PART I

ITEM 1. BUSINESS

GENERAL

Westar Energy, Inc., a Kansas corporation incorporated in 1924, operates the largest electric utility in Kansas and owns interests in monitored security businesses and other investments. Unless the context otherwise indicates, all references in this Annual Report on Form 10-K to "the company," "we," "us," "our" or similar words are to Westar Energy, Inc. and its consolidated subsidiaries. The term "Westar Energy" refers to Westar Energy, Inc. alone and not together with its consolidated subsidiaries. We provide electric generation, transmission and distribution services to approximately 647,000 customers in Kansas. We also provide monitored security services to over 1.1 million customers in the United States and Europe. ONEOK, Inc. (ONEOK), in which we presently own an approximate 27.5% interest (we owned an approximate 45% interest at December 31, 2002; see "—Changes in ONEOK Ownership" below), provides natural gas transmission and distribution services to approximately 1.9 million customers in Kansas, Oklahoma and Texas. Our corporate headquarters are located at 818 South Kansas Avenue, Topeka, Kansas 66612.

Westar Energy and Kansas Gas and Electric Company (KGE), a wholly owned subsidiary, provide rate regulated electric service. KGE owns 47% of Wolf Creek Nuclear Operating Corporation (WCNOC), the operating company for Wolf Creek Generating Station (Wolf Creek), our nuclear powered generating facility.

Westar Industries, Inc. (Westar Industries), our wholly owned subsidiary, owns our interests in Protection One, Inc. (Protection One), Protection One Europe, ONEOK and our other non-utility businesses. Protection One, a publicly traded, approximately 88%- owned subsidiary, and Protection One Europe provide monitored security services. Protection One Europe refers collectively to Protection One International, Inc., a wholly owned subsidiary of Westar Industries, and its subsidiaries, including a French subsidiary in which it owns an approximate 99.8% interest.

SIGNIFICANT BUSINESS DEVELOPMENTS

Overview
A number of significant developments have impacted us and our business operations since January 2002.

  • We hired a new chief executive officer and senior management team.
  • We filed a new Debt Reduction and Restructuring Plan (the Debt Reduction Plan) with the Kansas Corporation Commission (KCC) that reflects our decision to return to being exclusively a Kansas electric utility, replacing an earlier plan that contemplated the separation of Westar Industries.
  • We began implementing the Debt Reduction Plan by (a) selling a portion of our ONEOK preferred stock, exchanging the remaining preferred stock for a new class of ONEOK preferred stock and modifying our related agreements with ONEOK, (b) reducing our first quarter 2003 dividend 37% to $0.19 per share, and (c) exploring alternatives for the disposition of our interests in Protection One and Protection One Europe.
  • In May and June 2002, we refinanced approximately $1.3 billion of outstanding debt.
  
  • A Special Committee of our board of directors, the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC) and a federal grand jury initiated investigations into various matters.
  • We recorded impairment charges related to our monitored security businesses of approximately $864.9 million, net of tax benefit and minority interests, of which $671.0 million was related to goodwill and $193.9 million was related to customer accounts.
  • We repurchased a portion of our 6.25% senior unsecured notes that have a final maturity of August 15, 2018 and are putable and callable on August 15, 2003 (the putable/callable notes). As a result, we recognized a loss related to the fair value of a call option associated with the putable/callable notes for 2002 of $23.7 million, net of a $15.7 million tax benefit.
  • We reduced our utility work force by approximately 400 employees through a voluntary separation program.
  • We restored service from a severe ice storm in late January 2002 and incurred $19.3 million for restoration costs, a portion of which was capitalized.
  • ONEOK gave us notice of termination effective December 2003 of a shared services agreement pursuant to which we provide customer service functions to each other, including meter reading, customer billing and call center operations. We expect termination of this agreement will increase our annual costs to provide these services by approximately $11 million to $13 million.
New Chief Executive Officer and
Senior Management Team
James S. Haines, Jr., joined us in December 2002 as our chief executive officer and president and a member of the board of directors. He replaced David C. Wittig, who resigned on November 22, 2002 from all of his positions with us and our affiliates. Mr. Wittig had been on administrative leave without pay since November 7, 2002 as a result of his indictment by a federal grand jury in Topeka, Kansas, for actions arising from his personal dealings.

Mr. Haines added new members to our senior management team, including William B. Moore as executive vice president and chief operating officer, and Mark A. Ruelle as executive vice president and chief financial officer. All of these officers were previously employed with us and have a strong background in the electric utility business. Douglas T. Lake, our executive vice president and chief strategic officer, resigned as a member of the board of directors and was placed on unpaid leave from all of his other positions with us and our affiliates on December 6, 2002.

See Note 35 of the Notes to Consolidated Financial Statements, "Potential Liabilities to David C. Wittig and Douglas T. Lake," for information about our potential liabilities to Mr. Wittig and Mr. Lake.

KCC Orders and Debt Reduction and
Restructuring Plan
On February 6, 2003, we filed the Debt Reduction Plan with the KCC outlining our plans for paying down debt and restructuring the company. The Debt Reduction Plan calls for the sale of our non-utility assets, including our interests in Protection One, Protection One Europe and ONEOK. As part of the Debt Reduction Plan, the first quarter 2003 dividend on our common stock was reduced 37% to $0.19 per share. In addition, the Debt Reduction Plan contemplates the potential issuance of additional Westar Energy equity, if needed to further reduce debt following the disposition of all material nonutility assets. On February 10, 2003, the KCC issued an order in which it stated that the Debt Reduction Plan appears

 

 

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