Westar Energy, Inc. (Westar Energy) has reported revenues of $421.7 million for the first quarter of 2009, compared with the revenues of $406.8 million in the year-ago quarter. It has also reported a net income of $44.2 million, or $0.40 per basic share, for the first quarter of 2009, compared with the net income of $61.1 million, or $0.62 per basic share, in the year-ago quarter.
2009 First Quarter Results Compared with 2008 First Quarter Results:
Net income for both periods includes substantial federal income tax adjustments related to prior period activity. Setting aside these tax adjustments as identified in the table, first quarter 2009 net income was $10.9 million, or $0.10 per share, compared with $21.5 million, or $0.22 per share, for the first quarter 2008.
The primary causes for the decrease in net income were higher operating expenses associated primarily with new facilities and lower retail sales volumes that offset price increases that took effect during the quarter.
Per share results for the quarter reflect around 12% more shares outstanding, which resulted from the company having issued additional shares last spring to fund capital investments.
Net income excluding tax benefit is a measure calculated other than in accordance with generally accepted accounting principles. Westar Energy’s management believes this measure is useful to investors because the tax adjustments are unrelated to the company’s results of operations in the periods presented.
Retail revenues increased $23 million, or 8%, due primarily to higher recovery through prices of fuel and purchased power costs and increases in retail prices approved by regulatory authorities. Partially offsetting the price increase was a 7% decrease in retail sales volumes.
Wholesale sales decreased $17 million, or 17%, due primarily to lower average prices that partially offset a 4% increase in sales volumes. Energy marketing increased $10 million due principally to the settlement of forward contracts for the sale of electricity on favorable terms.
Total operating expenses increased $16 million, or 5%. Operating and maintenance expense increased $6 million reflecting higher expense for the company’s power plants and distribution system. Depreciation expense increased $9 million primarily to recognize the addition of new wind and natural gas generating plants, emission control facilities and new transmission facilities. Selling, general and administrative expenses increased $6 million due principally to an increase in pension expense that results from the decline in asset values in the pension trust. Partially offsetting these increases in expenses, fuel and purchased power expense decreased $6 million due primarily to a reduction of power produced and purchased combined with lower costs for fuel and purchased power.
Interest expense increased $24 million due primarily to the reversal last year of $18 million of accrued interest associated with uncertain tax liabilities, which reduced 2008 interest expense. Absent last year’s reversal, interest expense increased $7 million due to the interest on additional debt issued to fund capital investments.
Income taxes increased $23 million due primarily to the reversal in 2008 of $29 million of income tax reserves as a result of completing a federal income tax audit for prior years.
In January 2009 the company reached a settlement with the IRS for years 2003 and 2004 that permitted it to utilize operating losses generated from the divestiture of its former non-regulated businesses. This settlement resulted in a first quarter 2009 net earnings benefit from discontinued operations of $33 million, or $0.30 per share.
2009 Earnings Guidance:
The company affirmed earnings guidance for 2009 of $1.65 to $1.90 per share. The 2009 earnings guidance excludes a $0.30 per share benefit related to the tax settlement associated with its former non-regulated businesses. The company has posted to its Web site a summary of the principal earnings drivers and adjustments used in arriving at 2009 earnings guidance.
Westar Energy has reduced its 2010 and 2011 planned capital spending by $500 million, or about 27%. The company said capital spending reductions were undertaken in light of current economic and capital market conditions. “Both for our customers and our investors, it makes sense to adjust our plans given the soft economy and higher cost of capital,” said Bill Moore, Westar Energy’s chief executive officer. “Our ability to defer and reschedule some of our planned projects into future years demonstrates the merits of our flexible and balanced approach to capital spending.” Moore added that the company will continue to adjust its plans as conditions warrant without impacting its ability to provide safe, reliable service to its customers.