33
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, 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 November 2, 1998: 17,020,666 shares.
<PAGE>
THE EMPIRE DISTRICT ELECTRIC COMPANY
INDEX
Page Number
Part I - Financial Information:
Item 1. Financial Statements:
a. Statements of Income 3
b. Balance Sheets 6
c. Statements of Cash Flows 7
d. Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
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 - (none)
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
September 30,
1998 1997
<S> <C> <C>
Operating revenues:
Electric $ 77,563,240 $ 68,357,538
Water 296,532 278,267
77,859,772 68,635,805
Operating revenue deductions:
Operating expenses:
Fuel 16,878,973 13,331,713
Purchased power 12,448,247 10,669,833
Other 7,922,086 7,478,792
Total operating expenses 37,249,306 31,480,338
Maintenance and repairs 3,646,052 3,151,675
Depreciation and amortization 6,272,011 6,027,277
Provision for income taxes 7,978,800 7,289,717
Other taxes 3,689,937 3,311,842
58,836,106 51,260,849
Operating income 19,023,666 17,374,956
Other income and deductions:
Allowance for equity funds used - -
during construction
Interest income 65,314 41,800
Other - net (324,968) (125,992)
(259,654) (84,192)
Income before interest charges 18,764,012 17,290,764
Interest charges:
Long-term debt 4,618,450 4,151,434
Commercial paper 47,669 428,108
Allowance for borrowed funds used (89,277) (55,094)
during construction
Other 82,490 73,869
4,659,332 4,598,317
Net income 14,104,680 12,692,447
Preferred stock dividend requirements 604,085 604,085
Net income applicable to common stock $ 13,500,595 $ 12,088,362
Weighted average number of common 16,969,760 16,659,014
shares outstanding
Basic and diluted earnings per $ 0.80 $ 0.73
weighted average share of common stock
Dividends per share of common stock $ 0.32 $ 0.32
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Operating revenues:
Electric $184,720,788 $161,132,210
Water 796,374 788,370
185,517,162 161,920,580
Operating revenue deductions:
Operating expenses:
Fuel 33,173,021 28,015,413
Purchased power 37,972,352 33,856,591
Other 22,987,532 22,962,567
Total operating expenses 94,132,905 84,834,571
Maintenance and repairs 11,285,244 9,658,074
Depreciation and amortization 18,658,543 17,282,089
Provision for income taxes 13,576,690 10,140,360
Other taxes 9,748,281 8,864,914
147,401,663 130,780,008
Operating income 38,115,499 31,140,572
Other income and deductions:
Allowance for equity funds used - -
during construction
Interest income 116,697 92,298
Other - net (673,920) (293,998)
(557,223) (201,700)
Income before interest charges 37,558,276 30,938,872
Interest charges:
Long-term debt 13,255,306 12,447,244
Commercial paper 634,789 812,312
Allowance for borrowed funds used (251,327) (1,047,349)
during construction
Other 263,114 260,501
13,901,982 12,472,708
Net income 23,656,294 18,466,164
Preferred stock dividend requirements 1,812,255 1,812,255
Net income applicable to common stock $21,844,039 $16,653,909
Weighted average number of common 16,879,863 16,555,456
shares outstanding
Basic and diluted earnings per $ 1.29 $ 1.01
weighted average share of common stock
Dividends per share of common stock $ 0.96 $ 0.96
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF INCOME (UNAUDITED)
Twelve Months Ended
September 30,
1998 1997
<S> <C> <C>
Operating revenues:
Electric $237,895,177 $208,878,772
Water 1,012,249 1,042,974
238,907,426 209,921,746
Operating revenue deductions:
Operating expenses:
Fuel 41,268,184 35,655,008
Purchased power 51,248,646 44,917,923
Other 30,671,450 30,952,227
Total operating expenses 123,188,280 111,525,158
Maintenance and repairs 14,470,677 13,088,682
Depreciation and amortization 24,771,745 22,782,656
Provision for income taxes 16,436,330 12,218,060
Other taxes 12,103,097 11,005,872
190,970,129 170,620,428
Operating income 47,937,297 39,301,318
Other income and deductions:
Allowance for equity funds used 150,524 35,073
during construction
Interest income 155,084 144,069
Other - net (833,049) (385,403)
(527,441) (206,261)
Income before interest charges 47,409,856 39,095,057
Interest charges:
Long-term debt 17,401,104 16,242,500
Commercial paper 965,731 1,050,597
Allowance for borrowed funds used (279,443) (1,435,765)
during construction
Other 339,355 329,201
18,426,747 16,186,533
Net income 28,983,109 22,908,524
Preferred stock dividend requirements 2,416,340 2,416,340
Net income applicable to common stock $ 26,566,769 $ 20,492,184
Weighted average number of common 16,841,908 16,512,487
shares outstanding
Basic and diluted earnings per $ 1.58 $ 1.24
weighted average share of common stock
Dividends per share of common stock $ 1.28 $ 1.28
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
BALANCE SHEETS
September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
ASSETS
Utility plant, at original cost:
Electric $819,832,854 $795,880,240
Water 6,195,397 5,824,165
Construction work in progress 11,060,712 8,114,680
837,088,963 809,819,085
Accumulated depreciation 280,971,803 262,834,707 3 262,834,70
556,117,160 546,984,378
Current assets:
Cash and cash equivalents 8,328,115 2,545,282
Accounts receivable - trade, net 21,877,284 13,270,329
Accrued unbilled revenues 4,133,806 6,047,738
Accounts receivable - other 2,787,803 1,552,998
Fuel, materials and supplies 14,923,393 13,215,068
Prepaid expenses 966,321 1,001,469
53,016,722 37,632,884
Deferred charges:
Regulatory assets 36,372,142 37,472,225
Unamortized debt issuance costs 3,717,919 3,374,780
Other 937,907 1,000,700
41,027,968 41,847,705
Total Assets $650,161,850 $626,464,967
CAPITALIZATION AND LIABILITIES:
Common stock, $1 par value,
17,012,633 and 16,776,654 shares
issued and outstanding, Respectively $ 17,012,633 $ 16,776,654
Capital in excess of par value 154,871,146 150,784,239
Retained earnings (Note 2) 57,109,719 51,472,897
Total common stockholders' equity 228,993,498 219,033,790
Preferred stock 32,901,800 32,901,800
Long-term debt 246,082,106 196,384,541
507,977,404 448,320,131
Current liabilities:
Accounts payable and accrued 15,936,173 14,862,581
liabilities
Commercial paper - 28,000,000
Customer deposits 3,400,084 3,140,621
Interest accrued 6,812,832 3,509,680
Taxes accrued, including income 11,609,258 817,045
taxes
Current maturities - first mortgage - 23,000,000
bonds
37,758,347 73,329,927
Noncurrent liabilities and deferred
credits:
Regulatory liability 16,666,059 17,540,757
Deferred income taxes 71,495,551 69,344,653
Unamortized investment tax credits 8,493,000 8,971,000
Postretirement benefits other than 4,711,950 4,463,488
pensions
Other 3,059,539 4,495,011
104,426,099 104,814,909
Total Capitalization and Liabilities $650,161,850 $626,464,967
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Operating activities:
Net income $ 23,656,294 $ 18,466,164
Adjustments to reconcile net income
to cash flows:
Depreciation and amortization 21,149,731 19,559,179
Pension income (1,679,891) (543,899)
Deferred income taxes - net 1,357,752 1,748,019
Investment tax credit - net (478,000) (449,010)
Allowance for equity funds used - -
during construction
Issuance of common stock for 401(k) 532,472 501,872
plan
Other 66,958 92,056
Cash flows impacted by changes in:
Receivables and accrued unbilled (7,927,828) (2,750,002)
revenues
Fuel, materials and supplies (1,708,325) 527,487
Prepaid expenses and other deferred 22,743 (1,446,049)
charges
Accounts payable and accrued 1,073,592 (2,592,557)
liabilities
Customer deposits, interest and 14,354,828 9,205,261
taxes accrued
Other liabilities and deferred 492,881 355,746
credits
Net cash provided by operating 50,913,207 42,674,267
activities
Investing activities:
Construction expenditures (29,029,008) (46,856,979)
Allowance for equity funds used - -
during construction
Net cash used in investing activities (29,029,008) (46,856,979)
Financing activities:
Proceeds from issuance of first 49,672,000 -
mortgage bonds
Proceeds from issuance of common 3,790,414 3,889,773
stock
Dividends (18,019,472) (17,706,334)
Payment of debt issue costs (544,308) 24,205
Repayment of first mortgage bonds (23,000,000) (102,000)
Net proceeds (repayments) from short- (28,000,000) 19,000,000
term borrowings
Net cash provided by (used in) (16,101,366) 5,105,644
financing activities
Net increase in cash and cash 5,782,833 922,932
equivalents
Cash and cash equivalents at beginning 2,545,282 2,246,136
of period
Cash and cash equivalents at end of $ 8,328,115 $ 3,169,068
period
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
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 Company's opinion, necessary to present fairly the results
for the interim periods presented.
Note 2- Retained Earnings
<TABLE>
<S> <C>
Balance at January 1, 1998 $ 51,472,897
Changes January 1 through June 30:
Net Income 9,551,614
Quarterly cash dividends on common stock:
$0.64 per share (10,779,525)
Quarterly cash dividends on preferred stock:
5% cumulative - $0.250 per share (97,545)
4-3/4% cumulative - $0.2375 per share (95,000)
8-1/8% cumulative - $0.40625 per share (1,015,625)
Total changes January 1 through June 30 (2,436,081)
Balance at July 1, 1998 49,036,816
Changes July 1 through September 30:
Net Income 14,104,680
Quarterly cash dividends on common stock:
$0.32 per share (5,427,692)
Quarterly cash dividends on preferred stock:
5% cumulative - $0.125 per share (48,773)
4-3/4% cumulative - $0.11875 per share (47,500)
8-1/8% cumulative - $0.203125 per share (507,812)
Total changes July 1 through September 30 8,072,903
Balance at September 30, 1998 $ 57,109,719
</TABLE>
<PAGE>
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, nine-month and
twelve-month periods ended September 30, 1998, compared to the
same periods ended September 30, 1997.
Operating Revenues and Kilowatt-Hour Sales
Of the Company's total electric operating revenues during
the third quarter of 1998, approximately 44% were from
residential customers, 31% from commercial customers, 16% from
industrial customers, 5% from wholesale on-system customers
and 3% from wholesale off-system transactions. The remainder
of such revenues was 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:
<TABLE>
Operating
Kwh Sales Revenues
Nine Twelve Nine Twelve
<S> <C> <C> <C> <C> <C> <C>
Third Months Months Third Months Months
Quarter Ended Ended Quarter Ended Ended
Residential 16.3% 12.2% 10.1% 18.7% 17.7% 16.1%
Commercial 8.7 7.6 6.5 12.5 13.1 13.4
Industrial 3.2 2.2 2.0 4.7 8.4 8.8
Wholesale On- 12.9 12.1 10.6 17.4 16.3 15.5
System
Total System 7.8 7.4 6.8 14.1 14.4 13.9
</TABLE>
Above-average temperatures in the Company's service
territory during the third quarter of 1998 resulted in
increases in both residential and commercial Kwh sales and
revenue compared to the same period of 1997, when
temperatures were unusually mild. Cooling degree days (the
number of degrees that the average temperature for that period
were above 65 F) were 30.8% greater for the third quarter of
1998 as compared to the third quarter of 1997 and 16.6%
greater than the 20-year norm for that time period. This had
the effect of increasing air conditioning usage during the
quarter and contributing, in part, to the increased sales and
revenues. Revenues were also helped by the 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, and by the annual
rate increase of $358,848 (6.6%) granted by the Arkansas
Public Service Commission effective August 24, 1998.
Industrial Kwh sales and related revenues, which are not
particularly weather-sensitive, were positively affected
during the third quarter of 1998 by continuing increases in
business activity throughout the Company's service territory
as well as the Missouri and Arkansas rate increases discussed
above.
On-system wholesale Kwh sales increased during the third
quarter of 1998 reflecting the weather conditions and
continuing increases in business activity discussed above.
Revenues associated with those 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. This clause permits the pass through to customers of
changes in fuel and purchased power costs.
For the nine and twelve months ended September 30, 1998,
total Kwh sales to and operating revenues from the Company's
residential and commercial customers increased, reflecting the
warmer temperatures experienced during the second and third
<PAGE>
quarters of 1998, as well as the Missouri and Arkansas rate
increases discussed above. Industrial sales continued to grow
due to strong business activity in the Company's service
territory.
Off-System Transactions
In addition to sales to its own customers, the Company
also sells power to other utilities to the extent it is
available, and provides transmission service through its
system for transactions between other energy suppliers. For
the third quarter of 1998 and the nine month and twelve month
periods ended September 30, 1998, revenues from such off-
system transactions were approximately $2.6 million compared
to approximately $2.7 million during the third quarter of
1997, $6.7 million compared to approximately $5.6 million
during the nine months ended September 30, 1997, and $8.8
million compared with approximately $7.4 million during the
twelve months ended September 30, 1997, respectively.
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
reserve margins of 12.00% effective October 1, 1998.
On December 19, 1997, the SPP filed an open access
transmission tariff (the "Regional Tariff") on behalf of its
members to provide pool-wide, short-term transmission services
using pricing which is based on distance. As of June 1,
1998, the date the FERC declared the Regional Tariff
effective, SPP began providing short-term firm and non-firm
point-to-point transmission services for periods of less than
one year under this tariff. These services supplant those
same services provided under the Company's open access
transmission tariff. The Company, however, will continue to
provide long-term, point-to-point transmission services and
network transmission services under its own open access
transmission service tariff. The Company cannot currently
predict the effect of these tariffs on its future operations.
Operating Revenue Deductions
During the third quarter of 1998, total operating
expenses increased approximately $5.8 million (18.3%) compared
to the same period last year. Purchased power costs were ap
proximately $1.8 million (16.7%) higher while total fuel costs
increased approximately $3.5 million (26.6%). The significant
increase in total purchased power and fuel costs was primarily
due to the warmer temperatures experienced during the third
quarter of 1998. Fuel costs were also impacted by the
increased usage of the Company's higher-cost gas turbines as a
result of the increase in customer demand resulting from the
warmer temperatures.
Other operating expenses for the quarter increased
approximately $0.4 million (5.9%) as compared to the same
period last year, primarily due to higher customer accounts
expenses. Maintenance and repairs expense increased
approximately $0.5 million (15.7%) during the period,
primarily due to increased levels of transmission system
maintenance. Depreciation and amortization expense increased
approximately $0.2 million (4.1%) during the third quarter of
1998 due to increased levels of plant and equipment placed in
service. Total income taxes increased $0.7 million (9.5%)
during the quarter due to higher taxable income. Taxes other
than income taxes increased $0.4 million (11.4%).
For the nine months ended September 30, 1998, total
operating expenses were up approximately $9.3 million (11.0%)
compared to the same period last year. Total purchased power
costs increased $4.1 million (12.2%). This increase was
primarily due to purchases of replacement energy during the
Asbury Plant outage in the first quarter of 1998 that resulted
from a generator winding problem as well as increased customer
demand in the second and third quarters of 1998 due to the
warmer temperatures. Total fuel costs increased approximately
$5.2 million (18.4%) during the period, due primarily to the
increased generation from the Company's own generating
facilities resulting from the increased customer demand in the
warmer second and third quarters of 1998. Maintenance and
repairs expense increased $1.6 million (16.9%) during the same
<PAGE>
period. This increase was primarily due to the increased
expenses associated with the five-year scheduled maintenance
outage at the Riverton Plant during the second quarter of
1998, as well as the additional expenses incurred at Asbury
during the first quarter outage. Depreciation and
amortization expense increased $1.4 million (8.0%) due to the
additional plant and equipment placed in service. Total
provisions for income taxes increased $3.4 million (33.9%) and
for other taxes increased $0.9 million (10.0%) during the
period for the reasons discussed with respect to the third
quarter results.
For the twelve months ended September 30, 1998, total
operating expenses increased approximately $11.7 million
(10.5%) compared to the year ago period. Total purchased
power costs increased $6.3 million (14.1%) and fuel costs
increased approximately $5.6 million (15.7%) during the twelve-
month period, due primarily to the factors discussed for the
third quarter and nine months ended September 30, 1998. Other
operating expenses during the twelve months ended September
30, 1998 decreased approximately $0.3 million (0.9%), due
primarily to lower general and administrative costs.
Maintenance and repairs expense increased $1.4 million
(10.6%), for the reasons discussed above for the nine months
ended September 30, 1998. Depreciation and amortization
expense increased $2.0 million (8.7%) due to the additional
plant and equipment placed in service, primarily State Line
Unit No. 2 in June 1997. Total provision for income taxes
increased $4.2 million (34.5%) due to higher taxable income.
Other taxes increased $1.1 million (10.0%) also due to
increased revenues.
The Company has scheduled maintenance on two combustion
turbines which will add approximately $2.2 million to
operating expenses during the fourth quarter of 1998.
Nonoperating Items
During the third quarter of 1998, total allowance for
funds used during construction ("AFUDC") increased slightly
over the prior year level but decreased during the nine and
twelve months ending September 30, 1998 compared to prior year
levels. This decrease reflects lower levels of construction
work in progress, particularly due to the completion of Unit
No.2 at the Company's State Line Power Plant.
Interest income increased slightly during each of the
periods ended September 30, 1998. Interest charges on first
mortgage bonds increased during the periods due to the
issuance of $50.0 million of the Company's First Mortgage
Bonds in April 1998. The proceeds from that sale were used to
redeem $23.0 million in mature bonds and to repay short-term
debt. Commercial paper and other interest charges decreased
during the periods primarily due to the repayment of the short-
term debt.
Other-net deductions totaled approximately $0.8 million
for the twelve-month period ended September 30, 1998, a $0.4
million (116.2%) increase over the same period last year.
This increase was primarily due to one-time startup costs for
the Company's non-regulated ventures, such as home security
and fiber optics leasing.
Earnings
Earnings per share increased seven, twenty-eight and
thirty-four cents per share in the third quarter and nine
month and twelve month periods ended September 30, 1998,
respectively, primarily due to increased revenues resulting
from the Arkansas rate increase and the two Missouri rate
increases as well as the above-average temperatures in the
second and third quarters of 1998 discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction-related expenditures totaled
$9.0 million during the third quarter of 1998, compared to
$8.8 million for the same period of 1997. For the nine months
ended September 30, 1998, construction-related expenditures
totaled $29.0 million compared to $46.9 million for the same
period of 1997. Approximately $6.2 million of construction
expenditures during the third quarter of 1998 and
approximately $17.8 million of construction expenditures
during the first nine months of 1998 were related to additions
to the Company's transmission and distribution systems to meet
<PAGE>
projected increases in customer demand. Approximately $0.8
million of construction expenditures during the third quarter
of 1998 and approximately $2.4 million of construction
expenditures during the first nine months of 1998 were 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 the first nine months of 1998 is mainly due
to the completion of Unit No. 2 at the State Line Power Plant,
which was placed in service June, 1997. During the first nine
months of 1998, 100% of construction expenditures and other
funds requirements were satisfied internally from operations.
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.
The Company announced plans on October 2, 1998 for the
construction of a 350 megawatt addition to the State Line
Power Plant. It is estimated that construction would begin in
the fall of 1999 and the addition would be operational
approximately 20 months later. The Company has submitted
requests for proposals to supply the gas, as well as requests
for proposals for the purchase of power from the plant or to
join with the Company in the construction and ownership of the
planned facilities. However, the Company's plans to proceed
with the construction and to obtain financing are dependent
upon the proposals received, as well as obtaining any
required governmental permits. The estimated cost of the
additional generating facilities would total approximately
$180 million.
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. The Company will
continue to utilize short-term debt as needed to support
normal operations or other temporary requirements.
ENVIRONMENTAL MATTERS
The Environmental Protection Agency (the "EPA") announced
its new emission levels for nitrogen oxide ("NOx") on
September 24, 1998. The Company's Asbury Plant must meet an
emission level limit of 0.15 lbs. NOx/mmbtu by April 1, 2003.
The Company is currently assessing various compliance
scenarios, including installing scrubbers at a potential cost
of approximately $25 million.
ACCOUNTING MATTERS
The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits"
in February 1998, effective for fiscal years beginning after
December 15, 1997. SFAS 132 amends SFAS 87, "Employers'
Accounting for Pensions" and SFAS 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". SFAS 132
revises employers' disclosures concerning pension and other
postretirement benefit plans but will not impact the company's
financial position or results of operations.
<PAGE>
YEAR 2000
Year 2000 Background
Many existing computer programs use only two digits to
identify a year in the date field. These programs were
designed and developed without considering the impact of the
upcoming century change. As a result, computer systems may
fail completely or produce erroneous results unless corrective
measures are taken. The Company is engaged in an on-going
project to identify, evaluate and implement changes to both
information technology ("IT") and non-IT systems in order to
achieve a Year 2000 date conversion with no adverse effect on
customers or disruption to business operations. The Company
has also become a member of the Edison Electric Institute's
Year 2000 Committee and the Electric Power Research
Institute's Y2K Embedded Systems Program in order to assist
in the implementation of its Year 2000 Readiness Plan. In
addition, the Company is participating in the North American
Electric Reliability Council's ("NERC") efforts to prepare
mission critical systems for Year 2000 readiness. NERC's
target is to have all mission critical electric power
production, transmission, and delivery systems Year 2000 ready
by June 30, 1999. The Company is working within that
framework and plans to participate in two industry-wide Year
2000 drills on April 9,1999 and September 9, 1999.
The Company is using a multi-step approach in achieving
its Year 2000 Readiness Plan. These steps include creating
awareness of the Year 2000 problem, forming a Year 2000 task
force, developing procedures for documenting Year 2000
readiness, developing methodology for the Year 2000 readiness
plan and testing and remediation of Year 2000 affected items
pursuant to the Year 2000 Readiness Plan. Developing the
methodology for the Year 2000 Readiness Plan includes
developing and implementing an ongoing communication program
with both internal and external parties, performing an
inventory of possible Year 2000 affected items, assessing and
prioritizing each such inventory item as to level of
criticality, scheduling testing and remediation of such items
in order of criticality, and developing contingency planning.
Management consultants will be retained to review the process
involving the implementation of the Year 2000 Readiness Plan
as well as the plan itself. Any changes required by this
independent review will then be implemented.
The Company has purchased a new financial management
software package from PeopleSoft that is Year 2000 ready. The
package includes systems for general ledger, accounts payable
and asset management; purchasing and inventory; human
resources, benefits, time and labor, and payroll; as well as
budgeting and project tracking. In addition, a new customer
information system is being developed internally which will be
Year 2000 ready. Installation of these systems, which are
anticipated to substantially mitigate the Company's Year 2000
exposure, is expected to be completed during the first half of
1999.
State of Readiness
A task force has been appointed and is charged with
documenting and testing areas of the Company which may be
affected by the Year 2000. The targeted areas include general
preparation, power generation, energy management systems,
telecommunications, substation controls and system protection
and business information systems. Within each of these areas,
the task force is examining the status of IT systems, non-IT
systems and third parties such as vendors, customers and
others with whom the Company does business. The inventory of
Year 2000 items was completed in September 1998. Assessing
and prioritizing each item within the Year 2000 inventory as
to the level of criticality was also completed in September
1998. The ongoing testing and remediation of the highest
level of critical items is scheduled to be completed by the
end of the second quarter of 1999. The Year 2000 task force
will also develop contingency plans in the event that
unanticipated problems are encountered due to the Year 2000.
These plans are also scheduled to be completed during the
second quarter of 1999.
<PAGE>
The Company is currently in the process of obtaining
readiness certifications from third party vendors for all of
its core applications and operating systems. The Company
expects to complete this process by the end of the first
quarter of 1999. All critical applications will be tested,
however, regardless of whether a certification of readiness
has been obtained. In addition, the Company has begun to
contact other third parties with whom the Company does
business (such as major customers, power pools, power
suppliers, transmission providers and telecommunications
providers) in order to assess their states of readiness. This
initial contact phase is expected to be completed by the end
of 1998. The Company will continue to monitor the progress of
these third parties even after the initial contact phase. The
Company currently plans to substantially complete its Year
2000 testing and compliance projects by the end of the second
quarter of 1999.
Year 2000 Costs
The Company currently estimates that total costs (which
include the costs of the new financial management software
package and the new customer information system) to update all
of our systems for Year 2000 readiness will be approximately
$3.7 million, of which approximately $1.5 million of these
costs have already been incurred and capitalized as of
September 30, 1998 while $0.2 million have been incurred and
expensed. Of these capitalized costs, $0.5 million were
included in the capital budget. The remaining costs are
expected to be incurred in the fourth quarter of 1998 and in
1999. Costs for specific Year 2000 remediation projects will
be charged to expense while costs to replace software for
business purposes other than addressing Year 2000 issues will
be capitalized.
Risk Assessment and Contingency Plans
At this time, the Company believes the most reasonably
likely worst case scenario is that key customers could
experience significant reductions in their power needs due to
their own Year 2000 issues, and there could be a temporary
disruption of service to some customers due to cascading
disruptions caused by other entities whose systems are
connected to the Company's. The Company is assessing the risk
of this scenario and will be formulating contingency plans,
currently scheduled to be completed during the second quarter
of 1999, to mitigate the potential impact.
The Company's Readiness Plan is designed to provide
corrective action with respect to Year 2000 risks. If the
Plan is not successfully carried out in a timely manner, or if
unforeseen events occur, Year 2000 problems could have a
material adverse impact on the Company. Management does not
expect such problems to have such an effect on its financial
position or results of operations.
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, litigation, rate and other regulatory matters,
liquidity and capital resources, Year 2000 readiness
(including estimated costs, completion dates, risks and
contingency plans) 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;
electric utility restructuring, including ongoing state and
federal activities; weather, business and economic conditions;
legislation; regulation, including rate relief and
environmental regulation; competition; and other circumstances
affecting anticipated rates, revenues and costs.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
PART II. OTHER INFORMATION
Item 5. Other Information.
At September 30, 1998, the ratio of earnings to fixed
charges, and the ratio of earnings to combined fixed charges
and preferred stock dividend requirements, were 3.39x and
2.83x, respectively. See Exhibit (12) hereto.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(10) (a) Retirement Plan for Directors of the Empire District
Electric Company as amended August 1, 1998.
(b) Stock Unit Plan for Directors of the Empire
District Electric Company.
(12) Computation of Ratios of Earnings to Fixed
Charges and Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements.
(27) Financial Data Schedule.
(b) In a current report dated October 5, 1998, the Company
filed, under Item 5. "Other Events," a press release
announcing the Company's plans to construct an additional
350 megawatts of electric power generation at the State
Line Power Plant.
<PAGE>
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
November 13, 1998
EXHIBIT (10a)
RETIREMENT PLAN FOR DIRECTORS
OF
THE EMPIRE DISTRICT ELECTRIC COMPANY
Effective January 1, 1990
1. Purpose
The Empire District Electric Company (the "Company") has adopted
this Retirement Plan for Directors of The Empire District
Electric Company (the "Plan") in order to enhance the Company's
ability to attract and retain competent and experienced persons
to serve as Directors and to recognize the service of Directors
of the Company by providing such Directors with retirement
benefits.
2. Definitions
Except as otherwise specified or as the context may otherwise
require, the following terms have the meanings indicated below
for all purposes of this Plan:
(a) Director means any person who is serving on the Effective
Date of the Plan, or who in the future serves as a member
of the Board of Directors of the Company (the "Board").
(b) Service means service as a Director.
(c) Compensation means the annual Board retainer fee (exclud-
ing meeting and committee fees) established by the Board
as in effect on the date of the Directors termination of
Service (disregarding any increase or decrease in such fee
that may be approved after such termination of Service).
(d) Retirement Date means the first day of the calendar month
coinciding with or next following the later of (i)the
date the Director attains the age of 65 years and (ii) the
date the Director ceases to be a Director.
(e) Effective Date means January 1, 1990.
(f) Change in Control means the time when (a) any person,
either individually or together with such person's affili-
ates and associates, shall have become the beneficial
owner, directly or indirectly, of at least 20% of the
<PAGE>
outstanding Common Stock of the Company or (b) individuals
who shall qualify as Continuing Directors shall have
ceased for any reason to constitute at least a majority of
the Board of Directors of the Company or (c) the Company
is wholly or partially liquidated, or participates in a
merger, consolidation or reorganization in which it or any
entity controlled by it is not the surviving entity. The
term "Continuing Director" has the meaning assigned to
that term in Article V of the Articles of Incorporation of
the Company as in effect on January 1, 1990.
3. Eligibility
Any Director who has (i) completed five or more years of service
and (ii) has never been an officer of the Company.
4. Benefits
The annual rate of retirement benefits payable hereunder to a
Director who meets the eligibility requirements shall be an
annual amount equal to the Director's Compensation. Benefits
shall commence on a Director's Retirement Date and shall be
payable in equal monthly installments. Payments shall cease
upon the earlier of (i) the date of the Director's death or (ii)
the completion of payments for a period of time equal to the
period of the Director's Service.
5. Provision of Benefits
All benefits payable hereunder shall be provided from the
general assets of the Company. No Director shall acquire any
interest in any specific assets of the Company by reason of this
Plan. A Director shall have the status of an unsecured general
creditor of the Company with respect to any benefits which
become payable pursuant to this Plan.
6. Amendment and Termination
The Company reserves the right to terminate this Plan or amend
this Plan in any respect at any time; provided, however, that no
such termination or amendment may reduce the retirement benefits
then being paid to any retired Director or the retirement bene-
fits then accrued by any Director who has completed at least
five years of service.
<PAGE>
7. Administration
This Plan shall be administered by the Compensation Committee of
the Board. The Compensation Committee shall have full authority
and absolute discretion:
(A) To construe and interpret the Plan; and
(B) To make all determinations and take all other
actions necessary or advisable for the proper
administration of the Plan.
All such actions and determinations shall be conclusively
binding upon all persons for all purposes.
8. Change in Control
In the event of a Change in Control:
(i) each person who is a Director on the day preceding the
Change in Control and who has never been an officer of the Company
shall be entitled to receive benefits under this Plan based on the
period of his or her Service both before and after the Change in
Control, whether or not such Director's period of Service is at least
five years, and
(ii) each person who is a Director on the day preceding the
Change in Control shall be paid immediately in cash in one lump sum an
amount equal to the total of the payments the Director would have
received if his Retirement Date had occurred on the date of Change in
Control and he had lived for a period thereafter at least as long as
the period of his Service.
9. Miscellaneous
The adoption and maintenance of this Plan shall not constitute a
contract between the Company and any Director. Nothing herein
contained shall be deemed to give any Director the right to be
retained as a Director, nor shall it interfere with the
Director's right to resign as a Director at any time.
This instrument shall be construed in accordance with and
governed by the laws of the State of Kansas.
The Company shall have the right to deduct from any distribu-
tions made under this plan, any federal, state or local states
<PAGE>
or any other amounts required by law to be withheld with respect
to such distribution.
The cost of benefit payments from this Plan and the expenses of
administering the Plan shall be borne by the Company.
Unless the context clearly requires otherwise, the masculine
pronoun whenever used shall include the feminine and neuter pro-
noun, the singular shall include the plural, and vice versa.
In no event shall the Company make any payment under the plan to
any assignee or creditor of a Director, except as otherwise
required by law. Prior to the time of a payment hereunder, a
Director shall have no rights by way of anticipation or other-
wise to assign or otherwise dispose of any interest under this
Plan, nor shall a Director's rights hereunder be assigned or
transferred by operation of law.
The retirement benefits herein contained are in addition to all
other awards, arrangements, contracts or benefits, if any that
any Director may have by virtue of service for the Company,
unless and to the extent that any such award, arrangement,
contract or benefit otherwise provides.
<PAGE>
Amendment to
Retirement Plan for Directors of
the Empire District Electric Company
The Retirement Plan for Directors of The Empire District
Electric Company is hereby amended, effective as of August 1,
1998, in the following respects:
1. Section 2(b) is amended to read as follows:
"(b) Service means service as a Director, but
disregarding any service on or after the date
on which the Director becomes a participant in
the Stock Unit Plan for Directors of The Empire
District Electric Company."
2. Section 3 is amended to read as follows:
"3. Eligibility
Any Director who (i) has completed five or more years of
service, (ii) has never been an officer of the Company,
(iii) became a Director prior to August 1, 1998, and (iv)
has not elected to convert his or her accrued benefits under
this Plan into stock units under the Stock Unit Plan for
Directors of The Empire District Electric Company. No
person who is first elected as a Director on or after August
1, 1998 shall be eligible to participate in this Plan."
3. Section 4 is amended by adding at the end thereof the
following sentence:
"Anything in this Plan to the contrary notwithstanding, any
Director who elects to convert his or her accrued benefits
under this Plan into stock units under the Stock Unit Plan
for Directors of The Empire District Electric Company
pursuant to the terms of said Stock Unit Plan for Directors
shall not be entitled to any benefits under this Plan."
EXHIBIT
(10)(b)
STOCK UNIT PLAN FOR DIRECTORS
OF THE EMPIRE DISTRICT ELECTRIC COMPANY
4. Purpose. The Empire District Electric Company (the
"Company") has adopted this Stock Unit Plan for Directors of
The Empire District Electric Company (the "Plan") in order to
enhance the Company's ability to attract and retain competent
and experienced persons to serve as Directors and to recognize
the service of Directors of the Company by providing such
Directors with retirement benefits, and in order to provide a
stock-based retirement compensation program for Directors that
will foster a strong incentive to put forth maximum effort for
the continued growth and success of the Company.
5. Effective Date. This Plan is effective as of August 1,1998.
6. Definitions.
(a) "Account" means an account established for each Eligible
Director on the books of the Company that will be credited
with Stock Units.
(b) "Annual Retainer Fees" means the annual rate of Board
retainer fees (excluding meeting and committee fees)
established by the Board as in effect at the applicable time.
(c) "Board" means the Board of Directors of the Company.
(d) "Cash Retirement Plan" means the Retirement Plan for
Directors of The Empire District Electric Company, as said
plan may be amended from time to time.
(e) "Committee" means the Compensation Committee of the
Board.
(f) "Common Stock" means common stock, $1.00 par value, of
the Company, or any substituted class of common stock,
provided such stock is the primary publicly traded equity
issue of the Company.
(g) "Company" means The Empire District Electric Company and
its successors.
(h) "Effective Date" means August 1, 1998.
(i) "Eligible Director" means an Eligible Existing Director
or an Eligible New Director.
(j) "Eligible Existing Director" means any Director of the
Company who (i) is serving on the Board on the Effective Date,
<PAGE>
(ii) has never been an officer of the Company and (iii) has
elected to participate in this Plan pursuant to Section 6(b).
(k) "Eligible New Director" means any Director of the Company
who (i) first becomes a Director after the Effective Date and
(ii) has never been an officer of the Company.
(l) "Fair Market Value" means with respect to the Common
Stock the mean between the high and low prices of Common Stock
on the New York Stock Exchange Composite Tape on the day of
the required calculation or, if there should be no sale on
that date, on the next preceding day on which there was a
sale.
(m) "Payment Date" means the earlier to occur of the
following dates: (i) the Eligible Director's Retirement Date,
or (ii) the Eligible Director's death.
(n) "Plan" means the Stock Unit Plan for Directors of The
Empire District Electric Company as it may be amended from
time to time.
(o) "Retirement Date" means the date on which the Director
ceases to be a Director other than by reason of death.
(p) "Stock Unit" means a measure of value, expressed as a
share of Common Stock, credited to the Eligible Director's
Account, and payable in Common Stock upon a Payment Date, as
provided in this Plan.
7. Limitations on Issuance of Stock. Anything in this Plan
to the contrary notwithstanding, (i) no single Director may
acquire under this Plan more than one percent of the shares of
the Company's Common Stock outstanding at the time this Plan
is adopted, and (ii) this Plan, together with all other plans
of the Company (other than plans for which shareholder
approval is not required under subsections (1) and (3) of Rule
312.03(a) of the New York Stock Exchange Listed Company
Manual), shall not permit the issuance of more than five
percent of the Company's Common Stock outstanding at the time
this Plan is adopted.
8. Administration. This Plan shall be administered by the
Committee. The Committee shall have full authority and
absolute discretion (i) to construe and interpret the Plan,
reconcile inconsistencies thereunder and supply omissions
therefrom, and (ii) to make all determinations and take all
other actions necessary or advisable for the proper
administration of the Plan. Any decision or action taken by
the Committee in the exercise of such powers or otherwise,
arising out of or in connection with the construction,
administration, interpretation and effect of the Plan and of
its rules and regulations, shall be conclusive and binding
upon all persons.
9. Eligibility.
(a) Eligible New Directors. An Eligible New Director shall
become eligible to participate in this Plan on the date on
which he or she first is elected to the Board.
<PAGE>
(b) Eligible Existing Directors. Each Director who is
serving on the Board on the Effective Date and who is
participating in the Cash Retirement Plan shall have the right
to elect whether (i) to participate in this Plan effective as
of the Effective Date in lieu of continued accruals under the
Cash Retirement Plan or (ii) to continue accruals under the
Cash Retirement Plan. Such election shall be made by filing a
prescribed form with the Committee during an election period
prescribed by the Committee. If such a Director fails to
elect to participate in this Plan within such election period,
such Director shall not have the right thereafter to elect to
participate and shall not be an Eligible Director.
10. Crediting of Stock Units.
(a) Account. Stock Units shall be credited to each Eligible
Director's Account in accordance with this Section 7.
(b) Credits as of Effective Date. There shall be credited to
the Account of each person who is an Eligible Director on the
Effective Date a number (calculated to three decimal points)
of Stock Units equal to:
(i) five-twelfths of the amount of the Annual Retainer Fees
as in effect on the Effective Date,
divided by
(ii) the Fair Market Value of a share of Common Stock on the
Effective Date.
(c) Annual Credits. As of January 1st of each calendar year
beginning with 1999, there shall be credited to the Account of
each person who is an Eligible Director on such January 1st a
number (calculated to three decimal points) of Stock Units
equal to:
(i) the Director's Annual Retainer Fees as in effect on such
January 1st,
divided by
(ii) the Fair Market Value of a share of Common Stock on such
January 1st.
(d) Credits to New Directors. There shall be credited to the
Account of each Eligible New Director as of the date of such
person's initial election as a Director a number (calculated
to three decimal points) of Stock Units equal to:
(i) the amount of the Eligible New Director's retainer fees
(excluding meeting and committee fees) for the balance of the
calendar year of his or her initial election as a Director
(computed as a percentage of the Annual Retainer Fees as in
effect on the date of his or her initial election),
divided by
<PAGE>
(ii) the Fair Market Value of a share of Common Stock on the
date of his or her initial election as a Director.
This subsection (d) shall not apply if the effective date of
the Eligible New Director's election is January 1st.
(e) Election of Eligible Existing Directors to Convert Cash
Benefit to Stock Units. Eligible Existing Directors shall
have the right to elect, with respect to previously accrued
benefits under the Cash Retirement Plan, whether to: (i)
retain their retirement benefits under the Cash Retirement
Plan for years of service on the Board prior to the Effective
Date and to receive benefits under this Plan only with respect
to service on or after the Effective Date, or (ii) convert
accrued benefits under the Cash Retirement Plan into Stock
Units under this Plan ("Converting Directors") as hereinafter
set forth. Such election shall be made by filing a prescribed
form with the Committee during an election period prescribed
by the Committee. Converting Directors shall have credited to
their Accounts under this Plan as of the Effective Date or
such later conversion date as may be established by the
Committee (the "Conversion Date"), a number (calculated to
three decimal points) of Stock Units equal to:
(i) the product of (A) the Annual Retainer Fees as in effect
on the Conversion Date, times (B) the total number of years of
service accrued by the Converting Director under the Cash
Retirement Plan as of the Effective Date (with credit being
given for any period of less than a full year of service at
the rate of one-twelfth of a year of service for each full
month of service),
divided by
(ii) the Fair Market Value of a share of Common Stock on the
Conversion Date.
(f) Dividends. Until fully paid out in accordance with the
terms of this Plan, the Company shall credit to each Eligible
Director's Account, on each day that the Company pays a
declared cash dividend to the stockholders of its Common
Stock, a number (calculated to three decimal places) of Stock
Units that is equal to (i) the product of the total number of
Stock Units in the Eligible Director's Account on the record
date established for such dividend, multiplied by the cash
dividend per share of Common Stock, divided by (ii) the Fair
Market Value of a share of Common Stock on the record date.
11. Payout of Accounts.
(a) General Payout Terms. Unless installment payments
are elected pursuant to subsection (b) or (c) of this Section 8,
within 30 days after the Payment Date the Company shall cause
to be delivered to the Eligible Director (or, in the event of
his or her death, the Eligible Director's beneficiary
determined pursuant to subsection (d) of this Section 8) a
certificate for the number of shares of Common Stock equal to
the whole number of Stock Units in his or her Account as of
the Payment Date plus cash for any fractional unit credited to
<PAGE>
his or her Account as of the Payment Date (such cash amount to
be calculated based on the applicable fraction of the Fair
Market Value of a share of Common Stock on the Payment Date).
(b) Payout on Retirement. With respect to a payout by
reason of an Eligible Director's termination of service on a
Retirement Date, such Eligible Director may elect, at any time
prior to the date which is twelve months before such
Retirement Date, to receive, in lieu of a lump sum
distribution, distributions in annual installments over a
period of years selected by the Eligible Director but not to
exceed ten years. Such election shall be made by filing a
prescribed form with the Committee. If no such election of
installment payments is received by the Committee, the
Eligible Director's Account shall be paid out in a lump sum in
accordance with subsection (a) of this Section 8. If the
Eligible Director files with the Committee such an election to
receive installment payments, there shall be distributed to
the Eligible Director in January of each year beginning with
the January coinciding with or next following the month in
which the Eligible Director's Retirement Date falls a
certificate for the whole number of shares of Common Stock
equal to the quotient (rounded to the next lowest whole
number) obtained by dividing (i) the number of Stock Units
credited to the Eligible Director's Account as of the December
31st preceding the month of payment (after reduction for Stock
Units previously paid out in the form of Common Stock in prior
installments and any dividend credits pursuant to Section 7(f)
on the remaining balance), by (ii) the number of installments
remaining to be paid. The final installment payment shall
consist of the number of shares of Common Stock equal to the
remaining whole number of Stock Units in the Eligible
Director's Account as of the December 31st preceding the month
of payment plus cash for any fractional unit in his or her
Account as of such December 31st (such cash amount to be
calculated based on the applicable fraction of the Fair Market
Value of a share of Common Stock on such December 31st). In
the event of the death of an Eligible Director who has elected
installment payments prior to his or her receipt of all such
installment payments, the remaining installment payments shall
be paid to the Eligible Director's beneficiary as determined
pursuant to subsection (d) of this Section 8 at the time that
they would otherwise have been paid to the Eligible Director;
provided, however, that the Eligible Director may instead
elect (by filing a prescribed form with the Committee) that,
upon his or her death prior to receiving all installment
payments, the remaining balance in the Eligible Director's
Account as of the date of the Eligible Director's death (after
reduction for Stock Units previously paid out in the form of
Common Stock in prior installments and any dividend credits
pursuant to Section 7(f) on the remaining balance) shall be
distributed to the Eligible Director's beneficiary determined
pursuant to subsection (d) of this Section 8 in a lump sum
pursuant to subsection (a) of this Section 8 as if the date of
the Eligible Director's death were the Payment Date.
(c) Payout on Death While in Service. In the event of the
death of an Eligible Director prior to his or her Retirement
Date, the Eligible Director's beneficiary determined pursuant
to subsection (d) of this Section 8 shall receive a lump sum
distribution within 30 days after such death in accordance
with subsection (a) of this Section 8 unless prior to such
<PAGE>
death such Eligible Director has elected that benefits be paid
to his or her beneficiary in annual installments over a period
of years selected by the Eligible Director but not to exceed
ten years. Such election shall be made by filing a prescribed
form with the Committee. If the Eligible Director so elects
that installment payments be made to his or her beneficiary,
such installment payments shall be determined in the same
manner as installment payments pursuant to subsection (b) of
this Section 8 except the Eligible Director's date of death
shall be substituted for the Retirement Date and the payments
will be made to the beneficiary rather than to the Eligible
Director.
(d) Beneficiary Designation. Each Eligible Director shall
be entitled to designate a beneficiary or beneficiaries (which
may be an entity other than a natural person) who, following
the Eligible Director's death, will be entitled to receive any
payments to be made under this Plan. At any time, and from
time to time, any such designation may be changed or canceled
by the Eligible Director without the consent of any
beneficiary. Any designation, change, or cancellation must be
by written notice filed with the Company and shall not be
effective until received by the Company. If no beneficiary
has been named by the Eligible Director or if all designated
beneficiaries predecease the Eligible Director, payment shall
be made to the Eligible Director's estate.
(e) Payout in Cash If Required. Anything in this Plan to the
contrary notwithstanding, if at the time a payment is due
under the Plan, distribution in the form of Common Stock may
not be made to any person due to requirements of applicable
law, such payment shall not be made in such form but shall
instead be made in cash in an amount equal to the Fair Market
Value of the shares of Common Stock which would otherwise have
been paid out (such Fair Market Value to be computed as of the
last day of the month preceding the month in which the cash
payment is made).
12. Change in Capitalization. In the event of any change
in the outstanding shares of the Company's Common Stock by reason
of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination of shares
or other similar corporate change, the Board shall make such
adjustments as it deems appropriate in the number of Stock
Units in the Eligible Director's Account and in the kind of
shares to which the Stock Units relate, and in the number and
kind of shares available under this Plan.
13. Unfunded Plan. No Eligible Director shall have any
property interest whatsoever in any specific assets of the
Company by reason of this Plan. The Eligible Director's
Account is not intended to be a trust account or escrow
account for the benefit of an Eligible Director or any other
person. The sole right of an Eligible Director or his or her
personal representative is a right as an unsecured general
creditor of the Company.
14. Assignment and Alienation. The rights and benefits of
Eligible Directors under this Plan are personal to each
Director and neither the Director nor his or her beneficiary
shall have the power or right to transfer, assign, anticipate,
mortgage or otherwise encumber any interest in the benefits to
be paid under this Plan.
<PAGE>
15. Annual Report. No later than January 31st of each year,
the Company shall provide each Eligible Director with an
annual report of his or her Account balance.
16. No Rights of Stockholder. An Eligible Director shall
have no rights as a stockholder of Common Stock with respect
to the Stock Units credited to his or her Account unless and
until a certificate for shares of Common Stock is issued to
the Eligible Director by the Company pursuant to the terms of
the Plan.
17. Amendment and Termination. The Board shall have the
right to amend, suspend, or terminate this Plan in any respect
at any time. No amendment, suspension or termination of the
Plan (other than through adjustment for changes in
capitalization or corporate transactions as herein provided)
shall adversely affect any previously accrued benefits
hereunder unless the affected Eligible Director consents
thereto.
18. Miscellaneous
(a) Not Contract. The adoption and maintenance of this Plan
shall not constitute a contract between the Company and any
Director for continued service as a Director. Nothing herein
contained shall be deemed to give any Director the right to be
retained as a Director, nor shall it interfere with the
Director's right to resign as a Director at any time.
(b) Governing Law. This instrument shall be construed in
accordance with and governed by the laws of the State of
Kansas.
(c) Benefit Payments and Expenses. The cost of benefit
payments from this Plan and the expenses of administering the
Plan shall be borne by the Company.
(d) Other Benefits. The benefits herein contained are in
addition to all other awards, arrangements, contracts or
benefits, if any, that any Director may have by virtue of
service for the Company, unless and to the extent that this
Plan or any such award, arrangement, contract or benefit
otherwise provides.
EXHIBIT (12)
<TABLE>
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDEND REQUIREMENTS
Twelve
Months Ended
September 30,
1998
<S> <C>
Income before provision for income taxes and $ 63,917,784
fixed charges (Note A)
Fixed charges:
Interest on first mortgage bonds $ 16,527,916
Amortization of debt discount and expense less 873,188
premium
Interest on short-term debt 967,231
Other interest 337,855
Rental expense representative of an interest 160,765
factor (Note B)
Total fixed charges 18,866,955
Preferred stock dividend requirements:
Preferred stock dividend requirements not 2,338,304
deductible for tax purposes
Ratio of income before provision for incomes 1.554
taxes to net income
Nondeductible dividend requirements 3,633,724
Deductible dividends 78,036
Total preferred stock dividend requirements 3,711,760
Total combined fixed charges and preferred stock
dividend requirements $ 22,578,715
Ratio of earnings to fixed charges 3.39x
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements 2.83x
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).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1998 AND THE STATEMENT OF INCOME AND THE STATEMENT OF
CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 556,117,160
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 53,016,722
<TOTAL-DEFERRED-CHARGES> 41,027,968
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 650,161,850
<COMMON> 17,012,633
<CAPITAL-SURPLUS-PAID-IN> 154,871,146
<RETAINED-EARNINGS> 57,109,719
<TOTAL-COMMON-STOCKHOLDERS-EQ> 228,993,498
0
32,901,800
<LONG-TERM-DEBT-NET> 246,082,106
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 142,184,446
<TOT-CAPITALIZATION-AND-LIAB> 650,161,850
<GROSS-OPERATING-REVENUE> 185,517,162
<INCOME-TAX-EXPENSE> 13,576,690
<OTHER-OPERATING-EXPENSES> 133,824,973
<TOTAL-OPERATING-EXPENSES> 147,401,663
<OPERATING-INCOME-LOSS> 38,115,499
<OTHER-INCOME-NET> (557,223)
<INCOME-BEFORE-INTEREST-EXPEN> 37,558,276
<TOTAL-INTEREST-EXPENSE> 13,901,982
<NET-INCOME> 23,656,294
1,812,255
<EARNINGS-AVAILABLE-FOR-COMM> 21,844,039
<COMMON-STOCK-DIVIDENDS> 16,207,217
<TOTAL-INTEREST-ON-BONDS> 13,255,306
<CASH-FLOW-OPERATIONS> 50,913,207
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.29
</TABLE>
