UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000 or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to
____________.
Commission file number: 1-3368
THE EMPIRE DISTRICT ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Kansas 44-0236370
(State of Incorporation) (I.R.S. Employer
Identification No.)
602 Joplin Street, Joplin, Missouri 64801
(Address of principal executive offices) (zip code)
Registrant's telephone number: (417) 625-5100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ___
Common stock outstanding as of November 1, 2000: 17,596,001
shares.
<PAGE>
THE EMPIRE DISTRICT ELECTRIC COMPANY
INDEX
Page Number
Part I - Financial Information:
Item 1. Financial Statements:
a. Statement of Income 3
b. Balance Sheet 6
c. Statement of Cash Flows 7
d. Notes to Financial Statements 8
Forward Looking Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Merger With UtiliCorp 9
Results of Operations 10
Liquidity and Capital Resources 15
Item 3. Quantitative and Qualitative Disclosures 17
About Market Risk
Part II - Other Information:
Item 1. Legal Proceedings - (none)
Item 2. Changes in Securities and Use of Proceeds - (none)
Item 3. Defaults Upon Senior Securities - (none)
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
STATEMENT OF INCOME (UNAUDITED)
Three Months Ended
September 30,
2000 1999
<S> <C> <C>
Operating revenues:
Electric $ 85,925,995 $ 81,147,809
Water 297,129 311,958
86,223,124 81,459,767
Operating revenue deductions:
Operating expenses:
Fuel 18,426,824 17,812,421
Purchased power 16,403,004 10,774,241
Other 9,041,204 8,476,064
Merger Related Expenses 78,990 2,582,658
Total operating expenses 43,950,022 39,645,384
Maintenance and repairs 3,211,084 4,788,785
Depreciation and amortization 6,982,089 6,561,016
Provision for income taxes 8,443,621 8,852,730
Other taxes 3,964,316 3,617,304
66,551,132 63,465,219
Operating income 19,671,992 17,994,548
Other income and deductions:
Allowance for equity funds used 662,015 -
during construction
Interest income 154,379 75,225
Other - net 94,554 (88,719)
910,948 (13,494)
Income before interest charges 20,582,940 17,981,054
Interest charges:
Long-term debt 6,589,021 4,618,614
Commercial paper 471,741 728,705
Allowance for borrowed funds used (913,290) (455,823)
during construction
Other 103,185 85,953
6,250,657 4,977,449
Net income 14,332,283 13,003,605
Preferred stock dividend requirements - 206,511
Excess consideration paid on - 1,304,504
redemption of preferred stock
Net income applicable to common stock $ 14,332,283 $ 11,492,590
Weighted average number of common 17,555,023 17,282,936
shares outstanding
Basic and diluted earnings per
weighted average share of common stock $ 0.82 $ 0.66
Dividends per share of common stock $ 0.32 $ 0.32
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Operating revenues:
Electric $ 196,879,596 $ 188,684,200
Water 801,613 826,864
197,681,209 189,511,064
Operating revenue deductions:
Operating expenses:
Fuel 37,253,589 37,422,804
Purchased power 45,292,144 33,401,716
Other 24,712,378 24,280,178
Merger Related Expenses 200,854 5,644,312
Total operating expenses 107,458,965 100,749,010
Maintenance and repairs 10,996,284 12,894,076
Depreciation and amortization 20,713,685 19,515,590
Provision for income taxes 11,032,635 13,638,570
Other taxes 10,431,099 9,693,680
160,632,668 156,490,926
Operating income 37,048,541 33,020,138
Other income and deductions:
Allowance for equity funds used 1,494,721 56,845
during construction
Interest income 516,991 169,895
Other - net (158,691) (203,136)
1,853,021 23,604
Income before interest charges 38,901,562 33,043,742
Interest charges:
Long-term debt 19,769,258 13,855,842
Commercial paper 572,196 1,227,837
Allowance for borrowed funds used (2,062,052) (859,718)
during construction
Other 335,135 275,936
18,614,537 14,499,897
Net income 20,287,025 18,543,845
Preferred stock dividend requirements - 1,403,025
Excess consideration paid on - 1,304,504
redemption of preferred stock
Net income applicable to common stock $ 20,287,025 $ 15,836,316
Weighted average number of common 17,472,691 17,205,757
shares outstanding
Basic and diluted earnings per
weighted average share of common stock $ 1.16 $ 0.92
Dividends per share of common stock $ 0.96 $ 0.96
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
STATEMENT OF INCOME (UNAUDITED)
Twelve Months Ended
September 30,
2000 1999
<S> <C> <C>
Operating revenues:
Electric $ 249,260,598 $ 242,764,243
Water 1,071,087 1,087,951
250,331,685 243,852,194
Operating revenue deductions:
Operating expenses:
Fuel 45,082,212 46,125,847
Purchased power 56,587,220 43,001,904
Other 32,265,331 33,264,728
Merger Related Expenses 328,835 5,644,312
Total operating expenses 134,263,598 128,036,791
Maintenance and repairs 14,447,477 19,131,703
Depreciation and amortization 27,564,790 25,837,684
Provision for income taxes 13,256,494 16,251,880
Other taxes 14,195,200 12,317,720
203,727,559 201,575,778
Operating income 46,604,126 42,276,416
Other income and deductions:
Allowance for equity funds used 1,494,721 65,783
during construction
Interest income 850,451 316,999
Other - net (617,673) (369,773)
1,727,499 13,009
Income before interest charges 48,331,625 42,289,425
Interest charges:
Long-term debt 25,316,150 18,474,369
Commercial paper 1,017,436 1,252,790
Allowance for borrowed funds used (2,338,110) (1,008,435)
during construction
Other 422,831 359,812
24,418,307 19,078,536
Net income 23,913,318 23,210,889
Preferred stock dividend requirements - 2,002,553
Excess consideration paid on - 1,304,504
redemption of preferred stock
Net income applicable to common stock $ 23,913,318 $ 19,903,832
Weighted average number of common 17,437,554 17,170,531
shares outstanding
Basic and diluted earnings per
weighted average share of
common stock $ 1.37 $ 1.16
Dividends per share of common stock $ 1.28 $ 1.28
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
BALANCE SHEET
September 30,
2000 December 31,
(Unaudited) 1999
<S> <C> <C>
ASSETS
Utility plant, at original cost:
Electric $ 898,726,454 $ 871,263,673
Water 7,455,990 7,023,246
Construction work in progress 104,840,716 41,712,243
1,011,023,160 919,999,162
Accumulated depreciation 322,638,592 303,951,518
688,384,568 616,047,644
Current assets:
Cash and cash equivalents 6,007,538 20,778,856
Accounts receivable - trade, net 27,254,672 17,377,963
Accrued unbilled revenues 8,408,399 6,660,318
Accounts receivable - other 4,628,355 6,726,734
Fuel, materials and supplies 14,048,028 15,978,790
Prepaid expenses 1,057,868 1,129,021
61,404,860 68,651,682
Deferred charges:
Regulatory assets 36,253,567 37,075,852
Unamortized debt issuance costs 3,875,123 4,175,240
Other 11,281,185 5,458,466
51,409,875 46,709,558
Total Assets $ 801,199,303 $ 731,408,884
CAPITALIZATION AND LIABILITIES:
Common stock, $1 par value,
17,587,875 and 17,369,855
shares issued and outstanding,
respectively $ 17,587,875 $ 17,369,855
Capital in excess of par value 168,015,787 163,909,732
Retained earnings (Note 2) 56,417,883 52,908,431
Total common stockholders' equity 242,021,545 234,188,018
Long-term debt 345,653,867 345,850,169
587,675,412 580,038,187
Current liabilities:
Accounts payable and accrued 27,285,116 25,232,221
liabilities
Commercial paper 32,000,000 -
Customer deposits 3,712,624 3,686,691
Interest accrued 10,253,166 5,026,356
Taxes accrued, including income 13,666,121 -
taxes
86,917,027 33,945,268
Noncurrent liabilities and deferred
credits:
Regulatory liability 14,461,338 15,295,992
Deferred income taxes 82,767,290 78,913,545
Unamortized investment tax credits 7,289,267 7,811,000
Postretirement benefits other than 4,688,547 4,592,721
pensions
State Line advance payments 14,399,757 7,895,241
Other 3,000,665 2,916,930
126,606,864 117,425,429
Total Capitalization and $ 801,199,303 $ 731,408,884
Liabilities
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
Operating activities:
Net income $ 20,287,025 $ 18,543,845
Adjustments to reconcile net income
to cash flows:
Depreciation and amortization 23,345,089 21,964,069
Pension income (4,792,230) (3,293,110)
Deferred income taxes, net 2,403,122 2,008,951
Investment tax credit, net (521,733) (504,910)
Allowance for equity funds used (1,494,721) (56,845)
during construction
Excess consideration paid on - (1,304,504)
redemption of preferred stock
Issuance of common stock for 401(k) 560,721 578,805
plan
Issuance of common stock units for 84,000 84,000
director retirement plan
Cash flows impacted by changes in:
Accounts receivable and accrued (9,526,411) (7,064,608)
unbilled revenues
Fuel, materials and supplies 1,930,762 (692,760)
Prepaid expenses and deferred (614,036) (3,064,517)
charges
Accounts payable and accrued 2,052,895 (563,679)
liabilities
Customer deposits, interest and 19,108,028 15,414,578
taxes accrued
Other liabilities and other 179,562 2,290,173
deferred credits
Net cash provided by operating 53,002,073 44,339,488
activities
Investing activities:
Construction expenditures (94,467,266) (50,118,472)
Allowance for equity funds used 1,494,721 56,845
during construction
Net cash used in investing activities (92,972,545) (50,061,627)
Financing activities:
Proceeds from issuance of common 3,679,354 5,091,194
stock
Redemption of preferred stock - (32,901,800)
Reacquired capital stock - 267,537
Dividends (16,777,573) (18,119,909) 9)
Repayment of first mortgage bonds (256,000) -
Payment of debt issue costs 48,857 -
State Line advance payments 6,504,516 5,263,494
Net issuances (repayments) from 32,000,000 44,500,000
short-term borrowings
Net cash provided by (used in) 25,199,154 4,100,516
financing activities
Net increase (decrease) in cash and (14,771,318) (1,621,623)
cash equivalents
Cash and cash equivalents at beginning 20,778,856 2,492,716
of period
Cash and cash equivalents at end of $ 6,007,538 $ 871,093
period
</TABLE>
See accompanying Notes to Financial Statements.
<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, 1999.
The information furnished reflects all adjustments, consisting
only of normal recurring adjustments, which are in the opinion of
the Company necessary to present fairly the results for the interim
periods presented. Certain reclassifications have been made to
prior year information to conform with current year presentation.
Note 2 - Retained Earnings
<TABLE>
<S> <C>
Balance at January 1, 2000 $ 52,908,431
Changes January 1 through June 30:
Net Income 5,954,742
Quarterly cash dividends on common stock:
- $0.64 per share (11,161,907)
Total changes January 1 through June 30 (5,207,165)
Balance at July 1, 2000 47,701,266
Changes July 1 through September 30:
Net Income 14,332,283
Quarterly cash dividends on common stock:
- $0.32 per share (5,615,666)
Total changes July 1 through September 30 8,716,617
Balance at September 30, 2000 $ 56,417,883
</TABLE>
<PAGE>
FORWARD LOOKING STATEMENTS
Certain matters discussed in this quarterly report are
"forward-looking statements" intended to qualify for the safe
harbor from liability established by the Private Securities
Litigation Reform Act of 1995. Such statements address future
plans, objectives, expectations and events or conditions concerning
various matters such as capital expenditures (including those
planned in connection with the State Line Combined Cycle Unit),
earnings, competition, litigation, environmental compliance, rate
and other regulatory matters, liquidity and capital resources, and
accounting matters. Actual results in each case could differ
materially from those currently anticipated in such statements, by
reason of factors such as the cost and availability of purchased
power and fuel; a significant delay in the expected completion of,
and unexpected consequences resulting from the merger with
UtiliCorp; delays in or increased costs of construction; electric
utility restructuring, including ongoing state and federal
activities; weather, business and economic conditions; legislation;
regulation, including rate relief and environmental regulation
(such as NOx regulation); competition; including the impact of
deregulation on off-system sales; and other circumstances affecting
anticipated rates, revenues and costs.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
MERGER WITH UTILICORP
The Company and UtiliCorp United Inc., a Delaware corporation
("UtiliCorp"), have entered into an Agreement and Plan of Merger,
dated as of May 10, 1999 (the "Merger Agreement"), which provides
for a merger of the Company with and into UtiliCorp, with UtiliCorp
being the surviving corporation (the "Merger"). Under the terms of
the Merger Agreement, UtiliCorp will pay $29.50 for each share of
common stock of the Company, payable in UtiliCorp common stock or
cash. The Merger Agreement contains a collar provision under which
the value of the merger consideration per share will decrease if
UtiliCorp's common stock is below $22 per share preceding the
closing and will increase if UtiliCorp's common stock is above $26
per share preceding the closing. The average trading price of
UtiliCorp's common stock price will be used to determine the merger
consideration and will be calculated based on the closing prices on
the NYSE during the 20 trading days ending on the third trading day
prior to the closing date of the Merger. If the average trading
price is below $22, UtiliCorp will pay 1.342 times the average
trading price for each share of Company common stock and if the
average trading price is above $26, UtiliCorp will pay 1.135 times
the average trading price for each share of Company common stock.
For example, if the Merger had closed on November 10, 2000, the
average trading price for UtiliCorp's common stock would have been
$26.05625 per share, resulting in the payment of $29.5738 for each
share of the Company's common stock. Stockholders of the Company
may elect to take cash or stock, but total cash paid to
stockholders will be limited to no more than 50% of the total
Merger consideration, and the number of shares of UtiliCorp common
stock that may be issued in the Merger is limited to 19.9% of the
number of then outstanding shares of common stock of UtiliCorp.
UtiliCorp also will become liable for all of the Company's existing
debt, including its first mortgage bonds and senior unsecured
notes.
The Merger, which was unanimously approved by the Boards of
Directors of the constituent companies, is expected to close after
all of the conditions to the consummation of the Merger are met or
waived. The Merger is conditioned, among other things, upon
<PAGE>
approvals of federal regulatory agencies and approvals of state
regulatory authorities in states where the combined company will
operate. At a special meeting of stockholders held on September 3,
1999, the Merger was approved with 76.3% of the Company's
outstanding shares voting in favor of the proposal. UtiliCorp is
not required to obtain its stockholders' approval of the Merger.
On July 26, 2000, the FERC granted conditional approval to the
Merger. The FERC coupled the hearing for the Merger with its
hearing for UtiliCorp's proposed merger with St. Joseph Light &
Power, and the approval pertains to both deals. The companies are
required to submit a revised competitive analysis six months before
the physical integration of the three systems.
The Company and UtiliCorp filed joint applications with the
Missouri Commission on December 14, 1999 requesting approval of the
Merger. Applications to merge were filed with the Arkansas Public
Service Commission on January 28, 2000 and with the Kansas
Corporation Commission and Oklahoma Corporation Commission on
January 31, 2000. Each state application sets forth a proposed
Regulatory Plan (the "Plan") which would result in a five-year rate
moratorium following the conclusion of rate cases the Company plans
to file beginning in the fourth quarter of 2000. These rate cases
are designed to recover the costs associated with the Company's
State Line Project anticipated to be operational by June 2001. The
Plan also calls for UtiliCorp to keep any savings generated by the
Merger during the moratorium to offset the acquisition premium.
UtiliCorp may file state rate cases at the end of the five-year
rate moratorium allowing UtiliCorp to include one half of any
unamortized acquisition premium in rate base, thus allowing the
acquisition premium to be recovered in rates.
On June 21, 2000, the Staff of the Missouri Public Service
Commission and the Office of the Public Counsel recommended that
the Commission reject the Company's application seeking approval of
the proposed merger, arguing that the merger would be detrimental
to the public interest due to the proposal by the Applicants to
allow for the recovery of the acquisition premium associated with
the merger in rates charged to ratepayers. The Missouri Commission
held hearings on the Merger proposal from September 11-15, 2000.
Hearings were also held by the Arkansas Public Service Commission
on September 19, 2000, the Oklahoma Corporation Commission on
October 9, 2000 and the Kansas Corporation Commission on October
24, 2000. We anticipate that the decisions will be handed down by
year end.
UtiliCorp is a multinational energy and energy services
company headquartered in Kansas City, Missouri. It has regulated
utility operations in eight states and energy operations in New
Zealand, Australia, the United Kingdom and Canada. It also owns
non-utility subsidiaries involved in energy trading; natural gas
gathering, processing and transportation; energy efficiency
services and various other energy-related businesses. For more
information on the Merger, see the Company's proxy statement for
its special meeting of stockholders held on September 3, 1999,
which is dated August 2, 1999.
The Company's Board of Directors authorized the termination of
the Company's Dividend Reinvestment and Stock Purchase Plan
effective October 1, 2000 as contemplated by the Merger Agreement.
RESULTS OF OPERATIONS
The following discusses significant changes in the results of
operations for the three-month, nine-month and twelve-month periods
ended September 30, 2000, compared to the same periods ended
September 30, 1999.
<PAGE>
Operating Revenues and Kilowatt-Hour Sales
Of the Company's total electric operating revenues during the
third quarter of 2000, approximately 44% were from residential
customers, 31% from commercial customers, 16% from industrial
customers, 4% from wholesale on-system customers and 3% from
wholesale off-system transactions. The remainder of such revenues
were derived from miscellaneous sources. The percentage changes
from the prior year in kilowatt-hour ("Kwh") sales and revenue by
major customer class were as follows:
<TABLE>
Operating
Kwh Sales Revenues
Nine Twelve Nine Twelve
Third Months Months Third Months Months
Quarter Ended Ended Quarter Ended Ended
<S> <C> <C> <C> <C> <C> <C>
Residential 8.0% 3.9% 1.5% 8.0% 5.1% 2.4%
Commercial 3.6 2.0 0.9 4.6 4.0 3.6
Industrial 2.4 1.2 0.2 5.8 3.5 2.4
Wholesale On- 4.1 3.7 3.4 1.1 7.0 5.0
System
Total On- 5.1 2.5 1.1 6.2 4.4 2.9
System
</TABLE>
Residential and commercial Kwh sales and revenues increased
during the third quarter of 2000 compared to the third quarter of
1999 due mainly to above-average temperatures in August and
September of 2000. A new peak demand of 993 Mw was set on August
30, 2000.
Industrial Kwh sales and related revenue, which are not
particularly weather-sensitive, were positively affected by
continuing increases in business activity throughout the Company's
service territory during the third quarter of 2000.
On-system wholesale Kwh sales and revenues increased during
the third quarter of 2000 reflecting the warmer temperatures
described above and continuing increases in business activity.
Revenues associated with these FERC-regulated sales increased at a
lower relative rate than corresponding Kwh sales due to the
operation of the fuel adjustment clause applicable to such sales.
This clause permits the pass through to customers of changes in
fuel and purchased power costs and since the increase in fuel and
purchased power costs were lower for the third quarter of 2000 than
in the same period a year earlier, the increase in such sales for
that period exceeded the increase in revenues from such sales.
For the nine months ended September 30, 2000, Kwh sales to and
revenue from the Company's residential and commercial customers
increased, reflecting the warmer temperatures experienced during
the second and third quarters of 2000 as compared with the same
periods of 1999. Industrial Kwh sales and related revenues
increased due to continuing increases in business activity
throughout the Company's service territory. On-system wholesale Kwh
sales increased reflecting both the warmer temperatures and the
continuing increases in business activity. Revenues associated
with these FERC-regulated sales increased more than the
corresponding Kwh sales as a result of the operation of the fuel
adjustment clause applicable to such sales. Increases in fuel and
purchased power costs were higher for the nine months ended
September 30, 2000 than in the same period a year earlier, causing
the increase in revenues associated with such sales for that period
to exceed the increase in Kwh sales.
For the twelve months ended September 30, 2000, Kwh sales to
and revenue from the Company's residential and commercial customers
increased, reflecting the weather conditions discussed above.
<PAGE>
Industrial sales and revenue continued to grow due to strong
business activity in the Company's service territory. On-system
wholesale Kwh sales increased for the twelve months ended September
30, 2000, reflecting the warmer temperatures and continuing
increases in business activity described above.
On November 3, 2000, the Company filed a request with the
Missouri Public Service Commission for a general annual increase in
rates for its Missouri electric customers in the amount of
$41,467,926, or 19.36%. This request is to allow the Company to
recover higher expenses resulting from significantly higher natural
gas prices than the levels contemplated by the Company's existing
rates as well as its investment in the Company's Combined Cycle
Unit currently under construction at the State Line Power Plant
and other plant additions which have occurred since the Company's
last rate case which became effective in September 1997. Any
rate increase approved as a result of the filing would not
become effective before late in the third quarter of 2001.
Off-System Transactions
In addition to sales to its own customers, the Company also
sells power to other utilities as available and also provides
transmission service through its system for transactions between
other energy suppliers. During the third quarter of 2000, revenues
from such off-system transactions were approximately $3.8 million,
the same as during the third quarter of 1999. Off-system revenues
were approximately $7.8 million for the nine-month period ended
September 30, 2000 as compared to $7.9 million for the same period
in 1999. For the twelve months ended September 30, 2000, revenues
from such off-system transactions were approximately $9.5 million,
the same as for the twelve months ended September 30, 1999.
The Company is a member of the Southwest Power Pool ("SPP"), a
regional division of the North American Electric Reliability
Council, which requires its members to maintain a 12% capacity
reserve margin and provides for contingency reserve sharing,
regional near real-time security assessment 24 hours per day and
many other functions. The Company is participating with other
utility members in the restructuring of the SPP to make it a
regional transmission organization ("RTO"). Reference is made to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Competition".
The SPP filed with the FERC on December 30, 1999 for RTO
status. This filing was rejected by the FERC as not meeting
certain requirements of its Order 2000. The SPP has filed a
second request addressing the FERC's concerns and continuing to
seek RTO status.
Operating Revenue Deductions
During the third quarter of 2000, total operating expenses
increased approximately $4.3 million (10.9%) compared with the same
period last year. Purchased power costs increased approximately
$5.6 million (52.2%) during the period, primarily due to increased
demand resulting from the warmer temperatures, decreased
availability of some of the Company's generating units and
escalating natural gas prices (which made it more economical to
purchase power than to run the Company's gas-fired units,
particularly in September). The Riverton Plant's coal-fired Unit
No. 7 was out of service for its scheduled fall outage from
September 15 to November 9 and Unit No. 8, also coal-fired, was out
of service for its scheduled fall outage from September 29 to
October 16. The State Line Plant's Unit No. 2 was taken out of
service on September 12 to begin its transformation into a combined-
cycle unit and will be out of service until the combined-cycle unit
is operational in June 2001.
<PAGE>
Total fuel costs increased approximately $0.6 million (3.5%)
during the third quarter of 2000 as compared to the same period in
1999. This change reflected a lower amount of generation combined
with an increase in natural gas prices.
Merger related expenses, which are not tax deductible, were
$2.5 million (96.9%) less during the third quarter of 2000 as
compared to the same period in 1999.
Other operating expenses increased $0.6 million (6.7%) during
the third quarter mainly due to a $0.5 million addition to the bad
debt reserve. Maintenance and repair expense decreased
approximately $1.6 million (33.0%) during the quarter, primarily
due to fewer expenses associated with scheduled maintenance on the
combustion turbines at Energy Center as compared to third quarter
expenses in 1999.
Depreciation and amortization expenses increased approximately
$0.4 million (6.4%) during the quarter due to increased levels of
plant and equipment placed in service. Total income taxes
decreased $0.4 million (4.6%) due primarily to a decrease in
taxable income resulting from non-deductible merger costs. Other
taxes increased $0.3 million (9.6%) during the quarter, primarily
due to increased property taxes.
For the nine months ended September 30, 2000, total operating
expenses increased approximately $6.7 million (6.7%). Purchased
power costs increased $11.9 million (35.6%) primarily due to
increased demand resulting from the warmer temperatures as well as
decreased availability of the Company's generating units and the
high cost of replacement energy. Total fuel costs decreased $0.2
million (0.5%). Other operating expenses increased $0.4 million
(1.8%), primarily due to the third quarter addition to the bad debt
reserve. Merger related expenses were $5.4 million (96.4%) less
during the nine months ended September 30, 2000 than in the same
period of 1999.
Maintenance and repairs expense decreased $1.9 million (14.7%)
for the nine months ended September 30, 2000 primarily due to
decreased maintenance expense on the Company's combustion turbines
as well as decreased levels of distribution maintenance. Total
provisions for income taxes decreased $2.6 million (19.1%) due
primarily to a decrease in taxable income resulting from non-
deductible merger costs. Other taxes increased $0.7 million (7.6%)
during the period, primarily due to increased property taxes.
During the twelve months ended September 30, 2000, total
operating expenses increased approximately $6.2 million (4.9%)
compared to the year ago period. Total purchased power costs
increased approximately $13.6 million (31.6%) while total fuel
costs decreased approximately $1.0 million (2.3%) during the twelve-
month period. Both such increases were due to the reasons
discussed above. Merger related expenses were $5.3 million (94.2%)
less during the twelve months ended September 30, 2000 than in the
same period a year earlier.
Other operating expenses decreased approximately $1.0 million
(3.0%) during the twelve months ended September 30, 2000, compared
to the same period a year earlier primarily due to lower general
and administrative expenses. Approximately $0.7 million of this
difference is attributed to a one-time charge taken during the
fourth quarter of 1998 due to the initiation of the Directors Stock
Unit Plan.
Maintenance and repairs expense decreased approximately $4.7
million (24.5%) during the twelve months ended September 30, 2000,
compared to the prior period. This decrease was primarily due to
decreased maintenance expense on the gas-fired combustion turbines
at the Energy Center and the State Line Power Plant and decreased
levels of distribution maintenance. Depreciation and amortization
expense increased approximately $1.7 million (6.7%) due to
increased levels of plant and equipment placed in service. Total
provision for income taxes decreased $3.0 million (18.4%) due to
lower taxable income during the current period resulting from non-
deductible merger costs. Other taxes increased $1.9 million (15.2%)
due primarily to increased property taxes.
<PAGE>
Fuel Costs
The electric utility industry is currently experiencing high
prices for natural gas. If natural gas prices remain at current
levels or increase, the Company may experience higher fuel and
purchased power costs in the fourth quarter of 2000 and the first
quarter of 2001. Any significant increase in these expenses would
have a negative impact on the Company's earnings for those periods.
The actual impact will also depend on the weather and the
availability of economical purchased power. The Company is
pursuing various options to mitigate the impact of these higher
costs.
Nonoperating Items
Total allowance for funds used during construction ("AFUDC")
increased substantially during each of the periods presented,
reflecting the construction at the State Line Power Plant.
Other-net deductions decreased during the third quarter of
2000 and for the nine month period compared to prior year levels,
reflecting increasing profit margins for the Company's non-
regulated fiber optics leasing venture. Other-net deductions
increased for the twelve months ended September 30, 2000 compared
to the prior period due primarily to increased nonoperating income
taxes, reflecting the increasing profit margins for the Company's
non-regulated fiber optics leasing venture. Interest income
increased for all periods presented reflecting the higher balances
of cash available for investment.
Interest charges on long-term debt increased $2.0 million
(42.7%) during the third quarter of 2000, $5.9 million (42.7%) for
the nine months ended September 30, 2000 and $6.8 million (37.0%)
for the twelve months ended period when compared to the same
periods last year due to the issuance of $100 million of the
Company's unsecured Senior Notes in November 1999. The proceeds
from the Senior Notes were added to the Company's general funds and
were used to repay short-term indebtedness, including approximately
$33.1 million in commercial paper incurred in connection with the
preferred stock redemption in August 1999, as well as that incurred
in connection with the construction program. As a result,
commercial paper interest decreased $0.3 million (35.3%) during the
third quarter of 2000 compared to the same period last year, $0.7
million (53.4%) for the nine months ended September 30, 2000 and
$0.2 million (18.8%) for the twelve months ended period
The Company redeemed its preferred stock on August 2, 1999 at
a premium, which accounts for the decline in preferred stock
dividend requirements and the $1.3 million of excess consideration
paid as preferred stock redemption costs.
Earnings
For the third quarter of 2000, earnings per share of common
stock were $0.82 compared to $0.66 during the third quarter of
1999. Excluding merger costs of $0.1 million in the third quarter
of 2000 and $2.6 million in the third quarter of 1999, earnings per
share would have been $0.82 and $0.81, respectively. Earnings per
share were positively impacted by the summer's warm temperatures
and the increase in total AFUDC and were negatively impacted by
increased purchased power costs and increased interest charges.
Earnings per share for the nine months ended September 30,
2000, were $1.16 compared to $0.92 for the nine months ended a year
earlier. Excluding $0.2 million in merger costs for the first nine
months of 2000 and $5.6 million for the first nine months of 1999,
earnings per share would have been $1.17 for the nine months ended
September 30, 2000 and $1.25 for the nine months ended September
30, 1999. The decline in earnings per share (excluding merger
<PAGE>
costs), which were positively impacted by increased total AFUDC,
for the nine months ended September 30, 2000 was primarily due to
increased purchased power costs and increased interest charges.
For the twelve months ending September 30, 2000, earnings per
share of common stock were $1.37 compared to $1.16 for the year
earlier period. Excluding $0.3 million in merger costs for the
twelve months ended September 2000 and $5.6 million in merger costs
for the twelve months ended September 1999 earnings per share would
have been $1.39 and $1.49 respectively. Earnings for the twelve
months ending September 30, 2000 reflect the absence of $1.3
million of excess consideration paid on the redemption of preferred
stock in 1999 and increased total AFUDC and were negatively
impacted by increased purchased power costs and increased interest
charges.
Environmental Matters
The Company has construction and operating permits for its
State Line Power Plant and has continued to operate in compliance
with those permits since May 30, 1995 for Unit No. 1 and June 18,
1997 for Unit No. 2. On July 13, 2000, the Company received a
request for information from the EPA regarding the State Line Power
Plant. The information request indicated that the State Line Power
Plant units should have an Acid Rain Permit under Title IV of the
1990 Amendments to the Clean Air Act. In response, On August 9,
2000, the Company applied for the required Acid Rain Permit with
the Missouri Department of Natural Resources. Continuous Emission
Monitors may be required for each unit at the State Line Power
Plant in order to comply with Title IV requirements. At this time,
the Company cannot predict the impact of this information request.
Competition
The Arkansas Legislature passed a bill in April 1999 that
would deregulate the state's electricity industry as early as
January 2002. The bill would freeze rates for three years for
residential and small business customers of utilities that seek to
recover stranded costs, and freeze rates for one year for
residential and small business customers of utilities, such as the
Company, that do not seek to recover stranded costs. The Staff of
the Arkansas Public Service Commission filed testimony in October
2000 recommending that the Commission encourage the legislature to
extend the date for retail open access beyond the current legal
deadline of June 30, 2003. The staff and investor-owned utilities
proposed the start date be reset to October 1, 2003 with the
Commission having authority to delay the date until October 1,
2005, arguing that this will provide more time for a truly
competitive wholesale market to develop as more generation comes on-
line in the state. The Commission is expected to propose the change
to the state legislature in November 2000. Approximately 2.96% of
the Company's retail electric revenue for the nine months ended
September 30, 2000 was derived from sales subject to Arkansas
regulation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction-related expenditures totaled $35.8
million during the third quarter of 2000, compared to $20.6 million
for the same period in 1999. For the nine months ended September
30, 2000, construction-related expenditures totaled $94.5 million
compared to $50.1 million for the same period in 1999.
Approximately $22.1 million during the third quarter of 2000 and
$52.7 million during the first nine months of 2000 were related to
the expansion project at the State Line Power Plant described
below. Approximately $10.0 million of these expenditures during the
third quarter of 2000 and approximately $24.2 million of
<PAGE>
construction expenditures during the first nine months of 2000 were
related to additions to the Company's transmission and distribution
systems to meet projected increases in customer demand.
Approximately $2.3 million of these third quarter expenditures and
$4.4 million for the first nine months of 2000 were related to
additions and replacements at the Asbury Power Plant. Approximately
$0.3 million of these third quarter expenditures and approximately
$0.8 million during the first nine months of 2000 were related to
additions to the Company's investment in fiber optics cable and
equipment. Approximately $7.0 million during the first nine months
of 2000 were related to the Company's ongoing capital projects with
the existing gas-fired combustion turbines at the State Line Power
Plant. During the first nine months of 2000, approximately 38% of
construction expenditures were satisfied with internally generated
funds.
On July 26, 1999, the Company and Westar Generating, Inc.
("WGI"), a subsidiary of Western Resources, Inc., entered into
agreements for the construction, ownership and operation of a 500-
megawatt combined-cycle unit at the State Line Power Plant (the
"Combined Cycle Unit"). This Combined Cycle Unit will consist of
the combination of an additional combustion turbine, two heat
recovery steam generators and a steam turbine and auxiliary
equipment with an already existing combustion turbine. The Company
will own an undivided 60% interest in the Combined Cycle Unit with
WGI owning the remainder. The Company is entitled to 60% of the
capacity of the Combined Cycle Unit. The Company will contribute
its existing 152-megawatt State Line Unit No. 2 combustion turbine
to the Combined Cycle Unit, and as a result, upon commercial
operation, the Combined Cycle Unit will provide the Company with
approximately 150 megawatts of additional capacity. The total cost
of this construction expansion project is estimated to be $204
million. The Company's share of this amount, after the transfer to
WGI of an undivided 40% joint ownership interest in the existing
State Line Unit No. 2 and certain other property at book value, is
expected to be approximately $108 million.
Work is continuing and the Combined Cycle Unit is projected to
be operational by the target date of June 2001. All major equipment
components are on site and ready for installation. The Company is
experiencing a tightening labor market for required skilled
craftsmen which is increasing project labor costs and could also
result in a delay in the in-service date of the Combined Cycle
Unit. In April, the Company placed one of its contractors at the
State Line Power Plant in default of its contract and awarded the
work to another. The contractor has petitioned for arbitration,
claiming that its contract was not terminated for fault but rather
at the convenience of the Company and is seeking certain damages.
The Company has responded with a claim of its own against the
contractor. Arbitration has been set for a three-week period
beginning February 19, 2001.
WGI is responsible for 40% of expenditures made by the Company
in connection with the construction and operation of the Combined
Cycle Unit. In addition, WGI has been making monthly prepayments
to the Company, the last of which was made in October 2000. These
prepayments are for the future transfer to WGI of its 40% joint
ownership interest in the existing State Line Unit No. 2, as well
as an interest in certain underlying and surrounding land and other
property and equipment now owned by the Company. The Missouri and
Arkansas Commissions have approved the Company's application for
permission to sell and transfer an interest in these assets to WGI.
The prepayments are reflected in State Line advance payments on the
balance sheet.
The Company's construction expenditures are expected to total
approximately $117.2 million in 2000, including approximately $69.3
million for its share of new generating facilities at the Combined
Cycle Unit and approximately $10.8 million for the transmission
plant associated with the Combined Cycle Unit. Approximately $21.4
million will be for additions to the Company's distribution system
to meet projected increases in customer demand.
The Company currently estimates that internally generated
funds will provide at least 50% of the funds required for the
remainder of its 2000 construction expenditures. As in the past,
<PAGE>
the Company intends to utilize short-term debt to finance the
additional amounts needed for such construction and repay such
borrowings with the proceeds of sales of public offerings of long-
term debt or equity securities, including the sale of the Company's
common stock pursuant to its Employee Stock Purchase Plan and from
internally-generated funds. The Company's Dividend Reinvestment and
Stock Purchase Plan was terminated on October 1, 2000 as discussed
under "Merger with UtiliCorp" above. The Company will continue to
utilize short-term debt as needed to support normal operations or
other temporary requirements and has a $50 million line of credit.
The Company has an effective shelf registration statement on
file with the SEC under which up to an aggregate of $50 million of
its common stock, first mortgage bonds and unsecured debt
securities remain available for issuance. The Company also has an
effective shelf registration statement on file with the SEC under
which up to an aggregate of $30 million of its cumulative preferred
stock, common stock, and/or first mortgage bonds remain available
for issuance.
Following announcement of the Merger, the ratings for the
Company's First Mortgage Bonds (other than the 5.20% Pollution
Control Series due 2013 and the 5.30% Pollution Control Series due
2013) were placed on credit watch with downward implication by each
of Moody's Investors Service, Standard & Poor's and Fitch IBCA.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in these risks from those
disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
PART II. OTHER INFORMATION
Item 5. Other Information.
At September 30, 2000, the Company's ratio of earnings to
fixed charges was 2.40x. See Exhibit (12) hereto.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(12) Computation of Ratios of Earnings to Fixed Charges.
(27) Financial Data Schedule for September 30, 2000.
(b) No reports on Form 8-K were filed during the third quarter of
2000.
<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/ D. L. Coit
D. L. Coit
Controller and Assistant Treasurer
November 13, 2000
<PAGE>
EXHIBIT (12)
<TABLE>
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Twelve
Months Ended
September 30,
2000
<S> <C>
Income before provision for income taxes and $ 64,502,610
fixed charges (Note A)
Fixed charges:
Interest on first mortgage bonds $ 17,439,662
Amortization of debt discount and expense less 1,023,100
premium
Interest on short-term debt 1,017,436
Interest on notes payable 6,853,388
Other interest 422,831
Rental expense representative of an interest 71,624
factor (Note B)
Total fixed charges 26,828,041
Ratio of income before provision for incomes 1.575x
taxes to net income
Ratio of earnings to fixed charges 2.40x
NOTE A: For the purpose of determining earnings in the calculation of the
ratio, net income has been increased by the provision for income
taxes, non-operating income taxes and by the sum of fixed charges
as shown above.
NOTE B: One-third of rental expense (which approximates the interest factor).
NOTE C: The Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividend Requirements is no longer calculated due to the Company's
preferred stock redemption on August 2, 1999.
</TABLE>
