FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] 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 November 12, 1998
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.
2
KANSAS GAS AND ELECTRIC COMPANY
INDEX
Page
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets 3
Statements of Income 4 - 6
Statements of Comprehensive Income 7
Statements of Cash Flows 8 - 9
Statements of Shareowners' Equity 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 24
Part II. Other Information
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signature 26
3
KANSAS GAS AND ELECTRIC COMPANY
BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1998 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 42 $ 43
Accounts receivable, (net). . . . . . . . . . . . . . . . 97,372 66,654
Advances to parent company (net). . . . . . . . . . . . . 72,643 72,558
Inventories and supplies, at average cost . . . . . . . . 41,162 41,019
Prepaid expenses and other. . . . . . . . . . . . . . . . 22,626 17,165
Total Current Assets. . . . . . . . . . . . . . . . . . 233,845 197,439
PROPERTY, PLANT AND EQUIPMENT (net) . . . . . . . . . . . . 2,521,465 2,565,175
OTHER ASSETS:
Regulatory assets . . . . . . . . . . . . . . . . . . . . 274,209 278,568
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 68,084 75,926
Total Other Assets. . . . . . . . . . . . . . . . . . . 342,293 354,494
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $3,097,603 $3,117,108
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Short-term debt . . . . . . . . . . . . . . . . . . . . . $ - $ 45,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . 65,799 81,986
Accrued liabilities . . . . . . . . . . . . . . . . . . . 48,916 32,745
Accrued income taxes. . . . . . . . . . . . . . . . . . . 29,289 4,212
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,968 4,032
Total Current Liabilities . . . . . . . . . . . . . . . 149,972 167,975
LONG-TERM LIABILITIES:
Long-term debt (net). . . . . . . . . . . . . . . . . . . 684,136 684,128
Deferred income taxes and investment tax credits. . . . . 804,417 820,838
Deferred gain from sale-leaseback . . . . . . . . . . . . 212,908 221,779
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 92,440 87,909
Total Long-term Liabilities . . . . . . . . . . . . . . 1,793,901 1,814,654
COMMITMENTS AND CONTINGENCIES
SHAREOWNERS' EQUITY (See Statements):
Common stock, without par value,
authorized and issued 1,000 shares . . . . . . . . . 1,065,634 1,065,634
Retained earnings . . . . . . . . . . . . . . . . . . . . 88,096 68,845
Total Shareowners' Equity . . . . . . . . . . . . . . . 1,153,730 1,134,479
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY . . . . . . . . . $3,097,603 $3,117,108
The Notes to Financial Statements are an integral part of these statements.
4
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
September 30,
1998 1997
SALES . . . . . . . . . . . . . . . . . . . . . . . . . $ 216,034 $ 191,066
COST OF SALES . . . . . . . . . . . . . . . . . . . . . 58,419 34,797
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . 157,615 156,269
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . 36,518 46,009
Depreciation and amortization . . . . . . . . . . . . 24,503 28,385
Selling, general and administrative expense . . . . . 15,531 15,151
Total Operating Expenses. . . . . . . . . . . . . 76,552 89,545
INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . 81,063 66,724
OTHER INCOME (EXPENSE). . . . . . . . . . . . . . . . . (1,003) (1,542)
INCOME BEFORE INTEREST AND TAXES. . . . . . . . . . . . 80,060 65,182
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . 11,507 11,526
Interest expense on short-term debt and other . . . . 813 975
Total Interest Expense. . . . . . . . . . . . . . 12,320 12,501
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . 67,740 52,681
INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . 24,411 20,906
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . $ 43,329 $ 31,775
The Notes to Financial Statements are an integral part of these statements.
5
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1998 1997
SALES . . . . . . . . . . . . . . . . . . . . . . . . . $ 513,416 $ 483,683
COST OF SALES . . . . . . . . . . . . . . . . . . . . . 121,307 87,561
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . 392,109 396,122
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . 111,002 139,310
Depreciation and amortization . . . . . . . . . . . . 73,612 85,877
Selling, general and administrative expense . . . . . 46,287 41,426
Total Operating Expenses. . . . . . . . . . . . . 230,901 266,613
INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . 161,208 129,509
OTHER INCOME (EXPENSE). . . . . . . . . . . . . . . . . 10,475 (2,373)
INCOME BEFORE INTEREST AND TAXES. . . . . . . . . . . . 171,683 127,136
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . 34,501 34,533
Interest expense on short-term debt and other . . . . 2,511 3,531
Total Interest Expense. . . . . . . . . . . . . . 37,012 38,064
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . 134,671 89,072
INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . 40,420 30,633
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . $ 94,251 $ 58,439
The Notes to Financial Statements are an integral part of these statements.
6
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
September 30,
1998 1997
SALES . . . . . . . . . . . . . . . . . . . . . . . . . $ 644,178 $ 636,983
COST OF SALES . . . . . . . . . . . . . . . . . . . . . 163,502 115,354
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . 480,676 521,629
OPERATING EXPENSES:
Operating and maintenance expense . . . . . . . . . . 151,683 178,675
Depreciation and amortization . . . . . . . . . . . . 111,158 115,863
Selling, general and administrative expense . . . . . 62,128 55,696
Total Operating Expenses. . . . . . . . . . . . . 324,969 350,234
INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . 155,707 171,395
OTHER INCOME (EXPENSE). . . . . . . . . . . . . . . . . 8,826 (2,219)
INCOME BEFORE INTEREST AND TAXES. . . . . . . . . . . . 164,533 169,176
INTEREST EXPENSE:
Interest expense on long-term debt. . . . . . . . . . 46,030 46,033
Interest expense on short-term debt and other . . . . 3,368 6,983
Total Interest Expense. . . . . . . . . . . . . . 49,398 53,016
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . 115,135 116,160
INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . 27,195 35,136
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . $ 87,940 $ 81,024
The Notes to Financial Statements are an integral part of these statements.
7
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended
September 30,
1998 1997
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 43,329 $ 31,775
Other comprehensive income. . . . . . . . . . . . . . . . . - -
Comprehensive income. . . . . . . . . . . . . . . . . . . . $ 43,329 $ 31,775
Nine Months Ended
September 30,
1998 1997
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 94,251 $ 58,439
Other comprehensive income. . . . . . . . . . . . . . . . . - -
Comprehensive income. . . . . . . . . . . . . . . . . . . . $ 94,251 $ 58,439
Twelve Months Ended
September 30,
1998 1997
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 87,940 $ 81,024
Other comprehensive income. . . . . . . . . . . . . . . . . - -
Comprehensive income. . . . . . . . . . . . . . . . . . . . $ 87,940 $ 81,024
The Notes to Financial Statements are an integral part of these statements.
8
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 94,251 $ 58,439
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 73,612 85,877
Amortization of gain from sale-leaseback. . . . . . . . . . (8,871) (8,324)
Changes in working capital items:
Accounts receivable, (net). . . . . . . . . . . . . . . . (30,718) (5,672)
Inventories and supplies. . . . . . . . . . . . . . . . . (143) 3,770
Prepaid expenses and other. . . . . . . . . . . . . . . . (5,461) (8,767)
Accounts payable. . . . . . . . . . . . . . . . . . . . . (16,187) 2,319
Accrued liabilities . . . . . . . . . . . . . . . . . . . 16,171 11,773
Accrued income taxes. . . . . . . . . . . . . . . . . . . 25,077 (3,924)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,936 280
Changes in other assets and liabilities . . . . . . . . . . 13,046 12,620
Net cash flows from operating activities. . . . . . . . 162,713 148,391
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (net). . . . . . (42,544) (65,760)
Net cash flows (used in) investing activities . . . . . (42,544) (65,760)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . (45,000) (222,300)
Advances to parent company (net). . . . . . . . . . . . . . (85) 214,734
Retirements of long-term debt . . . . . . . . . . . . . . . (85) (65)
Dividends to parent company . . . . . . . . . . . . . . . . (75,000) (75,000)
Net cash flows (used in) financing activities. . . . . . (120,170) (82,631)
NET (DECREASE) IN CASH AND CASH EQUIVALENT. . . . . . . . . . (1) 0
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . . . . . . 43 44
End of period . . . . . . . . . . . . . . . . . . . . . . . $ 42 $ 44
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 58,196 $ 57,609
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 26,020 52,100
The Notes to Financial Statements are an integral part of these statements.
9
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Twelve Months Ended
September 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 87,940 $ 81,024
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 111,158 115,863
Amortization of gain from sale-leaseback. . . . . . . . . . (11,828) (10,734)
Changes in working capital items:
Accounts receivable, (net). . . . . . . . . . . . . . . . (16,029) 4,898
Inventories and supplies. . . . . . . . . . . . . . . . . (1,286) 6,038
Prepaid expenses and other. . . . . . . . . . . . . . . . 3,132 (2,644)
Accounts payable. . . . . . . . . . . . . . . . . . . . . 14,661 7,366
Accrued liabilities . . . . . . . . . . . . . . . . . . . 688 (5,166)
Accrued income taxes. . . . . . . . . . . . . . . . . . . 21,985 (13,317)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,842 391
Changes in other assets and liabilities . . . . . . . . . . (10,587) 21,646
Net cash flows from operating activities. . . . . . . . 201,676 205,365
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (net). . . . . . (64,949) (86,740)
Net cash flows (used in) investing activities . . . . . (64,949) (86,740)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) . . . . . . . . . . . . . . . . . . . - (210,000)
Advances to parent company (net). . . . . . . . . . . . . . (36,644) 191,420
Retirements of long-term debt . . . . . . . . . . . . . . . (85) (65)
Dividends to parent company . . . . . . . . . . . . . . . . (100,000) (100,000)
Net cash flows (used in) financing activities. . . . . . (136,729) (118,645)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . (2) (20)
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . . . . . . 44 64
End of period . . . . . . . . . . . . . . . . . . . . . . . $ 42 $ 44
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest on financing activities (net of amount
capitalized) . . . . . . . . . . . . . . . . . . . . . $ 75,005 $ 76,448
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 26,020 62,600
The Notes to Financial Statements are an integral part of these statements.
10
KANSAS GAS AND ELECTRIC COMPANY
STATEMENTS OF SHAREOWNERS' EQUITY
(Dollars in Thousands)
(Unaudited)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1998 1997 1998 1997 1998 1997
Common Stock:
Ending balance . . . . . . . . $1,065,634 $1,065,634 $1,065,634 $1,065,634 $1,065,634 $1,065,634
Retained Earnings:
Beginning balance. . . . . . . 69,767 93,381 68,845 116,717 100,156 119,132
Net income . . . . . . . . . . 43,329 31,775 94,251 58,439 87,940 81,024
Dividends to parent company. . (25,000) (25,000) (75,000) (75,000) (100,000) (100,000)
Ending balance . . . . . . . . 88,096 100,156 88,096 100,156 88,096 100,156
Accumulated Other Comprehensive
Income (net):
Ending balance . . . . . . . . - - - - - -
Total Shareowners' Equity $1,153,730 $1,165,790 $1,153,730 $1,165,790 $1,153,730 $1,165,790
The Notes to Financial Statements are an integral part of these statements.
11
KANSAS GAS AND ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Kansas Gas and Electric Company (the company,
KGE) is a rate-regulated electric utility and wholly-owned subsidiary of
Western Resources, Inc. (Western Resources). The company is engaged
principally in the production, purchase, transmission, distribution, and sale
of electricity. The company serves approximately 280,000 electric customers
in southeastern Kansas. At September 30, 1998, the company had no employees.
All employees are provided by the company's parent, Western Resources which
allocates costs related to the employees of the company.
The company owns 47% of Wolf Creek Nuclear Operating Corporation
(WCNOC), the operating company for Wolf Creek Generating Station (Wolf Creek).
The company records its proportionate share of all transactions of WCNOC as it
does other jointly-owned facilities.
The company's unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q.
Accordingly, certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements and notes should be read in conjunction with the financial
statements and the notes included in the company's 1997 Annual Report on Form
10-K. The accounting and rates of the company are subject to requirements of
the Kansas Corporation Commission (KCC) and the Federal Energy Regulatory
Commission (FERC).
New Pronouncements: Effective January 1, 1998, the company adopted the
provisions of Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130). This statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This statement established
accounting and reporting standards for derivative instruments and for hedging
activities. SFAS 133 requires that all derivatives be recognized as either
assets or liabilities in the balance sheet and that these instruments be
measured at fair value. The company will adopt SFAS 133 no later than January
1, 2000. Management is presently evaluating the impact that adoption of SFAS
133 will have on the company's financial position and results of operations.
Reclassifications: Certain amounts in prior years have been reclassified
to conform with classifications used in the current year presentation.
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2. WESTERN RESOURCES AND KANSAS CITY POWER & LIGHT COMPANY MERGER AGREEMENT
On February 7, 1997, Kansas City Power & Light Company (KCPL) and Western
Resources entered into an agreement whereby KCPL would be combined with
Western Resources. In December 1997, representatives of Western Resources'
financial advisor indicated that they believed it was unlikely that they would
be in a position to issue a fairness opinion required for the merger on the
basis of the previously announced terms.
On March 18, 1998, Western Resources and KCPL announced a restructuring
of their February 7, 1997 merger agreement which will result in the formation
of Westar Energy, a new regulated electric utility company. Under the terms
of the merger agreement, the electric utility operations of Western Resources
will be transferred to the company, and KCPL and the company will be merged
into NKC, Inc., a subsidiary of Western Resources. NKC, Inc. will be renamed
Westar Energy. In addition, under the terms of the merger agreement, KCPL
shareowners will receive Western Resources common stock which is subject to a
collar mechanism of not less than .449 nor greater than .722, provided the
amount of Western Resources common stock received may not exceed $30.00, and
one share of Westar Energy common stock per KCPL share. The Western Resources
Index Price is the 20 day average of the high and low closing sale prices for
Western Resources common stock on the NYSE ending ten days prior to closing.
If the Western Resources Index Price is less than or equal to $29.78 on the
fifth day prior to the effective date of the combination, either party may
terminate the agreement. Upon consummation of the combination, Western
Resources will own approximately 80.1% of the outstanding equity of Westar
Energy and KCPL shareowners will own approximately 19.9%. As part of the
combination, Westar Energy will assume all of the electric utility related
assets and liabilities of Western Resources, KCPL, and the company.
Westar Energy will assume $2.7 billion in debt, consisting of $1.9
billion of indebtedness for borrowed money of Western Resources and the
company, and $800 million from KCPL. Long-term debt of Western Resources,
excluding Protection One (a subsidiary of Western Resources), and the company
was $2.5 billion at September 30, 1998. Under the terms of the merger
agreement, it is intended that Western Resources will be released from its
obligations with respect to the company's debt to be assumed by Westar Energy.
Consummation of the merger is subject to customary conditions. On July
30, 1998 the Western Resources' shareowners and the shareowners of KCPL voted
to approve the amended merger agreement at special meetings of shareowners.
Western Resources estimates the transaction to close in 1999, subject to
receipt of all necessary approvals and consents.
Western Resources and KCPL have filed applications with the Kansas
Corporation Commission, Missouri Public Service Commission, Federal Energy
Regulatory Commission (FERC) and Nuclear Regulatory Commission to approve the
Western Resources/KCPL combination and the formation of Westar Energy.
KCPL is a public utility company engaged in the generation, transmission,
distribution, and sale of electricity to customers in western Missouri and
eastern Kansas. The company, KCPL and Western Resources have joint interests
in certain electric generating assets, including Wolf Creek.
13
At September 30, 1998, Western Resources had deferred approximately $12
million related to the KCPL transaction. These costs will be included in the
determination of total consideration upon consummation of the transaction.
For additional information on the Merger Agreement with KCPL, see Western
Resources' Registration Statement on Form S-4 filed on June 9, 1998.
3. COMMITMENTS AND CONTINGENCIES
Manufactured Gas Sites: The company is associated with three former
manufactured gas sites which may contain coal tar and other potentially
harmful materials. The company and the Kansas Department of Health and
Environment (KDHE) entered into a consent agreement governing all future work
at these 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 analyses. At September 30, 1998, the costs
incurred for preliminary site investigation and risk assessment have been
minimal.
For additional information on Commitments and Contingencies, see Note 2
of the company's 1997 Annual Report on Form 10-K.
4. INCOME TAXES
Total income tax expense included in the Statements of Income reflects
the Federal statutory rate of 35%. The Federal statutory rate produces
effective income tax rates of 36.0%,30.0% and 23.6% for the three, nine and
twelve month periods ended September 30, 1998 compared to 39.7%, 34.4% and
30.2% for the three, nine and twelve months ended September 30, 1997. The
effective income tax rates vary from the Federal statutory rate due to the
permanent differences, including the amortization of investment tax credits,
benefits from corporate-owned life insurance, and accelerated amortization of
certain deferred income taxes.
14
KANSAS GAS AND ELECTRIC COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
In Management's Discussion and Analysis we explain the general financial
condition and the operating results for the company. We explain:
- What factors affect our business
- What our earnings and costs were for the three, nine and twelve month
periods ended September 30, 1998 and 1997
- Why these earnings and costs differed from period to period
- How our earnings and costs affect our overall financial condition
- Any other items that particularly affect our financial condition or
earnings
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations updates the information provided in the 1997 Annual
Report on Form 10-K and should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in
the company's 1997 Annual Report on Form 10-K.
Forward-Looking Statements: Certain matters discussed here and elsewhere
in this Form 10-Q are "forward-looking statements." The Private Securities
Litigation Reform Act of 1995 has established that these statements qualify
for safe harbors from liability. Forward-looking statements may include words
like we "believe," "anticipate," "expect" or words of similar meaning.
Forward-looking statements describe our future plans, objectives, expectations
or goals. Such statements address future events and conditions concerning
capital expenditures, earnings, litigation, rate and other regulatory matters,
possible corporate restructurings, mergers, acquisitions, dispositions,
liquidity and capital resources, interest and dividend rates, Year 2000
issues, environmental matters, changing weather, nuclear operations and
accounting matters. What happens in each case could vary materially from what
we expect because of such things as electric utility deregulation, including
ongoing state and federal activities; future economic conditions; legislative
developments; our regulatory and competitive markets; and other circumstances
affecting anticipated operations, sales and costs.
FINANCIAL CONDITION
General: Net income for the three, nine and twelve months ended
September 30, 1998 of $43.3 million, $94.3 million, and $87.9 million
increased substantially from net income of $31.8 million, $58.4 million, and
$81.0 million for the same periods in 1997, respectively. The increases in
net income were primarily due to increased electric sales because of warmer
than normal weather, lower operating and maintenance costs, the completion of
the amortization of phase-in revenues in December 1997, and death benefits
received from corporate-owned life insurance policies.
15
Our net income has been negatively impacted by the effect of reductions
in our electric rates. Since 1996, we reduced our electric rates in
accordance with orders from the Kansas Corporation Commission, which will also
include an additional $10 million rate reduction in June 1999. The total
annual cumulative effect of these rate reductions is approximately $65
million. We also had a one-time rate rebate totaling $2.3 million in January
1998 and will have an additional rate rebate of $2.3 million in January 1999.
All rate reductions have a continuing effect while rate rebates are one-time
events and do not influence future rates.
Our net income this year has been favorably impacted by certain events.
We are unable to predict the likelihood, however, of these events recurring in
the future. We experienced warmer than normal weather during the summer
months which contributed to higher sales and during the year, we recorded
income of $13.7 million due to death benefits received from our corporate-
owned life insurance policies.
OPERATING RESULTS
The following discussion explains significant changes in results of
sales, cost of sales, operating expenses, other income (expense), interest
expense and income taxes between the three, nine and twelve month periods
ended September 30, 1998 and comparable periods of 1997.
Sales: Sales are based on sales volumes and rates authorized by the
Kansas Corporation Commission (KCC) and the Federal Energy Regulatory
Commission (FERC). Our sales vary with levels of energy deliveries. Changing
weather affects the amount of energy our customers use. Very hot summers and
very cold winters prompt more demand, especially among our residential
customers. Mild weather reduces demand.
Many things will affect our future sales. They include:
- The weather
- Our electric rates
- Competitive forces
- Customer conservation efforts
- Wholesale demand
- The overall economy of our service area
Sales increased 13.1% for the three months ended September 30, 1998,
primarily due to the increase in residential energy deliveries as a result of
warmer summer temperatures. This increase was partially offset by our reduced
electric rates implemented on June 1, 1998.
Sales increased 6.1% for the nine months ended September 30, 1998,
primarily due to the increase in residential energy deliveries as a result of
warmer summer temperatures. This increase was partially offset by our reduced
electric rates implemented on February 1, 1997 and on June 1, 1998.
16
Sales increased 1.1% for the twelve months ended September 30, 1998,
primarily due to the increase in energy deliveries in all retail classes.
This increase was partially offset by our reduced electric rates implemented
on February 1, 1997 and on June 1, 1998.
The following table reflects changes in retail electric energy deliveries
for the three, nine and twelve months ended September 30, 1998 from the
comparable periods of 1997.
3 Months 9 Months 12 Months
Ended Ended Ended
Residential 16.3% 13.5% 8.4%
Commercial 10.9% 8.9% 7.4%
Industrial (0.1)% 1.9% 2.6%
Total Retail 8.6% 7.4% 5.6%
Cost of Sales: Items included in cost of sales are fuel expense and
purchased power expense (electricity we purchase from others for resale).
Electric fuel costs are included in base rates. Therefore, if we wished
to recover an increase in fuel costs, we would have to file a request for
recovery in a rate filing with the KCC which could be denied in whole or in
part. Any increase in fuel costs from the projected average which the company
did not recover through rates would reduce our earnings. The degree of any
such impact would be affected by a variety of factors, however, and thus
cannot be predicted.
Due to warmer than normal weather throughout the Midwest and lack of
power available for purchase on the wholesale market, the wholesale power
market has seen extreme volatility in prices and availability. We believe
future volatility, such as that recently experienced in the market, could
impact our cost of power purchases.
Actual cost of fuel to generate electricity (coal, nuclear fuel, natural
gas or oil) and the amount of power purchased from other utilities increased
for each of the three periods ending September 30, 1998. Cost of sales
increased 68% for the three months ended, 39% for the nine months ended and
42% for the twelve months ended September 30, 1998. With an increase in
customer demand for electricity and the availability of our La Cygne coal
generation station during 1998, we produced more electricity during the first
nine months of 1998 than in 1997. The increase in net generation caused our
fossil fuel costs to increase for the three and nine month periods ended
September 30, 1998.
The twelve month increase was primarily due to two of our generating
stations being unavailable to produce power. Our Wolf Creek nuclear
generating station was off-line in the fourth quarter of 1997 for scheduled
maintenance and our La Cygne coal generation station was off-line during 1997
for an extended maintenance outage. As a result, we purchased more power from
other utilities and burned more natural gas to generate electricity at our
facilities. Natural gas is more costly to burn than coal and nuclear fuel for
generating electricity.
17
OPERATING EXPENSES
Operating and Maintenance Expense: Total operating and maintenance
expense decreased 21% for the three months, 20% for the nine months, and 15%
for the twelve months ended September 30, 1998. The decreases were
attributable to a decrease in KGE's portion of costs shared with Western
Resources which are associated with the dispatching of electric power.
We expect our operating and maintenance expense to increase when we bring
an inactive generating plant back into active service in 1999 and when we put
new peaking generators in service in 2000 and 2001. See LIQUIDITY AND CAPITAL
RESOURCES below for further discussion of these projects.
Depreciation and Amortization Expense: Depreciation and amortization
expense decreased 14% for the three months and nine months ended September 30,
1998 due to the completion of the amortization of phase-in revenues in
December 1997. During the first nine months of 1997, we recorded $13.2
million of amortization for phase-in revenues. Depreciation and amortization
expense for the twelve months ended September 30, 1998 decreased 4% due to the
additional amortization of $8.8 million relating to phase-in revenues recorded
during the fourth quarter of 1997.
Selling, General and Administrative Expense: Selling, general and
administrative expense increased 3% for the three months ended, 12% for the
nine months ended, and 12% for the twelve months ended September 30, 1998.
Storm related restoration expenses and increased labor costs attributed to the
increases.
Other Income (Expense): Other income (expense) includes miscellaneous
income and expenses not directly related to our operations. Other income and
(expense) for the third quarter of 1998 increased $0.5 million. Other income
and (expense) for the nine and twelve months ended September 30, 1998,
increased $12.8 million and $11.0 million, respectively. These increases are
primarily attributable to benefits received during 1998 pursuant to our
corporate-owned life insurance policies totaling $13.7 million.
Interest Expense: Interest expense includes the interest we incurred on
outstanding debt. Interest expense decreased 1% for the three months ended,
3% for the nine months ended, and 7% for the twelve months ended September 30,
1998. Our average outstanding short-term debt balances were lower during all
three periods which attributed to the decreases in interest expense. The
interest we paid on long-term debt remained virtually unchanged for all three
periods.
LIQUIDITY AND CAPITAL RESOURCES:
The company's liquidity is a function of its ongoing construction and
maintenance program designed to improve facilities which provide electric
service and meet future customer service requirements. Our ability to provide
the cash or debt to fund our capital expenditures depends upon many things,
including available resources, our financial condition and current market
conditions.
18
Other than operations, our primary source of short-term cash is from
short-term bank loans and unsecured lines of credit. At September 30, 1998,
there were no short-term borrowings compared to $45.0 million at December 31,
1997. Proceeds from the repayment of advances to the company's parent company
have been used to repay all current outstanding short-term debt. The proceeds
received are reflected in the decrease in current assets, advances to parent
company (net) on the Balance Sheets.
We announced plans to install three new combustion turbine generators for
use as peaking units. The installed capacity of the three new generators will
approximate 300 MW. The first two units are scheduled to be placed in
operation in 2000 and the third is scheduled to be placed in operation in
2001. We estimate that the project will require $120 million in capital
resources through the completion of the project in 2001. In addition, we are
planning to return our inactive generation plant in Neosho, Kansas to active
service in 1999 at an estimated cost of $0.7 million.
MERGERS AND ACQUISITIONS
Western Resources and Kansas City Power & Light Company Merger Agreement:
On February 7, 1997, KCPL and Western Resources entered into an agreement
whereby KCPL would be combined with Western Resources. In December 1997,
representatives of Western Resources' financial advisor indicated that they
believed it was unlikely that they would be in a position to issue a fairness
opinion required for the merger on the basis of the previously announced
terms.
On March 18, 1998, Western Resources and KCPL announced a restructuring
of their February 7, 1997 merger agreement which will result in the formation
of Westar Energy, a new regulated electric utility company. Under the terms
of the merger agreement, the electric utility operations of Western Resources
will be transferred to the company, and KCPL and the company will be merged
into NKC, Inc., a subsidiary of Western Resources. NKC, Inc. will be renamed
Westar Energy. In addition, under the terms of the merger agreement, KCPL
shareowners will receive Western Resources common stock which is subject to a
collar mechanism of not less than .449 nor greater than .722, provided the
amount of Western Resources common stock received may not exceed $30.00, and
one share of Westar Energy common stock per KCPL share. The Western Resources
Index Price is the 20 day average of the high and low closing sale prices for
Western Resources common stock on the NYSE ending ten days prior to closing.
If the Western Resources Index Price is less than or equal to $29.78 on the
fifth day prior to the effective date of the combination, either party may
terminate the agreement. Upon consummation of the combination, Western
Resources will own approximately 80.1% of the outstanding equity of Westar
Energy and KCPL shareowners will own approximately 19.9%. As part of the
combination, Westar Energy will assume all of the electric utility related
assets and liabilities of Western Resources, KCPL, and the company.
Westar Energy will assume $2.7 billion in debt, consisting of $1.9
billion of indebtedness for borrowed money of Western Resources and the
company, and $800 million from KCPL. Long-term debt of Western Resources,
excluding Protection One (a subsidiary of Western Resources), and the company
was $2.5 billion at September 30, 1998. Under the terms of the merger
agreement, it is intended that Western Resources will be released from its
obligations with respect to the company's debt to be assumed by Westar Energy.
19
Consummation of the merger is subject to customary conditions. On July
30, 1998 the Western Resources' shareowners and the shareowners of KCPL voted
to approve the amended merger agreement at special meetings of shareowners.
Western Resources estimates the transaction to close in 1999, subject to
receipt of all necessary approvals and consents.
Western Resources and KCPL have filed applications with the Kansas
Corporation Commission, Missouri Public Service Commission, Federal Energy
Regulatory Commission (FERC) and Nuclear Regulatory Commission to approve the
Western Resources/KCPL combination and the formation of Westar Energy.
KCPL is a public utility company engaged in the generation, transmission,
distribution, and sale of electricity to customers in western Missouri and
eastern Kansas. The company, KCPL and Western Resources have joint interests
in certain electric generating assets, including Wolf Creek. Following the
closing of the combination, Westar Energy is expected to have approximately
one million electric utility customers in Kansas and Missouri, approximately
$8.2 billion in assets and the ability to generate more than 8,000 megawatts
of electricity.
At September 30, 1998, Western Resources had deferred approximately $12.2
million related to the KCPL transaction. These costs will be included in the
determination of total consideration upon consummation of the transaction.
OTHER INFORMATION
YEAR 2000 ISSUE: We, as part of the Western Resources Year 2000
readiness program, are currently addressing the effect of the Year 2000 Issue
on information systems and operations. We face the Year 2000 Issue because
many computer systems and applications abbreviate dates by eliminating the
first two digits of the year, assuming that these two digits are always "19".
On January 1, 2000, some computer programs may incorrectly recognize the date
as January 1, 1900. Some computer systems and applications may incorrectly
process critical information or may stop processing altogether because of the
date abbreviation. Calculations using dates beyond December 31, 1999 may
affect computer applications before January 1, 2000.
We have recognized the potential adverse effects the Year 2000 Issue
could have on our company. The company shares information and computer
systems with Western Resources. In 1996, we established a formal Year 2000
readiness program to investigate and correct these problems in the main
computer systems of our company. In 1997, we expanded the program to include
all business units and departments of our company, using a common methodology.
The Year 2000 issues concerning the Wolf Creek nuclear operating plant are
discussed under WCNOC below.
The goal of our Year 2000 readiness program is to identify and assess all
critical computer programs, computer hardware and embedded systems potentially
affected by the Year 2000 date change, to repair or replace those systems
found to be incompatible with Year 2000 dates, and to develop predetermined
actions to be used as contingencies in the event any critical business
function fails unexpectedly or is interrupted. The program is directed by a
written policy which provides the guidance and methodology to the departments
and business units to follow. Due to varying degrees of exposure of
20
departments and business units to the Year 2000 Issue, some departments and
business units are further along in their readiness efforts than others. All
departments have completed the awareness, inventory, and assessment phases,
and have developed their initial contingency plans. Several smaller
departments and business units have completed the assessment, remediation, and
testing phases. The majority of our current efforts are in the remediation
and testing phases. Overall, based on manhours as a measure of work effort,
we believe we are approximately 70% completed with our readiness efforts.
The estimated progress of our departments and business units, exclusive
of WCNOC, at September 30, 1998, based on manhours, is as follows:
Percentage
Department/Business Unit Completion
Electric Generation Services. . . . . . 65%
Energy Distribution Services. . . . . . 65%
Electric Transmission . . . . . . . . . 75%
Information Technology. . . . . . . . . 65%
Administrative. . . . . . . . . . . . . 75%
Our Year 2000 readiness program addresses all Information Technology (IT)
and non-IT issues which may be impacted by the Year 2000 Issue. We have
included commercial computer software, including mainframe, client/server, and
desktop software; internally developed computer software, including mainframe,
client/server, and desktop software; computer hardware, including mainframe,
client/server, desktop, network, communications, and peripherals; devices
using embedded computer chips, including plant equipment, controls, sensors,
facilities equipment, heating, ventilating, and air conditioning (HVAC)
equipment; and relationships with third-party vendors, suppliers, and
customers. Our program requires testing as a method for verifying the Year
2000 readiness of an item. For those items which are impossible to test,
other methods are being used to identify the readiness status, provided
adequate contingency plans are established to provide a workaround or backup
for the item. We plan to have our Year 2000 readiness efforts substantially
completed by the end of 1998.
Western Resources currently estimates that total costs to update all of
its electric utility operating systems for Year 2000 readiness, excluding
costs associated with WCNOC discussed below, to be approximately $7 million,
of which $4 million represents IT costs and $3 million represents non-IT
costs. As of September 30, 1998 Western Resources has expensed approximately
$3.5 million of these costs, of which $3 million represent IT costs and $0.5
million represent non-IT costs. Based on what they know, they expect to
incur the remaining $3.5 million, of which $1 million represents IT costs and
$2.5 million represents non-IT costs, by the end of 1999. These costs
include labor costs for both company employees and contract personnel used in
our Year 2000 program, and non-labor costs for software tools used in our
remediation and testing efforts, replacement software, replacement hardware,
replacement embedded devices, and miscellaneous costs associated with their
testing and replacement. Western Resources has allocated approximately $1.4
million of the expensed costs to our company and we expect an additional $1.4
million to be allocated for the remaining costs to be incurred.
21
We have identified the following major areas of risk relating to our Year
2000 Issue exposure: 1) vendors and suppliers, 2) internal plant controls and
systems, 3) telecommunications, including phone systems and cellular phones,
4) large customers, and 5) rail transportation. We consider vendors and
suppliers a risk because of the lack of control we have over their operations.
We are in the process of contacting by letter each vendor or supplier critical
to our operations for information pertaining to their Year 2000 readiness. We
consider our plant controls and systems a risk due to the complexity, variety,
and extent of the embedded systems. We consider telecommunications a risk
because it performs a critical function in a large number of our business
processes and plant control functions. We consider large customers a risk
because of the influence their electrical usage patterns have on our
electrical generation and distribution systems. We consider rail
transportation a risk because of our dependence for delivery of coal used at
our coal-fired generating plants.
The most reasonably likely worst case scenario we anticipate is the loss
or partial interruption of local and long-distance telephone service, the
interruption or significant delay to rail service effecting the coal
deliveries to our generating plants, the unscheduled shut-down of the Wolf
Creek nuclear operating plant, the potential loss of load from one or more
large customers, and the loss of minimal generating capacity in the region for
brief periods of time. Approximately 44% of our generating capacity utilizes
coal as fuel and 22% of our generating capacity is attributed to Wolf Creek.
We are addressing these risks in our contingency plans, and have or will
be implementing a number of action plans in advance to mitigate these and
other potential risks. Our contingency plans include pre-established actions
to deal with potential operational impacts. For example, we have installed a
company-wide trunked radio system which can be used in place of the commercial
telecommunications systems, in the event those systems are interrupted. We
plan to place in service, at reduced output, generating units which would
normally not be in service to help accommodate load shifts that would be
caused by a large customer suddenly dropping or significantly reducing their
electricity usage, or in the event of unexpected loss of some of our
generation capacity or generation capacity of others in the region. In
addition, we generally maintain more than a 30-day supply of coal at each of
our coal-fired generating plants, reducing the effect of any temporary
interruption of rail transportation and an unscheduled
temporary shut-down of the Wolf Creek nuclear operating plant discussed below.
While all business units and departments have developed contingency plans
to cover essential business functions and anticipated possible Year
2000-related failure or interruption, these plans are continually reviewed and
updated based on information learned as our Year 2000 readiness efforts
proceed.
WOLF CREEK NUCLEAR OPERATING CORPORATION (WCNOC): WCNOC has been
evaluating and adjusting all known date-sensitive systems and equipment for
Year 2000 compliance. WCNOC is developing a plan to effect the readiness of
the plant for the coming of the Year 2000. This plan is designed to closely
parallel the guidance provided by the Nuclear Energy Institute and the Nuclear
Regulatory Commission (NRC). WCNOC is partnering with several industry groups
to share information regarding evaluating items that are Year 2000 sensitive.
As applications and devices are confirmed to be Year 2000 non-compliant,
business decisions are being made to repair or retire the item.
22
On May 11,1998 the NRC issued Generic Letter 98-01 entitled "Year 2000
Readiness of Computer Systems at Nuclear Power Plants." This letter expressed
the NRC's expectations with regard to Year 2000 readiness. The letter also
requires the licensee to file its Year 2000 plan and status report no later
than July 1, 1999.
In order to access the licensees progress in preparing for Year 2000, the
NRC has scheduled audits at various nuclear power plant facilities during 1998
and early 1999. One of these audits will be conducted at WCNOC during the
month of November, 1998. The objectives of this audit are as follows:
- To assess the effectiveness of licensee programs for achieving Year 2000
readiness and in addressing compliance with the terms and conditions of
their license and NRC regulations and continued safe operation.
- To evaluate program implementation activities to assure that licensees
are on schedule to achieve Year 2000 readiness in accordance with
General Letter 98-01 guidelines.
- To assess the licensee contingency planning for addressing risks
associated with events resulting from Year 2000 problems.
Any open items resulting from the audit will be discussed with the
licensee along with the avenue to achieve resolution.
Since Wolf Creek was designed during the 1970 and 1980s, most of the
originally installed electronic plant equipment did not contain
microprocessors. During this time frame, the NRC would not allow components
required for safe shutdown of the plant to contain microprocessors. For these
reasons, there is minimal Year 2000 risk associated with being able to safely
shutdown the plant and maintain it in a safe shutdown condition. During the
years since original construction, microprocessor based electronic components
have been added in non-safe shutdown applications. Some of these (only two
identified thus far and no others are anticipated) could shutdown the plant.
Special attention will be paid to these devices to ensure that there is
minimal Year 2000 risk associated with them.
In the original design and through plant modifications, microprocessor
based components were installed in plant monitoring applications such as the
radiation monitoring equipment and the plant information computer. Similarly,
in the area of non-plant operation computers and applications, WCNOC has
several items which will require remediation. There is a possibility that
these devices could cause a Year 2000 problem. Failure to adequately
remediate any Year 2000 problems could require the plant's operations be
limited or shutdown.
WCNOC is developing contingency plans to address risk associated with
Year 2000 Issues. These plans generally follow the guidance contained in
NUCLEAR ENERGY INSTITUTE/NUCLEAR UTILITY SOFTWARE MANAGEMENT GROUP 98-07,
NUCLEAR UTILITY READINESS CONTINGENCY PLANNING. The steps to be taken involve
the determination of which items present a critical risk to the facility,
review of the identified risks, determining mitigation strategies, and
ensuring that each responsible organization develops appropriate contingency
plans.
23
WCNOC estimates that the most reasonably likely worse case scenario would
be a temporary plant shutdown due to external electrical grid disturbances.
While these disturbances may result in a temporary shutdown, the safety of the
plant will not be compromised and the unit should restart shortly after the
grid disturbance has been corrected.
The table below sets forth estimates of the status of the components of
WCNOC's Year 2000 readiness program at September 30, 1998.
Estimated
Completion Percentage
Phase Date Completion
Identification and assessment of plant components Mar 99 75%
Identification and assessment of computers/software (Note 1) Jun 99 20%
Identification and Assessment of Other Areas (Note 2) Jun 99 10%
Identified remediations complete (Note 3) Sep 99 10%
Comprehensive testing guidelines 100%
Comprehensive testing Jun 99 0%
Contingency planning guidelines 100%
Contingency planning individual plans Mar 99 0%
Note 1 - Several computers are on three year lease and will not be obtained until 1999.
Note 2 - Includes items such as measuring/test and telecommunications equipment.
Note 3 - Two major modifications are currently scheduled to be completed after June 1999,
the remaining remediations are presently scheduled for completion prior to July 1999.
WCNOC has established a goal of completing all assessments of affected
systems by the end of the second quarter of 1999, with remediations being
completed by the end of the third quarter. Remediations are being planned and
initiated as the detailed assessment phase identifies the need, not at the end
of the assessment period. The areas where the greatest potential for
necessary remediations and/or more complex remediations could result were the
first ones targeted for assessment so remediation planning could be started
earlier. Many remediations will be completed before the end of the assessment
period. In addition, WCNOC is communicating with others with which its
systems interface or on which they rely with respect to those companies' Year
2000 compliance. Letters have been sent to all pertinent vendors to acquire
this information.
WCNOC has estimated the costs to complete the Year 2000 project at $4.6
million ($2.1 million, company's share). As of September 30, 1998, $0.6
million ($0.3 million, company's share) had been spent on the project. A
summary of the projected costs and actual costs through September 30, 1998 is
as follows:
Projected Actual
Costs Costs
(Dollars in Thousands)
Wolf Creek Labor and Expenses $ 494 $191
Contractor Costs 646 262
Remediation Costs 3,493 160
Total $4,633 $613
24
Approximately $3.5 million ($1.6 million, company's share) of WCNOC's
total Year 2000 cost is associated with remediation. Of these remediation
costs, $2.4 million ($1.1 million, company's share) are associated with 7
major jobs which are in the initial stages. All of these costs are being
expensed as they are incurred and are being funded on a daily basis along with
our normal costs of operations. In order to minimize the effects of delaying
other information technology projects, WCNOC has and will continue to augment
staffing during the identification and remediation phases of the project.
This staffing, which will include both programmers and technical support
personnel, will also be available during the testing and initial operating
phases of the various systems.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
25
KANSAS GAS AND ELECTRIC COMPANY
Part II Other Information
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Information required by Item 4 is omitted pursuant to General
Instruction H(2)(b) to Form 10-Q.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
for 12 Months Ended September 30, 1998 (filed
electronically)
Exhibit 27 - Financial Data Schedule (filed electronically)
(b) Reports on Form 8-K:
None
26
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
Date November 12, 1998 By /s/ Richard D. Terrill
Richard D. Terrill
Secretary, Treasurer and
General Counsel
Exhibit 12
KANSAS GAS AND ELECTRIC COMPANY
Computations of Ratio of Earnings to Fixed Charges and
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred and Preference Dividend Requirements
(Dollars in Thousands)
Unaudited
Twelve
Months
Ended
Sept 30, Year Ended December 31,
1998 1997 1996 1995 1994 1993
Net Income. . . . . . . . . . . . . $ 87,940 $ 52,128 $ 96,274 $110,873 $104,526 $108,103
Taxes on Income . . . . . . . . . . 27,195 17,408 36,258 51,787 55,349 46,896
Net Income Plus Taxes. . . . . 115,135 69,536 132,532 162,660 159,875 154,999
Fixed Charges:
Interest on Long-Term Debt. . . . 46,030 46,062 46,304 47,073 47,827 53,908
Interest on Other Indebtedness. . 3,368 4,388 11,758 5,190 5,183 6,075
Interest on Corporate-owned
Life Insurance Borrowings . . . 33,217 31,253 27,636 25,357 20,990 11,865
Interest Applicable to Rentals. . 24,783 25,143 25,539 25,375 25,096 24,967
Total Fixed Charges . . . . . 107,398 106,846 111,237 102,995 99,096 96,815
Earnings (1). . . . . . . . . . . . $222,533 $176,382 $243,769 $265,655 $258,971 $251,814
Ratio of Earnings to Fixed Charges. 2.07 1.65 2.19 2.58 2.61 2.60
(1) Earnings are deemed to consist of net income to which has been added income taxes (including net
deferred investment tax credit) and fixed charges. Fixed charges consist of all interest on
indebtedness, amortization of debt discount and expense, and the portion of rental expense which
represents an interest factor.
5
1,000
9-MOS
DEC-31-1998
SEP-30-1998
42
0
99,434
2,062
41,162
233,845
3,630,285
1,108,820
3,097,603
149,972
684,136
0
0
1,065,634
88,096
3,097,603
513,416
513,416
121,307
352,208
0
0
37,012
134,671
40,420
94,251
0
0
0
94,251
0
0
