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WESTERN RESOURCES, INC.
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WESTERN RESOURCES, INC.
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The following financial update was issued on or about June 12, 1998:
FRONT COVER
Western Resources [Logo]
1998 Financial Update
First Quarter
Period ended March 31, 1998
In This Issue
First Quarter Earnings Reflect Change in Natural Gas Business
Merger with KCPL Will Create a New Company
Revised Agreement with KCPL Viewed As Favorable
Dividend Increases
INSIDE FRONT COVER
FINANCIAL DATA AND RATIOS
FIRST QUARTER
For Twelve Months Ended March 31, 1998 1997
(unaudited)
COMMON STOCK DATA:
Average shares outstanding (000's) 65,276 64,238
Earnings per share $7.33 $2.37
Dividends declared per share $2.11 $2.07
Dividend payout ratio 29% 87%
Book value per share, end of period $30.84 $25.25
Closing market price, end of period $42.750 $30.000
Price range, twelve month period
High $44.188 $31.750
Low $29.750 $28.000
Annualized dividend yield 4.9% 6.9%
Price/Earnings ratio 5.8 12.7
Return on average common equity 24.4% 9.5%
Number of common shareowners 61,846 62,840
Average daily volume traded 157,559 139,781
COVERAGE RATIOS:
Interest Coverage (incl. AFUDC)
Pretax 5.4 2.5
After tax 3.5 2.0
Interest Coverage (excl. AFUDC)
Pretax 5.4 2.5
After tax 3.5 2.0
Interest and Preferred
Dividend Coverage (incl. AFUDC) 3.4 1.8
First Second Exp. Third Exp. Fourth
Quarter Quarter Quarter Quarter
1998 DIVIDEND INFORMATION
Declaration Date 01/29/98 05/11/98 07/15/98 11/18/98
NYSE Ex-Dividend Date 03/05/98 06/05/98 09/07/98 12/07/98
Record Date 03/09/98 06/09/98 09/09/98 12/09/98
Payment Date 04/01/98 07/01/98 10/01/98 01/04/99
Common Dividend
Declared Per Share $0.535 $0.535
Western Resources [Logo]
Western Resources (NYSE:WR) is a consumer services company with
interests in monitored security and energy. The company has total assets of
more than $7 billion, including security company holdings through ownership of
Protection One (NASDAQ:ALRM), which has more than 1 million security customers
in 48 states. Its utilities, KPL and KGE, provide electric service to
approximately 614,000 customers in Kansas. Through its ownership in ONEOK Inc.
(NYSE:OKE), a Tulsa-based natural gas company, Western Resources has a 45
percent interest in the eighth largest natural gas distribution company in the
nation, serving more than 1 million customers. Through its other subsidiaries,
Westar Capital and The Wing Group, the company participates in energy-related
investments in the continental United States and offshore.
For more information about Western Resources and its operating
companies, visit us on the Internet at http://www.wstnres.com.
Certain matters discussed in this presentation are "forward-looking
statements." Forward-looking statements may include words like we "believe",
"anticipate," "expect" or words of similar meaning. Forward-looking statements
describe our future plans, objectives, expectations, or goals. Such statements
address future events and conditions concerning capital expenditures,
earnings, litigation, rate and other regulatory matters, possible corporate
restructurings, mergers, acquisitions, dispositions, liquidity and capital
resources, interest and dividend rates, environmental matters, changing
weather, nuclear operations, and accounting matters. What happens in each case
could vary materially from what we expect because of such things as electric
utility deregulation, including ongoing state and federal activities; future
economic conditions; legislative developments; our regulatory and competitive
markets; and other circumstances affecting anticipated operations, revenues
and costs.
PAGE 1
First Quarter Earnings Reflect Change in Natural Gas Business
First quarter earnings per share for the company were $0.45 compared to
$0.61 per share in the first quarter of 1997. The change in comparative
earnings is largely attributable to the effect of restructuring the company's
natural gas interests in the strategic alliance with ONEOK. The restructuring
reduced first quarter earnings by $0.22 per share when compared to last year.
The shortfall is expected to be made up by earnings from natural gas-related
investments in the second and third quarters this year.
In a transaction that closed in November 1997, Western Resources
contributed its entire natural gas business to ONEOK of Tulsa, Oklahoma, in
return for stock equal to a 45 percent ownership in ONEOK. Western Resources
owns 3.1 million shares of ONEOK common stock and about 20 million shares of
voting convertible preferred stock.
The effect of the ONEOK alliance generally will be to spread natural
gas-related earnings more evenly across all quarters. Since earnings
associated with these operations will flow primarily to the company as
dividends on the stock owned, the income stream should fluctuate less each
quarter without the seasonal swings typical of the natural gas distribution
business.
And because of the company's electric power marketing efforts, electric
revenues were higher than last year in spite of a milder than normal winter
and an electric rate decrease implemented in February 1997.
Also in the first quarter, the monitored security business, held by the
company through its approximately 82 percent ownership of Protection One,
showed strong growth in customers and made a positive contribution to first
quarter Western Resources earnings.
FIRST QUARTER EARNINGS
1997 1st Qtr. Earnings +$0.61
Gas operations - .22
Rate reductions - .05
Weather/Sales Growth + .02
Operations + .05
Other + .04
1998 1st Qtr. Earnings +$0.45
Merger with KCPL will Create a New Company
Continuing our strategy to grow the electric business, the company
reached a restructured merger agreement with Kansas City Power & Light Company
(KCPL). The agreement, announced March 19, will result in the formation of a
new electric company, of which Western Resources will own 80.1 percent upon
culmination of the transaction.
The new company, Westar Energy, will be a "pure play" electric utility
that will be publicly traded on the New York Stock Exchange. The agreement
calls for Western Resources to transfer all assets of its KPL electric
operations to KGE, an electric subsidiary of Western Resources. Then KGE and
KCPL will merge with and into Westar Energy.
Each KCPL shareowner will receive $23.50 of Western Resources common
stock, subject to a collar mechanism, for each share of KCPL common stock. In
addition, one share of Westar Energy will be exchanged for each share of KCPL
common stock. Total value of the transaction is about $2.1 billion. The
transaction is expected to be tax-free for KCPL and Western Resources
shareowners.
The plan will result in Western Resources owning 80.1 percent of Westar
Energy with KCPL shareowners owning the remaining 19.9 percent of the new
company. Western Resources will continue to own its investments in ONEOK and
Protection One and total ownership of the unregulated operations of KCPL, KLT,
Inc.
John E. Hayes, Jr., chairman and chief executive officer of Western
Resources, will be chairman of Westar Energy and continue in that capacity for
Western Resources. Drue Jennings, current KCPL chairman,
PAGE 2
president and chief executive officer will assume the chief executive officer
duties of Westar Energy. A 10-member board of directors will govern Westar
Energy. Six positions will be appointed by Western Resources and four
positions from KCPL.
By combining the electric utility businesses of both companies, we
create the platform to achieve our long-range goal of building the electric
utility into a super-regional competitor. Westar Energy will continue to
operate under the brand names KCPL, KGE and KPL. The combined company will
serve more than one million electric customers in Kansas and Missouri, and
have more than $8.2 billion in assets and more than 8,000 megawatts of
electric generation resources. This merger will create a formidable presence
in the region by strengthening the each company's standing as a low-cost
electric producer well positioned for the coming competitive marketplace.
Shareowner meetings to approve the transaction will be held this summer.
Applications for several regulatory approvals are underway. We believe the
transaction will close sometime in 1999.
"PUTTING THE PIECES TOGETHER"
We intend to grow the extended company's customer base:
Today 1999 2001
Security 1,350,000 1,725,000 2,700,000
Gas 1,400,000 1,400,000 3,000,000
Electric 614,000 1,057,000 2,000,000
Total 3,364,000 4,182,000 7,700,000
Revised Agreement with KCPL Viewed as Favorable
The revised merger transaction agreement between the company and KCPL
has been favorably received by the rating agencies. Moody's Investor Service
changed the direction of its ongoing review of Western Resources' debt rating
from possible downgrade to possible upgrade.
Standard & Poor's has put the ratings of Western Resources secured and
unsecured debt on CreditWatch with positive implications. And, Fitch IBCA
affirmed its ratings of Western Resources and KGE first mortgage bonds,
secured pollution control bonds, preferred and preference stock, unsecured
senior notes and trust originated preferred securities. Fitch IBCA views the
revised merger agreement as beneficial to Western Resources' credit outlook,
with potential positive impact on its credit ratings.
Analysts also view the new agreement with favor, for the terms, the
results and the innovative structure:
- - "We regard this transaction as a major positive for Western Resources and
KCPL. . .," B T Alex. Brown Incorporated;
- - "Westar Energy will have a strong balance sheet, indicative of a single-A
company. . .," Prudential Fixed Income;
- - "This deal may serve as a template for other transactions in which a
corporation wishes to combine a subsidiary with another corporation and
convey to the target's shareholders both stock in the merged entity as well
as stock in the parent itself," Lehman Brothers.
Dividend Increases
On May 11, the company declared a second quarter dividend of 53 1/2 cents
per share payable July 1, 1998, on the company's approximately 65.4 million
shares of common stock. The dividend continues the rate from the first
quarter. On an annualized basis, the indicated 1998 dividend rate is $2.14,
four cents higher than the 1997 dividend. Regular quarterly dividends also
were declared on the company's preferred and preference stock payable July 1,
1998. Dividends are payable to shareowners of record as of June 9, 1998.
PAGE 3
INVESTMENT NEWS
ONEOK Second-Quarter Earnings Up
Fully diluted earnings per share for ONEOK for the second quarter, ended
February 28, were $1.43 for 1998 versus $1.39 for the same quarter a year
earlier. Diluted earnings per share reflect the impact, as if converted, of 20
million convertible preferred shares issued exclusively to Western Resources
as part of the strategic alliance completed last November. Western Resources
contributed its natural gas assets to ONEOK in exchange for a 45 percent
ownership, to create the eighth largest natural gas local distribution company
(LDC) in the nation.
The improvement in earnings is attributed to increased marketing and
production volumes and the gain on the sale of assets in the unregulated
operations, offsetting the impact of warmer winter weather in Kansas on the
regulated side of the business. ONEOK's regulated distribution operation in
Oklahoma has weather-normalized rates, which lessen seasonal fluctuations in
natural gas distribution revenues.
This was the first full quarter of ONEOK's owning the natural gas assets
received from Western Resources. Sales volumes were up 49 percent and the
utility asset base increased 76 percent. Unregulated gas marketing had a very
strong quarter with increased volumes and margins that were up about seven
percent. Some believe ONEOK stock, with an average annual total return of 23.5
percent for the past five years, is in the top five performers among LDCs.
The current annualized common stock dividend is $1.20 per share and the
preferred dividend is being paid at one and one-half times the common rate or
a current annualized rate of $1.80 per share. We expect an annual cash
dividend stream of approximately $40 million from our ONEOK investment in
1998.
Onsite Energy Lands $5.9 Million Contract
Onsite Energy Corporation has entered into a master energy efficiency
services agreement with the Unified School District of Wyandotte County,
Kansas. Total project construction revenues will be approximately $5.9 million
and should be completed by year-end 1998.
The energy efficiency project will include installation of multiple
energy efficiency measures including lighting retrofits, energy management
systems, chiller and furnace replacements and variable speed motor
controllers. Throughout the 10-year contract, Onsite will also provide
training, post-installation measurement services and maintenance repair
services.
In another transaction in the first quarter, Onsite acquired the assets
of Mid-States Armature Works, Inc. Mid-States, located in Salina, Kansas, has,
for 45 years, provided specialized medium and high voltage electrical
fabrication, installation, maintenance and repair services to municipal
customers and others in Kansas, Nebraska, Iowa, Missouri and Oklahoma.
This acquisition is a good fit with the same types of services Onsite already
provides, as well its business line of industrial water treatment services in
Kansas, Missouri and Oklahoma. The transaction is expected to add more than $1
million in revenues to Onsite.
Western Resources holds a 30 percent equity position in Onsite gained
when Onsite acquired the assets of Westar Business Services in October 1997.
Protection One Reports Improved Results in First Quarter
Protection One, the nation's second largest monitored security company,
posted an improved first quarter 1998 with substantial increases from the
prior year in customers and earnings.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
for the quarter ending March 31, 1998, was $31.3 million and net income was
$1.2 million, or one cent per share, on total revenues of $76 million.
Protection One also closed the acquisitions of Multimedia and Comsec
Narragansett Security in March, adding 147,000 and 30,000 customers,
respectively. The assets of Multimedia include a 50,000 square-foot,
state-of-the-art monitoring and call center facility and a productive dealer
program. The Comsec acquisition expands our subscriber base in New England.
Additional customer growth, exercising the option to purchase Network
Multi-Family and closing on the Comsec and Multimedia acquisitions added
400,000 customers to Protection One's subscriber base in the first three
months of 1998. Protection One ended the quarter with more than one million
subscribers and $26.1 million of monthly recurring revenue.
Western Resources owns approximately 82 percent of Protection One.
PAGES 4 - 8 CONTAIN FIRST QUARTER FORM 10-Q FINANCIAL STATEMENTS WHICH WERE
FILED ON MAY 12, 1998.
FINANCIAL AND OPERATING STATISTICS
FIRST QUARTER
(unaudited)
Three Months Ended Twelve Months Ended
March 31, March 31,
1998 1997 %Change 1998 1997 %Change
Revenue from Electric Sales (000's):
Residential $ 82,716 $ 82,305 0.5 $ 393,162 $ 399,979 (1.7)
Commercial 78,014 77,302 0.9 339,879 348,498 (2.5)
Industrial 60,274 59,778 0.8 254,572 258,233 (1.4)
Other 56,237 11,253 * 146,476 38,282 *
Total Retail
Electric Revenue 277,241 230,638 20.2 1,134,089 1,044,992 8.5
Wholesale 27,994 37,670 (25.7) 132,830 151,772 (12.5)
Total $305,235 $268,308 13.8 $1,266,919 $1,196,764 5.9
KWH Sales (000's):
Residential 1,183,986 1,164,747 1.7 5,328,980 5,243,013 1.6
Commercial 1,368,643 1,321,150 3.6 5,850,489 5,678,414 3.0
Industrial 1,373,515 1,335,235 2.9 5,752,406 5,579,780 3.1
Other 27,461 26,872 2.2 107,326 106,007 1.2
Total Retail
Electric Sales 3,953,605 3,848,004 2.7 17,039,201 16,607,214 2.6
Wholesale 1,016,474 1,554,122 (34.6) 4,796,472 6,340,171 (24.3)
Total 4,970,079 5,402,126 (8.0) 21,835,673 22,947,385 (4.8)
System Net Load:
MW 4,016 4,009
Date 07/24/97 07/19/96
Fuel-Mix to Total:
Coal 78% 78%
Nuclear 17 19
Oil - -
Natural Gas 5 3
100% 100%
Three Months Ended
March 31,
1998 1997
PROTECTION ONE DATA ($000's
Except End of Period
Subscribers Amount):
EBITDA $ 31,323 (2)
Adjusted EBITDA (1) 36,777
End of period monthly
recurring revenues 26,100
End of period subscribers 1,150,000
(1) EBITDA plus deficits arising from internal installation activities.
(2) Due to Protection One's acquisitions in 1997 and 1998, a comparison to prior year is not
meaningful.
INSIDE BACK COVER
WHAT'S NEWS
Recent News Releases
For the full text of these recent news releases and to access other
useful, up-to-date information about Western Resources, please visit our
Internet site at www.wstnres.com
April 27, 1998
Western Resources Announces First-Quarter Earnings, Electric Revenues Higher
in Spite of Milder Weather, Security Company Adds 400,000 Customers
March 19, 1998
New Agreement Reached, Results in Formation of Westar Energy, Shareowner
Meetings Set for Summer
March 19, 1998
Western Resources/KCPL Agreement Fact Sheet
February 10, 1998
Western Resources Reports Year-End Results, High Return on Investments Boosts
Earnings
January 29, 1998
Western Resources Declares Dividend
January 20, 1998
Multimedia to Join Protection One, Forming the Second Largest Security Company
in the U.S.
December 10, 1997
Western Resources Continues its Role in People's Republic of China, Partners
With Dengfeng Power Group in Low-Cost Power Production Plant
Investor Relations Calendar
April 27
B T Alex. Brown
Midwest Utilities Seminar
Chicago, IL
May 2
NAIC Investor Fair
Kansas City, MO
May 11
Western Resources
Annual Meeting
Topeka, KS
May 13-15
EEI Financial Conference
New York, NY
July 8
Wheat First Conference
Nantucket, MA
October 18-21
EEI Financial Conference
San Francisco, CA
For more information about these appearances, contact Western Resources
Manager of Investor Relations at 785-575-8227.
BACK COVER
Western Resources [Logo]
Western Resources, Inc.
818 Kansas Avenue
P.O. Box 889
Topeka, Kansas 66601-0889
Please direct inquiries to:
Bruce R. Burns
Manager, Investor Relations
Home Page: http://www.wstnres.com
E-Mail: bruce_burns@wstnres.com
Phone 785-575-8227
FAX 785-575-1796
This material is not intended to induce or for use in connection with any
sale, offer to sell, or solicitation of an offer to buy any securities of the
company.
Forward-Looking Statements: Certain matters discussed in this
Financial Update are "forward-looking statements." The Private
Securities Litigation Reform Act of 1995 has established that these
statements qualify for safe harbors from liability. Forward-looking
statements may include words like we "believe", "anticipate," "expect"
or words of similar meaning. Forward-looking statements describe our
future plans, objectives, expectations, or goals. Such statements
address future events and conditions concerning capital expenditures,
earnings, litigation, rate and other regulatory matters, possible
corporate restructurings, mergers, acquisitions, dispositions,
liquidity and capital resources, interest and dividend rates,
environmental matters, changing weather, nuclear operations, and
accounting matters. What happens in each case could vary materially
from what we expect because of such things as electric utility
deregulation, including ongoing state and federal activities; future
economic conditions; legislative developments; our regulatory and
competitive markets; and other circumstances affecting anticipated
operations, revenues and costs.
