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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

• Report of Independent Public Accountants
• Financial Statements:
  • Consolidated Balance Sheets, December 31, 2000 and 1999
  • Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998
  • Consolidated Statements of Comprehensive Income for the years ended December 31, 2000, 1999 and 1998
  • Consolidated Statements of Cash Flows for the years ended 2000, 1999 and 1998
  • Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998
  • Notes to Consolidated Financial Statements
• Financial Schedules:
  • Schedule II - Valuation and Qualifying Accounts

SCHEDULES OMITTED

The following schedules are omitted because of the absence of the conditions under which they are required or the information is included in the financial statements and schedules presented:

I, III, IV, and V.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Western Resources, Inc.:

We have audited the accompanying consolidated balance sheets of Western Resources, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, comprehensive income, cash flows, and shareholders' equity for each of the three years in the period ended December 31, 2000. These financial statements and the schedule referred to below are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and this schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, 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 provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Western Resources, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II - Valuation and Qualifying Accounts is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Kansas City, Missouri,
March 9, 2001

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WESTERN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)

	December 31,
	2000			1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,762		$	11,040
Restricted cash		22,205			15,962
Accounts receivable (net)		152,165			229,200
Inventories and supplies (net)		101,303			112,392
Marketable securities		3,946			177,128
Energy trading contracts		185,364			16,370
Prepaid expenses and other		40,503			40,876
Total Current Assets		514,248			602,968
PROPERTY, PLANT AND EQUIPMENT (NET)		3,993,438			3,889,444
OTHER ASSETS:
Restricted cash		35,878			-
Investment in ONEOK		591,173			590,109
Customer accounts (net)		1,005,505			1,122,585
Goodwill (net)		976,102			1,057,041
Regulatory assets		327,350			366,004
Other		323,514			361,741
Total Other Assets		3,259,522			3,497,480
TOTAL ASSETS	$	7,767,208		$	7,989,892
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:
Current maturities of long-term debt	$	41,825		$	111,667
Short-term debt		35,000			705,421
Accounts payable		177,067			132,834
Accrued liabilities		207,329			226,786
Accrued income taxes		53,834			40,328
Deferred security revenues		73,585			61,148
Energy trading contracts		191,673			15,182
Other		34,187			57,829
Total Current Liabilities		814,500			1,351,195
LONG-TERM LIABILITIES:
Long-term debt (net)		3,237,849			2,883,066
Western Resources obligated mandatorily
redeemable preferred securities of subsidiary trusts holding solely company subordinated debentures		220,000			220,000
Deferred income taxes and investment tax credits		919,807			976,135
Minority interests		184,591			192,734
Deferred gain from sale-leaseback		186,294			198,123
Other		272,747			279,451
Total Long-term Liabilities		5,021,288			4,749,509
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' EQUITY:
Cumulative preferred stock		24,858			24,858
Common stock, par value $5 per share, authorized
150,000,000 shares, outstanding 70,082,314 and 67,401,657 shares, respectively		350,412			341,508
Paid-in capital		850,100			820,945
Retained earnings		714,454			679,880
Accumulated other comprehensive income (loss) (net)		(8,404	)		37,788
Treasury stock, at cost, 0 and 900,000 shares,
respectively		-			(15,791	)
Total Shareholders' Equity		1,931,420			1,889,188
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$	7,767,208		$	7,989,892

The Notes to Consolidated Financial Statements are an integral part of these statements.

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WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)

	Year Ended December 31,
	2000			1999			1998
SALES:
Energy	$	1,830,617		$	1,430,982		$	1,612,959
Monitored services		537,859			599,105			421,095
Total Sales		2,368,476			2,030,087			2,034,054
COST OF SALES:
Energy		850,277			478,982			691,468
Monitored services		185,555			179,964			131,791
Total Cost of Sales		1,035,832			658,946			823,259
Gross profit		1,332,644			1,371,141			1,210,795
OPERATING EXPENSES:
Operating and maintenance expense		337,481			337,081			337,507
Depreciation and amortization		426,369			403,669			288,125
Selling, general and administrative expense		343,163			340,609			263,310
International power development costs		-			(5,632	)		98,916
Deferred merger costs		-			17,600			-
Total Operating Expenses		1,107,013			1,093,327			987,858
INCOME FROM OPERATIONS		225,631			277,814			222,937
OTHER INCOME (EXPENSE):
Investment earnings		192,423			35,979			49,797
Impairment of marketable securities		-			(76,166	)		-
Minority interests		8,625			12,600			2,762
Other		-			14,234			(8,563	)
Total Other Income (Expense)		201,048			(13,353	)		43,996
EARNINGS BEFORE INTEREST AND TAXES		426,679			264,461			266,933
INTEREST EXPENSE:
Interest expense on long-term debt		226,419			236,417			170,855
Interest expense on short-term debt and other		63,149			57,687			55,265
Total Interest Expense		289,568			294,104			226,120
EARNINGS (LOSS) BEFORE INCOME TAXES		137,111			(29,643	)		40,813
Income tax expense (benefit)		46,061			(32,197	)		6,755
NET INCOME BEFORE EXTRAORDINARY GAIN AND ACCOUNTING CHANGE		91,050			2,554			34,058
Extraordinary gain, net of tax of $26,514, $6,322 and $2,730		49,241			11,742			1,591
Cumulative effect of accounting change, net of tax of $1,097		(3,810	)		-			-
NET INCOME		136,481			14,296			35,649
Preferred dividends		1,129			1,129			3,591
EARNINGS AVAILABLE FOR COMMON STOCK	$	135,352		$	13,167		$	32,058
Average common shares outstanding		68,962,245			67,080,281			65,633,743
BASIC AND DILUTED EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING:
Before extraordinary gain and accounting change	$	1.30		$	0.02		$	0.46
Extraordinary gain		0.71			0.18			0.02
Accounting change		(0.05	)		-			-
After extraordinary gain and accounting change	$	1.96		$	0.20		$	0.48
DIVIDENDS DECLARED PER COMMON SHARE	$	1.435		$	2.14		$	2.14

The Notes to Consolidated Financial Statements are an integral part of these statements.

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WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)

	Year Ended December 31,
	2000			1999			1998
NET INCOME	$	136,481		$	14,296		$	35,649
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains/(losses) on marketable securities
arising during the year		43,174			(55,420	)		(17,244	)
Adjustment for (gains)/losses included in net income		(114,948	)		102,417			14,029
Net change in unrealized gain/(loss) on marketable securities		(71,774	)		46,997			(3,215	)
Foreign currency translation adjustment		(9,376)			(115	)		(1,026	)
Income tax (expense)/benefit		34,958			(18,602	)		1,630
Total other comprehensive income (loss), net of tax		(46,192	)		28,280			(2,611	)
COMPREHENSIVE INCOME	$	90,289		$	42,576		$	33,038

The Notes to Consolidated Financial Statements are an integral part of these statements.

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WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

	Year Ended December 31,
	2000			1999			1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	136,481		$	14,296		$	35,649
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary gain		(49,241	)		(11,742	)		(1,591	)
Cumulative effect of accounting change		3,810			-			-
Depreciation and amortization		426,369			403,669			288,125
Amortization of gain on sale-leaseback		(11,828	)		(11,828	)		(11,828	)
Equity in earnings from investments		(11,219	)		(8,199	)		(6,064	)
Minority interests		(8,625	)		(12,600	)		(2,762	)
(Gain)/loss on sale of marketable securities		(114,948	)		26,251			14,029
Impairment of marketable securities		-			76,166			-
Gain on sale of investments		(9,562	)		(17,249	)		-
Accretion of debt premium		(6,237	)		(6,799	)		3,034
Write-off of international development activities		-			(5,632	)		98,916
Net deferred taxes		(29,744	)		(15,825	)		(57,119	)
Deferred merger costs		-			17,600			-
Changes in working capital items (net of effects from acquisitions):
Restricted cash		(15,234	)		(18,689	)		(11,987	)
Accounts receivable (net)		(37,127	)		(3,824	)		118,844
Inventories and supplies (net)		12,282			(15,024	)		(8,000	)
Accounts payable		44,172			5,000			(33,613	)
Accrued liabilities		(19,457	)		(20,152	)		(42,411	)
Accrued income taxes		13,506			7,386			5,582
Deferred security revenues		(2,065	)		3,479			(2,237	)
Other		(10,314	)		(2,571	)		43,518
Changes in other assets and liabilities		(24,875	)		(35,272	)		(29,873	)
Net cash flows from operating activities		286,144			368,441			400,212
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (net)		(308,073	)		(275,744	)		(182,885	)
Customer account acquisitions		(35,513	)		(241,000)	)		(277,667	)
Security alarm monitoring acquisitions, net of cash acquired		(11,748	)		(27,409	)		(549,196	)
Purchases of marketable securities		-			(12,003	)		(261,036	)
Proceeds from sale of marketable securities		218,609			73,456			27,895
Other investments (net)		50,688			15,556			(91,451	)
Net cash flows used in investing activities		(86,037	)		(467,144	)		(1,334,340	)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Short-term debt (net)		(670,421	)		392,949			75,972
Proceeds of long-term debt		610,045			16,000			1,096,238
Retirements of long-term debt		(208,952	)		(198,021	)		(167,068	)
Proceeds from accounts receivable sale (net)		115,000			-			-
Proceeds from issuance of stock by subsidiary		-			-			45,565
Issuance of common stock (net)		38,059			43,245			17,284
Redemption of preference stock		-			-			(50,000	)
Cash dividends paid		(98,827	)		(145,033	)		(144,077	)
Acquisition of treasury stock		(9,187	)		(15,791	)		-
Reissuance of treasury stock		21,898			-			-
Net cash flows from (used in) financing activities		(202,385	)		93,349			873,914
NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,278	)		(5,354	)		(60,214	)
CASH AND CASH EQUIVALENTS:
Beginning of year		11,040			16,394			76,608
End of year	$	8,762		$	11,040			$16,394

The Notes to Consolidated Financial Statements are an integral part of these statements.

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WESTERN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)

	Cumulative Preferred and Preference Stock		Common Stock			Paid-in Capital		Retained Earnings
BALANCE, December 31, 1997	$	74,858		$	327,048	$	760,553	$	919,045
Net income		-			-		-		35,649
Redemption of preference stock		(50,000	)		-		-		-
Dividends on preferred and
preference stock		-			-		-		(3,591	)
Issuance of common stock		-			2,500		12,711		-
Dividends on common stock		-			-		-		(140,486	)
Unrealized loss on marketable
securities		-			-		-		-
Currency translation
adjustments		-			-		-		-
Tax benefit		-			-		-		-
Grant of restricted stock		-			-		4,137		-
Amortization of restricted stock		-			-		-		-
BALANCE, December 31, 1998	$	24,858		$	329,548	$	777,401	$	810,617
Net income		-			-		-		14,296
Dividends on preferred and
preference stock		-			-		-		(1,129	)
Issuance of common stock		-			11,960		44,906		-
Dividends on common stock		-			-		-		(143,904	)
Unrealized gain on marketable
securities		-			-		-		-
Currency translation
adjustments		-			-		-		-
Tax benefit		-			-		-		-
Acquisition of treasury stock		-			-		-		-
Grant of restricted stock		-			-		4,333		-
Amortization of restricted stock		-			-		-		-
BALANCE, December 31, 1999	$	24,858		$	341,508	$	826,640	$	679,880
Net income		-			-		-		136,481
Dividends on preferred and
preference stock		-			-		-		(1,129	)
Issuance of common stock		-			8,904		18,537		-
Dividends on common stock		-			-		-		(97,698	)
Unrealized loss on marketable
securities		-			-		-		-
Currency translation adjustments		-			-		-		-
Tax benefit		-			-		-		-
Acquisition of treasury stock		-			-		-		-
Issuance of treasury stock		-			-		-		(3,080	)
Grant of restricted stock		-			-		22,989		-
Amortization of restricted stock		-			-		-		-
BALANCE, December 31, 2000	$	24,858		$	350,412	$	868,166	$	714,454

The Notes to Consolidated Financial Statements are an integral part of these statements.

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