materials and supplies, at average cost . . . . . . . . . 30,730 29,933
Prepayments and other current assets. . . . . . . . . . . 19,049 14,995
318,208 256,489
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . . . 102,766 102,789
Deferred coal contract settlement costs . . . . . . . . . 18,773 21,247
Phase-in revenues . . . . . . . . . . . . . . . . . . . . 65,792 78,950
Other deferred plant costs. . . . . . . . . . . . . . . . 31,840 32,008
Corporate-owned life insurance (net) . . . . . . . . . . 8,830 45
Unamortized debt expense. . . . . . . . . . . . . . . . . 28,317 27,365
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 43,186 37,745
299,504 300,149
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,250,174 $3,187,479
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . . . $2,027,955 $1,899,221
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . . 42,300 155,800
Long-term debt due within one year. . . . . . . . . . . . - 238
Accounts payable. . . . . . . . . . . . . . . . . . . . . 48,366 51,095
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 48,290 12,185
Accrued interest. . . . . . . . . . . . . . . . . . . . . 14,147 7,381
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 10,434 9,427
163,537 236,126
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . . 648,997 646,159
Deferred investment tax credits . . . . . . . . . . . . . 75,643 78,048
Deferred gain from sale-leaseback . . . . . . . . . . . . 254,751 261,981
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 79,291 65,944
1,058,682 1,052,132
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $3,250,174 $3,187,479
The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Three Months Ended
September 30,
1994 1993
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . $ 189,202 $ 191,941
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . 27,727 28,590
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . 3,638 4,179
Power purchased . . . . . . . . . . . . . . . . . . . . 1,376 5,674
Other operations. . . . . . . . . . . . . . . . . . . . 26,092 29,918
Maintenance . . . . . . . . . . . . . . . . . . . . . . 9,957 11,606
Depreciation and amortization . . . . . . . . . . . . . 19,141 18,837
Amortization of phase-in revenues . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . 23,521 19,534
State income. . . . . . . . . . . . . . . . . . . . . 5,575 4,477
General . . . . . . . . . . . . . . . . . . . . . . . 10,811 11,866
Total operating expenses. . . . . . . . . . . . . . 132,224 139,067
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . 56,978 52,874
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . (1,728) 5,969
Miscellaneous (net) . . . . . . . . . . . . . . . . . . 833 864
Income taxes (net). . . . . . . . . . . . . . . . . . . 2,137 1,357
Total other income and deductions . . . . . . . . . 1,242 8,190
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . 58,220 61,064
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . 11,934 13,752
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,249 1,247
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . (444) (341)
Total interest charges. . . . . . . . . . . . . . . 12,739 14,658
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . $ 45,481 $ 46,406
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Nine Months Ended
September 30,
1994 1993
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . $ 480,793 $ 480,900
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . 71,662 70,607
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . 11,733 9,028
Power purchased . . . . . . . . . . . . . . . . . . . . 4,869 9,043
Other operations. . . . . . . . . . . . . . . . . . . . 84,677 92,627
Maintenance . . . . . . . . . . . . . . . . . . . . . . 35,187 33,572
Depreciation and amortization . . . . . . . . . . . . . 57,402 56,512
Amortization of phase-in revenues . . . . . . . . . . . 13,158 13,158
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . 41,594 32,786
State income. . . . . . . . . . . . . . . . . . . . . 10,160 7,692
General . . . . . . . . . . . . . . . . . . . . . . . 34,947 34,682
Total operating expenses. . . . . . . . . . . . . . 365,389 359,707
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . 115,404 121,193
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . (3,721) 9,337
Miscellaneous (net) . . . . . . . . . . . . . . . . . . 3,641 8,382
Income taxes (net). . . . . . . . . . . . . . . . . . . 5,375 314
Total other income and deductions . . . . . . . . . 5,295 18,033
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . 120,699 139,226
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . 36,032 41,753
Other . . . . . . . . . . . . . . . . . . . . . . . . . 3,721 4,211
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . (1,368) (1,149)
Total interest charges. . . . . . . . . . . . . . . 38,385 44,815
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . $ 82,314 $ 94,411
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Thousands of Dollars)
(Unaudited)
Twelve Months Ended
September 30,
1994 1993
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . . $ 616,890 $ 607,958
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . 94,443 86,776
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . . 15,980 12,966
Power purchased . . . . . . . . . . . . . . . . . . . . . . 5,690 10,397
Other operations. . . . . . . . . . . . . . . . . . . . . . 110,998 121,436
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . 48,355 47,569
Depreciation and amortization . . . . . . . . . . . . . . . 76,420 74,443
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . . 48,361 33,995
State income. . . . . . . . . . . . . . . . . . . . . . . 12,038 7,939
General . . . . . . . . . . . . . . . . . . . . . . . . . 45,468 44,418
Total operating expenses. . . . . . . . . . . . . . . . 475,298 457,483
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . . 141,592 150,475
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . . (5,217) 11,748
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . . 4,530 10,747
Income taxes (net). . . . . . . . . . . . . . . . . . . . . 7,288 (416)
Total other income and deductions . . . . . . . . . . . 6,601 22,079
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . . 148,193 172,554
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . 48,187 55,910
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,585 8,164
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . . (1,585) (1,459)
Total interest charges. . . . . . . . . . . . . . . . . 52,187 62,615
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,006 $ 109,939
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Nine Months Ended
September 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 82,314 $ 94,411
Depreciation and amortization . . . . . . . . . . . . . . . 57,402 56,512
Other amortization (including nuclear fuel) . . . . . . . . 8,390 8,208
Deferred income taxes and investment tax credits (net). . . 14,442 5,515
Amortization of phase-in revenues . . . . . . . . . . . . . 13,158 13,158
Corporate-owned life insurance. . . . . . . . . . . . . . . (13,600) (18,586)
Amortization of gain from sale-leaseback. . . . . . . . . . (7,230) (7,230)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) (Note 8). (48,056) (39,849)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (6,058) 4,645
Accounts payable. . . . . . . . . . . . . . . . . . . . . (2,729) (4,578)
Interest and taxes accrued. . . . . . . . . . . . . . . . 42,871 36,171
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (3,844) (4,006)
Changes in other assets and liabilities . . . . . . . . . . (18,165) (10,738)
Net cash flows from operating activities . . . . . . . 118,895 133,633
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 65,646 43,364
Corporate-owned life insurance policies . . . . . . . . . . 24,588 25,687
Death proceeds of corporate-owned life insurance policies . - (10,160)
Net cash flows used in investing activities. . . . . . 90,234 58,891
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (113,500) (31,500)
Advances to parent company (net). . . . . . . . . . . . . . (2,760) (27,374)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 160,422 65,000
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (46,440) (65,000)
Revolving credit agreement (net). . . . . . . . . . . . . . - (150,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . (67,893) (46,870)
Borrowings against life insurance policies (net). . . . . . 41,504 182,079
Net cash flows from (used in) financing activities . . (28,667) (73,665)
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . (6) 1,077
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . . . . 63 892
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . $ 57 $ 1,969
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 50,157 $ 57,889
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 21,658 13,417
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Twelve Months Ended
September 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 96,006 $ 109,939
Depreciation and amortization . . . . . . . . . . . . . . . 76,420 74,443
Other amortization (including nuclear fuel) . . . . . . . . 11,436 11,160
Deferred income taxes and investment tax credits (net). . . 31,499 9,501
Amortization of phase-in revenues . . . . . . . . . . . . . 17,545 17,544
Corporate-owned life insurance. . . . . . . . . . . . . . . (16,664) (22,710)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,640) (9,640)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) (Note 8). (8,776) (6,987)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (2,196) 9,973
Accounts payable. . . . . . . . . . . . . . . . . . . . . (7,964) 8,428
Interest and taxes accrued. . . . . . . . . . . . . . . . (2,353) 4,691
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (2,029) (8,453)
Changes in other assets and liabilities . . . . . . . . . . (23,957) (26,739)
Net cash flows from operating activities. . . . . . . . . 159,327 171,150
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 89,168 68,807
Corporate-owned life insurance policies . . . . . . . . . . 26,169 21,032
Death proceeds of corporate-owned life insurance policies . - (10,912)
Net cash flows used in investing activities. . . . . 115,337 78,927
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (19,700) (40,900)
Advances to parent company (net). . . . . . . . . . . . . . (93,889) (97,629)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . 160,422 200,000
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (121,440) (190,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . (13,980) (230)
Revolving credit agreement (net). . . . . . . . . . . . . . - (150,000)
Borrowings against life insurance policies (net). . . . . . 42,685 176,713
Net cash flows from (used in) financing activities . . (45,902) (102,046)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (1,912) (9,823)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . . . . . 1,969 11,792
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . $ 57 $ 1,969
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 69,921 $ 81,573
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 37,595 27,642
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
September 30, December 31,
1994 1993
(Unaudited)
COMMON STOCK EQUITY:
(See Statements of Common Stock Equity)
Common stock, without par value, authorized and issued
1,000 shares . . . . . . . . . . . . . . . . . . . . . . $1,065,634 $1,065,634
Retained earnings. . . . . . . . . . . . . . . . . . . . . 262,358 180,044
Total common stock equity. . . . . . . . . . . . . . . . 1,327,992 65% 1,245,678 66%
LONG-TERM DEBT:
First Mortgage Bonds:
Series Due 1994 1993
5-5/8% 1996 $ 16,000 $ 16,000
7.6% 2003 135,000 135,000
6-1/2% 2005 65,000 65,000
6.20% 2006 100,000 -
316,000 216,000
Pollution Control Bonds:
6.80% 2004 - 14,500
5-7/8% 2007 - 21,940
6% 2007 - 10,000
5.10% 2023 13,982 -
Variable (a) 2027 21,940 -
7% 2031 327,500 327,500
Variable (a) 2032 14,500 -
Variable (a) 2032 10,000 -
387,922 373,940
Total bonds . . . . . . . . . . . . . . . . . . . . . . 703,922 589,940
Other Long-Term Debt:
Pollution control obligations:
5-3/4% series 2003 - 13,980
Other long-term agreement 1995 - 53,913
Total other long-term debt. . . . . . . . . . . . . . - 67,893
Less:
Unamortized premium and discount (net) . . . . . . . . . 3,959 4,052
Long-term debt due within one year . . . . . . . . . . . - 238
Total long-term debt. . . . . . . . . . . . . . . . . 699,963 35% 653,543 34%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . $2,027,955 100% $1,899,221 100%
(a) Market-Adjusted Tax Exempt Securities (MATES). The interest rate is being reset
periodically via an auction process. As of September 30, 1994, the rates ranged from
3.15% to 3.19% for these bonds.
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF COMMON STOCK EQUITY
(Thousands of Dollars, Except Shares)
(Unaudited)
Common Stock Treasury Stock
Other
Paid-in Retained
Shares Amount Capital Earnings Shares Amount Total
BALANCE DECEMBER 31, 1991. . 40,997,745 637,003 284 170,598 (9,996,426) (199,255) 608,630
(Predecessor)
Net income 6,040 6,040
Cash dividends:
Common stock-$0.43 per
share. . . . . . . . . (13,330) (13,330)
Preferred stock. . . . . (205) (205)
Employee stock plans . . . (12) (966) (12)
Merger of KG&E with KCA. . (40,997,745) (636,991) (284) (163,103) 9,997,392 199,255 (601,123)
MARCH 31, 1992
Subtotal-KG&E (Predecessor). -0- -0- -0- -0- -0- -0- -0-
KCA common stock issued. . 1,000 $1,065,634 - - - - $1,065,634
Net income . . . . . . . . $ 71,941 71,941
BALANCE DECEMBER 31, 1992. . 1,000 1,065,634 - 71,941 - - 1,137,575
(Successor)
Net Income . . . . . . . . 108,103 108,103
BALANCE DECEMBER 31, 1993. . 1,000 $1,065,634 $ - $ 180,044 - $ - $1,245,678
(Successor)
Net Income . . . . . . . . 82,314 82,314
BALANCE SEPTEMBER 30, 1994 . 1,000 $1,065,634 $ - $ 262,358 - $ - $1,327,992
(Successor)
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. On March 31, 1992, Western Resources, Inc., formerly The Kansas
Power and Light Company, (Western Resources, Parent Company) through its
wholly-owned subsidiary KCA Corporation (KCA), acquired all of the outstanding
common and preferred stock of Kansas Gas and Electric Company (KG&E) for $454
million in cash and 23,479,380 shares of Western Resources common stock (the
Merger).
The Company owns 47% of the Wolf Creek Nuclear Operating Corporation
(WCNOC), the operating company for the Wolf Creek Generating Station (Wolf
Creek). The Company records its proportionate share of all transactions of
WCNOC as it does other jointly-owned facilities.
The financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the accompanying condensed
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
the Company as of September 30, 1994, and December 31, 1993, and the results
of its operations for the three, nine and twelve month periods ended September
30, 1994 and 1993. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's 1993 Annual Report on Form 10-K.
The accounting policies of the Company are in accordance with generally
accepted accounting principles as applied to regulated public utilities. The
accounting and rates of the Company are subject to requirements of the Kansas
Corporation Commission (KCC) and the Federal Energy Regulatory Commission.
Cash Surrender Value of Life Insurance Contracts. The following amounts
related to corporate-owned life insurance (COLI) contracts, primarily with one
highly rated major insurance company, are recorded on the balance sheets
(millions of dollars):
September 30, December 31,
1994 1993
Cash surrender value of contracts $319.3 $269.0
Borrowings against contracts (310.5) (269.0)
COLI (net) $ 8.8 $ 0.0
Interest expense included in other income and deductions, net of taxes,
related to COLI for the three, nine, and twelve months ended September 30,
1994, was $5.6, $15.4, and $20.1 million, respectively. Interest expense for
the three, nine, and twelve months ended September 30, 1993, was $3.3, $6.2,
and $7.9 million, respectively.
Statements of Cash Flows. For purposes of the 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.
Reclassifications. Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
2. SHORT-TERM DEBT
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 September 30, 1994, the Company had bank credit
arrangements available of $35 million. Effective October 1, 1994, the Company
reduced its bank credit arrangements to $24 million.
3. COMMITMENTS AND CONTINGENCIES
Environmental. The Company was previously associated with six 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) conducted preliminary assessments of these sites at minimal
cost. The results of the preliminary investigations determined the Company
does not have a connection to two of the sites.
Under a consent agreement with the KDHE governing all future work at the
four remaining sites, the Company will 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 Company is aware of other utilities in Region VII
of the EPA (Kansas, Missouri, Nebraska, and Iowa) which have incurred
remediation costs for such sites ranging between $500,000 and $10 million,
depending on the site and that the KCC has issued an accounting order which
will permit another Kansas utility to recover a portion of 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.
Spent Nuclear Fuel Disposal. Under the Nuclear Waste Policy Act of 1982,
the U.S. Department of Energy (DOE) is responsible for the ultimate storage
and disposal of spent nuclear fuel removed from nuclear reactors. Under a
contract with the DOE for disposal of spent nuclear fuel, the Company pays a
quarterly fee to DOE of one mill per kilowatthour on net nuclear generation.
These fees are included as part of nuclear fuel expense.
The Company along with the other co-owners of Wolf Creek are among 14
companies that filed a lawsuit June 20, 1994, seeking an interpretation of the
DOE's obligation to begin accepting spent nuclear fuel for disposal in 1998.
The Federal Nuclear Waste Policy Act requires DOE ultimately to accept and
dispose of nuclear utilities' spent fuel. The DOE has filed a motion to have
this case
dismissed. The issue to be decided in this case is whether DOE must begin
accepting spent fuel in 1998 or at a future date.
Decommissioning. On June 9, 1994, the KCC issued an order approving the
decommissioning cost of the 1993 Wolf Creek Decommissioning Cost Study which
estimates the Company's share of Wolf Creek decommissioning costs, under the
immediate dismantlement method, to be approximately $595 million primarily
during the period 2025 through 2033, or approximately $174 million in 1993
dollars. These costs were calculated using an assumed inflation rate of 3.45%
over the remaining service life, in 1993, of 32 years.
Decommissioning costs are being charged to operating expenses. Electric
rates charged to customers provide for recovery of these decommissioning costs
over the life of Wolf Creek. Amounts so expensed ($3.5 million in 1993
increasing annually to $5.5 million in 2024) and earnings on trust fund assets
are deposited in an external trust fund. The assumed return on trust assets
is 5.9%.
The Company's investment in the decommissioning fund, including
reinvested earnings was $16.0 and $13.2 million at September 30, 1994 and
December 31, 1993, respectively. These amounts are reflected in OTHER
PROPERTY AND INVESTMENTS, Decommissioning Trust, and the related liability is
included in DEFERRED CREDITS AND OTHER LIABILITIES, Other, on the balance
sheets.
The Company carries $117 million in premature decommissioning insurance.
The insurance coverage has several restrictions. One of these is that it can
only be used if Wolf Creek incurs an accident exceeding $500 million in
expenses to safely stabilize the reactor, to decontaminate the reactor and
reactor station site in accordance with a plan approved by the Nuclear
Regulatory Commission (NRC), and to pay for on-site property damages. If the
amount designated as decommissioning insurance is needed to implement the NRC-
approved plan for stabilization and decontamination, it would not be available
for decommissioning purposes.
Nuclear Insurance. The Price-Anderson Act limits the combined public
liability of the owners of nuclear power plants to $9.0 billion for a single
nuclear incident. The Wolf Creek owners (Owners) have purchased the maximum
available private insurance of $200 million and the balance is provided by an
assessment plan mandated by the NRC. Under this plan, the Owners are jointly
and severally subject to a retrospective assessment of up to $79.3 million
($37.3 million, Company's share) in the event there is a nuclear incident
involving any of the nation's licensed reactors. This assessment is subject
to an inflation adjustment based on the Consumer Price Index and applicable
premium taxes. There is a limitation of $10 million ($4.7 million, Company's
share) in retrospective assessments per incident per year.
The Owners carry decontamination liability, premature decommissioning
liability, and property damage insurance for Wolf Creek totalling
approximately $2.8 billion ($1.3 billion, Company's share). This insurance is
provided by a combination of "nuclear insurance pools" ($500 million) and
Nuclear Electric Insurance Limited (NEIL) ($2.3 billion). In the event of an
accident, insurance proceeds must first be used for reactor stabilization and
site decontamination. The remaining proceeds from the $2.8 billion insurance
coverage ($1.3 billion, Company's share), if any, can be used for property
damage up to $1.2 billion
(Company's share) and premature decommissioning costs up to $117 million
(Company's share) in excess of funds previously collected for decommissioning
(as discussed under "Decommissioning").
The Owners also carry additional insurance with NEIL to cover costs of
replacement power and other extra expenses incurred during a prolonged outage
resulting from accidental property damage at Wolf Creek. If losses incurred
at any of the nuclear plants insured under the NEIL policies exceed premiums,
reserves, and other NEIL resources, the Company may be subject to
retrospective assessments of approximately $13 million per year.
Although the Company maintains various insurance policies to provide
coverage for potential losses and liabilities resulting from an accident or an
extended outage, the Company's insurance coverage may not be adequate to cover
the costs that could result from a major accident or extended outage at Wolf
Creek. Any substantial losses not covered by insurance, to the extent not
recoverable through rates, could have a material adverse effect on the
Company's financial condition and results of operations.
Clean Air Act. The Clean Air Act Amendments of 1990 (the Act) require a
two-phase reduction in sulfur dioxide and oxides of nitrogen (NOx) emissions
effective in 1995 and 2000 and a probable reduction in toxic emissions. To
meet the monitoring and reporting requirements under the acid rain program,
the Company is installing continuous emission monitoring and reporting
equipment at a total cost of approximately $2.3 million. At December 31,
1993, the Company had completed approximately $850 thousand of these capital
expenditures with the remaining $1.4 million of capital expenditures to be
completed in 1994. The Company does not expect additional equipment to reduce
sulfur emissions to be necessary under Phase II. Although the Company
currently has no Phase I affected units, the Company applied for an early
substitution permit to bring the co-owned La Cygne Generating Station under
the Phase I guidelines.
The NOx and toxic limits, which were not set in the law, will be
specified in future EPA regulations. Until such time as the Phase I group 1
NOx regulations are final, the Company will be unable to determine its
compliance options or related compliance costs.
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, 1993, WCNOC's nuclear fuel commitments (Company's share) were
approximately $18.0 million for uranium concentrates expiring at various times
through 1997, $123.6 million for enrichment expiring at various times through
2014 and $45.5 million for fabrication through 2012. At December 31, 1993,
the Company's coal and natural gas contract commitments in 1993 dollars under
the remaining term of the contracts were $666 million and $20.4 million,
respectively. The largest coal contract was renegotiated early in 1993 and
expires in 2020 with the remaining coal contracts expiring at various times
through 2013. The majority of natural gas contracts expire in 1995 with
automatic one-year extension provisions. In the normal course of business,
additional commitments and spot market purchase will be made to obtain
adequate fuel supplies.
For additional information with respect to Commitments and Contingencies
see
Note 3, COMMITMENTS AND CONTINGENCIES of the Notes to Financial Statements in
the Company's 1993 Annual Report on Form 10-K.
4. LEGAL PROCEEDINGS
For information with respect to Legal Proceedings see Note 10, LEGAL
PROCEEDINGS of the Notes to Financial Statements in the Company's 1993 Annual
Report on Form 10-K.
5. RATE MATTERS AND REGULATION
For information with respect to Rate Matters and Regulation see Note 4
RATE MATTERS AND REGULATION of the Notes to Financial Statements in the
Company's 1993 Annual Report on Form 10-K.
6. INCOME TAXES
Total income tax expense included in the Statements of Income reflects
the Federal statutory rate of 35% since January 1, 1993 and 34% for all prior
periods. The Federal statutory rate produces effective income tax rates of
37.2% and 32.8% for the three month periods, and 36.0% and 29.8% for the nine
month periods and 35.6% and 27.8% for the twelve month periods ended September
30, 1994 and 1993, respectively. The effective income tax rates vary from the
Federal statutory rate due to the permanent differences, including the
amortization of investment tax credits.
For additional information with respect to Income Taxes see Note 9,
INCOME TAXES of the Notes to Financial Statements in the Company's 1993 Annual
Report on Form 10-K.
7. EMPLOYEE BENEFIT PLANS
Postemployment. The Company adopted the provisions of Statement of
Financial Accounting Standards No. 112 (SFAS 112), in the first quarter of
1994. This statement requires the Company to recognize the liability to
provide postemployment benefits when the liability has been incurred. To
mitigate the impact adopting SFAS 112 will have on rate increases, the Company
received an order from the KCC permitting the initial deferral of SFAS 112
transition costs and expenses and its inclusion in the future computation of
cost of service net of and income stream generated from corporate-owned life
insurance. At September 30, 1994, the Company's SFAS 112 liability recorded
on the balance sheet was approximately $594,000.
8. LONG-TERM DEBT
The Company had a long-term debt agreement which contained provisions for
the sale of accounts receivable and unbilled revenues (receivables) and phase-
in revenues up to a total of $180 million. This agreement was terminated on
November 1, 1994. Amounts related to receivables were accounted for as sales
while those related to phase-in revenues were accounted for as collateralized
borrowings. Additional receivables were continually sold to replace those
collected. At September 30, 1994 and December 31, 1993, outstanding
receivables amounting to $20.1 million and $56.8 million, respectively, were
considered sold under the agreement.
For additional information with respect to Long-Term Debt see Note 6,
LONG-TERM DEBT of the Notes to Financial Statements in the Company's 1993
Annual Report on Form 10-K.
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 1993.
The following updates the information provided in the 1993 Form 10-K, and
analyzes the changes in the results of operations between the three, nine and
twelve month periods ended September 30, 1994 and comparable periods of 1993.
FINANCIAL CONDITION
General. Net income for the third quarter of 1994 was $45.5 million
compared to $46.4 million for the same period of 1993. The two percent
decrease in net income can be attributed to decreased residential and
wholesale and interchange sales and higher income tax expense. Residential
sales decreased as a result of cooler temperatures in 1994 compared to 1993.
Wholesale and interchange sales were lower because the third quarter 1993
reflected higher sales to other utilities that had generating units down due
to the flooding of 1993.
Income tax expense increased as a result of the completion of the
accelerated amortization of certain deferred income tax reserves. As of
December 31, 1993, the Company had fully amortized these deferred income tax
reserves related to the allowance for borrowed funds used during construction
capitalized for Wolf Creek. The absence of the amortization of these deferred
income tax reserves reduces net income by approximately $3 million per quarter
or approximately $12 million per year.
Net income for the nine and twelve months ending September 30, 1994, of
$82.3 million and $96.0 million, decreased from net income of $94.4 and $109.9
million for the comparable periods of 1993, respectively. The decrease in net
income is primarily due to increases in income taxes as a result of the
absence of the amortization of the above mentioned deferred income tax
reserves and the receipt of death benefit proceeds from corporate-owned life
insurance policies in the third quarter of 1993.
Liquidity and Capital Resources. The KG&E common and preferred stock was
redeemed in connection with the Merger, leaving 1,000 shares of common stock
held by Western Resources. The debt structure of the Company and available
sources of funds were not affected by the Merger.
Effective October 1, 1994, the Company reduced its bank credit
arrangements from $35 million to $24 million.
On April 28, 1994, three series of Market-Adjusted Tax Exempt Securities
totalling $46.4 million were sold on behalf of the Company at a rate of 2.95%
for the initial auction period. The interest rate is being reset periodically
via
an auction process. As of September 30, 1994, the rates on these bonds ranged
from 3.15% to 3.19%. The net proceeds from the new issues, together with
available cash, were used to refund three series of Pollution Control Bonds
totalling $46.4 million bearing interest rates between 5 7/8% and 6.8%.
In 1986 the Company purchased corporate-owned life insurance policies
(COLI) on certain of its employees. For the nine months ended September 30,
1994, the Company increased its borrowings against the accumulated cash
surrender values of the policies by $39.9 million and received $1.6 million
from increased borrowings on Wolf Creek Nuclear Operating Company policies.
OPERATING RESULTS
The following discussion explains variances for the three, nine and
twelve months ended September 30, 1994 to the comparable periods of 1993.
Revenues. The Company's revenues vary with levels of usage as a result
of changing weather conditions during comparable periods and are sensitive to
seasonal fluctuations between consecutive periods.
Increase (decrease) in electric sales volumes:
3 Months 9 Months 12 Months
Ended Ended Ended
Residential (8.8)% (2.1)% (1.0)%
Commercial 4.8% 2.6% 1.0%
Industrial 3.6% 0.5% (0.8)%
Total Retail (0.5)% 0.2% (0.4)%
Wholesale & interchange (53.9)% (0.5)% 17.2%
Total electric sales (12.5)% 0.1% 2.8%
Revenues for the third quarter of 1994 were $189.2 million down one
percent from the 1993 third quarter revenues of $191.9 million. The decrease
was due primarily to decreased residential sales as the Company's service
territory experienced cooler summer temperatures during 1994 as compared to
last year, reducing the customer demand for air conditioning load. Wholesale
and interchange revenues were also lower because during the third quarter of
1993 the Company had higher sales to other utilities while their generating
units were down due to the flooding of 1993.
Revenues for the nine months ended September 30, 1994, of $480.8 million,
were virtually unchanged from revenues of $480.9 million for the comparable
period of 1993.
Revenues for the twelve months ended September 30, 1994, increased
approximately one percent to $616.9 million, from revenues of $608.0 million
for the comparable period of 1993. The increase can be attributed to higher
revenues in all customer classes.
Operating Expenses. Total operating expenses for the three months ended
September 30, 1994, of $132.2 million decreased approximately five percent
from total operating expenses of $139.1 million for the comparable period of
1993.
The decrease is primarily attributed to reduced operations and maintenance
expense and a $4.3 million decrease in purchased power expense as a result of
lower sales resulting from the decrease in demand from residential and
wholesale customers during the third quarter of 1994 as compared to 1993.
Total operating expenses increased approximately two percent for the nine
months ended September 30, 1994 compared to the same period of 1993. The
increase is primarily due to an increase of $11.3 million in federal and state
income taxes and a $1.6 million increase in maintenance expense as a result of
the major boiler overhaul of the Company's coal fired La Cygne 1 during the
second quarter of 1994.
Total operating expenses increased approximately four percent for the
twelve months ended September 30, 1994 compared to the same period of 1993.
The increase is primarily the result of a $10.7 million increase in fuel
expense due to increased electric generation caused by the increase in
customer demand and $18.5 million increase in federal and state income taxes.
The increase in federal income taxes for the three, nine and twelve
months ended September 30, 1994 was due to the completion at December 31,
1993, of the accelerated amortization of deferred income tax reserves relating
to the allowance for borrowed funds used during construction capitalized for
Wolf Creek. The completion of the amortization of these deferred income tax
reserves increased income taxes and thereby reduced net income by
approximately $3 million and $9 million for the quarter and nine months ended
September 30, 1994, respectively.
Wolf Creek Generating Station (Wolf Creek) operates on an eighteen month
refueling cycle. Wolf Creek began its seventh refueling and maintenance
outage in mid September 1994. The outage took approximately 47 days. The
operations and maintenance expenses associated with the refueling are being
deferred and then amortized over eighteen months.
Other Income and Deductions. Other income and deductions, net of taxes,
decreased significantly for the three, nine and twelve months ended September
30, 1994, compared to the same period in 1993 primarily as a result of
increased interest expense on higher COLI borrowings. For the nine and twelve
months ended September 30, 1994, interest on COLI borrowings has increased
$8.8 million and $13.2 million compared to the same periods of 1993,
respectively. Also contributing to the decrease was the receipt of death
benefit proceeds from COLI policies in the third quarter of 1993.
Interest Expense. Interest expense decreased $1.9 million, $6.4 million
and $10.4 million for the three, nine and twelve months ended September 30,
1994 compared to the same periods of 1993, respectively. The decreases
resulted primarily from lower interest rates on variable-rate debt and the
refinancing of higher cost fixed-rate debt. Also accounting for the decrease
in interest expense was the impact of increased COLI borrowings which reduce
the need for other long-term debt and thereby reduced interest expense. COLI
interest is reflected in Other Income and Deductions on the income statement.
KANSAS GAS AND ELECTRIC COMPANY
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
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.
Kansas Gas and Electric Company
Date November 10, 1994 By Richard D. Terrill
Richard D. Terrill,
Secretary, Treasurer and
General Counsel
