-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GDed2jN7Ab2TFcVWh2rqxZOXb+lj0sk03UUf3pKGB42fFMMSUwqjG2v/e4EmBz9s RaoWVA9XJDLF2jinApdZUw== 0000057183-94-000013.txt : 19940817 0000057183-94-000013.hdr.sgml : 19940817 ACCESSION NUMBER: 0000057183-94-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LACLEDE GAS CO CENTRAL INDEX KEY: 0000057183 STANDARD INDUSTRIAL CLASSIFICATION: 4924 IRS NUMBER: 430368139 STATE OF INCORPORATION: MO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01822 FILM NUMBER: 94543875 BUSINESS ADDRESS: STREET 1: 720 OLIVE ST CITY: ST LOUIS STATE: MO ZIP: 63101 BUSINESS PHONE: 3143420500 10-Q 1 QUARTERLY REPORT ON FORM 10-Q, 8/12/94 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, 1994 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. 15,670,023 shares, Common Stock, par value $1 per share at 8/12/94. Index to Exhibits is found on page 20. Page 1 of 23 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, 1993. 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, 1994 1993 1994 1993 ---- ---- ---- ---- Utility Operating Revenues $74,644 $75,993 $474,924 $450,115 ------------------ ------------------ Utility Operating Expenses: Natural and propane gas 37,546 38,264 290,822 267,181 Other operation expenses 20,416 18,940 64,965 59,782 Maintenance 4,177 4,130 13,565 12,383 Depreciation and amortization 4,778 4,637 14,367 13,961 Taxes, other than income taxes 8,637 8,795 36,269 35,563 Income taxes (Note 3) (2,196) (729) 15,826 18,202 ------------------ ------------------ Total Utility Operating Expenses 73,358 74,037 435,814 407,072 ------------------ ------------------ Utility Operating Income 1,286 1,956 39,110 43,043 Miscellaneous Income and Income Deductions - Net (less applicable income taxes) (Note 3) (3) (212) 769 915 ------------------ ------------------ Income Before Interest Charges 1,283 1,744 39,879 43,958 ------------------ ------------------ Interest Charges: Interest on long-term debt 3,136 3,445 9,490 11,055 Other interest charges 885 441 2,562 1,242 ------------------ ------------------ Total Interest Charges 4,021 3,886 12,052 12,297 ------------------ ------------------ Net Income (2,738) (2,142) 27,827 31,661 Dividends on Preferred Stock 24 25 73 73 ------------------ ------------------ Earnings Applicable to Common Stock $(2,762) $(2,167) $ 27,754 $ 31,588 ================== ================== Average Number of Common Shares Outstanding 15,631 15,586 15,601 15,586 Earnings Per Share of Common Stock $(.18) $(.14) $1.78 $2.03 Dividends Declared Per Share of Common Stock $.305 $.30 $.915 $.90 Note: Average Number of Common Shares Outstanding, Earnings Per Share of Common Stock and Dividends Declared Per Share of Common Stock have been restated to reflect a 2-for-1 stock split which was effective on February 11, 1994. See notes to consolidated financial statements.
Page 3 LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET
Jun. 30 Sept. 30 1994 1993 ---- ---- (Thousands of Dollars) (UNAUDITED) ASSETS Utility Plant $700,397 $677,613 Less: Accumulated depreciation and amortization 295,055 286,787 -------------------- Net Utility Plant 405,342 390,826 -------------------- Other Property and Investments 22,696 22,668 -------------------- Current Assets: Cash and cash equivalents 2,255 1,706 Accounts receivable - net 41,681 32,891 Materials, supplies, and merchandise at avg cost 5,125 5,202 Natural gas stored underground for current use at LIFO cost 22,560 14,079 Propane gas for current use at FIFO cost 12,180 13,657 Prepayments 2,124 1,774 Unamortized purchased gas adjustments 635 6,278 Delayed customer billings 11,697 - -------------------- Total Current Assets 98,257 75,587 -------------------- Deferred Charges 55,510 26,231 -------------------- Total Assets $581,805 $515,312 ==================== See notes to consolidated financial statements.
Page 4 LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (Continued)
Jun. 30 Sept. 30 1994 1993 ---- ---- (Thousands of Dollars) (UNAUDITED) CAPITALIZATION AND LIABILITIES Capitalization: Common stock (17,496,896 shares issued) $ 17,497 $ 17,452 Paid-in capital 27,326 26,250 Retained earnings 183,731 170,252 Treasury stock, at cost (1,865,638 shares held) (24,017) (24,017) -------------------- Total common stock equity 204,537 189,937 Redeemable preferred stock 1,960 1,960 Long-term debt (less sinking fund requirements) 154,194 165,745 -------------------- Total Capitalization 360,691 357,642 -------------------- Current Liabilities: Notes payable 30,600 27,500 Accounts payable 22,289 16,745 Refunds due customers 15,015 214 Advance customer billings - 3,901 Current sinking fund requirements - 391 Taxes accrued 20,568 11,545 Deferred income taxes 247 2,312 Other 23,201 26,589 -------------------- Total Current Liabilities 111,920 89,197 -------------------- Deferred Credits and Other Liabilities: Deferred income taxes 65,060 36,989 Unamortized investment tax credits 8,435 8,682 Other 35,699 22,802 -------------------- Total Deferred Credits and Other Liabilities 109,194 68,473 -------------------- Total Capitalization and Liabilities $581,805 $515,312 ==================== 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, 1994 1993 ---- ---- (Thousands of Dollars) Operating Activities: Net Income $ 27,827 $ 31,661 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,413 14,139 Deferred income taxes and investment tax credits (3,098) (730) Other - net 428 399 Changes in assets and liabilities: Accounts receivable - net (8,790) (9,090) Unamortized purchased gas adjustments 5,643 3,439 Deferred purchased gas costs 9,718 5,973 Delayed customer billings - net (15,598) (21,085) Accounts payable 5,544 2,930 Refunds due customers 14,801 (3,863) Taxes accrued 9,023 11,227 Other assets and liabilities (8,202) (8,761) -------------------- Net cash provided by operating activities $ 51,709 $ 26,239 -------------------- Investing Activities: Construction expenditures $(28,246) $(29,585) Investments - non-utility (322) (2,164) Other (380) (595) -------------------- Net cash used in investing activities $(28,948) $(32,344) -------------------- Financing Activities: Issuance of first mortgage bonds $ - $ 65,000 Issuance of short-term debt 3,100 8,600 Issuance of common stock 1,121 - Dividends paid (14,335) (14,179) Retirement of first mortgage bonds (11,991) (51,660) Other (107) (2,588) --------------------- Net cash provided by (used in) financing activities $(22,212) $ 5,173 --------------------- Net Increase (Decrease) in Cash and Cash Equivalents $ 549 $ (932) Cash and Cash Equivalents at Beginning of Period 1,706 3,322 --------------------- Cash and Cash Equivalents at End of Period $ 2,255 $ 2,390 ===================== Supplemental Disclosure of Cash Paid During the Period for: Interest $14,715 $14,254 Income taxes 8,070 8,319 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. The registrant is a natural gas distribution utility having a material seasonal cycle; therefore, this interim statement of consolidated income is not necessarily indicative of annual results nor representative of the succeeding quarter of the fiscal year. 3. The Company implemented Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", effective October 1, 1993, without restating previously issued financial statements. SFAS No. 109 prescribes the liability method of accounting for income taxes, which required the Company to recognize additional deferred tax assets and liabilities for certain temporary differences and to adjust deferred tax accounts for changes in income tax rates. SFAS No. 109 did not have a material impact on the Company's cash flows or results of operations due to the effect of rate regulation. Substantially all of the adjustments required by SFAS No. 109 were recorded to deferred tax balance sheet accounts, with offsetting adjustments to regulatory assets and liabilities. At October 1, 1993 the cumulative effect of adopting SFAS No. 109 was an increase in net deferred tax liabilities of $30.2 million, and recognition of a net regulatory asset of $30.2 million. The deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant items comprising the Company's net deferred tax liability as of October 1, 1993 are as follows: Thousands of Dollars Deferred tax liabilities: Depreciation and other differences between book and tax basis of property $80,285 Pension income recognition 8,039 Other 3,057 ------- Total deferred tax liabilities 91,381 ------- Deferred tax assets: Reserves not currently deductible 12,486 Unamortized investment tax credit 5,491 Other 1,727 ------- Total deferred tax assets 19,704 ------- Net deferred tax liability 71,677 Less: Net deferred tax liability - current 2,312 ------- Net deferred tax liability - non-current $69,365 ------- Page 7 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, ------------------ ----------------- 1994 1993 1994 1993 ---- ---- ---- ---- (Thousands of Dollars) Utility Operations Current: Federal $(5,783) $(5,788) $16,252 $17,011 State and local (983) (675) 2,733 1,908 Deferred: Federal 3,875 5,190 (2,815) (703) State and local 695 544 (344) (14) ------------------ ----------------- Subtotal $(2,196) $ (729) $15,826 $18,202 ------------------ ----------------- Miscellaneous Income and Income Deductions Current: Federal $ (144) $ 156 $ 64 $ 810 State and local (14) 15 (29) 60 Deferred: Federal (3) (4) 56 (13) State and local (1) - 5 - ------------------ ----------------- Subtotal $ (162) $ 167 $ 96 $ 857 ------------------ ----------------- Total $(2,358) $ (562) $15,922 $19,059 ================== =================
4. The Company adopted Statement of Financial Accounting Standard (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions (OPEBS)" in the first quarter of fiscal year 1994. Under the provisions of SFAS No. 106, the estimated future cost of providing these postretirement benefits is recognized as an expense and a liability during the employees' service period. As permitted by SFAS No. 106, the liability for any unfunded accumulated postretirement benefit obligations existing at October 1, 1993, the date of initial application of the standard, is being recognized as a transition obligation and amortized over 20 years. The net postretirement benefit cost for fiscal 1994 is currently estimated to be $6.1 million, which represents a $1.9 million increase over estimated pay-as-you-go costs. Page 8 Net postretirement benefit cost for the nine months ended June 30, 1994, including amounts charged to construction, consisted of the following components:
Thousands of Dollars Service Cost $ 1,114 Interest cost on projected benefit obligation 2,160 Amortization transition obligation 1,273 ------- Net cost $ 4,547 =======
The funded status of the plans at October 1, 1993 is as follows: Accumulated postretirement benefit obligation:
Thousands of Dollars Retirees $17,101 Active employees 21,840 ------- 38,941 Unrecognized transition obligation 33,963 ------- Accrued postretirement benefit cost $ 4,978 =======
The Company provides life insurance benefits to all employees after retirement and medical insurance is available after early retirement until age 65. The medical insurance represents approximately two-thirds of the Company's SFAS No. 106 costs. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 10% for 1994, gradually decreasing each successive year until it reaches 5% in 1998. A one percent increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit cost as of October 1, 1993, by 4.9% and the sum of the service cost and interest cost by approximately 6.3%. The weighted-average discount rate and weighted-average rate of future compensation used in determining the accumulated postretirement benefit obligation was 7.5% and 4.5%, respectively. In its 1992 rate case, the Company was authorized by the Missouri Public Service Commission (MoPSC) to recover OPEBS on a pay-as-you-go basis and to defer, as a regulatory asset, the difference between the accrued costs calculated under the provisions of SFAS No. 106 and the actual pay-as-you-go costs. However, in January 1993, the Emerging Issues Task Force (EITF) reached a consensus requiring more stringent accounting criteria necessary to record a regulatory asset. Since the 1992 MoPSC authorization was not in conformity with the 1993 EITF consensus, the Company has not recorded a regulatory asset to reflect rate recovery of these costs on a pay-as-you-go basis. However, in July 1994, a new state law was enacted which will require SFAS No. 106 accrued costs be Page 9 recognized for ratemaking purposes provided that such costs are funded through an independent, external funding mechanism. In its current rate case (GR-94-220), the Company requested rate recovery of its prospective SFAS No. 106 costs under the provisions of this new law. Recovery of such costs has been included as part of the proposed settlement recently submitted to the MoPSC. 5. The Company is subject to various federal, state and local laws and regulations relating to the environment, which thus far have not had a material effect on the Company's financial position or results of operations. Prior to the widespread availability of natural gas, the Company operated various manufactured gas plants to produce gas as a source of fuel for lighting, cooking and heating. The Company closed the last of such plants in 1961. The process for manufacturing gas produced by-products and residuals, including hydrocarbons such as lamp black and coal tar. Certain remnants of these residuals are typically found at former gas manufacturing sites. The United States Environmental Protection Agency (the "EPA") has been engaged in a survey of a large number of former manufactured gas plant sites across the nation. In this regard, the Company and the EPA have information which indicates the presence of manufactured gas residuals on one of the former manufactured gas plant sites operated by the Company. While no conclusion has been reached as to the extent of any remedial action that will be required, the Company is working with environmental authorities to develop a positive environmental response with respect to this site. In this vein, the Company and the EPA have entered into an Administrative Order on Consent ("AOC"), effective March 31, 1994, with regard to this site, which AOC provides for the Company to conduct certain investigative activities, i.e. a removal site evaluation and an engineering evaluation cost analysis, and to reimburse the EPA for past response costs of $3,773 and for future response costs under the AOC. The AOC requires only investigations and does not cover any removal action. If the above investigations indicate that remedial action is necessary, then a subsequent order will cover such action. Based on currently available information, it is believed that the costs of the foregoing investigations, together with the past and future response costs of the EPA in overseeing such investigations, and other associated legal and engineering consulting costs, are likely to approximate $335,000. The Company has established a reserve in that amount in its financial statements. In the absence of the results of the above-referenced investigations, the Company is presently unable to evaluate and quantify further the scope or cost of any environmental response activity. The Company has notified its insurers that the Company intends to seek reimbursement from them of its investigation, remediation, clean-up and defense costs in regard to the foregoing. In addition to pursuing insurance proceeds to the extent feasible, the Company also plans to seek recovery in this regard, if practicable, from any other potentially responsible parties. The Company, in its pending rate case, is also seeking to establish an appropriate environmental cost deferral procedure for use in applying for appropriate rate recovery from the Missouri Public Service Commission; and the proposed settlement in such rate case contains such a deferral procedure. Page 10 The Company is involved in litigation, claims, and investigations arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, management, after discussion with counsel, believes the final outcome will not have a material adverse effect on the consolidated financial position and results of operations reflected in the finanical statements presented herein. 6. This Form 10-Q should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Company's 1993 Form 10-K. Page 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Earnings for the quarter ended June 30, 1994 were a loss of $.18 per share compared with a loss of $.14 per share for the quarter ended June 30, 1993, restated to reflect the 2-for-1 stock split which became effective February 11, 1994. The weather for the quarter was 12% warmer than last year and 8% warmer than normal. The decrease in earnings is primarily attributable to lower gas sales arising from the warmer weather. Earnings also decreased due to higher costs of doing business. Utility operating revenues for the third quarter of fiscal year 1994 were $74.6 million compared with $76.0 million for the same quarter last year. The $1.4 million, or 1.8%, decrease is principally due to lower therm sales related to the warmer weather, partially offset by higher wholesale gas costs which are passed on to Laclede's customers under the Company's Purchased Gas Adjustment Clause. Therms sold and transported decreased by 9.1 million therms, or 6.0%, below the quarter ended June 30, 1993. Utility operating expenses for the quarter ended June 30, 1994 decreased by $.7 million, or .9%, below the same quarter last year. Natural and propane gas expense this quarter decreased $.7 million, or 1.9%, below last year primarily due to decreased volumes purchased for sendout resulting from the warmer weather, partially offset by higher rates charged by our suppliers. Other operation and maintenance expenses increased $1.5 million, or 6.6%, primarily due to (1) increased pension expense reflecting the recognition of gains applicable to lump-sum settlements during the quarter ended June 30, 1993 (no gains were recognized during the quarter ended June 30, 1994) and higher net pension costs this quarter, (2) higher contract wage rates, and (3) increased group insurance charges. Depreciation and amortization expense increased 3.0% due to additional property. Taxes, other than income taxes, decreased 1.8% primarily due to lower property taxes this quarter. The $1.5 million decrease in income taxes is principally due to lower taxable income. Income taxes also decreased due to the effect of tax adjustments made last year. The 3.5% increase in interest charges is mainly due to higher refunds due customers and increased short-term borrowings. These increases were partially offset by reduced long-term debt (reflecting reductions in certain long-term debt issues, partially offset by the issuance of $25 million of 6- 1/4% First Mortgage Bonds in May 1993). Earnings for the nine months ended June 30, 1994 were $1.78 per share compared with earnings of $2.03 per share for the same period last year, restated for the stock split. The weather for the nine-month period this year was 2% warmer than last year and 2% warmer than normal. The decrease in earnings is primarily due to increases in the costs of doing business and the slightly warmer weather. Utility operating revenues for the first nine months of fiscal year 1994 increased by $24.8 million, or 5.5%, above the corresponding period of fiscal year 1993. This increase is principally due to higher wholesale gas Page 12 costs (which are passed on to our customers under the Company's Purchased Gas Adjustment Clause), partially offset by the warmer weather. Therms sold and transported decreased by 8.2 million, or .8%, below the level during the nine months ended June 30, 1993. Utility operating expenses for the nine months ended June 30, 1994 increased by $28.7 million, or 7.1%, above last year. Natural and propane gas expense during the first nine months of fiscal 1994 increased $23.6 million, or 8.8%, above the same period a year ago. This increase is principally due to higher rates charged by our suppliers, partially offset by reduced sendout requirements (due to warmer weather). The $6.4 million, or 8.8%, increase in other operation and maintenance expenses is principally due to (1) increased pension expense reflecting the recognition of gains applicable to lump-sum settlements during the nine-month period ended June 30, 1993 (no gains were recognized during the nine-month period ended June 30, 1994) and higher net pensions costs, (2) higher contract wage rates, and (3) increased maintenance charges. These increases were partially offset by a lower provision for uncollectible accounts this quarter. Depreciation and amortization expense increased 2.9% due to additional property. Taxes, other than income taxes, increased 2.0% primarily due to higher gross receipts taxes (reflecting increased revenues), partially offset by lower property taxes. The $2.4 million decrease in income taxes is principally due to lower taxable income and the effect of tax adjustments made last year. These decreases were partially offset by higher tax rates. The 2.0% decrease in interest charges is mainly due to reduced long- term debt (reflecting reductions in certain long-term debt issues, partially offset by the effect of the issuance of $40 million of 7-1/2% First Mortgage Bonds in November, 1992 and the issuance of $25 million of 6-1/4% First Mortgage Bonds in May, 1993), largely offset by higher short-term interest expense arising from increased short-term borrowings. On June 28, 1994, Company and Union representatives signed a new three- year labor agreement replacing the prior agreement which was to expire July 31, 1994. The new contract extends through July 31, 1997. The settlement resulted in wage increases of 3.5% in the first year, 3.25% the second year, and 3.25% the third year. Other employee benefit improvements will be effected during the three-year term. The Company filed a request (Case No. GR-94-220) with the Missouri Public Service Commission (MoPSC) on January 14, 1994 seeking approval of a general rate increase which would add $27.1 million to operating revenues on an annual basis. A settlement among all active participants to the proceeding has recently been reached which, among other things, would allow the Company an annual increase of $12.2 million. The parties have submitted the settlement to the MoPSC and, if approved, the increased rates are to be effective on September 1, 1994. The Company adopted Statement of Financial Accounting Standard (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions (OPEBS)" in the first quarter of fiscal year 1994. Under the provisions of SFAS No. 106, the estimated future cost of providing these postretirement benefits is recognized as an expense and a liability during the employees' service period. As permitted by SFAS No. 106, the liability Page 13 for any unfunded accumulated postretirement benefit obligations existing at October 1, 1993, the date of initial application of the standard, is being recognized as a transition obligation and amortized over 20 years. The net postretirement benefit cost for fiscal 1994 is currently estimated to be $6.1 million, which represents a $1.9 million increase over estimated pay- as-you-go costs. In its 1992 rate case, the Company was authorized by the Missouri Public Service Commission (MoPSC) to recover OPEBS on a pay-as-you- go basis and to defer, as a regulatory asset, the difference between the accrued costs calculated under the provisions of SFAS No. 106 and the actual pay-as-you-go costs. However, in January 1993, the Emerging Issues Task Force (EITF) reached a consensus requiring more stringent accounting criteria necessary to record a regulatory asset. Since the 1992 MoPSC authorization was not in conformity with the 1993 EITF consensus, the Company has not recorded a regulatory asset to reflect rate recovery of these costs on a pay-as-you-go basis. However, in July 1994, a new state law was enacted which will require SFAS No. 106 accrued costs be recognized for ratemaking purposes provided that such costs are funded through an independent, external funding mechanism. In its current rate case (GR-94- 220), the Company requested rate recovery of its prospective SFAS No. 106 costs under the provisions of this new law. Recovery of such costs has been included as part of the proposed settlement recently submitted to the MoPSC. The Company implemented Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", effective October 1, 1993, without restating previously issued financial statements. SFAS No. 109 prescribes the liability method of accounting for income taxes, which required the Company to recognize additional deferred tax assets and liabilities for certain temporary differences and to adjust deferred tax accounts for changes in income tax rates. SFAS No. 109 did not have a material impact on the Company's cash flows or results of operations due to the effect of rate regulation. Substantially all of the adjustments required by SFAS No. 109 were recorded to deferred tax balance sheet accounts, with offsetting adjustments to regulatory assets and liabilities. At October 1, 1993 the cumulative effect of adopting SFAS 109 was an increase in net deferred tax liabilities of $30.2 million, and recognition of a net regulatory asset of $30.2 million. LIQUIDITY AND CAPITAL RESOURCES The Company's short-term borrowing requirements typically peak during colder months, principally because of required payments for natural gas made in advance of the receipt of cash from our customers for the sale of that gas. Such short-term borrowing requirements have traditionally been met through the sale of commercial paper supported by lines of credit with banks. In January 1994, the Company entered into new bank credit agreements under which it may borrow up to $40 million prior to January 31, 1995, with renewal of any loans outstanding (at January 31, 1995) permitted up to June 30, 1995. These agreements also provide for an additional $15 million during the period of peak credit requirements (from January 20, 1994 to January 27, 1994), and a further extension until February 28, 1994 with respect to $5 million of the additional $15 million lines of credit. Page 14 The Company had previously obtained supplemental lines of credit (on October 18, 1993) totalling $40 million for the period from October 18, 1993 to April 18, 1994. This resulted in lines of credit for the 1993-1994 heating season totalling $95 million to January 27, 1994, $85 million to February 28, 1994, and $80 million to April 18, 1994. Subsequently, the Company amended the October 18, 1993 agreements, which would have expired on April 18, 1994, to reduce the supplemental lines of credit thereunder to $20 million and extend these lines of credit until August 18, 1994. This resulted in current total lines of credit aggregating $60 million to August 18, 1994. The Company plans to obtain additional supplemental lines of credit with banks shortly, the extent of which has not been determined at this writing. During the first nine months of fiscal 1994, the Company sold commercial paper aggregating to a maximum of $95 million on January 20, 1994, but did not borrow from the banks under the above mentioned agreements. Short-term borrowings amounted to $44 million at July 31, 1994. The Company is subject to various federal, state and local laws and regulations relating to the environment, which thus far have not had a material effect on the Company's financial position and results of operations. Prior to the widespread availability of natural gas, the Company operated various manufactured gas plants to produce gas as a source of fuel for lighting, cooking and heating. The Company closed the last of such plants in 1961. The process for manufacturing gas produced by-products and residuals, including hydrocarbons such as lamp black and coal tar. Certain remnants of these residuals are typically found at former gas manufacturing sites. The United States Environmental Protection Agency (the "EPA") has been engaged in a survey of a large number of former manufactured gas plant sites across the nation. In this regard, the Company and the EPA have information which indicates the presence of manufactured gas residuals on one of the former manufactured gas plant sites operated by the Company. While no conclusion has been reached as to the extent of any remedial action that will be required, the Company is working with environmental authorities to develop a positive environmental response with respect to this site. In this vein, the Company and the EPA have entered into an Administrative Order on Consent ("AOC"), effective March 31, 1994, with regard to this site, which AOC provides for the Company to conduct certain investigative activities, i.e. a removal site evaluation and an engineering evaluation cost analysis, and to reimburse the EPA for past response costs of $3,773 and for future response costs under the AOC. The AOC requires only investigations and does not cover any removal action. If the above investigations indicate that remedial action is necessary, then a subsequent order will cover such action. Based on currently available information, it is believed that the costs of the foregoing investigations, together with the past and future response costs of the EPA in overseeing such investigations, and other associated legal and engineering consulting costs, are likely to approximate $335,000. The Company has established a reserve in that amount in its financial statements. Page 15 In the absence of the results of the above-referenced investigations, the Company is presently unable to evaluate and quantify further the scope or cost of any environmental response activity. The Company has notified its insurers that the Company intends to seek reimbursement from them of its investigation, remediation, clean-up and defense costs in regard to the foregoing. In addition to pursuing insurance proceeds to the extent feasible, the Company also plans to seek recovery in this regard, if practicable, from any other potentially responsible parties. The Company, in its pending rate case, is also seeking to establish an appropriate environmental cost deferral procedure for use in applying for appropriate rate recovery from the Missouri Public Service Commission; and the proposed settlement in such rate case contains such a deferral procedure. Construction expenditures for the nine months ended June 30, 1994 were $28.2 million compared with $29.6 million for the same period last year. Capitalization at June 30, 1994 (excluding current redemption requirements of long-term debt) increased $14.6 million since September 30, 1993 and consisted of 56.7% common stock equity, .5% preferred stock and 42.8% long-term debt. Page 16 LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES Part II OTHER INFORMATION Page 17 LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES Item 1. Legal Proceedings During the quarter ended June 30, 1994, there were no new legal proceedings required to be disclosed. In addition, for discussion of environmental matters, see Note 5 to the consolidated financial statements. Item 6. Exhibits and Reports on Form 8-K (a) See Exhibit Index (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter ended June 30, 1994. 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: August 12, 1994 R. J. CARROLL ------------------- R. J. Carroll Sr. Vice President - Finance (Authorized Signatory and Chief Financial Officer) Page 19 INDEX TO EXHIBITS Exhibit No. Exhibit Page - - ----------- ------- ---- 10 Amendment and Extension dated April 18, 21 1994 of Line of Credit Agreement dated October 18, 1993 among Laclede Gas Company, Chemical Bank, The Boatmen's National Bank of St. Louis and Mercantile Bank of St. Louis National Association. Page 20 EX-10 2 April 18, 1994 Chemical Bank 270 Park Avenue New York, New York 10017 Attention: Mr. Robert Gillham The Boatmen's National Bank of St. Louis One Boatmen's Plaza 800 Market Street St. Louis, MO 63166-0236 Attention: Mr. Thomas Guyton Mercantile Bank of St. Louis National Association Eighth & Locust, 12th Floor P.O. Box 524 St. Louis, MO 63101 Attention: Mr. Edward Cheney Ladies and Gentlemen: Re: Amendment and Extension of line of credit agreement Dated October 18, 1993 among Laclede Gas Company ("Laclede"), Chemical Bank ("Chemical"), The Boatmen's National Bank of St. Louis ("Boatmen's") and Mercantile Bank of St. Louis National Association ("Mercantile") (said banks being hereinafter collectively called the "Banks" and said line of credit agreement being hereinafter called the "Line of Credit Agreement") This amendatory agreement will confirm our agreement to amend and extend the above-referenced Line of Credit Agreement through August 18, 1994 on the same terms and conditions set forth in the original Line of Credit Agreement, subject only to the modifications expressly set forth in numbered Paragraphs 1, 2, 3 and 4 below, each of which Paragraphs shall be effective on April 18, 1994. 1. New Maximum Amounts of Advances. The combined aggregate principal amount of Advances at any time out- standing from any Bank under the Line of Credit Agreement shall not, on or after April 18, 1994, exceed the amount set forth opposite the name of such Bank below (such Bank's "Maximum Amount"), and shall be in a combined aggregate Page 21 Chemical Bank The Boatmen's National Bank of St. Louis Mercantile Bank of St. Louis National Association April 18, 1994 2 principal amount at any time outstanding which shall not exceed $20 million: Name of Bank Maximum Amount Chemical $10 million Boatmen's 5 million Mercantile 5 million 2. New Termination Date. The phrase "Termination Date" as defined in the Line of Credit Agreement is hereby amended from April 18, 1994 to August 18, 1994. According- ly, all references in the Line of Credit Agreement to the Termination Date shall hereafter refer to August 18, 1994. 3. New Form of Note. Each executed Note in the form of Exhibit A to the Line of Credit Agreement as to which no sums are then due and payable thereunder shall be returned to Laclede immediately for cancellation, upon the holder Bank's receipt of an executed Note to that Bank in the form attached as Exhibit A to this amendatory agreement. 4. Absence of Material Adverse Change. The making of Advances under the Line of Credit Agreement as amended by this letter agreement is also subject to the absence of any material adverse change since September 30, 1993, in the financial condition of Laclede. 5. Ratification of Remainder of Line of Credit Agreement. Subject only to the amendments expressly set forth in numbered Paragraphs 1, 2, 3 and 4 above, the Line of Credit Agreement is hereby ratified, confirmed and approved in all respects. Please indicate your acceptance of the terms of this amendatory agreement by signing in the appropriate space below and returning to Laclede Gas Company the enclosed duplicate of the original of this letter. This letter may be executed in counterparts, each of which shall be an original, and all of which when taken together, shall constitute one agreement which shall extend and amend the Line of Credit Agreement as hereinbefore provided. Very truly yours, LACLEDE GAS COMPANY By: Vernon O. Steinberg Name: Vernon O. Steinberg Title: Vice President-Treasurer and Assistant Secretary Page 22 Chemical Bank The Boatmen's National Bank of St. Louis Mercantile Bank of St. Louis National Association April 18, 1994 3 Accepted and Agreed to as of the date first written above. CHEMICAL BANK By: Marisa J. Harney Name: Marisa J. Harney Title: Vice President THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By: Thomas C. Guyton Name: Thomas C. Guyton Title: Vice President MERCANTILE BANK OF ST. LOUIS NATIONAL ASSOCIATION By: Edward A. Cheney Name: Edward A. Cheney Title: Vice President -----END PRIVACY-ENHANCED MESSAGE-----