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 June 30, 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.
18,877,987 shares, Common Stock, par value $1 per share at 8/6/99.
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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.
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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 Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues:
Utility operating revenues $66,010 $77,193 $422,662 $490,686
Non-utility operating revenues 4,388 3,102 12,235 11,912
------------------- -------------------
Total Operating Revenues 70,398 80,295 434,897 502,598
------------------- -------------------
Operating Expenses:
Utility Operating Expenses
Natural and propane gas 24,628 34,486 232,336 290,876
Other operation expenses 18,959 20,239 64,884 65,999
Maintenance 4,839 4,636 14,634 14,091
Depreciation and amortization 5,386 6,771 16,013 20,038
Taxes, other than income taxes 8,564 8,636 35,337 37,143
------------------- -------------------
Total utility operating expenses 62,376 74,768 363,204 428,147
Non-utility operating expenses 4,280 2,854 12,274 10,281
------------------- -------------------
Total Operating Expenses 66,656 77,622 375,478 438,428
------------------- -------------------
Operating Income 3,742 2,673 59,419 64,170
Other Income and Income
Deductions-Net 382 110 3,491 838
------------------- -------------------
Income Before Interest and
Income Taxes 4,124 2,783 62,910 65,008
------------------- -------------------
Interest Charges:
Interest on long-term debt 3,488 3,648 10,182 11,450
Other interest charges 1,300 1,344 5,418 4,664
------------------- -------------------
Total Interest Charges 4,788 4,992 15,600 16,114
------------------- -------------------
Income Before Income Taxes (664) (2,209) 47,310 48,894
Income Taxes (Note 3) (859) (1,303) 17,270 17,797
------------------- -------------------
Net Income 195 (906) 30,040 31,097
Dividends on Preferred Stock 24 24 73 73
------------------- -------------------
Earnings Applicable to Common Stock $ 171 $ (930) $ 29,967 $ 31,024
=================== ===================
Average Number of Common
Shares Outstanding 18,411 17,611 17,889 17,587
Earnings Per Share of Common Stock $.01 $(.05) $1.68 $1.76
Dividends Declared Per Share
of Common Stock $.335 $.33 $1.005 $.99
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 Sept. 30
1999 1998
---- ----
(Thousands of Dollars)
(UNAUDITED)
ASSETS
<S> <C> <C>
Utility Plant $864,941 $833,685
Less: Accumulated depreciation and amortization 352,295 343,100
--------------------
Net Utility Plant 512,646 490,585
--------------------
Other Property and Investments 29,914 33,834
--------------------
Current Assets:
Cash and cash equivalents 11,472 3,718
Accounts receivable - net 45,944 46,055
Materials, supplies, and merchandise at avg cost 5,823 5,591
Natural gas stored underground for current use
at LIFO cost 28,945 54,973
Propane gas for current use at FIFO cost 11,700 12,840
Prepayments 2,530 2,927
Deferred income taxes 6,316 9,933
--------------------
Total Current Assets 112,730 136,037
--------------------
Deferred Charges 137,236 110,691
--------------------
Total Assets $792,526 $771,147
====================
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (Continued)
<CAPTION>
June 30 Sept. 30
1999 1998
---- ----
(Thousands of Dollars)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
Capitalization:
Common stock (Issued - June 1999, 20,743,625
shares; Sept. 1998, 19,493,625 shares) $ 20,744 $ 19,494
Paid-in capital 85,951 62,966
Retained earnings 210,174 198,342
Treasury stock, at cost (1,865,638 shares held) (24,017) (24,017)
--------------------
Total common stock equity 292,852 256,785
Redeemable preferred stock 1,958 1,960
Long-term debt (less sinking fund requirements) 204,215 179,238
--------------------
Total Capitalization 499,025 437,983
--------------------
Current Liabilities:
Notes payable 42,500 98,500
Accounts payable 22,422 20,692
Refunds due customers 1,400 7,589
Advance customer billings 920 8,936
Taxes accrued 14,944 8,690
Unamortized purchased gas adjustments 3,894 15,815
Other 21,504 23,429
--------------------
Total Current Liabilities 107,584 183,651
--------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 115,728 102,856
Unamortized investment tax credits 6,673 6,933
Other 63,516 39,724
--------------------
Total Deferred Credits and Other Liabilities 185,917 149,513
--------------------
Total Capitalization and Liabilities $792,526 $771,147
====================
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
June 30,
1999 1998
---- ----
(Thousands of Dollars)
<S> <C> <C>
Operating
Activities:
Net Income $ 30,040 $ 31,097
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,151 20,112
Deferred income taxes and investment tax credits 4,460 2,423
Other - net (2,181) (700)
Changes in assets and liabilities:
Accounts receivable - net 111 (4,010)
Unamortized purchased gas adjustments (11,921) (10,981)
Deferred purchased gas costs 28,178 22,694
Delayed customer billings - net (8,016) (22,246)
Accounts payable 1,730 (5,962)
Refunds due customers (6,189) 7,479
Taxes accrued 6,254 7,882
Natural gas stored underground 26,028 28,387
Other assets and liabilities (20,500) (14,009)
--------------------
Net cash provided by operating activities 64,145 62,166
--------------------
Investing Activities:
Construction expenditures (36,566) (35,920)
Investments - non-utility 1,300 (1,344)
Employee benefit trusts 4,019 (160)
Other (677) 56
--------------------
Net cash used in investing activities (31,924) (37,368)
--------------------
Financing Activities:
Repayment of short-term debt (56,000) (9,000)
Issuance of common stock 24,235 1,415
Dividends paid (17,700) (17,379)
Issuance of first mortgage bonds 25,000 25,000
Retirement of first mortgage bonds - (25,000)
Redemption of preferred stock (2) -
--------------------
Net cash used in financing activities (24,467) (24,964)
--------------------
Net Increase (Decrease) in Cash and Cash Equivalents 7,754 (166)
Cash and Cash Equivalents at Beginning of Period 3,718 4,508
--------------------
Cash and Cash Equivalents at End of Period $ 11,472 $ 4,342
====================
Supplemental Disclosure of Cash Paid
During the Period for:
Interest $17,727 $18,669
Income taxes 5,076 4,766
<FN>
See notes to consolidated financial statements.
</TABLE>
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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 the succeeding quarter 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 Nine Months Ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Utility Operations
Current:
Federal $(9,055) $(7,772) $11,187 $12,894
State and local (1,539) (1,321) 1,872 2,253
Deferred:
Federal 8,466 6,774 3,088 1,826
State and local 1,513 1,219 583 505
----------------- -----------------
Subtotal $ (615) $(1,100) $16,730 $17,478
----------------- -----------------
Non-Utility Operating
Income and Other Income
and Deductions
Current:
Federal $ (571) $ (234) $ (254) $ 171
State and local (40) (2) 5 56
Deferred:
Federal 317 28 681 79
State and local 50 5 108 13
----------------- -----------------
Subtotal $ (244) $ (203) $ 540 $ 319
----------------- -----------------
Total $ (859) $(1,303) $17,270 $17,797
================= =================
</TABLE>
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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 Nine Months Ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Net Benefits to Customers
and Shareholders $ 7,774 $ 7,923 $20,123 $23,191
---------------------------------------------------------------------
Shareholder Benefits
Incentive Plan Revenues $ 3,040 $ 6,877 $14,184 $24,504
Incentive Plan Gas Expense 1,506 5,424 10,674 19,662
------- ------- ------- -------
Company Share -
Pretax Income $ 1,534 $ 1,453 $ 3,510 $ 4,842
======= ======= ======= =======
</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.
Hearings were held in late July before the Missouri Public Service
Commission regarding the Company's request to extend for another three
years the Gas Supply Incentive Plan with some modifications. The
current program is scheduled to expire September 30, 1999, and the
Commission has recognized the need for a timely resolution of this
matter.
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, 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
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1998. On April 20, 1999 the MoPSC issued its order rejecting the
proposal of its staff. This order became effective on April 30,
1999. One of the parties sought a rehearing of the MoPSC's order
denying the staff's refund proposal. This request for rehearing was
denied, and no further appeals were taken. This matter is now closed.
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
June 30, 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 site
investigation plan to the Missouri Department of Natural Resources on
November 16, 1998, which investigation is now complete. Recently,
Laclede sent its report on the investigation to the Missouri Department
of Natural Resources. 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 $297,000 and reserved an additional $237,000. The
Company has requested that other former site owners and operators
participate in the cost of any site investigation. One former owner and
operator, who is currently in a Chapter 11 bankruptcy proceeding,
recently agreed to participate in these costs, and the agreement
recently received the bankruptcy court's approval. The Company plans to
seek proportionate reimbursement of all costs relative to this site from
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.
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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 is applying for appropriate rate recovery of these
costs in its current rate case. The recovery of these costs, however,
is being questioned in Laclede's current rate proceeding.
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 purchased the connecting
pipeline from Phillips for approximately $1.4 million in June 1999,
allowing adequate access to propane supply markets.
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. At this time, the
Staff is continuing its investigation and expects to issue its
recommendations by August 30, 1999. The Company currently faces two
lawsuits and one claim 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.
10. Basis of Consolidation - The consolidated financial statements include
the accounts of the Laclede Gas Company and its subsidiary companies
(Company). All subsidiaries are wholly owned and all appropriate
intercompany transactions have been eliminated. Certain prior-period
amounts have been reclassified to conform to current-period
presentation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AN RESULTS OF OPERATION
RESULTS OF OPERATIONS
Quarter Ended June 30, 1999
- ----------------------------
Due to the seasonal nature of the Company's core gas distribution business,
earnings are typically concentrated in the first six months of the fiscal
year, the period that corresponds with the heating season. In the remaining
warm spring and summer months, gas sales volumes are low, and revenues and
earnings generally decline. This year, the Company earned a third-quarter
profit, although modest, due largely to an effective cost-control program
which resulted in expense reductions.
The Company's quarterly earnings were $.01 per share compared with a loss of
$.05 per share in the same quarter last year. The expense reductions, some
of which resulted from regulatory accounting changes instituted July 1, 1998
as part of the Company's 1998 rate case settlement, were partially offset by
the effect of lower gas sales volumes resulting from weather that was 22%
warmer than in the same period last year.
Utility operating revenues for the quarter were $66.0 million compared with
$77.2 million for the quarter ended June 30, 1998. The $11.2 million, or
14.5%, decrease resulted primarily from lower gas costs, lower gas supply
incentive plan revenues and lower 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 warmer weather led to the lower gas
sales. System therms sold and transported decreased by 9.4 million therms,
or 6.7%, below the quarter ended June 30, 1998.
Non-utility operating revenues for this quarter increased $1.3 million from
those revenues for the same quarter last year mainly due to increased gas
marketing sales by Laclede Energy Resources, Inc., a wholly-owned
non-utility subsidiary of the Company.
Utility operating expenses decreased by $12.4 million, or 16.6%, below these
expenses in the same quarter last year. Natural and propane gas expense in
this quarter decreased $9.9 million, or 28.6%, below the expense for last
year's third quarter. This decrease reflects lower rates to the Company for
natural and propane gas, lower incentive plan expense and a decrease in gas
purchases resulting from the warmer weather. Other operation and
maintenance expenses decreased $1.1 million from last year. This decrease
was mainly due to lower net pension costs, which were largely offset by a
higher provision for uncollectible accounts and higher wage rates.
Depreciation and amortization expense decreased 20.5% 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, decreased
slightly below the amount for last year mainly due to lower gross receipts
taxes (reflecting decreased revenues) largely offset by higher real estate
and personal property taxes in this fiscal year.
Non-utility operating expenses increased $1.4 million this quarter mainly
due to increased gas expense associated with gas marketing sales by Laclede
Energy Resources, Inc., a wholly-owned non-utility subsidiary of the
Company.
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Other income and income deductions increased $.3 million due to a gain
recognized on a minor sale of land. Interest charges dropped by 4.1% due
mainly to the redemption in May 1998 of a 9 5/8% first mortgage bond issue
and decreased short-term interest expense due to lower average borrowings.
This decrease in interest expense was partially offset by higher interest on
long-term debt resulting from the issuance of $25 million of 7% first
mortgage bonds in June 1999.
Nine Months Ended June 30, 1999
- -------------------------------
Earnings were $1.68 per share compared with $1.76 per share for the
comparable period last year. The weather was 12% warmer than normal and 7%
warmer than last year. The decrease in earnings was primarily due to lower
gas sales arising from the warm weather, partially offset by expense
reductions.
Utility operating revenues decreased $68.0 million, or 13.9% 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 revenues. System therms sold and
transported decreased by 45.1 million therms, or 4.9% below the level
experienced during the nine months ended June 30, 1998.
Non-utility operating revenues increased $.3 million this fiscal year
primarily due to higher gas marketing sales, partially offset by minor
variations in several areas.
Utility operating expenses decreased by $64.9 million, or 15.2% below last
year. Natural and propane gas expense decreased by $58.5 million, or
20.1%, 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 decreased slightly
primarily due to lower net pension costs (due in part from regulatory
accounting changes instituted July 1, 1998) and reduced distribution
expenses. These decreases were largely offset by a higher provision for
uncollectible accounts, lower gains recognized this fiscal year on lump sum
pension settlements, higher wage rates and a higher provision for injuries
and damages. Depreciation and amortization expense decreased 20.1%
primarily due to the lower depreciation rates effective July 1, 1998,
partially offset by additional depreciable property. Taxes, other than
income taxes, decreased by 4.9% principally due to lower gross receipts
taxes (mainly reflecting decreased revenues), partially offset by higher
real estate and personal property taxes in this fiscal year.
Non-utility operating expenses increased $2.0 million this fiscal year
mainly due to higher costs incurred by the Company's wholly-owned
subsidiary, Laclede Energy Resources, Inc., related to natural gas financial
instruments and gas expense associated with gas marketing activities.
Other income and income deductions increased $2.7 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 increase was also attributable to improved
results in several areas. The 3.2% decrease in interest charges is mainly
due to the redemption in May 1998 of a 9 5/8% first mortgage bond issue.
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This decrease was partially offset by increased short-term interest expense
due to higher average borrowings and higher interest on long-term debt
resulting from the issuance of $25 million of 7% first mortgage bonds in
June 1999.
The $.5 million decrease in income taxes is principally due to lower pre-tax
income.
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. A series of pre-hearing conferences were held
in mid-July with the Commission's Staff, the Office of Public Counsel and
other parties regarding our proposed general rate increase. In the event
the Company does not obtain an adequate resolution of the issues involved, a
full hearing before the Commission is scheduled to begin on August 30, 1999.
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. Hearings
were held in late July before the Missouri Public Service Commission
regarding the Company's request to extend for another three years the Gas
Supply Incentive Plan with some modifications. The current program is
scheduled to expire September 30, 1999, and the Commission has recognized
the need for a timely resolution of this matter.
Since the Company began operating under the incentive plan in October 1996,
Laclede has achieved overall net benefits of $86.2 million for its
shareholders and customers. During the nine months ended June 30, 1999, the
incentive plan operations resulted in gas cost savings of $16.6 million to
its customers and $3.5 million in pretax income to its shareholders.
On July 21, 1999, the Missouri Public Service Commission gave final approval
to Laclede's proposal to extend and significantly modify its existing Price
Stabilization Program. Under the initial program, which was first approved
in 1997, Laclede was authorized to purchase certain financial instruments to
protect its customers during the heating season from unusually large
increases in the unregulated cost of natural gas. Under the modifications
proposed by the Company and approved by the Commission, Laclede still will
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provide significant price protection for its customers above a pre-
determined level but it will now have the opportunity to share in any gains
and cost reductions realized under the program. Laclede believes this new
program can provide significant benefits for both its customers and
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.
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 $42.5 million at June 30, 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. The registration statement was amended on April 15, 1999 and April
27, 1999 and became effective on April 29, 1999. On May 5, 1999, the
Company issued and sold 1,250,000 shares of its common stock to the public
through an underwriting group led by Merrill Lynch & Co. and A.G. Edwards &
Sons, Inc. The net proceeds were 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 had already been issued and sold. On June 2, 1999, the Company
issued the remaining $25.0 million first mortgage bonds with an interest
rate of 7%, at an overall cost to the Company of 7.04%. The bonds were
dated June 1, 1999 and mature June 1, 2029. The proceeds were used to repay
short-term debt. The bonds were rated Aa3 by Moody's and AA- by Standard &
Poor's. The ratings also apply to the Company's other outstanding bonds.
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
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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 purchased the connecting
pipeline from Phillips for approximately $1.4 million in June 1999, allowing
adequate access to supply markets.
Construction expenditures for the nine months ended June 30, 1999 were
$36.6 million compared with $35.9 million for the same period last year.
Capitalization at June 30, 1999 increased $61.0 million from September 30,
1998 and consisted of 58.7% common stock equity, .4% preferred stock equity,
and 40.9% long-term debt.
The seasonality of the Company's business impacts some balance sheet items
such as Natural Gas Stored Underground, Notes Payable and
Advance Customer Billings.
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
June 30, 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 site
investigation plan to the Missouri Department of Natural Resources on
November 16, 1998, which investigation is now complete. Recently,
Laclede sent its report on the investigation to the Missouri Department
of Natural Resources. 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 $297,000 and reserved an additional $237,000. The Company has
requested that other former site owners and operators participate in the
cost of any site investigation. One former owner and operator, who is
currently in a Chapter 11 bankruptcy proceeding, recently agreed to
participate in these costs, and the agreement recently received the
bankruptcy court's approval. The Company plans to seek proportionate
reimbursement of all costs relative to this site from 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
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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 is applying for appropriate rate recovery of these
costs in its current rate case. The recovery of these costs, however, is
being questioned in Laclede's current rate proceeding.
YEAR 2000 ISSUE
Laclede Gas Company is well into the process of assessing and addressing the
Year 2000 issues that might adversely affect Laclede.
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. With regard to
the few personal computer applications which may be important, their
replacements/upgrades are currently being implemented. Testing will
continue on an ongoing basis.
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.
The remediation of those relatively few important items with problems has
been developed and its implementation is in process.
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 to operate remotely 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. Contingency planning is substantially complete. The plans
will continue to be reviewed for adequacy and improved upon if necessary
during the remainder of this year.
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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. Laclede has, to
the extent possible, verified the vendors' ability to continue to supply the
items and services to Laclede in the year 2000. The Company will conduct
additional follow-ups during the remainder of the year to verify further the
ability of the Company's vendors to continue to supply items and services
through the transition into the year 2000 and beyond. 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.
Based on all of the information available to us at this time, we do not
expect to experience any interruption in Laclede's business operations, or
to cause any materially adverse consequences to our customers, as a result
of the year 2000 situation.
As of June 30, 1999, the Company has incurred total costs of approximately
$16.2 million for replacements and modifications of various computer
systems. Of this amount, Laclede capitalized $14.7 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 will amount to approximately $2 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 has
applied for recovery of these interim expenses in its current rate
proceeding. However, recovery is being questioned.
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
became effective on April 30, 1999. One of the parties sought a rehearing
of the MoPSC's order denying the staff's refund proposal. This request for
rehearing was denied, and no further appeals were taken. This matter is now
closed.
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.
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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 will allow Laclede to continue
expansion of its service area in areas where the Company anticipates
significant growth to occur during the next few years. The Company received
the Missouri Public Service Commission's approval 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
- 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.
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<PAGE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
Part II
OTHER INFORMATION
Page 19
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<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. At this time,
the Staff is continuing its investigation and expects to issue its
recommendations by August 30, 1999. The Company currently faces
two lawsuits and one claim 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.
Superior Oil Company and Union Pacific Railroad Company dismissed,
without prejudice, their action against Laclede Gas Company seeking
contribution under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 for costs incurred and to be
incurred in remediating a site in St. Louis.
Item 5. Other Information
Effective June 1, 1999, the Board of Directors of Laclede Gas
Company elected Mr. W. Stephen Maritz, President and Chief
Executive Officer of Maritz Inc., to fill the vacant position on
the Board. The vacancy resulted from the resignation of Mr.
Richard E. Beumer, Vice Chairman of Jacobs Engineering Group Inc.
The board meeting schedule for Jacobs directly coincided and
conflicted with the board meeting schedule of Laclede Gas Company.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) Reports on Form 8-K
The Company filed two Form 8-Ks during the quarter ended
June 30, 1999.
Item Reported in Form 8-K with April 29, 1999 Date of Report:
Item 5. Other Events - Pursuant to an underwriting agreement dated
April 29, 1999, Laclede Gas Company on May 5, 1999 sold to the
underwriters named on schedule I to the underwriting agreement,
1,250,000 shares of its common stock, par value $1 per share. The
Company filed the registration statement on Form S-3
(No. 333-74423) with respect to the shares on March 15, 1999,
Amendment No. 1 to the S-3 on April 15, 1999, and Amendment No. 2
to the S-3 on April 27, 1999. The Securities and Exchange
Commission declared it effective on April 29, 1999. A copy of the
underwriting agreement was exhibit 1 to the Form 8-K. The Company
issued a press release regarding the sale of the 1,250,000 shares
on May 5, 1999, a copy of which was attached as exhibit 2 to the
Form 8-K.
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Item reported in Form 8-K with May 27, 1999 Date of Report:
Item 5. Other Events - Pursuant to an underwriting agreement,
effective May 27, 1999, Laclede Gas Company on June 2, 1999 sold to
ABN AMRO Incorporated, the underwriter named on schedule I of the
underwriting agreement, $25,000,000 aggregate principal amount of
its first mortgage bonds, 7% series due June 1, 2029. The bonds
were issued under the Mortgage and Deed of Trust, dated as of
February 1, 1945, under which State Street Bank and Trust Company
of Missouri, N.A. is the present trustee. Such mortgage and deed
of trust had previously been amended and supplemented by a Twenty-
Fourth Supplemental Indenture, dated as of June 1, 1999. The
registration statement on Form S-3 with respect to the first
mortgage bonds (File no. 33-60996) was filed by Laclede Gas Company
on April 13, 1993 and declared effective by the Securities and
Exchange Commission on April 21, 1993. The underwriting agreement
and the supplemental indenture were exhibits 1.01 and 4.01,
respectively, to the Form 8-K.
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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: August 6, 1999
G. T. McNeive, Jr.
---------------------
G. T. McNeive, Jr.
Sr. Vice President - Finance
and General Counsel
(Authorized Signatory and
Chief Financial Officer)
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<PAGE>
Index to Exhibits
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------- ------- ------------
4 Twenty-Fourth Supplemental Indenture
dated May 27, 1999 entered in to by Laclede
Gas Company and ABN AMRO Incorporated
relative to the first mortgage bonds,
incorporated by reference from exhibit 4.01 to
Form 8-K filed on June 4, 1999
(File No. 1-1822).
27 Financial Data Schedule UT 24
Page 23
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 512,646
<OTHER-PROPERTY-AND-INVEST> 29,914
<TOTAL-CURRENT-ASSETS> 112,730
<TOTAL-DEFERRED-CHARGES> 137,236
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 792,526
<COMMON> 20,744
<CAPITAL-SURPLUS-PAID-IN> 61,934
<RETAINED-EARNINGS> 210,174
<TOTAL-COMMON-STOCKHOLDERS-EQ> 292,852
1,958
0
<LONG-TERM-DEBT-NET> 204,215
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 42,500
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 251,001
<TOT-CAPITALIZATION-AND-LIAB> 792,526
<GROSS-OPERATING-REVENUE> 434,897
<INCOME-TAX-EXPENSE> 17,270
<OTHER-OPERATING-EXPENSES> 375,478
<TOTAL-OPERATING-EXPENSES> 392,748
<OPERATING-INCOME-LOSS> 42,149
<OTHER-INCOME-NET> 3,491
<INCOME-BEFORE-INTEREST-EXPEN> 45,640
<TOTAL-INTEREST-EXPENSE> 15,600
<NET-INCOME> 30,040
73
<EARNINGS-AVAILABLE-FOR-COMM> 29,967
<COMMON-STOCK-DIVIDENDS> 18,135
<TOTAL-INTEREST-ON-BONDS> 10,182
<CASH-FLOW-OPERATIONS> 64,145
<EPS-BASIC> 1.68
<EPS-DILUTED> 1.68
<FN>
Capital-surplus-paid-in is net of $24,017 of treasury stock.
Page 24
</TABLE>
