-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QejL+fLNZhAfDEOef9BZhYr4puXAeakUt0aWxJweDp6mkeK0ACXO9acoyKCVK9H6 iiFXRhwsTFRHIXZh/5cQJQ== 0000057183-01-500016.txt : 20010730 0000057183-01-500016.hdr.sgml : 20010730 ACCESSION NUMBER: 0000057183-01-500016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010727 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LACLEDE GAS CO CENTRAL INDEX KEY: 0000057183 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 430368139 STATE OF INCORPORATION: MO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01822 FILM NUMBER: 1691187 BUSINESS ADDRESS: STREET 1: 720 OLIVE ST CITY: ST LOUIS STATE: MO ZIP: 63101 BUSINESS PHONE: 3143420500 MAIL ADDRESS: STREET 1: 720 OLIVE ST CITY: ST LOUIS STATE: MO ZIP: 63101 10-Q 1 body.txt FORM 10-Q QUARTER ENDED 6/30/01 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, 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 7/27/01. 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 Nine Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- Operating Revenues: Utility operating revenues $109,462 $ 86,134 $851,052 $460,788 Non-utility operating revenues 13,439 9,159 59,616 24,170 ------------------- ------------------- Total Operating Revenues 122,901 95,293 910,668 484,958 ------------------- ------------------- Operating Expenses: Utility operating expenses Natural and propane gas 62,737 40,274 606,893 263,660 Other operation expenses 24,806 21,007 78,655 66,049 Maintenance 4,849 4,296 14,414 13,947 Depreciation and amortization 6,597 6,390 19,710 18,340 Taxes, other than income taxes 11,553 8,786 56,845 35,282 ------------------- ------------------- Total utility operating expenses 110,542 80,753 776,517 397,278 Non-utility operating expenses 13,109 8,921 58,182 23,682 ------------------- ------------------- Total Operating Expenses 123,651 89,674 834,699 420,960 ------------------- ------------------- Operating Income (Loss) (750) 5,619 75,969 63,998 Other Income and Income Deductions - Net (100) 8 1,456 839 ------------------- ------------------- Income (Loss) Before Interest and Income Taxes (850) 5,627 77,425 64,837 ------------------- ------------------- Interest Charges: Interest on long-term debt 4,414 3,784 13,168 11,353 Other interest charges 2,361 1,878 9,080 6,365 ------------------- ------------------- Total Interest Charges 6,775 5,662 22,248 17,718 ------------------- ------------------- Income (Loss) Before Income Taxes (7,625) (35) 55,177 47,119 Income Tax Expense (Benefit)(Note 3) (3,952) (357) 19,626 17,762 ------------------- ------------------- Net Income (Loss) (3,673) 322 35,551 29,357 Dividends on Preferred Stock 22 22 66 70 ------------------- ------------------- Earnings (Loss) Applicable to Common Stock $ (3,695) $ 300 35,485 $ 29,287 =================== =================== Average Number of Common Shares Outstanding 18,878 18,878 18,878 18,878 Earnings (Loss) Per Share of Common Stock $(.20) $.02 $1.88 $1.55 Dividends Declared Per Share of Common Stock $.335 $.335 $1.005 $1.005 See notes to consolidated financial statements. Page 3 LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET June 30 Sept. 30 2001 2000 ------- -------- (Thousands of Dollars) (UNAUDITED) ASSETS Utility Plant $ 944,514 $ 921,378 Less: Accumulated depreciation and amortization 379,276 372,545 ---------------------- Net Utility Plant 565,238 548,833 ---------------------- Other Property and Investments 27,721 26,546 ---------------------- Current Assets: Cash and cash equivalents 2,518 4,215 Accounts receivable - net 93,672 55,207 Materials, supplies, and merchandise at avg cost 5,736 5,491 Natural gas stored underground for current use at LIFO cost 35,021 94,787 Propane gas for current use at FIFO cost 14,889 12,201 Prepayments and other 3,317 3,303 Unamortized purchased gas adjustments - 14,907 Delayed customer billings 25,207 - Deferred income taxes 9,784 2,485 ---------------------- Total Current Assets 190,144 192,596 ---------------------- Deferred Charges: Prepaid pension cost 108,044 97,229 Regulatory assets 71,555 64,336 Other 4,033 2,200 ---------------------- Total deferred charges 183,632 163,765 ---------------------- Total Assets $ 966,735 $ 931,740 ====================== See notes to consolidated financial statements. Page 4 LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (Continued) June 30 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 85,846 85,835 Retained earnings 216,936 200,423 Accumulated other comprehensive income - - Treasury stock, at cost (1,865,638 shares held) (24,017) (24,017) ---------------------- Total common stock equity 299,509 282,985 Redeemable preferred stock 1,435 1,763 Long-term debt (less sinking fund requirements) 284,437 234,408 ---------------------- Total Capitalization 585,381 519,156 ---------------------- Current Liabilities: Notes payable 90,200 127,000 Accounts payable 46,279 45,660 Advance customer billings - 15,290 Current portion of preferred stock 232 50 Taxes accrued 24,335 12,044 Unamortized purchased gas adjustments 252 - Other 28,639 31,060 ---------------------- Total Current Liabilities 189,937 231,104 ---------------------- Deferred Credits and Other Liabilities: Deferred income taxes 142,269 134,944 Unamortized investment tax credits 6,028 6,267 Pension and postretirement benefit costs 19,370 20,261 Regulatory liabilities 4,292 1,223 Other 19,458 18,785 ---------------------- Total Deferred Credits and Other Liabilities 191,417 181,480 ---------------------- Total Capitalization and Liabilities $ 966,735 $ 931,740 ====================== See notes to consolidated financial statements. Page 5 LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) Nine Months Ended June 30, 2001 2000 ---- ---- (Thousands of Dollars) Operating Activities: Net Income $ 35,551 $ 29,357 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,795 18,407 Deferred income taxes and investment tax credits (3,672) 11,117 Other - net (1,061) 488 Changes in assets and liabilities: Accounts receivable - net (38,465) (10,517) Unamortized purchased gas adjustments 15,159 (6,541) Deferred purchased gas costs 2,826 (1,076) Delayed customer billings - net (40,497) (18,595) Accounts payable 619 4,820 Refunds due customers (343) (1,258) Taxes accrued 12,291 9,211 Natural gas stored underground 59,766 24,820 Other assets and liabilities (20,484) (18,008) -------------------- Net cash provided by operating activities $ 41,485 $ 42,225 -------------------- Investing Activities: Construction expenditures (33,649) (36,826) Investments - non-utility (318) (485) Employee benefit trusts (1,242) (43) Other (2,000) (2,155) -------------------- Net cash used in investing activities $(37,209) $(39,509) -------------------- Financing Activities: Issuance of first mortgage bonds 50,000 - Issuance (Repayment) of short-term debt - net (36,800) 11,300 Dividends paid (19,038) (19,040) Preferred stock reacquired and other (135) (130) -------------------- Net cash used in financing activities $ (5,973) $ (7,870) -------------------- Net Decrease in Cash and Cash Equivalents $ (1,697) $ (5,154) Cash and Cash Equivalents at Beg of Period 4,215 9,352 -------------------- Cash and Cash Equivalents at End of Period $ 2,518 $ 4,198 ==================== Supplemental Disclosure of Cash Paid/(Refunded) During the Period for: Interest $ 24,242 $ 20,351 Income taxes 11,857 (3,295) 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 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: Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2001 2000 2001 2000 ---- ---- ---- ---- (Thousands of Dollars) Federal Current $(2,865) $(7,964) $22,369 $ 5,505 Deferred (591) 7,567 (5,658) 9,545 State and Local Current (433) (1,065) 3,736 1,140 Deferred (63) 1,105 (821) 1,572 ----------------- ----------------- Total $(3,952) $ (357) $19,626 $17,762 ================= ================= 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. A hearing on the proposal was held in June 2001, but, as of the date of this filing, an order has not yet been issued. 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 Nine Months Ended June 30, June 30, ------------------ ----------------- 2001 2000 2001 2000 ---- ---- ---- ---- (Thousands of Dollars) Net Benefits to Customers and Shareholders $11,124 $10,337 $29,252 $27,822 ----------------------------------------------------------------- Shareholder Benefits Off system and Incentive Plan Revenues $ 8,660 $ 9,254 $24,308 $38,696 Off system and Incentive Plan Expense 5,481 6,276 16,542 30,492 ------- ------- ------- ------- Company Share - Pretax Income $ 3,179 $ 2,978 $ 7,766 $ 8,204 ======= ======= ======= ======= 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 June 30, 2001 Operating revenues $ 109,462 $ 13,439 $ - $ 122,901 Net income (loss) (3,928) 255 - (3,673) Total assets 962,462 22,838 (18,565) 966,735 Nine Months Ended June 30, 2001 Operating revenues $ 851,052 $ 59,616 $ - $ 910,668 Net income (loss) 34,526 1,025 - 35,551 Total assets 962,462 22,838 (18,565) 966,735 Three Months Ended June 30, 2000 Operating revenues $ 86,134 $ 9,159 $ - $ 95,293 Net income (loss) 190 132 - 322 Total assets 852,487 17,173 (13,836) 855,824 Nine Months Ended June 30, 2000 Operating revenues $ 460,788 $ 24,170 $ - $ 484,958 Net income (loss) 29,217 140 - 29,357 Total assets 852,487 17,173 (13,836) 855,824 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 $1,844,000. As of June 30, 2001, the Company has paid $1,283,000 and reserved $561,000 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 $590,000. As of June 30, 2001, the Company has paid $476,000 and reserved an additional $114,000. 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 June 30, 2001 - ------------------------------- 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. During the quarter ended June 30, 2001, the Company experienced a loss of $.20 per share compared with a gain of $.02 per share for the quarter ended June 30, 2000. The decrease in earnings was primarily attributable to the negative impact of lower sales levels resulting from weather experienced this quarter that was 41% warmer than normal and 37% warmer than the same quarter last year. Earnings also decreased due to higher costs of doing business and increased interest expense. Utility operating revenues for the quarter ended June 30, 2001 were $23.3 million, or 27.1%, above those for the same quarter last year. The increase was primarily due to higher wholesale gas costs that are passed on to Laclede's customers in accordance with the Company's Purchased Gas Adjustment Clause, partially offset by reduced sales volumes reflecting the warmer weather. System therms sold and transported decreased by 16.7 million therms, or 12.6%, below the quarter ended June 30, 2000. Non-utility operating revenues for this quarter increased $4.3 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. Utility operating expenses for the quarter ended June 30, 2001 increased $29.8 million or 36.9%, above those for the same period last year. Natural and propane gas expense this quarter increased $22.5 million above last year's level primarily due to higher rates charged by the Company's suppliers, partially offset by decreased volumes purchased for sendout mainly because of warmer weather. Other operation and maintenance expenses increased $4.4 million, or 17.2%, due to higher wage rates, lower net pension credits, reduced gains on lump sum pension settlements, and higher distribution and maintenance expenses. Depreciation and amortization expense increased slightly. Taxes, other than income taxes, increased $2.8 million primarily due to higher gross receipts taxes (reflecting the increased revenues)and higher real estate and personal property taxes. Non-utility operating expenses increased $4.2 million this quarter mainly due to increased gas expense associated with gas marketing sales by Laclede Energy Resources, Inc. Page 10 The $1.1 million increase in interest expense is due to increased short-term interest expense (primarily attributable to higher average borrowings) and to higher interest on long-term debt resulting mainly from the issuance of $30 million of 7.90% first mortgage bonds in September 2000. Nine Months Ended June 30, 2001 - ------------------------------- Temperatures for the nine months ended June 30, 2001 were 9% colder than normal. In contrast, the same period last year was the third warmest comparable period for the century. As a result, the nine months ended June 30, 2001 was 30% 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 $1.88 per share for the nine months ended June 30, 2001 compared with $1.55 per share for the nine-month period ended June 30, 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, higher carrying costs on natural gas purchased in the wholesale market prior to receiving payment from customers, and higher costs of doing business. A dramatic rise across the nation this past 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 nine months ended June 30, 2001 of $851.1 million compared with $460.8 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 163.0 million therms, or 19.9%, above the nine months ended June 30, 2000. Non-utility operating revenues for this period increased $35.4 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 nine months ended June 30, 2001 were $776.5 million compared with $397.3 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 $343.2 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 $13.1 million, or 16.3%, principally due to a higher provision for uncollectible accounts, higher wage rates, lower gains on lump sum pension settlements, lower net pension credits, higher distribution and maintenance expenses and higher group insurance charges. Depreciation and amortization Page 11 expense increased $1.4 million due to additional depreciable property and an increased proportion of amortization related to shorter-lived property. Taxes, other than income taxes, increased $21.6 million primarily due to higher gross receipts taxes (reflecting the increased revenues), and to a lesser extent, increased real estate and personal property taxes. Non-utility operating expenses increased $34.5 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 increased $.6 million primarily due to higher interest income, partially offset by expenses related to the holding company formation and strategic planning initiatives. The $4.5 million increase in interest expense is due to increased short-term interest expense (primarily attributable to higher average borrowings) and to higher interest on long-term debt resulting mainly 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 - -------------------------- On May 18, 2001, Laclede filed a request with the Missouri Public Service Commission (MoPSC or Commission) 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. On June 7, 2001, the Commission issued an order suspending the general rate increase 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 $39.8 million and increase a typical residential heating customer's bill by an average of about $4.90 a month. Historically, the MoPSC has not granted Laclede's rate increase requests in full. The MoPSC 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 June 30, 2001, these activities (the GSIP and off system sales) produced savings of $7.9 million for Laclede customers and $3.2 million in pretax income to its shareholders. For the nine months ended June 30, 2001, these activities produced savings of $21.5 million for Laclede customers and $7.8 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. The MoPSC held a hearing on the matter in June 2001, but as of the date of this filing, an order has not yet been issued. 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 increase in natural gas prices from last spring through this past winter necessitated an unscheduled filing that increased PGA rates in January 2001. However, the MoPSC approved an Page 12 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 Company's spring PGA filing, effective April 18, 2001, further reduced 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 granted the Company's request to reduce 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 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. The Company is pursuing an extension of 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. On June 28, 2001, the MoPSC issued an Order that upheld its previous Order. This decision has no adverse impact on the $11.24 million increase in rates, which became effective December 27, 1999, or the Company's earnings. On July 6, 2001, the Company filed an Application for Rehearing of the Commission's second Order. The Company believes a favorable decision, when recognized in the Company's rates, would be expected to benefit the Company's cash flows. 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 has participated. 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 Company's 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. On July 12, 2001, the MoPSC suspended the Company's tariff filing in response to motions filed by the Commission's Staff and Public Counsel. A prehearing conference was held on July 23, 2001. Page 13 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 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. The Company also had various supplemental lines of credit of up to $100 million that provided for aggregate credit lines of up to $250 million during various periods of the heating season. On April 30, 2001, the aggregate credit lines were 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 $90.2 million at June 30, 2001. On June 26, 2001, the Company issued $50 million of first mortgage bonds with an interest rate of 6 5/8%, at an overall cost to the Company of 6.968%. The bonds were dated June 15, 2001 and mature June 15, 2016. The proceeds were used to repay short-term debt. These bonds were issued under the Company's registration statement on Form S-3 filed last year with the Securities and Exchange Commission relative to the sale of up to $350 million of first mortgage bonds, debt securities and common stock. $270 million of such securities remains registered with the SEC and authorized by the MoPSC for future issuance. Construction expenditures for utility purposes for the nine months ended June 30, 2001 were $33.6 million compared with $36.8 million for the same period last year. Page 14 Capitalization at June 30, 2001 increased $66.2 million since September 30, 2000 and consisted of 51.2% common stock equity, .2% preferred stock equity and 48.6% long-term debt. The seasonal nature of the Company's sales affects the comparison of certain balance sheet items at June 30, 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 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 $1,844,000. As of June 30, 2001, the Company has paid $1,283,000 and reserved $561,000 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 $590,000. As of June 30, 2001, the Company has paid $476,000 and reserved an additional $114,000. 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. Page 15 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. On July 9, 2001, the parties to the case before the MoPSC filed a Unanimous Stipulation and Agreement recommending approval of the Company's application with certain conditions, but an order has not yet been issued as of the date of this filing. 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 16. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K The Company filed four Form 8-K's during the quarter ended June 30, 2001. Items reported: On April 20, 2001, the Company filed an 8-K (with a report date of April 20, 2001) with the press release announcing the filing with the Missouri Public Service Commission seeking approval of a weather mitigation plan. On April 26, 2001, the Company filed an 8-K (with a report date of April 26, 2001) with its press release announcing its financial results for the quarter and six months ended March 31, 2001. On May 18, 2001, the Company filed an 8-K (with a report date of May 18, 2001) with its press release announcing its filing with the Missouri Public Service Commission for rate recovery of increases in its distribution costs. On June 22, 2001, the Company filed an 8-K (with a report date of June 21, 2001) reporting that it executed an underwriting agreement for the sale of $50 million principal amount of its first mortgage bonds, 6 5/8% series due June 15, 2016. It also incorporated by reference the consolidated audited financial statements of Ambac Assurance Corporation and subsidiaries as of December 31, 2000 and December 31, 1999 and for each of the three years in the period ended December 31, 2000 included in the current report on form 8-K of Ambac Financial Group, Inc. and the consolidated unaudited financial statements of Ambac Assurance and subsidiaries as of March 31, 2001 and for the periods ended March 31, 2001 and 2000, into the Company's June 22, 2001 Form 8-K, the Company's registration statement on Form S-3 (Registration Statement No. 333- 40362) and the prospectus supplement dated June 21, 2001 relating to the bonds filed pursuant to Rule 424 (b) under the Securities Act. The consent of KPMG LLP, independent accountants for Ambac Assurance, insurer of the bonds, to the incorporation by reference of its report dated January 22, 2001 on the audited financial statements of Ambac Assurance and to the use of its name in the prospectus supplement, was filed as Exhibit 23.01 to the Company's June 22, 2001 8-K. Page 18 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 27, 2001 /s/ G. T. McNeive, Jr. ------------------------------ G. T. McNeive, Jr. Sr. Vice President - Finance and General Counsel (Authorized Signatory and Chief Financial Officer) Page 19 -----END PRIVACY-ENHANCED MESSAGE-----