KANSAS GAS & ELECTRIC CO /KS/ - 10-Q Quarterly Report

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 March 31, 2004

¨	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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. 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 May 3, 2004)

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


		Page
PART I. Financial Information

Item 1.	Condensed Financial Statements (Unaudited)

	Consolidated Balance Sheets	5

	Consolidated Statements of Income and Comprehensive Income	6

	Consolidated Statements of Cash Flows	7

	Condensed Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

Item 4.	Controls and Procedures	16

PART II. Other Information

Item 1.	Legal Proceedings	17

Item 2.	Changes in Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Submission of Matters to a Vote of Security Holders	17

Item 5.	Other Information	17

Item 6.	Exhibits and Reports on Form 8-K	17

Signature		18

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,” “target,” “expect,” “pro forma,” “estimate,” “intend” and 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,

•

accounting matters,

•

compliance with debt and other restrictive covenants,

•

interest rates,

•

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,

•

regulated and competitive markets,

•

ongoing municipal, state and federal activities,

•

economic and capital market conditions,

•

changes in accounting requirements and other accounting matters,

•

changing weather,

•

rates, cost recoveries and other regulatory matters,

•

the impact of changes and downturns in the energy industry and the market for trading wholesale electricity,

•

the impact of changes in “Hours of Service” legislation that was enacted in January 2004 on the number of hours during which employees may operate equipment,

•

the impact of the outcome of the notice of violation received by Westar Energy, Inc. on January 22, 2004 from the Environmental Protection Agency and other environmental matters,

•

the impact on Westar Energy, Inc. of the outcome of the investigation being conducted by the Federal Energy Regulatory Commission regarding power trades with Cleco Corporation and its affiliates and other energy marketing and transmission transactions,

•

political, legislative, judicial and regulatory developments,

•

the impact of the purported shareholder and employee class action lawsuits filed against Westar Energy, Inc.,

•

the impact of changes in interest rates,

•

changes in, and the discount rate assumptions used for, Wolf Creek Nuclear Operating Corporation pension and other post-retirement benefit liability calculations, as well as actual and assumed investment returns on pension plan assets,

•

the impact of changing interest rates and other assumptions on our decommissioning liability for Wolf Creek Generating Station,

•

transmission reliability rules,

•

homeland security considerations,

•

coal, natural gas and oil prices, and

•

other circumstances affecting anticipated operations, sales and costs.

These lists are not all-inclusive because it is not possible to predict all factors. This report should be read in its entirety and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2003. No one section of the report deals with all aspects of the subject matter and additional information on some matters that could impact our operations and financial results may be included in our Annual Report on Form 10-K for the year ended

December 31, 2003. 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.

KANSAS GAS AND ELECTRIC COMPANY

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

(Unaudited)


	March 31, 2004			December 31, 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,326		$	6,343
Accounts receivable, net		64,228			80,771
Inventories and supplies		57,741			66,930
Energy marketing contracts		7,125			8,688
Deferred tax assets		2,068			1,064
Prepaid expenses		14,265			24,657
Other		1,434			1,435

Total Current Assets		152,187			189,888

PROPERTY, PLANT AND EQUIPMENT, NET		2,352,874			2,362,371

OTHER ASSETS:
Regulatory assets		316,447			316,670
Nuclear decommissioning trust		82,858			80,075
Other		31,517			31,225

Total Other Assets		430,822			427,970

TOTAL ASSETS	$	2,935,883		$	2,980,229

LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES:
Accounts payable	$	37,371		$	42,231
Payable to affiliates		64,242			81,380
Accrued interest		11,296			8,342
Accrued taxes		36,581			28,059
LaCygne 2 lease		27,084			32,543
Accrued liabilities		2,646			3,144
Energy marketing contracts		7,050			6,799
Other		7,648			7,338

Total Current Liabilities		193,918			209,836

LONG-TERM LIABILITIES:
Long-term debt, net		549,632			549,604
Deferred income taxes and investment tax credits		730,112			731,736
Deferred gain from sale-leaseback		147,853			150,810
Asset retirement obligation		82,300			80,695
Nuclear decommissioning		82,858			80,075
Other		85,687			91,895

Total Long-Term Liabilities		1,678,442			1,684,815

COMMITMENTS AND CONTINGENCIES (Note 6)

SHAREHOLDER’S EQUITY:
Common stock, no par value; authorized and issued 1,000 shares		1,065,634			1,065,634
Retained earnings (accumulated deficit)		(2,111	)		19,944

Total Shareholder’s Equity		1,063,523			1,085,578

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	2,935,883		$	2,980,229

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

KANSAS GAS AND ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(Dollars in Thousands)

(Unaudited)


	Three Months Ended March 31,
	2004			2003
SALES	$	162,091		$	172,670

OPERATING EXPENSES:
Fuel and purchased power		55,041			42,925
Operating and maintenance		54,963			55,436
Depreciation and amortization		22,753			22,345
Selling, general and administrative		17,743			15,600

Total Operating Expenses		150,500			136,306

INCOME FROM OPERATIONS		11,591			36,364

OTHER INCOME (EXPENSE):
Other income		5,990			1,238
Other expense		(4,253	)		(3,650	)

Total Other Income (Expense)		1,737			(2,412	)

Interest expense		9,406			11,763

INCOME BEFORE INCOME TAXES		3,922			22,189

Income tax expense		977			5,165

NET INCOME		2,945			17,024

OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gain on cash flow hedges		—			2,574
Income tax expense related to items of other comprehensive income		—			(1,024	)

Total other comprehensive gain, net of tax		—			1,550

COMPREHENSIVE INCOME	$	2,945		$	18,574

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

KANSAS GAS AND ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)


	Three Months Ended March 31,
	2004			2003
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income	$	2,945		$	17,024
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		22,753			22,345
Amortization of nuclear fuel		3,493			3,482
Amortization of deferred gain from sale-leaseback		(2,957	)		(2,957	)
Corporate owned life insurance		(1,022	)		(993	)
Net deferred taxes		(1,571	)		(63	)
Net changes in energy marketing assets and liabilities		1,916			66
Changes in working capital items:
Accounts receivable, net		16,543			15
Inventories and supplies		9,189			2,922
Prepaid expenses and other		10,392			11,535
Accounts payable		(4,860	)		(4,645	)
Payable to affiliates		(17,138	)		(13,150	)
Accrued and other current liabilities		5,829			15,544
Changes in other, assets		2,065			1,211
Changes in other, liabilities		(6,242	)		(7,708	)

Cash flows from operating activities		41,335			44,628

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Additions to property, plant and equipment		(18,291	)		(15,532	)

Cash flows used in investing activities		(18,291	)		(15,532	)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Retirements of long-term debt		—			(5	)
Net borrowings against cash surrender value of corporate-owned life insurance		939			941
Dividends to parent company		(25,000	)		(25,000	)

Cash flows used in financing activities		(24,061	)		(24,064	)
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