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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
-- OR --
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 333-91935
Oncor Electric Delivery Transition Bond Company LLC
A Delaware Limited Liability Company I.R.S. Employer Identification No.
75-2851358
500 N. AKARD STREET, DALLAS, TEXAS 75201
(214) 486-2000
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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 No X
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
As of August 15, 2003, all outstanding membership interests in Oncor Electric
Delivery Transition Bond Company LLC were held by Oncor Electric Delivery
Company.
Oncor Electric Delivery Transition Bond Company LLC meets the conditions set
forth in General Instructions (H) (1) (a) and (b) of Form 10-Q and is therefore
filing this report with the reduced disclosure format.
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TABLE OF CONTENTS
Page
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Glossary............................................................................................ ii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 2003 and December 31, 2002................................ 1
Notes to Financial Statements........................................................... 2
Independent Accountants' Report......................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................... 7
Item 4. Controls and Procedures........................................................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................. 8
SIGNATURE........................................................................................... 9
Periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K that
contain financial information of Oncor Electric Delivery Transition Bond Company
LLC will be made available to the public, free of charge, on the TXU Corp.
website at http://www.txucorp.com, shortly after they have been filed with the
Securities and Exchange Commission. Oncor Electric Delivery Transition Bond
Company LLC will provide copies of current reports not posted on the website
upon request.
i
GLOSSARY
When the following terms and abbreviations appear in the text of this report,
they have the meanings indicated below.
1999 Restructuring Legislation.......Legislation that restructured the electric
utility industry in Texas to provide
for competition
Commission...........................Public Utility Commission of Texas
Company..............................Oncor Electric Delivery Transition Bond
Company LLC
Oncor................................Oncor Electric Delivery Company
REPs.................................retail electric providers
SEC..................................United States Securities and Exchange
Commission
Settlement...........................regulatory settlement agreed to by the
Commission in December 2002
Settlement Plan......................regulatory settlement plan filed with the
Commission in December 2001
SFAS.................................Statement of Financial Accounting Standards
SFAS 71..............................SFAS No. 71, "Accounting for the Effects
of Certain Types of Regulation"
T&D..................................transmission and distribution
US GAAP..............................accounting principles generally accepted
in the United States of America
US Holdings..........................TXU US Holdings Company
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ONCOR ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC
BALANCE SHEETS
(Unaudited)
June 30, December 31,
2003 2002
---- ----
ASSETS:
Accounts receivable from affiliate...................... $ 1,000 $ 1,000
Unamortized debt issuance costs......................... 1,817,852 1,136,183
----------- ----------
Total Assets........................................ $ 1,818,852 $1,137,183
=========== ==========
LIABILITIES AND MEMBER'S EQUITY:
Accounts payable to affiliate........................... $ 1,817,852 $1,136,183
Member's Equity......................................... 1,000 1,000
----------- ----------
Total Liabilities and Member's Equity............... $ 1,818,852 $1,137,183
=========== ==========
See Notes to Financial Statements
1
ONCOR ELECTRIC DELIVERY TRANSITION BOND COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BUSINESS AND BASIS OF PRESENTATION
Business - The Company is a bankruptcy remote special purpose Delaware
limited liability company, wholly-owned by Oncor. Oncor is a wholly-owned
subsidiary of US Holdings Company, which is a wholly-owned subsidiary of TXU
Corp. Oncor is a regulated electricity T&D company principally engaged in
providing delivery services to REPs that sell power in the north-central,
eastern and western parts of Texas.
The Company was organized with the sole purpose of limited business
activities as are necessary or reasonably related to the issuance of the
transition bonds, as described below. The Company is structured and is to be
operated in a manner such that in the event of bankruptcy proceedings against
Oncor, the assets of the Company will not be consolidated into the bankruptcy
estate of Oncor.
In June 1999, the Texas legislature passed the 1999 Restructuring
Legislation to restructure the electric utility industry in Texas. The 1999
Restructuring Legislation provided for a transition to competition in the retail
and generation markets for electricity beginning in January 2002, and provided
for recovery of certain costs previously incurred by electric utilities. These
costs consist of generation-related regulatory assets as well as stranded costs,
which represent the excess of net book value over market value of generation
assets (as such regulatory and generation assets are defined by the 1999
Restructuring Legislation). Recovery of these costs is provided through
irrevocable, nonbypassable "transition charges" assessed on substantially all
existing and future retail electric customers within a utility's certificated
service territory as it existed on May 1, 1999. The 1999 Restructuring
Legislation authorized the Commission to issue a "financing order" approving the
issuance of "transition bonds" to facilitate the recovery of generation-related
regulatory assets and stranded costs.
The 1999 Restructuring Legislation and the financing order permit an
electric utility to transfer its rights and interests in the financing order,
including the right to collect transition charges pursuant to the 1999
Restructuring Legislation, to a special purpose entity formed by the electric
utility to issue debt secured by the right to receive revenues arising from the
transition charges. The electric utility's right to receive the transition
charges and its other rights and interests under the financing order constitute
"transition property" once transferred to the Company. The transition property
represents the irrevocable right to impose, collect and receive transition
charges in an amount sufficient to pay the interest, fees, and expenses
associated with the transition bonds, and the aggregate principal amount of the
transition bonds. Oncor and the Company have entered into a servicing agreement.
Transition charges will be assessed by the servicer. The servicer manages,
services, bills and collects payments in respect of the transition property
under the terms of a servicing agreement. Transition charges will be billed
based on a retail customer's actual consumption of electricity. However,
transition charges for demand customers will be based on the maximum amount of
electricity that such customers are expected to consume based on their actual
consumption during the prior year. Transition charges will be collected by the
servicer from REPs that collect transition charges from retail customers as part
of its normal collection activities. The Commission reviews and adjusts
transition charges at least once a year. This review is used to adjust any over
or under collections during the preceding 12 months and to provide for recovery
of amounts sufficient to pay all debt service and other required amounts and
charges in connection with the transition bonds. For so long as Oncor is
servicer, the Company will pay an annual servicing fee to Oncor equal to 0.05%
of the aggregate initial principal amount of all outstanding series of
transition bonds. The servicing fee will be recovered by the Company through the
transition charges.
2
In accordance with the Settlement, Oncor received a financing order
authorizing it to issue securitization bonds in the aggregate principal amount
of $1.3 billion to recover regulatory assets and other qualified costs as
discussed above. The Settlement provides that there can be an initial issuance
of securitization bonds in the amount of up to $500 million, expected to be
completed in the third quarter of 2003, followed by a second issuance of the
remainder expected in the first half of 2004.
The Company was organized on November 30, 1999, under the laws of the
State of Delaware for the sole purpose of purchasing and owning transition
property to be acquired from Oncor. In connection with the acquisition of the
transition property, the Company will (a) register and issue one or more series
of transition bonds, each of which may be comprised of one or more classes, (b)
pledge its interests in the transition property and other transition bond
collateral to secure the transition bonds, (c) make debt service payments on the
transition bonds, and (d) perform other activities that are necessary, suitable
or convenient to accomplish these purposes. The purchase price of such
transition property will be paid from the proceeds of the transition bonds
issued by the Company secured by the transition property and other collateral as
described below.
The assets of the Company will consist of the transition property and
the other collateral, including capital transferred by Oncor on the date of
issuance of the first series of transition bonds in an amount of $6.3 million,
of which $2.5 million will be held by the indenture trustee and pledged as
collateral to such series of transition bonds, and $3.8 million will be used to
fund fees and expenses of the trust not covered by transition charges. Oncor
anticipates that the first series of the transition bonds will be issued in the
third quarter of 2003 at which time the initial capital contribution (other
than the capital contribution made to organize the Company)will be received.
Basis of Presentation -- The financial statements of the Company have
been prepared in accordance with US GAAP.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the financial position
have been included therein. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with US
GAAP have been omitted pursuant to the rules and regulations of the SEC. Because
the interim financial statements do not include all of the information and
footnotes required by US GAAP, they should be read in conjunction with the
audited financial statements included in the Company's prospectus dated August
14, 2003 as filed with the SEC on August 18, 2003 pursuant to Rule 424(b) under
the Securities Act of 1933 (Prospectus Supplement) relating to the Company's
registration statement, as amended, on Form S-3, which was declared effective on
July 2, 2003 (Registration No. 333-91935). The results of operations for an
interim period may not give a true indication of results for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Regulatory Assets and Liabilities -- The Company's business meets the
criteria of SFAS 71. This accounting standard recognizes the cost based rate
making process, which may result in differences in the application of generally
accepted accounting principles between regulated and non-regulated entities.
Revenue -- Transition charges are billed to REPs by Oncor on behalf of
the Company as servicer. These transition charges are recorded as revenue by the
Company.
3
Amortization -- The transition property will be acquired from Oncor and
amortized over the life of the transition bonds based on revenues from
transition charges, interest accruals and other expenses. In accordance with
SFAS 71, amortization is adjusted for over/under collection of transition
charges.
Investment Income -- The Company earns investment revenue on funds held
by the indenture trustee, which funds are invested as allowed by the indenture.
Investment revenue on transition charge collection is recognized as earned and
serves to increase the over-recovery of transition charges by a corresponding
amount since it will be used to make payments on the transition bonds.
Investment income on the capital account (Member's Equity) is recognized on
payment dates. When it is determined that such income is not required to satisfy
payment obligations, Oncor is entitled to such revenues.
Income and Other Taxes -- The Company is organized as a single-member
limited liability company and will not be subject to United States federal
income tax as an entity separate from Oncor. In addition, the Company's receipt
of transition property, transition charges and short-term earnings from
investments of the transition charges will not be subject to Texas franchise
tax.
Unamortized Debt Issuance Costs -- The costs incurred in connection
with the issuance of the transition bonds will be deferred and amortized over
the life of the transition bonds. The amounts reported at June 30, 2003 and
December 31, 2002 represent the legal and administrative costs incurred to
prepare a shelf registration statement with the SEC, expected to be completed in
the third quarter of 2003, under which the bonds will be issued.
3. SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Notwithstanding the non-recourse nature of the transactions, Oncor
(individually, as servicer or otherwise) will be required under the transaction
documents (i) to make certain representations and warranties with respect to,
among other things, the validity of the Company's and its assignees' title to
the transition property and (ii) to observe certain covenants for the benefit of
the Company and its assignees. Oncor will also be required to indemnify the
Company against breach of such representations and warranties and its failure to
perform its covenants and to protect holders of the bonds against certain other
losses, which result from actions or inactions of Oncor.
Oncor will act as the initial servicer for the Company under the
transaction documents. The transaction documents will contain provisions
allowing Oncor to be replaced under limited circumstances. The servicer will be
paid an annual servicing fee in consideration for performing duties, which will
include calculating, billing and collecting transition charges on behalf of the
Company, calculating the true-up adjustments and performing related services.
Oncor will provide administrative services to the Company pursuant to
an administration agreement between the Company and Oncor. Under this agreement,
Oncor will furnish to the Company, at a fixed fee per year, clerical,
secretarial and bookkeeping services to maintain the Company's good standing,
and other administrative services that may be required or agreed upon.
All debt issuance costs incurred to date have been or will be paid by
Oncor and reimbursed by the Company upon issuance of the first series of
transition bonds and have been reflected in the financial statements of the
Company.
4
4. SUBSEQUENT EVENTS
On August 14, 2003, the Company completed the pricing of the initial
$500 million of transition bonds. Approval of the pricing is required by the
Commission before the bonds can be issued. The Company expects to issue and sell
$500 million aggregate principle amount of its series 2003-1 transition bonds in
four classes on August 21, 2003, with annual interest rates and maturity dates
as follows:
Description Amount
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2.26% Class A-1 Series 2003-1 Transition Bond due February 15, 2009 ....... $ 103
4.03% Class A-2 Series 2003-1 Transition Bond due February 15, 2012 ....... 122
4.95% Class A-3 Series 2003-1 Transition Bond due February 15, 2015 ....... 130
5.42% Class A-4 Series 2003-1 Transition Bond due February 15, 2017 ....... 145
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$ 500
In May 2003, the Board of Directors of Oncor approved a capital
contribution of $6.3 million to the Company to be made on or before August 21,
2003, of which $3.8 million will be used to fund the fees and expenses of the
trustee not covered by the transition charges.
5
INDEPENDENT ACCOUNTANTS' REPORT
Oncor Electric Delivery Transition Bond Company LLC:
We have reviewed the accompanying balance sheet of Oncor Electric Delivery
Transition Bond Company LLC (a wholly owned subsidiary of Oncor Electric
Delivery Company) (the "Company") as of June 30, 2003. This financial statement
is the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with auditing standards
generally accepted in the United States of America, the objective of which is
the expression of an opinion regarding the financial statement taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such financial statement for it to be in conformity with accounting
principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the balance sheet of the Company as of
December 31, 2002, and the related statement of member's equity for the year
then ended (not presented herein); and in our report, dated June 17, 2003, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying balance sheet as of December 31,
2002, is fairly stated in all material respects in relation to the balance sheet
from which it has been derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
August 18, 2003
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS
The following discussion and analysis should be read in combination
with the interim financial statements contained in this Form 10-Q and the Oncor
Electric Delivery Transition Bond Company LLC Prospectus.
The Company was organized on November 30, 1999, under the laws of the
State of Delaware for the sole purpose of purchasing and owning transition
property to be acquired from Oncor. In connection with the acquisition of the
transition property, the Company will (a) register and issue one or more series
of transition bonds, each of which may be comprised of one or more classes, (b)
pledge its interests in the transition property and other transition bond
collateral to secure the transition bonds, (c) make debt service payments on the
transition bonds, and (d) perform other activities that are necessary, suitable
or convenient to accomplish these purposes. The purchase price of such
transition property will be paid from the proceeds of the transition bonds
issued by the Company secured by the transition property and other collateral as
described below.
The Company has had no activity as of the date of filing this Form 10-Q
other than the incurrence of debt issuance costs related to $500 million of
bonds expected to be issued in the third quarter of 2003. See Note 4 to
Financial Statements for a discussion of the status of the issuance of the
Series 2003-1 transition bonds.
7
Item 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of the Company's management, including the principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of the disclosure controls and procedures in effect as of the end of
the current period included in this quarterly report. Based on the evaluation
performed, the Company's management, including the principal executive officer
and principal financial officer, concluded that the disclosure controls and
procedures were effective. During the most recent fiscal quarter covered by this
quarterly report, there has been no change in the Company's internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits provided as a part of Part II are:
15 Letter from independent accountants as to unaudited interim
financial information.
31(a) Section 302 Certification of Chief Executive Officer.
31(b) Section 302 Certification of Chief Financial Officer.
32(a)* Section 906 Certification of Chief Executive Officer.
32(b)* Section 906 Certification of Chief Financial Officer.
* Pursuant to Item 601(b)(32)(ii) of Regulation S-K, this
certificate is not being "filed" for purposes of Section 18 of
the Securities Act of 1934.
(b) Reports on Form 8-K filed since March 31, 2003:
July 25, 2003 Item 5. Other Events and
Regulation FD Disclosure
Item 7. Financial Statements and Exhibits
August 4, 2003 Item 5. Other Events and
Regulation FD Disclosure
Item 7. Financial Statements and Exhibits
8
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ONCOR ELECTRIC DELIVERY TRANSITION
BOND COMPANY LLC
By /s/ Marc D. Moseley
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Marc D. Moseley,
Manager and Principal Accounting Officer
Date: August 18, 2003
9