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 June 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 August 2, 1995
Common Stock, $5.00 par value 62,034,761
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 19
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1995 1994
(Unaudited)
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . $5,285,105 $5,226,175
Natural gas plant in service. . . . . . . . . . . . . . 763,765 737,191
6,048,870 5,963,366
Less - Accumulated depreciation . . . . . . . . . . . . 1,865,802 1,790,266
4,183,068 4,173,100
Construction work in progress . . . . . . . . . . . . . 94,853 85,290
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . 41,414 39,890
Net utility plant. . . . . . . . . . . . . . . . . . 4,319,335 4,298,280
OTHER PROPERTY AND INVESTMENTS:
Net non-utility investments . . . . . . . . . . . . . . 78,622 74,017
Decommissioning trust . . . . . . . . . . . . . . . . . 19,381 16,944
Other . . . . . . . . . . . . . . . . . . . . . . . . . 9,938 13,556
107,941 104,517
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . 2,478 2,715
Accounts receivable and unbilled revenues (net) . . . . 178,843 219,760
Fossil fuel, at average cost. . . . . . . . . . . . . . 50,251 38,762
Gas stored underground, at average cost . . . . . . . . 32,356 45,222
Materials and supplies, at average cost . . . . . . . . 57,923 56,145
Prepayments and other current assets. . . . . . . . . . 52,739 27,932
374,590 390,536
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes. . . . . . . . . . . . . . 101,886 101,886
Deferred coal contract settlement costs . . . . . . . . 30,443 33,606
Phase-in revenues . . . . . . . . . . . . . . . . . . . 52,634 61,406
Corporate-owned life insurance (net). . . . . . . . . . 43,941 16,967
Other deferred plant costs. . . . . . . . . . . . . . . 31,662 31,784
Unamortized debt expense. . . . . . . . . . . . . . . . 55,708 58,237
Other . . . . . . . . . . . . . . . . . . . . . . . . . 96,056 92,399
412,330 396,285
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $5,214,196 $5,189,618
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statement). . . . . . . . . . . . . . $3,050,654 $3,006,341
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . 282,800 308,200
Long-term debt due within one year. . . . . . . . . . . 16,000 80
Accounts payable. . . . . . . . . . . . . . . . . . . . 117,771 130,616
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 76,578 86,966
Accrued interest and dividends. . . . . . . . . . . . . 61,629 61,069
Other . . . . . . . . . . . . . . . . . . . . . . . . . 61,217 69,025
615,995 655,956
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . 966,298 971,014
Deferred investment tax credits . . . . . . . . . . . . 135,659 137,651
Deferred gain from sale-leaseback . . . . . . . . . . . 247,520 252,341
Other . . . . . . . . . . . . . . . . . . . . . . . . . 198,070 166,315
1,547,547 1,527,321
COMMITMENTS AND CONTINGENCIES (Notes 3 and 5)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $5,214,196 $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
June 30,
1995 1994
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 262,510 $ 278,505
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 70,870 62,627
Total operating revenues. . . . . . . . . . . . . . . . 333,380 341,132
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 47,160 53,553
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 5,076 4,232
Power purchased . . . . . . . . . . . . . . . . . . . . . 2,095 4,545
Natural gas purchases . . . . . . . . . . . . . . . . . . 40,598 34,479
Other operations. . . . . . . . . . . . . . . . . . . . . 85,345 76,866
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 27,622 29,392
Depreciation and amortization . . . . . . . . . . . . . . 38,940 38,169
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 7,112 12,645
State income. . . . . . . . . . . . . . . . . . . . . . 2,426 3,389
General . . . . . . . . . . . . . . . . . . . . . . . . 24,591 25,577
Total operating expenses. . . . . . . . . . . . . . . 285,351 287,233
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 48,029 53,899
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (1,821) (758)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 4,186 3,188
Income taxes (net). . . . . . . . . . . . . . . . . . . . 1,124 1,296
Total other income and deductions . . . . . . . . . . 3,489 3,726
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 51,518 57,625
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 24,003 24,132
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 6,714 4,155
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (915) (909)
Total interest charges. . . . . . . . . . . . . . . . 29,802 27,378
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 21,716 30,247
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 3,354 3,355
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 18,362 $ 26,892
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,885,556 61,617,873
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ .30 $ .44
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)
Six Months Ended
June 30,
1995 1994(1)
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $ 515,768 $ 530,002
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 235,158 349,502
Total operating revenues. . . . . . . . . . . . . . . . 750,926 879,504
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 94,091 106,193
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 9,764 8,095
Power purchased . . . . . . . . . . . . . . . . . . . . . 5,644 6,896
Natural gas purchases . . . . . . . . . . . . . . . . . . 142,336 233,131
Other operations. . . . . . . . . . . . . . . . . . . . . 161,165 154,429
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 54,464 55,889
Depreciation and amortization . . . . . . . . . . . . . . 77,337 77,477
Amortization of phase-in revenues . . . . . . . . . . . . 8,772 8,772
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 24,606 34,737
State income. . . . . . . . . . . . . . . . . . . . . . 7,083 8,611
General . . . . . . . . . . . . . . . . . . . . . . . . 49,118 57,593
Total operating expenses. . . . . . . . . . . . . . . 634,380 751,823
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 116,546 127,681
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (3,537) (1,993)
Gain on sale of Missouri Properties (see Note 2). . . . . - 30,701
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 7,848 5,555
Income taxes (net). . . . . . . . . . . . . . . . . . . . 2,306 (7,649)
Total other income and deductions . . . . . . . . . . 6,617 26,614
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 123,163 154,295
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 47,849 50,823
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 13,801 8,670
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (1,778) (1,578)
Total interest charges. . . . . . . . . . . . . . . . 59,872 57,915
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 63,291 96,380
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 6,709 6,709
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 56,582 $ 89,671
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,816,659 61,617,873
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 0.92 $ 1.46
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 1.01 $ .99
(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
June 30,
1995 1994(1)
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . . . . . . . . . $1,107,547 $1,116,685
Natural gas . . . . . . . . . . . . . . . . . . . . . . . 381,818 692,186
Total operating revenues. . . . . . . . . . . . . . . . 1,489,365 1,808,871
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 208,664 230,054
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 15,231 16,521
Power purchased . . . . . . . . . . . . . . . . . . . . . 14,186 15,681
Natural gas purchases . . . . . . . . . . . . . . . . . . 221,781 446,276
Other operations. . . . . . . . . . . . . . . . . . . . . 310,128 333,967
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 111,761 117,836
Depreciation and amortization . . . . . . . . . . . . . . 151,490 160,163
Amortization of phase-in revenues . . . . . . . . . . . . 17,544 17,545
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 66,346 66,169
State income. . . . . . . . . . . . . . . . . . . . . . 17,617 16,733
General . . . . . . . . . . . . . . . . . . . . . . . . 96,207 114,414
Total operating expenses. . . . . . . . . . . . . . . 1,230,955 1,535,359
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 258,410 273,512
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (6,898) 2,480
Gain on sale of Missouri Properties (see Note 2). . . . . - 30,701
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 15,132 13,762
Income taxes (net). . . . . . . . . . . . . . . . . . . . 5,626 (6,568)
Total other income and deductions . . . . . . . . . . 13,860 40,375
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 272,270 313,887
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 95,510 109,829
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 25,269 18,571
Allowance for borrowed funds used during
construction (credit) . . . . . . . . . . . . . . . . . (2,867) (2,726)
Total interest charges. . . . . . . . . . . . . . . . 117,912 125,674
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 154,358 188,213
PREFERRED AND PREFERENCE DIVIDENDS. . . . . . . . . . . . . 13,418 13,466
EARNINGS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . $ 140,940 $ 174,747
AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . 61,716,449 61,065,571
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING . . . . . . . $ 2.28 $ 2.86
DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . . $ 2.00 $ 1.96
(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)
Six Months Ended
June 30,
1995 1994(1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 63,291 $ 96,380
Depreciation and amortization . . . . . . . . . . . . . . 77,337 77,477
Other amortization (including nuclear fuel) . . . . . . . 7,388 5,867
Gain on sales of utility plant (net of tax) . . . . . . . (951) (19,296)
Deferred taxes and investment tax credits (net) . . . . . (7,264) (56,276)
Amortization of phase-in revenues . . . . . . . . . . . . 8,772 8,772
Corporate-owned life insurance. . . . . . . . . . . . . . (23,806) (25,013)
Amortization of gain from sale-leaseback. . . . . . . . . (4,821) (4,820)
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . 40,917 (38,787)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . (11,489) (9,291)
Gas stored underground. . . . . . . . . . . . . . . . . 12,866 10,854
Accounts payable . . . . . . . . . . . . . . . . . . . (12,845) (48,909)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . (11,015) 46,816
Other . . . . . . . . . . . . . . . . . . . . . . . . . (3,750) 21,377
Changes in other assets and liabilities . . . . . . . . . 13,942 89,297
Net cash flows from operating activities. . . . . . . 148,572 154,448
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . 107,191 107,796
Sales of utility plant. . . . . . . . . . . . . . . . . . (1,723) (402,076)
Non-utility investments (net) . . . . . . . . . . . . . . 9,455 3,162
Corporate-owned life insurance policies . . . . . . . . . 54,041 54,340
Death proceeds of corporate-owned life insurance policies (287) (1,063)
Net cash flows used in (from) investing activities. . 168,677 (237,841)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . (25,400) (223,095)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . - 235,923
Bonds retired . . . . . . . . . . . . . . . . . . . . . . (105) (223,906)
Revolving credit agreements (net) . . . . . . . . . . . . 57,500 (115,000)
Other long-term debt (net). . . . . . . . . . . . . . . . - (67,893)
Borrowings against life insurance policies (net). . . . . 47,696 69,249
Common stock issued . . . . . . . . . . . . . . . . . . . 8,576 -
Dividends on preferred, preference and common stock . . . (68,399) (67,095)
Net cash flows from (used in) financing activities. . 19,868 (391,817)
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . (237) 472
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . 2,715 1,217
End of the period . . . . . . . . . . . . . . . . . . . . $ 2,478 $ 1,689
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . $ 84,852 $ 78,906
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 48,810 62,454
(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
June 30,
1995 1994(1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 154,358 $ 188,213
Depreciation and amortization . . . . . . . . . . . . . . . 151,490 160,163
Other amortization (including nuclear fuel) . . . . . . . . 12,426 13,730
Gain on sales of utility plant (net of tax) . . . . . . . . (951) (19,296)
Deferred taxes and investment tax credits (net) . . . . . . 32,457 (44,682)
Amortization of phase-in revenues . . . . . . . . . . . . . 17,544 17,545
Corporate-owned life insurance. . . . . . . . . . . . . . . (48,885) (46,273)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,641) (9,640)
Changes in working capital items (net of effects from
the sale of the Missouri Properties):
Accounts receivable and unbilled revenues (net) . . . . . 4,074 (115,062)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (10,026) (2,895)
Gas stored underground. . . . . . . . . . . . . . . . . . (3,391) (7,071)
Accounts payable. . . . . . . . . . . . . . . . . . . . . (5,618) (15,334)
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . (37,075) 39,544
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 18,018 30,819
Changes in other assets and liabilities . . . . . . . . . . (11,066) 105,509
Net cash flows from operating activities . . . . . . . 263,714 295,270
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 237,091 248,727
Utility investment. . . . . . . . . . . . . . . . . . . . . - 2,500
Sales of utility plant. . . . . . . . . . . . . . . . . . . (1,723) (402,076)
Non-utility investments (net) . . . . . . . . . . . . . . . 15,334 16,179
Corporate-owned life insurance policies . . . . . . . . . . 56,451 57,694
Death proceeds of corporate-owned life insurance policies . (287) (11,412)
Net cash flows used in (from) investing activities. . . 306,866 (88,388)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . 65,000 (150,373)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . - 300,923
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (105) (441,372)
Revolving credit agreement (net). . . . . . . . . . . . . . 57,500 (325,000)
Other long-term debt (net). . . . . . . . . . . . . . . . . - (13,980)
Borrowings against life insurance policies (net). . . . . . 49,080 251,888
Common stock issued (net) . . . . . . . . . . . . . . . . . 8,576 125,991
Preference stock redeemed . . . . . . . . . . . . . . . . . - (2,734)
Dividends on preferred, preference and common stock . . . . (136,110) (131,868)
Net cash flows from (used in) financing activities. . . 43,941 (386,525)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . 789 (2,867)
CASH AND CASH EQUIVALENTS:
Beginning of the period . . . . . . . . . . . . . . . . . . 1,689 4,556
End of the period . . . . . . . . . . . . . . . . . . . . . $ 2,478 $ 1,689
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized). . . . . . . . . . . . . . . . . . . . . . . $ 140,731 $ 165,285
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . 76,585 95,807
(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)
June 30, December 31,
1995 1994
(Unaudited)
COMMON STOCK EQUITY (see statement):
Common stock, par value $5 per share,
authorized 85,000,000 shares, outstanding
61,901,197 and 61,617,873 shares, respectively . $ 309,506 $ 308,089
Paid-in capital. . . . . . . . . . . . . . . . . . 675,151 667,992
Retained earnings. . . . . . . . . . . . . . . . . 492,506 498,374
1,477,163 48% 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
Revolving credit agreement . . . . . . . . . . . . 57,500 -
Less:
Unamortized premium and discount (net) . . . . . 5,684 5,814
Long-term debt due within one year . . . . . . . 16,000 80
1,398,633 46% 1,357,028 45%
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . $3,050,654 100% $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. . . . . . . . . . . . . . . . . . . . . . 96,380
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (6,709)
Common stock, $0.99 per share . . . . . . . . . . . (61,002)
Expenses on common stock. . . . . . . . . . . . . . . (228)
BALANCE JUNE 30, 1994, 61,617,873 shares . . . . . . 308,089 667,510 475,017
Net income. . . . . . . . . . . . . . . . . . . . . . 91,067
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (6,709)
Common stock, $0.99 per share . . . . . . . . . . . (61,001)
Distribution of common stock under the Customer
Stock Purchase Plan . . . . . . . . . . . . . . . . 482
BALANCE DECEMBER 31, 1994, 61,617,873 shares. . . . . 308,089 667,992 498,374
Net income. . . . . . . . . . . . . . . . . . . . . . 63,291
Cash dividends:
Preferred and preference stock. . . . . . . . . . . (6,709)
Common stock, $1.01 per share . . . . . . . . . . . (62,450)
Issuance of 283,324 shares of common stock. . . . . . 1,417 7,159
BALANCE JUNE 30, 1995, 61,901,197 shares. . . . . . . $309,506 $675,151 $492,506
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 June 30, 1995 and December 31, 1994, and the
results of its operations for the three, six and twelve month periods ended
June 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).
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:
June 30, December 31,
1995 1994
(Dollars in Millions)
Cash surrender value of contracts $483.5 $408.9
Borrowings against contracts (439.6) (391.9)
COLI (net) $ 43.9 $ 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, six and twelve months ended June 30,
1995, income from increases in cash surrender value, net of premium and
administrative expenses and income from death proceeds, was $4.2 million, $8.1
million, and $16.0 million respectively, compared to $4.3 million, $7.8
million and $20.6 million for the three, six and twelve months ended June 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 the three, six and twelve months ended June 30,
1995, interest expense on COLI borrowings was $6.0 million, $11.7 million, and
$22.9 million respectively, compared to $5.0 million, $9.8 million and $18.1
million for the three, six and twelve months ended June 30, 1994,
respectively.
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 Statement of Financial Accounting Standards No. 106 (SFAS 106) and
Statement of Financial Accounting Standards No. 112 (SFAS 112) expenses.
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.) 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 six and twelve months ended June 30, 1994 Consolidated
Statements of Income.
The Company's operating revenues and operating income for the six and
twelve months ended June 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 six and twelve months ended June 30, 1994, through the sale
to Southern Union on January 31, 1994 and United Cities on February 28, 1994:
June 30, 1994
6 months ended 12 months ended
(Dollars in Thousands)
Operating Revenues. . . . . . . . $77,008 $226,255
Percent of Total Company. . . . 8.6% 12.5%
Operating Income. . . . . . . . . $5,670 $14,182
Percent of Total Company. . . . 4.4% 5.2%
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.
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. Discovery has been completed and the Company
intends to file motions to dismiss in the near future. 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. In March, 1995 this
litigation between the Company and the Bishop entities was settled with the
realignment of the commercial relationship between the parties. The
resolution of this matter is not expected to have a material adverse impact on
the Company.
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. The Company is cooperating with the
Department of Justice, but is not aware of any violation of the antitrust laws
in connection with its business operations.
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 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 June 30, 1995,
approximately $10.6 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 at a
cost of approximately $500,000. The results of the preliminary investigations
determined the Company does not have a connection to four of the sites.
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 $19.4 million and $16.9 million at June 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 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: During 1991, the Internal Revenue Service (IRS)
completed an examination of KG&E's federal income tax returns for the years
1984 through 1988. In October 1993, KG&E received another examination report
for the years 1989 and 1990 covering the same issues identified in the
previous examination report. In April 1995, KG&E reached agreement with the
IRS on the ultimate disposition of the issues raised in the examination
reports. Based on the settlement agreement, management believes that adequate
tax reserves have been provided and the settlement will have no effect on the
Company's financial position or results of operations.
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 29.2% and 33.4% for the three month
periods, 32.3% and 34.9% for the six month periods, and 34.3% and 32.5% for
the twelve month periods ended June 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,
six, and twelve month periods ended June 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
six and twelve months ended June 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 June 30, 1994.
The following table reflects the approximate operating revenues
(unaudited) and operating income (unaudited) related to the Missouri
Properties for the six and twelve months ended June 30, 1994, through the sale
to Southern Union on January 31, 1994 and United Cities on February 28, 1994:
June 30, 1994
6 months ended 12 months ended
(Dollars in Thousands)
Operating Revenues. . . . . . . . $77,008 $226,255
Percent of Total Company. . . . 8.6% 12.5%
Operating Income. . . . . . . . . $5,670 $14,182
Percent of Total Company. . . . 4.4% 5.2%
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 second quarter of 1995 was $22 million, down
from net income of $30 million for the same period of 1994. The Company
earned $0.30 per share of common stock for the second quarter of 1995, a
decrease of $0.14 per share from the second quarter of 1994. Operating
revenues were $333 million and $341 million for the three months ended June
30, 1995 and 1994, respectively. The decrease in net income, earnings per
share, and operating revenues is primarily due to lower revenues as a result
of decreased electric sales in all retail customer classes. The demand for
air conditioning load was reduced due to mild spring temperatures.
Net income for the six and twelve months ended June 30, 1995, was $63
million and $154 million, respectively, compared to $96 million and $188
million for the same periods of 1994. The Company earned $0.92 and $2.28 per
share of common stock, respectively, for the six and twelve months ended June
30, 1995 compared to $1.46 and $2.86 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 $0.8 billion and $1.5 billion for the six and
twelve months ended June 30, 1995, respectively. These revenues compare to
$0.9 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).
A quarterly dividend of $0.505 per share was declared in the second
quarter of 1995, for an indicated annual rate of $2.02 per share. The book
value per share was $23.86 at June 30, 1995, down from $23.93 at December 31,
1994. There were 61,885,556 and 61,617,873 average shares outstanding for the
second 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 June 30, 1995, short-term borrowings amounted to
$283 million, of which $193 million was commercial paper.
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,
six, and twelve months ended June 30, 1995 from the comparable periods of
1994.
Increase (decrease) in electric sales volumes:
3 Months 6 Months 12 Months
ended ended ended
Residential (15.7)% (9.3)% (4.9)%
Commercial (3.1)% (0.6)% 2.1%
Industrial (0.1)% 3.0% 3.2%
Total retail sales (5.9)% (2.0)% 0.2%
Wholesale and interchange 4.6% (10.7)% (24.6)%
Total electric sales (4.0)% (3.9)% (5.6)%
Electric revenues decreased approximately six percent to $263 million for
the three months ended June 30, 1995 compared to $279 million for the three
months ended June 30, 1994. The decrease was primarily due to lower revenues
as a result of decreased sales in all retail customer classes. Due to mild
spring temperatures in the Company's service area, the number of cooling
degree days decreased by 42 percent, as compared to the same quarter of last
year. This decrease reduced the demand for air conditioning load. Also
contributing to the decrease was an additional $1.6 million of amortization of
the final merger refund for the three months ended June 30, 1995 compared to
1994.
Electric revenues decreased approximately three percent to $516 million
for the six months ended June 30, 1995 as compared to $530 million for the six
months ended June 30, 1994. Revenues for the twelve months ended June 30,
1995 decreased less than one percent. These decreases are largely due to
lower revenues as a result of decreased sales to residential and wholesale and
interchange customers. Sales to residential customers were lower due to mild
winter and spring temperatures during 1995 as compared to 1994. The decreases
in wholesale and interchange sales were primarily due to higher sales during
the twelve months ended June 30, 1994 to other utilities while their
generating units were down as a result of the 1993 floods. The decreases are
also attributable to an additional $3.3 million and $6.8 million,
respectively, of amortization of the merger refund for the six and twelve
months ended June 30, 1995 compared to 1994.
The following table reflects changes in natural gas sales for the three,
six, and twelve months ended June 30, 1995 from the comparable periods of
1994.
Increase (decrease) in natural gas sales volumes:
Excluding Including
Missouri Operations Missouri Operations
3 Months 6 Months 12 Months 3 Months 6 Months 12 Months
ended ended ended ended ended ended
Residential 8.0% (3.9)% (8.6)% 8.0% (24.4)% (38.0)%
Commercial (3.8)% (7.6)% (10.0)% (3.8)% (30.6)% (42.6)%
Industrial 111.8% 12.0% (15.4)% 111.8% 6.3% (28.2)%
Transportation 8.4% 6.2% 6.6% 8.4% (8.9)% (23.8)%
Total Deliveries 33.7% 10.4% 3.0% 33.7% (11.6)% (29.5)%
Total natural gas revenues for the three months ended June 30, 1995 were
higher than the same period of 1994 due to increased industrial,
transportation, and as-available gas sales. As-available gas is excess gas
under contract that the Company did not require for customer sales or storage
due to mild weather in 1995. According to our tariff, the profit 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 six and
twelve months ended June 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 six and twelve months ended June 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 decreased less than one
percent for the three months ended June 30, 1995 compared to the same period
of 1994. Partially offsetting this decrease was the expense related to the
early retirement programs discussed below.
Total operating expenses decreased 16% and 20% for the six and twelve
months ended June 30, 1995 compared to the same periods of 1994, respectively.
These decreases were the result of the sales of the Missouri Properties and
decreases in fuel and purchase power expenses as a result of the decrease in
electric generation due to lower sales to residential and wholesale and
interchange customers. Partially offsetting this decrease was the expense
related to the early retirement programs discussed below.
Other Income and Deductions: Other Income and Deductions, Net of Taxes,
was lower for the three, six and twelve months ended June 30, 1995 compared to
1994 due to additional interest expense on increased COLI borrowings. Also
significantly contributing to the decrease in other income for the six and
twelve months ended June 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 nine percent for the three months ended and
three percent for the six months ended June 30, 1995 from the comparable
periods in 1994 due to higher interest rates on short-term borrowings.
Total interest charges decreased for the twelve months ended June 30,
1995 by six percent compared to the twelve months ended June 30, 1994 as a
result of lower debt balances and the refinancing of higher cost debt. Also
accounting for the decrease in interest expense 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 Consolidated Statements of Income. Partially offsetting
this decrease were higher interest rates on short-term borrowings.
OTHER INFORMATION
Merger Implementation: In accordance with the KCC Merger order,
amortization of the acquisition adjustment will commence August 1995. The
amortization will amount to approximately $20 million (after 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.
While the Company has achieved savings from the Merger, there is no assurance
that the savings achieved will be sufficient to, or the cost savings sharing
mechanism will operate as to, fully offset the amortization of the acquisition
adjustment.
Early Retirement: In April 1995, the Company announced a voluntary early
retirement program for employees 55 years of age and older with a minimum of
10 years of service as of July 1, 1995. Of the approximately 420 employees
who were eligible for the voluntary retirement program, 216 accepted.
In the second quarter of 1995, $5.5 million related to the early
retirement program was recorded as expense. The Company estimates the cost
savings for the program to be approximately $9.9 million annually.
WCNOC also offered a voluntary early retirement program for employees 55
years of age and older with a minimum of 5 years of service as of June 1,
1995. The total cost of the program for the 56 of the 70 eligible employees
who accepted early retirement was approximately $2.1 million (Company's
share). WCNOC estimates the cost savings from the program to be approximately
$1.7 million (Company's share) annually.
WESTERN RESOURCES, INC.
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of shareholders was held on May 2, 1995. At
the meeting the shareholders, representing 51,860,513 shares either in person
or by proxy, voted to :
Elect the following directors to serve a term of three years:
Votes
For Against
David H. Hughes 50,948,032 830,061
John H. Robinson 51,043,253 830,061
Susan M. Stanton 50,991,699 830,061
Kenneth J. Wagnon 51,138,548 830,061
Item 5. Other Information
Mid-Continent Market Center: To capitalize on opportunities in the non-
regulated natural gas industry, the Company has established a natural gas
market center in Kansas to serve as a vehicle for producers, marketers, and
local distribution companies to buy, sell, and trade natural gas. MCMC will
also provide a full range of services including transportation, gathering,
storage, and title transfer. On June 30, the KCC granted a certificate
authorizing the business operations of MCMC. At the same time, changes
allowing the Company to transport interstate gas on our intrastate system were
initiated with the FERC. 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 will be
constructed over the next six months to expand MCMC's capabilities.
Rate Plans: In April 1995, the Company announced it intends to file a
proposal with the KCC in the summer of 1995 to increase the depreciation on
the assets of Wolf Creek Generating Station by $59 million annually for seven
years beginning in 1996. As a result, the Company will also seek to reduce
electric rates for KG&E customers by approximately $9 million annually for the
same seven year period. In addition, the Company also announced its intention
to file a $36 million rate increase request for its Kansas natural gas
properties in the summer of 1995. The increase is being sought to recover
costs associated with the service line replacement program as well as other
operating costs.
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 June 30, 1995
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Western Resources, Inc.
Date August 2, 1995 By S. L. KITCHEN
S. L. Kitchen, Executive Vice President
and Chief Financial Officer
Date August 2, 1995 By JERRY D. COURINGTON
Jerry D. Courington,
Controller
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
WESTERN RESOURCES, INC.
FINANCIAL DATA SCHEDULE
6/30/95
UT
1000
6-MOS
DEC-31-1995
JUN-30-1995
PER-BOOK
4,319,335
107,941
374,590
412,330
0
5,214,196
309,506
675,151
492,506
1,477,163
150,000
24,858
1,398,633
89,500
0
193,300
16,000
0
3,202
3,249
1,858,291
5,214,196
750,926
29,383
602,691
634,380
116,546
6,617
123,163
59,872
63,291
6,709
56,582
62,449
47,849
148,572
0.92
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 June 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 August 2, 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 16
Part II. Other Information
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1995 1994
(Unaudited)
ASSETS
UTILITY PLANT:
Electric plant in service . . . . . . . . . . . . . . . . $3,417,291 $3,390,406
Less - Accumulated depreciation . . . . . . . . . . . . . 867,597 833,953
2,549,694 2,556,453
Construction work in progress . . . . . . . . . . . . . . 35,759 32,874
Nuclear fuel (net). . . . . . . . . . . . . . . . . . . . 41,414 39,890
Net utility plant . . . . . . . . . . . . . . . . . . . 2,626,867 2,629,217
OTHER PROPERTY AND INVESTMENTS:
Decommissioning trust . . . . . . . . . . . . . . . . . . 19,381 16,944
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 7,592 11,561
26,973 28,505
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . 72 47
Accounts receivable and unbilled revenues (net) . . . . . 67,980 67,833
Advances to parent company . . . . . . . . . . . . . . . 91,904 64,393
Fossil fuel, at average cost. . . . . . . . . . . . . . . 16,609 13,752
Materials and supplies, at average cost . . . . . . . . . 30,903 30,921
Prepayments and other current assets. . . . . . . . . . . 31,168 16,662
238,636 193,608
DEFERRED CHARGES AND OTHER ASSETS:
Deferred future income taxes . . . . . . . . . . . . . . 102,789 102,789
Deferred coal contract settlement costs . . . . . . . . . 16,282 17,944
Phase-in revenues . . . . . . . . . . . . . . . . . . . . 52,634 61,406
Other deferred plant costs. . . . . . . . . . . . . . . . 31,662 31,784
Corporate-owned life insurance (net). . . . . . . . . . . 7,036 9,350
Unamortized debt expense. . . . . . . . . . . . . . . . . 26,685 27,777
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 36,909 40,430
273,997 291,480
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,166,473 $3,142,810
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see Statements) . . . . . . . . . . . . . . $1,946,667 $1,925,196
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . . 25,000 50,000
Long-term debt due within one year. . . . . . . . . . . . 16,000 -
Accounts payable. . . . . . . . . . . . . . . . . . . . . 54,926 49,093
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 23,150 15,737
Accrued interest. . . . . . . . . . . . . . . . . . . . . 8,158 8,337
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 10,325 11,160
137,559 134,327
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes . . . . . . . . . . . . . . . . . . 680,498 689,169
Deferred investment tax credits . . . . . . . . . . . . . 74,595 74,841
Deferred gain from sale-leaseback . . . . . . . . . . . . 247,520 252,341
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 79,634 66,936
1,082,247 1,083,287
COMMITMENTS AND CONTINGENCIES (Note 2)
TOTAL CAPITALIZATION AND LIABILITIES . . . . . . . . . $3,166,473 $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
June 30,
1995 1994
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 144,747 $ 154,987
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 19,167 23,096
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 5,076 4,232
Power purchased . . . . . . . . . . . . . . . . . . . . . 523 2,241
Other operations. . . . . . . . . . . . . . . . . . . . . 31,794 27,954
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 12,359 13,890
Depreciation and amortization . . . . . . . . . . . . . . 18,316 19,142
Amortization of phase-in revenues . . . . . . . . . . . . 4,386 4,386
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 8,208 11,604
State income . . . . . . . . . . . . . . . . . . . . . 2,387 2,875
General . . . . . . . . . . . . . . . . . . . . . . . . 11,752 12,019
Total operating expenses. . . . . . . . . . . . . . . 113,968 121,439
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 30,779 33,548
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (1,821) (758)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 731 1,950
Income taxes (net) . . . . . . . . . . . . . . . . . . . 2,184 1,451
Total other income and deductions . . . . . . . . . . 1,094 2,643
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 31,873 36,191
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 11,783 12,005
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,107 1,119
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (584) (556)
Total interest charges. . . . . . . . . . . . . . . . 12,306 12,568
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 19,567 $ 23,623
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
1995 1994
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 283,304 $ 291,591
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 37,396 43,935
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 9,764 8,095
Power purchased . . . . . . . . . . . . . . . . . . . . . 1,206 3,493
Other operations. . . . . . . . . . . . . . . . . . . . . 62,199 58,585
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 24,626 25,230
Depreciation and amortization . . . . . . . . . . . . . . 36,669 38,261
Amortization of phase-in revenues . . . . . . . . . . . . 8,772 8,772
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 15,478 18,073
State income . . . . . . . . . . . . . . . . . . . . . 4,462 4,585
General . . . . . . . . . . . . . . . . . . . . . . . . 23,386 24,136
Total operating expenses. . . . . . . . . . . . . . . 223,958 233,165
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 59,346 58,426
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (3,537) (1,993)
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 2,830 2,808
Income taxes (net) . . . . . . . . . . . . . . . . . . . 3,819 3,238
Total other income and deductions . . . . . . . . . . 3,112 4,053
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 62,458 62,479
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 23,551 24,098
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,612 2,472
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (1,144) (924)
Total interest charges. . . . . . . . . . . . . . . . 25,019 25,646
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 37,439 $ 36,833
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
June 30,
1995 1994
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . $ 611,593 $ 619,629
OPERATING EXPENSES:
Fuel used for generation:
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . 83,844 95,306
Nuclear fuel. . . . . . . . . . . . . . . . . . . . . . 15,231 16,521
Power purchased . . . . . . . . . . . . . . . . . . . . . 4,857 9,988
Other operations. . . . . . . . . . . . . . . . . . . . . 118,674 114,824
Maintenance . . . . . . . . . . . . . . . . . . . . . . . 47,384 50,004
Depreciation and amortization . . . . . . . . . . . . . . 69,865 76,116
Amortization of phase-in revenues . . . . . . . . . . . . 17,544 17,545
Taxes:
Federal income. . . . . . . . . . . . . . . . . . . . . 47,617 44,374
State income . . . . . . . . . . . . . . . . . . . . . 12,304 10,940
General . . . . . . . . . . . . . . . . . . . . . . . . 44,342 46,523
Total operating expenses. . . . . . . . . . . . . . . 461,662 482,141
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 149,931 137,488
OTHER INCOME AND DEDUCTIONS:
Corporate-owned life insurance (net). . . . . . . . . . . (6,898) 2,480
Miscellaneous (net) . . . . . . . . . . . . . . . . . . . 5,101 4,561
Income taxes (net) . . . . . . . . . . . . . . . . . . . 7,871 6,508
Total other income and deductions . . . . . . . . . . 6,074 13,549
INCOME BEFORE INTEREST CHARGES. . . . . . . . . . . . . . . 156,005 151,037
INTEREST CHARGES:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 47,280 50,005
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,323 5,583
Allowance for borrowed funds used
during construction (credit). . . . . . . . . . . . . . (1,730) (1,482)
Total interest charges. . . . . . . . . . . . . . . . 50,873 54,106
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . $ 105,132 $ 96,931
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)
Six Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 37,439 $ 36,833
Depreciation and amortization . . . . . . . . . . . . . . . 36,669 38,261
Other amortization (including nuclear fuel) . . . . . . . . 7,388 5,867
Gain on sales of utility plant (net of tax) . . . . . . . . (951) -
Deferred taxes and investment tax credits (net) . . . . . . (10,360) 4,319
Amortization of phase-in revenues . . . . . . . . . . . . . 8,772 8,772
Corporate-owned life insurance. . . . . . . . . . . . . . . (8,665) (8,830)
Amortization of gain from sale-leaseback. . . . . . . . . . (4,821) (4,820)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (147) (46,211)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (2,857) (5,479)
Accounts payable. . . . . . . . . . . . . . . . . . . . . 5,833 9,008
Interest and taxes accrued. . . . . . . . . . . . . . . . 6,605 13,670
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (12,881) (12,120)
Changes in other assets and liabilities . . . . . . . . . . 9,254 (1,436)
Net cash flows from operating activities. . . . . . . . 71,278 37,834
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 40,556 47,306
Sales of utility plant. . . . . . . . . . . . . . . . . . . (1,723) -
Corporate-owned life insurance policies . . . . . . . . . . 25,639 24,008
Death proceeds of corporate-owned life insurance. . . . . . (250) -
Net cash flows used in investing activities . . . . . . 64,222 71,314
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (25,000) (130,600)
Advances to parent company (net). . . . . . . . . . . . . . (27,511) 77,214
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . - 160,422
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (25) (46,440)
Other long-term debt (net). . . . . . . . . . . . . . . . . - (67,893)
Borrowings against life insurance policies (net). . . . . . 45,505 40,791
Net cash flows from (used in) financing activities . . . (7,031) 33,494
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . 25 14
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 47 63
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 72 $ 77
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 48,809 $ 43,809
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 18,100 18,400
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
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 105,132 $ 96,931
Depreciation and amortization . . . . . . . . . . . . . . . 69,865 76,116
Other amortization (including nuclear fuel) . . . . . . . . 12,426 13,730
Gain on sales of utility plant (net of tax) . . . . . . . . (951) -
Deferred taxes and investment tax credits (net) . . . . . . 10,670 21,396
Amortization of phase-in revenues . . . . . . . . . . . . . 17,544 17,545
Corporate-owned life insurance. . . . . . . . . . . . . . . (17,081) (22,379)
Amortization of gain from sale-leaseback. . . . . . . . . . (9,641) (9,640)
Changes in working capital items:
Accounts receivable and unbilled revenues (net) . . . . . (10,657) (34,638)
Fossil fuel . . . . . . . . . . . . . . . . . . . . . . . (3,536) (1,027)
Accounts payable. . . . . . . . . . . . . . . . . . . . . (5,177) 3,262
Interest and taxes accrued. . . . . . . . . . . . . . . . (2,557) 294
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (1,683) (14,054)
Changes in other assets and liabilities . . . . . . . . . . (491) 3,360
Net cash flows from operating activities. . . . . . . . 163,863 150,896
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant. . . . . . . . . . . . . . . . . 83,130 91,679
Sales of utility plant. . . . . . . . . . . . . . . . . . . (1,723) -
Corporate-owned life insurance policies . . . . . . . . . . 28,049 26,650
Death proceeds of corporate-owned life insurance. . . . . . (250) (10,158)
Net cash flows used in investing activities . . . . . . 109,206 108,171
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (200) (61,000)
Advances to parent company (net). . . . . . . . . . . . . . 23,674 (82,080)
Bonds issued. . . . . . . . . . . . . . . . . . . . . . . . - 225,422
Bonds retired . . . . . . . . . . . . . . . . . . . . . . . (25) (186,440)
Other long-term debt (net). . . . . . . . . . . . . . . . . - (13,980)
Borrowings against life insurance policies (net). . . . . . 46,889 223,430
Revolving credit agreement (net). . . . . . . . . . . . . . - (150,000)
Dividends to parent company . . . . . . . . . . . . . . . . (125,000) -
Net cash flows from (used in) financing activities . . . (54,662) (44,648)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . (5) (1,923)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . 77 2,000
END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 72 $ 77
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 73,544 $ 82,541
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 28,209 40,254
The NOTES TO FINANCIAL STATEMENTS are an integral part of these statements.
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CAPITALIZATION
(Dollars in Thousands)
June 30, December 31,
1995 1994
(Unaudited)
COMMON STOCK EQUITY (see Statements):
Common stock, without par value, authorized and issued
1,000 shares. . . . . . . . . . . . . . . . . . . . . . . $1,065,634 $1,065,634
Retained earnings . . . . . . . . . . . . . . . . . . . . . 197,009 159,570
Total common stock equity . . . . . . . . . . . . . . . . 1,262,643 65% 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). . . . . . . . . . 3,873 3,930
Long-term debt due within one year. . . . . . . . . . . . 16,000 -
Total long-term debt . . . . . . . . . . . . . . . . . 684,024 35% 699,992 36%
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . $1,946,667 100% $1,925,196 100%
(a) Market-Adjusted Tax Exempt Securities (MATES). As of June 30, 1995, the rates
on these bonds were 3.90%.
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 . . . . . . . . . . . . . . . . . . . . . 37,439
Balance June 30, 1995, 1,000 shares . . . . . . . . $1,065,634 $ 197,009
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 June 30, 1995 and December 31, 1994, and the results of its
operations for the three, six and twelve month periods ended June 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.
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:
June 30, December 31,
1995 1994
(Dollars in Millions)
Cash surrender value of contracts. . $363.7 $320.6
Borrowings against contracts . . . . (356.7) (311.2)
COLI (net) . . . . . . . . . . . $ 7.0 $ 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, six and twelve months ended June 30, 1995, income from
increases in cash surrender value, net of premium and administrative expenses
and income from death proceeds, was $4.2 million, $8.1 million and $16.0
million, respectively, compared to $4.3 million, $7.8 million and $20.6
million for the three, six and twelve months ended June 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, six and twelve months ended June 30, 1995, interest
expense on COLI borrowings was $6.0 million, $11.7 million and $22.9 million,
respectively, compared to $5.0 million, $9.8 million and $18.1 million for the
three, six, and twelve months ended June 30, 1994, respectively.
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. 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
at minimal cost. 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 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 $19.4 million and $16.9 million at June 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 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: During 1991, the Internal Revenue Service (IRS)
completed an examination of the Company's federal income tax returns for the
years 1984 through 1988. In October 1993, the Company received another
examination report for the years 1989 and 1990 covering the same issues
identified in the previous examination report. In April 1995, the Company
reached agreement with the IRS on the ultimate disposition of the issues
raised in the examination reports. Based on the settlement agreement,
management believes that adequate tax reserves have been provided and the
settlement will have no effect on the Company's financial position or results
of operations.
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.
3. 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 30.1% and 35.5% for the three month periods,
30.1% and 34.5% for the six month periods, and 33.1% and 33.5% for the twelve
months ended June 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, six and
twelve month periods ended June 30, 1995 and comparable periods of 1994.
FINANCIAL CONDITION
General: The Company had net income of $19.6 million for the second
quarter of 1995 compared to $23.6 million for the second quarter in 1994. The
decrease in net income was primarily due to lower revenues as a result of
decreased sales in all retail customer classes. The mild spring temperatures
experienced during 1995, as compared to 1994, reduced the demand for air
conditioning load.
Net income for the six and twelve months ended June 30, 1995, was $37.4
million and $105.1 million, respectively, compared to $36.8 million and $96.9
million for the comparable periods of 1994, respectively. The increase in net
income is primarily due to lower fuel and purchased power expenses as a result
of the decrease in electric generation caused by the decrease in sales to
residential and wholesale and interchange customers.
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 June 30, 1995, short-term borrowing amounted to $25
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, six and twelve
months ended June 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 6 Months 12 Months
Ended Ended Ended
Residential (18.3)% (11.2)% (6.6)%
Commercial (3.0)% (0.9)% 2.9%
Industrial (0.6)% 4.2% 4.1%
Total Retail (6.5)% (1.8)% 0.4%
Wholesale & Interchange (4.0)% (29.1)% (44.4)%
Total electric sales (6.2)% (7.3)% (10.0)%
Revenues for the second quarter of 1995 decreased approximately seven
percent to $144.7 million, compared to second quarter 1994 revenues of $155.0
million, primarily due to decreased sales in all retail customer classes. The
cooler spring temperatures experienced in the Company's service territory
during the second quarter of 1995 decreased the number of cooling degree days
by 55 percent, as compared to the second quarter of last year, which reduced
customer demand for air conditioning load. Also contributing to the decrease
was an additional $1 million (Company's share) of amortization of the final
merger refund for the three months ended June 30, 1995 compared to 1994.
Revenues for the six and twelve months ended June 30, 1995, of $283.3
million and $611.6 million, decreased from revenues of $291.6 million and
$619.6 million for the comparable periods of 1994, respectively. The decrease
is largely due to decreased sales to residential and wholesale and interchange
customers. Sales to residential customers were lower primarily due to mild
winter and spring temperatures during 1995 as compared to 1994. The decrease
in wholesale and interchange sales was primarily due to the higher sales
during the twelve months ended June 30 1994 to other utilities while their
generating units were down as a result of the 1993 floods. Also contributing
to the decrease was an additional $1.9 million and $3.4 million, respectively,
(Company's share) of amortization of the final merger refund.
Operating Expenses: Total operating expenses decreased $7.5 million,
$9.2 million and $20.5 million for the three, six and twelve months ended June
30, 1995 compared to the same periods of 1994, respectively. These decreases
are attributable to decreases in fuel and purchase power expenses as a result
of the decrease in electric generation due to lower sales to residential and
wholesale and interchange customers. Partially offsetting these decreases was
the expense related to the early retirement programs discussed below.
Partially offsetting the decreases for the twelve months ended June 30,
1995, was increased federal income taxes due to the completion at December 31,
1993, of the accelerated amortization of deferred income tax reserves relating
to the allowance for borrowed funds used during construction capitalized for
Wolf Creek. The completion of the amortization of these deferred income tax
reserves increased income taxes and thereby reduced net income by
approximately $6 million for the twelve months ended June 30, 1995 compared to
1994.
Other Income and Deductions: Other income and deductions, net of taxes,
decreased for the three, six and twelve months ended June 30, 1995, compared
to the same periods of 1994 primarily as a result of increased interest
expense on higher COLI borrowings.
Partially offsetting these decreases was a $1.6 million gain realized
from the sale of rail cars during the first quarter of 1995.
Interest Expense: Interest expense decreased approximately two percent
for the three and six months ended and six percent for the twelve months ended
June 30, 1995 compared to the same periods of 1994, respectively. These
decreases resulted primarily from lower interest rates on variable-rate debt
due to refinancing of higher cost fixed-rate debt. 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.
OTHER INFORMATION
Merger Implementation: In accordance with the KCC Merger order,
amortization of the acquisition adjustment will commence August 1995. The
amortization will amount to approximately $20 million (after 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. While the combined companies have
achieved savings from the Merger, there is no assurance that the savings
achieved will be sufficient to, or the cost savings sharing mechanism will
operate as to, fully offset the amortization of the acquisition adjustment.
Early Retirement: In April 1995, Western Resources announced a voluntary
early retirement program for employees 55 years of age and older with a
minimum of 10 years of service as of July 1, 1995. Of the approximately 420
employees who were eligible for the voluntary retirement program, 216
accepted. Although the Company has no employees, costs of the early
retirement program along with any cost savings realized by Western Resources
will be allocated to the Company.
In the second quarter of 1995, $5.5 million ($1.3 million Company's
share). related to the early retirement program was recorded as expense.
Western Resources estimates the cost savings for the program to be
approximately $9.9 million ($2.3 million Company's share) annually.
WCNOC also offered a voluntary early retirement program for employees 55
years of age and older with a minimum of 5 years of service as of June 1,
1995. The total cost of the program for the 56 of the 70 eligible employees
who accepted early retirement was approximately $2.1 million (Company's
share). WCNOC estimates the cost savings from the program to be approximately
$1.7 million (Company's share) annually.
KANSAS GAS AND ELECTRIC COMPANY
Part II Other Information
Item 5. Other Information
Rate Plan: In April 1995, the Company announced it intends to file a proposal
with the KCC in the summer of 1995 to increase the depreciation on the assets
of Wolf Creek Generating Station by $59 million annually for seven years
beginning in 1996. As a result, the Company will also seek to reduce electric
rates for its customers by approximately $9 million annually for the same
seven year period.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
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
August 2, 1995 By Richard D. Terrill
Richard D. Terrill
Secretary, Treasurer and
General Counsel
