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 March 31, 1998 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 April 30, 1998: 16,845,833 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
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
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 Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
March 31,
1998 1997
Operating revenues:
Electric $ 51,146,349 $ 47,056,481
Water 241,891 248,286
51,388,240 47,304,767
Operating revenue deductions:
Operating expenses:
Fuel 6,151,704 6,781,084
Purchased power 14,485,249 12,578,852
Other 7,398,425 7,910,516
Total operating expenses 28,035,378 27,270,452
Maintenance and repairs 4,078,515 3,032,191
Depreciation and amortization 6,167,602 5,556,021
Provision for income taxes 1,954,840 1,515,833
Other taxes 3,092,132 2,856,839
43,328,467 40,231,336
Operating income 8,059,773 7,073,431
Other income and deductions:
Allowance for equity funds used during
construction - -
Interest income 25,267 23,816
Other - net (196,650) (121,464)
(171,383) (97,648)
Income before interest charges 7,888,390 6,975,783
Interest charges:
First mortgage bonds 4,145,292 4,148,202
Commercial paper 396,916 121,900
Allowance for borrowed funds used during
construction (73,205) (511,909)
Other 78,889 92,774
4,547,892 3,850,967
Net income 3,340,498 3,124,816
Preferred stock dividend requirements 604,085 604,085
Net income applicable to common stock $ 2,736,413 $ 2,520,731
Weighted average number of common shares 16,794,641 16,457,197
outstanding
Basic and diluted earnings per weighted average share of
common stock $ 0.16 $ 0.15
Dividends per share of common stock $ 0.32 $ 0.32
<FN>
See accompanying Notes to Financial Statements.
STATEMENT OF INCOME (UNAUDITED)
Twelve Months Ended
March 31,
1998 1997
Operating revenues:
Electric $ 218,396,467 $ 204,607,553
Water 997,850 1,041,109
219,394,317 205,648,662
Operating revenue deductions:
Operating expenses:
Fuel 35,481,195 31,715,702
Purchased power 49,039,282 48,869,956
Other 30,134,395 30,484,532
Total operating expenses 114,654,872 111,070,190
Maintenance and repairs 13,889,831 13,941,625
Depreciation and amortization 24,006,872 21,863,118
Provision for income taxes 13,439,007 11,320,223
Other taxes 11,455,023 11,112,308
177,445,605 169,307,464
Operating income 41,948,712 36,341,198
Other income and deductions:
Allowance for equity funds used
during construction 150,475 395,795
Interest income 132,136 155,335
Other - net (528,264) (350,793)
(245,653) 200,337
Income before interest charges 41,703,059 36,541,535
Interest charges:
First mortgage bonds 16,590,133 15,334,029
Commercial paper 1,418,270 620,279
Allowance for borrowed funds used
during construction (636,761) (1,250,964)
Other 322,756 310,836
17,694,398 15,014,180
Net income 24,008,661 21,527,355
Preferred stock dividend requirements 2,416,340 2,416,340
Net income applicable to common stock $ 21,592,321 $ 19,111,015
Weighted average number of common
shares outstanding 16,682,474 16,318,551
Basic and diluted earnings per weighted average share of
common stock $ 1.29 $ 1.17
Dividends per share of common stock $ 1.28 $ 1.28
<FN>
See accompanying Notes to Financial Statements.
BALANCE SHEET
March 31,
1998 December 31,
(Unaudited) 1997
ASSETS
Utility plant, at original cost:
Electric $ 802,059,326 $ 795,880,240
Water 5,951,782 5,824,165
Construction work in progress 11,062,210 8,114,680
819,073,318 809,819,085
Accumulated depreciation 269,511,906 262,834,707
549,561,412 546,984,378
Current assets:
Cash and cash equivalents 3,059,641 2,545,282
Accounts receivable - trade, net 13,513,372 13,270,329
Accrued unbilled revenues 3,951,492 6,047,739
Accounts receivable - other 2,229,325 1,552,998
Fuel, materials and supplies 16,528,437 13,215,068
Prepaid expenses 731,271 1,001,468
40,013,538 37,632,884
Deferred charges:
Regulatory assets 37,098,662 37,472,225
Unamortized debt issuance costs 3,305,629 3,374,780
Other 1,098,445 1,000,700
41,502,736 41,847,705
Total Assets $ 631,077,686 $ 26,464,967
CAPITALIZATION AND LIABILITIES:
Common stock, $1 par value, 16,837,648 and
16,776,654 shares issued and outstanding,
respectively $ 16,837,648 $ 16,776,654
Capital in excess of par value 152,124,964 150,784,239
Retained earnings (Note 2) 48,837,659 51,472,897
Total common stockholders' equity 217,800,271 219,033,790
Preferred stock 32,901,800 32,901,800
Long-term debt 196,388,507 196,384,541
447,090,578 448,320,131
Current liabilities:
Accounts payable and accrued liabilities 14,571,954 14,862,581
Commercial paper 28,000,000 28,000,000
Customer deposits 3,228,188 3,140,621
Interest accrued 6,082,118 3,509,680
Taxes accrued, including income taxes 4,489,731 817,045
Current maturities of long-term debt 23,000,000 23,000,000
79,371,991 73,329,927
Noncurrent liabilities and deferred credits:
Regulatory liability 17,249,191 17,540,757
Deferred income taxes 69,811,643 69,344,653
Unamortized investment tax credits 8,899,660 8,971,000
Postretirement benefits other than pensions4,416,934 4,463,488
Other 4,237,689 4,495,011
104,615,117 104,814,909
Total Capitalization and Liabilities $ 631,077,686 $ 626,464,967
<FN>
See accompanying Notes to Financial Statements
STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1998 1997
Operating activities:
Net income $ 3,340,498 $ 3,124,816
Adjustments to reconcile net income to cash flows:
Depreciation and amortization 6,990,595 6,284,845
Pension income (285,000) (237,501)
Deferred income taxes, net 202,608 209,945
Investment tax credit, net (71,340) (62,090)
Allowance for equity funds used during construction - -
Issuance of common stock for 401(k) plan 178,618 176,738
Other 54,247 35,826
Cash flows impacted by changes in:
Accounts receivable and accrued unbilled
revenues 1,176,876 3,790,070
Fuel, materials and supplies (3,313,369) 354,557
Prepaid expenses and deferred charges 115,116 (75,420)
Accounts payable and accrued liabilities (290,627) (2,468,161)
Customer deposits, interest and taxes accrued6,332,691 6,098,626
Other liabilities and other deferred credits (18,876) 436,741
Net cash provided by operating activities 14,412,037 17,668,992
Investing activities:
Construction expenditures (9,145,043) (15,734,205)
Allowance for equity funds used during construction - -
Net cash used in investing activities (9,145,043) (15,734,205)
Financing activities:
Proceeds from issuance of common stock 1,223,101 1,327,233
Dividends (5,975,736) (5,867,544)
Payment of debt issue costs (11,991)
Net proceeds from short-term borrowings 3,500,000
Net cash used in financing activities (4,752,635) (1,052,302)
Net increase (decrease) in cash and cash
equivalents 514,359 882,485
Cash and cash equivalents at beginning of period 2,545,282 2,246,136
Cash and cash equivalents at end of period $ 3,059,641 $ 3,128,621
<FN>
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, 1997.
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
1998
Balance at January 1, 1998 51,472,897
Changes January 1 through March 31:
Net Income 3,340,498
Quarterly cash dividends on common stock:
- $0.32 per share (5,371,651)
Quarterly cash dividends on preferred stock:
8-1/8% cumulative - $0.203125 per share (507,813)
5% cumulative - $0.125 per share (48,772)
4-3/4% cumulative - $0.11875 per share (47,500)
Total changes January 1 through March 31 (2,635,238)
Balance at March 31, 1998 $ 48,837,659
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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,
1998, compared to the same periods ended March 31, 1997.
Operating Revenues and Kilowatt-Hour Sales
Of the Company's total electric operating revenues during the first
quarter of 1998, approximately 45% were from residential customers, 28%
from commercial customers, 17% 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
revenue by major customer class were as follows:
Kwh Sales Revenue
Twelve Twelve
First Months First Months
Quarter Ended Quarter Ended
Residential 1.7% 1.3% 9.3% 6.2%
Commercial 1.9 2.6 7.8 7.1
Industrial 1.5 1.5 10.3 6.9
Wholesale On-System 7.5 5.3 10.2 5.0
Total System 2.0 2.0 9.3 6.8
Residential and commercial Kwh sales and revenues were up during the
first quarter of 1998 compared to the first quarter of 1997 despite mild
temperatures during the first two months of 1998. Although heating degree
days were virtually level with the same period last year, increases of 1.8%
in the average number of residential customers served and 2.5% in the
average number of commercial customers served compared to a year ago
contributed to the increased Kwh sales and revenues. Revenues increased
more than the corresponding increase in Kwh sales due to annual rate
increases of $10,589,364 (6.43%) and $3,000,000 (1.7%) granted by the
Missouri Public Service Commission effective July 28, 1997, and September
19, 1997, respectively. The combined increases granted in 1997 equaled
$13,589,634 (8.25%).
Industrial Kwh sales and revenues were also up during the first
quarter of 1998 when compared to the same period last year due to
continuing increases in business activity throughout the Company's service
territory. Industrial revenues were also positively impacted by the 1997
Missouri rate increases.
On-system wholesale Kwh sales and revenues were up during the first
quarter of 1998 as well as for the twelve months ended March 31, 1998, due
to continued economic growth in the communities served. Revenues for the
first quarter of 1998 increased more than the corresponding Kwh sales while
revenues for the twelve months ended March 31, 1998, increased less than
the corresponding Kwh sales. These variations result from operation of the
fuel adjustment clause applicable to these FERC regulated sales.
For the twelve months ended March 31, 1998, Kwh sales to and revenue
from the Company's on-system customers were up over the year earlier
period. This increase reflected the warmer summer temperatures during the
third quarter of 1997. Although these third quarter summer temperatures
were cooler than normal, they were warmer than those experienced during the
summer of 1996. Revenues for the twelve months ended March 31, 1998 also
reflect nine months of the Missouri rate increases.
The Company filed an application on February 19, 1998, to increase
rates in Arkansas by $618,497 annually. An agreement has been reached to
stipulate an increase of $358,849. The agreement is subject to the
approval of the Arkansas Public Service Commission. A public hearing on
this application has been set for June 1998. Any increase relating to this
filing is not expected to have a material effect on operating results for
1998.
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 1998, income from such off-system transactions
exceeded related expenses by approximately $0.4 million, compared with
approximately $0.5 million during the first quarter of 1997. For the twelve
months ended March 31, 1998 and March 31, 1997, income from such off-system
transactions exceeded related expenses by approximately $2.0 million
annually.
Operating Revenue Deductions
During the first quarter of 1998, total operating expenses increased
approximately $0.8 million (2.9%) compared with the same period last year.
Purchased power costs were up approximately $1.9 million (15.2%) during the
period, primarily due to increased purchases of replacement energy needed
during an outage at the Asbury Plant initially caused by a generator
winding problem in late January. The outage was extended to perform
planned spring maintenance originally scheduled for the second quarter.
The Asbury Plant returned to service in early March.
Total fuel costs were down approximately $0.6 million (9.3%) during
the first quarter of 1998, reflecting primarily a decrease of approximately
151 million Kwh (27.0%) in fuel-generated kilowatt-hours by the Company's
plants due largely to the Asbury Plant outage.
Other operating expenses decreased approximately $0.5 million (6.5%)
during the period, due primarily to lower general and administrative costs.
Maintenance and repair expense increased approximately $1.0 million (34.5%)
during the quarter, primarily due to the increased expenses associated with
the Asbury maintenance outage.
Depreciation and amortization expenses increased approximately $0.6
million (11.0%) during the quarter due to increased levels of plant and
equipment placed in service, primarily Unit No. 2 at the State Line Plant
in June 1997. Total income taxes increased during the first quarter of 1998
due primarily to higher taxable income during the current period. Other
taxes were up approximately $0.2 million (8.2%) during the quarter largely
as a result of increased franchise taxes relating to higher revenues.
During the twelve months ended March 31, 1998, total operating
expenses were up approximately $3.6 million (3.3%) compared to the year ago
period. Total purchased power costs were up approximately $0.2 million
(0.4%), primarily due to increased purchases of replacement energy needed
during the Asbury Plant outage. Total fuel costs were up approximately
$3.8 million (11.9%) during the twelve month period due primarily to
greater availability of the Company owned generating facilities. Unit No.
2 at the State Line Plant began commercial operation on June 18, 1997, and
the Asbury Plant set a Company record by running continuously for 170 days
during the second and third quarters of 1997.
Other operating expenses decreased approximately $0.4 million (1.2%)
during the twelve months ended March 31, 1998, compared to the same period
last year due primarily to lower general and administrative costs.
Maintenance and repair expenses during the twelve months ended March
31, 1998 were virtually level with these expenses for the prior period.
Depreciation and amortization expense increased approximately $2.1 million
(9.8%) due to increased levels of plant and equipment placed in service.
Total provision for income taxes increased $2.1 million (18.7%) due to
higher taxable income during the current period.
Nonoperating Items
Total allowance for funds used during construction decreased
significantly during both current year periods as compared to the same
periods last year, reflecting lower levels of construction work in
progress, particularly due to the completion of Unit No. 2 at the Company's
State Line Plant in June 1997.
Although interest income decreased slightly during the twelve months
ended March 31, 1998, it increased slightly during the first quarter of
1998, reflecting more cash available for investment particularly due to
decreased levels of construction and higher revenues associated with the
1997 Missouri rate increase. Interest charges on first mortgage bonds were
significantly higher during the current twelve-month period because of the
issuance of $25.0 million of the Company's First Mortgage Bonds in
December, 1996. Commercial paper interest increased during both periods
due to increased usage of short-term debt to finance the Company's
construction program.
Earnings
For the first quarter of 1998, earnings per share of common stock
were $0.16 compared to $0.15 during the first quarter of 1997. Earnings per
share were up primarily due to increased revenues resulting from the 1997
rate increases granted by the Missouri Public Service Commission.
Earnings per common share for the twelve months ended March 31, 1998,
were $1.29 compared to $1.17 for the twelve months ended a year earlier.
Increased revenues resulted primarily from the warm summer temperatures in
the third quarter of 1997 and the 1997 Missouri rate increases.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction-related expenditures totaled $9.1 million
during the first quarter of 1998, compared to $15.7 million for the same
period in 1997. Approximately $4.3 million during the first quarter of
1998 was related to additions to the Company's distribution system to meet
projected increases in customer demand and approximately $0.7 million of
the first quarter's construction expenditures was related to the Company's
investment in fiber optics cable and equipment which the Company plans to
utilize and to lease to other entities. The large decrease in construction
expenditures for 1998 is mainly due to the completion of Unit No. 2 at the
State Line Power Plant, which was placed in service June 18, 1997. During
the first quarter of 1998, approximately 92% of construction expenditures
and other funds requirements were satisfied internally from operations.
The remainder was provided from the issuance of commercial paper, and from
the sale of common stock through the Company's Dividend Reinvestment Plan
and Employee Stock Purchase Plan.
The Company's construction expenditures are expected to total
approximately $35.6 million in 1998, including approximately $19.1 million
for additions to the Company's distribution system to meet projected
increases in customer demand.
On April 28, 1998, the Company sold to the public in an underwritten
offering $50 million aggregate principal amount of its First Mortgage
Bonds, 6.50% Series due 2010. The net proceeds from this sale were added
to the Company's general funds and were used to repay $23 million of the
Company's First Mortgage Bonds, 5.70% Series due May 1, 1998 and to repay
short-term indebtedness, including indebtedness incurred in connection with
the Company's construction program.
The Company currently estimates that internally generated funds will
provide all of the funds required for the remainder of its 1998
construction expenditures. In the past, the Company has utilized short-
term debt to finance any additional amounts needed for such construction
and repaid 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.
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,
earnings, 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 company-owned generation,
purchased power and fuel; electric utility restructuring, including
ongoing state and federal activities; weather, business and economic
conditions; legislation; regulation, including rate relief; competition;
and other circumstances affecting anticipated rates, revenues and costs.
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 23, 1998.
(b) The following persons were re-elected Directors of the Company to
serve until the 2001 Annual Meeting of Stockholders:
V. E. Brill (12,083,593 votes for; 109,772 withheld authority).
R. C. Hartley (12,074,444 votes for; 118,921 withheld authority).
F. E. Jeffries (12,085,334 votes for; 108,031 withheld authority).
The term of office as Director of the following other Directors
continued after the meeting: M. F. Chubb, Jr., R. D. Hammons, J. R.
Herschend, R. L. Lamb, R. E. Mayes, M. W. McKinney, and M. M. Posner.
Item 5. Other Information.
At March 31, 1998, the Company's ratio of earnings to fixed charges,
and ratio of earnings to fixed charges and preferred stock dividend
requirements, were 3.02x and 2.51x, respectively. See Exhibit (12) hereto.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(4) Twenty-Ninth Supplemental Indenture dated as of April 1, 1998
to Indenture of Mortgage and Deed of Trust.
(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, 1998
(b) In a current report dated April 23, 1998, the Company filed, under
Item 5. "Other Events," a press release announcing the Company's
earnings for the first quarter of 1998 and for the twelve month
period ended March 31, 1998.
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 12, 1998