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Transactions
with Protection One
During the fourth quarter of 2001, KGE
entered into an option agreement to sell an office building located
in downtown Wichita, Kansas, to Protection One for approximately
$0.5 million. The sales price was determined by management based
on three independent appraisers findings. This transaction was
completed during June 2002. We recognized a loss of $2.6 million
on this transaction, and we expected to realize annual operating
cost savings of approximately 0.9 million. The cost savings will
be treated as a regulatory liability in accordance with a March
26, 2002, KCC order. For the year ended December 31, 2002, we recorded
$0.5 million in cost savings as a regulatory liability.
Protection
One Europe
On February 29, 2000, Westar Industries
purchased the European operations of Protection One, and certain
investments held by a subsidiary of Protection One, for an aggregate
purchase price of $244 million. Westar Industries paid approximately
$183 million in cash and transferred Protection One debt securities
with a market value of approximately $61 million to Protection One.
Cash proceeds from the transaction were used to reduce the outstanding
balance owed to Westar Industries on Protection Ones revolving
credit facility. No gain or loss was recorded on this intercompany
transaction, and the net book value of the assets was unaffected.
29. WORK FORCE REDUCTIONS
In late 2001, we reduced our utility
work force by approximately 200 employees through involuntary separations
and recorded a severance-related net charge of approximately $14.3
million. In 2001, Protection One also reduced its work force by
approximately 500 employees in connection with facility consolidations
and recorded a severance-related net charge of approximately $3.1
million.
During 2002, we further reduced our utility
work force by approximately 400 employees through a voluntary separation
program. We recorded a net charge of approximately $21.7 million
in 2002 related to this program. We have replaced and may continue
to replace some of these employees.
30. ICE STORM
In late January 2002, a severe ice storm
swept through our utility service area causing extensive damage
and loss of power to numerous customers. Through December 31, 2002,
we incurred $19.3 million for restoration costs, a portion of which
was capitalized. We have deferred and recorded as a regulatory asset
on our December 31, 2002 consolidated balance sheet restoration
costs of approximately $15.0 million. We have received an accounting
authority order from the KCC that allows us to accumulate and defer
for potential future recovery all operating and carrying costs related
to storm restoration.
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31. POTENTIAL SALE OF UTILITY
ASSETS
On October 14, 2002, we announced an
agreement with Midwest Energy, Inc. (Midwest Energy) for the sale
to Midwest Energy of a portion of our transmission and distribution
assets and rights to provide service to customers in an area of
central Kansas. The sale will affect about 10,000 customers, or
about 1.5% of our total customers, over 895 square miles. The area,
which includes 42 towns, is on the west edge of our service territory
and is largely surrounded by Midwest Energys existing territory.
The proposed sale is contingent upon approval by the KCC and FERC.
KCC hearings have been scheduled to begin on May 20, 2003. We can
give no assurance as to when or if this transaction will occur.
32. SEGMENTS OF BUSINESS
Our business is segmented based on differences
in products and services, production processes and management responsibility.
We have identified three reportable segments: Electric Utility,
Monitored Services and Other.
- Electric Utility consists of our integrated
electric utility operations, including the generation, transmission
and distribution of power to our retail customers in Kansas and
to wholesale customers, and our power marketing activities.
- Monitored Services, including the net
effect of minority interests, is composed of our security alarm
monitoring businesses in the United States and Europe.
- Other includes our approximate 45%
ownership interest in ONEOK at December 31, 2002, and other investments
in the aggregate not material to our business or results of operations.
We manage our business segmentsf performance
based on their earnings (losses) before interest and taxes (EBIT)
because EBIT is the primary measurement used by our management to
evaluate segment performance. Our business managers have direct
control over the items that affect the EBIT of their segments and
we therefore believe EBIT is an appropriate measure of segment performance.
EBIT does not represent cash flow from operations as defined by
GAAP, should not be construed as an alternative to operating income
and is indicative neither of operating performance nor cash flows
available to fund our cash needs. Items excluded from EBIT are significant
components in understanding and assessing our financial performance.
Interest expense, income taxes, discontinued operations, cumulative
effects of accounting changes and preferred dividends are items
that are excluded from the calculation of EBIT. Our computation
of EBIT may not be comparable to other similarly titled
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