UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 2001
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 4/27/01.
Page 1
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, 2000.
Page 2
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
March 31, March 31,
2001 2000 2001 2000
---- ---- ---- ----
Operating Revenues:
Utility operating revenues $417,776 $229,995 $741,590 $374,654
Non-utility operating revenues 24,966 8,316 46,177 15,011
------------------- -------------------
Total Operating Revenues 442,742 238,311 787,767 389,665
------------------- -------------------
Operating Expenses:
Utility operating expenses
Natural and propane gas 310,824 141,790 544,156 223,386
Other operation expenses 26,811 22,389 53,849 45,042
Maintenance 5,036 4,943 9,565 9,651
Depreciation and amortization 6,595 6,455 13,113 11,950
Taxes, other than income taxes 27,996 16,124 45,292 26,496
------------------- -------------------
Total utility operating
expenses 377,262 191,701 665,975 316,525
Non-utility operating expenses 24,508 8,172 45,073 14,761
------------------- -------------------
Total Operating Expenses 401,770 199,873 711,048 331,286
------------------- -------------------
Operating Income 40,972 38,438 76,719 58,379
Other Income and Income
Deductions - Net 564 (19) 1,556 831
------------------- -------------------
Income Before Interest and
Income Taxes 41,536 38,419 78,275 59,210
------------------- -------------------
Interest Charges:
Interest on long-term debt 4,377 3,785 8,754 7,569
Other interest charges 3,504 2,298 6,719 4,487
------------------- -------------------
Total Interest Charges 7,881 6,083 15,473 12,056
------------------- -------------------
Income Before Income Taxes 33,655 32,336 62,802 47,154
Income Taxes (Note 3) 12,948 12,882 23,578 18,119
------------------- -------------------
Net Income 20,707 19,454 39,224 29,035
Dividends on Preferred Stock 22 24 44 48
------------------- -------------------
Earnings Applicable to Common
Stock $ 20,685 $ 19,430 39,180 $ 28,987
=================== ===================
Average Number of Common Shares
Outstanding 18,878 18,878 18,878 18,878
Earnings Per Share of Common Stock $1.10 $1.03 $2.08 $1.54
Dividends Declared Per Share
of Common Stock $.335 $.335 $.67 $.67
See notes to consolidated financial statements.
Page 3
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
Mar. 31 Sept. 30
2001 2000
------- --------
(Thousands of Dollars)
(UNAUDITED)
ASSETS
Utility Plant $ 935,641 $ 921,378
Less: Accumulated depreciation and
amortization 377,454 372,545
----------------------
Net Utility Plant 558,187 548,833
----------------------
Other Property and Investments 27,935 26,546
----------------------
Current Assets:
Cash and cash equivalents 7,988 4,215
Accounts receivable - net 182,478 55,207
Materials, supplies, and merchandise
at avg cost 5,894 5,491
Natural gas stored underground for
current use at LIFO cost 19,030 94,787
Propane gas for current use at FIFO cost 9,621 12,201
Prepayments and other 4,581 3,303
Unamortized purchased gas adjustments 4,223 14,907
Delayed customer billings 62,790 -
Deferred income taxes 5,768 2,485
----------------------
Total Current Assets 302,373 192,596
----------------------
Deferred Charges:
Prepaid pension cost 104,136 97,229
Regulatory assets 68,332 64,336
Other 3,186 2,200
----------------------
Total deferred charges 175,654 163,765
----------------------
Total Assets $1,064,149 $ 931,740
======================
See notes to consolidated financial statements.
Page 4
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (Continued)
Mar. 31 Sept. 30
2001 2000
------- --------
(Thousands of Dollars)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock (20,743,625 shares issued) $ 20,744 $ 20,744
Paid-in capital 85,837 85,835
Retained earnings 226,955 200,423
Accumulated other comprehensive income - -
Treasury stock, at cost (1,865,638 shares
held) (24,017) (24,017)
----------------------
Total common stock equity 309,519 282,985
Redeemable preferred stock 1,603 1,763
Long-term debt (less sinking fund
requirements) 234,416 234,408
----------------------
Total Capitalization 545,538 519,156
----------------------
Current Liabilities:
Notes payable 195,700 127,000
Accounts payable 56,206 45,660
Advance customer billings - 15,290
Current portion of preferred stock 181 50
Taxes accrued 29,270 12,044
Other 32,703 31,060
----------------------
Total Current Liabilities 314,060 231,104
----------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 136,019 134,944
Unamortized investment tax credits 6,108 6,267
Pension and postretirement benefit costs 24,534 20,261
Regulatory liabilities 18,597 1,223
Other 19,293 18,785
----------------------
Total Deferred Credits and Other
Liabilities 204,551 181,480
----------------------
Total Capitalization and Liabilities $1,064,149 $ 931,740
======================
See notes to consolidated financial statements.
Page 5
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31,
2001 2000
---- ----
(Thousands of Dollars)
Operating Activities:
Net Income $ 39,224 $ 29,035
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 13,148 11,986
Deferred income taxes and investment
tax credits (5,825) 2,444
Other - net (50) 248
Changes in assets and liabilities:
Accounts receivable - net (127,271) (48,994)
Unamortized purchased gas adjustments 10,684 (5,871)
Deferred purchased gas costs 17,115 12,719
Delayed customer billings - net (78,080) (27,674)
Accounts payable 10,546 2,795
Refunds due customers (320) (1,009)
Taxes accrued 17,226 15,247
Natural gas stored underground 75,757 41,378
Other assets and liabilities (786) (6,543)
--------------------
Net cash provided by/(used) in
operating activities $(28,632) $ 25,761
--------------------
Investing Activities:
Construction expenditures (21,214) (24,549)
Investments - non-utility (286) (443)
Employee benefit trusts (925) (109)
Other (1,151) (1,244)
--------------------
Net cash used in investing activities $(23,576) $(26,345)
--------------------
Financing Activities:
Issuance of short-term debt - net 68,700 8,400
Dividends paid (12,692) (12,694)
Preferred stock reacquired and other (27) (40)
--------------------
Net cash provided by/(used) in
financing activities $ 55,981 $ (4,334)
--------------------
Net Increase (Decrease)in Cash and Cash
Equivalents $ 3,773 $ (4,918)
Cash and Cash Equivalents at Beg of Period 4,215 9,352
--------------------
Cash and Cash Equivalents at End of Period $ 7,988 $ 4,434
====================
Supplemental Disclosure of Cash Paid/(Refunded)
During the Period for:
Interest $ 14,984 $ 11,465
Income taxes 11,320 (3,277)
See notes to consolidated financial statements.
Page 6
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 quarters of the
fiscal year. Due to the seasonal nature of the Company's business,
earnings are typically concentrated in the first six months of the
fiscal year, which generally corresponds with the heating season.
Fiscal year earnings will likely be lower than earnings during the
first six months of the fiscal year, reflecting typically lower
summer sales volumes, partially offset by lower operating expenses.
3. Net provisions for income taxes were charged (credited) as
follows during the periods set forth below:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
2001 2000 2001 2000
---- ---- ---- ----
(Thousands of Dollars)
Federal
Current $ 5,398 $13,257 $25,234 $13,469
Deferred 5,710 (2,224) (5,067) 1,977
State and Local
Current 826 2,180 4,169 2,206
Deferred 1,014 (331) (758) 467
----------------- -----------------
Total $12,948 $12,882 $23,578 $18,119
================= =================
4. The Missouri Public Service Commission extended the Company's Gas Supply
Incentive Plan with specific modifications through September 30, 2001.
Under the modified plan, the Company continues to share with its
customers certain gains and losses related to the acquisition of its gas
supply assets, but Laclede retains all income from sales made outside
its service area. Total pretax income derived from the sharing
provision of the Plan, excluding income derived from off system sales,
cannot exceed $9.0 million for fiscal 2001. On November 17, 2000, the
Company filed a proposal with the MoPSC to extend, add a fixed price
component and make other modifications to the Plan. Hearings are
scheduled for June 2001.
Page 7
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.
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
2001 2000 2001 2000
---- ---- ---- ----
(Thousands of Dollars)
Net Benefits to Customers
and Shareholders $ 8,042 $ 8,615 $18,128 $17,485
-----------------------------------------------------------------
Shareholder Benefits
Off system and Incentive
Plan Revenues $ 7,119 $20,428 $15,648 $29,442
Off system and Incentive
Plan Expense 5,549 17,714 11,061 24,216
------- ------- ------- -------
Company Share -
Pretax Income $ 1,570 $ 2,714 $ 4,587 $ 5,226
======= ======= ======= =======
5. 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.
Gas All Other
(Thousands of Dollars) Utility (Non-Utility) Eliminations Consolidated
-----------------------------------------------------------------------
Three Months Ended
March 31, 2001
Operating revenues $ 417,776 $ 24,966 $ - $ 442,742
Net income (loss) 20,378 329 - 20,707
Total assets 1,054,533 22,986 (13,370) 1,064,149
Six Months Ended
March 31, 2001
Operating revenues $ 741,590 $ 46,177 $ - $ 787,767
Net income (loss) 38,454 770 - 39,224
Total assets 1,054,533 22,986 (13,370) 1,064,149
Three Months Ended
March 31, 2000
Operating revenues $ 229,995 $ 8,316 $ - $ 238,311
Net income (loss) 19,403 51 - 19,454
Total assets 868,325 16,432 (13,605) 871,152
Six Months Ended
March 31, 2000
Operating revenues $ 374,654 $ 15,011 $ - $ 389,665
Net income (loss) 29,068 (33) - 29,035
Total assets 868,325 16,432 (13,605) 871,152
Page 8
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 that produced certain by-products and
residuals. Environmental efforts are underway at two of the sites.
The actions relative to the site in Shrewsbury, Missouri with the state
and federal environmental regulatory agencies are nearing completion.
In the process of grading, some manufactured gas wastes were released
into an adjacent stream, which the Company contained. The Company and
the agencies have tentatively agreed on a work plan that will restore
the integrity of the stream bank and prevent a recurrence of any such
release. The current estimate for the overall costs of actions for this
site is $1,729,000. As of March 31, 2001, the Company has paid
$1,216,000 and reserved $513,000 for these actions.
With regard to the site in the City of St. Louis, Missouri, the Company
placed it in the Missouri Voluntary Cleanup Program, which provides
opportunities to contain costs while maximizing possibilities for
development. Laclede sold this site in 1950 and the subsequent owners
operated a coke manufacturing facility on it. The Company submitted a
site characterization report to the Missouri Department of Natural
Resources that it accepted subject to the Company's development of a
remedial action plan by the end of August 2001. The Company's current
estimate of the cost of the site investigation, agency oversight and
related legal and engineering consulting fees is $585,000. As of March
31, 2001, the Company has paid $461,000 and reserved an additional
$124,000. The Company requested that other former site owners and
operators share the costs of the investigation and any actions, and one
former owner has reimbursed the Company for some of the costs. The
Company plans to seek proportionate reimbursement of all costs relative
to this site from any other potentially responsible parties, if
practicable.
The costs relative to the Shrewsbury site are not believed to be
significant, but 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 insurers have agreed that its insurance
covers such costs and a majority have sent letters reserving their
rights with respect to these issues. The denial of coverage relative to
the Shrewsbury site is not expected to have a significant impact on the
Company, but the denial of coverage relative to the City of St. Louis
site, since the scope of those costs are unknown and may be material,
may have a material impact on the Company.
7. 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.
8. This Form 10-Q should be read in conjunction with the Notes to
Consolidated Financial Statements contained in the Company's Fiscal 2000
Form 10-K.
Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended March 31, 2001
- -------------------------------
Earnings were $1.10 per share for the quarter ended March 31, 2001
compared with $1.03 per share for the quarter ended March 31, 2000. The
increase in earnings was attributable to the favorable impact of higher
sales levels resulting from weather experienced this quarter that was 3%
colder than normal and 24% colder than the same quarter last year. The
impact of colder weather was partially offset by a higher provision for
uncollectible accounts reflecting a significant increase in accounts
receivable balances due to higher revenues compared with last year and other
increases in the costs of doing business.
A dramatic and unprecedented rise across the nation this winter in the
wholesale cost of natural gas, coupled with the significantly higher sales
levels arising from the colder weather, resulted in utility operating
revenues for the quarter ended March 31, 2001 of $417.8 million compared
with $230.0 million for the same quarter last year. Increases or decreases
in the wholesale cost of natural gas are passed on to Laclede's customers in
accordance with the Company's Purchased Gas Adjustment Clause. System
therms sold and transported increased by 53.2 million therms, or 13.1%,
above the quarter ended March 31, 2000.
Non-utility operating revenues for this quarter increased $16.7 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.
Utility operating expenses for the quarter ended March 31, 2001 were
$377.3 million compared with $191.7 million for the same period last year -
mainly the result of the extraordinary nationwide increase in the wholesale
cost of natural gas and the colder weather. Natural and propane gas expense
this quarter increased $169.0 million above last year's level primarily due
to the higher rates charged by the Company's suppliers and increased volumes
purchased for sendout mainly because of colder weather. Other operation and
maintenance expenses increased $4.5 million, or 16.5%, principally due to a
higher provision for uncollectible accounts, higher wage rates, lower net
pension credits, and reduced gains on lump sum pension settlements.
Depreciation and amortization expense increased slightly. Taxes, other than
income taxes, increased $11.9 million primarily due to higher gross receipts
taxes (reflecting the increased revenues).
Non-utility operating expenses increased $16.3 million this quarter mainly
due to increased gas expense associated with gas marketing sales by Laclede
Energy Resources, Inc.
Page 10
The $1.8 million increase in interest expense is primarily due to increased
short-term interest expense (reflecting higher average borrowings) and to
higher interest on long-term debt resulting from the issuance of $30 million
of 7.90% first mortgage bonds in September 2000.
The increase in income taxes is mainly due to higher pre-tax income.
Six Months Ended March 31, 2001
- -------------------------------
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 2001 earnings will likely
be lower than earnings during the first six months of this fiscal year,
reflecting typically lower summer sales volumes. The six months ended March
31, 2001 was the ninth coldest such period in the last 100 years with 13%
colder than normal weather. In contrast, the same period last year was the
third warmest comparable period for the century. As a result of this
extremely opposite weather experience, the six months ended March 31, 2001
was 37% colder than the comparable period last year, resulting in a
substantial increase in the earnings level achieved this year as compared
with the same period last year.
Earnings were $2.08 per share for the six months ended March 31, 2001
compared with $1.54 per share for the six-month period ended March 31, 2000.
In addition to the favorable impact of higher sales levels resulting from
colder weather, earnings also increased due to the benefit of the general
rate increase effective December 27, 1999. These factors were partially
offset by a higher provision for uncollectible accounts reflecting a
significant increase in accounts receivable balances due to higher revenues
compared with last year and higher costs of doing business.
The previously mentioned rise in the wholesale cost of natural gas, coupled
with the significantly higher sales levels arising from the colder weather,
resulted in utility operating revenues for the six months ended March 31,
2001 of $741.6 million compared with $374.7 million for the same period last
year. Increases or decreases in the wholesale cost of natural gas are passed
on to Laclede's customers in accordance with the Company's Purchased Gas
Adjustment Clause. System therms sold and transported increased by 179.7
million therms, or 26.1%, above the six months ended March 31, 2000.
Non-utility operating revenues for this period increased $31.2 million from
those revenues for the same period last year mainly due to increased gas
marketing sales by Laclede Energy Resources, Inc., a wholly-owned non-
utility subsidiary.
Utility operating expenses for the six months ended March 31, 2001 were
$666.0 million compared with $316.5 million for the same period last year -
mainly the result of the increase in the wholesale cost of natural gas and
the colder weather. Natural and propane gas expense increased $320.8
million above last year's level primarily due to the higher rates charged by
the Company's suppliers and increased volumes purchased for sendout mainly
because of colder weather. Other operation and maintenance expenses
increased $8.7 million, or 15.9%, principally due to a higher provision for
uncollectible accounts, higher wage rates, lower gains on lump sum pension
settlements, lower net pension credits and higher group insurance charges.
Page 11
Depreciation and amortization expense increased $1.2 million due to
additional depreciable property and an increased proportion of amortization
related to shorter-lived property. Taxes, other than income taxes,
increased $18.8 million primarily due to higher gross receipts taxes
(reflecting the increased revenues).
Non-utility operating expenses increased $30.3 million this period mainly
due to increased gas expense associated with gas marketing sales by Laclede
Energy Resources, Inc.
The $3.4 million increase in interest expense is primarily due to increased
short-term interest expense (reflecting higher average borrowings and
increased rates) and to higher interest on long-term debt resulting from the
issuance of $30 million of 7.90% first mortgage bonds in September 2000.
The increase in income taxes is mainly due to higher pre-tax income.
Updated Regulatory Matters
- --------------------------
The Missouri Public Service Commission (MoPSC or Commission) previously
approved an extension of the Company's Gas Supply Incentive Plan (GSIP) with
modifications through September 30, 2001. Under the GSIP, Laclede shares
certain gains and losses related to the acquisition and management of its
gas supply assets, but the Company retains all income resulting from sales
made outside of its traditional service area. During the quarter ended
March 31, 2001, these activities (the GSIP and off system sales)produced
savings of $6.5 million for Laclede customers and $1.6 million in pretax
income to its shareholders. For the six months ended March 31, 2001, these
activities produced savings of $13.5 million for Laclede customers and $4.6
million in pretax income to its shareholders. On November 17, 2000, the
Company filed a proposal with the MoPSC to extend, add a fixed price
component, and make other modifications to the GSIP. A hearing by the MoPSC
is scheduled for June 2001.
The Company's Purchased Gas Adjustment (PGA) Clause, through which the
Company flows through to customers the cost of purchased gas supplies,
allows two scheduled PGA filings each year, one for the summer months and
another for the winter period, plus one unscheduled winter filing if certain
conditions are met. The significant, ongoing increase in natural gas prices
from last spring through this winter necessitated an unscheduled filing that
increased PGA rates in January 2001. However, the MoPSC approved an
additional unscheduled filing in February 2001 which reduced PGA rates in
response to declining wholesale gas prices and to flow through a portion of
the gains made by the Company on its purchases and sales of financial
instruments under the Company's Price Stabilization Program. The MoPSC has
recently approved the Company's spring PGA filing, effective April 18, 2001,
that further reduces PGA rates.
The Price Stabilization Program (PSP) authorizes the Company to purchase
certain financial instruments in an effort to hedge against significant
increases in the cost of natural gas. The cost of such financial
instruments, however, like the cost of natural gas itself, increased
significantly from last spring through this past winter. As a result, the
MoPSC reduced the amount of natural gas purchases required to be covered by
such financial instruments for this past heating season. In February of
this year, the MoPSC approved modifications to the PSP, including that $4
million in supplemental funding be added to the PSP for the purchase of
financial instruments for the next heating season. The Company relinquished
a claim on $4 million arising from gains realized from the purchase and sale
Page 12
of such instruments during the recent heating season and has offered to
utilize a similar amount to provide funding for such instruments in the
2002-2003 program year. The MoPSC has also approved modifications to the
PSP to reduce the 2001-2002 percentage of gas requirements covered by the
PSP.
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 in the
Company's 1999 rate case relating to the calculation of the Company's
depreciation rates. On December 1, 2000, the court remanded this decision
to the MoPSC based on inadequate findings of fact. The Company believes
that any decision on this appeal would not adversely impact the $11.24
million increase in rates, which became effective December 27, 1999, or the
Company's earnings; however, a favorable decision, when recognized in the
Company's rates, would be expected to benefit the Company's cash flow.
In response to recent price increases in the commodity cost of natural gas
that have led to significant increases in the prices paid by customers of
local distribution companies, like Laclede, the MoPSC established a case and
task force to investigate the process for the recovery of natural gas
commodity cost increases by such companies from their customers. Meetings
of the task force have been scheduled throughout this spring and summer in
which Laclede intends to participate.
On April 20, 2001, the Company filed with the MoPSC a Weather Mitigation
Plan (Plan) that would protect Laclede's customers from weather-related
fluctuations in their bills and help stabilize the Company's annual revenues
in that regard. The Plan, as filed, would mitigate the volatile effects of
weather by basing a portion of customers' winter bills on usage associated
with normal weather and adjusting to offset the impact of temperatures that
are colder or warmer than normal. Currently, the Company's revenues
increase or decrease depending on colder- or warmer-than-normal weather.
The weather adjustment, if approved by the Commission, would apply to the
Company's distribution costs, that portion of a customer's bill that covers
Laclede's costs of operating and maintaining its distribution system and
storage facilities. It would not affect increases and decreases in
wholesale gas costs that are passed on to customers in accordance with the
Purchased Gas Adjustment Clause. By stabilizing the Company's weather-
related revenues, the Plan would allow Laclede to cover what are primarily
fixed costs that do not fluctuate with the weather while still providing the
Company's shareholders with a fair return on investment.
Accounting Pronouncements
- -------------------------
On October 1, 2000, the Company adopted Statements of Financial Accounting
Standards (SFAS) No. 133 and 138. SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedge accounting. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 requires that changes in the fair value
of a derivative be recognized currently in earnings, unless specific hedge
accounting criteria are met. SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" amends portions of
SFAS No. 133. Among other things, SFAS No. 138 provides an exception for
contracts intended for the normal purchase and normal sale of something
other than a financial instrument or derivative instrument, for which
physical delivery is probable. Some of the Company's gas supply and
Page 13
transportation contracts are derivative instruments as defined under SFAS
No. 133; however, all of these contracts qualify for the normal purchases
and normal sales exception provided by SFAS No. 138. The financial
instruments purchased by Laclede under its Price Stabilization Program are
derivative instruments under SFAS No. 133. These financial instruments are
purchased as hedges against significant increases in the price of natural
gas, as approved by the MoPSC, and are accounted for in accordance with the
Company's Purchased Gas Adjustment Clause. The effect of the Company's
adoption of these statements on October 1, 2000 has not had a significant
impact on the Company's financial position and results of operations.
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. The Company currently has a primary line of credit totaling $150
million extending through November 29, 2001. At this time, the Company also
has various supplemental lines of credit of $80 million that provide for
aggregate credit lines of $230 million through April 30, 2001 at which time,
aggregate credit lines will be reduced to $185 million through September 13,
2001. During fiscal 2001 to date, the Company sold commercial paper
aggregating to a maximum of $234.8 million at any one time, but did not
borrow from the banks under the aforementioned lines of credit. Short-term
borrowings amounted to $195.7 million at March 31, 2001.
Construction expenditures for utility purposes for the six months ended
March 31, 2001 were $21.2 million compared with $24.5 million for the same
period last year.
Capitalization at March 31, 2001 increased $26.4 million since September
30, 2000 and consisted of 56.7% common stock equity, .3% preferred stock
equity and 43.0% long-term debt.
The seasonal nature of the Company's sales affects the comparison of certain
balance sheet items at March 31, 2001 and at September 30, 2000 such as
Accounts Receivable - Net, Gas Stored Underground, Notes Payable, Accounts
Payable, Regulatory Liabilities, and Advance and Delayed 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 that produced certain by-products and
residuals. Environmental efforts are underway at two of the sites.
The actions relative to the site in Shrewsbury, Missouri with the state
and federal environmental regulatory agencies are nearing completion.
In the process of grading, some manufactured gas wastes were released
into an adjacent stream, which the Company contained. The Company and
the agencies have tentatively agreed on a work plan that will restore
Page 14
the integrity of the stream bank and prevent a recurrence of any such
release. The current estimate for the overall costs of actions for this
site is $1,729,000. As of March 31, 2001, the Company has paid $1,216,000
and reserved $513,000 for these actions.
With regard to the site in the City of St. Louis, Missouri, the Company
placed it in the Missouri Voluntary Cleanup Program, which provides
opportunities to contain costs while maximizing possibilities for
development. Laclede sold this site in 1950 and the subsequent owners
operated a coke manufacturing facility on it. The Company submitted a
site characterization report to the Missouri Department of Natural
Resources that it accepted subject to the Company's development of a
remedial action plan by the end of August 2001. The Company's current
estimate of the cost of the site investigation, agency oversight and
related legal and engineering consulting fees is $585,000. As of March
31, 2001, the Company has paid $461,000 and reserved an additional
$124,000. The Company requested that other former site owners and
operators share the costs of the investigation and any actions, and one
former owner has reimbursed the Company for some of the costs. The
Company plans to seek proportionate reimbursement of all costs relative
to this site from any other potentially responsible parties, if
practicable.
The costs relative to the Shrewsbury site are not believed to be
significant, but 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 insurers have agreed that its insurance
covers such costs and a majority have sent letters reserving their
rights with respect to these issues. The denial of coverage relative to
the Shrewsbury site is not expected to have a significant impact on the
Company, but the denial of coverage relative to the City of St. Louis
site, since the scope of those costs are unknown and may be material,
may have a material impact on the Company.
Other Matters
- -------------
On October 26, 2000, the Company announced its intention, subject to receipt
of the necessary approvals, to reorganize its corporate structure to form a
holding company known as The Laclede Group, Inc. As a result of the
reorganization, The Laclede Group, Inc. would become a holding company under
the Public Utility Holding Company Act of 1935 but would be exempt from all
provisions of the Act except Section 9(a)(2) thereof. At the January 25,
2001 annual meeting, Laclede Gas shareholders voted and approved the
reorganization. In December 2000, the Company filed an application with the
MoPSC requesting its approval of the proposal. A procedural schedule has
been established with a hearing currently scheduled for mid-July 2001.
Page 15
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
- collection of customer accounts receivable
- 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.
Page 16
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
Part II
OTHER INFORMATION
Page 17
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
Item 1. Legal Proceedings
For a description of the Company's environmental matters, see
Note 6 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 12 and 15.
Item 4. Submission of Matter to a Vote of Security Holders
The Annual Meeting of Shareholders of Laclede Gas Company was held
on January 25, 2001 for the purpose of electing three directors to
the Board of Directors, ratifying the appointment of independent
auditors and approving an agreement and plan of merger and
reorganization dated as of October 26, 2000. Proxies for the
meeting were solicited pursuant to Section 14(a) of the Exchange
Act of 1934.
Management's three nominees for directors listed in the proxy
statement were unopposed and were elected upon the following votes:
Name of Shares
Director Nominee Voted For Voted Withheld
------------------- ----------- ----------------
Dr. Henry Givens, Jr. 16,980,819 324,354
Mary Ann Krey VanLokeren 16,981,252 324,354
Douglas H. Yaeger 15,848,849 324,354
The proposal to ratify the appointment of Deloitte & Touche LLP,
Certified Public Accountants, to audit the accounts of the Company
for the fiscal year ending September 30, 2001 was passed upon the
following vote:
Shares Voted:
----------------
For the proposal 16,491,440
Against the proposal 265,195
Abstain regarding the proposal 171,358
The proposal to approve an agreement and plan of merger and
reorganization dated as of October 26, 2000 was passed upon the
following vote:
Share Voted:
---------------
For the proposal 13,333,009
Against the proposal 773,523
Abstain regarding the proposal 306,943
Broker Non-Votes 2,514,518
Page 18
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) Reports on Form 8-K
The Company filed a Form 8-K during the quarter ended
March 31, 2001.
Item reported:
On January 25, 2001, the Company filed an 8-K with the presentation
materials, including the financial results as of December 31, 2000,
for its annual meeting of shareholders held that same date.
Date of Report (Date of Earliest Event Reported):
January 25, 2001
Page 19
LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LACLEDE GAS COMPANY
Date: April 27, 2001
G. T. MCNEIVE, JR.
------------------------------
G. T. McNeive, Jr.
Sr. Vice President - Finance
and General Counsel
(Authorized Signatory and
Chief Financial Officer)
Page 20
Index to Exhibits
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------- ------- ------------
10.1 Line of Credit Agreement dated 22
January 31, 2001 with Commerce
Bank, N.A.
10.2 Line of Credit Agreements dated 29
January 16, 2001 with UMB
Bank, N.A.
10.3 Line of Credit Agreement dated 33
January 31, 2001 with Bank
of America, N.A.
Page 21