Edgar Filing: WESTERN RESOURCES INC /KS

FORM U-3A-2

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.

Statement by Holding Company Claiming
Exemption Under Rule 2 from the
Provisions of the Public Utility Holding
Company Act of 1935

WESTERN RESOURCES, INC.
-----------------------

WESTERN RESOURCES, INC. ("WRI") hereby files with the Securities and
Exchange Commission, pursuant to Rule 2, its statement claiming exemption as a
holding company from the provisions of the Public Utility Holding Company Act of
1935 (the "Act") and submits the following information:

ITEM 1. Name, State of Organization, Location And Nature of Business of Claimant
And Every Subsidiary Thereof, Other Than Any Exempt Wholesale Generator (EWG) or
Foreign Utility Company.

WRI is a Kansas corporation whose principal executive offices are located
at 818 South Kansas Avenue, Topeka, Kansas 66612. WRI's mailing address is P.O.
Box 889, Topeka, Kansas 66601.

During 2001, WRI's principal business consisted of the production,
purchase, transmission, distribution and sale of electricity. WRI provided
retail electric service to approximately 347,000 industrial, commercial and
residential customers. WRI also provided wholesale electric generation and
transmission services to numerous municipal customers located in Kansas and,
through interchange agreements, to surrounding integrated systems. WRI's
subsidiaries (as defined in the Act) are as follows:

A. Kansas Gas and Electric Company ("KGE"), a Kansas corporation, with its
principal offices at 120 East First Street, Wichita, Kansas 67201 is a
wholly-owned subsidiary of WRI. KGE provides electric services to customers
in the southeastern portion of Kansas, including the Wichita metropolitan
area. At December 31, 2001, KGE rendered electric services at retail to
approximately 293,000 residential, commercial and industrial customers and
provided wholesale electric generation and transmission services to
numerous municipal customers located in Kansas, and through interchange
agreements, to surrounding integrated systems. KGE does not own or operate
any gas properties. KGE's subsidiary is as follows:

1. Wolf Creek Nuclear Operating Corporation ("WCNOC"), a Delaware
Corporation, with principal offices at 1550 Oxen Lane, N.E.,
Burlington, Kansas 66839. WCNOC is owned 47% by KGE and operates the
Wolf Creek Generating Station on behalf of the plant's owners.

B. Westar Industries, Inc. ("Westar Industries"), a Kansas corporation, with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612, is a
wholly-owned subsidiary of WRI. Westar Industries is a holding company for
certain non-regulated business subsidiaries of WRI. Westar Industries'
subsidiaries are as follows:

1. The Wing Group, Limited Co., a Delaware corporation, with principal
offices at 818 South Kansas Avenue, Topeka, Kansas 66612. The Wing
Group, Limited Co., a wholly-owned subsidiary of Westar Industries,
holds interests in international power generation projects. The Wing
Group, Limited Co.'s subsidiary is as follows:

a. The Wing Group International, Inc., a Cayman Islands corporation,
with principal offices in the Cayman Islands. The Wing Group
International, Inc. is a developer of power generation projects
in China.

2. Onsite Energy Corporation, a Delaware corporation, with principal
offices at 701 Palomar Airport Road, Suite 200, Carlsbad, California
92009. Onsite is a provider of energy-related services to commercial
and industrial customers. Westar Industries owns approximately 30.59%
of Onsite common and convertible preferred stock.

3. Westar Investments, Inc., formerly known as Protection One
Investments, Inc., a Delaware corporation, with principal offices at
818 South Kansas Avenue, Topeka, Kansas 66612. Westar Investments,
Inc. was established for the purpose of holding security-related
investments.

4. Protection One, Inc., a Delaware corporation, with principal offices
at 818 South Kansas Avenue, Topeka, Kansas 66612. Protection One, Inc.
is a holding company for monitored security alarm businesses. Westar
Industries owns approximately 87.47% of Protection One, Inc.
Protection One, Inc.'s subsidiaries are as follows:

a. Protection One Alarm Monitoring, Inc., a Delaware corporation, with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612.
Protection One Alarm Monitoring, Inc. is a provider of home security
services. Protection One Alarm Monitoring, Inc.'s subsidiaries are as
follows:

i. Network Multi-Family Security Corporation, a Delaware
corporation, with principal offices at 14275 Midway Road, Suite
400, Addison, Texas 75001. Network Multi-Family Security
Corporation is a provider of multi-family electronic monitored
security services.

ii. Protection One Alarm Monitoring of Mass., Inc., a Massachusetts
corporation, with principal offices at 818 South Kansas Avenue,
Topeka, Kansas 66612. Protection One Alarm Monitoring of Mass.,
Inc. is a provider of security alarm services.

iii. Protection One Canada, Inc., a corporation organized under the
laws of Ontario, Canada, with principal offices at 1 Valleybrook
Drive, Don Mills, Ontario, M3B 2S7, Canada. Protection One
Canada, Inc. is a provider of security alarm services. Protection
One Canada, Inc.'s subsidiary is as follows:

(1) Canguard, Inc., a corporation organized under the laws of
Ontario, Canada, with principal offices at 1 Valleybrook
Drive, 1st Floor, Don Mills, Ontario, M3B 2S7 Canada.
Canguard, Inc. is a provider of security alarm services.

iv. Security Monitoring Services, Inc., a Florida corporation with
principal offices at 6225 N. State Highway 161, Suite 400,
Irving, Texas 75063. Security Monitoring Services, Inc. is a
provider of security alarm services.

5. Protection One International, Inc., a Delaware corporation with principal
offices at 818 South Kansas Avenue, Topeka, Kansas 66612. Protection One
International, Inc. is a provider of security alarm services. Protection
One International, Inc.'s subsidiaries are as follows:

a. Croise Laroche S.A., a corporation organized under the laws of France,
with principal offices at 140 boulevard Malesherbes, 75017 Paris,
France, is a provider of security alarm services. Croise Laroche S.A.
is 99.75% owned by Protection One International, Inc.

i. Protection One Europe S.A.R.L., formerly known as Protection One
France EURL, a corporation organized under the laws of France,
with principal offices at Techno-Parc du Griffon, 840, Route de
la Seds, 13127 Vitrolles, France. Protection One Europe S.A.R.L.
is a provider of security alarm services. Protection One Europe
S.A.R.L.'s subsidiaries are as follows:

(1) Protection One France S.A., formerly known as Compagnie
Europeenne de Telesecurite, S.A., a corporation organized
under the laws of France, with principal offices at 140,
boulevard Malesherbes, 75017 Paris, France. Protection One
France S.A. is a provider of security alarm services.
Protection One France S.A.'s subsidiaries are as follows:

(a) Eurocontact S.A., a corporation organized under the
laws of France, with principal offices at Les Docks
Atrium 102, 10, Place de la Joliette, 13304 Marseille,
Cedex 2, France. Eurocontact S.A. is a provider of
security alarm services.

(b) Eurostation S.A., a corporation organized under the
laws of France, with principal offices at 840 route de
la Seds, Technoparc du Griffon, 13127 Vitrolles,
France. Eurostation S.A. is a security alarm monitoring
station.

the laws of France, with principal offices at Espace
Cristal, 89100 Saint Clement, France. ERE Detection
Electronique S.A. provides monitoring assistance to
individuals.

(d) C.E.T. Germany S.A. (Sicherheirsdienste GmbH), a
corporation organized under the laws of Germany, with
principal offices at Am Meerkamp 23, 40667 Meerbush,
Germany, is a provider of alarm monitoring services.
C.E.T. Germany S.A. is 95% owned by Protection One
France S.A.

(e) C.E.T. Benelux S.A., a corporation organized under the
laws of Belgium, with principal offices at 440,
boulevard Lambermont, 1030 Brussels, Belgium, is a
provider of security alarm services. The subsidiaries
of C.E.T. Benelux S.A. are as follows:

(i) E.S. Beveiliging, a corporation organized under
the laws of Belgium, with principal offices at Bd
Lambermont 440, 1030 Bruxelles, Belgium. E.S.
Beveiliging installs alarm monitoring systems.

(ii) Consutron Nederland Teleshop B.V., a corporation
organized under the laws of the Netherlands, with
principal offices at Markendaalseweg 329/19, 4811
KB Breda, Netherlands. Consutron Nederland
Teleshop B.V. administrates and installs alarm
monitoring systems. Consutron Nederland Teleshop
B.V.'s subsidiary is as follows:

(A) Residential Alarmcentrale B.V., formerly known
as Residentie, a corporation organized under
the laws of Netherlands, with a principal
office at Jupiterkade 2, 2516 BS Den Haag, The
Netherlands. Residential Alarmcentrale B.V.
is a provider of alarm monitoring services.

6. Westar Aviation, Inc. a Kansas corporation, with principal offices at 818
South Kansas Avenue, Topeka, Kansas 66612. Westar Aviation, Inc. leases and
maintains planes for corporate transportation purposes.

7. Westar Communications, Inc., a Kansas corporation, with principal offices
at 1324 S. Kansas Avenue, Topeka, Kansas 66612. Westar Communications, Inc.
offers paging and wireless communication services in Kansas.

8. Westar Limited Partners, Inc., a Kansas corporation, with principal offices
at 818 South Kansas Avenue, Topeka, Kansas 66612. Westar Limited Partners,
Inc. participates in limited partnerships and investments of Westar
Industries.

9. Westar Limited Partners II, Inc., a Kansas corporation, with principal
offices at 818 South Kansas Avenue, Topeka, Kansas 66612. Westar Limited
Partners II, Inc. participates in limited partnerships and investments of
Westar Industries.

10. Western Resources (Bermuda) Ltd., a Bermuda limited liability company with
principal offices at Clarendon House, Two Church Street, Hamilton HM 11,
Bermuda. Western Resources (Bermuda) Ltd. is a holding company to hold the
interest of WRI in CPI-Western Power Holdings Ltd. and other international
projects. Western Resources (Bermuda) Ltd.'s subsidiaries are as follows:

a. CPI-Western Power Holdings Ltd., a Bermuda limited liability company.
Western Resources (Bermuda) Ltd. owns 50% of CPI-Western Power
Holdings Ltd. a master joint venture which maintains interest in power
generation projects in China. CPI-Western Power Holdings Ltd.'s
subsidiaries are as follows:

i. Western Resources International Limited is a limited liability
company organized under the laws of Mauritius. Western Resources
International Limited is a holding company for EWG's in China.

(1) Zhengzhou Dengwai Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yangcheng
Industrial Zone, Dengfeng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic of China.
This company is an EWG and 49% owned by Western Resources
International Limited.

(2) Zhengzhou Dengyuan Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yancheng
Industrial Zone, Dengfeng Municipality, Henan Province,
People's Republic of China. This company is an EWG and 49%
owned by Western Resources International Limited.

(3) Zhengzhou Huadeng Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yangcheng
Industrial Zone, Dengfeng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic of China.
This company is an EWG and 49% owned by Western Resources
International Limited.

(4) Zhengzhou Huaxin Power Co., Ltd., a corporation organized
under the laws of China, with principal offices at Yancheng
Industrial Zone, Dengfeng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic of China.
This company is an EWG and 49% owned by Western Resources
International Limited.

b. Western Resources I (Cayman Islands) Limited is a limited
liability company organized under the laws of the Cayman Islands
with principal offices at 818 South Kansas Avenue, Topeka, Kansas
66612. Western Resources I (Cayman Islands) Limited was
established to develop power generation projects. Western
Resources I (Cayman Island) Limited's subsidiary is as follows:

i. Western Resources II (Cayman Islands) Limited is a limited
liability company organized under the laws of the Cayman
Islands with principal offices at 818 South Kansas Avenue,
Topeka, Kansas 66612. Western Resources II (Cayman Islands)
Limited was established to develop power generation
projects.

11. Wing Turkey, Inc. is a Delaware corporation, with principal offices at
818 South Kansas Avenue, Topeka, Kansas 66612. Wing Turkey, Inc. is a
holding company for power projects in Turkey. Wing Turkey, Inc.'s
subsidiaries are as follows:

a. Wing International, Ltd. is a Texas limited liability
corporation, with principal offices at 818 South Kansas Avenue,
Topeka, Kansas 66612. Wing International, Ltd. is a holding
company for an EWG in Turkey. Wing International, Ltd.'s
investment is in:

i. Trakya Elektrik Uretim VE Ticaret A.S., a Republic of Turkey
corporation, with principal offices at P.K. 13, Marmara
Ereglsi 59740 Tekirdag. This company is an EWG and 9% owned
by Wing International, Ltd.

C. Western Resources Capital I and II are Delaware business trusts with
principal offices at 818 South Kansas Avenue, Topeka, Kansas 66612. Western
Resources Capital I and II were established for the purpose of issuing
securities.

D. Westar Generating, Inc., a Kansas corporation, with principal offices at
818 South Kansas Avenue, Topeka, Kansas 66612. Westar Generating, Inc.
holds interests in an electric power plant.

E. Westar Generating II, Inc., a Kansas corporation, with principal offices at
818 South Kansas Avenue, Topeka, Kansas 66612. Westar Generating II, Inc.
holds interests in electric power plants.

F. WR Receivables Corporation, a Kansas corporation, with principal
offices at 818 South Kansas Avenue, Topeka, Kansas 66612. WR
Receivables Corporation is a special purpose entity wholly owned by
WRI. WRI and KGE have sold all of their accounts receivable arising
from the sale of electricity to WR Receivables Corporation.

G. Dormant subsidiaries of WRI:

1. Rangeline Corporation, a Kansas corporation.

2. The Kansas Power and Light Company, a Kansas corporation.

3. WR Services, Inc., a Kansas corporation.

4. Westar Energy, Inc., a Kansas corporation.

5. Astra Resources, Inc., a Kansas corporation.

a. Westar Energy Investments, Inc., a Kansas corporation.

H. Dormant subsidiaries of Westar Industries, Inc.:

1. Westar Industries Limited, formerly known as Protection One
Security Limited, a private limited company organized under the
laws of the United Kingdom.

2. Westar Financial Services, Inc., a Kansas Corporation.

3. Westar Leasing, Inc., a Kansas corporation.

4. Wing Colombia, L.L.C., a Delaware limited liability company.

ITEM 2. Description of The Properties of Claimant And Each of Its Subsidiary
Public Utility Company Used for the Generation, Transmission, and Distribution
of Electric Energy for Sale.

A. The principal electric generating stations of WRI, all of which are located
in Kansas, are as follows:

Accredited
Capacity - MW
Name and Location (WRI's Share)
----------------- -------------
Coal
----
JEC Unit 1, near St. Marys ............................. 476
JEC Unit 2, near St. Marys ............................. 466
JEC Unit 3, near St. Marys ............................. 475
Lawrence Energy Center, near Lawrence .................. 564
Tecumseh Energy Center, near Tecumseh .................. 244
-------
Subtotal ............................................... 2,225

Gas/Oil
-------
Gordon Evans, Wichita................................... 314
Hutchinson Energy Center, near Hutchinson .............. 399
Abilene Energy Center, near Abilene .................... 71
Tecumseh Energy Center, near Tecumseh .................. 41
-------
Subtotal ............................................... 825

Diesel
------
Hutchinson Energy Center ............................... 80

Wind
----
JEC Wind Turbine 1, near St. Marys ..................... 0.4
JEC Wind Turbine 2, near St. Marys ..................... 0.4
-------
Subtotal ............................................... 0.8

Total Accredited Capacity .............................. 3,130.8
=======

WRI maintains 13 tie lines with 6 other public utilities to permit
direct extra-high voltage interchange. WRI is also a member of the Southwest
Power Pool, the regional coordinating council for electric utilities throughout
the south-central United States.

WRI owns a transmission and distribution system which enables it to supply
its service area. Transmission and distribution lines, in general, are located
by permit or easement on public roads and streets or the lands of others. All
such transmission and distribution systems are located within the State of
Kansas.

B. The principal electric generating stations of KGE, all of which are located
in Kansas, are as follows:

Accredited
Capacity - MW
Name and Location (KGE's Share)
----------------- -------------

Nuclear
-------
Wolf Creek, near Burlington .......................... 550

Coal
----
LaCygne Unit 1, near LaCygne ......................... 344
LaCygne Unit 2, near LaCygne ......................... 337
JEC Unit 1, near St. Marys ........................... 149
JEC Unit 2, near St. Marys ........................... 146
JEC Unit 3, near St. Marys ........................... 148
-----
Subtotal ............................................. 1,124

Gas/Oil
-------
Gordon Evans, Wichita ................................ 534
Murray Gill, Wichita ................................. 336
Neosho, Neosho ....................................... 69
-----
Subtotal ............................................. 939

Diesel
------
Wichita, Wichita ..................................... 3

Wind
----
JEC Wind Turbine 1, near St. Marys ................... 0.2
JEC Wind Turbine 2, near St. Marys ................... 0.2
-------
Subtotal ............................................. 0.4
-------

Total Accredited Capacity ............................ 2,616.4
=======

KGE maintains 11 tie lines with 7 other public utilities to permit direct
extra-high voltage interchange. KGE is also a member of the Southwest Power
Pool, the regional coordinating council for electric utilities throughout the
south-central United States.

KGE owns a transmission and distribution system which enables it to supply
its service area. Transmission and distribution lines, in general, are located
by permit or easement on public roads and streets or the lands of others. All
such transmission and distribution systems are located within the State of
Kansas.

C. The principal electric generating stations of Westar Generating, Inc., all
of which are located in Missouri, are as follows:

Accredited
Capacity - MW
Name and Location (Westar Generating, Inc's Share)
----------------- --------------------------------

Gas/Oil
-------
State Line, Joplin ...................... 200
===

ITEM 3. Information for the Last Calendar Year with Respect to Claimant and Each
of its Subsidiary Public Utility Companies.

A. Number of KWH of electric energy sold (at retail or wholesale):

For the year ended December 31, 2001, WRI sold 9,322,759,000 KWH of
electric energy at retail and, 5,068,087,000 KWH of electric energy at
wholesale. For the year ended December 31, 2001, KGE sold
8,898,370,000 KWH of electric energy at retail and 2,478,998,000 KWH
of electric energy at wholesale.

B. Number of KWH of electric energy distributed at retail outside the State in
which each company is organized:

During 2001, neither WRI nor its subsidiaries distributed or sold
electric energy at retail outside the State of Kansas.

C. Number of KWH of electric energy sold at wholesale outside the State in
which each company is organized:

During 2001, WRI sold, at wholesale, 2,554,326,000 KWH of electric
energy to adjoining public utilities through interconnections at the
Kansas state line. During 2001, KGE sold, at wholesale, 1,569,389,000
KWH of electric energy to adjoining public utilities through
interconnections at the Kansas state line. During 2001, neither WRI or
KGE sold natural or manufactured gas at wholesale outside the state of
Kansas or at the Kansas state line.

D. Number of KWH of electric energy purchased outside the State in which each
company is organized:

During 2001, WRI purchased 672,633,000 KWH of electric energy from
outside the State of Kansas or at the Kansas state line. During 2001,
KGE purchased 394,656,000 KWH of electric energy from outside the
State of Kansas or at the Kansas state line.

ITEM 4. Information for the Reporting Period with Respect to Claimant and Each
Interest it Holds Directly or Indirectly in an EWG or a Foreign Utility Company.

4.1 Merilectrica/TLC International.
------------------------------

A. Name, location, business address and description of the facilities used by
the EWG or foreign utility company for the generation, transmission and
distribution of electric energy for sale or for the distribution at retail
of natural or manufactured gas:

Name of EWG: Merilectrica I, S.A.
Address: Apartado Aereo 12203
Calles 5A #39 Room 194
Medellin, Colombia

Name of EWG: TLC International LDC
Address: c/o W. S. Walker & Co.
Claredonian house
P.O. Box 265
Georgetown Grand Cayman's, Cayman Islands

Location: Barrancabermeja, Santander, Colombia
Facility: 160 MW single-cycle gas fired electric
generating plant.

B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:

Wing Colombia, L.L.C., a Delaware limited liability company owns
36.3825% directly and 0.36382% indirectly of Merilectrica I, S.A. &
Cia, S.C.A. E.S.P., ("Merilectrica") a Colombian comandita and
operator of the plant, and 36.75% of TLC International LDC, ("TLC") a
Cayman limited duration company, and owner and lessor of the equipment
installed in the plant. Merilectrica leases the equipment from TLC and
owns the balance of the plant.

C. Type and amount of capital invested, directly or indirectly, by the holding
company claiming exemption; any direct or indirect guarantee of the security
of the EWG or foreign utility company by the holding company claiming
exemption; and any debt or other financial obligation for which there is
recourse, directly or indirectly, to the holding company claiming exemption
or another system company, other than the EWG or foreign utility company:

Capital Invested: Approximately US $16,005,627
Guarantees: None
Other Obligations: Two letters of credit totaling $8,063,495
supporting the construction of the project
exist under which Westar Industries, a
wholly owned subsidiary of the claimant is
ultimately responsible

D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:

Capitalization: Merilectrica - $16,711,824
TLC - US $37,480,213
Earnings $0

E. Identify any service, sales or construction contract(s) between the EWG or
foreign utility company and a system company, and describe the services to
be rendered or goods sold and fees or revenues under such agreement(s):

None

4.2 Zhengzhou Dengwai Power Co.
---------------------------

Name of EWG: Zhengzhou Dengwai Power Co., Ltd
Address: Yangcheng Industrial Zone

Dengfeng Industrial Zone,
Dengfeng Municipality, Henan Province

Location: Dengfeng Municipality, Henan Province, People's
Republic of China.
Facility: 55 MW coal-fired generating unit.

B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:

Western Resources International Limited owns a 49% interest in
Zhengzhou Dengwai Power Co., Ltd.

C. Type and amount of capital invested, directly or indirectly, by the holding
company claiming exemption; any direct or indirect guarantee of the
security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:

Capital Invested: Approximately US $5.2 million as registered paid-in
capital. Shareholder loan of approximately US $7.9
million payable in equal annual installments over
a 20-year term.
Guarantees: None
Other Obligations: None

D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:

Capitalization: US $10.5 million
Earnings: US $1.5 million

None

4.3 Zhengzhou Dengyuan Power Co.
----------------------------

Name of EWG: Zhengzhou Dengyuan Power Co., Ltd.
Address: Yangcheng Industrial Zone, Dengfeng
Municipality, Henan Province, People's Republic of
China.
Location: Dengfeng Municipality, Henan Province, People's
Republic of China.
Facility: 55 MW coal-fired generating unit.

B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:

Western Resources International Limited owns a 49% interest in
Zhengzhou Dengyuan Power Co., Ltd.

C. Type and amount of capital invested, directly or indirectly, by the holding
company claiming exemption; any direct or indirect guarantee of the
security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:

Capital Invested: Approximately US $4.9 million cash as registered
paid-in capital. Shareholder loan of approximately
US $9.8 million payable in equal annual
installments over a 20-year term.
Guarantees: None
Other Obligations: None

D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:

Capitalization: US $9.8 million
Earnings: US $1.8 million

None

4.4 Zhengzhou Huadeng Power Co.
---------------------------

Name of EWG: Zhengzhou Huadeng Power Co., Ltd.
Address: Yangcheng Industrial Zone
Dengfeng Industrial Zone
Dengfeng Municipality, Henan Province, PRC

Location: Dengfeng Municipality, Henan Province, People's
Republic of China

Facility: 55 MW coal-fired generating unit

B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:

Western Resources International Limited owns a 49% equity interest in
Zhengzhou Huadeng Power Co., Ltd.

C. Type and amount of capital invested, directly or indirectly, by the holding
company claiming exemption; any direct or indirect guarantee of the
security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:

Capital Invested: Approximately US $4.4 million as registered paid-in
capital.
Guarantees: None
Other Obligations: None

D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:

Capitalization: Registered paid-in Capital of approximately US
$8.9 million
Earnings: US $4.0 million

None

4.5 Zhengzhou Huaxin Power Co.
--------------------------

Name of EWG: Zhengzhou Huaxin Power Co., Ltd.
Address: Yangcheng Industrial Zone
Dengfeng Industrial Zone
Dengfeng Municipality, Henan Province, PRC
Location: Dengfeng Municipality, Henan Province, People's
Republic of China
Facility: 55 MW coal-fired generating unit

B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:

Western Resources International Limited owns a 49% equity interest in
Zhengzhou Huaxin Power Co. Ltd.

C. Type and amount of capital invested, directly or indirectly, by the holding
company claiming exemption; any direct or indirect guarantee of the
security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:

Capital Invested: Approximately US $4.4 million as registered paid-in
capital.
Guarantees: None
Other Obligations: None

D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:

Capitalization: Registered paid-in Capital of approximately US $8.9
million
Earnings: US $2.2 million

None

4.6 Trakya Elektrik Uretim Ve Ticaret A.S.
--------------------------------------

Name of EWG: Trakya Elektrik Uretim Ve Ticaret A.S.
Address: P.K. 13
Marmara Ereglsi 59740 Tekirdag

Location: Botas Tesisleri Mevkii
Sultankoy Beledesi
Marmara Ereglisi 59740 Tekirdag Turkey

Facility: 478 MW combined cycle gas turbine with four 154 KV
substations.

B. Name of each system company that holds an interest in such EWG or foreign
utility company; and description of the interest held:

Wing International, Ltd., a Texas limited liability company owns 9% of
the project.

C. Type and amount of capital invested, directly or indirectly, by the holding
company claiming exemption; any direct or indirect guarantee of the
security of the EWG or foreign utility company by the holding company
claiming exemption; and any debt or other financial obligation for which
there is recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or foreign utility
company:

Capital Invested: Approximately US $10,388,379 as paid in capital.
Approximately US $2,139,130 subordinated debt.
Guarantees: Westar Industries has issued standby letters of
credit totaling $3,442,662.
Other Obligations: Wing Turkey, Inc. (a wholly-owned subsidiary of the
claimant and 99% parent of Wing
International, Ltd.) is a party to
the "Wing Turkey Guarantee
Agreement" along with Trakya
Elektrik and Chase Manhattan Bank
(as Offshore Collateral Agent) and
ABN AMRO Bank (as Funding Agent).
Under this agreement, the equity
contributions and subordinated debt
contributions, agreed to in the
"Equity Funding Agreement" are
guaranteed.

D. Capitalization and earnings of the EWG or foreign utility company during
the reporting period:

Capitalization: Approximately US $139,194,573
Earnings: US $43,702,000

None

The above-named claimant has caused this statement to be duly executed on
its behalf by its authorized officer on this 1st day of April, 2002.

Western Resources, Inc.

By: /s/ Larry D. Irick
---------------------
Larry D. Irick
Vice President, Corporate Secretary

Name, title and address of officer to whom notices and correspondence
concerning this statement should be addressed:

Larry D. Irick
Vice President, Corporate Secretary
Western Resources, Inc.
P.O. Box 889
818 South Kansas Avenue
Topeka, Kansas 66601
(785)575-6322
(785)575-1936 (FAX)

EXHIBIT A

A consolidating statement of income and surplus of the claimant and its
subsidiary companies for the last calendar year, together with a consolidating
balance sheet of claimant and its subsidiary companies as of the close of such
calendar year:

Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 2001

Western Kansas Gas WR Westar Westar
Resources, and Electric Receivable Generating, Generating II,
Inc. Company Corporation Inc. Inc.
-------------- -------------- ------------ ------------ -------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 8,482,787 $ 5,563,618 $ 5,548,288 $ -- $ --
Restricted cash .................................. 14,794,787 -- -- -- --
Accounts receivable, net ......................... 36,726,296 45,209,457 143,260,045 (8,966,630) 1,000
Receivable from affiliates ....................... -- 17,348,573 (26,671,123) -- --
Inventories and supplies, net .................... 68,868,005 65,531,042 -- 178,204 --
Energy trading contracts ......................... 66,534,540 4,886,933 -- -- --
Deferred tax assets .............................. 1,989,299 1,001,770 2,363 -- --
Prepaid expenses and other ....................... 2,851,102 23,311,550 -- -- --
-------------- -------------- ------------ ------------ ---------
Total Current Assets ........................ 200,246,816 162,852,943 122,139,573 (8,788,426) 1,000
-------------- -------------- ------------ ------------ ---------

PROPERTY, PLANT, AND EQUIPMENT, NET ................ 1,451,231,965 2,426,875,192 -- 104,619,636 --
-------------- -------------- ------------ ------------ ---------

OTHER ASSETS:
Restricted cash .................................. 34,072,468 -- -- -- --
Investment in ONEOK .............................. -- -- -- -- --
Customer accounts, net ........................... -- -- -- -- --
Goodwill, net .................................... -- -- -- -- --
Regulatory assets ................................ 114,032,374 244,108,030 -- -- --
Receivable from Western Resources ................ -- -- -- -- --
Investment in Western Resources .................. -- -- -- -- --
Deferred tax assets .............................. -- -- -- -- --
Energy trading contracts ......................... 15,246,968 -- -- -- --
Other ............................................ 3,556,193,665 96,208,067 -- (58,726) --
-------------- -------------- ------------ ------------ ---------
Total Other Assets .......................... 3,719,545,475 340,316,097 -- (58,726) --
-------------- -------------- ------------ ------------ ---------
TOTAL ASSETS ....................................... $5,371,024,256 $2,930,044,232 $122,139,573 $ 95,772,484 $ 1,000
============== ============== ============ ============ =========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ............. $ 145,762,849 $ -- $ -- $ -- $ --
Short-term debt .................................. 222,300,000 -- -- -- --
Accounts payable ................................. 353,981,923 52,656,760 12,518,316 6,123,553 --
Accrued liabilities .............................. 101,166,524 36,579,536 184,683 -- --
Purchase holdbacks ............................... -- -- -- -- --
Accrued income taxes ............................. (12,741,917) -- (56,815) 319,639 --
Deferred security revenues ....................... -- -- -- -- --
Energy trading contracts ......................... 57,889,044 9,969,616 -- -- --
Amounts due Western Resources .................... -- -- -- -- --
Tax payable to Western Resources ................. -- -- -- -- --
Other ............................................ 19,000,872 35,151,037 100,000,000 -- --
-------------- -------------- ------------ ------------ ---------
Total Current Liabilities ................... 887,359,295 134,356,949 112,646,184 6,443,192 --
-------------- -------------- ------------ ------------ ---------

LONG-TERM LIABILITIES:
Long-term debt, net .............................. 1,861,689,153 684,360,243 -- -- --
Western Resources obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely
company subordinated debentures ................ -- -- -- -- --
Deferred income taxes and investment tax
credits ........................................ 258,266,741 726,675,737 -- 711,862 --
Minority interests ............................... -- -- -- -- --
Deferred gain from sale-leaseback ................ -- 174,466,013 -- -- --
Energy trading contracts ......................... 10,370,114 6,130,229 -- -- --
Other ............................................ 163,622,876 155,666,117 -- -- --
-------------- -------------- ------------ ------------ ---------
Total Long-Term Liabilities ................. 2,293,948,884 1,747,298,339 -- 711,862 --
-------------- -------------- ------------ ------------ ---------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Cumulative preferred stock, par value
$100 per share, 600,000 authorized shares,
239,364 outstanding shares ..................... 24,857,600 -- -- -- --
Common Stock, par value $5 per share,
150,000,000 authorized shares,
86,205,417 issued shares ....................... 431,027,085 1,065,633,791 1,000 1,000 1,000
Paid-in capital .................................. 1,196,774,884 -- 10,499,000 84,941,443 --
Unearned compensation ............................ (21,920,183) -- -- -- --
Loans to officers ................................ (1,973,000) -- -- -- --
Retained earnings ................................ 586,322,550 (6,221,526) (1,006,611) 3,674,987 --
Treasury stock, at cost, 15,097,987 shares ....... (0) -- -- -- --
Accumulated other comprehensive loss, net ........ (25,372,859) (11,023,321) -- -- --
-------------- -------------- ------------ ------------ ---------
Total Shareholders' Equity .................. 2,189,716,077 1,048,388,944 9,493,389 88,617,430 1,000
-------------- -------------- ------------ ------------ ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......... $5,371,024,256 $2,930,044,232 $122,139,573 $ 95,772,484 $ 1,000
============== ============== ============ ============ =========

Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 2001

Western Westar Western
Resources Industries, Resources,
Capital Inc. Consolidating Inc.
I and II Consolidated Entries Consolidated
------------ -------------- --------------- --------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ -- $ 82,644,217 $ (5,548,288) $ 96,690,622
Restricted cash ......................................... -- -- -- 14,794,787
Accounts receivable, net ................................ 226,804,150 49,300,729 (379,471,412) 112,863,635
Receivable from affiliates .............................. -- -- 9,322,550 --
Inventories and supplies, net ........................... -- 10,521,753 -- 145,099,004
Energy trading contracts ................................ -- -- -- 71,421,473
Deferred tax assets ..................................... -- 24,978,033 (154,587) 27,816,878
Prepaid expenses and other .............................. -- 33,725,246 (18,556,629) 41,331,269
------------ -------------- --------------- --------------
Total Current Assets ............................... 226,804,150 201,169,978 (394,408,366) 510,017,668
------------ -------------- --------------- --------------

PROPERTY, PLANT, AND EQUIPMENT, NET ........................... -- 60,125,128 -- 4,042,851,921
------------ -------------- --------------- --------------

OTHER ASSETS:
Restricted cash ......................................... -- -- 4,442,662 38,515,130
Investment in ONEOK ..................................... -- 598,929,042 -- 598,929,042
Customer accounts, net .................................. -- 830,708,156 -- 830,708,156
Goodwill, net ........................................... -- 884,786,477 -- 884,786,477
Regulatory assets ....................................... -- -- (115,299) 358,025,105
Receivable from Western Resources ....................... -- 67,673,929 (67,673,929) --
Investment in Western Resources ......................... -- 381,987,373 (381,987,373) --
Deferred tax assets ..................................... -- 61,478,994 (61,478,994) --
Energy trading contracts ................................ -- -- -- 15,246,968
Other ................................................... -- 42,282,742 (3,460,640,848) 233,984,900
------------ -------------- --------------- --------------
Total Other Assets ................................. -- 2,867,846,713 (3,967,453,781) 2,960,195,778
------------ -------------- --------------- --------------

TOTAL ASSETS .................................................. $226,804,150 $3,129,141,819 $(4,361,862,147) $7,513,065,367
============ ============== =============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt .................... $ -- $ 14,823,882 $ (11,000) $ 160,575,731
Short-term debt ......................................... -- -- -- 222,300,000
Accounts payable ........................................ -- 19,519,200 (319,515,199) 125,284,553
Accrued liabilities ..................................... -- 50,171,895 (6,431,881) 181,670,757
Purchase holdbacks ...................................... -- 821,985 (821,985) --
Accrued income taxes .................................... -- 47,365,390 4,883,204 39,769,501
Deferred security revenues .............................. -- 48,461,479 -- 48,461,479
Energy trading contracts ................................ -- -- -- 67,858,660
Amounts due Western Resources ........................... -- 1,666,084 (1,666,084) --
Tax payable to Western Resources ........................ -- 2,550,996 (2,550,996) --
Other ................................................... -- 2,473,428 (99,166,015) 57,459,322
------------ -------------- --------------- --------------
Total Current Liabilities .......................... -- 187,854,339 (425,279,956) 903,380,003
------------ -------------- --------------- --------------

LONG-TERM LIABILITIES:
Long-term debt, net ..................................... -- 461,364,256 (29,031,380) 2,978,382,272
Western Resources obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely
company subordinated debentures .................... 220,000,000 -- -- 220,000,000
Deferred income taxes and investment tax credits ........ -- -- (61,476,631) 924,177,709
Minority interests ...................................... -- 166,852,582 (2,088) 166,850,494
Deferred gain from sale-leaseback ....................... -- -- -- 174,466,013
Energy trading contracts ................................ -- -- -- 16,500,343
Other ................................................... -- 17,937,731 (51,979,479) 285,247,245
------------ -------------- --------------- --------------
Total Long-Term Liabilities ........................ 220,000,000 646,154,569 (142,489,578) 4,765,624,076
------------ -------------- --------------- --------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Cumulative preferred stock, par value $100 per share,
600,000 authorized shares, 239,364 outstanding shares -- -- (921,200) 23,936,400
Common Stock, par value $5 per share, 150,000,000
authorized shares, 86,205,417 issued shares ........ 6,804,150 770,000 (1,073,210,941) 431,027,085
Paid-in capital ......................................... -- 2,055,536,475 (2,150,989,292) 1,196,762,510
Unearned compensation ................................... -- -- -- (21,920,183)
Loans to officers ....................................... -- -- -- (1,973,000)
Retained earnings ....................................... -- 242,611,471 (218,878,940) 606,501,931
Treasury stock, at cost, 15,097,987 shares .............. -- -- (364,900,596) (364,900,596)
Accumulated other comprehensive loss, net ............... -- (3,785,035) 14,808,356 (25,372,859)
------------ -------------- --------------- --------------
Total Shareholders' Equity ......................... 6,804,150 2,295,132,911 (3,794,092,613) 1,844,061,288
------------ -------------- --------------- --------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... $226,804,150 $3,129,141,819 $(4,361,862,147) $7,513,065,367
============ ============== =============== ==============

Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 2001

Western Kansas Gas and WR
Resources, Electric Receivable Westar
Inc. Company Corporation Generating, Inc.
--------------- --------------- --------------- ---------------

SALES:
Energy ........................................ $ 1,096,686,402 $ 673,124,930 $ -- $ 22,753,427
Monitored Services ............................ -- -- -- --
--------------- --------------- --------------- ---------------
Total Sales ............................... 1,096,686,402 673,124,930 -- 22,753,427
--------------- --------------- --------------- ---------------

COST OF SALES:
Energy ........................................ 662,933,518 207,176,344 -- 11,550,692
Monitored Services ............................ -- -- -- --
--------------- --------------- --------------- ---------------
Total Cost of Sales ....................... 662,933,518 207,176,344 -- 11,550,692
--------------- --------------- --------------- ---------------

GROSS PROFIT ........................................ 433,752,884 465,948,586 -- 11,202,735
--------------- --------------- --------------- ---------------

OPERATING EXPENSES:
Operating and maintenance ..................... 144,302,723 194,101,393 -- 2,652,253
Depreciation and amortization ................. 77,911,467 105,136,349 -- 2,108,269
Selling, general and administrative ........... 85,638,648 73,440,961 778,927 299,902
Dispositions of monitored services operations . -- -- -- --
Severance and other costs ..................... -- -- -- --
Merger costs .................................. 8,692,844 -- -- --
--------------- --------------- --------------- ---------------
Total Operating Expenses .................. 316,545,682 372,678,703 778,927 5,060,424
--------------- --------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS ....................... 117,207,202 93,269,883 (778,927) 6,142,311
--------------- --------------- --------------- ---------------
OTHER INCOME (EXPENSES):
Investment earnings ........................... (2,071,473) -- -- --
Impairment of investments ..................... -- -- -- --
Minority interest ............................. -- -- -- --
Other ......................................... 4,474,931 (7,958,879) -- --
--------------- --------------- --------------- ---------------
Total Other Income (Expense) .............. 2,403,458 (7,958,879) -- --
--------------- --------------- --------------- ---------------
EARNINGS BEFORE INTEREST AND TAXES .................. 119,610,660 85,311,004 (778,927) 6,142,311
--------------- --------------- --------------- ---------------
INTEREST EXPENSE:
Interest expense on long-term debt ............ 137,039,694 45,643,734 -- --
Interest expense on short-term debt and other . 50,943,367 3,966,911 -- 3,869
--------------- --------------- --------------- ---------------
Total Interest Expense .................... 187,983,061 49,610,645 -- 3,869
--------------- --------------- --------------- ---------------

EARNINGS (LOSS) BEFORE INCOME TAXES ................. (68,372,401) 35,700,359 (778,927) 6,138,442

INCOME TAX (BENEFIT) EXPENSE ........................ (40,859,883) (1,600,143) (309,838) 2,441,719
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
ACCOUNTING CHANGE ............................ (27,512,518) 37,300,502 (469,089) 3,696,723

EXTRAORDINARY ITEMS, NET OF TAX ..................... (555,008) -- -- --

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX .. 5,795,018 12,898,589 -- --
--------------- --------------- --------------- ---------------

NET INCOME (LOSS) ................................... (22,272,508) 50,199,091 (469,089) 3,696,723

PREFERRED DIVIDENDS ................................. 1,128,606 -- -- --
--------------- --------------- --------------- ---------------
EARNINGS (LOSS) AVAILABLE FOR COMMON STOCK .......... $ (23,401,114) $ 50,199,091 $ (469,089) $ 3,696,723
=============== =============== =============== ===============

Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 2001

Western Westar Western
Resources Industries, Resources,
Capital Inc. Consolidating Inc.
I and II Consolidated Entries Consolidated
--------------- --------------- --------------- ---------------

SALES:

Energy .......................................... $ -- $ -- $ (24,171,396) $ 1,768,393,363
Monitored Services .............................. -- 417,868,636 -- 417,868,636
--------------- --------------- --------------- ---------------
Total Sales ................................. -- 417,868,636 (24,171,396) 2,186,261,999
--------------- --------------- --------------- ---------------

COST OF SALES:
Energy .......................................... -- -- (26,368,077) 855,292,477
Monitored Services .............................. -- 144,258,202 -- 144,258,202
--------------- --------------- --------------- ---------------
Total Cost of Sales ......................... -- 144,258,202 (26,368,077) 999,550,679
--------------- --------------- --------------- ---------------

GROSS PROFIT .......................................... -- 273,610,434 2,196,681 1,186,711,320
--------------- --------------- --------------- ---------------

OPERATING EXPENSES:
Operating and maintenance ....................... -- -- 8,356,772 349,413,141
Depreciation and amortization ................... -- 228,485,990 -- 413,642,075
Selling, general and administrative ............. -- 173,032,904 1,670,284 334,861,626
Dispositions of monitored services operations ... -- 13,056,478 -- 13,056,478
Severance and other costs ....................... -- 9,681,917 (9,681,917) --
Merger costs .................................... -- -- -- 8,692,844
--------------- --------------- --------------- ---------------
Total Operating Expenses .................... -- 424,257,289 345,139 1,119,666,164
--------------- --------------- --------------- ---------------

INCOME (LOSS) FROM OPERATIONS ......................... -- (150,646,855) 1,851,542 67,045,156
--------------- --------------- --------------- ---------------

OTHER INCOME (EXPENSES):
Investment earnings ............................. 18,634,023 65,343,024 (29,271,386) 52,634,188
Impairment of investments ....................... -- (11,075,214) -- (11,075,214)
Minority interest ............................... -- 11,620,570 -- 11,620,570
Other ........................................... -- 8,354,629 (473,000) 4,397,681
--------------- --------------- --------------- ---------------
Total Other Income (Expense) ................ 18,634,023 74,243,009 (29,744,386) 57,577,225
--------------- --------------- --------------- ---------------

EARNINGS BEFORE INTEREST AND TAXES .................... 18,634,023 (76,403,846) (27,892,844) 124,622,381
--------------- --------------- --------------- ---------------

INTEREST EXPENSE:
Interest expense on long-term debt .............. -- 45,075,651 (158,449) 227,600,630
Interest expense on short-term debt and other .. -- (1,091,239) (13,200,375) 40,622,533
--------------- --------------- --------------- ---------------
Total Interest Expense ...................... -- 43,984,412 (13,358,824) 268,223,163
--------------- --------------- --------------- ---------------

EARNINGS (LOSS) BEFORE INCOME TAXES ................... 18,634,023 (120,388,258) (14,534,020) (143,600,782)

INCOME TAX (BENEFIT) EXPENSE .......................... -- (41,283,407) 736,498 (80,875,054)
--------------- --------------- --------------- ---------------

NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
ACCOUNTING CHANGE .............................. 18,634,023 (79,104,851) (15,270,518) (62,725,728)

EXTRAORDINARY ITEMS, NET OF TAX ....................... -- 22,315,670 1,395,281 23,155,943

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX .... -- -- -- 18,693,607
--------------- --------------- --------------- ---------------

NET INCOME (LOSS) ..................................... 18,634,023 (56,789,181) (13,875,237) (20,876,178)

PREFERRED DIVIDENDS ................................... 18,075,000 -- (18,309,043) 894,563
--------------- --------------- --------------- ---------------

EARNINGS (LOSS) AVAILABLE FOR COMMON STOCK ............ $ 559,023 $ (56,789,181) $ 4,433,806 $ (21,770,741)
=============== =============== =============== ===============

Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 2001

Western Kansas Gas WR Westar
Resources, and Electric Receivable Generating,
Inc. Company Corporation Inc.
------------- ------------- ------------- -------------

BALANCE AT BEGINNING OF PERIOD ........ $ 714,453,900 $ 44,116,906 $ (537,522) $ (21,736)
------------- ------------- ------------- -------------

ADD:

Net Income (loss) ............... (22,272,508) 50,199,091 (469,089) 3,696,723
Other ........................... (2,634,160) (537,523) -- --
------------- ------------- ------------- -------------
Total ....................... (24,906,668) 49,661,568 (469,089) 3,696,723
------------- ------------- ------------- -------------

DEDUCT:
Preferred stock dividends ....... 1,128,606 -- -- --
Common stock dividends .......... 102,096,076 100,000,000 -- --
------------- ------------- ------------- -------------
Total ....................... 103,224,682 100,000,000 -- --
------------- ------------- ------------- -------------

BALANCE AT END OF PERIOD .............. $ 586,322,550 $ (6,221,526) $ (1,006,611) $ 3,674,987
============= ============= ============= =============

Exhibit A-1
WESTERN RESOURCES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 2001

Western Westar Western
Resources Industries, Resources,
Capital Inc. Consolidating Inc.
I and II Consolidated Entries Consolidated
--------------- --------------- --------------- ---------------

BALANCE AT BEGINNING OF PERIOD ... $ -- $ 297,560,797 $(341,118,443) $ 714,453,902
------------- ------------- ------------- -------------
ADD:

Net Income (loss) .......... 18,634,023 (56,789,181) (13,875,237) (20,876,178)
Other ...................... -- 2,609,855 (966,830) (1,528,658)
------------- ------------- ------------- -------------
Total .................. 18,634,023 (54,179,326) (14,842,067) (22,404,836)
------------- ------------- ------------- -------------

DEDUCT:
Preferred stock dividends .. 18,075,000 -- (18,309,043) 894,563
Common stock dividends ..... 559,023 770,000 (118,772,527) 84,652,572
------------- ------------- ------------- -------------
Total .................. 18,634,023 770,000 (137,081,570) 85,547,135
------------- ------------- ------------- -------------

BALANCE AT END OF PERIOD ......... $ -- $ 242,611,471 $(218,878,940) $ 606,501,931
============= ============= ============= =============

Exhibit A-2
WESTAR INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 2001

Protection Westar Westar
Westar One Limited Financial
Industries, Protection One, Inc. International Partners, Services,
Inc. Consolidated Inc. Inc. Inc.
-------------- ------------------- ------------- ----------- -----------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 73,091,429 $ 3,973,608 $ 5,570,000 $ -- $ 5,292
Accounts receivable, net ....................... (42,015,777) 36,504,261 11,227,140 4,119,301 44,896,513
Inventories and supplies, net .................. -- 8,142,233 2,374,000 -- --
Deferred tax assets ............................ (978,938) 8,782,625 6,675,333 241,101 (1,097,384)
Related party tax receivable ................... -- 1,654,706 -- -- --
Prepaid expenses and other ..................... 11,543,100 7,252,196 5,047,000 -- 5,294,608
-------------- -------------- ------------ ----------- -----------
Total Current Assets ...................... 41,639,814 66,309,629 30,893,473 4,360,402 49,099,029
-------------- -------------- ------------ ----------- -----------

PROPERTY, PLANT, AND EQUIPMENT, NET .................. -- 54,912,311 3,633,000 -- --
-------------- -------------- ------------ ----------- -----------

OTHER ASSETS:
Investment in ONEOK ............................ 598,929,042 -- -- -- --
Receivable from Western Resources .............. 67,673,929 -- -- -- --
Investment in Western Resources ................ 380,574,355 -- -- -- --
Customer accounts, net ......................... -- 763,549,156 67,159,000 -- --
Goodwill, net .................................. -- 768,309,152 116,153,000 -- --
Deferred tax assets ............................ -- 79,611,947 12,195,000 -- --
Other .......................................... 1,271,888,307 15,783,370 1,552,000 278,421 --
-------------- -------------- ------------ ----------- -----------
Total Other Assets ........................ 2,319,065,633 1,627,253,625 197,059,000 278,421 --
-------------- -------------- ------------ ----------- -----------
TOTAL ASSETS ......................................... $2,360,705,447 $1,748,475,565 $231,585,473 $ 4,638,823 $49,099,029
============== ============== ============ =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ........... $ -- $ 688,185 $ 13,822,000 $ -- $ --
Accounts payable ............................... 590,508 5,943,354 12,457,000 -- --
Accrued liabilities ............................ 4,998,186 40,188,250 6,259,000 -- --
Purchase holdbacks ............................. -- 821,985 -- -- --
Accrued income taxes ........................... 41,712,658 -- 4,563,145 (16,796) 101,137
Deferred security revenues ..................... -- 41,940,479 6,521,000 -- --
Amounts due Western Resources .................. -- -- -- -- --
Tax Payable due Western Resources .............. -- -- -- -- --
Other .......................................... 730,417 -- -- -- --
-------------- -------------- ------------ ----------- -----------
Total Current Liabilities ................. 48,031,769 89,582,253 43,622,145 (16,796) 101,137
-------------- -------------- ------------ ----------- -----------

LONG-TERM LIABILITIES:
Long-term debt, net ............................ -- 584,115,368 29,391,000 -- --
Deferred income taxes and investment tax credits 14,528,756 -- 19,271,001 (326,183) 7,081
Minority interests ............................. -- -- -- -- --
Other .......................................... 3,012,011 11,589,492 3,261,000 -- --
-------------- -------------- ------------ ----------- -----------
Total Long-Term Liabilities ............... 17,540,767 595,704,860 51,923,001 (326,183) 7,081
-------------- -------------- ------------ ----------- -----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:

Common Stock, par value $1 per share ........... 770,000 1,272,458 -- 1,000 1,000
Paid-in capital ................................ 2,055,536,475 1,381,449,976 153,657,000 6,787,555 38,235,228
Retained earnings .............................. 242,611,471 (284,740,840) (16,939,673) (1,806,753) 10,754,583
Treasury stock ................................. -- (32,430,986) -- -- --
Accumulated other comprehensive loss, net ...... (3,785,035) (2,362,156) (677,000) -- --
-------------- -------------- ------------ ----------- -----------
Total Shareholders' Equity ................ 2,295,132,911 1,063,188,452 136,040,327 4,981,802 48,990,811
-------------- -------------- ------------ ----------- -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $2,360,705,447 $1,748,475,565 $231,585,473 $ 4,638,823 $49,099,029
============== ============== ============ =========== ===========

Exhibit A-2
WESTAR INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 2001

Westar Westar Westar Wing
Communications, Leasing, Aviation, Wing Turkey, International,
Inc. Inc. Inc. Inc. Ltd.
--------------- -------------- ------------- ------------ -------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 2,086 $ -- $ (11,132) $ -- $ --
Accounts receivable, net ....................... 276,681 (1,690,102) 638,966 (605,565) 984,002
Inventories and supplies, net .................. 5,520 -- -- -- --
Deferred tax assets ............................ 48,101 -- 53,433 5,707,508 --
Related party tax receivable ................... -- -- -- -- --
Prepaid expenses and other ..................... 107,883 18,065 -- -- 229,123
------------ ------------ ------------ ------------ ------------
Total Current Assets ...................... 440,271 (1,672,037) 681,267 5,101,943 1,213,125
------------ ------------ ------------ ------------ ------------

PROPERTY, PLANT, AND EQUIPMENT, NET .................. 77,058 -- 1,502,759 -- --
------------ ------------ ------------ ------------ ------------
OTHER ASSETS:
Investment in ONEOK ............................ -- -- -- -- --
Receivable from Western Resources .............. -- -- -- -- --
Investment in Western Resources ................ -- -- -- -- --
Customer accounts, net ......................... -- -- -- -- --
Goodwill, net .................................. 324,325 -- -- -- --
Deferred tax assets ............................ -- -- -- -- --
Other .......................................... -- 1,665,353 -- (375,712) 1,975,630
------------ ------------ ------------ ------------ ------------
Total Other Assets ........................ 324,325 1,665,353 -- (375,712) 1,975,630
------------ ------------ ------------ ------------ ------------

TOTAL ASSETS ......................................... $ 841,654 $ (6,684) $ 2,184,026 $ 4,726,231 $ 3,188,755
============ ============ ============ ============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ........... $ -- $ -- $ -- $ -- $ --
Accounts payable ............................... 33,065 348,442 96,831 -- --
Accrued liabilities ............................ 28,784 18,065 18,918 -- --
Purchase holdbacks ............................. -- -- -- -- --
Accrued income taxes ........................... 9,022 (2,091) (159,174) -- --
Deferred security revenues ..................... -- -- -- -- --
Amounts due Western Resources .................. -- -- -- -- --
Tax Payable due Western Resources .............. -- -- -- -- --
Other .......................................... 33,048 -- (319) -- --
------------ ------------ ------------ ------------ ------------
Total Current Liabilities ................. 103,919 364,416 (43,744) -- --
------------ ------------ ------------ ------------ ------------

LONG-TERM LIABILITIES:
Long-term debt, net ............................ -- -- -- -- 4,567,849
Deferred income taxes and investment tax credits -- (141,197) -- (2,981,390) --
Minority interests ............................. -- -- -- -- --
Other .......................................... 115 -- 7,768 -- --
------------ ------------ ------------ ------------ ------------
Total Long-Term Liabilities ............... 115 (141,197) 7,768 (2,981,390) 4,567,849
------------ ------------ ------------ ------------ ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:

Common Stock, par value $1 per share ........... 1,000 1,000 1,000 14 --
Paid-in capital ................................ 802,909 -- 11,888,948 9,579,087 1,000
Retained earnings .............................. (66,289) (230,903) (9,669,946) (1,871,480) (336,544)
Treasury stock ................................. -- -- -- -- --
Accumulated other comprehensive loss, net ...... -- -- -- -- (1,043,550)
------------ ------------ ------------ ------------ ------------
Total Shareholders' Equity ................ 737,620 (229,903) 2,220,002 7,707,621 (1,379,094)
------------ ------------ ------------ ------------ ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $ 841,654 $ (6,684) $ 2,184,026 $ 4,726,231 $ 3,188,755
============ ============ ============ ============ ============

Exhibit A-2
WESTAR INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
December 31, 2001

Western Westar
Resources The Industries,
(Bermuda) Wing Group, Consolidating Inc.
Ltd. Limited Co. Entries Consolidated
--------------- --------------- --------------- ---------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 11,998 $ 936 $ -- $ 82,644,217
Accounts receivable, net ....................... 2,875,058 (49,135) (7,860,614) 49,300,729
Inventories and supplies, net .................. -- -- -- 10,521,753
Deferred tax assets ............................ -- 5,546,254 -- 24,978,033
Related party tax receivable ................... -- -- (1,654,706) --
Prepaid expenses and other ..................... 524,786 -- 3,708,485 33,725,246
--------------- --------------- --------------- ---------------
Total Current Assets ...................... 3,411,842 5,498,055 (5,806,835) 201,169,978
--------------- --------------- --------------- ---------------

PROPERTY, PLANT, AND EQUIPMENT, NET .................. -- -- -- 60,125,128
--------------- --------------- --------------- ---------------

OTHER ASSETS:
Investment in ONEOK ............................ -- -- -- 598,929,042
Receivable from Western Resources .............. -- -- -- 67,673,929
Investment in Western Resources ................ -- -- 1,413,018 381,987,373
Customer accounts, net ......................... -- -- -- 830,708,156
Goodwill, net .................................. -- -- -- 884,786,477
Deferred tax assets ............................ -- -- (30,327,953) 61,478,994
Other .......................................... -- 40,169 (1,250,524,796) 42,282,742
--------------- --------------- --------------- ---------------
Total Other Assets ........................ -- 40,169 (1,279,439,731) 2,867,846,713
--------------- --------------- --------------- ---------------

TOTAL ASSETS ......................................... $ 3,411,842 $ 5,538,224 $(1,285,246,566) $ 3,129,141,819
=============== =============== =============== ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ........... $ 567,038 $ -- $ (253,341) $ 14,823,882
Accounts payable ............................... 50,000 -- -- 19,519,200
Accrued liabilities ............................ -- (16,464) (1,322,844) 50,171,895
Purchase holdbacks ............................. -- -- -- 821,985
Accrued income taxes ........................... -- -- 1,157,489 47,365,390
Deferred security revenues ..................... -- -- -- 48,461,479
Amounts due Western Resources .................. -- -- 1,666,084 1,666,084
Tax Payable due Western Resources .............. -- -- 2,550,996 2,550,996
Other .......................................... 1,125,748 43,378 541,156 2,473,428
--------------- --------------- --------------- ---------------
Total Current Liabilities ................. 1,742,786 26,914 4,339,540 187,854,339
--------------- --------------- --------------- ---------------

LONG-TERM LIABILITIES:
Long-term debt, net ............................ (567,038) -- (156,142,923) 461,364,256
Deferred income taxes and investment tax credits -- (30,115) (30,327,953) --
Minority interests ............................. -- -- 166,852,582 166,852,582
Other .......................................... -- -- 67,345 17,937,731
--------------- --------------- --------------- ---------------
Total Long-Term Liabilities ............... (567,038) (30,115) (19,550,949) 646,154,569
--------------- --------------- --------------- ---------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:

Common Stock, par value $1 per share ........... -- -- (1,277,472) 770,000
Paid-in capital ................................ 14,555,682 42,944,807 (1,659,902,192) 2,055,536,475
Retained earnings .............................. (12,319,588) (37,403,382) 354,630,815 242,611,471
Treasury stock ................................. -- -- 32,430,986 --
Accumulated other comprehensive loss, net ...... -- -- 4,082,706 (3,785,035)
--------------- --------------- --------------- ---------------
Total Shareholders' Equity ................ 2,236,094 5,541,425 (1,270,035,157) 2,295,132,911
--------------- --------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $ 3,411,842 $ 5,538,224 $(1,285,246,566) $ 3,129,141,819
=============== =============== =============== ===============

Exhibit A-2
WESTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 2001

Westar
Westar Protection One Limited
Industries, Protection Protection International, Partners,
Inc. One, Inc. One UK, Inc. Inc. Inc.
------------- ------------- ----------- ------------ ----------

SALES:
Monitoring and related services .................. $ -- $ 324,665,622 $ 8,062,000 $ 63,061,000 $ --
Other ............................................ -- 16,359,816 3,263,000 1,098,000 --
------------- ------------- ----------- ------------ ----------
Total Sales .................................. -- 341,025,438 11,325,000 64,159,000 --
------------- ------------- ----------- ------------ ----------

COST OF SALES:
Monitoring and related services .................. -- 103,726,942 6,020,000 15,878,000 --
Other ............................................ -- 15,405,581 2,658,000 309,000 --
------------- ------------- ----------- ------------ ----------
Total Cost of Sales .......................... -- 119,132,523 8,678,000 16,187,000 --
------------- ------------- ----------- ------------ ----------

GROSS PROFIT ........................................... -- 221,892,915 2,647,000 47,972,000 --
------------- ------------- ----------- ------------ ----------

OPERATING EXPENSES:
Selling, general and administrative .............. 951,799 112,684,930 3,151,000 44,036,000 2,500
Acquisition expense .............................. -- 5,898,968 27,000 143,000 --
Depreciation and amortization .................... 133,741 202,654,626 2,566,000 22,902,000 --
Dispositions of monitored services operations .... 17,979,478 -- -- (4,923,000) --
Severance and other costs ........................ -- 9,681,917 -- -- --
------------- ------------- ----------- ------------ ----------
Total Operating Expenses ..................... 19,065,018 330,920,441 5,744,000 62,158,000 2,500
------------- ------------- ----------- ------------ ----------

INCOME (LOSS) FROM OPERATIONS .......................... (19,065,018) (109,027,526) (3,097,000) (14,186,000) (2,500)
------------- ------------- ----------- ------------ ----------

OTHER INCOME (EXPENSES):
Investment earnings .............................. (22,658,072) -- -- 410,137 --
Impairment of investments ........................ (11,075,214) -- -- -- --
Minority interest ................................ -- -- -- -- --
Other ............................................ 8,033,052 124,865 (99,000) (91,000) 386,355
------------- ------------- ----------- ------------ ----------
Total Other Income (Expense) ................. (25,700,234) 124,865 (99,000) 319,137 386,355
------------- ------------- ----------- ------------ ----------

EARNINGS BEFORE INTEREST AND TAXES ..................... (44,765,252) (108,902,661) (3,196,000) (13,866,863) 383,855

INTEREST EXPENSE ....................................... (2,038,624) 51,718,965 36,000 4,960,000 --
------------- ------------- ----------- ------------ ----------

EARNINGS (LOSS) BEFORE INCOME TAXES .................... (42,726,628) (160,621,626) (3,232,000) (18,826,863) 383,855

INCOME TAX (BENEFIT) EXPENSE ........................... 1,900,686 (40,096,248) -- (4,758,190) 152,688
------------- ------------- ----------- ------------ ----------

INCOME BEFORE EXTRAORDINARY ITEM ....................... (44,627,314) (120,525,378) (3,232,000) (14,068,673) 231,167

EXTRAORDINARY ITEM (NET OF TAX) ........................ (12,161,867) 34,477,537 -- -- --
------------- ------------- ----------- ------------ ----------

NET INCOME (LOSS) ...................................... $ (56,789,181) $ (86,047,841) $(3,232,000) $(14,068,673) $ 231,167
============= ============= =========== ============ ==========

Exhibit A-2
WESTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 2001

Westar
Financial Westar Westar Westar Wing
Services, Communications, Leasing, Aviation, Turkey,
Inc. Inc. Inc. Inc. Inc.
----------- --------------- ----------- ----------- -----------

SALES:
Monitoring and related services .................. $ -- $ -- $ -- $ -- $ --
Other ............................................ -- 1,359,198 -- -- --
----------- ----------- ----------- ----------- -----------
Total Sales .................................. -- 1,359,198 -- -- --
----------- ----------- ----------- ----------- -----------

COST OF SALES:
Monitoring and related services .................. -- -- -- -- --
Other ............................................ -- 260,679 -- -- --
----------- ----------- ----------- ----------- -----------
Total Cost of Sales .......................... -- 260,679 -- -- --
----------- ----------- ----------- ----------- -----------

GROSS PROFIT ........................................... -- 1,098,519 -- -- --
----------- ----------- ----------- ----------- -----------

OPERATING EXPENSES:
Selling, general and administrative .............. 2,569 967,069 649,078 3,979,760 40,253
Acquisition expense .............................. -- -- -- -- --
Depreciation and amortization .................... -- 79,479 -- 115,212 --
Dispositions of monitored services operations .... -- -- -- -- --
Severance and other costs ........................ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Operating Expenses ..................... 2,569 1,046,548 649,078 4,094,972 40,253
----------- ----------- ----------- ----------- -----------

INCOME (LOSS) FROM OPERATIONS .......................... (2,569) 51,971 (649,078) (4,094,972) (40,253)
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Investment earnings .............................. 5,296,827 -- -- 13,989 3,058,021
Impairment of investments ........................ -- -- -- -- --
Minority interest ................................ -- -- -- -- --
Other ............................................ -- -- 265,661 -- --
----------- ----------- ----------- ----------- -----------
Total Other Income (Expense) ................. 5,296,827 -- 265,661 13,989 3,058,021
----------- ----------- ----------- ----------- -----------

EARNINGS BEFORE INTEREST AND TAXES ..................... 5,294,258 51,971 (383,417) (4,080,983) 3,017,768

INTEREST EXPENSE ....................................... 5,048 -- -- -- --
----------- ----------- ----------- ----------- -----------

EARNINGS (LOSS) BEFORE INCOME TAXES .................... 5,289,210 51,971 (383,417) (4,080,983) 3,017,768

INCOME TAX (BENEFIT) EXPENSE ........................... 2,103,916 18,161 (152,514) (1,517,472) 1,056,219
----------- ----------- ----------- ----------- -----------

INCOME BEFORE EXTRAORDINARY ITEM ....................... 3,185,294 33,810 (230,903) (2,563,511) 1,961,549

EXTRAORDINARY ITEM (NET OF TAX) ........................ -- -- -- -- --
----------- ----------- ----------- ----------- -----------

NET INCOME (LOSS) ...................................... $ 3,185,294 $ 33,810 $ (230,903) $(2,563,511) $ 1,961,549
=========== =========== =========== =========== ===========

Exhibit A-2
WESTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF INCOME
December 31, 2001

Western
Wing Resources The Wing Westar
International, (Bermuda) Group, Consolidating Industries, Inc.
Ltd. Ltd. Limited Co. Entries Consolidated
-------------- ------------- ------------- ------------- ----------------

SALES:
Monitoring and related services ............. $ -- $ -- $ -- $ -- $ 395,788,622
Other ....................................... -- -- -- -- 22,080,014
------------- ------------- ------------- ------------- -------------
Total Sales ............................. -- -- -- -- 417,868,636
------------- ------------- ------------- ------------- -------------

COST OF SALES:
Monitoring and related services ............. -- -- -- -- 125,624,942
Other ....................................... -- -- -- -- 18,633,260
------------- ------------- ------------- ------------- -------------
Total Cost of Sales ..................... -- -- -- -- 144,258,202
------------- ------------- ------------- ------------- -------------

GROSS PROFIT ...................................... -- -- -- -- 273,610,434
------------- ------------- ------------- ------------- -------------

OPERATING EXPENSES:
Selling, general and administrative ......... 299,733 460,364 4,541 5,803,308 173,032,904
Acquisition expense ......................... -- -- -- (6,068,968) --
Depreciation and amortization ............... -- 34,932 -- -- 228,485,990
Dispositions of monitored services operations -- -- -- -- 13,056,478
Severance and other costs ................... -- -- -- -- 9,681,917
------------- ------------- ------------- ------------- -------------
Total Operating Expenses ................ 299,733 495,296 4,541 (265,660) 424,257,289
------------- ------------- ------------- ------------- -------------

INCOME (LOSS) FROM OPERATIONS ..................... (299,733) (495,296) (4,541) 265,660 (150,646,855)
------------- ------------- ------------- ------------- -------------

OTHER INCOME (EXPENSES):
Investment earnings ......................... 3,920,980 859,023 30,889 74,411,230 65,343,024
Impairment of investments ................... -- -- -- -- (11,075,214)
Minority interest ........................... -- -- -- 11,620,570 11,620,570
Other ....................................... -- -- 357 (265,661) 8,354,629
------------- ------------- ------------- ------------- -------------
Total Other Income (Expense) ............ 3,920,980 859,023 31,246 85,766,139 74,243,009
------------- ------------- ------------- ------------- -------------

EARNINGS BEFORE INTEREST AND TAXES ................ 3,621,247 363,727 26,705 86,031,799 (76,403,846)

INTEREST EXPENSE .................................. 532,337 -- -- (11,229,314) 43,984,412
------------- ------------- ------------- ------------- -------------

EARNINGS (LOSS) BEFORE INCOME TAXES ............... 3,088,910 363,727 26,705 97,261,113 (120,388,258)

INCOME TAX (BENEFIT) EXPENSE ...................... -- -- 9,347 -- (41,283,407)
------------- ------------- ------------- ------------- -------------

INCOME BEFORE EXTRAORDINARY ITEM .................. 3,088,910 363,727 17,358 97,261,113 (79,104,851)

EXTRAORDINARY ITEM (NET OF TAX) ................... -- -- -- -- 22,315,670
------------- ------------- ------------- ------------- -------------

NET INCOME (LOSS) ................................. $ 3,088,910 $ 363,727 $ 17,358 $ 97,261,113 $ (56,789,181)
============= ============= ============= ============= =============

Exhibit A-2
WESTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 2000

Westar Protection Protection One Westar Limited
Industries, One, Inc. Protection International, Partners,
Inc. Consolidated One UK, Inc. Inc. Inc.
------------- ------------- ------------- -------------- -------------

BALANCE AT BEGINNING OF PERIOD ............... $ 297,560,797 $(198,692,999) $ (16,691,887) $ 182,389 $ (2,037,920)
------------- ------------- ------------- ------------- -------------
ADD:

Net Income (loss) ...................... (56,789,181) (86,047,841) (3,232,000) (14,068,673) 231,167
Other .................................. 2,609,855 -- 19,923,887 (3,053,389) --
------------- ------------- ------------- ------------- -------------
Total .............................. (54,179,326) (86,047,841) 16,691,887 (17,122,062) 231,167
------------- ------------- ------------- ------------- -------------
DEDUCT:
Preferred stock dividends .............. -- -- -- -- --
Common stock dividends ................. 770,000 -- -- -- --
------------- ------------- ------------- ------------- -------------
Total .............................. 770,000 -- -- -- --
------------- ------------- ------------- ------------- -------------

BALANCE AT END OF PERIOD ..................... $ 242,611,471 $(284,740,840) $ -- $ (16,939,673) $ (1,806,753)
============= ============= ============= ============= =============

Exhibit A-2
WESTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 2000

Westar
Financial Westar Westar Westar
Services, Communications, Leasing, Aviation Wing Turkey,
Inc. Inc. Inc. Inc. Inc.
----------- --------------- ----------- ----------- ------------

BALANCE AT BEGINNING OF PERIOD ................ $ 7,569,289 $ (100,099) $ -- $(7,106,435) $ 520,372
----------- ----------- ----------- ----------- -----------
ADD:

Net Income (loss) ....................... 3,185,294 33,810 (230,903) (2,563,511) 1,961,549
Other ................................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total ............................... 3,185,294 33,810 (230,903) (2,563,511) 1,961,549
----------- ----------- ----------- ----------- -----------
DEDUCT:
Preferred stock dividends ............... -- -- -- -- --
Common stock dividends .................. -- -- -- -- 4,353,401
----------- ----------- ----------- ----------- -----------
Total ............................... -- -- -- -- 4,353,401
----------- ----------- ----------- ----------- -----------
BALANCE AT END OF PERIOD ...................... $10,754,583 $ (66,289) $ (230,903) $(9,669,946) $(1,871,480)
=========== =========== =========== =========== ===========

Exhibit A-2
WESTAR INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 2000

Western
Wing Resources The Westar
International, (Bermuda) Wing Group, Consolidating Industries, Inc.
Ltd. Ltd. Limited Co. Entries Consolidated
-------------- ------------- ------------- ------------- ----------------

BALANCE AT BEGINNING OF PERIOD .............. $ 927,947 $ (12,683,315) $ (37,420,740) $ 265,533,398 $ 297,560,797
------------- ------------- ------------- ------------- -------------

ADD:

Net Income (loss) ..................... 3,088,910 363,727 17,358 97,261,113 (56,789,181)
Other ................................. -- -- -- (16,870,498) 2,609,855
------------- ------------- ------------- ------------- -------------
Total ............................. 3,088,910 363,727 17,358 80,390,615 (54,179,326)
------------- ------------- ------------- ------------- -------------

DEDUCT:
Preferred stock dividends ............. -- -- -- -- --
Common stock dividends ................ 4,353,401 -- -- (8,706,802) 770,000
------------- ------------- ------------- ------------- -------------
Total ............................. 4,353,401 -- -- (8,706,802) 770,000
------------- ------------- ------------- ------------- -------------

BALANCE AT END OF PERIOD .................... $ (336,544) $ (12,319,588) $ (37,403,382) $ 354,630,815 $ 242,611,471
============= ============= ============= ============= =============

Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING BALANCE SHEET
December 31, 2001

Network
Protection Multi-Family Protection One,
Protection One Alarm Security Consolidating Inc.
One, Inc. Monitoring, Inc. Corporation Entries Consolidated
-------------- ---------------- ------------ --------------- ---------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............... $ -- $ 3,811,673 $ 161,935 $ -- $ 3,973,608
Accounts receivable, net ................ -- 32,241,072 4,263,189 -- 36,504,261
Inventories and supplies, net ........... -- 4,369,559 3,772,674 -- 8,142,233
Deferred tax assets ..................... -- 7,638,625 1,144,000 -- 8,782,625
Related party tax receivable ............ -- 1,654,706 -- -- 1,654,706
Prepaid expenses and other .............. 47,043 6,967,565 237,588 -- 7,252,196
-------------- -------------- ------------ --------------- --------------
Total Current Assets ................ 47,043 56,683,200 9,579,386 -- 66,309,629
-------------- -------------- ------------ --------------- --------------
PROPERTY, PLANT, AND EQUIPMENT, NET ........... 2,518 53,579,952 1,329,841 -- 54,912,311
-------------- -------------- ------------ --------------- --------------

OTHER ASSETS:
Customer accounts, net .................. -- 720,198,057 43,351,099 -- 763,549,156
Goodwill, net ........................... -- 618,274,306 150,034,846 -- 768,309,152
Deferred tax assets ..................... -- 90,102,474 (1,144,000) (9,346,527) 79,611,947
Other ................................... 1,068,783,599 252,182,302 (42,476,353) (1,262,706,178) 15,783,370
-------------- -------------- ------------ --------------- --------------
Total Other Assets .................. 1,068,783,599 1,680,757,139 149,765,592 (1,272,052,705) 1,627,253,625
-------------- -------------- ------------ --------------- --------------
TOTAL ASSETS .................................. $1,068,833,160 $1,791,020,291 $160,674,819 $(1,272,052,705) $1,748,475,565
============== ============== ============ =============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities on long-term debt .... $ -- $ 688,185 $ -- $ -- $ 688,185
Accounts payable ........................ -- 4,679,184 1,264,170 -- 5,943,354
Accrued liabilities ..................... 3,282,552 34,540,836 2,364,862 -- 40,188,250
Purchase holdbacks ...................... -- 821,985 -- -- 821,985
Deferred security revenues .............. -- 41,305,951 634,528 -- 41,940,479
-------------- -------------- ------------ --------------- --------------
Total Current Liabilities ........... 3,282,552 82,036,141 4,263,560 -- 89,582,253
-------------- -------------- ------------ --------------- --------------

LONG-TERM LIABILITIES

Long-term debt, net ..................... -- 584,115,368 -- -- 584,115,368
Other ................................... 2,362,156 9,374,338 11,561,681 (11,708,683) 11,589,492
-------------- -------------- ------------ --------------- --------------
Total Long-Term Liabilities ......... 2,362,156 593,489,706 11,561,681 (11,708,683) 595,704,860
-------------- -------------- ------------ --------------- --------------

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock, par value $.01 per share .. 1,272,458 1,522 1,000 (2,522) 1,272,458
Paid-in capital ......................... 1,381,449,976 1,344,870,081 185,081,469 (1,529,951,550) 1,381,449,976
Retained earnings ....................... (284,740,840) (227,015,003) (40,232,891) 267,247,894 (284,740,840)
Treasury stock .......................... (32,430,986) -- -- -- (32,430,986)
Accumulated other comprehensive loss .... (2,362,156) (2,362,156) -- 2,362,156 (2,362,156)
-------------- -------------- ------------ --------------- --------------
Total Shareholders' Equity .......... 1,063,188,452 1,115,494,444 144,849,578 (1,260,344,022) 1,063,188,452
-------------- -------------- ------------ --------------- --------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .... $1,068,833,160 $1,791,020,291 $160,674,819 $(1,272,052,705) $1,748,475,565
============== ============== ============ =============== ==============

Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF INCOME
Year Ended December 31, 2001

Protection Network
One Alarm Multi-Family Protection
Protection Monitoring, Security Consolidating One, Inc.
One Inc. Inc. Corporation Entries Consolidated
------------ ------------- ------------ ------------- -------------

SALES:
Monitoring and related services ............... $ -- $ 288,816,084 $ 35,849,538 $ -- $ 324,665,622
Other ......................................... -- 15,736,726 623,090 -- 16,359,816
------------ ------------- ------------ ------------ -------------
Total Sales .............................. -- 304,552,810 36,472,628 -- 341,025,438
------------ ------------- ------------ ------------ -------------

COST OF SALES:
Monitoring and related services ............... -- 95,423,638 8,303,304 -- 103,726,942
Other ......................................... -- 14,665,036 740,545 -- 15,405,581
------------ ------------- ------------ ------------ -------------
Total Cost of Sales ...................... -- 110,088,674 9,043,849 -- 119,132,523
------------ ------------- ------------ ------------ -------------

GROSS PROFIT ........................................ -- 194,464,136 27,428,779 -- 221,892,915
------------ ------------- ------------ ------------ -------------

OPERATING EXPENSES:
Selling, general and administrative ........... (840) 101,039,034 11,646,736 -- 112,684,930
Acquisition expense ........................... 840 5,898,128 -- -- 5,898,968
Depreciation and amortization ................. 1,283 186,844,991 15,808,352 -- 202,654,626
Severance and relocation charge ............... 107,347 9,074,570 500,000 -- 9,681,917
------------ ------------- ------------ ------------ -------------
Total Operating Expenses ................. 108,630 302,856,723 27,955,088 -- 330,920,441
------------ ------------- ------------ ------------ -------------

INCOME (LOSS) FROM OPERATIONS ....................... (108,630) (108,392,587) (526,309) -- (109,027,526)
------------ ------------- ------------ ------------ -------------

OTHER INCOME (EXPENSES):
Other income (expense) ........................ (86,537,337) 124,865 -- 86,537,337 124,865
------------ ------------- ------------ ------------ -------------
Total Other Income (Expense) ............. (86,537,337) 124,865 -- 86,537,337 124,865
------------ ------------- ------------ ------------ -------------

EARNINGS BEFORE INTEREST AND TAXES .................. (86,645,967) (108,267,722) (526,309) 86,537,337 (108,902,661)
------------ ------------- ------------ ------------ -------------

INTEREST EXPENSE:
Interest expense on long-term debt ............ (865,367) 34,775,450 7,344,162 (1) 41,254,244
Related party interest expense, net ........... -- 10,464,721 -- -- 10,464,721
------------ ------------- ------------ ------------ -------------
Total Interest Expense ................... (865,367) 45,240,171 7,344,162 (1) 51,718,965
------------ ------------- ------------ ------------ -------------

EARNINGS (LOSS) BEFORE INCOME TAXES ................. (85,780,600) (153,507,893) (7,870,471) 86,537,338 (160,621,626)

INCOME TAX (BENEFIT) EXPENSE ........................ 267,241 (43,307,268) 2,943,779 -- (40,096,248)
------------ ------------- ------------ ------------ -------------

INCOME BEFORE EXTRAORDINARY ITEM .................... (86,047,841) (110,200,625) (10,814,250) 86,537,338 (120,525,378)

EXTRAORDINARY ITEM (NET OF TAX) ..................... -- 34,477,537 -- -- 34,477,537
------------ ------------- ------------ ------------ -------------

NET INCOME (LOSS) ................................... $(86,047,841) $ (75,723,088) $(10,814,250) $ 86,537,338 $ (86,047,841)
============ ============= ============ ============ =============

Exhibit A-3
PROTECTION ONE, INC.
CONSOLIDATING STATEMENT OF RETAINED EARNINGS
December 31, 2001

Protection Network
One Alarm Multi-Family Protection One,
Protection Monitoring, Security Consolidating Inc.
One, Inc. Inc. Corporation Entries Consolidated
------------- ------------- ------------- ------------- ---------------

BALANCE AT BEGINNING OF PERIOD ............. $ (17,982,443) $(151,291,915) $ (29,418,641) $ -- $(198,692,999)
------------- ------------- ------------- ------------- -------------

ADD:

Net Income (loss) .................... (86,047,841) (75,723,088) (10,814,250) 86,537,338 (86,047,841)
Other ................................ (180,710,556) -- -- 180,710,556 --
------------- ------------- ------------- ------------- -------------
Total ............................ (266,758,397) (75,723,088) (10,814,250) 267,247,894 (86,047,841)
------------- ------------- ------------- ------------- -------------

DEDUCT:
Preferred stock dividends ............ -- -- -- -- --
Common stock dividends ............... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Total ............................ -- -- -- -- --
------------- ------------- ------------- ------------- -------------

BALANCE AT END OF PERIOD ................... $(284,740,840) $(227,015,003) $ (40,232,891) $ 267,247,894 $(284,740,840)
============= ============= ============= ============= =============

WESTERN RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Western Resources, Inc. is a publicly traded consumer services company
incorporated in 1924 in the State of Kansas. Unless the context otherwise
indicates, all references in this filing to "the company," "Western Resources,"
"we," "us," "our" or similar words are to Western Resources, Inc., and its
consolidated subsidiaries. We provide electric generation, transmission and
distribution services to approximately 640,000 customers in Kansas and monitored
security services to over 1.2 million customers in North America and Europe.
ONEOK, Inc. (ONEOK), in which we have an approximate 45% ownership interest,
provides natural gas transmission and distribution services to approximately 1.4
million customers in Oklahoma and Kansas. Our corporate headquarters are located
at 818 South Kansas Avenue, Topeka, Kansas 66612.

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

Westar Industries, Inc. (Westar Industries), our wholly owned subsidiary,
owns our interests in Protection One, Inc. (Protection One), Protection One
Europe, ONEOK, Inc. and other non-utility businesses. Protection One, a publicly
traded, approximately 87% -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
approximately a 99.8% interest.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
---------------------------

We prepare our consolidated financial statements in accordance with
accounting principles generally accepted in the United States (GAAP). Our
consolidated financial statements include all operating divisions and majority
owned subsidiaries for which we maintain controlling interests. Common stock
investments that are not majority owned are accounted for using the equity
method when our investment allows us the ability to exert significant influence.
Undivided interests in jointly-owned generation facilities are consolidated on a
pro rata basis. All material intercompany accounts and transactions have been
eliminated in consolidation.

Use of Management's Estimates
-----------------------------

The preparation of consolidated financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Regulatory Accounting
---------------------

We currently apply accounting standards for our regulated utility
operations that recognize the economic effects of rate regulation in accordance
with Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation" and, accordingly, have recorded
regulatory assets and liabilities when required by a regulatory order or based
on regulatory precedent.

Cash and Cash Equivalents
-------------------------

We consider highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.

Restricted Cash
---------------

Restricted cash consists of cash used to collateralize letters of credit
and cash held in escrow, primarily related to supporting our power trading
transactions.

Inventories and Supplies
------------------------

Inventories and supplies for our utility business are stated at average
cost. Inventories for our monitored services segment, comprised of alarm systems
and parts, are stated at the lower of average cost or market.

Property, Plant and Equipment
-----------------------------

Property, plant and equipment is stated at cost. For utility plant, cost
includes contracted services, direct labor and materials, indirect charges for
engineering and supervision, and an allowance for funds used during construction
(AFUDC). AFUDC represents the cost of borrowed funds used to finance
construction projects. The AFUDC rate was 9.01% in 2001, 7.39% in 2000 and 6.00%
in 1999. The cost of additions to utility plant and replacement units of
property are capitalized. Interest capitalized into construction in progress was
$8.7 million in 2001, $9.4 million in 2000 and $4.4 million in 1999.

Maintenance costs and replacement of minor items of property are charged
to expense as incurred. Incremental costs incurred during scheduled Wolf Creek
refueling and maintenance outages are deferred and amortized monthly over the
unit's operating cycle, normally about 18 months. For utility plant, when units
of depreciable property are retired, the original cost and removal cost, less
salvage value, are charged to accumulated depreciation.

In accordance with regulatory decisions made by the Kansas Corporation
Commission (KCC), the acquisition premium of approximately $801 million
resulting from the acquisition of KGE in 1992 is being amortized over 40 years.
The acquisition premium is classified as electric plant in service. Accumulated
amortization for the KGE acquisition totaled $128.3 million as of December 31,
2001 and $108.2 million as of December 31, 2000.

Depreciation
------------

Utility plant is depreciated on the straight-line method at the lesser of
rates set by the KCC or rates based on the estimated remaining useful lives of
the assets, which are based on an average annual composite basis using group
rates that approximated 3.03% during 2001, 2.99% during 2000 and 2.92% during
1999. In its rate order of July 25, 2001, the KCC extended the recovery period
for our generating assets, including Wolf Creek, for regulatory rate making
purposes. The impact of this decision reduced our retail electric rates by
approximately $17.6 million on an annual basis. We intend to file an application
for an accounting authority order with the KCC to allow the creation of a
regulatory asset for the difference between our book and regulatory
depreciation. We cannot predict whether the KCC will approve our application.

Non-utility property, plant and equipment is depreciated on a
straight-line basis over the estimated useful lives of the related assets. We
periodically evaluate our depreciation rates considering the past and expected
future experience in the operation of our facilities.

Depreciable lives of property, plant and equipment are as follows:

Utility:
Fossil generating facilities.................... 10 to 48 years
Nuclear generating facilities................... 38 years
Transmission facilities......................... 27 to 65 years
Distribution facilities......................... 14 to 65 years
Other........................................... 3 to 50 years
Non-utility:
Buildings....................................... 40 years
Installed systems............................... 10 years
Furniture, fixtures and equipment............... 5 to 10 years
Leasehold improvements.......................... 5 to 10 years
Vehicles........................................ 5 years
Data processing and telecommunications.......... 1 to 7 years

Nuclear Fuel
------------

Our share of the cost of nuclear fuel in process of refinement,
conversion, enrichment and fabrication is recorded as an asset in property,
plant and equipment on our consolidated balance sheets at original cost and is
amortized to cost of sales based upon the quantity of heat produced for the
generation of electricity. The accumulated amortization of nuclear fuel in the
reactor was $35.6 million at December 31, 2001 and $18.6 million at December 31,
2000. Spent fuel charged to cost of sales was $22.1 million in 2001, $19.6
million in 2000 and $20.1 million in 1999.

Customer Accounts
-----------------

Customer accounts are stated at cost. The cost includes amounts paid to
dealers and the estimated fair value of accounts acquired in business
acquisitions. Internal costs incurred in support of acquiring customer accounts
are expensed as incurred.

Prior to the third quarter of 1999, Protection One and Protection One
Europe amortized their customer accounts by using the straight-line method over
a ten-year life, except for accounts acquired from Westinghouse for which an
eight-year 120% declining balance was applied. The choice of an amortization
life was based on estimates and judgments about the amounts and timing of
expected future revenues from these assets and average customer account life.
Selected periods were determined because, in Protection One's and Protection One
Europe's opinion, they would adequately match amortization cost with anticipated
revenue.

Protection One and Protection One Europe conducted a comprehensive review
of their amortization policy during the third quarter of 1999, prior to Westar
Industries' acquisition of Protection One Europe. As a part of this review,
Protection One and Protection One Europe hired an independent appraisal firm to
perform a lifing study on customer accounts. This review was performed
specifically to evaluate the historic amortization policy in light of the
inherent declining revenue curve over the life of a pool of customer accounts
and Protection One's historical attrition experience. After completing the
review, Protection One identified three distinct pools, each of which had
distinct attributes that effect differing attrition characteristics. The pools
corresponded to Protection One's North America, Multifamily and Europe business
segments. For the North America and Europe pools, the results of the lifing
study indicated that Protection One could expect attrition to be greatest in
years one through five of asset life and that a change from a straight-line to a
declining balance (accelerated) method would more closely match future
amortization cost with the estimated revenue stream from these assets.
Protection One and Protection One Europe elected to change to that method,
except for Protection One accounts acquired in the Westinghouse acquisition that
were utilizing an eight-year accelerated method. No change was made in the
method used for the Multifamily pool.

Protection One's and Protection One Europe's amortization rates consider
the average estimated remaining life and historical and projected attrition
rates. The amortization method for each customer pool is as follows:

Pool Method
--------------------------------------------- ---------------------------------
North America:
Acquired Westinghouse customers......... Eight-year 120% declining balance
Other customers......................... Ten-year 130% declining balance
Europe....................................... Ten-year 125% declining balance
Multifamily.................................. Ten-year straight-line

Adoption of the declining balance method effectively shortens the
estimated expected average customer life for these customer pools, and does so
in a way that does not make it possible to distinguish the effect of a change in
method (straight-line to declining balance) from the change in estimated lives.
In such cases, GAAP requires that the effect of such a change be recognized in
operations in the period of the change, rather than as a cumulative effect of a
change in accounting principle. Protection One changed to the declining balance
method in the third quarter of 1999 for Europe customers and the North America
customers that had been amortized on a straight-line basis. Accordingly, the
effect of the change in accounting principle increased Protection One's
amortization expense reported in the third quarter of 1999 by approximately $40
million. Accumulated amortization would have been approximately $34 million
higher through the end of the second quarter of 1999 if the declining balance
method had been used historically.

In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," long-lived
assets held and used by Protection One and Protection One Europe are evaluated
for recoverability on a periodic basis or as circumstances warrant. An
impairment would be recognized when the undiscounted expected future operating
cash flows by customer pool derived from customer accounts is less than the
carrying value of capitalized customer accounts and related goodwill. See Note
25 below for information regarding SFAS No. 144, "Accounting for the Impairment
and Disposal of Long-Lived Assets," which replaces SFAS No. 121 as of January 1,
2002.

Goodwill has been recorded in business acquisitions where the principal
asset acquired was the recurring revenues from the acquired customer base. For
purposes of the impairment analysis, goodwill has been considered directly
related to the acquired customers.

Due to the customer attrition experienced in 2001, 2000 and 1999, the
decline in market value of Protection One's publicly traded equity and debt
securities and because of recurring losses, Protection One and Protection One
Europe performed impairment tests on their customer account assets and goodwill
in 2001, 2000 and 1999. These tests indicated that future estimated undiscounted
cash flows exceeded the sum of the recorded balances for customer accounts and
goodwill.

See Note 25 below for information regarding an impairment recorded in 2002
pursuant to new accounting rules.

Goodwill
--------

Goodwill represents the excess of the purchase price over the fair value
of net assets acquired by Protection One and Protection One Europe. Protection
One and Protection One Europe changed their estimated goodwill life from 40
years to 20 years as of January 1, 2000. After that date, remaining goodwill,
net of accumulated amortization, is being amortized over its remaining useful
life based on a 20-year life. As a result of this change in estimate, goodwill
amortization expense for the year ended December 31, 2000 increased by
approximately $33.0 million. The resulting reduction to net income for 2000 was
$26.1 million or a decrease in earnings per share of $0.38.

The carrying value of goodwill was included in the evaluations of
recoverability of customer accounts. No reduction in the carrying value was
necessary at December 31, 2001 or 2000.

Goodwill accumulated amortization was $170.0 million at December 31, 2001
and $118.6 million at December 31, 2000. Goodwill amortization expense was $57.1
million for the year ended 2001, $61.4 million for 2000 and $31.6 million for
1999. Beginning January 1, 2002, goodwill will no longer be amortized. New
accounting rules to be adopted on January 1, 2002 do not permit goodwill
amortization and require an annual impairment test.

See Note 25 below for information regarding an impairment recorded in 2002
pursuant to new accounting rules.

Regulatory Assets and Liabilities
---------------------------------

Regulatory assets represent probable future revenue associated with
certain costs that will be recovered from customers through the rate-making
process. Regulatory liabilities represent probable future reductions in revenues
associated with amounts that are to be credited to customers through the
rate-making process. We have recorded these regulatory assets and liabilities in
accordance with SFAS No. 71. If we were required to terminate application of
SFAS No. 71 for all of our regulated operations, we would have to record the
amounts of all regulatory assets and liabilities in our consolidated statements
of income at that time. Our earnings would be reduced by the total amount in the
table below, net of applicable income taxes. Regulatory assets and liabilities
reflected in our consolidated financial statements are as follows:

As of December 31,
------------------------
2001 2000
-------- --------
(In Thousands)
Recoverable income taxes ....................... $221,373 $187,308
Debt issuance costs ............................ 58,054 63,263
Deferred employee benefit costs ................ 32,687 36,251
Deferred plant costs ........................... 29,499 29,921
Other regulatory assets ........................ 16,412 10,607
-------- --------
Total regulatory assets ................... $358,025 $327,350
======== ========

Total regulatory liabilities .............. $ 6,037 $ 1,978
======== ========

. Recoverable income taxes: Recoverable income taxes represent amounts
due from customers for accelerated tax benefits which have been
previously flowed through to customers and are expected to be
recovered in the future as the accelerated tax benefits reverse.

. Debt issuance costs: Debt reacquisition expenses are amortized over
the remaining term of the reacquired debt or, if refinanced, the
term of the new debt. Debt issuance costs are amortized over the
term of the associated debt.

. Deferred employee benefit costs: Deferred employee benefit costs
represent post-retirement and post-employment expenses in excess of
amounts paid that are to be recovered over a period of five years as
authorized by the KCC.

. Deferred plant costs: Costs related to the Wolf Creek nuclear
generating facility.

We expect to recover all of the above regulatory assets in rates charged
to customers. A return is allowed on deferred plant costs and coal contract
settlement costs (included in "Other regulatory assets" in the table above).

Cash Surrender Value of Life Insurance
--------------------------------------

The following amounts related to corporate-owned life insurance policies
(COLI) are recorded in other long-term assets on our consolidated balance sheets
at December 31:

2001 2000
------ ------
(In Millions)
Cash surrender value of policies (a) ................... $772.8 $705.4
Borrowings against policies ............................ (723.6) (665.9)
------ ------
COLI, net ........................................ $ 49.2 $ 39.5
====== ======

----------
(a) Cash surrender value of policies as presented represents the value of the
policies as of the end of the respective policy years and not as of
December 31, 2001 and 2000.

Income is recorded for increases in cash surrender value and net death
proceeds. Interest incurred on amounts borrowed is offset against policy income.
Income recognized from death proceeds is highly variable from period to period.
Death benefits recognized as other income approximated $2.7 million in 2001,
$0.9 million in 2000 and $1.4 million in 1999.

Minority Interests
------------------

Minority interests represent the minority shareholders' proportionate
share of the shareholders' equity and net loss of Protection One and Protection
One Europe.

Revenue Recognition
-------------------

Energy Sales:

Energy sales are recognized as services are rendered and include an
estimate for energy delivered but unbilled at the end of each year, except for
power marketing. Power marketing activities are accounted for under the
mark-to-market method of accounting. Under this method, changes in the portfolio
value are recognized as gains or losses in the period of change. The net
mark-to-market change is included in energy sales in our consolidated statements
of income. The resulting unrealized gains and losses are recorded as energy
trading assets and liabilities on our consolidated balance sheet.

We primarily use quoted market prices to value our power marketing and
energy trading contracts. When market prices are not readily available or
determinable, we use alternative approaches, such as model pricing. The market
prices used to value these transactions reflect our best estimate considering
various factors, including closing exchange and over-the-counter quotations,
time value and volatility factors underlying the commitments. Results actually
achieved from these activities could vary materially from intended results and
could unfavorably affect our financial results. Financially settled trading
transactions are reported on a net basis, reflecting the financial nature of
these transactions. Physically settled trading transactions are recorded on a
gross basis in operating revenues and fuel and purchased power expense.

Monitored Services Revenues:

Monitored services revenues are recognized when security services are
provided. Installation revenue, sales revenues on equipment upgrades and direct
costs of installations and sales are deferred for residential customers with
service contracts. For commercial customers and national account customers,
revenue recognition is dependent upon each specific customer contract. In
instances when the company sells the equipment outright, revenues and costs are
recognized in the period incurred. In cases where there is no outright sale,
revenues and direct costs are deferred and amortized.

Deferred installation revenues and system sales revenues will be
recognized over the expected useful life of the customer. Deferred costs in
excess of deferred revenues will be recognized over the contract life. To the
extent deferred costs are less than deferred revenues, such costs are recognized
over the customers' estimated useful life.

Deferred revenues also result from customers who are billed for
monitoring, extended service protection and patrol and response services in
advance of the period in which such services are provided, on a monthly,
quarterly or annual basis.

Income Taxes
------------

Our consolidated financial statements use the liability method to reflect
income taxes. Deferred tax assets and liabilities are recognized for temporary
differences in amounts recorded for financial reporting purposes and their
respective tax bases. We amortize deferred investment tax credits over the lives
of the related properties.

Foreign Currency Translation
----------------------------

The assets and liabilities of our foreign operations are translated into
United States dollars at current exchange rates and revenues and expenses are
translated at average exchange rates for the year.

Cumulative Effects of Accounting Changes
----------------------------------------

Effective January 1, 2001, we adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137 and
138 (collectively, SFAS No. 133). We use derivative instruments (primarily
swaps, options and futures) to manage interest rate exposure and the commodity
price risk inherent in fossil fuel purchases and electricity sales. Under SFAS
No. 133, all derivative instruments, including our energy trading contracts, are
recorded on our consolidated balance sheet as either an asset or liability
measured at fair value. Changes in a derivative's fair value must be recognized
currently in earnings unless specific hedge accounting criteria are met. Cash
flows from derivative instruments are presented in net cash flows from operating
activities.

Derivative instruments used to manage commodity price risk inherent in
fuel purchases and electricity sales are classified as energy trading contracts
on our consolidated balance sheet. Energy trading contracts representing
unrealized gain positions are reported as assets; energy trading contracts
representing unrealized loss positions are reported as liabilities.

Prior to January 1, 2001, gains and losses on our derivatives used for
managing commodity price risk were deferred until settlement. These derivatives
were not designated as hedges under SFAS No. 133. Accordingly, on January 1,
2001, we recognized an unrealized gain of $18.7 million, net of $12.3 million of
tax. This gain is presented on our consolidated statement of income as a
cumulative effect of a change in accounting principle.

After January 1, 2001, changes in fair value of all derivative instruments
used for managing commodity price risk that are not designated as hedges are
recognized in revenue as discussed above under "-- Revenue Recognition -- Energy
Sales." Accounting for derivatives under SFAS No. 133 will increase volatility
of our future earnings.

In the fourth quarter of 2000, we adopted Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition," which had a retroactive effective date of
January 1, 2000. The impact of this accounting change generally required
deferral of certain monitored security services sales for installation revenues
and direct sales-related expenses. Deferral of these revenues and costs is
generally necessary when installation revenues have been received and a
monitoring contract to provide future service is obtained.

The cumulative effect of the change in accounting principle was
approximately $3.8 million, net of tax benefits of $1.1 million and is related
to changes in revenue recognition at Protection One Europe. Prior to the
adoption of SAB No. 101, Protection One Europe recognized installation revenues
and related expenses upon completion of the installation.

Supplemental Cash Flow Information
----------------------------------

Cash paid for interest and income taxes for each of the years ended
December 31, are as follows:

2001 2000 1999
-------- -------- --------
(In Thousands)

Interest on financing activities, net of amount capitalized .... $306,865 $310,345 $298,802
Income taxes ................................................... 5,811 28,751 784

Reclassifications
-----------------

Certain amounts in prior years have been reclassified to conform with
classifications used in the current year presentation.

3. RATE MATTERS AND REGULATION

KCC Rate Proceedings
--------------------

On November 27, 2000, we and KGE filed applications with the KCC for an
increase in retail rates. On July 25, 2001, the KCC ordered an annual reduction
in our combined electric rates of $22.7 million, consisting of a $41.2 million
reduction in KGE's rates and an $18.5 million increase in our rates.

On August 9, 2001, we and KGE filed petitions with the KCC requesting
reconsideration of the July 25, 2001 order. The petitions specifically asked for
reconsideration of changes in depreciation, reductions in rate base related to
deferred income taxes associated with the KGE acquisition premium and a deferred
gain on the sale and leaseback of LaCygne 2, wholesale revenue imputation and
several other issues. On September 5, 2001, the KCC issued an order in response
to our motions for reconsideration that increased our rate increase by an
additional $7.0 million. The $41.2 million rate reduction in KGE's rates
remained unchanged. On November 9, 2001, we filed an appeal of the KCC decisions
with the Kansas Court of Appeals in an action captioned "Western Resources, Inc.
and Kansas Gas and Electric Company vs. The State Corporation Commission of the
State of Kansas." On March 8, 2002, the Court of Appeals upheld the KCC orders.
We are evaluating whether to appeal this decision to the Kansas Supreme Court.

KCC Investigation and Order
---------------------------

See Note 15 for a discussion of the order issued by the KCC on July 20,
2001 in the KCC's docket investigating the proposed separation of our electric
utility businesses from our non-utility businesses and other aspects of our
unregulated businesses.

FERC Proceedings
----------------

On September 12, 2001, we filed a settlement between the Federal Energy
Regulatory Commission (FERC) staff and Westar Generating, Inc. (Westar
Generating), the wholly owned subsidiary that owns our interests in the State
Line generating facility. The settlement establishes the rate at which we will
buy power from Westar Generating. FERC has jurisdiction over the establishment
of this rate because of our affiliate relationship with Westar Generating. We
continue to work toward a global settlement with the KCC, the only other active
party, but can make no assurance on a resolution.

In September 1999, the City of Wichita filed a complaint with FERC against
us alleging improper affiliate transactions between our KPL division and KGE.
The City of Wichita asked that FERC equalize the generation costs between KPL
and KGE, in addition to other matters. After hearings on the case, a FERC
administrative law judge ruled in our favor confirming that no change in rates
was required. On December 13, 2000, the City of Wichita filed a brief with FERC
asking that the Commission overturn the judge's decision. On January 5, 2001, we

filed a brief opposing the City's position. On November 23, 2001, FERC issued an
order affirming the judge's decision. The City of Wichita's time to appeal
FERC's order has expired.

4. ACCOUNTS RECEIVABLE

Our accounts receivable on our consolidated balance sheets are comprised
as follows:

December 31,
-------------------------
2001 2000
--------- ---------
(In Thousands)

Gross accounts receivable ...................... $ 189,254 $ 254,743
Allowance for uncollectable accounts (a) ....... (19,121) (45,816)
Unbilled energy receivables .................... 42,731 58,238
Accounts receivable sale program ............... (100,000) (115,000)
--------- ---------
Accounts receivable, net ....................... $ 112,864 $ 152,165
========= =========

----------
(a) The decrease in allowance for uncollectable accounts is primarily due to
the write off of Protection One customer accounts in 2001.

On July 28, 2000, we entered into an asset-backed securitization agreement
under which we periodically transfer an undivided percentage ownership interest
in a revolving pool of our accounts receivable arising from the sale of
electricity to a multi-seller conduit administered by an independent financial
institution through the use of a special purpose entity (SPE). We account for
this transfer as a sale in accordance with SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities."
The agreement was renewed on July 26, 2001, and is annually renewable upon
agreement by all parties.

Under the terms of the agreement, we may transfer accounts receivable to
the bankruptcy-remote SPE and the conduit must purchase from the SPE an
undivided ownership interest of up to $125 million (and upon request, subject to
certain conditions, up to $175 million), in those receivables. The SPE has been
structured to be legally separate from us, but it is wholly owned and
consolidated. The percentage ownership interest in receivables purchased by the
conduit may increase or decrease over time, depending on the characteristics of
the SPE's receivables, including delinquency rates and debtor concentrations. We
service the receivables transferred to the SPE and receive a servicing fee.
These servicing fees are eliminated in consolidation.

Under the terms of the agreement, the conduit pays the SPE the face amount
of the undivided interest at the time of purchase. Subsequent to the initial
purchase, additional interests are sold and collections applied by the SPE to
the conduit resulting in an adjustment to the outstanding conduit interest.

We record administrative expense on the undivided interest owned by the
conduit, which was $5.4 million for the year ended 2001 and $3.7 million for the
year ended December 31, 2000. These expenses are included in other income
(expense) in our consolidated statements of income.

The outstanding balance of SPE receivables was $43.3 million at December
31, 2001 and $85.5 million at December 31, 2000, which is net of an undivided
interest of $100 million and $115.0 million in receivables sold by the SPE to
the conduit. Our retained interest in the SPE's receivables is reported at fair
value and is subordinate to, and provides credit enhancement for, the conduit's
ownership interest in the SPE's receivables. Our retained interest is available
to the conduit to pay any fees or expenses due to the conduit, and to absorb all
credit losses incurred on any of the SPE's receivables. The retained interest is
included in accounts receivable, net, in our consolidated balance sheets.

5. FINANCIAL INSTRUMENTS

The carrying values and estimated fair values of our financial instruments
are as follows:

Carrying Value Fair Value
------------------------ ------------------------
As of December 31,
----------------------------------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(In Thousands)

Fixed-rate debt, net of current maturities (a) ... $2,418,838 $2,518,415 $2,229,998 $2,218,711
Other mandatorily redeemable securities (a) ...... 220,000 220,000 190,960 182,232

----------
(a) Fair value is estimated based on quoted market prices for the same or
similar issues or on the current rates offered for instruments of the same
remaining maturities and redemption provisions.

The recorded amounts of accounts receivable and other current financial
instruments approximate fair value. Cash and cash equivalents, short-term
borrowings and variable-rate debt are carried at cost, which approximates fair
value and are not included in the table above.

The fair value estimates presented herein are based on information
available at December 31, 2001 and 2000. These fair value estimates have not
been comprehensively revalued for the purpose of these consolidated financial
statements since that date and current estimates of fair value may differ
significantly from the amounts presented herein.

Derivative Instruments and Hedge Accounting
-------------------------------------------

We use derivative financial instruments primarily to manage risk as it
relates to changes in the prices of commodities including natural gas, coal and
electricity and changes in interest rates. We also use certain derivative
instruments for trading purposes in order to take advantage of favorable price
movements and market timing activities in the wholesale power and fossil fuel
markets. Derivative instruments used to manage commodity price risk inherent in
fuel purchases and electricity sales are classified as energy trading contracts
on our consolidated balance sheet. Energy trading contracts representing
unrealized gain positions are reported as assets; energy trading contracts
representing unrealized loss positions are reported as liabilities.

Energy Trading Activities:

We trade energy commodity contracts daily. Within the trading portfolio,
we take certain positions to hedge physical sale or purchase contracts and we
take certain positions to take advantage of market trends and conditions. We
record most energy contracts, both physical and financial, at fair value.
Changes in value are reflected in our consolidated statement of income. We use
all forms of financial instruments, including futures, forwards, swaps and
options. Each type of financial instrument involves different risks. We believe
financial instruments help us manage our contractual commitments, reduce our
exposure to changes in cash market prices and take advantage of selected market
opportunities. We refer to these transactions as energy trading activities.

Although we generally attempt to balance our physical and financial
contracts in terms of quantities and contract performance, net open positions
typically exist. We will at times create a net open position or allow a net open
position to continue when we believe that future price movements will increase
the portfolio's value. To the extent we have an open position, we are exposed to
fluctuating market prices that may adversely impact our financial position or
results from operations.

The prices we use to value price risk management activities reflect our
best estimate of fair values considering various factors, including closing
exchange and over-the-counter quotations, time value of money and price
volatility factors underlying the commitments. We adjust prices to reflect the
potential impact of liquidating

our position in an orderly manner over a reasonable period of time under present
market conditions. We consider a number of risks and costs associated with the
future contractual commitments included in our energy portfolio, including
credit risks associated with the financial condition of counterparties and the
time value of money. We continuously monitor the portfolio and value it daily
based on present market conditions.

Future changes in our creditworthiness and the creditworthiness of our
counterparties may change the value of our portfolio. We adjust the value of
contracts and set dollar limits with counterparties based on our assessment of
their credit quality.

Non-Trading Activities - Derivative Instruments and Hedging Activities:

We use derivative financial instruments to reduce our exposure to adverse
fluctuations in commodity prices, interest rates, and other market risks. When
we enter into a financial instrument, we formally designate and document the
instrument as a hedge of a specific underlying exposure, as well as the risk
management objectives and strategies for undertaking the hedge transaction.
Because of the high degree of correlation between the hedging instrument and the
underlying exposure being hedged, fluctuations in the value of the derivative
instruments are generally offset by changes in the value or cash flows of the
underlying exposures being hedged.

We record derivatives used for hedging commodity price risk in our
consolidated balance sheets at fair value as energy trading contracts. The
effective portion of the gain or loss on a derivative instrument designated as a
cash flow hedge is reported as a component of accumulated other comprehensive
income (loss). This amount is reclassified into earnings in the period during
which the hedged transaction affects earnings. Effectiveness is the degree to
which gains and losses on the hedging instruments offset the gains and losses on
the hedged item. The ineffective portion of the hedging relationship is
recognized currently in earnings.

The fair values of derivatives used to hedge or modify our risks fluctuate
over time. These fair value amounts should not be viewed in isolation, but
rather in relation to the fair values or cash flows of the underlying hedged
transactions and the overall reduction in our risk relating to adverse
fluctuations in interest rates, commodity prices and other market factors. In
addition, the net income effect resulting from our derivative instruments is
recorded in the same line item within our consolidated statements of income as
the underlying exposure being hedged. We also formally assess, both at the
inception and at least quarterly thereafter, whether the financial instruments
that are used in hedging transactions are effective at offsetting changes in
either the fair value or cash flows of the related underlying exposures. Any
ineffective portion of a financial instrument's change in fair value is
immediately recognized in net income.

The notional volumes and terms of commodity contracts used for trading and
non-trading purposes are as follows at December 31, 2001 and 2000:

December 31, 2001
-----------------------------------------
Fixed Price Fixed Price Maximum
Payor Receiver Term in Years
----------- ----------- -------------
Electricity (MWh's) ............... 3,942,352 2,976,504 4
Natural gas and oil (MMBtus) ...... 124,632,157 81,702,324 3
Coal (MMBtus) ...................... 245,667,419 237,819,001 3

December 31, 2000
-----------------------------------------
Fixed Price Fixed Price Maximum
Payor Receiver Term in Years
----------- ----------- -------------
Electricity (MWh's) ............... 4,229,100 4,100,448 4
Natural gas and oil (MMBtus) ...... 113,030,679 80,754,417 3
Coal (MMBtus) ..................... -- -- --

The following table presents the fair values of energy transactions by
commodity at December 31, 2001 and 2000:

Energy Trading Contract Energy Trading Contract
Assets Liabilities
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
(In Thousands)
Electricity $ 26,087 $108,726 $ 17,721 $104,337
Natural gas and oil 37,884 92,521 42,068 88,432
Coal 22,697 -- 24,570 --
-------- -------- -------- --------
Total $ 86,668 $201,247 $ 84,359 $192,769
======== ======== ======== ========

During the third quarter of 2001, we entered into hedging relationships to
manage commodity price risk associated with future natural gas purchases in
order to protect us and our customers from adverse price fluctuations in the
natural gas market. We are using futures and swap contracts with a total
notional volume of 39,000,000 MMBtu and terms extending through July 2004 to
hedge price risk for a portion of our anticipated natural gas fuel requirements
for our generation facilities. Based on our best estimate of generating needs,
we believe we have hedged 75% of our system requirements through this hedge. We
have designated these hedging relationships as cash flow hedges in accordance
with SFAS No. 133.

Effective October 4, 2001, we entered into a $500 million interest rate
swap agreement with a term of two years. The effect of the swap agreement is to
fix the annual interest rate on the term loan at 6.18%. At December 31, 2001,
the variable rate associated with this debt was 4.68%. This reduces our interest
rate exposure due to variable rates. The swap is being accounted for as a cash
flow hedge.

The following table summarizes the effects our natural gas hedge and our
interest rate swap had on our financial position and results of operations for
2001:

Total
Natural gas Interest Rate Cash Flow
Hedge (a) Swap Hedges
----------- ------------- ----------
(Dollars in Thousands)

Fair value of derivative instruments:
Current ............................................... $ (9,988) $ -- $ (9,988)
Long-term ............................................. (8,844) (2,656) (11,500)
---------- ---------- ----------
Total ............................................. $ (18,832) $ (2,656) $ (21,488)
========== ========== ==========

Amounts in accumulated other comprehensive income .......... $ (29,079) $ (2,656) $ (31,735)
Hedge ineffectiveness ...................................... 2,551 -- 2,551
Estimated income tax benefit ............................... 10,552 1,057 11,609
---------- ---------- ----------
Net Comprehensive Loss ............................ $ (15,976) $ (1,599) $ (17,575)
========== ========== ==========

Anticipated reclassifications to earnings during 2002 (b) .. $ 9,988 $ -- $ 9,988

Duration of hedge designation as of December 31, 2001 ...... 31 months 22 months --

----------
(a) Natural gas hedge liabilities are classified in the balance sheet as
energy trading contracts. Gas prices have dropped since we entered into
these hedging relationships. Due to the volatility of gas commodity
prices, it is probable that gas prices will increase and decrease over the
31 months that these relationships are in place.
(b) The actual amounts that will be reclassified to earnings could vary
materially from this estimated amount due to changes in market conditions.

6. PROPERTY, PLANT AND EQUIPMENT

The following is a summary of property, plant and equipment at December
31:

2001 2000
---------- ----------
(In Thousands)

Electric plant in service ........................ $6,289,316 $5,987,920
Less - Accumulated depreciation .................. 2,404,478 2,274,940
---------- ----------
3,884,838 3,712,980
Construction work in progress .................... 63,927 189,853
Nuclear fuel, net ................................ 33,883 30,791
---------- ----------
Net utility plant ............................. 3,982,648 3,933,624
Non-utility plant in service ..................... 115,682 113,040
Less accumulated depreciation .................... 55,478 53,226
---------- ----------
Net property, plant and equipment ............. $4,042,852 $3,993,438
========== ==========

Our depreciation expense on property, plant and equipment was $203.5
million in 2001, $201.7 million in 2000 and $186.1 million in 1999.

7. JOINT OWNERSHIP OF UTILITY PLANTS

Our Ownership at December 31, 2001
--------------------------------------------------------------------------------
In-Service Accumulated Net Ownership
Dates Investment Depreciation MW Percent
------------- ---------- ------------ ----- ---------
(Dollars in Thousands)

LaCygne 1.................... (a) June 1973 $ 188,277 $120,300 344.0 50
Jeffrey 1.................... (b) July 1978 306,136 148,000 625.0 84
Jeffrey 2.................... (b) May 1980 312,803 134,322 612.0 84
Jeffrey 3.................... (b) May 1983 411,582 179,867 623.0 84
Jeffrey wind 1............... (b) May 1999 874 98 0.6 84
Jeffrey wind 2............... (b) May 1999 873 97 0.6 84
Wolf Creek................... (c) Sept. 1985 1,387,391 528,268 550.0 47
State Line................... (d) June 2001 105,391 2,108 200.0 40

----------
(a) Jointly owned with Kansas City Power and Light Company (KCPL)
(b) Jointly owned with Aquila, Inc.
(c) Jointly owned with KCPL and Kansas Electric Power Cooperative, Inc.
(d) Jointly owned with Empire District Electric Company (EDE)

Amounts and capacity presented above represent our share. Our share of
operating expenses of the plants in service above, as well as such expenses for
a 50% undivided interest in LaCygne 2 (representing 337 megawatt (MW) capacity)
sold and leased back to KGE in 1987, are included in operating expenses on our
consolidated statements of income. Our share of other transactions associated
with the plants is included in the appropriate classification in our
consolidated financial statements.

8. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD

Our investments that are accounted for by the equity method are as
follows:

Ownership at Equity Earnings,
December 31, Investment at December 31, Year Ended December 31,
------------ -------------------------- -----------------------
2001 2001 2000 2001 2000
------------ -------- -------- ------ ------
(Dollars in Thousands)

ONEOK (a) ................................ 45% $598,929 $591,173 $4,721 $8,213
International companies and joint
ventures(b) .......................... 9% to 50% 1,976 13,514 2,334 3,394

----------
(a) We also received approximately $40 million of preferred and common
dividends in both 2001 and 2000. ONEOK equity earnings for 2001 decreased
due to charges recorded for Enron Corp. exposure and for certain
regulatory issues ONEOK has in Oklahoma.
(b) Investment is aggregated. Individual investments are not material.

During 2001, we disposed of our portfolio of affordable housing tax credit
limited partnerships. We recorded earnings on these partnerships, including
equity in earnings and loss on disposal, of $4.4 million.

The following is summarized unaudited ONEOK financial information related
to our investment in ONEOK:

As of December 31,
-------------------------------
2001 2000
---------- ----------
(In Thousands)

Balance Sheet:
Current assets ................................... $1,561,969 $3,324,959
Non-current assets ............................... 4,317,190 4,035,386
Current liabilities .............................. 1,818,417 3,526,561
Long-term debt, net .............................. 1,498,012 1,336,082
Other deferred credits and other liabilities ..... 1,297,440 1,272,745
Equity ........................................... 1,265,290 1,224,957

For the Year Ended December 31,
-------------------------------
2001 2000
---------- ----------
(In Thousands)

Income Statement:
Revenues ......................................... $6,803,146 $6,642,858
Gross profit ..................................... 908,785 797,132
Income before cumulative effect of a change in
accounting principle .......................... 103,716 143,492
Net income ....................................... 101,565 145,607

At December 31, 2001, our ownership interest in ONEOK was comprised of
approximately 4.7 million common shares and approximately 19.9 million
convertible preferred shares, each share of which is convertible into two shares
of ONEOK common stock. If all the preferred shares were converted, we would then
own approximately 45% of ONEOK's common shares outstanding.

ONEOK earnings for 2001 include a pretax charge of $34.6 million for
unrecovered gas costs from the winter of 2000/2001 and a $37.4 million pretax
charge related to the Enron Corp. bankruptcy. The charge for the outstanding gas
costs is a result of the Oklahoma Corporation Commission order denying ONEOK the
right to collect a portion of gas costs incurred during the winter of 2000/2001.
Gas prices increased significantly in this period due to high demand and a
perceived supply shortage. The charges related to Enron Corp.'s bankruptcy are
due to Enron Corp.'s non-payment of both financial and physical natural gas
positions for November and December of 2001. These charges also include the
value of forward natural gas positions on ONEOK's termination of natural

gas contracts in early January 2002. These contracts were related to physical
commodity sales and storage management activities.

9. MONITORED SERVICES' CUSTOMER ACCOUNTS

The following is a rollforward of the investment in customer accounts (at
cost) of the monitored services segment for the following years:

December 31,
------------------------------
2001 2000
----------- -----------
(In Thousands)

Beginning customer accounts, net ......... $ 1,005,505 $ 1,122,585
Acquisition of customer accounts ......... 17,482 54,993
Amortization of customer accounts ........ (153,019) (163,297)
Sale of accounts ......................... (42,246) --
Purchase holdbacks and other ............. 2,986 (8,776)
----------- -----------
Ending customer accounts, net ....... $ 830,708 $ 1,005,505
=========== ===========

Accumulated amortization of the investment in customer accounts at
December 31, 2001 was $630.5 million and $493.4 million at December 31, 2000.
Customer account amortization expense was $153.0 million for 2001, $163.3
million for 2000, and $186.0 million for 1999.

During 2001, the monitored services segment's attrition, along with its
change in focus from growth to strengthening operations, dispositions of certain
accounts and Protection One's conversion to MAS(R), resulted in a net loss of
267,347 customers or a 17.8% decrease in its customer base from January 1, 2001.
This was the primary cause of Protection One's $59.9 million decline in
monitoring and related service revenues in its North America segment from
January 1, 2001. Protection One expects this trend will continue until the
efforts it is making to acquire new accounts and reduce its rate of attrition
become more successful than they have been to date. Until Protection One is able
to reverse this trend, net losses of customer accounts will materially and
adversely affect our business, financial position and results of operations.

10. SHORT-TERM DEBT

We have an arrangement with certain banks to provide a revolving credit
facility on a committed basis totaling $500 million. The facility is secured by
our and KGE's first mortgage bonds and matures on March 17, 2003. We also have
arrangements with certain banks to provide unsecured short-term lines of credit
on a committed basis totaling approximately $7.0 million. As of December 31,
2001, borrowings on these facilities were $222.3 million.

The agreements provide us with the ability to borrow at different
market-based interest rates. We pay commitment or facility fees in support of
these lines of credit. Under the terms of the agreements, we are required, among
other restrictions, to maintain a total debt to total capitalization ratio of
not greater than 65% at all times. We are in compliance with this covenant. At
December 31, 2001, the capitalization ratio was 61.4%. Under the terms of the
facility, the impairment charge to be recorded in the first quarter of 2002 will
not affect compliance with this covenant in future periods.

Information regarding our short-term borrowings is as follows:

As of December 31,
----------------------
2001 2000
-------- --------
(Dollars in Thousands)

Borrowings outstanding at year end:
Credit agreement ..................................................... $222,300 $ 35,000

Weighted average interest rate on debt outstanding at year end ............ 3.44% 8.11%

Weighted average short-term debt outstanding during the year .............. $123,131 $402,845

Weighted daily average interest rates during the year, including fees ..... 6.58% 7.92%

Our interest expense on short-term debt and other was $40.6 million in
2001, $63.1 million in 2000 and $57.7 million in 1999.

11. LONG-TERM DEBT

Long-term debt outstanding is as follows at December 31:

2001 2000
---------- ----------
(In Thousands)

Western Resources
-----------------
First mortgage bond series:
7 1/4% due 2002 ........................................................ $ 100,000 $ 100,000
8 1/2% due 2022 ........................................................ 125,000 125,000
7.65% due 2023 ......................................................... 100,000 100,000
---------- ----------
325,000 325,000
---------- ----------
Pollution control bond series:
Variable due 2032, 1.43% at December 31, 2001 .......................... 45,000 45,000
Variable due 2032, 1.70% at December 31, 2001 .......................... 30,500 30,500
6% due 2033 ............................................................ 58,340 58,410
---------- ----------
133,840 133,910
---------- ----------

6 7/8% unsecured senior notes due 2004 ...................................... 355,560 370,000
7 1/8% unsecured senior notes due 2009 ...................................... 150,000 150,000
6.80% unsecured senior notes due 2018 ....................................... 28,104 28,977
6.25% unsecured senior notes due 2018, putable/callable 2003 ................ 384,300 400,000
Senior secured term loan due 2003, variable rate of 7.9% at December 31,
2001 .................................................................... 591,000 600,000
Other long-term agreements .................................................. 5,830 16,889
---------- ----------
1,514,794 1,565,866
---------- ----------

KGE
---
First mortgage bond series:
7.60% due 2003 ......................................................... 135,000 135,000
6 1/2% due 2005 ........................................................ 65,000 65,000
6.20% due 2006 ......................................................... 100,000 100,000
---------- ----------
300,000 300,000
---------- ----------
Pollution control bond series:
5.10% due 2023 ......................................................... 13,493 13,623
Variable due 2027, 1.35% at December 31, 2001 .......................... 21,940 21,940
7.0% due 2031 .......................................................... 327,500 327,500
Variable due 2032, 1.5% at December 31, 2001 ........................... 14,500 14,500
Variable due 2032, 1.53% at December 31, 2001 .......................... 10,000 10,000
---------- ----------
387,433 387,563
---------- ----------

Protection One
--------------
Convertible senior subordinated notes due 2003, fixed rate 6.75% ............ 23,770 23,785
Senior subordinated discount notes due 2005, effective rate 11.8% ........... 33,520 42,887
Senior unsecured notes due 2005, fixed rate 7.375% .......................... 203,650 204,650
Senior subordinated notes due 2009, fixed rate 8.125% ....................... 174,840 255,740
Other ....................................................................... 898 267
---------- ----------
436,678 527,329
---------- ----------

Protection One Europe
---------------------
CET recourse financing agreements, average effective rate 13.17%(a) .......... 34,931 33,512
---------- ----------

Unamortized debt premium (b) ................................................... 12,837 13,541

Less:
Unamortized debt discount (b) ............................................... 6,555 7,047
Long-term debt due within one year .......................................... 160,576 41,825
---------- ----------

Long-term debt, net .................................................... $2,978,382 $3,237,849
========== ==========

----------
(a) Agreements mature on various dates not exceeding four years.
(b) Debt premiums, discounts and expenses are being amortized over the
remaining lives of each issue.

The amount of our first mortgage bonds authorized by our Mortgage and Deed
of Trust, dated July 1, 1939, as supplemented, is unlimited. The amount of KGE's
first mortgage bonds authorized by the KGE Mortgage and

Deed of Trust, dated April 1, 1940, as supplemented, is limited to a maximum of
$2 billion, unless amended. First mortgage bonds are secured by utility assets.
Amounts of additional bonds that may be issued are subject to property, earnings
and certain restrictive provisions of each mortgage.

Our unsecured debt represents general obligations that are not secured by
any of our properties or assets. Any unsecured debt will be subordinated to all
of our secured debt, including the first mortgage bonds. The notes are
structurally subordinated to all secured and unsecured debt of our subsidiaries.

We have material amounts of debt maturing over the next one to two years
(see also Note 10 above). This debt will need to be refinanced. We are
evaluating strategies for refinancing this debt.

On June 28, 2000, we entered into a $600 million, multi-year term loan
that replaced two revolving credit facilities that matured on June 30, 2000. We
had $591 million outstanding on the term loan at December 31, 2001. The term
loan is secured by our and KGE's first mortgage bonds and has a maturity date of
March 17, 2003. The term loan agreement contains requirements for maintaining
certain consolidated leverage ratios, interest coverage ratios and consolidated
debt to capital ratios. At December 31, 2001, we were in compliance with all of
these requirements. In January 2002, we repaid $44 million of the term loan with
the proceeds of our sale of investments in low income housing tax credit
partnerships. The outstanding balance of the term loan after this prepayment was
$547 million. In March 2002, we entered into an amendment to the term loan that
adds to the calculation of consolidated earnings before interest, taxes,
depreciation and amortization, the severance costs incurred in the fourth
quarter of 2001 and the first quarter of 2002 related to our work force
reductions, and maintains the current maximum consolidated leverage ratio of
5.75 to 1.0 through the maturity date of the term loan in March 2003. We expect
to be in compliance with all covenants through the remaining term of this
agreement.

Maturities of the term loan through March 17, 2003, are as follows:

Principal Amount
----------------
Year (In Thousands)
----
2002 ....................... $ 6,000
2003 ....................... 541,000
--------
$547,000
========

Interest on the term loan is payable on the expiration date of each
borrowing under the facility or quarterly if the term of the borrowing is
greater than three months. The weighted average interest rate, including
amortization of fees, on the term loan for the year ending December 31, 2001,
was 7.9%.

Maturities of long-term debt as of December 31, 2001 are as follows:

Principal Amount
----------------
As of December 31, (In Thousands)
------------------
2002 (a).................... $ 160,576
2003........................ 715,414
2004........................ 364,128
2005........................ 306,414
2006........................ 100,457
Thereafter.................. 1,491,969
----------
$3,138,958
==========

----------
(a) Amount due includes $38.5 million related to the sale of investments
required to be repaid under the mandatory prepayment provisions of our
credit agreement.

Our interest expense on long-term debt was $227.6 million in 2001, $226.4
million in 2000 and $236.4 million in 1999.

In 1998, Protection One issued $350 million of unsecured Senior
Subordinated Notes due 2009. As a result of the completion of a registered offer
to exchange a new series of 8.125% Series B Senior Subordinated Notes for a like
amount of Protection One's outstanding 8.125% Senior Subordinated Notes,
effective June 1, 2001 the annual interest rate on all of such outstanding notes
decreased from 8.625% to 8.125%. Because the exchange offer was not completed
within six months of the issuance date, Protection One had been paying an
additional 0.5% interest penalty since June 1999. At the time of the exchange,
the resulting annual interest savings were $1.2 million. The notes are
redeemable at Protection One's option, in whole or in part, at a predefined
price. Interest on these notes is payable semi-annually on January 15 and July
15.

In 1998, Protection One issued $250 million of Senior Unsecured Notes.
Interest is payable semi-annually on February 15 and August 15. The notes are
redeemable at Protection One's option, in whole or in part, at a predefined
price.

In 1995, Protection One issued $166 million of Unsecured Senior
Subordinated Discount Notes with a fixed interest rate of 13.625%. Interest
payments began in 1999 and are payable semi-annually on June 30 and December 31.
In connection with the acquisition of Protection One in 1997, these notes were
restated to fair value. As of June 30, 2000, the notes became redeemable at
Protection One's option, at a specified redemption price.

In 1996, Protection One issued $103.5 million of Convertible Senior
Subordinated Notes. Interest is payable semi-annually on March 15 and September
15. The notes are convertible at any time at a conversion price of $11.19 per
share. As of September 19, 1999, the notes became redeemable, at Protection
One's option, at a specified redemption price.

During the last three years, Protection One and our bonds were repurchased
in the open market and extraordinary gains were recognized on the retirement of
these bonds of $23.2 million in 2001, $49.2 million in 2000 and $13.4 million in
1999, net of tax. From January 1, 2002 through February 2002, a gain of $3.6
million, net of tax, was recognized on the repurchase of Protection One and our
bonds.

Protection One Europe has recognized as a financing transaction cash
received through the sale of security equipment and future cash flows to be
received under security equipment operating lease agreements with customers to a
third-party financing company.

Protection One's debt instruments contain financial and operating
covenants which may restrict its ability to incur additional debt, pay
dividends, make loans or advances and sell assets. At December 31, 2001,
Protection One was in compliance with its debt covenants.

The indentures governing all of Protection One's debt securities require
that Protection One offer to repurchase the securities in certain circumstances
following a change of control.

12. EMPLOYEE BENEFIT PLANS

Pension
-------

We maintain qualified noncontributory defined benefit pension plans
covering substantially all utility employees. Pension benefits are based on
years of service and the employee's compensation during the five highest paid
consecutive years out of ten before retirement. Our policy is to fund pension
costs accrued, subject to limitations set by the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code. We also maintain a
non-qualified Executive Salary Continuation Program for the benefit of certain
management employees, including executive officers.

Post-retirement Benefits
------------------------

We accrue the cost of post-retirement benefits, primarily medical benefit
costs, during the years an employee provides service.

The following tables summarize the status of our pension and other
postretirement benefit plans:

Pension Benefits Post-retirement Benefits
----------------------- ------------------------
December 31, 2001 2000 2001 2000
----------------------------------------------------------------------------------------------------------------------
(In Thousands)

Change in Benefit Obligation:
Benefit obligation, beginning of year ....................... $ 383,403 $ 350,749 $ 102,530 $ 79,287
Service cost ................................................ 9,042 7,964 1,477 1,344
Interest cost ............................................... 28,783 26,901 7,344 7,158
Plan participants' contributions ............................ -- -- 1,189 1,130
Benefits paid ............................................... (23,982) (20,337) (7,741) (6,476)
Assumption changes .......................................... 39 19,350 587 5,038
Actuarial losses (gains) .................................... 21,662 (2,491) 2,697 15,049
Curtailments, settlements and special term benefits ......... 4,867 1,267 547 --
--------- --------- --------- ---------
Benefit obligation, end of year ............................. $ 423,814 $ 383,403 $ 108,630 $ 102,530
========= ========= ========= =========

Change in Plan Assets:
Fair value of plan assets, beginning of year ................ $ 490,173 $ 506,995 $ 394 $ 261
Actual return on plan assets ................................ (2,144) 1,448 19 17
Employer contribution ....................................... 3,015 2,067 6,716 5,462
Plan participants' contributions ............................ -- -- 1,189 1,130
Benefits paid ............................................... (23,982) (20,337) (7,741) (6,476)
--------- --------- --------- ---------
Fair value of plan assets, end of year ...................... $ 467,062 $ 490,173 $ 577 $ 394
========= ========= ========= =========

Funded status ............................................... $ 43,248 $ 106,770 $(108,053) $(102,136)
Unrecognized net (gain)/loss ................................ (65,477) (141,443) 14,447 11,904
Unrecognized transition obligation, net ..................... 141 174 44,195 48,183
Unrecognized prior service cost ............................. 24,071 29,538 (2,797) (3,264)
--------- --------- --------- ---------
Prepaid (accrued) postretirement benefit costs .............. $ 1,983 $ (4,961) $ (52,208) $ (45,313)
========= ========= ========= =========

Amounts recognized in the statement of financial
position consist of:
Prepaid benefit cost ........................................ $ 19,687 $ 9,712 $ N/A $ N/A
Accrued benefit liability ................................... (17,704) (14,673) (52,208) (45,313)
Additional minimum liability ................................ (7,370) -- N/A N/A
Intangible asset ............................................ 658 -- N/A N/A
Accumulated other comprehensive income ...................... 6,712 -- N/A N/A
--------- --------- --------- ---------
Net amount recognized ....................................... $ 1,983 $ (4,961) $ (52,208) $ (45,313)
========= ========= ========= =========

Actuarial Assumptions:
Discount rate ............................................... 7.25% 7.25-7.75% 7.25% 7.25-7.75%
Expected rate of return ..................................... 9.0-9.25% 9.00-9.25% 9.0-9.25% 9.00-9.25%
Compensation increase rate .................................. 4.0-5.0% 4.25-5.00% 4.0-5.0% 4.50-5.00%

Components of net periodic (benefit) cost:
Service cost ................................................ $ 9,042 $ 7,972 $ 1,477 $ 1,344
Interest cost ............................................... 28,783 26,977 7,344 7,157
Expected return on plan assets .............................. (43,001) (39,143) (36) (24)
Amortization of unrecognized transition obligation, net ..... 34 35 3,987 3,988
Amortization of unrecognized prior service costs ............ 3,317 3,316 (466) (466)
Amortization of (gain)/loss, net ............................ (8,327) (9,427) 794 457
Other ....................................................... -- 9 -- --
Curtailments, settlements and special term benefits ......... 6,133 -- -- --
--------- --------- --------- ---------
Net periodic (benefit) cost ................................. $ (4,019) $ (10,261) $ 13,100 $ 12,456
========= ========= ========= =========

For measurement purposes, an annual health care cost growth rate of
5.25%-6.0% was assumed for 2001. The health care cost trend rate has a
significant effect on the projected benefit obligation. Increasing the trend
rate

by 1% each year would increase the present value of the accumulated projected
benefit obligation by $2.5 million and the aggregate of the service and interest
cost components by $0.2 million. A 1% decrease in the trend rate would decrease
the present value of the accumulated projected benefit obligation by $2.4
million and the aggregate of the service and interest cost components by $0.2
million.

Savings Plans
-------------

We maintain savings plans in which substantially all employees
participate, with the exception of Protection One and Protection One Europe
employees. We match employees' contributions with Western Resources' stock up to
specified maximum limits. Our contributions to the plans are deposited with a
trustee and are invested in one or more funds, including the company stock fund.
Our contributions were $4.4 million for 2001, $3.9 million for 2000 and $3.7
million for 1999.

In 1999, we established a qualified employee stock purchase plan, the
terms of which allow full-time non-union employees to participate in the
purchase of designated shares of our common stock at no more than a 15%
discounted price. Our employees purchased 67,519 shares in 2001, pursuant to
this plan, at an average price per share of $14.55625. In 2000, employees
purchased 249,050 shares at an average price per share of $13.9984. A total of
1,250,000 shares of common stock have been reserved for issuance under this
program.

Protection One also maintains a savings plan. Contributions, made at
Protection One's election, are allocated among participants based upon the
respective contributions made by the participants through salary reductions
during the year. Protection One's matching contributions may be made in
Protection One common stock, in cash or in a combination of both stock and cash.
Protection One's matching cash contribution to the plan was approximately $1.1
million for 2001, $0.7 million for 2000 and $0.9 million for 1999.

Protection One maintains a qualified employee stock purchase plan that
allows eligible employees to acquire shares of Protection One common stock at
periodic intervals through their accumulated payroll deductions. A total of
1,650,000 shares of common stock have been reserved for issuance in this program
and a total of 912,186 shares have been issued including the issuance of 489,791
shares in January 2002.

Stock Based Compensation Plans
------------------------------

We have a long-term incentive and share award plan (LTISA Plan), which is
a stock-based compensation plan in which utility employees are eligible for
awards. The LTISA Plan was implemented as a means to attract, retain and
motivate employees and board members (Plan Participants). Under the LTISA Plan,
we may grant awards in the form of stock options, dividend equivalents, share
appreciation rights, restricted shares, restricted share units (RSUs),
performance shares and performance share units to Plan Participants. Up to five
million shares of common stock may be granted under the LTISA Plan.

During 2001, 579,915 RSUs were granted to a broad-based group of over
1,000 non-union employees. Each RSU represents a right to receive one share of
our common stock at the end of the restricted period assuming performance
criteria are met. During 2000, 710,352 RSUs were granted. Also in 2000,
non-union employees were offered the opportunity to exchange their stock options
for RSUs of approximately equal economic value. As a result, 2,246,865 stock
options were canceled in 2000 in exchange for 614,741 RSUs. We granted a total
of 152,000 restricted shares in 1999. The grant of restricted stock is shown as
a separate component of shareholders' equity. Unearned compensation is being
amortized to expense over the vesting period. This compensation expense is shown
as a separate component of shareholders' equity.

Another component of the LTISA Plan is the Executive Stock for
Compensation program where in the past eligible employees were entitled to
receive RSUs in lieu of cash compensation at the end of a deferral period. The
Executive Stock for Compensation program was modified in 2001 to pay a portion
of current compensation in the form of stock. In 2001, eligible employees were
issued 31,881 shares of common stock representing $0.7 million of compensation.
In 2000, 95,000 RSUs were awarded in lieu of $1.3 million in cash compensation.
In 1999, 35,000

RSUs were awarded in lieu of $0.7 million of cash compensation. Dividend
equivalents accrue on the awarded RSUs. Dividend equivalents are the right to
receive cash equal to the value of dividends paid on our common stock.

Stock options and RSUs under the LTISA plan are as follows:

As of December 31,
2001 2000 1999
------------------------ ------------------------ ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(Thousands) Price (Thousands) Price (Thousands) Price
---------- ---------- ---------- ---------- ---------- ----------

Outstanding, beginning of year ...... 2,105.6 $ 22.583 2,418.6 $ 34.139 1,590.7 $ 36.106
Granted ............................. 649.4 24.75 1,953.1 15.513 981.6 30.613
Exercised ........................... (278.2) 19.05 (0.5) 15.625 -- --
Forfeited ........................... (21.7) 17.86 (2,265.6) 28.827 (153.7) 31.985
---------- ---------- ----------
Outstanding, end of year ............ 2,455.1 $ 24.56 2,105.6 $ 22.583 2,418.6 $ 34.139
========== ========== ==========
Weighted-average fair value of awards
granted during the year .......... $ 24.08 $ 11.28 $ 8.22

Stock options and RSUs issued and outstanding at December 31, 2001 are as
follows:

Number Weighted- Weighted-
Range of Issued Average Average
Exercise and Contractual Exercise
Price Outstanding Life in Years Price
--------------- ----------- ------------- ---------

Options - Exercisable:
2000............................ $ 15.3125 3,494 9 $ 15.31
1999............................ 27.8125-32.125 28,546 8 29.44
1998............................ 38.625-43.125 218,380 7 40.97
1997............................ 30.750 185,630 6 30.75
1996............................ 29.250 90,290 5 29.25
-----------
526,340
-----------

Options - Not Exercisable:
2000............................ $ 15.3125 14,273 9 $ 15.31
1999............................ 27.8125-32.125 11,660 8 29.44
-----------
25,933
-----------

Range of
Fair Value at
Grant Date
---------------
Restricted share units:

2001............................ $21.600-$24.200 576,470
2000............................ 15.3125-19.875 1,037,893
1999............................ 27.8125-32.125 152,000
1998............................ 38.625 136,500
-----------
1,902,863
-----------

Total issued................. 2,455,136
===========

An equal number of dividend equivalents were issued to recipients of stock
options and RSUs. Recipients of RSUs receive dividend equivalents when dividends
are paid on shares of company stock. The value of each dividend equivalent
related to stock options is calculated by accumulating dividends that would have
been paid or payable on a share of company common stock. The dividend
equivalents, with respect to stock options, expire after nine years from date of
grant. The weighted-average grant-date fair value of the dividend equivalents on
stock options was $6.28 in 2001 and $6.27 in 2000.

The fair value of stock options and dividend equivalents were estimated on
the date of grant using the Black-Scholes option-pricing model. The model
assumed the following at December 31, 2000. There were no options granted in
2001.

2000
----
Dividend yield................................. 6.32%
Expected stock price volatility................ 16.42%
Risk-free interest rate........................ 5.79%
Remaining expected option life................. 5 years

Protection One Stock Warrants and Options
-----------------------------------------

Protection One has outstanding stock warrants and options that were
considered reissued and exercisable upon our acquisition of Protection One on
November 24, 1997. The 1997 Long-Term Incentive Plan (the LTIP), approved by the
Protection One stockholders on November 24, 1997, provides for the award of
incentive stock options to directors, officers and key employees. Under the
LTIP, 4.2 million shares of Protection One are reserved for issuance, subject to
such adjustment as may be necessary to reflect changes in the number or kinds of
shares of common stock or other securities of Protection One. The LTIP provides
for the granting of options that qualify as incentive stock options under the
Internal Revenue Code and options that do not so qualify.

Options issued since 1997 have a term of 10 years and vest ratably over 3
years. The purchase price of the shares issuable pursuant to the options is
equal to (or greater than) the fair market value of the common stock at the date
of the option grant.

A summary of warrant and option activity for Protection One common stock
from December 31, 1999 through December 31, 2001 is as follows:

December 31,
-------------------------------------------------------------------
2001 2000 1999
--------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(Thousands) Price (Thousands) Price (Thousands) Price
----------- -------- ----------- -------- ----------- --------

Outstanding, beginning of year .... 4,404.6 $ 6.058 3,788.1 $ 7.232 3,422.7 $ 7.494
Granted ........................... 1,880.5 1.327 922.5 1.436 1,092.9 7.905
Exercised ......................... (59.7) 2.490 (5.4) 3.890 -- --
Forfeited ......................... (555.3) 4.941 (300.6) 6.698 (727.5) 10.125
-------- -------- --------
Outstanding, end of year .......... 5,670.1 4.281 4,404.6 6.058 3,788.1 7.232
======== ======== ========

Stock options and warrants of Protection One issued and outstanding at
December 31, 2001 are as follows:

Number Weighted- Weighted-
Range of Issued Average Average
Exercise and Contractual Exercise
Price Outstanding Life in Years Price
--------------- ----------- ------------- --------

Exercisable:
Fiscal 1995................ $6.375 - $6.500 130,800 3 $6.4954
Fiscal 1996................ 8.000 - 15.000 438,400 4 10.0478
Fiscal 1997................ 9.500 - 15.000 209,000 5 11.9565
Fiscal 1998................ 11.000 812,500 6 11.0000
Fiscal 1999................ 5.250 - 8.9275 355,606 7 8.4857
Fiscal 2000................ 1.4375 153,372 8 1.4375

1993 Warrants.............. 0.167 428,400 2 0.1670
1995 Note Warrants......... 3.890 780,837 3 3.8900
-----------
Total................ 3,308,915
-----------

Not Exercisable:
1999 options............... $5.2500 - $8.9275 165,008 7 $8.4857
2000 options............... 1.4375 315,648 8 1.4375
2001 options............... 0.8750 - 1.480 1,880,541 9 1.3273
-----------
Total................ 2,361,197
-----------

Total outstanding............. 5,670,112
===========

The weighted average fair value of options for Protection One stock
granted by Protection One during 2001, 2000 and 1999 estimated on the date of
grant were $1.88, $1.13 and $5.41. The fair value was calculated using the
following assumptions:

Year Ended December 31,
--------------------------------
2001 2000 1999
------- ------- -------
Expected stock price volatility............. 83.92% 92.97% 64.06%
Risk free interest rate..................... 4.95% 4.87% 6.76%
Expected option life........................ 7 years 6 years 6 years

Effect of Stock-Based Compensation on Earnings Per Share

We account for both our and Protection One's plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
the related interpretations. Had compensation expense been determined pursuant
to SFAS No. 123, "Accounting for Stock-Based Compensation," we would have
recognized additional compensation costs during 2001, 2000 and 1999 as shown in
the table below.

Year Ended December 31, 2001 2000 1999
-------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Amounts)

Earnings (loss) available for common stock (a):
As reported ............................................. $ (21,771) $ 135,352 $ 13,167
Pro forma ............................................... (21,259) 134,274 10,699

Basic and diluted earnings (losses) per common share (a):
As reported ............................................. $ (0.31) $ 1.96 $ 0.20
Pro forma ............................................... $ (0.30) 1.95 0.16

----------
(a) Represents consolidated Western Resources.

Split Dollar Life Insurance Program
-----------------------------------

We have established a split dollar life insurance program for our benefit
and the benefit of certain of our executives. Under the program, we have
purchased life insurance policies on which the executive's beneficiary is
entitled to a death benefit in an amount equal to the face amount of the policy
reduced by the greater of (i) all premiums paid by the company or (ii) the cash
surrender value of the policy, which amount, at the death of the executive, will
be returned to us. We retain an equity interest in the death benefit and cash
surrender value of the policy to secure this repayment obligation.

Subject to certain conditions, each executive may transfer to us their
interest in the death benefit based on a predetermined formula, beginning no
earlier than the first day of the calendar year following retirement or three
years from the date of the policy. The liability associated with this program
was $18.6 million as of December 31, 2001 and $19.1 million as of December 31,
2000. The obligations under this program can increase and decrease based on our
total return to shareholders and payments to plan participants. This liability
decreased approximately $0.5 million in 2001 primarily due to balance
adjustments and $12.8 million in 2000 due primarily to payments to plan
participants. In 1999, the liability decreased approximately $10.5 million based
on our total return to shareholders. Under current tax rules, payments to active
employees in exchange for their interest in the death benefits may not be fully
deductible by us for income tax purposes. Subsequent to December 31, 2001, this
liability was reduced by a payment of $4.6 million pursuant to the plan.

13. INCOME TAXES

Income tax expense (benefit) is composed of the following components at
December 31:

2001 2000 1999
-------- -------- --------
(In Thousands)
Current income taxes:
Federal ............................... $(21,942) $ 39,747 $ 12,996
State ................................. (186) 10,131 9,622
Deferred income taxes:
Federal ............................... (28,363) 18,060 (35,857)
State ................................. 1,180 9,585 (6,582)
Investment tax credit amortization ...... (6,646) (6,045) (6,054)
-------- -------- --------
Total ............................ (55,957) 71,478 (25,875)
Less taxes classified in:
Extraordinary gain .................... 12,571 26,514 6,322
Cumulative effect of accounting change 12,347 (1,097) --
-------- -------- --------
Total income tax (benefit) expense .... $(80,875) $ 46,061 $(32,197)
======== ======== ========

Under SFAS No. 109, "Accounting for Income Taxes," temporary differences
gave rise to deferred tax assets and deferred tax liabilities summarized in the
following table.

December 31,
--------------------------
2001 2000
---------- ----------
(In Thousands)
Deferred tax assets:
Deferred gain on sale-leaseback ............. $ 76,806 $ 82,013
Customer accounts ........................... 60,023 49,853
General business credit carryforward (a) .... 28,494 11,012
Accrued liabilities ......................... 23,511 21,108
Disallowed plant costs ...................... 16,650 17,758
Long-term energy contracts .................. 13,538 14,209
Other ....................................... 115,874 110,261
---------- ----------
Total deferred tax assets ................ $ 334,896 $ 306,214
========== ==========

Deferred tax liabilities
Accelerated depreciation .................... $ 617,682 $ 627,024
Acquisition premium ......................... 267,161 275,159
Deferred future income taxes ................ 222,071 188,006
Investment tax credits ...................... 84,900 91,546
Other ....................................... 39,443 44,562
---------- ----------
Total deferred tax liabilities ........... $1,231,257 $1,226,297
========== ==========

----------
(a) Balance represents unutilized tax credits generated from affordable
housing partnerships in which we sold the majority of our interests in
2001. These credits expire beginning 2019 through 2021.

Deferred tax assets and liabilities are reflected on our consolidated
balance sheets as follows:

December 31,
-----------------------
2001 2000
-------- --------
(In Thousands)

Current deferred tax assets, net ................. $ 27,817 $ 34,512
Non-current deferred tax liabilities, net ........ 924,178 954,595
-------- --------
Net deferred tax liabilities ..................... $896,361 $920,083
======== ========

In accordance with various rate orders, we have not yet collected through
rates certain accelerated tax deductions, which have been passed on to
customers. We believe it is probable that the net future increases in income
taxes payable will be recovered from customers. We have recorded a regulatory
asset for these amounts. These assets are also a temporary difference for which
deferred income tax liabilities have been provided. This liability is classified
above as deferred future income taxes.

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 tax rates and the federal statutory income
tax rates are as follows:

For the Year Ended December 31,
------------------------------
2001 2000 1999
------ ------ ------

Effective income tax rate .................................. (56.3)% 33.6% (108.6)%
Effect of:
State income taxes ...................................... 0.6 (9.4) (7.1)
Amortization of investment tax credits .................. 4.6 4.4 20.4
Corporate-owned life insurance policies ................. 9.5 8.4 28.0
Affordable housing tax credits .......................... 6.8 7.8 31.3
Accelerated depreciation flow through and amortization .. (0.1) (4.9) (12.2)
Dividends received deduction ............................ 7.1 7.1 34.3
Amortization of goodwill ................................ (10.6) (13.0) (19.3)
Other ................................................... 3.4 1.0 (1.8)
------ ------ ------
Statutory federal income tax rate .......................... (35.0)% 35.0% (35.0)%
====== ====== ======

14. COMMITMENTS AND CONTINGENCIES

Municipalization Efforts by Wichita
-----------------------------------

In December 1999, the City Council of Wichita, Kansas, authorized the
hiring of an outside consultant to determine the feasibility of creating a
municipal electric utility to replace KGE as the supplier of electricity in
Wichita. The feasibility study was released in February 2001 and estimates that
the City of Wichita would be required to pay us $145 million for our stranded
costs if it were to municipalize. However, we estimate the amount to be
substantially greater. In order to municipalize KGE's Wichita electric
facilities, the City of Wichita would be required to purchase KGE's facilities
or build a separate independent system and arrange for its own power supply.
These costs are in addition to the stranded costs for which the city would be
required to reimburse us. On February 2, 2001, the City of Wichita announced its
intention to proceed with its attempt to municipalize KGE's retail electric
utility business in Wichita. KGE will oppose municipalization efforts by the
City of Wichita. Should the city be successful in its municipalization efforts
without providing us adequate compensation for our assets and lost revenues, the
adverse effect on our business and financial condition could be material.

KGE's franchise with the City of Wichita to provide retail electric
service is effective through December 1, 2002. There can be no assurance that we
can successfully renegotiate the franchise with terms similar, or as favorable,
as those in the current franchise. Under Kansas law, KGE will continue to have
the right to serve the customers in Wichita following the expiration of the
franchise, assuming the system is not municipalized. Customers within the
Wichita metropolitan area account for approximately 23% of our total energy
sales.

Purchase Orders and Contracts
-----------------------------

As part of our ongoing operations and construction program, we have
commitments under purchase orders and contracts, excluding fuel (which is
discussed below under "-- Fuel Commitments,") that have an unexpended balance of
approximately $98.4 million at December 31, 2001.

Manufactured Gas Sites
----------------------

We have been associated with 15 former manufactured gas sites located in
Kansas that may contain coal tar and other potentially harmful materials. We and
the Kansas Department of Health and Environment (KDHE) entered into a consent
agreement governing all future work at these sites. The terms of the consent
agreement will allow us to investigate these sites and set remediation
priorities based on the results of the investigations and risk analysis. At
December 31, 2001, the costs incurred for preliminary site investigation and
risk assessment have been

minimal. In accordance with the terms of the strategic alliance with ONEOK,
ownership of twelve of these sites and the responsibility for clean-up of these
sites were transferred to ONEOK. The ONEOK agreement limits our future liability
associated with these sites to an immaterial amount. Our investment earnings
from ONEOK could be impacted by these costs.

Superfund Sites
---------------

In December 1999, we were identified as one of more than 1,000 potentially
responsible parties at an EPA Superfund site in Kansas City, Kansas (Kansas City
site). We have previously been associated with other Superfund sites for which
our liability has been classified as de minimis, or insignificant, and any
potential obligations have been settled at minimal cost. Since 1993, we have
settled Superfund obligations at three sites for a total of $141,300. We were
notified in 2001 that one site was issued an EPA "Notice of Completion of Work"
and final oversight costs have been paid out of the existing joint responsible
party account, which has an adequate balance to cover this expense. This
effectively closes this site and we can expect a refund in 2002 of our share of
the remaining funds in this account. Our obligation, if any, at the Kansas City
site is expected to be limited based upon previous experience and the limited
nature of our business transactions with the previous owners of the site. In the
opinion of our management, the resolution of this matter is not expected to have
a material impact on our financial position or results of operations.

Clean Air Act
-------------

We must comply with the provisions of The Clean Air Act Amendments of 1990
that require a two-phase reduction in certain emissions. We have installed
continuous monitoring and reporting equipment to meet the acid rain
requirements. Material capital expenditures have not been required to meet Phase
II sulfur dioxide and nitrogen oxide requirements.

Nuclear Decommissioning
-----------------------

We accrue decommissioning costs over the expected life of the Wolf Creek
generating facility. The accrual is based on estimated unrecovered
decommissioning costs, which consider inflation over the remaining estimated
life of the generating facility and are net of expected earnings on amounts
recovered from customers and deposited in an external trust fund.

On September 1, 1999, Wolf Creek submitted the 1999 Decommissioning Cost
Study to the KCC for approval. The KCC approved the 1999 Decommissioning Cost
Study on April 26, 2000. Based on the study, our share of Wolf Creek's
decommissioning costs, under the immediate dismantlement method, is estimated to
be approximately $631 million during the period 2025 through 2034, or
approximately $221 million in 1999 dollars. These costs include decontamination,
dismantling and site restoration and were calculated using an assumed inflation
rate of 3.6% over the remaining service life from 1999 of 26 years. The actual
decommissioning costs may vary from the estimates because of changes in the
assumed dates of decommissioning, changes in regulatory requirements, changes in
technology and changes in costs of labor, materials and equipment. On May 26,
2000, we filed an application with the KCC requesting approval of the funding of
our decommissioning trust on this basis. Approval was granted by the KCC on
September 20, 2000.

Decommissioning costs are currently being charged to operating expense in
accordance with prior KCC orders. Electric rates charged to customers provide
for recovery of these decommissioning costs over the life of Wolf Creek. Amounts
expensed approximated $4.0 million in 2001 and will increase annually to $5.5
million in 2024. These amounts are deposited in an external trust fund. The
average after-tax expected return on trust assets is 5.8%.

Our investment in the decommissioning fund is recorded at fair value,
including reinvested earnings. It approximated $66.6 million at December 31,
2001 and $64.2 million at December 31, 2000. Trust fund earnings accumulate in
the fund balance and increase the recorded decommissioning liability.

Storage of Spent Nuclear Fuel
-----------------------------

Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE)
is responsible for the permanent disposal of spent nuclear fuel. Wolf Creek pays
the DOE a quarterly fee of one-tenth of a cent for each kilowatt-hour of net
nuclear generation produced for the future disposal of spent nuclear fuel. These
disposal costs are charged to cost of sales.

A permanent disposal site will not be available for the nuclear industry
until 2010 or later. Under current DOE policy, once a permanent site is
available, the DOE will accept spent nuclear fuel on a priority basis. The
owners of the oldest spent fuel will be given the highest priority. As a result,
disposal services for Wolf Creek will not be available prior to 2016. Wolf Creek
has on-site temporary storage for spent nuclear fuel. In early 2000, Wolf Creek
completed replacement of spent fuel storage racks to increase its on-site
storage capacity for all spent fuel expected to be generated by Wolf Creek
through the end of its licensed life in 2025.

Asset Retirement Obligations
----------------------------

In August 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations." The standard requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. When it is initially recorded,
we will capitalize the estimated asset retirement obligation by increasing the
carrying amount of the related long-lived asset. The liability will be accreted
to its present value each period and the capitalized cost will be depreciated
over the life of the asset. The standard is effective for fiscal years beginning
after June 15, 2002. We expect to adopt this standard January 1, 2003. This
standard will impact the way we currently account for the decommissioning of
Wolf Creek. In addition to the accounting for the Wolf Creek decommissioning, we
are also reviewing what impact this pronouncement will have on our current
accounting practices and our results of operations as it relates to other asset
retirement obligations we may identify. The impact is unknown at this time.

Nuclear Insurance
-----------------

The Price-Anderson Act, originally passed by Congress in 1957 and most
recently amended in 1988, requires nuclear power plants to show evidence of
financial protection in the event of a nuclear accident. This protection must
consist of two levels. The primary level provides liability insurance coverage
of $200 million. If this amount is not sufficient to cover claims arising from
an accident, the second level - Secondary Financial Protection - applies. For
the second level, each licensed nuclear unit must pay a retroactive premium
equal to its proportionate share of the excess loss, up to a maximum of $88.1
million per unit per accident.

Currently, 106 nuclear units are participating in the Secondary Financial
Protection program - 103 operating units and three closed units that still
handle used nuclear fuel. The number of units participating in the program will
be reduced as decommissioned units apply for and receive exemptions. Nuclear
power plants provide a total of $9.5 billion in insurance coverage to compensate
the public in the event of a nuclear accident. Taxpayers and the federal
government pay nothing for this coverage.

The Nuclear Regulatory Commission (NRC) was required to submit a report to
Congress, which was submitted in September 1998 and describes the benefits that
the act provides to the public. It also recommends that the act be extended for
an additional ten years. The DOE submitted a report to Congress in March 1999,
recommending renewal of the act.

Bipartisan legislation was introduced in the 106th Congress in the Senate
providing a simple renewal of Price-Anderson based on the DOE and NRC reports.
The nuclear industry supports such a legislative approach for consideration
early in the 107th Congress.

Unless Congress renews the Price-Anderson Act, it will expire in part on
August 1, 2002 as follows:

. The only part of Price-Anderson that expires on August 1, 2002, is
the authority of the NRC and the DOE to enter into new indemnity
agreements after that date. Existing indemnity agreements would
continue in full force and effect.
. Without renewal, new nuclear power plants could not be covered, nor
could new DOE contracts have the indemnity provision (including the
proposed high-level radioactive waste disposal site in Yucca
Mountain, Nevada).

The Price-Anderson Act limits the combined public liability of the owners
of nuclear power plants to $9.5 billion for a single nuclear incident. If this
liability limitation is insufficient, the United States Congress will consider
taking whatever action is necessary to compensate the public for valid claims.
However, on February 2, 2002, the United States Senate announced that it is
considering discontinuing the federal insurance provision.

The Wolf Creek owners have purchased the maximum available private
insurance of $200 million. The remaining balance is provided by an assessment
plan mandated by the NRC. Under this plan, the owners are jointly and severally
subject to a retrospective assessment of up to $88.1 million in the event there
is a major nuclear incident involving any of the nation's licensed reactors.
This assessment is subject to an inflation adjustment based on the Consumer
Price Index and applicable premium taxes. There is a limitation of $10 million
in retrospective assessments per incident, per year.

The owners carry decontamination liability, premature decommissioning
liability and property damage insurance for Wolf Creek totaling approximately
$2.8 billion ($1.3 billion our share). This insurance is provided by Nuclear
Electric Insurance Limited (NEIL). In the event of an accident, insurance
proceeds must first be used for reactor stabilization and site decontamination
in accordance with a plan mandated by the NRC. Our share of any remaining
proceeds can be used to pay for property damage or decontamination expenses or,
if certain requirements are met including decommissioning the plant, toward a
shortfall in the decommissioning trust fund.

The owners also carry additional insurance with NEIL to cover costs of
replacement power and other extra expenses incurred during a prolonged outage
resulting from accidental property damage at Wolf Creek. If losses incurred at
any of the nuclear plants insured under the NEIL policies exceed premiums,
reserves and other NEIL resources, we may be subject to retrospective
assessments under the current policies of approximately $10.7 million per year.

Although we maintain various insurance policies to provide coverage for
potential losses and liabilities resulting from an accident or an extended
outage, our insurance coverage may not be adequate to cover the costs that could
result from a catastrophic accident or extended outage at Wolf Creek. Any
substantial losses not covered by insurance, to the extent not recoverable
through rates, would have a material adverse effect on our financial condition
and results of operations.

Fuel Commitments
----------------

To supply a portion of the fuel requirements for our generating plants, we
have entered into various commitments to obtain nuclear fuel and coal. Some of
these contracts contain provisions for price escalation and minimum purchase
commitments. At December 31, 2001, WCNOC's nuclear fuel commitments (our share)
were approximately $3.2 million for uranium concentrates expiring in 2003, $0.6
million for conversion expiring in 2003, $22.7 million for enrichment expiring
at various times through 2006 and $57.5 million for fabrication through 2025.

At December 31, 2001, our coal and coal transportation contract
commitments in 2001 dollars under the remaining terms of the contracts were
approximately $2.0 billion. The largest contract expires in 2020, with the
remaining contracts expiring at various times through 2013.

At December 31, 2001, our natural gas transportation commitments in 2001
dollars under the remaining terms of the contracts were approximately $56.8
million. The natural gas transportation contracts provide firm

service to several of our gas burning facilities and expire at various times
through 2010, except for one contract that expires in 2016.

Energy Act
----------

As part of the 1992 Energy Policy Act, a special assessment is being
collected from utilities for a uranium enrichment decontamination and
decommissioning fund. Our portion of the assessment for Wolf Creek is
approximately $9.6 million, payable over 15 years. Such costs are recovered
through the ratemaking process.

15. PNM MERGER AND SPLIT-OFF OF WESTAR INDUSTRIES

PNM Transaction
---------------

On November 8, 2000, we entered into an agreement with Public Service
Company of New Mexico (PNM), pursuant to which PNM would acquire our electric
utility businesses in a tax-free stock-for-stock merger. Under the terms of the
agreement, both PNM and we are to become subsidiaries of a new holding company,
subject to customary closing conditions including regulatory and shareholder
approvals. Immediately prior to closing, all of the Westar Industries common
stock we own would be distributed to our shareholders in exchange for a portion
of their Western Resources common stock. At the same time we entered into the
agreement with PNM, we and Westar Industries entered into an Asset Allocation
and Separation Agreement which, among other things, provided for this split-off
and related matters.

On October 12, 2001, PNM filed a lawsuit against us in the Supreme Court
of the State of New York. The lawsuit seeks, among other things, declaratory
judgment that PNM is not obligated to proceed with the proposed merger based in
part upon the KCC orders discussed below and other KCC orders reducing rates for
our electric utility business. PNM believes the orders constitute a material
adverse effect and make the condition that the split-off of Westar Industries
occur prior to closing incapable of satisfaction. PNM also seeks unspecified
monetary damages for breach of representation.

On November 19, 2001, we filed a lawsuit against PNM in the Supreme Court
of the State of New York. The lawsuit seeks substantial damages for PNM's breach
of the merger agreement providing for PNM's purchase of our electric utility
operations and for PNM's breach of its duty of good faith and fair dealing. In
addition, we filed a motion to dismiss or stay the declaratory judgment action
previously filed by PNM seeking a declaratory judgment that PNM has no further
obligations under the merger agreement.

On January 7, 2002, PNM sent a letter to us purporting to terminate the
merger in accordance with the terms of the merger agreement. We have notified
PNM that we believe the purported termination of the merger agreement was
ineffective and that PNM remains obligated to perform thereunder. We intend to
contest PNM's purported termination of the merger agreement. However, based upon
PNM's actions and the related uncertainties, we believe the closing of the
proposed merger is not likely.

KCC Proceedings and Orders
--------------------------

The merger with PNM contemplated the completion of a rights offering for
shares of Westar Industries prior to closing. On May 8, 2001, the KCC opened an
investigation of the proposed separation of our electric utility businesses from
our non-utility businesses, including the rights offering, and other aspects of
our unregulated businesses. The order opening the investigation indicated that
the investigation would focus on whether the separation and other transactions
involving our unregulated businesses are consistent with our obligation to
provide efficient and sufficient electric service at just and reasonable rates
to our electric utility customers. The KCC staff was directed to investigate,
among other matters, the basis for and the effect of the Asset Allocation and
Separation Agreement we entered into with Westar Industries in connection with
the proposed separation and the intercompany payable owed by us to Westar
Industries, the separation of Westar Industries, the effect of the business
difficulties faced by our unregulated businesses and whether they should
continue to be affiliated with our electric utility business, and our present
and prospective capital structures. On May 22, 2001, the KCC issued an order
nullifying

the Asset Allocation and Separation Agreement, prohibiting Westar Industries and
us from taking any action to complete the rights offering for common stock of
Westar Industries, which was to be a first step in the separation, and
scheduling a hearing to consider whether to make the order permanent.

On July 20, 2001, the KCC issued an order that, among other things: (1)
confirmed its May 22, 2001 order prohibiting us and Westar Industries from
taking any action to complete the proposed rights offering and nullifying the
Asset Allocation and Separation Agreement; (2) directed us and Westar Industries
not to take any action or enter into any agreement not related to normal utility
operations that would directly or indirectly increase the share of debt in our
capital structure applicable to our electric utility operations, which has the
effect of prohibiting us from borrowing to make a loan or capital contribution
to Westar Industries; and (3) directed us to present a financial plan consistent
with parameters established by the KCC's order to restore financial health,
achieve a balanced capital structure and protect ratepayers from the risks of
our non-utility businesses. In its order, the KCC also acknowledged that we are
presently operating efficiently and at reasonable cost and stated that it was
not disapproving the PNM transaction or a split-off of Westar Industries. We
appealed the orders issued by the KCC to the District Court of Shawnee County,
Kansas. On February 5, 2002, the District Court issued a decision finding that
the KCC orders were not final orders and that the District Court lacked
jurisdiction to consider the appeal. Accordingly, the matter was remanded to the
KCC for review of the financial plan.

On February 11, 2002, the KCC issued an order primarily related to
procedural matters for the review of the financial plan, as discussed below. In
addition, the order required that we and the KCC staff make filings addressing
whether the filing of applications by us and KGE at FERC, seeking renewal of
existing borrowing authority, violated the July 20, 2001 KCC order directing
that we not increase the share of debt in our capital structure applicable to
our electric utility operations. The KCC staff subsequently filed comments
asserting that the refinancing of existing indebtedness with new indebtedness
secured by utility assets would in certain circumstances violate the July 20,
2001 KCC order. The KCC filed a motion to intervene in the proceeding at FERC
asserting the same position. We are unable to predict whether the KCC will adopt
the KCC staff position, the extent to which FERC will incorporate the KCC
position in orders renewing our borrowing authority, or the impact of the
adoption of the KCC staff position, if that occurs, on our ability to refinance
indebtedness maturing in the next several years. Our inability to refinance
existing indebtedness on a secured basis would likely increase our borrowing
costs and adversely affect results of operations.

The Financial Plan
------------------

The July 20, 2001 KCC order directed us to present a financial plan to the
KCC. We presented a financial plan to the KCC on November 6, 2001, which we
amended on January 29, 2002. The principal objective of the financial plan is to
reduce our total debt as calculated by the KCC to approximately $1.8 billion, a
reduction of approximately $1.2 billion. The financial plan contemplates that we
will proceed with a rights offering and that, in the event that the PNM merger
and related split-off do not close, we will use our best efforts to sell our
share of Westar Industries common stock, or shares of our common stock, upon the
occurrence of certain events. The KCC has scheduled a hearing on May 31, 2002 to
review the financial plan. We are unable to predict whether or not the KCC will
approve the financial plan or what other action with respect to the financial
plan the KCC may take.

The financial plan provides that:

. Westar Industries will use its best efforts to sell at least 4.14
million shares of its common stock, representing approximately 5.1%
of its outstanding shares, but no more than the number of shares of
its common stock (approximately 19.13 million shares) representing
19.9% of its outstanding shares. After the offering, we would
continue to own 77.0 million shares representing between 80.1% and
94.9% of Westar Industries' outstanding shares. The offering will
remain open for no less than 45 calendar days.

. In the rights offering, each of our shareholders will receive the
right to purchase one share of Westar Industries' common stock for
every three shares of our stock held on the record date of the
offering. There will be no over-subscription privilege in the
offering. However, each shareholder participating in the offering
will be issued, with respect to each right exercised in the
offering, a warrant to purchase

from Westar Industries two shares of its common stock at the
subscription price in the offering, subject to proration so that in
no event will we hold less than 80.1% of Westar Industries'
outstanding shares. This right will be exercisable at any time in
the 30-day period preceding January 31, 2003.

. So long as we and Westar Industries are tax consolidated, Westar
Industries' common stock sold in the offering will have one vote per
share and Westar Industries common stock held by us will have 10
votes per share. Any shares sold by us will automatically convert to
shares with one vote per share.

. The exercise price in the offering will be a fixed price determined
on the day the offer is mailed to shareholders by calculating the
"Westar Industries Valuation" as set forth in an exhibit to the plan
and then applying a 10% initial public offering discount.

. Westar Industries will have a rescission right through December 31,
2002. This will give Westar Industries the right to repurchase the
shares sold in the rights offering at a price equal to the greater
of (i) 1.05 times the exercise price, or (ii) the market price at
the time of the repurchase offer. The warrants issued to
participating shareholders in the offering will expire if the
rescission right is exercised. We would not be able to sell any
additional shares prior to the expiration of the rescission period.

. The proceeds from the offering (or any other subsequent sale of
stock by Westar Industries) and any dividends from the ONEOK common
or convertible preferred stock not used in Westar Industries'
business or previously committed will be used to purchase in the
market our or KGE's currently outstanding debt securities. On
February 10, 2003, such debt securities and the balance, if any, of
our intercompany payable with Westar Industries will be converted
into our common stock at the average trading price for the 20 days
prior to conversion, but in no event less than $24 per share.
However, if the PNM transaction is not terminated, such funds and
the intercompany payable will be transferred by us to Westar
Industries to purchase 7.5% Western Resources convertible preferred
stock, convertible into our common stock at $30 per share, as
provided in the PNM merger agreement. Prior to tax deconsolidation,
Westar Industries cannot receive any cash dividends from us, but
will instead reinvest those dividends in additional shares of our
common stock. Dividends on the convertible preferred stock will be
payable in additional preferred shares rather than cash. Westar
Industries will use interest received on our and KGE debt securities
it purchases as provided above to purchase additional debt
securities.

. If the PNM transaction is not terminated, the amount of our
convertible preferred stock purchased by Westar Industries will not
exceed $291 million. Westar Industries will continue to own our
common stock it currently owns. Westar Industries will retain its
option to purchase Westar Generating, Inc., a wholly owned
subsidiary of ours, which owns an interest in the State Line
Facility (see "Item 2. Properties" for a description of this
facility and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Other Information
-- Related Party Transactions" for a discussion of this purchase
option).

. Westar Industries will not vote any of our common stock it owns as
long as we are tax consolidated.

. Westar Industries will adopt a "poison pill" that will restrict
ownership in it to 20% of the shares not owned by us.

. The rights offering and subsequent sale of Westar Industries' shares
by us pursuant to the plan do not constitute a change in control for
our employees under the terms of existing agreements and no
agreements will be executed which include a provision under which
the offering and sale of Westar Industries' shares by us pursuant to
the plan would constitute a change in control.

. We will not sell more than 19.9% of Westar Industries unless we have
$1.8 billion or less in short- and long-term debt and all of our and
KGE's first mortgage bonds are rated investment grade.

. In the event Westar Industries' common stock trades for 45
consecutive trading days at a price that is 15% above the price
necessary to reduce our short- and long-term debt to an amount less
than $1.8 billion (as measured at the end of the immediately
preceding fiscal quarter), we will be required to use our best
efforts to sell enough shares in Westar Industries, or us, or a
combination of both (at our option), to reduce debt to $1.8 billion.
However, in no event shall this obligation be triggered prior to
February 1, 2003, unless the PNM transaction is terminated prior to
that date. Furthermore, on each annual anniversary of the closing of
the rights offering, the amount of debt used to determine whether
our obligation has been triggered will increase by $100 million.

. We agree to reduce our total debt by at least $100 million per year
each year following the completion of the offering until the
separation is consummated.

. Our board of directors will have at least a majority of independent
directors following the separation.

16. LEGAL PROCEEDINGS

The Securities and Exchange Commission (SEC) commenced a private
investigation in 1997 relating to, among other things, the timeliness and
adequacy of disclosure filings with the SEC by us with respect to securities of
ADT Ltd. We have cooperated with the SEC staff in this investigation.

We, Westar Industries, Protection One, its subsidiary Protection One Alarm
Monitoring, Inc. (Protection One Alarm Monitoring) and certain present and
former officers and directors of Protection One are defendants in a purported
class action litigation pending in the United States District Court for the
Central District of California, "Alec Garbini, et al v. Protection One, Inc., et
al," No. CV 99-3755 DT (RCx). Pursuant to an Order dated August 2, 1999, four
pending purported class actions were consolidated into a single action. On
February 27, 2001, plaintiffs filed a Third Consolidated Amended Class Action
Complaint (Third Amended Complaint). Plaintiffs purported to bring the action on
behalf of a class consisting of all purchasers of publicly traded securities of
Protection One, including common stock and bonds, during the period of February
10, 1998 through February 2, 2001. The Third Amended Complaint asserted claims
under Section 11 of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934 against Protection One, Protection One Alarm
Monitoring, and certain present and former officers and directors of Protection
One based on allegations that various statements concerning Protection One's
financial results and operations for 1997, 1998, 1999 and the first three
quarters of 2000 were false and misleading and not in compliance with generally
accepted accounting principles. Plaintiffs alleged, among other things, that
former employees of Protection One have reported that Protection One lacked
adequate internal accounting controls and that certain accounting information
was unsupported or manipulated by management in order to avoid disclosure of
accurate information. The Third Amended Complaint further asserted claims
against us and Westar Industries as controlling persons under Sections 11 and 15
of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. A claim was also asserted under Section 11 of the
Securities Act of 1933 against Protection One's auditor, Arthur Andersen LLP.
The Third Amended Complaint sought an unspecified amount of compensatory damages
and an award of fees and expenses, including attorneys' fees. On June 4, 2001,
the District Court dismissed plaintiffs' claims under Sections 10(b) and 20(a)
of the Securities Exchange Act. The Court granted plaintiffs leave to replead
such claims. The Court also dismissed all claims brought on behalf of
bondholders with prejudice. The Court also dismissed plaintiffs' claims against
Arthur Andersen and the plaintiffs have appealed that dismissal. On February 22,
2002, plaintiffs filed a Fourth Consolidated Amended Class Action Complaint. The
new complaint realleges claims on behalf of purchasers of common stock under
Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934. The defendants have until April 5, 2002 to
respond to the new complaint. Protection One and we cannot predict the impact of
this litigation, which could be material.

We and our subsidiaries are involved in various other legal, environmental
and regulatory proceedings. We believe that adequate provision has been made and
accordingly believe that the ultimate disposition of such matters will not have
a material adverse effect upon our overall financial position or results of
operations. See also Notes 3 and 15 for discussion of FERC proceedings and the
lawsuit PNM filed against us and the KCC regulatory proceedings.

17. LEASES

At December 31, 2001, we had leases covering various property and
equipment. Rental payments for operating leases ranging from 1 to 17 years and
estimated rental commitments are as follows:

LaCygne 2 Total
Year Ended December 31, Lease (a) Leases
------------------------------------------------------ ---------- --------
(In Thousands)
Rental payments:
1999 .............................................. $ 34,598 $ 71,771
2000 .............................................. 34,598 71,232
2001 .............................................. 34,598 75,259

Future commitments:
2002 .............................................. $ 34,598 $ 69,897
2003 .............................................. 39,420 66,772
2004 .............................................. 34,598 58,492
2005 .............................................. 38,013 57,983
2006 .............................................. 42,287 61,309
Thereafter ........................................ 422,318 516,318
-------- --------
Total future commitments ....................... $611,234 $830,771
======== ========

----------
(a) LaCygne 2 lease amounts are included in total leases.

In 1987, KGE sold and leased back its 50% undivided interest in the
LaCygne 2 generating unit. The LaCygne 2 lease has an initial term of 29 years,
with various options to renew the lease or repurchase the 50% undivided
interest. KGE remains responsible for its share of operation and maintenance
costs and other related operating costs of LaCygne 2. The lease is an operating
lease for financial reporting purposes. We recognized a gain on the sale, which
was deferred and is being amortized over the initial lease term.

In 1992, we deferred costs associated with the refinancing of the secured
facility bonds of the Trustee and owner of LaCygne 2. These costs are being
amortized over the life of the lease and are included in operating expense.

18. COMMON STOCK, PREFERRED STOCK AND OTHER MANDATORILY REDEEMABLE SECURITIES

Our Restated Articles of Incorporation, as amended, provide for
150,000,000 authorized shares of common stock. At December 31, 2001, 86,205,417
shares were issued and outstanding, including shares owned by Westar Industries.

We have a Direct Stock Purchase Plan (DSPP). Shares issued under the DSPP
may be either original issue shares or shares purchased on the open market.
During 2001, a total of 16,643,403 shares were purchased from the company
through the issuance of 16,123,103 original issue shares and 520,300 treasury
shares. Of the total shares purchased from us in 2001, 15,047,987 were acquired
by Westar Industries and the balance of the shares were for the DSPP, ESPP,
401(k) match and other stock based plans operated under the 1996 Long-Term
Incentive and Share Award Plan. At December 31, 2001, 4,300,577 shares were
available under the DSPP registration statement.

In 2000, we purchased 540,000 shares of our common stock at an average
price of $17.01. All of these shares were reissued during the year.

Preferred Stock Not Subject to Mandatory Redemption
---------------------------------------------------

The cumulative preferred stock is redeemable in whole or in part on 30 to
60 days notice at our option.

Total
Principal Call Amount
Rate Outstanding Price Premium to Redeem
------ ----------- ------- --------- -----------
(Dollars in Thousands)

4.500% $ 13,445 108.00% $ 1,076 $ 14,521
4.250% 5,841 101.50% 88 5,929
5.000% 4,650 102.00% 93 4,743
----------- --------- -----------
$ 23,936 $ 1,257 $ 25,193
=========== ========= ===========

The provisions of our Restated Articles of Incorporation, as amended,
contain restrictions on the payment of dividends or the making of other
distributions on our common stock while any preferred shares remain outstanding
unless certain capitalization ratios and other conditions are met.

Other Mandatorily Redeemable Securities
---------------------------------------

On December 14, 1995, Western Resources Capital I, a wholly owned trust,
issued 4.0 million preferred securities of 7-7/8% Cumulative Quarterly Income
Preferred Securities, Series A, for $100 million. The trust interests are
redeemable at the option of Western Resources Capital I on or after December 11,
2000, at $25 per preferred security plus accrued interest and unpaid dividends.
Holders of the securities are entitled to receive distributions at an annual
rate of 7-7/8% of the liquidation preference value of $25. Distributions are
payable quarterly and are tax deductible by us. These distributions are recorded
as interest expense. The sole asset of the trust is $103 million principal
amount of 7-7/8% Deferrable Interest Subordinated Debentures, Series A due
December 11, 2025.

On July 31, 1996, Western Resources Capital II, a wholly owned trust, of
which the sole asset is subordinated debentures of ours, sold in a public
offering, 4.8 million shares of 8-1/2% Cumulative Quarterly Income Preferred
Securities, Series B, for $120 million. The trust interests are redeemable at
the option of Western Resources Capital II, on or after July 31, 2001, at $25
per preferred security plus accumulated and unpaid distributions. Holders of the
securities are entitled to receive distributions at an annual rate of 8-1/2% of
the liquidation preference value of $25. Distributions are payable quarterly and
are tax deductible by us. These distributions are recorded as interest expense.
The sole asset of the trust is $124 million principal amount of 8-1/2%
Deferrable Interest Subordinated Debentures, Series B due July 31, 2036.

In addition to our obligations under the Subordinated Debentures discussed
above, we have agreed to guarantee, on a subordinated basis, payment of
distributions on the preferred securities. These undertakings constitute a full
and unconditional guarantee by us of the trust's obligations under the preferred
securities.

Treasury Stock
--------------

At December 31, 2001, all of our treasury stock was owned by Westar
Industries, except for 50,000 shares owned by Protection One.

19. RELATED PARTY TRANSACTIONS

Below we describe significant transactions between us and Westar
Industries and other subsidiaries and related parties. We have disclosed
significant transactions even if these have been eliminated in the preparation
of our consolidated results and financial position since our proposed financial
plan, as discussed in Note 15, calls for a split-off of Westar Industries from
us to occur in the future. We cannot predict whether the KCC will aprove the
plan and if so whether we will be successful in executing the plan.

We and ONEOK have shared services agreements in which we provide and bill
one another for facilities, utility field work, information technology, customer
support and bill processing. Payments for these services are based on various
hourly charges, negotiated fees and out-of-pocket expenses.

2001 2000 1999
------ ------ ------
(In Thousands)
Charges to ONEOK ........................ $8,202 $8,463 $8,876
Charges from ONEOK ...................... 3,279 3,420 3,322

Net receivable from ONEOK,
outstanding at December 31 ............ 1,424 1,205 1,506

In 1999, we and Protection One have entered into a service agreement
pursuant to which we provide administrative services, including accounting,
human resources, legal, facilities and technology services on a year to year
basis. Fees for these services are based upon various hourly charges, negotiated
fees and out-of-pocket expenses. Protection One incurred charges of $8.1
million in 2001, $7.3 million in 2000 and $2.0 million in 1999. These
intercompany charges have been eliminated in consolidation.

We had a payable to Westar Industries of approximately $67.7 million at
December 31, 2001 on which we paid interest at the rate of 8.5% per annum. On
February 28, 2001, Westar Industries converted $350.0 million of the then
outstanding payable balance into approximately 14.4 million shares of our common
stock, representing 16.9% of our outstanding common stock after conversion.
These shares are reflected as treasury stock in our consolidated balance sheets.
During the first quarter of 2002, we repaid the remaining balance owed to Westar
Industries. The proceeds were used by Westar Industries to purchase our
outstanding debt in the open market. At February 28, 2002, Westar Industries
owned $118.7 million of our debt. Amounts outstanding and interest earned by
Westar Industries have been eliminated in our consolidated financial statements.
See Note 2 "Summary of Significant Accounting Policies -- Principles of
Consolidation."

Westar Industries is the lender under Protection One's senior credit
facility. On November 1, 2001, this facility was amended to, among other things,
extend the maturity date to January 3, 2003, and provide for a quarterly fee for
financial advisory and management services equal to 1/8% of Protection One's
consolidated total assets at the end of each quarter, beginning with the quarter
ending March 31, 2002. As of December 31, 2001, approximately $137.5 million was
drawn under the facility. On March 25, 2002, Westar Industries further amended
the facility to increase the amount of the facility to $180 million. Amounts
outstanding have been eliminated in our consolidated financial statements.

We have a tax sharing agreement with Protection One. This pro rata tax
sharing agreement allows Protection One to be reimbursed for current tax
benefits utilized in our consolidated tax return. We and Protection One are
eligible to file on a consolidated basis for tax purposes as long as we maintain
an 80% ownership interest in Protection One. We reimbursed Protection One $11.8
million for tax year 2001 and $7.4 million for tax year 2000 for the current tax
benefit.

During 2001, Westar Industries purchased $37.9 million face value of
Protection One bonds on the open market. In October 2001, $27.6 million of these
bonds were transferred to Protection One in exchange for cash. In 2001, we
recognized an extraordinary gain from the purchase of Protection One bonds of
$22.3 million, net of tax of $12.0 million. During 2000, Westar Industries
purchased $170.0 million face value of Protection One bonds on the open market.
In exchange for cash and the settlement of certain intercompany payables and
receivables, $103.9

million of these debt securities were transferred to Protection One. The balance
of the bonds was sold to Protection One in March 2001. No gain or loss was
recognized on these transactions.

In the latter part of 2001 through February 28, 2002, Protection One
purchased approximately $1.8 million of our preferred stock in open market
purchases. These purchases have been accounted for as retirements.

During 2001, we extended loans to our officers for the purpose of
purchasing shares of our common stock on the open market. The loans are
unsecured and contain a variable interest rate that is equal to our short term
borrowing rate. Interest is payable quarterly. The loans mature and become due
on December 4, 2004. The balance outstanding at December 31, 2001 was
approximately $2.0 million and is classified as a reduction to shareholders'
equity in the accompanying consolidated balance sheet. The maximum amount of
loans authorized is $7.9 million.

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.

On February 29, 2000, Westar Industries purchased the European operations
of Protection One, and certain investments held be 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.
Westar Industries has agreed to pay Protection One a portion of the net gain, if
any, on a subsequent sale of the European businesses on a declining basis over
the four years following the closing. Cash proceeds from the transaction were
used to reduce the outstanding balance owed to Westar Industries on Protection
One's revolving credit facility. No gain or loss was recorded on this
intercompany transaction and the net book value of the assets was unaffected.

If the KCC approves our financial plan, at the closing of the proposed
rights offering, we would enter into an option agreement that grants Westar
Industries an option to purchase the stock of Westar Generating, Inc., a wholly
owned subsidiary that owns our interest in the State Line generating facility.
The option would be exercisable at any time during the three year period
following execution of the agreement, subject to extension for two additional
one year periods. The option price is based on net book value at the time of
exercise. The option would be exercisable only if Westar Industries is unable to
obtain a permanent exemption from registration under the Investment Company Act
of 1940.

20. 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.

In the first quarter of 2002, we further reduced our utility work force by
approximately 400 employees through a voluntary separation program. We expect to
record a net charge of approximately $21.1 million in the first quarter of 2002
related to this program. We may replace some of these employees. Protection One
also reduced its work force by approximately 200 employees in connection with
facility consolidations and expects to record a net severance charge of
approximately $0.5 million in the first quarter of 2002.

21. MONITORED SERVICES DISPOSITIONS

In 2001, Protection One and Protection One Europe disposed of certain
monitored security operations for approximately $48.0 million and we recorded a
pre-tax loss of $13.1 million.

In 1999, Protection One sold the assets that comprised its Mobile Services
Group. Cash proceeds of this sale approximated $20 million and Protection One
recorded a pre-tax gain of approximately $17 million. This gain is reflected in
Other Income on our consolidated statements of income.

22. INTERNATIONAL POWER DEVELOPMENT COSTS

In 1998 we made a decision to terminate the employment of all employees,
close offices, discontinue all development activities, and terminate all other
matters related to the activity of The Wing Group. These activities were
substantially completed by December 31, 1999. The actual costs incurred during
1999 to complete the exit plan approximated $16.9 million, which was $5.6
million less than the amount estimated and charged to income in 1998. This was
accounted for as a change in estimate in 1999. The excess accrual was credited
to income in 1999 and reduced our selling, general and administration costs for
that period.

23. MARKETABLE SECURITIES

During the last three years, we sold substantially all of our investments
in marketable securities. These securities were classified as
available-for-sale. Realized gains and losses are included in earnings and were
derived using the specific identification method. The following table summarizes
our marketable security sales for the years ended December 31, 2001, 2000 and
1999:

Marketable Security Sales
-------------------------------
2001 2000 1999
------ -------- -------
(Dollars in Thousands)

Sales proceeds $2,829 $218,609 $73,456
Realized gains (a) -- 115,987 12,587
Realized losses 1,861 1,039 38,838

----------
(a) During 2000, we sold our equity investment in a gas compression
company and realized a pre-tax gain of $91.1 million.

In 1999, we determined that the decline in value of our investments in
paging industry companies was other than temporary and a charge to earnings for
the decline in value was required. This non-cash charge of $76.2 million was
recorded in the fourth quarter of 1999 and is presented separately in our
consolidated statements of income.

In February 2000, one of the paging companies we held an interest in made
an announcement that significantly increased the market value of paging company
securities general. During the first quarter of 2000, we sold the remainder of
these securities for a gain of $24.9 million.

During 2001, we wrote down the cost basis of certain equity securities to
their fair value. The fair value of these equity securities had declined below
our cost basis, and we determined that the decline was other than temporary. The
amount of the write down totaled $11.1 million, of which $9.6 million related to
a cost method investment. The write down is included in other income (expense).

24. SEGMENTS OF BUSINESS

In 1998, we adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires us to define and
report our business segments based on how management currently evaluates its
business. Our business is segmented based on differences in products and
services, production processes and management responsibility. Based on this
approach, we have identified five reportable segments: Fossil Generation,
Nuclear Generation, Customer Operations, Monitored Services and Other. The
Fossil Generation, Nuclear Generation and Customer Operations segments comprise
our electric utility business. Fossil

Generation produces power for sale internally to the Customer Operations segment
and externally to wholesale customers. A component of our Fossil Generation
segment is power marketing, which attempts to minimize commodity price risk
associated with fuel purchases and purchased power requirements. Power marketing
also attempts to maximize utilization of generation capacity and enhance system
reliability through sales to external customers as discussed further below.
Nuclear Generation represents our 47% ownership in the Wolf Creek Generating
Station (Wolf Creek). This segment has only internal sales because it provides
all of its power to its co-owners. The Customer Operations segment consists of
the transmission and distribution of power to our retail customers in Kansas and
the customer service provided to these customers and the transmission of
wholesale energy. Monitored Services is comprised of our security alarm
monitoring business in North America and Europe. Other includes a 45% interest
in ONEOK, investments in international power generation facilities and other
investments, which in the aggregate are not material to our business or results
of operations.

The accounting policies of the segments are substantially the same as
those described in Note 2 "Summary of Significant Accounting Policies." Segment
performance is based on earnings before interest and taxes (EBIT). Unusual
items, such as charges to income and changes in accounting principle, may be
excluded from segment performance depending on the nature of the charge or
income. Interest expense is excluded from the segment analysis. Our ONEOK
investment, marketable securities investments and other equity method
investments do not represent operating segments of ours. We have no single
external customer from whom we receive ten percent or more of our revenues.

Year Ended December 31, 2001
----------------------------

Eliminating/
Fossil Nuclear Customer Monitored Reconciling
Generation(a) Generation Operations Services Other Items Total
------------- ---------- ---------- ---------- ---------- ------------ ----------
(In Thousands)

External sales .................... $ 667,953 $ -- $1,100,443 $ 416,509 $ 1,360 $ (3) $2,186,262
Internal sales .................... 560,528 117,659 317,056 -- -- (995,243) --
Depreciation and
amortization ................... 65,875 41,046 78,235 228,123 363 -- 413,642
Earnings (loss) before
interest and taxes and
cumulative effect of
accounting change .............. 120,530 (19,078) 131,917 (126,076) 32,651 (15,321) 124,623
Interest expense .................. 268,224
Earnings (loss) before income
taxes ........................... (143,601)

Additions to property,
plant and equipment ............ 116,595 27,349 83,052 9,456 -- -- 236,452
Customer account
acquisitions ................... -- -- -- 36,488 -- -- 36,488

Identifiable assets ............... 1,733,743 1,042,563 1,843,865 1,887,210 1,005,684 -- 7,513,065

Year Ended December 31, 2000
----------------------------

Eliminating/
Fossil Nuclear Customer Monitored Reconciling
Generation Generation Operations Services Other (c) Items (b) Total
---------- ---------- ---------- ---------- ---------- ------------ ----------
(In Thousands)

External sales ................... $ 705,536 $ -- $1,123,590 $ 537,859 $ 1,484 $ 7 $2,368,476
Internal sales ................... 572,533 107,770 291,927 -- -- (972,230) --
Depreciation and amortization .... 60,331 40,052 75,419 248,414 2,116 37 426,369
Earnings (loss) before
interest and taxes ............ 202,744 (24,323) 171,872 (91,370) 189,289 (21,533) 426,679
Interest expense 289,568
Earnings before income taxes ..... 137,111

Additions to property, plant
and equipment ................. 162,570 25,877 96,984 20,070 2,572 -- 308,073
Customer account acquisitions .... -- -- -- 47,261 -- -- 47,261

Identifiable assets .............. 1,658,986 1,064,817 1,893,884 2,175,381 1,008,654 (2) 7,801,720

Year Ended December 31, 1999
----------------------------

Eliminating/
Fossil Nuclear Customer Monitored Reconciling
Generation Generation Operations Services Other (d) Items (b) Total
---------- ---------- ---------- ---------- ---------- ------------ ----------
(In Thousands)

External sales ................... $ 365,311 $ -- $1,064,385 $ 599,105 $ 1,284 $ 2 $2,030,087
Internal sales ................... 546,683 108,445 293,522 -- -- (948,650) --
Depreciation and amortization .... 55,320 39,629 71,717 233,906 3,007 90 403,669
Earnings (loss) before
interest and taxes ............ 219,087 (25,214) 145,603 (20,675) (28,088) (26,252) 264,461
Interest expense ................. 294,104
Earnings (loss) before income
taxes ......................... (29,643)

Additions to property, plant
and equipment ................. 143,904 10,036 89,162 12,437 20,205 -- 275,744
Customer account acquisitions .... -- -- -- 268,409 -- -- 268,409

Identifiable assets .............. 1,476,716 1,083,344 1,783,937 2,539,921 1,165,145 (59,171) 7,989,892

----------
(a) EBIT shown above for Fossil Generation does not include the unrealized
gain on derivatives reported as a cumulative effect of a change in
accounting principle. If the effect had been included, EBIT for the Fossil
Generation segment for the year ended December 31, 2001 would have been
$151.6 million.
(b) Identifiable assets include eliminating and reclassing balances to
consolidate the monitored services business.
(c) EBIT includes the gain on the sale of our investment in a gas compression
company of $91.1 million and the gain on the sale of other marketable
securities of $24.9 million.
(d) EBIT includes investment earnings of $36.0 million, an impairment of
marketable securities of $76.2 million and the write-off of deferred costs
of $17.6 million.

Geographic Information
----------------------

Our sales and property, plant and equipment are as follows:

For the Year Ended December 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------
(In Thousands)
External sales:
United States operations ........... $2,102,598 $2,254,105 $1,859,008
International operations ........... 83,664 114,371 171,079
---------- ---------- ----------
Total .......................... $2,186,262 $2,368,476 $2,030,087
========== ========== ==========

As of December 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------
(In Thousands)
Property, plant and equipment, net:
United States operations ........... $4,038,648 $3,984,858 $3,880,865
International operations ........... 4,204 8,580 8,579
---------- ---------- ----------
Total .......................... $4,042,852 $3,993,438 $3,889,444
========== ========== ==========

25. IMPAIRMENT CHARGE PURSUANT TO NEW ACCOUNTING RULES

Effective January 1, 2002, we adopted the new accounting standards SFAS No.
142, "Accounting for Goodwill and Other Intangible Assets," and SFAS No. 144.,
"Accounting for the Impairment and Disposal of Long-Lived Assets." SFAS No. 142
establishes new standards for accounting for goodwill. SFAS No. 142 continues to
require the recognition of goodwill as an asset, but discontinues amortization
of goodwill. In addition, annual impairment tests must be performed using a
fair-value based approach as opposed to an undiscounted cash flow approach
required under prior standards.

SFAS No. 144 establishes a new approach to determining whether our
customer account asset is impaired. The approach no longer permits us to
evaluate our customer account asset for impairment based on the net undiscounted
cash flow stream obtained over the remaining life of the goodwill associated
with the customer accounts being evaluated. Rather, the cash flow stream to be
used under SFAS No. 144 is limited to the future estimated undiscounted cash
flows of our existing customer accounts. Additionally, the new rule no longer
permits us to include estimated cash flows from forecasted customer additions.
If the undiscounted cash flow stream from existing customer accounts is less
than the combined book value of customer accounts and goodwill, an impairment
charge is required.

The new rule substantially reduces the net undiscounted cash flows used
for impairment evaluation purposes as compared to the previous accounting rules.
The undiscounted cash flow stream has been reduced from the 16-year remaining
life of the goodwill to the nine-year remaining life of customer accounts for
impairment evaluation purposes and does not include estimated cash flows from
forecasted customer additions.

To implement the new standards, an independent appraisal firm was engaged
to help management estimate the fair values of goodwill and customer accounts.
Based on this analysis, during the first quarter of 2002, we will record a
non-cash net charge of approximately $653.7 million, of which $464.2 million is
related to goodwill and $189.5 million is related to customer accounts. The
charge is detailed as follows:

Impairment of Impairment of
Goodwill Customer Accounts Total
------------- ----------------- ---------
(In Thousands)

Protection One ................ $498,921 $334,064 $ 832,985
Protection One Europe ......... 80,104 -- 80,104
-------- -------- --------
Total pre-tax impairment ...... $579,025 $334,064 913,089
======== ========
Income tax benefit ............ (173,650)
Minority interest ............. (85,713)
---------
Net charge .................... $ 653,726
=========

The impairment charge for goodwill will be reflected in our consolidated
statement of income as a cumulative effect of a change in accounting principle.
The impairment charge for customer accounts will be reflected in our
consolidated statement of income as an operating cost. These impairment charges
reduce the recorded value of these assets to their estimated fair values at
January 1, 2002.

In 2001, we recorded approximately $57.1 million of goodwill amortization
expense. We will no longer be permitted to amortize goodwill to income because
of adoption of the new goodwill rule. In 2001, we recorded approximately $153.0
million of customer account amortization expense. Future customer account
amortization expense will also be reduced as a result of the impairment charge.

We will be required to perform impairment tests for our monitored services
segment for long-lived assets prospectively as long as it continues to incur
recurring losses or for other matters that may negatively impact its businesses.
Goodwill will be required to be tested each year for impairment. Declines in
market values of our monitored services businesses or the value of customer
accounts that may be incurred prospectively may require additional write down of
these assets in the future.

Estimated Lives of Customer Accounts to Change Based on Customer Account Lifing
-------------------------------------------------------------------------------
Study Results
-------------

Protection One is currently evaluating the estimated life and amortization
rates for customer accounts, given the results of a lifing study performed by a
third party appraisal firm in the first quarter of 2002. Any change in its
amortization rate or estimated life will be determined in the first quarter of
2002 and accounted for prospectively as a change in estimate.

26. SUBSEQUENT EVENTS

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. We
estimate storm restoration costs could run as high as $25 million. On March 13,
2002, we filed an application for an accounting authority order with the KCC
requesting that we be allowed to accumulate and defer for future recovery costs
related to storm restoration. We cannot predict whether the KCC will approve our
application.

27. 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. Our electric
business is seasonal in nature and, in our opinion, comparisons between the
quarters of a year do not give a true indication of overall trends and changes
in operations.

First Second Third Fourth
---------- ---------- ---------- ----------
(In Thousands, Except Per Share Amounts)

2001
----
Sales ................................................... $ 560,741 $ 522,901 $ 667,068 $ 435,552
Gross profit ............................................ 290,162 285,597 357,077 253,876
Net income (loss) before extraordinary gain and
accounting change .................................... (19,187) (36,014) 26,722 (34,247)
Net income (loss) ....................................... 4,450 (30,188) 35,976 (31,114)

Earnings (loss) per share available for common stock
before extraordinary gain and accounting change:
Basic .......................................... $ (0.28) $ (0.51) $ 0.38 $ (0.49)
Diluted ........................................ $ (0.28) $ (0.51) $ 0.37 $ (0.48)

Cash dividend per common share .......................... $ 0.30 $ 0.30 $ 0.30 $ 0.30

Market price per common share:
High ........................................... $ 25.875 $ 25.820 $ 22.900 $ 17.801
Low ............................................ $ 21.800 $ 20.000 $ 15.620 $ 16.000

2000
----
Sales ................................................... $ 481,699 $ 546,607 $ 759,562 $ 580,608
Gross profit ............................................ 306,760 331,889 395,534 298,461
Net income (loss) before extraordinary gain and
accounting change .................................... 39,801 23,565 53,991 (26,307)
Net income (loss) ....................................... 54,483 40,912 60,707 (19,621)

Earnings (loss) per share available for common stock
before extraordinary gain and accounting change:
Basic .......................................... $ 0.58 $ 0.34 $ 0.78 $ (0.40)
Diluted ........................................ $ 0.58 $ 0.34 $ 0.77 $ (0.39)

Cash dividend per common share .......................... $ 0.535 $ 0.30 $ 0.30 $ 0.30

Market price per common share:
High ........................................... $ 18.313 $ 17.813 $ 21.953 $ 25.875
Low ............................................ $ 15.313 $ 14.688 $ 15.375 $ 20.438

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

None.

EXHIBIT B
---------
Organizational Chart Showing the Relationship of Each EWG
to Associate Companies in The Holding Company System

Western Resources, Inc. (a Kansas corporation, "WRI").

Westar Industries, Inc. (a Kansas corporation, "Westar"),a wholly-owned
subsidiary of WRI.

The Wing Group, Limited Company (a Delaware corporation, "Wing"), a
wholly-owned subsidiary of Westar.

Wing Colombia, L.L.C., (a Delaware Limited Liability Company), 99%
owned by Westar, 1% owned by Wing.

Western Resources (Bermuda) Limited (a Bermuda limited liability
company), a wholly-owned subsidiary of Westar.

CPI-Western Power Holdings, Ltd., a Bermuda limited liability
company. 50% owned by Western Resources (Bermuda) Limited.

Western Resources International Limited (a Mauritius limited
liability company), a wholly-owned subsidiary of CPI-Western
Power Holdings, Ltd.

Zhengzhou Dengwai Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International
Limited.

Zhengzhou Dengyuan Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International
Limited.

Zhengzhou Huadeng Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International
Limited.

Zhengzhou Huaxin Power Company Limited (a Dengfeng
Municipality, Henan Province, People's Republic of China
Company), 49% owned by Western Resources International
Limited.

Wing Turkey, Inc. (a Delaware corporation), a wholly-owned subsidiary
of Westar.

Wing International, Ltd. (a Texas limited liability company), 99%
owned by Wing Turkey, Inc. and 1% owned by Wing.

Trakya Elektrik Uretim Ve Ticaret A.S. (a joint stock
company under the laws of the Republic of Turkey), 9% owned
by Wing International, Ltd.