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, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission File Number 1-1822
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 7/28/00.
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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, 1999.
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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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues:
Utility operating revenues $86,134 $ 66,012 $460,788 $423,302
Non-utility operating revenues 9,180 4,385 24,294 12,539
------------------- --------------------
Total Operating Revenues 95,314 70,397 485,082 435,841
------------------- --------------------
Operating Expenses:
Utility operating expenses
Natural and propane gas 40,274 24,629 263,660 232,393
Other operation expenses 21,007 18,976 66,049 64,939
Maintenance 4,296 4,853 13,947 14,681
Depreciation and amortization 6,390 5,389 18,340 16,019
Taxes, other than income taxes 8,786 8,563 35,282 35,345
------------------- --------------------
Total utility operating
expenses 80,753 62,410 397,278 363,377
Non-utility operating expenses 8,929 4,245 23,703 12,101
------------------- --------------------
Total Operating Expenses 89,682 66,655 420,981 375,478
------------------- --------------------
Operating Income 5,632 3,742 64,101 60,363
Other Income and Income
Deductions-Net (Note 5) (5) 382 736 2,547
------------------- --------------------
Income Before Interest and
Income Taxes 5,627 4,124 64,837 62,910
------------------- --------------------
Interest Charges:
Interest on long-term debt 3,784 3,488 11,353 10,182
Other interest charges 1,878 1,300 6,365 5,418
------------------- --------------------
Total Interest Charges 5,662 4,788 17,718 15,600
------------------- --------------------
Income (Loss) Before Income Taxes (35) (664) 47,119 47,310
Income Tax Expense
(Benefit) (Note 3) (357) (859) 17,762 17,270
------------------- --------------------
Net Income 322 195 29,357 30,040
Dividends on Preferred Stock 22 24 70 73
------------------- --------------------
Earnings Applicable to Common
Stock $ 300 $ 171 $ 29,287 $ 29,967
=================== ====================
Average Number of Common Shares
Outstanding 18,878 18,411 18,878 17,889
Earnings Per Share of Common Stock $.02 $.01 $1.55 $1.68
Dividends Declared Per Share
of Common Stock $.335 $.335 $1.005 $1.005
<FN> See notes to consolidated financial statements.
</TABLE>
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<TABLE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30 Sept. 30
2000 1999
---- ----
(Thousands of Dollars)
(UNAUDITED)
ASSETS
<S> <C> <C>
Utility Plant $908,637 $876,431
Less: Accumulated depreciation and amortization 369,129 357,053
--------------------
Net Utility Plant 539,508 519,378
--------------------
Other Property and Investments 26,044 26,122
--------------------
Current Assets:
Cash and cash equivalents 4,198 9,352
Accounts receivable - net 52,545 42,028
Materials, supplies, and merchandise at avg cost 6,061 5,680
Natural gas stored underground for current use
at LIFO cost 39,292 64,112
Propane gas for current use at FIFO cost 12,201 11,697
Prepayments and other 4,020 2,309
Delayed customer billings 2,930 -
Deferred income taxes 6,745 10,216
--------------------
Total Current Assets 127,992 145,394
--------------------
Deferred Charges:
Prepaid pension cost 93,932 80,994
Regulatory assets 60,079 58,024
Other 2,224 1,707
--------------------
Total deferred charges 156,235 140,725
--------------------
Total Assets $849,779 $831,619
====================
<FN>
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (Continued)
<CAPTION>
June 30 Sept. 30
2000 1999
---- ----
(Thousands of Dollars)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
Capitalization:
Common stock (20,743,625 shares issued) $ 20,744 $ 20,744
Paid-in capital 85,838 85,826
Retained earnings 210,162 199,848
Accumulated other comprehensive income (77) (77)
Treasury stock, at cost (1,865,638 shares held) (24,017) (24,017)
--------------------
Total common stock equity 292,650 282,324
Redeemable preferred stock 1,763 1,923
Long-term debt (less sinking fund requirements) 204,387 204,323
--------------------
Total Capitalization 498,800 488,570
--------------------
Current Liabilities:
Notes payable 96,000 84,700
Accounts payable 36,536 31,716
Refunds due customers 167 1,425
Advance customer billings - 15,665
Current portion of preferred stock 53 35
Taxes accrued 15,015 5,804
Unamortized purchased gas adjustments 2,415 8,956
Other 20,679 25,104
--------------------
Total Current Liabilities 170,865 173,405
--------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 132,340 124,756
Unamortized investment tax credits 6,326 6,586
Pension and postretirement benefit costs 22,239 19,259
Regulatory liabilities 366 259
Other 18,843 18,784
--------------------
Total Deferred Credits and Other Liabilities 180,114 169,644
--------------------
Total Capitalization and Liabilities $849,779 $831,619
====================
<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,
2000 1999
---- ----
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income $ 29,357 $ 30,040
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,407 16,151
Deferred income taxes and investment tax credits 11,117 4,460
Other - net 488 (2,181)
Changes in assets and liabilities:
Accounts receivable - net (10,517) 111
Unamortized purchased gas adjustments (6,541) (11,921)
Deferred purchased gas costs (1,076) 28,178
Delayed customer billings - net (18,595) (8,016)
Accounts payable 4,820 1,730
Refunds due customers (1,258) (6,189)
Taxes accrued 9,211 6,254
Natural gas stored underground 24,820 26,028
Other assets and liabilities (18,008) (16,151)
--------------------
Net cash provided by operating activities $ 42,225 $ 68,494
--------------------
Investing Activities:
Construction expenditures (36,826) (38,121)
Investments - non-utility (485) 2,855
Employee benefit trusts (43) (330)
Other (2,155) (677)
--------------------
Net cash used in investing activities $(39,509) $(36,273)
--------------------
Financing Activities:
Issuance (Repayment) of short-term debt - net 11,300 (56,000)
Issuance of common stock - 24,235
Dividends paid (19,040) (17,700)
Issuance of first mortgage bonds - 25,000
Preferred stock reacquired and other (130) (2)
---------------------
Net cash used in financing activities $ (7,870) $(24,467)
---------------------
Net Increase (Decrease) in Cash and Cash Equivalents $ (5,154) $ 7,754
Cash and Cash Equivalents at Beg of Period 9,352 3,718
--------------------
Cash and Cash Equivalents at End of Period $ 4,198 $ 11,472
====================
Supplemental Disclosure of Cash Paid (Refunded)
During the Period for:
Interest $20,351 $17,727
Income taxes (3,295) 5,076
<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 the opinion of management, 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.
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,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Federal
Current $(7,964) $(9,626) $ 5,505 $10,933
Deferred 7,567 8,783 9,545 3,769
State and Local
Current (1,065) (1,579) 1,140 1,877
Deferred 1,105 1,563 1,572 691
----------------- -----------------
Total $ (357) $ (859) $17,762 $17,270
================= =================
</TABLE>
4. Under the Company's Gas Supply Incentive Plan as modified and approved
by the Missouri Public Service Commission (MoPSC or Commission)
effective October 1, 1999 for a one-year period, the Company continues
to share with its customers certain gains and losses related to the
acquisition of its gas supply assets. Additionally, Laclede is now
permitted to retain all income resulting from sales made outside its
traditional service area. These activities continue to provide benefits
to both the Company's customers and shareholders. Laclede's efforts
resulted in cost savings of $7.3 million for its customers and $3.0
million in pretax income to its shareholders during the quarter ended
June 30, 2000. For the nine months ended June 30, 2000, Laclede's
efforts resulted in cost savings of $19.6 million for its customers and
$8.2 million in pretax income to its shareholders. On February 1, 2000,
the Company submitted a filing with the MoPSC requesting that the
incentive plan be extended beyond September 30, 2000. On June 8, 2000,
the MoPSC issued an Order approving a recommendation made by the
Company, the MoPSC staff and other parties to extend the Gas Supply
Incentive Plan as modified for another year. As a result, the term of
the incentive plan now runs through September 30, 2001.
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Results of the Plan and off system sales activities 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,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Net Benefits to Customers
and Shareholders $10,337 $ 7,774 $27,822 $20,123
---------------------------------------------------------------------
Shareholder Benefits
Off system and Incentive
Plan Revenues $ 9,254 $ 3,040 $38,696 $14,184
Off system and Incentive
Plan Expense 6,276 1,506 30,492 10,674
------- ------- ------- -------
Company Share -
Pretax Income $ 2,978 $ 1,534 $ 8,204 $ 3,510
======= ======= ======= =======
</TABLE>
5. Other Income and Income Deductions - Net
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Investment Losses $ - $ - $ - $ (163)
Gain on Sale of Property - 364 - 2,275
Allowance for Funds Used
During Construction 53 250 318 538
Other (58) (232) 418 (103)
------- ------- ------- -------
Other Income and Income
Deductions - Net $ (5) $ 382 $ 736 $ 2,547
======= ======= ======= =======
</TABLE>
A pre-tax gain of $1.9 million was recognized in the quarter ended
December 31, 1998 by the Company's wholly-owned subsidiary,
Laclede Development Company, on the November 1998 sale of property known
as Centre Park 40. Laclede Development owned its interest in Centre
Park 40 through a real estate partnership.
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6. Laclede Gas Company is a public utility engaged in the retail
distribution of natural gas. The Company has also made investments in
some non-utility businesses as part of a diversification program, none
of which are reportable segments. These non-regulated operations are
primarily conducted through five wholly-owned subsidiaries. There are
no material intersegment revenues.
<TABLE>
<CAPTION> Gas All Other
(Thousands of Dollars) Utility (Non-Utility) Eliminations Consolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three Months Ended
June 30, 2000
Operating revenues $ 86,134 $ 9,180 $ - $ 95,314
Net income (loss) 190 132 - 322
Total assets 846,442 17,173 (13,836) 849,779
Nine Months Ended
June 30, 2000
Operating revenues $460,788 $ 24,294 $ - $485,082
Net income (loss) 29,217 140 - 29,357
Total assets 846,442 17,173 (13,836) 849,779
Three Months Ended
June 30, 1999
Operating revenues $ 66,012 $ 4,385 $ - $ 70,397
Net income (loss) 110 85 - 195
Total assets 785,366 14,379 (7,219) 792,526
Nine Months Ended
June 30, 1999
Operating revenues $423,302 $ 12,539 $ - $435,841
Net income 29,156 884 - 30,040
Total assets 785,366 14,379 (7,219) 792,526
</TABLE>
7. 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. With regard to the
Company's former manufactured gas plant site located in Shrewsbury,
Missouri, the Company and the state and federal environmental regulatory
agencies have agreed upon the actions needed at this site. The Company
currently estimates the overall costs of these actions will be
approximately $1,417,000. As of June 30, 2000, the Company has paid
$773,000 and reserved $644,000 for these actions. If the regulatory
agencies require any additional actions, Laclede will incur additional
costs.
Another site in the City of St. Louis previously owned by the Company is
in the Missouri Voluntary Cleanup Program. Laclede currently estimates
that the cost of the investigation, oversight costs and legal and
engineering consulting costs for this site may be approximately
$509,000. Currently, the Company has paid $430,000 and reserved an
additional $79,000. The Company has requested that other former site
owners and operators participate in the cost of any site investigation.
One former owner and operator agreed to participate in these costs and
has reimbursed the Company to date for $150,000. The Company
anticipates additional reimbursement from this party of approximately
$29,000. The Company plans to seek proportionate reimbursement of all
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costs relative to this site from any other potentially responsible
parties if practicable.
While the scope of costs relative to the site in Shrewsbury will not be
material, the scope of 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 of costs relative
to this site are unknown and may be material, the denial of coverage may
have a material impact on the Company.
Previously, the MoPSC approved the Company's use of a cost deferral
mechanism for these costs. Deferral of such costs terminated July 31,
1999, and any subsequent costs are being charged to expense. The
Commission authorized previously deferred costs to be included in rates
without return on investment and amortized over a fifteen-year period,
effective with the implementation of new rates on December 27, 1999.
8. In October 1999, the staff of the MoPSC recommended that the Company
credit ratepayers with $2.5 million of pretax income the Company had
realized in fiscal 1997 and fiscal 1998 in connection with its treatment
of a gas supply contract under the operation of the Company's Gas Supply
Incentive Plan. A hearing on a portion of staff's recommendation was
held in April, 2000 and the matter is awaiting Commission decision. The
Company continues to believe that there is no basis for such
recommendation and is confident that the Company will ultimately prevail
on the merits.
9. On October 30, 1998, the MoPSC issued an order opening a docket
addressing the adequacy of Laclede's copper service line replacement
program. The staff filed its report on August 31, 1999 containing a
modified replacement schedule for such service lines. In response, the
Company proposed an alternative program based upon the evaluation of
recent survey data. On February 18, 2000, the Company, MoPSC staff,
and the Office of the Public Counsel submitted a settlement to the
Commission in which they jointly recommended a program for direct-buried
copper service lines that, in the Company's opinion, will promote public
safety while ensuring the economical replacement and/or renewal of such
lines over a reasonable period of time. On May 18, 2000, the Commission
approved the settlement and it is currently being implemented by the
Company. Costs associated with the program are either being deferred
through a deferral mechanism approved by the MoPSC or capitalized
through the normal course of business.
10. In January 2000, Laclede Energy Resources, Inc. (LER), a wholly-owned
non-utility subsidiary, finalized a multi-year arrangement with
UtiliCorp United, Inc. (UtiliCorp) to provide a significant portion of
the gas supply for a natural gas fired power plant currently under
construction in Pleasant Hill, Missouri. The four-year agreement is
scheduled to go into effect June 1, 2001. LER will provide UtiliCorp
with up to 5 billion cubic feet of natural gas annually - the equivalent
of about 5% of the annual sendout of Laclede Gas Company in a normal
year - and will manage fluctuations in UtiliCorp's gas purchase
requirements on an as-needed basis to satisfy summer power needs.
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11. Certain prior-period amounts have been reclassified to conform to
current-period presentation. These reclassifications did not affect
consolidated net income for the periods presented.
12. This Form 10-Q should be read in conjunction with the Notes to
Consolidated Financial Statements contained in the Company's 1999 Form
10-K.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consistently warm-weather patterns, including some of the warmest winters in
recorded history, continue to have a negative impact on the sales and
earnings of Laclede Gas Company. Last year the warm temperatures
experienced during the nine-month period ended June 30, 1999 resulted in one
of the warmest years on record. Despite the extreme experience of that
period, the weather during the comparable period this year, the nine months
ended June 30, 2000, has proven to be even warmer. Temperatures during the
nine months ended June 30, 2000 were 16% warmer than normal and 5% warmer
than last year, and resulted in the third warmest such period on record.
Such abnormally warm weather has a marked impact on Laclede because our core
business - the distribution and sale of heating energy - is highly weather
sensitive.
Quarter Ended June 30, 2000
----------------------------
Earnings per share based on average shares outstanding were $.02 per share
for the quarter ended June 30, 2000 compared with earnings of $.01 per share
for the comparable quarter last year. The increase is attributable to the
benefit of the Company's general rate increase which became effective
December 27, 1999 and higher income related to the Gas Supply Incentive Plan
and off system sales. These factors were largely offset by higher costs of
doing business.
Utility operating revenues for the quarter ended June 30, 2000 were $86.1
million compared with $66.0 million for the quarter ended June 30, 1999.
The $20.1 million, or 30.5%, increase was principally due to higher
wholesale gas costs, increased off system sales revenues this period, and
the general rate increase. Wholesale gas costs are passed on to Laclede's
customers under its Purchased Gas Adjustment Clause. System therms sold and
transported increased by 1.5 million therms, or 1.1%, above those sold and
transported in the quarter ended June 30, 1999.
Non-utility operating revenues for this quarter increased $4.8 million over
such 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 for the quarter ended June 30, 2000 increased by
$18.3 million, or 29.4%, above such expenses for the same quarter last year.
Natural and propane gas expense this quarter increased $15.6 million, or
63.5%, above that for last year primarily due to higher rates charged by the
Company's suppliers and increased off system sales gas expense. Other
operation and maintenance expenses increased $1.5 million, or 6.2%,
principally due to higher net pension costs, increased group insurance
charges and higher wage rates. These factors were partially offset by lower
charges for distribution and maintenance. Depreciation and amortization
expense increased $1.0 million, or 18.6%, primarily due to additional
depreciable property. Taxes, other than income taxes, increased 2.6% mainly
due to higher gross receipts taxes, reflecting the increased gas sales
revenues, partially offset by lower real estate and personal property taxes.
Non-utility operating expenses increased $4.7 million this quarter mainly
due to increased gas expense associated with gas marketing sales by Laclede
Energy Resources, Inc.
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Other income and income deductions - net decreased $.4 million compared to
that for the same quarter last year due to a gain recognized last year on a
minor sale of land. The $.9 million, or 18.3% increase in interest expense
mainly reflects the higher interest on long-term debt resulting from the
issuance of $25 million of 7% first mortgage bonds in June 1999 and the
increased short-term interest expense attributable to increased rates and
higher borrowings.
Nine Months Ended June 30, 2000
-------------------------------
Earnings per share based on average shares outstanding were $1.55 per share
for the nine months ended June 30, 2000 compared with $1.68 per share for
the comparable period last year. The decrease in earnings was primarily due
to lower gas sales reflecting 5% warmer weather than the nine months ended
June 30, 1999, the effect of a one-time $.07 per share gain from the sale of
property recorded by a non-utility subsidiary in the comparable period last
year, and higher costs of doing business. These decreases were partially
offset by the benefit of general rate relief, higher income related to the
incentive plan and off system sales, and a lower provision for uncollectible
accounts.
Utility operating revenues increased $37.5 million, or 8.9%, above those for
the corresponding period of fiscal year 1999. This increase was primarily
due to higher wholesale gas costs, higher off system sales revenues, and the
general rate increase. These increases were partially offset by lower gas
sales volumes arising from the warmer weather. System therms sold and
transported decreased by 58.2 million therms, or 6.6%, below the level
experienced during the nine months ended June 30, 1999.
Non-utility operating revenues for this period increased $11.8 million from
those revenues for the same period last year mainly due to increased gas
marketing sales by Laclede Energy Resources, Inc.
Utility operating expenses increased by $33.9 million, or 9.3%, above last
year. Natural and propane gas expense increased by $31.3 million, or 13.5%,
above last year mainly due to higher rates charged by our suppliers and
higher off system sales gas expense, partially offset by reduced gas
purchases due to the warmer weather. Other operation and maintenance
expenses increased $.4 million, or .5%, primarily due to higher wage rates,
increased group insurance charges, and higher net pension costs. These
factors were essentially offset by a lower provision for uncollectible
accounts reflective of reduced revenues and lower distribution and
maintenance expenses. Depreciation and amortization expense increased $2.3
million, or 14.5%, primarily due to additional depreciable property. Taxes,
other than income taxes, decreased by .2% principally due to lower real
estate and personal property taxes, partially offset by higher gross
receipts taxes, mainly reflecting increased gas sales revenues.
Non-utility operating expenses increased $11.6 million this period mainly
due to increased gas expense associated with gas marketing sales by Laclede
Energy Resources, Inc.
Other income and income deductions - net decreased $1.8 million below the
same period last year primarily due to a one-time pre-tax gain of
approximately $1.9 million, or $.07 per share, recognized last year 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 $2.1
million, or 13.6%, increase in interest expense is mainly due to the
issuance of $25 million of 7% first mortgage bonds in June 1999 and
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increased short-term interest expense primarily due to increased rates and
higher borrowings.
Updated Regulatory Matters
--------------------------
At the state level, there have been several important developments during
the fiscal year affecting Laclede, some of which are still pending.
On December 14, 1999 the Missouri Public Service Commission (MoPSC or
Commission) issued its report and order in the Company's 1999 rate case, in
which the MoPSC: (1) approved a partial settlement reached earlier in the
year by the parties on some issues (2) determined certain contested issues
and (3) authorized the Company to increase its rates for gas service by
$11.24 million on an annual basis. The new rates and settlement became
effective for service rendered on and after December 27, 1999. Under the
partial settlement, the Company discontinued deferring certain costs for
future recovery. As approved by the MoPSC, previously deferred costs will be
recovered, without return on investment, beginning with implementation of
the new rates. The deferral of certain costs was eliminated going forward,
as the ongoing expenses associated with those specific areas are included in
the newly approved rates. On May 11, 2000, the Company appealed to the
Circuit Court of Cole County, Missouri the MoPSC's decision on one of the
contested issues mentioned in item (2) above relating to the calculation of
the Company's depreciation rates. The Company believes that any decision on
this appeal will have no impact on the $11.24 million increase in rates or
on the Company's earnings; however, a favorable decision would be expected
to benefit the Company's cash flow.
Under the Company's Gas Supply Incentive Plan as modified and approved by
the MoPSC effective October 1, 1999 for a one-year period, the Company
continues to share with its customers certain gains and losses related to
the acquisition of its gas supply assets. Additionally, Laclede is now
permitted to retain all income resulting from sales made outside its
traditional service area. These activities continue to provide benefits to
both the Company's customers and shareholders. Laclede's efforts resulted
in cost savings of $7.3 million for its customers and $3.0 million in pretax
income to its shareholders during the quarter ended June 30, 2000. For the
nine months ended June 30, 2000, Laclede's efforts resulted in cost savings
of $19.6 million for its customers and $8.2 million in pretax income to its
shareholders. On February 1, 2000, the Company submitted a filing with the
MoPSC requesting that the incentive plan be extended beyond September 30,
2000. On June 8, 2000, the MoPSC issued an Order approving a recommendation
made by the Company, staff and other parties to extend the Gas Supply
Incentive Plan as modified for another year. As a result, the term of the
incentive plan now runs through September 30, 2001.
On July 21, 1999, the MoPSC approved Laclede's existing Price Stabilization
Program which authorizes the Company to purchase certain financial
instruments to protect its customers during the heating season from
unusually large increases in the unregulated cost of natural gas. Because
of unexpected increases in the cost of such financial instruments, the
Company notified the Commission on June 2, 2000, that it would not be
participating this year in one of the program's incentive features. The
Company also made a filing on July 7, 2000 requesting that the MoPSC approve
certain temporary revisions to the program in order to enhance the Company's
opportunity to obtain price protection for its customers under current
market conditions. The Company has requested that such changes be made
effective August 1, 2000. On July 19, 2000, the staff of the Commission
filed its response to the Company's June 2, 2000 notification and its July
7, 2000 request for temporary revisions to the program. In its response,
the staff acknowledged the Company's right to withdraw from the incentive
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feature of the program but suggested that it might nevertheless pursue a
prudence review of that action. The Company disagrees with the
applicability of such a review. The staff also recommended that the
Commission authorize some, but not all, of the proposed temporary revisions
to the program, but did so on terms that may prove to be unacceptable to the
Company. In order to better match customer billings with higher than
anticipated natural gas prices, the Company also requested and received
approval to implement a special unscheduled summer Purchased Gas Adjustment
filing allowing the Company to increase rates charged to its customers
effective July 15, 2000. Increases and decreases in wholesale gas costs are
passed on to customers in accordance with the Purchased Gas Adjustment
Clause.
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 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 2000, 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, 2001, with repayment of any loans outstanding on that date
permitted from April 30, 2001 to June 30, 2001. These, along with $140
million of previously obtained supplemental lines of credit extending
through the fall of 2000, provided total lines of credit of $170 million for
the 1999-2000 heating season.
During fiscal 2000 to date, the Company sold commercial paper aggregating to
a maximum of $158.2 million at any one time, but did not borrow from the
banks under the aforementioned lines of credit. Short-term borrowings
amounted to $96.0 million at June 30, 2000.
On June 29, 2000, the Company filed a registration statement with the
Securities and Exchange Commission (SEC) in connection with the sale of up
to $350 million of first mortgage bonds, debt securities and common stock.
The SEC has permitted the registration statement to become effective
July 24, 2000. We previously had applied with the MoPSC for authority to
issue debt and equity, and at this writing, the MoPSC is still reviewing our
filing. The amount, timing, and type of financing to be issued under this
shelf registration will depend on cash requirements and market conditions.
Construction expenditures for utility purposes for the nine months ended
June 30, 2000 were $36.8 million compared with $38.1 million for such
expenditures for the same period last year.
Capitalization at June 30, 2000 increased $10.2 million since September 30,
1999 and consisted of 58.7% common stock equity, .3% preferred stock equity
and 41.0% long-term debt.
The seasonal nature of the Company's sales affects the comparison of certain
balance sheet items at June 30, 2000 and at September 30, 1999 such as
Accounts Receivable - Net, Gas Stored Underground, Notes Payable, Accounts
Payable and Advance and Delayed Customer Billings.
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Environmental Matters
---------------------
The Company is subject to various environmental laws and regulations. To
date these laws and regulations and the Company's involvement with
environmental regulatory agencies relative to two sites, one currently owned
and one previously owned, have not materially affected the Company's
financial position and results of operations.
Previously, the MoPSC approved the Company's use of a cost deferral
mechanism for its costs relative to environmental matters. Deferral of such
costs terminated July 31, 1999, and any subsequent costs are being charged
to expense. The MoPSC authorized previously deferred costs to be included
in rates, without return on investment, and amortized over a fifteen-year
period, effective with the implementation of new rates on December 27, 1999.
For a more detailed discussion of these matters, see Note 7 to the unaudited
Notes to Consolidated Financial Statements on page 9.
Other Matters
-------------
In October 1999, the staff of the MoPSC recommended that the Company credit
ratepayers with $2.5 million of pretax income the Company had realized in
fiscal 1997 and fiscal 1998 in connection with its treatment of a gas supply
contract under the operation of the Company's Gas Supply Incentive Plan. A
hearing on a portion of staff's recommendation was held in April, 2000 and
the matter is awaiting Commission decision. The Company continues to
believe that there is no basis for such recommendation and is confident that
the Company will ultimately prevail on the merits.
On October 30, 1998, the MoPSC issued an order opening a docket addressing
the adequacy of Laclede's copper service line replacement program. The
staff filed its report on August 31, 1999 containing a modified replacement
schedule for such service lines. In response, the Company proposed an
alternative program based upon the evaluation of recent survey data. On
February 18, 2000, the Company, MoPSC staff, and the Office of the Public
Counsel submitted a settlement to the Commission in which they jointly
recommended a program for direct-buried copper service lines that, in the
Company's opinion, will promote public safety while ensuring the economical
replacement and/or renewal of such lines over a reasonable period of time.
On May 18, 2000, the Commission approved the settlement and it is currently
being implemented by the Company. Costs associated with the program are
either being deferred through a deferral mechanism approved by the MoPSC or
capitalized through the normal course of business.
In January 2000, Laclede Energy Resources, Inc., (LER) finalized a multi-
year arrangement with UtiliCorp United, Inc. (UtiliCorp) to provide a
significant portion of the gas supply for a natural gas fired power plant
currently under construction in Pleasant Hill, Missouri. The four-year
agreement is scheduled to go into effect June 1, 2001. LER will provide
UtiliCorp with up to 5 billion cubic feet of natural gas annually - the
equivalent of about 5% of the annual sendout of Laclede Gas Company in a
normal year - and will manage fluctuations in UtiliCorp's gas-purchase
requirements on an as-needed basis to satisfy summer power needs.
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Accounting Pronouncements
-------------------------
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" in June 1998. SFAS 133 would have been
effective in fiscal 2000; however, its effective date was delayed until
fiscal 2001 as a result of the issuance of SFAS No. 137. SFAS No. 133
establishes accounting and reporting standards for derivative instruments
and hedging activities. The issuance of SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" in June 2000
amends portions of SFAS No. 133. Management is continuing to evaluate the
impact that adoption of these standards will have on the Company's financial
position and results of operations. At this writing, no material effect is
anticipated based on current circumstances.
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
-- purchased gas adjustment provisions
-- franchise renewal
-- environmental or safety requirements
- the effects of any industry or corporate restructuring
- the results of litigation
- 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 workforce issues
- statutory or tax changes and
- changes in accounting standards
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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LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
Part II
OTHER INFORMATION
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LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
Item 1. Legal Proceedings
For a description of the Company's environmental matters, see Note
7 to the unaudited Notes to Consolidated Financial Statements on
page 9. For a description of the Company's pending regulatory
matters, see "Updated Regulatory Matters" and "Other Matters" in
the "Management's Discussion and Analysis" section on pages 14 and
16.
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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: July 28, 2000
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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Index to Exhibits
Sequentially
Exhibit Numbered
Number Exhibit Page
------- ------- ------------
27 Financial Data Schedule UT 22
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