UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000 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: 1-3368
THE EMPIRE DISTRICT ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Kansas 44-0236370
(State of Incorporation) (I.R.S. Employer
Identification No.)
602 Joplin Street, Joplin, Missouri 64801
(Address of principal executive offices) (zip code)
Registrant's telephone number: (417) 625-5100
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 ___
Common stock outstanding as of May 1, 2000: 17,446,836 shares.
THE EMPIRE DISTRICT ELECTRIC COMPANY
INDEX
Page Number
Part I - Financial Information:
Item 1. Financial Statements:
a. Statement of Income 3
b. Balance Sheet 5
c. Statement of Cash Flows 6
d. Notes to Financial Statements 7
Forward Looking Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Merger With UtiliCorp 8
Results of Operations 9
Liquidity and Capital Resources 13
Item 3. Quantitative and Qualitative Disclosures About 14
Market Risk
Part II - Other Information:
Item 1. Legal Proceedings - (none)
Item 2. Changes in Securities - (none)
Item 3. Defaults Upon Senior Securities - (none)
Item 4. Submission of Matters to a Vote of Security 14
Holders
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
March 31,
2000 1999
Operating revenues:
Electric $53,800,537 $54,491,652
Water 229,854 250,461
54,030,391 54,742,113
Operating revenue deductions:
Operating expenses:
Fuel 9,831,587 9,232,210
Purchased power 13,814,266 11,008,095
Other 8,099,938 8,087,415
Merger related expenses 22,815 -
Total operating expenses 31,768,606 28,327,720
Maintenance and repairs 3,230,303 3,892,917
Depreciation and amortization 6,824,606 6,418,819
Provision for income taxes 920,222 2,937,570
Other taxes 3,253,748 3,161,259
45,997,485 44,738,285
Operating income 8,032,906 10,003,828
Other income and deductions:
Allowance for equity funds used 360,581 30,521
during construction
Interest income 248,067 40,959
Other - net (78,413) (99,497)
530,235 (28,017)
Income before interest charges 8,563,141 9,975,811
Interest charges:
Long-term debt 6,590,249 4,618,614
Commercial paper - 200,366
Allowance for borrowed funds used (497,437) (163,506)
during construction
Other 99,041 82,584
6,191,853 4,738,058
Net income 2,371,288 5,237,753
Preferred stock dividend requirements - 599,180
Net income applicable to common stock $2,371,288 $4,638,573
Weighted average number of common
shares outstanding 17,391,854 17,129,470
Basic and diluted earnings per
weighted average share of
common stock $ 0.14 $ 0.27
Dividends per share of common stock $ 0.32 $ 0.32
See accompanying Notes to Financial Statements.
STATEMENT OF INCOME (UNAUDITED)
Twelve Months Ended
March 31,
2000 1999
Operating revenues:
Electric $240,374,087 $242,146,134
Water 1,075,731 1,066,031
241,449,818 243,212,165
Operating revenue deductions:
Operating expenses:
Fuel 45,850,805 44,956,571
Purchased power 47,502,962 44,095,387
Other 31,845,654 32,661,071
Merger Related Expenses 5,795,107 -
Total operating expenses 130,994,528 121,713,029
Maintenance and repairs 15,682,655 17,337,273
Depreciation and amortization 26,772,481 25,231,853
Provision for income taxes 13,845,081 17,172,730
Other taxes 13,550,271 12,441,448
200,845,016 193,896,333
Operating income 40,604,802 49,315,832
Other income and deductions:
Allowance for equity funds used 386,905 39,459
during construction
Interest income 710,463 279,493
Other - net (641,035) (743,404)
456,333 (424,452)
Income before interest charges 41,061,135 48,891,380
Interest charges:
Long-term debt 21,374,369 18,347,154
Commercial paper 1,472,711 463,192
Allowance for borrowed funds used (1,469,707) (490,345)
during construction
Other 380,089 350,785
21,757,462 18,670,786
Net income 19,303,673 30,220,594
Preferred stock dividend requirements 803,844 2,406,879
Excess consideration paid on 1,304,504 -
redemption of preferred stock
Net income applicable to common stock $17,195,325 $27,813,715
Weighted average number of common
shares outstanding 17,302,747 17,015,264
Basic and diluted earnings per
weighted average share of
common stock $ 0.99 $ 1.64
Dividends per share of common stock $ 1.28 $ 1.28
See accompanying Notes to Financial Statements.
BALANCE SHEET
March 31,
2000 December 31,
(Unaudited) 1999
ASSETS
Utility plant, at original cost:
Electric $881,940,831 $871,263,673
Water 7,071,463 7,023,246
Construction work in progress 56,844,756 41,712,243
945,857,050 919,999,162
Accumulated depreciation 310,927,829 303,951,518
634,929,221 616,047,644
Current assets:
Cash and cash equivalents 12,516,984 20,778,856
Accounts receivable - trade, net 15,820,621 17,377,963
Accrued unbilled revenues 6,095,317 6,660,318
Accounts receivable - other 3,738,325 6,726,734
Fuel, materials and supplies 15,238,272 15,978,790
Prepaid expenses 635,930 1,129,021
54,045,449 68,651,682
Deferred charges:
Regulatory assets 36,810,630 37,075,852
Unamortized debt issuance costs 4,086,014 4,175,240
Other 7,750,482 5,458,466
48,647,126 46,709,558
Total Assets $737,621,796 $731,408,884
CAPITALIZATION AND LIABILITIES:
Common stock, $1 par value,
17,435,804 and
17,369,855 shares issued and
outstanding, respectively $ 17,435,804 $ 17,369,855
Capital in excess of par value 165,393,302 163,909,732
Retained earnings (Note 2) 49,717,082 52,908,431
Total common stockholders' equity 232,546,188 234,188,018
Long-term debt 345,800,068 345,850,169
578,346,256 580,038,187
Current liabilities:
Accounts payable and accrued 21,912,798 25,232,221
liabilities
Customer deposits 3,623,260 3,686,691
Interest accrued 10,023,472 5,026,356
Taxes accrued, including income 3,314,389 -
taxes
38,873,919 33,945,268
Noncurrent liabilities and deferred
credits:
Regulatory liability 15,017,774 15,295,992
Deferred income taxes 79,612,444 78,913,545
Unamortized investment tax credits 7,764,244 7,811,000
Postretirement benefits other than 4,945,865 4,592,721
pensions
State Line advance payments 10,063,413 7,895,241
Other 2,997,881 2,916,930
120,401,621 117,425,429
Total Capitalization and $737,621,796 $731,408,884
Liabilities
See accompanying Notes to Financial Statements.
STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
2000 1999
Operating activities:
Net income $2,371,288 $5,237,753
Adjustments to reconcile net income
to cash flows:
Depreciation and amortization 8,220,659 7,224,853
Pension income (1,744,251) (665,721)
Deferred income taxes, net 215,358 438,847
Investment tax credit, net (46,756) (110,290)
Allowance for equity funds used (360,581) (30,521)
during construction
Issuance of common stock for 401(k) 191,294 196,515
plan
Issuance of common stock units for 84,000 84,000
director retirement plan
Other - -
Cash flows impacted by changes in:
Accounts receivable and accrued 5,110,752 1,442,608
unbilled revenues
Fuel, materials and supplies 740,518 (1,223,620)
Prepaid expenses and deferred (74,556) (334,484)
charges
Accounts payable and accrued (3,319,423) (4,541,620)
liabilities
Customer deposits, interest and 8,437,239 7,195,612
taxes accrued
Other liabilities and other
deferred credits 2,602,267 710,512
Net cash provided by operating 22,427,808 15,624,444
activities
Investing activities:
Construction expenditures (26,676,144) (13,239,538)
Allowance for equity funds used 360,581 30,521
during construction
Net cash used in investing activities (26,315,563) (13,209,017)
Financing activities:
Proceeds from issuance of common 1,274,225 1,290,471
stock
Dividends (5,562,637) (6,078,036)
Repayment of first mortgage bonds (70,000) -
Payment of debt issue costs (15,705) -
Net proceeds from short-term - 7,500,000
borrowings
Net cash provided by (used in)
financing activities (4,374,117) 2,712,435
Net increase (decrease) in cash and (8,261,872) 5,127,862
cash equivalents
Cash and cash equivalents at beginning
of period 20,778,856 2,492,716
Cash and cash equivalents at end of $12,516,984 $ 7,620,578
period
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Summary of Significant Accounting Policies
The accompanying interim financial statements do not include
all disclosures included in the annual financial statements and
therefore should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
The information furnished reflects all adjustments, consisting
only of normal recurring adjustments, which are in the opinion of
the Company necessary to present fairly the results for the interim
periods presented.
Note 2 - Retained Earnings
First Quarter
2000
Balance at January 1, 2000 $52,908,431
Changes January 1 through March 31:
Net Income 2,371,288
Quarterly cash dividends on common stock:
- $0.32 per share (5,562,637)
Total changes January 1 through March 31 (3,191,349)
Balance at March 31, 2000 $49,717,082
FORWARD LOOKING STATEMENTS
Certain matters discussed in this quarterly report are
"forward-looking statements" intended to qualify for the safe
harbor from liability established by the Private Securities
Litigation Reform Act of 1995. Such statements address future
plans, objectives, expectations and events or conditions concerning
various matters such as capital expenditures (including those
planned in connection with the State Line Combined Cycle Unit),
earnings, competition, litigation, rate and other regulatory
matters, liquidity and capital resources, and accounting matters.
Actual results in each case could differ materially from those
currently anticipated in such statements, by reason of factors such
as the cost and availability of purchased power and fuel; a
significant delay in the expected completion of, and unexpected
consequences resulting from the merger with UtiliCorp; delays in or
increased costs of construction; electric utility restructuring,
including ongoing state and federal activities; weather, business
and economic conditions; legislation; regulation, including rate
relief and environmental regulation (such as NOx regulation);
competition; including the impact of deregulation on off-system
sales; and other circumstances affecting anticipated rates,
revenues and costs.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
MERGER WITH UTILICORP
The Company and UtiliCorp United Inc., a Delaware corporation
("UtiliCorp"), have entered into an Agreement and Plan of Merger,
dated as of May 10, 1999 (the "Merger Agreement"), which provides
for a merger of the Company with and into UtiliCorp, with UtiliCorp
being the surviving corporation (the "Merger"). Under the terms of
the Merger Agreement, UtiliCorp will pay $29.50 for each share of
common stock of the Company, payable in UtiliCorp common stock or
cash. The Merger Agreement contains a collar provision under which
the value of the merger consideration per share will decrease if
UtiliCorp's common stock is below $22 per share preceding the
closing and will increase if UtiliCorp's common stock is above $26
per share preceding the closing. The average trading price of
UtiliCorp's common stock price will be used to determine the merger
consideration and will be calculated based on the closing prices on
the NYSE during the 20 trading days ending on the third trading day
prior to the closing date of the Merger. If the average trading
price is below $22, UtiliCorp will pay 1.342 times the average
trading price for each share of Company common stock and if the
average trading price is above $26, UtiliCorp will pay 1.135 times
the average trading price for each share of Company common stock.
For example, if the Merger had closed on May 5, 2000, the average
trading price for UtiliCorp's common stock would have been $18.9219
per share, resulting in the payment of $25.3114 for each share of
the Company's common stock. Stockholders of the Company may elect
to take cash or stock, but total cash paid to stockholders will be
limited to no more than 50% of the total Merger consideration, and
the number of shares of UtiliCorp common stock that may be issued
in the Merger is limited to 19.9% of the number of then outstanding
shares of common stock of UtiliCorp. UtiliCorp also will become
liable for all of the Company's existing debt, including its first
mortgage bonds and senior unsecured notes.
The Merger, which was unanimously approved by the Boards of
Directors of the constituent companies, is expected to close after
all of the conditions to the consummation of the Merger are met or
waived. The Merger is conditioned, among other things, upon
approvals of federal regulatory agencies and approvals of state
regulatory authorities in states where the combined company will
operate. At a special meeting of stockholders held on September 3,
1999, the Merger was approved with 76.3% of the Company's
outstanding shares voting in favor of the proposal. UtiliCorp is
not required to obtain its stockholders' approval of the Merger.
The Company and UtiliCorp filed joint applications with the
FERC on November 23, 1999 and the Missouri Commission on December
14, 1999 requesting approval of the merger. Applications to merge
were filed with the Arkansas Public Service Commission on January
28, 2000 and with the Kansas Corporation Commission and Oklahoma
Corporation Commission on January 31, 2000. Each state application
sets forth a proposed Regulatory Plan (the "Plan") which would
result in a five-year rate moratorium following the conclusion of
rate cases the Company plans to file beginning in the second half
of 2000. These rate cases are designed to recover the costs
associated with the Company's State Line Project anticipated to be
operational by June 2001. The Plan also calls for UtiliCorp to
keep any savings generated by the Merger to offset the acquisition
premium. UtiliCorp may file state rate cases at the end of the
five-year rate moratorium allowing UtiliCorp to include one half of
any unamortized acquisition premium in rate base, thus allowing the
acquisition premium to be recovered in rates. The Missouri
Commission has scheduled hearing dates for the Merger proposal for
September 11-15, 2000. Hearing dates for the Merger proposal have
also been set for October 9-10, 2000 by the Oklahoma Corporation
Commission and for October 24-26, 2000 by the Kansas Corporation
Commission. The Arkansas Public Service Commission is considering
a September 19 hearing date.
UtiliCorp is a multinational energy and energy services
company headquartered in Kansas City, Missouri. It has regulated
utility operations in eight states and energy operations in New
Zealand, Australia, the United Kingdom and Canada. It also owns
non-utility subsidiaries involved in energy trading; natural gas
gathering, processing and transportation; energy efficiency
services and various other energy-related businesses. For more
information on the Merger, see the Company's proxy statement for
its special meeting of stockholders held on September 3, 1999,
which is dated August 2, 1999.
RESULTS OF OPERATIONS
The following discussion analyzes significant changes in the
results of operations for the three-month and twelve-month periods
ended March 31, 2000, compared to the same periods ended March 31,
1999.
Operating Revenues and Kilowatt-Hour Sales
Of the Company's total electric operating revenues during the
first quarter of 2000, approximately 44% were from residential
customers, 28% from commercial customers, 17% from industrial
customers, 5% from wholesale on-system customers and 2% from
wholesale off-system transactions. The remainder of such revenues
were derived from miscellaneous sources. The percentage changes
from the prior year in kilowatt-hour ("Kwh") sales and revenue by
major customer class were as follows:
Kwh Sales Revenue
Twelve Twelve
First Months First Months
Quarter Ended Quarter Ended
Residential (4.2)% (5.3)% (2.9)% (3.9)%
Commercial (1.9) (0.8) (1.0) 1.1
Industrial 0.7 1.5 0.2 1.8
Wholesale On- 2.9 - 4.5 (0.8)
System
Total On- (2.2) (1.9) (1.6) (1.0)
System
Residential and commercial Kwh sales and revenues were down
during the first quarter of 2000 compared to the first quarter of
1999 primarily due to unusually mild temperatures. Total heating
degree days (the number of degrees that the average temperature for
that period was below 65 F) for the first quarter of 2000 were 8.5%
less than the same period last year and 16.5% less than the 20-year
average.
Industrial Kwh sales and revenues, which are not particularly
weather sensitive, were up during the first quarter of 2000 when
compared to the same period last year due to continuing increases
in business activity throughout the Company's service territory.
On-system wholesale Kwh sales and revenues increased during
the first quarter of 2000 reflecting the continuing increases in
business activity described above.
For the twelve months ended March 31, 2000, Kwh sales to and
revenue from the Company's residential customers decreased,
reflecting the mild temperatures experienced during the first
quarter of 2000 as well as those experienced during May, June and
September of 1999. Kwh sales to commercial customers decreased
slightly while revenues from those customers increased. Industrial
sales and revenues continued to grow due to strong business
activity in the Company's service territory. On-system wholesale
Kwh sales for the twelve months ended March 31, 2000 were virtually
the same as during the same period in 1999 while the corresponding
revenues decreased slightly.
Off-System Transactions
In addition to sales to its own customers, the Company also
sells power to other utilities as available and also provides
transmission service through its system for transactions between
other energy suppliers. During the first quarter of 2000, revenues
from such off-system transactions were approximately $1.6 million,
the same as the first quarter of 1999. For the twelve months ended
March 31, 2000, revenues from such off-system transactions were
approximately $9.6 million as compared to $8.6 million for the
twelve months ended March 31, 1999. The increase in revenues
during the twelve months ended March 31, 2000 was primarily the
result of an increase in firm capacity charges as well as an
increase in sales resulting from the ability to sell power at
market-based rates. Pursuant to orders issued by the FERC and
subsequent tariffs filed by the Company and the Southwest Power
Pool ("SPP"), these off-system sales have been opened up to
competition. Reference is made to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 under the caption
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Competition" for more information on these
open-access tariffs.
The Company is a member of the SPP, a regional division of the
North American Electric Reliability Council, which requires its
members to maintain a 12% capacity reserve margin and provides for
contingency reserve sharing, regional near real-time security
assessment 24 hours per day and many other functions. The Company
is participating with other utility members in the restructuring of
SPP to make it a regional transmission organization ("RTO").
Reference is made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Competition". The Company is also a member of the
Western Systems Power Pool ("WSPP"), a marketing pool that provides
agreements that facilitate the purchase and sale of wholesale power
among members. Most of the United States electric utilities are
now parties to this agreement.
Operating Revenue Deductions
During the first quarter of 2000, total operating expenses
increased approximately $3.4 million (12.2%) compared with the same
period last year. Purchased power costs increased approximately
$2.8 million (25.5%) during the period, primarily due to increased
purchases of replacement energy due to scheduled plant outages on
the coal-fired units at the Asbury and Iatan plants, as well as
increased costs for this energy. The Asbury Plant began this year's
spring outage on March 18, two weeks earlier than last year's
outage, and returned to service at the end of April.
Total fuel costs increased approximately $0.6 million (6.5%)
during the first quarter of 2000 primarily reflecting increased
generation from the State Line Power Plant and Energy Center
combustion turbines. These gas-fired units were utilized during
the spring outages discussed above whenever the cost of purchased
power exceeded the cost of running the combustion turbines.
Other operating expenses increased slightly during the period.
Maintenance and repair expense decreased approximately $0.7 million
(17.0%) during the quarter, primarily due to decreased distribution
expense in the first quarter of 2000 as compared to the same period
last year when the Company incurred approximately $1.0 million in
storm damages resulting from a New Year's Day ice storm.
Depreciation and amortization expenses increased approximately
$0.4 million (6.3%) during the quarter due to increased levels of
plant and equipment placed in service. Total income taxes
decreased $2.0 million (68.7%) during the first quarter of 2000 due
primarily to lower taxable income during the current period. Other
taxes increased slightly during the quarter.
During the twelve months ended March 31, 2000, total operating
expenses increased approximately $9.3 million (7.6%) compared to
the year ago period. Merger related expenses, which are not tax
deductible, contributed $5.8 million to this increase. A
significant portion of the merger related expenses includes
payments to the Company's financial advisors for the first and
second portions of the agreed upon transaction fee for their
financial services in connection with the merger. This agreement
calls for payment of 25% of the transaction fee upon execution of
the merger agreement, 25% upon stockholder approval of the merger
and the remaining 50% upon the consummation of the merger, payable
upon closing. Including the final payment to be made under this
agreement, remaining merger costs are expected to total
approximately $11 million.
Total purchased power costs increased approximately $3.4
million (7.7%) during the twelve months ended March 31, 2000 as
compared to the year ago period, primarily resulting from increased
purchases of replacement energy due to the timing differences of
the Asbury Plant outage and the increased cost of purchased power
discussed above. Total fuel costs were up approximately $0.9
million (2.0%) during the twelve months ended March 31, 2000 due
primarily to the increased usage of the Company's higher-cost gas-
fired combustion turbines during the Asbury Plant outages in the
first quarter of 2000 and the second quarter of 1999.
Other operating expenses decreased approximately $0.8 million
(2.5%) during the twelve months ended March 31, 2000, compared to
the same period last year due primarily to increased pension
income. Maintenance and repair expenses decreased approximately
$1.7 million (9.5%) during the twelve months ended March 31, 2000,
compared to the prior period. This decrease was primarily due to
decreased maintenance costs on the gas-fired combustion turbines at
the Energy Center and the State Line Power Plant as well as
decreased transmission and distribution costs. Depreciation and
amortization expense increased approximately $1.5 million (6.1%)
due to increased levels of plant and equipment placed in service.
Total provision for income taxes decreased $3.3 million (19.4%)
reflecting lower taxable income during the current period. Other
taxes increased $1.1 million (8.9%) due primarily to increased
property taxes and city taxes.
Nonoperating Items
Total allowance for funds used during construction ("AFUDC")
increased during each of the periods presented compared to prior
year levels, reflecting higher levels of construction work in
progress related to the construction at the State Line Power Plant.
Other-net deductions decreased slightly for the first quarter
of 2000 as compared to the first quarter of 1999 and decreased $0.1
million (13.8%) for the twelve months ended March 31, 2000,
reflecting increasing profit margins for the Company's non-
regulated fiber optics leasing venture. Interest income increased
for both periods, reflecting the higher balances of cash available
for investment.
Interest charges on long-term debt increased $2.0 million
(42.7%) during the first quarter of 2000 and $3.0 million (16.5%)
for the twelve months ended March 31, 2000 when compared to the
same periods last year due to the issuance of $100 million of the
Company's unsecured Senior Notes in November 1999. The proceeds
from the Senior Notes were added to the Company's general funds and
were used to repay short-term indebtedness, including approximately
$33.1 million in commercial paper incurred in connection with the
Company's preferred stock redemption on August 2, 1999, as well as
that incurred in connection with the Company's construction
program. As a result, there was no commercial paper interest
during the first quarter of 2000 as compared to $0.2 million for
the first quarter of 1999. Commercial paper interest increased
$1.0 million (217.9%) for the twelve months ended March 31, 2000 as
compared to the prior year period due to the increased usage of
short-term debt for financing the Company's ongoing construction
program and preferred stock redemption prior to the issuance of the
unsecured Senior Notes in November 1999.
Earnings
For the first quarter of 2000, earnings per share of common
stock were $0.14 compared to $0.27 during the first quarter of
1999. Earnings per share were down primarily due to decreased
sales to residential and commercial classes of customers as well as
the increase in purchased power costs and increased use of higher
cost gas turbines resulting from spring outages at the Company's
coal-fired plants.
Earnings per share for the twelve months ended March 31, 2000,
were $0.99 compared to $1.64 for the twelve months ended a year
earlier primarily due to the $5.8 million in merger costs incurred
during 1999, as well as the $1.3 million in excess consideration
paid on redemption of the Company's preferred stock, as well as the
decreased sales and increased costs discussed above. Earnings for
the current twelve month period were also negatively impacted by
increased interest expense. Excluding the $5.8 million in merger
costs, earnings per share would have been $1.33.
Environmental Matters
In September 1998, the EPA issued its final regulation for a
State Implementation Plan ("SIP") call for nitrogen oxide ("NOx")
requiring the District of Columbia and 22 Midwestern and Eastern
states to reduce NOx emissions up to 85% below the levels
established by the 1990 Amendments. The State of Missouri was
included in the final regulation but Kansas, Arkansas and Oklahoma
were not. The Asbury, State Line, Energy Center and Iatan Power
Plants were affected by this SIP call. If unchanged, this SIP call
would have required installation of additional NOx control
equipment at the Asbury and Iatan Power Plants by May 1, 2003. In
1999, the Company joined litigation in the Washington D.C. Circuit
Court against the EPA NOx SIP call. One suit was filed by the
Midwest Ozone Group and another by an alliance of western Missouri
utilities. Oral arguments were heard on November 9, 1999 and a
ruling was issued in March 2000. The Circuit Court vacated and
remanded the SIP call with respect to Wisconsin, Missouri and
Georgia, finding that the EPA failed to explain how Wisconsin
contributes to nonattainment in any other state and that the record
does not support creating NOx budgets based on the entire emissions
of Missouri and Georgia. The Company may still need to eventually
install additional NOx control equipment, but the Company cannot
estimate the cost or timing thereof.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction-related expenditures totaled $26.7
million during the first quarter of 2000, compared to $13.2 million
for the same period in 1999. Approximately $7.3 million of these
expenditures during the first quarter of 2000 was related to
additions to the Company's distribution and transmission systems to
meet projected increases in customer demand and approximately $3.7
million of the first quarter's construction expenditures was
related to ongoing capital projects with the Company's gas-fired
combustion turbines at the State Line Power Plant. An additional
$12.2 million was related to the expansion project at the State
Line Power Plant described below. During the first quarter of
2000, approximately 63% of construction expenditures were satisfied
internally from operations.
On July 26, 1999, the Company and Westar Generating, Inc.
("WGI"), a subsidiary of Western Resources, Inc., entered into
agreements for the construction, ownership and operation of a 500-
megawatt combined-cycle unit at the State Line Power Plant (the
"State Line Combined Cycle Unit"). This State Line Combined Cycle
Unit will consist of an additional combustion turbine, two heat
recovery steam generators and a steam turbine and auxiliary
equipment with an already existing combustion turbine. Work has
begun and the State Line Combined Cycle Unit is projected to be
operational by June 2001. The Company will own an undivided 60%
interest in the State Line Combined Cycle Unit with WGI owning the
remainder. The Company is entitled to 60% of the capacity of the
State Line Combined Cycle Unit. The Company will contribute its
existing 152-megawatt State Line Unit No. 2 combustion turbine to
the State Line Combined Cycle Unit, and as a result, upon
commercial operation, the State Line Combined Cycle Unit will
provide the Company with approximately 150 megawatts of additional
capacity. The total cost of this construction expansion project is
estimated to be $195 million. The Company's share of this amount,
after the transfer to WGI of an undivided 40% joint ownership
interest in the existing State Line Unit No. 2 and certain other
property at book value, is expected to be approximately $103
million.
WGI is responsible for 40% of expenditures made by the Company
in connection with the construction and operation of the State Line
Combined Cycle Unit. In addition, WGI will continue to make
monthly prepayments to the Company for the future transfer of its
40% joint ownership interest in the existing State Line Unit No. 2,
as well as an interest in certain underlying and surrounding land
and other property and equipment now owned by the Company. These
prepayments are reflected in State Line advance payments on the
balance sheet.
The Company's construction expenditures are expected to total
approximately $105.7 million in 2000, including approximately $57.8
million for new generating facilities at the State Line Project and
$21.4 million for additions to the Company's distribution system to
meet projected increases in customer demand.
The Company currently estimates that internally generated
funds will provide at least 50% of the funds required for the
remainder of its 2000 construction expenditures. As in the past,
the Company intends to utilize short-term debt to finance the
additional amounts needed for such construction and repay such
borrowings with the proceeds of sales of public offerings of long-
term debt or equity securities, including the sale of the Company's
common stock pursuant to its Dividend Reinvestment Plan and
Employee Stock Purchase Plan and from internally-generated funds.
The Company will continue to utilize short-term debt as needed to
support normal operations or other temporary requirements and has a
$50 million line of credit. The Company financed its preferred
stock redemption on August 2, 1999 with approximately $33.1 million
in commercial paper. After redeeming all of its preferred stock,
the Company is no longer restricted by its Articles as to the
amount of unsecured indebtedness that it may have outstanding at
any one time.
As a result of the implementation of and transition to the
Company's new Centurion customer information system, the Company
initially experienced some delays in customer billing and cash
collection.
The Company filed a shelf registration statement with the SEC,
which became effective on September 30, 1999, registering up to an
aggregate of $150 million of its common stock, first mortgage bonds
and unsecured debt securities. On November 19, 1999, the Company
issued $100 million aggregate principal amount of its unsecured
Senior Notes, the net proceeds of which were added to the Company's
general funds and were used to repay short-term indebtedness,
including indebtedness incurred in connection with the Company's
preferred stock redemption and in connection with the Company's
construction program.
Following announcement of the Merger, the ratings for the
Company's first mortgage bonds (other than the 5.20% Pollution
Control Series due 2013 and the 5.30% Pollution Control Series due
2013) were placed on credit watch with downward implication by each
of Moody's Investors Service, Standard & Poor's and Duff & Phelps
Credit Rating Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in these risks from those
disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of Common Stockholders was held on April
27, 2000.
(b) The following persons were re-elected Directors of the Company
to serve until the 2003 Annual Meeting of Stockholders:
R. D. Hammons (13,771,388 votes for; 309,897 withheld
authority).
J. R. Herschend (13,771,923 votes for; 309,362 withheld
authority).
M. W. McKinney (13,797,203 votes for; 284,082 withheld
authority).
M. M. Posner (13,787,977 votes for; 293,308 withheld
authority).
The term of office as Director of the following other
Directors continued after the meeting: V. E. Brill, R. C.
Hartley, F. E. Jefferies,. M. F. Chubb, R. L. Lamb, and R. E.
Mayes.
Item 5. Other Information.
At March 31, 2000, the Company's ratio of earnings to fixed
charges, and ratio of earnings to fixed charges and preferred stock
dividend requirements, were 2.28x and 2.15x, respectively. See
Exhibit (12) hereto.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(3)(ii) By-laws of the Company (as amended April 27, 2000)
(4) Rights Agreement dated as of April 27, 2000 between the
Empire District Electric Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent
(12) Computation of Ratios of Earnings to Fixed Charges
and Earnings to Combined Fixed Charges and Preferred
Stock Dividend Requirements.
(27) Financial Data Schedule for March 31, 2000
(a) No reports on Form 8-K were filed during the first quarter of
2000.
SIGNATURES
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, thereunto duly authorized.
THE EMPIRE DISTRICT ELECTRIC COMPANY
Registrant
By /s/ R. B. Fancher
R. B. Fancher
Vice President - Finance
By /s/ G. A. Knapp
G. A. Knapp
Controller and Assistant Treasurer
May 15, 2000
EXHIBIT (12)
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND
REQUIREMENTS
Twelve
Months Ended
March 31,
2000
Income before provision for income taxes and $ 59,586,453
fixed charges (Note A)
Fixed charges:
Interest on first mortgage bonds $ 20,451,137
Amortization of debt discount and expense less 843,046
premium
Interest on short-term debt 1,472,711
Interest on notes payable 2,903,520
Other interest 380,089
Rental expense representative of an interest 121,083
factor (Note B)
Total fixed charges 26,171,586
Preferred stock dividend requirements:
Preferred stock dividend requirements not 922,994
deductible for tax purposes
Ratio of income before provision for incomes 1.731
taxes to net income
Nondeductible dividend requirements 1,597,703
Deductible dividends 0
Total preferred stock dividend requirements 1,597,703
Total combined fixed charges and preferred stock $ 27,769,289
dividend requirements
Ratio of earnings to fixed charges 2.28x
Ratio of earnings to combined fixed charges and
preferred stock
dividend requirements 2.15x
NOTE A: For the purpose of determining earnings in the calculation of the
ratio, net income has been increased by the provision for income
taxes, non-operating income taxes and by the sum of fixed charges as
shown above.
NOTE B: One-third of rental expense (which approximates the interest factor).