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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(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, 2001 or
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[_] 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 May 1, 2001: 17,621,591 shares.
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THE EMPIRE DISTRICT ELECTRIC COMPANY
INDEX
Page Number
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Part I - Financial Information:
Item 1. Consolidated Financial Statements:
a. Consolidated Statement of Income........................................ 3
b. Consolidated Balance Sheet.............................................. 5
c. Consolidated Statement of Cash Flows.................................... 6
d. Notes to Consolidated Financial Statements.............................. 7
Forward Looking Statements........................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 9
Results of Operations....................................................... 9
Liquidity and Capital Resources............................................. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................. 15
Part II- Other Information:
Item 1. Legal Proceedings - (none)
Item 2. Changes in Securities and Use of Proceeds - (none)
Item 3. Defaults Upon Senior Securities - (none)
Item 4. Submission of Matters to a Vote of Security Holders......................... 15
Item 5. Other Information........................................................... 15
Item 6. Exhibits and Reports on Form 8-K............................................ 16
Signatures........................................................................... 17
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
---------------------------------
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
March 31,
---------------------------
2001 2000
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Operating revenues:
Electric $60,294,475 $53,800,537
Water 257,462 229,854
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60,551,937 54,030,391
Operating revenue deductions:
Operating expenses:
Fuel 9,198,378 9,831,587
Purchased power 21,483,935 13,814,266
Other 8,867,796 8,099,938
Merger related expenses 1,264,586 22,815
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Total operating expenses 40,814,695 31,768,606
Maintenance and repairs 3,136,218 3,230,303
Depreciation and amortization 7,194,971 6,824,606
Provision for income taxes (44,476) 920,222
Merger-related income tax benefit (2,323,982) -
Other taxes 3,456,964 3,253,748
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52,234,390 45,997,485
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Operating income 8,317,547 8,032,906
Other income and deductions:
Allowance for equity funds used during construction 224,413 360,581
Interest income 84,841 248,067
Other - net (8,773) (78,413)
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300,481 530,235
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Income before interest charges 8,618,028 8,563,141
Interest charges:
Long-term debt 6,585,656 6,590,249
Trust preferred distributions by subsidiary
holding solely parent debentures 354,167 -
Commercial paper 857,570 -
Allowance for borrowed funds used during construction (1,639,473) (497,437)
Other 252,907 99,041
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6,410,827 6,191,853
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Net income applicable to common stock $ 2,207,201 $ 2,371,288
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Weighted average number of common shares outstanding 17,607,705 17,391,854
=========== ===========
Basic and diluted earnings per weighted average share of
common stock $0.13 $0.14
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Dividends per share of common stock $0.32 $0.32
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See accompanying Notes to Financial Statements.
3
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Twelve Months Ended
March 31,
-------------------------------
2001 2000
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Operating revenues:
Electric $265,431,267 $240,374,087
Water 1,093,737 1,075,731
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266,525,004 241,449,818
Operating revenue deductions:
Operating expenses:
Fuel 48,266,368 45,850,805
Purchased power 72,907,765 47,502,962
Other 33,183,841 31,845,654
Merger Related Expenses 1,723,680 5,795,107
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Total operating expenses 156,081,654 130,994,528
Maintenance and repairs 14,701,124 15,682,655
Depreciation and amortization 28,153,939 26,772,481
Provision for income taxes 10,439,830 13,845,081
Merger-related income tax benefit (2,323,982) -
Other taxes 13,315,312 13,550,271
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220,367,877 200,845,016
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Operating income 46,157,127 40,604,802
Other income and deductions:
Allowance for equity funds used during construction 2,237,542 386,905
Interest income 478,375 710,463
Other - net (561,116) (641,035)
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2,154,801 456,333
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Income before interest charges 48,311,928 41,061,135
Interest charges:
Long-term debt 26,351,308 21,374,369
Trust preferred distributions by subsidiary
holding solely parent debentures 354,167 -
Commercial paper 2,105,260 1,472,711
Allowance for borrowed funds used during construction (4,543,361) (1,469,707)
Other 591,487 380,089
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24,858,861 21,757,462
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Net income 23,453,067 19,303,673
Preferred stock dividend requirements - 803,844
Excess consideration paid on redemption of preferred stock - 1,304,504
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Net income applicable to common stock $ 23,453,067 $ 17,195,325
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Weighted average number of common shares outstanding 17,557,195 17,302,747
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Basic and diluted earnings per weighted average share of
common stock $ 1.34 $ 0.99
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Dividends per share of common stock $ 1.28 $ 1.28
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See accompanying Notes to Financial Statements.
4
CONSOLIDATED BALANCE SHEET
March 31,
2001 December 31,
(Unaudited) 2000
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ASSETS
Utility plant, at original cost:
Electric $ 925,766,848 $ 921,033,228
Water 7,613,588 7,528,233
Construction work in progress 138,698,728 120,126,571
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1,072,079,164 1,048,688,032
Accumulated depreciation 335,749,195 328,370,253
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736,329,969 720,317,779
Current assets:
Cash and cash equivalents 3,620,028 2,490,580
Accounts receivable - trade, net 19,159,588 19,960,839
Accrued unbilled revenues 7,858,079 11,824,546
Accounts receivable - other 4,047,119 3,631,654
Fuel, materials and supplies 15,295,943 14,589,253
Prepaid expenses 1,007,312 3,034,716
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50,988,069 55,531,588
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Deferred charges:
Regulatory assets 36,431,460 36,590,292
Unamortized debt issuance costs 5,433,015 3,769,628
Other 14,719,298 13,530,017
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56,583,773 53,889,937
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Total Assets $ 843,901,811 $ 829,739,304
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CAPITALIZATION AND LIABILITIES:
Common stock, $1 par value, 17,609,292 and 17,596,530
shares issued and outstanding, respectively $ 17,609,292 $ 17,596,530
Capital in excess of par value 168,934,160 168,439,089
Retained earnings (Note 2) 50,689,783 54,117,292
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Total common stockholders' equity 237,233,235 240,152,911
Company obligated manditorily redeemable trust preferred
securities of subsidiary holding solely parent debentures 50,000,000 -
Long-term debt 325,663,665 325,643,766
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612,896,900 565,796,677
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Current liabilities:
Accounts payable and accrued liabilities 23,879,187 35,782,456
Commercial paper 40,000,000 69,500,000
Customer deposits 3,919,314 3,789,583
Interest accrued 10,548,594 5,402,131
Taxes accrued, including income taxes 3,782,971 1,823,513
Current maturities - mortgage bonds 20,000,000 20,000,000
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102,130,066 136,297,683
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Noncurrent liabilities and deferred credits:
Regulatory liability 13,863,221 14,170,175
Deferred income taxes 84,201,391 83,581,349
Unamortized investment tax credits 7,237,144 7,231,000
Postretirement benefits other than pensions 4,824,274 4,835,897
State Line advance payments 14,399,757 14,399,757
Other 4,349,058 3,426,766
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128,874,845 127,644,944
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Total Capitalization and Liabilities $ 843,901,811 $ 829,739,304
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See accompanying Notes to Financial Statements.
5
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
------------------------------
2001 2000
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Operating activities:
Net income $ 2,207,201 $ 2,371,288
Adjustments to reconcile net income to cash flows:
Depreciation and amortization 8,046,711 8,220,659
Pension income (940,750) (1,744,251)
Deferred income taxes, net (20,065) 215,358
Investment tax credit, net 6,144 (46,756)
Allowance for equity funds used during construction (224,413) (360,581)
Issuance of common stock for 401(k) plan 169,110 191,294
Issuance of common stock units for director retirement plan 84,000 84,000
Cash flows impacted by changes in:
Accounts receivable and accrued unbilled revenues 4,352,252 5,110,752
Fuel, materials and supplies (706,690) 740,518
Prepaid expenses and deferred charges 1,970,332 (74,556)
Accounts payable and accrued liabilities (11,903,269) (3,319,423)
Customer deposits, interest and taxes accrued 7,235,652 8,437,239
Other liabilities and other deferred credits 910,669 434,095
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Net cash provided by operating activities 11,186,884 20,259,636
Investing activities:
Additions to property, plant and equipment (23,697,641) (26,676,144)
Allowance for equity funds used during construction 224,413 360,581
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Net cash used in investing activities (23,473,228) (26,315,563)
Financing activities:
Proceeds from issuance of common stock 254,723 1,274,225
Proceeds from issuance of trust preferred securities 50,000,000 -
Preferred securities issuance costs (1,768,906) -
Net proceeds (repayments) from short-term borrowings (29,500,000) -
Payment of debt issue costs 64,685 (15,705)
Dividends (5,634,710) (5,562,637)
Repayment of first mortgage bonds - (70,000)
State Line advance payments - 2,168,172
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Net cash provided by (used in) financing activities 13,415,792 (2,205,945)
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Net increase (decrease) in cash and cash equivalents 1,129,448 (8,261,872)
Cash and cash equivalents at beginning of period 2,490,580 20,778,856
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Cash and cash equivalents at end of period $ 3,620,028 $ 12,516,984
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See accompanying Notes to Financial Statements.
6
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
Empire's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
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
- --------------------------
First Quarter
2001
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Balance at January 1, 2001 $54,117,292
Changes January 1 through March 31:
Net Income 2,207,201
Quarterly cash dividends on common stock:
- $0.32 per share (5,634,710)
Total changes January 1 through March 31 (3,427,509)
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Balance at March 31, 2001 $50,689,783
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Note 3 - Income Taxes
- ---------------------
As a result of the termination in January 2001 of our proposed merger with
UtiliCorp, approximately $6.1 million in merger related expenses that were not
tax deductible when incurred by us, have now become deductible. This deduction
was taken in January 2001, decreasing income tax expense for the first quarter
of 2001 by approximately $2.3 million.
Note 4 - Trust Preferred Securities
- -----------------------------------
In February 2001, the SEC declared effective our $80 million shelf
registration statement covering our unsecured debt securities and preferred
securities of two newly created trusts. On March 1, 2001, one of these newly
created trusts, Empire District Electric Trust I, issued 2,000,000 8.5% Trust
Preferred Securities (liquidation amount $25 per preferred security) in a public
underwritten offering. This issuance generated proceeds of $50.0 million and
issuance costs of $1.8 million. Holders of the trust preferred securities are
entitled to receive distributions at an annual rate of 8.5% of the $25
liquidation amount. Distributions are payable quarterly and are tax deductible
by us. The terms and interest payments on the $50.0 million aggregate principal
amount of 8.5% Junior
7
Subordinated Debentures due March 1, 2031, issued by us and held by the trust as
assets, correspond to the terms and distributions on the trust preferred
securities. We have effectively guaranteed the payments due on the outstanding
trust preferred securities. The net proceeds of this offering were added to our
general funds and were used to repay short-term indebtedness.
Note 5 - Recently Issued Accounting Standards
- ---------------------------------------------
On January 1, 2001, Empire adopted the provision of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) and Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities An
Amendment of SFAS 133" (SFAS 138). Adoption of these accounting rules had no
immediate impact on Empire. Empire historically has not used derivatives to
manage our commodity or interest rate market risks. We have historically used
forward commodity purchase contracts to secure fuel and purchase power for our
system needs. We have sold power only to the extent of system availability.
Interest rate risks are managed by balancing our use of variable and fixed rate
debt. Empire's commodity purchase and sale contracts and debt instruments either
do not meet the definition of a derivative under SFAS 133 or are considered
normal purchases and sales under SFAS 138.
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8
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, 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
(including the continuation of significantly increased natural gas prices);
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 (including the
outcome of the pending permanent rate case seeking recovery of increased fuel
and other costs and the inclusion of the State Line Combined Cycle in the rate
base) 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
---------------------
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, 2001,
compared to the same periods ended March 31, 2000.
Terminated Merger With UtiliCorp
As a result of the termination in January 2001 of our proposed merger with
UtiliCorp, approximately $6.1 million in merger related expenses that were not
tax deductible when incurred by us, have now become deductible. This deduction
was taken in January 2001, decreasing income tax expense and increasing
operating income for the first quarter of 2001 by approximately $2.3 million. In
addition, Empire expensed $1.2 million of additional costs related to the
proposed merger in the first quarter of 2001.
On-System Transactions
Of our total electric operating revenues during the first quarter of 2001,
approximately 45% were from residential customers, 27% from commercial
customers, 15% 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:
9
Kwh Sales Revenue
------------------------------------------
Twelve Twelve
First Months First Months
Quarter Ended Quarter Ended
------------------------------------------
Residential 23.5% 17.9% 14.7% 14.3%
Commercial 10.8 8.7 9.2 7.3
Industrial 0.6 2.8 2.1 4.5
Wholesale On-System 13.5 6.6 30.9 15.9
Total On-System 13.9 10.3 11.8 10.2
Residential and commercial Kwh sales and revenues were up during the first
quarter of 2001 compared to the first quarter of 2000 due mainly to unusually
cold temperatures as compared to the unusually mild temperatures during the same
period of 2000. Total heating degree days (the number of degrees that the
average temperature for that period was below 65 F) for the first quarter of
2001 were 32% more than the same period last year and 12% more than the 20-year
average.
During the first quarter of 2001, industrial Kwh sales and revenues, which
are not particularly weather sensitive, grew at a slower rate than residential
and commercial sales fueled by continuing increases in business activity
throughout our service territory.
On-system wholesale Kwh sales and revenues increased during the first
quarter of 2001 reflecting the weather conditions 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 these FERC regulated sales.
For the twelve months ended March 31, 2001, Kwh sales to and revenue from
our residential and commercial customers increased, reflecting the above-average
temperatures experienced during the third quarter of 2000 as well as the
unseasonably cold temperatures during the fourth quarter of 2000 and first
quarter of 2001. Industrial sales and revenues continued to grow due to strong
business activity in our service territory. On-system wholesale Kwh sales and
revenues for the twelve months ended March 31, 2001 also increased as compared
to the same period in 2000 reflecting weather conditions and continuing
increases in business activity. 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 these FERC regulated sales.
On November 3, 2000, we filed a request with the Missouri Public Service
Commission for a general annual increase in rates for our Missouri electric
customers in the amount of $41,467,926, or 19.36%. This request is to allow us
to recover expenses resulting from significantly higher natural gas prices than
the levels contemplated by our existing rates as well as our investment in the
Combined Cycle Unit currently under construction at the State Line Power Plant
and other plant additions which have occurred since our last rate increase in
September 1997. The Missouri Commission has scheduled an evidentiary hearing for
May 29, 2001 through June 8, 2001. Any rate increase approved as a result of the
filing would not become effective before late in the third quarter of 2001. We
cannot predict the extent of any increase which might be granted as a result of
this filing.
Because of the timing of the decision with respect to the November 2000
request and the resulting delay in recovery of permanent rates as well as the
expectation of continuing high natural gas prices and increased gas usage when
the State Line Combined Cycle Unit begins operation, we filed a request with the
Missouri Public Service Commission on February 16, 2001 for an interim increase
in rates for our Missouri electric customers in the amount of $16,770,495, or
8.18%. We asked for this increase to be collected between March 1, 2001 and
September 30, 2001, when we anticipate the permanent case could be concluded. On
March 8, 2001 the Missouri Commission dismissed the interim case stating that
Empire had failed to show that it was facing an emergency or
10
near emergency situation, the standard for interim relief, and as a result no
interim rate increase was granted. We will continue to actively pursue the
request for a rate increase described above.
Off-System Transactions
In addition to sales to our own customers, we also sell power to other
utilities as available and provide transmission service through our system for
transactions between other energy suppliers. During the first quarter of 2001,
revenues from such off-system transactions were approximately $2.0 million as
compared to approximately $1.6 million in the first quarter of 2000. For the
twelve months ended March 31, 2001, revenues from such off-system transactions
were approximately $10.9 million as compared to $9.7 million for the twelve
months ended March 31, 2000. The increase in revenues during both periods
resulted primarily from our ability to sell power at market-based rates, which
were higher in 2001. Pursuant to orders issued by the FERC and subsequent
tariffs filed by us and the Southwest Power Pool ("SPP"), these off-system sales
have been opened up to competition. We are a member of the SPP, a regional
division of the North American Electric Reliability Council, and are
participating with other utility members in the restructuring of SPP to make it
a regional transmission organization ("RTO").
The SPP is planning to file with the FERC by the end of May for RTO status.
Previous filings by the SPP for RTO status were rejected by the FERC as not
meeting certain requirements of its Order 2000. We filed a notice in May 2001 to
participate in the SPP RTO if and when it is established. Reference is made to
our Annual Report on Form 10-K for the year ended December 31, 2000 under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Competition".
Operating Revenue Deductions
During the first quarter of 2001, total operating expenses increased
approximately $9.0 million (28.5%) compared with the same period last year.
Merger related expenses (which include expenses related to severance benefits
incurred under our Change in Control severance pay plan) accounted for
approximately $1.2 million of this increase while purchased power costs
increased approximately $7.7 million (55.5%) during the period. The significant
increase in purchased power costs was primarily due to increased demand
resulting from unusually cold temperatures in the first quarter of 2001 and
increased costs for this energy as well as additional purchases of replacement
energy resulting from a five-day scheduled early spring outage at the Asbury
plant. Although purchased power prices were higher the first quarter of 2001 as
compared with the same period in 2000, escalating gas prices made it more
economical to purchase power than to run our gas-fired combustion turbines.
Total fuel costs decreased approximately $0.6 million (6.4%) during the
first quarter of 2001 reflecting the decreased generation due to the more
economical purchased power. Other operating expenses increased approximately
$0.8 million (9.5%) during the period due mainly to an actuarially determined
adjustment to our pension benefit obligation.
Maintenance and repair expense decreased slightly as compared to the same
period last year. Depreciation and amortization expenses increased approximately
$0.4 million (5.4%) during the quarter due to increased levels of plant and
equipment placed in service. Provision for income taxes decreased $3.3 million
(357.4%) during the first quarter of 2001 due primarily to the benefit created
by the deductibility of the approximately $6.1 million in merger related
expenses discussed above. As a result of the termination of the merger on
January 2, 2001 we took a deduction in January 2001 that
11
decreased provision for income taxes and increased operating income by
approximately $2.3 million. Other taxes increased approximately $0.2 million
(6.3%) during the quarter.
During the twelve months ended March 31, 2001, total operating expenses
increased approximately $25.1 million (19.2%) compared to the year ago period.
Total purchased power costs increased approximately $25.4 million (53.5%) during
the twelve months ended March 31, 2001 as compared to the year ago period,
primarily resulting from decreased availability of some of our generating units
during the third quarter of 2000 and escalating natural gas prices (which at
times made it more economical to purchase power than to run our gas-fired units,
particularly in September, 2000 and during the first quarter of 2001). Total
fuel costs were up approximately $2.4 million (5.3%) during the twelve months
ended March 31, 2001 due primarily to the escalating gas prices.
Other operating expenses increased approximately $1.3 million (4.2%) during
the twelve months ended March 31, 2001, compared to the same period last year
due primarily to the pension fund income adjustment discussed above. Merger
related expenses, which were not tax deductible when they were incurred, were
approximately $4.1 million (70.3%) less during the twelve months ended March 31,
2001 as compared to the same period in 2000.
Maintenance and repair expenses decreased approximately $1.0 million (6.3%)
during the twelve months ended March 31, 2001, compared to the year ago 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 distribution costs. Depreciation and amortization expense increased
approximately $1.4 million (5.2%) due to increased levels of plant and equipment
placed in service. Provision for income taxes decreased $5.7 million (41.4%)
reflecting lower taxable income during the current period primarily due to the
benefit created by the deductibility of the approximately $6.1 million in merger
related expenses discussed above. Other taxes decreased $0.2 million (1.7%).
Nonoperating Items
Total allowance for funds used during construction ("AFUDC") increased
substantially during each of the periods presented, reflecting higher levels of
construction work in progress related to the construction at the State Line
Power Plant.
Other-net deductions decreased slightly for both of the periods ended
March 31, 2001 as compared to the same periods in 2000. Interest income
decreased for both periods comparatively, reflecting the lower balances of cash
available for investment.
Interest charges on long-term debt were virtually the same for the first
quarters of 2001 and 2000. Interest charges on long-term debt increased $5.0
million (23.3%) for the twelve months ended March 31, 2001 when compared to the
same period ended last year due to the issuance of $100 million of our unsecured
Senior Notes in November 1999. The proceeds from the Senior Notes were used to
repay short-term indebtedness, including approximately $33.1 million in
commercial paper incurred in connection with our preferred stock redemption on
August 2, 1999, as well as that incurred in connection with our construction
program. Commercial paper interest was $0.9 million during the first quarter of
2001 as compared to none for the first quarter of 2000. Commercial paper
interest increased $0.6 million (43.0%) for the twelve months ended March 31,
2001 as compared to the prior year period. These increases in commercial paper
interest were caused by the increased usage of short-term debt for financing our
ongoing construction program.
12
Earnings
For the first quarter of 2001, earnings per share of common stock were
$0.13 compared to $0.14 during the first quarter of 2000. Earnings per share
were down primarily due to significantly increased natural gas and purchased
power costs as well as merger expenses, which offset favorable weather
conditions and the one-time $2.3 million income tax benefit resulting from the
$6.1 million in previously incurred merger costs that became tax deductible upon
termination of the merger in the first quarter of 2001. Excluding merger costs
and the one-time income tax benefit, earnings per share for the first quarter of
2001 would have been $0.04 compared to $0.14 for the same period in 2000.
Earnings per share for the twelve months ended March 31, 2001, were $1.34
compared to $0.99 for the twelve months ended a year earlier. The increase is
primarily due to the impact of the decreased merger expenses, partially offset
by the tax benefit resulting from the deductiblility of merger expenses in the
prior year coupled with the one-time income tax benefit resulting from the tax-
deductibility of an additional $6.1 million of these expenses upon termination
of the merger in the first quarter of 2001. Above-average temperatures in the
third quarter of 2000 and unseasonably cold temperatures in the fourth quarter
of 2000 and first quarter of 2001 also favorably impacted earnings for this
period but were more than offset by the increase in natural gas and purchased
power costs during the period. Excluding merger costs and the one-time tax
benefit discussed above, earnings per share for the twelve-months ended March
31, 2001 would have been $1.26 compared to $1.33 for the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our construction-related expenditures totaled $23.7 million during the
first quarter of 2001, compared to $26.7 million for the same period in 2000.
Approximately $10.2 million of these expenditures during 2001 was related to
additions to our distribution and transmission systems to meet projected
increases in customer demand and approximately $12.3 million was related to the
expansion project at the State Line Power Plant. During the first quarter of
2001, approximately 23.4% of construction expenditures were satisfied internally
from operations.
Construction of the 500-megawatt combined-cycle unit at the State Line
Power Plant (the "Combined Cycle Unit") is scheduled to be completed and the
plant is expected to commence operations by June 2001. This Combined Cycle Unit
consists of an additional combustion turbine, two heat recovery steam generators
and a steam turbine and auxiliary equipment with an already existing combustion
turbine. We will own an undivided 60% interest in the Combined Cycle Unit with
Westar Generating, Inc., a subsidiary of Western Resources, Inc. owning the
remainder. We are the operator of the unit and are entitled to 60% of its
capacity. We are contributing our 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 us with approximately 150
megawatts of additional capacity. The total cost of this project is currently
estimated to be $204 million. Our 60% share of this amount is approximately $122
million before considering our contribution of 40% of already existing property.
However, after the transfer to Westar Generating of an undivided 40% joint
ownership interest in the existing State Line Unit No.2 and certain other
property at book value as described below, our net cash requirement is currently
expected to be approximately $108 million, excluding AFUDC.
Westar Generating is responsible for 40% of our expenditures made in
connection with the construction and operation of the Combined Cycle Unit. In
addition, Westar Generating had been making monthly prepayments to us, the last
of which was made in October 2000. These prepayments
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were for the future transfer to Westar Generating 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 us. The Missouri and Arkansas Commissions have approved our application
for permission to sell and transfer an interest in these assets to Westar
Generating. The transfer of these assets is currently scheduled for May 2001.
The prepayments are reflected in State Line advance payments on the balance
sheet.
Our construction expenditures are currently expected to total approximately
$63.3 million in 2001, including approximately $25.0 million for the Combined
Cycle Unit and $20.8 million for additions to the Company's distribution system
to meet projected increases in customer demand.
We currently estimate that internally generated funds will provide at least
58% of the funds required for the remainder of our 2001 construction
expenditures. As in the past, we intend 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 our common stock pursuant to our Employee
Stock Purchase Plan and from internally-generated funds. In early 2001, our
Board of Directors authorized a Dividend Reinvestment and Stock Purchase Plan
which we are planning to initiate in time for the June 2001 dividend. We are
awaiting the approval of the State Corporation Commission of the State of Kansas
to issue common stock pursuant to the plan. We will continue to utilize short-
term debt and our $100 million line of credit as needed to support normal
operations or other temporary requirements. Reference is made to our Annual
Report on Form 10-K for the year ended December 31, 2000 under the caption
"Notes to Financial Statements - Note 6" for more information regarding our line
of credit.
In February 2001, the SEC declared effective our $80 million shelf
registration statement covering our unsecured debt securities and preferred
securities of two newly created trusts. On March 1, 2001, one of these newly
created trusts, Empire District Electric Trust I, issued 2,000,000 8.5% Trust
Preferred Securities (liquidation amount $25 per preferred security) in a public
underwritten offering. This issuance generated proceeds of $50.0 million and
issuance costs of $1.8 million. Holders of the trust preferred securities are
entitled to receive distributions at an annual rate of 8.5% of the $25
liquidation amount. Distributions are payable quarterly and are tax deductible
by us. The terms and interest payments on the $50.0 million aggregate principal
amount of 8.5% Junior Subordinated Debentures due March 1, 2031, issued by us
and held by the trust as assets, correspond to the terms and distributions on
the trust preferred securities. We have effectively guaranteed the payments due
on the outstanding trust preferred securities. The net proceeds of this offering
were added to our general funds and were used to repay short-term indebtedness.
We also have an effective shelf registration statement on file with the SEC
under which up to an aggregate of $50 million of our common stock, first
mortgage bonds and unsecured debt securities remain available for issuance.
Following announcement of the merger with UtiliCorp, the ratings for our
first mortgage bonds (other than the pollution control bonds) were placed on
credit watch with downward implication by each of Moody's Investors Service and
Standard & Poor's. Standard & Poor's removed the credit watch but kept the
downward implication in January 2001 after the merger was terminated. On May 3,
2001, Moody's Investors Service lowered the debt ratings of our first mortgage
bonds (other than the pollution control bonds) to Baa1 from A2, and on our
senior unsecured debt to Baa2 from A3. This downgrade was primarily due to the
risk to our credit profile associated with our efforts to obtain necessary rate
relief from the Missouri Public Service Commission to recover our ongoing
capital expenditures associated with the State Line construction and our
increased operating expenses primarily due to escalating natural gas prices.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
There has been no material change in these risks from those disclosed in
our Annual Report on Form 10-K for the year ended December 31, 2000.
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 25, 2001.
(b) The following persons were re-elected Directors of Empire to serve until
the 2004 Annual Meeting of Stockholders:
R. C. Hartley (13,518,045 votes for; 352,644 withheld authority).
F. E. Jefferies (13,526,248 votes for; 344,441 withheld authority).
The following person was elected Director of Empire to serve until the
2004 Annual Meeting of Stockholders:
J. S. Leon (13,406,918 votes for; 409,771 withheld authority).
The term of office as Director of the following other Directors continued
after the meeting: M. F. Chubb, R. L. Lamb, R. E. Mayes, R. D. Hammons, J.
R. Herschend, M. W. McKinney and M. M. Posner.
Item 5. Other Information.
------------------
At March 31, 2001, our ratio of earnings to fixed charges was 2.08x. See
Exhibit (12) hereto.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
(12) Computation of Ratios of Earnings to Fixed Charges.
(b) Reports on Form 8-K.
(1) In a current report dated January 3, 2001, Empire filed, under Item 5.
"Other Events," a press release relating to Empire's proposed merger
with UtiliCorp United, Inc.
(2) In a current report dated February 1, 2001, Empire filed, under Item 5.
"Other Events," a press release relating to Empire's declaration of
dividends and earnings report and the election of its Executive Vice
President and Vice President-Finance.
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(3) In a current report dated February 20, 2001, Empire filed, under Item
5. "Other Events," a press release relating to Empire's interim rate
request filed with the Missouri Public Service Commission.
(4) In a current report dated February 23, 2001, Empire filed, under Item
5. "Other Events," a discussion of the offering by Empire District
Electric Trust I of 2,000,000 8 1/2% Trust Preferred Securities.
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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/ D. W. Gibson
------------------------------------------
D. W. Gibson
Vice President - Finance
By /s/ D. L. Coit
--------------------------------------
D. L. Coit
Controller, Assistant Treasurer and
Assistant Secretary
May 15, 2001
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