SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Quarter Ended December 31, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission File Exact Name of Registrant as States of I.R.S. Employer
Number Specified in its Charter and Incorporation Identification Number
Principal Office Address and
Telephone Number
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1-16681 The Laclede Group, Inc. Missouri 74-2976504
720 Olive Street
St. Louis, MO 63101
314-342-0500
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1-1822 Laclede Gas Company Missouri 43-0368139
720 Olive Street
St. Louis, MO 63101
314-342-0500
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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 report),
The Laclede Group, Inc.: Yes X No
---- ----
Laclede Gas Company: Yes X No
---- ----
and (2) has been subject to such filing requirements for the past 90 days:
The Laclede Group, Inc.: Yes No X
---- ----
Laclede Gas Company: Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Shares Outstanding At
Registrant Description of Common Stock January 25, 2002
- ---------- --------------------------- ----------------
The Laclede Group, Inc. Common Stock ($1.00 Par Value) 18,877,987
Laclede Gas Company Common Stock ($1.00 Par Value) 100
1
TABLE OF CONTENTS Page No.
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PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
The Laclede Group, Inc.:
Statements of Consolidated Income 4
Consolidated Balance Sheets 5-6
Statements of Consolidated Cash Flows 7
Laclede Gas Company:
Statements of Consolidated Income 8
Consolidated Balance Sheets 9-10
Statements of Consolidated Cash Flows 11
Notes to Consolidated Financial Statements
(The Laclede Group and Laclede Gas Company - Combined) 12
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 6 Exhibits and Other Reports on Form 8-K 21
SIGNATURES 22
Filing Format
- -------------
This Quarterly Report on Form 10-Q is a combined report being filed by two
separate registrants: The Laclede Group, Inc. (Laclede Group or the Company)
and Laclede Gas Company (Laclede Gas or the Utility).
Effective October 1, 2001, Laclede Gas and its subsidiaries became
subsidiaries of The Laclede Group. At that time stock certificates previously
representing shares of Laclede Gas common stock were deemed to represent the
same number of shares of The Laclede Group common stock. All of the former
subsidiaries of Laclede Gas (Laclede Investment LLC, Laclede Energy Resources,
Inc, Laclede Gas Family Services, Inc., Laclede Development Company, Laclede
Venture Corp. and Laclede Pipeline Company) are now subsidiaries of Laclede
Group.
2
PART I.
FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q includes separate consolidated financial
statements (i.e. balance sheets, statements of income and statements of cash
flows) for Laclede Group and Laclede Gas. The Laclede Group financial
statements (pages 4 through 7) present the consolidated financial position,
results of operations and cash flows of Laclede Group after the October 1,
2001 restructuring, as well as the consolidated financial position, results of
operations and cash flows of Laclede Gas prior to the restructuring (i.e., the
highest level of consolidation). The consolidated financial position, results
of operations and cash flows of Laclede Gas immediately before the
restructuring is essentially identical to the consolidated financial position,
results of operations and cash flows of Laclede Group immediately after the
restructuring (i.e. legal entity results).
The consolidated financial statements for Laclede Gas (pages 8 through 11)
present the consolidated financial position, results of operations and cash
flows of Laclede Gas throughout the reported periods, as well as the
consolidated financial position, results of operations and cash flows of
Laclede Gas' former subsidiaries prior to the October 1, 2001 restructuring.
A single set of Notes to the Consolidated Financial Statements begins on page
12 that applies equally to Laclede Group and Laclede Gas, except where
otherwise noted.
This report includes a single Management's Discussion and Analysis of
Financial Condition and Results of Operations for Laclede Group as well as
Laclede Gas, due to the similarity of the operating results of the two
entities.
The interim financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements should be read
in conjunction with the financial statements and the notes thereto included in
the Company's Form 10-K for the year ended September 30, 2001.
3
Item 1. Financial Statements
THE LACLEDE GROUP, INC.
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
Three Months Ended
December 31,
2001 2000
---- ----
Operating Revenues:
Utility operating revenues $183,211 $322,556
Non-utility operating revenues 11,433 22,469
-------------------------
Total Operating Revenues 194,644 345,025
-------------------------
Operating Expenses:
Utility operating expenses
Natural and propane gas 115,594 232,090
Other operation expenses 26,276 27,025
Maintenance 4,314 4,520
Depreciation and amortization 6,582 6,484
Taxes, other than income taxes 12,899 17,296
-------------------------
Total utility operating expenses 165,665 287,415
Non-utility operating expenses 11,663 21,863
-------------------------
Total Operating Expenses 177,328 309,278
-------------------------
Operating Income 17,316 35,747
Other Income and Income Deductions - Net 924 992
-------------------------
Income Before Interest and Income Taxes 18,240 36,739
-------------------------
Interest Charges:
Interest on long-term debt 5,205 4,377
Other interest charges 1,359 3,215
-------------------------
Total Interest Charges 6,564 7,592
-------------------------
Dividends on Preferred Stock - Laclede Gas 21 22
-------------------------
Income Before Income Taxes 11,655 29,125
Income Taxes (Note 4) 3,936 10,630
-------------------------
Net Income Applicable to Common Stock $ 7,719 $ 18,495
=========================
Average Number of Common Shares Outstanding 18,878 18,878
Earnings Per Share of Common Stock $.41 $.98
Dividends Declared Per Share of Common Stock $.335 $.335
See notes to consolidated financial statements.
4
THE LACLEDE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Dec. 31 Sept. 30
2001 2001
------- --------
(Thousands of Dollars)
(UNAUDITED)
ASSETS
Utility Plant $ 959,576 $949,775
Less: Accumulated depreciation and amortization 384,422 380,135
---------------------------
Net Utility Plant 575,154 569,640
---------------------------
Other Property and Investments 33,985 32,893
---------------------------
Current Assets:
Cash and cash equivalents 6,390 3,223
Accounts receivable - net 126,038 78,491
Materials, supplies, and merchandise at avg cost 5,776 5,393
Natural gas stored underground for current use at LIFO cost 72,501 76,661
Propane gas for current use at FIFO cost 14,187 14,213
Prepayments 5,448 3,999
Deferred income taxes 11,748 8,556
---------------------------
Total Current Assets 242,088 190,536
---------------------------
Deferred Charges:
Prepaid pension cost 112,861 110,475
Regulatory assets 69,656 68,599
Other 4,584 3,767
---------------------------
Total deferred charges 187,101 182,841
---------------------------
Total Assets $1,038,328 $975,910
===========================
See notes to consolidated financial statements.
5
THE LACLEDE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
Dec. 31 Sept. 30
2001 2001
------- --------
(Thousands of Dollars)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock (Dec. 31, 2001, 18,877,987 and
Sept. 30, 2001, 20,743,625 shares issued) $ 18,878 $ 20,744
Paid-in capital 63,701 85,846
Retained earnings 206,907 205,512
Treasury stock, at cost (1,865,638 shares held Sept. 30, 2001) - (24,017)
-----------------------------
Total common stock equity 289,486 288,085
Redeemable preferred stock - Laclede Gas 1,266 1,588
Long-term debt (less sinking fund requirements) - Laclede Gas 284,480 284,459
-----------------------------
Total Capitalization 575,232 574,132
-----------------------------
Current Liabilities:
Notes payable 133,820 117,050
Accounts payable 41,568 32,087
Advance customer billings 16,476 11,679
Current portion of preferred stock - 79
Taxes accrued 31,653 14,912
Unamortized purchased gas adjustment 8,350 9,026
Other 29,662 32,863
-----------------------------
Total Current Liabilities 261,529 217,696
-----------------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 126,419 142,515
Unamortized investment tax credits 5,869 5,948
Pension and postretirement benefit costs 18,411 15,847
Regulatory liabilities 31,219 304
Other 19,649 19,468
-----------------------------
Total Deferred Credits and Other Liabilities 201,567 184,082
-----------------------------
Total Capitalization and Liabilities $1,038,328 $975,910
=============================
See notes to consolidated financial statements.
6
THE LACLEDE GROUP, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
Three Months Ended
December 31,
2001 2000
---- ----
(Thousands of Dollars)
Operating Activities:
Net Income $ 7,719 $ 18,495
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 6,642 6,544
Deferred income taxes and investment tax credits (22,927) (12,549)
Dividends on preferred stock - Laclede Gas 21 22
Other - net 252 (16)
Changes in assets and liabilities:
Accounts receivable - net (47,547) (182,638)
Unamortized purchased gas adjustments (676) 3,589
Deferred purchased gas costs 32,992 30,512
Advanced customer billings - net 4,797 (21,498)
Accounts payable 9,481 55,617
Taxes accrued 16,741 20,686
Natural gas stored underground 4,160 32,850
Other assets and liabilities (5,091) (603)
-----------------------------
Net cash provided by (used in) operating activities $ 6,564 $ (48,989)
-----------------------------
Investing Activities:
Construction expenditures (11,327) (11,584)
Investments - non-utility (840) (43)
Employee benefit trusts (361) (1,398)
Other (899) (527)
-----------------------------
Net cash used in investing activities $(13,427) $ (13,552)
-----------------------------
Financing Activities:
Issuance of short-term debt - net 16,770 71,800
Dividends paid (6,345) (6,346)
Preferred stock reacquired and other (395) (27)
-----------------------------
Net cash provided by financing activities $ 10,030 $ 65,427
-----------------------------
Net Increase in Cash and Cash Equivalents $ 3,167 $ 2,886
Cash and Cash Equivalents at Beg of Period 3,223 4,215
-----------------------------
Cash and Cash Equivalents at End of Period $ 6,390 $ 7,101
=============================
Supplemental Disclosure of Cash Paid/(Refunded)
During the Period for:
Interest $ 8,740 $ 11,227
Income taxes 2,404 (14)
See notes to consolidated financial statements.
7
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
Three Months Ended
December 31,
2001 2000
---- ----
Operating Revenues:
Utility operating revenues $183,211 $322,556
Other operating revenues 607 22,469
-------------------------
Total Operating Revenues 183,818 345,025
-------------------------
Operating Expenses:
Utility operating expenses
Natural and propane gas 115,594 232,090
Other operation expenses 26,276 27,025
Maintenance 4,314 4,520
Depreciation and amortization 6,582 6,484
Taxes, other than income taxes 12,899 17,296
-------------------------
Total utility operating expenses 165,665 287,415
Other operating expenses 574 21,863
-------------------------
Total Operating Expenses 166,239 309,278
-------------------------
Operating Income 17,579 35,747
Other Income and Income Deductions - Net 924 992
-------------------------
Income Before Interest and Income Taxes 18,503 36,739
-------------------------
Interest Charges:
Interest on long-term debt 5,205 4,377
Other interest charges 1,407 3,215
-------------------------
Total Interest Charges 6,612 7,592
-------------------------
Income Before Income Taxes 11,891 29,147
Income Taxes (Note 4) 4,011 10,630
-------------------------
Net Income 7,880 18,517
Dividends on Preferred Stock 21 22
-------------------------
Earnings Applicable to Common Stock $ 7,859 $ 18,495
=========================
See notes to consolidated financial statements.
8
LACLEDE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
Dec. 31 Sept. 30
2001 2001
---- ----
(Thousands of Dollars)
(UNAUDITED)
ASSETS
Utility Plant $ 959,576 $949,775
Less: Accumulated depreciation and amortization 384,422 380,135
---------------------------
Net Utility Plant 575,154 569,640
---------------------------
Other Property and Investments 25,992 32,893
---------------------------
Current Assets:
Cash and cash equivalents 3,366 3,223
Accounts receivable - net 121,970 78,491
Materials, supplies, and merchandise at avg cost 5,739 5,393
Natural gas stored underground for current use at LIFO cost 72,459 76,661
Propane gas for current use at FIFO cost 14,187 14,213
Prepayments and other 5,403 3,999
Deferred income taxes 11,748 8,556
---------------------------
Total Current Assets 234,872 190,536
---------------------------
Deferred Charges:
Prepaid pension cost 112,861 110,475
Regulatory assets 69,656 68,599
Other 4,565 3,767
---------------------------
Total deferred charges 187,082 182,841
---------------------------
Total Assets $1,023,100 $975,910
===========================
See notes to consolidated financial statements.
9
LACLEDE GAS COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
Dec. 31 Sept. 30
2001 2001
---- ----
(Thousands of Dollars)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock and Paid-in capital (Dec. 31, 2001, 100 and
Sept. 30, 2001, 20,743,625 shares issued) $ 82,579 $106,590
Retained earnings 187,305 205,512
Treasury stock, at cost (1,865,638 shares held Sept. 30, 2001) - (24,017)
-----------------------------
Total common stock equity 269,884 288,085
Redeemable preferred stock - Laclede Gas 1,266 1,588
Long-term debt (less sinking fund requirements) - Laclede Gas 284,480 284,459
-----------------------------
Total Capitalization 555,630 574,132
-----------------------------
Current Liabilities:
Notes payable 133,820 117,050
Accounts payable 39,419 32,087
Advance customer billings 16,476 11,679
Current portion of preferred stock - 79
Taxes accrued 31,733 14,912
Unamortized purchased gas adjustment 8,350 9,026
Other 37,349 32,863
-----------------------------
Total Current Liabilities 267,147 217,696
-----------------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 125,248 142,515
Unamortized investment tax credits 5,869 5,948
Pension and postretirement benefit costs 18,411 15,847
Regulatory liabilities 31,219 304
Other 19,576 19,468
-----------------------------
Total Deferred Credits and Other Liabilities 200,323 184,082
-----------------------------
Total Capitalization and Liabilities $1,023,100 $975,910
=============================
See notes to consolidated financial statements.
10
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
Three Months Ended
December 31,
2001 2000
---- ----
(Thousands of Dollars)
Operating Activities:
Net Income $ 7,880 $ 18,517
Adjustments to reconcile net income
To net cash provided by (used in) operating activities:
Depreciation and amortization 6,582 6,544
Deferred income taxes and investment tax credits (22,927) (12,549)
Other - net 252 (16)
Changes in assets and liabilities:
Accounts receivable - net (45,239) (182,638)
Unamortized purchased gas adjustments (676) 3,589
Deferred purchased gas costs 32,992 30,512
Advanced customer billings - net 4,797 (21,498)
Accounts payable 6,626 55,617
Taxes accrued 16,172 20,686
Natural gas stored underground 4,171 32,850
Other assets and liabilities (7,590) (603)
-----------------------------
Net cash provided by (used in) operating activities $ 3,040 $(48,989)
-----------------------------
Investing Activities:
Construction expenditures (11,321) (11,584)
Investments - non-utility (67) (43)
Employee benefit trusts (361) (1,398)
Other (1,178) (527)
-----------------------------
Net cash used in investing activities $(12,927) $(13,552)
-----------------------------
Financing Activities:
Issuance of short-term debt - net 16,770 71,800
Dividends paid (6,345) (6,346)
Preferred stock reacquired and other (395) (27)
-----------------------------
Net cash provided by financing activities $ 10,030 $ 65,427
-----------------------------
Net Increase in Cash and Cash Equivalents $ 143 $ 2,886
Cash and Cash Equivalents at Beg of Period 3,223 4,215
-----------------------------
Cash and Cash Equivalents at End of Period $ 3,366 $ 7,101
=============================
Supplemental Disclosure of Cash Paid/(Refunded)
During the Period for:
Interest $ 8,740 $ 11,227
Income taxes 2,404 (14)
See notes to consolidated financial statements.
11
THE LACLEDE GROUP, INC. AND LACLEDE GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.) Effective October 1, 2001, Laclede Gas Company (Laclede Gas or the
Utility) and its subsidiaries became subsidiaries of The Laclede
Group, Inc. (Laclede Group or the Company), an exempt holding company
under the Public Utility Holding Company Act of 1935. See the
Company's Annual Report on Form 10-K for the year ended September 30,
2001 for additional details on this restructuring.
This Quarterly Report on Form 10-Q is a combined report of Laclede
Group and Laclede Gas. Consolidated Financial Statements included in
this report are presented as follows:
Laclede Group - Presents the consolidated financial
position, results of operations and cash flows of Laclede
Group after the October 1, 2001 restructuring, as well as
the consolidated financial position, results of operations
and cash flows of Laclede Gas prior to restructuring. The
consolidated financial position, results of operations and
cash flows of Laclede Gas Company immediately before the
restructuring are essentially identical to the consolidated
financial position, results of operations and cash flows of
Laclede Group immediately after the restructuring.
Laclede Gas - Presents the consolidated financial position,
results of operations and cash flows of Laclede Gas
throughout the reported periods, as well as the consolidated
financial position, results of operations and cash flows of
Laclede Gas' former subsidiaries prior to the October 1,
2001 restructuring. In conjunction with the October 1, 2001
restructuring, Laclede Gas dividended its equity in its
subsidiaries of $19.7 million to Laclede Group. Also as of
that same date, Laclede Gas cancelled its treasury stock of
$24.0 million.
These notes are an integral part of the accompanying consolidated
financial statements of Laclede Group and its subsidiaries, including
Laclede Gas. Except where otherwise noted, these Notes to
Consolidated Financial Statements apply equally to Laclede Group and
Laclede Gas. In the opinion of Laclede Group and Laclede Gas, this
interim report includes all adjustments (consisting of normal
recurring accruals) necessary for the fair presentation of the
results of operations for the periods presented. Certain prior-period
amounts have been reclassified to conform to current-period
presentation. This Form 10-Q should be read in conjunction with the
Notes to Financial Statements contained in the Company's Fiscal 2001
Form 10-K.
2.) The consolidated financial position, results of operations and cash
flows of Laclede Group are comprised primarily from the consolidated
financial position, results of operations and cash flows of Laclede
Gas. Laclede Gas is a natural gas distribution utility having a
material seasonal cycle. As a result, these interim statements of
income for Laclede Group and Laclede Gas are not necessarily
indicative of annual results nor representative of succeeding
quarters of the fiscal year. Due to the seasonal nature of the
business of Laclede Gas, earnings are typically concentrated in the
first six months of the fiscal year, which generally corresponds with
the heating season. Fiscal year earnings will likely be lower than
earnings during the first six months of the fiscal year, reflecting
typically lower summer gas sales volumes, partially offset by lower
operating expenses.
3.) Settlement of Laclede Gas' 2001 rate case resulted in implementation
of a general rate increase effective December 1, 2001, as approved by
the Missouri Public Service Commission (MoPSC or the Commission). The
settlement provided for an annual increase of about $12 million as
well as an additional $3 million annually to cover the cost of
initiating service to customers. The MoPSC also authorized the cost
of removing retired utility plant to be recovered as an expense
rather than being included in depreciation rates. Prior to December
1, 2001, the Utility's removal costs, less salvage, were charged to
accumulated depreciation. Pursuant to the settlement, Laclede Gas
12
instituted lower depreciation rates effective December 1, 2001 and
began expensing all removal costs, net of salvage, as incurred. These
costs are included in the Other Operation Expenses line on the income
statement. The settlement also provided for the continued deferral of
certain costs related to the Laclede Gas pipe replacement program as
well as authorizing the recovery of costs previously deferred under
that program. Previously deferred costs of $2,756,000 are being
recovered and amortized on a straight-line basis over a ten-year
period, without return on investment, effective with implementation
of the new rates, in addition to certain amounts authorized
previously.
4.) Prior to the restructuring on October 1, 2001, Laclede Gas'
consolidated financial statements included subsidiary tax
obligations. Subsequent to the restructuring on October 1, 2001,
Laclede Group's consolidated financial statements include the tax
obligations of Laclede Gas and its other subsidiaries. Net provisions
for income taxes were charged (credited) as follows during the
periods set forth below:
Laclede Group Laclede Gas
Three Months Ended Three Months Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
(Thousands of Dollars) (Thousands of Dollars)
Federal
Current $ 22,988 $ 19,836 $ 23,061 $ 19,836
Deferred (19,658) (10,778) (19,666) (10,778)
State and Local
Current 3,875 3,343 3,886 3,343
Deferred (3,269) (1,771) (3,270) (1,771)
---------------------- ----------------------
Total $ 3,936 $ 10,630 $ 4,011 $ 10,630
====================== ======================
5.) Under the Gas Supply Incentive Plan (GSIP) of Laclede Gas, the
Utility shared with its customers certain gains and losses related to
the acquisition and management of its gas supply assets. The
provisions of the GSIP extended through September 30, 2001. In
September 2001, the MoPSC ruled that the GSIP should be allowed to
expire. The Utility has requested clarification and rehearing, to
which the MoPSC has not yet responded. However, pursuant to the rate
case settlement, the MoPSC authorized Laclede Gas to retain all
income from releases of pipeline capacity effective December 1, 2001.
Income from releases of pipeline capacity was previously shared with
customers under the terms of the GSIP. Laclede Gas will continue to
retain all income resulting from sales outside of its traditional
service area, as previously authorized by the Commission. Income
related to releases of pipeline capacity and sales made outside its
traditional service area are volatile in nature and subject to market
conditions.
13
Three Months Ended
December 31,
-------------------------
2001 2000
---- ----
(Thousands of Dollars)
Pre-Tax Income - GSIP/Capacity Release $ 167 $2,367
Pre-Tax Income - Off System Sales 1,151 704
------ ------
Total Pre-Tax Income $1,318 $3,071
====== ======
6.) Laclede Gas and other subsidiaries of Laclede Group may engage in
related party transactions during the ordinary course of business.
All significant intercompany balances have been eliminated from the
consolidated financial statements of Laclede Group. In addition, all
such significant transactions between Laclede Gas and its affiliates
that occurred prior to the October 1, 2001 restructuring have
similarly been eliminated from the consolidated financial statements
of Laclede Gas.
In compliance with generally accepted accounting principles,
transactions between Laclede Gas and its affiliates that occurred
after the October 1, 2001 restructuring, as well as intercompany
balances remaining on Laclede Gas' balance sheet on December 31,
2001, have not been eliminated from the Laclede Gas consolidated
financial statements. These amounts are not disclosed on the face of
the Laclede Gas consolidated financial statements, since they are not
material.
Laclede Gas provides administrative and general support to affiliates
and has filed consolidated tax returns, which include affiliated
company tax obligations. All such costs are billed to the appropriate
affiliates and are reflected in accounts receivable on Laclede Gas'
Consolidated Balance Sheet. Laclede Gas may also, on occasion, borrow
funds from, or lend funds to, affiliated companies. At December 31,
2001, the Laclede Gas Consolidated Balance Sheet reflected a total of
$2.3 million of intercompany receivables and $13.6 million
intercompany payables.
7.) The regulated utility segment consists of the regulated operations of
Laclede Gas and is the core business segment of Laclede Group.
Laclede Gas is a public utility engaged in the retail distribution of
natural gas serving an area in eastern Missouri, with a population of
approximately 2.0 million, including the City of St. Louis, St. Louis
County, and parts of eight other counties. Non-regulated operations
include the transportation of liquid propane, gas marketing, the sale
of insurance related products, real estate development, the
compression of natural gas, and financial investments in other
enterprises. All of these subsidiaries became subsidiaries of Laclede
Group as a result of the restructuring on October 1, 2001.
14
Regulated
Gas All Other
(Thousands of Dollars) Utility (Non-Regulated) Eliminations Consolidated
--------------------------------------------------------------------------------------
Three Months Ended
December 31, 2001
Operating revenues $ 183,211 $11,433 $ - $ 194,644
Net income (loss) 7,860 (141) - 7,719
Total assets 1,021,627 32,637 (15,936) 1,038,328
Three Months Ended
December 31, 2000
Operating revenues $ 322,556 $22,469 $ - $ 345,025
Net income (loss) 18,085 410 - 18,495
Total assets 1,086,982 34,226 (19,616) 1,101,592
8.) As previously reported, Laclede Gas is subject to various
environmental laws and regulations that, to date, have not materially
affected its financial position and results of operations. Laclede
Gas is presently involved in the clean up or assessment of two former
manufactured gas plant sites, the Shrewsbury site and the City of St.
Louis site. As of December 31, 2001, Laclede Gas estimates overall
costs of the actions will be approximately $2,126,000 for the
Shrewsbury site and $590,000 for the City of St. Louis site. Through
that same date, Laclede Gas has paid $1,444,000 and reserved $682,000
for these actions relative to the Shrewsbury site and has paid
$505,000 and reserved $85,000 relative to the City of St. Louis site.
Any unforeseen conditions or additional actions required by
regulators may create additional costs. The Shrewsbury site actions
are nearing completion and any additional costs are not expected to
be significant. However, the scope of costs relative to the City of
St. Louis site are unknown and may be material. Costs incurred are
charged to expense or capitalized in accordance with generally
accepted accounting principles. A predetermined level of expense is
included in Laclede Gas' rates.
Laclede Gas has been advised that another former manufactured gas
plant site previously operated, but no longer owned by Laclede Gas,
is believed to contain gas plant waste that may require remediation.
Laclede Gas is working to determine the nature and extent of such
waste, if any, and Laclede Gas' responsibility, if any, for any
remediation costs. Laclede Gas is unable to estimate, at this time,
whether any such costs, if incurred, may or may not be material.
Laclede Gas is notifying its insurers of this development and that it
intends to seek reimbursement of any costs which it may incur at this
site. Also, such costs, if incurred, have typically been subject to
recovery in rates.
9.) The legal proceedings item for the Form 10-K for the year ended
September 30, 2001 included disclosure of a class action lawsuit
filed in August 2001 against Laclede Gas. At that time, Laclede Gas
expected a ruling on its Motion to Dismiss by December 31, 2001.
However, to date the court has not yet issued a ruling.
10.) On December 12, 2001, Laclede Group reached an agreement with
NiSource Inc. to acquire 100% of the stock of SM&P Utility Resources,
Inc., one of the nation's largest underground locating and marking
service businesses. The $43 million transaction is expected to close
in January 2002 and to be accretive to earnings beginning in fiscal
2002.
SM&P, a Carmel, Indiana-based company, performs over 10 million
locates a year and currently generates approximately $130 million in
revenues from the $1.3 billion facility-locating industry. Its 2,000
employees operate across 10 centrally located states - Illinois,
Indiana, Kansas, Michigan, Minnesota, Missouri, Ohio, Oklahoma, Texas
and Wisconsin.
15
Locators mark the placement of underground facilities for major
providers of natural gas, electric, water, cable TV and fiber optic
services so that construction work can be performed without damaging
buried facilities.
SM&P's revenue flow is expected to not only diversify Laclede Group's
earnings but also to be counter-seasonal to those of Laclede Gas.
This acquisition will be financed initially with conventional bank
debt. When the transaction is closed, SM&P will operate as a
subsidiary of Laclede Group and will remain headquartered in Indiana.
16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Certain words, such as "anticipate,"
"believe," estimate," "expect," "intend," "plan," "seek," and similar words
and expressions identify forward-looking statements that involve uncertainties
and risks. Future developments may not be in accordance with our expectations
or beliefs and the effect of future developments may not be those anticipated.
Among the factors that may cause results to differ materially from those
contemplated in any forward-looking statement are:
o weather conditions and catastrophic events;
o economic, competitive, political and regulatory conditions,
o legislative, regulatory and judicial mandates and decisions,
some of which may be retroactive, including those affecting
o allowed rates of return
o incentive regulation
o industry and rate structures
o purchased gas adjustment provisions
o franchise renewals
o environmental or safety matters
o taxes
o accounting standards;
o the results of litigation;
o retention, ability to attract, ability to collect from and
conservation efforts of customers,
o capital and energy commodity market conditions including the
ability to obtain funds for necessary capital expenditures and
the terms and conditions imposed for obtaining sufficient gas
supply, and
o employee workforce issues.
Readers are urged to consider the risks, uncertainties and other factors that
could affect our business as described in this report. All forward-looking
statements made in this report rely upon the safe harbor protections provided
under the Private Securities Litigation Reform Act of 1995. We do not, by
including this statement, assume any obligation to review or revise any
particular forward-looking statement in light of future events.
The Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and the combined notes thereto.
17
THE LACLEDE GROUP, INC.
RESULTS OF OPERATIONS
Quarter Ended December 31, 2001
The Laclede Group's earnings for the quarter ended December 31, 2001 were
almost solely derived from the regulated activities of its largest subsidiary,
Laclede Gas Company, Missouri's largest natural gas distribution company.
Those utility earnings are generated by the sale of heating energy, which is
heavily influenced by the weather. Temperatures in Laclede Gas' service area
during the first quarter of the current fiscal year were the third warmest on
record, and were 38% warmer than the same quarter last year, which was the
second coldest such quarter on record.
Laclede Group's earnings were $.41 per share for the quarter ended December
31, 2001 compared with $.98 per share for the quarter ended December 31, 2000.
In addition to the impact of lower gas sales resulting from warmer weather,
the earnings of Laclede Gas were also adversely affected by the Missouri
Public Service Commission's (MoPSC's) decision allowing the Utility's highly
successful Gas Supply Incentive Plan (GSIP) to expire on September 30, 2001,
despite the significant benefits derived for customers and shareholders during
the past five years the program was in effect. The reductions to earnings due
to the significantly warmer weather and expiration of the GSIP were only
slightly offset by the one-month benefit of the general rate increase put into
effect by Laclede Gas on December 1, 2001, as authorized by the MoPSC. The
rate increase provided for an annual increase of about $12 million as well as
an additional $3 million annually to cover the cost of initiating service to
customers.
Utility operating revenues for the quarter ended December 31, 2001 were $183.2
million, or $139.3 million less than the same period last year. The decrease
was primarily attributable to lower gas sales levels resulting from warmer
weather and reduced wholesale natural gas prices that are passed on to Utility
customers under the Purchased Gas Adjustment Clause. System therms sold and
transported decreased by 136.5 million therms, or 33.4%, below the quarter
ended December 31, 2000.
Laclede Group's non-utility operating revenues for this quarter decreased
$11.0 million, or 49.1%, from those revenues for the same quarter last year
mainly due to lower gas marketing sales by Laclede Energy Resources, Inc.
Laclede Gas' other operating revenues decreased $21.9 million reflecting
inclusion of subsidiary revenues in the presentation of last year's amounts
prior to the October 1, 2001 restructuring.
Utility operating expenses for the quarter ended December 31, 2001 decreased
$121.8 million from the same quarter last year. Natural and propane gas
expense decreased $116.5 million below last year's level primarily
attributable to lower volumes purchased for sendout due to the warmer weather
and decreased rates charged by suppliers. Other operation and maintenance
expenses decreased $1.0 million, or 3.0%, primarily due to a lower provision
for uncollectible accounts and reduced distribution and maintenance expenses,
largely offset by lower net pension credits, higher wage rates, increased
insurance premiums and costs to remove retired utility plant. Depreciation and
amortization expense increased $.1 million primarily due to the net effect of
additional depreciable property and lower depreciation rates instituted
December 1, 2001 (reflecting elimination of a provision for removal costs), as
authorized by the MoPSC. Taxes, other than income, decreased $4.4 million, or
25.4%, primarily due to lower gross receipts taxes (reflecting the decreased
revenues).
Laclede Group's non-utility operating expenses decreased $10.2 million this
quarter mainly due to lower gas expense associated with gas marketing sales by
Laclede Energy Resources, Inc. Laclede Gas' other operating expenses decreased
$21.3 million reflecting inclusion of subsidiary expenses in the presentation
of last year's amounts prior to the October 1, 2001 restructuring.
The $1.0 million decrease in interest expense was primarily due to decreased
short-term interest expense (reflecting lower rates and reduced average
borrowings) partially offset by higher interest on long-term debt resulting
from the issuance of $50 million of 6 5/8% first mortgage bonds in June 2001.
The decrease in income taxes is mainly due to lower pre-tax income.
18
Liquidity and Capital Resources
- -------------------------------
The Company's short-term borrowing requirements typically peak during colder
months when Laclede Gas borrows money to cover the gap between when it
purchases its natural gas and when its customers pay for that gas. These
short-term cash requirements have traditionally been met through the sale of
commercial paper supported by lines of credit with banks. Laclede Gas
currently has a primary line of credit totaling $135 million extending through
September 30, 2002. Laclede Gas also has various supplemental lines of credit
that provide for aggregate credit lines of $170 million through January 31,
2002 and $155 million through September 30, 2002. During fiscal 2002 to date,
the Utility sold commercial paper aggregating to a maximum of $136.1 million
at any one time, but did not borrow from the banks under the aforementioned
lines of credit. Short-term borrowings amounted to $133.8 million at December
31, 2001.
Construction expenditures, all of which were incurred by the Utility, were
$11.3 million for the quarter ended December 31, 2001, compared with $11.6
million for the same period last year.
Consolidated capitalization at December 31, 2001 increased $1.1 million since
September 30, 2001 and consisted of 50.3% Laclede Group common stock equity,
.2% Laclede Gas preferred stock equity and 49.5% Laclede Gas long-term debt.
The seasonal nature of Laclede Gas' sales affects the comparison of certain
balance sheet items at December 31, 2001 and at September 30, 2001 such as
Accounts Receivable - Net, Gas Stored Underground, Notes Payable, Accounts
Payable, Regulatory Liabilities, and Advance and Delayed Customer Billings.
Market Risk
- -----------
The management of Laclede Gas has adopted a risk management policy that
provides for the purchase of natural gas financial instruments for the purpose
of managing price risk associated with purchasing natural gas on behalf of its
customers. This policy prohibits speculation. Laclede Gas believes that the
costs of purchasing these instruments, and any financial gains and losses
related thereto, are allowed to be passed on to the Utility's customers
through the operation of its Purchased Gas Adjustment Clause, through which
the MoPSC provides for the Utility to recover gas supply costs. Accordingly,
there is no earnings impact as a result of the use of these financial
instruments. At December 31, 2001, Laclede Gas held a combination of futures
contracts and costless collars, extending through March 2002, under the
policy. The volumes covered and the costs of such instruments held under the
policy are not material as of that date.
Environmental Matters
- ---------------------
As previously reported, Laclede Gas is subject to various environmental laws
and regulations that, to date, have not materially affected its financial
position and results of operations. Laclede Gas is presently involved in the
clean up or assessment of two former manufactured gas plant sites, the
Shrewsbury site and the City of St. Louis site. As of December 31, 2001,
Laclede Gas estimates overall costs of the actions will be approximately
$2,126,000 for the Shrewsbury site and $590,000 for the City of St. Louis
site. Through that same date, Laclede Gas has paid $1,444,000 and reserved
$682,000 for these actions relative to the Shrewsbury site and has paid
$505,000 and reserved $85,000 relative to the City of St. Louis site. Any
unforeseen conditions or additional actions required by regulators may create
additional costs. The Shrewsbury site actions are nearing completion and any
additional costs are not expected to be significant. However, the scope of
costs relative to the City of St. Louis site are unknown and may be material.
Costs incurred are charged to expense or capitalized in accordance with
generally accepted accounting principles. A predetermined level of expense is
included in Laclede Gas' rates.
Laclede Gas has been advised that another former manufactured gas plant site
previously operated, but no longer owned by Laclede Gas, is believed to
contain gas plant waste that may require remediation. Laclede Gas is working
to determine the nature and extent of such waste, if any, and Laclede Gas'
responsibility, if
19
any, for any remediation costs. Laclede Gas is unable to estimate, at this
time, whether any such costs, if incurred, may or may not be material. Laclede
Gas is notifying its insurers of this development and that it intends to seek
reimbursement of any costs which it may incur at this site. Also, such costs,
if incurred, have typically been subject to recovery in rates.
Other Matters
- -------------
On December 12, 2001, Laclede Group reached an agreement with NiSource Inc. to
acquire 100% of the stock of SM&P Utility Resources, Inc., one of the nation's
largest underground locating and marking service businesses. The $43 million
transaction is expected to close in January 2002 and to be accretive to
earnings beginning in fiscal 2002.
SM&P, a Carmel, Indiana-based company, performs over 10 million locates a year
and currently generates approximately $130 million in revenues from the $1.3
billion facility-locating industry. Its 2,000 employees operate across 10
centrally located states - Illinois, Indiana, Kansas, Michigan, Minnesota,
Missouri, Ohio, Oklahoma, Texas and Wisconsin.
Locators mark the placement of underground facilities for major providers of
natural gas, electric, water, cable TV and fiber optic services so that
construction work can be performed without damaging buried facilities.
SM&P's revenue flow is expected to not only diversify Laclede Group's earnings
but also to be counter-seasonal to those of Laclede Gas. This acquisition will
be financed initially with conventional bank debt. When the transaction is
closed, SM&P will operate as a subsidiary of Laclede Group and will remain
headquartered in Indiana.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of Laclede Gas' environmental matters see Note 8 to
the unaudited Notes to Consolidated Financial Statements, page 15.
The legal proceedings item for the Form 10-K for the year ended
September 30, 2001 included disclosure of a class action lawsuit filed in
August 2001 against Laclede Gas. At that time, Laclede Gas expected a ruling
on its Motion to Dismiss by December 31, 2001. However, to date the court has
not yet issued a ruling.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the quarter, Laclede Group filed five reports on Form 8-K:
1. Form 8-K with report date of October 1, 2001, reporting under Item 5
the reorganization of Laclede Gas Company effective October 1, 2001
whereby Laclede Group became the holding company for Laclede Gas.
2. Form 8-K with report date of October 25, 2001 reporting under Item 5
the issuance of a press release, attached as exhibit 1 to the report,
announcing the financial results for the fiscal year ended September
30, 2001.
3. Form 8-K with a report date of December 12, 2001 reporting under Item
5 the issuance of a press release, attached as exhibit 1 to the
report, announcing the execution of an agreement with NiSource, Inc.
to acquire 100% of the stock of SM&P Utility Resources, Inc.
4. Form 8-K with a report date of December 13, 2001 reporting under Item
9 the issuance of a press release, attached as exhibit 1 to the
report, announcing a conference call on December 14, 2001 to discuss
its agreement to purchase SM&P Utility Resources, Inc.
5. Form 8-K with a report date of December 14, 2001 reporting under Item
9 the issuance of a press release, attached as exhibit 1 to the
report, noting that during the conference call on December 14, 2001
management would review the company's strategic direction and
management's current earnings expectations for fiscal year 2002.
21
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
The Laclede Group, Inc.
Laclede Gas Company
(Co-Registrants)
By: /s/ Gerald T. McNeive Jr.
Dated: January 24, 2002 --------------------------
---------------- Gerald T. McNeive Jr.
Senior Vice President
(Authorized Signatory and
Chief Financial Officer)
22