-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LQ01Q/H9of45WOxpD08sbu2I061hpPYfFjozRSGEG3vr01+fffJjAuyVESvwEWfz zrk7ywTKpcLpQ79JZisOag== /in/edgar/work/0000032689-00-000030/0000032689-00-000030.txt : 20001114 0000032689-00-000030.hdr.sgml : 20001114 ACCESSION NUMBER: 0000032689-00-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMPIRE DISTRICT ELECTRIC CO CENTRAL INDEX KEY: 0000032689 STANDARD INDUSTRIAL CLASSIFICATION: [4911 ] IRS NUMBER: 440236370 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03368 FILM NUMBER: 760715 BUSINESS ADDRESS: STREET 1: 602 JOPLIN ST CITY: JOPLIN STATE: MO ZIP: 64801 BUSINESS PHONE: 4176255100 MAIL ADDRESS: STREET 1: P.O. BOX 127 CITY: JOPLIN STATE: MO ZIP: 64802 10-Q 1 0001.txt 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 September 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 November 1, 2000: 17,596,001 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 10 Liquidity and Capital Resources 15 Item 3. Quantitative and Qualitative Disclosures 17 About Market Risk 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 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 September 30, 2000 1999 Operating revenues: Electric $ 85,925,995 $ 81,147,809 Water 297,129 311,958 86,223,124 81,459,767 Operating revenue deductions: Operating expenses: Fuel 18,426,824 17,812,421 Purchased power 16,403,004 10,774,241 Other 9,041,204 8,476,064 Merger Related Expenses 78,990 2,582,658 Total operating expenses 43,950,022 39,645,384 Maintenance and repairs 3,211,084 4,788,785 Depreciation and amortization 6,982,089 6,561,016 Provision for income taxes 8,443,621 8,852,730 Other taxes 3,964,316 3,617,304 66,551,132 63,465,219 Operating income 19,671,992 17,994,548 Other income and deductions: Allowance for equity funds used 662,015 - during construction Interest income 154,379 75,225 Other - net 94,554 (88,719) 910,948 (13,494) Income before interest charges 20,582,940 17,981,054 Interest charges: Long-term debt 6,589,021 4,618,614 Commercial paper 471,741 728,705 Allowance for borrowed funds used (913,290) (455,823) during construction Other 103,185 85,953 6,250,657 4,977,449 Net income 14,332,283 13,003,605 Preferred stock dividend requirements - 206,511 Excess consideration paid on - 1,304,504 redemption of preferred stock Net income applicable to common stock $ 14,332,283 $ 11,492,590 Weighted average number of common 17,555,023 17,282,936 shares outstanding Basic and diluted earnings per weighted average share of common stock $ 0.82 $ 0.66 Dividends per share of common stock $ 0.32 $ 0.32
See accompanying Notes to Financial Statements. STATEMENTS OF INCOME (UNAUDITED) Nine Months Ended September 30, 2000 1999 Operating revenues: Electric $ 196,879,596 $ 188,684,200 Water 801,613 826,864 197,681,209 189,511,064 Operating revenue deductions: Operating expenses: Fuel 37,253,589 37,422,804 Purchased power 45,292,144 33,401,716 Other 24,712,378 24,280,178 Merger Related Expenses 200,854 5,644,312 Total operating expenses 107,458,965 100,749,010 Maintenance and repairs 10,996,284 12,894,076 Depreciation and amortization 20,713,685 19,515,590 Provision for income taxes 11,032,635 13,638,570 Other taxes 10,431,099 9,693,680 160,632,668 156,490,926 Operating income 37,048,541 33,020,138 Other income and deductions: Allowance for equity funds used 1,494,721 56,845 during construction Interest income 516,991 169,895 Other - net (158,691) (203,136) 1,853,021 23,604 Income before interest charges 38,901,562 33,043,742 Interest charges: Long-term debt 19,769,258 13,855,842 Commercial paper 572,196 1,227,837 Allowance for borrowed funds used (2,062,052) (859,718) during construction Other 335,135 275,936 18,614,537 14,499,897 Net income 20,287,025 18,543,845 Preferred stock dividend requirements - 1,403,025 Excess consideration paid on - 1,304,504 redemption of preferred stock Net income applicable to common stock $ 20,287,025 $ 15,836,316 Weighted average number of common 17,472,691 17,205,757 shares outstanding Basic and diluted earnings per weighted average share of common stock $ 1.16 $ 0.92 Dividends per share of common stock $ 0.96 $ 0.96
See accompanying Notes to Financial Statements. STATEMENT OF INCOME (UNAUDITED) Twelve Months Ended September 30, 2000 1999 Operating revenues: Electric $ 249,260,598 $ 242,764,243 Water 1,071,087 1,087,951 250,331,685 243,852,194 Operating revenue deductions: Operating expenses: Fuel 45,082,212 46,125,847 Purchased power 56,587,220 43,001,904 Other 32,265,331 33,264,728 Merger Related Expenses 328,835 5,644,312 Total operating expenses 134,263,598 128,036,791 Maintenance and repairs 14,447,477 19,131,703 Depreciation and amortization 27,564,790 25,837,684 Provision for income taxes 13,256,494 16,251,880 Other taxes 14,195,200 12,317,720 203,727,559 201,575,778 Operating income 46,604,126 42,276,416 Other income and deductions: Allowance for equity funds used 1,494,721 65,783 during construction Interest income 850,451 316,999 Other - net (617,673) (369,773) 1,727,499 13,009 Income before interest charges 48,331,625 42,289,425 Interest charges: Long-term debt 25,316,150 18,474,369 Commercial paper 1,017,436 1,252,790 Allowance for borrowed funds used (2,338,110) (1,008,435) during construction Other 422,831 359,812 24,418,307 19,078,536 Net income 23,913,318 23,210,889 Preferred stock dividend requirements - 2,002,553 Excess consideration paid on - 1,304,504 redemption of preferred stock Net income applicable to common stock $ 23,913,318 $ 19,903,832 Weighted average number of common 17,437,554 17,170,531 shares outstanding Basic and diluted earnings per weighted average share of common stock $ 1.37 $ 1.16 Dividends per share of common stock $ 1.28 $ 1.28
See accompanying Notes to Financial Statements. BALANCE SHEET September 30, 2000 December 31, (Unaudited) 1999 ASSETS Utility plant, at original cost: Electric $ 898,726,454 $ 871,263,673 Water 7,455,990 7,023,246 Construction work in progress 104,840,716 41,712,243 1,011,023,160 919,999,162 Accumulated depreciation 322,638,592 303,951,518 688,384,568 616,047,644 Current assets: Cash and cash equivalents 6,007,538 20,778,856 Accounts receivable - trade, net 27,254,672 17,377,963 Accrued unbilled revenues 8,408,399 6,660,318 Accounts receivable - other 4,628,355 6,726,734 Fuel, materials and supplies 14,048,028 15,978,790 Prepaid expenses 1,057,868 1,129,021 61,404,860 68,651,682 Deferred charges: Regulatory assets 36,253,567 37,075,852 Unamortized debt issuance costs 3,875,123 4,175,240 Other 11,281,185 5,458,466 51,409,875 46,709,558 Total Assets $ 801,199,303 $ 731,408,884 CAPITALIZATION AND LIABILITIES: Common stock, $1 par value, 17,587,875 and 17,369,855 shares issued and outstanding, respectively $ 17,587,875 $ 17,369,855 Capital in excess of par value 168,015,787 163,909,732 Retained earnings (Note 2) 56,417,883 52,908,431 Total common stockholders' equity 242,021,545 234,188,018 Long-term debt 345,653,867 345,850,169 587,675,412 580,038,187 Current liabilities: Accounts payable and accrued 27,285,116 25,232,221 liabilities Commercial paper 32,000,000 - Customer deposits 3,712,624 3,686,691 Interest accrued 10,253,166 5,026,356 Taxes accrued, including income 13,666,121 - taxes 86,917,027 33,945,268 Noncurrent liabilities and deferred credits: Regulatory liability 14,461,338 15,295,992 Deferred income taxes 82,767,290 78,913,545 Unamortized investment tax credits 7,289,267 7,811,000 Postretirement benefits other than 4,688,547 4,592,721 pensions State Line advance payments 14,399,757 7,895,241 Other 3,000,665 2,916,930 126,606,864 117,425,429 Total Capitalization and $ 801,199,303 $ 731,408,884 Liabilities
See accompanying Notes to Financial Statements. STATEMENT OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 2000 1999 Operating activities: Net income $ 20,287,025 $ 18,543,845 Adjustments to reconcile net income to cash flows: Depreciation and amortization 23,345,089 21,964,069 Pension income (4,792,230) (3,293,110) Deferred income taxes, net 2,403,122 2,008,951 Investment tax credit, net (521,733) (504,910) Allowance for equity funds used (1,494,721) (56,845) during construction Excess consideration paid on - (1,304,504) redemption of preferred stock Issuance of common stock for 401(k) 560,721 578,805 plan Issuance of common stock units for 84,000 84,000 director retirement plan Cash flows impacted by changes in: Accounts receivable and accrued (9,526,411) (7,064,608) unbilled revenues Fuel, materials and supplies 1,930,762 (692,760) Prepaid expenses and deferred (614,036) (3,064,517) charges Accounts payable and accrued 2,052,895 (563,679) liabilities Customer deposits, interest and 19,108,028 15,414,578 taxes accrued Other liabilities and other 179,562 2,290,173 deferred credits Net cash provided by operating 53,002,073 44,339,488 activities Investing activities: Construction expenditures (94,467,266) (50,118,472) Allowance for equity funds used 1,494,721 56,845 during construction Net cash used in investing activities (92,972,545) (50,061,627) Financing activities: Proceeds from issuance of common 3,679,354 5,091,194 stock Redemption of preferred stock - (32,901,800) Reacquired capital stock - 267,537 Dividends (16,777,573) (18,119,909) 9) Repayment of first mortgage bonds (256,000) - Payment of debt issue costs 48,857 - State Line advance payments 6,504,516 5,263,494 Net issuances (repayments) from 32,000,000 44,500,000 short-term borrowings Net cash provided by (used in) 25,199,154 4,100,516 financing activities Net increase (decrease) in cash and (14,771,318) (1,621,623) cash equivalents Cash and cash equivalents at beginning 20,778,856 2,492,716 of period Cash and cash equivalents at end of $ 6,007,538 $ 871,093 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 June 30: Net Income 5,954,742 Quarterly cash dividends on common stock: - $0.64 per share (11,161,907) Total changes January 1 through June 30 (5,207,165) Balance at July 1, 2000 47,701,266 Changes July 1 through September 30: Net Income 14,332,283 Quarterly cash dividends on common stock: - $0.32 per share (5,615,666) Total changes July 1 through September 30 8,716,617 Balance at September 30, 2000 $ 56,417,883
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 November 10, 2000, the average trading price for UtiliCorp's common stock would have been $26.05625 per share, resulting in the payment of $29.5738 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, 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 held hearings on the Merger proposal from September 11-15, 2000. Hearings were also held by the Arkansas Public Service Commission on September 19, 2000, the Oklahoma Corporation Commission on October 9, 2000 and the Kansas Corporation Commission on October 24, 2000. We anticipate that the decisions will be handed down by year end. 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 authorized the termination of the Company's Dividend Reinvestment and Stock Purchase Plan effective October 1, 2000 as contemplated by the Merger Agreement. RESULTS OF OPERATIONS The following discusses significant changes in the results of operations for the three-month, nine-month and twelve-month periods ended September 30, 2000, compared to the same periods ended September 30, 1999. Operating Revenues and Kilowatt-Hour Sales Of the Company's total electric operating revenues during the third quarter of 2000, approximately 44% were from residential customers, 31% from commercial customers, 16% from industrial customers, 4% 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: Operating Kwh Sales Revenues Nine Twelve Nine Twelve Third Months Months Third Months Months Quarter Ended Ended Quarter Ended Ended Residential 8.0% 3.9% 1.5% 8.0% 5.1% 2.4% Commercial 3.6 2.0 0.9 4.6 4.0 3.6 Industrial 2.4 1.2 0.2 5.8 3.5 2.4 Wholesale On- 4.1 3.7 3.4 1.1 7.0 5.0 System Total On- 5.1 2.5 1.1 6.2 4.4 2.9 System
Residential and commercial Kwh sales and revenues increased during the third quarter of 2000 compared to the third quarter of 1999 due mainly to above-average temperatures in August and September of 2000. A new peak demand of 993 Mw was set on August 30, 2000. Industrial Kwh sales and related revenue, which are not particularly weather-sensitive, were positively affected by continuing increases in business activity throughout the Company's service territory during the third quarter of 2000. On-system wholesale Kwh sales and revenues increased during the third quarter of 2000 reflecting the warmer temperatures described above and continuing increases in business activity. Revenues associated with these FERC-regulated sales increased at a lower relative rate than corresponding Kwh sales due to the operation of the fuel adjustment clause applicable to such sales. This clause permits the pass through to customers of changes in fuel and purchased power costs and since the increase in fuel and purchased power costs were lower for the third quarter of 2000 than in the same period a year earlier, the increase in such sales for that period exceeded the increase in revenues from such sales. For the nine months ended September 30, 2000, Kwh sales to and revenue from the Company's residential and commercial customers increased, reflecting the warmer temperatures experienced during the second and third quarters of 2000 as compared with the same periods of 1999. Industrial Kwh sales and related revenues increased due to continuing increases in business activity throughout the Company's service territory. On-system wholesale Kwh sales increased reflecting both the warmer temperatures and the continuing increases in business activity. Revenues associated with these FERC-regulated sales increased more than the corresponding Kwh sales as a result of the operation of the fuel adjustment clause applicable to such sales. Increases in fuel and purchased power costs were higher for the nine months ended September 30, 2000 than in the same period a year earlier, causing the increase in revenues associated with such sales for that period to exceed the increase in Kwh sales. For the twelve months ended September 30, 2000, Kwh sales to and revenue from the Company's residential and commercial customers increased, reflecting the weather conditions discussed above. Industrial sales and revenue continued to grow due to strong business activity in the Company's service territory. On-system wholesale Kwh sales increased for the twelve months ended September 30, 2000, reflecting the warmer temperatures and continuing increases in business activity described above. On November 3, 2000, the Company filed a request with the Missouri Public Service Commission for a general annual increase in rates for its Missouri electric customers in the amount of $41,467,926, or 19.36%. This request is to allow the Company to recover higher expenses resulting from significantly higher natural gas prices than the levels contemplated by the Company's existing rates as well as its investment in the Company's Combined Cycle Unit currently under construction at the State Line Power Plant and other plant additions which have occurred since the Company's last rate case which became effective in September 1997. Any rate increase approved as a result of the filing would not become effective before late in the third quarter of 2001. 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 third quarter of 2000, revenues from such off-system transactions were approximately $3.8 million, the same as during the third quarter of 1999. Off-system revenues were approximately $7.8 million for the nine-month period ended September 30, 2000 as compared to $7.9 million for the same period in 1999. For the twelve months ended September 30, 2000, revenues from such off-system transactions were approximately $9.5 million, the same as for the twelve months ended September 30, 1999. The Company is a member of the Southwest Power Pool ("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 SPP filed with the FERC on December 30, 1999 for RTO status. This filing was rejected by the FERC as not meeting certain requirements of its Order 2000. The SPP has filed a second request addressing the FERC's concerns and continuing to seek RTO status. Operating Revenue Deductions During the third quarter of 2000, total operating expenses increased approximately $4.3 million (10.9%) compared with the same period last year. Purchased power costs increased approximately $5.6 million (52.2%) during the period, primarily due to increased demand resulting from the warmer temperatures, decreased availability of some of the Company's generating units and escalating natural gas prices (which made it more economical to purchase power than to run the Company's gas-fired units, particularly in September). The Riverton Plant's coal-fired Unit No. 7 was out of service for its scheduled fall outage from September 15 to November 9 and Unit No. 8, also coal-fired, was out of service for its scheduled fall outage from September 29 to October 16. The State Line Plant's Unit No. 2 was taken out of service on September 12 to begin its transformation into a combined- cycle unit and will be out of service until the combined-cycle unit is operational in June 2001. Total fuel costs increased approximately $0.6 million (3.5%) during the third quarter of 2000 as compared to the same period in 1999. This change reflected a lower amount of generation combined with an increase in natural gas prices. Merger related expenses, which are not tax deductible, were $2.5 million (96.9%) less during the third quarter of 2000 as compared to the same period in 1999. Other operating expenses increased $0.6 million (6.7%) during the third quarter mainly due to a $0.5 million addition to the bad debt reserve. Maintenance and repair expense decreased approximately $1.6 million (33.0%) during the quarter, primarily due to fewer expenses associated with scheduled maintenance on the combustion turbines at Energy Center as compared to third quarter expenses in 1999. Depreciation and amortization expenses increased approximately $0.4 million (6.4%) during the quarter due to increased levels of plant and equipment placed in service. Total income taxes decreased $0.4 million (4.6%) due primarily to a decrease in taxable income resulting from non-deductible merger costs. Other taxes increased $0.3 million (9.6%) during the quarter, primarily due to increased property taxes. For the nine months ended September 30, 2000, total operating expenses increased approximately $6.7 million (6.7%). Purchased power costs increased $11.9 million (35.6%) primarily due to increased demand resulting from the warmer temperatures as well as decreased availability of the Company's generating units and the high cost of replacement energy. Total fuel costs decreased $0.2 million (0.5%). Other operating expenses increased $0.4 million (1.8%), primarily due to the third quarter addition to the bad debt reserve. Merger related expenses were $5.4 million (96.4%) less during the nine months ended September 30, 2000 than in the same period of 1999. Maintenance and repairs expense decreased $1.9 million (14.7%) for the nine months ended September 30, 2000 primarily due to decreased maintenance expense on the Company's combustion turbines as well as decreased levels of distribution maintenance. Total provisions for income taxes decreased $2.6 million (19.1%) due primarily to a decrease in taxable income resulting from non- deductible merger costs. Other taxes increased $0.7 million (7.6%) during the period, primarily due to increased property taxes. During the twelve months ended September 30, 2000, total operating expenses increased approximately $6.2 million (4.9%) compared to the year ago period. Total purchased power costs increased approximately $13.6 million (31.6%) while total fuel costs decreased approximately $1.0 million (2.3%) during the twelve- month period. Both such increases were due to the reasons discussed above. Merger related expenses were $5.3 million (94.2%) less during the twelve months ended September 30, 2000 than in the same period a year earlier. Other operating expenses decreased approximately $1.0 million (3.0%) during the twelve months ended September 30, 2000, compared to the same period a year earlier primarily due to lower general and administrative expenses. Approximately $0.7 million of this difference is attributed to a one-time charge taken during the fourth quarter of 1998 due to the initiation of the Directors Stock Unit Plan. Maintenance and repairs expense decreased approximately $4.7 million (24.5%) during the twelve months ended September 30, 2000, compared to the prior period. This decrease was primarily due to decreased maintenance expense on the gas-fired combustion turbines at the Energy Center and the State Line Power Plant and decreased levels of distribution maintenance. Depreciation and amortization expense increased approximately $1.7 million (6.7%) due to increased levels of plant and equipment placed in service. Total provision for income taxes decreased $3.0 million (18.4%) due to lower taxable income during the current period resulting from non- deductible merger costs. Other taxes increased $1.9 million (15.2%) 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 fourth quarter of 2000 and the first quarter of 2001. 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 substantially during each of the periods presented, reflecting the construction at the State Line Power Plant. Other-net deductions decreased during the third quarter of 2000 and for the nine month period compared to prior year levels, reflecting increasing profit margins for the Company's non- regulated fiber optics leasing venture. Other-net deductions increased for the twelve months ended September 30, 2000 compared to the prior period due primarily to increased nonoperating income taxes, reflecting the 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 third quarter of 2000, $5.9 million (42.7%) for the nine months ended September 30, 2000 and $6.8 million (37.0%) 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 preferred stock redemption in August 1999, as well as that incurred in connection with the construction program. As a result, commercial paper interest decreased $0.3 million (35.3%) during the third quarter of 2000 compared to the same period last year, $0.7 million (53.4%) for the nine months ended September 30, 2000 and $0.2 million (18.8%) for the twelve months ended period 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 excess consideration paid as preferred stock redemption costs. Earnings For the third quarter of 2000, earnings per share of common stock were $0.82 compared to $0.66 during the third quarter of 1999. Excluding merger costs of $0.1 million in the third quarter of 2000 and $2.6 million in the third quarter of 1999, earnings per share would have been $0.82 and $0.81, respectively. Earnings per share were positively impacted by the summer's warm temperatures and the increase in total AFUDC and were negatively impacted by increased purchased power costs and increased interest charges. Earnings per share for the nine months ended September 30, 2000, were $1.16 compared to $0.92 for the nine months ended a year earlier. Excluding $0.2 million in merger costs for the first nine months of 2000 and $5.6 million for the first nine months of 1999, earnings per share would have been $1.17 for the nine months ended September 30, 2000 and $1.25 for the nine months ended September 30, 1999. The decline in earnings per share (excluding merger costs), which were positively impacted by increased total AFUDC, for the nine months ended September 30, 2000 was primarily due to increased purchased power costs and increased interest charges. For the twelve months ending September 30, 2000, earnings per share of common stock were $1.37 compared to $1.16 for the year earlier period. Excluding $0.3 million in merger costs for the twelve months ended September 2000 and $5.6 million in merger costs for the twelve months ended September 1999 earnings per share would have been $1.39 and $1.49 respectively. Earnings for the twelve months ending September 30, 2000 reflect the absence of $1.3 million of excess consideration paid on the redemption of preferred stock in 1999 and increased total AFUDC and 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. Competition The Arkansas Legislature passed a bill in April 1999 that would deregulate the state's electricity industry as early as January 2002. The bill would freeze rates for three years for residential and small business customers of utilities that seek to recover stranded costs, and freeze rates for one year for residential and small business customers of utilities, such as the Company, that do not seek to recover stranded costs. The Staff of the Arkansas Public Service Commission filed testimony in October 2000 recommending that the Commission encourage the legislature to extend the date for retail open access beyond the current legal deadline of June 30, 2003. The staff and investor-owned utilities proposed the start date be reset to October 1, 2003 with the Commission having authority to delay the date until October 1, 2005, arguing that this will provide more time for a truly competitive wholesale market to develop as more generation comes on- line in the state. The Commission is expected to propose the change to the state legislature in November 2000. Approximately 2.96% of the Company's retail electric revenue for the nine months ended September 30, 2000 was derived from sales subject to Arkansas regulation. LIQUIDITY AND CAPITAL RESOURCES The Company's construction-related expenditures totaled $35.8 million during the third quarter of 2000, compared to $20.6 million for the same period in 1999. For the nine months ended September 30, 2000, construction-related expenditures totaled $94.5 million compared to $50.1 million for the same period in 1999. Approximately $22.1 million during the third quarter of 2000 and $52.7 million during the first nine months of 2000 were related to the expansion project at the State Line Power Plant described below. Approximately $10.0 million of these expenditures during the third quarter of 2000 and approximately $24.2 million of construction expenditures during the first nine months of 2000 were related to additions to the Company's transmission and distribution systems to meet projected increases in customer demand. Approximately $2.3 million of these third quarter expenditures and $4.4 million for the first nine months of 2000 were related to additions and replacements at the Asbury Power Plant. Approximately $0.3 million of these third quarter expenditures and approximately $0.8 million during the first nine months of 2000 were related to additions to the Company's investment in fiber optics cable and equipment. Approximately $7.0 million during the first nine 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. During the first nine months of 2000, approximately 38% 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 the combination 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 $204 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 and the Combined Cycle Unit is projected to be operational by the target date of June 2001. All major equipment components are on site and ready for installation. The Company is experiencing a tightening labor market for required skilled craftsmen which is increasing project labor costs and could also result in a delay in 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 is seeking certain damages. The Company has responded with a claim of its own against the contractor. Arbitration has been set for a three-week period beginning February 19, 2001. 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 has been making monthly prepayments to the Company, the last of which was made in October 2000. These prepayments are for the future transfer to WGI 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. The Missouri and Arkansas Commissions have approved the Company's application for permission to sell and transfer an interest in these assets to WGI. The prepayments are reflected in State Line advance payments on the balance sheet. The Company's construction expenditures are expected to total approximately $117.2 million in 2000, including approximately $69.3 million for its share of new generating facilities at the Combined Cycle Unit and approximately $10.8 million for the transmission plant associated with the Combined Cycle Unit. Approximately $21.4 million will be for additions to the Company's distribution system to meet projected increases in customer demand. The Company currently estimates that internally generated funds will provide at least 50% of the funds required for the remainder of its 2000 construction expenditures. As in the past, the Company intends to utilize short-term debt to finance the additional amounts needed for such construction and repay such borrowings with the proceeds of sales of public offerings of long- term debt or equity securities, including the sale of the Company's common stock pursuant to its Employee Stock Purchase Plan and from internally-generated funds. The Company's Dividend Reinvestment and Stock Purchase Plan was terminated 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 5. Other Information. At September 30, 2000, the Company's ratio of earnings to fixed charges was 2.40x. See Exhibit (12) hereto. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. (12) Computation of Ratios of Earnings to Fixed Charges. (27) Financial Data Schedule for September 30, 2000. (b) No reports on Form 8-K were filed during the third 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 November 13, 2000 EXHIBIT (12) COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES Twelve Months Ended September 30, 2000 Income before provision for income taxes and $ 64,502,610 fixed charges (Note A) Fixed charges: Interest on first mortgage bonds $ 17,439,662 Amortization of debt discount and expense less 1,023,100 premium Interest on short-term debt 1,017,436 Interest on notes payable 6,853,388 Other interest 422,831 Rental expense representative of an interest 71,624 factor (Note B) Total fixed charges 26,828,041 Ratio of income before provision for incomes 1.575x taxes to net income Ratio of earnings to fixed charges 2.40x 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). NOTE C: The Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements is no longer calculated due to the Company's preferred stock redemption on August 2, 1999.
EX-27 2 0002.txt
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AT SEPTEMBER 30, 2000 AND THE STATEMENT OF INCOME AND THE STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 SEP-30-2000 PER-BOOK 688,384,568 0 61,404,860 51,409,875 0 801,199,303 17,587,875 168,015,787 56,417,883 242,021,545 0 0 345,653,867 0 0 32,000,000 0 0 0 0 181,523,892 801,199,303 250,331,685 13,256,494 190,471,065 203,727,559 46,604,126 1,727,499 48,331,625 24,418,306 23,913,318 0 23,913,318 22,321,646 25,316,150 53,002,073 1.37 1.37
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