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, 1995
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 October 27, 1995
Common Stock, $5.00 par value 62,674,911
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 21
Part II. Other Information
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1995 1994
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . $5,300,674 $5,226,175
Natural gas plant in service. . . . . . . . . . . . . . 774,340 737,191
6,075,014 5,963,366
Less - Accumulated depreciation . . . . . . . . . . . . 1,895,973 1,790,266
4,179,041 4,173,100
Construction work in progress . . . . . . . . . . . . . 109,205 85,290
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 49,484 39,890
Net utility plant. . . . . . . . . . . . . . . . . . 4,337,730 4,298,280
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . . . . . . . . 81,431 74,017
Decommissioning trust . . . . . . . . . . . . . . . . . 20,696 16,944
Other . . . . . . . . . . . . . . . . . . . . . . . . . 10,622 13,556
112,749 104,517
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . 1,682 2,715
Accounts receivable and unbilled revenues (net) . . . . 211,979 219,760
Fossil fuel, at average cost. . . . . . . . . . . . . . 45,263 38,762
Gas stored underground, at average cost . . . . . . . . 46,193 45,222
Materials and supplies, at average cost . . . . . . . . 58,353 56,145
Prepayments and other current assets. . . . . . . . . . 36,537 27,932
400,007 390,536
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . . 101,886 101,886
Deferred coal contract settlement costs . . . . . . . . 28,859 33,606
Phase-in revenues . . . . . . . . . . . . . . . . . . . 48,248 61,406
Corporate-owned life insurance (net). . . . . . . . . . 44,708 16,967
Other deferred plant costs. . . . . . . . . . . . . . . 31,601 31,784
Unamortized debt expense. . . . . . . . . . . . . . . . 54,465 58,237
Other . . . . . . . . . . . . . . . . . . . . . . . . . 105,496 92,399
415,263 396,285
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $5,265,749 $5,189,618
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . . $3,048,323 $3,006,341
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . 327,615 308,200
Long-term debt due within one year. . . . . . . . . . . 16,000 80
Accounts payable. . . . . . . . . . . . . . . . . . . . 101,408 130,616
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 126,280 86,966
Accrued interest and dividends. . . . . . . . . . . . . 60,117 61,069
Other . . . . . . . . . . . . . . . . . . . . . . . . . 50,267 69,025
681,687 655,956
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . 965,629 971,014
Deferred investment tax credits . . . . . . . . . . . . 133,972 137,651
Deferred gain from sale-leaseback . . . . . . . . . . . 245,110 252,341
Other . . . . . . . . . . . . . . . . . . . . . . . . . 191,028 166,315
1,535,739 1,527,321
COMMITMENTS AND CONTINGENCIES (Notes 3 and 5)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $5,265,749 $5,189,618
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
September 30,
1995 1994
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 371,153 $ 338,812
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 52,707 40,401
Total operating revenues. . . . . . . . . . . . . . . . 423,860 379,213
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 70,001 66,563
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 5,084 3,638
Power purchased . . . . . . . . . . . . . . . . . . . . . 5,992 2,760
Natural gas purchases . . . . . . . . . . . . . . . . . . 29,146 17,758
Other operations. . . . . . . . . . . . . . . . . . . . . 76,971 76,099
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 26,851 25,871
Depreciation and amortization . . . . . . . . . . . . . . 37,237 38,145
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 35,421 27,648
State income. . . . . . . . . . . . . . . . . . . . . . 8,725 6,832
General . . . . . . . . . . . . . . . . . . . . . . . . 24,617 25,629
Total operating expenses. . . . . . . . . . . . . . . 324,431 295,329
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 99,429 83,884
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (2,248) (1,728)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 2,181 2,059
Income taxes (net). . . . . . . . . . . . . . . . . . . . 2,585 2,027
Total other income and deductions . . . . . . . . . . 2,518 2,358
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 101,947 86,242
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 24,193 23,872
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 6,978 5,343
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (1,129) (652)
Total interest charges. . . . . . . . . . . . . . . . 30,042 28,563
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 71,905 57,679
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 3,355 3,355
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 68,550 $ 54,324
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 62,243,794 61,617,873
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 1.10 $ .88
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ .505 $ .495
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1994(1)
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 886,921 $ 868,814
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 287,865 389,903
Total operating revenues. . . . . . . . . . . . . . . . 1,174,786 1,258,717
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 164,092 172,756
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 14,848 11,733
Power purchased . . . . . . . . . . . . . . . . . . . . . 11,636 9,656
Natural gas purchases . . . . . . . . . . . . . . . . . . 171,482 250,889
Other operations. . . . . . . . . . . . . . . . . . . . . 238,136 230,528
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 81,315 81,760
Depreciation and amortization . . . . . . . . . . . . . . 114,574 115,622
Amortization of phase-in revenues . . . . . . . . . . . . 13,158 13,158
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 60,027 62,385
State income. . . . . . . . . . . . . . . . . . . . . . 15,808 15,443
General . . . . . . . . . . . . . . . . . . . . . . . . 73,735 83,222
Total operating expenses. . . . . . . . . . . . . . . 958,811 1,047,152
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 215,975 211,565
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (5,785) (3,721)
Gain on sale of Missouri Properties (see Note 2). . . . . - 30,701
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 10,029 7,614
Income taxes (net). . . . . . . . . . . . . . . . . . . . 4,891 (5,622)
Total other income and deductions . . . . . . . . . . 9,135 28,972
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 225,110 240,537
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 72,042 74,695
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 20,779 14,013
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (2,907) (2,230)
Total interest charges. . . . . . . . . . . . . . . . 89,914 86,478
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 135,196 154,059
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 10,064 10,064
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 125,132 $ 143,995
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,960,602 61,617,873
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 2.02 $ 2.34
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 1.515 $ 1.485
(1) Information reflects the sales of the Missouri Properties (Note 2).
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
September 30,
1995 1994(1)
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $1,139,888 $1,113,478
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 394,124 655,588
Total operating revenues. . . . . . . . . . . . . . . . 1,534,012 1,769,066
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 212,102 228,543
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 16,677 15,980
Power purchased . . . . . . . . . . . . . . . . . . . . . 17,418 11,533
Natural gas purchases . . . . . . . . . . . . . . . . . . 233,169 426,783
Other operations. . . . . . . . . . . . . . . . . . . . . 310,999 318,277
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 112,741 113,959
Depreciation and amortization . . . . . . . . . . . . . . 150,582 157,462
Amortization of phase-in revenues . . . . . . . . . . . . 17,544 17,545
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 74,119 74,238
State income. . . . . . . . . . . . . . . . . . . . . . 19,510 18,587
General . . . . . . . . . . . . . . . . . . . . . . . . 95,195 109,988
Total operating expenses. . . . . . . . . . . . . . . 1,260,056 1,492,895
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 273,956 276,171
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (7,418) (5,217)
Gain on sale of Missouri Properties (see Note 2). . . . . - 30,701
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 15,253 11,092
Income taxes (net). . . . . . . . . . . . . . . . . . . . 6,184 (4,522)
Total other income and deductions . . . . . . . . . . 14,019 32,054
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 287,975 308,225
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 95,830 102,514
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 26,905 19,369
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (3,344) (2,743)
Total interest charges. . . . . . . . . . . . . . . . 119,391 119,140
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 168,584 189,085
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 13,418 13,419
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 155,166 $ 175,666
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,874,216 61,614,235
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 2.51 $ 2.85
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 2.01 $ 1.97
(1) Information reflects the sales of the Missouri Properties (Note 2).
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1994(1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 135,196 $ 154,059
Depreciation and amortization . . . . . . . . . . . . . . 114,574 115,622
Other amortization (including nuclear fuel) . . . . . . . 11,274 8,390
Gain on sales of utility plant (net of tax) . . . . . . . (951) (19,296)
Deferred taxes and investment tax credits (net) . . . . . (9,216) (35,005)
Amortization of phase-in revenues . . . . . . . . . . . . 13,158 13,158
Corporate-owned life insurance. . . . . . . . . . . . . . (39,102) (36,476)
Amortization of gain from sale-leaseback. . . . . . . . . (7,231) (7,230)
Amortization of acquisition adjustment. . . . . . . . . . 1,724 -
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . 7,781 (17,963)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . (6,501) (5,473)
Gas stored underground. . . . . . . . . . . . . . . . . (971) (2,782)
Accounts payable . . . . . . . . . . . . . . . . . . . (29,208) (68,457)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 38,687 74,008
Other . . . . . . . . . . . . . . . . . . . . . . . . . (752) 23,265
Changes in other assets and liabilities . . . . . . . . . 12,229 39,735
Net cash flows from operating activities. . . . . . . 240,691 235,555
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . 166,743 154,929
Sales of utility plant. . . . . . . . . . . . . . . . . . (1,723) (402,076)
Non-utility investments (net) . . . . . . . . . . . . . . 14,127 4,680
Corporate-owned life insurance policies . . . . . . . . . 54,046 54,920
Death proceeds of corporate-owned life insurance policies (854) (1,251)
Net cash flows used in (from) investing activities. . 232,339 (188,798)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . 19,415 (221,595)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . - 235,923
Bonds retired . . . . . . . . . . . . . . . . . . . . . . (105) (223,906)
Revolving credit agreements (net) . . . . . . . . . . . . - (115,000)
Other long-term debt (net). . . . . . . . . . . . . . . . - (67,893)
Borrowings against life insurance policies (net). . . . . 47,612 69,962
Common stock issued . . . . . . . . . . . . . . . . . . . 26,707 -
Dividends on preferred, preference and common stock . . . (103,014) (100,950)
Net cash flows from (used in) financing activities. . (9,385) (423,459)
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . (1,033) 894
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 2,715 1,217
End of the period . . . . . . . . . . . . . . . . . . . . $ 1,682 $ 2,111
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 111,871 $ 109,104
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 69,995 72,204
(1) Information reflects the sales of the Missouri Properties (Note 2).
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
September 30,
1995 1994(1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 168,584 $ 189,085
Depreciation and amortization . . . . . . . . . . . . . . . 150,582 157,462
Other amortization (including nuclear fuel) . . . . . . . . 13,789 11,436
Gain on sales of utility plant (net of tax) . . . . . . . . (951) (19,296)
Deferred taxes and investment tax credits (net) . . . . . . 9,234 (18,769)
Amortization of phase-in revenues . . . . . . . . . . . . . 17,544 17,545
Corporate-owned life insurance. . . . . . . . . . . . . . . (42,748) (46,788)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,641) (9,640)
Amortization of acquisition adjustment. . . . . . . . . . . 1,724 -
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . . (49,886) (94,919)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (8,856) (5,055)
Gas stored underground. . . . . . . . . . . . . . . . . . (3,592) 7,121
Accounts payable. . . . . . . . . . . . . . . . . . . . . (2,433) (30,211)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . (14,565) 26,908
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 19,128 28,872
Changes in other assets and liabilities . . . . . . . . . . 26,625 41,291
Net cash flows from operating activities . . . . . . . 274,538 255,042
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 249,510 240,397
Utility investment. . . . . . . . . . . . . . . . . . . . . - 2,500
Sales of utility plant. . . . . . . . . . . . . . . . . . . (1,723) (402,076)
Non-utility investments (net) . . . . . . . . . . . . . . . 18,488 2,654
Corporate-owned life insurance policies . . . . . . . . . . 55,876 56,501
Death proceeds of corporate-owned life insurance policies . (854) (1,442)
Net cash flows used in (from) investing activities. . . 321,297 (101,466)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . 108,315 (143,050)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . - 235,923
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (105) (376,372)
Other long-term debt (net). . . . . . . . . . . . . . . . . - (13,980)
Borrowings against life insurance policies (net). . . . . . 48,283 71,143
Common stock issued (net) . . . . . . . . . . . . . . . . . 26,707 3,970
Preference stock redeemed . . . . . . . . . . . . . . . . . - (2,734)
Dividends on preferred, preference and common stock . . . . (136,870) (134,183)
Net cash flows from (used in) financing activities. . . 46,330 (359,283)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (429) (2,775)
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . . 2,111 4,886
End of the period . . . . . . . . . . . . . . . . . . . . . $ 1,682 $ 2,111
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . . $ 137,552 $ 141,353
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 88,020 93,664
(1) Information reflects the sales of the Missouri Properties (Note 2).
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1995 1994
COMMON STOCK EQUITY (see statement):
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
62,528,780 and 61,617,873 shares, respectively . $ 312,644 $ 308,089
Paid-in capital. . . . . . . . . . . . . . . . . . 690,144 667,992
Retained earnings. . . . . . . . . . . . . . . . . 529,479 498,374
1,532,267 50% 1,474,455 49%
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 . . . . . . . . . . . . . . . 841,000 841,000
Pollution control bonds. . . . . . . . . . . . . . 521,817 521,922
Less:
Unamortized premium and discount (net) . . . . . 5,619 5,814
Long-term debt due within one year . . . . . . . 16,000 80
1,341,198 44% 1,357,028 45%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . $3,048,323 100% $3,006,341 100%
The Notes to Consolidated Financial Statements are an integral part of these statements.
WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
(Dollars in Thousands)
(Unaudited)
Common Paid-in Retained
Stock Capital Earnings
BALANCE DECEMBER 31, 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
Net income. . . . . . . . . . . . . . . . . . . . . . 33,388
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (3,354)
Common stock, $0.495 per share. . . . . . . . . . . (30,500)
BALANCE DECEMBER 31, 1994, 61,617,873 shares. . . . . 308,089 667,992 498,374
Net income. . . . . . . . . . . . . . . . . . . . . . 135,196
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (10,064)
Common stock, $1.515 per share. . . . . . . . . . . (94,027)
Issuance of 910,907 shares of common stock. . . . . . 4,555 22,845
Expenses on Common Stock. . . . . . . . . . . . . . . (693)
BALANCE SEPTEMBER 30, 1995, 62,528,780 shares . . . . $312,644 $690,144 $529,479
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 Western
Resources, Inc. (the Company) include the accounts of its wholly-owned
subsidiaries, Astra Resources, Inc. (Astra Resources), Astra Power, Astra
Services, Kansas Gas and Electric Company (KG&E), KPL Funding Corporation
(KFC), and Mid Continent Market Center Inc. (MCMC). 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 operations of Astra Resources, Astra Power, Astra Services,
KFC, and MCMC were not material to the Company's results of operations. The
Company is conducting its utility business as KPL, Gas Service, and through
its wholly-owned subsidiaries, KG&E and MCMC. The Company is conducting its
non-utility business through Astra Resources, Astra Power, and Astra Services.
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, 1995 and December 31, 1994, and
the results of its operations for the three, nine and twelve month periods
ended September 30, 1995 and 1994. These condensed consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's 1994 Annual Report on Form 10-K and
the KG&E Annual Report on Form 10-K incorporated by reference in the Company's
1994 Annual Report on Form 10-K.
The accounting policies of the Company are in accordance with generally
accepted accounting principles as applied to regulated public utilities. The
accounting and rates of the Company are subject to requirements of the Kansas
Corporation Commission (KCC), Oklahoma Corporation Commission, and the Federal
Energy Regulatory Commission (FERC).
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). This Statement imposes stricter criteria for regulatory assets by
requiring that such assets be probable of future recovery at each balance
sheet date. The Company anticipates adopting this standard on January 1, 1996
and does not expect that adoption will have a material impact on the financial
position or results of operations of the Company based on the current
regulatory structure in which the Company operates. This conclusion may
change in the future if increases in competition influence wholesale and
retail pricing in this industry.
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 consolidated balance
sheets:
September 30, December 31,
1995 1994
(Dollars in Millions)
Cash surrender value of contracts $484.2 $408.9
Borrowings against contracts (439.5) (391.9)
COLI (net) $ 44.7 $ 17.0
COLI borrowings will be repaid upon receipt of proceeds from death
benefits under contracts. Increases in the cash surrender value of contracts,
resulting from premiums and investment earnings, are recognized as income on a
tax free basis in Corporate-owned Life Insurance (net) on the Consolidated
Statements of Income. For the three, nine and twelve months ended September
30, 1995, income from increases in cash surrender value, net of premium and
administrative expenses and income from death proceeds, was $4.6 million,
$12.7 million, and $16.7 million respectively, compared to $3.9 million, $11.7
million and $14.4 million for the three, nine and twelve months ended
September 30, 1994, respectively. Interest expense on COLI borrowings is
recorded as a tax deductible expense in Corporate-owned Life Insurance (net)
on the Consolidated Statements of Income for policies held by KG&E. For the
three, nine and twelve months ended September 30, 1995 interest expense on
KG&E's COLI borrowings was $6.9 million, $18.5 million and $24.1 million,
respectively, compared to $5.6 million, $15.4 million and $20.1 million for
the three, nine and twelve months ended September 30, 1994, respectively. The
U.S. Congress is considering legislation, which, if enacted, may substantially
reduce or eliminate interest deductions on loans from COLI policies purchased
after June 20, 1986. KG&E purchased its COLI policies prior to June 20, 1986.
As approved by the KCC, the Company is using a portion of the net income
stream generated by COLI policies purchased in 1993 and 1992 by the Company to
offset the costs of postretirement and postemployment benefits offered to
certain current and former employees. A significant portion of such income
relates to the tax deduction currently taken for interest incurred on contract
borrowings under the Company's 1993 and 1992 COLI policies. The amount of
this interest deduction used to offset these benefit costs for the three, nine
and twelve months ended September 30, 1995, was $1.8 million, $4.7 million,
and $6.0 million respectively, compared to $1.3 million, $4.7 million, and
$5.7 million for the three, nine and twelve months ended September 30, 1994,
respectively. As mentioned above, the U.S. Congress is considering
legislation which, if enacted, may substantially reduce or eliminate this
deduction. If this legislation is enacted, the Company may be required to
seek increases in rates to recover postretirement and postemployment expenses
that were to be funded by the 1993 and 1992 COLI policy proceeds and recognize
higher levels of postretirement and postemployment expense in the Company's
Consolidated Statements of Income. If rate relief is not granted, the Company
would have to reflect on its books as expense the accrued and deferred costs
of postretirement and postemployment benefits. As of September 30, 1995,
approximately $32 million of postretirement
and postemployment benefit costs had been accrued and deferred. The Company's
non-cash cost of providing these postretirement and postemployment benefits on
an annual basis approximates $10 million. If the legislation is enacted, the
Company currently believes that it would be allowed to recover the
postretirement and postemployment costs to be funded by the 1993 and 1992 COLI
policy proceeds
through rates.
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.
2. SALES 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 $404 million, in cash. (For information regarding litigation in
connection with the sale of the Missouri Properties to Southern Union, see
Note 3 of Notes to Consolidated Financial Statements.) 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
Statements of Income.
The Company's operating revenues and operating income for the three, nine
and twelve months ended September 30, 1995, do not include any results related
to the Missouri Properties.
The following table reflects the approximate operating revenues
(unaudited) and operating income (unaudited) related to the Missouri
Properties for the nine and twelve months ended September 30, 1994, through
the sales to Southern Union on January 31, 1994 and United Cities on February
28, 1994:
September 30, 1994
9 months ended 12 months ended
(Dollars in Thousands)
Operating Revenues. . . . . . . . $77,008 $192,286
Percent of Total Company. . . . 6.1% 10.9%
Operating Income. . . . . . . . . $4,999 $16,349
Percent of Total Company. . . . 2.4% 5.9%
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. 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 (the Court)
(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. The
disputed purchase price adjustments were submitted to an arbitrator in
February 1995. Based on the decision of the arbitrator rendered in April
1995, Southern Union paid the Company $3.6 million including interest. For
additional information regarding the sales of the Missouri Properties, see
Note 2 of Notes to Consolidated Financial Statements.
In April, 1995, Southern Union filed its amended complaint against the
Company, alleging a variety of new theories in support of its revised damage
claims. Southern Union now claims that it has overpaid the Company from
between $38 to $53 million dollars for the Missouri Properties. The Company
has filed its amended answer denying each and every claim made by Southern
Union in its amended complaint. The Company has filed motions for summary
judgment on the amended complaint. The resolution of this matter is not
expected to have a material adverse impact on the Company.
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. On March 1, 1995 this
litigation between the Company and the Bishop entities was dismissed with
prejudice and the parties exchanged mutual releases of any and all claims.
The gas supply contracts at issue in the above litigation were canceled.
The agreements between the Company and the Bishop entities resolved
disputes between them in regulatory proceedings before the KCC, the Missouri
Public Service Commission, and FERC.
The Company has entered into five new gas supply contracts with certain
Bishop entities, subject to the approval of the KCC. A contested hearing was
held for the approval of those contracts and the matter awaits decision by the
KCC. The settlement of the parties' disputes referred to above is not
contingent upon the KCC's approval of these contracts.
The Company 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. On October 23, 1995, the Company received
advice from the Department of Justice that it has terminated its investigation
without further action.
The Company and its subsidiaries are involved in various other legal and
environmental proceedings. Management believes that adequate provision has
been made within the Consolidated Financial Statements for these other matters
and accordingly believes their ultimate dispositions will not have a material
adverse effect upon the business, financial position, or results of operations
of the Company.
4. RATE MATTERS AND REGULATION
KCC Rate Proceedings: On August 17, 1995, the Company filed with the KCC
a request to more rapidly recover its investment in its assets of Wolf Creek
over the next seven years. If the request is granted, depreciation expense
for Wolf Creek will increase by approximately $50 million for each of the next
seven years. As a result of this proposal, the Company will also seek to
reduce electric rates for KG&E customers by approximately $9 million annually
for the same seven year period based upon this accelerated depreciation.
The request also reduces the annual depreciation by approximately $11
million for electric transmission, distribution and certain generating plant
assets to reflect the effect of increasing useful lives of these properties.
In addition, the Company filed a $36 million rate increase request for its
Kansas natural gas properties. The increase is being sought to recover costs
associated with the service line replacement program as well as other
operating costs.
Historically, the methods and rates of depreciation used by the Company have
not varied materially from the methods and rates which would have been used if
the Company were not regulated and not subject to the provisions prescribed by
Statement of Financial Accounting Standards No.71, "Accounting for the Effects
of Certain Types of Regulations" (SFAS 71). In the past, the methods and
rates have been determined by depreciation studies and approved by the various
regulatory bodies. The Company periodically evaluates its depreciation rates
considering the past and expected future experience in the operation of its
facilities. The proposal to more rapidly recover the Company's investment in
assets of Wolf Creek would bring the capital costs of Wolf Creek down to a
level more closely paralleling that of fossil-fueled generating facilities.
On January 24, 1992, the KCC issued an order allowing the Company to
defer 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, 1995, approximately $12.3 million of
these deferrals have been included in Deferred Charges and Other Assets,
Other, on the Consolidated Balance Sheet.
5. 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 $77 million at December 31, 1994. Approximately $32
million was attributable to modifications to upgrade the three turbines at
Jeffrey Energy Center to be completed by December 31, 1998.
In January 1994, the Company entered into an agreement with Oklahoma
Municipal Power Authority (OMPA). Under the agreement, the Company received a
prepayment of approximately $41 million for which the Company will provide
capacity and transmission services to OMPA through the year 2013.
Manufactured Gas Sites: 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
predecessor companies, and were owned by the Company for a period of time
after operations had ceased. The Company and the Kansas Department of Health
and Environment (KDHE) conducted preliminary assessments of the sites in 1993
and 1994. The results of the preliminary investigations determined the
Company does not have a connection to four of the sites.
The Company and KDHE entered into a consent agreement governing all
future work at the remaining 16 sites. The terms of the consent agreement
will allow the Company to investigate these sites and set remediation
priorities based upon the results of the investigations and risk analysis.
The prioritized sites will be investigated over a 10 year period. The
agreement will allow the Company to set mutual objectives with the KDHE in
order to expedite effective response activities and to control costs and
environmental impact. The costs incurred for site investigation and risk
assessment in 1994 were minimal and are expected to be minimal in 1995. The
Company is aware of other utilities in Region VII of the EPA (Kansas,
Missouri, Nebraska, and Iowa) which have incurred remediation costs for sites
ranging between $500,000 and $10 million, depending on the site. The KCC has
permitted another Kansas utility to recover its remediation costs through
rates. To the extent that such remediation costs are not recovered through
rates, the costs could be material to the Company's financial position or
results of operations depending on the degree of remediation required and
number of years over which the remediation must be completed.
Superfund Sites: The Company is one of numerous potentially responsible
parties at a groundwater contamination site in Wichita, Kansas (Wichita site)
which is listed by the EPA as a Superfund site. The Company has previously
been associated with other Superfund sites of which the Company's liability
has been classified as de minimis and any potential obligations have been
settled at minimal cost. The Company's obligation at the Wichita site appears
to be limited based on the Company's experience at similar sites given its
limited exposure and settlement costs. In the opinion of the Company's
management, the resolution of this matter will not have a material impact on
the Company's financial position or results of operations.
Clean Air Act: The Clean Air Act Amendments of 1990 (the Act) require a
two-phase reduction in sulfur dioxide and oxides of nitrogen (NOx) emissions
effective in 1995 and 2000 and a probable reduction in toxic emissions. To
meet the monitoring and reporting requirements under the acid rain program,
the Company installed continuous monitoring and reporting equipment at a total
cost of approximately $10 million. The Company does not expect additional
equipment
to reduce sulfur emissions to be necessary under Phase II. Although the
Company has no units subject to Phase I regulations, the owners obtained an
early substitution permit to bring the co-owned La Cygne Station under the
Phase I regulations.
The NOx and air toxic limits, which were not set in the law, continue to
be subject to the EPA's rules-making procedures. The Company will follow the
development of these regulations and establish compliance strategies as
appropriate.
Other Environmental Matters: 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.
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. Wolf Creek
contains an on-site spent fuel storage facility which, under current
regulatory guidelines, provides space for the storage of spent fuel through
the year 2006 while still maintaining full core off-load capability. The
Company believes adequate additional storage space can be obtained as
necessary.
Decommissioning: On June 9, 1994, the KCC issued an order approving the
decommissioning costs of the 1993 Wolf Creek Decommissioning Cost Study which
estimates the Company's share of Wolf Creek decommissioning costs, under the
immediate dismantlement method, to be approximately $595 million primarily
during the period 2025 through 2033, or approximately $174 million in 1993
dollars. These costs were calculated using an assumed inflation rate of 3.45%
over the remaining service life, in 1993, of 32 years.
Decommissioning costs are being charged to operating expenses in
accordance with the KCC order. Electric rates charged to customers provide
for recovery of these decommissioning costs over the life of Wolf Creek.
Amounts so expensed ($3.5 million in 1994 increasing annually to $5.5 million
in 2024) and earnings on trust fund assets are deposited in an external trust
fund. The assumed return on trust assets is 5.9%.
The Company's investment in the decommissioning fund, including reinvested
earnings was $20.7 million and $16.9 million at September 30, 1995 and
December 31, 1994, respectively. These amounts are reflected in
Decommissioning Trust, and the related liability is included in Deferred
Credits and Other Liabilities, Other, on the Consolidated Balance Sheets.
The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry, regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations in the financial statements of electric utilities. In response to
these questions, the FASB has agreed to review the accounting for removal
costs, including decommissioning. If current electric utility industry
accounting practices for such decommissioning are changed: (1) annual
provisions for decommissioning could increase, (2) the estimated cost for
decommissioning could be recorded as a liability rather than as accumulated
depreciation, and (3) trust fund income from the external decommissioning
trusts could be reported as investment income rather than as a reduction to
decommissioning expense. The Company has historically recorded estimated
decommissioning costs as a liability rather than including these costs with
accumulated depreciation.
The Company carries $118 million in premature decommissioning insurance.
The insurance coverage has several restrictions. One of these is that it can
only be used if Wolf Creek incurs an accident exceeding $500 million in
expenses to safely stabilize the reactor, to decontaminate the reactor and
reactor station site in accordance with a plan approved by the Nuclear
Regulatory Commission (NRC), and to pay for on-site property damages. If the
amount designated as decommissioning insurance is needed to implement the NRC-
approved plan for stabilization and decontamination, it would not be available
for decommissioning purposes.
Nuclear Insurance: The Price-Anderson Act limits the combined public
liability of the owners of nuclear power plants to $8.9 billion for a single
nuclear incident. The Wolf Creek owners (Owners) have purchased the maximum
available private insurance of $200 million and the balance is provided by an
assessment plan mandated by the NRC. Under this plan, the Owners are jointly
and severally subject to a retrospective assessment of up to $79.3 million
($37.3 million, Company's share) in the event there is a major nuclear
incident involving any of the nation's licensed reactors. This assessment is
subject to an inflation adjustment based on the Consumer Price Index and
applicable premium taxes. There is a limitation of $10 million ($4.7 million,
Company's share) in retrospective assessments per incident, per year.
The Owners carry decontamination liability, premature decommissioning
liability, and property damage insurance for Wolf Creek totalling
approximately $2.8 billion ($1.3 billion, Company's share). This insurance is
provided by a combination of "nuclear insurance pools" ($500 million) and
Nuclear Electric Insurance Limited (NEIL) ($2.3 billion). In the event of an
accident, insurance proceeds must first be used for reactor stabilization and
site decontamination. The Company's share of any remaining proceeds can be
used for property damage up to $1.2 billion (Company's share) and premature
decommissioning costs up to $118 million (Company's share) in excess of funds
previously collected for decommissioning (as discussed under
"Decommissioning").
The Owners also carry additional insurance with NEIL to cover costs of
replacement power and other extra expenses incurred during a prolonged outage
resulting from accidental property damage at Wolf Creek. If losses incurred
at any of the nuclear plants insured under the NEIL policies exceed premiums,
reserves, and other NEIL resources, the Company may be subject to
retrospective assessments of approximately $13 million per year.
Although the Company maintains various insurance policies to provide
coverage for potential losses and liabilities resulting from an accident or an
extended outage, the Company's insurance coverage may not be adequate to cover
the costs that could result from a catastrophic accident or extended outage at
Wolf Creek. Any substantial losses not covered by insurance, to the extent
not recoverable through rates, would have a material adverse effect on the
Company's financial position and results of operations.
Federal Income Taxes: In April 1995, the Company reached a settlement
agreement, in principal, with the Internal Revenue Service (IRS) on its
examination of KG&E's federal income tax returns for the years 1984-1986 and
1987-1988. All issues in these two cases are tentatively resolved. The
Company is now revising the tax calculations for the settlement. The Company
anticipates an additional assessment of approximately $7 million in tax and
interest as a result of these examinations. This assessment is expected to be
offset by investment tax credit carryforwards, alternative minimum tax credit
carryforwards, or deferred tax provisions.
The IRS examination of KG&E's federal income tax returns for the years
1989-1990 is pending the completion of the 1984-1988 examinations. Based upon
the above settlement agreements and available tax credits, the Company
believes it will owe no tax for the years 1989-1990.
Fuel Commitments: To supply a portion of the fuel requirements for its
generating plants, the Company has entered into various commitments to obtain
nuclear fuel, coal, and natural gas. Some of these contracts contain
provisions for price escalation and minimum purchase commitments. At December
31, 1994, WCNOC's nuclear fuel commitments (Company's share) were
approximately $12.6 million for uranium concentrates expiring at various times
through 1997, $122.9 million for enrichment expiring at various times through
2014, and $56.5 million for fabrication through 2012. At December 31, 1994,
the Company's coal and natural gas contract commitments in 1994 dollars under
the remaining terms of the contracts were approximately $3 billion and $9
million, respectively. The largest coal contract expires in 2020, with the
remaining coal contracts expiring at various times through 2013. The majority
of natural gas contracts expire in 1995 but have automatic one-year extension
provisions. In the normal course of business, additional commitments and spot
market purchases will be made to obtain adequate fuel supplies.
Energy Act: As part of the 1992 Energy Policy Act, a special assessment
is being collected from utilities for a uranium enrichment, decontamination,
and decommissioning fund. The Company's portion of the assessment for Wolf
Creek is approximately $7 million, payable over 15 years. Management expects
such costs to be recovered through the ratemaking process.
6. INCOME TAXES
Total income tax expense included in the Consolidated Statements of
Income reflects the Federal statutory rate of 35%. The Federal statutory rate
produces effective income tax rates of 37.0% and 36.5% for the three month
periods, 34.9% and 35.6% for the nine month periods, and 34.7% and 34.4% for
the twelve month periods ended September 30, 1995 and 1994, 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.
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 1994 Annual Report on Form 10-K. The
following updates the information provided in the 1994 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, 1995 and comparable periods
of 1994.
As a result of the sales of the Missouri Properties, as described in
Note 2, Sales of Missouri Natural Gas Distribution Properties, of the Notes to
Consolidated Financial Statements, 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 operating revenues and operating income for the
nine and twelve months ended September 30, 1995, do not include any results
related to the Missouri Properties and are not fully comparable to the results
of operations for the same periods ending September 30, 1994.
The following table reflects the approximate operating revenues
(unaudited) and operating income (unaudited) related to the Missouri
Properties for the nine and twelve months ended September 30, 1994, through
the sale to Southern Union on January 31, 1994 and United Cities on February
28, 1994:
September 30, 1994
9 months ended 12 months ended
(Dollars in Thousands)
Operating Revenues. . . . . . . . $77,008 $192,286
Percent of Total Company. . . . 6.1% 10.9%
Operating Income. . . . . . . . . $4,999 $16,349
Percent of Total Company. . . . 2.4% 5.9%
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.
For additional information regarding the sales of the Missouri Properties
and the pending litigation see Note 2 and Note 3 of the Notes to Consolidated
Financial Statements.
FINANCIAL CONDITION
General: Net income for the third quarter of 1995 was $72 million, up
from net income of $58 million for the same period of 1994. The Company
earned $1.10 per share of common stock for the third quarter of 1995, an
increase of $0.22 per share from the third quarter of 1994. Operating
revenues were $424 million and $379 million for the three months ended
September 30, 1995 and 1994, respectively. The increase in net income,
earnings per share, and operating revenues is primarily due to higher revenues
as a result of increased electric sales in all customer classes. The demand
for air conditioning load was higher due to warmer summer temperatures.
Net income for the nine and twelve months ended September 30, 1995, was
$135 million and $169 million, respectively, compared to $154 million and $189
million for the same periods of 1994. The Company earned $2.02 and $2.51 per
share of common stock, respectively, for the nine and twelve months ended
September 30, 1995 compared to $2.34 and $2.85 for the comparable periods of
1994. The decrease in net income and earnings per share is primarily due to
the inclusion of the gain on the sales of, and operating income from, the
Missouri Properties prior to the sales in the first quarter of 1994.
Operating revenues were $1.2 billion and $1.5 billion for the nine and
twelve months ended September 30, 1995, respectively. These revenues compare
to $1.3 billion and $1.8 billion for the same periods of 1994. The decrease
in revenues is a result of the sales of the Missouri Properties, mild winter
and spring temperatures in 1995 compared to 1994, and a lower unit cost of
natural gas passed on to customers through the purchased gas adjustment (PGA).
Partially offsetting these decreases, was increased electric revenues
resulting from increased electric sales for air conditioning load.
A quarterly dividend of $0.505 per share was declared in the third
quarter of 1995, for an indicated annual rate of $2.02 per share. The book
value per share was $24.51 at September 30, 1995, up from $23.93 at December
31, 1994. There were 62,243,794 and 61,617,873 average shares outstanding for
the third quarter of 1995 and 1994, respectively.
Liquidity and Capital Resources: The Company's short-term financing
requirements are satisfied, as needed, through the sale of commercial paper,
short-term bank loans and borrowings under unsecured lines of credit
maintained with banks. At September 30, 1995, short-term borrowings amounted
to $328 million, of which $184 million was commercial paper.
On October 18, 1995, the Company filed a shelf registration statement for
the issuance by special purpose finance subsidiaries of up to $200 million of
Cumulative Quarterly Income Preferred Securities.
RESULTS OF OPERATIONS
Revenues: The Company's revenues vary with levels of usage as a result
of changing weather conditions during comparable periods and are sensitive to
seasonal fluctuations between consecutive periods. Future electric and
natural gas sales will continue to be affected by weather conditions,
competing fuel
sources, wholesale demand, and the overall economy of the Company's service
area.
The following table reflects changes in electric sales for the three,
nine, and twelve months ended September 30, 1995 from the comparable periods
of 1994.
Increase (decrease) in electric sales volumes:
3 Months 9 Months 12 Months
ended ended ended
Residential 17.0% 1.2% 2.7%
Commercial 6.5% 2.1% 3.7%
Industrial 5.7% 3.9% 3.7%
Total retail sales 9.8% 2.4% 3.3%
Wholesale and interchange 17.5% (1.8)% (13.1)%
Total electric sales 11.1% 1.6% (0.3)%
Electric revenues increased approximately ten percent to $371 million for
the three months ended September 30, 1995 compared to $339 million for the
three months ended September 30, 1994. The increase was primarily due to
higher revenues as a result of increased sales in all customer classes. This
increase in electric sales was due to higher air conditioning load caused by
warmer summer temperatures in 1995 compared to 1994. The Company's service
territory experienced more normal temperatures during the summer of 1995, but
were more than 20 percent warmer, based on cooling degree days, compared to
the summer of 1994.
Electric revenues increased approximately two percent to $887 million for
the nine months ended September 30, 1995 as compared to $869 million for the
nine months ended September 30, 1994. Electric revenues also increased
approximately two percent for the twelve months ended September 30, 1995
compared to the same period of 1994. These increases are largely due to
higher sales in all retail classes resulting from the warmer summer of 1995 as
discussed previously. Partially offsetting the increase in retail revenues
were lower interchange revenues resulting from lower sales.
The following table reflects changes in natural gas sales for the three,
nine, and twelve months ended September 30, 1995 from the comparable periods
of 1994.
Increase (decrease) in natural gas sales volumes:
Excluding Including
Missouri Operations Missouri Operations
3 Months 9 Months 12 Months 3 Months 9 Months 12
Months
ended ended ended ended ended ended
Residential 6.3% (2.9)% (7.8)% 6.3% (22.1)%
(35.2)%
Commercial 37.3% (1.5)% (7.2)% 37.3% (23.2)%
(37.9)%
Industrial (15.0)% (9.1)% (18.2)% (15.0)% (12.4)%
(23.7)%
Transportation 9.7% 9.5% 7.8% 9.7% (4.0)%
(14.1)%
Total Deliveries 35.9% 16.2% 7.6% 35.9% (3.0)%
(21.6)%
Total natural gas revenues for the three months ended September 30, 1995
were higher than the same period of 1994 due to increased residential,
commercial, and as-available gas sales. As-available gas is excess natural
gas under contract that the Company did not require for customer sales or
storage. According to the Company's tariff, the limited margin made on as-
available gas sales, is returned 50% to customers through the PGA and 50% is
reflected in wholesale sales of the Company.
Natural gas revenues and sales decreased significantly for the nine and
twelve months ended September 30, 1995 compared to the same periods of 1994 as
a result of the sales of the Missouri Properties in the first quarter of 1994.
Excluding natural gas sales related to the Missouri Properties, prior to
the sales of those properties in the first quarter of 1994, total natural gas
revenues would have been higher due to increased transportation sales and as-
available gas sales for the nine and twelve months ended September 30, 1995.
These increases were partially offset by lower sales in other customer classes
as a result of milder winter temperatures in 1995 compared to 1994, and a
lower unit cost of natural gas which is passed on to customers through the
PGA.
Operating Expenses: Total operating expenses increased ten percent for
the three months ended September 30, 1995 compared to the same period of 1994.
The increase resulted primarily from higher fuel and purchased power expense
due to the increased electric generation resulting from higher sales for air
conditioning load. Also contributing to the increase was higher natural gas
purchased expense due primarily to increased as-available gas sales as
discussed previously and additional income taxes resulting from increased net
income.
Total operating expenses decreased eight and sixteen percent for the nine
and twelve months ended September 30, 1995 compared to the same periods of
1994, respectively. These decreases were the result of the sales of the
Missouri Properties, lower fuel expense resulting from a lower unit cost of
fuel used for generation, and lower natural gas purchases resulting from lower
demand as discussed previously.
Partially offsetting this decrease were expenses related to an early
retirement program. In the second quarter of 1995, $7.6 million related to
early retirement programs was recorded as an expense.
Other Income and Deductions: Other Income and Deductions, Net of Taxes,
was virtually unchanged for the three months ended and lower for the nine and
twelve months ended September 30, 1995 compared to 1994. The decrease for the
nine and twelve months ended was due to additional interest expense on
increased COLI borrowings. (See Note 1 of Notes to Consolidated Financial
Statements with respect to proposed legislation in the U.S. Congress relating
to COLI.) Also significantly contributing to the decrease in other income for
the nine and twelve months ended September 30, 1995 compared to 1994 is the
recognition of the gain on the sales of the Missouri Properties, of
approximately $19.3 million, net of tax, during the first quarter of 1994.
Interest Charges and Preferred and Preference Dividend Requirements:
Total interest charges increased five percent for the three months ended and
four percent for the nine months ended September 30, 1995 from the comparable
periods in 1994 primarily due to higher debt balances and higher interest
rates on short-term borrowings. Total interest charges were unchanged for the
twelve months
ended September 30, 1995 compared to the twelve months ended September 30,
1994 as a result of lower debt balances partially offset by higher interest
rates on short term borrowings.
OTHER INFORMATION
Merger Implementation: In accordance with the KCC Merger order,
amortization of the acquisition adjustment commenced in August 1995. The
amortization will amount to approximately $20 million (pre-tax) per year for
40 years. The Company can recover the amortization of the acquisition
adjustment through cost savings under a sharing mechanism approved by the KCC.
Based on the order issued by the KCC with regard to the recovery of the
acquisition premium, the Company must achieve a level of savings on an annual
basis (considering sharing provisions) of approximately $27 million in order
to recover the entire acquisition premium. To the extent that the Company's
actual operations and maintenance expense is lower than the KCC-stipulated
utility price index, the Company will show merger savings. The Company has
calculated 1994 annual savings, in conformance with the KCC order, associated
with the acquisition to be in excess of $27 million. As management presently
expects to continue this level of savings, the amount is expected to be
sufficient to allow the full recovery of the acquisition premium.
Mid Continent Market Center: MCMC began operations on July 1, 1995
utilizing existing pipeline interconnections. At the time operations began,
the Company transferred certain natural gas transmission assets having a value
of approximately $50 million to MCMC. Upgrades and new interconnections are
being constructed to expand MCMC's capabilities.
KCC Rate Proceedings: On August 17, 1995, the Company filed a regulatory
package with the KCC to more rapidly recover its investment in its assets of
Wolf Creek over the next seven years. As a result of this proposed reduction,
KG&E seeks permission to reduce electric rates by approximately $9 million
each year for the next seven years. As part of this same package, the Company
has requested a $36 million natural gas rate increase. This increase has been
requested to offset increased operating and service line replacement costs.
The reduction in revenues is anticipated to be partially offset by the
natural gas rate increase and an annual $11 million reduction in the
depreciation of transmission and distribution assets. Additionally offsetting
the proposed rate decrease are $12 million in savings anticipated from the
early retirement programs completed in the second quarter of 1995. The
Company continues its Project BLUEPRINT, which is anticipated to further
reduce operation, maintenance, and construction expenditures. The regulatory
package speaks to regulators' concerns as well as addresses the Company's
short- and long-term needs. A decision is expected, from the KCC, by the
spring of 1996. For additional information relating to these rate
proceedings, see Note 4 of Notes to Consolidated Financial Statements.
WESTERN RESOURCES, INC.
Part II Other Information
Item 5. Other Information
Astra Resources Compression, Inc.: Astra Resources Compression, Inc.
(ARC), the natural gas compressor subsidiary of the Company, announced an
agreement to merge with Hanover Compressor Company of Houston. Pending
necessary approvals, the merger is expected to be completed by year-end. ARC
will become a wholly-owned subsidiary of Hanover. In return, the Company will
receive an approximate 20% equity interest in Hanover, valued at approximately
$55 million.
Natural Gas Processing Plant: The Company and Mobil Natural Gas, Inc.
(Mobil) have entered into an agreement to explore the feasibility of
developing a natural gas processing plant and associated gathering system in
southwest Kansas.
The plant, to be owned equally by the two companies, will be located
in the Hugoton natural gas field. Mobil will operate the plant. Upon
completion, the system will provide natural gas gathering and processing
services. The facility is expected to have an operating capacity of 200
million cubic feet per day. The plant also will recover natural gas liquids
and helium and serve as a nitrogen rejection unit.
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, 1995
(b) Reports on Form 8-K: Form 8-K dated August 18, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Western Resources, Inc.
Date October 27, 1995 By /s/ S. L. KITCHEN
S. L. Kitchen, Executive Vice President
and Chief Financial Officer
Date October 27, 1995 By /s/ JERRY D. COURINGTON
Jerry D. Courington,
Controller
UT
1,000
9-MOS
DEC-31-1995
SEP-30-1995
PER-BOOK
4,337,730
112,749
400,007
415,263
0
5,265,749
312,644
690,144
529,479
1,532,267
150,000
24,858
1,341,198
327,615
0
0
16,000
0
2,351
3,311
1,868,149
5,265,749
1,174,786
70,944
882,976
958,811
215,975
9,135
225,110
89,914
135,196
10,064
125,132
94,026
72,042
240,691
2.02
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, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7324
KANSAS GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
KANSAS 48-1093840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 208
WICHITA, KANSAS 67201
(Address of Principal Executive Offices)
316/261-6611
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 27, 1995
Common Stock (No par value) 1,000 Shares
Registrant meets the conditions of General Instruction H(1)(a) and (b) to Form
10-Q and is therefore filing this form with a reduced disclosure format.
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
Signature 21
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1995 1994
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . . $3,420,368 $3,390,406
Less - Accumulated depreciation . . . . . . . . . . . . . 880,341 833,953
2,540,027 2,556,453
Construction work in progress . . . . . . . . . . . . . . 39,637 32,874
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . . 49,484 39,890
Net utility plant . . . . . . . . . . . . . . . . . . . 2,629,148 2,629,217
OTHER PROPERTY AND INVESTMENTS:
Decommissioning trust . . . . . . . . . . . . . . . . . . 20,696 16,944
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 7,603 11,561
28,299 28,505
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . 51 47
Accounts receivable and unbilled revenues (net) . . . . . 89,450 67,833
Advances to parent company . . . . . . . . . . . . . . . 151,440 64,393
Fossil fuel, at average cost. . . . . . . . . . . . . . . 15,824 13,752
Materials and supplies, at average cost . . . . . . . . . 30,826 30,921
Prepayments and other current assets. . . . . . . . . . . 23,312 16,662
310,903 193,608
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes . . . . . . . . . . . . . . 102,789 102,789
Deferred coal contract settlement costs . . . . . . . . . 15,448 17,944
Phase-in revenues . . . . . . . . . . . . . . . . . . . . 48,248 61,406
Other deferred plant costs. . . . . . . . . . . . . . . . 31,601 31,784
Corporate-owned life insurance (net). . . . . . . . . . . 7,816 9,350
Unamortized debt expense. . . . . . . . . . . . . . . . . 26,151 27,777
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 39,864 40,430
271,917 291,480
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,240,267 $3,142,810
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see Statements) . . . . . . . . . . . . . . $1,998,531 $1,925,196
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . . 29,050 50,000
Long-term debt due within one year. . . . . . . . . . . . 16,000 -
Accounts payable. . . . . . . . . . . . . . . . . . . . . 44,319 49,093
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 60,343 15,737
Accrued interest. . . . . . . . . . . . . . . . . . . . . 14,128 8,337
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 7,413 11,160
171,253 134,327
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . . 675,201 689,169
Deferred investment tax credits . . . . . . . . . . . . . 73,783 74,841
Deferred gain from sale-leaseback . . . . . . . . . . . . 245,110 252,341
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 76,389 66,936
1,070,483 1,083,287
COMMITMENTS AND CONTINGENCIES (Note 3)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $3,240,267 $3,142,810
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
September 30,
1995 1994
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 202,382 $ 189,202
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 24,360 27,727
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 5,084 3,638
Power purchased . . . . . . . . . . . . . . . . . . . . . 2,276 1,376
Other operations. . . . . . . . . . . . . . . . . . . . . 27,831 26,092
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 11,460 9,957
Depreciation and amortization . . . . . . . . . . . . . . 18,309 19,141
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 26,774 23,521
State income . . . . . . . . . . . . . . . . . . . . . 6,482 5,575
General . . . . . . . . . . . . . . . . . . . . . . . . 11,736 10,811
Total operating expenses. . . . . . . . . . . . . . . 138,698 132,224
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 63,684 56,978
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (2,248) (1,728)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . (852) 833
Income taxes (net) . . . . . . . . . . . . . . . . . . . 3,459 2,137
Total other income and deductions . . . . . . . . . . 359 1,242
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 64,043 58,220
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 11,759 11,934
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,194 1,249
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (746) (444)
Total interest charges. . . . . . . . . . . . . . . . 12,207 12,739
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 51,836 $ 45,481
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1994
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 485,686 $ 480,793
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 61,756 71,662
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 14,848 11,733
Power purchased . . . . . . . . . . . . . . . . . . . . . 3,482 4,869
Other operations. . . . . . . . . . . . . . . . . . . . . 90,030 84,677
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 36,086 35,187
Depreciation and amortization . . . . . . . . . . . . . . 54,978 57,402
Amortization of phase-in revenues . . . . . . . . . . . . 13,158 13,158
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 42,252 41,594
State income . . . . . . . . . . . . . . . . . . . . . 10,944 10,160
General . . . . . . . . . . . . . . . . . . . . . . . . 35,122 34,947
Total operating expenses. . . . . . . . . . . . . . . 362,656 365,389
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 123,030 115,404
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (5,785) (3,721)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 1,978 3,641
Income taxes (net) . . . . . . . . . . . . . . . . . . . 7,278 5,375
Total other income and deductions . . . . . . . . . . 3,471 5,295
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 126,501 120,699
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 35,310 36,032
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 3,806 3,721
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (1,890) (1,368)
Total interest charges. . . . . . . . . . . . . . . . 37,226 38,385
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 89,275 $ 82,314
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
September 30,
1995 1994
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 624,773 $ 616,890
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 80,477 94,443
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 16,677 15,980
Power purchased . . . . . . . . . . . . . . . . . . . . . 5,757 5,690
Other operations. . . . . . . . . . . . . . . . . . . . . 120,413 110,998
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 48,887 48,355
Depreciation and amortization . . . . . . . . . . . . . . 69,033 76,420
Amortization of phase-in revenues . . . . . . . . . . . . 17,544 17,545
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 50,870 48,361
State income . . . . . . . . . . . . . . . . . . . . . 13,211 12,038
General . . . . . . . . . . . . . . . . . . . . . . . . 45,267 45,468
Total operating expenses. . . . . . . . . . . . . . . 468,136 475,298
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 156,637 141,592
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (7,418) (5,217)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 3,416 4,530
Income taxes (net) . . . . . . . . . . . . . . . . . . . 9,193 7,288
Total other income and deductions . . . . . . . . . . 5,191 6,601
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 161,828 148,193
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 47,105 48,187
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,268 5,585
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (2,032) (1,585)
Total interest charges. . . . . . . . . . . . . . . . 50,341 52,187
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 111,487 $ 96,006
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 89,275 $ 82,314
Depreciation and amortization . . . . . . . . . . . . . . . 54,978 57,402
Other amortization (including nuclear fuel) . . . . . . . . 11,274 8,390
Gain on sales of utility plant (net of tax) . . . . . . . . (951) -
Deferred taxes and investment tax credits (net) . . . . . . (16,470) 14,442
Amortization of phase-in revenues . . . . . . . . . . . . . 13,158 13,158
Corporate-owned life insurance. . . . . . . . . . . . . . . (14,757) (13,600)
Amortization of gain from sale-leaseback. . . . . . . . . . (7,231) (7,230)
Amortization of acquisition adjustment. . . . . . . . . . . 1,724 -
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (21,617) (48,056)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (2,072) (6,058)
Accounts payable. . . . . . . . . . . . . . . . . . . . . (4,774) (2,729)
Interest and taxes accrued. . . . . . . . . . . . . . . . 49,769 42,871
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (7,856) (3,844)
Changes in other assets and liabilities . . . . . . . . . . 7,591 (18,165)
Net cash flows from operating activities. . . . . . . . 152,041 118,895
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 65,850 65,646
Sales of utility plant. . . . . . . . . . . . . . . . . . . (1,723) -
Corporate-owned life insurance policies . . . . . . . . . . 25,643 24,588
Death proceeds of corporate-owned life insurance. . . . . . (250) -
Net cash flows used in investing activities . . . . . . 89,520 90,234
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (20,950) (113,500)
Advances to parent company (net). . . . . . . . . . . . . . (87,047) (2,760)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . - 160,422
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (25) (46,440)
Other long-term debt (net). . . . . . . . . . . . . . . . . - (67,893)
Borrowings against life insurance policies (net). . . . . . 45,505 41,504
Net cash flows from (used in) financing activities . . . (62,517) (28,667)
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . 4 (6)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 47 63
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 51 $ 57
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 54,274 $ 50,157
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 31,100 21,658
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 111,487 $ 96,006
Depreciation and amortization . . . . . . . . . . . . . . . 69,033 76,420
Other amortization (including nuclear fuel) . . . . . . . . 13,789 11,436
Gain on sales of utility plant (net of tax) . . . . . . . . (951) -
Deferred taxes and investment tax credits (net) . . . . . . (5,563) 31,499
Amortization of phase-in revenues . . . . . . . . . . . . . 17,544 17,545
Corporate-owned life insurance. . . . . . . . . . . . . . . (18,403) (16,664)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,641) (9,640)
Amortization of acquisition adjustment. . . . . . . . . . . 1,724 -
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (30,282) (8,776)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (2,172) (2,196)
Accounts payable. . . . . . . . . . . . . . . . . . . . . (4,047) (7,964)
Interest and taxes accrued. . . . . . . . . . . . . . . . 11,406 (2,353)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (4,934) (2,029)
Changes in other assets and liabilities . . . . . . . . . . 14,575 (23,957)
Net cash flows from operating activities. . . . . . . . 163,565 159,327
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 90,084 89,168
Sales of utility plant. . . . . . . . . . . . . . . . . . . (1,723) -
Corporate-owned life insurance policies . . . . . . . . . . 27,473 26,169
Death proceeds of corporate-owned life insurance. . . . . . (250) -
Net cash flows used in investing activities . . . . . . 115,584 115,337
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (13,250) (19,700)
Advances to parent company (net). . . . . . . . . . . . . . 44,112 (93,889)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . - 160,422
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (25) (121,440)
Other long-term debt (net). . . . . . . . . . . . . . . . . - (13,980)
Borrowings against life insurance policies (net). . . . . . 46,176 42,685
Dividends to parent company . . . . . . . . . . . . . . . . (125,000) -
Net cash flows from (used in) financing activities . . . (47,987) (45,902)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . (6) (1,912)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 57 1,969
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 51 $ 57
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 72,661 $ 69,921
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 37,951 37,595
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1995 1994
COMMON STOCK EQUITY (see Statements):
Common stock, without par value, authorized and issued
1,000 shares. . . . . . . . . . . . . . . . . . . . . . . $1,065,634 $1,065,634
Retained earnings . . . . . . . . . . . . . . . . . . . . . 248,845 159,570
Total common stock equity . . . . . . . . . . . . . . . . 1,314,479 66% 1,225,204 64%
LONG-TERM DEBT:
First Mortgage Bonds:
Series Due 1995 1994
5-5/8% 1996 $ 16,000 $ 16,000
7.6% 2003 135,000 135,000
6-1/2% 2005 65,000 65,000
6.20% 2006 100,000 100,000
316,000 316,000
Pollution Control Bonds:
5.10% 2023 13,957 13,982
Variable (a) 2027 21,940 21,940
7.0% 2031 327,500 327,500
Variable (a) 2032 14,500 14,500
Variable (a) 2032 10,000 10,000
387,897 387,922
Total bonds. . . . . . . . . . . . . . . . . . . . . . 703,897 703,922
Less:
Unamortized premium and discount (net). . . . . . . . . . 3,845 3,930
Long-term debt due within one year. . . . . . . . . . . . 16,000 -
Total long-term debt . . . . . . . . . . . . . . . . . 684,052 34% 699,992 36%
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . $1,998,531 100% $1,925,196 100%
(a) Market-Adjusted Tax Exempt Securities (MATES). As of September 30, 1995, the rates
on these bonds ranged from 3.77% to 3.80%.
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF COMMON STOCK EQUITY
(Dollars in Thousands)
(Unaudited)
Common Retained
Stock Earnings
BALANCE DECEMBER 31, 1992, 1,000 shares. . . . . . . $1,065,634 $ 71,941
Net income . . . . . . . . . . . . . . . . . . . . . 108,103
BALANCE DECEMBER 31, 1993, 1,000 shares. . . . . . . 1,065,634 180,044
Net income . . . . . . . . . . . . . . . . . . . . . 104,526
Dividend to parent company . . . . . . . . . . . . . (125,000)
BALANCE DECEMBER 31, 1994, 1,000 shares. . . . . . . 1,065,634 159,570
Net Income . . . . . . . . . . . . . . . . . . . . . 89,275
Balance September 30, 1995, 1,000 shares . . . . . . $1,065,634 $ 248,845
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. (Western Resources)
through its wholly-owned subsidiary KCA Corporation (KCA), acquired all of the
outstanding common and preferred stock of Kansas Gas and Electric Company
(KG&E) for $454 million in cash and 23,479,380 shares of Western Resources
common stock (the Merger). Simultaneously, KCA and KG&E merged and adopted
the name of Kansas Gas and Electric Company (the Company).
The Company owns 47% of the Wolf Creek Nuclear Operating Corporation
(WCNOC), the operating company for the Wolf Creek Generating Station (Wolf
Creek). The Company records its proportionate share of all transactions of
WCNOC as it does other jointly-owned facilities.
The financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, the accompanying condensed
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
the Company as of September 30, 1995 and December 31, 1994, and the results of
its operations for the three, nine and twelve month periods ended September
30, 1995 and 1994. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's 1994 Annual Report on Form 10-K.
The accounting policies of the Company are in accordance with generally
accepted accounting principles as applied to regulated public utilities. The
accounting and rates of the Company are subject to requirements of the Kansas
Corporation Commission (KCC) and the Federal Energy Regulatory Commission
(FERC).
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121).
This Statement imposes stricter criteria for regulatory assets by requiring
that such assets be probable of future recovery at each balance sheet date.
The Company anticipates adopting this standard on January 1, 1996 and does not
expect that adoption will have a material impact on the financial position or
results of operations of the Company based on the current regulatory structure
in which the Company operates. This conclusion may change in the future if
increases in competition influence wholesale and retail pricing in this
industry.
Cash Surrender Value of Life Insurance Contracts: The following amounts
related to corporate-owned life insurance contracts (COLI), primarily with one
highly rated major insurance company, are recorded on the balance sheets:
September 30, December 31,
1995 1994
(Dollars in Millions)
Cash surrender value of contracts. . $364.5 $320.6
Borrowings against contracts . . . . (356.7) (311.2)
COLI (net) . . . . . . . . . . . $ 7.8 $ 9.4
COLI borrowings will be repaid upon receipt of proceeds from death
benefits under contracts. Increases in the cash surrender value of contracts,
resulting from premiums and investment earnings, are recognized as income on a
tax free basis in Corporate-owned Life Insurance (net) on the Statements of
Income. For the three, nine and twelve months ended September 30, 1995,
income from increases in cash surrender value, net of premium and
administrative expenses and income from death proceeds, was $4.6 million,
$12.7 million and $16.7 million, respectively, compared to $3.9 million, $11.7
million and $14.4 million for the three, nine and twelve months ended
September 30, 1994, respectively. Interest expense on COLI borrowings is
recorded as a tax deductible expense in Corporate-owned Life Insurance (net)
on the Statements of Income. For the three, nine and twelve months ended
September 30, 1995, interest expense on COLI borrowings was $6.9 million,
$18.5 million and $24.1 million, respectively, compared to $5.6 million, $15.4
million and $20.1 million for the three, nine, and twelve months ended
September 30, 1994, respectively. The U.S. Congress is considering
legislation which, if enacted, may substantially reduce or eliminate interest
deductions on loans from COLI policies purchased after June 20, 1986. The
Company purchased its COLI policies prior to June 20, 1986.
Statements of Cash Flows: For purposes of the Statements of Cash Flows,
cash and cash equivalents include cash on hand and highly liquid
collateralized debt instruments purchased with maturities of three months or
less.
2. RATE MATTERS AND REGULATION
KCC Rate Proceedings: On August 17, 1995, the Company filed with the KCC
a request to more rapidly recover its investment in its assets of Wolf Creek
over the next seven years. If the request is granted, depreciation expense
for Wolf Creek will increase by approximately $50 million for each of the next
seven years. As a result of this proposal, the Company will also seek to
reduce electric rates for its customers by approximately $9 million annually
for the same seven year period based upon this accelerated depreciation.
The request also reduces the annual depreciation by approximately $3
million for electric transmission, distribution and certain generating plant
assets to reflect the effect of increasing useful lives of these properties.
Historically, the methods and rates of depreciation used by the Company
have not varied materially from the methods and rates which would have been
used if the Company were not regulated and not subject to the provisions
prescribed by Statement of Financial Accounting Standards No.71, "Accounting
for the Effects of Certain Types of Regulations" (SFAS 71). In the past, the
methods and rates have been determined by depreciation studies and approved by
the various regulatory bodies. The Company periodically evaluates its
depreciation rates considering the past and expected future experience in the
operation of its facilities. The proposal filed by the Company referred to
above, would bring the capital costs of Wolf Creek down to a level more
closely paralleling that of fossil-fueled generating facilities.
3. COMMITMENTS AND CONTINGENCIES
Manufactured Gas Sites: The Company was previously associated with six
former manufactured gas sites located in Kansas which may contain coal tar and
other potentially harmful materials. The Company and the Kansas Department of
Health and Environment (KDHE) conducted preliminary assessments of these sites
in 1993 and 1994. The results of the preliminary investigations determined
the Company does not have a connection to two of the sites.
The Company and KDHE entered into a consent agreement governing all
future work at the four remaining sites. The terms of the consent agreement
will allow the Company to investigate these sites and set remediation
priorities based upon the results of the investigations and risk analysis.
The prioritized sites will be investigated over a 10 year period. The
agreement will allow the Company to set mutual objectives with the KDHE in
order to expedite effective response activities and to control costs and
environmental impact. The costs incurred for site investigation and risk
assessment in 1994 were minimal and are expected to be minimal in 1995. The
Company is aware of other utilities in Region VII of the EPA (Kansas,
Missouri, Nebraska, and Iowa) which have incurred remediation costs for such
sites ranging between $500,000 and $10 million, depending on the site. The KCC
has permitted another Kansas utility to recover its remediation costs through
rates. To the extent that such remediation costs are not recovered through
rates, the costs could be material to the Company's financial position or
results of operations depending on the degree of remediation and number of
years over which the remediation must be completed.
Spent Nuclear Fuel Disposal: Under the Nuclear Waste Policy Act of 1982,
the U.S. Department of Energy (DOE) is responsible for the ultimate storage
and disposal of spent nuclear fuel removed from nuclear reactors. Under a
contract with the DOE for disposal of spent nuclear fuel, the Company pays a
quarterly fee to DOE of one mill per kilowatthour on net nuclear generation.
These fees are included as part of nuclear fuel expense.
The Company along with the other co-owners of Wolf Creek are among 14
companies that filed a lawsuit on June 20, 1994, seeking an interpretation of
the DOE's obligation to begin accepting spent nuclear fuel for disposal in
1998. The Federal Nuclear Waste Policy Act requires DOE ultimately to accept
and dispose of nuclear utilities' spent fuel. The DOE has filed a motion to
have this case dismissed. The issue to be decided in this case is whether DOE
must begin accepting spent fuel in 1998 or at a future date. Wolf Creek
contains an on-site spent fuel storage facility which, under current
regulatory guidelines, provides space for the storage of spent fuel through
the year 2006 while still maintaining full core off-load capability. The
Company believes adequate additional storage space can be obtained as
necessary.
Decommissioning: On June 9, 1994, the KCC issued an order approving the
decommissioning costs of the 1993 Wolf Creek Decommissioning Cost Study which
estimates the Company's share of Wolf Creek decommissioning costs, under the
immediate dismantlement method, to be approximately $595 million primarily
during the period 2025 through 2033, or approximately $174 million in 1993
dollars. These costs were calculated using an assumed inflation rate of 3.45%
over the remaining service life, in 1993, of 32 years.
Decommissioning costs are being charged to operating expenses in
accordance with the KCC order. Electric rates charged to customers provide
for recovery of these decommissioning costs over the life of Wolf Creek.
Amounts so expensed ($3.5 million in 1994 increasing annually to $5.5 million
in 2024) and earnings on trust fund assets are deposited in an external trust
fund. The assumed return on trust assets is 5.9%.
The Company's investment in the decommissioning fund, including
reinvested earnings was $20.7 million and $16.9 million at September 30, 1995
and December 31, 1994, respectively. These amounts are reflected in
Decommissioning Trust, and the related liability is included in Deferred
Credits and Other Liabilities, Other, on the Balance Sheets.
The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry, regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations in the financial statements of electric utilities. In response to
these questions, the Financial Accounting Standards Board (FASB) has agreed to
review the accounting for removal costs, including decommissioning. If
current electric utility industry practices for such decommissioning are
changed: (1) annual provisions for decommissioning could increase, (2) the
estimated cost for decommissioning could be recorded as a liability rather
than as accumulated depreciation, and (3) trust fund income from the external
decommissioning trusts could be reported as investment income rather than as a
reduction to decommissioning expense. The Company has historically recorded
estimated decommissioning costs as a liability rather than including these
costs with accumulated depreciation.
The Company carries $118 million in premature decommissioning insurance.
The insurance coverage has several restrictions. One of these is that it can
only be used if Wolf Creek incurs an accident exceeding $500 million in
expenses to safely stabilize the reactor, to decontaminate the reactor and
reactor station site in accordance with a plan approved by the Nuclear
Regulatory Commission (NRC), and to pay for on-site property damages. If the
amount designated as decommissioning insurance is needed to implement the
NRC-approved plan for stabilization and decontamination, it would not be
available for decommissioning purposes.
Nuclear Insurance: The Price-Anderson Act limits the combined public
liability of the owners of nuclear power plants to $8.9 billion for a single
nuclear incident. The Wolf Creek owners (Owners) have purchased the maximum
available private insurance of $200 million and the balance is provided by an
assessment plan mandated by the NRC. Under this plan, the Owners are jointly
and severally subject to a retrospective assessment of up to $79.3 million
($37.3 million, Company's share) in the event there is a major nuclear
incident involving any of the nation's licensed reactors. This assessment is
subject to an inflation adjustment based on the Consumer Price Index and
applicable premium taxes. There is a limitation of $10 million ($4.7 million,
Company's share) in retrospective assessments per incident per year.
The Owners carry decontamination liability, premature decommissioning
liability, and property damage insurance for Wolf Creek totalling
approximately $2.8 billion ($1.3 billion, Company's share). This insurance is
provided by a combination of "nuclear insurance pools" ($500 million) and
Nuclear Electric Insurance Limited (NEIL) ($2.3 billion). In the event of an
accident, insurance proceeds must first be used for reactor stabilization and
site decontamination. The Company's share of any remaining proceeds can be
used for property damage up to $1.2 billion (Company's share) and premature
decommissioning costs up to $118 million (Company's share) in excess of funds
previously collected for decommissioning (as discussed under
"Decommissioning").
The Owners also carry additional insurance with NEIL to cover costs of
replacement power and other extra expenses incurred during a prolonged outage
resulting from accidental property damage at Wolf Creek. If losses incurred
at any of the nuclear plants insured under the NEIL policies exceed premiums,
reserves, and other NEIL resources, the Company may be subject to
retrospective assessments of approximately $13 million per year.
Although the Company maintains various insurance policies to provide
coverage for potential losses and liabilities resulting from an accident or an
extended outage, the Company's insurance coverage may not be adequate to cover
the costs that could result from a catastrophic accident or extended outage at
Wolf Creek. Any substantial losses not covered by insurance, to the extent
not recoverable through rates, would have a material adverse effect on the
Company's financial position and results of operations.
Clean Air Act: The Clean Air Act Amendments of 1990 (the Act) require a
two-phase reduction in sulfur dioxide and oxides of nitrogen (NOx) emissions
effective in 1995 and 2000 and a probable reduction in toxic emissions. To
meet the monitoring and reporting requirements under the acid rain program,
the Company installed continuous monitoring and reporting equipment at a total
cost of approximately $2.3 million. The Company does not expect additional
equipment to reduce sulfur emissions to be necessary under Phase II. Although
the Company has no units subject to Phase I regulations, the owners obtained
an early substitution permit to bring the co-owned La Cygne Station under the
Phase I regulations.
The NOx and air toxic limits, which were not set in the law, continue to
be subject to the EPA's rules-making procedures. The Company will follow the
development of these regulations and establish compliance strategies as
appropriate.
Federal Income Taxes: In April 1995, The Company reached a settlement
agreement, in principal, with the IRS on its examination of the Company's
federal income tax returns for the years 1984-1986 and 1987-1988. All issues
in these two cases are tentatively resolved. The Company is now revising the
tax calculations for the settlement. The Company anticipates an additional
assessment of approximately $7 million in tax and interest as a result of
these examinations. This assessment is expected to be offset by investment
tax credit carryforwards, alternative minimum tax credit carryforwards, or
deferred tax provisions.
The IRS examination of the Company's federal income tax returns for the
years 1989-1990 is pending the completion of the 1984-1988 examinations.
Based upon the above settlement agreements and available tax credits, the
Company believes it will owe no tax for the years 1989-1990.
Fuel Commitments: To supply a portion of the fuel requirements for its
generating plants, the Company has entered into various commitments to obtain
nuclear fuel, coal, and natural gas. Some of these contracts contain
provisions for price escalation and minimum purchase commitments. At
December 31, 1994, WCNOC's nuclear fuel commitments (Company's share) were
approximately $12.6 million for uranium concentrates expiring at various times
through 1997, $122.9 million for enrichment expiring at various times through
2014, and $56.5 million for fabrication through 2012. At December 31, 1994,
the Company's coal and natural gas contract commitments in 1994 dollars under
the remaining terms of the contracts were $721 million and $9 million,
respectively. The largest coal contract was renegotiated in early 1993 and
expires in 2020, with the remaining coal contracts expiring at various times
through 2013. The majority of natural gas contracts expire in 1995 but have
automatic one-year extension provisions. In the normal course of business,
additional commitments and spot market purchases will be made to obtain
adequate fuel supplies.
Energy Act: As part of the 1992 Energy Policy Act, a special assessment
is being collected from utilities for a uranium enrichment, decontamination,
and decommissioning fund. The Company's portion of the assessment for Wolf
Creek is approximately $7 million, payable over 15 years. Management expects
such costs to be recovered through the ratemaking process.
4. INCOME TAXES
Total income tax expense included in the Statements of Income reflects
the Federal statutory rate of 35 percent. The Federal statutory rate produces
effective income tax rates of 39.1% and 39.0% for the three month periods,
37.3% and 38.6% for the nine month periods, and 36.5% and 38.6% for the twelve
months ended September 30, 1995 and 1994, respectively. The effective income
tax rates vary from the Federal statutory rate due to the permanent
differences, including the amortization of investment tax credits, and
accelerated amortization of certain deferred income taxes.
KANSAS GAS AND ELECTRIC COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with Item 7 of the
Company's Annual Report on Form 10-K for 1994.
The following updates the information provided in the 1994 Form 10-K, and
analyzes the changes in the results of operations between the three, nine and
twelve month periods ended September 30, 1995 and comparable periods of 1994.
FINANCIAL CONDITION
General: The Company had net income of $51.8 million for the third
quarter of 1995 compared to $45.5 million for the third quarter in 1994. The
increase in net income was primarily due to higher revenues as a result of
increased sales in all retail customer classes. The warmer summer
temperatures experienced in the Company's service territory during 1995, as
compared to 1994, resulted in an increased demand for air conditioning load.
Net income for the nine and twelve months ended September 30, 1995, was
$89.2 million and $111.5 million, respectively, compared to $82.3 million and
$96.0 million for the comparable periods of 1994, respectively. The increase
in net income is attributed to higher revenues in all retail customer classes.
Liquidity and Capital Resources: The KG&E common and preferred stock was
redeemed in connection with the Merger, leaving 1,000 shares of common stock
held by Western Resources. The debt structure of the Company and available
sources of funds were not affected by the Merger.
The Company's short-term financing requirements are satisfied through
short-term bank loans and borrowings under unsecured lines of credit
maintained with banks. At September 30, 1995, short-term borrowing amounted
to $29 million compared to $50 million at December 31, 1994.
In 1986 the Company purchased corporate-owned life insurance policies on
certain of its employees. On June 1, 1995, the Company increased its
borrowings against the accumulated cash surrender values of the policies by
$42.4 million.
OPERATING RESULTS
The following discussion explains variances for the three, nine and
twelve months ended September 30, 1995, to the comparable periods of 1994.
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 16.8% (0.2)% 1.4%
Commercial 6.1% 1.9% 3.6%
Industrial 8.3% 5.7% 5.4%
Total Retail 10.4% 2.8% 3.7%
Wholesale & Interchange (4.1)% (22.9)% (34.9)%
Total electric sales 8.6% (1.6)% (4.2)%
Revenues for the third quarter of 1995 increased approximately seven
percent to $202.4 million, compared to third quarter 1994 revenues of $189.2
million, primarily due to increase sales in all retail customer classes. The
warmer summer temperatures experienced in the Company's service territory
during the third quarter of 1995 increased the number of cooling degree days
by fourteen percent, as compared to the third quarter of last year, which
increased customer demand for air conditioning load.
Revenues for the nine and twelve months ended September 30, 1995,
increased approximately one percent to $485.7 million and $624.8 million,
respectively, from revenues of $480.8 million and $616.9 million for the
comparable periods of 1994, respectively. The slight increases can be
attributed to higher revenues in all retail customer classes due to the warmer
summer temperatures during 1995 as compared to last year.
Operating Expenses: Total operating expenses increased $6.5 million for
the three months ended September 30, 1995, compared to the same period of
1994. The increase is attributable to increases in federal and state income
taxes as a result of higher net income and higher operating expenses due to
the increase in generation to meet customer demand for air conditioning load.
Total operating expenses for the nine and twelve months ended September
30, 1995, decreased approximately one percent compared to the same periods of
1994. These decreases are primarily the result of the decrease in the unit
cost of fossil fuel used for generation.
Partially offsetting these decreases was the expense related to the early
retirement programs, higher operations and maintenance costs, and the increase
in federal and state income taxes as a result of higher net income. In the
second quarter of 1995, $3.4 million related to early retirement programs was
recorded as an expense.
Other Income and Deductions: Other income and deductions, net of taxes,
decreased for the three, nine and twelve months ended September 30, 1995,
compared to the same periods of 1994 primarily as a result of increased
interest expense on higher COLI borrowings. (See Note 1 of Notes to Financial
Statements with respect to proposed legislation in the U.S. Congress relating
to COLI.) Also contributing to the increase was the beginning of the
amortization of the merger acquisition adjustment in August 1995. During the
third quarter of 1995, $1.7 million of the acquisition adjustment was
amortized.
Partially offsetting these decreases for the nine and twelve months ended
was a $1.6 million gain realized from the sale of rail cars during the first
quarter of 1995.
Interest Expense: Interest expense decreased $0.5 million, $1.2 million,
and $1.8 million for the three, nine and twelve months ended September 30,
1995 compared to the same periods of 1994, respectively. These decreases
resulted primarily from lower debt balances. Also accounting for the decrease
was the impact of increased COLI borrowings which reduced the need for other
long-term debt and thereby reduced interest expense. COLI interest is
reflected in Other Income and Deductions on the Statements of Income. (See
Note 1 of Notes to Financial Statements with respect to proposed legislation
in the U.S. Congress relating to COLI.)
OTHER INFORMATION
Merger Implementation: In accordance with the KCC Merger order,
amortization of the acquisition adjustment commenced in August 1995. The
amortization will amount to approximately $20 million (pre-tax) per year for
40 years. Western Resources and the Company (combined companies) can recover
the amortization of the acquisition adjustment through cost savings under a
sharing mechanism approved by the KCC.
Based on the order issued by the KCC with regard to the recovery of the
acquisition premium, Western Resources and the Company (combined companies)
must achieve a level of savings on an annual basis (considering sharing
provisions) of approximately $27 million in order to recover the entire
acquisition premium. To the extent that the combined companies actual
operations and maintenance expense is lower than the KCC-stipulated utility
price index, the combined companies will show merger savings. Western
Resources has calculated 1994 annual savings, in conformance with the KCC
order, associated with the acquisition to be in excess of $27 million. As
Western Resources' management presently expects to continue this level of
savings, the amount is expected to be sufficient to allow the full recovery of
the acquisition premium.
KCC Rate Proceedings: On August 17, 1995, the Company filed a regulatory
package with the KCC to more rapidly recover its investment in its assets of
Wolf Creek over the next seven years. As a result of this proposed reduction,
the Company also sought permission to reduce electric rates by approximately
$9 million each year for the next seven years. The reduction in revenues is
anticipated to be partially offset by an annual $3 million reduction in the
depreciation of transmission and distribution assets. Additionally offsetting
the proposed rate decrease are $4.0 million in savings anticipated from the
early retirement programs completed in the second quarter of 1995. The
Company continues its Project BLUEPRINT, which is anticipated to further
reduce operation, maintenance, and construction expenditures. The regulatory
package speaks to regulators' concerns as well as addressing the Company's
short- and long-term needs. A decision is expected, from the KCC, by the
spring of 1996. For additional information relating to these rate
proceedings, see Note 2 of Notes to Financial Statements.
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:
Form 8-K dated August 18, 1995
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KANSAS GAS AND ELECTRIC COMPANY
October 27, 1995 By Richard D. Terrill
Richard D. Terrill
Secretary, Treasurer and
General Counsel
