UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 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 No ___
Common stock outstanding as of August 1, 1998: 16,961,537 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 13
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 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
June 30,
1998 1997
<S> <C> <C>
Operating revenues:
Electric $ 56,011,199 $ 45,718,191
Water 257,951 261,817
56,269,150 45,980,008
Operating revenue deductions:
Operating expenses:
Fuel 10,142,344 7,902,616
Purchased power 11,038,856 10,607,906
Other 7,667,021 7,573,259
Total operating expenses 28,848,221 26,083,781
Maintenance and repairs 3,560,677 3,474,208
Depreciation and amortization 6,218,930 5,698,791
Provision for income taxes 3,643,050 1,334,810
Other taxes 2,966,212 2,696,233
45,237,090 39,287,823
Operating income 11,032,060 6,692,185
Other income and deductions:
Allowance for equity funds used - -
during construction
Interest income 26,116 26,682
Other - net (152,302) (46,542)
(126,186) (19,860)
Income before interest charges 10,905,874 6,672,325
Interest charges:
Long-term debt 4,491,564 4,147,608
Commercial paper 190,203 262,304
Allowance for borrowed funds used (88,845) (480,346)
during construction
Other 101,836 93,858
4,694,758 4,023,424
Net income 6,211,116 2,648,901
Preferred stock dividend requirements 604,085 604,085
Net income applicable to common stock $ 5,607,031 $ 2,044,816
Weighted average number of common 16,873,265 16,547,939
shares outstanding
Basic and diluted earnings per
weighted average share of common stock $ 0.33 $ 0.12
Dividends per share of common stock $ 0.32 $ 0.32
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Operating revenues:
Electric $ 107,157,548 $ 92,774,672
Water 499,842 510,103
107,657,390 93,284,775
Operating revenue deductions:
Operating expenses:
Fuel 16,294,048 14,683,700
Purchased power 25,524,105 23,186,758
Other 15,065,446 15,483,775
Total operating expenses 56,883,599 53,354,233
Maintenance and repairs 7,639,192 6,506,399
Depreciation and amortization 12,386,532 11,254,812
Provision for income taxes 5,597,890 2,850,643
Other taxes 6,058,344 5,553,072
88,565,557 79,519,159
Operating income 19,091,833 13,765,616
Other income and deductions:
Allowance for equity funds used - -
during construction
Interest income 51,383 50,497
Other - net (348,952) (168,005)
(297,569) (117,508)
Income before interest charges 18,794,264 13,648,108
Interest charges:
Long-term debt 8,636,856 8,295,810
Commercial paper 587,119 384,204
Allowance for borrowed funds used (162,050) (992,255)
during construction
Other 180,725 186,632
9,242,650 7,874,391
Net income 9,551,614 5,773,717
Preferred stock dividend requirements 1,208,170 1,208,170
Net income applicable to common stock $ 8,343,444 $ 4,565,547
Weighted average number of common 16,834,170 16,502,819
shares outstanding
Basic and diluted earnings per
weighted average share of common stock $ 0.50 $ 0.28
Dividends per share of common stock $ 0.64 $ 0.64
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF INCOME (UNAUDITED)
Twelve Months Ended
June 30,
1998 1997
<S> <C> <C>
Operating revenues:
Electric $ 228,689,475 $ 202,977,756
Water 993,983 1,044,612
229,683,458 204,022,368
Operating revenue deductions:
Operating expenses:
Fuel 37,720,923 32,347,636
Purchased power 49,470,232 46,783,486
Other
30,228,157 30,855,259
Total operating expenses 117,419,312 109,986,381
Maintenance and repairs 13,976,300 13,036,622
Depreciation and amortization 24,527,011 22,204,928
Provision for income taxes 15,747,247 11,156,983
Other taxes 11,725,002 10,987,416
183,394,872 167,372,330
Operating income 46,288,586 36,650,038
Other income and deductions:
Allowance for equity funds used 150,524 233,092
during construction
Interest income 131,571 135,154
Other - net (634,073) (349,836)
(351,978) 18,410
Income before interest charges 45,936,608 36,668,448
Interest charges:
Long-term debt 16,934,088 15,785,900
Commercial paper 1,346,170 823,135
Allowance for borrowed funds used (245,260) (1,587,793)
during construction
Other 330,734 321,905
18,365,732 15,343,147
Net income 27,570,876 21,325,301
Preferred stock dividend requirements 2,416,340 2,416,340
Net income applicable to common stock $ 25,154,536 $ 18,908,961
Weighted average number of common 16,763,583 16,425,425
shares outstanding
Basic and diluted Diluted earnings per $ 1.50 $ 1.15
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
June 30,
1998 December 31,
(Unaudited) 1997
<S> <C> <C>
ASSETS
Utility plant, at original cost:
Electric $ 810,702,599 $ 795,880,240
Water 6,035,670 5,824,165
Construction work in progress 12,613,848 8,114,680
829,352,117 809,819,085
Accumulated depreciation 275,555,758 262,834,707
553,796,359 546,984,378
Current assets:
Cash and cash equivalents 1,685,371 2,545,282
Accounts receivable - trade, net 15,301,035 13,270,329
Accrued unbilled revenues 7,502,939 6,047,739
Accounts receivable - other 3,050,852 1,552,998
Fuel, materials and supplies 16,315,123 13,215,068
Prepaid expenses 871,212 1,001,468
44,726,532 37,632,884
Deferred charges:
Regulatory assets 36,734,281 37,472,225
Unamortized debt expenses 3,720,173 3,374,780
Other 919,649 1,000,700
41,374,103 41,847,705
Total Assets $ 639,896,994 $ 626,464,967
CAPITALIZATION AND LIABILITIES:
Common stock, $1 par value,
16,951,595 and 16,776,654 shares
issued and outstanding, Respectively $ 16,951,595 $ 16,776,654
Capital in excess of par value 153,480,392 150,784,239
Retained earnings (Note 2) 49,036,816 51,472,897
Total common stockholders' equity 219,468,803 219,033,790
Preferred stock 32,901,800 32,901,800
Long-term debt 246,071,306 196,384,541
498,441,909 448,320,131
Current liabilities:
Accounts payable and accrued 14,972,823 14,862,581
liabilities
Commercial paper 8,500,000 28,000,000
Customer deposits 3,315,130 3,140,621
Interest accrued 3,966,322 3,509,680
Taxes accrued, including income taxes 6,025,915 817,045
Current maturities - first mortgage bonds - 23,000,000
369,780,190 73,329,927
Noncurrent liabilities and deferred credits:
Regulatory liability 16,957,625 17,540,757
Deferred income taxes 70,408,881 69,344,653
Unamortized investment tax credits 8,782,440 8,971,000
Postretirement benefits other than 4,427,866 4,463,488
pensions
Other 4,098,083 4,495,011
104,674,895 104,814,909
Total Capitalization and Liabilities $ 639,896,994 $ 626,464,967
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Operating activities:
Net income $ 9,551,614 $ 5,773,717
Adjustments to reconcile net income
to cash flows:
Depreciation and amortization 14,036,835 12,765,688
Pension income (570,000) (362,600)
Deferred income taxes - net 535,464 458,423
Investment tax credit - net (188,560) (122,440)
Allowance for equity funds used - -
during construction
Issuance of common stock for 401(k) plan 339,378 323,761
Other 66,958 35,876
Cash flows impacted by changes in:
Receivables and accrued unbilled (4,983,761) 2,555,378
revenues
Fuel, materials and supplies (3,100,055) (806,097)
Prepaid expenses and deferred charges 138,170 (1,127,756)
Accounts payable and accrued liabilities 110,242 (3,287,533)
Customer deposits, interest and 5,840,021 4,726,569
taxes accrued
Other liabilities and deferred credits 137,450 104,488
Net cash provided by operating 21,913,756 21,037,474
activities
Investing activities:
Construction expenditures (20,007,623) (38,030,129)
Allowance for equity funds used - -
during construction
Net cash used in investing activities (20,007,623) (38,030,129)
Financing activities:
Proceeds from issuance of first 49,672,000 -
mortgage bonds
Proceeds from issuance of common stock 2,531,716 2,625,085
Dividends (11,987,695) (11,774,499)
Repayment of first mortgage bonds (23,000,000) (102,000)
Payment of debt issue costs (482,065) (17,938)
Net issuances (repayments) from
short-term borrowings (19,500,000) 26,500,000
Net cash provided by (used in) (2,766,044) 17,230,648
financing activities
Net increase (decrease) in cash and (859,911) 237,993
cash equivalents
Cash and cash equivalents at beginning 2,545,282 2,246,136
of period
Cash and cash equivalents at end of $ 1,685,371 $ 2,484,129
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 opinion of the Company, 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 March 31:
Net Income 3,340,498
Quarterly cash dividends on common stock:
$0.32 per share (5,371,651)
Quarterly cash dividends on preferred stock:
8-1/8% cumulative - $0.203125 per share (507,813)
5% cumulative - $0.125 per share (48,772)
4-3/4% cumulative - $0.11875 per share (47,500)
Total changes January 1 through March 31 (2,635,238)
Balance April 1, 1998 48,837,659
Changes April 1 through June 30:
Net Income 6,211,116
Quarterly cash dividends on common stock:
$0.32 per share (5,407,874)
Quarterly cash dividends on preferred stock:
8-1/8% cumulative - $0.203125 per share (507,812)
5% cumulative - $0.125 per share (48,773)
4-3/4% cumulative - $0.11875 per share (47,500)
Total changes April 1 through June 30 199,157
Balance June 30, 1998 $ 49,036,816
</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, six-month and
twelve-month periods ended June 30, 1998, compared to the same
periods ended June 30, 1997.
Operating Revenues and Kilowatt-Hour Sales
Of the Company's total electric operating revenues during
the second quarter of 1998, approximately 39% were from
residential customers, 31% from commercial customers, 18% from
industrial customers, 5% from wholesale on-system customers
and 4% 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:
<TABLE>
Operating
Kwh Sales Revenues
Six Twelve Six Twelve
<S> <C> <C> <C> <C> <C> <C>
Second Months Months Second Months Months
Quarter Ended Ended Quarter Ended Ended
Residential 21.2% 9.7% 7.1% 26.1% 16.9% 12.9%
Commercial 11.7 6.9 6.2 18.9 13.6 12.3
Industrial 1.7 1.6 1.4 11.4 10.9 9.6
Wholesale On- 15.7 11.6 8.5 20.7 15.5 11.2
System
Total System 11.9 6.7 5.4 20.3 14.7 12.2
</TABLE>
Above-average temperatures in the Company's service
territory during the second 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. 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. The
combined increases granted in 1997 equaled $13,589,634
(8.25%). Customer growth during the first half of 1998 has
been at virtually the same rate as that experienced during the
same period of 1997.
Industrial Kwh sales and related revenues, which are not
particularly weather-sensitive, were positively affected
during the second quarter of 1998 by continuing increases in
business activity throughout the Company's service territory
as well as by the 1997 Missouri rate increases.
On-system wholesale Kwh sales increased during the second
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 six and twelve months ended June 30, 1998, Kwh
sales to and operating revenues from the Company's residential
and commercial customers increased, reflecting the warmer
temperatures experienced during the second quarter of 1998, as
well as the Missouri rate increases discussed above.
Industrial sales continued to grow due to strong business
activity in the Company's service territory.
The Company filed an application on February 19, 1998,
to increase rates in Arkansas by $618,497 annually. An
agreement was reached to stipulate an increase of $358,848. A
public hearing
<PAGE>
on this application was held June 16, 1998, and the Company
received an order from the Arkansas Public Service Commission
on July 21, 1998, approving the rate increase. As a result,
the Company is currently in the process of filing revised
tariffs with the Arkansas Commission.
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 second quarter of 1998, income from such off-system
transactions exceeded related expenses by approximately $0.8
million, compared with approximately $0.5 million during the
second quarter of 1997. For the six months ended June 30,
1998, revenues from such off-system transactions exceeded
related expenses by approximately $1.3 million, compared with
approximately $0.9 million during the six months ended June
30, 1997. For the twelve months ended June 30, 1998, revenues
from such off-system transactions exceeded related expenses by
approximately $2.4 million, compared with approximately $2.1
million during the twelve months ended June 30, 1997.
The Company is currently a member of the MOKAN Power Pool
("MOKAN") and the Southwest Power Pool ("SPP"), a regional
division of the North American Electric Reliability Council,
which both require its members to maintain have reserve
margins of 13.04%. Effective October 1, 1998, this margin
will be reduced to 12.0% for the SPP. The membership of the
MOKAN Power Pool has voted to disband MOKAN its power pool and
is currently in the process of doing so.
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 distance-based pricing. On March 13, 1998, the FERC
accepted the Regional Tariff for filing and on March 23, 1998,
issued an order granting a motion for deferral of the
effective date of the Regional Tariff from April 1, 1998 to
June 1, 1998. 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 ithis Regional tTariff. .
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
underthrough 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 second quarter of 1998, total operating
expenses increased approximately $2.8 million (10.6%) compared
to the same period last year. Fuel costs were up approximately
$2.2 million (28.3%) during the second quarter of 1998. This
increase was mainly due to increased generation at the Asbury
Plant and from the gas-fired combustion turbines at the Energy
Center resulting from the above-average temperatures in May
and June. The Asbury Plant had greater availability during
the second quarter of 1998 as compared to the same period in
1997 as a result of shifting the planned spring maintenance
outage to the first quarter of 1998 due to a generator winding
problem. In addition, the Iatan Plant, the Company's lowest-
cost producer was out of service for the first half of June,
necessitating increased usage of the Company's peaking units.
Purchased power costs were approximately $0.4 million
(4.1%) higher during the second quarter of 1998 due to the
effects described above. Although purchased power market
prices reached extremely high levels in June, the Company did
not make significant purchases at these prices due to the
availability of the Asbury Plant as a result of having moved
the spring maintenance outage to the first quarter. As a
result, the higher purchased power prices did not have a
significant impact on the Company's operating results or
financial position.
Other operating expenses increased approximately $0.1
million (1.2%) during the second quarter of 1998, primarily
due to higher administrative and general expenses.
<PAGE>
Maintenance and repairs expense also increased approximately
$0.1 million (2.5%) during the period, primarily due to
increased levels of distribution system maintenance.
Depreciation and amortization expense increased
approximately $0.5 million (9.1%) during the second quarter of
1998 due to increased levels of plant and equipment placed in
service. Total income taxes increased $2.3 million (172.9%)
due primarily to a $5.9 million (147.4%) increase in pre-tax
higher taxable income during the current period. Other taxes
increased approximately $0.3 million (10.0%) during the second
quarter primarily reflecting primarily increased franchise
taxes relating to higher revenues.
For the six months ended June 30, 1998, total operating
expenses were up approximately $3.5 million (6.6%) compared to
the same period last year. Total purchased power costs
increased $2.3 million (10.1%) during the period, primarily
due to increased purchases of replacement energy during the
first quarter's Asbury Plant outage and increased customer
demand in the second quarter of 1998 due to above-average
temperatures. Total fuel costs increased approximately $1.6
million (11.0%) during the six-month period. Fuel costs were
higher during the period primarily due to the above-average
temperatures and the resulting usage of the Company's higher-
cost, gas-fired combustion turbine units discussed above.
Other operating expenses during the six months ended June
30, 1998, decreased approximately $0.4 million (2.7%) compared
to the same period in 1997, due primarily to lower general and
administrative costs during the first quarter. Maintenance
and repairs expense increased $1.1 million (17.4%) during the
same 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 due to the generator winding problem.
Total provisions for income taxes increased $2.7 million
(96.4%) and for other taxes all increased $0.5 million (9.1%)
during the period for the same reasons as discussed in the
second quarter results.
During the twelve months ended June 30, 1998, total
operating expenses increased approximately $7.4 million (6.8%)
compared to the year ago period. Total purchased power costs
were up approximately $2.7 million (5.7%) during the twelve-
month period, primarily due to the factors discussed for the
six months ended June 30, 1998. Fuel costs increased
approximately $5.4 million (16.6%) during the twelve-month
ending period, due primarily to the increased use of the
Company's own generating facilities during the third quarter
of 1997 and second quarter of 1998 as a result of increased
customer demand. In addition, Unit No. 2 at the State Line
Plant began commercial operation on June 18, 1997, increasing
the Company's generating capacity.
Other operating expenses decreased approximately $0.6
million (2.0%) during the twelve months ended June 30, 1998,
compared to the same period last year due primarily to lower
general and administrative costs. Maintenance and repairs
expense increased approximately $0.9 million (7.2%) during the
period, due primarily to the same factors discussed for the
six months ended June 30, 1998. Depreciation and amortization
expense increased $2.3 million (10.5%) during the twelve
months ended June 30, 1998, due to the additional plant and
equipment placed in service. Total provision for income taxes
increased $4.6 million (41.1%) during the period due to higher
taxable income. Other taxes increased $0.7 million (6.7%)
during the period for the same reasons as discussed in the
second quarter results.
Nonoperating Items
Total allowance for funds used during construction
("AFUDC") decreased during each of the periods presented
compared to prior year levels, reflecting lower levels of
construction work in progress.
Interest income during each of the periods ended June 30,
1998, was virtually level with each of the periods ending June
30, 1997. Interest charges on first mortgage bonds increased
during the periods due to the issuance of $50.0 million of the
<PAGE>
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 increased during the six months and
twelve months ended June 30, 1998 periods primarily due to
increased usage of short-term debt to finance the Company's
construction program, but decreased during the second quarter
of 1998.
Earnings
For the second quarter of 1998, earnings per share of
common stock were $0.33 compared to $0.12 earned during the
second quarter of 1997. Earnings per common share for the
first six months of 1998 were $0.50 compared to $0.28 earned
during the first six months of 1997. For the twelve months
ending June 30, 1998, earnings per share of common stock were
$1.50 compared to $1.15 earned during the same period last
year. Earnings per share were up during these periods
primarily due to increased revenues resulting from the two
Missouri rate increases in the second half of 1997 as well as
the second quarter's above-average temperatures discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction-related expenditures totaled
$10.9 million during the second quarter of 1998, compared to
$22.3 million for the same period in 1997. For the six months
ended June 30, 1998, construction-related expenditures totaled
$20.0 million compared to $38.0 million for the same period in
1997. Approximately $6.0 million of construction expenditures
during the second quarter of 1998 and approximately $11.6
million of construction expenditures during the first six
months of 1998 were related to additions to the Company's
transmission and distribution systems to meet projected
increases in customer demand. Approximately $0.9 million of
construction expenditures during the second quarter 1998 and
approximately $1.6 million during the first six 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 1998 is mainly due to the completion of Unit
No. 2 at the State Line Power Plant, which was placed in
service June 18, 1997. During the first six months of 1998,
approximately 54% of construction expenditures and other funds
requirements were satisfied internally from operations; the
remainder was provided from the issuance of commercial paper,
from the sale of common stock through the Company's Dividend
Reinvestment Plan and Employee Stock Purchase Plan and through
the issueance of the Company's First Mortgage Bonds.
The Company's construction expenditures are expected to
total approximately $35.6 million in 1998, including
approximately $19.1 million for additions to the Company's
distribution system to meet projected increases in customer
demand.
On April 28, 1998, the Company sold to the public in an
underwritten offering $50 million aggregate principal amount
of its First Mortgage Bonds, 6.50% Series due 2010. The net
proceeds from this sale were added to the Company's general
funds and were used to repay $23 million of the Company's
First Mortgage Bonds, 5.70% Series due May 1, 1998 and to
repay short-term indebtedness, including indebtedness incurred
in connection with the Company's construction program.
The Company currently estimates that internally generated
funds will provide all of the funds required for the remainder
of its 1998 construction expenditures. In the past, the
Company has utilized short-term debt to finance any
additional amounts needed for such construction and repaid
such borrowings with the proceeds of sales of public offerings
of long-term debt or equity securities, including the sale of
the Company's common stock pursuant to its Dividend
Reinvestment Plan and Employee Stock Purchase Plan. The
Company will continue to utilize short-term debt as needed to
support normal operations or other temporary requirements.
<PAGE>
YEAR 2000 INFORMATION SYSTEMS MODIFICATIONS
Empire is engaged in an on-going project to identify,
evaluate and implement changes to computer systems and
applications in order to achieve a Year 2000 date conversion
with no adverse effect on customers or disruption to business
operations. The Company has purchased a new financial
management software package from PeopleSoft that is Year 2000
compliant. The package includes systems for general ledger,
accounts payable and property accounting; purchasing and
inventory; human resources and payroll; and budgeting and
project tracking. In addition, a new customer information
system is being developed internally which will be Year 2000
compliant. Installation of these systems, which are
anticipated to substantially mitigate the Company's Year 2000
exposure, iswill expected to be completed during the first
quarter of 19998.
In addition to the new software packages that are being
developed, Company officers have appointed a task force which
is charged with documenting and testing areas of the Company
which may be affected by the Year 2000. This would includes
all company systems, particularly generation, transmission,
and distribution and energy management systems, as well as
external sources such as vendors and other third parties with
whom the Company does business. The Year 2000 task force will
also develop contingency plans in the event that unanticipated
problems are encountered due to the Year 2000. The Company
has also become a member of the Edison Electric Institute's
Year 2000 Committee and the Electric Power Research
Institute's ("EPRI") Y2K Embedded Systems Program in order to
aid in the evaluation of the Company's our systems. The EPRI
program includes an internet-based clearinghouse for real-time
data and information sharing and allows interactive discussion
of methods and results of Year 2000 Y2K compliance tests by
participating utilities and their vendors. This data base
allows utilities to exploit approaches which have been
successfully applied elsewhere while avoiding duplication and
deadends. The costs of these projects, as well as the overall
costs of achieving Year 2000 compliance, are not expected to
have a material impact on the Company's results of operations
or financial position.
Work is ongoing at third parties with whom the Company
does business to resolve Year 2000 problems. However, there
can be no guarantee that the systems of other companies on
which the Company's systems rely will be timely converted, or
that a failure to convert by another company, or a conversion
that is incompatible with the Company's systems, would not
have a material adverse effect on the Company.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this quarterly report are
"forward-looking statements" intended to qualify for the safe
harbor from liability established by the Private Securities
Litigation Reform Act of 1995. Such statements address future
plans, objectives, expectations and events or conditions
concerning various matters such as capital expenditures,
earnings, rate and other regulatory matters, liquidity and
capital resources, Year 2000 compliance 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; competition; and other circumstances affecting
anticipated rates, revenues and costs.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of Common Stockholders was held on
April 23, 1998.
(b) The following persons were re-elected Directors of the
Company to serve until the 2001 Annual Meeting of
Stockholders:
V. E. Brill (12,083,593 votes for; 109,772 withheld
authority).
R. C. Hartley (12,074,444 votes for; 118,921
withheld authority).
F. E. Jefferies (12,085,334 votes for; 108,031
withheld authority).
The term of office as Director of the following other
Directors continued after the meeting: M. F. Chubb, Jr.,
R. D. Hammons, J. R. Herschend, R. L. Lamb, R. E. Mayes,
M. W. McKinney, and M. M. Posner.
Item 5. Other Information.
(a) At June 30, 1998, the ratio of earnings to fixed charges,
and the ratio of earnings to combined fixed charges and
preferred stock dividend requirements, were 3.29x and
2.75x, respectively. See Exhibit (12) hereto.
(b) Notice to the Company of a stockholder proposal submitted
for consideration at the 1999 Annual Meeting of
Stockholders (the "Meeting"), which is not submitted for
inclusion in the Company's proxy statement and form of
proxy, will be considered untimely if received by the
Company less than 35 or more than 50 days prior to the
Meeting. However, if the Company gives less than 45 days
notice of the date of the Meeting, notice of such
stockholder proposal will not be considered untimely if
received by the Company within 10 days following the date
such notice of the Meeting is given.
Item 6. Exhibits and Reports on Form 8-K.
(a) (a) Exhibits.
(4) Twenty-Ninth Supplemental Indenture dated as of April 1,
1998 to Indenture of Mortgage and Deed of Trust (herein
incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998).
(12) Computation of Ratio 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 April 23, 1998, the Company
filed, under Item 5. "Other Events," a press release
announcing the Company's earnings for the first quarter
of 1998 and for the twelve month period ended March 31,
1998.
<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 R. B. Fancher
R. B. Fancher
Vice President - Finance
By G. A. Knapp
G. A. Knapp
Controller and Assistant Treasurer
August 7, 1998
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
June 30, 1998
<S> <C>
Income before provision for income taxes and $ 61,830,643
fixed charges (Note A)
Fixed charges:
Interest on first mortgage bonds $ 16,049,307
Amortization of debt discount and expense less 884,781
premium
Interest on short-term debt 1,347,670
Other interest 329,234
Rental expense representative of an interest 161,908
factor (Note B)
Total fixed charges 18,772,900
Preferred stock dividend requirements:
Preferred stock dividend requirements not 2,338,304
deductible for tax purposes
Ratio of income before provision for incomes 1.562
taxes to net income
Nondeductible dividend requirements 3,652,431
Deductible dividends 78,036
Total preferred stock dividend requirements 3,730,467
Total combined fixed charges and preferred stock $ 22,503,367
dividend requirements
Ratio of earnings to fixed charges 3.29x
Ratio of earnings to combined fixed charges and 2.75x
preferred stock dividend requirements
</TABLE>
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> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1998 AND THE STATEMENT OF INCOME AND THE STATEMENT OF CASH
FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 553,796,359
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 44,726,532
<TOTAL-DEFERRED-CHARGES> 41,374,103
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 639,896,994
<COMMON> 16,951,595
<CAPITAL-SURPLUS-PAID-IN> 153,480,392
<RETAINED-EARNINGS> 49,036,816
<TOTAL-COMMON-STOCKHOLDERS-EQ> 219,468,803
0
32,901,800
<LONG-TERM-DEBT-NET> 246,071,306
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 8,500,000
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 132,955,084
<TOT-CAPITALIZATION-AND-LIAB> 639,896,994
<GROSS-OPERATING-REVENUE> 107,657,390
<INCOME-TAX-EXPENSE> 5,597,890
<OTHER-OPERATING-EXPENSES> 82,967,667
<TOTAL-OPERATING-EXPENSES> 88,565,557
<OPERATING-INCOME-LOSS> 19,091,833
<OTHER-INCOME-NET> (297,569)
<INCOME-BEFORE-INTEREST-EXPEN> 18,794,264
<TOTAL-INTEREST-EXPENSE> 9,242,650
<NET-INCOME> 9,551,614
1,208,170
<EARNINGS-AVAILABLE-FOR-COMM> 8,343,444
<COMMON-STOCK-DIVIDENDS> 10,779,525
<TOTAL-INTEREST-ON-BONDS> 8,636,856
<CASH-FLOW-OPERATIONS> 21,913,756
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