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| EDE > SEC Filings for EDE > Form 10-Q on 7-May-2012 | All Recent SEC Filings |
7-May-2012
Quarterly Report
EXECUTIVE SUMMARY
We operate our businesses as three segments: electric, gas and other. The Empire District Electric Company (EDE) is an operating public utility engaged in the generation, purchase, transmission, distribution and sale of electricity in parts of Missouri, Kansas, Oklahoma and Arkansas. As part of our electric segment, we also provide water service to three towns in Missouri. The Empire District Gas Company (EDG) is our wholly owned subsidiary. It provides natural gas distribution to customers in 45 communities in northwest, north central and west central Missouri. Our other segment consists of our fiber optics business.
During the twelve months ended March 31, 2012, our gross operating revenues were derived as follows:
Electric segment sales* 91.5 % Gas segment sales 7.3 Other segment sales 1.2 |
Earnings
During the first quarter of 2012, basic and diluted earnings per weighted average share of common stock were $0.23 on net income of $9.8 million, as compared to $0.29 on net income of $11.9 million in the first quarter of 2011. For the twelve months ended March 31, 2012, basic and diluted earnings per weighted average share of common stock were $1.26 on net income of $52.9 million as compared to $1.23 on net income of $50.7 million for the twelve months ended March 31, 2011.
Weather was the primary driver for the quarter with the warmest temperatures on record. This negatively impacted both electric and gas margins. We define electric gross margins as electric revenues less fuel and purchased power costs. We define gas gross margins as gas operating revenues less cost of gas in rates. The weather impact was mitigated for the electric segment, as Missouri rates, which became effective in June 2011, increased margins, offsetting the effect of weather when compared to last year. Other operating and maintenance expenses also increased over last year, negatively impacting net income.
The twelve month ending period results were positively impacted by rate increases and unseasonably hot weather in June and July of 2011, more than offsetting the impacts of the mild weather in the fourth quarter of 2011 and the first quarter of 2012 and the loss of customers from the May 2011 tornado. Increased operating and maintenance expenses decreased earnings, primarily reflecting the added expenses for Iatan 2 and Plum Point and the ending of our construction accounting expense deferral on June 15, 2011. Changes in AFUDC amounts and in effective income tax rates also negatively impacted earnings during the twelve month ending period. Factors impacting gross margin and net income for the quarter and twelve months ending March 31, 2012, are presented on a segment basis under Results of Operations below.
The table below sets forth a reconciliation of basic and diluted earnings per share between the three months and twelve months ended March 31, 2011 and March 31, 2012, which is a non-GAAP presentation. The economic substance behind our non-GAAP earnings per share (EPS) measure is to present the after tax impact of significant items and components of the statement of income on a per share basis before the impact of additional stock issuances.
We believe this presentation is useful to investors because the statement of income does not readily show the EPS impact of the various components, including the effect of new stock issuances. This could limit the readers' understanding of the reasons for the EPS change from the previous year's EPS. This information is useful to management, and we believe this information is useful to investors, to better understand the reasons for the fluctuation in EPS between the prior and current years on a per share basis.
This reconciliation may not be comparable to other companies or more useful than the GAAP presentation included in the statement of income. We also note that this presentation does not purport to be an alternative to earnings per share determined in accordance with GAAP as a measure of operating performance or any other measure of financial performance presented in accordance with GAAP. Management compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. The dilutive effect of additional shares issued included in the table reflects the estimated impact of all shares issued during the periods.
Three Months Ended Twelve Months Ended
Earnings Per Share - 2011 $ 0.29 $ 1.23
Revenues
Electric segment $ (0.13 ) $ 0.26
Gas segment (0.08 ) (0.10 )
Other segment 0.01 0.01
Total Revenue (0.20 ) 0.17
Electric fuel and purchased power 0.13 0.18
Cost of natural gas sold and transported 0.05 0.07
Margin (0.02 ) 0.42
Operating - electric segment (0.05 ) (0.15 )
Operating -gas segment 0.00 0.01
Operating -other segment (0.01 ) 0.00
Maintenance and repairs 0.00 (0.04 )
Depreciation and amortization 0.04 0.03
Other taxes 0.00 (0.03 )
Interest charges (0.02 ) (0.03 )
AFUDC 0.00 (0.09 )
Change in effective income tax rates 0.00 (0.07 )
Dilutive effect of additional shares issued 0.00 (0.02 )
Earnings Per Share - 2012 $ 0.23 $ 1.26
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Recent Activities
Tornado Recovery and Activity
Joplin, Missouri continues to recover from the May 22, 2011 tornado. As of March 31, 2012, our system-wide customer count is down by approximately 1,400 as compared to the customer count levels prior to the May 22 storm. Storm restoration costs were approximately $21.4 million as of March 31, 2012. The majority of these costs have been capitalized. We expect to spend an additional $6.5 million to rebuild our destroyed substation, but anticipate insurance proceeds will cover most of this cost. We expect the loss of electric load and corresponding revenues to abate as customers rebuild. As we continue to add customers back to our system, our customer growth expectations range from approximately 0.5% to 1.1% over the next several years.
On February 29, 2012, tornadoes struck the Branson and Bolivar, Missouri areas of our service territory leaving approximately 9,400 customers without power. Power had been restored to all but approximately 500 of those customers by the next day. By March 4, 2012, power had been restored to all customers that could receive service. At the end of March, due to severe structural damage, approximately 150 customers in Buffalo and Branson were still unable to take service.
Financings
On April 1, 2012, we redeemed all $74.8 million aggregate principal amount of our First Mortgage Bonds, 7.00% Series due 2024, which is classified as a current liability on the March 31, 2012 balance sheet. All $5.2 million of our First Mortgage Bonds, 5.20% Pollution Control Series due 2013, and all $8.0 million of our First Mortgage Bonds, 5.30% Pollution Control Series due 2013 were also redeemed with payment made to the trustee prior to March 31, 2012.
To replace this financing, as described in Note 6, on April 2, 2012, we entered into a Bond Purchase Agreement for a private placement of $88 million aggregate principal amount of 3.58% First Mortgage Bonds due April 2, 2027. The first settlement of $38 million occurred on April 2, 2012 and a second settlement of $50 million is anticipated to occur on or about June 1, 2012. The bonds will mature on April 2, 2027. Interest is payable semi-annually on the bonds on each April 2 and October 2, commencing October 2, 2012.
RESULTS OF OPERATIONS
The following discussion analyzes significant changes in the results of operations for the three-month and twelve-month periods ended March 31, 2012, compared to the same periods ended March 31, 2011.
The following table represents our results of operations by operating segment for the applicable periods ended March 31 (in millions):
Three Months Ended Twelve Months Ended
2012 2011 2012 2011
Electric $ 8.2 $ 9.3 $ 49.6 $ 46.6
Gas 1.1 2.2 1.6 2.5
Other 0.5 0.4 1.7 1.6
Net income $ 9.8 $ 11.9 $ 52.9 $ 50.7
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Electric Segment
Overview
Our electric segment income for the first quarter of 2012 was $8.2 million as compared to $9.3 million for the first quarter of 2011, a decrease of $1.1 million. As mentioned previously, weather had a significant negative impact on the quarter, but was partially offset by positive results from rate increases. Operating expense increased, but was offset by decreased depreciation compared to last year.
As shown in the table below, electric segment gross margin increased approximately $0.4 million during the first quarter of 2012 as compared to the first quarter of 2011 mainly due to increased rates, offset by decreased demand resulting from mild weather in the first quarter of 2012. Total heating degree days (the sum of the number of degrees that the daily average temperature for each day during that period was below 65† F) for the first quarter of 2012 were 29.3% less than the same period last year and 26.4% less than the 30-year average.
As shown in the table below, the electric gross margin increased approximately $28.2 million for the twelve months ended March 31, 2012 as compared to the same period in 2011, mainly due to increased revenues resulting from the June 2011 and September 2010 Missouri rate increases, the July 2010 Kansas rate increase, the September 2010 and March 2011 Oklahoma rate increases and the April 2011 Arkansas rate increase. Decreased demand, resulting from the mild weather in the first quarter of 2012 and fourth quarter of 2011 negatively impacted margins.
The table below represents our electric gross margins for the applicable periods ended March 31 (dollars in millions):
Quarter Ended Twelve Months Ended
2012 2011 2012 2011
Electric segment revenues $ 119.7 $ 128.4 $ 515.6 $ 499.0
Fuel and purchased power 45.2 54.2 191.3 202.8
Electric segment gross margins $ 74.5 $ 74.2 $ 324.3 $ 296.2
Margin as % of total electric
segment revenues 62.2 % 57.8 % 62.9 % 59.4 %
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Although a non-GAAP presentation, we believe the presentation of gross margin is useful to investors and others in understanding and analyzing changes in our electric operating performance from one period to the next, and have included the analysis as a complement to the financial information we provide in accordance with GAAP. However, these margins may not be comparable to other companies' presentations or more useful than the GAAP information we provide elsewhere in this report.
Sales and Revenues
Electric operating revenues comprised approximately 87.0% of our total operating
revenues during the first quarter of 2012. Electric operating revenues for the
first quarter of 2012 and 2011 were comprised of the following:
2012 2011
Residential 45.5 % 46.4 %
Commercial 28.8 26.8
Industrial 15.1 13.0
Wholesale on-system 3.3 3.3
Wholesale off-system 2.7 6.2
Miscellaneous sources* 2.9 2.6
Other electric revenues 1.7 1.7
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The amounts and percentage changes from the prior periods in kilowatt-hour (kWh) sales by major customer class for on-system and off-system sales for the applicable periods ended March 31, were as follows:
kWh Sales
(in millions)
First First 12 Months 12 Months
Quarter Quarter % Ended Ended %
Customer Class 2012 2011 Change(1) 2012 2011 Change(1)
Residential 476.5 591.4 (19.4 )% 1,867.8 2,012.6 (7.2 )%
Commercial 337.8 375.7 (10.1 ) 1,538.5 1,634.9 (5.9 )
Industrial 241.7 237.0 1.9 1,027.4 1,013.1 1.4
Wholesale on-system 84.5 87.6 (3.6 ) 361.7 358.4 0.9
Other(2) 31.2 33.3 (6.1 ) 126.7 125.8 0.7
Total on-system sales 1,171.7 1,325.0 (11.6 ) 4,922.1 5,144.8 (4.3 )
Off-system 136.8 257.9 (47.0 ) 618.8 873.5 (29.2 )
Total kWh Sales 1,308.5 1,582.9 (17.3 ) 5,540.9 6,018.3 (7.9 )
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(2) Other kWh sales include street lighting, other public authorities and interdepartmental usage.
KWh sales for our on-system customers decreased during the first quarter of 2012 as compared to the first quarter of 2011, primarily due to decreased demand resulting from mild weather in the first quarter of 2012. The decrease in residential kWh sales was also due to the loss of residences in the May 22, 2011 tornado and the decrease in commercial kWh sales was mainly due to the loss of businesses in the May 2011 tornado.
KWh sales for our on-system customers decreased during the twelve months ended March 31, 2012, as compared to the same period in 2011, primarily due to decreased demand resulting from mild weather in the first quarter of 2012, partially offset by increased demand resulting from
unseasonably hot weather in June and July of 2011. Residential and commercial kWh sales decreased primarily due to the mild weather in the first quarter of 2012 and the loss of residences and businesses in the May 22, 2011 tornado.
The amounts and percentage changes from the prior periods in electric segment operating revenues by major customer class for on-system and off-system sales for the applicable periods ended March 31, were as follows:
Electric Segment Operating Revenues
(in millions)
12 12
First First Months Months
Quarter Quarter % Ended Ended %
Customer Class 2012 2011 Change(1) 2012 2011 Change(1)
Residential $ 54.2 $ 59.4 (8.7 )% $ 216.5 $ 210.3 3.0 %
Commercial 34.4 34.3 0.3 157.5 150.9 4.4
Industrial 18.0 16.7 8.4 80.3 72.3 11.2
Wholesale on-system 4.0 4.2 (6.7 ) 18.9 18.5 1.7
Other(2) 3.4 3.3 4.3 14.0 12.7 10.0
Total on-system
revenues $ 114.0 $ 117.9 (3.2 ) $ 487.2 $ 464.7 4.8
Off-system 3.2 7.9 (59.4 ) 18.6 24.6 (24.7 )
Total Revenues from
kWh Sales 117.2 125.8 (6.8 ) 505.8 489.3 3.4
Miscellaneous
Revenues(3) 2.1 2.1 (3.1 ) 8.1 7.9 2.7
Total Electric
Operating Revenues $ 119.3 $ 127.9 (6.7 ) $ 513.9 $ 497.2 3.3
Water Revenues 0.4 0.4 (4.5 ) 1.7 1.8 (2.6 )
Total Electric
Segment Operating
Revenues $ 119.7 $ 128.3 (6.7 ) $ 515.6 $ 499.0 3.3
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(2) Other operating revenues include street lighting, other public authorities and interdepartmental usage.
(3)Miscellaneous revenues include transmission service revenue, late payment fees, renewable energy credit sales, rent, etc.
Revenues for our on-system customers decreased $3.8 million during the first quarter of 2012 as compared to the first quarter of 2011 primarily due to record mild weather. The impact of weather and other related factors decreased revenues an estimated $13.7 million. Decreased customer counts, primarily resulting from the May 2011 tornado, reduced revenues an estimated $1.9 million. Rate changes, primarily the June 2011 Missouri rate increase, the March 2011 Oklahoma rate increase and the April 2011 Arkansas rate increase contributed an estimated $11.8 million to revenues. Commercial and industrial revenues, which are less weather sensitive than residential and wholesale revenues, increased mainly due to the rate increases.
Revenues for our on-system customers increased $22.5 million for the twelve months ended March 31, 2012. Rate changes, primarily the September 2010 and June 2011 Missouri rate increases, the July 2010 Kansas rate increase, the September 2010 and March 2011 Oklahoma rate increases and the April 2011 Arkansas rate increase, contributed an estimated $45.0 million to revenues. Decreased customer counts, primarily resulting from the May 2011 tornado, reduced revenues an estimated $10.6 million. Weather and other related factors decreased revenues an estimated $11.9 million primarily due to mild weather in the first quarter of 2012 and the fourth quarter of 2011, offsetting unseasonably hot weather in June and July of 2011.
Off-System Electric Transactions.
In addition to sales to our own customers, we also sell power to other utilities as available, including through the Southwest Power Pool (SPP) Energy Imbalance Services (EIS) market. See "- Competition" below. The majority of our off-system sales margins are included as a component of the fuel adjustment clause in our Missouri, Kansas and Oklahoma jurisdictions and our transmission rider in our Arkansas jurisdiction and generally adjust the fuel and purchased power expense. As a result, nearly all of the off-system sales margin flows back to the customer and has little effect on margin or net income.
Operating Revenue Deductions - Fuel and Purchased Power
The table below is a reconciliation of our actual fuel and purchased power expenditures (netted with the regulatory adjustments) to the fuel and purchased power expense shown on our statement of incomes for the applicable periods ended March 31, 2012 and 2011. As shown below, fuel and purchased power costs decreased in both periods mainly due to decreased volumes primarily due to decreased demand in the first quarter of 2012 resulting from record mild weather.
Three Months Ended Twelve Months Ended
(in millions) 2012 2011 2012 2011
Actual fuel and purchased
power expenditures $ 40.7 50.3 $ 186.8 $ 197.2
Missouri fuel adjustment
recovery (1) 4.3 2.9 8.6 6.5
Missouri fuel adjustment
deferral(2) 1.8 1.1 (2.0 ) (1.6 )
Kansas and Oklahoma regulatory
adjustments(2) 0.3 0.1 (0.3 ) 0.3
SWPA amortization(3) (0.7 ) - (2.1 ) -
Unrealized (gain)/loss on
derivatives (1.2 ) (0.2 ) 0.3 0.4
Total fuel and purchased power
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(2)A negative amount indicates costs have been under recovered from customers and a positive amount indicates costs have been over recovered from customers. Missouri amount includes the deferral of additional costs due to construction accounting, which terminated as of June 15, 2011, the effective date of rates for our 2010 Missouri rate case.
(3) Missouri ten year amortization of the $26.6 million payment received from the SWPA in September, 2010.
Operating Revenue Deductions - Other Than Fuel and Purchased Power
The table below shows regulated operating expense changes during the first quarter of 2012 and the twelve months ended March 31, 2012 as compared to the same periods in 2011.
Three Months Ended Twelve Months Ended
(in millions) 2012 vs. 2011 2012 vs. 2011
Employee pension expense $ 0.7 $ 3.2
Steam power other operating expense(1) 1.0 2.9
Transmission expense 0.3 1.7
Employee health care expense 0.6 1.0
Uncollectible accounts 0.4 0.9
Regulatory commission expense - 0.9
Property insurance - 0.4
Injuries and damages expense - 0.4
General labor costs - (1.9 )
Professional services 0.3 (0.9 )
Other miscellaneous accounts (netted) 0.2 0.8
TOTAL $ 3.5 $ 9.4
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The table below shows maintenance and repairs expense changes during the first quarter of 2012 and the twelve months ended March 31, 2012 compared to the same periods in 2011.
Three Months Ended Twelve Months Ended
(in millions) 2012 vs. 2011 2011 vs. 2010
Distribution and transmission maintenance
costs $ 0.1 $ 1.4
Maintenance and repairs expense to the
SLCC(1) (0.3 ) 1.1
Maintenance and repairs expense at the Iatan
plant (0.3 ) 0.6
Maintenance and repairs expense at the Plum
Point plant 0.1 0.5
Maintenance and repairs expense at the
Riverton plant 0.4 (0.8 )
Other miscellaneous accounts (netted) (0.1 ) (0.1 )
TOTAL $ (0.1 ) $ 2.7
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Depreciation and amortization expense decreased approximately $2.5 million (15.3%) during the quarter. This reflects a decrease in regulatory amortization expense of $3.6 million offset by increased depreciation of $0.4 million due to increased plant in service during the first quarter of 2012 and an increase of $0.7 million in deferred depreciation.
Depreciation and amortization expense decreased approximately $1.9 million (3.3%) during the twelve months ended March 31, 2012. This reflects a decrease in regulatory amortization expense due to the termination of construction accounting as of June 15, 2011, the effective date of rates for our 2010 Missouri rate case.
Other taxes increased approximately $0.1 million during the first quarter of 2012 due to increased property tax reflecting our additions to plant in service and increased municipal franchise taxes.
Other taxes increased approximately $2.1 million during the twelve months ended March 31, 2012 due to increased property tax reflecting our additions to plant in service and increased municipal franchise taxes.
Gas Segment . . . |
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