ML20065A981

Western Resources,Inc 1993 Annual Rept

ML20065A981
Person / Time
Site:	Wolf Creek
Issue date:	12/31/1993
From:	Hayes J WESTERN RESOURCES, INC. (FORMERLY KANSAS POWER &
To:
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ML20065A975	List: ML20065A970 ML20065A981 ML20065B051
References
NUDOCS 9404010129
Download: ML20065A981 (52)

Text

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Dear Sliareholder,

1993 was a good year for Western Resources.

'I his repot t recoiiints Ilie achies eineints of yotir 1

ColHpilnV ill 1993 alld looks ahe:id to our future challenges. Our ultiniate objective is to continue 4

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enhancing the s alue of this company. To achieve i

lhis goal, we are working to create an energy i

con 1pany focused on quality energy services.

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building financial strength. maintaining the 1

j public trust. and being a good place to work.

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i I993 Annual Report 9404010129 940329 PDR ADOCK 05000482 l

HIGHLIGHTS 1993 1992o)

Common Stock Data Earnings Per Share.......,.....

$ 2.76 -

$ 2.20 Dividends Per Share...........

1.94 1.90 Book Value Per Share......

23.08 21.51 Average Shares Outstanding................

59,294,091 52.271,932 i.

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i Financial Data (Millions of Dollars)

Operating Revenues....

$1,909 Si,556

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Operating Expenses...

1,617 1,317 Net income.

177 128

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Gross Plant in Service...

6,222 6,033 i

l Operating Data i

Natural Gas:

Sales (Thousands of MCF) i Utility Service..

159,112 136,643 i

Transportation..

73,574 68.425 l

Total.

232,686 205.068 4

l Customers (Average)..

1,092,713 1,083.467 Electric:

j Sales (Thousands of MWH)

Utility Service.

15,464 12,825 l

Wholesale 4,525 3,028 a

j Total...

19,989 15,853 i

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'4 Customers (Average).

585,042 577,918 1

I tI)Information repects the merger with Kansa,s Gas and Electric Company on Alarch 31,1992.

COMMON STOCK VALUES EARNINGS AND DIVIDENDS 1

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• Includes cumularire cffect to Jamaan 1.

1991. <4 change in f

res enue recognition. a 4

Sl7,3(101kM1or 50.50 per share im rease.

• • Imludn spn ial, one-time Jn idend of 50.18 per share paid w i

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The return to more normal weather - a warmer summer and colder 1

winter than in 1992 - meant increased sales and earnirigs for Western

. comim,apumfn,m nwr Resources in 1993.

Electric sales and earnings for 1993 included KG&E for the full 12 months, while 1992 included only the nine months 4

following the merger on March 31, 1992.

Earnings per share of common stock for 1993 were $2.76, up 56 cents from 1992.

I At the January Board of Directors meeting, the quarterly dividend for a share of common stock was increased one cent. This provides an indicated annual dividend rate for 1994 of $1.98.

Our 1992 merger with Kansas Gas and Electric Company is working as l

forecast, creating the economies expected from workforce and operations consolidations. Our stronger company also helps the local l

economy, as we are able to provide the comprehensive economic 4

development and energy partnerships that help existing businesses grow and others locate within our service territory.

In 1993, we further refined the operations of the Company by the sale

.J of substantially all of our Missouri natural gas properties to Southern Union Company of Austin. Texas. The sale was concluded on January 31,1994.

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Why did we choose to sell? It was a sound business decision. The sale frees us of under-earning assets, strengthens our balance sheet. and provides greater flexibility to pursue strategic objectives.

I Our future success hinges on our ability to create market opportunities (W

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, 's aligned with our core business, continuously meet customer expectations and invigorate the way we go about our work with the g

y standards and expectations of a competitive marketplace. The greatest lever for change in our industry today is the force of competition. We are no longer sheltered by regulation.

We are committed to growth and change for our customers, shareholders, and for ourselves. We live in a world of change, with new rules and new players almost on a daily basis. We accept change and we expect to thrive on the opportunities it creates.

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e Anticipating customer needs and offering value-added services and products creates customer satisfaction. We have the skills, knowledge, and determination to serve our customers well.

With those qualities. we will succeed and thrive as a competitor.

In 1993, we welcomed thousands of new shareholders. The sale of new shares and the successful first-offering of the Customer Stock Purchase Plan provided the opportunity for many to participate in the life of our company for the first time.

We want you to meet some of your fellow shareholders. Their stories are found within this report.

If you have questions about any part of our Company's operations. please do not hesitate to contact me. Thank you for investing in Western Resources.

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Sincerely,

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John E. Ilay es, Jr.

Chairman of the Hoard. President, and Chief Execurit e Officer 3

We tern Re ources continue to make significant progress toward the objectives outlined in our strategic plan: to provide the highest quality j

energy services to customers, to build financial strength, to maintain the public trust, and to be a good place to work.

FINANCI A L STRENGTil:

Western Resources had a very good year in 1993. The return of more normal temperatures in 1993 - both colder winter and warmer sum-mer-had a positive influence on earnings. Electric sales for the year were 26 percent greater than in 1992 and natural gas sales for the year, including that transported for large commercial and industrial cus-tomers, were up 13 percent. Electric sales reported in 1992 included KG&E for only the nine months following the merger. Electric sales also were influenced by our ability to increase off-system sales to other utilities in 1993.

Earnings per share of common stock were $2.76, up 56 cents from the year before. In addition to weather-influenced sales increases, merger-related savings and lower interest rates also contributed to the earnings improvement.

l A number of steps were taken to improve the capital structure of the i

Company in 1993. These steps included the issuance of common stock.

something we had not done in 12 years. This first issuance under the name Western Resources, Inc., was of 3A25,000 shares. The main pur-

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't pose of this offering was to reduce our debt and increase the equity component of our capital structure.

In addition, we took advantage of l<mer interest rates and redeemed several bond issues during the year. Kansas Gas and Electric Company redeemed its 7 3/8% Series First hiortgage Bonds due 2002, 8 3/8 %

Series First Afortgage Bonds due 2006, and 8 1/2% Series First N1ortgage Bonds due 2007 in November. Western Resources redeemed m

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the 9.35% Series First hjortgage Bonds due 1998 in October.

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Patti O'Mallev-Knox - Abilene Kansas 1

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Patti O'Maller-Knox is an investment representative with a major stock brokeragefirm.

She is pun hasing shares <![ Western Resources common stock in thefirst offi' ring of the 1

Company s Customer Stock Purchase Plan (CSPP).

"I was attracted to the Contpany's approach to custonier satisjiiction. '

j Her assistant also invests in the CSPP. starting accountsfor each of herfour chihiren.

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Patti, her husband, ami children moved to Abilene three rears axofrom New 1hrk City where she workedfor the New )hrk Stock Erchange.

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um Like many long-time employees of the Company. Sherry Enns got herfirst stake in \\\\'estern Resources in an etnployee stock plan.

"Ilike the opportunity to not only workfor a company, init to be a part owner in a business which is interested in employee and customer satisfact on. "

i Sherry has been with the Companyfor 16 years, all of them at the Jeffrey Energy 1

Center located in northeast Kansos. As a control room operator; she helps l

monitor activity of the plant s fuel handling eiptipment, boilers, and electric generators fnnn one of three identical control rooms, one for each low-sulfitr coal-fired 680,000 kilowatt unit.

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In August, Kansas Gas and Electric Company offered $65 million of j

First Mortgage Bonds at an interest rate of 61/2% and a maturity date j

of August 1,2005. In February, City of Wamego, Kansas, Pollution l

Control Revenue Refunding Bonds at 6% were issued and proceeds were used to refund the 9 5/8% City of Wamego, Kansas, Pollution Control Refunding and Improvement Revenue Bonds, Series 1983.

l These refinancings will save the Company approximately $2.8 million l

in interest expense annually, i

j We created an opportunity in 1993 for our customers to purchase Company common stock more easily. The Customer Stoe.k Purchase Plan (CSPP), first offered in May, allows our customers to pledge as lit-

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tle as $20 each month and have Company stock purchased for or issued i

to them. The Company pays all administrative expenses associated i

with the CSPP, including brokerage fees. The stock, when purchased or j

issued at the end of each plan year, is deposited in the participant's j

name in the Western Resources Dividend Reinvestment and Stock l

Purchase Plan. During the first enrollment period,21,168 customers I

and employees joined the CSPP, pledging investments totalling more than $14.7 million.

In 1993, businesses within our service territory demonstrated financial strength as the Kansas economy outperformed the nation in terms of both employment and income growth. The unemployment rate in Kansas was about five percent, compared to a national average of over seven percent. The service area, while having a strong agri-business base, is horne to major employers, including Armco Steel, Beech Aircraft, Boeing, Cessna, Coleman, Delco, Frito Lay, General Motors, Goodyear, Lear Jet, North American Phillips, Pizza Hut, Quaker Oats, and Vulcan. Our central location, excellent transportation infrastruc-ture, clean air, available land, and reasonable energy costs make our service territory an attractive area for new and expanding businesses and for the people who work for and provide services to those businesses.

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In July, we reached a definitive agreement to sell substantially all of our Missouri operations to Southern Union Company. Austin, Texas. The sale of these natural gas-only operations was for approximately $400 million. We also agreed to sell our distribution system in Palmyra, Missouri, to United Cities Gas Company for $665,000.

The Missouri natural gas distribution properties sold to Southern Union serve about 456,000 customers in the Kansas City, Joplin, and St. Joseph areas, or 42 percent of our natural gas customers. About 1,350 customers are served in Palmyra, which is near Hannibal. We will continue to serve 1.2 million natural gas and electric customers in Kansas and about 35,000 natural gas customers in Oklahoma.

l Missouri revenues represented about 18 percent of our total revenues and seven percent of operating income for 1993.

The Missouri property totaled seven percent of net utility plant.

Following the required regulatory approvals. the sale to Southern Union was con-cluded January 31,1994.

l The Company's subsidiary for non-regulated businesses. Astra Resources, continues to seek investment opportunities closely related to our core business interests. These include natural gas marketing, natural gas gathering and processing. and pipeline compression 4

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CUSTOMER SERVICE AND SATISFACTION:

Almost two years after our merger with Kansas Gas and Electric Wf Company, how are we doing?

Expected merger savings are being achieved and customer service, as R'.j1 ^

measured by customer surveys, has improved. We anticipate we will achieve our projected savings of $150 million in the first five years of the merger.

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Norman Lee Allen - Wichita, Kansas Today, he inay only pick up a wrench to do soine maintenance on his own car, but Nonnan Lee Allen'sfirst job with the military was as an airplane technician and mechanic. He went on to develop training programs for ainnen, and ended his 26-year career with the United States Air Force and the U.S. Atarine Corps as a master sergeant and chief ofleadership and management development instruction. Currently, he worksfi>r the Department of Veterans Af]iiirs at the VA Aledical Center in Wichita as administrative officer of the day, where he is res;wnsiblefor hospitalfunctions and activities afier nonnal hours of operation.

But hi.; passion is the stock market. While at McConnell Air Force Base in Wichita. he graduatedJhnn college and one of his classes was on investing. He does his own research and makes his own investment decisions. Nonnan's beliefin the importance ofinvesting includes using stock as gifis.

I Our thanks to the We'stport Airport of Wichitaforfurnishing the airplancs used m these photographs.

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d Renf Parson is looking to thefuture.

"I like Western Resotures' commitment to technology - from clean air to computerized meter reading. As in my own business, nsponding to emerging technologies is vital."

A former track standout in the quarter mile, half mile, and mile relay for The University of Kansas, Reni now only runs for fun.

She is a broadcast communications graduate who worksfor McCaw Conununications in Kansas City as retail dealer managerfor pagers.

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A I nok At Combination of the two companies, including work functions and busi-Western Resources ness locations, has gone smoothly, largely because of the employee teams which evaluated processes from both companies and recom-mended the best actions to take - from coordinated electric dispatch to data transfer and from employee communications to consolidating customer service offices. This successful concept, pioneered by our enthusiastic employees, now is being used by other utilities across the country as they plan and implement their mergers.

In 1993, we purchased the municipal electric system of DeSoto. Kansas, adding 882 customers with annual sales of 12.2 million kilowatthours.

The flood of 1993 also effected our service territory. During the flood-ing, approximately 5,800 of our cr.,tomers were impacted; but none of our major facilities was damaged and all operations were restored promptly.

We have been working very hard to provide the type of customer service that begets customer satisfaction and creates new markets.

The results of our 1993 large customer survey indicate we are moving in the right direction. Our 50 largest customers report that on a scale of 1 to 5, we rate 4.3 in reliability,4.4 in responsiveness,4.5 in accuracy.

4.5 in competence, and 4.2 in pro-active attitude.

Our 1993 survey of residential customers revealed that, overall, 88 per-cent approve of the quality of service they receive. This is up from 85 percent in 1992. Furthermore, over 94 percent of electric and 93 per-cent of natural gas customers agreed we provide safe service and over 91 percent of customers believe we provide accurate, easy-to-read bills.

Western Resources helped pioneer various applications for innovatise electrotechnologies by partnering with customers to demonstrate the effectiveness of various electric-driven processes such as infrared drying, ultraviolet disinfection, and induction heating. Through the 11

application of these technologies, customers are capable of complying with environmental regulations, increasing competitiveness, improving product quality, and minimizing waste streams. Customers can realize these benefits while at the same time the Company can increase system efficiency and profitability.

Our Power Technology Center (PTC) in Wichita addresses the needs of l

customers with sensitive electronic equipment. From computer controls to digital systems, the need for quality - uniform and reliable - elec-l tric power is a business necessity. Engineers from the PTC help indus-l trial and commercial customers resolve problems in the operation of j

sensitive electronic equipment, problems that may arise from the l

Company's system, within the customer's facility, or from the surround-ing environment.

Power quality will continue to be a major concern to industrial and com-mercial customers as more and more of their equipment and processes l

become automated. It is estimated that power electronic and micro-processor-controlled equipment will dominate the loads of electric utili-p

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ties by the end of this decade. Through our PTC, Western Resources is

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well placed to assist these customers and remain the utility of their choice.

q Western Resources is actively researching new technologies that will increase customer uses of natural gas and electricity in " nontraditional" i

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markets. Our fleet continually adds and tests new vehicles which use a

p natural gas or other fuels such as bio-diesel. In early 1993, we distrib-D, uted 100 battery-powered lawn mowers to selected electric customers as part of the National Consortium for Emission Reduction in Lawn Care.

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This project is in cooperation with the Environmental Protection

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Looking over the rolling hills and valleys ofnorth central Kansas where he has lived his entire hfe, Hal Kunze says, "I never wanted to be anywhere else. "

On the K-Bar R.:nch, he raises some 600 head of crossbred cattle with his son, Darcy. His grandRaher homesteaded the place that has grown into a cow-calf operation. "I started riding at age two or three and was henling cattle soon after " He still enjoys his time in the saddle.

h's a self-sufficient operation which, in most years, also produces the alfidfa and sorghmn which feed the cattle during the winter "Ilike companies with a conunisment to using natural n somres wisely and which provide good custanter service. "

Halis active in the Kansas Livestock Association, where he is on the Board of Directors. He and his wife of 43 years, Delores, enjoy dancing to all types of music,from Country and Wester,i to Big Band.

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i The Jeffersfamily is spreadfrom coast to coast, but its core is on afarm infar northeast Kansas, in the words ofthe eldest child, Jo); "Myparents raised us all with beliefin hard work, dedication, and thefinure and respect offamily, country, and community. "

"We appreciate the Safety Watch program which Western Resources employees maintain," said Judy.

"With all the concent about crime, it's good to know they are watchingfor possible problems while doing l

their regularjobs. The involvement of employees in community activities is very important and greatly l

appreciated. They are a 'taken-for-granted' community asset. "

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A Kansas native, Dr Joy Jc:l]ers first bought stock while a teenager in high school.

"I believe in thefuture of Kansas, its commeste, and its people, and I vahte thef iendly service whenever calling Western Resources with a question.

I appreciate that Western Resources is encinnunentally responsible while simultaneously advancing technology. li>u are providing an example tofollow, John lefTers - New )?>rk. New tirrk not onlyfor other cinnpanies but for individuals as

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field of applicantsJbr a residency position in Oregon, where she met her husband, William Johnston. She a

now practices in Portland.

John Jefers also has been a shareholder since high school.

"I appreciate Western Resources' dedication to quality service. "

John moved to New ) kirk following college graduationfive years ago, For the past year he has served as assistant to the publisher of the Natural History Magazine, a publication of the American Museum of Natural Histo:y in New York. He edits magazine material prepared by researchers, educators, and scientistsfrom across the country.

linmgest daughter Maria, is in high school and active in music. Another daughter Karluyn, works in Kansas City.

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A GOOD PLACE TO WORK:

We recognize that our customers, employees, and shareholders are I

vitally interested in our commitment to preserve and enhance the envi-ronment. Clean air, clean water, and a better environment are very b

important to us at Western Resources. We remain national leaders in the development and installation of technology to reduce emissions at a

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our own facilities,just as we assist our customers in finding energy-effi-pt cient answers to their waste treatment questions.

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Our employ ee-directed " Green Team" Environmental Task Force con-j he-mEMm' tinues its nationally-recoenized program of using employee volunteers i

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l mazmn sharn of ccm,*" $md and corporate support to complete projects involving wildlife habitat vantaname These sharn are i

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• development, wetlands restoration and preservation, species protec-3 In \\l!!U(It rn % SiH *l aG lV n Uttn tion, and recycling, as well as developing partnerships with other groups fm.st iru us ans mmrum c compmics. The larvu knoun

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Wetlands and wildlife habitat enhancement were major focuses of the F

og Green Team in 1993. Employee volunteers also participated in a pro-

'j;f gram to re-introduce golden eagles to central Kansas. In addition, each 8

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n. g year the group " adopts several communities for intensive, one-day g-y a

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A sANm tree planting details to replace trees damaged by weather. Trees dam-w aged in a.1992 wind storm were replaced in May 1993 in Glasco and

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Concordia, Kansas. In 1994, the Green Team plans to replace Siberian elms lost in Russell, Kansas. Siberian elms were the primary species BMW!!44

.m planted during the 1930s to counteract the devastation created by the rhe zaruu how,r - 65 6 ccr.

droucht and winds of the Dust Bowl

< cnt of common sharn - _is u hoUrr efbharn or others Some f

sharchourn < mamauais ""d Western Resources and the Green Team were recipients of the first m ununonehome to h a,e ihnr sharn ouh 13e hracr r"'her Oklahoma Governor's Environmental Excellence Award for the man-than regnicr them m thar ou n

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agement of the Upper Verdigris Wetlands. The 1,145-acre abandoned urm name - inc name of the DiNNihjjll oil and gas field is now home to migrating waterfowl and shorebirds, as pr uerai hnae,au nr*

well as other wildlife. Also in 1993, the Wildlife Society - Central

% g e7mr Mountain States and Plains Section - honored our employee environmen-gy 3

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tal effort with its prestigious Citizens Conservation Achievement Award.

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To learn more about our employee environmental activities, as well as other employee involvement in the life of the Company and our com-munities, we invite you to request a copy of our 1994 Employee a w* k - ' Calendar. It details Green Team activities for 1993 and some of the ase endeavors of other Company task forces and community relations

p teams. To receive a copy, please write the Corporate Communications Department, Western Resources, P. O. Box 889, Topeka, KS 66601-0889.

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Other community service activities attracted corporate sponsorship and [' employee volunteers throughout the year. Please see the section "A Western Resources Profile" beginn'ng on page 44 for additional infor-nie rrnitor nur,a>y oruur " " " ^ " " " " mation about some of these activities. u a p m,aare m xan,a, 7} paccat are in Cal:lbrnia 7 ? crt t'n! are (?l b$l\\\\0Hri f Tile FUTURE: [f}.[,"/,"'N',jl72f,, i> pacm are in ouaboma I 2 percern are in Nchrada Our m. dustry faces many challenges, m. eluding the emergence of more and more competition. Our success will come in recognizing the direc-tion in which the industry is going. We will continue to work with our customers, state and federal regulators, and many others to address k cooperatively such issues as open access to transmission lines and cus-f- jlyg Y tomer choices. 8. mt m We must, and will, continue to concentrate on customer service. A ";y competitive environment demands attention to what customers want. Consequently, the best path to success is for us to focus on achieving customer satisfaction with the Company's products and services. niere are 75 amuimide s who lise vunide Ine United h.. 1, including-CllANGES: 26 "' fo""d" 10 m Enelaml m aama.o d*'"'" Cloud L. " Bud" Cray, Jr., retired from the Board of Directos on May 4 . m I rwice. Grecc c. Japan, ^""d' *"!"" ""d *"d""d 1993, at the onclusion of our annual meeting. He served as a director since 1973. Of our sharchniden: 2 4 p, n rnt m 5 pr oa n: o the oral sharen arc p nnt tinann r 25 4 pe ru nt <f, 8 p n en vi tiu': vial share u arc.h male _:; 2 22 2 pcn cra s 6 2 pen cnt of ihr tvial than a are malt I - l ~';h,+ [_n m p,,u,m 2 p_," 4,3<,,a, harm a,as_m,n,,,0 (I ? ci (nf 80. 5N pCY( cnf O! :he fe'lah \\ hart \\ } arc }snant iaf in\\[:th!!,1nt ft 0 3 pen ent CH ! pcrcen: of the total sharen are "stre e t name s " e 0:hcr holden m,lude inurram c < ornpanu t < vilcen <.nl l uniu'runew pen non ;danu s hun het hmpnal,. toundarunn, umain. and m,ntment t luh 17

Western Resources, Inc. FINANCIAL GRAPHS CAPliAL EXPENDITUR15 EMilDDED(0570F DiBT I l l l y"re ~ % M j/['k$hhbkD,N gMd[_ 3, { d Q g y ;I D gy. 74 ,;9.,. s.

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Western Resources. inc. SELECTED FINANCI AL DATA 1993 1992(1) 1991 1990 1989 Jear Ended December 31. IDollars in Thousands) 1 income Statement Data . Operating revenues: Electric............................ $1,104,537 $ 882,885 $ 471.839 $ 463,707 $ 452,343 j Natural gas........................ 804,822 673.363 690,339 686,048 675,280 Total operating revenues.......... 1,909,359 1,556,248 1,162,178 1,149,755 1,127,623 - Operating expenses.................... 1.617.296 1,317,079 1,032,557 1,017,765 1,002,087 3 Allowance for funds used during construction....................... 2,631 2,002 1,070 1,181 1,503 i Income before cumulative effect j of accounting change................. 177,370 127,884 72,285 79,619 72,778 Cumulative effect to January 1,1991, of 4 change in revenue recognition........ 17,360 Net income........................ 177,370 127,884 89,645 79,619 72,778 Earnings applicable to common stock. 163.864 115,133 83,268 77,875 70,921 December 3i. 1993 1992(1) 1991 1990 1989 (Douars in Thousands) Balance Sheet Data i Gross plant in service................... $6,222,483 $6,033,023 $2,535,448 $2,421,562 $2,305,279 Constructim work in progress............ 80,192 68,041 17,114 20,201 19.571 Total assets...................... 5,412,048 5,438,906 2,112,513 2,016,029 1,959,044 4 Long-term debt and preference stock i subject to mandatory redemption...... 1,673,988 2,077,459 690,612 595,524 552,538 } Year Ended December 31. I993 1992(1) 1991 1990 1989 i Common Stock Data Earnings per share before cumulative j effect of accounting change... 2.76 2.20 1.91 2.25 2.05 Cumulative effect to January 1,1991, of change in revenue recognition per sham.. .50 Earnings per share... 2.76 2.20 2.41 2.25 2.05 I Dividends per share 1.94 1.90 2.04 C) $ 1.80 1.76 Book value pe. share 23.08 21.51 18.59 18.25 17.80 Average shares outstanding (000's). 59,294 52,272 34,566 34,566 34.566 i Interest coverage ratio (before income l taxes, including AFUDC)..... 2.79 2.27 2.69 2.86 2.96 ) OPERATING REVENUES OPERATING EXPENSES 4 R e sidential................... Capital Cost.................. Ofher................... Energy Cost............. .. 4' 1W3 y af [i T'"' W inaustrial............ N cC 'h w l n Dwpreciatian & ]3-W Commerdo!........... 9l; Amortization.......... l:. '4 a c 0 erotion & OintenORCe.............. (1)Information reflects the merger with KG&E on March 31.1992 (see Note 3). ]9 (2) includes special, one-time dividend of $0.18 per share paid February 28,1991.

Western Resouras. Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS ' FINANCIdL CONDITION fuel expenditures were approximately $6 million. It is pro, jected that adequate capacity margins will be maintained with-General: Earnings were $2.76 per share of common stock out the addition of any major generating facilities through the based on 59,294.091 average common shares for 1993, an turn of the century. increan from $2.20 in 1992 on 52.271,932 average common The construction expenditures for improvements on the natur-shares. The increase resulted from a return to near normal al gas system, including the Company's service line replace-temperatores compared to unusually mild winter and summer ment program, were approximately $94 million during 1993, temperatures in 1992, reduced interest costs, and the full of which construction expenditures for the Missouri Properties twelve month effect of the merger with Kansas Gas and were approximately $39 million. Electric Company (KG&E) on March 31,1992 (the Merger). Capital expenditures for 1994 to 1996 are anticipated to be as - Dividends per common share were $1.94 in 1993, an increase follows: of four cents from 1992. In January 1994, the Board of Ekmig Nuclear Fuel Natural Gas Directors declared a quarterly dividend of 49 % cents per com-(Dollars in musands) mon share, an increase of one cent over the previous quarter. 1994 $131,483 $20,995 $64,608 1995 143,391 21,469 69,482 The book value per share was $23.08 at December 31,1993, compared to $21.51 at December 31,1992. The increase in 1996 151,100 9,890 68,747 book value is primarily the result of the issuance of additional These expenditun s are estimates prepared for planning purposes common stock and an increase in retained earnings. The 1993 and are subject to revisions fmm time to time (see Note 4). closing stock price of $34 % was 151 percent of book value. There were 61,617,873 common shares outstanding at The Company's net cash flow to capital expenditures was 100 December 31,1993. percent for 1993 and dunng the last five years has averaged 87 percent. The Company anticipates net cash flow to capital On January 31,1994, the Company sold substantially all of its expenditures to be app'roximately 100 percent in 1994. Missouri natural gas distribution properties and operations to Southern Union Company (Southern Union). The Company The Company's capital needs through 1998 are approximately has agreed to sell the remaining Missouri properties to United $33.6 million for bond maturities and cash sinking fund Cities Gas Company (United Cities). The properties sold to requirements for bonds and preference stock. This capital as Southern Union and United Cities are refened to herein as the well as capital required for construction will be provided from " Missouri Properties." With the sales the Company will no mtenml and external sources available under then existing fmancial conditions. longer be operating as a mility in the State of Missouri. The portion of the Missouri Properties purchased by Southem The Company anticipates using the net proceeds from the Union was sold for an estimated sale price of $400 million, in s le of the Missouri Properties to reduce the Company's out-cash, based on a calculation as of December 31,1993. The standing debt. final sale price will be calculated as of January 31,1994, with-The embedded cost of long-term debt was 7.7% at December in 120 days of closing. Any difference between the estimated 31,1993, a decrease from 7.9% at December 31,1992. The and final sale price will be adjusted through a payment to or decrease was primarily accomplished thmugh refinancing of from the Company. higher cost debt. United Cities has agreed to purchase the Company's natural The Company's short-term financing requirements are satis-gas distribution system in and around the City of Palmyra, fied, as needed, through the sale of commercial paper, short-Missouri, for $665,000 in cash. term bank loans, and borrowings under other unsecured lines The operating revenues and operating income (unaudited) of credit maintained with banks. At December 31, 1993, related to the Missouri Properties appmximated $350 million short-term borrowings amounted to $441 million, of which and $21 million representing appmximately 18 percent and $126 million was commercial paper (see Notes 8 and 9). seven percent, respectively, of the Company's total for 1993, On September 20, 1993, KG&E terminated a long-term and $299 million and $11 million representing approximately revolving credit agreement which provided for borrowings of 19 percent and five percent, respectively, of the Company's up to $150 million. The loan agreement, which was effective total for 1992. Net utility plant (unaudited) for the Missouri through October 1994, was repaid without penalty. 1 Properties, at December 31,1993, approximated $296 million At December 31,1993, the Company had $200 million of First and $272 million at December 31, 1992. This represents Mortgage Bonds available to be issued under a shelf registra-approximately seven percent at December 31,1993, and six tion filed August 24, 1993. Also at December 31, 1993, percent at December 31,1992, of the total Company r i utih-KG&E had $150 million of First Mortgage Bonds available to ty plant. Separate audited financial infonnation wr .at kept be issued under a shelf registration filed on August 24,1993. by the Company for the Missoun Properties. This unaudited On January 20, 1994, KG&E issued $100 million of First financial information is based on assumptions and allocations Mortgage Bonds,6.20% Series due January 15, 2006, under of expenses of the Company as a whole. the KG&E shelf registration. The net proceeds were used to j Liquidity and CapitalResources: The Company's liquidity is a reduce short-term debt. l function of its ongoing construction program, designed to On January 31,1994, the Ctmpany redeemed the remaining improve facilities which provide electric and natural gas ser- $2,466.000 principal arrount of Gas Service Company 8 %9 vice and meet future customer service requirements. Series First Mortgage 130nds due 1997. During 1993, construction expenditures for the Company's KG&E has a long-term agreement that expires in 1995 w hich electric system were approximately $138 million and nuclear contains provisions for the sale of accounts receivable and 20 l

, unbilled revenues (receivables) and phase-in revenues up to a The capital structure at December 31,1993, was 45 percent total of $180.million. Amounts related to receivables are ' common stock equity, 6 percent preferred and preference ' accounted for as sales while those related to phase-in revenues ' stock, and 49 percent long-term debt. The capital structure at are acccunted for as collateralized borrowings. At December. '. December 31, 1993, including short-term debt and current 31,1993, KG&E had receivables amounting to $56.8 million. maturities of long-term debt and preference stock, was 40 per-which were epsidered sold. cent common stock equity,5 percent preferred and preference The issuance an6 retirement of long-term debt, borrowings st ek, and 55 percent debt. against the cash surrender value of corporate-owned life insure RESULTS OF OPERATIONS ance pohcies (COLI), and the issuance of common stock dur-ing 1993 are summarized in the table below. The following is an explanation of significant variations from prior year results' in revenues, operating expenses, other Date - Issued Retired income and deductions, interest charges and preferred and (Dollars in uillionst preference dividend requirements. The resuhs of operations Long4erm debt - of the Company include the activities of KG&E since the 7 %% due 2002 - KG&E 11/22/93 $25.0 Merger on March 31,1992. Additional information relating to 8 %% due 2006-KG&E - 25.0 changes between years is provided in the Notes to 8 %% due 2007 - KG&E ' 25.0 Consolidated Financial Statements. 9.35% due 1998 10/15/93 - 75.0 Rerenues: The operating revenues of the Company are based 6 %% due 2005 KG&E ~ 08/12/93 565.0 ~ on sales volumes and rates, authorized by certain state regula-tory commissions and the FERC, charged for the sale and 8 %% due 2001 - KG&E 08/20/93 35.0 delivery of natural gas and electricity. Rates are designed to 8 %% due 2008 - KG&E 30.0 recover the cost of service and allow investors a fair rate of return. Future natural gas and electric sales will continue to be 7.65% due 2023 04/27/93 100.0 affected by weather conditions, competing fuel sources, cus-8 %% due 2000 05/12/93-20.0 8 %% due 2005 35.0 tomer conservation efforts, and the overall economy of the 8 %% due 2008 35.0 Company's service area. The Kansas Corporation Commission (KCC) order approving 6% Pollution Control Revenue the Merger provided a moratorium on increases, with certain Refunding Bonds due 2033 02/09/93 58.5 exceptions, in the Company's jur,sd,ctional electric and natur-i i 9 %% Pollution Control al gas rates until August 1995. The KCC ordered refunds Refunding and improvement totalling $32 million to the combined companies' customers Revenue Bonds dae 2013 58.5 to share with customers the Merger-related cost savings achieved during the moratorium period. The first refund of Bank term loan 01/26/93 230.0 58.5 million was made in April 1992. A refund of the same Revolving credit agreements (net) various 35.0 amount was made in December 1993, and an additional refund of $15 million will be made in September 1994 (see Note 3). -term debt and On March 26,1992,in connection with the Merger, the KCC n d ar aus U approved the ehmmation of the energy Cost Adjustment Clause for most Kansas retail electric customers of both the COLI borrowings (net)(t) various 183.3 Company and KG&E effective April 1,1992. The fuel costs Common stock are now included in base rates and were established at a level l 3,425,000 shares (2) 08/25/93 124.2 intended by the KCC to equal the projected average cost of 147,323 shares Os

various 5.3 fuel through August 1995. Any increase or decrease in fuel costs from the projected average will be absorbed by the 1

(1) The Cold borrwings will be repaid ulwt receipt ofproceedsfrom death Company * \\ benefits under the contracts. See Note 1 of Notes to Consolidated Financial Statements for additionalinformation on the accumulated cash Future natural gas revenues will be reduced as a result of the sale of the Missouri Properties by approximately $350 million (271 sue p b c < Ter n f a f roceeds of 3121 million. (3) issued under the Dividend Reinvestment and Stock Purchase Plan (DRIP). annually based on Missouri revenues recorded in 1993 (sce The net proceeds from these issues of apprmimately $53 mdlion were Note 1). added to the general corporate funds of the Company. Shares iswd 1993 COMPARED TO 1992: Electric revenues increased under the DRIP may either be originalissue shares or shares purchased on the open markt. significantly in 1993 as a result of the Merger. Also con-tributing to the increase were increased electric sales for space The Company has a Customer Stock Purchase Plan (CSPP), heating, resuhing from colder winter temperatures in the first under which, retail electric and natural gas customers and quarter of 1993, and increased sales for cooling load, resulting employees of the Company may purchase common stock from warmer temperatures in the second and third quarters of through monthly installments. The initial installment peri-1993. KG&E electric revenues of $617 million have been od runs from September 1993 through June 1994, with included in the Company's 1993 electric revenues. This com-monthly installments plus accumulated interest converted to pares to KG&E revenues of $424 million, from April 1,1992, shares in August 1994. Shares issued under the CSPP may through December 31,1992, included in the Company's 1992 either be original issue shares or shares purchased on the electric revenues. Partially offsetting these increases in elec-open market. Approximately $14.7 million has been tric revenues was the amortization of the Merger-related pledged for this installment period. customer refund. l l 21 _. _.. - l

Wenern Resources, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS Electric revenues for 1993 compared to pro forma revenues At December 31, 1993, KG&E completed the accelerated for 1992, giving effect to the Merger as if ;t had occurred at amortization of deferred income tax reserves related to the January 1,1992, would have increased as a result of the allowance for borrowed fuuds used during construction capi-warmer summer and colder winter temperatures in 1993. talized for Wolf Creek Generating Station. The amortization Retail sales of kilowatt hours on a pro forma comparative of these deferred income tax reserves amounted to approxi. basis increased from approximately 14.6 billion for 1992 to mately $12 million in 1993. In accordance with the provisions approximately 15.5 billion for 1993, or six percent. of the Merger order (see Note 3), the Company is precluded Natural gas revenues increased approximately 20 percent as a fmm recovering the $12 million annual amortization in rates result of increased sales caused by colder winter temperatures, until the next rate filing. Therefore the Company s earnings the full impact of increased retail natural gas rates (see Note 5). will be impacted negatively until these income taxes are recovered in future rates, and an eleven percent increase in the unit cost of gas passed on to customers through the purchased gas adjustment clauses 1992 COMPARED TO 1991: Operating expenses increased (PGA). The colder winter temperatures are renected in a 17 significantly for 1992 as a result of the Merger. KG&E oper-percent increase in natural gas sales to residential customers. ating expenses for the nine months ended December 31,1992, 1992 COMPARED TO 1991: Electric revenues incr, ased f $316 million have been included in the Company's operat-significantly in 1992 as a result of the Merger. KG&E electric ing expenses. revenues for the nine months ended December 31,1992, of Other factors, excluding the Merger, contributing to increased $424 million have been inel ded in the Company's electric operating expenses were a one-time charge for the Company's revenues. Partially offsetting this increase in revenues were portion of the early retirement plan and voluntary separation reduced retail electric sales as a result of the abnormally mild program of appmximately $11 million; higher depreciation summer temperatures in 1992 and the amortization of the and amortization expense caused by increased plant invest-Merger-related customer refund. ment and the beginning of the amortization of previously Electric revenues for 1992 compared to pro forma revenues deferred safety-related expenditures in Kansas; and increased for 1991, giving effect to the Merger as if it had occurred at property taxes due to mereases m plant and tax mill levies. January 1,1991, also would have been lower as a result of the Partially offsetting those increases in operating expenses was mild summer and winter temperatures in 1992. Retail sales of the commencement of savings as a result of the Merger. The kilowatthours on a pro forma comparative basis decreased Company also changed the depreciable life of Jeffrey Energy from approximately 15.1 billion for 1991 to appmximately Center, for book purposes, to 40 years, resulting in a reduction 14.6 billion for 1992, or four percent, to depreciation expense of approximately $5.4 million annually. Natural gas revenues decreased over two percent due to a nine L wer natural gas purchases as a result of the mild tempera-percent decrease in natural gas deliveries, excluding sales tures and a reduced unit cost also partially off set the merease related to the cumulative effect of the unbilled revenue adjust. m OPeratmg expenses. ment in 1991. Also contributing to the decrease was an As permitted under the La Cygne 2 generating station lease approximately four percent decrease in the unit cost of agreement, KG&E requested the Trustee Lessor to refinance natural gas which is passed on to customers through the PGA. $341,127,000 of secured facility bonds of the Trustee and The decrease in sales can be attributed to mild winter temper-owner of La Cygne 2. The transaction was requested to reduce atures in 1992. Partially offsetting the decreased sales were the Company's recurring future net lease expense. To accom-increased retail rates in Kansas and Missouri beginning early plish this transaction, a one-time payment of approximately in 1992. $27 million was made which will be amortized over the Operating Expenses: 1993 COMPARED TO 1992: remaining life of the lease and will be included in operating Operating expenses increased for 1993 primarily as a result of expense as part of the future lower lease expense. On the Merger. KG&E operating expenses of $470 million have September 29,1992, the Trustee Lessor refinanced bonds with been included in the Company's operating expenses for the a coupon rate of approximately 11.7% with bonds having a year ended December 31, 1993. This compares to KG&E c upon rate of approximately 7.7%. operating expenses of $316 million, from April 1,1992, Other Income and Deductions: Other income and deduc-through December 31,1992, included in the Company's 1992 tions, net of taxes, increased $1.3 million in 1993 compared to operating expenses. 1992. KG&E other income and deductions, net of taxes, of Other factors, excluding the Merger. contributing to the inerease $19 million have been included in the Company's total for in operating expenses were higher fuel and purchased power 1993 compared to $17 million in 1992 from April 1, through expenses caused by increased electric sales to meet cooling load December 31,1992. Income from KG&E's COLI totalled and increased natural gas purchases caused by a 16 percent $8 milhon m 1993. increase in natural gas sales and an 11 percent higher unit cost Other income and deductions, net of taxes, was significantly of gas which is passed on to customers through the PGA. higher in 1992 compared to 1991 as a result of the Merger. Also contributing to the increase were higher general taxes KG&E contributed, for the nine months ended December 31, due to increases in plant, the property tax assessment ratio, and 1992, $17 million to other income and deductions, net of higher mill levies. A constitutional amendment in Kansas taxes. Significant items of other income include approximately changed the assessment on utility property from 30 to 33 per- $9 million from KG&E's COLI and KG&E's recognition of cent. As a result of this change the Company had increased the recovery of approximately $4.2 million of a previously property tax expense of approximately $6.1 million in 1993. wntten-off investment in commercial paper. Partially offsetting the increases were savings as r result of the Merger and reduced net lease expense for La Ljgne 2 (see Note 10). 22 --.a

l Interest Charges and Preferred and Preference Dividend chasing power. While the Company has experienced relatively l Requirements: Interest charges for 1993 were higher as a low inflation in the recent past, the cumulative effect of infla-result of the Merger. KG&E interest charges of $59 million tion on operating costs requires the Company to seek regulato-l for 1993 have been included in the Company's total interest ry rate relief to recover these higher costs. ] charges compared to $53 million for the nine months endad FERC Order No. 636: On April 8,1992, the FERC issued December 31,1992. The full twelve monQ effect of interest Order No. 636 which the FERC intended to complete the dereg-on debt to acquire KG&E also contributed to the increase in ulation of natural gas production and facilitate competition in total interest charges. He increased interest charges have the gas transportation industry. Order No. 636 is expected to been partially offset through lower debt balances and reduced affect the Company in several ways. The rules provide greater l interest charges from refinancing higher cost long-term debt protection for pipeline companies by providing for recovery of and lower mterest rates on variable-rate debt. The Company's all fixed costs through contracts with local distribution compa-l embedded cost of long-term debt decreased to 7.7% at nics and other customers choosing to transport gas on a firm December 31,1993, compared to 7.9% and 8.6% at December (non-interruptible) basis. The order also separates the purchase 31,1992 and 1991, respectively, pnmanly as a result of the of natural gas from the transportation and storage of natural gas, refinancing of higher cost debt, shifting additional responsibility to distribution companies for Total interest charges increased significantly for 1992 com-the provision (through purchase and/or storage) of long-term pared to 1991 as a result of the Merger. Partially offsetting gas supply and transportation to distribution points. Under the this increase were lower short-term and long-term interest new niles, distribution companies elect the amount and type of l rates. services taken from pipelines. The Company may be liable to Preferred and preference dividend requirements increased six 0ne or more of its pipeline suppliers for costs related to the tran-sition from,ts traditional sales service to the restructured ser-i l percent in 1993 and significantly in 1992 compared to 1991 as a result of the issuance of $50 million of 7.58% preference vices required by Order No. 636. The Company believes sub-stock in the second quarter of 1992. stantially all of these costs will be recovered from its customers and any additional transition costs will be immaterial to the Aferger Implementation: In accordance with the KCC Company's financial position or results of operations. ) Merger order, amortization of the acquisition adjustment will commence August 1995. The amortization will amount to The Company was an active participant m pipeh.ne restructuring approximately $19.6 million per year for 40 years. The negotiations and does not anticipate any material difficulty m Company can recover the amonization of the acquisition obtaining the pipeline services the Company needs to meet the adjustment through cost savings under a sharing mechanism requirements of its gas operations. l approved by the KCC as described in Note 3 of the Notes to Environmental: The Company has recognized the importance the Consolidated Financial Statements. While the Company of environmental responsibility and has taken a proactive posi-has achieved savings from the Merger, there is no assurance tion with respect to the potential environmental liability associ-l that the savings achieved will be sufficient to, or the cost sav-ated with former manufactured gas sites. The Company has an l ings sharing rnechanism will operate as to fully offset the agreement with the Kansas Department of Health and l amortization of the acquisition adjustment. Environment to systematically evaluate these sites in Kansas In 1992 the Company completed the consolidation of certain (see Note 4). operations of the Company and KG&E. In conjunction with The Company currently has no Phase I affected units under the these efforts the Company incurred costs of consolidating Clean Air Act of 1990. Until such time that additional regula-facilities, transferring certain employees, and other costs asso-tions become final the Company will be unable to determine its ciated with completing the Merger. Certain of these costs compliance options or related compliance costs (see Note 4). related to KG&E have been considered in purchase account-Energy Policy Act: The 1992 Energy Policy Act (Act) will l mg for the Merger. Other costs, meluding costs of the early require increased efficiency of energy usage and will l retirement incentive programs and other employee severance potentially change the way electricity is marketed. The Act also compensation programs for former Kansas Power and Light provides for increased competition in the wholesale electric Company employees were charged to expense m 1992. See market by permitting the FERC to order third party access to Note 6 of Notes to Consolidated Fm, ancial Statements for a utilities' transmission systems and by liberalizing the rules for l discussion regarding the early retirement and Merger sever-ownership of generating facilities. As part of the Merger, the ance plans. Company agreed to open access to its transmission system. An ther part of the Act requires a special assessment to be OTIIER INFOR3fATION collected from utilities for a uranium enrichment, Inflation: Under the ratemaking procedures prescribed by the decontamination, and decommissioning fund. KG&E's portion of the assessment for Wolf Creek is approximately regulatory commissions to which the Company is subject, only the original cost of plant is recoverable in revenues as $7 million, payable over 15 years. Management expects such depreciation. Therefore, because of inflation, present and costs to be recovered through the ratemaking process. future depreciation provisions are inadequate for purposes of Statement of financial Accounting Standards No.106 (SFAS maintaining the purchasing power invested by common share-106) and No.112 (SFAS 112): For discussion regarding the holders and the related cash flows are inadequate for replacing effect of SFAS 106 and SFAS 112 on the Company see Note 6 property. The impact of this ratemaking process on common of Notes to the Consolidated Financial Statements. shareholders is mitigated to the extent depreciable property is financed with debt that can be repaid with dollars of less pur-23

' Western Res.ources. Inc. CONSOLIDATED BALANCE SHEETS 1993 1992 December 31. (Dollars in Tiwusands} ASSETS Utility Plant (Notes 1 and 11)i Electric plant in service................,................ ' $5,110,617 ' $5.008,654 - Natural gas plant m service............................ 1,111,866 1,024,369 6,222,483 6,033,023 Less - Accumulated depreciation............................. 1,821,710 1,691.623 .L400,773 4.341.400 Construction work in progress '............................. 80,192 68.041 N uclear fuel (net)................................... 29.271 33.312 Net u tility plant........................... 4,510,236 4.442.753 Other Property and Investments: Net non-utility investments........ 61,497-47,680 Decommissioning trust (Note 4).......................... 13,204 9,272 Other'....... 10,658 13.855 85,359 70,807 Current Assets: Cash and cash equivalents (Note 1)... 1,217 875 Accounts receivable and unbilled revenues (net) (Note 1)....... -238,137 222,601 Fossil fuel, at average cost.......... 30,934 49,007 Gas stored underground, at average cost. 51,788 14,644 Materials and supplies, at average cost. 55,156 59,357 Prepayments and other current assets.................... 34,128 17.574 411,360 364.058 Deferred Charges and Other Assets: Deferred future income taxes (Note 12).. 135,991 150.636 Deferred coal contract settlement costs (Note 5).. 21,247 24.520 Phase-in revenues (Note 5).... 78,950 96A95 Corporate-owned life insurance (net)(Note 1).... 4,743 146,713 Other deferred plant costs...... 32,008 32,212 Other (Note 5)..... 132,154 110.712 405,093 561,288 Total Assets. $5A12,048 S5A38.906 CAPITALIZATION AND LIAllll2 TIES Capitali:.ation (see statement). $3,121,021 $3.350.684 Current Liabilities: Shon-term debt (Note 9). 440.895 222.225 Long-term debt due within one year (Note 8).. 3.204 1,961 Preference stock redeemable within one year (Note 14).. 1.300 Accounts payable. 172.338 215.507 Accrued taxes., 46,076 38.591 Accrued interest and dividends. 65.825 71.877 Other. 65,492 48.045 793,830 599.506 - Deferred Credits and Other Liabilities: Deferred income taxes (Note 12). 968,637 990.155 Deferred investment tax credits (Note 12). 150.289 149,946 Deferred gain from sale. leaseback (Note 10). 261,981 271,621 Other 116.290 76,994 1 A97,197 1488,716 Commitments and Contingencies (Notes 4 and 15) 55A12,048 55A38.906 Total Capitali:.ation and Liabilities. i The Notes to Ca.nwlidated Financial Statements are an integralpart of rhis statement. N

Western Res<mrces. Inc. CONSOLIDATED STATEMENTS OF INCOME 1993 1992(h 1991 Year Ended December 31. (Donars in Tlwusands, eu cpt Per Share Amounts) Operating Revenues (Notes 1 and 5): Electric........ $1,104,537 $ 882,885 5 471,839 Natural gas. 804.822 673.363 690.339 Total operating revenues............. 1,909,359 1,556,248 1,162,178 i l Operating Expenses: Fuel used for generation: Fossil fuel., 237,053 190,653 146,256 N uclear fuel.................... 13.275 10.126 Power purchased........ 16.396 14,819 5,335 Natural gas purchases. 500,189 403,326 439,323 Other operations.... 349,160 296,642 193,319 Maintenance.. 117,843 101,611 60,515 Depreciation and amortization.. 164,364 144,013 85,735 Amortization of phase-in revenues........ 17.545 13,158 Taxes (see statement): Federal income... 62,420 34,905 24,516 State income 15,558 7,095 6,066 General. 123,493 100,731 71,492 Total operating expenses.. 1,617,296 1,317,079 1.032,557 Operating Income. 292,063 239,169 129,621 Other Income and Deductions (net of taxes). 25,482 24,186 3,351 Income Before Interest Charges.. 317,545 263.355 132,972 Interest Charges: Long-term debt. 123,551 117,464 51,267 Other.. 19,255 20,009 10,490 Allowance for borrowed funds used during construction (credit). (2,631) (2.002) (1,070) Total interest charges 140,175 135,471 60,687 income Before Cumulative Effect of Accounting Change. 177,370 127,884 72,285 Cumulative Effect to January 1,1991, of Change in Revenue Recognition (net of taxes)(Note 1). 17,360 Net income. 177,370 127,884 89,645 Preferred and Preference Dividends I3,506 12,75l 6.377 Earnings Applicable to Common Stock $ 163.864 5 115.133 5 83,268 Arcrage Common Shares Outstanding. 59,294,091 52.271,932 34,566.170 Earnings Per Average Common Share Outstanding Before Cumulative Effect ofAccounting Change. 2.76 S 2.20 1.91 Cumulative Effect to January 1,1991, of Change in Revenue Recognition Per Share, .50 Earnings Per Average Common Share Outstanding. 2.76 5 2.20 2.41 Dividends Declared Per Common Share l.94 5 1.90 S 2.04 m t iIInformation r<flects the merycr nith KG& L on March 31.1992 INote h (2) Includes special. one-nme du idend of M ih per share paid February 2K 1991. 23 The Notes to CornohdatrJ Tmancial statements are on untegralpart of this statement.

Western Resources. Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS 1993 19 9 2 m 199I Year Ended December 31. (Do!Iars in Thousands) i Cash Flowsfrom Operating Activities: Net income........... $ 177,370 $ 127,884 89,645 Depreciation and amortization.. 164,364 144,013 85,735 i Other amortization (including nuclear fuel)..... 11,254 8,930 . Deferred taxes and investment tax credits (net)....... 27,686 26,900 9.319 Amortization of phase-in revenues....... 17.545 13,158 Corporate-owned life insurance. (21.650) (14,704) Amortization of gain from sale. leaseback.. (9,640) (7,231) 1 Changes in other working capital items: 1 Accounts receivable and unbilled revenues (net) (Note 1). (15,536) (12,227) (72,879) i Fossil fuel. 18,073 14,990 (522) Gas stored underground..................... (37,144) 4.522 (2,34')) Accounts payable.. (43,169) (10,194) (3.125) Accrued taxes........... 7,485 (52,185) (14,130) Other... (3,165) (19,433) 11.661 Changes in other assets and liabilities.. (18,569) 21.508 31,992 Net cash flows from operating activities. 274,904 245.931 135.356 Cash Flows used in Investing Activities: Additions to utility plant.. 237,631 202,493 125,675 473,75' Merger with KG&E.. Utility investment. '500 Non-utility investments (net). 14,271 29,099 18,125 Corporate-owned life insurance policies... 27,268 20,233 Death proceeds of corporate-owned life insurance policies. (10,160) (6,789) Cash Dows used in investing activities.. 271,510 718,788 143,800 Cash Flowsfrom Financing Activities: Short-term debt (net). 218,670 42,825 20,300 480,000 Bank term loan issued for Merger with KG&E. Bank term loan retired (230.000) (250.000) Bonds issued. 223.500 485,000 Bonds retired..... (366,466) (236.966) (30,233) Revolving credit agreements (net). (35,000) Other long. term debt (net)... 7,043 14,498 Common stock issued (net). 125,991 Preference stock issued (net)...... 50,000 98,870 ". L.m m a a ccmed. (2,734) (2,600) (1,300) l Bank term loan issuance expenses. (10,753) I Borrowings against life insurance policies (net).. 183,260 (5,649) Dividends on preferred, preference, and common stock (127,316) (99,440) (76,891) Net cash flows from (used in) financing activities... t3,052) 466,915 10,746 Net Increase (Decrease) in Cash and Cash Equivalents.. 342 (5,942) 2,302 Cash and Cash Equivalents: Beginning of the period 875 6.817 4.515 End of the period......... 1,217 875 6.817 SupplementalDisclosures of Cash Flow Information Cash Paid For: Interest on financing activities (net of amount capitalized).. $ 171,734 $ 128,505 $ 58,462 Income taxes. 49,108 24,966 40,062 Components ofMerger with KG&E: Assets acquired. $3,142,455 Liabilities assumed (2,076,821) Common stock issued. (589,920) 475.714 Cash paid., Less cash acquired. (1,962) Net cash paid S 473.752 t1)Information reflects the merger wah KG&E on March 31,1992 (Note 3). 1 The Notes to Consolidated FinancialStatements are an integralpart of this statement. 26 } l

Western Resources. Inc. CONSOLIDATED STKTEMENTS OF TAXES 1993 1 9 9 2 (t) 1991 ' Year Ended December 31. (Dollars in Thusands> FederalIncome Taxes: Payable currently................................... $ 41,200 $ 16.681 S 18,479 Deferred taxes arising from: Depreciation and other property related items......... 25,552 25,163 9,662 Energy and purchased gas adjustment clauses...... (8,192) (4,180) (15,535) Unbilled revenues....................... 2.458 17,249 Natural gas line survey and replacement program...... 355 (1,106) 1.015 Other....................................... 6,166 4.121 (1,109) Amortization of investment tax credits. (1,982) (4.918) (4.238) Total Federal income taxes............... 63,099 38,225 25.523 Federal income taxes applicable to non-operating items... (679) (3,320) (1.007) ) Total Federal income taxes charged to operations... 62.420 34.905 24.516 State Income Taxes: Payable currently.......... 9,869 2,522 4.033 Deferred (net)... 5.787 5,352 2,276 Total state income taxes...... 15,656 7,874 6,309 State income taxes applicable to non-operating items. (98) (779) (243) Total state income taxes charged to operations.... 15,558 7.095 6,066 General Taxes: Property and other taxes. 84.583 68.643 40,429 Franchise taxes. 22,878 19.583 20,576 Payroll taxes.......... 16.032 12.505 10,566 Total general taxes......... 123,493 100,731 71,571 General taxes applicable to non-operating items. (79) Total general taxes charged to operations.. 123.493 100,731 71.492 Total Taxes Charged to Operations.... $201,471 S142,731 S102.074 The effective income tax rates set forth below are computed by dividing total Federal and state income taxes by the sum of such taxes and net income. The difference between the effective rates and the Federal statutory income tax rates are as follows: Year Ended December 31 I993 19920) 1991 Effective Income Tax Rate.... 31.0'1 27.07c 32.27< Effect of: Additional depreciation........ (2.9) (5.1) (2.7) l Accelerated amortization of certain deferred taxes......... 6.0 7.6 3.9 j State income taxes...... (4.0) (2.6) (4.0) i l Amortization ofinvestment tax credits.. 2.7 3.4 3.2 l Corporate-owned life insurance................ 3.0 2.9 Other differences................ (.8) .8 1.4 Statutory FederalIncome Tax Rate...... 35.0 ?< 34.0?c 34.0?c l \\ i (1)Information rejlects the merger with KG&E on March 31.1992 (Note 3). ~l The Notes to Consolidated Financial Statements are an integralpart of this statement. y l

Western Reumrces. Inc. CONSOLIDATED STATEMENTS OF CAPITALIZATION 1993 1992 December 31. (Dollars in Thousands) Common Stock Equity (see statement): ' Common stock, par value $5 per share, authorized 85,000,000 shares, outstanding 61,617,873 and 58,045,550 shares, respectively.... $ 308,089 $ 290,228 Paid-in capital............... 667,738 559,636 Retained earnings....... 446,348 398.503 1,422,175 45 9 1,248,367 37 % Cumulative Preferred and Preference Stock (Note 14): Not subject to mandatory redemption, Par value $100 per share, authorized 600,000 shares, outstanding - 41/2% Series, 138,576 shares. 13,858 13,858 41/4% Series,60,000 shares,........ 6,000 6,000 5,000 5,000 5% Series,50,000 shares. 24,858 24,858 Subject to mandatory redemption, Without par value, $100 stated value, authorized 4,000,000 shares, outstanding - 8.70% Series,0 and 157,000 shares............... 15,700 7.58% Series,500,000 shares. 50,000 50,000 100,000 100,0(X) 8.50% Series. 1,000,000 shares... Less: Preference stock reacquired.135,000 shares. 12,967 Preference stock redeemable within one year. 1,300 150,000 151,433 174,858 69 176,291 5% long-Term Debt (Note 8): First mortgage bonds.... 842,466 984,932 Pollution control bonds... 508,440 508,940 Other pollution control obligations 13,980 14,205 Bank term loan. 230.000 Revolving credit.greements. 115.000 150.000 Other long-term agreement. 53,913 46,640 Less: Unamortized premium and discount (net). 6,667 6,730 Long-term debt due within one year.. 3.204 1,961 1.523,988 49G 1,926.026 58 % Total Capitali:.ation., $3.121,021 1009 $3.350.684 10(F7c I l I l The Notes to Conwlidated Financial Statements are an integralpart of thus statement. .?8

H e tern Resources. Inc. Common Paid-in Retained CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY Stock Capital Earnings j

• Year Ended December 31.

(Dollars in Thousands) Balance December 31,1990, '34,566,170 shares...... $172,831 $ 88.222 $369,772 Net income...................... 89,645 Cash dividends: Preferred and preference stock...... (6,377) Common stock, $2.04m per share (70,514) Expenses on preference stock..... (1,123) (7) Balance December 31,1991, 34,566,170 shares. 172,831 87,099 382,519 ) - Net income.. 127.884 Cash dividends: Preferred and preference stock. (12,751) Common stock, $1.90 per share.. (99,135) Expenses on preference stock..... 14 (14) Issuance of 23,479,380 shares of common stock in the merger with KG&E. 117,397 472,523 Balance December 31,1993, 58.045,550 shares. 290.228 559,636 398,503 Net income.. 177,370 Cash dividends: Preferred and preference stock. (13,506) Common stock, $1.94 per share. (116,019) Expenses on common and preference stock. (3.453) Issuance of 3,572,323 shares of common stock. 17,861 111,555 Balance December 31,1993, 61,617.873 shares. $308,089 $667,738 $446,348 {}} Includes special. one-tune dividend of $0.18 per share paid Fchruary 28,1991. E The Notes to consohdated Financial Statements are an integralpart of this statement.

Western Rewurces. Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The after-tax effect of the change in accounting method for the year OSummary ofSignificant Accounting Policies ~ ended December 31, 1991, was an increase in net income of General: The consolidated financial statements of Western $15.9 million or $0.46 per share. This increase was a combination Resources, Inc. (the Company, Western Resources), include the of an increase of $ 17.3 million or $0.50 per share, attributable to the accounts of its wholly-owned subsidiaries, Astra Resources, Inc., cumulative effect of the accounting change prior to January 1,1991, Kansas Gas and Electric Company (KG&E) since March 31,1992 and a decrease of $1.4 million or $0.04 per share in the 1991 income (see Note 3), and KPL Funding Corporation (KFC). KG&E owns 47 before cumulative effect of a change in accounting principle. percent of Wolf Creek Nuclear Operating Corporation (WCNOC), Unbilled revenues of $99 and $86 million are recorded as a compo-the operating company for Wolf Creek Generating Station (Wolf nent of accounts receivable on the consolidated balance sheets as of Creek). The Company records its proportionate share of all transac-December 31,1993 and 1992, respectively. Certain amounts of j tions of WCNOC as it does other jointly-owned facilities. All sig-unbilled revenues have been sold (see Note 8). nificant intercompany transactions have been eliminated. The oper-The Company had reserves for doubtful accounts receivable of $4.3 ations of Astra Resources, Inc., and KFC are not material to the and $3.3 million at December 31,1993 and 1992, respectively. Company's results of operations. The accounting policies of the Company are in accordance with generally accepted accounting prin. Fuel Costs: The cost of nuclear fuel in process of refinement, conversion, ennchment, and fabncation is recorded as an asset at ciples as applied to regulated public utilities. The accounting and rates of the Company are subject to requirements of certain state reg. original cost and is amortized to expense based upon the quantity of ulatory commissions and the Federal Energy Regulatory heat produced for the gener@n of electricity. The accumulated amortization of nuclear fuel in the reactor at December 31,1993 Commission (FERC). The Company is doing business as KPL, Gas and 1992, was $17.4 million and $26.0 million, respectively. Service, and, through its wholly-owned subsidiary, KG&E. Utility Plant: Utility plant is stated at cost. For constructed plant, Cash Surrender Value of Life insurance Contracts: The follow-cost includes contracted services, direct labor and materials, indirect ing amounts related to corporate-owned life insurance contracts charges for engineering, supervision, general and administrative (COL.,, primarily with one highly rated major insurance company, are recorded on the consolidated balance sheets (millions of dollars): costs, and an allowance for funds used during construction (AFUDC). The AFUDC rate was 4.924 in 1993, 5.99% in 1992, 1993 1992 and 6.25% in 1991. The cost of additions to utility plant and replace-Cash sunender value of contracts.. $326.3 $256.3 ment units of propeny is capitalized. hlaintenance costs and replace-Prepaid COLI. 11.9 7.0 ment of minor items of property are charged to expense as incurred. Borrowings against contracts. (321.5) (109.6) When units of depreciable property are retired, they are removed COLI (net). $ 16.7 $153.7 from the plant accounts and the original cost plus removal charges less salvage are charged to accumulated depreciation. The decrease in COLI (net) is a result of increased borrowings Depreciation: Depreciation is provided on the straight.line method against the accumulated cash surrender value of the COLI policies. based on estimated useful lives of property. Composite provisions The COLI borrowings uill be repaid with proceeds from death ben-for book depreciation approximated 3.02% during 1993,3.039 dur. efits. hlanagement expects to realize increases in the cash surrender ing 1992, and 3.34% during 1991 of the aserage original cost of value of contracts resulting from premiums and ins estment earnings depreciable property. on a tax free basis upon receipt of proceeds from death benefits under the contracts. Interest expense included in other income and Cash and Cash Equiralents: For purposes of the Consolidated deductions, net of taxes, related to KG&E's COLI for 1993 and the Statements of Cash Flow s, cash and cash equis alents include cash on nine m nths ended December 31,1992, w as $ I 1.9 and $5.3 million, hand and highly liquid collateralized debt instruments purchased respectively. with maturities of three months or less. ^* appt ved by the Kansas Corporation Commission (KCC) and Income Taxes: Income tax expense includes provisions for income hi.iss un Public Service Commission (MPSC), the Company is taxes currentiv payable and deferred income taxes calculated in con-formance with income tax laws. regulatory orders, and Statement of """E. a p rtion of the net income stream generated by COLI p begs purchased in 1993 and 1992 by the Company (see Note 6) I Financial Accounting Standards No.109 (SFAS 109)(see Note 12L l to offset Statement of Fmancial Accounting Standards No.106 l Investment tax credits are deferred as realized and amortized to (SFAS 106) expenses. income m er the life of the property which gave rise to the credits. Reclassifications: Certain amounts in prior years have been reclas-Revenues: Effective January 1,1991, the Company changed its sified to conform with classifications used in the current year pre-method of accounting for recognizing electric and natural gas rev-ser tation. enues to provide for the accrual of estimated unbilled revenues. The accounting change provides a better matching of resenues with costs hSale ofvinuunwafuralcas vistribution riupcitics of services provided to customers and also serves to conform the On January 31, 1994, the Company sold substantially all of its Company's accounting treatment of unbilled resenues with the tax Missouri natural gas distribution properties and operations to treatment of such revenues. Unbilled revenues represent the esti-Southern Union Company (Southern Union). The Company has mated amount customers uill be billed for service prmided from the agreed to sell the remaining Missouri properties to United Cities time meters were last read to the end of the accounting period. Gas Company (United Cities). The properties sold to Southern Meters are read and services are billed on a cycle basis and, prior to Union and United Cities are referred to herein as the " Missouri the accounting change, resenues were recognized in the accounting Properties." With the sales the Company will no longer be operat-period during which services were billed. ing as a utility in the State of Missouri. 30

The ponion of the Missouri Properties purchased by Southern Union mechanism will operate as to fully offset the amortization of the was sold for an estimated sale price of $400 million,in cash, based acquisition adjustment. The order further provides a moratorium on on a calculation as of December 31,1993. The final sale price will increase <,, with certain exceptions,in the Company's Kansas electric be calculated as of January 31,1994, within 120 days of closing. and natural gas rates until August 1995. The KCC ordered refunds Any difference between the estimated and final sale price will be totalling $32 million to the combined companies' customers to share adjusted through a payment to or from the Company. with customers the Merger-related cost savings achieved during the l United Cities has agreed to purchase the Company's natural gas dis-moratorium period. The first refund was made in April 1992 and tribution sys'em in and around the City of Palmyra, Missouri, for amounted to $8.5 million. A refund of the same amount was made in $665,000 in cash. December 1993 and an additional refund of $15 million will be made in September 1994. l The operating revenues and operating income (unaudited) related to the Missouri Properties approximated $350 million and $21 million The KCC order approving the Merger requires the legal reorganiza-l ti n f KG&E so that it is no longer held as a separate subsidiary representing approximately 18 percent and seven percent, respec-tively, of the Company's total for 1993, and $299 million and after January 1,1995, unless good cause is shown why such separate $11 million representing approximately 19 percent and five percent, existence should be maintained. The Securities and Exchange respectively, of the Company's total for 1992. Net utility plant Commission order relating to the Merger granted the Company an (unaudited) for the Missouri Properties, at December 31, 1993, exemption under the Public Utilities Holding Company Act until approximated $296 million and $272 million at December 31,1992. January 1,1995. In connection with a requested ruhng that a merger This represents approximately seven percent at December 31,1993, f KG&E into Western Resources would not adversely affect the tax and six percent at December 31,1992, of the total Company net util-structure of the merger, KG&E received a response from the Internal l ity plant. Separate audited financialinformation was not kept by the Revenue Service that the IRS would not issue the requested ruling. I Company for the Missouri Properties. This unaudited financial In light of the IRS response, KG&E withdrew its request for a ruling. information is based on assumptions and allocations of expenses of The Company will consider alternative forms of cotabination or seek the Company as a whole. regulatory approvals to waive the requirements for a combination. There is no certainty as to whether a combination will occur or as to hAcquisition and Merger the form or timing thereof. l On March 31,1992, the Company, through its wholly-owned sub-As the Merger did not occur until March 31,1992, the twelve months sidiary KCA Corporation (KCA), acquired all of the outstanding ended December 31,1992, results of operations for the Company common and preferred stock of Kansas Gas and Electric Company reported in its statements of income, cash flow s, and common stock for $454 million in cash and 23,479,380 shares of common stock (the equity reflect KG&E's results of operations for only the nine months Merger). The Company also paid $20 million in costs to complete the ended December 31,1992. The pro forma combined revenues, oper-Merger, Simultaneously, KCA and Kansas Gas and Electric ating income, net income, and eamings per common share of the Company merged and adopted the name of Kansas Gas and Electric Company presented below give effect to the Merger as if it had Company (KG&E). The Merger was accounted for as a purchase. occurred at January 1,1991. This pro forma information is not nec-For income tax purposes the tax basis of the KG&E assets was not essarily indicatise of the results of operations that would have changed by the Merger. occurred had the Merger been consummated for the period for which As the Company acquired 100 percent of the common and preferred it is being given effect nor is it necessarily indicative of future oper-stock of KG&E, the Company recorded an acquisition premium of ting results. 5490 million on the consolidated balance sheet for the difference in Year Ended December 31. 1992 1991 purchase price and book value. This acquisition premium and relat-

1. Donars in Thousands, exceri per share amounts; ed income tax requirement of $294 million under SFAS 109 have Revenues.

$1,684,885 51,748,844 been classified as plant acquisition adjustment in electric plant in ser-Operating Income. 268,772 279,458 vice on the consolidated balance sheets. The total cost of the acqui-Net Income. 131,524 110.290 m sition was $1.066 billion. l'nder the provisions of orders of the KCC Earnings Per Common. 5 2.03 51.72 m and the MPSC the acquisition premium is recorded as an acquisition m Repects information before the cumularn e efect gihe./anuarv 1.1991, adjustment and not allocated to the other assets and liabilities of chance in accountmg method of recogni:ine revenuet KG&E.

1. "U#

In the November 1991 KCC order approving the Merger, a mecha-nism was approved to share equally between the shareholders and As part of its ongoing operations and construction program, the ratepayers the cost savings generated by the Mercer in excess of the C mpany has commitments under purchase orders and contracts revenue requirement needed to allow recosery of the amortization of which have an unexpended balance of approximately 586 million at a portion of the acquisition adjustment, including income tax, calcu_ December 31, 1993. Approximately 536 million is attributable to lated on the basis of a purchase price of KG&E's common stock at modifications to upgrade the turbines at Jeffrey Energy Center to be $29.50 per share. The order provides an amortization per od for the e mpbted by December 31,1998. Plans for future construction of acquisition adjustment of 40 years commencing in August 1995, at utilit/ plant are discussed in the " Management's Discussion and which time the full amount of cost savings is expected to have been An lysis" section. implemented. Merger savings will be measured by application of an Environmental: The Company has been associated with 28 (20 in inflation index to certain pre-merger operating and maintenance Kansas and 8 in Missouri) former manufactured gas sites which may costs at the time of the next Kansas rate case. While the Company contain coal tar and other potentially harmful materials. These sites has achieved savings from the Merger, there is no assurance that the were operated decades ago by other companies, and were acquired savings achieved will be sufficient to, or the cost savings sharing by the Company after they had ceased operation. The Environmental

i l u estern Rewurces, Inc. NOTES TO CONSOLIDATED FINANCI AL STATEMENTS r Protection Agency (EPA) has performed preliminary assessments of 1992, $13.2 and $9.3 million, respectively, were on deposit in the . eleven of these sites (EPA sites), six of which are under site investi-decommissioning fund. On September 1,1993, WCNOC filed an gation. The Company has not received any indication from the EPA application with the KCC for an order appmving a 1993 Wolf Creek that further action will be taken at the EPA sites, nor does the Decommissioning Cost Study which estimates the Company's share Company have reason to believe there will be any fines or penalties of Wolf Creek decommissioning costs at approximately $174 million assessed related to these sites. The Company and the Kansas in 1993 dollars. If appmved by the KCC, management expects - Department of Health and Environment (KDHE) entered into a con-substantially all such cost increases to be recovered through the sent agreement to conduct separate preliminary assessments of the 20 ratemaking process. former manufactured gas sites located in Kansas. The preliminary The Company carries $164 million in premature decommissioning assessments of these 20 sites have been completed at a total cost of insurance in the event of a shortfall in the trust fund. The insurance approximately $500,000. The Company plans to minate site investi-coverage has several restrictions. One of these is that it can only be gation and risk assessments at the two highest priority sites in 1994 used if Wolf Creek incurs an accident exceeding $500 million in at a total cost of approximately $500,000. Until such time that nsk expenses to safely stabilize the reactor, to decontaminate the reactor assessments are completed at these or the remaining sites, it will be and reactor station site in accordance with a plan approved by the impossible to predict the cost of remediation, llouever, the Nuclear Regulatory Commission (NRC), and to pay for on site Company is aware of other utthties m Region VII of the EPA pmperty damages. If the amount designated as decommissioning (Kansas, Missouri, Nebraska, and low a) which have meurred reme-insurance is needed 'n implement the NRC-arproved plan for stabi-diation costs for such sites ranging betw een $500.000 and $ 10 milhon. 1 zation and decont: ' nation,it would not be asailable for decom-depending on the site. The Company is also aware that the KCC has mini ning purposes. permitted another Kansas utility to recover a portion of the remedia-tion costs through rates. To the extent that such remediation costs are Nuclear Insurance: The Price-Anderson Act limits the combined not recovered through rates, the costs could be material to the public liability of the owners of nuclear power plants to $9.4 billion Company's financial position or results of operations depending on for a single nuclear incident. The Wolf Creek ow ners (Ow ners) has e the degree of remediation and number of years over w hich the reme-purchased the maximum available private insurance of $200 million diation must be completed. and the balance is provided by an assessment plan mandated by the NRC. Under this plan, the Owners are jointly and severally subject The Company has been identified as one of numerous potentially t a atmspective assessment of up to $79.3 million ($37.3 million. responsible parties in four hazardous w aste sites listed by the EPA as ~ Company's share) in the esent there is a nuclear incident insolving Superfund sites. One site is a gmmdwater contamination site in any d the nation's licensed reactors. This assessment is subject to an Wichita, Kansas, and one is an oil soil contamination site in Spring 5 eld, Missouri. The o:her two sites are solid waste land fills inflation adjustment based on the Consumer Price Index. There is a located in Edwardsville and Hutchinson, Kansas. The Company's limitation of $10 million ($4.7 million, Company's share) in retm-obligation at these sites appears to be limited, and it is the opinion of spective assessments per incident per year. the Company's management that the resolution of these matters will The Owners carry decontamination liability, premature decommis-l not have a material impact on the Company's financial position or sioning liability, and property damage insurance for Wolf Creek l results of operations. totalling approximately $2.8 billion ($1.3 billion Company's share). As part of the sale of the Company's Missouri Properties to Southern This insurance is provided by a combination of " nuclear insurance Union, Southern Union assumed responsibility under an agreement pools"($1.3 billion) and Nuclear Electric Insurance Limited (NEIL) for any environmental matters now pending or that may arise after ($1.5 billion). In the esent of an accident, insurance proceeds must first be used for reactor stabilization and site decontamination. The closing. For any ensironmental matters now pending or discovered l within two ) ears of the date of the agreement, and after pursuing sep remaining proceeds from the $2.8 billion insurance coverage ($1.3 l eral other potential recosery options, the Company may be liable for billion Company's share), if any, can be used for property damage l up to a maximum of $7.5 million under a sharing arrangement with up to SLI billion (Company's share) and premature decommission-Southern Union provided for in the agreement. ing costs up to $117.5 million (Company's share)in excess of funds E" "* " "E Spent Nuclear Fuct Disposal: Under the Nuclear Waste Policy Act

• *" " " E
• P""}
• of 1982, the U.S. Department of Energy (DOE) is responsible for the

1. 1. • ""'**"Eb*

am) asaHa e er pmpy n age w pmmatum da'omnu.e ultimate storage and disposal of spent nuclear fuel removed fmm " "E "" 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 The Owners also carry additional insurance uith NEIL to cover costs per kilowanhour on net nuclear generation. These fees are included of replacement power and other extra expenses incurred during a as part of nuclear fuel expense and amounted to $3.5 million for 1993 prolonged outage resulting from accidental property damage at Wolf l and $1.6 million for 1992. Creek. If losses incurred at any of the nuclear plants insured under the NEIL policies exceed premiums, reserves, and other NEIL Decommissioning: The Company's share of Wolf Creek decommis-ms urces, the Company may be subject to retrospective assessments sioning costs. currently authorized in rates, was estimated to be approximately $97 milIion in 1988 6ei:ars. Decommissioning costs I"PP*""" ICE b9 *E"" PW T-are being charged to operating expenses. Amounts so expensed are There can be no assurance that all potential losses or liabilities will deposited in an external trust fund and will be used solely for the be insurable or that the amount of insurance will be sufficient to physical decommissioning of the plant. Electric rates charged to coser them. Any substantial losses not covered by insurance, to the customers provide for recovery of these decommissioning costs over extent not recoverable through rates, could have a material adverse the life of Wolf Creek. At December 31,1993, and December 31. effect on the Company's Gnancial condition and results of operations. 32

l Clean Air Act: The Clean Air Act Amendments of 1990 (the Act) Energy Act: As part of the 1992 Energy Policy Act, a special assess-require a two-phase reduction in sulfur dioxide and nitrous oxide ment is being collected from utilities for a uranium enrichment, emissions effective in 1995 and 2000 and a probable reduction in decontamination, and decommissioning fund. The Company's por-toxic emissions. To meet the monitoring and reporting requirements tion of the assessment for Wolf Creek is approximately $7 million, under the acid rain program, the Cupany is installing continuous payable over 15 years. Management expects such costs to be recov-monitoring and ieporting equipment at a total cost of approximately cred through the ratemaking process. $10 million. At December 31,1993, the Company had completed approximately $4 million of these capital expenditures with the @ Rate Matters and Regulation remaining $6 million of capital expenditures to be completed in 1994 The Company, under rate orders from certain state regulatory com-and 1995. The Company does not expect additional equipment missions and the FERC, recovers increases in fuel and natural gas to reduce sulfur emissions to be necessary under Phase 11. The costs through fuel adjustment clauses for wholesale and certain retail Company currently has no Phase I affected units. electric customers and various purchased gas adjustment clausea The nitrous oxide and toxic limits, which were not set in the law, will (PGA) for natural gas customers. Certain state regulatory commis-be specified in future EPA regulations. The EPA has issued for pub-sions require the annual difference between actual gas cost incurred lic comment preliminary nitrous oxide regulations for Phase I group 1 and cost recovered through the application of the PGA be deferred units. Nitrous oxide regulations for Phase 11 units and Phase I group 2 and amortized through rates in subsequent periods. units are mandated in the Act to be promulgated by January 1,1997. Elimination of the Energy Cost Adjustment Clause (ECA): On l Although the Company has no Phase I units, the fmal nitrous oxide March 26,1992, in connection with the Merger, the KCC approved regula: ions for Phase I group 1 may allow for early compliance for the elimination of the ECA for most Kansas retail electric customers 1 Phase 11 group 1 units. Until such time as the Phase I group i nitrous of both the Company and KG&E effective April 1,1992. The provi-oxide regulations are final, the Company will be unable to determine sions for fuel costs included in base rates uere established at a lesel its compliance options or related compliance costs. intended by the KCC to equal the projected average cost of fuel i FederalIncome Taxes: During 190!, the Internal Revenue Senice through August 1995, and to include recosery of costs pmvided by (IRS) completed an examination of KG&E's federal income tax previously issued orders relating to coal contract settlements. Any returns for the years 1984 through 1988. In April 1992 KG&E increase or decrease in fuel costs from the projected aserage will be received the examination rrpod and upon review filed a written absorbed by the Company. protest in August 1992. le, October 1993 KG&E receised another AtPSC Rate Proceedings: On October 5,1993, the MPSC approved examination report for the years 1989 and 1990 cosering the same an agreement among the Company, the MPSC staff, and intervenors issues identified in the presious examination report. Upon review of to increase natural gas rates 59.75 million annually, effective l this report, KG&E filed a written protest in Nosember 1993. The October 15,1993. Also on October 15,1993, the Company discon-most significant proposed adjustments reduce the depreciable basis tinued the deferral of service line replacement program costs of cenain assets and investment tax credits generated. Management deferred since July 1,1991, and began amortizing the balance to believes there are significant questions regarding the theory, compu-expense over twenty years. At December 31,1993, approximately tations, and sampling techniques used by the IRS to arrise at its pro-58.3 million of these deferrals base been included in other deferred posed adjustments, and also believes any additional tax expense charges on the consolidated balance sheet. incurred or loss of investment tax credits will not be material to the On January 22, 1992, the MPSC issued an order authorizing the Company's fmancial position and results of operations. Additional Company to increase natural gas rates 57.3 million annually. income tax payments,if any, are expected to be offset by insestment tax credit carryforwards, alternatise minimum tax credit carryfor. ACC Rate Proceedings: On January 24,1992, the KCC issued an wards, or deferred tax provisions. order allowing the Company to continue the deferral of service line replacement program costs incurred since January 1,1992, including Fuct Commitments: To supply a portion of the fuel requirements for depreciation, property taxes, and carrying costs for recosery in the its generating plants, the Company has entered into various commit ^ next general rate case. At December 31, 1993. approximately ments to obtain nuclear fuel, coal. and natural gas. Some of these $2.9 million of these deferrals hase been included in other deferred contracts contain provisions for price escalation and minimum pur-charges on the consolidated balance sheet. chase commitments. At December 31,1993 WCNOC's nuclear fuel commitments (Company's share) were approximatelv $18.0 million On December 30.1991, the KCC approved a permanent natural gas for uranium concentrates expiring at various times through 1997, rate increase of $39 million annually and the Company discontinued $123.6 millior for enrichment expiring at various times through the deferral of accelerated line suney costs on January 1,1992. 2014, and $45.5 million for fabrication through 2012. At December Approximately 58.3 million of deferred costs remain in other 31,1993, the Company's coal and naturJ gas contract commitments deferred charges on the consolidated balance sheet at December 31, in 1993 dollars under the remaining term of the contracts were 1993, with the balance being included in rates and amortized to 52.8 billica and $20.4 millina, respecti 'ely. The largest coal contract expense during a 43-month period, commencing January 1,1992. was renep atiated early in 1993 and expires in %20, with the remaining Gas Trar;portation Charges: On September 12, 1991, the KCC coal cont' acts expiring at various times through 2013. The majority authoii/ed the Company to begin recovering, through the PGA, of natur d gas contracts continue through 1995 with automatic deferred supplier gas transportation costs of 59.9 million incurred one-yea extension prosisions. In the normal course of business. through December 31, 1990, based on a three-year amartization additior,al commitments and spot market purchases will be made to schedule. On December 30,1991, the KCC authorized the Company obtain adequate fuel supplies. to recuser deferred transportation costs of appmximately $2.8 million D

Wesicrn Rewarces. Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS incurred subsequent to December 31,1990, through the PGA oser a - are based on years of senice and the employee's compensation 32-month period. At December 31, 1993, approximately during the fise highest paid consecutive years out of ten before $4.8 million of these deferrals remain in other deferred charges on retirement. The Company's policy is to fund pension costs accrued, the consolidated balance sheet, subject to limitations set by the Emplo)ce Retirement income Tight Sands: In December 1991, the KCC, MPSC, and Oklahoma Security Act of 1974 and the Internal Revenue Code. Corporation Commission (OCC) approved agreements authorizing The following tables provide infonnation on the components of pen-the Company to refund to customers approximately $40 million of sion cost, funded status, and actuarial assumptions for the the pmceeds of the Tight Sands antitrust litigation settlement to be Company's pension plans: collected on behalf of Western Resources

• natural gas customers. To year Ended December 3/,

U)93 1992 1991 secure the refund of settlement proceeds, the Commissions i g,g g authonzed the establishment of an independently administered trust E*"."" C" to collect and maintain cash receipts received under Tight Sands i settlemer.t agreements and provide for the refunds made. The trust In e es st n projected has a term of ten years, bene 6t obligation. 35,688 29,457 20,985 Rate Stabili:ation Plant in 1988, the KCC issued an order requiring Return on plan assets. (64,113) (38.967) (59,161) that the accrual of phase-in revenues be discontinued by KG&E Deferred gain on effective December 31, 1988. EITective January 1,1989, KG&E plan assets. 2" 190 7,705 38.015 began amortizing the phase-in revenue asset on a straight-line basis Net amortization. (669) (948) (131) over 91/2 years. Net pension cost. $ 9.874 $ 7.094 $ 6.297 Coal Contract Settlements: In March 1990, the KCC issued an order ,g g'

9g~

99~3

j99, allowing KG&E to defer its share of a 1989 coal contract settlement d)"#"" i" U""""N with the Pittsburgh and Midway Coal Mining Company amounting to $22.5 million. This amount was recorded as a deferred charge on Funded Status:

the consolidated balance sheets. The settlement resulted in the termi. Actuarial present value of nation of a long-term coal contract. The KCC permitted KG&E to benefit obligations: Vested. $353,023 $316,100 5200,435 recover this settlement as follows: 76 percent of the settlement plus Non-vested. 26.983 19.331 13.935 a return over the remaining term of the terminated contract (through Total. $380.006 $335.431 5214.370 2002) and 24 percent to be amortized to expense with a deferred return equivalent to the carrying cost of the asset. ci{l a debt and In February 1991, KG&E paid $8.5 million to settle a coal contract Projected benent obligation. 468.996 424.232 282,062 lawsuit with AMAX Coal Company and recorded the payment as a Plan assets in excess of projected deferred charge on the consolidated balance sheet. The KCC benent obligation. 21,343 28,140 42,718 approved the recovery of the settlement plus a return, equivalent to Unrecognized transition asset. (2,756) (3,092) (1,253; the carrying cost of the asset, over the remaining term of the termi-l'nrecognized prior service costs. 64.217 55,886 27,216 nated contract (through 1996). Unrecognized net gain. (108,783) (106,486) (69.494) E#" FERC Order No. 528: In 1990, the FERC issued Order No. 528 which authorized new methods for the allocation and recosery of Year Ended December 31. 1993 1992 1991 take-or-pay settlement costs by natural gas pipelines from their cus-tomers. Settlements have been reached between the Company's two Actuarial Assumptions: Dise unt rate. 7.0-7.75 9 8.0-8.59 8.09 largest gas pipelines and their customers in FERC proceedings relat- [g ge"m at I ed to take-or-pay issues. The settlements address the allocation of etu. 8.0-8.0-take-or-pay settlement costs between the pipelines and their cus-tomers. However, the amount which one of the pipelines will be Retirement and roluntary Separation Plans: In January 1992, the allowed to recover is yet to be determined. Litigation continues Board of Directors approved early retirement plans and soluntary between the Company and a former upstream pipeline supplier to separation programs. The voluntary early retirement plans were one of the Company's pipeline suppliers concerning the amount of offered to all vested participants in the Company's defined pension such costs which may ultimately be allocated to the Company's plan who reached the age of 55 with 10 or more > ears of service on pipeline supplier. A portion of any costs allocated to the Company's or before May 1,1992. Certain pension plan improsements were pipeline supplier will be charged to the Company. Due to the uncer-made, including a w aiver of the actuarial reduction factors for early tainty conceming the amount to be recovered by the Company's retirement and a cash incentive payable as a monthly supplement up current suppliers and of the outcome of the litigation between the to 60 months or as a lump sum payment. Of the 738 employees eli-Company and its current pipeline's upstream supplier, the Company gible for the early retirement option,531, representing ten percent of is unable to estimate its future liability for take-or-pay settlement the combined Company's work force, elected to retire on or before costs. However, the KCC and MPSC have approved mechanisms the May 1,1992, deadline. Seventy-one of those electing to retire which are expected to allow the Company to recoser these take-or. were employees of KG&E acquired March 31,1992 (see Note 3). pay costs from its customers. Another 67 employees, with 10 or more years of service, elected to participate in the voluntary separation program. Of those,29 were O Employee #cncfit Plans employees of KG&E. In addition. 68 employees received Merger-Pension: The Company maintains noncontributory defined benefit related seserance benefits, including 61 employees of KG&E. The pension plans covering substantially all employees. Pension benefits actuarial cost, based on plan provisions for early retirement and vol-y

untary separation programs, and Merger-related severance benefits lated using a weighted-average discount rate of 7.75% a weighted-for the KG&E employees, were considered in purchase accounting aserage compensation increase rate of 5.09, and a weighted-average for the Merger. The actuarial cost of the fonner Kansas Power and expected rate of return of 8.57. The health care cost trend rate has a Light Company employees, of approximately $1I million, was significant effect on the projected benefit obligation. Increasing the expensed in 1992, trend rate by 1% each year would increase the present salue of the Postretirement: The Company adopted the provisions of Statement anumul ted projected benefit obligation by $11.1 million and the of Financial Accounting Standards No.106 (SFAS 106) in the first aggregate of the senice and interest cost components by $1.5 million. quarter of 1993. This statement requires the accrual of postretirement Postemployment: The FASB has issued Statement of Financial j bnefits other than pensions, primarily medical benefit costs, during Accounting Standards No. I12 (SFAS 112), which establishes the years an employee provides senice, accounting and reporting standards for postemployment benefits. Based on actuarial projections and adoption of the transition method The new statement will require the Company to recognize the liabil, ofimplementation which allows a 20-year amortization of the accu ity t pr vide postemployment benefits when the liability has been mulated benefit obligation, the annual expense under SFAS 1% was incurred. The Company adopted SFAS 112 effective January 1, approximately $26.5 million in 1993 (as compared to approximately 1994. To mitigate the impact adopting SFAS 112 will have on rate $9.6 million on a cash basis) and the Company's total obligation was incre ses, the Company w di file apphcations u uh the KCC and OCC approximately $166.5 million at December 31,1993. To mitigate the f r orders permitting the mittal deferral of SFAS 112 transition costs impact of SFAS 106 expense, the Company has implemented pro-and expenses and its mclusion in the future computation of cost of grams to reduce health care costs. In addition, the Company has service net of an income stream generated from COLI. Ilowever, d received orders from the KCC and MPSC permitting the initial defer-the state regulatory commissions were to recognize postemployment j ral of SFAS 106 expense. To mitigate the impact SFAS 106 expense benefit costs under a different method.1994 earnings could be will have on rate increases, the Company will include in the future imp cred negatively. At December 31,1993, the Company estimates computation of cost of service the actual SFAS 106 expense and an SFAS 112 liability to total approximately $11 million. income stream generated from corporate-owned life insurance Sarings: The Company maintains sasings plans in which substan-(COLI). To the extent SFAS 1% expense exceeds income from the tially all employees participate. The Company matches employees' COLI program, this excess will be deferred (as allowed by the FASB contributions up to specified maximum limits. The funds of the plans Emerging Issues Task Force Issue No. 92-12) and offset by income are deposited with a trustee and invested at each employee's option generated through the deferral period by the COL 1 program. The in one or more investment funds, including a Company stock fund. OCC is reviewing the Company's application for similar treatment in The Company's contributions were 55.4. $5.4, and 53.3 million for Oklahoma. Should the OCC require recognition of postretirement 1993,1992, and 1991, respectively, benefit costs for regulatory purposes under a different method than.ifissouri Property Sale: Effective January 31,1994, the Company that proposed under the Company's application, the impact on eam-transferred a portion of the assets and liabilities of the Company's ~ ings would not be material. Should the income stream generated by pension plan to a pension plan established by Southern Union. 'l'he the COLI program not be sufficient to offset the deferred SFAS 106 amount of assets transferred equal the projected benefit oblication expense, the KCC and MPSC orders allow recovery of such deficit for employees and retirees associated with Southern Union's p'ortion through the ratemaking process. of the Missouri Properties plus an additional $9 million. Prior to the adoption of SFAS 106 the Company's policy was to re-cognize the cost of retiree health care and life insurance benefits as O rair value of Financiat inst""ne"<s expense when claims and premiums for life insurance policies were The following methods and assumptions were used to estimate the paid. The cost of providing health care and life insurance benefits to fair value of each class of financial instruments for w hich it is prac-2,928 retirees was 58.1 million in 1992. ticable to estimate that value as set forth in Statement of Financial The following table summarizes the status of the Company's post-Acc unting Standards No.107: retirement plans for financial statement purposes and the related Cash and Cash Equivalents-amount included in the consolidated balance sheet: The carrying amount approximates the fair value because of the December 31, 1993 short-term maturity of these investments. IDollars in Thousands} Decommissioning Trust. l Actuarial present s alue of postretirement The fair value of the decommissioning trust is based on quoted l benefit obligations: market prices at December 31,1993 and 1992. Retirees. S 111,499 rariable rate Debt-Active employees fully eligible. I1,848 The carrying amount approximates the fair salue because of the Active employ ees not fully eligible. 43,109 short-term variable rates of these debt instruments. Unrecognized prior sersice cost. 18,195 Fixed-rate Debt-Unrecognized transition obligation.. (160,731) The fair value of the fixed-rate debt is based on the sum of the Unrecognized net loss. (7,100) estimated value of each issue taking into consideration the interest Balance sheet liability., S 16.820 rate, maturity, and redemption provisions of each issue. Redeemable Preference Stock. For measurement purposes, an annual health care cost growth rate of The fair value of the redeemable preference stock is based on the 13% was assumed for 1994, decreasing to 69 by 2002 and there-sum of the estimated value of each issue taking into consideration j after. The accumulated post retirement benefit obligation was calcu-the dividend rate, maturity, and redemption provisions of each issue. 15 l

. _ _ _ _- ~. - _ _ Western Resources. Inc. NOTES TO CONSOLIDATED FINANCIAL STKTEMENTS The estimated fair values of the Company's financial instruments are - long-term debt outstanding at December 31,1993 and 1992, was as follows: - as follows: 1993 1991 Carrying Value - Fair Value y. December 3/,~ 1993 '1992 1993 1992 Western Resources quottars in Tiwusands) - First mortgage bond series: 9.35 % due 1998........... $ $ 75,0(X) Cash and cash 71/4% due 1999...... 125,000 125.000 equivalents,....., $ 1,217 $. 875 $.1,217 $ 875 7 5/8% due 1999,........ 19.(xx) 19.0(X) Decommissioning tmst,. 13,2(M 9,272 13,929 9,500 8 3/44 due 2(XK),.. 20,(XK) 8 7/8% due 2000 75,(XX) 75,000 Variable-rate debt.... 931,352 758A49 931,352 758A49 71/4% due 2002 S [..., 100.(XX). Im),(X)0 Fixed-rate debt..... 1,3M,886 1,508,077 i A73,569 1,563,375 8 5/8% due 2005. 35,GX) Redeemable preference 81/89 due 2007,, 30.0(K) 30,000 8 3/4% due 2008. 35.000 stock. 150.0tX) 152,733 160,780 161,733 8 5/8% due 2017. 50,(K)0 50,0K) O N* 81/2% due 2022.......... 125.000 125fXX) 7.65 % due 2023...... 100fKK) The amount'of first mongage bonds authorized.by the Westem 624.000 689J)00 Resources Mortgage and Deed of Trust, dated July 1,1939, as sup-Pollution control bond series: piemented,is unlimited. The amount of first mortgage bonds autho. 5.90 % due 2007.. 31JKX) 31,500 rized by the KG&E Mongage and Deed of Trust, dated April 1, 6 3/4% due 2009.. 45,000 45,000 ,1940. as supplemented, is limited to a matimum of $2 billion. 9 5/8% due 2013. 58,500 . Amounts of additional bonds which may be issued are subject to 6% due 2033. 58.500 property, earnings, and certain restrictive provisions of each 134.500 135,000

Mortgage, gc&lt On January 20,1994, KG&E issued $100 million of First Mortgage First mortgage bond series:

Bonds,6.20% Series due January 15,2006. 5 5/8% due 1996,,, I6,000 16.000 8 t/8% due 2001., 35,000 On January 31, 1994, the Company redeemed the remaining 7 3/8% due 2002., '5,000 $2A66,000 principal amount of Gas Service Company (GSC) 81/2% 7.60 % duc 2003.. 135.000 135JXX) Series First Mortgage Bonds due 1997. In addition, the Company 61/2% due 2005. 65,0 X) took measures to have the GSC Mongage and Deed of Trust discharged. 8 3/8% due 2006.. 25JXX) 81/2% due 2007... 25,000 Debt discount and expenses are being amortized over the remaining 8 7/8% due 2008 m, 30.000 lives of each issue. The Western Resources and KG&E improvement 2161XX) 291.000 l and maintenance fund requirements for certain first mortgage bond Po n erie series can be met by bonding additional property. The sinking fund }on 14.500 14.500 requirements for certain Western Resources and KG&E pollution 5 7/8% due 2007. 21,940 21,940 control series bonds can be met only through the acquisition and 6% due 2007. 10JXX) 10fX)0 - retirement of outstanding bonds. Bonds maturing and acquisition and 7.0% due 2031. 327,500 327,500 retirement of bonds for sinking fund requirements for the the years 373,940 373.940 subsequent to December 31.1993, are as follow s: gSc Maturino Retiring First mangage bond series: l' car Bonds Bonds 81/29 due 1997, 2A66 4.932 flMlars on Thousand0 2A66 4,932 1994. $ 2A66 $ 738 1995. 753 Bank term loan. 230,ux) 1996. 16,000 770 Other pollution contml obligations. 13,980 14.205 1997., 1,333 Revolving credit agreement.. I15JKK) 150.000 1998., 1,550 Other long term agreement. 53,913 46.640 Less: Unamorti/ed debt discount. 6.607 6,730 leng-term debt due within one year. 3.204 1.961 $1.523,988 $1.926.026 36 p-,-

in January 1993, the Company renegotiated its $600 million bank g term loan and revolving credit facility used to finance the Merger MN into a $350 million revolving credit facility, secured by KG&E At December 31,1993, the Company had leases covering various common stock. The revolver has an initial term of three years with property and equipment. Certain lease agreements meet the criteria, options to renew for an additional two years with the consent of the as set forth in Statement of Financial Accounting Standards No.13, banks. The unused portion of the revolving credit facility may be for classification as capital leases. used to provide support for outstanding short-term debt. At Rental payments for capital and operating leases and estimated rental December 31,1993, $115 million was outstanding under the facility-commitments are as follows: On September 20,1993, KG&E terminated a long-tenn revolving Capital Operating credit agreement which provided for borrowings of up to $150 mil-Fear Ending December 3/. Leases Leases lion. The loan agreement, which was effective through October ubuars in vrousando 1994, was repaid without penalty. 1991. $ 1.217 $ 21,501 KG&E has a long-term agreement, expiring in 1995, w hich contains 1992. 2,426 52,701 provisions for the sale of accounts receivable and unbilled resenues 1993' ',27~' 55,011 T (receivables) and phase-in revenues up to a total of $180 million. Amounts related to receis ables are accounted for as sales u hile those Future Commitments: related to phase-in revenues are accounted for as collaterali7ed bor-1994. $ 4.002 $ 47,729 rowings. Additional receivables are continually sold to replace those 1995. 3,752 45,825 collected. At December 31,1993 and 1992, outstanding receivables 1996. 3.627 44,176 amounting to $56.8 and $47.7 million, respectively, w cre considered g*

'3g sold under the agreement. The credit risk associated with the sale of customer accounts receivable is considered minimal The weighted 1998-41,019 average interest rate, including fees, was 3.7% for the year ended Thereafter.

771,157 December 31,1993, and 6.69 for the nine months ended December Total. $ 12,590 $991,550 31,1992. At December 31,1993, an additional $16.4 million was available under the agreement. Less interest. 1.466 Nei obligation. $I1,124 OShort.Tenn Debt The Company's short-term financing requirements are satisfied, as in 1987, KG&E sold and Lased back its 50 percent undivided interest needed, through the sale of commercial paper, short-term bank kians and borrowings under other unsecured lines of credit mamtamed in La Cygne 2. The lease has an initial term of 29 years, with various with banks. Information concerning these arrangements for the years op ons to renew the lease or repurchase the 50 percent undisided ended December 31.1993,1992, and 1991, is set forth below: interest. KG&E remains responsible for its share of operation and maintenance costs and other related operating costs of La Cygne 2. Year Ended December 3/, 1993 1992 1991 The lease is an operating lease for financial reporting purposes. vonars in wusando As permitted under the lease agreement, the Company in 1992 Lines of credit at y ear end. $145,000 $2501XXhh $185.(XX)(2) requested the Trustee Lessor to refinance $341.1 million af secured Short-term debt out-fxility bonds of the Trustee and ow ner of La Cy gne 2. The transac-standing at y ear end. 440.893 222.225 135,800 Weighted aserage interest n wm requeued to reduce recurring future net lease expense. In rate on debt outstandine at connection with the reGnancing on September 29,1992, a one-time year end tincluding fee's). 3.67 9 4.709 5.079 p yment of pproxim tely $27 million was made by the Company Maximum amount of short-w hich has been deferred and is being amortized over the remaming temi debt outstandine life of the Icase and included in operating expense as part of the during the period. ~ $443,895 $263,900 $175.000 future leaw expense. Monthly aserage short-Future minimum annual lease pay ments, included in the table above, term debt. 347.278 179.577 125,968 required under the lease agreement are approximately $34 6 million Weighted daily aserage for each sear through 1998 and $715 million over the remainder of interest rates during the lease.' the year (including fees). 3.44 9 4.90 4 6.699 The gain of approximately $322 million realized at the date of the m Deucosed m m5 nunion uvanuarv /wl sale has been deferred for financial reporting purposes, and is being anno cased a no minion in January tw2 amorti/ed over the initial lease term in proportion to the related lease in connection w ith the commitments, the Company has agreed to pay expense. KG&E's lease expense, net of amortization of the deferred certain fees to the banks. Available lines of credit and the unused gain and a one-time payment, was approximately $22.5 million for portion of the revolving credit facility are utilized to support the the year ended December 31,1993, and $20.6 million for the nine Company's outstanding short-term debt. months ended December 31,1992. l 37

tt'rvern Rewurces. Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income taxes result from temporary differences between @ Joint Owners /Ilp of Utility Plants the financial statement and tax basis of the Company's assets and lia-Company's ownership at December 31.1993 bilities. The sources of these differences and their cumulative tax effects are as foHows in-Service Accumulated Net Dates Investment Depreciation (htW) Percent December 31, 1993 tDollars in 1housandsI Debits Credits Total La Cygne 1 (a) Jun 1973 $ 150.265 $ 91,175 342-50 (IMlan in th-ands) Jeffrey l (b) Jul 1978 277,087 116,526 587 84 Sources of Deferred 1 Jeffrey 2 (b) h1ay 1980 274,018 106.301 566 84 Income Taxes: Jeffrey 3 (b) h1ay 1983 386,925 124.158 588 84 Accelerated depreciation and Wolf Creek (c) Sep 1985 1,366,387 281,819 533 47 other property items. $ (647,202)$ (647,202) Energy and purrhased gas (a) Jointly owned with Kansas City Poner & Light Company (KCP&L) adjustment clauses.. 1,452 2,452 (b) Jointly owned with UtiliCorp Unard inc. and a third party Phase-in revenues. (35,573) (35,573) Ic! Jointly owned with KCP&L and Kansas Electric Power Cooperative. kc. gggm.al gas line wrvey and replacement program. (7,721) (7,721) Amounts and capacity represent the Company's share. The Deferred gain on Company's share of operating expenses of the plants in service sale-leaseback., 116,186 116,186 above, as well as such expenses for a 50 percent undivided interest Alternative minimum in La Cygne 2 (representing 335 N1W capacity) sold and leased back tax credits, 39,882 39,882 to the Company m 1987, are mcluded in operating expenses in the Deferred coal contract statements of income. The Company's share of other transactions settlements. (14,980) (14,980) associated with the plants is included in the appropriate classification Deferred compensation / m the Company's consolidated financial statements. pension liability. I1,301 11,301 hincome laxes Acquisition premium. (301,394) (301,394) Defened futme income taxes.. (l17,549) (l17,549) The Company adopted the provis. ions of SFAS 109 in the first Other. (14.039) (14,039) quarter of 1992. KG&E adopted the provisions of SFAS 96 in 1987 Total Defened income Taxes. $ 169.821 $(1.138.458)$ (968.637) and SFAS 109 in 1992. These statements require the Company to establish deferred tax assets and liabilities, as appropriate, for all g ,g 37

997 temporary differences, and to adjust deferred tax balances to reflect Debits Credits Total changes in tax rates expected to be in effect during the periods the

' U"""" " "'"" '""# U temporary differences reserse. Sources of Deferred In accordance w. h various rate orders received from the KCC, the it income Taxes-h1PSC, and the OCC, the Company has not yet collected through Accelerated depreciation and rates the amounts necessary to pay a significant portion of the net other propeny items. $ (607,303)$ (607,303) deferred income tax liabilities. As management beheves it is proba-Energy and purchased gas ble that the net future mereases in income taxes payable will be adjustment clauses. (7,717) (7,717) recovered from customers through future rates, it has recorded a Phase in revenues. ~ (37,564) (37,564) deferred asset for these amounts. These assets are also a temporary Natural gas line suney and difference for which deferred income tax liabilities have been pro-replacement program. (7,473) (7.473) sided. Accordingly, the adoption of SFAS 109 did not have a mate-Deferred gain on i rial impact on the Company's results of operations. sale-leaseback. 104.573 1(M,573 At December 31.1993, KG&E has unused investnent tax credits of Alternative minimum approximately $7.1 million available for carr) forward which, if not tax credits. 39,882 39.882 utilized, will expire in the years 2000 through 2002. In addition, the Deferred coal contract Company has alternatise minimum tax credits generated prior to settlements. (9,318) (9,318) l April 1,1992. which carry forward without expiration, of $57.2 mil. Deferred compensation / l lion which may be used to offset future regular tax to the extent the pension liability 8,488 8,488 l regular tax exceeds the alternative minimum tat These credits hase Acquisition premium. (314.241) (314,241) l been apphed in determining the Company's net deferred income tax Deferred future income taxes. (158,102) (158,102) l liability and corresponding deferred future income taxes at Other. (1,380) (1,380) December 31.1993. Total Defenrd income Taxes. $ 152.943 $(l.143.098)$ (990.155) l i a 38 i l

@ Segments of Business The portion of the table above related to the Missouri Properties is as The Company is a public utility engaged in the generation. transmis-follows (unaudited): sion, distribution, and sale of electricity in Kansas and the trans-1993 prtation, distribution, and sale of natural gas in Kansas, Missouri, (nonars in nmusands) and Oklahoma-Natural gas revenues. $349,749 l Year Ended December 31. 1993 1992(1) 1991 Operating expenses excluding i income taxes. 326,329 i (Donars in Timuwnds) Income tares. 2,672 Operating revenues: Operating income. 20,748 Electric.. . $1,104,537 $ 882,885 $ 471,839 Identifiable assets.. 398,464 Natural gas.... 804,822 673.363 690,339 Depreciation and amortization.. 12,668 Maintenance.. 10,5N 1,909,359 1,556,248 1,162,178 Capital expenditures. 38,821 Operating expenses excluding income taxes: q Conunon Stock and Cumulative l' referred and l' reference Stock Electric.. 791,563 632,169 337,150 Natural gas. 747,755 642,910 6M,825 The Company's Restated Articles of Incorporation, as amended, pro-1,539,318 1,275,079 1,001,975 y des for 85,000,000 authorized shares of common stock. During 1993, the Company issued 3,572.323 shares of common stock and at "* '^*** December 31,1993,61,617,873 shares were outstanding. Electric. 73,425 41,184 32,239 Natural gas. 4,553 816 (1,657) Not subject to mandatory redemption: The cumulative preferred stock is redeemable in u hole or in part on 30 to 60 days notice at the 77,978 42,000 30.582.,, option of the Company. Subject to mandatory redemption: On October 1,1993, the Electnc. 239,549 209,532 102,450 Company redeemed the remaining 22,000 shares of the 8.70% Series Natural gas. 52,514 29.637 27.171 preference stock. l $ 292,063 $ 239,169 $ 129,621 The mandatory sinking fund provisions of the 8.509 Series prefer-Identifiable assets at ence stock require the Company to redeem 50,000 shares annually December 31: beginning on July 1,1997, at $100 per share. The Company may, at Electric. . $4.231.277 54,390,117 $1,1%,023 its option, redeem up to an additional 50,000 shares on each July 1, Natural gas. 1,No.513 918.729 840,692 at $100 per share. The 8.509 Series also is redeemable in w hole or Other corporate assets a).. 140,258 130.060 75,798 in part, at the option of the Company, subject to certain restrictions " '# "" " E ' "' W*E 55'412.N8 $5,438'906 0112*513 $106.23 per share begmning July 1,1993,1994, and 1995, respec-Other Informauon-tively. Depreciation and amortization: The mandatory sinking fund provisions of the 7,589 Series prefer. Electric. 5 m.. 034 $ 105.842 $ 53,632 ence stock require the Company to redeem 25,000 shares annually Natural gas, 38.330 38.171 32.103 beginning on April 1,2002, and each April 1 through 2006 and the $ IM,3M S 144.013 5 85.735 remaining shares on April 1, 2007. all at $100 per share. The Maintenance: Company may, at its option, redeem up to an additional 25,000 Electric. 5 87,696 5 73,1N 5 34,240 shares on each April I at $100 per share. The 7.589 Series also is Natural gas. 30,147 28,507 26.275 redeemable in whole or in part, at the option of the Company, sub-I ject to certain restrictions on refunding, at a redemption price of I 5 117,843 S 101.611 5 60.515 5106.82, $106.06, and $105.31 per share beginning April 1,1993. Capital expenditures: 1994, and 1995, respectively. Electric. 5 137.874 5 95,465 5 43.714 l Nuclear fuel. 5.702 15,839 legall'roceedings Natural gas. 94.055 91,189 81.961 The Company and its subsidiaries are invohed in various legal and """*" F# " ""E ""*"I "## P 5 237,631 5 202,493 $ 125,675 visie i has been made w ithin the consolidated financial statements for b

• W

< n Information refin u she merxer suth KGa E <m Atare h 31. tw2 f 3 Prinatuns cash. icmporary mh imnimenn. non*uin inmimenn. will not base a m: aerial adverse effect upon the business, financial und deferred charget position, or results of operations of the Company. l l 39 l

n estern Rewurt es. Inc. NOTES TO CONSOLIDKfED FINANCI AL STATEMiiNTS & Quarterly Results (Unaudited) The amounts in the table are unaudited but, in the opinion of management, contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of such periods. The business of the Company is seasonal in nature and, in the opinion of management, comparisons betw een the quarters of a year do not give a true indication of m etall trends and changes in operations. First Second Third Fourth lIh dlan in Tiu naan,b, eu ept l'cr share Arru niinn I 1993 Operating revenues. 5579,581 5400,411 5419.018 5510,349 Operating income. 85,950 6(k282 81.225 MJM Net income,, 54,814 30,723 56,807 35,026 Earnings applicable to common stock. 51,468 27,320 53A05 31,671 Earnings per share, 5 0.89 5 0.47 5 OM) 5 0.51 Dividends per share. $ 0.485 5 0.485 5 0.485 5 OAS5 As erage common shares outstanding. 58,(M6 58JM6 59,441 61,603 Common stock price: liigh, 5 353/4 5 361/8 5 371/4 5 37

Iow, 5 303/8 5 323/4 5 35 5 323/4 1992(h Operating revenues.

5373,620 $341,715 5380,745 5460,168 Operating income - 42,684 45,830 77,010 73,645 Net income. 27,9S4 ISA34 42,185 39,281 Earnings applicable to common stock. 25A72 15,113 38.726 35,822 Earnings per share. 5 0.74 5 0.26 5 0.67 5 0.62 Dividends per share. 5 0.475 5 OA75 5 0.475 5 0.475 Average common shares outstanding. 34,566 58,046 58,046 58,046 Common stak price: liiph. 5 291/2 5 267/S 5 301/2 5 325/S Irw. 5 253/S $ 251/4 5 263/4 5 281/2 l i l r ii> Inforinatwn refle, n the inergrr u och Miatl' on %n h 31. IW2 4()

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Western Resources, Inc.: I We have audited the accompanying consolidated balance sheets and statements of capitalin-tion of Western Resources, Inc., and subsidiaries as of December 31,1993 and 1992, and the related consolidated statements of income, cash flows, taxes and common stock equity for each of the three years in the period ended December 31,1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Kansas Gas and Electric Company, a wholly-owned subsidiary of Western Resources, Inc., as of and for the year ended December 31,1992, which statements reflect assets and revenues of 61 percent and 27 percent, respectively, of the consolidated totals for 1992. Those statements were audited by other auditors whose report has been furnished to us a,d our opinion, insofar as it relates to the amounts included for that entity, is based solely on the report of other audi-tors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examin-ing, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe ] that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all materials respects, the financial position of Western Resources, Inc., and subsidiari,:s as of December 31,1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As explained in Note 1 to the consolidated financial statements, effective January 1,1991, the Company changed to a preferred method of accounting for revenue recognition. As explained in Note 12 to the consolidated financial statements, effective January 1,1992, the Company changed its method of accounting for income taxes. As explained in Note 6 to the consolidat-ed financial statements, effective January 1,1993, the Company changed its method of account-ing for postretirement benefits. Kansas City, Missouri, ART 11UR ANDERSEN & CO. January 28,1994 41

Western Resonn es, Inc. TEN-YEAR CMIPARATIVE DATA Illcorne Statement Data ($1,000s): Operating Expenses Total Fuel Power Natural Operating Used for Purchased Gas Other Main-Depre-Operating Years Revenues Generation (Net) Pun hases Operations tenance ciation Taxes Income j 19t0 $1,409359 5250,328 $16J96 $500,189 $349,160 $117,843 $181,909 $201,471 5292,063 i 1992 (1) 1,556,248 200,779 14,819 403,326 - 296,M2 -101,611 157,171 142,731 239,169 i '1991 1,162,178 146,256 5335 439,323 193,319 60,515 85,735 102,074 129,621 1990-1,149,755 148.681 2,658 456,868 178,448 57,817 76,815 %,478 131,990 1989 1,127,623 149,7 % 148 45),896 171,094 58,442 73,305 97,406 125,536 i 1988 1,166.114 148,787 (2356) 486347 165,234 55,128 70,406 112.146 130,422 1987 1,166,458 144,495 2328 485,995 153,789 49,598 67,8(4 124,115 138,334 1986 1,198,8M 144,693 2,065 511344 151,676 45,842 65.208 135,417 142,639 1985 1,354,128 150,679 2,279 655,429 150,295 45,962 60,794 142,680 146,010 1984 1,4S0,182 173,709 4319 764,819 145,559 45,181 58,552 144316 143,727 Electric Statistics: Company System Supply MWil Sales (1,000s) at Peak llour (Net MW) System Sutem Peak Accredited Resi-Com-Indus. ' Net kesnonsi-Generating System Years dential mercial trial Other Total Load bility (2) Capacity Capacity (21 19'O e60 5,100 SJ01 ~ 4,628 19,989 3,821 3,827 5,184 4,985 1992(I) 3,842 4,473. 4,419 3,119 15,853 3,583 3,590 5,I39 4,807 1991 2,556 3,051 1,947 1,984 16) 9,538 (6) 1,973 1,959 2,622 2367 1990 2,403 2,952 1,954 1,820 9,129 1,957 1,948 2.589 2344 1989 2,248 2,814 1,925 2,077 9,064 1,838 1,823 2,589 2,.W, 1988 2,2% 2,782 1,877 2,174 9,129 1,926 1,919 2,526 2,287 1987 2,153 2.633 1,816 2,001 8,603 1,818 1,821 2,505 2.241 1986 2,075 2.521 1,821 2,125 8,542 1,737 1,740 2,531 2,262 1985 1,989 2,405 1.852 2,296 8,542 1,637 1,615 2,672 2,435 1984 1,991 2,322 1,777 2379 8,469 1,700 1,668 2.681 2387 Natural Gas Statistics: MCF Sales (1,000s) Average Cost of Gas Purchased Yean Residential Commercial Industrial Other Transportation Total Per MCF 1993 110,045 47536 1,490 4I 73574 232,fix6 $3.05 1992 93.779 40,556 2,214 94 68,425 205,068 2.74 1991 97,297 47,075 2.655 14,960 (6) 78,055 240,N2 (6) 2.87 1990 95.247 43,973 3.207 1361 72,623 216.411 2.90 1989 IN 057 47,339 5,637 1,403 58,025 216,461 2,75 1988 104.471 52.567 19,929 2,455 37,424 216,846 2.57 i l 1987 94,842 50,946 29,917 2,101 24,584 202390 2.67 1986 97,368 54,132 48.181 2,523 5,752 207,956 2.50 1985 1 % 315 59,947 53,170 7,540 9,6M 236,636 2,79 1984 IN,092 57,624 61,163 3,815 226,694 3.25 ti)Information reflects the merger uah KGdL em Alan b 31.1992 thre 3). (2) Net of off-sprem sales andpurchaset (3) Restated to reflect two-for one stm a split am Afay 5,1987. (4)intludes cumulative ellect to January I.1985, of a hange in revenue rece:xnuiem, a $5.7933m or 50.17 per share decrease. D

I I' l. Other income ; j and Deductions Interest Charges income, Earm,ngs, and Dividends Other Earninos Earnings Dividends l Income &i Preferred & Applicafile per Declared per i-AFUDC Deductions - Lon$ebt a-Temi AFUDC-Net Preference to Common Common Common l ' Equity (Neo l Other Debt income Dividends Stock Share f 3) Share th $25,482 - - $123,551 $19,255 $(2,631) $177,370 $13,506 $163,864 $2.76 $1.94 24,186 117,464 20,009 (2,002) 127,884 - 12,751 115,133 2,20 190 3351 51,267 10,490 - (1,070) 89,645 (6) 6377 83,268 (6) 2.41 (6) 2.N (5) l 9,012 51,542 11,022 - (1,181)- 79,619 1,744 77.875 2.25 l.80 L 859 46378 8,742 (1,503) 72,778 1,857 70,921 2.05 l,76 l (461): 44 N 7,135 (1,327) 79,791 1,970 77,821 2.25 1.72 375 1,188

• i 3,517 (4%)

88.691 3,700 84,991 2.46 1.65 366. 750 50_ 2,902 (742) 91,382 7,633 83,749 2.42 1.58 l 406 41 45 5,026 (760) 87,975 (4) 8,973 79,002 (4) 230 (4) 1.48 } 800 1,635 - 50.$ 7 6,103 (366) 89.848 9,759 80,089 2.40 138 l Utility Plant Electric Revenues (SI,000s) Customers ($1,(KK)s) l Averace Gross Residential Commercial Industrial Other Total Totaf Additions Total $384,618 $319,686 $261,898 $138,335 $1,104,537 585,042 $147,556 $5.169,915 l 296,917 271303 211,593 103,072 882,885 577,918 93340 5 N8,903 160,831 149,152 78.138 83,718 471,839 306.203 42387 1,684,147 152,509 146.001 79,225 85,972 463,707 303,535 46,697 1.649367 142308 139,567 78,267 92,201 452343 300.028 54.207 1,613,095 149,155 138318 77,201 96,486 461,160 295.072 62.010 1,563,444 149,914 143,084 82,972 93,755 469,725 295,371 52.792 1,510,067 150,950 145,166 89,084 97.674 482,874 291,967 47,526 1,466334 145,712 140,7M 91,747 101,951 480,174 288,674 48,109 1,428383 152,151 144,% 9 94,468 113,195 503,883 285.232 42,195 1,387,074 i Utility Plant j Natural Gas Revenues (SI,000s) Customers ($ 1.000s) l Averace Gross Residential Commercial Industrial Other Total Totaf Additions Total $529,260 $209,344 $7.294 $58,924 $804.822 1,092,713 $100,324 $1,129,792 440,239 169,470 7.804 55,850 673 3 63 1,083,467 89.520 1,040373 433,871 182.486 10.546 63,436 690,339 1,067,840 80,630 865,448 439,956 176,279 12,994 56,819 686,048 1,059,140 84.553 789,428 430,250 172,628 18,021 54,381 675.280 1,053,787 91.613 708.787 418,190 181,5 % 57,434 47,824 704,954 1,042,140 50,227 620.803 l 390.218 178,402 87.207 40,906 696,733 1,030,422 49,906 572382 i 386,95; 184,721 131,090 13.245 716.010 1,011,686 46319 520,631 452,854 225,735 IM,782 30,583 873,954 998306 40370 462,677 494 M3 244,249 218,890 18,517 976,299 985.268 41.848 422,993 l l l f 5) includes special, one time dividend of 50.18 per share paid February 28,1991. (6) includes cumulative efect to January 1,1991. of change in revenue recognition. a $17,%0.000 or $0.50 per share increase. 4.5 The cumulative eDect of this change increased natural gas. sales by Ix838.000 MCF and electric sales by 256M0 M1\\ll.

A Western Resources Profile W V teatern Resources, one of the.tlidwest's largest combination sailities, is dedicated to providing the highest quality energy services, to being a good pl we to wark. to maintaining the public trust, and to building financial strength, ihrongh the use of our auen and resours es - our people, equipment, and fauhties - a c are as comphshing these goa!> in a way n hich prot ides samfaenon for our shareholderv. customers, and employees while improving the environment. Thefolloning photo cuay isoks at some of these aucts and activities o_fIW3. l Western Resources owns or is a joint owner in nine electric generating stations. The ,y q largest of these is the coal- ~ n e fired Jeffrey Energy Center (JEC). The Company is the plant's operator and owns an 84 percent interest in the Throuch KG&E, the Company is an three identical 680,(XX) kilo-owner in Kansas' only nuclear generating watt units at the generating plant. Wolf Creek Generating Station. facility. JEC uses low-sulfur The 1,132,(XX) kilowatt plant is operated Wyoming coal and operates by the Wolf Creek Nuclear Operating environmental equipment to Corporation (WCNOC) and KG&E has a preserve the quality of both 47 percent interest in WCNOC. The light the air and water. water reactor holds several world records for efficient operation. Western Resources has some 6,3(X) miles of electric transmission line, as well as approximately 21,000 miles of electric distribution line in the State Safety, for our customers of Kansas. and employees, is a major Company concern. Western amm4 Resources' dedicated efforts. to renew customer natural

• The Company has 12 gas service lines and Y natural gas compressor respond to potential gas stations in western and leaks continues throughout central Kansas to the service territory.

move natural gas through its 1,750 miles of transmission pipeline. Western i; Resources also makes use of other transmis-slon company pipelines to sene its customers. 1 a \\ l

~ For the past three years, 36 ?% [A Western Resources operating 3 MM , ' companies have used hand- , i ~' QX;g.l held meter reading equipment (/ " - Y f""'"_"'*h as the first step in preparing 7 M [ monthly customer billings, 3 mz The system provides greater W speed and accuracy compared to the use of paper meter-read-ing documents. The next step {4 4 ; is to implement off-site meter (7 y reading. A trial system uses o as* T:: radio signals to capture and The Company's commitment 7 K transmit readings from meters to the use of alternative where physical access is diffi-vehicle fuels includes con. cult or impossible to a hand-tinued conversion of service held device or to a specially vehicles to clean-burning equipped van at the curb or natural gas and bio-diesel. street. Solar battery rechargers have been installed on several em e ~.mppmgq field trailers with battery Jc p yg powered hydraulic systems. q ]lyjegad Sometimes,innosations evolve not f. F rom one The namral gas powered y 1, g, Z dth{g,y{ 1 idea but from several ideas. Using this o drae car, built and raced by y approach, through the forum of employee task an Employee," Kid Natural"

p forces, has helped the Company provide many is one of only two com-g ' Qg better solutions - from environmental pro-

~# m g jg 7j4g pressed natural gas drag cars MJ jects, to employee benefits, to the design of a n the country. And it is q new service vehicle. The 28-member Tool and competitive. t g 4 y q Truck Equipment Task Force conceptualized -d $ i and brought to reality a new vehicle to make y C 4 crews' jobs easier. e ~ imprmed and :xpanded storage capacity was a primary goal for the new truck. It has multi-g' ple, interchangeable storage cabinets on each

• 1 side of its body. The lighted cabinets are

' ~is.& equipped with special pull-out tiered shelves. Other cabinets are equipped to secure cable, ~ tubing, and work implements. M. g.i. mm. The truck can include a Muhiple Power Unit which powers most of the electrical, hydraulic, and pneumatic tools on the standard crew truck, including a 300 amp welder, An innovative manipulator boom that can be used for excavations, tamping, backhoeing, winch-ing, concrete breaking, and otherjobs also is available. ? ? 6 N !sy y g,

A Western Resources Profile l l I liigh water interrupted the lives and businesses of people in sev-eral communities within the g' '"

• M.

Western Resources service area in 1993. While flooding did not U. w ^ prevent the Company from pro-g viding either electric or natural 4 .. t pas service to those who could '4

p> Qpf receive it (in fact, the Company GTH \\

provided additional electricity t W. A to some neighboring electric ? [7 companies with flooded gener- '$55ii ating facilities), some customers did have to have meters turned off or removed until waters I@ receded and clean-up could be i , accomplished. ? x 3 t %M{ NW ~~ Z _ d,G

• ?! t {

g/ jwr,p@ff{g, [ In addition to using technology within the h 1 Company to reduce possible pollution at power m gj plants and other facilities, the Western Resources ~' ' ~~ employee-directed Environmental Task Force (Green Team) seeks opportunities for employee volunteers and Company assets to make long-range, substantive environmental improvements within the service area. Wetlands development and preser-vation is undertaken by the Green Team on Company and public lands. Installation of bird boxes and other nesting facilities, and g k.I., planting of trees and other wildlife Ki;Q cover are done by employee volun-gg^ teers throughout the year. o' t.j - Last year, among other projects. the Green Team assisted with a survey for the Indiana bat in an attempt to determine whether the i endangered bat had migrated to Kansas. Researchers used mist net-ting to capture the bats. While no Indiana bats were captured, the presence of evening bats and red bats was documented. Neither species previously had been recorded in the area. 46

Community involvement, through cor-porate donations and employee volun-teers, grew during 1993. The Company's annual Christmas in October project, which helps those ,. _ ~ ^ ,,, a unable to do the work themselves with weatherization, painting, cleaning, and minor home repairs, was held in 19 communities. Employees, family mem-Six electric utility executives from bers, and other community volunteers hj Russia visited Western Resources worked on 212 homes. in August to learn how a U.S. utili-L ty operates. The visit was spon-4 4' sored by the Department of Energy and the Edison Electric Institute. The executives visited Company facilities, including Jeffrey Energy Center and Wolf Creek Generating Station, as well as the Energy Control Center in Topeka. They also heard presentations on cus-tomer service and corporate finance. p1 Field service employees are often \\. \\ the first and only physical contact Community b customers have with the Company. Relations Ieams \\ These employees special skills and \\ .i throughout the L knowledge benefit our customers Company took on every day, special projects, from supplying It is due.m large measure to all dq { goods to food banks Dedicated customer advisors help their eUorts tha! cugnjefs rate the to dressing bears explain services and set up special Company high m satistymg the.ir given by the local payment arrangements and other needs. In 1993 customers gave the Salvation Army to services. They also serve as advo. Company an 88 percent approval needy children at cates for customers with special ".ning, up from 85 percent the pre-Christmas. needs. n us year. bms; a A power quality survey by trained specialists, >b like those at the Company's Power Technology

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( p, Center, can help assure customers of electric ~ g ,f M#e h p sernce that reliably meets their needs. a [ y p.dimewotNIq J a } J' E , fF glkdmgg gg at:*. ~d%3 gg g n=" %g;3, e sbahum die..a e 1 Western Resources again served as corporate sponsor for many March of Dimes WalkAmerica events in the service arcai Employ ees led the way in 24 community Walks, dou-I bling their participation and donations over 1992.

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DIRECTORS Imuis W. Smith 3 4 (50) 1991 Richard N1. Iladen (54) 1966 Eduard 11. Schaub (62) 1989 Prnident Etenais e Vicc President. FiclJ Services Vice President, Gmernment Apairs Frank J. lleekerL4 457) 1992 A#itJ-Sigmd Arnnpacc Company Kenneth T. W more (4D 1974 Kansas City. Afismuri Norman E. Jackson (56) 1960 3 Berler Investments. Inc. Etecutive Vice President. Electric \\ ice President. Alanagement El Dorado. Kansas Nenneth J. Wagnon L3(55l1987 Engincering and Fie!J Uperations infonnation Services and Gene A. Iludig L2(54)1987 President Telecommunications ChanccIlor Capital Enterprnes. Inc. NG&E \\\\1c hita. Kansas Jerr3 D. Courington (48) 1977 The Cniiersity of Kan3a, Ke,nt R. Ilrow n 148) 198, (.ontroikr Lawrem c, Kansas p,,,;3gg,y pg4 ( OFFI RS Thomas E. Shea (44) 1972 C. Q. Chandler u (67;199*' of %.estern Resources. Inc.. us Richard D. LaGree 163) 1956 I.rcasurer Chairman of the Board -,~ " "E Y* "" b LYlRL'ST Bank Richard D. Terrill(39) 1980 I I \\\\ichita. Kanw3 1 E FCUTIVE OFFICERS GAS SERVICL. Sccretarv j j Thomas R. Cleiener1 3(58)1975 John E. Ilay es Jr. (56) 1989 William I.. Johnson (51) 1990 Financial Consuhant Chairman of the Board. President. President and Chief Etecutive Ofit er Darrell D. lliedsoe (5011985 Anistant Controller l \\\\1r hita. Kansas and Chief Etn utive 0;ticcr i James W. Ingram (62) 1969 l John C, Dieus 14(60) 1990 M illiam E. Ilrow n (54) 1962 \\1re President. Pnaluction. E. I y nn Cook (49) 1985 l Chainnan of the Board I' resident and Ch ef Esecutive Transmi.uson, and Storage Anistant Treawrcr Capitol Federal Sarines Ottir er - KPL j Topcia Kansas llans E. Niertens (44) 1990 Stacy F. Kramer (37) 1979 f James S. IIaines js ,1480 Yu e President, Engineering Assistant Secretary John E. Ilay es, Jr. (56) 1989 Etecuine Vice Prestdent and 5 Chainnan of the Board Pre 3rdent. Chief Administrain e Onicer Verneda l'. Robinson (3311985 George R. Melling (45) 1978 and Chief Etenainc Orjicer Vice President. Customer Scryi< e A nistant 5ccrctary \\\\'estent Rrwurcet Inc. Stesen L. Kitchen (48) 1964 TopcLa. Kansas Etcmais e Vice Pre 3ident and P. Thomas llall 111151) 1983 lxro3 P. Wages (45) 1977 Chief finamial odicer Anistant Vie c Prnident. Anistant Controller Daiid II. Ilughes L3t65) 1988 Communay Relations Vice Chainnan John K. Rosenberg (48i 1979 ASTRA RESOURCES. INC. Hallmark Cards, Inc. 4 ntircJ) Etenane Yuce Prnident and Richard ll. Tangeman (44) 1972 C'ti"h Cli"'(J'II99I l Kansas Cits. Afiuouri General Counsel Anistant \\1c e President. Charrman, Prnidcnt. and l Gas 0;>crations U"'I E'""'E' @'" Russell W. Nie>er, Jr.13 61) 1992 Carl M. Koupal, Jr.140,1992 1 l Chairman and Chief Etenan e 0% er Vice Prnident. Corporate CORPORA TE ~ Duain L. Williams q48) 1993 I Cessna Ainraft Comparn Comnamications. Aladctmg. )** # # U'e Punent. Adminntnaion. \\\\1chita. Kansas and Economic Dnclo;,mou I Ltenaire Vice Pnaident, and Clucf Financial O(licer \\ Human Raoura3 13 67)1991 Ray ford Price (56i 1993 1 John 11. Robinson 1 \\ Chairman Emeritus Vice Prnident. Corporate a es T. Gark @ 1978 i Menk ruan annnae qvuumnec Black & Vratch Dn clopment Vice PresiJcnt. Intcrnal Audit

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Kpf' William II. Wore (41) 1978 comminee Marjorie I. Setter 14169)1992 'av M ke *r3Lvon j N1. l.ce 11runton I!8) 1958 \\1ce Prnident. Finance Consultant - Advenising

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En"ive \\'ict Prnidcn!. \\\\ichita. Kansas Dasid E. Roth (38) 1979 Llectric Production 1 Vice President. Labor d l d i l i i i I t

i I 1 i SHAREHOLDER INQUIRIES Comnvunications regarding stoc k transfers, lost or stolen certificates or j disidend checks. or other information requests should be directed to our 4 principal transfer agent and registrar Chemical Bank. Please include in o your correspondence a telephone number where you can be reached InVNOT InfOrnWiOn j during the day. j Western Resources. Inc. (800 648-8165 c/o Chemical Bank If calling from outside Shareholder Sersices the U.S., call collect: P.O. Hos 24970. Church Street Station (2121613-7147 New York, New York 102494X)!8 TRANSFERRING STOCK j A stock transfer is required when stock is sold or a name changed on 3 Other shareholder inquiries should be addressed to: the certificate. To transfer the stock, complete the assignment form on Western Resources. Inc. the reserse side of the cenificate and endorse it exactly as the registration Insestor Relations Department show n on the face of the certificate. The signatureo.) must be guaranteed ) j P. O. Ilos 889 by a commercial bank or a brokerage hrm that is a member of a medal-TopcLa. Kansas 66601-03g9 lion signature guarantee program. The certincate and appi nle docu-(913)575-8226 mentation then is sent, preferably by registered mail, to: ] Western Resources. Inc. pfpfpgypS Stock issuance Department Quarterly dividends on common, prefened. and preference stock nor. P. O. Hos 24970. Church Street Station mally are paid on or about the first of Januarp April. July, and October .New York. New York 102494Kil 8 to shareholders of record as of about the third day of the preceding l month. All cash dnidends paid by the Company are taxable as ordinary LOST OR STOLEN CERTIFICATES i income. If a certificate is missing, notify the transfer ag :nt or the Company { Disidend paymena may be sent electromcally to your bank. sasings immediately in writmg. or by calling t8(Xh 648-8161 A "stop transfer" j and loan. or credit union and credited to your account on the payment will be entered in the records and an affidasit will 5e mailed to you for l date. To receise mformation about this option. call (800 648 816i completion. A surety bond fee must be paid to :eplace the certificate. 4 The bond fee amount uill be included with the attidasit. 1 DIVIDEND REINVESTSIENT AND STOCK i PURCHASE PLAN EXCHANGE LISHNG AND STOCMAIBOI.S I The Company's Didiend Reinsestment and Stock Purchase Plan New York Stock Exchange Ticker Symbol WR j (Plan) offers common shareholders a consenient and economical method New spaper 1.isting: WstnRes W of purchasing additional shares of common stock. l Any common shareholder of record is eligible to participate in the CONEONAIbAbONbbS j Plan. Options of the Plan include full or partial reinsestn ent of disi. Western Resources. Inc. j dends, monthly optional cash insestments and safekeeping of certificate 818 Kansas Asenue shares. Additional information on the Plan and an authorization card Topeka, Kansas 66612-1217 will be sent to you on request: (913i575-6300 Western Resources. Inc. ) Disidend Reinsestment COSlalON, PREFERRED, AND PREFERENCE i P. O Bos 24970. Church Street Station STOCK j New York, New York 102494)018 Principal Transfer Agent and Registrar 48(#4 648-8165 Chemical Bank j ( P.O. Hos 24970. Church Street Stanon l ADDRESS CHANGES, DUP 12CATE AIAILINGS, AND New York. New York 10249ml8 i CONSOLIDATING ACCOUNTS request. Please'PRINI all changes on w ritten requests. ~ Co-Transfer Agent Co-Registrar 8 Address chances may be made bs calline t8014 648-8165 or bs written ~ Hank IV Topeka. N.A. 51ercantile Bank of Topeka If ou are receising duplicate copies of Company reports due to your 'Irust Department P.O. Hos 178 3 name or address being listed on our records in more than one torm, the One Tow nsite Plaza. P.O. Hos 88 Topeka Kansas 66601-0178 4 i duplicat on can be slopped by written request. or by calling (800) 648-TopcLa. Kansas 6660141088 8165. This authorization will not affect the distribution of dindends or prosy material WESTERN RESOURCESIKPL FIRST 310RTGA GE BONDS Such requests should be sent to: Principal Trustee. Paying Agent. and Registrar Western Resources. Inc. Ilarris Trust and Satings Bank Shareholder Sers ices 111 West N1onroe Street j P. O. Hos 24970. Church Street Station Chicago. Illinois t0603-4003 j New York. New York 102494Wil 8 (3121461-6838 Collect i i OTHER REPORTS KG&E FIRST AIORTGAGE HONDS } Shareholdeis may obtam without charge a copy of periodic rept ris N! organ Guaranty Trust Company of New York j filed w nh the Securities and Exchange Commission. Requests should be Corporate Trust Department t addressed to: 60 Wall Street. 36th floor i Western Resources, Inc. New York New York 102604W)60 insestor Relations 1212i(48-9261 j P.O HoshS9 l Topeka. Kansas 66601-0889 ANNUAL JIEETING The annual meeting of shareholders is held on the first Tuesday in N1ay. .p) in 1994 the meeting will be held May 3 at the Kansas Espocentre in Topeka. Kansas, at i 1:00 a.m. ~ i s

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