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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2002
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
 
Commission File Number 1-7324
 
KANSAS GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
 
    Kansas    

 
     48-1093840     

(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
P.O. BOX 208
Wichita, Kansas 67201
(316) 261-6611

(Address, including Zip code and telephone number, including area code, of registrant’s principal executive offices)
 

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  ¨
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
 
Common Stock, No par value
 
            1,000 Shares            
(Class)
 
(Outstanding at August 8, 2002)
 
Registrant meets the conditions of General Instruction H(1)(a) and (b) to Form 10-Q for certain wholly-owned subsidiaries and is therefore filing this form with a reduced disclosure format.
 


Table of Contents
TABLE OF CONTENTS
 
         
Page

PART I.
  
Financial Information
    
  Item 1.
  
Financial Statements
    
       
4
       
5-6
       
7
       
8
Item 2.
     
15
Item 3.
     
21
PART II.
  
Other Information
    
Item 1.
     
22
Item 2.
     
22
Item 3.
     
22
Item 4.
     
22
Item 5.
     
22
Item 6.
     
22
  
23

2


Table of Contents
FORWARD-LOOKING STATEMENTS
 
Certain matters discussed in this Form 10-Q are “forward-looking statements.” The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words like we “believe,” “anticipate,” “expect,” or words of similar meaning. Forward-looking statements describe our future plans, objectives, expectations or goals. Such statements address future events and conditions concerning:
 
 
·
 
capital expenditures,
 
·
 
earnings,
 
·
 
liquidity and capital resources,
 
·
 
litigation,
 
·
 
possible corporate restructurings, mergers, acquisitions and dispositions,
 
·
 
compliance with debt and other restrictive covenants,
 
·
 
interest and dividends,
 
·
 
the financial condition of other Westar Energy, Inc.’s subsidiaries and their impact on Westar Energy, Inc.’s results, including impairment charges that were recorded in the first quarter of 2002 that may affect our liquidity,
 
·
 
environmental matters,
 
·
 
nuclear operations and
 
·
 
the overall economy of our service area.
 
What happens in each case could vary materially from what we expect because of such things as:
 
 
·
 
electric utility deregulation or re-regulation,
 
·
 
ongoing municipal, state and federal activities, such as the Wichita municipalization effort,
 
·
 
future economic conditions,
 
·
 
changes in accounting requirements and other accounting matters,
 
·
 
changing weather,
 
·
 
rate and other regulatory matters, including the impact of (i) the Kansas Corporation Commission’s order to reduce our rates issued on July 25, 2001 and (ii) the Kansas Corporation Commission’s order issued July 20, 2001 and related proceedings, with respect to the proposed separation of Westar Energy, Inc.’s electric utility businesses (including us) from Westar Industries, Inc.,
 
·
 
the impact of changes and downturns in the energy industry and the market for trading wholesale electricity,
 
·
 
the proposed sale of Westar Energy, Inc.’s interests in ONEOK, Inc.,
 
·
 
political, legislative and regulatory developments,
 
·
 
amendments or revisions to Westar Energy, Inc.’s current business and financial plans,
 
·
 
regulatory, legislative and judicial actions,
 
·
 
regulated and competitive markets and
 
·
 
other circumstances affecting anticipated operations, sales and costs.
 
These lists are not all-inclusive because it is not possible to predict all possible factors.
 
See “Item 1. Business—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2001, for additional information on matters that could impact our operations and financial results. Any forward-looking statement speaks only as of the date such statement was made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement was made except as required by applicable laws or regulations.

3


Table of Contents
PART I.  Financial Information
 
ITEM 1.  FINANCIAL STATEMENTS
 
KANSAS GAS AND ELECTRIC COMPANY
 
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
 
    
June 30, 2002

    
December 31, 2001

 
ASSETS
                 
CURRENT ASSETS:
                 
Cash and cash equivalents
  
$
5,472
 
  
$
5,564
 
Restricted cash
  
 
10,281
 
  
 
 
Accounts receivable, net
  
 
57,877
 
  
 
45,209
 
Receivable from affiliates
  
 
 
  
 
17,349
 
Inventories and supplies
  
 
63,242
 
  
 
65,531
 
Energy trading contracts
  
 
12,897
 
  
 
4,887
 
Deferred tax assets
  
 
 
  
 
1,002
 
Prepaid expenses and other
  
 
47,193
 
  
 
23,312
 
    


  


Total Current Assets
  
 
196,962
 
  
 
162,854
 
    


  


PROPERTY, PLANT AND EQUIPMENT, NET
  
 
2,405,278
 
  
 
2,426,875
 
    


  


OTHER ASSETS:
                 
Restricted cash
  
 
140,130
 
  
 
 
Regulatory assets
  
 
251,764
 
  
 
244,108
 
Energy trading contracts
  
 
4,138
 
  
 
 
Other
  
 
103,388
 
  
 
96,208
 
    


  


Total Other Assets
  
 
499,420
 
  
 
340,316
 
    


  


TOTAL ASSETS
  
$
3,101,660
 
  
$
2,930,045
 
    


  


LIABILITIES AND SHAREHOLDER’S EQUITY
                 
CURRENT LIABILITIES:
                 
Accounts payable
  
$
47,434
 
  
$
51,384
 
Payable to affiliates
  
 
139,926
 
  
 
 
Accrued liabilities
  
 
72,062
 
  
 
66,642
 
Energy trading contracts
  
 
12,643
 
  
 
9,970
 
Deferred income taxes
  
 
12,057
 
  
 
 
Other
  
 
6,742
 
  
 
6,362
 
    


  


Total Current Liabilities
  
 
290,864
 
  
 
134,358
 
    


  


LONG-TERM LIABILITIES:
                 
Long-term debt, net
  
 
684,424
 
  
 
684,360
 
Deferred income taxes and investment tax credits
  
 
715,780
 
  
 
726,676
 
Deferred gain from sale-leaseback
  
 
168,552
 
  
 
174,466
 
Energy trading contracts
  
 
1,325
 
  
 
6,130
 
Other
  
 
175,092
 
  
 
155,666
 
    


  


Total Long-Term Liabilities
  
 
1,745,173
 
  
 
1,747,298
 
    


  


COMMITMENTS AND CONTINGENCIES
                 
SHAREHOLDER’S EQUITY:
                 
Common stock, without par value; authorized and issued 1,000 shares
  
 
1,065,634
 
  
 
1,065,634
 
Accumulated other comprehensive loss, net
  
 
(50
)
  
 
(11,023
)
Retained earnings (accumulated deficit)
  
 
39
 
  
 
(6,222
)
    


  


Total Shareholder’s Equity
  
 
1,065,623
 
  
 
1,048,389
 
    


  


TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY
  
$
3,101,660
 
  
$
2,930,045
 
    


  


 
The accompanying notes are an integral part of these consolidated financial statements.

4


Table of Contents
 
KANSAS GAS AND ELECTRIC COMPANY
 
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
 
    
Three Months Ended
June 30,

 
    
2002

    
2001

 
SALES
  
$
171,949
 
  
$
165,965
 
COST OF SALES
  
 
56,917
 
  
 
59,959
 
    


  


GROSS PROFIT
  
 
115,032
 
  
 
106,006
 
    


  


OPERATING EXPENSES:
                 
Operating and maintenance
  
 
55,737
 
  
 
48,559
 
Depreciation and amortization
  
 
22,395
 
  
 
26,345
 
Selling, general and administrative
  
 
17,806
 
  
 
15,347
 
    


  


Total Operating Expenses
  
 
95,938
 
  
 
90,251
 
    


  


INCOME FROM OPERATIONS
  
 
19,094
 
  
 
15,755
 
    


  


OTHER EXPENSE, NET
  
 
693
 
  
 
1,639
 
    


  


INTEREST EXPENSE:
                 
Interest expense on long-term debt
  
 
11,027
 
  
 
11,456
 
Interest expense on short-term debt and other
  
 
752
 
  
 
874
 
    


  


Total Interest Expense
  
 
11,779
 
  
 
12,330
 
    


  


EARNINGS BEFORE INCOME TAXES
  
 
6,622
 
  
 
1,786
 
Income tax benefit
  
 
(1,000
)
  
 
(1,142
)
    


  


NET INCOME
  
$
7,622
 
  
$
2,928
 
    


  


OTHER COMPREHENSIVE INCOME, NET OF TAX:
                 
Unrealized holding gains on cash flow hedges arising during the period
  
$
3,601
 
  
$
—  
 
Adjustment for losses included in net income
  
 
823
 
  
 
—  
 
Income tax expense
  
 
(1,666
)
  
 
—  
 
    


  


Total other comprehensive gain, net of tax
  
 
2,758
 
  
 
—  
 
    


  


COMPREHENSIVE INCOME
  
$
10,380
 
  
$
2,928
 
    


  


 
The accompanying notes are an integral part of these consolidated financial statements.

5


Table of Contents
KANSAS GAS AND ELECTRIC COMPANY
 
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
 
    
Six Months Ended
June 30,

 
    
2002

    
2001

 
SALES
  
$
337,228
 
  
$
329,958
 
COST OF SALES
  
 
112,383
 
  
 
111,952
 
    


  


GROSS PROFIT
  
 
224,845
 
  
 
218,006
 
    


  


OPERATING EXPENSES:
                 
Operating and maintenance
  
 
107,870
 
  
 
100,221
 
Depreciation and amortization
  
 
48,987
 
  
 
52,221
 
Selling, general and administrative
  
 
43,350