-----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, TDjTwBNBHEkylAJ+jOBmI9MpiiltM8ZJEMOHgiAaSjTFwJfj9mDY1/ni7dGxnCue rICF14nkbK4ynXLrDUpfZg== 0000057183-98-000014.txt : 19981221 0000057183-98-000014.hdr.sgml : 19981221 ACCESSION NUMBER: 0000057183-98-000014 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981218 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-K405 SEC ACT: SEC FILE NUMBER: 001-01822 FILM NUMBER: 98772197 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-K405 1 ANNUAL REPORT ON FORM 10K, 9/30/98 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. FORM 10-K ANNUAL REPORT For the Fiscal Year Ended September 30, 1998 LACLEDE GAS COMPANY 720 Olive Street, St. Louis, MO 63101 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 1998 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 Securities registered pursuant to Section 12(b) of the Act: Name of each stock exchange Title of each class on which registered Common Stock - $1 par value New York and Chicago Common Stock Purchase Rights New York and Chicago Securities registered pursuant to Section 12(g) of the Act: Title of each class Preferred Stock - $25 par value (5% Series B Preferred Stock and 4.56% Series C Preferred Stock) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the Common Stock of the Company, none of which is owned by an affiliate, at November 30, 1998 was $457,540,590. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the close of the period covered by this report. 17,627,987 Incorporated by Reference: Form 10-K Part Proxy Statement dated December 18, 1998* III Index to Exhibits is found on page 49. * The information under the captions "Compensation Committee Report Regarding Executive Compensation" and "Performance Graph" on pages 10-12 of the Proxy Statement is NOT incorporated by reference. 1 PART I Item 1. Business Laclede Gas Company is a public utility engaged in the retail distribution and transportation of natural gas. The Company, which is subject to the jurisdiction of the Missouri Public Service Commission, serves the City of St. Louis, St. Louis County, the City of St. Charles, and parts of St. Charles, Franklin, Jefferson, St. Francois, Ste. Genevieve, Iron, Madison and Butler Counties, all in Missouri. As an adjunct to its gas distribution and transportation business, the Company operates underground natural gas storage fields and is engaged in the transportation and storage of liquid propane. The Company has also made investments in other non-utility businesses as part of a diversification program. NATURAL GAS SUPPLY Laclede's gas supply strategy continues to have the twofold objective of: 1) ensuring that the gas supplies Laclede acquires are dependable and will be delivered when needed; and 2) insofar as is compatible with that dependability, purchasing gas that is economically priced. Laclede obtains the majority of its gas from Gulf Coast and Mid-Continent producing areas and arranges to have it transported through several interstate pipelines into the pipeline systems of Mississippi River Transmission Corporation (MRT) for ultimate delivery to Laclede's service area. Beginning with the current heating season, Laclede has available additional direct access to the Mid-Continent producing region. The recently completed conversion of an existing 200-mile petroleum products pipeline across Missouri enables Laclede to transport gas through the Williams Gas Pipeline system directly to the western portion of our service area. The expansion of Williams into Laclede's service area provides for the delivery of competitively priced supplemental gas supplies that are needed to provide continued reliable service to a fast-growing segment of Laclede's service area. It also will provide Laclede with access to the diverse reserves attached to the Williams system. Laclede has purchased the entire capacity of the converted pipeline, and natural gas began flowing in September 1998. Ultimately, Laclede anticipates the new pipeline will transport about 10 percent of Laclede's annual natural gas purchases. It will supplement the gas Laclede receives through Missouri Pipeline Company, which currently transports natural gas to the western portion of Laclede's service area from a connection with Panhandle Eastern Pipeline Company. Laclede will continue to receive the majority of its natural gas through the Mississippi River Transmission Corporation. Laclede utilizes firm pipeline transportation capacity, which connects the pipelines "upstream" of the MRT system to the onshore and offshore gas- producing basins. During fiscal year 1998, Laclede continued to release firm transportation capacity to other gas users when Laclede did not need such capacity for itself and its own customers, a procedure that has been a source of profit enhancement. During fiscal 1998, Laclede purchased natural gas from a diverse group of 37 suppliers to meet its current gas sales and storage injection requirements. 2 Natural gas purchased by Laclede for delivery to the Company's service area through the MRT system during the warm fiscal 1998 period totalled 78.0 billion cubic feet (Bcf). Another 10.0 Bcf of gas was delivered through Panhandle Eastern Pipeline Company and Missouri Pipeline Company (MPC) to Laclede take-points in St. Charles and Franklin Counties. Also, during fiscal 1998, certain commercial and industrial customers purchased their own gas and delivered 19.1 Bcf of gas for transportation through Laclede's distribution system. The fiscal 1998 peak day sendout of 881,000 MMBtu of gas occurred on Wednesday, March 11, 1998, when the average temperature was 14 degrees Fahrenheit. This peak day sendout was met by using 486,000 MMBtu of gas purchased and transported using the MRT system, 284,000 MMBtu of gas withdrawn from Laclede's storage facilities, 50,000 MMBtu of gas delivered by Missouri Pipeline Company, and 61,000 MMBtu of gas not owned by the Company that was transported for Laclede customers. The Company sold and transported 1,121.3 million therms of gas this year, a decrease of 89.7 million therms from fiscal 1997. UNDERGROUND NATURAL GAS STORAGE The Company has a firm storage service agreement with MRT for approximately 23.1 billion cubic feet (Bcf) of allocated storage capacity on MRT's system located primarily in Unionville, Louisiana. MRT's tariffs provide for injections into the allocated storage capacity May 16 through November 15. The Company must withdraw all but 2.2 Bcf during the November 16 through May 15 period. The Company supplements flowing pipeline gas with natural gas withdrawn from its underground storage field located in St. Louis and St. Charles Counties. The field is designed to provide 357,000 MMBtu of natural gas withdrawals on a peak day, and annual withdrawals of approximately 5,500,000 MMBtu of gas based on the inventory level which the Company plans to maintain. PROPANE SUPPLY Laclede Pipeline Company, a wholly owned subsidiary, owns and operates a propane pipeline which connects the parent company's 800,000-barrel (approximately 33 million gallons) propane storage facilities in St. Louis County, Missouri, to propane supply terminal facilities located at Wood River and Cahokia, Illinois. Liquid propane is transported through this pipeline for delivery to the parent company for storage, to be ultimately vaporized and used during those periods of operation when the natural gas supply has to be supplemented to meet the peak demands of the distribution system. The Company's contract with Phillips Petroleum Company provides for delivery of up to 35 million gallons of propane annually through March 31, 1999. Phillips has exercised its right to terminate the existing contract April 1, 1999. Laclede is working to negotiate a new arrangement for the period subsequent to March 31, 1999. EXPLORATION AND DEVELOPMENT In May 1997, the Company completed the sale of essentially all of its utility and a major portion of its non-utility oil and gas production properties for $3.3 million, resulting in the recognition of a modest gain. In November 1997, the remaining non-utility properties were sold. Most of the properties sold were assets which had originally been acquired during the 1970s to provide a source of gas for the Company during an era of gas shortages and curtailments. Laclede has not been active in oil and gas exploration and development for a number of years. 3 Capital expenditures for utility exploration and development activities prior to the May 1997 sale amounted to $25,000 in 1997, and $104,000 in 1996. Laclede Energy Resources, Inc. (LER), a wholly owned, non-utility subsidiary, was the general partner in LIMA Resources Associates, L.P. (LIMA), and held a 39.6% interest until the recent dissolution of the partnership. LIMA, a limited partnership, participated in exploration and development activities and the partnership was dissolved and cancelled effective October 13, 1998. LER's investment in the program changed only slightly during 1997 and 1996. REGULATORY MATTERS At the federal level, the Federal Energy Regulatory Commission (FERC) this year undertook several initiatives to consider changes in the regulation of interstate pipeline transportation service that could affect the Company's future costs and, ultimately, the rates its customers pay. The Company is monitoring these developments closely and will intervene when necessary to assure that any changes that may eventually be approved by the FERC are in the best interests of both the Company and its customers. At the state level, there were several important developments this year affecting Laclede, some of which are still pending. On October 15, 1998, the Missouri Public Service Commission approved an agreement reached by parties in a general rate case Laclede had filed in February 1998. The Company had sought rates that would increase revenues by $25.4 million annually. The approved settlement provides that rates charged to the vast majority of Laclede's customers, including all residential and commercial heating customers, will remain unchanged. However, the settlement also permits Laclede to record substantially lower expenses in two areas: 1) depreciation, by establishing lower depreciation rates; and 2) pension expense, by changing the regulatory accounting treatment for the recovery of Laclede's pension costs. In addition, the Commission extended its previous authorization of certain cost-deferral mechanisms by which the Company may include in future rates certain expenses related to pensions and retirements and may apply for future rate recovery of certain other costs relating to its gas safety replacement program and its environmental costs relative to former manufactured gas plants. Further, the Commission authorized the Company to capitalize the costs incurred in connection with making its information systems ready for Year 2000 operations. On another matter, Laclede sought and obtained re-authorization from the Commission to purchase a limited amount of financial instruments for the purpose of reducing Laclede's cost of gas in the event of any unusually large gas price increases during the 1998-1999 winter season. The cost of purchasing these instruments is being recovered from customers. In June 1998, Laclede proposed program modifications that are designed to give the Company greater flexibility to trade in and out of these instruments when warranted by market conditions, to give the Company a financial incentive to increase the gas cost savings to be realized by customers, and to reduce the overall cost of purchasing such instruments. The Staff of the Commission and the Office of the Public Counsel have opposed Laclede's proposal. Formal hearings on this issue were held in late July 1998, but the Commission has not yet issued a decision. Fiscal 1998 also was the second year in which Laclede operated under its Gas Supply Incentive Plan, which has provided significant benefits for Laclede's customers and share owners. Under the Incentive Plan, which was approved by the MoPSC in the settlement of Laclede's Case No. GR-96-193 for a three-year 4 period ending September 30, 1999, Laclede and its customers share in income from off system sales and in certain gains and losses, as measured against benchmark levels of gas costs, related to the acquisition of the Company's gas supply assets. During fiscal 1998, the Company achieved overall gas cost savings of about $31.0 million, resulting in savings to Laclede's customers of $24.6 million and contributing about $6.4 million in pre-tax income to the Company. In September 1997, the Commission Staff recommended that Laclede refund $3.6 million to the Company's ratepayers in connection with the sale of gas Laclede made outside of Missouri during fiscal 1996, prior to the approval of the Gas Supply Incentive Plan described above. The Company filed testimony opposing the Staff's recommendation and formal hearings were held on this issue in October 1998. At this time the Commission has not yet issued a decision. In certain proceedings, the MoPSC has examined the operation of purchased gas adjustment clauses under which gas distribution utilities, such as the Company, pass through to customers increases and decreases in the wholesale cost of natural gas. In January 1996, the MoPSC issued an order in which it rejected arguments that such clauses were unlawful and affirmed the legality of such a clause utilized by another utility. In December 1996, the Circuit Court of Cole County, Missouri upheld the MoPSC's order. The Circuit Court's decision was subsequently appealed by several parties. In June 1998, the Western District of the Missouri Court of Appeals issued an opinion upholding the legality of the purchased gas adjustment clause of the tariff of another gas distribution company in the state. Laclede has a similar clause in its tariff under which it passes through to customers certain increases and decreases in the wholesale cost of gas. Therefore, Laclede has been an active participant in efforts to assure the continuation of this clause. The parties challenging the tariff subsequently sought judicial review of this opinion before the Missouri Supreme Court, but such review was denied on October 20, 1998. At this point, the only avenue of appeal is to the United States Supreme Court. If such an appeal is not sought within 90 days of the denial by the Missouri Supreme Court, the Western District's decision upholding the legality of the purchased gas adjustment clause will be final. OTHER PERTINENT MATTERS The business of the Company is subject to a seasonal fluctuation with the peak period occurring in the winter season. ***** As of September 30, 1998, the Company had 2,064 employees, which includes 2 part-time employees. ***** The Company has a three-year labor agreement, which expires July 31, 2000, with Locals 5-6 and 5-194 of the Oil, Chemical and Atomic Workers International Union, two unions which represent approximately 70% of the Company's employees. The agreement provided for wage increases of 2.5% in all three years, along with lump-sum payment provisions and other benefit improvements. ***** 5 The Company's business has monopoly characteristics in that it is the only distributor of natural gas within its (franchised) service area. The principal competition is the local electric company. Other competitors in Laclede's service area include suppliers of fuel oil, coal, liquefied petroleum gas in outlying areas, and in a portion of downtown St. Louis, a district steam system. Gas for househeating, certain other household uses, and commercial and industrial space heating is now being sold by Laclede at prices generally lower than are charged for competitive fuels and other energy forms. Coal is competitive as a fuel source for very large boiler plant loads, but environmental concerns have forestalled any significant market inroads. Oil and propane can be used to fuel boiler loads and certain direct-fired process applications, but these fuels vary widely in price throughout the year, thus limiting the competitiveness of these fuels. In certain cases, district steam has been competitive with gas for downtown area heating users. In the past five years, Laclede has made a net conversion of 27 steam customers representing approximately 694,000 annual therms. Laclede's residential, commercial, and small industrial markets, representing 90% of sales, remain committed to gas. The Company knows of no reason why natural gas should not continue generally to have a price advantage over electricity and other forms of energy in the foreseeable future. The Company's exposure to price competition is not presently a substantial factor and exists primarily in the large industrial and commercial boiler fuel market where coal is the competing form of energy. Laclede offers gas transportation service to its large user industrial and commercial customers. The tariff approved for that type of service produces a margin similar to that which Laclede would have received under its regular sales rates. The availability of gas transportation service and favorable spot market prices for natural gas during certain times of the year may offer additional competitive advantages to Laclede and new opportunities for cogeneration and large tonnage air conditioning applications. ***** The Company is subject to various 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. In the past, the Company operated various manufactured gas plants which produced certain by-products and residuals. At the request of the United States Environmental Protection Agency (EPA), Laclede performed an investigation of one of the Company's former manufactured gas plant sites located in Shrewsbury, Missouri (the Shrewsbury Site). As previously reported by the Company, the Company has had lengthy discussions with the EPA and the Missouri Department of Natural Resources (MoDNR) as to what additional actions are required for the site. On October 17, 1997, the Company submitted to the EPA an Engineering Evaluation/Cost Analysis (EE/CA) relative to the site. The EPA, the MoDNR and the Company agreed on several changes to the EE/CA. The EPA on September 25, 1998 issued its conditional approval of the revised EE/CA. The revised EE/CA will not be formally approved until after the public comment period has ended. Assuming the revised EE/CA is finally approved with no changes, the Company estimates that the overall costs will be approximately $1,135,000. As of September 30, 1998, $622,000 of such overall costs had been paid, and an additional $513,000 was reserved by the Company. Any additional actions with regard to the site will incur additional costs. The Company has notified its insurers that it intends to seek reimbursement from them of its investigation, remediation, clean-up and defense costs. 6 In a separate matter, MoDNR has accepted the Company's application to place the site of a different former manufactured gas plant located in the City of St. Louis, Missouri (which site was also used by subsequent owners as the site of a coke manufacturing facility) in the Missouri Voluntary Cleanup Program, for the purpose of characterizing the site. As required by MoDNR, the Company submitted its sampling plan on November 16, 1998 and has begun its implementation of the plan. The Company currently estimates that the cost of its investigation, MoDNR oversight costs and associated legal and engineering consulting costs relative to such site would together approximate $495,000. Currently, $113,000 has been paid and an additional $382,000 has been reserved on the Company's books. The Company has notified its insurers that the Company intends to seek reimbursement from them for investigation, remediation, clean-up and defense costs. The Company has also requested that other former site owners and/or operators participate in the cost of any site investigation, but none has yet agreed to do so. The Company plans to seek proportionate reimbursement of all costs incurred with respect to this site from such parties and/or any other potentially responsible parties, to the extent practicable. The Company is presently unable to evaluate or quantify further the scope or costs of any environmental response activity with regard to the above two former manufactured gas plant sites. In the Company's most recent rate case, the Missouri Public Service Commission approved the continued use of a cost deferral mechanism for the Company's use in applying for appropriate rate recovery of various environmental costs in connection with former manufactured gas plants. This authorization will be null and void if the Company does not file to further adjust its rates by October 27, 2000; and, in any event, the recovery of costs thus deferred may be challenged in future rate proceedings. ***** The Company issued 70,447 shares of its common stock during fiscal year 1998 and 137,913 shares of its common stock during fiscal year 1996 under its Dividend Reinvestment and Stock Purchase Plan. The Company did not issue any of its common stock during fiscal year 1997. (Shares of common stock required by the Company's Dividend Reinvestment and Stock Purchase Plan were purchased on the open market in fiscal 1997.) 7 Customers and revenues contributed by each class of customers for the last three fiscal years are as follows: Utility Operating Revenues $(000)
1998 1997 1996 ---- ---- ---- Residential $365,768 $395,250 $376,818 Commercial & Industrial 132,504 152,222 145,466 Interruptible 2,254 2,098 2,035 Transportation 12,734 13,042 15,375 Off System and Other Incentive 29,852 34,288 11,640 Exploration & Development - 1,273 856 Provision for Refunds and Other 4,117 4,659 4,266 -------- -------- -------- Total $547,229 $602,832 $556,456 ======== ======== ======== Customers (End of Period) 1998 1997 1996 ---- ---- ---- Residential 577,224 572,794 569,818 Commercial & Industrial 38,519 37,985 37,735 Interruptible 15 16 16 Transportation 149 142 130 ------- ------- ------- Total 615,907 610,937 607,699 ======= ======= =======
The Company has, or in one instance, will seek to renew, franchises having initial terms varying from five years to an indefinite duration. In this regard, it should be noted that the Company will seek to renew its franchise in Florissant, Missouri, which franchise expired in 1992; and that, since that time, the Company has continued to provide service in that community without a formal franchise. All of the franchises are free from unduly burdensome restrictions and are adequate for the conduct of the Company's public utility business in the State of Missouri as now conducted. ***** Laclede Investment Corporation, a wholly owned subsidiary, invests in other enterprises and has made loans to several joint ventures engaged in real estate development. Laclede Energy Resources, Inc. (LER), a wholly owned subsidiary of Laclede Investment Corporation, continues its non-utility efforts to market natural gas, which began in fiscal 1996. LER has sold all of its interest in the oil and gas exploration and development projects in which LER had been engaged, either directly as a working interest owner, or indirectly as the general partner of the recently dissolved limited partnership, LIMA Resources Associates, L.P. Laclede Gas Family Services, Inc., a wholly owned subsidiary of Laclede Energy Resources, Inc., is a registered insurance agency in the State of Missouri. It is currently promoting the sale of supplemental hospitalization, accident, supplemental medicare and life insurance by Life Insurance Company of North America, Washington National Insurance Company, Fidelity Security Life Insurance Company and Union Fidelity Life Insurance Company. 8 Laclede Development Company (Laclede Development), a wholly owned subsidiary, participates in real estate development, primarily through joint ventures. In 1992, Laclede Development filed a lawsuit alleging fraud, negligent misrepresentation, and other claims against the Resolution Trust Corporation (RTC) and certain former senior executives of Germania Bank, a federal savings institution, now in conservatorship (Germania). This suit arose in connection with Laclede Development's loss on an investment in a $5.8 million convertible debenture issued by Germania. That lawsuit has been settled with the RTC, and all but one of the individual defendants. As to the remaining individual defendant, Laclede Development dismissed its action without prejudice. Laclede Venture Corp., a wholly owned subsidiary of Laclede Development Company, has a 28.5% interest in the LBP Partnership, a general partnership which previously engaged in research and development of light beam profiling technology. There are presently no earnings anticipated from this partnership investment. Laclede Venture Corp. also offers services for the compression of natural gas to third parties who desire to use or to sell compressed natural gas for use in vehicles. The lines of business which constitute the non-utility activities of the corporate family are not considered significant as defined. Item 2. Properties The principal utility properties of Laclede consist of approximately 7,817 miles of gas main, related service pipes, meters and regulators. Other physical properties include regional office buildings and holder stations. Extensive underground gas storage facilities and equipment are located in an area in North St. Louis County extending under the Missouri River into St. Charles County. Substantially all of the Company's utility plant is subject to the liens of its mortgage. All of the utility properties of Laclede are held in fee or by easement or under lease agreements. The principal lease agreements include underground storage rights which are of indefinite duration and the general office building. The current lease on the general office building extends through February 2000 with options to renew for up to 20 additional years. The non-utility properties of Laclede do not constitute a significant portion of the properties of the Company. 9 Item 3. Legal Proceedings Superior Oil Company and Union Pacific Railroad Company (the Plaintiffs) named Laclede as an additional defendant in a lawsuit previously filed by the Plaintiffs against Allied Signal, Inc. and Monsanto Company. In this lawsuit the Plaintiffs seek contribution from the defendants under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) for costs incurred, and to be incurred, by the Plaintiffs to remediate contamination at a St. Louis site currently owned and/or leased by the Plaintiffs (Superior Oil Site). The Plaintiffs contend that the three defendants should be held jointly and severally liable for past and future response costs, in Laclede's case, because: (a) coal tar wastes allegedly are and have been migrating onto the Superior Oil Site from an adjacent site, which is the former location of one of Laclede's gas manufacturing plants; and (b) Laclede allegedly previously arranged for the disposal of coal tar wastes at the Superior Oil Site through the operations of Barrett Manufacturing Company (the predecessor in interest of Allied Signal, Inc.). The other parties to the lawsuit have filed an Engineering Evaluation/Cost Analysis (EE/CA) with the EPA for the Superior Oil Site. The EE/CA contains no apparent evidence that Laclede contributed contaminants to the Superior Oil Site. Laclede has commenced formal discovery to determine what evidence, if any, exists to demonstrate that Laclede contributed any contaminants to the Superior Oil Site. The Superior Oil Site was also the subject of a separate CERCLA lawsuit filed by the EPA against the Plaintiffs and several other potentially responsible parties, which has been settled. Laclede was not a party to the EPA's lawsuit and has never been named by the EPA as a responsible party at the Superior Oil Site. Based upon the information currently available to Laclede, Laclede believes that if Laclede is found to have contributed any contamination at the Superior Oil Site, Laclede's share of the liability for response costs applicable to the Superior Oil Site would be relatively small. Accordingly, such liability should have no material adverse impact on Laclede's financial condition or results of operations. Laclede intends to defend vigorously the lawsuit in which it has been named a party. For a discussion of all environmental matters, see Part I, Item 1, Business, Other Pertinent Matters. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of fiscal year 1998. 10 EXECUTIVE OFFICERS OF REGISTRANT Name, Age, and Position with Company Appointed (1) R. C. Jaudes, Age 64 Chairman of the Board and Chief Executive Officer December 1, 1997 Chairman, President and Chief Executive Officer January 27, 1994 President and Chief Executive Officer August 1, 1991 President and Chief Operating Officer October 1, 1990 Executive Vice President - Operations and Marketing July 1, 1989 D. H. Yaeger, Age 49 President and Chief Operating Officer December 1, 1997 Executive Vice President - Operations and Marketing September 1, 1995 Senior Vice President - Operations, Gas Supply and Technical Services January 27, 1994 Vice President - Operations, Gas Supply and Technical Services September 1, 1992 Vice President - Planning December 1, 1990 G. T. McNeive, Jr., Age 56 Senior Vice President - Finance and General Counsel March 1, 1998 Senior Vice President - Finance and Chief Financial Officer September 1, 1995 Vice President - Associate General Counsel January 27, 1994 Assistant Vice President - Associate General Counsel September 1, 1992 K. J. Neises, Age 57 Senior Vice President - Energy and Administrative Services March 1, 1998 Senior Vice President - Gas Supply and Regulatory Affairs September 1, 1995 Senior Vice President - Federal Regulatory Affairs January 27, 1994 Vice President - Federal Regulatory Affairs October 27, 1988 R. L. Russell, Age 61 Senior Vice President - Operations and Marketing August 1, 1998 Vice President - Marketing February 1, 1997 (Director of Marketing) September 1, 1995 (General Sales Manager) October 1, 1994 (Director of Market Development) October 1, 1993 M. E. McMillian, Age 52 Vice President - Human Resources September 22, 1983 J. Moten, Jr., Age 57 Vice President - Community Relations January 27, 1994 (Director of Community Affairs/Conservation) November 1, 1986 P. J. Palumbo, Age 53 Vice President - Industrial Relations September 1, 1992 11 J. G. Smith, Age 61 Vice President - Operations August 1, 1998 Assistant Vice President - Operations February 1, 1997 (Superintendent of Services and Facilities Management) April 1, 1988 J. A. Fallert, Age 43 Controller February 1, 1998 (Manager, Financial Services) February 1, 1992 R. L. Krutzman, Age 52 Treasurer and Assistant Secretary February 1, 1996 (Manager, Tax and Payroll) February 1, 1992 M. C. Kullman, Age 38 Secretary and Associate Counsel February 1, 1998 (Associate Counsel) August 20, 1990 ( ) Indicates a non-officer position. (1) Officers of Laclede Gas Company are normally reappointed at the Annual Meeting of the Board of Directors in January of each year "to serve for the ensuing year and until their successors are elected and qualify". Part II Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters The Company's common stock is listed on the New York Stock Exchange and the Chicago Stock Exchange. At September 30, 1998, there were 9,715 holders of record of the Company's common stock. Common Stock Market and Dividend Information
Price Range Dividends Fiscal 1998 High Low Declared - -------------------------------------------------------- 1st Quarter 28- 5/8 23- 5/8 $.33 2nd Quarter 27-15/16 23-13/16 $.33 3rd Quarter 25- 7/16 22-15/16 $.33 4th Quarter 25 22- 3/8 $.33
Price Range Dividends Fiscal 1997 High Low Declared - -------------------------------------------------------- 1st Quarter 24-7/8 22-1/4 $.325 2nd Quarter 24-5/8 20-7/8 $.325 3rd Quarter 23-1/8 20-1/4 $.325 4th Quarter 24-5/8 21-5/8 $.325
12 Item 6. Selected Financial Data
Fiscal Years Ended September 30 (Thousands Except Per Share 1998 1997 1996 1995 1994 Amounts) ---- ---- ---- ---- ---- Summary of Operations Utility Operating Revenues $547,229 $602,832 $556,456 $431,917 $523,866 ------------------------------------------------ Utility Operating Expenses: Natural and propane gas 311,759 353,810 316,476 221,423 308,515 Other operation expenses 86,129 90,712 84,844 80,573 84,906 Maintenance 18,665 18,205 18,127 17,508 18,351 Depreciation & amortization 25,304 25,884 25,009 23,676 19,332 Taxes, other than income taxes 43,773 46,534 44,987 40,529 42,627 Income taxes 14,933 17,962 18,603 9,878 12,517 ------------------------------------------------ Total utility operating expenses 500,563 553,107 508,046 393,587 486,248 ------------------------------------------------ Utility Operating Income 46,666 49,725 48,410 38,330 37,618 Allowance for Funds Used During Construction 609 367 17 247 203 Miscellaneous Income and Income Deductions - Net 1,887 1,462 2,344 851 790 ------------------------------------------------ Income Before Interest Charges 49,162 51,554 50,771 39,428 38,611 ------------------------------------------------ Interest Charges: Interest on long-term debt 14,797 14,169 13,939 12,544 12,626 Other interest charges 6,473 4,919 4,008 5,983 3,768 ------------------------------------------------ Total interest charges 21,270 19,088 17,947 18,527 16,394 ------------------------------------------------ Net Income 27,892 32,466 32,824 20,901 22,217 Dividends on Preferred Stk 97 97 97 97 97 ------------------------------------------------ Earnings Applicable to Common Stock $ 27,795 $ 32,369 $ 32,727 $ 20,804 $ 22,120 ================================================ Earnings Per Share of Common Stock $1.58 $1.84 $1.87 $1.27 $1.42 ================================================
13 Item 6. Selected Financial Data
Fiscal Years Ended September 30 (Thousands Except Per Share 1998 1997 1996 1995 1994 Amounts) ---- ---- ---- ---- ---- Dividends Declared- Common Stock $ 23,229 $ 22,825 $ 22,079 $ 20,538 $ 19,054 Dividends Declared Per Share of Common Stock $1.32 $1.30 $1.26 $1.24 $1.22 Utility Plant Gross Plant-End of Period $833,685 $792,661 $780,001 $745,629 $709,563 Net Plant-End of Period 490,585 467,573 452,165 434,336 411,677 Construction Expenditures 47,254 42,842 41,205 45,804 39,193 Property Retirements 6,205 6,241 6,486 9,199 6,757 Total Assets 771,147 720,710 689,395 636,694 608,295 Capitalization - End of Period Common Stock and Paid-In Capital $ 82,460 $ 80,628 $ 80,628 $ 77,686 $ 45,638 Retained Earnings 198,342 193,776 184,232 173,584 173,318 Treasury Stock (24,017) (24,017) (24,017) (24,017) (24,017) ----------------------------------------------- Common stock equity 256,785 250,387 240,843 227,253 194,939 Redeemable Preferred Stock 1,960 1,960 1,960 1,960 1,960 Long-Term Debt 179,238 154,413 179,346 154,279 154,211 ----------------------------------------------- Total capitalization $437,983 $406,760 $422,149 $383,492 $351,110 =============================================== Shares of Common Stock Outstanding-End of Period 17,628 17,558 17,558 17,420 15,670 Book Value Per Share $14.57 $14.26 $13.72 $13.05 $12.44
14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Earnings applicable to common stock for the fiscal year ended September 30, 1998 were $27.8 million, compared with $32.4 million for 1997 and $32.7 million for 1996. Earnings per share of common stock based on average shares outstanding were $1.58 in 1998, compared with $1.84 in 1997 and $1.87 in 1996. The $.26 per share decrease in fiscal 1998 (from fiscal 1997) was primarily due to reduced system sales volumes resulting from weather that was 11% warmer than last year and the attendant lower consumption by customers. These decreases were partially offset by expense reductions attributable to regulatory accounting changes instituted July 1, 1998 as part of the Company's recently settled rate case and efforts during the year to control costs. The settlement of the Company's rate case, as approved by the Missouri Public Service Commission (MoPSC), authorized, among other things, lower depreciation rates and changes in the regulatory accounting treatment for pension costs. This settlement is discussed further below in the final paragraph of the "Results of Operations" discussion. Laclede's customers and shareowners continued to share the benefits derived from the Gas Supply Incentive Plan during fiscal 1998, the second year of the Plan's three-year effective period. Under the Incentive Plan, Laclede and its customers share the income from off-system sales and certain gains and losses related to the acquisition of the Company's gas supply assets. As part of this Plan, Laclede sells available gas supply and pipeline capacity in markets outside of its normal service territory. Laclede achieved overall gas cost savings of $31.0 million in fiscal 1998, resulting in savings to Laclede's customers of $24.6 million and in pre-tax income to the Company of $6.4 million, which is $1.0 million below the pre- tax income recognized under the Plan in fiscal 1997. The Incentive Plan's results may not be representative of fiscal 1999 results due to the volatile and seasonal nature of such efforts. The $.03 per share decrease in earnings per share of common stock in fiscal 1997 (from fiscal 1996) was primarily due to higher costs of doing business and reduced consumption by the Company's heating customers in response to sharply higher gas prices which were in effect for the first part of the winter during fiscal 1997. These reductions to 1997 earnings were largely offset by the benefits of the Company's general rate increase effective September 1, 1996 and income from the Gas Supply Incentive Plan (which became effective October 1, 1996 for a three-year period ending September 30, 1999). During fiscal 1997, the Company achieved overall gas cost savings of about $35.0 million, resulting in savings to Laclede's customers of $27.6 million and contributing about $7.4 million in pre-tax income to the Company. Utility operating revenues for fiscal year 1998 decreased $55.6 million, or 9.2%, below fiscal 1997, and in 1997 increased $46.4 million, or 8.3%, above fiscal 1996. The 1998 decrease in utility operating revenues was primarily due to lower system sales (arising from the warmer weather coupled with reduced consumption by customers) and other variations netting to $48.9 million. Utility operating revenues also declined due to lower wholesale gas costs of $6.7 million (which are passed on to customers in accordance with the Purchased Gas Adjustment Clause). The 1997 increase in utility operating revenues was principally due to higher wholesale gas costs of $38.7 million, increased off-system and other Incentive Plan revenues of $22.6 million, and the benefit of the general rate increase effective September 1, 1996 of $9.2 million. These increases in utility operating revenues were partially offset by lower system sales (primarily due to reduced consumption by heating customers) and other variations netting to $24.1 million. Total therms sold and transported in 1998 were 1,121.3 million compared with 1,211.0 million in 1997 and 1,177.1 million in 1996. 15 Utility operating expenses in fiscal 1998 decreased $52.5 million, or 9.5%, from fiscal 1997, and in 1997 increased $45.1 million, or 8.9%, above fiscal 1996. Natural and propane gas expense decreased $42.1 million in fiscal 1998 from fiscal 1997 primarily due to reduced volumes purchased for sendout and lower rates charged by our suppliers. In 1997, natural and propane gas expense increased $37.3 million from 1996 reflecting increased rates charged by our suppliers and higher expense related to off-system sales and the aforementioned Incentive Plan. These increases were partially offset by reduced volumes purchased for sendout. Other operation and maintenance expenses in 1998 decreased $4.1 million, or 3.8%, from 1997 principally due to a lower provision for uncollectible accounts, higher gains applicable to lump-sum pension settlements, and lower net pension costs resulting from the regulatory accounting treatment authorized by the MoPSC in Case No. GR-98-374 instituted July 1, 1998. These factors more than offset increases in wage rates and other costs. Other operation and maintenance expenses in 1997 increased $5.9 million, or 5.8%, from 1996 principally due to higher wage rates, lower gains applicable to lump-sum pension settlements, a higher provision for uncollectible accounts, and other increases in the costs of doing business. These increases in 1997 were partially offset by lower net pension costs. Depreciation and amortization expense in 1998 decreased 2.2% from 1997 as a result of lower depreciation rates as authorized in Case No. GR-98-374 and instituted July 1, 1998. The effect of lower depreciation rates was partially offset by additional depreciable property. In 1997, depreciation and amortization expense increased 3.5% from 1996 primarily due to additional depreciable property, partially offset by lower charges resulting from the sale of oil and gas properties in May 1997, which is discussed further in the following paragraph. Taxes, other than income taxes, decreased 5.9% in 1998 compared with 1997 principally attributable to lower gross receipts taxes (mainly reflecting decreased revenues), the effect of which was partially offset by higher property taxes. In 1997, taxes, other than income taxes, increased 3.4% compared with 1996 primarily due to higher gross receipts taxes (mainly reflecting increased revenues) and higher property taxes. The variations in income tax expenses for all periods reported are mainly due to changes in income. Miscellaneous income and income deductions (net of applicable income tax expense) in 1998 increased by $.7 million from 1997 mainly due to improved subsidiary results. In 1997, miscellaneous income and income deductions decreased by $.5 million from 1996 primarily due to reduced subsidiary income (mainly lower non-utility gas marketing income recognized by the Company's wholly owned subsidiary, Laclede Energy Resources, Inc.). This decrease was partially offset by a modest gain resulting from the sale of certain oil and gas properties in 1997 for $3.3 million. Interest expense increased 11.4% in fiscal year 1998 over 1997 principally due to increased short-term interest expense because of higher average borrowings and increased interest charges on long-term debt reflecting the full-year effect of the issuance of $25.0 million of 6-1/2% First Mortgage Bonds in October 1997. These increases were partially offset by the redemption in May 1998 of a 9-5/8% First Mortgage Bond issue. In 1997, interest expense increased 6.4% over 1996 primarily due to increased short-term interest expense attributable to higher average borrowings and increased interest charges on long-term debt reflecting the full-year effect of the issuance in November 1995 of $25.0 million of 6-1/2% First Mortgage Bonds. On February 27, 1998, the Company filed a request with the MoPSC for a 16 general rate increase of $25.4 million per year. This filing culminated in a settlement approved by the MoPSC on October 15, 1998. As approved, the settlement provided that rates charged to the vast majority of the Company's customers, including all residential customers, remained unchanged. Also, the settlement allowed the Company to record, beginning July 1, 1998, substantially reduced expense levels resulting from the authorization of lower depreciation rates and changes in the regulatory accounting treatment for the recovery of pension costs. The MoPSC authorized the continued use of certain cost deferral mechanisms under which the Company may apply for future rate recovery of certain costs. In addition, the MoPSC approved a similar cost deferral mechanism by which the Company may apply for future rate recovery of certain costs incurred after July 1, 1998 related to the Company's Year 2000 readiness program. The Company feels this settlement, although unique, was in the best interests of its shareowners and customers. Settlement of the Company's 1996 general rate case provided an annual increase in revenues of $9.5 million effective September 1, 1996, and provided for the Gas Supply Incentive Plan to be effective October 1, 1996 for a three-year period ending September 30, 1999. Accounting Changes The American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which is effective in fiscal 2000. The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", No. 131, "Disclosures about Segments of an Enterprise and Related Information", No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits" and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". Adoption of SFAS Nos. 130, 131 and 132 is required in fiscal 1999; adoption of SFAS No. 133 is required in fiscal 2000. Based on current circumstances, the Company does not expect the adoption of SOP 98-1 or SFAS Nos. 130, 131, 132, and 133 to have a material effect on the Company's financial position or results of operations. Inflation The accompanying Financial Statements reflect the historical costs of events and transactions, regardless of the purchasing power of the dollar at the time. Due to the capital intensive nature of the Company's business, the most significant impact of inflation is on the Company's depreciation of utility plant. Rate regulation to which the Company is subject allows recovery through its rates of only the historical cost of utility plant as depreciation. While no plans exist to undertake replacements of plant in service other than normal replacements and those under existing replacement programs, the Company believes that any higher costs experienced upon replacement of existing facilities would be recovered through the normal regulatory process. Liquidity and Capital Resources Cash flow from operations, net of dividend payments, has generally provided the principal liquidity to meet operating requirements and to fund the majority of the Company's construction program. Any remaining funding requirements for construction or other needs has been provided by long- term and short-term financing. The issuance of long-term financing is dependent on management's evaluation of need, financial market conditions, and other factors. Short-term financing is used to meet seasonal cash requirements and/or to defer long-term financing until market conditions are favorable. Short-term borrowing requirements typically peak during colder months, 17 principally because of required payments for natural gas made in advance of the receipt of cash from the Company's customers for the sale of that gas. Such short-term cash requirements have traditionally been met through the sale of commercial paper supported by lines of credit with banks. In January 1998, the Company renewed its primary lines of bank credit under which it may borrow up to an aggregate of $40.0 million prior to January 31, 1999, with renewal of any loans outstanding on that date permitted up to June 30, 1999. This, along with the Company's previously obtained $70.0 million supplemental line of credit which ran through August 30, 1998, provided a total line of credit of $110.0 million for the 1997-1998 heating season. Short-term requirements peaked at $110.0 million in January 1998, a level that was met through sales of commercial paper supported by lines of credit with banks. Under current bank loan agreements, Laclede may borrow up to $140.0 million, which includes the Company's primary lines of credit of $40.0 million and a $100.0 million supplemental line of credit extending through August 30, 1999. The Company plans to increase its supplemental credit lines to provide total lines of credit of $160.0 million during its peak winter months. Short-term borrowings outstanding at September 30, 1998 were $98.5 million. On October 21, 1997, the Company issued $25.0 million of First Mortgage Bonds, at an overall cost to the Company of 6.675%. The bonds were dated October 15, 1997 and mature October 15, 2012. The proceeds were used for the payment of outstanding short-term borrowings. The bonds were rated Aa3 by Moody's, AA- by Standard & Poor's and A+ by Fitch. These ratings also apply to the Company's other outstanding bonds. On May 15, 1998, the Company redeemed, at its first opportunity, $25.0 million of 9-5/8% First Mortgage Bonds due May 15, 2013. The funds for this redemption were supplied by short-term borrowing agreements. The Company currently has $25.0 million principal amount of bonds remaining unissued under a previously granted authorization from the MoPSC which expires April 21, 1999. Construction expenditures for utility purposes were $47.3 million in fiscal 1998 compared with $42.8 million in fiscal 1997 and $41.2 million in fiscal 1996. The Company expects fiscal 1999 utility construction expenditures to approximate $44.0 million. Capitalization at September 30, 1998, consisted of 58.6% common stock equity, .5% preferred stock and 40.9% long-term debt. The Company's ratio of earnings before taxes to interest charges was 2.9 for 1998, 3.6 for 1997 and 3.8 for 1996. It is management's view that the Company has adequate access to capital markets and will have sufficient capital resources, both internal and external, to meet anticipated capital requirements. Environmental Matters The Company is subject to various environmental laws and regulations, which thus far have not had a material effect on the Company's financial position and results of operations. The Company has, however, reported certain environmental liabilities in connection with two manufactured gas plants previously operated by the Company which produced certain by-products and residuals. The Company has either already paid or reserved overall costs of $1,636,000 which are estimated to cover the performance of certain limited actions at these locations. At this time, the ultimate costs to be incurred remain unclear, as does the amount of any recovery which the Company may be able to obtain from other responsible parties and/or the Company's insurers. In the Company's most recent rate case, the MoPSC approved the continued use of a cost deferral mechanism for the appropriate rate recovery of various environmental costs. This authorization will be null and void if the Company does not file to further adjust its rates by October 27, 2000. In any event, the recovery of costs thus deferred may be challenged in future rate proceedings. For additional information on the Company's environmental matters, see Note 10 of Notes to Consolidated Financial Statements, on page 40. 18 Year 2000 Issue The Company has undertaken a comprehensive Year 2000 upgrade, conversion and replacement program, pursuant to which the Company is upgrading and replacing its mainframe computer hardware and attendant operating system software along with its key mainframe systems and applications, such as the customer records and billing system and the accounting system. The conversion and upgrade of a majority of the Company's systems and applications have been completed, and the Company is currently in the process of testing these systems and applications. Additionally, the Company has undertaken a company-wide program to inventory, evaluate, remediate and test all of the other equipment, products, services and supplies used within the Company. An inventory of all such equipment, products, services and supplies was completed in August, 1998, and an evaluation of the criticality of each item in the inventory was completed during September, 1998. The Company's Year 2000 readiness plan provides that each piece of equipment and product in the inventory, critical and noncritical, will be tested and, to the extent problems are discovered, the problems will be remediated and the piece of equipment or product retested, or the piece of equipment or product will be replaced. The Company has engaged in conversations with, and received correspondence from, many of the vendors of both critical and noncritical equipment, products, services and supplies used within the company regarding the Year 2000 capability of such equipment, products, services and supplies. Notwithstanding the written assurances that the Company has received from many of these vendors, the Company is making such further inquiries as deemed necessary on a case-by-case basis to verify independently the ability of the vendors to continue to supply services and supplies to the Company on and after January 1, 2000, and the Year 2000 readiness of such vendors' equipment and products. The Company has also received written assurances from natural gas suppliers and pipelines that they will be able to supply natural gas to Laclede after 1999 without interruption. Here as well, the Company will, on a case-by-case basis, be making further inquiries and conducting such additional investigations as are deemed necessary to verify such written assurances. As of this date, the Company has not verified the contents of the written assurances received from the above-described vendors and/or natural gas suppliers and pipelines. To date, the Company has incurred total costs of approximately $10.1 million related to replacements and modifications of various computer systems, most of which was incurred during fiscal 1998. Of this amount, $8.6 million has been capitalized and $1.5 million has been charged to expense. The Company currently estimates that costs remaining to be incurred during fiscal 1999 will amount to approximately $5.0 million. As indicated, in the Company's recently settled rate case, No. GR-98-374, the MoPSC authorized the Company to capitalize the costs incurred in connection with making its information systems ready for year 2000 operations. In addition, the MoPSC also authorized the Company to defer any interim property tax, depreciation or carrying cost expenses that may be incurred by the Company in connection with these capitalized items prior to the conclusion of its next rate case. The Company may apply for recovery of these interim expenses in any rate case filed prior to October 28, 2000. 19 Other Matters As part of its annual review of the Company's gas costs, the Staff of the MoPSC has recommended an adjustment which, if approved by the MoPSC and upheld by the courts, would require the Company to refund to its customers approximately $3.6 million of gains realized by the Company from various sales made outside of Missouri between November 1995 and March 1996 (prior to the approval of the Incentive Plan). A hearing was held before the MoPSC on this matter on October 6, 1998. The Company vigorously opposed the Staff's recommended adjustment before the MoPSC on the grounds that such adjustment violates Missouri law, is impermissible under the Company's MoPSC-approved tariffs, and is otherwise unlawful and unreasonable. The Company believes that the outcome of this matter is unlikely to have a material adverse impact on the Company. During 1998, the Company finalized arrangements with Williams Gas Pipeline of Tulsa, Oklahoma under which Williams provides additional natural gas service to the Company's service area. Under the agreement, Williams converted to natural gas service an existing 200-mile petroleum products line that extends eastward from Kansas City to St. Louis. The new pipeline provides for the delivery of competitive, supplemental gas supplies that are needed by the Company to ensure continued reliable service to the fast- growing St. Charles, Missouri area. Williams began transportation service to the Company through the new line in September 1998. Forward-Looking Statements Certain statements in this report are forward-looking statements based on management's beliefs using current assumptions. These forward-looking statements may be identified by the use of such terms as "anticipate," "believe," "estimate," "expect," "intend," "plan," "seek" and similar expressions. In addition to any assumptions and other factors specifically referenced with such forward-looking statements, factors that may cause the Company's actual results to differ materially from those contemplated in any forward-looking statements include, but are not limited to, weather conditions, changes in transportation and gas supply costs or availability, the effects of competition and industry restructuring, economic factors such as changes in the conditions of capital markets and inflation, effects of employee work force issues, regulatory and statutory changes, changes in accounting standards, and the effectiveness of Year 2000 remediation efforts by third parties. 20 Item 8. Financial Statements and Supplementary Data Independent Auditors' Report We have audited the consolidated balance sheets and statements of consolidated capitalization of Laclede Gas Company and its subsidiary companies as of September 30, 1998 and 1997, and the related statements of consolidated income, retained earnings, and cash flows for each of the three years in the period ended September 30, 1998. Our audits also included the financial statement schedule listed in the Index at Part IV, Item 14(a)2. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Laclede Gas Company and its subsidiary companies as of September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP November 19, 1998 21 Management Report Management is responsible for the preparation, presentation and integrity of the consolidated financial statements and other financial information in this report. The statements were prepared in conformity with generally accepted accounting principles and include amounts that are based on management's best estimates and judgments. In the opinion of management, the financial statements fairly reflect the Company's financial position, results of operations and cash flows. The Company maintains internal accounting systems and related administrative controls that are designed to provide reasonable assurance, on a cost- effective basis, that transactions are executed in accordance with management's authorization, that consolidated financial statements are prepared in conformity with generally accepted accounting principles, and that the Company's assets are properly accounted for and safeguarded. The Company's Internal Audit Department, which has unrestricted access to all levels of Company management, monitors compliance with established controls and procedures. Deloitte and Touche LLP, the Company's independent auditors, whose report is contained herein, are responsible for auditing the Company's financial statements in accordance with generally accepted auditing standards. Such standards include obtaining an understanding of the internal control structure in order to design the audit of the financial statements. The Audit Committee of the Board of Directors, which consists of five outside directors, meets periodically with management, the internal auditor, and the independent auditors to review the manner in which they are performing their responsibilities. Both the internal auditor and the independent auditors periodically meet alone with the Audit Committee and have access to the Audit Committee at any time. Robert C. Jaudes Chairman of the Board and Chief Executive Officer Gerald T. McNeive, Jr. Senior Vice President Finance and General Counsel 22 Item 8. Financial Statements and Supplementary Data STATEMENTS OF CONSOLIDATED INCOME (Thousands Except Per Share Amounts)
- --------------------------------------------------------------------------- Years Ended September 30 1998 1997 1996 - --------------------------------------------------------------------------- Utility Operating Revenues $547,229 $602,832 $556,456 ------------------------------ Utility Operating Expenses Natural and propane gas 311,759 353,810 316,476 Other operation expenses 86,129 90,712 84,844 Maintenance 18,665 18,205 18,127 Depreciation and amortization 25,304 25,884 25,009 Taxes, other than income taxes 43,773 46,534 44,987 Income taxes (Note 8) 14,933 17,962 18,603 ------------------------------ Total utility operating expenses 500,563 553,107 508,046 ------------------------------ Utility Operating Income 46,666 49,725 48,410 Miscellaneous Income and Income Deductions- Net (less applicable income taxes) 2,496 1,829 2,361 ------------------------------ Income Before Interest Charges 49,162 51,554 50,771 ------------------------------ Interest Charges: Interest on long-term debt 14,797 14,169 13,939 Other interest charges 6,473 4,919 4,008 ------------------------------ Total interest charges 21,270 19,088 17,947 ------------------------------ Net Income 27,892 32,466 32,824 Dividends on Preferred Stock 97 97 97 ------------------------------ Earnings Applicable to Common Stock $ 27,795 $ 32,369 $ 32,727 ============================== Average Shares of Common Stock Outstanding 17,598 17,558 17,523 ============================== Earnings Per Share of Common Stock (after preferred dividends) $1.58 $1.84 $1.87 ============================== See the accompanying notes to financial statements.
23 STATEMENTS OF CONSOLIDATED RETAINED EARNINGS (Thousands Except Per Share Amounts)
- --------------------------------------------------------------------------- Years Ended September 30 1998 1997 1996 - --------------------------------------------------------------------------- Balance at Beginning of Year $193,776 $184,232 $173,584 Add - Net income, per statements 27,892 32,466 32,824 ----------------------------- Total 221,668 216,698 206,408 ----------------------------- Deduct - Cash Dividends Declared: Preferred stock at required annual rates 97 97 97 Common stock, $1.32 per share in 1998, $1.30 per share in 1997 and $1.26 per share in 1996 23,229 22,825 22,079 ----------------------------- Total 23,326 22,922 22,176 ----------------------------- Balance at End of Year $198,342 $193,776 $184,232 ============================= See the accompanying notes to financial statements.
24 CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
- -------------------------------------------------------------------------- September 30 1998 1997 - -------------------------------------------------------------------------- Assets Utility Plant $833,685 $792,661 Less - Accumulated depreciation & amortization 343,100 325,088 -------------------- Net utility plant 490,585 467,573 -------------------- Other Property and Investments, at Cost or Less (net of accumulated depreciation and amortization, 1998, $9,567; 1997, $9,493) 33,834 29,724 -------------------- Current Assets: Cash and cash equivalents 3,718 4,508 Accounts receivable: Gas customers - Billed and unbilled 42,023 46,098 Other 9,682 9,885 Less - Allowances for doubtful accounts (5,650) (8,051) Inventories: Materials, supplies and merchandise at average cost 5,591 5,216 Natural gas stored underground for current use at LIFO cost 54,973 56,867 Propane gas for current use at FIFO cost 12,840 12,917 Prepayments and other 2,927 1,986 Deferred income taxes (Note 8) 9,933 9,881 -------------------- Total current assets 136,037 139,307 -------------------- Deferred Charges 110,691 84,106 -------------------- Total Assets $771,147 $720,710 ==================== See the accompanying notes to financial statements.
25 CONSOLIDATED BALANCE SHEETS (Continued) (Thousands of Dollars)
- -------------------------------------------------------------------------- September 30 1998 1997 - -------------------------------------------------------------------------- Capitalization and Liabilities Capitalization, per statements: Common stock equity $256,785 $250,387 Redeemable preferred stock 1,960 1,960 Long-term debt 179,238 154,413 -------------------- Total capitalization 437,983 406,760 -------------------- Current Liabilities: Notes payable (Note 9) 98,500 74,000 Accounts payable 20,692 29,628 Refunds due customers 7,589 731 Advance customer billings 8,936 12,700 Current portion of long-term debt - 25,000 Wages payable 4,123 3,823 Dividends payable 6,002 5,804 Customer deposits 3,123 3,189 Interest accrued 7,501 7,582 Taxes accrued 8,690 6,848 Unamortized purchased gas adjustments 15,815 13,022 Other current liabilities 2,680 2,111 -------------------- Total current liabilities 183,651 184,438 -------------------- Deferred Credits and Other Liabilities: Deferred income taxes (Note 8) 102,856 85,013 Unamortized investment tax credits 6,933 7,280 Other 39,724 37,219 -------------------- Total deferred credits and other liabilities 149,513 129,512 -------------------- Commitments and Contingencies (Note 10) Total Capitalization and Liabilities $771,147 $720,710 ==================== See the accompanying notes to financial statements.
26 STATEMENTS OF CONSOLIDATED CAPITALIZATION (Thousands of Dollars)
- -------------------------------------------------------------------------- September 30 1998 1997 - -------------------------------------------------------------------------- Common Stock Equity (Note 4): Common stock, par value $1 per share: Authorized - 1998 and 1997, 50,000,000 shares Issued - 1998, 19,493,625 shares; 1997, 19,423,178 shares $ 19,494 $ 19,423 Paid-in capital 62,966 61,205 Retained earnings, per statements 198,342 193,776 Treasury stock, at cost - 1998 and 1997, 1,865,638 shares (24,017) (24,017) -------------------- Total common stock equity 256,785 250,387 -------------------- Redeemable Preferred Stock, par value $25 per share (1,480,000 shares authorized) issued and outstanding (Note 5): 5% Series B - 1998 and 1997, 71,890 shares 1,797 1,797 4.56% Series C - 1998 and 1997, 6,510 shares 163 163 -------------------- Total redeemable preferred stock 1,960 1,960 -------------------- Long-Term Debt (Note 6): First mortgage bonds: 6-1/4% Series, due May 1, 2003 25,000 25,000 8-1/2% Series, due November 15, 2004 25,000 25,000 8-5/8% Series, due May 15, 2006 40,000 40,000 7-1/2% Series, due November 1, 2007 40,000 40,000 6-1/2% Series, due November 15, 2010 25,000 25,000 6-1/2% Series, due October 15, 2012 25,000 - -------------------- Total 180,000 155,000 Unamortized discount, net of premium, on long-term debt (762) (587) -------------------- Total long-term debt 179,238 154,413 -------------------- Total $437,983 $406,760 ==================== Long-term debt amounts are exclusive of current obligations. See the accompanying notes to financial statements.
27 STATEMENTS OF CONSOLIDATED CASH FLOWS (Thousands of Dollars)
- -------------------------------------------------------------------------- Years Ended September 30 1998 1997 1996 - -------------------------------------------------------------------------- Operating Activities: Net Income $27,892 $32,466 $32,824 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,403 25,923 25,037 Deferred income taxes and investment tax credits 8,891 8,681 (10,598) Other - net (675) (635) 498 Changes in assets and liabilities: Accounts receivable - net 1,877 (2,354) (11,180) Unamortized purchased gas adjustments 2,793 (13,722) 36,520 Deferred purchased gas costs (3,863) 394 (712) Accounts payable (8,936) 8,991 (432) Refunds due customers 6,858 (517) (2,862) Taxes accrued 1,842 (3,364) 1,782 Natural gas stored underground 1,894 1,902 (17,140) Other assets and liabilities (15,087) (3,635) (12,470) ------------------------------ Net cash provided by operating activities 48,889 54,130 41,267 ------------------------------ Investing Activities: Construction expenditures (47,254) (42,842) (41,205) Employee benefit trusts (2,560) (3,094) (2,052) Investments - non-utility (2,569) (2,228) 362 Other (413) 2,529 (1,363) ------------------------------ Net cash used in investing activities (52,796) (45,635) (44,258) ------------------------------ Financing Activities: Issuance of first mortgage bonds 25,000 - 25,000 Issuance of short-term debt - net 24,500 14,400 100 Issuance of common stock 1,832 - 2,970 Dividends paid (23,215) (22,747) (22,046) Redemption of first mortgage bonds (25,000) - - Other - - (228) ------------------------------ Net cash provided by (used in) financing activities 3,117 (8,347) 5,796 ------------------------------ Net Increase (Decrease) in Cash and Cash Equivalents (790) 148 2,805 Cash and Cash Equivalents at Beginning of Year 4,508 4,360 1,555 ------------------------------ Cash and Cash Equivalents at End of Year $ 3,718 $ 4,508 $ 4,360 ============================== Supplemental Disclosure of Cash Paid During the Year for: Interest $20,005 $18,087 $16,541 Income taxes 4,110 13,966 27,478 See the accompanying notes to financial statements.
28 SCHEDULE OF INCOME TAXES (Note 8) (Thousands of Dollars)
- ------------------------------------------------------------------------- Years Ended September 30 1998 1997 1996 - ------------------------------------------------------------------------- Included in Statements of Consolidated Income as: Utility Operating Expenses: Federal Current $ 5,200 $ 7,944 $24,683 Deferred 7,679 7,595 (8,564) Investment tax credit adjustments - net (347) (388) (348) State and local Current 955 1,323 4,116 Deferred 1,446 1,488 (1,284) ----------------------------- 14,933 17,962 18,603 ----------------------------- Miscellaneous Income and Income Deductions: Federal Current 314 338 180 Deferred 98 (12) (347) Investment tax credit adjustments - net - (1) (1) State and local Current 81 68 17 Deferred 15 (1) (54) ----------------------------- 508 392 (205) ----------------------------- Total $15,441 $18,354 $18,398 ============================= See the accompanying notes to financial statements.
29 SCHEDULE OF INTERIM FINANCIAL INFORMATION (Unaudited) (Note 11) (Thousands of Dollars Except Per Share Amounts)
- -------------------------------------------------------------------------- Three Months Ended Dec. 31 March 31 June 30 Sept. 30 - -------------------------------------------------------------------------- 1998 Utility Operating Revenues $199,667 $213,826 $77,193 $56,543 Utility Operating Income 18,261 23,275 3,525 1,605 Net Income (Loss) 13,633 18,370 (906) (3,205) Earnings (Loss) Per Share of Common Stock (after preferred dividends) $ .78 $1.04 $(.05) $(.18) - -------------------------------------------------------------------------- Three Months Ended Dec. 31 March 31 June 30 Sept. 30 - -------------------------------------------------------------------------- 1997 Utility Operating Revenues $193,865 $264,031 $84,191 $60,745 Utility Operating Income (Loss) 20,543 26,182 4,725 (1,725) Net Income (Loss) 16,106 21,506 812 (5,958) Earnings (Loss) Per Share of Common Stock (after preferred dividends) $ .92 $1.22 $ .04 $(.34) See the accompanying notes to financial statements.
30 NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Basis of Consolidation - The consolidated financial statements include the accounts of the Laclede Gas Company and its subsidiary companies (Company). The net operating results of the Company's non-utility subsidiaries, all of which are wholly owned, are included under the caption "Miscellaneous Income and Income Deductions - Net" in the Statements of Consolidated Income. Revenues from non-utility subsidiaries are insignificant. All appropriate intercompany transactions have been eliminated. Nature of Operations - Laclede Gas Company is a public utility engaged in the retail distribution of natural gas. The Company serves an area in eastern Missouri, with a population of approximately 2.0 million, including the City of St. Louis, St. Louis County, and parts of eight other counties. As an adjunct to its gas distribution business, the Company operates underground natural gas storage fields and is engaged in the transportation and storage of liquid propane. The Company has also made investments in some non-utility businesses as part of a diversification program. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. System of Accounts - The accounts of the Company are maintained in accordance with the uniform system of accounts prescribed by the Missouri Public Service Commission (MoPSC), which system substantially conforms to that prescribed by the Federal Energy Regulatory Commission. Utility Plant, Depreciation and Amortization - Utility plant is stated at original cost. The cost of additions to utility plant includes contracted work, direct labor and materials, allocable overheads, and an allowance for funds used during construction. The costs of units of property retired, replaced, or renewed are removed from utility plant and such costs, plus removal costs, less salvage are charged to accumulated depreciation. Maintenance and repairs of property and replacement and renewal of items determined to be less than units of property are charged to operating expenses. Utility plant, excluding exploration and development, is depreciated on the straight-line basis at rates based on estimated service lives of the various classes of property. Annual depreciation in 1998, 1997 and 1996 averaged approximately 3.1%, 3.4% and 3.3%, respectively, of the original cost of depreciable property. In the Company's recently settled rate case, the MoPSC approved a settlement agreement which authorized a decrease in depreciation rates for the Company which was instituted July 1, 1998. Regulated Operations - The Company accounts for its regulated operations in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation". This statement sets forth the application of generally accepted accounting principles for those companies whose rates are established by or are subject to approval by an independent third-party regulator. The provisions of SFAS No. 71 require, among other things, that financial statements of a regulated enterprise reflect the actions of regulators, where appropriate. These actions may result in the recognition of revenues and expenses in time 31 periods that are different than non-regulated enterprises. When this occurs, costs are deferred as assets in the balance sheet (regulatory assets) and recorded as expenses when those amounts are reflected in rates. Also, regulators can impose liabilities upon a regulated company for amounts previously collected from customers and for recovery of costs that are expected to be incurred in the future (regulatory liabilities). The following regulatory assets and regulatory liabilities were reflected in the Consolidated Balance Sheets as of September 30:
(Thousands of Dollars) 1998 1997 - -------------------------------------------------------------- Regulatory Assets: Future income taxes due from customers $33,810 $25,450 Pension costs 4,931 4,244 Unamortized loss on reacquired debt 1,033 986 Purchased gas costs 3,025 - Other 2,576 842 --------------------- Total Regulatory Assets $45,375 $31,522 ===================== Regulatory Liabilities: Unamortized investment tax credits $ 6,933 $ 7,280 Future income taxes due to customers 226 56 Purchased gas costs - 838 Unamortized purchased gas adjustments 15,815 13,022 Other 799 360 --------------------- Total Regulatory Liabilities $23,773 $21,556 =====================
Gas Stored Underground - Inventory of gas in storage is priced on a last-in, first-out (LIFO) basis. The replacement cost of gas stored underground for current use was $10,847,000 less than the LIFO cost at September 30, 1998 and $9,402,000 more than the LIFO cost at September 30, 1997. The inventory carrying value has not been adjusted to market prices because, pursuant to the Company's Purchased Gas Adjustment Clause, actual gas costs are recovered in customer rates. Oil & Gas Exploration and Development - In May 1997, the Company sold its oil and gas production properties. Previously, the full cost method of accounting was used for utility exploration and development costs as ordered by the MoPSC. Under the full cost method, all exploration and development costs of productive and non-productive wells were capitalized. Such costs were charged to expense based on oil and gas produced in relation to total estimated recoverable reserves. Depreciation and amortization charges amounted to $249,000 through the date of sale in 1997 and $570,000 in 1996. Operating Revenues - The Company records revenues from gas sales and transportation service on the accrual basis which includes estimated amounts for gas delivered, where applicable, but not yet billed. 32 Purchased Gas Adjustments and Deferred Account - Pursuant to the provisions of the Company's Purchased Gas Adjustment (PGA) Clause, increases and decreases in gas costs are passed on to its customers. The Company makes two scheduled PGA filings each year, one for the winter period and one for the summer. In addition, the Company may make one unscheduled adjustment during the winter if significant, unforeseen increases or decreases in gas costs occur. The provisions of the PGA Clause also include the operation of the Gas Supply Incentive Plan (see Note 3) which allows for the Company to record income as part of a sharing mechanism related to off system sales and gas supply acquisition, with certain amounts being passed on to customers. The MoPSC authorized the Company to purchase financial instruments for the fiscal 1998 and 1999 heating seasons that could protect the Company and its customers from any unusually large winter period gas price increases. The costs of purchasing these instruments and any financial gains derived from such activities are passed on to the Company's customers through the operation of its PGA Clause. Accordingly, there is no earnings impact as a result of the use of these financial instruments. The difference between actual costs incurred and costs recovered through the application of the PGA, certain amounts related to the operation of the Incentive Plan, and amounts related to the use of financial instruments are reflected as a deferred charge or credit until September 30, at which time the balance is classified as a current asset or liability and is recovered from or credited to customers over an annual period commencing in November. The balance in the current account is amortized as amounts are reflected in customer billings. Income Taxes - The Company has elected, for tax purposes only, various accelerated depreciation provisions of the Internal Revenue Code. In addition, certain other costs are expensed currently for tax purposes while being deferred for book purposes. The provision for current income taxes reflects the tax treatment of these items. The Company records deferred tax liabilities and assets measured by enacted tax rates for the net tax effect of all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for income tax purposes. Changes in enacted tax rates, if any, will be reflected by entries to regulatory asset or liability accounts. Investment tax credits utilized prior to 1986 have been deferred and are being amortized in accordance with regulatory treatment over the useful life of the related property. Cash and Cash Equivalents - For the purpose of the statements of cash flows, the Company considers all highly liquid debt instruments purchased, which generally have a maturity of three months or less, to be cash equivalents. Such instruments are carried at cost, which approximates market value. Reclassification - Certain prior-year amounts have been reclassified to conform to current-year presentation. 33 Accounting Changes - Adoption of the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) No. 96-1, "Accounting for Environmental Remediation Liabilities" in 1998 did not have a material impact on the Company's financial position or results of operations. While the Company recognizes and records liabilities consistent with SOP 96-1, the corresponding expenses related to former manufactured gas plants are recorded as regulatory assets through a cost deferral mechanism approved by the MoPSC. The adoption of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" in fiscal 1998 did not impact the Company's earnings per share for the periods presented. The Company also adopted SFAS No. 129, "Disclosure of Information about Capital Structure", which had no effect on the Company's financial disclosures since the Company already disclosed such information. The AICPA issued SOP No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which is effective in fiscal 2000. The Financial Accounting Standards Board (FASB) has issued various accounting standards, including SFAS No. 130, "Reporting Comprehensive Income", SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". Adoption of SFAS Nos. 130, 131 and 132 is required in fiscal 1999; adoption of SFAS No. 133 is required in fiscal 2000. Based on current circumstances, the Company does not expect the adoption of SOP 98-1 or SFAS Nos. 130, 131, 132 and 133 to have a material effect on the Company's financial position or results of operations. 2. Pension Plans and Other Postemployment Benefits The Company has non-contributory defined benefit, trusteed forms of pension plans covering substantially all employees over the age of twenty- one. Benefits are based on years of service and the employee's compensation during the last three years of employment. The Company's funding policy is to contribute an amount not less than the minimum required by government funding standards, nor more than the maximum deductible amount for federal income tax purposes. Plan assets consist primarily of corporate and U.S. government obligations. Pension costs in 1998, 1997 and 1996 amounted to $(3,345,000), $(3,091,000) and $815,000, respectively, including amounts charged to construction. The net pension costs (credits) include the following components:
(Thousands of Dollars) 1998 1997 1996 - ------------------------------------------------------------------ Service cost - benefits earned during the period $ 8,866 $ 7,757 $ 7,780 Interest cost on projected benefit obligation 14,327 13,510 13,456 Actual return on plan assets (60,405) (37,300) (22,338) Net amortization and deferral 34,628 13,591 1,835 Regulatory adjustment (761) (649) 82 ----------------------------- Net pension cost (credit) $(3,345) $ (3,091) $ 815 =============================
The MoPSC ordered in the 1998 general rate case, effective October 27, 1998, certain pension costs to be recovered on a payment basis up to a $314,000 allowance, with the difference between actual payments and the allowance to be deferred. The allowance was previously $313,000 effective September 1, 1996 and $281,000 effective October 1, 1994. Amounts deferred pursuant to the September 1, 1996 allowance are to remain deferred and are to be considered for recovery in Laclede's next general rate case 34 proceeding. The MoPSC also ordered in the 1998 rate case that, beginning July 1, 1998, the return on plan assets be based on the market value of plan assets. Previously, such calculations were based on a market-related value of plan assets, which method recognized certain gains and losses in assets over a three year period. Also beginning July 1, 1998, the unrecognized net gain or loss balances subject to amortization will be based upon the most recent five-year average of the unrecognized gain or loss balance. Such methodology will be implemented prospectively. In the 1996 rate case, the MoPSC ordered that net gains and losses subject to amortization be amortized over a five-year period, beginning in fiscal 1997. Previously, such gains and losses had been amortized over a ten-year period. Other variances in net pension costs are primarily attributable to actuarial and investment experience. The following table sets forth the funded status of the plans and amounts recognized in the Company's consolidated balance sheets at September 30:
(Thousands of Dollars) 1998 1997 - ------------------------------------------------------------------ Actuarial present value of benefit obligation: Vested benefit obligation $152,530 $133,784 =================== Accumulated benefit obligation $190,652 $161,451 =================== Projected benefit obligation $237,938 $201,030 Plan assets at fair value 309,344 272,355 ------------------- Plan assets in excess of projected benefit obligation 71,406 71,325 Unrecognized net gain (31,701) (45,975) Unrecognized prior service cost 14,892 19,880 Unrecognized net transition asset (3,306) (4,460) Minimum liability adjustment (2,085) (1,848) ------------------- Prepaid pension cost recognized in the consolidated balance sheets $ 49,206 $ 38,922 ===================
The projected benefit obligation, which is based on a June 30 measurement date, was determined using a weighted-average discount rate of 6.75% for 1998 and 7.5% for 1997, and a weighted-average rate of future compensation of 4.0% for 1998 and 4.75% for 1997. The effect of the above changes in pension assumptions was to increase the projected benefit obligation by $17 million. The expected long-term rate of return on plan assets was 8.25% for 1998 and 1997. Pursuant to the provisions of the Company's pension plans, pension obligations may be settled by lump-sum cash payments. Settlements in 1998, 1997 and 1996 resulted in pre-tax gains of approximately $3,771,000, $2,490,000 and $5,024,000, respectively. The cost of the Company's defined contribution plans, which cover substantially all employees, amounted to $2,304,000, $2,103,000 and $2,022,000 for the years 1998, 1997 and 1996, respectively. The Company also provides certain life insurance benefits at retirement. Medical insurance is available after early retirement until age 65. State law provides for the recovery in rates of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (OPEB), accrued costs provided that such costs are funded through an independent, external funding mechanism. The Company established Voluntary Employees' Beneficiary Association (VEBA) and Rabbi trusts as its external funding mechanisms. VEBA and Rabbi trusts assets consist primarily of money 35 market securities. The unrecognized transition obligation is being amortized over 20 years. Postretirement benefit costs in 1998, 1997 and 1996 amounted to approximately $4,265,000, $4,265,000 and $4,608,000, respectively, including amounts charged to construction. Net postretirement benefit costs consisted of the following components:
(Thousands of Dollars) 1998 1997 1996 - ------------------------------------------------------------------- Service cost - benefits earned during the period $1,354 $1,463 $1,528 Interest cost on accumulated postretirement benefit obligation 2,327 2,469 2,479 Actual return on plan assets (234) (163) (129) Amortization of transition obligation 1,267 1,267 1,267 Net amortization and deferral (889) (819) (160) Regulatory adjustment 440 48 (377) -------------------------- Net postretirement benefit cost $4,265 $4,265 $4,608 ==========================
The following table sets forth the funded status of the plans and amounts recognized in the Company's consolidated balance sheets at September 30:
(Thousands of Dollars) 1998 1997 - ----------------------------------------------------------------- Accumulated postretirement benefit obligation (APBO): Retirees $(17,511) $(18,747) Active Employees (19,302) (14,483) ------------------- Total APBO (36,813) (33,230) Plan assets at fair value 4,305 4,061 ------------------- APBO in excess of plan assets (32,508) (29,169) Unrecognized transition obligation 18,980 20,247 Unrecognized prior service cost 3,935 4,300 Unrecognized net (gain)/loss 793 (3,747) ------------------- Accrued postretirement benefit cost $ (8,800) $ (8,369) ===================
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 6% for 1998, and decreases to 5% in 1999. A one percent increase in the assumed health care cost trend rate for each year would increase accumulated postretirement benefit costs as of September 30, 1998 by $1,290,000 and the sum of the service cost and interest cost by approximately $186,000. The accumulated postretirement benefit obligation was determined using a weighted-average discount rate of 6.75% for 1998 and 7.5% for 1997, and a weighted-average rate of future compensation of 4.0% for 1998 and 4.75% for 1997. These changes in assumptions did not have a material effect on the postretirement benefit obligation. 36 The 1998 rate case settlement provided for the deferral, net of any applicable tax effects, of the difference between the costs funded by the Company and a $3,825,000 allowance of annualized OPEB costs included in rates effective October 27, 1998. The allowance was previously $4,265,000 effective September 1, 1996 and $6,100,000 effective October 1, 1994. Amounts deferred pursuant to the previous allowance are to remain deferred and are to be considered for future rate recovery in the next general rate case proceeding. 3. Incentive Plan The Company's Gas Supply Incentive Plan, which became effective October 1, 1996 for a three-year period ending September 30, 1999 as part of a settlement reached in the Company's 1996 rate case, has provided significant benefits for both the Company's share owners and customers during fiscal years 1998 and 1997. Under the Plan, the Company and its customers share the income from off-system sales and certain gains and losses related to the acquisition of the Company's gas supply assets. As part of this Plan, the Company sells available gas supply and pipeline capacity in markets outside of its normal service territory. Results of the Plan are set forth below. Such results may not be representative of fiscal 1999 results due to the volatile and seasonal nature of these efforts.
(Thousands of Dollars) 1998 1997 - ----------------------------------------------------------------- Incentive Plan Revenues $29,851 $34,288 Incentive Plan Gas Expense 23,482 26,886 ------- ------- Company Share - Pretax Income $ 6,369 $ 7,402 ======= =======
4. Common Stock and Paid-in Capital The Company issued 70,447 shares of its common stock during fiscal 1998 under its Dividend Reinvestment and Stock Purchase Plan. The Company did not issue any of its common stock during fiscal 1997. (Shares of common stock required by the Company's Dividend Reinvestment and Stock Purchase Plan were purchased on the open market in fiscal 1997.) Total shares of common stock outstanding were 17,627,987 at September 30, 1998 and 17,557,540 at September 30, 1997. On March 14, 1996, the Company declared a dividend of one Common Share Purchase Right for each outstanding share of common stock as of May 1, 1996, each of which common share purchase rights gives the Rightholder the right to purchase one common share for a purchase price of $60, subject to adjustment. The rights expire on May 1, 2006, and may be redeemed by the Company for one cent each at any time before they become exercisable. The rights will not be exercisable or transferable apart from the common stock, until ten days after a person or group acquires or obtains the right to acquire 20% or more of the common stock, or commences or announces its intention to commence a tender or exchange offer for 20% or more of the common stock. Following the former event, a right will entitle its holder to purchase, at the purchase price, the number of shares equal to the purchase price (initially $60 per share) divided by one-half of the market price. Alternatively, the Company may exchange each Right for one share of Company common stock. A total of 17,627,987 rights were outstanding at September 30, 1998. Paid-in capital increased $1,761,000 in 1998 due to the issuance of common stock under the Dividend Reinvestment and Stock Purchase Plan. There was no change in paid-in capital during fiscal year 1997. 37 5. Redeemable Preferred Stock The preferred stock, which is non-voting except in certain circumstances, may be redeemed at the option of the Board of Directors. The redemption price is equal to par of $25.00 a share. During 1998 and 1997 no shares of preferred stock were reacquired. Any default in a sinking fund payment must be cured before the Company may pay dividends on or acquire any common stock. Sinking fund requirements on preferred stock for the five years subsequent to September 30, 1998 are: 1999, none; 2000, $37,250; 2001-2003, $160,000 per year. 6. Long-Term Debt Maturities or sinking fund requirements on long-term debt for the five years subsequent to September 30, 1998 are as follows: 1999-2002, none; 2003, $25.0 million. On March 19, 1997 the Company received approval from the MoPSC for a two-year extension, to April 21, 1999, of its previously granted authority to sell additional First Mortgage Bonds. The original authorization was for $100.0 million of First Mortgage Bonds of which $50.0 million had already been issued and sold. In October 1997, the Company issued $25.0 million of 6-1/2% First Mortgage Bonds at a cost to the Company of 6.675%. The proceeds of the issuance were used to reduce outstanding short-term borrowings. The Company has $25.0 million of principal amount of bonds remaining unissued under this authorization. On May 15, 1998, the Company redeemed, at its first opportunity, $25.0 million of 9-5/8% First Mortgage Bonds due May 15, 2013. The funds for this redemption were supplied by short-term borrowing agreements. Substantially all of the Company's utility plant is subject to the liens of its mortgage. The Company's mortgage contains provisions which restrict retained earnings from declaration or payment of cash dividends. As of September 30, 1998, all of the Company's consolidated retained earnings were free from such restrictions. 7. Fair Value of Financial Instruments The carrying amounts and estimated fair values of the Company's financial instruments at September 30, 1998 and 1997 are as follows:
Carrying Fair (Thousands of Dollars) Amount Value - ------------------------------------------------------------------ 1998: Cash and cash equivalents $ 3,718 $ 3,718 Short-term debt 98,500 98,500 Long-term debt 179,238 198,411 Redeemable preferred stock 1,960 1,624 Non-utility financial instruments 941 620 1997: Cash and cash equivalents $ 4,508 $ 4,508 Short-term debt 74,000 74,000 Long-term debt 179,413 190,765 Redeemable preferred stock 1,960 1,723
The carrying amounts for cash and cash equivalents and short-term debt approximate fair value due to the short maturity of these investments. Fair value of long-term debt and preferred stock is estimated based on market prices for similar issues. The fair value of non-utility financial instruments reflects trading prices at September 30, 1998. 38 8. Income Taxes Net provisions for income taxes were charged during the years ended September 30, 1998, 1997 and 1996 as shown on the Schedule of Income Taxes. The effective income tax rate varied from the federal statutory income tax rate for each year due to the following:
1998 1997 1996 - --------------------------------------------------------------------------- Federal income tax statutory rate 35.0% 35.0% 35.0% State and local income taxes, net of federal income tax benefits 3.7 3.7 3.6 Certain expenses capitalized on books and deducted on tax return (2.0) (1.6) (.6) Taxes related to prior years (1.2) - (1.4) Other items - net .1 (1.0) (.7) ---------------------- Effective income tax rate 35.6% 36.1% 35.9% ======================
The significant items comprising the Company's net deferred tax liability recognized in the consolidated balance sheets as of September 30 are as follows:
(Thousands of Dollars) 1998 1997 - ---------------------------------------------------------------------- Deferred tax assets: Reserves not currently deductible $ 14,447 $ 15,246 Deferred gas cost 6,386 5,661 Unamortized investment tax credits 4,365 4,583 Other 3,580 3,521 -------- -------- Total deferred tax assets 28,778 29,011 -------- -------- Deferred tax liabilities: Relating to utility property 93,322 82,836 Pension 23,453 18,385 Other 4,926 2,922 -------- -------- Total deferred tax liabilities 121,701 104,143 -------- -------- Net deferred tax liability 92,923 75,132 Net deferred tax asset - current 9,933 9,881 -------- -------- Net deferred tax liability - non-current $102,856 $ 85,013 ======== ========
9. Notes Payable and Credit Agreements The Company has primary lines of bank credit which permit borrowing of up to $40.0 million at any time before January 31, 1999. Such borrowings are renewable with no note maturing beyond June 30, 1999. The borrowings may be repaid at any time without penalty. The Company anticipates renewal of these primary lines totaling $40.0 million in January 1999. These, together with the Company's previously obtained supplemental line of credit, which aggregated about $70.0 million through August 30, 1998, provided total lines of credit of $110.0 million for the 1997-1998 heating season. 39 Under current bank loan agreements, Laclede may borrow up to $140.0 million, which includes the Company's primary lines of credit of $40.0 million and a $100.0 million supplemental line of credit extending through August 30, 1999. Alternatively, the Company has an agreement for the issuance of commercial paper which is supported by the bank loan lines of credit. During fiscal year 1998, the Company's short-term borrowing requirements, which peaked at $110.0 million in January 1998, were met by the sale of commercial paper. The Company had $98.5 million and $74.0 million in commercial paper outstanding as of September 30, 1998 and 1997, respectively, at an average interest rate of 5.6% for both years. 10. Commitments and Contingencies The Company estimates fiscal year 1999 utility construction expenditures at $44 million. The lease agreement covering the Company's general office space extends through February 2000 with options to renew for up to 20 additional years. The aggregate rental expense for fiscal years 1998, 1997 and 1996 was $803,000, $794,000 and $785,000, respectively. The annual minimum rental payment for fiscal year 1999 is $803,000. The lease agreement provides for an annual rent escalation which is not determinable as of the balance sheet date; however, the maximum amount of rental expense increase is $8,800. The Company has other rental arrangements which provide for minimum rental payments that are relatively minor. The Company has entered into various contracts which in the aggregate require it to pay approximately $75 million on an annual basis, at present rate levels, for the reservation of gas supplies and pipeline transmission and storage capacity. These costs are recovered from customers in accordance with the Purchased Gas Adjustment Clause of the Company's tariff. The contracts have various expiration dates ranging from 1999 to 2001. A consolidated subsidiary is a general partner in an unconsolidated partnership which invests in real estate partnerships. The subsidiary and third parties are jointly and severally liable for the payment of mortgage loans in the aggregate outstanding amount of approximately $3.3 million incurred in connection with various real estate ventures. The Company has no reason to believe that the other principal liable parties will not be able to meet their proportionate share of these obligations. The Company further believes that the asset values of the real estate properties are sufficient to support these mortgage loans. As part of its annual review of the Company's gas costs, the Staff of the MoPSC has recommended an adjustment which, if approved by the MoPSC and upheld by the courts, would require the Company to refund to its customers approximately $3.6 million of gains realized by the Company from various sales made outside of Missouri between November 1995 and March 1996 (prior to the approval of the Incentive Plan). A hearing was held before the MoPSC in this matter on October 6, 1998. The Company vigorously opposed the Staff's recommended adjustment before the MoPSC on the grounds that such adjustment violates Missouri law, is impermissible under the Company's MoPSC-approved tariffs, and is otherwise unlawful and unreasonable. The Company believes that the outcome of this matter is unlikely to have a material adverse impact on the Company. The Company is subject to various 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. In the past, the Company operated various manufactured gas plants which produced certain by-products and residuals. At the request of the United States Environmental Protection Agency (EPA), Laclede performed an investigation of one of the Company's former manufactured gas plant sites located in Shrewsbury, Missouri (the Shrewsbury Site). As previously reported by the Company, the Company has had lengthy discussions with the EPA and the Missouri Department of Natural Resources (MoDNR) as to what additional actions are required for the site. On October 17, 1997, the Company submitted to the EPA an Engineering Evaluation/Cost Analysis (EE/CA) relative to the site. The EPA, the MoDNR and the Company agreed on several 40 changes to the EE/CA. The EPA on September 25, 1998 issued its conditional approval of the revised EE/CA. The revised EE/CA will not be formally approved until after the public comment period has ended. Assuming the revised EE/CA is finally approved with no changes, the Company estimates that the overall costs will be approximately $1,135,000. As of September 30, 1998, $622,000 of such overall costs had been paid, and an additional $513,000 was reserved by the Company. Any additional actions with regard to the site will incur additional costs. The Company has notified its insurers that it intends to seek reimbursement from them of its investigation, remediation, clean-up and defense costs. In a separate matter, MoDNR has accepted the Company's application to place the site of a different former manufactured gas plant located in the City of St. Louis, Missouri (which site was also used by subsequent owners as the site of a coke manufacturing facility) in the Missouri Voluntary Cleanup Program, for the purpose of characterizing the site. On October 5, 1998, the MoDNR indicated that the Company must commence a sampling plan suggested by MoDNR, or its equivalent within 5 days, or the MoDNR would terminate the Company's participation in the Program. On October 13, 1998, the Company indicated it would remain in the Program and submit an equivalent sampling plan by November 17, 1998. The MoDNR acknowledged receipt of the Company's letter and indicated that the Company must begin to implement the plan by December 9, 1998. The Company submitted its sampling plan to the MoDNR on November 16, 1998 and has begun implementation. The Company currently estimates that the cost of its investigation, MoDNR oversight costs and associated legal and engineering consulting costs relative to such site would together approximate $495,000. Currently, $113,000 has been paid and an additional $382,000 has been reserved on the Company's books. The Company has notified its insurers that the Company intends to seek reimbursement from them for investigation, remediation, clean-up and defense costs. The Company has also requested that other former site owners and/or operators participate in the cost of any site investigation, but none has yet agreed to do so. The Company plans to seek proportionate reimbursement of all costs incurred with respect to this site from such parties and/or any other potentially responsible parties, to the extent practicable. The Company is presently unable to evaluate or quantify further the scope or costs of any environmental response activity with regard to the above two former manufactured gas plant sites. In the Company's most recent rate case, the MoPSC approved the continued use of a cost deferral mechanism for the Company's use in applying for appropriate rate recovery of various environmental costs in connection with former manufactured gas plants. This authorization will be null and void if the Company does not file to further adjust its rates by October 27, 2000; and, in any event, the recovery of costs thus deferred may be challenged in future rate proceedings. Superior Oil Company and Union Pacific Railroad Company (the Plaintiffs) named Laclede as an additional defendant in a lawsuit previously filed by the Plaintiffs against Allied Signal, Inc. and Monsanto Company. In this lawsuit the Plaintiffs seek contribution from the defendants under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) for costs incurred, and to be incurred, by the Plaintiffs to remediate contamination at a St. Louis site currently owned and/or leased by the Plaintiffs (Superior Oil Site). The Plaintiffs contend that the three defendants should be jointly and severally liable for past and future response costs, in Laclede's case, because: (a) coal tar wastes allegedly are and have been migrating onto the Superior Oil Site from an adjacent site, which is the former location of one of Laclede's gas manufacturing plants; and (b) Laclede allegedly previously arranged for the disposal of coal tar wastes at the Superior Oil Site through the operations of Barrett Manufacturing Company (the predecessor in interest of Allied Signal, Inc.). The other parties to the lawsuit have filed an Engineering Evaluation/Cost Analysis (EE/CA) with the EPA for the Superior Oil Site. The EE/CA contains no apparent evidence that Laclede contributed contaminants to the Superior Oil Site. Laclede has commenced formal discovery to determine what evidence, if any, exists to demonstrate that Laclede contributed any 41 contaminants to the Superior Oil Site. The Superior Oil Site was also the subject of a separate CERCLA lawsuit filed by the EPA against the Plaintiffs and several other potentially responsible parties, which has been settled. Laclede was not a party to the EPA's lawsuit and has never been named by the EPA as a responsible party at the Superior Oil Site. Based upon the information currently available to Laclede, Laclede believes that if Laclede is found to have contributed any contamination at the Superior Oil Site, Laclede's share of the liability for response costs applicable to the Superior Oil Site would be relatively small. Accordingly, such liability should have no material adverse impact on Laclede's financial condition or results of operations. Laclede intends to defend vigorously the lawsuit in which it has been named a party. 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 financial statements presented herein. 11. Interim Financial Information (Unaudited) In the opinion of the Company, the quarterly information presented in the Schedule of Interim Financial Information for fiscal years 1998 and 1997 includes all adjustments, consisting of normal recurring adjustments necessary for a fair statement of the results of operations for such periods. Variations in operations reported on a quarterly basis reflect the seasonal nature of the Company's business. 42 Item 9. Changes in and Disagreements on Accounting and Financial Disclosure There have been no disagreements on accounting and financial disclosure with the Company's outside auditors which are required to be disclosed. Part III Item 10. Directors and Executive Officers of the Registrant The information concerning directors required by this item is set forth on pages 3 through 5 in the Company's proxy statement dated December 18, 1998 and is incorporated herein by reference. The information concerning executive officers required by this item is reported in Part I of this Form 10-K. Item 11. Executive Compensation The information required by this item is set forth on pages 7 through 13 in the Company's proxy statement dated December 18, 1998 and is incorporated herein by reference but the information under the captions "Compensation Committee Report Regarding Executive Compensation" and "Performance Graph" on pages 10 through 12 of such proxy statement is expressly NOT incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information required by this item is set forth on page 6 in the Company's proxy statement dated December 18, 1998 and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions There were no transactions required to be disclosed pursuant to this item. 43 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Consolidated Financial Statements: 1998 10-K Page For Years Ended September 30, 1998, 1997, and 1996: Statements of Income 23 Statements of Retained Earnings 24 Statements of Cash Flows 28 Schedule of Income Taxes 29 As of September 30, 1998 & 1997: Balance Sheets 25-26 Statements of Capitalization 27 For Years Ended 1998 & 1997: Schedule of Interim Financial Information 30 Notes to Financial Statements 31-42 Independent Auditors' Report 21 Management Report 22 2. Supplemental Schedules II - Reserves 48 Schedules not included have been omitted because they are not applicable or the required data has been included in the financial statements or notes to financial statements. 3. Exhibits Incorporated herein by reference to Index to Exhibits, page 49. Management contracts and compensatory plans or arrangements listed in the Index to Exhibits required to be filed as exhibits to this form pursuant to Item 14(c) of this report: Exhibit No. Description 10.01 - Incentive Compensation Plan of the Company, as amended. 10.01a - Amendment adopted by the Board of Directors on July 26, 1990 to the Incentive Compensation Plan. 10.01b - Amendments adopted by the Board of Directors on August 23, 1990 to the Incentive Compensation Plan. 10.01c - Amendments to Laclede Gas Company Incentive Compensation Plan, effective January 26, 1995. 10.02 - Senior Officers' Life Insurance Program of the Company, as amended. 10.02a - Certified copy of resolutions of the Company's Board of Directors adopted on June 27, 1991 amending the Senior Officers' Life Insurance Program. 10.02b - Certified copy of resolutions of the Company's Board of Directors adopted on January 28, 1993 amending the Senior Officers' Life Insurance Program. 10.03 - Employees' Retirement Plan of Laclede Gas Company - Management Employees, effective as of July 1, 1990, as amended. 44 10.03a - Amendment to the Employees' Retirement Plan of Laclede Gas Company - Management Employees adopted by the Board of Directors on September 27, 1990. 10.03b - Amendments dated December 12, 1990 to the Employees' Retirement Plan of Laclede Gas Company - Management Employees. 10.03c - Amendment to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated January 10, 1994. 10.03d - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated July 29, 1994. 10.03e - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated February 21, 1995. 10.03f - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated March 7, 1995. 10.03g - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated September 11, 1995. 10.03h - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated August 14, 1996. 10.03i - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees adopted December 19, 1996. 10.03j - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees adopted February 7, 1997. 10.04 - Laclede Gas Company Supplemental Retirement Benefit Plan, as amended and restated effective July 25, 1991. 10.05 - Laclede Gas Company Salary Deferral Savings Plan, as amended through February 27, 1992. 10.05a - Amendment to the Company's Salary Deferral Savings Plan, effective January 31, 1992, adopted by the Board of Directors on August 27, 1992. 10.05b - Amendment to the Company's Salary Deferral Savings Plan dated January 10, 1994. 10.05c - Amendments to the Company's Salary Deferral Savings Plan, dated July 29, 1994. 10.05d - Amendments to the Company's Salary Deferral Savings Plan effective August 1, 1994 adopted by the Board of Directors on August 25, 1994. 10.05e - Amendments to the Company's Salary Deferral Savings Plan dated September 27, 1994. 10.05f - Amendments to the Company's Salary Deferral Savings Plan dated February 21, 1995. 10.05g - Amendments to the Company's Salary Deferral Savings Plan dated March 7, 1995. 10.05h - Amendments to the Company's Salary Deferral Savings Plan dated June 26, 1995. 10.05i - Amendments to the Company's Salary Deferral Savings Plan dated August 3, 1995. 10.05j - Amendments to the Company's Salary Deferral Savings Plan adopted April 21, 1997. 10.06 - Laclede Gas Company Deferred Compensation Plan for Non-Employee Directors dated March 26, 1981. 45 10.06a - First Amendment to the Company's Deferred Compensation Plan for Non-Employee Directors, adopted by the Board of Directors on July 26, 1990. 10.06b - Amendment to the Company's Deferred Compensation Plan for Non-Employee Directors, adopted by the Board of Directors on August 27, 1992. 10.08 - The Retirement Plan for Non-Employee Directors of Laclede Gas Company dated January 24, 1985. 10.08a - First Amendment to Retirement Plan for the Company's Non-Employee Directors, adopted by the Board of Directors on July 26, 1990. 10.08b - Amendments to the Retirement Plan for Non-Employee Directors, adopted by the Board of Directors on January 23, 1992. 10.09 - Salient Features of the Laclede Gas Company Deferred Income Plan for Directors and Selected Executives, including amendments adopted by the Board of Directors on July 26, 1990. 10.09a - Amendment to the Company's Deferred Income Plan for Directors and Selected Executives, adopted by the Board of Directors on August 27, 1992. 10.10 - Form of Indemnification Agreement between the Company and its Directors and Officers. 10.11 - Laclede Gas Company Management Continuity Protection Plan, as amended, effective at the close of business on January 27, 1994, by the Board of Directors. 10.12 - Laclede Gas Company Restricted Stock Plan for Non-Employee Directors, effective as of January 25, 1990. 10.12a - Extension and amendment of the Laclede Gas Company Restricted Stock Plan for Non-Employee Directors adopted by the Board of Directors on November 17, 1994. 10.12b - Amendment to the Laclede Gas Company Restricted Stock Plan for Non-Employee Directors adopted August 14, 1998. 10.14 - Salient Features of the Laclede Gas Company Deferred Income Plan II for Directors and Selected Executives adopted by the Board of Directors on September 23, 1993. (b) The Company filed no reports on Form 8-K during the last quarter of fiscal year 1998. (c) Incorporated herein by reference to Index to Exhibits, page 49. 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 December 17, 1998 By Gerald T. McNeive, Jr. Gerald T. McNeive, Jr. Senior Vice President - Finance and General Counsel Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date Signature Title 12/17/98 Robert C. Jaudes Chairman of the Board and Robert C. Jaudes Chief Executive Officer (Principal Executive Officer) 12/17/98 Douglas H. Yaeger Director, President and Chief Douglas H. Yaeger Operating Officer 12/17/98 Gerald T. McNeive, Jr. Senior Vice President - Gerald T. McNeive, Jr. Finance and General Counsel (Principal Financial and Accounting Officer) 12/17/98 Richard E. Beumer Director Richard E. Beumer 12/17/98 Andrew B. Craig, III Director Andrew B. Craig, III 12/17/98 Henry Givens, Jr. Director Henry Givens, Jr. 12/17/98 C. Ray Holman Director C. Ray Holman 12/17/98 Mary Ann Krey Director Mary Ann Krey 12/17/98 William E. Nasser Director William E. Nasser 12/17/98 Robert P. Stupp Director Robert P. Stupp 12/17/98 H. Edwin Trusheim Director H. Edwin Trusheim 47 SCHEDULE II LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES RESERVES FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E BALANCE AT ADDITIONS CHARGED DEDUCTIONS BALANCE BEGINNING TO TO OTHER FROM AT CLOSE DESCRIPTION OF PERIOD INCOME ACCOUNTS RESERVES OF PERIOD - --------------------------------------------------------------------------- (Thousands of Dollars) YEAR ENDED SEPTEMBER 30, 1998: DOUBTFUL ACCOUNTS $ 8,051 $5,312 $4,214 (a) $11,927 (b) $ 5,650 ==================================================== MISCELLANEOUS: Injuries and property damage $ 4,227 $ 935 $ - $ 1,796 (c) $ 3,366 Deferred compensation 8,475 1,290 - 841 8,924 ---------------------------------------------------- TOTAL $12,702 $2,225 $ - $ 2,637 $12,290 ==================================================== YEAR ENDED SEPTEMBER 30, 1997: DOUBTFUL ACCOUNTS $ 7,984 $8,556 $3,583 (a) $12,072 (b) $ 8,051 ==================================================== MISCELLANEOUS: Injuries and property damage $ 3,655 $1,780 $ - $ 1,208 (c) $ 4,227 Deferred compensation 8,040 1,228 59 852 8,475 ---------------------------------------------------- TOTAL $11,695 $3,008 $ 59 $ 2,060 $12,702 ==================================================== YEAR ENDED SEPTEMBER 30, 1996: DOUBTFUL ACCOUNTS $ 5,189 $7,072 $2,904 (a) $ 7,181 (b) $ 7,984 ==================================================== MISCELLANEOUS: Injuries and property damage $ 3,598 $1,675 $ - $ 1,618 (c) $ 3,655 Deferred compensation 7,547 1,505 (196) 816 8,040 ---------------------------------------------------- TOTAL $11,145 $3,180 $ (196) $ 2,434 $11,695 ==================================================== (a) Accounts reinstated, cash recoveries, etc. (b) Accounts written off. (c) Claims settled, less reimbursements from insurance companies.
48 INDEX TO EXHIBITS ----------------- Exhibit No. ------- 3.01(i)* Articles of Incorporation, as of February 11, 1994; filed as Exhibit 4(a) to the Company's Form S-3 Registration Statement No. 33-52357. 3.01(ii)* By-Laws of the Company effective January 26, 1995; filed as Exhibit 4.2 to the Company's Registration Statement No. 33-58757. 3.01(ii)(a)* Amendment to the Company's By-Laws, effective at the close of business on July 24, 1997, adopted by the Company's Board of Directors on July 24, 1997; filed as Exhibit 3.01 to the Company's 10-Q for the fiscal quarter ended June 30, 1997 (File No. 1-1822). 3.01(ii)(b)* Amendment to the Company's By-Laws, effective at the close of business on November 20, 1997, adopted by the Company's Board of Directors on November 20, 1997; filed as Exhibit 3.01(ii) to the Company's 10-Q for the fiscal quarter ended December 31, 1997 (File No. 1-1822). 4.01* - Mortgage and Deed of Trust, dated as of February 1, 1945; filed as Exhibit 7-A to Registration Statement No. 2-5586. 4.02* - Fourteenth Supplemental Indenture, dated as of October 26, 1976; filed on June 26, 1979 as Exhibit b-4 to Registration Statement No. 2-64857. 4.03* - Seventeenth Supplemental Indenture, dated as of May 15, 1988; filed as Exhibit 28(a) to the Registration Statement No. 33-38413. 4.04* - Eighteenth Supplemental Indenture, dated as of November 15, 1989; filed as Exhibit 28(b) to the Registration Statement No. 33-38413. 4.05* - Nineteenth Supplemental Indenture, dated as of May 15, 1991; filed on May 16, 1991 as Exhibit 4.01 to the Company's Form 8-K (File No. 1-1822). 4.06* - Twentieth Supplemental Indenture, dated as of November 1, 1992; filed on November 4, 1992 as Exhibit 4.01 to the Company's Form 8-K (File No. 1-1822). 4.07* - Twenty-First Supplemental Indenture, dated as of May 1, 1993; filed on May 13, 1993 as Exhibit 4.01 to the Company's Form 8-K (File No. 1-1822). 4.08* - Twenty-Second Supplemental Indenture dated as of November 15, 1995; filed on December 8, 1995 as Exhibit 4.01 to the Company's Form 8-K (File No. 1-1822). 4.09* - Twenty-Third Supplemental Indenture dated as of October 15, 1997; filed on November 6, 1997 as Exhibit 4.01 to the Company's Form 8-K (File No. 1-1822). 4.10* - Laclede Gas Company Board of Directors' Resolution dated August 28, 1986 which generally provides that the Board may delegate its authority in the adoption of certain employee benefit plan amendments to certain designated Executive Officers; filed as Exhibit 4.12 to the Company's 10-K for the fiscal year ended September 30, 1991 (File No. 1-1822). * Incorporated herein by reference and made a part hereof. 49 INDEX TO EXHIBITS ----------------- Exhibit No. ------- 4.10a* - Laclede Gas Company Board of Directors' Resolutions dated August 25, 1988, which generally provide for certain amendments to the Company's Wage Deferral Savings Plan and Salary Deferral Savings Plan and that certain Officers are authorized to execute such amendments; filed as Exhibit 4.12g to the Company's 10-K for the fiscal year ended September 30, 1988 (File No. 1-1822). 4.11* - Laclede Gas Company Wage Deferral Savings Plan, incorporating amendments through December 12, 1990; filed as Exhibit 4.13 to the Company's 10-K for the fiscal year ended September 30, 1991 (File No. 1-1822). 4.11a* - Amendments to the Company's Wage Deferral and Salary Deferral Savings Plans, effective May 1, 1992, adopted by the Board of Directors on February 27, 1992; filed as Exhibit 4.13 to the Company's 10-Q for the fiscal quarter ended March 31, 1992 (File No. 1-1822). 4.11b* - Amendment to the Company's Wage Deferral Savings Plan, effective August 1, 1992, adopted by the Board of Directors on August 27, 1992; filed as Exhibit 4.13b to the Company's 10-K for the fiscal year ended September 30, 1992 (File No. 1-1822). 4.11c* - Amendments to the Company's Wage Deferral Savings Plan dated July 29, 1994; filed as Exhibit 4.09c to the Company's 10-K for the fiscal year ended September 30, 1994 (File No. 1-1822). 4.11d* - Amendments to the Company's Wage Deferral Savings Plan effective August 1, 1994 and adopted by the Board of Directors August 25, 1994; filed as Exhibit 4.09d to the Company's 10-K for the fiscal year ended September 30, 1994 (File No. 1-1822). 4.11e* - Amendments to the Company's Wage Deferral Savings Plan dated February 21, 1995; filed as Exhibit 4.1 to the Company's 10-Q for the fiscal quarter ended March 31, 1995 (File No. 1-1822). 4.11f* - Amendments to the Company's Wage Deferral Savings Plan dated March 7, 1995; filed as Exhibit 4.2 to the Company's 10-Q for the fiscal quarter ended March 31, 1995 (File No. 1-1822). 4.11g* - Amendments to the Company's Wage Deferral Savings Plan dated June 26, 1995; filed as Exhibit 4.1 to the Company's 10-Q for the fiscal quarter ended June 30, 1995 (File No. 1-1822). * Incorporated herein by reference and made a part hereof. 50 INDEX TO EXHIBITS ----------------- Exhibit No. ------- 4.11h* - Amendments to the Company's Wage Deferral Savings Plan adopted April 21, 1997; filed as Exhibit 4.2 to the Company's 10-Q for the fiscal quarter ended June 30, 1997 (File No. 1-1822). 4.12* - Missouri Natural Gas Division of the Laclede Gas Company Dual Savings Plan incorporating amendments through December 12, 1990; filed as Exhibit 4.01 to the Company's 10-Q for the fiscal quarter ended December 31, 1990 (File No. 1-1822). 4.12a* - Amendment to the Missouri Natural Gas Division of Laclede Gas Company Dual Savings Plan effective April 11, 1993, adopted by the Board of Directors on August 26, 1993; filed as Exhibit 4.10a to the Company's 10-K for the fiscal year ended September 30, 1993 (File No. 1-1822). 4.12b* - Amendments to the Missouri Natural Gas Division of Laclede Gas Company Dual Savings Plan dated July 29, 1994; filed as Exhibit 4.10b to the Company's 10-K for the fiscal year ended September 30, 1994 (File No. 1-1822). 4.12c* - Amendment dated October 27, 1994 to the Missouri Natural Gas Division of Laclede Gas Company Dual Savings Plan; filed as Exhibit 4.1 to the Company's 10-Q for the fiscal quarter ended December 31, 1994 (File No. 1-1822). 4.12d* - Amendment dated November 21, 1994 to the Missouri Natural Gas Division of Laclede Gas Company Dual Savings Plan; filed as Exhibit 4.2 to the Company's 10-Q for the fiscal quarter ended December 31, 1994 (File No. 1-1822). 4.12e* - Amendments to the Missouri Natural Gas Division of Laclede Gas Company Dual Savings Plan dated February 21, 1995; filed as Exhibit 4.3 to the Company's 10-Q for the fiscal quarter ended March 31, 1995 (File No. 1-1822). 4.12f* - Amendments to the Missouri Natural Gas Division of Laclede Gas Company Dual Savings Plan dated March 7, 1995; filed as Exhibit 4.4 to the Company's 10-Q for the fiscal quarter ended March 31, 1995 (File No. 1-1822). 4.12g* - Amendments to the Missouri Natural Gas Division of Laclede Gas Company Dual Savings Plan adopted by the Board of Directors on May 25, 1995; filed as Exhibit 4.2 to the Company's 10-Q for the fiscal quarter ended June 30, 1995 (File No. 1-1822). 4.12h* - Amendments to the Missouri Natural Gas Division of Laclede Gas Company Dual Savings Plan dated June 26, 1995; filed as Exhibit 4.3 to the Company's 10-Q for the fiscal quarter ended June 30, 1995 (File No. 1-1822). * Incorporated herein by reference and made a part hereof. 51 INDEX TO EXHIBITS ----------------- Exhibit No. ------- 4.12i* - Amendments to the Missouri Natural Gas Division of Laclede Gas Company Dual Savings Plan dated August 3, 1995; filed as Exhibit 4.10i to the Company's 10-K for the fiscal year ended September 30, 1995 (File No. 1-1822). 4.12j* - Amendments to the Missouri Natural Gas Division of Laclede Gas Company Dual Savings Plan adopted April 21, 1997; filed as Exhibit 4.3 to the Company's 10-Q for the fiscal quarter ended June 30, 1997 (File No. 1-1822). 4.13* - Rights Agreement dated as of April 3, 1996; filed on April 3, 1996 as Exhibit 1 to the Company's Form 8-A (File No. 1-1822). 10.01* - Incentive Compensation Plan of the Company, as amended; filed as Exhibit 10.03 to the Company's 10-K for the fiscal year ended September 30, 1989 (File No. 1-1822). 10.01a* - Amendment adopted by the Board of Directors on July 26, 1990 to the Incentive Compensation Plan; filed as Exhibit 10.02a to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.01b* - Amendments adopted by the Board of Directors on August 23, 1990 to the Incentive Compensation Plan; filed as Exhibit 10.02b to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.01c* - Amendments to the Company's Incentive Compensation Plan, effective January 26, 1995; filed as Exhibit 10.3 to the Company's 10-Q for the fiscal quarter ended March 31, 1995 (File No. 1-1822). 10.02* - Senior Officers' Life Insurance Program of the Company, as amended; filed as Exhibit 10.03 to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.02a* - Certified copy of resolutions of the Company's Board of Directors adopted on June 27, 1991 amending the Senior Officers' Life Insurance Program; filed as Exhibit 10.01 to the Company's 10-Q for the fiscal quarter ended June 30, 1991 (File No. 1-1822). 10.02b* - Certified copy of resolutions of the Company's Board of Directors adopted on January 28, 1993 amending the Senior Officers' Life Insurance Program; filed as Exhibit 10.03 to the Company's 10-Q for the fiscal quarter ended March 31, 1993 (File No. 1-1822). 10.03* - Employees' Retirement Plan of Laclede Gas Company - Management Employees, effective as of July 1, 1990, as amended; filed as Exhibit 10.01 to the Company's 10-Q for the fiscal quarter ended June 30, 1990 (File No. 1-1822). * Incorporated herein by reference and made a part hereof. 52 INDEX TO EXHIBITS ----------------- Exhibit No. ------- 10.03a* - Amendment to the Employees' Retirement Plan of Laclede Gas Company - Management Employees adopted by the Board of Directors on September 27, 1990; filed as Exhibit 10.04a to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.03b* - Amendments dated December 12, 1990 to the Employees' Retirement Plan of Laclede Gas Company - Management Employees; filed as Exhibit 10.04b to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.03c* - Amendment to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated January 10, 1994; filed as Exhibit 10.01 to the Company's 10-Q for the fiscal quarter ended December 31, 1993 (File No. 1-1822). 10.03d* - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated July 29, 1994; filed as Exhibit 10.3d to the Company's 10-K for the fiscal year ended September 30, 1994 (File No. 1-1822). 10.03e* - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated February 21, 1995; filed as Exhibit 10.4 to the Company's 10-Q for the fiscal quarter ended March 31, 1995 (File No. 1-1822). 10.03f* - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated March 7, 1995; filed as Exhibit 10.5 to the Company's 10-Q for the fiscal quarter ended March 31, 1995 (File No. 1-1822). 10.03g* - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated September 11, 1995; filed as Exhibit 10.03g to the Company's 10-K for the fiscal year ended September 30, 1995 (File No. 1-1822). 10.03h* - Amendments to the Employees' Retirement Plan of Laclede Gas Company - Management Employees dated August 14, 1996; filed as Exhibit 10.03h to the Company's 10-K for the fiscal year ended September 30, 1996 (File No. 1-1822). 10.03i* - Amendment to the Employees' Retirement Plan of Laclede Gas Company - Management Employees adopted by the Board of Directors on December 19, 1996; filed as Exhibit 10.01 to the Company's 10-Q for the fiscal quarter ended December 31, 1996 (File No. 1-1822). * Incorporated herein by reference and made a part hereof. 53 INDEX TO EXHIBITS ----------------- Exhibit No. ------- 10.03j* - Amendment to the Employees' Retirement Plan of Laclede Gas Company - Management Employees adopted February 7, 1997; filed as Exhibit 10.01 to the Company's 10-Q for the fiscal quarter ended March 31, 1997 (File No. 1-1822). 10.04* - Laclede Gas Company Supplemental Retirement Benefit Plan, as amended and restated effective July 25, 1991; filed as Exhibit 10.05 to the Company's 10-K for the fiscal year ended September 30, 1991 (File No. 1-1822). 10.04a* - Trust Agreement with Boatmen's Trust Company, dated September 4, 1990; filed as Exhibit 10.05c to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.04b* - First Amendment to Laclede Gas Company Trust Agreement dated as of September 4, 1990, adopted by the Board of Directors on September 23, 1993; filed as Exhibit 10.05b to the Company's 10-K for the fiscal year ended September 30, 1993 (File No. 1-1822). 10.04c* - Amendment (effective as of January 15, 1998) to Laclede Gas Company Trust Agreement (dated as of September 4, 1990) relating to the Laclede Gas Company Supplemental Retirement Plan; filed as Exhibit 10.01 to the Company's 10-Q for the fiscal quarter ended June 30, 1998 (File No. 1-1822). 10.05* - Laclede Gas Company Salary Deferral Savings Plan, as amended through February 27, 1992; filed as Exhibit 10.08 to the Company's 10-Q for the fiscal quarter ended March 31, 1992 (File No. 1-1822). 10.05a* - Amendment to the Company's Salary Deferral Savings Plan, effective January 31, 1992, adopted by the Board of Directors on August 27, 1992; filed as Exhibit 10.08a to the Company's 10-K for the fiscal year ended September 30, 1992 (File No. 1-1822). 10.05b* - Amendment to the Company's Salary Deferral Savings Plan dated January 10, 1994; filed as Exhibit 10.02 to the Company's 10-Q for the fiscal quarter ended December 31, 1993 (File No. 1-1822). 10.05c* - Amendments to the Company's Salary Deferral Savings Plan, dated July 29, 1994; filed as Exhibit 10.05c to the Company's 10-K for the fiscal year ended September 30, 1994 (File No. 1-1822). 10.05d* - Amendments to the Company's Salary Deferral Savings Plan effective August 1, 1994 adopted by the Board of Directors on August 25, 1994; filed as Exhibit 10.05d to the Company's 10-K for the fiscal year ended September 30, 1994 (File No. 1-1822). 10.05e* - Amendments to the Company's Salary Deferral Savings Plan dated September 27, 1994; filed as Exhibit 10.05e to the Company's 10-K for the fiscal year ended September 30, 1994 (File No. 1-1822). * Incorporated herein by reference and made a part hereof. 54 INDEX TO EXHIBITS ----------------- Exhibit No. ------- 10.05f* - Amendments to the Company's Salary Deferral Savings Plan dated February 21, 1995; filed as Exhibit 10.1 to the Company's 10-Q for the fiscal quarter ended March 31, 1995 (File No. 1-1822). 10.05g* - Amendments to the Company's Salary Deferral Savings Plan dated March 7, 1995; filed as Exhibit 10.2 to the Company's 10-Q for the fiscal quarter ended March 31, 1995 (File No. 1-1822). 10.05h* - Amendments to the Company's Salary Deferral Savings Plan dated June 26, 1995; filed as Exhibit 10.1 to the Company's 10-Q for the fiscal quarter ended June 30, 1995 (File No. 1-1822). 10.05i* - Amendments to the Company's Salary Deferral Savings Plan dated August 3, 1995; filed as Exhibit 10.05 to the Company's 10-K for the fiscal year ended September 30, 1995 (File No. 1-1822). 10.05j* - Amendments to the Company's Salary Deferral Savings Plan adopted April 21, 1997; filed as Exhibit 4.1 to the Company's 10-Q for the fiscal quarter ended June 30, 1997 (File No. 1-1822). 10.06* - Laclede Gas Company Deferred Compensation Plan for Non-Employee Directors dated March 26, 1981; filed as Exhibit 10.12 to the Company's 10-K for the fiscal year ended September 30, 1989 (File No. 1-1822). 10.06a* - First Amendment to the Company's Deferred Compensation Plan for Non-Employee Directors, adopted by the Board of Directors on July 26, 1990; filed as Exhibit 10.09a to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.06b* - Amendment to the Company's Deferred Compensation Plan for Non-Employee Directors, adopted by the Board of Directors on August 27, 1992; filed as Exhibit 10.09b to the Company's 10-K for the fiscal year ended September 30, 1992 (File No. 1-1822). 10.07* - Agency Agreement Between Laclede Gas Company and Mississippi River Transmission Corporation dated August 26, 1993; filed as Exhibit 10.10 to the Company's 10-K for the fiscal year ended September 30, 1993 (File No. 1-1822). 10.07a* - Agency Agreement between Laclede Gas Company and Mississippi River Transmission Corporation dated September 20, 1996 and effective November 1, 1996; filed as Exhibit 10.07a to the Company's 10-K for the fiscal year ended September 30, 1996 (File No. 1-1822). * Incorporated herein by reference and made a part hereof. 55 INDEX TO EXHIBITS ----------------- Exhibit No. ------- 10.07b* - Propane sales contract between Phillips 66 Company and Laclede Pipeline Company, dated February 2, 1989; filed as Exhibit 10.10d to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.07c* - Amendment, dated August 6, 1992, to Propane Sales Contract between the Company and Phillips 66 Company; filed as Exhibit 10.10c to the Company's 10-K for the fiscal year ended September 30, 1992 (File No. 1-1822). 10.07d* - Transportation Service Agreement dated October 13, 1993 between Mississippi River Transmission Corporation and the Company; filed as exhibit 10.07d to the Company's 10-K for the fiscal year ended September 30, 1997 (File No. 1-1822). 10.07e* - Storage Service Agreement dated October 13, 1993 between Mississippi River Transmission Corporation and the Company; filed as exhibit 10.07e to the Company's 10-K for the fiscal year ended September 30, 1997 (File No. 1-1822). 10.08* - The Retirement Plan for Non-Employee Directors of Laclede Gas Company dated January 24, 1985; filed as Exhibit 10.01 to the Company's 10-Q for the fiscal quarter ended March 31, 1990 (File No. 1-1822). 10.08a* - First Amendment to Retirement Plan for the Company's Non-Employee Directors, adopted by the Board of Directors on July 26, 1990; filed as Exhibit 10.11a to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.08b* - Amendments to the Retirement Plan for Non-Employee Directors, adopted by the Board of Directors on January 23, 1992; filed as Exhibit 10.11 to the Company's 10-Q for the fiscal quarter ended March 31, 1992 (File No. 1-1822). 10.09* - Salient Features of the Laclede Gas Company Deferred Income Plan for Directors and Selected Executives, including amendments adopted by the Board of Directors on July 26, 1990; filed as Exhibit 10.12 to the Company's 10-K for the fiscal year ended September 30, 1991 (File No. 1-1822). 10.09a* - Amendment to the Company's Deferred Income Plan for Directors and Selected Executives, adopted by the Board of Directors on August 27, 1992; filed as Exhibit 10.12a to the Company's 10-K for the fiscal year ended September 30, 1992 (File No. 1-1822). 10.10* - Form of Indemnification Agreement between the Company and its Directors and Officers; filed as Exhibit 10.13 to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.11* - Laclede Gas Company Management Continuity Protection Plan, as amended, effective at the close of business on January 27, 1994, by the Board of Directors; filed as Exhibit 10.1 to the Company's 10-Q for the fiscal quarter ended March 31, 1994 (File No. 1-1822). * Incorporated herein by reference and made a part hereof. 56 INDEX TO EXHIBITS ----------------- Exhibit No. ------- 10.12* - Laclede Gas Company Restricted Stock Plan for Non-Employee Directors, effective as of January 25, 1990; filed as Exhibit 10.03 to the Company's 10-Q for the fiscal quarter ended March 31, 1990 (File No. 1-1822). 10.12a* - Extension and amendment of the Company's Restricted Stock Plan for Non-Employee Directors adopted by the Board of Directors on November 17, 1994; filed as Exhibit 10.1 to the Company's 10-Q for the quarter ended December 31, 1994 (File No. 1-1822). 10.12b - Amendment to the Laclede Gas Company Restricted Stock Plan for Non-Employee Directors adopted August 14, 1998. 10.13* - Laclede Gas Company Trust Agreement with Boatmen's Trust Company, dated December 7, 1989; filed as Exhibit 10.16 to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.13a* - First Amendment to the Company's Trust Agreement, adopted by the Board of Directors on July 26, 1990; filed as Exhibit 10.16a to the Company's 10-K for the fiscal year ended September 30, 1990 (File No. 1-1822). 10.13b* - Second Amendment to the Company's Trust Agreement dated as of December 7, 1989, adopted by the Board of Directors on September 23, 1993; filed as Exhibit 10.16b to the Company's 10-K for the fiscal year ended September 30, 1993 (File No. 1-1822). 10.13c* - Third Amendment to Laclede Gas Company Trust Agreement dated as of December 7, 1989 adopted by the Board of Directors on August 28, 1997; filed as exhibit 10.13c to the Company's 10-K for the fiscal year ended September 30, 1997 (File No. 1-1822). 10.13d* - Amendment (effective as of January 15, 1998) to Laclede Gas Company Trust Agreement (dated as of December 7, 1989); filed as Exhibit 10.02 to the Company's 10-Q for the fiscal quarter ended June 30, 1998 (File No. 1-1822). 10.14* - Salient Features of the Laclede Gas Company Deferred Income Plan II for Directors and Selected Executives adopted by the Board of Directors on September 23, 1993; filed as Exhibit 10.17 to the Company's 10-K for the fiscal year ended September 30, 1993 (File No. 1-1822). 10.15* - January 16, 1998 line of credit agreement with Mercantile Bank National Association; filed as Exhibit 10.02 to the Company's 10-Q for the fiscal quarter ended March 31, 1998 (File No. 1-1822). 10.16* - January 16, 1998 line of credit agreement with Nations Bank, N.A.; filed as Exhibit 10.01 to the Company's 10-Q for the fiscal quarter ended March 31, 1998 (File No. 1-1822). 10.17* - January 9, 1998 line of credit agreement with Commerce Bank, N.A.; filed as Exhibit 10.03 to the Company's 10-Q for the fiscal quarter ended March 31, 1998 (File No. 1-1822). 10.18* - January 13, 1998 line of credit agreement with The Chase Manhattan Bank; filed as Exhibit 10.04 to the Company's 10-Q for the fiscal quarter ended March 31, 1998 (File No. 1-1822). * Incorporated herein by reference and made a part hereof. 57 INDEX TO EXHIBITS ----------------- Exhibit No. ------- 10.19 - Supplemental Line of Credit Agreement dated August 20, 1998 among Laclede Gas Company, The Chase Manhattan Bank, NationsBank, N.A., and Mercantile Bank of St. Louis National Association. 12 - Ratio of Earnings to Fixed Charges. 21 - Subsidiaries of the Registrant. 23 - Consent of Independent Public Accountants. 27 - Financial Data Schedule UT * Incorporated herein by reference and made a part hereof. 58 EX-10.12B 2 Exhibit 10.12b Date: August 14, 1998 Gerald T. McNeive, Jr., as Senior Vice President -Finance and General Counsel of Laclede Gas Company, pursuant to certain resolutions adopted by the Laclede Gas Company Board of Directors on July 23, 1998 (the "Subject Resolutions"), which Subject Resolutions, among other things, granted to the Senior Vice President - Finance and General Counsel (or certain other officers) the authority to execute and deliver such documents as he deems necessary or desirable in connection with the effectuation and/or implementation of the Subject Resolutions; does deem it necessary and desirable that an amendment to the Laclede Gas Company Restricted Stock Plan for Non-Employee Directors (the "Plan") be effectuated by the Company, changing the definition of Trustee of the Plan to UMB Bank, National Association, effective September 1, 1998; such amendment to be effectuated and evidenced by the signature on the attached Exhibit A of Gerald T. McNeive, Jr. 59 EXHIBIT A AMENDMENT TO THE LACLEDE GAS COMPANY RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS Effective September 1, 1998, the definition of "Trustee" contained in Section 2 of the Laclede Gas Company Restricted Stock Plan for Non-Employee Directors adopted on January 25, 1990, as such Plan has been heretofore amended, is hereby replaced in its entirety with the following definition: "Trustee" means UMB Bank, National Association. s/Gerald T. McNeive, Jr. Title: Senior Vice President- Finance and General Counsel 60 EX-10.19 3 Exhibit 10.19 August 20, 1998 Laclede Gas Company 720 Olive Street St. Louis, Missouri 63101 Ladies and Gentlemen: Re: Line of credit agreement among Laclede Gas Company (the "Company" or "Laclede"), The Chase Manhattan Bank ("Chase"), NationsBank, N.A. ("NationsBank") and Mercantile Bank of St. Louis National Association ("Mercantile") (each a "Bank" and collectively the "Banks". Said line of credit agreement shall hereinafter be called the "Line of Credit Agreement"). The undersigned Banks have established for Laclede a committed line of credit (the "Line of Credit") under which the Company may from time to time prior to the Termination Date (such term and certain other capitalized terms used herein being defined below) request advances ("Advances") subject only to the terms and conditions expressly set forth below. 1. Definitions. As used herein, the following terms shall have the meanings specified below: a. "ABR Advance" shall mean any Advance bearing interest at a rate determined by reference to the Alternate Base Rate as defined herein. b. "Alternate Base Rate" shall mean for any day a rate per annum (rounded upwards, if not already a whole multiple of 1/16 of 1%, to the next higher 1/16 of 1%) equal to the greater of (i) the Prime Rate in effect on such day, and (ii) the Federal Funds Effective Rate in effect for such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest per annum announced by Chase from time to time as its prime rate in effect at its principal office in the City of New York; each change in the Prime Rate shall be effective on the Business Day such change is publicly announced as being effective. "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions (calculated on a per annum basis) with members of the Federal Reserve Bank of New York, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by Chase from three Federal funds brokers of recognized standing selected by Chase. If Chase shall have determined that it is unable to ascertain the Federal Funds Effective Rate for any reason, the Alternate Base Rate shall be determined without regard to clause (ii) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the Business Day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. The Alternate Base Rate shall be determined by Chase and such determination shall be conclusive absent manifest error. c. "Business Day" shall mean any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which Chase is open for business in the City of New York; PROVIDED that when the term "Business Day" is used with respect to LIBO Rate Advances, such term shall exclude any day on which banks in London are not open for dealings in U.S. Dollar deposits in the London Interbank Market. 61 d. "Interest Period" shall mean (i) as to any LIBO Rate Advance, the period commencing on the date of such LIBO Rate Advance and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2 or 3 months thereafter, as the Company may elect, (ii) as to any ABR Advance, the period commencing on the date of such ABR Advance and ending on the Termination Date or any earlier date specified by the Company in the notice requesting such Advance; PROVIDED, HOWEVER, that (1) if any Interest Period would end on a day that shall not be a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to LIBO Rate Advances only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (2) interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. e. "LIBO Rate" shall mean, with respect to any LIBO Rate Advance for any Interest Period, the interest rate per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%) at which U.S. Dollar deposits approximately equal in principal amount to such LIBO Rate Advance and for a maturity equal to the applicable Interest Period are offered by leading banks in the London Interbank Market to the London office of Chase in immediately available funds at or near 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. The LIBO Rate shall be determined by Chase and such determination shall be conclusive absent manifest error. f. "LIBO Rate Advance" shall mean any advance bearing interest at a rate determined by reference to the LIBO Rate as defined herein. g. "Termination Date" shall mean August 29, 1999. 2. Maximum Amounts of Advances. After the Effective Date of this Line of Credit Agreement, the combined aggregate principal amount of Advances at any time outstanding from any Bank under this Line of Credit Agreement shall not exceed the amount set forth opposite the name of such Bank below (such Bank's "Maximum Amount"), and shall be in a combined aggregate principal amount at any time outstanding which shall not exceed $100,000,000: NAME OF BANK MAXIMUM AMOUNT Chase $30,000,000 NationsBank $35,000,000 Mercantile $35,000,000 3. Effective Date. The Effective Date of this Line of Credit Agreement shall be August 30, 1998 (the "Effective Date"). 4. Requests For Advances. Laclede shall give the Bank or Banks from which any Advances shall be requested written or telecopy notice (or telephone notice promptly confirmed in writing or by telecopy) not later than 10:30 a.m., New York City time, three Business Days before each proposed LIBO Rate Advance, and no later than 12:00 p.m., New York City time, the day of each proposed ABR Advance. Such notice shall be irrevocable and shall in each case specify (i) whether the Advance then being requested is to be a LIBO Rate Advance or an ABR Advance; (ii) the date of such Advance (which shall be a Business Day) and the amount thereof; and (iii) if such Advance is to be a LIBO Rate Advance, the Interest Period with respect thereto. No LIBO Rate Advance may be requested if the Interest Period applicable thereto would end after the Termination Date. The proceeds of each Advance pursuant to the Line of Credit shall be deposited by the Bank making such Advance in the general deposit account of the Company with such Bank or disbursed in another manner agreed upon by the Company and such Bank as promptly as practicable, but in no event later than 4:00 p.m., New York City time, on the date of such Advance. 62 5. Repayment Of Advances. The principal of each Advance shall be due and payable on the earliest of the last day of the Interest Period applicable thereto, the Termination Date and the date of commencement of any bankruptcy, insolvency or similar proceeding in respect of Laclede. Each Bank shall also have the right, upon notice to Laclede, to cause the principal of and all interest accrued but not yet paid on all Advances made by it hereunder, together with all other amounts owed to it hereunder, to become immediately due and payable in the event Laclede shall default in the payment of any amount due to such Bank hereunder and such default shall continue for three Business Days after notice thereof from such Bank. Advances may be repaid at any time subject, in the case of any LIBO Rate Advance repaid other than on the last day of an Interest Period, to the indemnity obligations set forth below, but otherwise without premium or penalty. 6. Interest On Advances. Laclede agrees to pay interest (a) in the case of each ABR Advance at a rate per annum equal to the Alternate Base Rate and (b) in the case of each LIBO Rate Advance at the LIBO Rate applicable to the Interest Period in effect for such Advance plus 1/4% per annum. Interest on each Advance shall accrue from and including the date such Advance is made to but excluding the date such Advance is repaid, and shall be payable at the time the principal of such Advance is repaid and, in the case of each ABR Advance which shall not theretofore have been repaid, on the date 90 days after the date on which such Advance shall have been made. The Company agrees to pay interest, on demand, on any overdue principal and, to the extent permitted by applicable law, overdue interest until paid at a rate per annum equal to the Alternate Base Rate plus 2%. Interest shall be computed on the basis of the actual number of days elapsed in a year of (i) 365 days in the case of ABR Advances when the Alternate Base Rate is based on the Prime Rate and (ii) 360 days in all other cases. 7. Facility Fee. Laclede agrees to pay to each Bank, on the last Business Day of each calendar quarter and on the Termination Date or any earlier date on which the availability of Advances from such Bank is terminated as provided herein, a facility fee of .05% per annum on the Maximum Amount of such Bank, whether used or unused. Such fee shall accrue from and including the Effective Date to but excluding the earlier of the Termination Date and any date on which the availability of Advances from such Bank is terminated as provided herein. 8. Waiver, Amendment And Remedies. Laclede hereby waives diligence, presentment, demand, protest, notice of dishonor and any other notice of any kind whatsoever. Neither the failure nor any delay on the part of any Bank in any particular instance to exercise any right, power or privilege hereunder shall constitute a waiver thereof in that or any subsequent instance. No consent, amendment, modification or waiver of the terms or provisions hereof shall be effective unless in writing and executed by Laclede and each Bank. All rights and remedies of each Bank are cumulative and concurrent, and no single or partial exercise by any Bank of any right, power or privilege shall preclude any other or further exercise of any other right, power or privilege. 9. Conditions To Advances. The aggregate principal amount of Advances at any time outstanding hereunder from any Bank shall in no event exceed the Maximum Amount of such Bank. The making of Advances is also subject to the absence of any material adverse change since September 30, 1997, in the financial condition of the Company and to the receipt by each Bank of a copy of this letter duly executed by Laclede and an executed Note in the form attached as Exhibit A hereto, duly completed to set forth the name, the address and the amount of the commitment of each Bank (the "Note"), accompanied by such evidence of the corporate power and authority of Laclede as the Banks may request. 63 10. Indemnification; Payment Of Additional Costs To Bank. Laclede shall indemnify each Bank against any loss or reasonable expense which such Bank may sustain or incur as a consequence of (a) any payment or prepayment of a LIBO Rate Advance on a date other than the last day of the Interest Period applicable thereto or (b) any failure of Laclede to borrow any LIBO Rate Advance requested by it hereunder. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by such Bank, of (i) its cost of obtaining the funds for the Advance being paid, prepaid or not borrowed for the period from the date of such payment, prepayment or failure to borrow to the last day of the Interest Period for such Advance (or, in the case of a failure to borrow, the Interest Period for such Advance which would have commenced on the date of such failure) over (ii) the amount of interest (as reasonably determined by such Bank) that would be realized by such Bank in reemploying the funds so paid, prepaid or not borrowed for such period or Interest Period, as the case may be. A certificate of any Bank setting forth any amount or amounts which such Bank is entitled to receive pursuant to this provision shall be delivered to Laclede and shall be conclusive absent manifest error. If after the date hereof any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority shall change the basis of taxation of payments to any Bank of the principal of or interest on any LIBO Rate Advance or any other fees or amounts payable hereunder, or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by any Bank, or shall impose on any Bank any other condition affecting the Advances made by such Bank, and the result of any of the foregoing shall be to increase the cost to such Bank of making or maintaining such Advances or to reduce the amount of any sum received or receivable by such Bank hereunder (whether of principal, interest or otherwise) in respect thereof by an amount deemed by such Bank to be material, then Laclede agrees to pay to such Bank such additional amount or amounts as will compensate such Bank for such additional costs or reduction. A certificate of any Bank setting forth the amount or amounts which shall be necessary to compensate such Bank and, in reasonable detail, the method by which such amounts have been determined shall be delivered to Laclede and shall be conclusive absent manifest error. Laclede agrees to pay the amount or amounts specified in any certificate delivered pursuant to one of the two preceding paragraphs to the applicable Bank within 10 days after its receipt of the same. 11. Notification Of Interest Rate. Chase hereby agrees, at the request of Laclede or any other Bank, promptly to determine and advise Laclede or such other Bank of the LIBO Rate or the Alternate Base Rate for any Interest Period or day within an Interest Period. 12. Termination Of Facility. The availability of Advances hereunder from any Bank may be terminated by Laclede upon written or telecopy notice to such Bank, and will in any event terminate on the earlier of the Termination Date and the date of commencement of any bankruptcy, insolvency or similar proceeding in respect of Laclede. 13. Corporate Authority. Laclede represents and warrants that it has the corporate power and authority and all necessary regulatory approvals to execute, deliver and perform its obligations under this Agreement and that such execution, delivery and performance will not violate any law or regulation applicable to Laclede or any agreement to which Laclede is party. 64 Each Bank is hereby authorized to rely on notices given hereunder by persons reasonably believed by it to be acting on behalf of Laclede. 14. Amendment And Governing Law. This letter may not be amended or any provision hereof waived or modified except by an instrument in writing signed by each of the parties hereto. This letter shall be governed by, and construed in accordance with, the laws of the State of New York. 15. Headings. The headings in this Line of Credit Agreement are for convenience and shall not limit or otherwise affect any of the provisions of this Line of Credit Agreement. Please indicate your acceptance of the terms hereof by signing in the appropriate space below and returning to Chase the enclosed duplicate originals 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. Commitment Very truly yours, $30,000,000 THE CHASE MANHATTAN BANK by Paul V. Farrell Name: Paul V. Farrell Title: Vice President Address for Notices: One Chase Manhattan Plaza - Third Floor New York, New York 10081 Attn. of: Telecopy: (212) 552-7625 $35,000,000 NATIONSBANK, N.A. by Thomas C. Guyton Name: Thomas C. Guyton Title: Vice President Address for Notices: One NationsBank Plaza 800 Market Street St. Louis, Missouri 63166-0236 Attn. of: Mr. Thomas Guyton Telecopy: (314) 466-7783 65 $35,000,000 MERCANTILE BANK OF ST. LOUIS NATIONAL ASSOCIATION by Timothy W. Hassler Name: Timothy W. Hassler Title: Vice President Address for Notices: #1 Mercantile Center 12th Floor P.O. Box 524 St. Louis, Missouri 63101 Attn. of: Mr. Timothy W. Hassler Telecopy: (314) 425-2162 Accepted and agreed to as of the date first written above: LACLEDE GAS COMPANY, by Gerald T. McNeive, Jr. Name: Gerald T. McNeive, Jr. Title: Senior Vice President-Finance 66 EX-12 4 Exhibit 12 LACLEDE GAS COMPANY AND SUBSIDIARY COMPANIES SCHEDULE OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES -------------------------------------------------------------
Fiscal Year Ended September 30, ---------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (Thousands of Dollars) Income before interest charges and the cumulative effect of change in accounting $49,162 $51,554 $50,771 $39,428 $38,611 Add: Taxes based on utility income 14,933 17,962 18,603 9,878 12,517 Taxes based on miscellaneous income 508 392 (205) 252 121 One third of applicable rentals charged to operating expense (which approximates the interest factor) 297 294 291 288 287 ------------------------------------------- Total Earnings $64,900 $70,202 $69,460 $49,846 $51,536 =========================================== Interest on long-term debt $14,797 $14,169 $13,939 $12,544 $12,626 Other interest 6,473 4,919 4,008 5,983 3,768 One-third of applicable rentals charged to operating expense (which approximates the interest factor) 297 294 291 288 287 ------------------------------------------- Total Fixed Charges $21,567 $19,382 $18,238 $18,815 $16,681 =========================================== Ratio of Earnings to Fixed Charges 3.01 3.62 3.81 2.65 3.09
67 EX-21 5 Exhibit 21 LACLEDE GAS COMPANY AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT PERCENT OF VOTING STOCK OWNED ------------ Subsidiaries of Laclede Gas Company (Parent) Laclede Pipeline Company 100% Laclede Investment Corporation* 100% Laclede Development Company** 100% *Subsidiary Company of Laclede Investment Corporation Laclede Energy Resources, Inc. 100% Subsidiary Company of Laclede Energy Resources, Inc. 100% Laclede Gas Family Services, Inc. ***Subsidiary Company of Laclede Development Company Laclede Venture Corp. 100% All of the above corporations have been organized under the laws of the State of Missouri. 68 EX-23 6 Exhibit 23 DELOITTE & TOUCHE LLP One City Centre St. Louis, MO 63101 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-60996 and 33-52357 of Laclede Gas Company and its subsidiary companies on Form S-3 and in Registration Statement Nos. 33-38413, 33-57573 and 33-64933 of Laclede Gas Company and its subsidiary companies on Form S-8 of our report dated November 19, 1998 appearing in this Annual Report on Form 10-K of Laclede Gas Company and its subsidiary companies for the year ended September 30, 1998. Deloitte & Touche LLP December 17, 1998 69 EX-27 7
UT 1,000 YEAR SEP-30-1998 SEP-30-1998 PER-BOOK 490,585 33,834 136,037 110,691 0 771,147 19,494 38,949 198,342 256,785 1,960 0 179,238 0 0 98,500 0 0 0 0 234,664 771,147 547,229 14,933 485,630 500,563 46,666 2,496 49,162 21,270 27,892 97 27,795 23,229 14,797 48,889 1.58 1.58 Capital surplus, paid in includes $(24,017) treasury stock. 70
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