UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 1999
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 1-1822
LACLEDE GAS COMPANY
(Exact name of registrant as specified in its charter)
Missouri 43-0368139
(State of Incorporation) (I.R.S. Employer
Identification Number)
720 Olive Street, St. Louis, Missouri 63101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-342-0500
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
17,627,987 shares, Common Stock, par value $1 per share at 4/22/99.
Page 1<PAGE>
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LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
PART I
FINANCIAL INFORMATION
The interim financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's Form 10-K for the year ended September 30, 1998.
Page 2<PAGE>
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<TABLE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Utility Operating Revenues $206,956 $213,826 $356,652 $413,493
------------------- -------------------
Utility Operating Expenses:
Natural and propane gas 121,060 130,081 207,708 256,390
Other operation expenses 22,276 23,101 45,925 45,760
Maintenance 4,738 4,513 9,795 9,455
Depreciation and amortization 5,342 6,666 10,627 13,267
Taxes, other than income taxes 16,256 15,765 26,773 28,507
Income taxes (Note 3) 12,281 10,425 17,345 18,578
------------------- -------------------
Total Utility Operating Expenses 181,953 190,551 318,173 371,957
------------------- -------------------
Utility Operating Income 25,003 23,275 38,479 41,536
Miscellaneous Income and Income
Deductions - Net (less
applicable income taxes) (Note 3) 643 722 2,178 1,589
------------------- -------------------
Income Before Interest Charges 25,646 23,997 40,657 43,125
------------------- -------------------
Interest Charges:
Interest on long-term debt 3,347 3,949 6,694 7,802
Other interest charges 2,161 1,678 4,118 3,320
------------------- -------------------
Total Interest Charges 5,508 5,627 10,812 11,122
------------------- -------------------
Net Income 20,138 18,370 29,845 32,003
Dividends on Preferred Stock 25 25 49 49
------------------- -------------------
Earnings Applicable to Common Stock $ 20,113 $ 18,345 $ 29,796 $ 31,954
=================== ===================
Average Number of Common
Shares Outstanding 17,628 17,594 17,628 17,575
Earnings Per Share of Common Stock $1.14 $1.04 $1.69 $1.82
Dividends Declared Per Share
of Common Stock $.335 $.33 $.67 $.66
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 3<PAGE>
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<TABLE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Mar. 31 Sept. 30
1999 1998
---- ----
(Thousands of Dollars)
(UNAUDITED)
ASSETS
<S> <C> <C>
Utility Plant $853,370 $833,685
Less: Accumulated depreciation and amortization 349,702 343,100
--------------------
Net Utility Plant 503,668 490,585
--------------------
Other Property and Investments 28,680 33,834
--------------------
Current Assets:
Cash and cash equivalents 9,621 3,718
Accounts receivable - net 83,608 46,055
Materials, supplies, and merchandise at avg cost 5,489 5,591
Natural gas stored underground for current use
at LIFO cost 18,263 54,973
Propane gas for current use at FIFO cost 11,699 12,840
Prepayments 3,485 2,927
Delayed customer billings 12,545 -
Deferred income taxes 6,632 9,933
--------------------
Total Current Assets 151,342 136,037
--------------------
Deferred Charges 116,477 110,691
--------------------
Total Assets $800,167 $771,147
====================
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 4 <PAGE>
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<TABLE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (Continued)
<CAPTION>
Mar. 31 Sept. 30
1999 1998
---- ----
(Thousands of Dollars)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
Capitalization:
Common stock (19,493,625 shares issued) $ 19,494 $ 19,494
Paid-in capital 62,966 62,966
Retained earnings 216,328 198,342
Treasury stock, at cost (1,865,638 shares held) (24,017) (24,017)
--------------------
Total common stock equity 274,771 256,785
Redeemable preferred stock 1,960 1,960
Long-term debt (less sinking fund requirements) 179,280 179,238
--------------------
Total Capitalization 456,011 437,983
--------------------
Current Liabilities:
Notes payable 86,000 98,500
Accounts payable 26,341 20,692
Refunds due customers 1,232 7,589
Advance customer billings - 8,936
Taxes accrued 24,440 8,690
Unamortized purchased gas adjustments 6,092 15,815
Other 24,595 23,429
--------------------
Total Current Liabilities 168,700 183,651
--------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 91,510 102,856
Unamortized investment tax credits 6,760 6,933
Other 77,186 39,724
--------------------
Total Deferred Credits and Other Liabilities 175,456 149,513
--------------------
Total Capitalization and Liabilities $800,167 $771,147
====================
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 5 <PAGE>
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<TABLE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
March 31,
1999 1998
---- ----
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income $ 29,845 $ 32,003
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,690 13,316
Deferred income taxes and investment tax credits (5,887) (5,603)
Other - net (1,926) (646)
Changes in assets and liabilities:
Accounts receivable - net (37,553) (39,764)
Unamortized purchased gas adjustments (9,723) (7,159)
Deferred purchased gas costs 39,708 30,883
Delayed customer billings - net (21,481) (36,330)
Accounts payable 5,649 8,353
Refunds due customers (6,357) 8,209
Taxes accrued 15,750 16,694
Natural gas stored underground 36,710 35,524
Other assets and liabilities (8,770) (6,069)
--------------------
Net cash provided by operating activities 46,655 49,411
--------------------
Investing Activities:
Construction expenditures (22,952) (22,054)
Investments - non-utility 2,837 (1,011)
Employee benefit trusts 4,126 267
Other (492) (122)
--------------------
Net cash used in investing activities (16,481) (22,920)
--------------------
Financing Activities:
Repayment of short-term debt (12,500) (39,500)
Issuance of common stock - 978
Dividends paid (11,771) (11,549)
Issuance of first mortgage bonds - 25,000
--------------------
Net cash used in financing activities (24,271) (25,071)
---------------------
Net Increase in Cash and Cash Equivalents 5,903 1,420
Cash and Cash Equivalents at Beginning of Period 3,718 4,508
--------------------
Cash and Cash Equivalents at End of Period $ 9,621 $ 5,928
====================
Supplemental Disclosure of Cash Paid
During the Period for:
Interest $10,099 $ 9,572
Income taxes 5,055 4,435
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 6<PAGE>
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LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In management's opinion, this interim report includes all
adjustments, consisting only of normal recurring accruals, necessary
for the fair presentation of the results of the periods covered.
2. Laclede Gas Company is a natural gas distribution utility having a
material seasonal cycle. As a result, this interim statement of
consolidated income is not necessarily indicative of annual results nor
representative of succeeding quarters of the fiscal year. Due to the
seasonal nature of the Company's business, earnings are typically
concentrated in the first six months of the fiscal year, which generally
corresponds with the heating season. Fiscal year earnings will likely
be lower than earnings during the first six months of the fiscal year,
reflecting typically lower summer sales volumes, partially offset by
lower operating expenses.
3. Net provisions for income taxes were charged (credited) as follows
during the periods set forth below:
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Utility Operations
Current:
Federal $17,712 $14,146 $20,241 $20,666
State and local 2,991 2,475 3,412 3,574
Deferred:
Federal (7,149) (5,348) (5,378) (4,948)
State and local (1,273) (848) (930) (714)
----------------- -----------------
Subtotal $12,281 $10,425 $17,345 $18,578
----------------- -----------------
Miscellaneous Income and
Income Deductions
Current:
Federal $ 232 $ 305 $ 318 $ 405
State and local 33 42 44 58
Deferred:
Federal 15 33 364 51
State and local 2 5 57 8
----------------- -----------------
Subtotal $ 282 $ 385 $ 783 $ 522
----------------- -----------------
Total $12,563 $10,810 $18,128 $19,100
================= =================
</TABLE>
Page 7 <PAGE>
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4. The Company's Gas Supply Incentive Plan became effective October 1, 1996
for a three-year period ending September 30, 1999 as part of a
settlement reached in the Company's 1996 rate case. This plan continues
to provide significant benefits for both the Company's shareholders and
customers. Under this plan, the Company and its customers share as
follows:
- sales of gas outside of the Company's traditional service area, of
which 70% of the income is allocated to Laclede's customers and the
balance to the Company's shareholders
- releases of pipeline capacity, of which 70% to 90% of the revenues
are allocated to Laclede's customers and the balance is allocated
to its shareholders
- savings from discounts off of maximum pipeline transportation
rates, of which 80% to 90% of the savings is allocated to Laclede's
customers and the balance to its shareholders, and
- gains and losses as measured against a benchmark level of gas
cost, of which the Company is allocated 50%.
Results of the plan are set forth below. These results may not be
representative of results in future periods due to the volatile and
seasonal nature of these efforts.
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
March 31, March 31,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Net Benefits to Customers
and Shareholders $ 5,553 $ 6,904 $12,349 $15,628
---------------------------------------------------------------------
Shareholder Benefits
Incentive Plan Revenues $ 5,046 $11,094 $11,144 $17,627
Incentive Plan Gas Expense 4,283 9,796 9,168 14,238
------- ------- ------- -------
Company Share -
Pretax Income $ 763 $ 1,298 $ 1,976 $ 3,389
======= ======= ======= =======
</TABLE>
The incentive plan revenues are included in the utility operating
revenues line in the Company's financial statements. Expenses related
to the incentive plan are included in the natural and propane gas
expense line in the financial statements.
On January 14, 1999, the Company filed tariff sheets with the Missouri
Public Service Commission to implement a modified incentive plan for
another three-year term commencing upon the expiration of the current
incentive plan. The modified incentive plan proposal is scheduled to be
heard in July 1999.
5. In September 1997, the staff of the Missouri Public Service Commission
(MoPSC) recommended that Laclede refund $3.6 million to its ratepayers
in connection with its sale of gas outside of Missouri during fiscal
1996, which was prior to the approval of the incentive plan. Laclede
believes it had full authority to enter into these transactions in part
under the implementation of the Federal Energy Regulatory Commission's
Order No. 636. Laclede filed testimony opposing the recommendation made
by the Staff of the MoPSC.
Page 8<PAGE>
<PAGE>
Formal hearings were held on this issue in October 1998. On April 20,
1999, the MoPSC issued its order rejecting the proposal of its staff.
This order will become effective on April 30, 1999. Any request for
rehearing of the order must be filed by April 30, 1999.
6. The Company is subject to various environmental laws and regulations.
To date they have not materially affected the Company's financial
position and results of operations.
In the past, the Company operated various manufactured gas plants which
produced certain by-products and residuals. At the request of the
United States Environmental Protection Agency, Laclede performed
an investigation of one of the Company's former manufactured gas plant
sites located in Shrewsbury, Missouri. Subsequently, the Company and
the state and federal environmental regulatory agencies agreed upon the
actions needed at this site. The Company currently estimates the
overall costs of these actions will be approximately $1,135,000. As of
March 31, 1999, the Company has paid $638,000 and reserved $497,000 for
these actions. If the regulatory agencies require any additional
actions, Laclede will incur additional costs.
The Company also applied to place the site of a different former
manufactured gas plant in the City of St. Louis, Missouri in the
Missouri Voluntary Cleanup Program. Laclede ceased its operations at
and sold this site in 1950. Subsequent owners of this site used it as a
coke manufacturing facility. The Missouri Department of Natural
Resources accepted the Company's application. Acceptance provides
opportunities to minimize costs of remediation and maximize
possibilities of site development. Laclede submitted a sampling plan to
the Missouri Department of Natural Resources on November 16, 1998. The
Company is completing the sampling plan. Laclede currently estimates
that the cost of the investigation, oversight costs and legal and
engineering consulting costs for this site may be approximately
$534,000. Currently, the Company has paid $263,000 and reserved an
additional $271,000. The Company has requested that other former site
owners or operators participate in the cost of any site investigation,
but none has yet agreed to do so. The Company plans to seek
proportionate reimbursement of all costs relative to this site from
those parties or any other potentially responsible parties if
practicable.
While the scope or costs relative to the site in Shrewsbury will not
be material, the scope or costs relative to the City of St. Louis site
are unknown and may be material. The Company has notified its insurers
that it intends to seek reimbursement from them of its costs at both
these sites. None of the Company's insurers have agreed that its
insurance covers the costs for which the Company intends to seek
reimbursement. The majority of the insurers have sent Laclede letters
reserving their rights with respect to the manufactured gas plant issues
addressed in the Company's notices to them. While some of the insurers
have denied coverage with respect to these issues, the Company continues
to seek reimbursement from them. With regard to the Shrewsbury site,
the denial of coverage will not have any material impact on the Company.
With regard to the City of St. Louis site, since the scope or costs
relative to this site are unknown and may be material, the denial of
coverage may have a material impact on the Company.
In the Company's 1998 rate case, the MoPSC approved the Company's
continued use of a cost deferral mechanism for these costs. Through
Page 9<PAGE>
<PAGE>
this, the Company may apply for appropriate rate recovery of these
costs. The recovery of these costs, however, may be challenged in
future rate proceedings.
7. Laclede Pipeline Company, Laclede Gas Company's wholly-owned subsidiary,
owns and operates a propane pipeline which connects Laclede Gas
Company's 800,000-barrel, or approximately 33 million gallons, propane
storage facilities in St. Louis County, Missouri, to propane supply
terminal facilities located at Wood River and Cahokia, Illinois.
Laclede Pipeline Company transports liquid propane through this pipeline
to Laclede Gas Company for storage. Laclede Gas Company ultimately
vaporizes and uses the propane to supplement its natural gas supply to
meet the peak demands on the distribution system. Laclede Pipeline
Company's contract with Phillips Petroleum Company, which provided for
delivery of up to 35 million gallons of propane annually, expired on
March 31, 1999. Laclede Gas Company will not be adversely affected by
this termination, as Laclede Pipeline Company will either purchase the
pipeline from Phillips for about $1.5 million or build a new pipeline
for about $3.0 million before the next heating season.
8. On October 30, 1998, the Missouri Public Service Commission (MoPSC)
issued an order opening a docket addressing the adequacy of
Laclede's copper service line replacement program. Under this
docket, the staff must advise the MoPSC of the status of its
investigation by April 30, 1999. The Company currently faces one
lawsuit and two claims relative to incidents where gas has
apparently leaked from direct buried copper service lines. Laclede
is unable to predict at this time what action, if any, the MoPSC
may take in this docket or the outcome of this lawsuit or any of
these claims.
9. This Form 10-Q should be read with the Notes to Consolidated Financial
Statements in the Company's 1998 Form 10-K.
Page 10<PAGE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AN RESULTS OF OPERATION
RESULTS OF OPERATIONS
Quarter Ended March 31, 1999
- ----------------------------
Earnings were $1.14 per share compared with $1.04 per share for the
comparable quarter last year. While the weather this quarter was 7% colder
than during the same period last year, it was 8% warmer than normal.
Earnings increased due to expense reductions and higher gas sales, offset
partially by higher costs of doing business. The expense reductions
resulted from regulatory accounting changes instituted July 1, 1998 as part
of the Company's 1998 rate case settlement.
Utility operating revenues were $207.0 million compared with $213.8 million
for the quarter ended March 31, 1998. The $6.8 million, or 3.2%, decrease
resulted primarily from lower gas costs and lower incentive plan revenue,
offset partially by higher gas sales. Laclede's gas costs impact its
revenues since those costs are passed on to its customers under its
purchased gas adjustment clause. The colder weather led to the higher gas
sales. System therms sold and transported increased by 25.7 million therms,
or 6.0%, above the quarter ended March 31, 1998.
Utility operating expenses decreased by $8.6 million, or 4.5%, below these
expenses in the same quarter last year. Natural and propane gas expense in
this quarter decreased $9.0 million, or 6.9%, below the expense for last
year's second quarter. This decrease reflects lower rates to the Company
for natural and propane gas and lower incentive plan expense, which were
partially offset by an increase in gas purchases for the colder weather.
Other operation and maintenance expenses decreased $.6 million from last
year. This decrease was due to lower net pension costs and distribution
expenses, which were largely offset by four items: lower gains on lump sum
pension settlements, a higher provision for uncollectible accounts, higher
wage rates and other increases in the costs of doing business. Depreciation
and amortization expense decreased 19.9% from the amount for the same period
last year primarily due to lower depreciation rates which were partially
offset by additional depreciable property. The Company instituted the lower
depreciation rates on July 1, 1998 as authorized in its 1998 rate case
settlement. Taxes, other than income taxes, increased 3.1% over the amount
for last year mainly due to higher real estate and personal property taxes
in this fiscal year. The $1.9 million increase in income taxes is
principally due to higher pre-tax income.
Miscellaneous income and income deductions decreased slightly due to minor
variations in several areas. Interest expense dropped by 2.1% due mainly to
the redemption in May 1998 of a 9 5/8% first mortgage bond issue. This
decrease in long term interest was largely offset by increased short-term
interest expense due to higher average borrowings.
Page 11<PAGE>
<PAGE>
Six Months Ended March 31, 1999
- -------------------------------
Due to the seasonal nature of the Company's business, earnings are typically
concentrated in the first six months of the fiscal year, which generally
corresponds with the heating season. Fiscal year 1999 earnings will likely
be lower than earnings during the first six months of this fiscal year,
reflecting typically lower summer sales volumes, partially offset by
anticipated lower operating expenses. Earnings were $1.69 per share
compared with $1.82 per share for the comparable period last year. The
weather was 11% warmer than normal and 6% warmer than last year. The
decrease in earnings was primarily due to lower gas sales, lower
incentive plan income, and higher costs of doing business. These decreases
were partially offset by expense reductions resulting from the regulatory
accounting changes instituted July 1, 1998 as part of the settlement of the
Company's 1998 rate case.
Utility operating revenues decreased $56.8 million, or 13.7% below the
corresponding period of fiscal year 1998. This decrease was primarily due
to lower wholesale gas costs, lower gas sales volumes arising from the
warmer weather and lower incentive plan revenue. System therms sold and
transported decreased by 35.6 million therms, or 4.6% below the level
experienced during the six months ended March 31, 1998.
Utility operating expenses decreased by $53.8 million, or 14.4% below last
year. Natural and propane gas expense decreased by $48.7 million, or 19.0%,
below last year mainly due to lower rates charged by our suppliers, reduced
gas purchases resulting from the warmer weather and lower incentive plan
expense. Other operation and maintenance expenses increased slightly due to
a higher provision for uncollectible accounts, lower gains recognized this
fiscal year on lump sum pension settlements, higher wage rates and other
increases in the costs of doing business. These increases were largely
offset by lower net pension costs and reduced distribution expenses.
Depreciation and amortization expense decreased 19.9% primarily due to lower
depreciation rates, partially offset by additional depreciable property.
Taxes, other than income taxes, decreased by 6.1% principally due to lower
gross receipts taxes, mainly reflecting decreased revenues. The $1.2
million decrease in income taxes is mainly due to lower pre-tax income.
Miscellaneous income and income deductions increased $.6 million above the
same period last year primarily due to a pre-tax gain of approximately $1.9
million recognized by the Company's wholly-owned subsidiary, Laclede
Development Company, on the sale of undeveloped property known as Centre
Park 40. Laclede Development owned its interest in Centre Park 40 through a
real estate partnership. The gain was partially offset by lower subsidiary
income and minor variations in several areas. The 2.8% decrease in interest
expense is mainly due to the redemption in May 1998 of a 9 5/8% first
mortgage bond issue. This decrease was largely offset by increased short-
term interest expense due to higher average borrowings.
Page 12 <PAGE>
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Updated Regulatory Matters
- --------------------------
On January 26, 1999, Laclede filed a request with the Missouri Public
Service Commission (MoPSC) for a general rate increase to recover costs
related to the operation of its gas distribution system. Laclede does not
anticipate higher rate levels during the current fiscal year, because the
MoPSC generally suspends a general rate increase request until it has
reviewed and audited the filing, held hearings and reached its determination
whether and to what extent the rate increase request should be granted. By
statute, the MoPSC process may take no longer than eleven months. Laclede's
request is for a rate adjustment that would increase its annual revenues by
$30.5 million and increase a typical residential heating customer's bill by
about 5.8%, or $3.37 a month. The MoPSC has set August 9, 1999 as the date
to begin hearings on the request. Historically, the MoPSC has not granted
Laclede's rate increase requests in full.
The Company's gas supply incentive plan became effective October 1, 1996 for
a three-year period ending September 30, 1999 as part of a settlement
reached in the Company's 1996 rate case. This plan continues to provide
significant benefits for both the Company's shareholders and customers.
Under this plan, the Company and its customers share in benefits from:
sales of gas outside of the Company's traditional service area, releases of
pipeline capacity, savings from discounts off of maximum pipeline
transportation rates, and gains and losses as measured against a benchmark
level of gas cost. For additional information on the incentive plan, see
Note 4 of Notes to Consolidated Financial Statements, on page 8.
On January 14, 1999, the Company filed tariff sheets with the Missouri
Public Service Commission to implement a modified incentive plan for another
three-year term commencing upon the expiration of the current incentive
plan. The modified incentive plan proposal is scheduled to be heard in July
1999.
Since the Company began operating under the incentive plan in October 1996,
Laclede has achieved overall net benefits of $78.4 million for its
shareholders and customers. During the six months ended March 31, 1999, the
incentive plan operations resulted in gas cost savings of $10.3 million to
its customers and $2.0 million in pretax income to its shareholders.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term borrowing requirements typically peak during colder
months when the Company borrows money to cover the gap between when the
Company purchases its natural gas and when the Company's customers pay the
Company for that gas. These short-term cash requirements have traditionally
been met through the sale of commercial paper supported by lines of credit
with banks. In January 1999, the Company renewed three primary lines of
bank credit under which it may borrow up to an aggregate of $30 million
prior to January 31, 2000, with renewal of any loans outstanding on that
date permitted up to June 30, 2000. An additional $10 million primary line
of credit was renewed through March 31, 1999. This, along with a previously
obtained $100 million supplemental line of credit extending through August
30, 1999, and an additional $20 million supplemental line of credit obtained
for the period of January 1999 through March 20, 1999, provided total lines
of credit of $160 million for the majority of the 1998-1999 heating season.
Page 13<PAGE>
<PAGE>
During fiscal 1999 to date, the Company sold commercial paper aggregating to
a maximum of $142.5 million at any one time, but did not borrow from the
banks under the aforementioned agreements. Short-term borrowings amounted
to $86.0 million at March 31, 1999.
In January 1999, the Missouri Public Service Commission (MoPSC) authorized
the Company to issue and sell up to 1,250,000 shares of its common stock.
The Company filed a registration statement with the Securities and Exchange
Commission for the registration of these shares of common stock on March 15,
1999, which was amended on April 15, 1999. This registration statement is
not yet effective. The Company plans, subject to financial market
conditions and other factors, to sell these shares in the near future
through an underwriting group led by Merrill Lynch & Co. and A.G. Edwards &
Sons, Inc. The net proceeds will be used to repay short-term debt.
On April 8, 1999, the MoPSC approved the Company's request for a two-year
extension, to April 21, 2001, of its authority to sell up to $25 million of
additional first mortgage bonds. The MoPSC originally authorized the
issuance and sale of $100 million of first mortgage bonds, of which $75
million has already been issued and sold. The amount and timing of any
future issuance will be subject to management's evaluation of need,
financial market conditions, and other factors.
Laclede Pipeline Company, Laclede Gas Company's wholly-owned subsidiary,
owns and operates a propane pipeline which connects Laclede Gas
Company's 800,000-barrel, or approximately 33 million gallons, propane
storage facilities in St. Louis County, Missouri, to propane supply
terminal facilities located at Wood River and Cahokia, Illinois.
Laclede Pipeline Company transports liquid propane through this pipeline
to Laclede Gas Company for storage. Laclede Gas Company ultimately
vaporizes and uses the propane to supplement its natural gas supply to
meet the peak demands on the distribution system. Laclede Pipeline
Company's contract with Phillips Petroleum Company, which provided for
delivery of up to 35 million gallons of propane annually, expired on
March 31, 1999. Laclede Gas Company will not be adversely affected by
this termination, as Laclede Pipeline Company will either purchase the
pipeline from Phillips for about $1.5 million or build a new pipeline
for about $3.0 million before the next heating season.
Construction expenditures for the six months ended March 31, 1999 were $23.0
million compared with $22.1 million for the same period last year.
Capitalization at March 31, 1999 increased $18.0 million from September 30,
1998 and consisted of 60.3% common stock equity, .4% preferred stock equity,
and 39.3% long-term debt.
The seasonality of the Company's business impacts some balance sheet items
such as Accounts Receivable - Net, Natural Gas Stored Underground, Delayed
and Advance Customer Billings and Accounts Payable.
Page 14<PAGE>
<PAGE>
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations.
To date they have not materially affected the Company's financial
position and results of operations.
In the past, the Company operated various manufactured gas plants which
produced certain by-products and residuals. At the request of the
United States Environmental Protection Agency, Laclede performed
an investigation of one of the Company's former manufactured gas plant
sites located in Shrewsbury, Missouri. Subsequently, the Company and
the state and federal environmental regulatory agencies agreed upon the
actions needed at this site. The Company currently estimates the
overall costs of these actions will be approximately $1,135,000. As of
March 31, 1999, the Company has paid $638,000 and reserved $497,000 for
these actions. If the regulatory agencies require any additional
actions, Laclede will incur additional costs.
The Company also applied to place the site of a different former
manufactured gas plant in the City of St. Louis, Missouri in the
Missouri Voluntary Cleanup Program. Laclede ceased its operations at
and sold this site in 1950. Subsequent owners of this site used it as a
coke manufacturing facility. The Missouri Department of Natural
Resources accepted the Company's application. Acceptance provides
opportunities to minimize costs of remediation and maximize
possibilities of site development. Laclede submitted a sampling plan to
the Missouri Department of Natural Resources on November 16, 1998. The
Company is completing the sampling plan. Laclede currently estimates
that the cost of the investigation, oversight costs and legal and
engineering consulting costs for this site may be approximately
$534,000. Currently, the Company has paid $263,000 and reserved an
additional $271,000. The Company has requested that other former site
owners or operators participate in the cost of any site investigation,
but none has yet agreed to do so. The Company plans to seek
proportionate reimbursement of all costs relative to this site from
those parties or any other potentially responsible parties if
practicable.
While the scope or costs relative to the site in Shrewsbury will not
be material, the scope or costs relative to the City of St. Louis site
are unknown and may be material. The Company has notified its insurers
that it intends to seek reimbursement from them of its costs at both
these sites. None of the Company's insurers have agreed that its
insurance covers the costs for which the Company intends to seek
reimbursement. The majority of the insurers have sent Laclede letters
reserving their rights with respect to the manufactured gas plant issues
addressed in the Company's notices to them. While some of the insurers
have denied coverage with respect to these issues, the Company continues
to seek reimbursement from them. With regard to the Shrewsbury site,
the denial of coverage will not have any material impact on the Company.
With regard to the City of St. Louis site, since the scope or costs
relative to this site are unknown and may be material, the denial of
coverage may have a material impact on the Company.
In the Company's 1998 rate case, the MoPSC approved the Company's
continued use of a cost deferral mechanism for these costs. Through
this, the Company may apply for appropriate rate recovery of these
costs. The recovery of these costs, however, may be challenged in
future rate proceedings.
Page 15<PAGE>
<PAGE>
YEAR 2000 ISSUE
Under the mainframe portion of the Company's year 2000 readiness plan, it is
upgrading, converting and replacing:
- mainframe computer hardware
- attendant operating system software and
- key mainframe systems and applications.
The majority of these systems and applications have been completely
converted and upgraded as well as tested on an initial basis. These systems
include customer records, billing and accounting systems. Laclede's
critical conversions, upgrades and testing, on an in-house basis as well as
with third parties on an integrated basis, will be complete in July 1999.
With regard to the few personal computer applications which may be
important, their replacements/upgrades will also be complete in July 1999.
Additionally, Laclede has conducted a company-wide program to inventory,
evaluate, remediate and test significant equipment, products, services and
supplies that it uses. Laclede completed the inventory of these items and
services in August 1998, and the evaluation of their importance in September
1998. Under the Company's year 2000 readiness plan, it will test and, to
the extent problems are discovered, fix those problems or replace the item.
To date, the Company has discovered a minor number of problems which have
been addressed. The remediation and testing of those relatively few
important items with problems will be complete in July 1999.
The Company has developed and continues to refine its contingency plans for
unforeseen critical system or equipment failures. With regard to a
temporary loss of electrical and/or communication services, it would at most
impair Laclede's ability remotely to operate a small number of pressure
regulator stations. Laclede will place trained employees at each of the
remotely controlled pressure regulator stations to make any adjustments
needed on a manual basis. In addition, the Company will use an in-house
radio relay system to maintain any needed communications with its employees
in the field. With regard to any temporary natural gas supply
interruptions, Laclede operates a large, local natural gas underground
storage facility as well as a local propane storage facility which it would
use if needed. Any remaining refinement of critical contingency plans will
be completed in July 1999.
The Company has directly contacted and received assurances from many of its
vendors. This group of vendors includes the natural gas suppliers and
transporting pipelines who have assured Laclede that they will be able to
supply natural gas to us after 1999 without interruption. We continue to
actively pursue on a case-by-case basis any necessary verification of the
vendors' ability to continue to supply the items and services to Laclede in
the year 2000. The Company has included the natural gas suppliers and
pipelines in the group needing further verification. Laclede plans to
complete this verification process in July 1999. If the Company does not
believe a vendor will be able to provide a needed item or service in the
year 2000, it will use alternate vendors and develop contingency plans for
any prospective unavailability of the needed item or service.
As of March 31, 1999, the Company has incurred total costs of approximately
$14.6 million for replacements and modifications of various computer
systems. Of this amount, Laclede capitalized $13.1 million and charged $1.5
million to expense. The Company has used funds from internally generated
cash flows and short-term borrowings to pay these costs. The Company
currently estimates that costs remaining to be incurred during fiscal 1999
Page 16<PAGE>
<PAGE>
will amount to approximately $4 million. In the 1998 rate case, the
Missouri Public Service Commission authorized Laclede to capitalize the
costs incurred in connection with making its information systems ready for
year 2000 operations. The MoPSC also authorized Laclede to defer any
interim property tax, depreciation or carrying cost expenses that it may
incur in connection with these capitalized items. Laclede may apply for
recovery of these interim expenses in rate proceedings.
OTHER MATTERS
In September 1997, the staff of the Missouri Public Service Commission
(MoPSC) recommended that Laclede refund $3.6 million to its ratepayers in
connection with its sale of gas outside of Missouri during fiscal 1996,
prior to the approval of the incentive plan. Laclede believes it had full
authority to enter into these transactions in part under the implementation
of the Federal Energy Regulatory Commission's Order No. 636. Laclede filed
testimony opposing the recommendation made by the Staff of the MoPSC.
Formal hearings were held on this issue in October 1998. On April 20, 1999
the MoPSC issued its order rejecting the proposal of its staff. This order
will become effective on April 30, 1999. Any request for rehearing of the
order must be filed by April 30, 1999.
At the federal level, the Federal Energy Regulatory Commission (FERC) this
year undertook several initiatives to consider changes in the regulation of
interstate pipeline transportation service that could affect the Company's
future costs and, ultimately, the rates its customers pay. These
initiatives include a proposed requirement that pipelines auction their
short-term capacity and that they be permitted to negotiate rates and terms
of service on an individual basis with their customers. The Company is
monitoring these developments closely and will intervene when necessary so
that the best interests of both the Company and its customers are addressed
in changes that may eventually be approved by the FERC.
On April 6, 1999, voters in Wentzville, Missouri, in western St. Charles
County, granted Laclede, by a 3-to-1 margin, a 20 year non-exclusive
franchise to provide natural gas service to much of the city south of
Interstate 70, west of Lake St. Louis. This is an important strategic
accomplishment that paves the way for Laclede to continue its westward
expansion throughout St. Charles County in areas where the Company
anticipates significant growth to occur during the next few years. Missouri
Public Service Commission authority also is necessary, and the Company is
awaiting the Commission's approval for it to serve specifically this portion
of Wentzville, as well as currently unincorporated adjacent areas.
FORWARD-LOOKING STATEMENTS
Certain statements in this 10-Q are forward-looking statements made based
upon the Company's expectations and beliefs concerning future developments
and their potential effect on Laclede. These statements, however, do not
include financial statements and other statements of historical fact. The
forward-looking statements may be identified by the use of such terms as
"anticipate," "believe," "estimate," "expect," "intend," "plan," "seek" and
similar expressions. Future developments may not be in accordance with the
Company's expectations or beliefs and the effect of future developments on
Laclede may not be those anticipated. Among the factors that may cause
actual results to differ materially from those contemplated in any forward-
looking statements are:
- weather conditions and catastrophic events
Page 17<PAGE>
<PAGE>
- changes in transportation and gas supply costs or availability
- regulatory actions and initiatives of federal and state regulatory
agencies, some of which could be retroactive, including those
affecting:
-- financings
-- allowed rates of return
-- incentive regulation
-- industry and rate structure
-- purchase gas adjustment provisions
-- franchise renewal
-- environmental or safety requirements
- the effects of any industry or corporate restructuring
- conservation efforts of our customers
- economic factors such as changes in the conditions of capital
markets, interest rates and rates of inflation
- inability to retain existing customers or to attract new customers
- ability to obtain funds from operations or the sale of debt or
equity to finance necessary capital expenditures and other
investments
- employee work force issues
- statutory or tax changes
- changes in accounting standards and
- the effectiveness of Year 2000 computer system remediation efforts by
third parties and unknown Year 2000 related problems
The Company does not, by including this statement, assume any obligation to
review or revise any particular forward-looking statement referenced herein
in light of future events.
Page 18<PAGE>
<PAGE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
Part II
OTHER INFORMATION
Page 19<PAGE>
<PAGE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
Item 1. Legal Proceedings
For a discussion of environmental matters, see Note 6 of the Notes
to Consolidated Financial Statements in Part I, Financial
Information.
On October 30, 1998, the Missouri Public Service Commission (MoPSC)
issued an order opening a docket addressing the adequacy of
Laclede's copper service line replacement program. Under this
docket, the staff must advise the MoPSC of the status of its
investigation by April 30, 1999. The Company currently faces one
lawsuit and two claims relative to incidents where gas has
apparently leaked from direct buried copper service lines. Laclede
is unable to predict at this time what action, if any, the MoPSC
may take in this docket or the outcome of this lawsuit or any of
these claims.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Laclede Gas Company was
held on January 28, 1999 for the purpose of electing three
directors to the Board of Directors and ratifying the appointment
of independent auditors. Proxies for the meeting were solicited
pursuant to Section 14(a) of the Exchange Act of 1934.
All of management's nominees for directors listed in the proxy
statement were unopposed and were elected upon the following
votes:
Name of Shares
Director Nominee Voted For Voted Withheld
---------------- ---------- --------------
Richard E. Beumer 13,944,838 141,830
Robert C. Jaudes 13,479,943 141,830
Robert P. Stupp 13,902,772 141,830
The proposal to ratify the appointment of Deloitte & Touche LLP,
Certified Public Accountants, to audit the accounts of the
Company for the fiscal year ending September 30, 1999 was passed
upon the following vote:
Shares Voted:
------------
For the proposal 13,720,556
Against the proposal 93,835
Abstain regarding the proposal 103,289
Item 5. Other Information
Effective April 1, 1999 Richard E. Beumer, Chairman and CEO of
Sverdrup Corporation, resigned from Laclede's Board of Directors.
Recently, Sverdrup merged with Jacobs Engineering Group Inc. Mr.
Beumer was elected to the additional position of Vice Chairman of
Jacobs, which has a board meeting schedule that directly coincides
and conflicts with those of Laclede Gas.
Page 20<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) Reports on Form 8-K
The Company filed a Form 8-K during the quarter ended
March 31, 1999.
Item Reported:
On January 28, 1999 the Company issued its news release announcing
financial results as of December 31, 1998. The news release was
attached as Exhibit 1 to the Form 8-K.
Date of Report (Date of Earliest Event Reported):
January 28, 1999.
Page 21<PAGE>
<PAGE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LACLEDE GAS COMPANY
Date: April 23, 1999 G. T. McNeive, Jr.
-------------------
G. T. McNeive, Jr.
Sr. Vice President - Finance
and General Counsel
(Authorized Signatory and
Chief Financial Officer)
Page 22 <PAGE>
<PAGE>
Index to Exhibits
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------- ------- ------------
10.1 Line of Credit Agreement dated January 22, 1999
with Mercantile Bank. 24
10.2 Line of Credit Agreement dated January 15, 1999
with Commerce Bank. 26
10.3 Line of Credit Agreement dated January 31, 1999
with NationsBank, N.A. 28
27 Financial Data Schedule UT 30
Page 23
Mercantile Bank National Association Mercantile Tower
Timothy W. Hassler P. O. Box 524
Vice President St. Louis, MO 63166-0524
Large Corporate
314-418-8046
314-418-2203 Fax
January 22, 1999
Mr. Ronald L. Krutzman
Treasurer and Assistant Secretary
Laclede Gas Company
720 Olive Street
St. Louis, MO 63101
Dear Ron:
Mercantile Bank of St. Louis National Association is pleased to provide a
$10,000,000 line of credit maturing January 31, 2000 to Laclede Gas Company
for general corporate purposes and for commercial paper backup.
All borrowings will be priced at your option, at Mercantile's Prime rate,
floating, IBOR adjusted +3/8%, or CD's adjusted +1/2% for available
maturities to 90 days. Notes issued under this line shall not exceed 90
days. If a whole note is outstanding with a maturity after January 31,
2000, the note shall be renewed in whole or in part provided no note shall
mature later than June 30, 2000.
Interest shall be payable at maturity or on date of repayment. Interest
shall be computed on the basis of actual 365/366 for prime borrowings and
actual 360 basis for IBOR or CD loans. Notes issued may be prepaid at any
time without penalty, subject to standard funding loss provisions.
We may terminate this agreement at any time if we determine, in good faith,
that we are not satisfied with your conditions, operations or performance,
financial or otherwise.
It is understood that any loans obtained by any subsidiary of Laclede Gas
Company, whether or not they are guaranteed by Laclede Gas Company, are
excluded from this agreement and shall not be charged against the line of
credit described above.
Nothing in this letter is intended to alter the arrangements set forth in
the agreement dated August 20, 1998 or the availability of up to $35,000,000
of advances thereunder from Mercantile Bank of St. Louis National
Association on the terms set forth in said August 20, 1998 agreement.
Page 24<PAGE>
<PAGE>
Page 2
Laclede Gas Company
January 22, 1999
We appreciate the opportunity to service your credit needs and to continue
the long standing relationship between our companies. If the foregoing is
acceptable to you, please sign below.
MERCANTILE BANK NATIONAL ASSOCIATION
By: s/Timothy W. Hassler
Name: Timothy W. Hassler
Title: Vice President
Accepted this 22nd day of January, 1999
LACLEDE GAS COMPANY
By: s/Ronald L. Krutzman
Name: Ronald L. Krutzman
Title: Treasurer & Asst. Secretary
Page 25
Commerce Bank
8000 Forsyth Boulevard
St. Louis, MO 63105-1797
(314) 726-2255
January 15, 1999
Mr. Ronald Krutzman, Treasurer
Laclede Gas Company
720 Olive
St. Louis, MO 63101
Dear Mr. Krutzman:
Commerce Bank, N.A. ("Bank") is pleased to offer a discretionary line of
credit to Laclede Gas Company ("Borrower") under the following terms and
conditions. Accordingly, our officers may, at their discretion, make short-
term loans to Laclede Gas Company up to $10,000,000 on such terms as may be
mutually agreed upon from time to time.
Purpose: Working Capital
Amount: Up to $10,000,000 (Ten Million Dollars)
Interest
Rate: Prime rate of Bank or such lesser rate that may be
agreed upon at the time of funding.
Term: Until January 31, 2000
Method of
Borrowing &
Repayment: Advances shall be evidenced by separate notes and
each note issued under this arrangement shall
mature not more than ninety (90) days from note date. Notes
maturing after January 31, 2000, may be renewed in whole or
part provided no note matures later than June 30, 2000.
Interest shall be payable at maturity or on the date of any
prepayment. Notes issued under this arrangement
may be prepaid at any time without penalty.
Collateral: Unsecured.
Other: Execution of note(s) in form acceptable to Bank.
It is understood that any loans obtained by any
subsidiary of Borrower whether or not they are
guaranteed by Borrower are excluded from this
agreement and shall not be charged against the
amount stated above.
Oral agreements or commitments to loan money, extend credit or to forbear
from enforcing repayment of a debt, including promises to extend or renew
such debt, are not enforceable. To protect you (borrower(s)) and us
(creditor) from misunderstanding or disappointment, any agreements we reach
covering such matters are contained in this writing, which is the complete
and exclusive statement of the agreement between us as we may later agree in
writing to modify it. By signing below, you and we agree that there are no
unwritten oral agreements between us.
Page 26<PAGE>
<PAGE>
If the aforementioned terms and conditions are satisfactory, please indicate
the Borrower's acceptance and approval of same by signing and returning the
original of this letter within 15 days from this date. We are pleased to be
able to provide this service and look forward to expanding our relationship.
Sincerely,
s/Ann E. Steck
Ann E. Steck
Vice President
AES:jc
Accepted and approved this 21 day of January, 1999.
LACLEDE GAS COMPANY
By: s/Ronald L. Krutzman
Treasurer and Asst. Secretary
Page 27
January 31, 1999
NationsBank, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202
Attention: Curtis Anderson
Re: Committed Line of Credit
Gentlemen:
In order to provide a line of credit primarily for commercial paper
backup and for other general corporate purposes, Laclede Gas Company (the
"Company") is asking NationsBank, N.A. (the "Bank") to make available to the
Company until January 31, 2000 (the "Termination Date"), a committed line of
credit in the amount of $10,000.000.
If the Company wishes to request advances under this line of credit
("Advances"), it shall first satisfy all conditions precedent under this
commitment letter, including but not limited to the execution and delivery
to the Bank of a promissory note or notes ("Notes") in form and substance
satisfactory to the Bank. Notes issued under this commitment letter shall
mature not more than 90 days from the date of execution, and no Advance
evidenced thereby shall have a maturity of more than 90 days.
Each Advance shall have a maturity date and shall bear interest at the
rate per annum quoted to the Borrower by the Bank and accepted by the
Borrower prior to the making of such Advance. Each Advance, and all accrued
and unpaid interest thereon, shall be due and payable on the earlier of such
maturity date or the Termination Date, subject to acceleration based on
events of default to be provided in the Note.
The Company may, upon at least one business day's notice to the Bank,
prepay any Advance in whole at any time, or from time to time in part;
provided, that the Borrower shall at the time of prepayment compensate the
Bank for any actual loss, cost or expense that the Bank incurs as a result
of such prepayment.
Further conditions. The making of all Advances hereunder is subject to
(i) the Company's execution and delivery to the Bank of the Notes as
provided above, and of such evidence of the Company's corporate power and
authority for the Notes and Advances as the Bank may request, and (ii) the
absence of any material adverse change since September 30, 1998, in the
financial condition or business operations of the Company.
The Bank may terminate this agreement at any time if the Bank
determines, in good faith, that the Bank is not satisfied with the Company's
conditions, operations or performance, financial or otherwise.
It is understood that any loans obtained by any subsidiary of the
Company, whether or not they are guaranteed by the Company, are excluded
from this agreement and shall not be charged against the line of credit
described above.
Page 28<PAGE>
<PAGE>
Nothing in this commitment letter is intended to alter the arrangements
set forth in: (i) the line of credit agreement dated August 20, 1998 between
the Company and several banks including the Bank, or the availability of up
to $35,000,000 of advances thereunder from the Bank on the terms set forth
in such agreement; or (ii) the additional line of credit agreement dated
December 20, 1998 between the Bank and the Company, or the availability of
up to $20,000,000 of advances thereunder.
If the foregoing is acceptable to the Bank, will you kindly sign in the
space indicated below to evidence this agreement between us.
Yours very truly,
LACLEDE GAS COMPANY
By: s/Ronald L. Krutzman
Treasurer & Assistant Secretary
Accepted and Agreed to:
NATIONSBANK, N.A.
By: s/Curtis Anderson
Title: Senior Vice President
Page 29
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
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1,960
0
<LONG-TERM-DEBT-NET> 179,280
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0
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<TOTAL-OPERATING-EXPENSES> 318,173
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<OTHER-INCOME-NET> 2,178
<INCOME-BEFORE-INTEREST-EXPEN> 40,657
<TOTAL-INTEREST-EXPENSE> 10,812
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49
<EARNINGS-AVAILABLE-FOR-COMM> 29,796
<COMMON-STOCK-DIVIDENDS> 11,811
<TOTAL-INTEREST-ON-BONDS> 6,694
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<EPS-PRIMARY> 1.69
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<FN>
Capital-surplus-paid-in is net of $24,017 of treasury stock.
Page 30
</TABLE>