Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 49 233K
2: EX-3.(A) Articles of Incorporation/Organization or By-Laws 2 10K
3: EX-3.(B) Articles of Incorporation/Organization or By-Laws 21 47K
4: EX-10.(A) Material Contract 6 25K
5: EX-10.(B) Material Contract 7 21K
6: EX-10.(C) Material Contract 7 23K
7: EX-12 Statement re: Computation of Ratios 1 6K
8: EX-27 Financial Data Schedule 2 9K
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 2-26983
THE PEOPLES GAS LIGHT AND COKE COMPANY
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1613900
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24TH FLOOR, 130 EAST RANDOLPH DRIVE, CHICAGO, ILLINOIS 60601-6207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 240-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 (#229.405 of this chapter) 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 ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
None.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, without par value, 24,817,566 shares outstanding at November
30, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
None
CONTENTS
Page
Item No. No.
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PART I
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1. Business 3
2. Properties 7
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
PART II
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5. Market for the Company's Common Stock and Related
Stockholder Matters 8
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 35
PART III
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10. Directors and Executive Officers of the Company 36
11. Executive Compensation 38
12. Security Ownership of Certain Beneficial Owners and
Management 43
13. Certain Relationships and Related Transactions 44
PART IV
-------
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 45
Signatures 47
Exhibit Index 48
- 2 -
THE PEOPLES GAS LIGHT AND COKE COMPANY
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED SEPTEMBER 30, 1996
PART I
ITEM 1. BUSINESS
GENERAL
The Peoples Gas Light and Coke Company (Company) is a corporation created
by a special act of the General Assembly of the State of Illinois (State),
approved February 12, 1855, as amended on February 7, 1865.
The Company, an operating public utility, is engaged primarily in the
purchase, storage, distribution, sale, and transportation of natural gas. It
has approximately 839,000 residential, commercial, and industrial retail sales
and transportation customers within the City of Chicago (City). The Company had
2,804 employees at September 30, 1996.
At September 30, 1996, the common stock of the Company and of its utility
affiliate, North Shore Gas Company (North Shore Gas), was wholly owned by
Peoples Energy Corporation (Peoples Energy).
COMPETITION
The Company is authorized by statute and/or certificates of public
convenience and necessity to conduct operations in the territory that it serves.
The Company holds a perpetual, non-exclusive franchise from the City.
Absent extraordinary circumstances, potential competitors are barred from
constructing competing gas distribution systems in the Company's service
territory by a judicial doctrine known as the "first in the field" doctrine. In
addition, the high cost of installing duplicate distribution facilities would
render the construction of a competing system impractical.
Competition in varying degrees exists between natural gas and other fuels
or forms of energy available to consumers in the Company's service area. The
capital cost of heating and cooling facilities in new high-rise buildings is
higher for gas than for electricity. This circumstance, combined with stagnant
high-rise construction activity, has adversely affected the ability of the
Company to attach commercial high-rise buildings.
State and federal regulators are currently evaluating ways in which the
generation and distribution of electricity may be deregulated so that end users
may purchase electricity from producers other than their local electric utility
and require such local utility to transport the electricity so purchased, a
concept commonly referred to as "retail wheeling." In the event retail wheeling
were permitted in the Company's service territory, the cost of electricity would
be expected to decline, thereby reducing the advantage of lower costs that
natural gas currently enjoys over electricity.
- 3 -
A substantial portion of the gas that the Company delivers to its customers
consists of gas that the Company's customers purchase directly from producers
and marketers rather than from the Company. The direct customer purchases have
no effect on net income because the Company provides transportation service for
such gas volumes and recovers margins similar to those applicable to
conventional gas sales.
A pipeline may seek to provide transportation service directly to
end-users. Such direct service by a pipeline to an end-user would bypass the
local distributor's service and reduce the distributor's earnings. However,
none of the Company's pipeline suppliers has undertaken any service bypassing
the Company. The Company has a bypass rate approved by the Illinois Commerce
Commission (Commission) which allows the Company to renegotiate rates with
customers that are potential bypass candidates. (See Other Matters - Large
Volume Gas Service Agreements in Item 7.)
SALES AND RATES
The Company sells natural gas having an average heating value of
approximately 1,000 British thermal units (Btu's) per cubic foot.* Sales are
made and service rendered by the Company pursuant to a rate schedule on file
with the Commission containing various service classifications largely
reflecting customers' different uses and levels of consumption. The Gas Charge
is determined in accordance with the provisions in Rider 2, Gas Charge and
Refund Adjustments, to recover the costs incurred by the Company to purchase,
transport, manufacture, and store gas supplies. The level of the Gas Charge
under the Company's rate schedules is adjusted monthly to reflect increases or
decreases in natural gas supplier charges, purchased storage service costs,
transportation charges, and liquefied petroleum gas costs. In addition, under
the tariffs of the Company, the difference for any month between costs
recoverable through the Gas Charge and the revenues billed to customers under
the Gas Charge is refunded to or recovered from customers. Consistent with
these tariff provisions, such difference for any month is recorded either as a
current liability or a current asset (with a contra entry to Gas Costs). The
Company also has been recovering, through its rates, pipeline charges billed for
transition costs resulting from the implementation of Federal Energy Regulatory
Commission (FERC) Order No. 636. (See Notes 1L, 2A, and 2B of the Notes to
Consolidated Financial Statements.)
The business of the Company is influenced by seasonal weather conditions
because a large element of the Company's customer load consists of space
heating. Weather-related deliveries can, therefore, have a significant positive
or negative impact on net income. (For discussion of the effect of the seasonal
nature of gas revenues on cash flow, see Liquidity in Item 7.)
The basic marketing plan of the Company is to maintain its existing share
in all market segments and develop opportunities emerging from changes in the
utility environment and technological equipment advances for new, expanded, or
current natural gas applications, including cogeneration, prime movers, natural
gas-fueled vehicles, and natural gas space conditioning.
STATE LEGISLATION AND REGULATION
The Company is subject to the jurisdiction of and regulation by the
Commission, which has general supervisory and regulatory powers over practically
all phases of the public utility business in Illinois, including rates and
charges, issuance of securities, services and facilities, systems of accounts,
investments, safety standards, transactions with affiliated interests, as
defined in the Illinois Public Utilities Act, and other matters.
--------------------------------------------------------------------------------
* All volumes of natural gas set forth in this report are stated on a 1,000 Btu
(per cubic foot) billing basis.
(100 cubic feet = 1 therm; 10 therms = 1 Dekatherm -- Dth)
- 4 -
In 1994, the Commission entered orders providing for full recovery by the
Company of FERC Order 636 transition costs from the Company's gas service
customers. The Commission's orders have been appealed to the Illinois Supreme
Court. (See Notes 1L, 2A, and 2B of the Notes to Consolidated Financial
Statements.)
On November 8, 1995, the Commission issued an order approving changes in
rates of the Company. (See Note 2A of the Notes to Consolidated Financial
Statements.)
In August 1996, the Commission denied the Company's petition for approval
of a performance-based rate program for gas costs. (See Liquidity - Regulatory
Actions in Item 7.)
FEDERAL LEGISLATION AND REGULATION
By Order entered on December 6, 1968 (Holding Company Act Release No.
16233), the Securities and Exchange Commission, pursuant to Section 3(a)(1) of
the Public Utility Holding Company Act of 1935 (Act), exempted Peoples Energy
and its subsidiary companies as such (including the Company) from the provisions
of the Act, other than Section 9(a)(2) thereof.
Most of the gas distributed by the Company is transported to the Company's
distribution system by interstate pipelines. In their provision of gas sales
services (gathering, transportation and storage services, and gas supply)
pipelines are regulated by the FERC under the Natural Gas Act and the Natural
Gas Policy Act of 1978. (See "Sales and Rates" and "Current Gas Supply" in Item
1.)
In 1992, the FERC issued Order No. 636 and successor orders that required
substantial restructuring of the service obligations of interstate pipelines.
(See Notes 1L, 2A, and 2B of the Notes to Consolidated Financial Statements.)
ENVIRONMENTAL MATTERS
The Company is subject to federal and state environmental laws. The
Company is conducting environmental investigations and work at certain sites
that were the location of former manufactured gas plant operations. (See Note 3
of the Notes to Consolidated Financial Statements.)
CURRENT GAS SUPPLY
The Company has entered into various long-term and short-term firm gas
supply contracts. When used in conjunction with contract peaking and contract
storage, company-owned storage, and company-owned peak-shaving facilities, such
supply is deemed sufficient to meet current and foreseeable peak and annual
market requirements.
- 5 -
Although the Company believes North American supply to be sufficient to
meet U.S. market demands for the foreseeable future, it is unable to quantify or
otherwise make specific representations regarding national supply availability.
The following tabulation shows the expected design peak-day availability of
gas in thousands of dekatherms (MDth) during the 1996-97 heating season for the
Company:
Design Peak-Day Year of
Availability Contract
Source (MDth) Expiration
---------------- --------------- ------------
Firm direct purchases (1) 640 1997-2000
Liquefied petroleum 40
Peaking service
Peoples Energy Resources 60 (2)
The Uno-Ven Co. 10 (3)
Storage gas
Leased (4) 563 1998-2000
Peoples - Manlove (5) 993
Customer-owned (6) 225
Total expected design -----
peak-day availability 2,531
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(1) Consists of firm gas purchases from non-pipeline suppliers delivered
utilizing firm pipeline transportation. The majority of the gas purchase
contracts are negotiated annually. The terms of the transportation
contracts vary with the longest term being 5 years.
(2) The contract with Peoples Energy Resources is for an initial term expiring
November 30, 1999; the contract continues in effect from year to year
thereafter unless canceled by either party upon 12 months' prior notice.
(3) The contract with The Uno-Ven Company is for an initial term ending
September 30, 1997; the contract continues in effect for an additional two
year term subject to cancellation by either party any time on or after
September 30, 1997 upon one year's prior notice.
(4) Consists of leased storage services required to meet design day
requirements with contract length varying from 3 to 5 years.
(5) Manlove Field, the Company's underground storage facility located near
Champaign, Illinois, has a seasonal top-gas capacity (excluding volumes
required to support late-season peaking requirements) of approximately
27,000 MDth, of which approximately 1,566 MDth is dedicated to North Shore
Gas. The Company also owns a liquefied natural gas (LNG) plant at Manlove
Field for the primary purpose of supporting late-season deliverability from
the storage facility. The LNG plant has a storage capacity of 2,000 MDth
and is capable of regasifying 300 MDth of gas per day. For the 1996-97
heating season, Manlove Field complex will have a maximum design peak-day
delivery capability of approximately 1,056 MDth (including 63 MDth for the
use of North Shore Gas).
(6) Consists of gas supplies purchased directly from producers and marketers by
the Company's commercial, industrial, and larger residential customers.
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The sources of gas supply (including gas transported for customers) in MDth
for the Company for the three fiscal years ended September 30, 1996, 1995, and
1994, were as follows:
[Download Table]
1996 1995 1994
------- ------- -------
Source:
Natural Gas Pipeline Co. (Natural) (a) -- -- 14,378
Other suppliers (b) 174,552 103,476 133,191
Synthetic natural gas (SNG) (c) -- 7,622 8,350
Liquefied petroleum gas produced 114 14 30
Customer-owned gas - received 93,141 93,225 91,187
Underground storage - net 228 28,352 (1,283)
Exchange gas-net (4,446) -- --
Company use, franchise requirements,
and unaccounted-for gas (3,169) (3,733) (4,261)
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Total (d) 260,420 228,956 241,592
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-------- -------- --------
(a) The DMQ-1 supply contract terminated on November 30, 1993.
(b) The Company purchases significant quantities of gas directly from various
suppliers. Commencing December 1, 1993, Natural unbundled its rates and
all purchases are from non-pipeline suppliers, including purchases under a
peaking service contract.
(c) The SNG facility terminated production during fiscal 1995. (See Note 4 of
the Notes to Consolidated Financial Statements.)
(d) See "Gas Sold and Transported" in Item 6.
SYNTHETIC NATURAL GAS SUPPLY
The Company owned and operated an SNG plant, the McDowell Energy Center,
located near Joliet, Illinois that used refinery fuel gas and a variety of
natural gas liquids, including ethane, naphtha, natural gasoline, normal butane,
propane, and ethane/propane mix as feedstock for the production of SNG. The SNG
facility terminated production in fiscal 1995. (See Note 4 of the Notes to
Consolidated Financial Statements.)
ITEM 2. PROPERTIES
All of the principal plants and properties of the Company have been
maintained in the ordinary course of business and are believed to be in
satisfactory operating condition. The following is a brief description of the
principal plants and operating units of the Company.
The distribution system of the Company, at September 30, 1996, consisted of
approximately 4,000 miles of distribution mains and necessary pressure
regulators, approximately 495,000 services (pipe connecting the mains with
piping on the customers' premises), and approximately 886,000 meters installed
on customers' premises. The Company has liquefied petroleum gasification and
storage facilities. In addition, it owns and has a substantial investment in
office and service buildings, garages, repair shops, and motor vehicles,
together with the equipment, tools, and fixtures necessary to conduct utility
business.
- 7 -
The Company has gas storage easements covering approximately 32,000 acres
located at Manlove Field near Champaign, Illinois, overlying an aquifer-type
underground natural gas storage reservoir, together with wells, pipes,
compressors, dehydration, metering, and other equipment required to operate the
facility. At September 30, 1996, the Company had approximately 129,000 MDth of
gas stored in the reservoir, of which approximately 95,500 MDth was cushion gas.
(Cushion gas is gas injected into the storage reservoir to hold back surrounding
or underlying water and to provide the pressure necessary to make the wells
deliver inventory gas at desired levels.)
Also located at Manlove Field is an LNG plant, which has a storage capacity
of 2,000 MDth and is capable of regasifying 300 MDth of gas per day. Such gas,
together with the gas withdrawn from the Manlove Field reservoir, and the gas
transmitted by Trunkline Gas Company, is carried to Chicago in Company-owned
transmission mains totaling 254 miles.
Most of the principal plants and properties of the Company, other than
mains, services, meters, regulators, and cushion gas in underground storage, are
located on property owned in fee. Substantially all gas mains are located in
public streets and alleys. A small portion of the distribution facilities is
located on private property under easement grants. Meters and house regulators
in use and a portion of services are located on premises being served. Certain
storage wells and other facilities of the Manlove Field storage reservoir, and
certain portions of the transmission system are located on land held pursuant to
leases, easements, or permits. Such land rights, as well as the gas storage
easements for the reservoir, have been obtained from the apparent record owners
of the land involved, in some cases without joinder of all such owners, and all
such leases, easements, and permits may be subject to mortgages or other liens
to which the Company is not a party.
Substantially all of the physical properties now owned or hereafter
acquired by the Company are subject to (a) the first-mortgage lien of the
Company's mortgage to First Trust of Illinois, National Association, as Trustee,
to secure the principal amount of the Company's outstanding first and refunding
mortgage bonds and (b) in certain cases, other exceptions and defects that do
not interfere with the use of the property.
ITEM 3. LEGAL PROCEEDINGS
See Notes 2 and 3 of the Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company is a wholly owned subsidiary of Peoples Energy.
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ITEM 6. SELECTED FINANCIAL DATA (a)
[Enlarge/Download Table]
For fiscal years ended September 30, 1996 1995 1994 1993 1992
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OPERATING RESULTS (thousands)
Operating Revenues:
Residential $ 757,598 $ 648,762 $ 820,383 $ 807,674 $ 684,004
Commercial 122,825 101,436 139,078 135,838 115,026
Industrial 27,776 20,807 35,587 36,193 30,985
Transportation of customer-owned gas (b) 114,664 109,626 98,943 106,198 122,326
Other 13,712 18,312 17,181 15,517 14,366
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Total Operating Revenues 1,036,575 898,943 1,111,172 1,101,420 966,707
Less - Gas costs 445,724 387,675 566,903 555,256 463,221
- Revenue taxes 110,421 100,562 121,773 121,051 109,053
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Net Operating Revenues $ 480,430 $ 410,706 $ 422,496 $ 425,113 $ 394,433
Net income applicable to common stock $ 88,752 $ 53,666 $ 63,825 $ 63,637 $ 57,728
Dividends declared on common stock $ 52,878 $ 56,833 $ 55,343 $ 55,095 $ 10,175
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ASSETS AT YEAR-END (thousands)
Property, plant and equipment $ 1,761,007 $ 1,815,407 $ 1,760,004 $ 1,702,401 $ 1,616,046
Less - Accumulated depreciation 571,255 628,258 596,808 557,855 529,540
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Net Property, Plant and Equipment $ 1,189,752 $ 1,187,149 $ 1,163,196 $ 1,144,546 $ 1,086,506
Total assets $ 1,522,762 $ 1,561,481 $ 1,548,792 $ 1,506,107 $ 1,380,201
Capital expenditures - construction $ 72,194 $ 81,081 $ 74,623 $ 108,863 $ 92,052
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CAPITALIZATION AT YEAR-END (thousands)
Common equity $ 564,182 $ 528,308 $ 531,475 $ 522,993 $ 514,865
Preferred stock -- -- -- -- 12,850
Long-term debt 462,400 549,150 549,150 447,150 433,500
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Total Capitalization $ 1,026,582 $ 1,077,458 $ 1,080,625 $ 970,143 $ 961,215
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CAPITALIZATION AT YEAR-END (per cent)
Common equity 55 49 49 54 54
Preferred stock -- -- -- -- 1
Long-term debt 45 51 51 46 45
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Total Capitalization 100 100 100 100 100
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GAS SOLD AND TRANSPORTED (MDth)
Gas Sales:
Residential 131,339 111,509 122,648 124,190 123,557
Commercial 23,692 19,206 22,565 22,656 22,601
Industrial 5,873 4,357 6,320 6,670 6,505
Transportation of customer-owned gas (b) 99,516 93,884 90,059 87,952 87,528
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Total Gas Sales and Transportation 260,420 228,956 241,592 241,468 240,191
Margin per Dth delivered $ 1.84 $ 1.79 $ 1.75 $ 1.76 $ 1.64
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NUMBER OF CUSTOMERS (average)
Residential 783,782 784,290 786,271 787,672 790,017
Commercial 42,888 43,198 43,299 43,243 43,261
Industrial 2,839 2,963 3,125 3,260 3,243
Transportation (b) 9,671 9,308 8,768 8,335 8,029
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Total Customers 839,180 839,759 841,463 842,510 844,550
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DEGREE DAYS 7,080 5,897 6,701 6,679 6,320
Per cent of normal (6,536) 108 90 103 102 97
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(a) The Company is a wholly owned subsidiary of Peoples Energy; therefore,
per-share data are omitted.
(b) Includes commercial, industrial, and larger residential customers.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET INCOME
Net income applicable to common stock increased $35.1 million, to $88.8
million, in fiscal 1996 from 1995, due principally to weather that was 20 per
cent colder than in 1995 and to a rate increase that went into effect on
November 14, 1995 for the Company (see Note 2A of the Notes to Consolidated
Financial Statements). In addition, net income benefited from a one-time gain
associated with the expiration of certain natural gas storage contracts (see
Note 6 of the Notes to Consolidated Financial Statements) and a net credit in
pension expense. These increases were partly offset by last year's recognition
of the federal income tax settlement (see Note 8D of the Notes to Consolidated
Financial Statements) and the current year's higher operating costs.
In 1995, net income applicable to common stock decreased $10.2 million, to
$53.7 million due principally to weather that was 12 per cent warmer than in
1994, decreasing net income by about $10.2 million. Other significant
variations resulted from a decrease in the provision for uncollectible accounts
reflecting lower revenues that were largely offset by increases in interest
expense, certain operation and maintenance costs, and an adjustment to income
tax expense in the prior period. In addition, fiscal 1995 benefited from the
sale of certain oil and gas rights.
A summary of variations affecting income between years is presented below,
with explanations of significant differences following:
[Enlarge/Download Table]
Fiscal 1996 Fiscal 1995
over 1995 over 1994
------------------------ -------------------------
Amount Amount
(000's) Per Cent (000's) Per Cent
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Net operating revenues (a) $69,724 17.0 $(11,790) (2.8)
Operation and maintenance expenses 18,925 8.9 (17,497) (7.6)
Depreciation and amortization expense 3,836 6.5 1,346 2.3
Income taxes 24,886 101.3 (103) (0.4)
Other income and deductions 13,444 33.2 (13,688) (51.0)
Net income applicable to common stock 35,086 65.4 (10,159) (15.9)
(a) Operating revenues, net of gas costs and revenue taxes.
NET OPERATING REVENUES
Gross revenues of the Company are affected by changes in the unit cost of
the Company's gas purchases and do not include the cost of gas supplies for
customers who purchase gas directly from producers and marketers rather than
from the Company. The direct customer purchases have no effect on net income
because the Company provides transportation service for such gas volumes and
recovers margins similar to those applicable to conventional gas sales. Changes
in the unit cost of gas do not significantly affect net income because the
Company's tariffs provide for dollar-for-dollar recovery of gas costs. (See
Note 1L of the Notes to Consolidated Financial Statements.) The Company's
tariffs also provide for dollar-for-dollar recovery of the cost of revenue taxes
imposed by the state and the City.
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Since income is not significantly affected by changes in revenue from
customers' gas purchases from producers or marketers rather than from the
Company, changes in gas costs, or changes in revenue taxes, the discussion below
pertains to "net operating revenues" (operating revenues, net of gas costs and
revenue taxes). The Company considers net operating revenues to be a more
pertinent measure of operating results than gross revenues.
Net operating revenues increased $69.7 million, to $480.4 million, in 1996.
Natural gas deliveries increased 31.5 Bcf, to 260.4 Bcf, due to weather that was
20 per cent colder than in 1995 and over 8 per cent colder than normal. Net
operating revenues increased approximately $25 million ($15.1 million after
income taxes) as a result of the colder weather. Also, the Company's
aforementioned rate increase improved net operating revenues by about $29.7
million ($17.9 million after income taxes).
In 1995, net operating revenues decreased $11.8 million, to $410.7 million,
due principally to a decline in natural gas deliveries of 12.6 Bcf, to 229 Bcf,
reflecting weather that was 12 per cent warmer than in 1994 and 10 per cent
warmer than normal.
See Other Matters - Operating Statistics for details of selected financial
and operating information by gas service classification.
OPERATION AND MAINTENANCE EXPENSES
Operation and maintenance expenses increased $18.9 million, to $232.4
million, in 1996, due chiefly to the reduction of expense from the prior year's
recognition of about $12.7 million for an IRS settlement. (See Note 8D of the
Notes to Consolidated Financial Statements.) Also, the provision for
uncollectible accounts increased ($5.3 million), due largely to greater sales
revenue attributable to the colder weather and higher rates. In addition,
increases between years resulted from greater labor costs ($3.8 million),
outside services ($2.4 million), distribution system expenses ($2.6 million),
and environmental costs recovered through rates ($2 million). These increases
were offset, in part, by decreased pension costs ($12.9 million). (See Note 7A
of the Notes to Consolidated Financial Statements.)
In 1995, operation and maintenance expenses decreased $17.5 million, to
$213.4 million, due mainly to recognizing approximately $12.7 million for the
fiscal 1995 portion of the IRS settlement (see Note 8D of the Notes to
Consolidated Financial Statements), and a decrease in the provision for
uncollectible accounts of $9.1 million, reflecting reduced sales revenue from
lower gas costs and warmer weather. These items were partially offset by
increased expenses for reengineering activities ($2.3 million) and the
distribution system ($2.5 million).
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $3.8 million, to $63
million, in 1996, due mainly to depreciable property additions and the
amortization of costs associated with the closing of the SNG plant (see Note 4
of the Notes to Consolidated Financial Statements).
In 1995, depreciation and amortization expense increased $1.3 million, to
$59.2 million due chiefly to depreciable property additions.
INCOME TAXES
Income taxes, exclusive of the $4.1 million included in other income and
deductions, increased $24.9 million, to $49.4 million, in 1996, due primarily to
higher pre-tax income.
- 11 -
In 1995, income taxes, exclusive of the $3.6 million included in other
income and deductions, declined $103,000, to $24.6 million, due primarily to
decreased pre-tax income. This decrease was mostly offset by the recording of
the deferred tax effects of the income tax settlement in operating expenses in
1995 together with an adjustment made in 1994 to reduce taxes accrued. Also,
the amortization of deferred tax credits was lower in 1995.
OTHER INCOME AND DEDUCTIONS
Other income and deductions decreased $13.4 million from the prior year,
due largely to the gain of $6.7 million, after income taxes, associated with the
expiration of certain natural gas storage contracts. (See Note 6 of the Notes
to Consolidated Financial Statements.) Additionally, the current year includes
lower interest on long-term debt resulting from the Company's early redemption
of first mortgage bonds. (See Note 13B of the Notes to Consolidated Financial
Statements.) These decreases were offset, in part, by decreased interest income
reflecting lower cash balances due mainly to the above mentioned bond
redemption.
In 1995, other income and deductions increased $13.7 million, due
principally to the prior year's recognition in other income of $9.7 million,
after income taxes, for an IRS settlement. (See Notes 8D and 10 of the Notes to
Consolidated Financial Statements.) In addition, increased interest expense
resulted from the following items: amounts refundable to customers, long-term
debt, and budget accounts. These increases were partially offset by greater
interest income due primarily to larger cash balances and higher interest rates.
OTHER MATTERS
EFFECT OF WEATHER. Weather variations affect the volumes of gas delivered for
heating purposes and, therefore, can have a significant positive or negative
impact on net income and coverage ratios.
ACCOUNTING STANDARDS. In March 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of ". This statement requires recognition of impairment losses on
long-lived assets when an asset's book value may not be recoverable. For
regulated companies, the statement requires that regulatory assets be probable
of recovery at every balance sheet date. This statement requires adoption no
later than the Company's 1997 fiscal year. The Company does not expect the
adoption of SFAS No. 121 to have a material effect on its financial position or
results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". This statement requires companies to either recognize
compensation costs measured at fair value attributable to employee stock options
or similar equity instruments at the grant date in net income, or, in the
alternative, provide pro forma footnote disclosure on net income and earnings
per share. This statement requires adoption no later than the Company's 1997
fiscal year. The Company anticipates electing the pro forma footnote disclosure
provisions of this statement in 1997. Implementation is not expected to have a
material effect on pro forma net income.
FERC ORDER 636 COSTS. In 1992, the FERC issued Order No. 636 and successor
orders that required substantial restructuring of the service obligations of
interstate pipelines. (See Notes 1L, 2A, and 2B of the Notes to Consolidated
Financial Statements.)
In 1994, the Commission entered orders providing for full recovery by the
Company of FERC Order 636 transition costs from the Company's gas service
customers. The Commission's orders have been appealed to the Illinois Supreme
Court. (See Notes 1L, 2A, and 2B of the Notes to Consolidated Financial
Statements.)
- 12 -
REENGINEERING PROJECT. The Company is reengineering its business processes with
the goal of increasing efficiency, responsiveness to customer needs, and cost
effectiveness.
LARGE VOLUME GAS SERVICE AGREEMENTS. The Company has entered into gas service
contracts with certain large volume customers under a specific rate schedule
approved by the Commission. These contracts were negotiated to overcome the
potential threat of bypassing the utility's distribution system. The impact on
the net income of the Company as a result of these contracts is not material.
OPERATING STATISTICS. The following table represents gas distribution margin
components:
[Download Table]
FOR FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Operating Revenues (thousands):
Gas sales
Residential $ 757,598 $ 648,762 $ 820,383
Commercial 122,825 101,436 139,078
Industrial 27,776 20,807 35,587
----------- ----------- -----------
908,199 771,005 995,048
----------- ----------- -----------
Transportation
Residential 35,281 36,617 34,337
Commercial 44,944 43,459 39,770
Industrial 30,376 29,550 24,836
Contract Pooling 4,063 -- --
----------- ----------- -----------
114,664 109,626 98,943
----------- ----------- -----------
Other 13,712 18,312 17,181
----------- ----------- -----------
Total Operating Revenues 1,036,575 898,943 1,111,172
Less - Gas Costs 445,724 387,675 566,903
- Revenues Taxes 110,421 100,562 121,773
----------- ----------- -----------
Net Operating Revenues $ 480,430 $410,706 $ 422,496
----------- ----------- -----------
----------- ----------- -----------
Deliveries (MDth):
Gas Sales
Residential 131,339 111,509 122,648
Commercial 23,692 19,206 22,565
Industrial 5,873 4,357 6,320
----------- ----------- -----------
160,904 135,072 151,533
----------- ----------- -----------
Transportation (a)
Residential 25,106 24,232 24,487
Commercial 37,316 36,130 36,344
Industrial 37,094 33,522 29,228
----------- ----------- -----------
99,516 93,884 90,059
----------- ----------- -----------
Total Gas Sales
and Transportation 260,420 228,956 241,592
----------- ----------- -----------
----------- ----------- -----------
Margin per Dth delivered $ 1.84 $ 1.79 $ 1.75
(a) Volumes associated with contract pooling service are included in the
respective customer classes.
- 13 -
LIQUIDITY
SOURCE OF FUNDS. The Company has access to outside capital markets and to
internal sources of funds that together provide sufficient resources to meet
capital requirements. It does not anticipate any changes that would materially
alter its current liquidity position.
Due to the seasonal nature of gas usage, a major portion of cash
collections occurs between December and May. Because of timing differences in
the receipt and disbursement of cash and the level of construction requirements,
the Company may borrow on a short-term basis. Short-term borrowings are repaid
with cash from operations, other short-term borrowings, or refinanced on a
permanent basis with debt or equity, depending on capital market conditions and
capital structure considerations.
CREDIT LINES. The Company has lines of credit of approximately $129.4 million
of which North Shore Gas may borrow up to $30 million. At September 30, 1996,
the Company and North Shore Gas had unused credit available from banks of $126.8
million. (See Note 12 of the Notes to Consolidated Financial Statements.)
CASH FLOW ACTIVITIES. Net cash provided by operating activities in 1996
declined by $123.4 million, due primarily to changes related to gas sales
revenue refundable, net receivables, and other assets. Such items were
partially offset by increases from net income, due mainly to colder weather and
the rate increase, and from accounts payable. In 1995, net cash provided by
operating activities increased by $25.9 million, due primarily to changes
related to gas in storage, other assets, and deferred income taxes. These items
were offset, in part, by changes in gas costs recoverable and net receivables.
In 1994, net cash provided by operating activities increased by approximately
$70.7 million, due principally to changes related to net receivables, gas costs
recoverable, and gas sales revenue refundable. Such items were partially offset
by decreases associated with deferred credits and accounts payable.
Net cash used in investing activities for 1996, 1995, and 1994 mainly
represents the level of capital expenditures in the respective years.
Net cash used in financing activities in 1996 reflects the redemption of
previously issued debt. (See Note 13B of the Notes to Consolidated Financial
Statements.) In 1995 net cash used in financing activities included drawdowns
from the trust fund associated with prior financing for utility construction
activities. Net cash used in financing activities in 1994 reflects the new debt
issued during the year for construction projects.
INTEREST COVERAGE. The fixed charges coverage ratios for the Company for fiscal
1996, 1995, and 1994 were 4.84, 2.76, and 3.28, respectively. The increase in
the ratio for the current fiscal year reflects the redemption of long-term debt
and higher pre-tax income resulting from colder weather and the Commission
approved rate increase. (See Results of Operations - Net Income.) The ratios
for fiscal years 1995 and 1994 include the recording of an IRS settlement in
income. (See Note 8D of the Notes to Consolidated Financial Statements.)
DEBT RATINGS. The long-term debt of the Company is rated Aa3 by Moody's
Investors Service and AA- by Standard & Poor's Corporation. There has been no
change in these ratings since fiscal 1985. The commercial paper of the Company
has the top rating from the major rating agencies.
ENVIRONMENTAL MATTERS. The Company is conducting environmental investigations
and work at certain sites that were the location of former manufactured gas
operations. (See Note 3 of the Notes to Consolidated Financial Statements.)
- 14 -
REGULATORY ACTIONS. On November 8, 1995, the Commission issued an order
approving changes in rates of the Company. (See Note 2A of the Notes to
Consolidated Financial Statements.)
In 1995, the Company filed a petition with the Commission for approval of a
performance-based rate program (PBR Program) for gas costs. The objectives of
the PBR Program were to provide incentives to minimize gas supply and capacity
costs in a changing market and to pursue innovative gas supply-related
opportunities. Under specified conditions and up to certain limits, the Company
proposed to share equally with gas sales customers the savings or costs from the
PBR Program. In August 1996, the Company's petition was denied by the
Commission. The Company is evaluating alternatives to the proposed PBR Program.
CAPITAL RESOURCES
CAPITAL SPENDING. Capital expenditures for additions, replacements, and
improvements to the utility plant were $72.2 million in 1996, $81.1 million in
1995, and $74.6 million in 1994.
Expenditures in fiscal 1996 decreased $8.9 million from 1995 reflecting the
continuation of a cost containment program. In fiscal 1995, expenditures
increased $6.5 million over 1994 and included $10.8 million for computer and
office equipment.
Capital expenditures for fiscal 1997 are expected to be about $70.9
million, a decrease of $1.3 million from the 1996 level.
There are no sinking fund requirements for long-term debt included in
fiscal 1997. (See Note 13C of the Notes to Consolidated Financial Statements.)
The Company anticipates that future cash needs for capital expenditures and
debt maturities will be met through internally generated funds, intercompany
loans from Peoples Energy, borrowing arrangements with banks and/or the issuance
of commercial paper on an interim basis, and periodic long-term financing
involving first mortgage bonds or equity from Peoples Energy.
BONDS REDEEMED. On December 29, 1995, the Company redeemed, from general
corporate funds, approximately $87 million aggregate principal amount of the
City of Joliet's 1984 Gas Supply Revenue Bonds, Series A and B, which were
secured by the Company's Series U and V First and Refunding Mortgage Bonds.
(See Note 13B of the Notes to Consolidated Financial Statements.)
- 15 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Statement of Management's Responsibility 17
Report of Independent Public Accountants 18
Consolidated Statements of Income for fiscal years ended
September 30, 1996, 1995, and 1994 19
Consolidated Statements of Retained Earnings for fiscal
years ended September 30, 1996, 1995, and 1994 19
Consolidated Balance Sheets at September 30, 1996 and 1995 20
Consolidated Capitalization Statements at September 30, 1996
and 1995 21
Consolidated Statements of Cash Flows for fiscal years ended
September 30, 1996, 1995, and 1994 22
Notes to Consolidated Financial Statements 23
- 16 -
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
The financial statements and other financial information included in this
report were prepared by management, who is responsible for the integrity and
objectivity of the presented data. The consolidated financial statements of the
Company and its subsidiaries were prepared in conformity with generally accepted
accounting principles and necessarily include some amounts that are based on the
best estimates and judgments of management.
The Company maintains internal accounting systems and related
administrative controls, along with internal audit programs, that are designed
to provide reasonable assurance that the accounting records are accurate and
assets are safeguarded from loss or unauthorized use. Consequently, management
believes that the accounting records and controls are adequate to produce
reliable financial statements.
Arthur Andersen LLP, the Company's independent public accountants approved
by Peoples Energy's shareholders, as a part of their audit of the financial
statements, selectively reviews and tests certain aspects of internal accounting
controls solely to determine the nature, timing, and extent of audit tests.
Management has made available to Arthur Andersen LLP all of the Company's
financial records and related data and believes that all representations made to
the independent public accountants during their audit were valid and
appropriate.
The Audit Committee of the Board of Directors of Peoples Energy, comprised
of six outside directors, meets periodically with management, the internal
auditors, and Arthur Andersen LLP, jointly and separately, to assure that
appropriate responsibilities are discharged. These meetings include discussion
and review of accounting principles and practices, internal accounting controls,
audit results, and the presentation of financial information in the annual
report of Peoples Energy.
- 17 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Peoples Gas Light and Coke Company:
We have audited the accompanying consolidated balance sheets and
consolidated capitalization statements of The Peoples Gas Light and Coke Company
(an Illinois corporation, hereinafter referred to as the Company and a wholly
owned subsidiary of Peoples Energy Corporation) and subsidiary companies at
September 30, 1996 and 1995, and the related consolidated statements of income,
retained earnings, and cash flows for each of the three years in the period
ended September 30, 1996. These financial statements and the schedule referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and 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, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company and subsidiary
companies at September 30, 1996 and 1995, and the results of their operations
and cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in Item 14(a)2 is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The financial statement schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states, in all material respects, the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 1, 1996
- 18 -
CONSOLIDATED STATEMENTS OF INCOME
[Enlarge/Download Table]
The Peoples Gas Light and Coke Company
---------------------------------------------------------------------------------------------------------
For fiscal years ended September 30, 1996 1995 1994
---------------------------------------------------------------------------------------------------------
(Thousands)
Operating Revenues:
Gas sales $ 908,199 $ 771,005 $ 995,048
Transportation of customer-owned gas 114,664 109,626 98,943
Other 13,712 18,312 17,181
---------------------------------------------------------------------------------------------------------
Total Operating Revenues 1,036,575 898,943 1,111,172
---------------------------------------------------------------------------------------------------------
Operating Expenses:
Gas costs 445,724 387,675 566,903
Operation (see Note 8D) 189,949 174,701 196,045
Maintenance 42,407 38,730 34,883
Depreciation and amortization 63,006 59,170 57,824
Taxes - Income 49,444 24,558 24,661
- State and local revenue 110,421 100,562 121,773
- Other 19,804 19,369 18,434
---------------------------------------------------------------------------------------------------------
Total Operating Expenses 920,755 804,765 1,020,523
---------------------------------------------------------------------------------------------------------
Operating Income 115,820 94,178 90,649
---------------------------------------------------------------------------------------------------------
Other Income and (Deductions):
Interest income 4,053 8,669 4,549
Interest on long-term debt (32,889) (40,507) (38,718)
Other interest expense (4,163) (6,079) (2,634)
Income taxes (4,089) (3,606) (5,768)
Miscellaneous - net (see Note 10) 10,020 1,011 15,747
---------------------------------------------------------------------------------------------------------
Total Other Income and Deductions (27,068) (40,512) (26,824)
---------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 88,752 $ 53,666 $ 63,825
---------------------------------------------------------------------------------------------------------
[Enlarge/Download Table]
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
The Peoples Gas Light and Coke Company
---------------------------------------------------------------------------------------------------------
For fiscal years ended September 30, 1996 1995 1994
---------------------------------------------------------------------------------------------------------
(Thousands)
Balance at Beginning of Year $ 363,001 $ 366,168 $ 357,686
Add - Net Income 88,752 53,666 63,825
Deduct - Dividends declared on common stock 52,117 56,833 55,343
- Additional minimum liability for
non-qualified pension plan, net of tax 761 -- --
---------------------------------------------------------------------------------------------------------
Balance at End of Year $ 398,875 $ 363,001 $ 366,168
---------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- 19 -
CONSOLIDATED BALANCE SHEETS
[Enlarge/Download Table]
The Peoples Gas Light and Coke Company
----------------------------------------------------------------------------------------------------------------------
At September 30, 1996 1995
----------------------------------------------------------------------------------------------------------------------
(Thousands)
PROPERTIES AND OTHER ASSETS
----------------------------------------------------------------------------------------------------------------------
Capital Investments:
Property, plant and equipment, at original cost $1,761,007 $1,815,407
Less - Accumulated depreciation 571,255 628,258
----------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 1,189,752 1,187,149
Other investments 6,607 5,027
----------------------------------------------------------------------------------------------------------------------
Total Capital Investments - Net 1,196,359 1,192,176
----------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash 3,826 2,599
Cash equivalents 13,711 149,616
Receivables -
Customers, net of allowance for uncollectible
accounts of $25,279 and $18,315, respectively 63,152 52,142
Other 32,045 2,665
Accrued unbilled revenues 25,534 18,451
Materials and supplies, at average cost 14,017 13,843
Gas in storage, at last-in, first-out cost 55,876 82,151
Gas costs recoverable through rate adjustments 17,420 2,132
Prepayments 11,897 1,927
Other 500 837
----------------------------------------------------------------------------------------------------------------------
Total Current Assets 237,978 326,363
----------------------------------------------------------------------------------------------------------------------
Other Assets:
Regulatory assets (see Note 1H) 76,176 29,707
Deferred charges 12,249 13,235
----------------------------------------------------------------------------------------------------------------------
Total Other Assets 88,425 42,942
----------------------------------------------------------------------------------------------------------------------
Total Properties and Other Assets $1,522,762 $1,561,481
----------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
----------------------------------------------------------------------------------------------------------------------
Capitalization (see Consolidated Capitalization Statements) $1,026,582 $1,077,458
----------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Interim loans 700 900
Accounts payable 121,653 87,693
Dividends payable on common stock 13,153 14,146
Customer gas service and credit deposits 37,121 35,012
Accrued taxes 31,242 26,962
Gas sales revenue refundable through rate adjustments 10,734 68,558
Accrued interest 8,758 11,025
----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 223,361 244,296
----------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Deferred income taxes - primarily accelerated depreciation (see Note 8C) 211,623 189,850
Investment tax credits being amortized over
the average lives of related property 31,696 34,228
Other 29,500 15,649
----------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 272,819 239,727
----------------------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $1,522,762 $1,561,481
----------------------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- 20 -
CONSOLIDATED CAPITALIZATION STATEMENTS
[Enlarge/Download Table]
The Peoples Gas Light and Coke Company
----------------------------------------------------------------------------------------------------------------------
At September 30, 1996 1995
----------------------------------------------------------------------------------------------------------------------
(Thousands, except number of shares)
Common Stockholder's Equity:
Common stock, without par value -
Authorized 40,000,000 shares
Outstanding 24,817,566 shares $ 165,307 $ 165,307
Retained earnings (see Consolidated Statements
of Retained Earnings) 398,875 363,001
----------------------------------------------------------------------------------------------------------------------
Total Common Stockholder's Equity 564,182 528,308
----------------------------------------------------------------------------------------------------------------------
Long-Term Debt:
Exclusive of sinking fund payments and maturities
due within one year
First and Refunding Mortgage Bonds -
8% Series U, due June 1, 1999 -- 43,375
(redeemed on December 29, 1995 - See Note 13B)
8% Series V, due June 1, 1999 -- 43,375
(redeemed on December 29, 1995 - See Note 13B)
Adjustable-Rate Series W (4% and 4.20% through
September 30, 1996 and September 30, 1995, respectively),
due October 1, 1999 (see Note 13A) 10,400 10,400
6.875% Series X, due March 1, 2015 50,000 50,000
7.50% Series Y, due March 1, 2015 50,000 50,000
7.50% Series Z, due March 1, 2015 50,000 50,000
8.10% Series BB, due May 1, 2020 75,000 75,000
6.37% Series CC, due May 1, 2003 75,000 75,000
5-3/4% Series DD, due December 1, 2023 75,000 75,000
Adjustable-Rate Series EE (3.85% and 4.95% through
November 30, 1996 and November 30, 1995, respectively),
due December 1, 2023 (see Note 13A) 27,000 27,000
6.10% Series FF, due June 1, 2025 50,000 50,000
----------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt 462,400 549,150
----------------------------------------------------------------------------------------------------------------------
Total Capitalization $1,026,582 $1,077,458
----------------------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- 21 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
The Peoples Gas Light and Coke Company
---------------------------------------------------------------------------------------------------------
For fiscal years ended September 30, 1996 1995 1994
---------------------------------------------------------------------------------------------------------
(Thousands)
OPERATING ACTIVITIES:
Net Income $ 88,752 $ 53,666 $ 63,825
Adjustments to reconcile net income to net cash:
Depreciation and amortization 63,006 59,170 57,824
Deferred income taxes and investment tax
credits - net 14,169 7,295 (8,914)
Change in deferred credits and other liabilities 18,923 (8,305) (24,610)
Change in other assets (40,572) (2,327) (14,105)
Other 74 55 36
Change in current assets and liabilities:
Receivables - net (40,390) 17,356 31,493
Accrued unbilled revenues (7,083) (890) 8,638
Materials and supplies (174) 7,721 2,109
Gas in storage 26,275 41,433 (3,930)
Gas costs recoverable (15,288) 9,892 31,023
Prepayments (9,970) (279) 369
Accounts payable 33,960 (7,334) (6,584)
Customer gas service and credit deposits 2,109 (4,531) 1,050
Accrued taxes 4,280 271 1,442
Gas sales revenue refundable (57,824) 27,391 33,905
Accrued interest (2,267) 821 1,933
---------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 77,980 201,405 175,504
---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures - construction (72,194) (81,081) (74,623)
Other assets 1,674 (2,042) (1,850)
Other capital investments (2,416) 1,153 2,023
Other temporary cash investments 100 -- --
---------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (72,836) (81,970) (74,450)
---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Interim loans - net (200) -- (62,300)
Issuance of long-term debt -- 50,000 102,000
Retirement of long-term debt (86,750) (50,000) --
Trust fund - utility construction -- 31,493 (31,493)
- bond redemption 237 (237) --
Redemption of preferred stock -- -- (3,400)
Dividends paid on preferred stock -- -- (71)
Dividends paid on common stock (53,109) (56,584) (55,591)
---------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (139,822) (25,328) (50,855)
---------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (134,678) 94,107 50,199
Cash and Cash Equivalents at Beginning of Year 152,215 58,108 7,909
---------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 17,537 $152,215 $ 58,108
---------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- 22 -
THE PEOPLES GAS LIGHT AND COKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1A Principles of Consolidation
All subsidiaries are included in the consolidated financial statements.
All significant intercompany transactions have been eliminated in consolidation.
Certain items previously reported for years prior to 1996 have been reclassified
to conform with the current-year presentation.
1B 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 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.
1C Concentration of Credit Risk
The Company provides natural gas service to approximately 839,000 customers
within the City. Credit risk for the Company is spread over a diversified base
of residential, commercial, and industrial retail sales and transportation
customers.
The Company encourages customers to participate in its long-standing budget
payment program that allows the cost of higher gas consumption levels associated
with the heating season to be spread over a 12-month billing cycle. Customers'
payment records are continually monitored and credit deposits are required, when
appropriate, to minimize uncollectible write-offs.
1D Revenue Recognition
Gas sales revenues are recorded on the accrual basis for all gas delivered
during the month, including an estimate for gas delivered but unbilled at the
end of each month.
1E Property, Plant and Equipment
Property, plant and equipment is stated at original cost and includes
appropriate amounts of payroll taxes, employee benefit costs, administrative
costs, and an allowance for funds used during construction.
1F Accounts Payable
The Company utilizes controlled disbursement banking arrangements under
which certain bank accounts have negative book balances due to checks in
transit. The negative balances are classified as Accounts Payable.
- 23 -
1G Maintenance and Depreciation
The Company charges the cost of maintenance and repairs of property and
minor renewals and improvements of property to maintenance expense. When
depreciable property is retired, its original cost is charged to the accumulated
provision for depreciation.
The provision for depreciation substantially reflects the systematic
amortization of the original cost of depreciable property over estimated useful
lives on the straight-line method. Additionally, actual dismantling cost, net
of salvage, is included in the provision for depreciation in the month incurred.
The amounts provided are designed to cover not only losses due to wear and tear
that are not restored by maintenance, but also losses due to obsolescence and
inadequacy.
The provision for depreciation, expressed as an annual percentage of
original cost of depreciable property, is as follows:
FOR FISCAL YEARS ENDED SEPTEMBER 30, 1996 1995 1994
------------------------------------ ----- ----- -----
Provision for depreciation 3.6% 3.6% 3.6%
1H Regulated Operations
The Company's utility operations are subject to regulation by the
Commission. Regulated operations are accounted for in accordance with SFAS No.
71, "Accounting for the Effects of Certain Types of Regulation." This standard
controls the application of generally accepted accounting principles for
companies whose rates are determined by an independent regulator such as the
Commission. Regulatory assets represent certain costs that are expected to be
recovered from customers through the ratemaking process. When incurred, such
costs are deferred as assets in the balance sheet and subsequently recorded as
expenses when those same amounts are reflected in rates.
The following regulatory assets were reflected in Other Assets in the
Consolidated Balance Sheets at September 30, 1996 and 1995:
--------------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------------
(Thousands)
Environmental costs, net of recoveries (see Note 3) $12,218 $10,660
Transition costs from pipeline supplier (see Note 2B) 32,692 6,400
Deferred interest on customer refunds -- 2,289
Regulatory income tax assets (see Note 1I) 4,340 3,680
Energy conservation plan expenses -- 1,033
Discount, premium, expenses, and loss on reacquired bonds 3,247 2,942
SNG plant - decommissioning 23,156 1,982
Other 523 721
--------------------------------------------------------------------------------
Total regulatory assets $76,176 $29,707
--------------------------------------------------------------------------------
1I Income Taxes
The Company follows the liability method of accounting for deferred income
taxes. Under the liability method, deferred income taxes have been recorded
using currently enacted tax rates for the differences between the tax basis of
assets and liabilities and the basis reported in the financial statements. Due
to the effects of regulation on the Company, certain adjustments made to
deferred income taxes are, in turn, debited or credited to regulatory assets or
liabilities. (See Note 8C.)
- 24 -
Each company within the consolidated group nets its income tax related
regulatory assets and liabilities. At September 30, 1996 and 1995, net
regulatory income tax assets recorded in Other Assets amounted to $4.3 million
and $3.7 million, while net regulatory income tax liabilities recorded in Other
Liabilities equaled $50,000 and $100,000, respectively.
Investment tax credits have been deferred and are being amortized through
credits to income over the book lives of related property.
The preceding deferred-tax and tax-credit accounting conforms with
regulations of the Commission.
1J Gas in Storage
Storage injections are priced at the fiscal-year average of costs of
natural gas purchased and produced. Withdrawals from storage are priced on the
last-in, first-out (LIFO) cost method. The estimated current replacement cost
of gas in inventory at September 30, 1996 and 1995 exceeded the LIFO cost by
approximately $78 million and $108 million, respectively.
1K Statement of Cash Flows
For purposes of the balance sheet and the statement of cash flows, the
Company considers all short-term liquid investments with maturities of three
months or less to be cash equivalents.
Income taxes and interest paid (excluding capitalized interest) were as
follows:
FOR FISCAL YEARS ENDED SEPTEMBER 30, 1996 1995 1994
------------------------------------ ------ ------ ------
(Thousands)
Income taxes paid $35,096 $15,501 $42,670
Interest paid 36,267 41,378 38,353
1L Recovery of Gas Costs, Including Charges for Transition Costs
Under the tariffs of the Company, the difference for any month between
costs recoverable through the Gas Charge and revenues billed to customers under
the Gas Charge is refunded to or recovered from customers. Consistent with
these tariff provisions, such difference for any month is recorded either as a
current liability or as a current asset (with a contra entry to Gas Costs).
The Commission conducts annual proceedings regarding, for each gas utility,
the reconciliation of revenues from the Gas Charge and related costs incurred
for gas. In such proceedings, costs recovered by a utility through the Gas
Charge are subject to challenge. Such proceedings regarding the Company for
fiscal years 1993 through 1996 are currently pending before the Commission.
Pursuant to FERC Order No. 636 and successor orders, pipelines are allowed
to recover from their customers so-called transition costs. These costs arise
from the restructuring of pipeline service obligations required by the 636
Orders. The Company is currently recovering pipeline charges for transition
costs through the Gas Charge. (See Notes 2A and 2B.)
- 25 -
2. RATES AND REGULATION
2A Utility Rate Proceedings
RATE ORDER. On November 8, 1995, the Commission issued an order approving
changes in rates of the Company that are designed to increase annual revenues by
approximately $30.8 million, exclusive of additional charges for revenue taxes.
The Company was allowed a rate of return on original-cost rate base of 9.19 per
cent, which reflects an 11.10 per cent cost of common equity. The new rates
were implemented on November 14, 1995. A group of industrial transportation
customers has appealed the Commission's order to the Illinois Appellate Court.
Any change made by the Appellate Court would have a prospective effect only.
FERC ORDER 636 COST RECOVERY. In 1994, the Commission issued orders concluding
its investigation into the appropriate means of recovery by Illinois gas
utilities of pipeline charges for FERC Order 636 transition costs. The orders
provided for the full recovery of transition costs from the Company's gas
service customers. The Commission directed that, effective November 1, 1994,
gas supply realignment (GSR) costs (one of the four categories of transition
costs) be recovered on a uniform volumetric basis from all transportation and
sales customers. In 1995, the Illinois Appellate Court affirmed the
Commission's order. A group of industrial transportation customers has filed a
petition with the Illinois Supreme Court for leave to appeal the Appellate
Court's decision. If the Illinois Supreme Court accepts the appeal, any changes
made by it to the Commission's orders would have a prospective effect only.
(See Notes 1L and 2B.)
2B FERC Orders 636, 636-A, and 636-B
FERC Order 636 and successor orders require pipelines to make separate rate
filings to recover transition costs. There are four categories of such costs,
the largest of which for the Company is GSR costs. The Company is subject to
charges for transition cost recovery by Natural. Charges by Natural for
transition costs commenced on January 1, 1994. On September 29, 1994, the FERC
approved a Stipulation and Agreement (Agreement) filed by Natural. The
Agreement placed a cap on the amount of GSR costs recoverable by Natural from
the Company. For the Company, that cap is approximately $103 million. At the
conclusion of the billing period under the Agreement (November 30, 1997),
Natural must reconcile amounts collected under the Agreement with GSR costs it
incurred. The Company is currently recovering transition costs through the Gas
Charge. At September 30, 1996, the Company has made payments of $70.3 million
and has accrued an additional $32.7 million toward the cap.
The 636 Orders are not expected to have a material effect on financial
position or results of operations of the Company. (See Notes 1L and 2A.)
3. ENVIRONMENTAL MATTERS
The Company, its predecessors, and certain former affiliates operated
facilities in the past at multiple sites for the purpose of manufacturing gas
and storing manufactured gas (Manufactured Gas Sites). In connection with
manufacturing and storing gas, various by-products and waste materials were
produced, some of which might have been disposed of rather than sold. Under
certain laws and regulations relating to the protection of the environment, the
Company might be required to undertake remedial action with respect to some of
these materials. Two of the Manufactured Gas Sites are discussed in more detail
below. The
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Company, under the supervision of the Illinois Environmental Protection Agency
(IEPA), is conducting investigations of 27 Manufactured Gas sites. These
investigations may require the Company to perform additional investigation and
remediation. The investigations are in a preliminary stage and are expected to
occur over an extended period of time.
The Company has observed what appear to be gas purification wastes on a
Manufactured Gas site in Chicago, formerly called the 110th Street Station, and
property contiguous thereto (110th Street Station Site). The Company has fenced
the 110th Street Station site and is conducting a study under the supervision of
the IEPA to determine the feasibility of a limited removal action.
The current owner of a site in Chicago, formerly called Pitney Court
Station, filed suit against the Company in federal district court under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended. The suit seeks recovery of the past and future costs of investigating
and remediating the site and an order directing the Company to remediate the
site. The Company is contesting this suit.
The Company is accruing and deferring the costs it incurs in connection
with all of the Manufactured Gas Sites, including related legal expenses,
pending recovery through rates or from insurance carriers or other entities. At
September 30, 1996, the total of the costs deferred by the Company, net of
recoveries and amounts billed to other entities, was $12.2 million. This amount
includes an estimate of the costs of the investigations being conducted under
the supervision of the IEPA referred to above. The amount also includes an
estimate of the costs of remediation at the 110th Street Station Site in
Chicago, at the minimum amount of the current estimated range of such costs.
The costs of remediation at the other sites cannot be determined at this time.
While the Company intends to seek contribution from other entities for the costs
incurred at the sites, the full extent of such contributions cannot be
determined at this time.
The Company has filed suit against a number of insurance carriers for the
recovery of environmental costs relating to its former manufactured gas
operations. The suit asks the court to declare that the insurers are liable
under policies in effect between 1937 and 1986 for costs incurred or to be
incurred by the Company in connection with three Manufactured Gas sites in
Chicago. The Company is also asking the court to award damages stemming from
the insurers' breach of their contractual obligation to defend and indemnify the
Company against these costs. At this time, management cannot determine the
timing and extent of the Company's recovery of costs from its insurance
carriers. Accordingly, the costs deferred at September 30, 1996 have not been
reduced to reflect recoveries from insurance carriers.
Costs incurred by the Company for environmental activities relating to
former manufactured gas operations will be recovered from insurance carriers or
other entities or through rates for utility service. Accordingly, management
believes that the costs incurred by the Company in connection with former
manufactured gas operations will not have a material adverse effect on the
financial position or results of operations of the Company. The Company is
recovering the costs of environmental activities relating to its former
manufactured gas operations, including carrying charges on the unrecovered
balances, under a rate mechanism approved by the Commission. At September 30,
1996, it had recovered $2.6 million of such costs through rates.
4. SNG PLANT CLOSING
The Company has closed its synthetic gas-making plant located near Joliet,
Illinois. The decision was made after a cost-benefit analysis was performed,
which showed that, as of December 1, 1995, it would not be cost-effective to use
the plant as a source of gas, given new, more economical supply arrangements to
become effective on that date. Those supply arrangements were the result of
initiatives undertaken by the
- 27 -
Company to restructure its gas supply portfolio in response to FERC Order 636.
The rates approved by the Commission in the Company's most recent rate case
reflect the annual effect of a five-year amortization of the undepreciated
investment in the plant and decommissioning expenses. The plant closing did not
have a material effect on financial position or results of operations of the
Company.
5. LONG-TERM LEASE
In October 1993, the Company entered into a 15-year lease to relocate its
headquarters office. The relocation was substantially completed in February
1995 prior to the expiration of the old lease.
The rental obligation consists of a base rent of $2.3 million plus
operating expenses and taxes. The base rent escalates by 2 per cent each year
through the 10th year. Base rent in the 11th year is approximately $3.6 million
with annual increases of 2 per cent each year through the 15th year. Rental
expense is comparable with the former lease at the Company's previous
headquarters location.
Rental expenses under the lease arrangements were $6.5 million, $6.4
million, and $6.1 million for fiscal years 1996, 1995, and 1994, respectively.
6. EXPIRATION OF GAS STORAGE CONTRACTS
The Company had certain natural gas storage contracts with Natural that
expired on or before December 1, 1995. Associated with the expiration of the
contracts in fiscal 1996, the Company realized a gain, after income taxes, of
approximately $6.7 million.
7. RETIREMENT AND POSTEMPLOYMENT BENEFITS
7A Pension Benefits
The Company participates in two defined benefit pension plans covering
substantially all employees. These plans provide pension benefits that
generally are based on an employee's length of service, compensation during the
five years preceding retirement, and social security benefits. Annual
contributions are made to the plans based upon actuarial determinations and in
consideration of tax regulations and funding requirements under federal law.
The Company also has non-qualified pension plans that provide employees
with pension benefits in excess of qualified plan limits imposed by federal tax
law.
Net pension cost for all plans for fiscal 1996, 1995, and 1994 included the
following components:
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------
(Millions)
Service cost - benefits earned during year $12.7 $ 13.4 $14.7
Interest cost on projected benefit obligations 30.6 27.9 28.0
Actual return on plan assets (gain) loss (64.9) (80.5) (14.6)
Net amortization and deferral 20.4 43.2 (23.7)
Settlement accounting (7.8) -- --
--------------------------------------------------------------------------------
Net pension cost (credit) $ (9.0) $ 4.0 $ 4.4
--------------------------------------------------------------------------------
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In 1996, the Company recognized a net gain of $7.8 million from the
settlement of portions of pension plan obligations.
The calculation of pension cost assumed a long-term rate of return on
assets of 8.5 per cent for 1996 and 7.5 per cent for 1995 and 1994. The
settlement accounting cost was determined using a discount rate of 7.5 per cent
and assumed future compensation increases of 4.5 per cent per year.
The following table shows the estimated funded status of the Company's
pension plans at September 30, 1996 and 1995:
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------------------
1996 1995
-------------------------------------------------------------------------------------------------------
(Millions)
Plan assets at market value $547.4 $546.1
-------------------------------------------------------------------------------------------------------
Actuarial present value of plan benefits:
Vested 279.8 288.3
Non-vested 31.1 42.8
-------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 310.9 331.1
Effect of projected future compensation increases 70.5 93.5
-------------------------------------------------------------------------------------------------------
Projected benefit obligation 381.4 424.6
-------------------------------------------------------------------------------------------------------
Excess of plan assets over projected benefit obligation 166.0 121.5
Less:
Unrecognized transition asset 23.3 26.8
Unrecognized prior service cost (4.5) (4.9)
Unrecognized net gain 139.5 102.4
Recognition of non-qualified plan additional minimum liability (1.9) --
-------------------------------------------------------------------------------------------------------
Accrued pension asset (liability) $ 5.8 $ (2.8)
-------------------------------------------------------------------------------------------------------
The projected benefit obligation and plan assets at September 30, 1996 are
based on a July 1 measurement date using a discount rate of 7.5 per cent, and
assumed future compensation increases of 4.5 per cent per year. The projected
benefit obligation and plan assets at September 30, 1995 are based on an October
1 measurement date using a discount rate of 7 per cent, and assumed future
compensation increases of 5 per cent per year. Plan assets consist primarily of
marketable equity and fixed-income securities.
7B Other Postretirement Benefits
The Company also provides certain health care and life insurance benefits
for retired employees. Substantially all employees may become eligible for such
benefit coverage if they reach retirement age while working for the companies.
The plans are funded based upon actuarial determinations and in consideration of
tax regulations and funding requirements under federal law. The Company accrues
the expected costs of such benefits during the employees' years of service.
- 29 -
Net postretirement benefit cost for all plans for fiscal 1996, 1995, and
1994 included the following components:
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------
(Millions)
Service cost - benefits earned during year $ 3.1 $ 2.5 $ 2.8
Interest cost on projected benefit obligations 7.1 7.2 7.1
Actual return on plan assets (gain) loss (2.9) (3.6) (0.3)
Amortization of transition obligation 4.5 4.5 4.5
Net amortization and deferral 1.1 2.4 (0.2)
--------------------------------------------------------------------------------
Net postretirement benefit cost $12.9 $13.0 $13.9
--------------------------------------------------------------------------------
The calculation of postretirement benefit cost assumed a long-term rate of
return on assets of 7.5 per cent for 1994 through 1996.
Of the above total postretirement costs recognized for fiscal years 1996,
1995, and 1994, $5.6 million, $5.7 million, and $7.7 million, respectively, was
funded through trust funds for future benefit payments.
The following table sets forth the estimated funded status for the
postretirement health care and life insurance plans at September 30, 1996 and
1995:
--------------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------------
(Millions)
Plan assets at market value $33.7 $31.1
--------------------------------------------------------------------------------
Accumulated postretirement benefit obligation (APBO):
Retirees 59.8 66.1
Fully eligible active plan participants 17.2 13.3
Other active plan participants 29.2 24.6
--------------------------------------------------------------------------------
Total APBO 106.2 104.0
--------------------------------------------------------------------------------
Excess (deficiency) of plan assets over the APBO (72.5) (72.9)
Less:
Unrecognized transition obligation (76.5) (81.1)
Unrecognized net gain 11.8 7.4
Contributions: 7-1-96 to 9-30-96 7.3 --
--------------------------------------------------------------------------------
Accrued postretirement benefit asset (liability) $(0.5) $ 0.8
--------------------------------------------------------------------------------
The total APBO and plan assets at September 30, 1996 are based on a July 1
measurement date using a discount rate of 7.5 per cent and assumed future
compensation increases of 4.5 per cent per year. The September 30, 1995 total
APBO and plan assets are based on an October 1 measurement date using a discount
rate of 6.5 per cent and assumed future compensation increases of 5 per cent per
year. Plan assets consist primarily of marketable equity and fixed-income
securities.
For measurement purposes, a health care cost trend rate of 9.6 per cent was
assumed for fiscal 1997, and that rate thereafter will decline to 4.75 per cent
in 2003 and subsequent years. The health care cost trend rate assumption has a
significant effect on the amounts reported. Increasing the assumed health care
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cost trend rate by one percentage point for each future year would have
increased the APBO at September 30, 1996, by $8.1 million and the aggregate of
service and interest cost components of the net periodic postretirement benefit
cost by $1.1 million annually.
8. TAX MATTERS
8A Provision for Income Taxes
Total income tax expense as shown on the Consolidated Statements of Income
is composed of the following:
[Enlarge/Download Table]
For fiscal years ended September 30, 1996 1995 1994
-----------------------------------------------------------------------------------------
(Thousands)
Current:
Federal $32,590 $17,311 $32,308
State 6,859 3,208 7,133
-----------------------------------------------------------------------------------------
Total current income taxes 39,449 20,519 39,441
-----------------------------------------------------------------------------------------
Deferred:
Federal 13,121 7,115 (6,665)
State 3,554 2,243 (642)
-----------------------------------------------------------------------------------------
Total deferred income taxes 16,675 9,358 (7,307)
-----------------------------------------------------------------------------------------
Investment tax credits - net:
Federal (2,635) (1,784) (1,823)
State 129 167 216
-----------------------------------------------------------------------------------------
Total investment tax credits - net (2,506) (1,617) (1,607)
-----------------------------------------------------------------------------------------
Total provision for income taxes 53,618 28,260 30,527
Less - Included in operation expense 85 96 98
-----------------------------------------------------------------------------------------
Net provision for income taxes $53,533 $28,164 $30,429
-----------------------------------------------------------------------------------------
8B Tax Rate Reconciliation
The following is a reconciliation between the computed federal income tax
expense (tax rate of 35 per cent times pre-tax book income) and the total
provision for federal income tax expenses:
[Enlarge/Download Table]
For fiscal years ended September 30, 1996 1995 1994
-------------------------------------------------------------------------------------------------
Per Cent Per Cent Per Cent
of of of
Amount Pre-tax Amount Pre-tax Amount Pre-tax
(000's) Income (000's) Income (000's) Income
-------------------------------------------------------------------------------------------------
Computed federal income
tax expense $46,140 35.00 $26,708 35.00 $30,675 35.00
Amortization of investment
tax credits (2,635) (2.00) (1,784) (2.34) (1,823) (2.08)
Nontaxable-tax settlement -- -- (1,772) (2.32) (1,772) (2.02)
Other, net (429) (0.32) (510) (0.67) (3,260) (3.72)
-------------------------------------------------------------------------------------------------
Total provision for federal
income taxes $43,076 32.68 $22,642 29.67 $23,820 27.18
-------------------------------------------------------------------------------------------------
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8C Deferred Income Taxes
Set forth in the table below are the temporary differences which gave rise
to the net deferred income tax liabilities (see Note 1I):
--------------------------------------------------------------------------------
At September 30, 1996 1995
--------------------------------------------------------------------------------
(Thousands)
Deferred tax liabilities:
Property - accelerated depreciation and
other property related items $214,875 $209,825
Other 24,167 8,416
--------------------------------------------------------------------------------
Total deferred income tax liabilities 239,042 218,241
--------------------------------------------------------------------------------
Deferred tax assets:
Unamortized investment tax credits (12,572) (13,576)
Uncollectible accounts (10,191) (7,429)
Other (4,656) (7,386)
--------------------------------------------------------------------------------
Total deferred income tax assets (27,419) (28,391)
--------------------------------------------------------------------------------
Net deferred income tax liabilities $211,623 $189,850
--------------------------------------------------------------------------------
8D Income Tax Settlement
On September 30, 1993, the Company received notification from the IRS that
settlement of past income tax returns had been reached for fiscal years 1978
through 1990. The IRS settlement resulted in payments of principal and interest
to the Company in 1994 of approximately $25 million, or $19.4 million after
income taxes. The Company received regulatory authorization to defer the
recognition of the settlement amount in income for fiscal year 1993, and to
recognize its portion of the settlement amount in income for fiscal years 1994
and 1995. The Company represented to the Commission that, having received this
accounting authorization, it would not file a request for an increase in base
rates before December 1994. The regulatory treatment of the IRS settlement
having been resolved in November 1993, the Company included $12.7 million, or
$9.7 million after income taxes, in income in 1994. The amount after income
taxes was included in Other Income - Miscellaneous. At September 30, 1994,
approximately $12.7 million was included in Deferred Credits and Other
Liabilities - Other.
As a result of the Commission's accounting authorization, the fiscal year
1995 portion of the settlement amount for the Company was amortized (credited)
to operation expense. The effect was to offset increases in costs that the
Company would incur during the year. In fiscal 1995, the Company amortized
approximately $12.7 million, or $9.7 million after income taxes.
9. ASSETS SUBJECT TO LIEN
The Indenture of Mortgage, dated January 2, 1926, as supplemented, securing
the first and refunding mortgage bonds issued by the Company, constitutes a
direct, first-mortgage lien on substantially all property owned by the Company.
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10. OTHER INCOME AND DEDUCTIONS - MISCELLANEOUS
[Enlarge/Download Table]
For fiscal years ended September 30, 1996 1995 1994
-------------------------------------------------------------------------------------------------------
(Thousands)
Amortization of net gain on sale of Peoples Gas Building $ -- $ 576 $ 1,151
Interest on amounts recoverable from customers -- 99 2,083
Income tax settlement (see Note 8D) -- -- 12,710
Gain on expiration of gas storage contracts (see Note 6) 11,093 -- --
Amortization of gain (loss) on reacquired bonds (65) 317 321
Other (1,008) 19 (518)
-------------------------------------------------------------------------------------------------------
Total other income and deductions - miscellaneous $10,020 $1,011 $15,747
-------------------------------------------------------------------------------------------------------
11. CAPITAL COMMITMENTS
Total contract and purchase order commitments of the Company at
September 30, 1996, amounted to approximately $3.4 million.
12. SHORT-TERM BORROWINGS AND CREDIT LINES
At September 30, 1996 1995
--------------------------------------------------------------------------------
(Thousands)
Bank Loans
Peoples Gas
8.75% due November 6, 1995 $ -- $ 900
8.25% due February 11, 1997 700 --
--------------------------------------------------------------------------------
Commercial Paper
North Shore Gas
due October 1, 1996 $ 1,925 $ --
--------------------------------------------------------------------------------
Available lines of credit
Unused bank lines $126,775 $130,150
--------------------------------------------------------------------------------
Short-term cash needs of the Company and North Shore Gas are met through
intercompany loans from Peoples Energy, bank loans, and/or the issuance of
commercial paper. The outstanding total amount of bank loans and commercial
paper issuances cannot at any time exceed total bank credit then in effect.
At September 30, 1996 and 1995, the Company and North Shore Gas had
combined lines of credit totaling $129.4 million and 131.1 million,
respectively. Of these amounts, North Shore Gas could borrow up to $30 million.
Agreements covering $92 million of the total at September 30, 1996 will expire
on June 25, 1997; the agreement covering the remaining $37.4 million will expire
on January 31, 1998. Such lines of credit cover projected short-term credit
needs of the Company and North Shore Gas and support the long-term debt
treatment of the Company's adjustable-rate mortgage bonds. (See Note 13A.)
Payment for the lines of credit is by fee.
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13. LONG-TERM DEBT
13A Interest-Rate Adjustments
The rate of interest on the City of Joliet 1984 Series C Bonds, which are
secured by the Company's Adjustable-Rate First Mortgage Bonds, Series W, is
subject to adjustment annually on October 1. Owners of the Series C Bonds have
the right to tender such bonds at par during a limited period prior to that
date. The Company is obligated to purchase any such bonds tendered if they
cannot be remarketed. All Series C Bonds that were tendered prior to October 1,
1996, have been remarketed. The interest rate on such bonds is 3.95 per cent
for the period October 1, 1996, through September 30, 1997.
The rate of interest on the City of Chicago 1993 Series B Bonds, which are
secured by the Company's Adjustable-Rate First Mortgage Bonds, Series EE, is
subject to adjustment annually on December 1. Owners of the Series B Bonds have
the right to tender such bonds at par during a limited period prior to that
date. The Company is obligated to purchase any such bonds tendered if they
cannot be remarketed. The interest rate on such bonds is 3.85 per cent for the
period December 1, 1995, through November 30, 1996.
The Company classifies these adjustable-rate bonds as long-term liabilities
since it would refinance them on a long-term basis if they could not be
remarketed. In order to ensure its ability to do so, on February 1, 1994, the
Company established a $37.4 million three year line of credit with The Northern
Trust Company which has since been extended to January 31, 1998. (See Note 12.)
13B Bonds Redeemed
On December 29, 1995, the Company redeemed, from general corporate funds,
approximately $87 million aggregate principal amount of the City of Joliet's
1984 Gas Supply Revenue Refunding Bonds, Series A and B, which were secured by
the Company's Series U and V First and Refunding Mortgage Bonds.
13C Sinking Fund Requirements and Maturities
At September 30, 1996, long-term debt sinking fund requirements and
maturities for the next five years are:
Fiscal Year Amounts
--------------------------------------------------------------------------------
(Thousands)
1997 $ --
1998 --
1999 --
2000 10,400
2001 --
13D Fair Value of Financial Instruments
At September 30, 1996, the carrying amount of the Company's long-term debt
of $462.4 million had an estimated fair value of $494.5 million. At
September 30, 1995, the carrying amount of the Company's long-term debt of
$549.2 million had an estimated fair value of $583.8 million. The estimated fair
value of the Company's long-term debt is based on quoted market prices or yields
for issues with similar terms and
- 34 -
remaining maturities. Since the Company is subject to regulation, any gains or
losses related to the difference between the carrying amount and the fair value
of financial instruments would not be realized by the Company's shareholder.
The carrying amount of all other financial instruments approximates fair value.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The fluctuation in quarterly results is primarily due to the seasonal
nature of the gas distribution business. The first three quarters of fiscal 1996
include weather that was 34 per cent, 12 per cent, and 26 per cent colder than
the respective similar prior quarters. Also, results for all four quarters of
fiscal 1996 reflect the positive impact of a Commission approved rate order.
(See Note 2A.) The fiscal 1995 portion of an IRS settlement was amortized to
operation expense over that entire year. (See Note 8D).
Net Income
Operating Operating Applicable to
Fiscal Quarters Revenues Income Common Stock
--------------------------------------------------------------------------------
(Thousands)
1996
Fourth $116,395 $ (971) $ (7,570)
Third 216,438 17,197 11,905
Second 429,115 60,250 52,912
First 274,627 39,344 31,505
--------------------------------------------------------------------------------
1995
Fourth $100,391 $(1,738) $(11,371)
Third 163,726 13,878 3,819
Second 368,148 50,016 39,469
First 266,679 32,022 21,749
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
IDENTIFICATION OF DIRECTORS
Company
Name, Principal Occupation, Age at Directorship
and Other Directorships 11-30-96 Since
---------------------------------------- -------- --------
Kenneth S. Balaskovits 54 1993
Vice President and Controller
of the Company, Peoples Energy,
and North Shore Gas; Director of North Shore Gas.
J. Bruce Hasch 58 1986
President and Chief Operating Officer of
the Company, Peoples Energy, and North Shore Gas;
Director of Peoples Energy and North Shore Gas.
James Hinchliff 56 1985
Senior Vice President and General Counsel
of the Company, Peoples Energy,
and North Shore Gas; Director of North Shore Gas.
Michael S. Reeves 61 1988
Executive Vice President of the Company,
Peoples Energy, and North Shore Gas;
Director of Peoples Energy and North Shore Gas.
Richard E. Terry 59 1982
Chairman of the Board and Chief Executive
Officer of the Company, Peoples Energy, and
North Shore Gas; Director of Peoples Energy
and North Shore Gas. Mr. Terry is also a
director of Harris Bankcorp, Inc., Harris Trust
and Savings Bank, Bankmont Financial Corp.,
and Amsted Industries.
- 36 -
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (Continued)
IDENTIFICATION OF EXECUTIVE OFFICERS
Position at Age at Position
Name November 30, 1996 11-30-96 Held Since
---------------------- ----------------------------- -------- ----------
Kenneth S. Balaskovits Vice President and Controller 54 1993
Frank H. Blackmore Vice President 61 1989
Emmet P. Cassidy Secretary and Treasurer 63 1989
Donald M. Field Vice President 47 1996
Joan T. Gagen Vice President 45 1994
J. Bruce Hasch President and Chief Operating 58 1990
Officer
James Hinchliff Senior Vice President and 56 1989
General Counsel
John C. Ibach Vice President 49 1992
William E. Morrow Division Vice President 40 1996
Thomas J. O'Sullivan Division Vice President 54 1992
Thomas M. Patrick Executive Vice President 50 1996
Michael S. Reeves Executive Vice President 61 1987
Richard E. Terry Chairman of the Board and 59 1990
Chief Executive Officer
Directors and executive officers of the Company were elected to serve for a
term of one year or until their successors are duly elected and qualified,
except for Messrs. Morrow and O'Sullivan, who were appointed.
There are no family relationships among directors and executive officers of
the Company.
All of the directors and executive officers of the Company have been
continuously employed by the Company and/or its affiliates in various capacities
for at least five years.
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ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth information concerning annual and long-term
compensation and grants of stock options, stock appreciation rights (SARs) and
restricted stock awards under Peoples Energy's Long-Term Incentive Compensation
Plan. All compensation was paid by the Company and its affiliates (Peoples
Energy and North Shore Gas) for services in all capacities during the three
fiscal years set forth below, to (1) the Chief Executive Officer and (2) the
four most highly compensated executive officers of the Company other than the
Chief Executive Officer.
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
Long Term Compensation
Annual Compensation Awards
------------------- ----------------------
Restricted All Other
Stock Options/ Compen-
Name and Awards(1)(2) SARs sation(3)
Principal Position Year Salary($) Bonus($) ($) (#) ($)
------------------------- ---- --------- -------- ------------ ------- ----------
Richard E. Terry 1996 $473,500 $191,600 $145,722 21,200 $14,205
Chairman and 1995 455,300 137,200 137,119 21,400 12,354
Chief Executive Officer 1994 421,250 117,100 113,281 14,400 12,638
J. Bruce Hasch 1996 332,600 86,000 80,803 11,800 9,978
President and 1995 319,800 61,500 76,606 11,800 9,594
Chief Operating Officer 1994 304,500 75,300 73,438 9,400 9,135
Michael S. Reeves 1996 250,700 54,500 51,797 7,600 7,521
Executive Vice President 1995 241,100 39,000 48,925 7,600 7,233
1994 229,500 47,800 47,656 6,200 6,885
James Hinchliff 1996 250,700 54,500 51,797 7,600 7,521
Senior Vice President 1995 241,100 39,000 48,925 7,600 7,233
and General Counsel 1994 229,500 47,800 47,656 6,200 6,885
Patrick J. Doyle, Jr. (4) 1996 193,700 39,900 33,150 4,800 5,811
Former Vice President 1995 188,100 25,000 30,900 4,800 5,643
1994 179,050 29,600 29,688 3,800 5,372
(1) Restricted stock awards are valued at the closing market price as of the
date of grant. The total number of restricted shares held by the named
executive officers and the aggregate market value of such shares at
September 30, 1996 were as follows: Mr. Terry, 14,055 shares, valued at
$477,870; Mr. Hasch, 8,240 shares, valued at $280,160; Mr. Reeves, 5,290
shares, valued at $179,860; Mr. Hinchliff, 5,290 shares, valued at
$179,860; and Mr. Doyle, 3,355 shares, valued at $144,070. Dividends are
paid on the restricted shares at the same time and at the same rate as
dividends paid to all shareholders of common stock. Aggregate market value
is based on a per share price of $34.00, the closing price of Peoples
Energy's stock on the New York Stock Exchange on September 30, 1996.
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ITEM 11. EXECUTIVE COMPENSATION (Continued)
(2) Restricted stock awards granted to date vest in equal annual increments
over a five-year period. If a recipient's employment with the Company
terminates, other than by reason of death, disability, or retirement after
attaining age 65, the recipient forfeits all rights to the unvested portion
of the restricted stock award. In addition, the Compensation-Nominating
Committee (and with respect to the CEO, the Compensation-Nominating
Committee, subject to the approval of the non-employee directors) may, in
its sole discretion, accelerate the vesting of any restricted stock awards
granted under the Long-Term Incentive Compensation Plan. Total restricted
stock awarded to the named individuals for 1994 constitutes 9,975 shares,
of which 1,995 shares vested in 1995; 1,995 shares vested in 1996; 1,995
shares will vest in 1997; 1,995 shares will vest in 1998; and the remaining
1,995 shares will vest in 1999. Total restricted stock awarded to the
named individuals for 1995 constitutes 13,300 shares of which 2,660 shares
vested in 1996; 2,660 shares will vest in 1997; 2,660 shares will vest in
1998; 2,660 shares will vest in 1999; and the remaining 2,660 shares will
vest in 2000. Total restricted stock awarded to the named individuals for
1996 constitutes 13,150 shares, of which 2,630 shares will vest in 1997;
2,630 shares will vest in 1998; 2,630 shares will vest in 1999; 2,630
shares will vest in 2000; and the remaining 2,630 shares will vest in 2001.
(3) Company contributions to the Capital Accumulation Plan accounts of the
named executive officers during the above fiscal years. Employee
contributions under the plan are subject to a maximum limitation under the
Internal Revenue Code of 1986. The Company pays an employee who is subject
to this limitation an additional 50 cents for each dollar that the employee
is prevented from contributing solely by reason of such limitation. The
amounts shown in the table above reflect, if applicable, this additional
Company payment.
(4) Mr. Doyle retired as of November 1, 1996.
- 39 -
ITEM 11. EXECUTIVE COMPENSATION (Continued)
OPTIONS/SAR GRANTS IN FISCAL 1996
INDIVIDUAL GRANTS
---------------------------------------
% of Total
Options/SARs
Options/ Granted to Exercise Grant
SARs Employees or Base Date
Granted in Fiscal Price Expiration Present
Name (#)(1) Year (2) ($/share) Date Value($)(3)
---------------- --------- ------------ --------- ---------- -----------
Richard E. Terry 21,200 12% $27.50 04-Oct-05 $97,732
Chairman and Chief
Executive Officer
J. Bruce Hasch 11,800 7 27.50 04-Oct-05 54,398
President and
Chief Operating
Officer
Michael S. Reeves 7,600 4 27.50 04-Oct-05 35,036
Executive Vice
President
James Hinchliff 7,600 4 27.50 04-Oct-05 35,036
Senior Vice President
and General Counsel
Patrick J. Doyle, Jr. (4) 4,800 3 27.50 04-Oct-05 22,128
Former Vice President
(1) The grant of an Option enables the recipient to purchase Peoples Energy
common stock at a purchase price equal to the fair market value of the
shares on the date the Option is granted. The grant of an SAR enables the
recipient to receive, for each SAR granted, cash in an amount equal to the
excess of the fair market value of one share of Peoples Energy common stock
on the date the SAR is exercised over the fair market value of such common
stock on the date the SAR was granted. Options or SARs that expire
unexercised become available for future grants. Before an Option or SAR
may be exercised, the recipient must complete 12 months of continuous
employment subsequent to the grant of the Option or SAR. Options and SARs
may be exercised within 10 years from the date of grant, subject to earlier
termination in case of death, retirement, or termination of employment.
(2) Based on 90,200 Options and 90,200 SARs granted to all employees under
Peoples Energy's Long-Term Incentive Compensation Plan during fiscal 1996.
(3) Present value is determined using a variation of the Black-Scholes Model.
The model assumes: a) that Options and SARs are exercised two years after
the date of grant -- the average time Options and SARs were held by
recipients under Peoples Energy's Long-Term Incentive Compensation Plan
over the past ten years; b) use of an interest rate equal to the interest
rate on a U.S. Treasury security with a maturity date corresponding to the
assumed exercise date; c) a level of volatility calculated using weekly
stock prices for the two years prior to the date of grant; d) that no
adjustments were made for an expected dividend yield; and e) that no
adjustments were made for non-transferability or risk of forfeiture. This
is a theoretical value for the Options and SARs. The amount realized from
an Option or SAR ultimately depends upon the excess of the market value of
Peoples Energy's stock over the exercise price on the date the option or
SAR is exercised.
(4) Mr. Doyle retired as of November 1, 1996.
- 40 -
ITEM 11. EXECUTIVE COMPENSATION (Continued)
[Enlarge/Download Table]
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Value of Unexercised
Shares Unexercised Options/SARs In-the-Money Options/SARs
Acquired On At Fiscal Year-EnD(#) At Fiscal Year-End ($)
(Option/SAR) Value ----------------------------- ---------------------------
Name Exercise(#)(1) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---------------------- --------------- ------------ ----------- ------------- ----------- -------------
Richard E. Terry 21,400 $185,859 29,000 21,200 $97,780 $137,800
Chairman and
Chief Executive
Officer
J. Bruce Hasch 11,800 104,696 19,000 11,800 64,080 76,700
President and
Chief Operating
Officer
Michael S. Reeves 13,800 91,938 6,200 7,600 19,344 49,400
Executive Vice
President
James Hinchliff 7,600 66,006 12,400 7,600 41,788 49,400
Senior Vice President
and General Counsel
Patrick J. Doyle, Jr. (2) 12,600 61,649 0 4,800 0 31,200
Former Vice President
(1) Includes cash-only SARs exercised by the named executive officers in the
following amounts: Mr. Terry, 10,700; Mr. Hasch, 5,900; Mr. Reeves, 6,900;
Mr. Hinchliff, 3,800; and Mr. Doyle, 6,300.
(2) Mr. Doyle retired as of November 1, 1996.
-41-
ITEM 11. EXECUTIVE COMPENSATION (Continued)
PENSION PLAN TABLE
------------------
Years of Service
Average Annual --------------------------------------------------
Compensation 20 25 30 35 40
------------- ------- ------- ------- ------- --------
$150,000 $54,943 $68,679 $82,414 $91,789 $101,164
200,000 74,943 93,679 112,414 124,914 137,414
250,000 94,943 118,679 142,414 158,039 173,664
300,000 114,943 143,679 172,414 191,164 209,914
350,000 134,943 168,679 202,414 224,289 246,164
400,000 154,943 193,679 232,414 257,414 282,414
450,000 174,943 218,679 262,414 290,539 318,664
500,000 194,943 243,679 292,414 323,664 354,914
550,000 214,943 268,679 322,414 356,789 391,164
600,000 234,943 293,679 352,414 389,914 427,414
650,000 254,943 318,679 382,414 423,039 463,664
700,000 274,943 343,679 412,414 456,164 499,914
750,000 294,943 368,679 442,414 489,289 536,164
The above table illustrates various annual straight-life benefits at normal
retirement (age 65) for the indicated levels of average annual compensation and
various periods of service, assuming no future changes in Peoples Energy's
pension benefits. The compensation used in the computation of annual retirement
benefits is substantially equivalent to the salary and bonus reported in the
Summary Compensation Table. The benefit amounts shown reflect reduction for
applicable Social Security benefits.
Average annual compensation is the average 12-month compensation for the
highest 60 consecutive months of the last 120 months of service prior to
retirement. Compensation is total salary paid to an employee by the Company
and/or its affiliates, including bonuses under Peoples Energy's Short-Term
Incentive Compensation Plan, pre-tax contributions under Peoples Energy's
Capital Accumulation Plan, pre-tax contributions under Peoples Energy's Health
and Dependent Care Spending Accounts Plan, and pre-tax contributions for life
and health care insurance, but excluding moving allowances, exercise of stock
options and SARs, and other compensation that has been deferred.
At September 30, 1996, the credited years of retirement benefit service for
the individuals listed in the Summary Compensation Table were as follows: Mr.
Terry, 32 years; Mr. Hasch, 36 years; Mr. Reeves, 40 years; Mr. Hinchliff, 24
years; and Mr. Doyle, 32 years. The benefits shown in the foregoing table are
subject to maximum limitations under the Employee Retirement Income Security Act
of 1974, as amended, and the Internal Revenue Code of 1986, as amended. Should
these benefits at the time of retirement exceed the then-permissible limits of
the applicable Act, the excess would be paid by the Company as supplemental
pensions pursuant to Peoples Energy's Supplemental Retirement Benefit Plan. The
benefits shown give effect to these supplemental pension benefits.
-42-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
At November 30, 1996, voting securities of the Company were beneficially
owned as follows:
Title of Number of Per Cent of
Class Name and Address Shares Owned Class
------------ ---------------------------- ------------ -----------
Common Stock Peoples Energy Corporation
without 130 East Randolph Drive
par value Chicago, Illinois 60601-6207 24,817,566 100
----------- ----------
SECURITY OWNERSHIP OF MANAGEMENT
No equity securities of the Company are beneficially owned directly or
indirectly by any director or officer of the Company.
Shares of common stock, without par value, of Peoples Energy beneficially
owned directly or indirectly by all directors and certain executive officers of
the Company and all directors and executive officers of the Company as a group
at November 30, 1996, are as follows:
Shares of Peoples Energy
Common Stock Beneficially
Name Owned at November 30, 1996 (1)
-------------------------------- ---------------------------------
Kenneth S. Balaskovits* 15,768 (2)(3)
Patrick J. Doyle, Jr. 9,388 (2)
J. Bruce Hasch* 49,441 (2)(3)
James Hinchliff* 29,713 (2)(3)
Michael S. Reeves* 28,960 (2)(3)
Richard E. Terry* 64,416 (2)(3)
All directors and officers of the Company
as a group, including those named above
(14 in number) 288,861 (1)(2)(3)
* Director of the Company
(1) The total of 288,861 shares held by all directors and executive
officers as a group is less than one per cent of Peoples Energy's
outstanding common stock. Unless otherwise indicated, each individual
has sole voting and investment power with respect to the shares of
common stock attributed to him in the table.
(2) Includes shares that the following have a right to acquire within 60
days following November 30, 1996, through the exercise of stock
options granted under Peoples Energy's Long-Term Incentive
Compensation Plan: Messrs. Balaskovits, 5,500; Doyle, 2,400;
Hasch, 15,400; Hinchliff, 6,200; Terry, 14,500; and all executive
officers of the Company, as a group, 89,900.
-43-
(3) Includes shares of restricted stock awarded under Peoples Energy's
Long-Term Incentive Compensation Plan, the restrictions on which had
not lapsed at November 30, 1996, as follows: Messrs. Balaskovits,
3,455; Hasch, 7,990; Hinchliff, 5,130; Reeves, 5,130; Terry, 14,020;
and all executive officers as a group, 43,545. Owners of shares of
restricted stock have the right to vote such shares and to receive
dividends thereon, but have no investment power with respect to such
shares until the restrictions thereon lapse.
CHANGES IN CONTROL
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company provides general corporate and support services to Peoples
Energy pursuant to an Intercompany Service Agreement (Agreement), the terms of
which were approved by the Commission. In fiscal 1996, the Company furnished
general corporate services in the amount of $4,062,382 and support services in
the amount of $103,740 to Peoples Energy under the Agreement.
-44-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements: Page
----
See Part II, Item 8. 16
2. Financial Statement Schedules:
Schedule
Number
--------
VIII Valuation and Qualifying Accounts 46
3. Exhibits:
See Exhibit Index on page 48.
(b) Reports on Form 8-K filed during the final quarter of fiscal year 1996:
None.
-45-
[Enlarge/Download Table]
SCHEDULE VIII
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(Thousands)
Column A Column B Column C Column D Column E
------------------------------------------------ ------------ --------- --------------------- ---------
Additions Deductions
--------- ---------------------
Charged Charges for the
Balance to costs purpose for which the Balance
at beginning and reserves or deferred at end of
Description of period Expenses credits were created period
------------------------------------------------- ------------ --------- --------------------- ---------
Fiscal Year Ended September 30, 1996
------------------------------------
RESERVES (deducted from assets in balance sheet):
Uncollectible items $18,315 $27,345 $20,381 $25,279
Fiscal Year Ended September 30, 1995
------------------------------------
RESERVES (deducted from assets in balance sheet):
Uncollectible items $23,400 $22,063 $27,148 $18,315
Fiscal Year Ended September 30, 1994
------------------------------------
RESERVES (deducted from assets in balance sheet):
Uncollectible items $18,934 $31,162 $26,696 $23,400
-46-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE PEOPLES GAS LIGHT AND COKE COMPANY
Date: December 19, 1996 By: /s/ RICHARD E. TERRY
----------------- ----------------------------
Richard E. Terry
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on December 19, 1996.
/s/ RICHARD E. TERRY Chairman of the Board and Chief Executive
--------------------------- Officer and Director
Richard E. Terry (Principal Executive Officer)
/s/ KENNETH S. BALASKOVITS Vice President and Controller and Director
----------------------------- (Principal Financial and Accounting Officer)
Kenneth S. Balaskovits
/s/ J. BRUCE HASCH Director
-------------------------
J. Bruce Hasch
/s/ JAMES HINCHLIFF Director
-------------------------
James Hinchliff
/s/ MICHAEL S. REEVES Director
--------------------------
Michael S. Reeves
-47-
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
EXHIBIT INDEX
(a) The exhibits listed below are filed herewith and made a part hereof:
Exhibit
Number Description of Document
------ ------------------------------------------------------------
3(a) Amendment to the By-Laws of the Registrant, dated August 7,
1996.
3(b) By-Laws of the Registrant, as amended, dated August 7, 1996.
10(a) Firm Transportation Service Agreement under Rate Schedule
FTS-1 between the Company and ANR Pipeline Company, dated as
of September 20, 1995.
10(b) Firm Transportation Service Agreement under Rate Schedule
FTS between the Company and Natural Gas Pipeline Company of
America, dated as of February 21, 1996.
10(c) Firm Transportation Service Agreement under Rate Schedule
FTS between the Company and Natural Gas Pipeline Company of
America, dated as of February 21, 1996.
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
27 Financial Data Schedule
(b) Exhibits listed below have been filed heretofore with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended,
and/or the Securities Exchange Act of 1934, as amended, and are
incorporated herein by reference. The file number and exhibit number of
each such exhibit are stated in the description of such exhibits.
3(c) Articles of Incorporation of the Registrant, as amended on
April 24, 1995 (Registrant Form 10-K for fiscal year ended
September 30, 1995, Exhibit 3(b)).
4(a) First and Refunding Mortgage, dated January 2, 1926, from Chicago
By-Product Coke Company to Illinois Merchants Trust Company,
Trustee, assumed by the Company by Indenture dated March 1, 1928
(May 17, 1935, Exhibit B-6a, Exhibit B-6b A-2 File No. 2-2151,
1936); Supplemental Indenture dated as of May 20, 1936, from the
Company to Continental Illinois National Bank and Trust Company
of Chicago, Trustee (Form 8-K for the year 1936, Exhibit B-6f);
Supplemental Indenture dated as of March 10, 1950 (Form 8-K for
the month of March 1950, Exhibit B-6i); Supplemental Indenture
dated as of June 1, 1951 (File No. 2-8989, Post-Effective,
Exhibit 7-4(b)); Supplemental Indenture dated as of July 15, 1966
(Form 8-K for the month of July 1966, Exhibit 2); Supplemental
Indenture dated as of August 15, 1967 (File No. 2-26983,
Post-Effective, Exhibit 2-4); Supplemental Indenture dated as of
September 15, 1970 (File No. 2-38168, Post-Effective Exhibit
2-2); Supplemental Indenture dated as of April 1, 1972 (File No.
2-43367, Post-Effective Exhibit 2-2); Supplemental Indenture
dated as of July 15, 1973 (File
-48-
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
EXHIBIT INDEX (Continued)
4(a) No. 2-48430, Exhibit 4-2); Supplemental Indenture dated as of
June 1, 1984, Exhibit 4-1, Supplemental Indenture dated June 1,
1984, Exhibit 4-2, Supplemental Indenture dated October 1, 1984,
Exhibit 4-3 (Form 10-K for fiscal year ended September 30, 1984);
Supplemental Indentures dated March 1, 1985, Exhibits 4-1, 4-2,
4-3, 4-4, respectively (Form 10-K for fiscal year ended September
30, 1985); Supplemental Indenture dated May 1, 1990 (Form 10-K
for the fiscal year ended September 30, 1990, Exhibit 4);
Supplemental Indenture dated as of April 1, 1993 (Form 8-K dated
as of May 5, 1933, Exhibit 1); Supplemental Indenture dated as of
December 1, 1993 (Form 10-Q for the quarterly period ended
December 31, 1993, Exhibit 4(a)); Supplemental Indenture dated as
of December 1, 1993 (Form 10-Q for the quarterly period ended
December 31, 1993, Exhibit 4(b)); Supplemental Indenture dated
June 1, 1995. (Form 10-K for fiscal year ended September 30,
1995.)
10(d) Firm Transportation Service Agreement Under Rate Schedule FT
between the Company and Trunkline Gas Company, dated as of
December 1, 1993 (Registrant Form 10-K for the fiscal year ended
September 30, 1994, Exhibit 10). ETS Service Agreement between
the Company and ANR Pipeline Company, dated September 21, 1994.
(Registrant Form 10-K for fiscal year ended September 30, 1995,
Exhibit 10(a)); FSS Service Agreement between the Company and ANR
Pipeline Company, dated September 21, 1994. (Registrant Form
10-K for fiscal year ended September 30, 1995, Exhibit 10(b));
Storage Rate Schedule NSS Agreement between the Company and
Natural Gas Pipeline Company of America, dated October 19, 1995.
(Registrant Form 10-K for fiscal year ended September 30, 1995,
Exhibit 10(c)); Transportation Rate Schedule FTS Agreement
between the Company and Natural Gas Pipeline Company of America,
dated October 19, 1995. (Registrant Form 10-K for fiscal year
ended September 30, 1995, Exhibit 10(d)); Storage Rate Schedule
DSS Agreement between the Company and Natural Gas Pipeline
Company of America, dated December 1, 1995. (Registrant Form
10-K for fiscal year ended September 30, 1995, Exhibit 10(e));
Transportation Rate Schedule FTS Agreement between the Company
and Natural Gas Pipeline Company of America, dated December 1,
1995. (Registrant Form 10-K for fiscal year ended September 30,
1995, Exhibit 10(f)); Firm Transportation Service Agreement Under
Rate Schedule FT between the Company and Trunkline Gas Company,
dated as of April 1, 1995. (Registrant Form 10-K for fiscal year
ended September 30, 1995, Exhibit10(g)); Quick Notice
Transportation Service Agreement Under Rate Schedule QNT between
the Company and Trunkline Gas Company, dated as of December 1,
1995. (Registrant Form 10-K for fiscal year ended September 30,
1995, Exhibit 10(h)); Quick Notice Transportation Service
Agreement Under Rate Schedule QNT between the Company and
Trunkline Gas Company, dated as of December 1, 1995. (Registrant
Form 10-K for fiscal year ended September 30, 1995, Exhibit
10(i));
10(e) Lease dated October 20, 1993, between Prudential Plaza
Associates, as Landlord, and the Company, as Tenant (Registrant
Form 10-Q for the quarterly period ended December 31, 1993,
Exhibit 10(a)).
-49-
Dates Referenced Herein and Documents Incorporated by Reference
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