SOURCE: Westar Energy

Westar Energy

October 29, 2009 16:30 ET

Westar Energy Announces Third Quarter Earnings

Third Quarter Earnings Decline Driven by Coolest Summer in Over 40 Years

TOPEKA, KS--(Marketwire - October 29, 2009) - Westar Energy, Inc. (NYSE: WR) today announced earnings of $81 million, or $0.73 per share, for the third quarter 2009 compared with earnings of $88 million, or $0.80 per share, for the third quarter 2008. Earnings for the nine months ended Sept. 30, 2009 were $163 million, or $1.48 per share, compared with earnings of $155 million, or $1.50 per share, for the same period last year.

The decrease in earnings for the quarter was due primarily to lower retail revenues resulting from extremely cool summer weather and the effects of the soft economy on industrial sales. Wholesale revenues, too, declined due principally to lower average market prices.

The increase in earnings for the nine months ended Sept. 30, 2009 was due primarily to price increases authorized for capital investments and higher operating costs. The effects of higher prices were partially offset by reduced energy sales and higher operating and maintenance, depreciation and interest expenses. The earnings for the nine months ended Sept. 30 for both years include substantial federal income tax adjustments related to prior period activity.

Per share results for both periods also reflect more shares outstanding as a result of the company having issued additional shares to fund capital investments.

  Revenues
  --------

                                   Three Months Ended September 30,
                            -----------------------------------------------
                               2009        2008       Change     % Change
                            ----------- ----------- ----------  ----------
                                        (Dollars in Thousands)

Retail                      $   417,399 $   422,314 $   (4,915)       (1.2)
Wholesale                        70,383     114,566    (44,183)      (38.6)
Energy marketing                  2,013       8,845     (6,832)      (77.2)
Other                            38,739      29,128      9,611        33.0
                            ----------- ----------- ----------
  Total Revenues            $   528,534 $   574,853 $  (46,319)       (8.1)
                            ----------- ----------- ----------


                                    Nine Months Ended September 30,
                            -----------------------------------------------
                               2009        2008       Change     % Change
                            ----------- ----------- ----------  ----------
                                        (Dollars in Thousands)

Retail                      $ 1,063,101 $ 1,021,478 $   41,623         4.1
Wholesale                       221,779     305,490    (83,711)      (27.4)
Energy marketing                 15,720      12,539      3,181        25.4
Other                           117,513      93,392     24,121        25.8
                            ----------- ----------- ----------
  Total Revenues            $ 1,418,113 $ 1,432,899 $  (14,786)       (1.0)
                            ----------- ----------- ----------

Retail revenues for the quarter decreased due to lower kilowatt-hour (KWh) sales reflecting extremely cool weather and the effects of the soft economy on industrial sales. The impact of lower KWh sales was offset partially by price increases earlier this year. Retail revenues for the nine months ended Sept. 30, 2009 increased due primarily to higher prices, more than offsetting a 5 percent decline in KWh sales.

Wholesale revenues decreased for both periods due principally to lower average market prices resulting from reduced demand.

Energy marketing gross margins decreased for the quarter due primarily to lower market prices and lower demand. For the nine months ended Sept. 30, 2009 energy marketing gross margins increased due primarily to the settlement of forward contracts for the sale of electricity on favorable terms. Excluding the gains from forward contracts, gross margins decreased $6 million for the period. These forward contracts related to sales that produced margins for the benefit of retail customers. The energy for the contracts was initially intended to be produced by the company, but was later satisfied by favorable open market purchases.


  Fuel and Purchased Power Expense
  --------------------------------

                                  Three Months Ended September 30,
                                ------------------------------------
                                                               %
                                  2009     2008    Change   Change
                                -------- -------- --------  -------
                                      (Dollars in Thousands)

Fuel and purchased power        $141,470 $220,140 $(78,670)   (35.7)


                                      Nine Months Ended September 30,
                                -------------------------------------------
                                  2009       2008       Change   % Change
                                ---------- ---------- ---------  ---------
                                          (Dollars in Thousands)

Fuel and purchased power        $  402,622 $  557,944 $(155,322)     (27.8)

Fuel and purchased power expense for both periods decreased due to lower demand for electricity and lower unit costs for both fuel and purchased power. The decrease in fuel and purchased power expense was largely reflected in lower prices to customers and did not significantly serve to increase earnings.


  Operating and Maintenance Expense
  ---------------------------------

                    Three Months Ended               Nine Months Ended
                        September 30,                  September 30,
             ------------------------------ -------------------------------
                                        %                               %
               2009     2008   Change Change  2009     2008   Change Change
             -------- -------- ------- ---- -------- -------- -------- ----
                                 (Dollars in Thousands)

Operating
 and
 maintenance $130,295 $107,672 $22,623 21.0 $392,272 $354,656 $ 37,616 10.6


Operating and maintenance expense increased for both periods due primarily to higher network transmission expense (which is largely offset by higher transmission revenues), the amortization of previously deferred storm costs and additional maintenance expense principally at generating facilities.

  Depreciation and Amortization Expense
  -------------------------------------

          Three Months Ended September 30, Nine Months Ended September 30,
          ------------------------------- ---------------------------------
                                    %                                 %
           2009    2008   Change  Change    2009     2008   Change  Change
          ------- ------- ------- ------- -------- -------- ------- -------
                               (Dollars in Thousands)

Depreciation
 and
 amortiz-
 ation    $64,516 $51,966 $12,550    24.2 $186,544 $150,467 $36,077    24.0


Depreciation expense increased for both periods primarily as a result of last year's large construction projects having been completed and placed in service.


  Selling, General and Administrative Expense
  -------------------------------------------


           Three Months Ended September 30, Nine Months Ended September 30,
            ------------------------------- -------------------------------
                                       %                               %
             2009    2008   Change  Change    2009     2008   Change Change
            ------- ------- -------  -----  -------- -------- ------ ------
                                (Dollars in Thousands)

Selling,
 general
 and
 administr-
 ative      $41,920 $50,802 $(8,882) (17.5) $143,540 $136,712 $6,828    5.0

Selling, general and administrative expense decreased for the quarter due primarily to a $7 million decrease in pension and other employee benefit costs. The decrease was attributed principally to the company having recorded a $5 million credit to expense in accordance with a recent regulatory order that authorizes the deferral of pension and employee benefit costs for future recovery.

For nine months ended Sept. 30, 2009 selling, general and administrative expense increased due principally to an increase in pension and other employee benefit expenses. The increase in pension expense was attributable primarily to the lower than expected returns on pension assets last year.

  Other Income (Expense)
  ----------------------


         Three Months Ended September 30,  Nine Months Ended September 30,
         -------------------------------  --------------------------------
                                     %                                 %
          2009     2008   Change  Change     2009     2008   Change  Change
         ------  -------  -------  -----  -------  -------  -------  -----
                               (Dollars in Thousands)

Investment
 income
 (loss)  $3,986  $(2,986) $ 6,972  233.5  $ 8,516  $(2,902) $11,418  393.5
Other
 income   1,217   12,796  (11,579) (90.5)   5,627   22,956  (17,329) (75.5)
Other
 expense (4,539)  (4,517)     (22)  (0.5) (11,441) (11,179)    (262)  (2.3)
         ------  -------  -------         -------  -------  -------
 Total
  Other
  Income $  664  $ 5,293  $(4,629) (87.5) $ 2,702  $ 8,875  $(6,173) (69.6)

Investment income increased for both periods due principally to gains on investments compared with losses on those investments in the same periods last year.

Other income for both periods decreased due principally to recording less equity AFUDC and corporate-owned life insurance (COLI) proceeds. The decrease in equity AFUDC is attributable to the completion of several large construction projects in the past year, at which time further accrual of AFUDC for these projects ceased. There have been no COLI proceeds recorded in 2009 compared with $6 million in COLI proceeds the third quarter last year.


  Interest Expense
  ----------------


                    Three Months Ended           Nine Months Ended
                       September 30,                September 30,
              ----------------------------- -------------------------------
                                       %                               %
               2009    2008   Change Change   2009    2008   Change  Change
              ------- ------- ------ ------ -------- ------- ------- ------
                                 (Dollars in Thousands)

Interest
 expense      $41,599 $31,920 $9,679   30.3 $116,769 $72,920 $43,849   60.1

Interest expense increased for the third quarter due primarily to the company having issued additional debt to fund capital investments.

Interest expense for the nine months ended Sept. 30, 2009 increased due primarily to the reversal in 2008 of $18 million of accrued interest associated with uncertain income tax liabilities (which reduced 2008 interest expense) and also as a result of the company having issued additional debt to fund capital investments. The increase was partially offset by lower interest rates on variable rate debt and less short-term borrowing.


  Income Tax Expense
  ------------------

                     Three Months Ended           Nine Months Ended
                        September 30,               September 30,
             ------------------------------- ------------------------------
                                        %                              %
              2009    2008   Change   Change   2009    2008  Change  Change
             ------- ------- -------  -----  ------- ------- ------- ------
                                 (Dollars in Thousands)

Income tax
 expense
 (benefit)   $28,256 $29,361 $(1,105)  (3.8) $48,354 $13,808 $34,546  250.2

Income tax expense for the nine months ended Sept. 30, 2009 increased due primarily to the reversal in 2008 of $29 million of income tax reserves (which reduced 2008 income tax expense) as a result of completing a federal income tax audit for prior years.

Discontinued Operations

In January 2009 the company reached a settlement with the IRS that permitted it to utilize operating losses generated from the divestiture of former non-regulated businesses. This settlement resulted in a first quarter 2009 net earnings benefit from discontinued operations of $33 million, or $0.30 per share.

Earnings Guidance

The company affirmed its full-year 2009 earnings guidance of $1.35 to $1.45 per share. 2009 earnings guidance excludes a $0.30 per share benefit related to the tax settlement associated with its former non-regulated businesses, and includes $0.10 per share for COLI proceeds, none of which have been realized to date. The company has posted to its Web site a summary of the principal earnings drivers and adjustments used in arriving at 2009 earnings guidance. The summary is located under Investor Presentations within the Investors section of the company Web site at www.WestarEnergy.com.

Conference Call and Additional Company Information

Westar Energy management will host a conference call Friday, October 30 with the investment community at 12 p.m. ET (11 a. m. CT). Investors, media and the public may listen to the conference call by dialing 888-679-8038, participant code 26742216. A Web cast of the live conference call will be available at www.WestarEnergy.com.

Members of media are invited to listen to the conference call and then contact Karla Olsen with any follow-up questions.

This earnings announcement, a package of detailed third quarter 2009 financial information, the company's third quarter report on Form 10-Q for the period ended Sept. 30, 2009 filed with the Securities and Exchange Commission October 29, 2009, and other filings the company has made with the Securities and Exchange Commission are available on the company's Web site at www.WestarEnergy.com.


Westar Energy, Inc. (NYSE: WR) is the largest electric utility in Kansas, providing electric service to about 684,000 customers in the state. Westar Energy has about 6,800 megawatts of electric generation capacity and operates and coordinates more than 35,000 miles of electric distribution and transmission lines.

For more information about Westar Energy, visit us on the Internet at http://www.WestarEnergy.com.

Forward-looking statements: Certain matters discussed in this news release are "forward-looking statements." The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words like "believe," "anticipate," "target," "expect," "pro forma," "estimate," "intend," "guidance" or words of similar meaning. Forward-looking statements describe future plans, objectives, expectations or goals. Although Westar Energy believes that its expectations are based on reasonable assumptions, all forward-looking statements involve risk and uncertainty. Therefore, actual results could vary materially from what we expect. Please review our Form 10-K for the period ended Dec. 31, 2008 and our Form 10-Q for the period ended Sept. 30, 2009 for important risk factors that could cause results to differ materially from those in any such forward-looking statements. Any forward-looking statement speaks only as of the date such statement was made, and the company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement was made except as required by applicable laws or regulations.




                            WESTAR ENERGY, INC.
                    CONSOLIDATED STATEMENTS OF INCOME
                                (UNAUDITED)
                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                    Three Months Ended            Nine Months Ended
                      September 30,                 September 30,
                  2009     2008    Change     2009       2008      Change
                -------- -------- --------  ---------- ---------- --------

Revenue         $528,534 $574,853 $(46,319) $1,418,113 $1,432,899 $(14,786)
                -------- -------- --------  ---------- ---------- --------

Fuel and
 purchased
 power           141,470  220,140  (78,670)    402,622    557,944 (155,322)
Operating and
 maintenance     130,295  107,672   22,623     392,272    354,656   37,616
Depreciation
 and
 amortization     64,516   51,966   12,550     186,544    150,467   36,077
Selling,
 general and
 administrative   41,920   50,802   (8,882)    143,540    136,712    6,828
                -------- -------- --------  ---------- ---------- --------
   Total
    Operating
    Expenses     378,201  430,580  (52,379)  1,124,978  1,199,779  (74,801)
                -------- -------- --------  ---------- ---------- --------

   Income from
    Operations   150,333  144,273    6,060     293,135    233,120   60,015

Other income         664    5,293   (4,629)      2,702      8,875   (6,173)
Interest
 expense          41,599   31,920    9,679     116,769     72,920   43,849
Income tax
 expense
 (benefit)        28,256   29,361   (1,105)     48,354     13,808   34,546
                -------- -------- --------  ---------- ---------- --------

   Income from
    Continuing
    Operations    81,142   88,285   (7,143)    130,714    155,267  (24,553)

Results of
 discontinued
 operations,
 net of tax            -        -        -      32,978          -   32,978
                -------- -------- --------  ---------- ---------- --------

   Net Income     81,142   88,285   (7,143)    163,692    155,267    8,425
Preferred
 dividends           242      242        -         727        727        -
                -------- -------- --------  ---------- ---------- --------

   Net Income
    Attributabl
    to Common
    Stock       $ 80,900 $ 88,043 $ (7,143) $  162,965 $  154,540 $  8,425
                ======== ======== ========  ========== ========== ========

   Basic Earnings
    Per Share   $   0.73 $   0.80 $  (0.07) $     1.48 $     1.50 $  (0.02)
                ======== ======== ========  ========== ========== ========

Average
 equivalent
 common shares
 outstanding     109,753  108,715              109,543    102,312

   Dividends
    declared per
    share       $   0.30 $   0.29 $   0.01  $     0.90 $     0.87 $   0.03