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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each class exchange on
which registered
Common Stock ($1 par value) New York Stock
Exchange
5% Cumulative Preferred Stock ($10 New York Stock
par value) Exchange
4-3/4% Cumulative Preferred Stock New York Stock
($10 par value) Exchange
Preference Stock Purchase Rights New York Stock
Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
As of March 2, 1998, 16,729,184 shares of common stock were
outstanding. Based upon the closing price on the New York Stock Exchange on
March 2, 1998, the aggregate market value of the common stock of the
Company held by nonaffiliates was approximately $345,039,420.
The following documents have been incorporated by reference into the
parts of the Form 10-K as indicated:
The Company's proxy Part of Item 10 of Part
statement, filed pursuant III
to Regulation 14A under the All of Item 11 of Part
Securities Exchange III
Act of 1934, for its 1997 Part of Item 12 of Part
Annual Meeting of III
Stockholders to be held on All of Item 13 of Part
April 23, 1998. III
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS ..................................................... 3
General .......................................................3
Electric Generating Facilities and Capacity ...................3
Construction Program ..........................................4
Fuel ..........................................................5
Employees .....................................................6
Electric Operating Statistics .................................7
Executive Officers and Other Officers of the Registrant .......8
Regulation ....................................................8
General .....................................................8
Rates .......................................................8
Fuel Adjustment Clauses .....................................9
Environmental Matters .........................................9
Conditions Respecting Financing ..............................10
ITEM 2. PROPERTIES ...................................................10
ITEM 3. LEGAL PROCEEDINGS ............................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..........11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ........................................ .12
ITEM 6. SELECTED FINANCIAL DATA ......................................13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ........................................14
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..................20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE .........................................37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...........37
ITEM 11. EXECUTIVE COMPENSATION .......................................37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...............37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K......................................................38
SIGNATURES.............................................................41
PART I
ITEM 1. BUSINESS
General
The Empire District Electric Company (the "Company"), a Kansas
corporation organized in 1909, is an operating public utility engaged
in the generation, purchase, transmission, distribution and sale of
electricity in parts of Missouri, Kansas, Oklahoma and Arkansas. The
Company also provides water service to three towns in Missouri. In
1997, 99.6% of the Company's gross operating revenues were provided
from the sale of electricity and 0.4% from the sale of water.
The territory served by the Company's electric operations
embraces an area of about 10,000 square miles with a population of
over 330,000. The service territory is located principally in
Southwestern Missouri and also includes smaller areas in Southeastern
Kansas, Northeastern Oklahoma and Northwestern Arkansas. The principal
activities of these areas are industry, agriculture and tourism. Of
the Company's total 1997 retail electric revenues, approximately 88%
came from Missouri customers, 6% from Kansas customers, 3% from
Oklahoma customers and 3% from Arkansas customers.
The Company supplies electric service at retail to 119
incorporated communities and to various unincorporated areas and at
wholesale to four municipally-owned distribution systems and two rural
electric cooperatives. The largest urban area served by the Company is
the city of Joplin, Missouri, and its immediate vicinity, with a
population of approximately 135,000. The Company operates under
franchises having original terms of twenty years or longer in
virtually all of the incorporated communities. Approximately 42% of
the Company's electric operating revenues in 1997 were derived from
incorporated communities with franchises having at least ten years
remaining and approximately 24% were derived from incorporated
communities in which the Company's franchises have remaining terms of
ten years or less. Although the Company's franchises contain no
renewal provisions, in recent years the Company has obtained renewals
of all of its expiring electric franchises prior to the expiration
dates.
The Company's electric operating revenues in 1997 were derived as
follows: residential 42%, commercial 30%, industrial 17%, wholesale 7%
and other 4%. Producers of food and kindred products accounted for
approximately 5% of electric revenues in 1997. The Company's largest
single on-system wholesale customer is the city of Monett, Missouri,
which in 1997 accounted for approximately 3% of electric revenues. No
single retail customer accounted for more than 1% of electric revenues
in 1997.
The Company made an investment of approximately $1.8 million in
1997 and $2.7 million in 1996 in fiber optics cable and equipment
which the Company uses in its own operations and leases to other
entities.
Electric Generating Facilities and Capacity
At December 31, 1997, the Company's generating plants consisted
of the Asbury Plant (aggregate generating capacity of 213 megawatts),
the Riverton Plant (aggregate generating capacity of 136 megawatts),
the Empire Energy Center (aggregate generating capacity of 180
megawatts), the State Line Power Plant (aggregate generating capacity
of 253 megawatts) and the Ozark Beach Hydroelectric Plant (aggregate
generating capacity of 16 megawatts). The Company also has a 12%
ownership interest (80 megawatt capacity) in Unit No. 1 at the Iatan
Generating Station. See Item 2, "Properties - Electric Facilities" for
further information about these plants .
The Company and the eight other power suppliers in Kansas and
Western Missouri who comprise the MOKAN Power Pool have agreed to
share reserve capacity and provide emergency standby services for
fellow members. Pursuant to the MOKAN agreement, the Company is
obligated annually to maintain a capacity margin of not less than
13.04%. The Company is also a member of the Southwest Power Pool, a
regional division of the North American Electric Reliability Council,
and the Western Systems Power Pool, a marketing pool which facilitates
the purchase and sale of power among members.
The Company currently supplements its on-system generating
capacity with purchases of capacity and energy from neighboring
utilities in order to meet the demands of its customers and the
capacity margins applicable to it under the MOKAN agreement. The
Company has entered into agreements for such purchases with Associated
Electric Cooperative, Inc. ("AEC"), Kansas Gas & Electric ("KG&E") and
Southwestern Public Service Company ("SPS") for periods into the year
2000. In addition, the Company has an agreement with Western Resources
("WR") for the purchase of capacity and energy through May 31, 2010.
The amount of capacity purchased under these contracts reflects the
Company's on-system capacity and its current expectation of the future
power needs of its service territory. The following chart sets forth
the Company's purchase commitments and anticipated owned capacity (in
megawatts) during the indicated contract years (which run from June 1
to May 31 of the following year). The reduction in purchased power
commitment in 2001 is the result of the expiration of the long-term
AEC purchase contract on May 31, 2001.
Purchased Anticipated
Contract Power Owned
Year Commitment Capacity Total
1995 225 737 962
1996 290 724 1014
1997 210 878 1088
1998 230 878 1108
1999 255 878 1133
2000 287 878 1165
2001 162 878 1040
2002 162 878 1040
The charges for capacity purchases under the contracts referred to
above during calendar year 1997 amounted to approximately $13.3
million. Minimum charges for capacity purchases under such contracts
total approximately $90.1 million for the period June 1, 1998, through
May 31, 2003.
The maximum hourly demand on the Company's system reached a new
record high of 876 megawatts on July 24, 1997. The Company's previous
record peak of 842 megawatts was established in August 1996. The
maximum hourly winter demand during 1997 was 841 megawatts, which
occurred on January 13, 1997.
Construction Program
Total gross property additions (including construction work in
progress) for the three years ended December 31, 1997, amounted to
$166.4 million, and retirements during the same period amounted to
$13.9 million.
The Company's total construction-related expenditures, excluding
retirements and including allowance for funds used during construction
("AFUDC"), were $55.1 million in 1997 and for the next three years are
estimated for planning purposes to be as follows:
Estimated Construction
Expenditures
(amounts in millions)
1998 1999 2000 Total
Additions to existing generating facilities $ 5.7 $ 7.1 $ 6.7 $ 19.5
Transmission facilities 5.2 2.9 6.4 14.5
Distribution system additions 19.4 20.2 21.9 61.5
General and other additions 5.3 3.2 2.0 10.5
Total $ 35.6 $ 33.4 $ 37.0 $106.0
The Company does not plan to incur any expenditures for the
construction of new generating facilities through 2000. It believes
its existing generating facilities, supplemented with purchased power,
will provide the Company with substantially all of its anticipated
energy needs for that three year period. Additions to the Company's
transmission and distribution systems to meet projected increases in
customer demand constitute the majority of the projected construction
expenditures for that period.
Estimated construction expenditures are reviewed and adjusted
for, among other things, revised estimates of future capacity needs,
the cost of funds necessary for construction and the availability and
cost of alternative power. Actual construction expenditures may vary
significantly from the estimates due to a number of factors including
changes in equipment delivery schedules, changes in customer
requirements, construction delays, ability to raise capital,
environmental matters, the extent to which the Company receives timely
and adequate rate increases, the extent of competition from
independent power producers and co-generators, other changes in
business conditions and changes in legislation and regulation,
including those relating to the energy industry. See "Regulation"
below and Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Competition."
Fuel
Coal supplied approximately 92.0% of the Company's total fuel
requirements in 1997 based on kilowatt-hours generated. The remainder
was supplied by natural gas (8%) with oil generation being
insignificant.
The Company's Asbury Plant is fueled primarily by coal with oil
being used as startup fuel. The Plant is currently burning a coal
blend consisting of approximately 90% Western coal and 10% local coal
on a tonnage basis. Under normal conditions, the Company's targeted
coal inventory supply at Asbury is approximately 45 days. As of
December 31, 1997, the Company had sufficient coal on hand to supply
anticipated requirements at Asbury for 20 days. This reduced
inventory level is a result of the coal delivery problems plaguing the
industry because of the difficulty both Union Pacific and Burlington
Northern Railroads are having in meeting their transportation
obligations. The Company filed suit against Union Pacific and Kansas
City Southern Railway on August 22, 1997 seeking to void its existing
contract discussed below and receive restitution for damages due to
nonperformance. The suit is currently in the discovery phase.
The Company's Riverton Plant fuel requirements are primarily met
by coal with the remainder supplied by natural gas and oil. The
Riverton Plant is currently burning a coal blend consisting of
approximately 70% Western coal and 30% local coal on a tonnage basis.
Under normal conditions, the Company's targeted coal inventory supply
at Riverton is 45 days. As of December 31, 1997, the Company had coal
supplies on hand to meet anticipated requirements at the Riverton
Plant for 20 days as a result of the railroad transportation problems
mentioned above.
The Company has a long-term contract, expiring in 2004, with a
subsidiary of Peabody Holding Company, Inc. for the supply of low
sulfur Western coal to meet its requirements for such coal at the
Asbury and Riverton Plants during the term of the contract. This
Peabody coal is supplied from the Rochelle and North Antelope mines
located in Campbell County, Wyoming, and is shipped from there to the
Asbury Plant by rail, a distance of approximately 800 miles. The coal
is delivered under a transportation contract with Western Railroad
Properties, Inc., Union Pacific Railroad Company and The Kansas City
Southern Railway Company. The Company owns one 125-car unit train,
which delivers Peabody coal to the Asbury Plant, and leases additional
railcars on an as-needed basis. The Peabody coal is transported from
Asbury to Riverton via truck. Anticipated requirements for local coal
at both Plants are supplied under a coal supply agreement with the
Mackie-Clemens Fuel Company which expires on December 31, 1999.
The Company's Energy Center and State Line combustion turbine
facilities are fueled primarily by natural gas with oil being used as
a backup fuel. The Company's policy is to maintain a supply of oil at
these facilities which would support full load operation for
approximately three days. Based on current and projected fuel prices,
it is expected that these facilities will continue to be operated
primarily on natural gas.
The Company has a firm agreement with Williams Natural Gas
Company, expiring December 31, 2011, for the transportation of
natural gas to the Empire Energy Center, the State Line Power Plant or
the Riverton Plant, as elected by the Company. The Company expects
that its remaining gas transportation requirements, as well as the
majority of its gas supply requirements, will be met by spot
purchases. The Company historically has purchased natural gas on a
short-term basis.
Unit No. 1 at the Iatan Plant is a coal-fired generating unit
which is jointly-owned by Kansas City Power & Light ("KCPL") (70%),
St. Joseph Light & Power Company ("SJLP") (18%) and the Company (12%).
Low sulfur Western coal in quantities sufficient to meet substantially
all of Iatan's requirements is supplied under a long-term contract
expiring on December 31, 2003, between the joint owners and the Arco
Coal Company, a division of the Atlantic Richfield Company. The coal
is transported by rail under a contract expiring on December 31, 2000,
with Burlington Northern, Kansas City Southern Railway Company and the
MO-KAN-TEX railroads. The remainder of Iatan Unit No. 1's requirements
for coal are met with spot purchases.
The following table sets forth a comparison of the costs,
including transportation costs, per million btu of various types of
fuels used in the Company's facilities:
1997 1996 1995
Coal - Iatan $0.871 $0.847 $0.822
Coal - Asbury 1.088 1.116 1.061
Coal - Riverton 1.235 1.250 1.211
Natural Gas 2.665 2.365 1.607
Oil 4.137 4.437 3.338
The Company's weighted cost of fuel burned per kilowatt-hour
generated was 1.397 cents in 1997, 1.403 cents in 1996 and 1.255 cents
in 1995.
Employees
At December 31, 1997, the Company had 626 full-time employees, of
whom 334 were members of Local 1474 of The International Brotherhood
of Electrical Workers ("IBEW"). On November 8, 1996, the Company
signed a new three-year agreement with the IBEW expiring on October
31, 1999. The agreement provides, among other things, for a 3.0%
increase in wages commencing on November 1, 1996, with additional
minimum increases of 2.75% at November 1, 1997 and November 1, 1998.
___________________
ELECTRIC OPERATING STATISTICS (1)
1997 1996 1995 1994 1993
Electric Operating Revenues (000s):
Residential $88,636 $86,014 $81,331 $71,977 $68,477
Commercial 64,940 61,811 58,430 54,052 50,264
Industrial 37,192 35,213 32,637 31,317 28,880
Public authorities 4,995 4,180 3,745 3,509 3,419
Wholesale on-system 9,730 9,482 8,360 8,173 8,038
Miscellaneous 3,341 3,639 3,345 2,393 2,302
Total system 208,834 200,339 187,848 171,421 161,380
Wholesale off-system 5,473 4,595 4,000 5,391 6,244
Total electric operating $214,307 $204,934 $191,848 $176,812 $167,624
revenues
Electricity generated and purchased (000s of Kwh):
Steam 2,372,914 2,231,062 2,374,021 2,495,055 2,322,749
Hydro 77,578 62,860 71,302 83,556 102,673
Combustion turbine 211,872 162,679 170,479 51,358 39,532
Total generated 2,662,364 2,456,601 2,615,802 2,629,969 2,464,954
Purchased 1,839,833 1,968,898 1,540,816 1,394,470 1,443,410
Total generated and 4,502,197 4,425,499 4,156,618 4,024,439 3,908,364
purchased
Interchange (net) 1,018 (1,087) (5,851) 630 11,266
Total system input 4,503,215 4,424,412 4,150,767 4,025,069 3,919,630
Maximum hourly system 876,000 842,000 815,000 741,000 739,000
demand (Kw)
Owned capacity (end of 878,000 724,000 737,000 656,500 657,300
period) (Kw)
Annual load factor (%) 55.38 56.85 55.15 57.32 54.88
Electric sales (000s of Kwh):
Residential 1,429,787 1,440,512 1,350,340 1,264,721 1,248,482
Commercial 1,171,848 1,154,879 1,086,894 1,018,052 950,906
Industrial 943,287 923,730 859,017 827,067 760,737
Public authorities 101,122 95,652 90,543 86,463 83,239
Wholesale on-system 273,035 262,330 243,869 234,228 232,815
Total system 3,919,079 3,877,103 3,630,663 3,430,531 3,276,179
Wholesale off-system 253,060 219,814 213,590 304,554 366,729
Total electric sales 4,172,139 4,096,917 3,844,253 3,735,085 3,642,908
Company use (000s of Kwh) 9,688 9,584 9,559 9,260 9,117
Lost and unaccounted for 321,388 317,911 296,955 280,724 267,605
(000s of Kwh)
Total system input 4,503,215 4,424,412 4,150,767 4,025,069 3,919,630
Customers (average number of
monthly bills rendered):
Residential 117,271 115,116 112,605 109,032 105,079
Commercial 21,323 20,758 20,098 19,175 18,447
Industrial 346 346 339 318 283
Public authorities 1,720 1,696 1,637 1,558 1,517
Wholesale on-system 7 7 7 7 7
Total system 140,667 137,923 134,686 130,090 125,333
Wholesale off-system 7 9 6 6 5
Total 140,674 137,932 134,692 130,096 125,338
Average annual sales per 12,192 12,514 11,992 11,600 11,881
residential customer (Kwh)
Average annual revenue per $755.82 $747.19 $722.27 $660.14 $651.67
residential customer
Average residential revenue 6.20c 5.97c 6.02c 5.69c 5.48c
per Kwh
Average commercial revenue 5.54c 5.35c 5.38c 5.31c 5.29c
per Kwh
Average industrial revenue 3.94c 3.81c 3.80c 3.79c 3.80c
per Kwh
(1) See Item 8 - Financial Statements and Supplementary Data
Executive Officers and Other Officers of the Registrant
The names of the officers of the Company, their ages and years of
service with the Company as of December 31, 1997, positions held and
effective date of such positions are presented below. Each of the
executive officers of the Company has held executive officer or
management positions within the Company for at least the last five
years.
With the
Age at Company Officer
Name 12/31/97 Positions with the Company since since
M.W. McKinney 53 President and Chief Executive Officer 1967 1982
(1997), Executive Vice President -
Commercial Operations (1995),
Executive Vice President (1994),
Vice President - Customer Services
(1982), Director (1991)
V.E. Brill 56 Vice President - Energy Supply 1962 1975
(1995), Vice President - Finance
(1983), Director (1989)
R.B. Fancher 57 Vice President - Finance (1995), Vice 1972 1984
President - Corporate Services
(1984)
C.A. Stark 53 Vice President - General Services 1980 1995
(1995), Director of Corporate
Planning (1988)
W.L. Gipson 40 Vice President - Commercial 1981 1997
Operations (1997), General Manager
(1997), Director of Commercial
Operations (1995), Economic
Development Manager (1987)
D.W. Gibson 51 Director of Financial Services and 1979 1991
Assistant Secretary (1991)
G.A. Knapp 46 Controller and Assistant Treasurer 1978 1983
(1983)
J.S. Watson 45 Secretary-Treasurer (1995), 1994 1995
Accounting Staff Specialist (1994)
Regulation
General. The Company, as a public utility, is subject to the
jurisdiction of the Missouri Public Service Commission ("Missouri
Commission"), the State Corporation Commission of the State of Kansas
("Kansas Commission"), the Corporation Commission of Oklahoma
("Oklahoma Commission") and the Arkansas Public Service Commission
("Arkansas Commission") with respect to services and facilities, rates
and charges, accounting, valuation of property, depreciation and
various other matters. Each such Commission has jurisdiction over the
creation of liens on property located in its state to secure bonds or
other securities. The Kansas Commission also has jurisdiction over
the issuance of securities. The Company's transmission and sale at
wholesale of electric energy in interstate commerce and its facilities
are also subject to the jurisdiction of the Federal Energy Regulatory
Commission ("FERC") under the Federal Power Act. FERC jurisdiction
extends to, among other things, rates and charges in connection with
such transmission and sale; the sale, lease or other disposition of
such facilities and accounting matters. See discussion of FERC Orders
888 and 889 in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Competition."
The Company's Ozark Beach Hydroelectric Plant is operated under a
license from FERC. See Item 2, "Properties - Electric Facilities." The
Company is disputing a Headwater Benefits Determination Report it
received from FERC on September 9, 1991. The report calculates an
assessment to the Company for headwater benefits received at the Ozark
Beach Hydroelectric Plant for the period 1973 through 1990 in the
amount of $705,724, and calculates an annual assessment thereafter of
$42,914 for the years 1991 through 2011. The Company believes that the
methodology used in making the assessment was incorrect and is
contesting the determination. As of December 31, 1997, FERC had not
responded to the comments filed by the Company on July 31, 1992. The
Company is currently accruing an amount monthly equal to what it
believes the correct assessment to be.
During 1997, approximately 93% of the Company's electric
operating revenues were received from retail customers. Approximately
88%, 6%, 3% and 3% of such retail revenues were derived from sales in
Missouri, Kansas, Oklahoma and Arkansas, respectively. Sales subject
to FERC jurisdiction represented approximately 7% of the Company's
electric operating revenues during 1997.
Rates. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Operating Revenues and
Kilowatt-Hour Sales" for information concerning recent electric rate
proceedings.
Fuel Adjustment Clauses. Fuel adjustment clauses permit changes
in fuel costs to be passed along to customers without the need for a
rate proceeding. Fuel adjustment clauses are not permitted under
Missouri law. Pursuant to an agreement with the Kansas Commission,
entered into in connection with a 1989 rate proceeding, a fuel
adjustment clause is not applicable to the Company's retail electric
sales in Kansas. Automatic fuel adjustment clauses are presently
applicable to retail electric sales in Arkansas, Oklahoma and system
wholesale kilowatt-hour sales under FERC jurisdiction. Any increases
in fuel costs may be recovered in Missouri and Kansas only through
rate filings made with the appropriate Commissions. This could result
in an under-recovery of fuel costs and purchased power costs in
Missouri and Kansas when such costs increase or if the Company is
unable to utilize its generating facilities to their fullest expected
extent (especially its lower cost coal facilities). The amount of
such under-recovery could be material. Conversely, when fuel costs
decrease, the amount of over-recovery could also be material.
Environmental Matters
The Company is subject to various federal, state, and local laws
and regulations with respect to air and water quality as well as other
environmental matters. The Company believes that its operations are in
compliance with present laws and regulations.
Air. The 1990 Amendments to the Clean Air Act ("1990
Amendments") affect the Asbury, Riverton, and Iatan Power Plants. The
Asbury Plant is a Phase I facility that became an affected unit under
the 1990 Amendments on January 1, 1995. The Riverton Plant is
classified as a Phase II facility, meaning it would not become an
affected unit for sulfur dioxide ("SO2") until January 1, 2000.
However, the Company elected to make Riverton an affected unit for
nitrogen oxide ("NOx") in November 1996. When a plant becomes an
affected unit, it locks in the current NOx emission standards and
therefore, Riverton is locked in at the current standards of .50 and
.45 parts per million btu's burned for the respective units. The
Riverton Plant and the Iatan plant will become affected units for SO2
on January 1, 2000.
Under the 1990 Amendments, the amount of SO2 an affected unit can
emit is regulated. Each affected unit has been awarded a specific
number of emission allowances, each of which allows the holder to emit
one ton of SO2. Utilities covered by the 1990 Amendments must have
emission allowances equal to the number of tons of SO2 emitted during
a given year by each of their affected units. Allowances may be traded
between plants, utilities or "banked" for future use. A market for the
trading of emission allowances exists on the Chicago Board of Trade.
The Environmental Protection Agency (the "EPA") withholds annually a
percentage of the emission allowances awarded to each affected unit
and sells those emission allowances through a direct auction. The
Company receives compensation from the EPA for the sale of these
allowances.
In 1997, the Asbury Plant used approximately 60% of its available
SO2 emission allowances. In the year 2000, the number of SO2 emission
allowances that the Asbury Plant will receive each year is expected to
decline by approximately one-half (before EPA withholding) and the
Company anticipates (based on current operations) that the Plant will
use slightly more allowances than the number available to it, which
allowances would have to be supplied by the Company or purchased on
the open-market.
When the Iatan Unit becomes an affected unit with respect to SO2
in 2000, it is expected to be deficient in allowances by a margin of
approximately 30% based on current operating conditions. Any needed
allowances will be supplied by the respective owners from present
inventories or by open-market purchases.
The Riverton Plant's level of emissions will require
significantly more allowances than the number awarded to the Plant
when the facility becomes an affected unit for SO2 in 2000. The
Company is evaluating various methods to achieve compliance with these
requirements including using any available allowances from the Asbury
plant, purchasing allowances from other sources, modifying certain
equipment to permit the use of greater percentages of low sulfur coal,
increasing the use of natural gas as a fuel at the Plant and
purchasing additional power.
Although the Asbury Plant is in compliance with current NOx
regulations, the EPA revised the regulations to require cyclone units
(such as the Asbury Plant) to meet more stringent requirements by
2000. The Company is working with consultants to reduce NOx emissions
to meet these new requirements. The Company is unable to estimate the
cost of compliance at this time, but such costs are not anticipated
to be material. The Iatan Plant and the Riverton Plant are each in
compliance with the NOx limits applicable to them under the 1990
Amendments as currently operated.
The EPA has issued a State Implementation Plan that includes the
potential for further reductions in the NOx emission levels in the
State of Missouri. At this time it is not possible to predict the
level that the Asbury or Iatan Plants will be required to achieve, but
it is possible that facilities in the western two-thirds of the state
(in which the Plants are located), will be excluded from further
reductions.
Water. The Company operates under the Kansas and Missouri Water
Pollution Plans that were implemented in response to the Federal Water
Pollution Control Act Amendments of 1972. The Asbury, Iatan, Riverton,
Energy Center and State Line facilities are in compliance with
applicable regulations and have received discharge permits and
subsequent renewals as required.
Other. Under Title 5 of the 1990 Amendments, the Company must
obtain site operating permits for each of its plants from the
authorities in the state in which the plant is located. These permits,
which are valid for five years, regulate the plant site's total
emissions, including emissions from stacks, individual pieces of
equipment, road dust, coal dust and steam leaks. The Company submitted
applications for these permits in 1997 in accordance with the 1990
Amendments and is working with authorities in both the State of
Missouri and the State of Kansas in developing the draft permits.
Conditions Respecting Financing
The Company's Indenture of Mortgage and Deed of Trust, dated as
of September 1, 1944, as amended and supplemented (the "Mortgage"),
and its Restated Articles of Incorporation (the "Restated Articles"),
specify earnings coverage and other conditions which must be complied
with in connection with the issuance of additional first mortgage
bonds or cumulative preferred stock, or the incurrence of unsecured
indebtedness. The Mortgage generally permits the issuance of
additional bonds only if net earnings (as defined) for a specified
twelve-month period are at least twice the annual interest
requirements on all bonds at the time outstanding, including the
additional issue and all indebtedness of prior rank. Under this test,
on December 31, 1997, the Company could have issued under the Mortgage
approximately $161.8 million principal amount of additional bonds (at
an assumed interest rate of 6.75%). In addition to the interest
coverage requirement, the Mortgage provides that new bonds must be
issued against, among other things, retired bonds or 60% of net
property additions. At December 31, 1997, the Company had retired
bonds and net property additions which would enable the issuance of at
least $123.9 million principal amount of bonds.
Under the Restated Articles, (a) additional cumulative preferred
stock may be issued only if net income of the Company available for
interest and dividends (as defined) for a specified twelve-month
period is at least 1-1/2 times the sum of the annual interest
requirements on all indebtedness and the annual dividend requirements
on all cumulative preferred stock, to be outstanding immediately after
the issuance of such additional shares, and (b) the amount of
unsecured indebtedness outstanding may not exceed 20% of the sum of
the outstanding secured indebtedness plus the capital and surplus of
the Company. Under these restrictions, based on the twelve months
ended December 31, 1997, the Company could issue shares of cumulative
preferred stock with an aggregate par value of approximately $116.3
million (8-1/8% dividend rate assumed) and at December 31, 1997, the
Company could incur maximum unsecured indebtedness of approximately
$89.6 million.
ITEM 2. PROPERTIES
Electric Facilities
At December 31, 1997, the Company owned generating facilities
(including its interest in Iatan Unit No. 1) with an aggregate
generating capacity of 878 megawatts.
The principal electric generating plant of the Company is the
Asbury Plant with 213 megawatts of generating capacity. The Plant,
located near Asbury, Missouri, is a coal-fired generating station with
two steam turbine generating units. The Plant presently accounts for
approximately 24% of the Company's owned generating capacity and in
1997 accounted for approximately 49% of the energy generated by the
Company and 29% of the total energy sold by the Company. Routine plant
maintenance, during which the entire Plant is taken out of service, is
scheduled once each year, normally for approximately four weeks in the
spring. Every fifth year the spring outage is scheduled to be extended
to a total of six weeks to permit inspection of the Unit No. 1
turbine. During 1996, the Company experienced such an outage which
began on March 22 and was extended until June 1, during which
extensive work was performed. The next such extended outage will occur
in 2001. See Item 7 for additional information concerning the
maintenance outage. The Unit No. 2 turbine is inspected approximately
every 35,000 hours of operations. The unit can be overhauled without
Unit No. 1 having to come off-line. When the Asbury Plant is out of
service, the Company typically experiences increased purchased power
and fuel costs associated with replacement energy. See Item 1
"Business - Regulation - Fuel Adjustment Clauses," for additional
information concerning increased purchased power and fuel costs.
The Company's generating plant located at Riverton, Kansas, has
two steam-electric generating units with an aggregate generating
capacity of 92 megawatts and three gas-fired combustion turbine units
with an aggregate generating capacity of 44 megawatts. The steam-
electric generating units burn coal as a primary fuel and have the
capability of burning natural gas.
The Company owns a 12% undivided interest in the 670 megawatt
coal-fired Unit No. 1 at the Iatan Generating Station located 35 miles
northwest of Kansas City, Missouri, as well as a 3% interest in the
site and a 12% interest in certain common facilities. The Company is
entitled to 12% of the unit's available capacity and is obligated to
pay for that percentage of the operating costs of the Unit. KCPL and
SJLP own 70% and 18%, respectively, of the Unit. KCPL operates the
unit for the joint owners. See Note 9 of "Notes to Financial
Statements" under Item 8.
The Company also has two combustion turbine peaking units at the
Empire Energy Center in Jasper County, Missouri, with an aggregate
generating capacity of 180 megawatts. During 1995 the Company
converted these peaking units to operate on natural gas as well as oil
as a source of fuel.
The Company's State Line Power Plant, which is located west of
Joplin, Missouri, consists of two combustion turbine units with an
aggregate generating capacity of 253 megawatts. These units burn
natural gas as a primary fuel and have the capability of burning oil.
Unit No. 1 was placed in service in mid-1995 and Unit No. 2 was placed
in service June 18, 1997.
The Company's hydroelectric generating plant, located on the
White River at Ozark Beach, Missouri, has a generating capacity of 16
megawatts, subject to river flow. The Company has a long-term license
from FERC to operate this plant which forms Lake Taneycomo in
Southwestern Missouri.
At December 31, 1997, the Company's transmission system consisted
of approximately 22 miles of 345 kV lines, 406 miles of 161 kV lines,
749 miles of 69 kV lines and 82 miles of 34.5 kV lines. Its
distribution system consisted of approximately 6,008 miles of line.
The electric generation stations owned by the Company are located
on land owned in fee. The Company owns a 3% undivided interest as
tenant in common with KCPL and SJLP in the land for the Iatan
Generating Station. Substantially all the electric transmission and
distribution facilities of the Company are located either (1) on
property leased or owned in fee; (2) over streets, alleys, highways
and other public places, under franchises or other rights; or (3) over
private property by virtue of easements obtained from the record
holders of title. Substantially all property, plant and equipment of
the Company are subject to the Mortgage.
Water Facilities
The Company also owns and operates water pumping facilities and
distribution systems consisting of a total of approximately 75 miles
of water mains in three communities in Missouri.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings required to be disclosed by this Item are
pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock
Exchange. On March 2, 1998, there were 9,560 record holders of its
common stock. The high and low sale prices for its common stock
reported in The Wall Street Journal as New York Stock Exchange
composite transactions, and the amount per share of quarterly
dividends declared and paid on the common stock for each quarter of
1997 and 1996 were as follows:
Price of Common Stock Dividends Paid
1997 1996 Per Share
High Low High Low 1997 1996
First Quarter $19-1/4 $17-3/4 $19-3/8 $17-3/8 $ 0.32 $ 0.32
Second Quarter 18-3/8 16 18-3/8 17-1/8 0.32 0.32
Third Quarter 18-1/4 16-1/4 18-3/4 17-1/4 0.32 0.32
Fourth Quarter 19-15/16 17-5/16 19-1/2 18-1/8 0.32 0.32
Holders of the Company's common stock are entitled to dividends
if, as, and when declared by the Board of Directors of the Company,
out of funds legally available therefore, subject to the prior rights
of holders of the Company's outstanding cumulative preferred stock and
any preference stock.
The Mortgage and the Restated Articles contain certain dividend
restrictions. The most restrictive of these is contained in the
Mortgage, which provides that the Company may not declare or pay any
dividends (other than dividends payable in shares of its common stock)
or make any other distribution on, or purchase (other than with the
proceeds of additional common stock financing) any shares of, its
common stock if the cumulative aggregate amount thereof after August
31, 1944, (exclusive of the first quarterly dividend of $98,000 paid
after said date) would exceed the earned surplus (as defined)
accumulated subsequent to August 31, 1944, or the date of succession
in the event that another corporation succeeds to the rights and
liabilities of the Company by a merger or consolidation. As of
December 31, 1997, said dividend restriction did not affect any of the
retained earnings of the Company.
The Company's Dividend Reinvestment and Stock Purchase Plan (the
"Reinvestment Plan") allows common and preferred stockholders to
reinvest dividends of the Company into newly issued shares of the
Company's common stock at 95% of a market price average calculated
pursuant to the Reinvestment Plan. Stockholders may also purchase, for
cash and within specified limits, additional stock at 100% of such
market price average. The Company may elect to make shares purchased
in the open market rather than newly issued shares available for
purchase under the Reinvestment Plan. If the Company so elects, the
purchase price to be paid by Reinvestment Plan participants will be
100% of the cost to the Company of such shares. Participants in the
Reinvestment Plan do not pay commissions or service charges in
connection with purchases under the Reinvestment Plan.
The Company has a shareholders rights plan which expires July 25,
2000, under which each of its common stockholders has one-half a
Preference Stock Purchase Right ("Right") for each share of common
stock owned. One Right enables the holder to acquire one one-hundredth
of a share of Series A Participating Preference Stock (or, under
certain circumstances, other securities) at a price of $75 per one-
hundredth of a share, subject to adjustment. The rights (other than
those held by an acquiring person or group ("Acquiring Person")) will
be exercisable only if an Acquiring Person acquires 10% or more of the
Company's common stock or if certain other events occur. See Note 4 of
"Notes to Financial Statements" under Item 8 for further information.
The By-laws of the Company provide that K.S.A. Sections 17-1286
through 17-1298, the Kansas Control Share Acquisitions Act, will not
apply to control share acquisitions of the Company's capital stock.
See Note 3 of "Notes to Financial Statements" under Item 8 for
additional information regarding the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
1997 1996 1995 1994 1993
Operating revenues $215,311 $ 205,984 $ 192,838 $ 177,757 $168,439
Operating income $ 40,962 $ 36,652 $ 33,151 $ 32,005 $ 29,291
Total allowance for funds $ 1,226 $ 1,420 $ 2,239 $ 1,715 $ 229
used during construction
Net income $ 23,793 $ 22,049 $19,798(1) $ 19,683 $ 15,936
Earnings applicable to $ 21,377 $ 19,633 $17,381(1) $ 18,120 $ 15,551
common stock
Weighted average number of common
shares outstanding 16,599,269 16,015,858 14,730,902 13,734,231 13,415,539
Basic and diluted earnings per
weighted average
shares outstanding $ 1.29 $ 1.23 $ 1.18(1) $ 1.32 $ 1.16
Cash dividends per
common share $ 1.28 $ 1.28 $ 1.28 $ 1.28 $ 1.28
Common dividends paid as a
percentage of earnings
applicable to common stock 99.4% 104.5% 108.9% 97.0% 110.4%
Allowance for funds used during
construction as a percentage of earnings
applicable to common stock 5.7% 7.2% 12.9% 9.5% 1.5%
Book value per common share
outstanding at end of year$ 13.03 $ 12.93 $ 12.67 $ 12.42 $ 12.33
Capitalization:
Common equity $219,034 $213,091 $193,137 $173,780 $167,861
Preferred stock without
mandatory redemption
provisions $32,902 $32,902 $32,902 $32,902 $ 7,902
First mortgage bonds $196,385 $219,533 $194,705 $184,977 $165,227
Ratio of earnings to fixed
charges 3.01 3.11 2.90 3.16 2.73
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements 2.66 2.53 2.36 2.70 2.63
Total assets $626,465 $596,980 $557,368 $520,213 $463,617
Utility plant in service at
original cost $797,839 $717,890 $682,609 $611,360 $576,083
Utility plant expenditures
during the year $53,280 $59,373 $49,217 $71,649 $ 42,648
(1) Reflects a pre-tax charge of $4,583,000 for certain one-
time costs associated with the Company's voluntary early
retirement program.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating Revenues and Kilowatt-Hour Sales
Of the Company's total electric operating revenues during
1997, approximately 41% were from residential customers, 30% from
commercial customers, 17% from industrial customers, 5% from
wholesale on-system customers and 3% from wholesale off-system
transactions. The remainders 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:
Kwh Sales Revenues
1997 1996 1997 1996
Residential (0.7)% 6.7% 3.1% 5.8%
Commercial 1.5 6.3 5.1 5.8
Industrial 2.1 7.5 5.6 7.9
Wholesale On-System 4.1 7.6 2.6 13.4
Total System 1.1 6.8 4.5 6.6
Kwh sales for the Company's on-system customers increased
only slightly during 1997 due to cool summer weather, while
revenues increased more than the corresponding increase in Kwhs
primarily due to increased rates in Missouri as reflected in the
table below. Customer growth slowed from 2.33% in 1996 to 1.68%
in 1997. Residential Kwh sales decreased slightly by (0.7%) due
to a milder first half of 1997, in which Kwh sales were down
6.3%, as compared to 1996. The residential revenues increased
due to a 4.71% increase in Kwh sales during the last half of 1997
as compared to the same period in 1996, and because of increased
rates in Missouri during the last half of 1997. Commercial and
industrial classes showed an increase in Kwh sales and revenues
because their sales are not impacted by weather as much as
residential customers. On-system wholesale Kwh sales were up
slightly in 1997, reflecting customer growth in the wholesale
territories. Revenues associated with these FERC regulated Kwh
sales increased at a lower rate due to the operation of the fuel
adjustment clause applicable to such FERC regulated sales.
Kwh sales to and revenues from the Company's on-system
customers increased during 1996 due to warm summer temperatures
during the second quarter, particularly during the month of June,
and colder than normal weather during the first and fourth
quarters compared to the same periods in 1995. Mild weather
conditions during the third quarter of 1996 partially offset the
positive impact of such favorable weather conditions. Customer
growth positively impacted Kwh sales and related revenue. In
addition, the effect of an electric rate increase in Missouri
effective November 1995 contributed to the increased revenue
during the year. Residential and commercial Kwh sales increased
more than the corresponding increase in revenues during 1996,
primarily due to the effect of changes in the Company's rate
design in 1994 which shifted revenue from winter billing periods
to summer billing periods. On-system wholesale Kwh sales and
revenues were up during the period reflecting the weather
conditions discussed above. Wholesale on-system revenues in
1996 increased at a greater relative amount than Kwh sales due to
the operation of the fuel adjustment clause applicable to such
sales.
The following table sets forth information regarding
electric rate increases affecting the revenue comparisons
discussed above:
Percent
Date Increase Increase Increase Date
Jurisdiction Requested Requested Granted Granted Effective
Missouri 08-30-96 $23,438,000 $13,589,364 8.25% *
Missouri 03-17-95 8,543,910 1,400,000 0.90% 11-15-95
* An increase of $10,589,364 was granted effective 07-28-97.
An additional $3,000,000 increase became effective 09-19-97.
On August 30, 1996, the Company filed a request with the
Missouri Public Service Commission (the "Missouri Commission")
for a general annual increase in rates for its Missouri electric
customers in the amount of $23,438,000, or 13.81%. A stipulated
agreement was filed by the parties for approximately $13,950,000,
and on July 17, 1997, the Missouri Commission issued an order
approving an annual increase in rates of $10,589,364, or 6.43%,
effective July 28, 1997. The amount did not include the
Company's investment in Unit No. 2 at the Company's State Line
Plant because the Commission deemed that Unit No. 2 did not meet
all the specified in-service criteria. On July 25, 1997, the
Company filed an Application for Rehearing regarding the status
of Unit No. 2, seeking to recover the remaining $3,350,000 of the
stipulated agreement. On September 11, 1997, the Missouri
Commission issued an order approving an additional annual
increase in rates in the amount of $3,000,000, or 1.7%, effective
September 19, 1997, making the total increase in annual revenue
from this proceeding $13,589,364, or 8.25%.
The Company filed an application on February 19, 1998, to
increase rates in the state of Arkansas by $618,497. Any
increase relating to this filing will be granted in late 1998 and
is not expected to have a material effect on operating results
for 1998.
The Company's future revenues from the sale of electricity
will continue to be affected by economic conditions, business
activities, competition, weather, regulation, changes in electric
rate levels and changing patterns of electric energy use by
customers. Inflation affects the Company's operations in that
historical costs, rather than current replacement costs, are
recovered in the Company's rates.
Off-System Transactions
In addition to sales to its own customers, the Company sells
power, as available, to other utilities and provides transmission
service through its system for transactions between other energy
suppliers. During both 1997 and 1996, income from such off-system
transactions exceeded related expenses by approximately $2.0
million annually.
Operating Revenue Deductions
During 1997, total operating expenses increased
approximately $2.9 million (2.6%) compared to the prior year.
Total fuel costs were up approximately $2.5 million (7.6%) during
1997, due primarily to the increased generation from gas-fired
combustion turbine units at both State Line and the Energy
Center. This increased generation was due to increased customer
demand in the third and fourth quarters of 1997, as well as
decreased energy availability in the Southwest Power Pool during
the month of October. Natural gas prices were also higher by
7.8% during 1997 as compared to 1996. The Company does not have
fuel adjustment clauses under which such increased costs can be
recovered in Missouri and Kansas.
Total purchased power costs decreased slightly during 1997,
due primarily to increased usage of the Company's own generation
facilities. Unit No. 2 at the State Line Power Plant was placed
in service on June 18, 1997, and added 152 megawatts of
capability. Although the Asbury Plant underwent an extended five
week spring outage in 1997, the plant was back on line ahead of
schedule and went on to record a new continuous run record of 170
days and a record availability rate of 88.5%.
The Asbury Plant was taken out of service in late January
1998 to repair a generator winding problem. The Company took
this opportunity while the plant was down to shift the planned
spring maintenance outage which was scheduled for the second
quarter to this time period. The Asbury Plant returned to
service in early March. As a result, purchased power costs
should increase in the first quarter but should be offset by
lower costs in the second quarter.
Other operating expenses increased approximately $0.6
million (2.0%) during 1997, compared to 1996, due primarily to an
increase in production expenses related to the extended Asbury
Plant outage in the spring of 1997. Maintenance and repairs
expense decreased approximately $0.8 million (6.1%) during 1997
because of the high level of distribution system maintenance in
1996 caused by storm damage discussed below.
Depreciation and amortization expense increased
approximately $1.8 million (8.4%) during 1997 primarily because
Unit No. 2 at the State Line Plant was placed into service in
June 1997. Total income taxes increased during 1997 due
primarily to higher taxable income. See Note 8 of "Notes to
Financial Statements" under Item 8 for additional information
regarding income taxes.
During 1996, total operating expenses increased
approximately $5.2 million (4.9%) compared to the prior year.
Excluding the one-time pre-tax charge of approximately $4.6
million in the third quarter of 1995 relating to the Company's
Voluntary Early Retirement Program (the "VERP"), total operating
expenses increased approximately $9.8 million (9.7%) compared to
1995 levels. Purchased power costs were up during 1996, compared
to the prior year, primarily because of an $11.3 million (31.2%)
increase in purchased power costs resulting from increased
purchases of replacement energy during an extended five-year
turbine inspection at the Asbury Plant. In addition, the Company
increased its level of purchases to meet higher customer demand
during the first half and fourth quarter of 1996, particularly
during periods of extremely cold weather during January and
February of 1996, when the Company's suppliers curtailed the
delivery of natural gas to the Company and other utilities in the
region. The weather also resulted in the decreased availability
of low-cost energy from hydro and nuclear units of other
utilities. These factors contributed to higher demand and a
tight market for purchased energy and resulted in significantly
higher prices for such energy during the first half of 1996 when
compared to the same periods in 1995. Fuel costs increased $1.6
million (5.2%) in 1996, primarily because of the use of higher
cost fuel oil at the Energy Center and Riverton Plant during
periods of extremely cold weather early in the year when natural
gas supplies were curtailed. Other operating expenses decreased
approximately $3.2 million (9.5%) during 1996 (excluding
expenses related to the VERP), due primarily to lower general and
administrative costs. During 1995, the Company's general and
administrative costs were higher in large part because of costs
associated with litigation and the Company's Competitive
Positioning Process ("CPP"). Maintenance and repair expense
increased during 1996 due primarily to increased maintenance
performed on the Company's distribution system as a result of
windstorm damage in April and ice storm damage in November 1996.
Depreciation and amortization expense increased due to increased
levels of plant and equipment placed in service during 1996,
particularly at the Company's State Line Power Plant. Total
income taxes increased during 1996 due primarily to higher
taxable income. Other taxes increased due to higher levels of
plant-in-service.
Nonoperating Items
Total allowance for funds used during construction ("AFUDC")
amounted to approximately 5.7% of earnings applicable to common
stock during 1997, 7.2% during 1996, and 12.9% during 1995.
AFUDC decreased significantly during 1997 as well as during 1996,
reflecting the construction of State Line Unit No. 2, which was
placed in service in June 1997, and of State Line Unit No. 1,
which was placed in service in May 1995. See Note 1 of "Notes to
Financial Statements" under Item 8 for more discussion of AFUDC.
Interest income decreased during 1997 and 1996, reflecting
lower balances of cash available for investment particularly due
to increased levels of construction. Interest charges for 1997
were significantly higher because of the issuance of $25.0
million of the Company's First Mortgage Bonds in December 1996.
The proceeds from that sale were used, in part, for expenses
incurred in connection with the Company's construction program.
Commercial paper interest increased during the year due to
increased usage of short-term debt to finance the Company's
construction program.
Earnings
Basic and diluted earnings per weighted average share of
common stock were $1.29 during 1997 compared to $1.23 in 1996.
Increased revenue resulted mainly from an increase in Missouri
rates. The Missouri jurisdiction accounts for approximately 90%
of the on-system retail sales of the Company. A cool summer and
fairly mild winter as well as increases in fuel costs and
decreased levels of AFUDC partially offset the impact of the rate
increase. The Missouri rate increase will favorably impact the
Company's operating results in 1998.
Earnings per share of common stock were $1.23 during 1996
compared to $1.18 in 1995. A one-time charge relating to the
VERP reduced 1995 earnings by $0.19 per share. Increased revenue
resulting from weather conditions conducive to increased Kwh
sales, continued customer growth and the rate increase received
in Missouri, effective November 1995, were partially offset by
increased purchased power expenses, fuel costs, and distribution
maintenance expenses, as well as decreased levels of AFUDC.
Earnings per share in 1996 also reflect a greater number of
shares outstanding because of the Company's issuance of 880,000
shares of common stock in April 1996.
Competition
Federal regulation, such as The National Energy Policy Act
of 1992 (the "Energy Act") has promoted and is expected to
continue to promote competition in the electric utility industry.
The Energy Act, among other things, eases restrictions on
independent power producers, delegates authority to the FERC to
order wholesale wheeling and grants individual states the power
to order retail wheeling. At this time, none of the states in
which the Company operates has taken any such action. However,
in Missouri, the Public Service Commission adopted an order
establishing a docket and creating a task force on retail
electric competition. The task force, on which the Company is
represented, is charged with preparing comprehensive reports for
the Commission that include recommendations on how Missouri
should implement retail electric competition in the event that
legislation is enacted to authorize it. In Kansas, several bills
dealing with restructuring were introduced into the House and
Senate, however, no legislative action was taken during 1997. In
Oklahoma, the Electric Restructuring Act of 1997 was passed by
the Legislature and signed into law by the Governor. The bill,
with a target date of July 1, 2002, was designed to provide for
the orderly restructuring of the electric utility industry in the
state and move the state toward open competition for electric
generation. In Arkansas, the House and Senate passed a
concurrent resolution requesting a study of the impact of
competition on the electric utility industry. The Arkansas
Public Service Commission has opened four dockets to receive
comments and testimony on restructuring. See Note 2 of "Notes to
Financial Statements" under Item 8 for additional information
regarding effects of deregulation.
In April 1996, the FERC issued Order No. 888 (the "Order")
which requires all electric utilities that own, operate, or
control interstate transmission facilities to file open access
tariffs that offer all wholesale buyers and sellers of
electricity the same transmission services that they provide
themselves. The utility would have to take service under those
tariffs for its own wholesale power transactions. The Order
requires a functional unbundling of transmission and power
marketing services. The Order also provides stranded cost
recovery mechanisms for utilities to recover costs that were
incurred to serve wholesale customers that would no longer be
recoverable as a result of the customer departing the system and
obtaining electric service from another supplier.
In accordance with the Order, on July 9, 1996, the Company
filed its open access transmission tariff with the FERC.
Following an extensive audit and discussions, the Company, the
FERC and intervenors reached a settlement on August 1, 1997, and
the rates submitted with the settlement, applicable to customers
who did not have service agreements in effect, were made
effective as of July 9, 1996. For customers with service
agreements in effect, the tariff will not be applicable until a
rate increase has been filed which may not be made prior to June
1999. The Company cannot currently predict the effect of the
tariff on its future operations.
In conjunction with Order No. 888, the FERC issued a
companion order, Order No. 889, which defines the type and timing
of information to be made available by utilities to wholesale
customers and establishes standards of conduct to ensure that a
utility's transmission system operates independently of the
utility's segment which engages in wholesale purchases and sales
of electricity. In December 1996, the Company filed with the FERC
a request for waiver of these standards of conduct. On May 29,
1997, the FERC issued an order granting the Company's request for
a waiver.
Several factors exist which may enhance the Company's
ability to compete as deregulation occurs. The Company is able
to generate and purchase power relatively inexpensively; during
1997, the Company's retail rates were approximately 25% less than
the electric industry average. In addition, less than 5% of the
Company's electric operating revenues are derived from sales to
on-system wholesale customers, the type of customer for which the
FERC is already requiring wheeling. At the same time, the
Company could face increased competitive pressure as a result of
its reliance on relatively large amounts of purchased power and
its extensive interconnections with neighboring utilities. In
recognition of its need to provide peaking power, during June
1997 the Company placed in service State Line II, a 152-MW gas
turbine. In addition, in response to deregulation and
restructuring which has led to uncertainty as to returns on large
capital investments, the Company has reduced planned construction
expenditures and entered into an agreement with Western Resources
for future purchased power.
In anticipation of changes in the competitive environment,
the Company in 1995 undertook its CPP to maximize efficiency and
effectiveness in providing service to its customers. As part of
the CPP, the Company redesigned its organizational structure.
One result of this redesigned organizational structure was the
establishment of the Commercial Operations department, which
combined the Customer Service, Engineering and Transmission &
Distribution functions so that the needs of the customer can be
met by one contact person instead of three. The Company also
implemented the Company's Call Center in June 1995, and began 24-
hour, seven-days-a-week operation in June 1996 to further address
customer needs. In 1996, the Company invested in non-regulated
business for the first time. Since then, the Company has offered
electronic monitored security and has leased capacity on its
broadband fiber optics network from Springfield to Branson,
Missouri.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction-related expenditures totaled
$56.7 million, $62.3 million, and $50.8 million in 1997, 1996 and
1995, respectively. Approximately $12.9 million of construction
expenditures during 1997 were related to the construction of Unit
No. 2 at the State Line Power Plant, which was placed in service
on June 18, 1997. Additions to the Company's transmission and
distribution systems to accommodate customer growth represented
approximately $28.1 million of construction expenditures during
1997. Approximately $1.8 million of the 1997 construction
expenditures are related to the Company's investment in fiber
optics cable and equipment which the Company plans to utilize and
to lease to other entities. Approximately 97% of construction
expenditures and other capital requirements for 1997 were
satisfied internally from operations.
Estimated construction expenditures will total approximately
$35.6 million in 1998, $33.4 million in 1999 and $37.0 million in
2000. Of these amounts, the Company anticipates that it will
spend $19.4 million, $20.2 million and $21.9 million in 1998,
1999 and 2000, respectively, for additions to the Company's
distribution system to meet projected increases in customer
demand.
Internally generated funds are expected to provide at least
95% of the funds required between 1998 and 2000 for estimated
construction expenditures. As in the past, the Company intends to
utilize short-term debt to finance the additional amounts needed
for such construction and repay such borrowings with the proceeds
of sales of public offerings of long-term debt or equity
securities, including the sale of the Company's common stock
pursuant to its Dividend Reinvestment Plan and Employee Stock
Purchase Plan, and from internally generated funds. The Company
will continue to utilize short-term debt as needed to support
normal operations or other temporary requirements. See Note 5 of
"Notes to Financial Statements" under Item 8 regarding the
Company's line of credit.
On April 9, 1996, the Company sold to the public in an
underwritten offering 880,000 shares of its Common Stock for
approximately $15 million. On December 10, 1996, the Company
sold to the public in an underwritten offering $25 million
aggregate principal amount of its First Mortgage Bonds, 7.20%
Series due 2016. The net proceeds from these sales were added to
the Company's general funds, which were used to repay short-term
indebtedness and for expenses incurred in connection with the
Company's construction program.
The Company currently has effective with the Securities and
Exchange Commission a shelf registration statement under which it
may sell up to $80 million aggregate value of its Common Stock,
Cumulative Preferred Stock, and/or First Mortgage Bonds.
As of December 31, 1997, the Company's ratings for its First
Mortgage Bonds, preferred stock and commercial paper were as
follows:
Phoenix
Duff & Moody's Standard &
Phelps Poor's
First Mortgage Bonds A+ A2 A-
Preferred Stock A a3 BBB+
Commercial Paper D-1 P-1 A-2
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, accounts receivable, 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 will be
completed during 1998. Work is ongoing in other areas of the
Company as well as at third parties with whom it does business to
resolve Year 2000 problems. The cost of this project is not
expected to have a material impact on the Company's financial
position.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this annual report are
"forward-looking statements" intended to qualify for the safe
harbors from liability established by the Private Securities
Litigation Reform Act of 1995. Such statements address future
plans, objectives, expectations and events or conditions
concerning various matters such as capital expenditures,
earnings, competition, litigation, 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;
electric utility restructuring, including ongoing state and
federal activities; future economic conditions; legislation;
regulation; competition; and other circumstances affecting
anticipated rates, revenues and costs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
January 19, 1998
To the Board of Directors and Stockholders of
The Empire District Electric Company
In our opinion, the financial statements listed in the index
appearing under Item 14 on page 41 present fairly, in all
material respects, the financial position of The Empire District
Electric Company at December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years
in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE
St. Louis, Missouri
January 19, 1998
Balance Sheet
December 31,
1997 1996
Assets
Utility plant, at original cost:
Electric $ 795,880,240 $ 714,913,653
Water 5,824,165 5,331,286
Construction work in progress 8,114,680 37,016,435
809,819,085 757,261,374
Accumulated depreciation 262,834,707 242,051,460
546,984,378 515,209,914
Current assets:
Cash and cash equivalents 2,545,282 2,246,136
Accounts receivable - trade, net 13,270,329 12,704,920
Accrued unbilled revenues 6,047,739 6,423,760
Accounts receivable - other 1,552,998 2,874,669
Fuel, materials and supplies 13,215,068 14,435,741
Prepaid expenses 1,001,468 796,413
37,632,884 39,481,639
Deferred charges:
Regulatory assets 37,472,225 37,831,661
Unamortized debt issuance costs 3,374,780 3,633,349
Other 1,000,700 823,177
41,847,705 42,288,187
Total Assets $ 626,464,967 $ 596,979,740
Capitalization and Liabilities
Common stock, $1 par value, 16,776,654
and 16,436,559 shares issued and
outstanding, respectively 16,776,654 16,436,559
Capital in excess of par value 150,784,239 145,313,610
Retained earnings 51,472,897 51,340,554
Total common stockholders' equity 219,033,790 213,090,723
Preferred stock 32,901,800 32,901,800
Long-term debt 196,384,541 219,533,678
448,320,131 465,526,201
Current liabilities:
Accounts payable and accrued 14,862,581 14,607,179
liabilities
Commercial paper 28,000,000 7,500,000
Customer deposits 3,140,621 2,820,896
Interest accrued 3,509,680 3,455,254
Taxes accrued, including income taxes 817,045 449,771
Current maturities of long-term debt 23,000,000 -
73,329,927 28,833,100
Commitments and Contingencies (Note 10)
Noncurrent liabilities and deferred credits:
Regulatory liability 17,540,757 18,648,961
Deferred income taxes 69,344,653 64,992,745
Unamortized investment tax credits 8,971,000 9,561,000
Postretirement benefits other than 4,463,488 4,417,796
pensions
Other 4,495,011 4,999,937
104,814,909 102,620,439
Total Capitalization and
Liabilities $ 626,464,967 $ 596,979,740
The accompanying notes are an integral part of these financial
statements.
Statement of Income
Year ended December 31,
1997 1996 1995
Operating revenues:
Electric $ 214,306,599 $ 204,933,622 $ 191,847,760
Water 1,004,245 1,050,337 990,300
215,310,844 205,983,959 192,838,060
Operating revenue deductions:
Operating expenses:
Fuel 36,110,575 33,574,335 31,925,193
Purchased power 47,132,885 47,393,029 36,116,177
Other 30,646,485 30,046,147 33,201,879
Voluntary early retirement - - 4,583,188
program
113,889,945 111,013,511 105,826,437
Maintenance and repairs 12,843,508 13,672,084 12,785,489
Depreciation and amort. 23,395,291 21,589,511 19,850,699
Provision for income taxes 13,000,000 11,800,000 10,420,000
Other taxes 11,219,730 11,256,486 10,804,852
174,348,474 169,331,592 159,687,477
Operating income 40,962,370 36,652,367 33,150,583
Other income and deductions:
Allowance for equity funds
used during construction 150,524 538,844 1,069,779
Interest income 130,685 158,369 251,492
Other - net (453,127) (344,525) (200,950)
(171,918) 352,688 1,120,321
Income before interest 40,790,452 37,005,055 34,270,904
charges
Interest charges:
Long-term debt 16,593,042 14,881,564 14,858,664
Allowance for borrowed funds
used during construction (1,075,465) (881,485) (1,168,806)
Other 1,479,896 955,769 783,220
16,997,473 14,955,848 14,473,078
Net income 23,792,979 22,049,207 19,797,826
Preferred stock dividend 2,416,340 2,416,340 2,416,340
requirements
Net income applicable to
common stock $ 21,376,639 $ 19,632,867 $ 17,381,486
Weighted average number of
common shares outstanding 16,599,269 16,015,858 14,730,902
Basic and diluted earnings
per weighted average share
common stock $ 1.29 $ 1.23 $ 1.18
Dividends per share of
common stock $ 1.28 $ 1.28 $ 1.28
The accompanying notes are an integral part of these financial
statements.
Statement of Common Stockholders' Equity
Year ended December 31,
1997 1996 1995
Common stock, $1 par value:
Balance, beginning of year $ 16,436,559 $ 15,215,933 $ 13,941,531
Stock issued through:
Public offering 880,000 900,000
Dividend reinvestment and
stock purchase plan 299,134 301,500 273,168
Employee benefit plans 40,961 39,126 101,234
Balance, end of year $ 16,776,654 $ 16,436,559 $ 15,215,933
Capital in excess of par value:
Balance, beginning of year $ 145,313,610 $ 125,690,842 $ 106,055,389
Excess of net proceeds over
par value of stock issued:
Public offering 14,850,000 14,625,000
Stock plans 5,470,404 5,494,007 5,957,370
Expenses related to common
stock issuance (787,580) (788,287)
Installments received on
common stock/stock purchase, net 225 66,341 (158,630)
Balance, end of year $ 150,784,239 $ 145,313,610 $ 125,690,842
Retained earnings:
Balance, beginning of year $ 51,340,554 $ 52,230,584 $ 53,783,342
Net income 23,792,979 22,049,207 19,797,826
75,133,533 74,279,791 73,581,168
Less dividends paid:
8 1/8% preferred stock 2,031,250 2,031,250 2,031,250
5% preferred stock 195,090 195,090 195,090
4 3/4% preferred stock 190,000 190,000 190,000
Common stock 21,244,296 20,522,897 18,934,244
23,660,636 22,939,237 21,350,584
Balance, end of year $ 51,472,897 $ 51,340,554 $ 52,230,584
The accompanying notes are an integral part of these financial
statements.
Statement of Cash Flows
Year ended December 31,
1997 1996 1995
Operating activities
Net income $ 23,792,979 $ 22,049,207 $ 19,797,826
Adjustments to reconcile net
Income to cash flows:
Depreciation and amortization 26,510,851 24,314,157 20,968,734
Pension income (725,198) (1,074,130)
Loss on early retirement program 4,583,188
Deferred income taxes, net 2,800,000 3,760,000 990,000
Investment tax credit, net (590,000) (580,000) (600,000)
Allowance for equity funds
used during construction (150,524) (538,844) (1,069,779)
Issuance of common stock for
401(k) plan 660,162 648,535 680,891
Other 129,259 141,882 142,902
Cash flows impacted by changes in:
Accounts receivable and
accrued unbilled revenues 1,132,283 (1,164,692) (2,265,380)
Fuel, materials and supplies 1,220,673 76,157 (1,541,522)
Prepaid expenses and
deferred charges (1,049,440) (2,077,625) 1,427,622
Accounts payable and
accrued liabilities 255,402 298,682 2,849,254
Customer deposits, interest
and taxes accrued 741,425 (631,954) 1,099
Other liabilities and other
deferred credits 265,966 (149,401) (201,364)
Net cash provided by
operating activities 54,993,838 45,071,974 45,763,471
Investing activities
Construction expenditures (56,673,275) (62,277,486) (50,818,744)
Allowance for equity funds
used during construction 150,524 538,844 1,069,779
Net cash used in
investing activities (56,522,751) (61,738,642) (49,748,965)
The accompanying notes are an integral part of these financial
statements.
Statement of Cash Flows (continued)
Year ended December 31,
1997 1996 1995
Financing activities
Proceeds from issuance of
First mortgage bonds $ - $ 25,000,000 $ 40,000,000
Common stock 5,150,561 20,194,860 20,228,964
Dividends (23,660,636) (22,939,237) (21,350,584)
Repayment of first mortgage bonds (165,000) (187,000) (30,288,000)
Premium paid on extinguished debt (1,500,000)
Net proceeds (repayments)
from short-term borrowings 20,500,000 (6,500,000) (2,000,000)
Payment of debt issue costs 3,134 (472,595) (650,763)
Net cash provided by
financing activities 1,828,059 15,096,028 4,439,617
Net increase (decrease) in
cash and cash equivalents 299,146 (1,570,640) 454,123
Cash and cash equivalents,
beginning of year 2,246,136 3,816,776 3,362,653
Cash and cash equivalents,
end of year $ 2,545,282 $ 2,246,136 $ 3,816,776
Cash and cash equivalents include cash on hand and temporary
investments purchased with an initial maturity of three months or
less. Interest paid was $17,123,000, $14,786,000 and $14,832,000
for the years ended December 31, 1997, 1996 and 1995,
respectively. Income taxes paid were $10,250,000, $9,479,000 and
$10,289,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The accompanying notes are an integral part of these financial
statements.
Notes to Financial Statements
1. Summary of Accounting Policies
The Company is subject to regulations by the Missouri Public
Service Commission (MoPSC), the State Corporation Commission
of the State of Kansas (KCC), the Corporation Commission of
Oklahoma (OCC), the Arkansas Public Service Commission
(APSC) and the Federal Energy Regulatory Commission (FERC).
The accounting policies of the Company are in accordance
with the rate-making practices of the regulatory authorities
and, as such, conform to generally accepted accounting
principles as applied to regulated public utilities. The
Company's electric revenues in 1997 were derived as follows:
residential 41%, commercial 30%, industrial 17%, wholesale
7% and other 5%. Following is a description of the
Company's significant accounting policies:
Property and plant
The costs of additions to property and plant and
replacements for retired property units are capitalized.
Costs include labor, material and an allocation of general
and administrative costs plus an allowance for funds used
during construction. Maintenance expenditures and the
renewal of items not considered units of property are
charged to income as incurred. The cost of units retired is
charged to accumulated depreciation, which is credited with
salvage and charged with removal costs.
Depreciation
Provisions for depreciation are computed at straight-line
rates as approved by regulatory authorities. Such
provisions approximated 3.1%, 3.2% and 3.1% of depreciable
property for 1997, 1996 and 1995, respectively.
Computations of earnings per share
In February 1997, the Financial Accounting Standards Board
issued Statement 128 Earnings Per Share (SFAS 128). The
terms of SFAS 128 are effective for all earnings per share
disclosures subsequent to December 15, 1997 and requires all
prior period earnings per share disclosures be restated to
conform with SFAS 128. SFAS 128 requires a presentation of
both Basic earnings per share and Diluted earnings per
share. Basic earnings per share is computed by dividing net
income by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by
dividing net income by the weighted average number of common
shares outstanding plus the incremental shares that would
have been outstanding under the assumed exercise of dilutive
stock options and their equivalents. The weighted average
number of common shares outstanding used to compute basic
earnings per share for the 1997, 1996, and 1995 periods was
16,599,269, 16,015,858, and 14,730,902, respectively.
Dilutive stock options for the 1997, 1996, and 1995 periods
were 9,844, 7,917, and 8,383, respectively.
Allowance for funds used during construction
As provided in the regulatory Uniform System of Accounts,
utility plant is recorded at original cost, including an
allowance for funds used during construction (AFUDC) when
first placed in service. The AFUDC is a utility industry
accounting practice whereby the cost of borrowed funds and
the cost of equity funds (preferred and common stockholders'
equity) applicable to the Company's construction program are
capitalized as a cost of construction. This accounting
practice offsets the effect on earnings of the cost of
financing current construction, and treats such financing
costs in the same manner as construction charges for labor
and materials.
Notes to Financial Statements
AFUDC does not represent current cash income. Recognition
of this item as a cost of utility plant is in accordance
with regulatory rate practice under which such plant costs
are permitted as a component of rate base and the provision
for depreciation.
In accordance with the methodology prescribed by FERC, the
Company utilized aggregate rates of 6.4% for 1997, 7.5% for
1996 and 8.6% for 1995 (on a before-tax basis) compounded
semiannually.
Income taxes
Deferred tax assets and liabilities are recognized for the
tax consequences of transactions that have been treated
differently for financial reporting and tax return purposes,
measured using statutory tax rates.
Investment tax credits utilized in prior years were deferred
and are being amortized over the useful lives of the
properties to which they relate.
Unamortized debt discount, premium and expense
Discount, premium and expense associated with long-term debt
are amortized over the lives of the related issues. Costs,
including gains and losses, related to refunded long-term
debt are amortized over the lives of the related new debt
issues.
Accrued unbilled revenue
The Company accrues on its books estimated, but unbilled,
revenue and also a liability for the related taxes.
Accumulated provision for uncollectible accounts
The accumulated provision for uncollectible accounts was
$279,000 at December 31, 1997 and $265,000 at December 31,
1996.
Franchise taxes
Franchise taxes are collected for and remitted to their
respective cities. Operating revenues include franchise
taxes of $3,925,441, $3,791,370 and $3,565,396 for each of
the years ended December 31, 1997, 1996 and 1995,
respectively.
Liability insurance
The Company carries excess liability insurance for workers'
compensation and public liability claims. In order to
provide for the cost of losses not covered by insurance, an
allowance for injuries and damages is maintained based on
loss experience of the Company.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported
Notes to Financial Statements
amounts of revenues and expenses during the report period.
Actual amounts could differ from those estimates.
Notes to Financial Statements
Reclassification
Certain prior year amounts have been reclassified to conform
with current year presentation. These reclassifications
have no effect on previously reported net income or
stockholders' equity.
2. Regulatory Matters
During the three years ending December 31, 1997, the
following rate changes were requested or in effect:
Missouri
On August 30, 1996, the Company filed a request with the
Missouri Public Service Commission for a general annual
increase in rates for its Missouri electric customers of
approximately $23,400,000, or 13.8%. A stipulated agreement
was filed by the parties for approximately $13,950,000, and
on July 17, 1997, the Missouri Commission issued an order
approving an annual increase in rates in the amount of
approximately $10,600,000, or 6.43% effective July 28, 1997.
The amount did not include the Company's investment in Unit
No. 2 at the Company's State Line Plant because the
Commission deemed that Unit No. 2 did not meet all the
specified in-service criteria. On July 25, 1997, the
Company filed an Application for Rehearing regarding the
status of Unit No. 2, seeking to recover the remaining
$3,350,000 of the stipulated agreement. On September 11,
1997, the Missouri Commission issued an order approving an
additional annual increase in rates in the amount of
$3,000,000, or 1.7% effective September 19, 1997, making the
total increase in annual revenue from this proceeding
approximately $13,600,000, or 8.25%.
Effective November 15, 1995, the MoPSC approved a stipulated
agreement which authorized the Company to file revised rate
schedules designed to produce an increase in overall
Missouri jurisdictional gross annual electric revenues in
the amount of $1,400,000, or 0.9%. The Company's original
request, filed March 17, 1995, was for an increase of
$8,543,910 or 5.3%.
FERC
In July 1996, the Company filed with the FERC an open access
non-discriminatory transmission tariff (open access tariff)
in compliance with FERC Order 888 issued in April 1996. In
January 1997, the FERC staff and intervenors reached a
settlement in principal to base rates on traditional cost of
service methodology. After extensive review by the FERC and
discussion with all parties involved, an agreement was
reached and approved by the FERC on August 1, 1997 with
rates made effective July 9, 1996. For certain customers
who intervened in the proceedings, the tariff will not be
applicable until June 1999. The Company cannot predict the
effect of the tariff on current operations.
In conjunction with Order 888, the FERC issued a companion
order, Order 889. Order 889 requests that jurisdictional
Notes to Financial Statements
utilities implement standards of conduct to functionally
separate their transmission and wholesale power merchant
functions. In December 1996, the Company filed with the
FERC a request for a waiver of these standards of conduct,
and on May 29, 1997, the Company's request for waiver was
granted.
Effects of Regulation
In accordance with Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS 71), the Company's
financial statements reflect ratemaking policies prescribed
by the regulatory commissions having jurisdiction over the
Company (the MoPSC, the KCC, the OCC, the APSC and the
FERC).
Certain expenses and credits, normally reflected in income
as incurred, are recognized when included in rates and
recovered from or refunded to customers. As such, the
Company has recorded the following regulatory assets which
are expected to result in future revenues as these costs are
recovered through the ratemaking process. Historically, all
costs of this nature which are determined by the Company's
regulators to have been prudently incurred have been
recoverable through rates in the course of normal ratemaking
procedures and the Company believes that the items detailed
below will be afforded similar treatment.
The Company recorded the following regulatory assets and
regulatory liability:
December 31,
1997 1996
Regulatory Assets
Income taxes $ 24,781,882 $ 24,338,178
Unamortized loss on reacquired 9,912,255 10,508,543
debt
Asbury five year maintenance 2,157,493 2,207,001
Other postretirement benefits 467,062 470,857
Deferred 1993 flood losses 74,837 149,690
Incremental purchased power - 78,696 157,392
1993 flood
Total Regulatory Assets $ 37,472,225 $ 37,831,661
Regulatory Liability
Income Taxes $ 17,540,757 $ 18,648,961
The Company continually assesses the recoverability of its
regulatory assets. Under current accounting standards,
regulatory assets are eliminated through a charge to
earnings if and when it is no longer probable that such
amounts will be recovered through future revenues.
On May 23, 1997, the Missouri Public Service Commission
appointed a Retail Electric Competition Task Force (the Task
Force) to prepare reports making recommendations as to how
Missouri should implement retail electric competition in the
event that legislation is enacted that authorizes it. The
Task Force has not yet made any recommendations; however,
there can be no assurance that legislation deregulating the
retail electric industry in Missouri and/or other states in
Notes to Financial Statements
which the Company operates will not be passed in the future.
In the event such legislation is passed, the Company may
determine that it no longer meets the criteria set forth in
SFAS 71 with respect to some or all of the regulatory assets
and liabilities. Any regulatory changes that would require
the Company to discontinue SFAS 71 based upon competitive or
other events may impact the valuation of the Company's net
regulatory assets and certain utility plant investments and
require write-offs which could have a material adverse
effect on the Company's financial condition and results of
operations, depending on how the treatment of regulatory
assets and liabilities are considered for recovery by the
regulators.
3. Common Stock
On April 9, 1996, the Company issued and sold 880,000 shares
of its common stock to the public with aggregate proceeds,
net of expenses and fees, of $15,044,000. The proceeds from
the offering were used to repay short-term indebtedness or
for expenses incurred in connection with the Company's
construction program.
On April 27, 1995, the Company issued and sold 900,000
shares of its common stock to the public with aggregate
proceeds, net of expenses and fees, of $14,850,000. The
proceeds from the offering were used to repay short-term
indebtedness or for expenses incurred in connection with the
Company's construction program.
The Company's Dividend Reinvestment and Stock Purchase Plan
(the Reinvestment Plan) allows common and preferred
stockholders to reinvest dividends paid by the Company into
newly issued shares of the Company's common stock at 95% of
the market price average. Stockholders may also purchase,
for cash and within specified limits, additional stock at
100% of the market price average. The Company may elect to
make shares purchased in the open market rather than newly
issued shares available for purchase under the Reinvestment
Plan. If the Company so elects, the purchase price to be
paid by Reinvestment Plan participants will be 100% of the
cost to the Company of such shares. Participants in the
Reinvestment Plan do not pay commissions or service charges
in connection with purchases under the Reinvestment Plan.
The Company's Employee Stock Purchase Plan, which terminates
on May 31, 2000, permits the grant to eligible employees of
options to purchase common stock at 90% of the lower of
market value at date of grant or at date of exercise.
Contingent employee stock purchase subscriptions outstanding
and the maximum prices per share were 58,972 shares at
$15.53, 54,706 shares at $16.31 and 55,674 shares at $15.42
at December 31, 1997, 1996 and 1995, respectively. Shares
were issued at $15.64 per share in 1997, $15.42 per share in
1996 and $15.30 per share in 1995.
Notes to Financial Statements
The Company's 1986 Stock Incentive Plan (the 1986 Incentive
Plan) provided for the grant of shares of common stock
through January 22, 1996. At the Company's annual meeting
in April 1996, the Company's stockholders approved the 1996
Stock Incentive Plan (the 1996 Incentive Plan), the terms of
which are substantially the same as the 1986 Incentive Plan.
The 1996 Incentive Plan provides for the grant of up to
650,000 shares of common stock through January 2006. Awards
made prior to 1996 were made under the 1986 Incentive Plan;
awards made on or after January 1, 1996 are made under the
1996 Incentive Plan. The terms and conditions of any option
or stock grant are determined by the Board of Directors'
Compensation Committee, within the provisions of the
applicable Incentive Plan. The Plan permits grants of stock
options and restricted stock to qualified employees and
permits Directors to receive common stock in lieu of cash
compensation for service as a Director.
During January 1997, 1996 and 1995, grants for 1,414, 2,289
and 1,575, respectively, of restricted stock were made to
qualified employees under either the 1986 Incentive Plan or
the 1996 Incentive Plan. For grants made to date, the
restrictions typically lapse and the shares are issuable to
employees who continue service with the Company three years
from the date of grant. For employees whose service is
terminated by death, retirement, disability, or under
certain circumstances following a change in control of the
Company prior to the restrictions lapsing, the shares are
issuable immediately. For other terminations, the grant is
forfeited. During 1997, 1996 and 1995, 1,838, 3,033 and
4,387 shares, respectively, were issued under either the
1986 Incentive Plan or the 1996 Incentive Plan. No options
have been granted under either Incentive Plan. In 1996, the
Company adopted the disclosure-only method under SFAS 123,
Accounting for Stock-Based Compensation. If the fair value
based accounting method under this statement had been used
to account for stock-based compensation costs, the effect on
1996 and 1995 net income and earnings per share would have
been immaterial.
The Company's Employee 401(k) Retirement Plan (the 401(k)
Plan) allows participating employees to defer up to 15% of
their annual compensation up to a specified limit. The
Company matches 50% of each employee's deferrals by
contributing shares of the Company's common stock, such
matching contributions not to exceed 3% of the employee's
annual compensation. The Company contributed 36,978, 36,093
and 39,548 shares of common stock in 1997, 1996 and 1995,
respectively, valued at market prices on the dates of
contributions. The stock issuances to effect the
contributions were not cash transactions and are not
reflected as a source of cash in the Statement of Cash
Flows.
At December 31, 1997, 1,844,704 shares remain available for
issuance under the foregoing plans.
Notes to Financial Statements
4. Preferred Stock
The Company has 5,000,000 shares of $10.00 par value
cumulative preferred stock authorized. At December 31, 1997
and 1996, these shares were designated as follows:
Shares
1997 1996
Series without mandatory
redemption provisions 3,300,000 3,300,000
Undesignated 1,700,000 1,700,000
In the event of involuntary liquidation, holders of all
outstanding series of preferred stock will be entitled to be
paid the $10.00 par value of their shares plus accumulated
and unpaid dividends before any distribution of assets to
holders of common stock.
The Company also has 2,500,000 shares of preference stock
authorized, including 500,000 shares of Series A
Participating Preference Stock, none of which have been
issued.
Preferred stock without mandatory redemption provisions
Preferred stock without mandatory redemption provisions
issued and outstanding at December 31, 1997 and 1996 is as
follows:
Shares
1997 1996
5% cumulative (400,000 shares authorized) 390,180 390,180
4:% cumulative (400,000 shares authorized) 400,000 400,000
8 1/8% cumulative (2,500,000 shares authorized) 2,500,000 2,500,000
3,290,180 3,290,180
In the event of voluntary liquidation or redemption of the
5% and 4 3/4% series of cumulative preferred stock, holders
will be entitled to the following amounts per share plus
accumulated and unpaid dividends: 5% cumulative - $10.50
(aggregate amount $4,096,890); and 4 3/4% cumulative -
$10.20 (aggregate amount $4,080,000).
Preference Stock Purchase Rights
The Company had 8,388,327 and 8,218,280 Preference Stock
Purchase Rights (Rights) outstanding at December 31, 1997
and 1996, respectively. Each Right enables the holder to
acquire one one-hundredth of a share of Series A
Participating Preference Stock (or, under certain
Notes to Financial Statements
circumstances, other securities) at a price of $75 per one
one-hundredth share, subject to adjustment. Each share of
common stock currently has one-half of one Right. The
Rights (other than those held by an acquiring person or
group (Acquiring Person)), which expire July 25, 2000, will
be exercisable only if an Acquiring Person acquires 10% or
more of the Company's common stock or announces an intention
to make a tender offer or exchange offer which would result
in the Acquiring Person owning 10% or more of the common
stock. The Rights may be redeemed by the Company in whole,
but not in part, for $0.01 per Right, prior to 10 days after
the first public announcement of the acquisition of 10% or
more of the Company's common stock by an Acquiring Person.
In addition, upon the occurrence of a merger or other
business combination, or an event of the type described in
the preceding paragraph, holders of the Rights, other than
an Acquiring Person, will be entitled, upon exercise of a
Right, to receive either common stock of the Company or
common stock of the Acquiring Person having a value equal to
two times the exercise price of the Right. Any time after
an Acquiring Person acquires 10% or more (but less than 50%)
of the Company's outstanding common stock, the Board of
Directors may, at its option, exchange part or all of the
Rights (other than Rights held by the Acquiring Person) for
common stock of the Company on a one-for-two basis.
Notes to Financial Statements
5. Long-term Debt
The principal amount of all series of first mortgage bonds
outstanding at any one time is limited by terms of the
mortgage to $1,000,000,000. Substantially all property,
plant and equipment is subject to the lien of the mortgage.
At December 31, the long-term debt outstanding was as
follows:
1997 1996
First mortgage bonds:
5.70% Series due 1998 $ 23,000,000 $ 23,000,000
7/% Series due 2002 37,500,000 37,500,000
7.60% Series due 2005 10,000,000 10,000,000
8 1/8% Series due 2009 (1) 20,000,000 20,000,000
7.20% Series due 2016 25,000,000 25,000,000
9/% Series due 2020 2,250,000 2,250,000
7% Series due 2023 45,000,000 45,000,000
7/% Series due 2025 30,000,000 30,000,000
7/% Series due 2028 13,726,000 13,891,000
5.3% Pollution Control Series due 2013 8,000,000 8,000,000
5.2% Pollution Control Series due 2013 5,200,000 5,200,000
219,676,000 219,841,000
Less current maturities (23,000,000)
Less unamortized net discount (291,459) (307,322)
$ 196,384,541 $ 219,533,678
(1) Holders of this series have the right to
require the Company to repurchase all or any
portion of the bonds at a price of 100% of
the principal amount plus accrued interest,
if any, on November 1, 2001.
The carrying amount of the Company's long-term debt was
$219,676,000 and $219,841,000 at December 31, 1997 and 1996,
respectively, and its fair market value was estimated to be
approximately $226,115,000 and $215,664,000, respectively.
This estimate was based on the quoted market prices for the
same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturation. The
estimated fair market value may not represent the actual
value that could have been realized as of year-end or that
will be realizable in the future.
Notes to Financial Statements
At December 31, 1997, the Company had a $30,000,000
unsecured line of credit. Borrowings are at the bank's
prime commercial rate and are due 370 days from the date of
each loan. In connection with the Company's line of credit,
there is an informal compensating balance arrangement under
which the Company maintains deposits averaging 5% of the
line of credit. This arrangement does not serve to legally
restrict the use of the Company's cash. The line of credit
is also utilized to support the Company's issuance of
commercial paper although it is not assigned specifically to
such support. There were no outstanding borrowings under
this agreement at December 31, 1997 or 1996.
On December 10, 1996, the Company sold to the public in an
underwritten offering $25,000,000 aggregate principal amount
of its First Mortgage Bonds, 7.20% Series due 2016, the
proceeds of which were added to the Company's general funds
and used to repay short-term indebtedness or for expenses
incurred in connection with the Company's construction
program.
On April 27, 1995, the Company sold to the public in an
underwritten offering $10,000,000 aggregate principal amount
of its First Mortgage Bonds, 7.60% Series due 2005, the
proceeds of which were added to the Company's general funds
and used to repay short-term indebtedness or for expenses
incurred in connection with the Company's construction
program.
On June 7, 1995, the Company sold to the public in an
underwritten offering $30,000,000 aggregate principal amount
of its First Mortgage Bonds, 7 3/4% Series due 2025, the
proceeds of which were added to the Company's general funds
and used to redeem on July 3, 1995, its First Mortgage
Bonds, 9% Series due 2019.
6. Short-term Borrowings
Short-term commercial paper outstanding and notes payable
averaged $19,586,000 and $12,030,000 daily during 1997 and
1996, respectively, with the highest month-end balances
being $34,000,000 and $22,500,000, respectively. The
weighted daily average interest rates during 1997, 1996 and
1995 were 5.9%, 5.6% and 6.2%, respectively. The weighted
average interest rates of borrowings outstanding at December
31, 1997, 1996 and 1995 were 6.1%, 5.8% and 6.1%,
respectively.
7. Retirement Benefits
Pensions
The Company's noncontributory defined benefit pension plan
includes all employees meeting minimum age and service
requirements. The benefits are based on years of service
and the employee's average annual basic earnings. Annual
contributions to the plan are at least equal to the minimum
funding requirements of ERISA. Plan assets consist of
Notes to Financial Statements
common stocks, United States government obligations, federal
agency bonds, corporate bonds and commingled trust funds.
Net pension cost for 1997, 1996 and 1995 is comprised of the
following components:
1997 1996 1995
Service cost - benefits earned
during the period $ 2,095,442 $ 1,987,057 $ 1,540,289
Interest cost on projected
benefit obligation 4,956,356 4,695,105 4,194,328
Actual return on plan assets (6,169,097) (6,009,653) (15,735,342)
Net amortization and deferral (1,607,900) (1,746,639) 9,748,753
Other - - -
Net pension benefit $ (725,199) $(1,074,130) $ (251,972)
Assumptions used in calculating the projected benefit
obligation for 1997 and 1996 include the following:
1997 1996
Weighted average discount rate 6.75% 7.50%
Rate of increase in compensation 5.50% 5.50%
levels
Expected long-term rate of return 9.00% 9.00%
on plan assets
The following table sets forth the plan's funded status at
December 31, 1997 and 1996:
1997 1996
Actuarial present value of benefit obligations:
Vested benefits $ 55,554,448 $ 50,653,837
Nonvested benefits 1,727,777 81,591
Accumulated benefit obligation 57,282,225 50,735,428
Effect of projected future 21,077,872 16,073,230
compensation levels
Projected benefit obligation for
service rendered to date 78,360,097 66,808,658
Plan assets at fair value 82,106,242 70,970,880
Plan assets in excess of projected
benefit obligation 3,746,145 4,162,222
Unrecognized net assets at January1, 1986
being amortized over 17 years (2,455,778) (2,946,933)
Unrecognized prior service cost 3,964,146 4,645,253
Unrecognized net gain (8,058,243) (9,389,471)
Accrued pension cost $ (2,803,730) $ (3,528,929)
Other Postretirement Benefits
The Company provides certain healthcare and life insurance
benefits to eligible retired employees, their dependents and
Notes to Financial Statements
survivors. Participants generally become eligible for
retiree healthcare benefits after reaching age 55 with 5
years of service.
Effective January 1, 1993, the Company adopted SFAS 106,
which requires recognition of these benefits on an accrual
basis during the active service period of the employees.
The Company elected to amortize its transition obligation
(approximately $21.7 million) related to SFAS 106 over a
twenty year period. Prior to adoption of SFAS 106, the
Company recognized the cost of such postretirement benefits
on a pay-as-you-go (i.e., cash) basis. The states of
Missouri, Kansas and Oklahoma authorize the recovery of SFAS
106 costs through rates. The Company is deferring SFAS 106
costs relating to the Arkansas jurisdictions as management
believes that such amounts are probable of recovery. At
December 31, 1997, $12,777 of costs were deferred for future
recovery.
In accordance with the above rate orders, the Company
established two separate trusts in 1994, one for those
retirees who were subject to a collectively bargained
agreement and the other for all other retirees, to fund
retiree healthcare and life insurance benefits. The
Company's funding policy is to contribute annually an amount
at least equal to the revenues collected for the amount of
postretirement benefits costs allowed in rates. Assets in
these trusts amounted to approximately $5,700,000 at
December 31, 1997 and $4,900,000 at December 31, 1996.
Postretirement benefits, a portion of which have been
capitalized and/or deferred, for 1997, 1996 and 1995
included the following components:
1997 1996 1995
Service cost on benefits earned
during the year $ 434,397 $ 472,943 $ 478,214
Interest cost on projected
benefit obligation 1,559,110 1,679,461 1,830,602
Return on assets (290,079) (142,462) (41,425)
Amortization of unrecognized
transition obligation 1,084,017 1,084,017 1,084,017
Unrecognized net (gain)/lo ss (1,111,795) (486,691) (307,308)
Other (92,890) - (46,163)
Net periodic postretirement
benefit cost $ 1,582,760 $ 2,607,268 $ 2,997,937
The estimated funded status of the Company's obligations
under SFAS 106 at December 31, 1997 and 1996 using a
weighted average discount rate of 6.75% and 72% ,
respectively, is as follows:
1997 1996
Accumulated postretirement benefit obligation:
Retirees $ 12,832,722 $ 12,261,106
Other fully eligible plan participants 3,487,299 2,928,656
Other active plan participants 7,658,219 5,660,940
Total benefit obligation 23,978,240 20,850,702
Plan assets at fair value 5,691,142 4,829,610
Accumulated postretirement obligation in
excess of plan assets (18,287,098) (16,021,092)
Unrecognized transition obligation 16,260,242 17,344,259
Unrecognized net gain (2,323,675) (5,648,973)
Accrued postretirement benefit cost $ (4,350,531) $ (4,325,806)
Notes to Financial Statements
The assumed 1998 cost trend rate used to measure the
expected cost of healthcare benefits is 7.5%. The trend
rate decreases through 2026 to an ultimate rate of 6% for
2027 and subsequent years. The effect of a 1% increase in
each future year's assumed healthcare cost trend rate would
increase the current service and interest cost from $1.9
million to $2.6 million and the accumulated postretirement
benefit obligation from $24.0 million to $30.7 million.
8. Income Taxes
The provision for income taxes is different from the amount
of income tax determined by applying the statutory income
tax rate to income before income taxes as a result of the
following differences:
1997 1996 1995
Computed "expected"
federal provision $ 12,825,000 $ 11,810,000 $ 10,650,000
State taxes, net of
federal effect 930,000 1,100,000 1,077,000
Adjustment to taxes resulting from:
Investment tax credit
amortization (590,000) (580,000) (600,000)
Other (315,000) (630,000) (497,000)
Actual provision $ 12,850,000 $ 11,700,000 $ 10,630,000
Income tax expense components for the years shown are as
follows:
1997 1996 1995
Taxes currently payable
Included in operating revenue deductions:
Federal $ 9,830,000 $ 7,500,000 $ 8,790,000
State 960,000 1,120,000 1,240,000
Included in "other - net" (150,000) (100,000) 210,000
Deferred taxes
Depreciation and
amortization differences 3,210,000 3,283,000 2,670,000
Loss on reacquired debt (227,000) (249,000) 819,000
Postretirement benefits 159,000 251,000 (75,000)
Voluntary early
retirement program - - (1,675,000)
Other (542,000) (344,000) (749,000)
Asbury five year maintenance 200,000 819,000 -
Deferred investment tax
credits, net (590,000) (580,000) (600,000)
Total income tax expense $ 12,850,000 $ 11,700,000 $ 10,630,000
Under SFAS 109, temporary differences gave rise to deferred
tax assets and deferred tax liabilities at year end 1997 and
1996 as follows:
Balances as of
December 31,
1997 1996
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
Noncurrent
Depreciation and other
property related $ 11,877,84 $ 85,111,843 $ 12,680,128 $ 81,457,659
Unamortized investment
tax credits 5,639,749 - 6,379,317 -
Miscellaneous book/tax
recognition differences 4,557,129 6,307,532 3,928,687 6,523,218
Total deferred taxes $22,074,722 $ 91,419,375 $ 22,988,132 $ 87,980,877
9. Iatan Plant
The Company owns a 12% undivided interest in a coal-fired
670 megawatt generating unit near Weston, Missouri. The
Company is entitled to 12% of the available capacity and is
obligated for that percentage of costs which are included in
corresponding operating expense classifications in the
Notes to Financial Statements
Statement of Income. At December 31, 1997 and 1996, the
Company's property, plant and equipment accounts include the
cost of its ownership interest in the unit of $44,489,000
and $44,281,000, respectively, and accumulated depreciation
of $25,418,000 and $23,749,000, respectively.
10. Commitments and Contingencies
The Company's 1998 construction budget is $35,611,000. The
Company's three-year construction program for 1998 through
2000 is estimated to be approximately $106,234,000.
The Company has entered into long-term agreements to
purchase capacity and energy, to obtain supplies of coal and
to provide natural gas transportation. Under such
contracts, the Company incurred purchased power and fuel
costs of approximately $55,000,000, $52,000,000 and
$52,000,000 in 1997, 1996 and 1995, respectively. Certain
of these contracts provide for minimum and maximum annual
amounts to be purchased and further provide, in part, for
cash settlements to be made when minimum amounts are not
purchased. In the event that no purchases of coal, energy
and transportation services are made, an event considered
unlikely by management, minimum annual cash settlements
would approximate $29,000,000 in 1998, $31,000,000 in 1999,
$33,000,000 in 2000 and $31,000,000 in 2001 and reducing to
lesser amounts thereafter through 2012.
Notes to Financial Statements
11. Voluntary early retirement program
During 1995, the Company offered qualifying employees an
enhanced voluntary early retirement program. Of the 52
eligible employees, 49 accepted the program. This program
included enhanced pension benefits as well as postemployment
medical and life insurance benefits. As a result of the
postemployment benefits provided in connection with the
enhanced voluntary early retirement program, the Company
incurred $4,583,000 in certain one-time costs computed in
accordance with SFAS No. 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits and SFAS No. 106.
12. Selected Quarterly Information (Unaudited)
A summary of operations for the quarterly periods of 1997
and 1996 is as follows:
Quarters
First Second Third Fourth
(dollars in thousands except per share amounts)
1997:
Operating revenues $ 47,305 $ 45,980 $ 68,636 $ 53,390
Operating income 7,073 6,692 17,375 9,822
Net income 3,125 2,649 12,692 5,327
Net income applicable
to common stock 2,521 2,045 12,088 4,723
Basic and diluted earnings per
average share of common stock $ .15 $ .12 $ .73 $ .28
Quarters
First Second Third Fourth
(dollars in thousands except per share amounts)
1996:
Operating revenues $ 47,640 $ 47,606 $ 62,736 $ 48,001
Operating income 7,385 6,383 14,724 8,161
Net income 3,647 2,851 11,109 4,442
Net income applicable
to common stock 3,043 2,247 10,505 3,838
Basic and diluted earnings per
average share of common stock$ .20 $ .14 $ .64 $ .23
The sum of the quarterly earnings per average share of
common stock may not equal the earnings per average share of
common stock as computed on an annual basis due to rounding.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to directors
and directorships and with respect to Section 16(a) Beneficial
Ownership Reporting Compliance may be found in the Company's proxy
statement for its Annual Meeting of Stockholders to be held April 23,
1998, which is incorporated herein by reference.
Pursuant to instruction 3 of paragraph (b) of Item 401 of
Regulation S-K, the information required by this Item with respect to
executive officers is set forth in Item 1 of Part I of this Form 10-K
under "Executive Officers and Other Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation may be found in the
Company's proxy statement for its Annual Meeting of Stockholders to be
held April 23, 1998, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding the number of shares of the Company's
equity securities beneficially owned by persons who own beneficially
more than 5% of the Company's voting securities, by the directors and
certain executive officers of the Company and by the directors and
executive officers as a group may be found in the Company's proxy
statement for its Annual Meeting of Stockholders to be held April 23,
1998, which is incorporated herein by reference. There are no
arrangements the operation of which may at a subsequent date result in
a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item with respect to certain
relationships and related transactions may be found in the Company's
proxy statement for its Annual Meeting of Stockholders to be held
April 23, 1998, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
Index to Financial Statements and Financial Statement Schedule Covered
by Report of Independent Auditors
Balance sheets at December 31, 1997 and 1996 .................... 21
Statements of income for each of the three years in the period
ended December 31, 1997 ......................................... 22
Statements of common stockholders' equity for each of the three
years in the period ended December 31, 1997...................... 23
Statements of cash flows for each of the three years in the
period ended December 31, 1997 .................................. 24
Notes to financial statements ................................... 25
Schedule for the years ended December 31, 1997, 1996 and 1995:
Schedule II - Valuation and qualifying accounts ................ 40
All other schedules are omitted as the required information is either
not present, is not present in sufficient amounts, or the information
required therein is included in the financial statements or notes
thereto.
List of Exhibits
(3) (a) -The Restated Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 4(a) to Form S-3,
File No. 33-54539).
(b) -By-laws of Company as amended January 23, 1992 (Incorporated
by reference to Exhibit 3(f) to Annual Report Form 10-K for
year ended December 31, 1991, File No. 1-3368).
(4) (a) -Indenture of Mortgage and Deed of Trust dated as of
September 1, 1944 and First Supplemental Indenture thereto
(Incorporated by reference to Exhibits B(1) and B(2) to
Form 10, File No. 1-3368).
(b) -Third Supplemental Indenture to Indenture of Mortgage and
Deed of Trust (Incorporated by reference to Exhibit 2(c) to
Form S-7, File No. 2-59924).
(c) -Sixth through Eighth Supplemental Indentures to Indenture of
Mortgage and Deed of Trust (Incorporated by reference to
Exhibit 2(c) to Form S-7, File No. 2-59924).
(d) -Fourteenth Supplemental Indenture to Indenture of Mortgage
and Deed of Trust (Incorporated by reference to Exhibit
4(f) to Form S-3, File No. 33-56635).
(f) -Seventeenth Supplemental Indenture dated as of December 1,
1990 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4(j) to Annual Report
on Form 10-K for year ended December 31, 1990, File No. 1-
3368).
(g) -Eighteenth Supplemental Indenture dated as of July 1, 1992
to Indenture of Mortgage and Deed of Trust (Incorporated by
reference to Exhibit 4 to Form 10-Q for quarter ended June
30, 1992, File No. 1-3368).
(h) -Nineteenth Supplemental Indenture dated as of May 1, 1993 to
Indenture of Mortgage and Deed of Trust (Incorporated by
reference to Exhibit (l) to Form S-3, File No. 33-66748).
(i) -Twentieth Supplemental Indenture dated as of June 1, 1993 to
Indenture of Mortgage and Deed of Trust (Incorporated by
reference to Exhibit (m) to Form S-3, File No. 33-66748).
(j) -Twenty-First Supplemental Indenture dated as of October 1,
1993 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4 to Form 10-Q for
quarter ended September 30, 1993, File No. 1-3368).
(k) -Twenty-Second Supplemental Indenture dated as of November 1,
1993 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4(k) to Annual Report
on Form 10-K for year ended December 31, 1993, File No. 1-
3368).
(l) -Twenty-Third Supplemental Indenture dated as of November 1,
1993 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4(l) to Annual Report
on Form 10-K for year ended December 31, 1993, File No. 1-
3368).
(m) -Twenty-Fourth Supplemental Indenture dated as of March 1,
1994 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4(m) to Annual Report
on Form 10-K for year ended December 31, 1993, File No. 1-
3368).
(n) -Twenty-Fifth Supplemental Indenture dated as of November 1,
1994 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4(p) to Form S-3,
File No. 33-56635).
(o) -Twenty-Sixth Supplemental Indenture dated as of April 1,
1995 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4 to Form 10-Q for
quarter ended March 31, 1995, File No. 1-3368).
(p) -Twenty-Seventh Supplemental Indenture dated as of June 1,
1995 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4 to Form 10-Q for
quarter ended June 30, 1995, File No. 1-3368).
(q) -Twenty-Eighth Supplemental Indenture dated as of December 1,
1996 to Indenture of Mortgage and Deed of Trust
(Incorporated by reference to Exhibit 4 to Annual Report on
Form 10-K for year ended December 31, 1996, File No. 1-
3368).
(r) -Rights Agreement dated July 26, 1990 (Incorporated by
reference to Exhibit 4(a) to Form 8-K, dated July 26, 1990,
File No. 1-3368).
(s) -Amendment to Rights Agreement dated July 26, 1990 between
the Company and Chemical Bank (successor to Manufacturers
Hanover Trust Company), as Rights Agent (Incorporated by
reference to Exhibit 4 to Form 10-Q for quarter ended
September 30, 1991, File No. 1-3368).
(10) (a) -1986 Stock Incentive Plan as amended July 23, 1992
(Incorporated by reference to Exhibit 10 to Form 10-Q for
quarter ended June 30, 1992, File No. 1-3368). **
(b) -1996 Stock Incentive Plan (Incorporated by reference to
Exhibit 4.1 to Form S-8, File No. 33-64639).**
(c) -Management Incentive Plan (A description of this Plan is
incorporated by reference to page 5 of the Company's Proxy
Statement for its Annual Meeting of Stockholders held April
27, 1989). **
(d) -Deferred Compensation Plan for Directors (Incorporated by
reference to Exhibit 10(d) to Annual Report on Form 10-K
for year ended December 31, 1990, File No. 1-3368). **
(e) -The Empire District Electric Company Change in Control
Severance Pay Plan and Forms of Agreement (Incorporated by
reference to Exhibit 10 to Form 10-Q for quarter ended
September 30, 1991, File No. 1-3368). **
(f) -Amendment to The Empire District Electric Company Change in
Control Severance Pay Plan and revised Forms of Agreement
(Incorporated by reference to Exhibit 10 to Form 10-Q for
quarter ended June 30, 1996, File No. 1-3368). **
(g) -The Empire District Electric Company Supplemental Executive
Retirement Plan. (Incorporated by reference to Exhibit
10(e) to Annual Report on Form 10-K for year ended December
31, 1994, File No. 1-3368). **
(12) -Computation of Ratios of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and Preferred Stock
Dividend Requirements.*
(23) -Consent of Price Waterhouse.*
(24) -Powers of Attorney.*
(27) -Financial Data Schedule for December 31, 1997.
**This exhibit is a compensatory plan or arrangement as contemplated by
Item 14(a)(3) of Form 10-K.
*Filed herewith.
Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
1997.
SCHEDULE II
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
Balance Additions Deductions from Balance
at Charged to Other reserve at
beginning Charged Accounts close of
of period to income Description Amount Description Amount period
Year ended
December 31, 1997:
Reserve deducted
from assets:
Accumulated provision Recovery of Accounts
for uncollectible amounts previously written
accounts $ 265,390 $ 486,000 written off $ 332,632 off $ 805,281 $ 278,741
Reserve not shown separately
in balance sheet: Property, plant &
Injuries and equipment and Claims and
damages reserve clearing expenses
(Note A) $1,300,917 $ 484,541 accounts $ 472,107 $ 945,570 $1,311,995
Year ended December 31, 1996:
Reserve deducted from assets: Recovery of
Accumulated provision amounts Accounts
for uncollectible previously written
accounts $ 257,861 $ 558,458 written off $ 459,159 off $1,010,088 $ 265,390
Reserve not shown separately
in balance sheet: Property,plant &
Injuries and damages equipment Claims
reserve and clearing and
(Note A) $1,263,050 $ 508,280 accounts $ 446,212 expenses $ 916,625 $1,300,917
Year ended December 31, 1995:
Reserve deducted from assets:
Accumulated provision Recovery of Accounts
for uncollectible amounts previously written
accounts $ 248,452 $ 409,600 written off $ 267,528 off $ 667,719 $ 257,861
Reserve not shown separately
in balance sheet: Property, plant &
Injuries and damages equipment and Claims
reserve clearing and
(Note A) $1,068,607 $ 640,941 accounts $ 627,970 expenses $1,074,468 $1,263,050
NOTE A: This reserve is provided for workers' compensation, certain
postemployment benefits and public liability damages. The Company at
December 31, 1997 carried insurance for workers' compensation claims
in excess of $250,000 and for public liability claims in excess of
$300,000. The injuries and damages reserve is included on the Balance
Sheet in the section "Noncurrent liabilities and deferred credits" in
the category "Other".
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
M. W. MCKINNEY
-------------------------
M. W. McKinney, President
Date: March 16, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
M.W. McKinney
-------------------------------------- Date
M. W. McKinney, President and Director
(Principal Executive Officer)
R.B. Fancher
-------------------------------------
R. B. Fancher, Vice President-Finance
(Principal Financial Officer)
G.A. Knapp
-------------------------------------
G. A. Knapp, Controller and Assistant Treasurer
(Principal Accounting Officer)
V.E. Brill
-------------------------------------
V. E. Brill, Vice President-Energy Supply and Director
M.F. Chubb, Jr.
-------------------------
M. F. Chubb, Jr., Director
R.D. Hammons
-----------------------
R. D. Hammons, Director
R.C. Hartley
----------------------- March 16, 1998
R. C. Hartley, Director
J.R. Herschend
------------------------
J. R. Herschend, Director
F.E. Jeffries
------------------------
F. E. Jeffries, Director
R.E. Mayes
---------------------
R. E. Mayes, Director
R.L. Lamb
--------------------
R. L. Lamb, Director
M.M. Posner
----------------------
M. M. Posner, Director
R.B. Fancher
-----------------------
(R. B. Fancher, As attorney in fact for
each of the persons indicated)