UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 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 X No ___
Common stock outstanding as of August 1, 2000: 17,548,955 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 6
c. Statement of Cash Flows 7
d. Notes to Financial Statements 8
Forward Looking Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Merger With UtiliCorp 9
Results of Operations 11
Liquidity and Capital Resources 15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Part II - Other Information: 16
Item 1. Legal Proceedings - (none)
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities - (none)
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
Signatures 18
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
June 30,
2000 1999
Operating revenues:
Electric $ 57,153,064 $ 53,044,738
Water 274,630 264,446
57,427,694 53,309,184
Operating revenue deductions:
Operating expenses:
Fuel 8,995,176 10,378,173
Purchased power 15,074,874 11,619,380
Other 7,571,237 7,716,698
Merger Related Expenses 99,050 3,061,654
Total operating expenses 31,740,337 32,775,905
Maintenance and repairs 4,554,897 4,212,373
Depreciation and amortization 6,906,991 6,535,755
Provision for income taxes 1,698,320 1,848,270
Other taxes 3,213,035 2,915,118
48,113,580 48,287,421
Operating income 9,314,114 5,021,763
Other income and deductions:
Allowance for equity funds used 472,125 26,324
during construction
Interest income 114,544 53,711
Other - net (145,303) (14,921)
441,366 65,114
Income before interest charges 9,755,480 5,086,877
Interest charges:
Long-term debt 6,589,988 4,618,614
Commercial paper 100,455 298,767
Allowance for borrowed funds used (651,325) (240,388)
during construction
Other 132,908 107,398
6,172,026 4,784,391
Net income 3,583,454 302,486
Preferred stock dividend requirements - 597,333
Net income applicable to common stock $ 3,583,454 $ (294,847)
Weighted average number of common 17,470,290 17,203,177
shares outstanding
Basic and diluted earnings per
weighted average share of common stock $ 0.21 $ (0.02)
Dividends per share of common stock $ 0.32 $ 0.32
See accompanying Notes to Financial Statements.
STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended
June 30,
2000 1999
Operating revenues:
Electric $ 110,953,601 $ 107,536,391
Water 504,484 514,906
111,458,085 108,051,297
Operating revenue deductions:
Operating expenses:
Fuel 18,826,764 19,610,383
Purchased power 28,889,140 22,627,475
Other 15,671,174 15,804,114
Merger Related Expenses 121,865 3,061,654
Total operating expenses 63,508,943 61,103,626
Maintenance and repairs 7,785,200 8,105,290
Depreciation and amortization 13,731,597 12,954,574
Provision for income taxes 2,589,014 4,785,840
Other taxes 6,466,782 6,076,377
94,081,536 93,025,707
Operating income 17,376,549 15,025,590
Other income and deductions:
Allowance for equity funds used 832,706 56,845
during construction
Interest income 362,611 94,670
Other - net (253,244) (114,417)
942,073 37,098
Income before interest charges 18,318,622 15,062,688
Interest charges:
Long-term debt 13,180,237 9,237,228
Commercial paper 100,455 499,133
Allowance for borrowed funds used (1,148,762) (403,894)
during construction
Other 231,950 189,982
12,363,880 9,522,449
Net income 5,954,742 5,540,239
Preferred stock dividend requirements - 1,196,513
Net income applicable to common stock $5,954,742 $ 4,343,726
Weighted average number of common 17,431,072 17,166,527
shares outstanding
Basic and diluted earnings per
weighted average share of common stock $ 0.34 $ 0.25
Dividends per share of common stock $ 0.64 $ 0.64
See accompanying Notes to Financial Statements.
STATEMENT OF INCOME (UNAUDITED)
Twelve Months Ended
June 30,
2000 1999
Operating revenues:
Electric $ 244,482,412 $ 239,179,673
Water 1,085,916 1,072,525
245,568,328 240,252,198
Operating revenue deductions:
Operating expenses:
Fuel 44,467,809 45,192,399
Purchased power 50,958,456 44,675,911
Other 31,700,192 32,710,749
Merger Related Expenses 2,832,503 3,061,654
Total operating expenses 129,958,960 125,640,713
Maintenance and repairs 16,025,178 17,988,969
Depreciation and amortization 27,143,717 25,548,678
Provision for income taxes 13,665,603 15,377,950
Other taxes 13,848,188 12,390,354
200,641,646 196,946,664
Operating income 44,926,682 43,305,534
Other income and deductions:
Allowance for equity funds used 832,705 65,783
during construction
Interest income 771,297 307,087
Other - net (800,945) (606,022)
803,057 (233,152)
Income before interest charges 45,729,739 43,072,382
Interest charges:
Long-term debt 23,345,743 18,474,205
Commercial paper 1,274,399 571,754
Allowance for borrowed funds used (1,880,643) (641,888)
during construction
Other 405,599 356,348
23,145,098 18,760,419
Net income 22,584,641 24,311,963
Preferred stock dividend requirements 206,512 2,400,126
Redemption of preferred stock 1,304,504 -
Net income applicable to common stock $ 21,073,625 $ 21,911,837
Weighted average number of common 17,369,160 17,097,516
shares outstanding
Basic and diluted earnings per
weighted average share of
common stock $ 1.21 $ 1.28
Dividends per share of common stock $ 1.28 $ 1.28
See accompanying Notes to Financial Statements.
BALANCE SHEET
June 30,
2000 December 31,
(Unaudited) 1999
ASSETS
Utility plant, at original cost:
Electric $ 891,357,116 $ 871,263,673
Water 7,251,821 7,023,246
Construction work in progress 78,357,021 41,712,243
976,965,958 919,999,162
Accumulated depreciation 316,900,995 303,951,518
660,064,963 616,047,644
Current assets:
Cash and cash equivalents 4,590,301 20,778,856
Accounts receivable - trade, net 18,530,202 17,377,963
Accrued unbilled revenues 8,072,655 6,660,318
Accounts receivable - other 3,797,005 6,726,734
Fuel, materials and supplies 16,031,846 15,978,790
Prepaid expenses 858,345 1,129,021
51,880,354 68,651,682
Deferred charges:
Regulatory assets 36,552,350 37,075,852
Unamortized debt issuance costs 3,980,619 4,175,240
Other 9,577,249 5,458,466
50,110,218 46,709,558
Total Assets $ 762,055,535 $ 731,408,884
CAPITALIZATION AND LIABILITIES:
Common stock, $1 par value,
17,540,446 and 17,369,855 shares
issued and outstanding,
respectively $ 17,540,446 $ 17,369,855
Capital in excess of par value 166,631,319 163,909,732
Retained earnings (Note 2) 47,701,266 52,908,431
Total common stockholders' equity 231,873,031 234,188,018
Long-term debt 345,768,967 345,850,169
577,641,998 580,038,187
Current liabilities:
Accounts payable and accrued 24,744,717 25,232,221
liabilities
Commercial paper 21,500,000 -
Customer deposits 3,608,343 3,686,691
Interest accrued 5,259,325 5,026,356
Taxes accrued, including income 5,197,615 -
taxes
60,310,000 33,945,268
Noncurrent liabilities and deferred
credits:
Regulatory liability 14,739,556 15,295,992
Deferred income taxes 80,449,016 78,913,545
Unamortized investment tax credits 7,687,599 7,811,000
Postretirement benefits other than 5,959,627 4,592,721
pensions
State Line advance payments 12,231,585 7,895,241
Other 3,036,154 2,916,930
124,103,537 117,425,429
Total Capitalization and $ 762,055,535 $ 731,408,884
Liabilities
See accompanying Notes to Financial Statements.
STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
2000 1999
Operating activities:
Net income $ 5,954,742 $ 5,540,239
Adjustments to reconcile net income
to cash flows:
Depreciation and amortization 15,519,686 14,578,472
Pension income (3,488,502) (1,331,442)
Deferred income taxes, net 568,389 738,972
Investment tax credit, net (123,401) (185,740)
Allowance for equity funds used (832,706) (56,845)
during construction
Issuance of common stock for 401(k) 390,090 374,475
plan
Issuance of common stock units for 84,000 84,000
director retirement plan
Cash flows impacted by changes in:
Accounts receivable and accrued 365,153 (2,806,680)
unbilled revenues
Fuel, materials and supplies (53,056) (844,829)
Prepaid expenses and deferred (217,148) (3,760,699)
charges
Accounts payable and accrued (487,504) 965,054
liabilities
Customer deposits, interest and 5,541,400 3,495,055
taxes accrued
Other liabilities and other 1,486,130 1,315,873
deferred credits
Net cash provided by operating 24,707,273 18,105,905
activities
Investing activities:
Construction expenditures (58,684,254) (29,523,758)
Allowance for equity funds used 832,706 56,845
during construction
Net cash used in investing activities (57,851,548) (29,466,913)
Financing activities:
Proceeds from issuance of common 2,418,088 2,432,030
stock
Dividends (11,161,907) (12,187,116)
Repayment of first mortgage bonds (121,000) -
Payment of debt issue costs (15,805) -
Net issuances (repayments) from 21,500,000 19,500,000
short-term borrowings
State Line advance payments 4,336,344 2,631,747
Net cash provided by financing 16,955,720 12,376,661
activities
Net (decrease) increase in cash and (16,188,555) 1,015,653
cash equivalents
Cash and cash equivalents at beginning 20,778,856 2,492,716
of period
Cash and cash equivalents at end of $ 4,590,301 $ 3,508,369
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. Certain reclassifications have been made to
prior year information to conform with current year presentation.
Note 2 - Retained Earnings
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 April 1, 2000 49,717,082
Changes April 1 through June 30:
Net Income 3,583,454
Quarterly cash dividends on common stock:
- $0.32 per share (5,599,270)
Total changes April 1 through June 30 (2,015,816)
Balance June 30, 2000 $ 47,701,266
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, environmental compliance, 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 August 4, 2000, the
average trading price for UtiliCorp's common stock would have been
$21.2695 per share, resulting in the payment of $28.4963 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.
On July 26, 2000, the FERC granted conditional approval to the
Merger. The FERC coupled the hearing for the Merger with its
hearing for UtiliCorp's proposed merger with St. Joseph Light &
Power, and the approval pertains to both deals. The companies are
required to submit a revised competitive analysis six months before
the physical integration of the three systems.
The Company and UtiliCorp filed joint applications with 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 fourth quarter 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 during the moratorium 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.
On June 21, 2000, the Staff of the Missouri Public Service
Commission and the Office of the Public Counsel recommended that
the Commission reject the Company's application seeking approval of
the proposed merger of Empire and UtiliCorp United Inc. arguing
that the merger would be detrimental to the public interest due to
the proposal by the Applicants to allow for the recovery of the
acquisition premium associated with the merger in rates charged to
ratepayers. 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, for October 24-26, 2000 by
the Kansas Corporation Commission and for September 19 by the
Arkansas Public Service Commission.
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.
The Company's Board of Directors voted July 27, 2000 to
terminate the Company's Dividend Reinvestment and Stock Purchase
Plan effective October 1, 2000 as contemplated by the Merger
Agreement. Dividends will be reinvested for the September 15, 2000
payment date and participants will be eligible to make optional
cash purchases of shares from August 15, 2000 to September 15,
2000. When the plan is terminated on October 1, 2000, participants
will be issued certificates for the appropriate number of whole
shares and checks for the value of any fractional shares.
RESULTS OF OPERATIONS
The following discussion analyzes significant changes in the
results of operations for the three-month, six-month and twelve-
month periods ended June 30, 2000, compared to the same periods
ended June 30, 1999.
Operating Revenues and Kilowatt-Hour Sales
Of the Company's total electric operating revenues during the
second quarter of 2000, approximately 38% were from residential
customers, 30% from commercial customers, 19% from industrial
customers, 5% from wholesale on-system customers and 3% 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 operating
revenues by major customer class were as follows:
Operating
Kwh Sales Revenues
Six Twelve Six Twelve
Second Months Months Second Months Months
Quarter Ended Ended Quarter Ended Ended
Residential 8.9% 1.1% (1.1)% 9.8% 2.8% 0.0%
Commercial 3.7 1.0 1.0 7.6 3.4 4.1
Industrial 0.6 0.6 0.6 3.8 2.1 2.0
Wholesale On- 4.1 3.5 2.0 17.2 11.1 4.4
System
Total On- 4.4 0.9 0.1 8.0 3.1 1.9
System
Residential and commercial Kwh sales and revenues were up
during the second quarter of 2000 compared to the second quarter of
1999 due mainly to warmer temperatures as compared to the unusually
mild temperatures during the same period of 1999.
Industrial Kwh sales and related revenue grew at a slower rate
than residential and commercial sales as a result of a permanent
reduction in demand by a large industrial customer. This reduction
was partially offset by continuing increases in business activity
throughout the Company's service territory during the second
quarter of 2000.
On-system wholesale Kwh sales increased during the second
quarter of 2000 reflecting the warmer temperatures and continuing
increases in business activity described above. Revenues
associated with these sales increased more than the corresponding
Kwh sales as a result of the operation of the fuel adjustment
clause applicable to such FERC regulated sales. This clause
permits the pass through to customers of changes in fuel and
purchased power costs.
For the six months ended June 30, 2000, Kwh sales to and
revenue from the Company's residential and commercial customers
increased, reflecting the warmer temperatures experienced during
the second quarter of 2000 as compared with the same period of
1999. Industrial Kwh sales and related revenues, which are not
particularly weather-sensitive, increased due to continuing
increases in business activity throughout the Company's service
territory. On-system wholesale Kwh sales increased reflecting the
warmer temperatures and continuing increases in business activity
described above. Revenues associated with these sales increased
more than the corresponding Kwh sales as a result of the operation
of the fuel adjustment clause.
For the twelve months ended June 30, 2000, residential Kwh
sales decreased slightly while related revenue remained flat.
Commercial and industrial sales and revenue continued to grow due
to strong business activity in the Company's service territory. On-
system wholesale Kwh sales and related revenue increased during the
twelve-month period reflecting the weather conditions and
continuing increases in business activity discussed above.
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 second quarter of 2000,
revenues from such off-system transactions were approximately $2.5
million, the same as the second quarter of 1999. Off-system
revenues were approximately $4.1 million for both of the six-month
periods ended June 30, 2000 and 1999. For the twelve months ended
June 30, 2000, revenues from such off-system transactions were
approximately $9.6 million as compared to $8.3 million for the
twelve months ended June 30, 1999. This increase in revenues 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
the 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 second quarter of 2000, total operating expenses
decreased approximately $1.0 million (3.2%) compared with the same
period last year. Merger related expenses declined approximately
$3.0 million during the period. A significant portion of the
merger expenses during the second quarter of 1999 included an
initial payment to the Company's financial advisors for their
financial services in connection with the merger.
Total fuel costs decreased approximately $1.4 million (13.3%)
during the second quarter of 2000 as compared to the same period in
1999 primarily reflecting the use of replacement purchased power
during plant outages in the second quarter of 1999.
Purchased power costs increased approximately $3.5 million
(29.7%) during the period, primarily due to plant outages and the
high cost of replacement energy as well as the commencement of the
Company's ten-year capacity contract with Western Resources.
Other operating expenses decreased slightly during the period.
Maintenance and repair expense increased approximately $0.3 million
(8.1%) during the quarter, primarily due to expenses associated
with outages at the Iatan Plant.
Depreciation and amortization expenses increased approximately
$0.4 million (5.7%) during the quarter due to increased levels of
plant and equipment placed in service. Total income taxes decreased
slightly during the second quarter of 2000 due to a decrease in
taxable income resulting from less non-deductible merger costs in
2000. Other taxes increased approximately $0.3 million (10.2%)
during the quarter, primarily due to increased property taxes.
For the six months ended June 30, 2000, total operating
expenses were up approximately $2.4 million (3.9%). Merger related
expenses decreased $2.9 million (96.0%), while purchased power
costs increased $6.3 million (27.7%). Total fuel costs decreased
$0.8 million (4.0%). These differences were mainly due to the
reasons discussed above. Other operating expenses decreased
slightly during the period.
Maintenance and repairs expense decreased $0.3 million (4.0%)
for the six months ended June 30, 2000 compared to the same period
in 1999 primarily due to decreased levels of distribution
maintenance. Total provisions for income taxes decreased $2.2
million (45.9%) due to a decrease in taxable income as a result of
less non-deductible merger costs in 2000. Other taxes increased
$0.4 million (6.4%) during the period, primarily due to increased
property taxes.
During the twelve months ended June 30, 2000, total operating
expenses increased approximately $4.3 million (3.4%) compared to
the year ago period. Merger related expenses decreased $0.2 million
(7.5%) while total fuel costs decreased approximately $0.7 million
(1.6%) during the twelve-month period, also reflecting the use of
replacement purchased power. Total purchased power costs increased
approximately $6.3 million (14.1%) due primarily to the reasons
discussed above.
Other operating expenses decreased approximately $1.0 million
(3.1%) during the twelve months ended June 30, 2000, compared to
the same period last year due primarily to lower general and
administrative expenses. Approximately $0.7 million of this amount
was a one-time charge during the fourth quarter of 1998 due to the
initiation of the Directors Stock Unit Plan.
Maintenance and repair expenses decreased approximately $2.0
million (10.9%) during the twelve months ended June 30, 2000,
compared to the prior period because of decreased levels of
distribution maintenance as well as a decrease in scheduled
maintenance costs for the gas-fired combustion turbines at the
Energy Center and the State Line Power Plant. Depreciation and
amortization expense increased approximately $1.6 million (6.2%)
due to increased levels of plant and equipment placed in service.
Total provision for income taxes decreased $1.7 million (11.1%) due
to lower taxable income during the current period. Other taxes
increased $1.5 million (11.8%) due primarily to increased property
taxes.
Fuel Costs
The electric utility industry is currently experiencing high
prices for natural gas. If natural gas prices remain at current
levels or increase, the Company may experience higher fuel and
purchased power costs in the second half of 2000, particularly in
the fourth quarter. Any significant increase in these expenses
would have a negative impact on the Company's earnings for those
periods. The actual impact will also depend on the weather and the
availability of economical purchased power. The Company is
pursuing various options to mitigate the impact of these higher
costs.
Nonoperating Items
Total allowance for funds used during construction ("AFUDC")
increased during each of the periods presented, reflecting the
construction at the State Line Power Plant.
Other-net deductions increased during each of the periods
presented due primarily to increased nonoperating income taxes,
reflecting increasing profit margins for the Company's non-
regulated fiber optics leasing venture. Interest income increased
for all periods presented reflecting the higher balances of cash
available for investment.
Interest charges on long-term debt increased $2.0 million
(42.7%) during the second quarter of 2000, $3.9 million (42.7%) for
the six months ended June 30, 2000 and $4.9 million (26.4%) for the
twelve months ended period 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, commercial paper interest decreased $0.2 million (66.4%)
during the second quarter of 2000 compared to the same period last
year and $0.4 million (79.9%) for the six months ended June 30,
2000. Commercial paper interest increased $0.7 million (122.9%)
for the twelve months ended June 30, 2000 reflecting the usage of
short-term debt for financing the Company's preferred stock
redemption and construction program prior to the issuance of the
Company's unsecured Senior Notes in November, 1999.
The Company redeemed its preferred stock on August 2, 1999 at
a premium, which accounts for the decline in preferred stock
dividend requirements and the $1.3 million of preferred stock
redemption costs.
Earnings
For the second quarter of 2000, earnings per share of common
stock were $0.21 compared to $(0.02) during the second quarter of
1999. Excluding merger costs of $0.1 million in the second quarter
of 2000 and $3.1 million in the second quarter of 1999, earnings
per share would have been $0.21 and. $0.16, respectively. Earnings
per share were up primarily due to warmer temperatures in the
second quarter of 2000 as compared to the unusually mild
temperatures in May and June of 1999 and to the discontinuance of
the payment of preferred stock dividends in August of 1999.
Earnings per share for the six months ended June 30, 2000,
were $0.34 compared to $0.25 for the six months ended a year
earlier. Excluding $0.1 million in merger costs for the first six
months of 2000 and $3.1 million for the first six months of 1999,
earnings per share would have been $0.35 for the six months ended
June 30, 2000 and $0.43 for the six months ended June 30, 1999.
Excluding merger costs, earnings per share decreased for the six
months ended June 30, 2000 primarily due to increased purchased
power costs and increased interest charges.
For the twelve months ended June 30, 2000, earnings per share
of common stock were $1.21 compared to $1.28 for the twelve months
ended a year earlier. Excluding $2.8 million in merger costs for
the twelve months ended June 2000 and $3.1 million in merger costs
for the twelve months ended June 1999, but including diminished
preferred stock dividends and the $1.3 million costs of the
redemption of such stock, earnings per share would have been $1.38
and $1.46 respectively. Earnings for the twelve months ended June
2000 were negatively impacted by increased purchased power costs
and increased interest charges.
Environmental Matters
The Company has construction and operating permits for its
State Line Power Plant and has continued to operate in compliance
with those permits since May 30, 1995 for Unit No. 1 and June 18,
1997 for Unit No. 2. On July 13, 2000, the Company received a
request for information from the EPA regarding the State Line Power
Plant. The information request indicated that the State Line Power
Plant units should have an Acid Rain Permit under Title IV of the
1990 Amendments to the Clean Air Act. In response, On August 9,
2000, the Company applied for the required Acid Rain Permit with
the Missouri Department of Natural Resources. Continuous Emission
Monitors may be required for each unit at the State Line Power
Plant in order to comply with Title IV requirements. At this time,
the Company cannot predict the impact of this information request.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction-related expenditures totaled $32.5
million during the second quarter of 2000, compared to $16.3
million for the same period in 1999. For the six months ended June
30, 2000, construction-related expenditures totaled $58.7 million
compared to $29.5 million for the same period in 1999.
Approximately $18.4 million of these expenditures during the second
quarter of 2000 and $30.6 million during the first six months of
2000 were related to the expansion project at the State Line Power
Plant described below. Approximately $7.0 million of these
expenditures during the second quarter of 2000 and approximately
$14.2 million of construction expenditures during the first six
months of 2000 were related to additions to the Company's
transmission and distribution systems to meet projected increases
in customer demand. Approximately $3.3 million of the second
quarter's construction expenditures and approximately $7.0 million
during the first six months of 2000 were related to the Company's
ongoing capital projects with the existing gas-fired combustion
turbines at the State Line Power Plant. Approximately $1.4 million
of these second quarter expenditures and $2.1 million for the first
six months of 2000 were related to additions and replacements at
the Asbury Power Plant. Approximately $0.3 million of the second
quarter's construction expenditures and $0.5 million of the
expenditures for the first six months of 2000 were related to the
Company's investment in fiber optics cable and equipment. During
the first six months of 2000, approximately 32% of construction
expenditures were satisfied with internally generated funds.
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
"Combined Cycle Unit"). This 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. The Company will own an
undivided 60% interest in the Combined Cycle Unit with WGI owning
the remainder. The Company is entitled to 60% of the capacity of
the Combined Cycle Unit. The Company will contribute its existing
152-megawatt State Line Unit No. 2 combustion turbine to the
Combined Cycle Unit, and as a result, upon commercial operation,
the 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 $108 million.
Work is continuing on schedule, and the Combined Cycle Unit is
projected to be operational by June 2001. Delivery of the plant's
additional combustion turbine is scheduled for late August with all
other major equipment components on site and ready for
installation. The Company is beginning to experience a tightening
labor market which may cause an increase in labor costs and may
delay the in-service date of the Combined Cycle Unit. In April, the
Company placed one of its contractors at the State Line Power Plant
in default of its contract and awarded the work to another. The
contractor has petitioned for arbitration, claiming that its
contract was not terminated for fault but rather at the convenience
of the Company and may therefore seek damages.
WGI is responsible for 40% of expenditures made by the Company
in connection with the construction and operation of the 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 its share of new generating facilities at the Combined
Cycle Unit 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 40% 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 Employee Stock Purchase Plan and from
internally-generated funds. The Company's Dividend Reinvestment and
Stock Purchase Plan will terminate on October 1, 2000 as discussed
under "Merger with UtiliCorp" above. 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 has an effective shelf registration statement on
file with the SEC under which up to an aggregate of $50 million of
its common stock, first mortgage bonds and unsecured debt
securities remain available for issuance. The Company also has an
effective shelf registration statement on file with the SEC under
which up to an aggregate of $30 million of its cumulative preferred
stock, common stock, and/or first mortgage bonds remain available
for issuance.
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 Fitch IBCA.
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 2. Changes in Securities and Use of Proceeds.
On April 27, 2000, the Board of Directors approved a new
shareholder rights plan to replace the existing shareholder rights
plan which expired on July 25, 2000. At the Board of Directors
meeting, the Directors declared a dividend distribution of one
right for each share of the Company's Common Stock to holders of
record of the Company's Common Stock at the close of business on
July 26, 2000.
The new shareholders rights plan like the plan which expired
July 25, 2000, provides each of the common stockholders one
Preference Stock Purchase Right ("Right") for each share of common
stock owned. One Right enables the holder to acquire one one-
hundredth of a share of Series A Participating Preference Stock
(or, under certain circumstances, other securities) at a price of
$75 per one-hundredth of a share, subject to adjustment. The
rights (other than those held by an acquiring person or group
("Acquiring Person")) will be exercisable only if an Acquiring
Person acquires 10% or more of the Company's common stock or if
certain other events occur. The new plan also exempts UtiliCorp
(in connection with the current Agreement and Plan of Merger
between UtiliCorp and the Company dated as of May 10, 1999) from
being considered an Acquiring Person and activating the plan's
protections.
Reference is made to the copy of the new plan filed as an
exhibit to the Company's quarterly report on Form 10-Q for the
period ended March 31, 2000.
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 June 30, 2000, the Company's ratio of earnings to fixed
charges, and ratio of earnings to fixed charges and preferred stock
dividend requirements, were 2.46x and 2.41x, respectively. See
Exhibit (12) hereto.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(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 June 30, 2000.
(b) No reports on Form 8-K were filed during the second 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/ D. L. Coit
D. L. Coit
Controller and Assistant Treasurer
August 14, 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
June 30, 2000
Income before provision for income taxes and $ 61,710,478
fixed charges (Note A)
Fixed charges:
Interest on first mortgage bonds $ 17,494,123
Amortization of debt discount and expense less 973,166
premium
Interest on short-term debt 1,274,399
Interest on notes payable 4,878,454
Other interest 405,599
Rental expense representative of an interest 103,288
factor (Note B)
Total fixed charges 25,129,029
Preferred stock dividend requirements:
Preferred stock dividend requirements not 326,355
deductible for tax purposes
Ratio of income before provision for incomes 1.620
taxes to net income
Nondeductible dividend requirements 528,695
Deductible dividends 0
Total preferred stock dividend requirements 528,695
Total combined fixed charges and preferred stock $ 25,657,724
dividend requirements
Ratio of earnings to fixed charges 2.46x
Ratio of earnings to combined fixed charges and
preferred stock
dividend requirements 2.41x
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).