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 March 31, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission Exact Name of Registrant as States of I.R.S.
File Number Specified in its Charter and Incorporation Employer
Principal Office Address and Identification
Telephone Number 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 X No
--- ---
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 April 24, 2002
- ---------- --------------------------- --------------
The Laclede Group, Inc. Common Stock ($1.00 Par Value) 18,877,987
Laclede Gas Company Common Stock ($1.00 Par Value) 100 (100% owned by
Laclede Group)
1
TABLE OF CONTENTS Page No.
--------
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 23
Item 4 Submission of Matter to a Vote of Security Holders 23
Item 6 Exhibits and Other Reports on Form 8-K 23
SIGNATURES 24
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 are 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 Six Months Ended
March 31, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Operating Revenues:
Utility operating revenues $256,802 $417,392 $440,013 $739,948
Non-utility operating revenues 30,661 25,350 42,094 47,819
---------------------------------------------------
Total Operating Revenues 287,463 442,742 482,107 787,767
---------------------------------------------------
Operating Expenses:
Utility operating expenses
Natural and propane gas 156,115 310,823 271,709 542,913
Other operation expenses 28,804 26,808 55,080 53,833
Maintenance 4,318 5,026 8,632 9,546
Depreciation and amortization 6,053 6,559 12,635 13,043
Taxes, other than income taxes 18,437 27,981 31,336 45,277
---------------------------------------------------
Total utility operating expenses 213,727 377,197 379,392 664,612
Non-utility operating expenses 33,277 24,573 44,940 46,436
---------------------------------------------------
Total Operating Expenses 247,004 401,770 424,332 711,048
---------------------------------------------------
Operating Income 40,459 40,972 57,775 76,719
Other Income and Income Deductions - Net (175) 564 749 1,556
---------------------------------------------------
Income Before Interest and Income Taxes 40,284 41,536 58,524 78,275
---------------------------------------------------
Interest Charges:
Interest on long-term debt 5,205 4,377 10,410 8,754
Other interest charges 1,380 3,504 2,739 6,719
---------------------------------------------------
Total Interest Charges 6,585 7,881 13,149 15,473
---------------------------------------------------
Dividends on Preferred Stock - Laclede Gas 15 22 36 44
---------------------------------------------------
Income Before Income Taxes 33,684 33,633 45,339 62,758
Income Taxes 12,946 12,948 16,882 23,578
---------------------------------------------------
Net Income Applicable to Common Stock $ 20,738 $ 20,685 $ 28,457 $ 39,180
===================================================
Average Number of Common Shares Outstanding 18,878 18,878 18,878 18,878
Earnings Per Share of Common Stock $1.10 $1.10 $1.51 $2.08
Dividends Declared Per Share of Common Stock $.335 $.335 $.67 $.67
See notes to consolidated financial statements.
4
THE LACLEDE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Mar. 31 Sept. 30
2002 2001
------- --------
(Thousands of Dollars)
(UNAUDITED)
ASSETS
Utility Plant $ 968,963 $949,775
Less: Accumulated depreciation and amortization 389,061 380,135
-------------------------
Net Utility Plant 579,902 569,640
-------------------------
Other Property and Investments 69,260 32,893
-------------------------
Current Assets:
Cash and cash equivalents
15,588 3,223
Accounts receivable 134,944 87,707
Less: Allowances for doubtful accounts (6,089) (9,216)
Materials, supplies, and merchandise at avg. cost 5,828 5,393
Natural gas stored underground for current use at LIFO cost 20,209 76,661
Propane gas for current use at FIFO cost 14,724 14,213
Prepayments 4,699 3,999
Delayed customer billings 12,802 -
Deferred income taxes 6,738 8,556
-------------------------
Total Current Assets 209,443 190,536
-------------------------
Deferred Charges:
Prepaid pension cost 115,247 110,475
Regulatory assets 70,660 68,599
Other 4,645 3,767
-------------------------
Total deferred charges 190,552 182,841
-------------------------
Total Assets $1,049,157 $975,910
=========================
See notes to consolidated financial statements.
5
THE LACLEDE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
Mar. 31 Sept. 30
2002 2001
------- --------
(Thousands of Dollars)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock (Mar. 31, 2002, 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 221,321 205,512
Treasury stock, at cost (1,865,638 shares held Sept. 30, 2001) - (24,017)
----------------------------
Total common stock equity 303,900 288,085
Redeemable preferred stock - Laclede Gas 1,266 1,588
Long-term debt (less sinking fund requirements) - Laclede Gas 284,502 284,459
----------------------------
Total Capitalization 589,668 574,132
----------------------------
Current Liabilities:
Notes payable 118,400 117,050
Accounts payable 39,802 32,087
Advance customer billings - 11,679
Current portion of preferred stock - 79
Taxes accrued 29,044 14,912
Unamortized purchased gas adjustment 2,721 9,026
Other 45,260 32,863
----------------------------
Total Current Liabilities 235,227 217,696
----------------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 131,458 142,515
Unamortized investment tax credits 5,789 5,948
Pension and postretirement benefit costs 21,009 15,847
Regulatory liabilities 46,274 304
Other 19,732 19,468
----------------------------
Total Deferred Credits and Other Liabilities 224,262 184,082
----------------------------
Total Capitalization and Liabilities $1,049,157 $975,910
============================
See notes to consolidated financial statements.
6
THE LACLEDE GROUP, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31,
2002 2001
---- ----
(Thousands of Dollars)
Operating Activities:
Net Income $ 28,457 $ 39,180
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 13,153 13,148
Deferred income taxes and investment
tax credits (14,341) (5,825)
Dividends on preferred stock - Laclede Gas 36 44
Other - net 393 (50)
Changes in assets and liabilities:
Accounts receivable - net (35,681) (127,271)
Unamortized purchased gas adjustments (6,305) 10,684
Deferred purchased gas costs 48,197 17,115
Delayed customer billings - net (24,481) (78,080)
Accounts payable 4,832 10,546
Taxes accrued 15,040 17,226
Natural gas stored underground 56,452 75,757
Other assets and liabilities 318 (1,106)
-------------------------
Net cash provided by (used in) operating activities $ 86,070 $ (28,632)
-------------------------
Investing Activities:
Construction expenditures (22,727) (21,214)
Investments - non-utility (39,092) (286)
Employee benefit trusts 125 (925)
Other (281) (1,151)
-------------------------
Net cash used in investing activities $(61,975) $ (23,576)
-------------------------
Financing Activities:
Issuance (Repayment) of short-term debt - net 1,350 68,700
Dividends paid (12,685) (12,692)
Preferred stock reacquired and other (395) (27)
-------------------------
Net cash provided by (used in) financing activities $(11,730) $ 55,981
-------------------------
Net Increase in Cash and Cash Equivalents $ 12,365 $ 3,773
Cash and Cash Equivalents at Beg. of Period 3,223 4,215
-------------------------
Cash and Cash Equivalents at End of Period $ 15,588 $ 7,988
=========================
Supplemental Disclosure of Cash Paid
During the Period for:
Interest $ 10,863 $ 14,984
Income taxes 12,634 11,320
See notes to consolidated financial statements.
7
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
March 31, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Operating Revenues:
Utility operating revenues $256,802 $417,392 $440,013 $739,948
Other operating revenues 596 25,350 1,203 47,819
---------------------------------------------------
Total Operating Revenues 257,398 442,742 441,216 787,767
---------------------------------------------------
Operating Expenses:
Utility operating expenses
Natural and propane gas 156,115 310,823 271,709 542,913
Other operation expenses 28,804 26,808 55,080 53,833
Maintenance 4,318 5,026 8,632 9,546
Depreciation and amortization 6,053 6,559 12,635 13,043
Taxes, other than income taxes 18,437 27,981 31,336 45,277
---------------------------------------------------
Total utility operating expenses 213,727 377,197 379,392 664,612
Other operating expenses 605 24,573 1,179 46,436
---------------------------------------------------
Total Operating Expenses 214,332 401,770 380,571 711,048
---------------------------------------------------
Operating Income 43,066 40,972 60,645 76,719
Other Income and Income Deductions - Net (208) 564 716 1,556
---------------------------------------------------
Income Before Interest and Income Taxes 42,858 41,536 61,361 78,275
---------------------------------------------------
Interest Charges:
Interest on long-term debt 5,205 4,377 10,410 8,754
Other interest charges 1,203 3,504 2,610 6,719
---------------------------------------------------
Total Interest Charges 6,408 7,881 13,020 15,473
---------------------------------------------------
Income Before Income Taxes 36,450 33,655 48,341 62,802
Income Taxes 13,869 12,948 17,880 23,578
---------------------------------------------------
Net Income 22,581 20,707 30,461 39,224
Dividends on Preferred Stock - Laclede Gas 15 22 36 44
---------------------------------------------------
Earnings Applicable to Common Stock $ 22,566 $ 20,685 $ 30,425 $ 39,180
===================================================
See notes to consolidated financial statements.
8
LACLEDE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
Mar. 31 Sept. 30
2002 2001
------- --------
(Thousands of Dollars)
(UNAUDITED)
ASSETS
Utility Plant $968,963 $949,775
Less: Accumulated depreciation and amortization 389,061 380,135
-----------------------
Net Utility Plant 579,902 569,640
-----------------------
Other Property and Investments 25,672 32,893
-----------------------
Current Assets:
Cash and cash equivalents 3,620 3,223
Accounts receivable 117,048 87,707
Less: Allowances for doubtful accounts (5,820) (9,216)
Materials, supplies, and merchandise at avg. cost 5,791 5,393
Natural gas stored underground for current use at LIFO cost 20,194 76,661
Propane gas for current use at FIFO cost 14,724 14,213
Prepayments and other 4,063 3,999
Delayed customer billings 12,802 -
Deferred income taxes 6,738 8,556
-----------------------
Total Current Assets 179,160 190,536
-----------------------
Deferred Charges:
Prepaid pension cost 115,247 110,475
Regulatory assets 70,660 68,599
Other 4,601 3,767
-----------------------
Total deferred charges 190,508 182,841
-----------------------
Total Assets $975,242 $975,910
=======================
See notes to consolidated financial statements.
9
LACLEDE GAS COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
Mar. 31 Sept. 30
2002 2001
------- --------
(Thousands of Dollars)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock and Paid-in capital (Mar. 31, 2002, 100 and
Sept. 30, 2001, 20,743,625 shares issued) $ 82,579 $106,590
Retained earnings 203,546 205,512
Treasury stock, at cost (1,865,638 shares held Sept. 30, 2001) - (24,017)
--------------------------
Total common stock equity 286,125 288,085
Redeemable preferred stock - Laclede Gas 1,266 1,588
Long-term debt (less sinking fund requirements) - Laclede Gas 284,502 284,459
--------------------------
Total Capitalization 571,893 574,132
--------------------------
Current Liabilities:
Notes payable 75,600 117,050
Accounts payable 32,435 32,087
Advance customer billings - 11,679
Current portion of preferred stock - 79
Taxes accrued 31,323 14,912
Unamortized purchased gas adjustment 2,721 9,026
Other 38,686 32,863
--------------------------
Total Current Liabilities 180,765 217,696
--------------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 130,278 142,515
Unamortized investment tax credits 5,789 5,948
Pension and postretirement benefit costs 21,009 15,847
Regulatory liabilities 46,274 304
Other 19,234 19,468
--------------------------
Total Deferred Credits and Other Liabilities 222,584 184,082
--------------------------
Total Capitalization and Liabilities $975,242 $975,910
==========================
See notes to consolidated financial statements.
10
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31,
2002 2001
---- ----
(Thousands of Dollars)
Operating Activities:
Net Income $ 30,461 $ 39,224
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 12,635 13,148
Deferred income taxes and investment
tax credits (14,359) (5,825)
Other - net 393 (50)
Changes in assets and liabilities:
Accounts receivable - net (34,497) (127,271)
Unamortized purchased gas adjustments (6,305) 10,684
Deferred purchased gas costs 48,197 17,115
Delayed customer billings - net (24,481) (78,080)
Accounts payable (358) 10,546
Taxes accrued 15,761 17,226
Natural gas stored underground 56,436 75,757
Other assets and liabilities (5,802) (1,106)
-------------------------
Net cash provided by (used in) operating activities $ 78,081 $ (28,632)
-------------------------
Investing Activities:
Construction expenditures (22,273) (21,214)
Investments - non-utility (286) (286)
Employee benefit trusts 125 (925)
Other (720) (1,151)
-------------------------
Net cash used in investing activities $(23,154) $ (23,576)
-------------------------
Financing Activities:
Issuance of short-term debt - net (41,450) 68,700
Dividends paid (12,685) (12,692)
Preferred stock reacquired and other (395) (27)
-------------------------
Net cash provided by (used in) financing activities $(54,530) $ 55,981
-------------------------
Net Increase in Cash and Cash Equivalents $ 397 $ 3,773
Cash and Cash Equivalents at Beg. of Period 3,223 4,215
-------------------------
Cash and Cash Equivalents at End of Period $ 3,620 $ 7,988
=========================
Supplemental Disclosure of Cash Paid
During the Period for:
Interest $ 10,863 $ 14,984
Income taxes 12,284 11,320
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.) On January 28, 2002, Laclede Group completed its acquisition from
NiSource, Inc. of 100% of the stock of SM&P Utility Resources, Inc.
(SM&P), one of the nation's largest underground locating and
marking service businesses. SM&P, a Carmel, Indiana-based company,
performs over 10 million locates a year and currently generates
approximately $130 million in revenues annually 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 telephone, natural gas, electric, water, cable TV and
fiber optic services so that construction work can be performed
without damaging buried facilities. As a result of the acquisition,
SM&P's earnings flow will not only diversify Laclede Group's
earnings but also will be counter-seasonal to those of Laclede Gas.
This acquisition was financed initially with conventional bank debt
totaling $42.8 million. SM&P is a subsidiary of Laclede Group and
will remain headquartered in Indiana.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition.
The allocation of the purchase price included in the consolidated
statement of financial position is preliminary and may be revised
up to one year from the date of acquisition due to refinements in
the estimated fair value of the assets acquired and liabilities
assumed. The goodwill recognized in this transaction is expected to
be fully deductible for tax purposes.
12
At January 28, 2002
-------------------
(Thousands of Dollars)
Current assets $21,034
Property, plant, and equipment 7,157
Goodwill 27,997
-------
Total assets acquired $56,188
-------
Current liabilities $13,067
-------
Total liabilities assumed $13,067
-------
Net assets acquired $43,121
=======
The results of SM&P's operations since January 28, 2002 have been
included in the consolidated financial statements. Goodwill has
been included in Other Property and Investments on the consolidated
balance sheets. SM&P's earnings are impacted by trends in the
construction industry.
3.) In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," which requires all business combinations in the scope
of the Statement to be accounted for using the purchase method.
The provisions of this Statement apply to all business combinations
initiated after June 30, 2001. The Company has adopted the provisions
of SFAS No. 141 with the acquisition of SM&P. As required by SFAS
No. 141, the goodwill for SM&P is being accounted for consistent
with the provisions of SFAS No. 142, "Goodwill and Other Intangible
Assets."
4.) 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 or 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. The Utility typically experiences losses over the
last half of its fiscal year. This seasonal effect on Laclede Group
is expected to be tempered somewhat by the addition of SM&P, whose
operations tend to be counter-seasonal to those of Laclede Gas.
5.) 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
when incurred 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 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.
6.) 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:
13
Laclede Group Laclede Gas
------------------------------------------- -------------------------------------------
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
------------------- ----------------- ------------------ -------------------
2002 2001 2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ---- ---- ----
(Thousands of Dollars) (Thousands of Dollars)
Federal
Current $ 3,623 $ 5,398 $ 26,611 $25,234 $ 4,571 $ 5,398 $ 27,632 $25,234
Deferred 7,311 5,710 (12,347) (5,067) 7,303 5,710 (12,363) (5,067)
State and Local
Current 736 826 4,611 4,169 721 826 4,607 4,169
Deferred 1,276 1,014 (1,993) (758) 1,274 1,014 (1,996) (758)
--------------------------------------------- ---------------------------------------------
Total $12,946 $12,948 $ 16,882 $23,578 $13,869 $12,948 $ 17,880 $23,578
============================================= =============================================
7.) 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 requested clarification and rehearing. On February 19, 2002,
the MoPSC denied the Utility's application for rehearing. Laclede
Gas has filed a petition for judicial review of the MoPSC's decision
with the Cole County Circuit Court, together with a motion requesting
that the MoPSC's decision be stayed. That review is still pending.
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.
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----
(Thousands of Dollars)
Pre-Tax Income - GSIP/Capacity Release $ 411 $1,505 $ 580 $3,812
Pre-Tax Income - Off System Sales 1,954 65 3,103 775
----------------------- -----------------------
Total Pre-Tax Income $2,365 $1,570 $3,683 $4,587
======================= =======================
8.) 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 March 31, 2002,
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 March 31, 2002, the Laclede Gas
14
Consolidated Balance Sheet reflected a total of $2.7 million of
intercompany receivables and $5.8 million intercompany payables.
9.) 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. These operations are conducted through six
wholly-owned subsidiaries. All of these subsidiaries became
subsidiaries of Laclede Group as a result of the restructuring on
October 1, 2001. On January 28, 2002, Laclede Group acquired 100%
of the stock of SM&P, an underground locating and marking business
operating in 10 Midwestern states. The results of SM&P's operations
since January 28, 2002 are included in the consolidated financial
statements.
Regulated
Gas Utility All Other
(Thousands of Dollars) Utility Services* (Non-Regulated) Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------
Three Months Ended
March 31, 2002
Operating revenues $ 256,802 $15,274 $15,387 $ - $ 287,463
Net income (loss) 22,550 (2,033) 221 - 20,738
Total assets 973,795 53,537 32,985 (11,160) 1,049,157
Six Months Ended
March 31, 2002
Operating revenues $ 440,013 $15,274 $26,820 $ - $ 482,107
Net income (loss) 30,410 (2,033) 80 - 28,457
Total assets 973,795 53,537 32,985 (11,160) 1,049,157
Three Months Ended
March 31, 2001
Operating revenues $ 417,392 $ - $25,350 $ - $ 442,742
Net income (loss) 20,339 - 346 - 20,685
Total assets 1,051,606 - 31,822 (19,279) 1,064,149
Six Months Ended
March 31, 2001
Operating revenues $ 739,948 $ - $47,819 $ - $ 787,767
Net income (loss) 38,424 - 756 - 39,180
Total assets 1,051,606 - 31,822 (19,279) 1,064,149
<FN>
*Includes the results of SM&P's operations since January 28, 2002.
10.) 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
formal assessment of two former manufactured gas plant sites, the
Shrewsbury site and the Carondelet City of St. Louis site.
With regard to the Shrewsbury site, Laclede Gas and state and
federal environmental regulators have agreed upon certain actions
and those actions are nearing completion. Laclede Gas currently
estimates the overall costs of these actions will be approximately
$2,284,000. As of March 31, 2002, Laclede Gas has paid $1,898,000
and reserved $386,000 for these actions. If regulators require
additional actions, Laclede Gas will incur additional costs.
15
The Carondelet City of St. Louis site was placed into the Missouri
Voluntary Cleanup Program (VCP). The VCP provides opportunities to
minimize the scope and cost of site cleanup while maximizing
possibilities for site development. The City of St. Louis is
presently seeking developers and end-users for this site. If the
City is unsuccessful, Laclede will submit a Remedial Action Plan
(RAP) and work with the City to find a developer to implement the
RAP and develop the site. Laclede Gas currently estimates that the
cost of the site investigations, agency oversight and related legal
and engineering consulting may be approximately $590,000.
Currently, Laclede Gas has paid $509,000 and reserved an additional
$81,000. Laclede has requested that other former site owners and
operators participate in the cost of any site investigation. One
former owner and operator agreed to participate in these costs and
has reimbursed Laclede Gas to date for $159,000. Laclede Gas
anticipates additional reimbursement from this party of
approximately $69,000. Laclede Gas plans to seek proportionate
reimbursement of all costs relative to this site from other
potentially responsible parties if practicable.
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 a third 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.
While the scope of costs relative to the Shrewsbury site will not
be significant, the scope of costs relative to the other sites are
unknown and may be material. Laclede Gas has notified its insurers
that it intends to seek reimbursement of its costs at the sites.
The majority of insurers have reserved their rights. While some of
the insurers have denied coverage, Laclede Gas continues to seek
reimbursement from them. With regard to the Shrewsbury site,
denials of coverage will not have any significant impact on the
financial position and results of operations of Laclede Gas. With
regard to the other sites, since the scope of costs relative to
these sites are unknown and may be material, denials of coverage
may have a material impact on the financial position and results of
operations of Laclede Gas. Such costs, if incurred, have typically
been subject to recovery in rates.
11.) 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. Laclede Gas filed a
motion to dismiss the lawsuit that was granted by the Court on
February 22, 2002. The plaintiff did not file an amended petition
within the time granted by the Court but filed an appeal on April
3, 2002. The Utility will continue to contest this action.
12.) On March 15, 2002, the Staff of the MoPSC filed its recommendation
in the proceeding established to review Laclede Gas' gas costs for
fiscal 2000. In its recommendation, the Staff has proposed to
disallow the recovery of approximately $2.6 million in gas costs
on the alleged grounds that Laclede Gas has slightly more
transportation capacity than it needs to serve its customers.
Laclede Gas believes that staff's recommendation is without merit
and unsupported by the facts and intends to vigorously oppose the
adjustment in proceedings before the MoPSC.
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 March 31, 2002
Laclede Group's earnings for the quarter ended March 31, 2002 were primarily
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 quarter ended March 31, 2002 were 15% warmer than the same quarter last
year.
Laclede Group's earnings were $1.10 per share for the quarter ended March
31, 2002, the same as the earnings per share reported for the quarter ended
March 31, 2001. The earnings of Laclede Gas improved over the same quarter
last year primarily due to: the impact of a $15 million annual general rate
increase (implemented December 1, 2001), nearly $4.9 million of income
produced by the Utility's Price Stabilization Program (PSP) and higher
income from off system sales. Laclede Gas had previously offered to include
the aforementioned PSP revenues in a continuation of the program, but the
program was allowed to expire on March 31, 2002. These factors were
partially offset by the impact of lower gas sales resulting from the warmer
weather, and the adverse effect of 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 increase in the earnings of
Laclede Gas was essentially offset by an expected seasonal loss recorded
this quarter from the operations of Laclede Group's newly-acquired
subsidiary, SM&P Utility Resources, Inc. (SM&P), a wholly-owned facility
locating and marking business acquired on January 28, 2002. SM&P `s earnings
are impacted by trends in the construction industry and as a result SM&P
normally experiences losses during the slow construction season in the
winter months. However, the acquisition of SM&P is expected to be accretive
to earnings for the entire fiscal year.
Utility operating revenues for the quarter ended March 31, 2002 were $256.8
million, or $160.6 million less than the same period last year. The decrease
was primarily attributable to reduced wholesale natural gas prices that are
passed on to Utility customers, subject to prudence review, under the
Purchased Gas Adjustment (PGA) Clause and lower gas sales levels resulting
from the warmer weather. These factors were partially offset by higher off
system sales revenues and the general rate increase. System therms sold and
transported decreased by 37.2 million therms, or 8.1%, below the quarter
ended March 31, 2001.
Laclede Group's non-utility operating revenues for this quarter increased
$5.3 million, or 21.0%, from those revenues for the same quarter last year
mainly due to additional revenues recorded this year resulting from the
recent acquisition of SM&P, partially offset by lower gas marketing sales by
Laclede Energy Resources, Inc. Laclede Gas' other operating revenues
decreased $24.8 million reflecting exclusion of subsidiary revenues in the
presentation of this year's amounts subsequent to the October 1, 2001
restructuring.
Utility operating expenses for the quarter ended March 31, 2002 decreased
$163.5 million from the same quarter last year. Natural and propane gas
expense decreased $154.7 million below last year's level primarily due to
decreased rates charged by suppliers and lower volumes purchased for sendout
arising from warmer weather, partially offset by higher off system gas
expense. Other operation and maintenance expenses increased $1.3 million, or
4.0%, primarily due to higher group insurance charges, lower net pension
credits, higher wage rates, increased insurance premiums and costs to remove
retired utility plant, partially offset by lower maintenance expenses.
Depreciation and amortization expense decreased $.5 million primarily due to
the net effect of lower depreciation rates instituted December 1, 2001
(reflecting elimination of a provision for removal costs), as authorized by
the MoPSC, partially offset by additional depreciable property. Taxes, other
than income, decreased $9.5 million, or 34.1%, primarily due to lower gross
receipts taxes (reflecting the decreased revenues).
Laclede Group's non-utility operating expenses increased $8.7 million this
quarter mainly due to the operating expenses of recently-acquired SM&P,
partially offset by lower gas expense associated with gas marketing sales by
Laclede Energy Resources, Inc. Laclede Gas' other operating expenses
decreased $24.0 million reflecting exclusion of subsidiary expenses in the
presentation of this year's amounts subsequent to the October 1, 2001
restructuring.
18
The $1.3 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.
Six Months Ended March 31, 2002
Due to the seasonal nature of Laclede Gas' business, earnings are typically
concentrated in the first six months of the fiscal year, which generally
corresponds with the heating season. The Utility typically experiences
losses over the last half of its fiscal year. This seasonal effect on
Laclede Group is expected to be tempered somewhat by the acquisition of SM&P
on January 28, 2002, whose operations tend to be counter-seasonal to those
of Laclede Gas.
Laclede Group's earnings were $1.51 per share for the six months ended
March 31, 2002 compared with $2.08 per share for the same period last year.
Earnings were primarily comprised of those of Laclede Gas, which were
adversely affected by lower gas sales arising from temperatures in its
service area that were significantly warmer than last year and the
expiration of the GSIP. Temperatures for the six-month period ended
March 31, 2002 were 16% warmer than normal and 26% warmer than the same period
last year. These reductions to earnings were only partially offset by the
benefit of the general rate increase put into effect by Laclede Gas on
December 1, 2001, the PSP income recorded this year as previously discussed,
and higher income from off system sales. Laclede Group's earnings were also
adversely impacted by normal operating losses recorded by SM&P in the winter
months since its acquisition on January 28, 2002 and lower income recorded
by Laclede Energy Resources, Inc.
Utility operating revenues for the six months ended March 31, 2002 were
$440.0 million, or $299.9 million less than the same period last year. The
decrease was primarily attributable to reduced wholesale natural gas prices
that are passed on to Utility customers, subject to prudence review, under
the PGA Clause and lower gas sales levels resulting from the warmer weather.
These factors were partially offset by higher off system sales and the
general rate increase. System therms sold and transported decreased by
173.7 million therms, or 20.0%, below the six months ended March 31, 2001.
Laclede Group's non-utility operating revenues for this period decreased
$5.7 million, or 12.0%, from those revenues for the same period last year
mainly attributable to lower gas marketing sales by Laclede Energy
Resources, Inc., partially offset by revenues recorded this year due to
the recent acquisition of SM&P. Laclede Gas' other operating revenues
decreased $46.6 million reflecting exclusion of subsidiary revenues in the
presentation of this year's amounts subsequent to the October 1, 2001
restructuring.
Utility operating expenses for the six months ended March 31, 2002 decreased
$285.2 million from the same period last year. Natural and propane gas
expense decreased $271.2 million below last year's level primarily
attributable to decreased rates charged by suppliers and lower volumes
purchased for sendout due to the warmer weather, partially offset by higher
off system gas expense. Other operation and maintenance expenses increased
$.3 million, or .5%, primarily due to lower net pension credits, higher
wage rates, increased insurance premiums, higher group insurance charges,
and costs to remove retired utility plant, largely offset by a lower
provision for uncollectible accounts and reduced distribution and
maintenance charges. Depreciation and amortization expense decreased
$.4 million primarily due to the net effect of lower depreciation rates
instituted December 1, 2001 (reflecting elimination of a provision for
removal costs), as authorized by the MoPSC and increased depreciable
property. Taxes, other than income, decreased $13.9 million, or 30.8%,
primarily due to lower gross receipts taxes (reflecting the decreased
revenues).
Laclede Group's non-utility operating expenses decreased $1.5 million for
the six months ended March 31, 2002 mainly due to lower gas expense
associated with gas marketing sales by Laclede Energy Resources, Inc.,
partially offset by the operating expenses of the newly-acquired SM&P.
Laclede Gas' other operating expenses decreased $45.3 million reflecting
exclusion of subsidiary expenses in the presentation of this year's amounts
subsequent to the October 1, 2001 restructuring.
The $2.3 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.
19
The decrease in income taxes is mainly due to lower pre-tax income.
Regulatory Matters
- ------------------
On January 25, 2002, Laclede filed a request with the Missouri Public
Service Commission (MoPSC or Commission) for a general rate increase to
recover costs related to the operation of its gas distribution system.
Laclede does not anticipate higher rate levels during the current fiscal
year. As part of this rate increase filing, the Utility is proposing a
Weather Mitigation Plan (Plan) that would protect its customers from
weather-related fluctuations in their bills and help stabilize its annual
revenues in that regard. The Plan, as filed, would mitigate the volatile
effects of weather by basing a portion of customers' winter bills on usage
associated with normal weather and adjusting to offset the impact of
temperatures that are colder or warmer than normal. Currently, revenues of
Laclede Gas increase or decrease depending on colder- or warmer-than-normal
weather. The weather adjustment would apply to the distribution costs of
Laclede Gas, that portion of a customer's bill that covers the cost of
operating and maintaining the distribution system and storage facilities. It
would not affect increases and decreases in wholesale gas costs that are
passed on to customers in accordance with the Purchased Gas Adjustment (PGA)
Clause. By stabilizing weather-related revenues, the Plan would allow
Laclede Gas to cover what are primarily fixed costs that do not fluctuate
with the weather while still providing a fair return on investment. On
January 31, 2002, the Commission issued an order suspending the general rate
increase until it has reviewed and audited the filing, held hearings and
reached its determination whether and to what extent the rate increase
request should be granted. By statute, the MoPSC process may take no longer
than eleven months. Laclede's request is for a rate adjustment that would
increase its annual revenues by $36.1 million and increase a typical
residential heating customer's bill by an average of about $4.40 a month.
Historically, the MoPSC has not granted Laclede's rate increase requests
in full.
In late February, the MoPSC approved Laclede Gas' filing that was made to
revise its PGA Clause to permit the adjustment of the gas cost component of
its rates more frequently to recover its costs. Under the new tariffs
approved by the MoPSC, scheduled gas cost adjustments will be implemented in
November, January, March and June, thereby enabling Laclede Gas to more
closely recover its costs of gas, especially during the high-volume winter
months. As part of the same ruling, the MoPSC also clarified that costs and
cost reductions associated with the Utility's use of natural gas financial
instruments (except as provided for previously under the PSP) are gas costs
and are recoverable through the PGA mechanism, including carrying costs.
Under the 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.
On February 19, 2002, the MoPSC denied Laclede Gas' application for
rehearing. Laclede Gas filed a petition for judicial review of the MoPSC's
decision with the Cole County Circuit Court, together with a motion
requesting that the MoPSC's decision be stayed. That review is still
pending. However, pursuant to the rate case settlement approved by the MoPSC
in November 2001, 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
GSIP. Laclede Gas will continue to retain all income resulting from sales
outside of its traditional service area, as previously authorized by the
MoPSC. Income related to releases of pipeline capacity and sales made
outside its traditional service area are volatile in nature and subject to
market conditions.
On March 8, 2002, Laclede Gas filed an application requesting that the MoPSC
issue an Accounting Authority Order (AAO) that would allow Laclede to defer
for future recovery consideration unrecovered costs due solely to the
negative impact of the extraordinarily warm weather experienced in the
Utility's service area this past winter. The MoPSC Staff and Office of
Public Counsel have opposed the AAO request. The Commission has not yet
ruled on the matter. There were no costs relative to this request deferred
on the Utility's books at March 31, 2002.
On March 15, 2002, the Staff of the MoPSC filed its recommendation in the
proceeding established to review Laclede Gas' gas costs for fiscal 2000. In
its recommendation, the Staff has proposed to disallow the recovery of
approximately $2.6 million in gas costs on the alleged grounds that Laclede
Gas has slightly more transportation capacity than it needs to
20
serve its customers. Laclede Gas believes that staff's recommendation is
without merit and unsupported by the facts and intends to vigorously oppose
the adjustment in proceedings before the MoPSC.
Critical Accounting Policies
- ----------------------------
Laclede Gas accounts for its regulated operations in accordance with
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation." This statement sets forth the
application of accounting principles generally accepted in the United States
of America for those companies whose rates are established by or are subject
to approval by an independent third-party regulator. The provisions of SFAS
No. 71 require, among other things, that financial statements of a regulated
enterprise reflect the actions of regulators, where appropriate. These
actions may result in the recognition of revenues and expenses in time
periods that are different than non-regulated enterprises. When this occurs,
costs are deferred as assets in the balance sheet (regulatory assets) and
recorded as expenses when those amounts are reflected in rates. Also,
regulators can impose liabilities upon a regulated company for amounts
previously collected from customers and for recovery of costs that are
expected to be incurred in the future (regulatory liabilities).
Accounting Pronouncements
- -------------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," which requires all business combinations in the scope of the
Statement to be accounted for using the purchase method. The provisions of
this Statement apply to all business combinations initiated after June 30,
2001. The Company has adopted the provisions of SFAS No. 141 with the
acquisition of SM&P. As required by SFAS No. 141, the goodwill for SM&P is
being accounted for consistent with the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets."
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
Utility's sale of commercial paper supported by lines of credit with banks.
Laclede Gas currently has a primary line of credit for $135 million
extending through September 30, 2002. Laclede Gas also has various
supplemental lines of credit that bring the total credit lines to
$170 million currently, with $20 million expiring in September 2002 and
$15 million expiring in January 2003. During fiscal 2002 to date, the Utility
sold commercial paper aggregating to a maximum of $139.7 million at any one
time, but did not borrow from the banks under the aforementioned lines of
credit. Commercial paper amounted to $75.6 million at March 31, 2002.
Laclede Group held conventional bank debt amounting to $42.8 million at
March 31, 2002 related to the financing of the SM&P acquisition.
On April 22, 2002, Laclede Group filed a registration statement on Form S-3
with the Securities and Exchange Commission (SEC) in connection with the
sale of up to $500 million of equity securities, other than preferred stock,
and debt securities. As of the date of this filing, this registration
statement has not yet been declared effective by the SEC. The amount, timing
and type of financing to be issued under this shelf registration, after it
becomes effective, will depend on cash requirements and market conditions.
Utility construction expenditures were $22.3 million for the six months
ended March 31, 2002, compared with $21.2 million for the same period last
year. Non-utility construction expenditures were $.4 million for the same
period this year.
Consolidated capitalization at March 31, 2002 increased $15.5 million since
September 30, 2001 and consisted of 51.5% Laclede Group common stock equity,
...2% Laclede Gas preferred stock equity and 48.3% Laclede Gas long-term debt.
The seasonal nature of Laclede Gas' sales affects the comparison of certain
balance sheet items at March 31, 2002 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.
21
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. Costs and cost
reductions associated with the Utility's use of natural gas financial
instruments (except as provided for previously under the PSP) 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, Laclede Gas does not
expect any earnings impact as a result of the use of these financial
instruments. There were no financial instruments held at March 31, 2002.
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 formal assessment of two former manufactured gas plant sites,
the Shrewsbury site and the Carondelet City of St. Louis site.
With regard to the Shrewsbury site, Laclede Gas and state and federal
environmental regulators have agreed upon certain actions and those actions
are nearing completion. Laclede Gas currently estimates the overall costs of
these actions will be approximately $2,284,000. As of March 31, 2002,
Laclede Gas has paid $1,898,000 and reserved $386,000 for these actions. If
regulators require additional actions, Laclede Gas will incur additional
costs.
The Carondelet City of St. Louis site was placed into the Missouri Voluntary
Cleanup Program (VCP). The VCP provides opportunities to minimize the scope
and cost of site cleanup while maximizing possibilities for site
development. The City of St. Louis is presently seeking developers and
end-users for this site. If the City is unsuccessful, Laclede will submit a
Remedial Action Plan (RAP) and work with the City to find a developer to
implement the RAP and develop the site. Laclede Gas currently estimates that
the cost of the site investigations, agency oversight and related legal and
engineering consulting may be approximately $590,000. Currently, Laclede Gas
has paid $509,000 and reserved an additional $81,000. Laclede has requested
that other former site owners and operators participate in the cost of any
site investigation. One former owner and operator agreed to participate in
these costs and has reimbursed Laclede Gas to date for $159,000. Laclede Gas
anticipates additional reimbursement from this party of approximately
$69,000. Laclede Gas plans to seek proportionate reimbursement of all costs
relative to this site from other potentially responsible parties if
practicable.
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 a third 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.
While the scope of costs relative to the Shrewsbury site will not be
significant, the scope of costs relative to the other sites are unknown and
may be material. Laclede Gas has notified its insurers that it intends to
seek reimbursement of its costs at the sites. The majority of insurers have
reserved their rights. While some of the insurers have denied coverage,
Laclede Gas continues to seek reimbursement from them. With regard to the
Shrewsbury site, denials of coverage will not have any significant impact on
the financial position and results of operations of Laclede Gas. With regard
to the other sites, since the scope of costs relative to these sites are
unknown and may be material, denials of coverage may have a material impact
on the financial position and results of operations of Laclede Gas. Such
costs, if incurred, have typically been subject to recovery in rates.
22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of environmental matters see Note 10 to the
unaudited Notes to Consolidated Financial Statements, page 15. For a
description of Laclede Gas' pending regulatory matters, see the
Management's Discussion and Analysis, Regulatory Matters, page 20.
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. Laclede Gas filed a motion
to dismiss the lawsuit that was granted by the Court on February 22,
2002. The plaintiff did not file an amended petition within the time
granted by the Court but filed an appeal on April 3, 2002. The
Utility will continue to contest this action.
Item 4. Submission of Matter to a Vote of Security Holders
The Annual Meeting of Shareholders of The Laclede Group, Inc. was
held on January 24, 2002 for the purpose of electing three
directors to the Board of Directors and ratifying the appointment
of independent auditors. Management's three nominees for directors
listed in the proxy statement were unopposed and were elected upon
the following votes:
Shares Shares
Director Nominee Voted For Voted Withheld
---------------- --------- --------------
Robert C. Jaudes 15,056,436 191,679
W. Stephen Maritz 14,821,775 426,340
Robert P. Stupp 15,014,953 233,162
The proposal to ratify the appointment of Deloitte & Touche LLP,
Certified Public Accountants, to audit the accounts of the Company
for the fiscal year ending September 30, 2002 was passed upon the
following vote:
Shares voted Shares voted Shares voted
For the proposal Against the proposal Abstain
---------------- -------------------- -------
15,058,425 115,184 74,506
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) Reports on Form 8-K
During the quarter, Laclede Group filed two reports on Form 8-K:
1. Form 8-K with report date of January 24, 2002, reporting under
Item 9 the issuance of a press release, attached as exhibit 1 to the
report, announcing the results for the fiscal quarter ended
December 31, 2001.
2. Form 8-K with report date of February 20, 2002 reporting under
Item 9 the issuance of a press release, attached as exhibit 1 to the
report, announcing Laclede Gas' challenge to the Missouri Public
Service Commission's order allowing the Gas Supply Incentive Plan
to expire.
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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: April 24, 2002 Gerald T. McNeive Jr.
-------------- Senior Vice President
(Authorized Signatory and
Chief Financial Officer)
24
Index to Exhibits
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ------------
10.1 Line of credit (noncommitted) with UMB Bank, n.a.
dated January 24, 2002 26
10.2 Line of credit (committed) with UMB Bank, n.a.
dated January 24, 2002 28
25