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, 2004
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
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 1, 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.
| Page | ||||
| PART I. Financial Information |
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| Item 1. |
Condensed Financial Statements (Unaudited) |
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| 4 | ||||
| 5-6 | ||||
| 7 | ||||
| 8 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||
| Item 3. |
20 | |||
| Item 4. |
20 | |||
| PART II. Other Information |
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| Item 1. |
22 | |||
| Item 2. |
22 | |||
| Item 3. |
22 | |||
| Item 4. |
22 | |||
| Item 5. |
22 | |||
| Item 6. |
22 | |||
| 23 | ||||
2
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 “Hours of Service” legislation that was enacted in January 2004 on the number of hours during which employees may operate equipment, |
| • | 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 this 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.
3
PART I. Financial Information
| ITEM 1. | CONDENSED FINANCIAL STATEMENTS |
KANSAS GAS AND ELECTRIC COMPANY
(Dollars in Thousands)
(Unaudited)
| June 30, 2004 |
December 31, 2003 | |||||
| ASSETS | ||||||
| CURRENT ASSETS: |
||||||
| Cash and cash equivalents |
$ | 8,553 | $ | 6,321 | ||
| Accounts receivable, net |
88,476 | 80,771 | ||||
| Inventories and supplies |
62,339 | 66,930 | ||||
| Energy marketing contracts |
4,096 | 8,688 | ||||
| Deferred tax assets |
3,515 | 1,064 | ||||
| Prepaid expenses |
44,016 | 24,657 | ||||
| Other |
2,687 | 1,457 | ||||
| Total Current Assets |
213,682 | 189,888 | ||||
| PROPERTY, PLANT AND EQUIPMENT, NET |
2,349,340 | 2,362,371 | ||||
| OTHER ASSETS: |
||||||
| Regulatory assets |
327,369 | 316,670 | ||||
| Nuclear decommissioning trust |
83,543 | 80,075 | ||||
| Other |
40,808 | 31,225 | ||||
| Total Other Assets |
451,720 | 427,970 | ||||
| TOTAL ASSETS |
$ | 3,014,742 | $ | 2,980,229 | ||
| LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||
| CURRENT LIABILITIES: |
||||||
| Accounts payable |
$ | 34,389 | $ | 42,231 | ||
| Payable to affiliates |
83,745 | 81,380 | ||||
| Accrued interest |
6,564 | 8,246 | ||||
| Accrued taxes |
31,690 | 28,059 | ||||
| LaCygne 2 lease |
36,980 | 32,543 | ||||
| Energy marketing contracts |
4,994 | 6,799 | ||||
| Other |
14,203 | 10,578 | ||||
| Total Current Liabilities |
212,565 | 209,836 | ||||
| LONG-TERM LIABILITIES: |
||||||
| Long-term debt, net |
552,414 | 549,604 | ||||
| Deferred income taxes and investment tax credits |
734,714 | 731,736 | ||||
| Deferred gain from sale-leaseback |
144,895 | 150,810 | ||||
| Asset retirement obligation |
83,906 | 80,695 | ||||
| Nuclear decommissioning |
83,543 | 80,075 | ||||
| Other |
112,258 | 91,895 | ||||
| Total Long-Term Liabilities |
1,711,730 | 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 |
24,813 | 19,944 | ||||
| Total Shareholder’s Equity |
1,090,447 | 1,085,578 | ||||
| TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY |
$ | 3,014,742 | $ | 2,980,229 | ||
The accompanying notes are an integral part of these consolidated financial statements.
4
KANSAS GAS AND ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
| Three Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| SALES |
$ | 180,335 | $ | 172,165 | ||||
| OPERATING EXPENSES: |
||||||||
| Fuel and purchased power |
39,735 | 41,191 | ||||||
| Operating and maintenance |
58,402 | 56,260 | ||||||
| Depreciation and amortization |
22,894 | 22,989 | ||||||
| Selling, general and administrative |
16,334 | 16,737 | ||||||
| Total Operating Expenses |
137,365 | 137,177 | ||||||
| INCOME FROM OPERATIONS |
42,970 | 34,988 | ||||||
| OTHER INCOME (EXPENSE): |
||||||||
| Other income |
6,172 | 1,075 | ||||||
| Other expense |
(2,641 | ) | (2,592 | ) | ||||
| Total Other Income (Expense) |
3,531 | (1,517 | ) | |||||
| Interest expense |
8,519 | 11,717 | ||||||
| INCOME BEFORE INCOME TAXES |
37,982 | 21,754 | ||||||
| Income tax expense |
11,059 | 5,770 | ||||||
| NET INCOME |
26,923 | 15,984 | ||||||
| OTHER COMPREHENSIVE INCOME, NET OF TAX: |
||||||||
| Unrealized holding gain on cash flow hedges |
— | 2,199 | ||||||
| Adjustment for gains included in net income |
— | (766 | ) | |||||
| Income tax expense related to items of other comprehensive income |
— | (570 | ) | |||||
| Total other comprehensive gain, net of tax |
— | 863 | ||||||
| COMPREHENSIVE INCOME |
$ | 26,923 | $ | 16,847 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
KANSAS GAS AND ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| SALES |
$ | 342,426 | $ | 344,835 | ||||
| OPERATING EXPENSES: |
||||||||
| Fuel and purchased power |
94,776 | 84,116 | ||||||
| Operating and maintenance |
113,366 | 111,695 | ||||||
| Depreciation and amortization |
45,647 | 45,335 | ||||||
| Selling, general and administrative |
34,077 | 32,337 | ||||||
| Total Operating Expenses |
287,866 | 273,483 | ||||||
| INCOME FROM OPERATIONS |
54,560 | 71,352 | ||||||
| OTHER INCOME (EXPENSE): |
||||||||
| Other income |
12,162 | 2,314 | ||||||
| Other expense |
(6,893 | ) | (6,243 | ) | ||||
| Total Other Income (Expense) |
5,269 | (3,929 | ) | |||||
| Interest expense |
17,925 | 23,480 | ||||||
| INCOME BEFORE INCOME TAXES |
41,904 | 43,943 | ||||||
| Income tax expense |
12,035 | 10,935 | ||||||
| NET INCOME |
29,869 | 33,008 | ||||||
| OTHER COMPREHENSIVE INCOME, NET OF TAX: |
||||||||
| Unrealized holding gain on cash flow hedges |
— | 4,773 | ||||||
| Adjustment for gains included in net income |
— | (766 | ) | |||||
| Income tax expense related to items of other comprehensive income |
— | (1,594 | ) | |||||
| Total other comprehensive gain, net of tax |
— | 2,413 | ||||||
| COMPREHENSIVE INCOME |
$ | 29,869 | $ | 35,421 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
KANSAS GAS AND ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 29,869 | $ | 33,008 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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