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, 2003
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 State 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):
The Laclede Group, Inc. Yes X No
---- ----
Laclede Gas Company: Yes No X
---- ----
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 25, 2003
- ---------- --------------------------- --------------
The Laclede Group, Inc. Common Stock ($1.00 Par Value) 19,041,773
Laclede Gas Company Common Stock ($1.00 Par Value) 100 (100% owned by
Laclede Group)
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
Statements of Consolidated Comprehensive Income 5
Consolidated Balance Sheets 6-7
Statements of Consolidated Cash Flows 8
Notes to Consolidated Financial Statements 9-15
Laclede Gas Company:
Statements of Income Ex. 99.1, p. 1
Balance Sheets Ex. 99.1, p. 2-3
Statements of Cash Flows Ex. 99.1, p. 4
Notes to Financial Statements Ex. 99.1, p. 5-9
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations (The Laclede Group, Inc.) 16-23
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Laclede Gas Company) Ex. 99.1, p. 10-17
Item 3 Quantitative and Qualitative Disclosures About Market Risk 24
Item 4 Controls and Procedures 24
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 25
Item 4 Submission of Matters to a Vote of Security Holders 25
Item 6 Exhibits and Other Reports on Form 8-K 25
SIGNATURES - The Laclede Group, Inc. 26
CERTIFICATIONS - The Laclede Group, Inc. 27-28
SIGNATURES - Laclede Gas Company 29
CERTIFICATIONS - Laclede Gas Company 30-31
INDEX TO EXHIBITS 32
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
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, 2002.
3
Item 1. Financial Statements
THE LACLEDE GROUP, INC.
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Operating Revenues:
Regulated
Gas distribution $357,456 $256,802 $574,621 $440,013
Non-Regulated
Services 17,315 15,274 48,138 15,274
Other 47,408 15,387 79,591 26,820
-----------------------------------------------------------
Total Operating Revenues 422,179 287,463 702,350 482,107
-----------------------------------------------------------
Operating Expenses:
Regulated
Natural and propane gas 247,918 156,115 381,761 271,709
Other operation expenses 29,663 28,804 60,987 55,080
Maintenance 4,950 4,318 9,394 8,632
Depreciation and amortization 5,596 6,053 11,089 12,635
Taxes, other than income taxes 22,579 18,437 36,707 31,336
-----------------------------------------------------------
Total regulated operating expenses 310,706 213,727 499,938 379,392
Non-Regulated
Services 22,735 18,180 53,360 18,180
Other 45,850 15,097 76,931 26,760
-----------------------------------------------------------
Total Operating Expenses 379,291 247,004 630,229 424,332
-----------------------------------------------------------
Operating Income 42,888 40,459 72,121 57,775
Other Income and Income Deductions - Net (591) (175) 457 749
-----------------------------------------------------------
Income Before Interest and Income Taxes 42,297 40,284 72,578 58,524
-----------------------------------------------------------
Interest Charges:
Interest on long-term debt 5,205 5,205 10,410 10,410
Preferred dividends and distributions of
subsidiary trust 867 - 1,011 -
Other interest charges 953 1,380 2,302 2,739
-----------------------------------------------------------
Total Interest Charges 7,025 6,585 13,723 13,149
-----------------------------------------------------------
Income Before Income Taxes 35,272 33,699 58,855 45,375
Income Tax Expense 13,687 12,946 22,159 16,882
Dividends on Redeemable Preferred Stock -
Laclede Gas 15 15 31 36
-----------------------------------------------------------
Net Income Applicable to Common Stock $ 21,570 $ 20,738 $ 36,665 $ 28,457
===========================================================
Average Number of Common Shares
Outstanding 19,002 18,878 18,981 18,878
Basic and Diluted Earnings Per Share of
Common Stock $1.14 $1.10 $1.93 $1.51
Dividends Declared Per Share of Common
Stock $.335 $.335 $.67 $.67
See notes to consolidated financial statements.
4
THE LACLEDE GROUP, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(UNAUDITED)
(Thousands)
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Net Income $ 21,570 $ 20,738 $ 36,665 $ 28,457
---------------------------------------------------------
Other Comprehensive Income:
Net gains on cash flow hedging
derivative instruments:
Net hedging gains arising
during the period 260 - 260 -
---------------------------------------------------------
Other Comprehensive Income,
Before Tax 260 - 260 -
Income Tax Expense Related to
Items of Other Comprehensive
Income 101 - 101 -
---------------------------------------------------------
Other Comprehensive Income, Net of Tax 159 - 159 -
---------------------------------------------------------
Comprehensive Income $ 21,729 $ 20,738 $ 36,824 $ 28,457
=========================================================
5
THE LACLEDE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Mar. 31 Sept. 30
2003 2002
---- ----
(Thousands)
(UNAUDITED)
ASSETS
Utility Plant $1,007,958 $ 988,747
Less: Accumulated depreciation and amortization 402,357 394,371
------------------------------
Net Utility Plant 605,601 594,376
------------------------------
Goodwill 28,124 27,455
------------------------------
Other Property and Investments 44,859 46,986
------------------------------
Current Assets:
Cash and cash equivalents 34,527 12,870
Accounts receivable 162,233 94,010
Less: Allowances for doubtful accounts (5,728) (4,532)
Materials, supplies, and merchandise at avg. cost 4,263 4,364
Natural gas stored underground at LIFO cost 24,469 77,121
Propane gas at FIFO cost 10,128 14,712
Delayed customer billings 33,682 -
Deferred income taxes 8,417 12,305
Prepayments and other 11,601 11,505
------------------------------
Total Current Assets 283,592 222,355
------------------------------
Deferred Charges:
Prepaid pension cost 111,879 114,313
Regulatory assets 74,929 72,484
Other 5,649 3,904
------------------------------
Total deferred charges 192,457 190,701
------------------------------
Total Assets $1,154,633 $1,081,873
==============================
See notes to consolidated financial statements.
6
THE LACLEDE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
Mar. 31 Sept. 30
2003 2002
---- ----
(Thousands, except share amounts)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock (50,000,000 shares authorized, 19,003,633 and
18,921,289 shares issued, respectively) $ 19,004 $ 18,921
Paid-in capital 66,558 64,667
Retained earnings 226,463 202,517
Accumulated other comprehensive loss (180) (339)
-----------------------------
Total common stock equity 311,845 285,766
Redeemable preferred stock - Laclede Gas 1,258 1,266
Obligated mandatorily redeemable preferred securities
of subsidiary trust 45,000 -
Long-term debt (less sinking fund requirements) - Laclede Gas 259,588 259,545
-----------------------------
Total Capitalization 617,691 546,577
-----------------------------
Current Liabilities:
Notes payable 122,390 161,670
Accounts payable 98,934 45,707
Advance customer billings - 24,832
Current portion of long-term debt 25,000 25,000
Taxes accrued 25,667 9,815
Unamortized purchased gas adjustment 9,524 22,976
Other 46,509 46,797
-----------------------------
Total Current Liabilities 328,024 336,797
-----------------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 159,148 157,378
Unamortized investment tax credits 5,472 5,629
Pension and postretirement benefit costs 18,511 14,658
Other 25,787 20,834
-----------------------------
Total Deferred Credits and Other Liabilities 208,918 198,499
-----------------------------
Total Capitalization and Liabilities $1,154,633 $1,081,873
=============================
See notes to consolidated financial statements.
7
THE LACLEDE GROUP, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31,
2003 2002
---- ----
(Thousands)
Operating Activities:
Net Income Applicable to Common Stock $ 36,665 $ 28,457
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 12,788 13,153
Deferred income taxes and investment
tax credits 2,783 (14,341)
Dividends on redeemable preferred stock - Laclede Gas 31 36
Other - net (1,322) 393
Changes in assets and liabilities:
Accounts receivable - net (67,027) (35,681)
Unamortized purchased gas adjustments (13,452) (6,305)
Deferred purchased gas costs 5,992 48,197
Advance customer billings - net (58,514) (24,481)
Accounts payable 53,227 4,832
Taxes accrued 15,852 15,040
Natural gas stored underground 52,652 56,452
Other assets and liabilities 9,981 318
-------------------------
Net cash provided by operating activities $ 49,656 $ 86,070
-------------------------
Investing Activities:
Construction expenditures (22,859) (22,727)
Employee benefit trusts (507) 125
Acquisition of SM&P, net of cash and cash equivalents - (38,044)
Other investments 403 (1,329)
-------------------------
Net cash used in investing activities $(22,963) $(61,975)
-------------------------
Financing Activities:
Issuance (repayment) of short-term debt - net (39,280) 1,350
Dividends paid (12,722) (12,685)
Issuance of common stock 1,974 -
Issuance of obligated mandatorily redeemable preferred
securities of subsidiary trust 45,000 -
Preferred stock reacquired and other (8) (395)
-------------------------
Net cash used in financing activities $ (5,036) $(11,730)
-------------------------
Net Increase in Cash and Cash Equivalents $ 21,657 $ 12,365
Cash and Cash Equivalents at Beg of Period 12,870 3,223
-------------------------
Cash and Cash Equivalents at End of Period $ 34,527 $ 15,588
=========================
Supplemental Disclosure of Cash Paid
During the Period for:
Interest $ 13,766 $ 10,863
Income taxes 246 12,634
See notes to consolidated financial statements.
8
THE LACLEDE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.) These notes are an integral part of the accompanying consolidated
financial statements of The Laclede Group, Inc. (Laclede Group or
the Company) and its subsidiaries. In the opinion of Laclede Group,
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 2002 Form 10-K.
2.) On December 16, 2002, Laclede Capital Trust I (Trust), a wholly
owned Delaware Statutory trust of Laclede Group, issued $45 million
of 7.70% Trust Preferred Securities with a liquidation value of $25
per share due December 1, 2032. These securities can be redeemed on
or after December 16, 2007. All of the proceeds from the sale of
the Trust Preferred Securities were invested by the Trust in
debentures of Laclede Group with the same economic terms as the
Trust Preferred Securities. Net proceeds of approximately $43.3
million from the sale of these debentures were used to repay the
$42.8 million bank note obtained in January, 2002 to fund the
acquisition of SM&P and for other general corporate purposes.
The Trust Preferred Securities sold by the Trust represent
preferred beneficial interests and 97% beneficial ownership in the
assets held by the Trust. In exchange for the funds realized from
the sale of the Trust Preferred Securities and Trust common
securities representing 3% beneficial ownership interest in the
assets held by the Trust, Laclede Group issued $46.4 million of
junior subordinated debt instruments that constitute 100% of the
assets of the Trust.
The Trust Preferred Securities are rated A- (stable outlook) by
Standard & Poor's Ratings Group (S&P), Baa3 (stable outlook) by
Moody's Investors Service, Inc. and BBB+ (negative outlook) by
Fitch Ratings. S&P, Moody's and Fitch will continue to monitor the
ratings of the Trust Preferred Securities, as well as our other
credit ratings, and will make future adjustments to the extent
warranted.
3.) On October 3, 2002, the Missouri Public Service Commission (MoPSC
or the Commission) approved a settlement reached among the parties
to the 2002 rate case, filed by Laclede Gas Company (Laclede Gas or
the Utility) on January 25, 2002. The terms of the settlement
included (1) an annual rate increase of $14 million effective on
November 9, 2002; (2) a moratorium on additional rate filings until
March 1, 2004; and (3) an innovative rate design that is expected
to provide the Utility with the ability to recover its distribution
costs, which are essentially fixed, in a manner that is
significantly less sensitive to weather. The settlement also
provided for, among other things, changes resulting in negative
amortization of the depreciation reserve of $3.4 million annually
effective from July 1, 2002 until the Utility's next rate case
proceeding, minor changes in depreciation rates effective January
1, 2003, and changes in the regulatory treatment of pension costs
primarily designed to stabilize such costs, effective during fiscal
2003. Also approved was an incentive program beginning in fiscal
2003 under which the Utility may achieve, under specific
conditions, income related to management of its gas supply
commodity costs. Previously deferred costs of $.3 million 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.) 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 major underground locating and marking
service businesses. SM&P, a Carmel, Indiana-based company, operates
in the midwestern states. 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 is
expected to diversify Laclede Group's earnings and be
counter-seasonal to those of Laclede Gas. SM&P is a subsidiary of
Laclede Group and remains headquartered in Indiana. This
acquisition was financed initially with conventional bank debt
totaling $42.8 million, that was refinanced through the issuance of
Laclede Capital Trust Preferred Securities on December 16, 2002.
The following table summarizes the fair values of the assets
acquired and liabilities assumed at the date of acquisition. The
goodwill recognized in this transaction is fully deductible for tax
purposes. Acquired intangible assets of $498,000 were assigned to
registered trademarks that are not subject to amortization. Net
assets acquired includes cash and cash equivalents of $5.1 million.
9
At January 28, 2002
-------------------
(Thousands)
Current assets $20,578
Property, plant, and equipment 7,457
Other assets 456
Intangible assets 498
Goodwill 28,124
-------
Total assets acquired $57,113
-------
Current liabilities $13,571
Long-term liabilities 404
-------
Total liabilities assumed $13,975
-------
Net assets acquired $43,138
=======
The fair values of assets acquired and liabilities assumed at the
date of acquisition were adjusted to final valuation amounts during
the quarter ended March 31, 2003, resulting in an increase to
goodwill amounting to $662,000.
SM&P's earnings are impacted by construction trends. SM&P's
revenues are dependent on a limited number of customers, primarily
in the utility and telecommunications sector, with contracts that
may be terminated on as short as 30 days' notice. For more
information, see Note 10 on page 13.
5.) 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 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
November through April period, which generally corresponds with the
heating season. The Utility typically experiences losses during the
non-heating season. This seasonal effect on Laclede Group is
expected to be tempered somewhat by the impact of the weather
mitigation rate design implemented in November 2002 and the
addition of SM&P, whose operations tend to be counter-seasonal to
those of Laclede Gas.
6.) Net provision (benefit) for income taxes was as follows during the
periods set forth below:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
2003 2002 2003 2002
---- ---- ---- ----
(Thousands)
Federal
Current $11,462 $ 3,623 $16,565 $ 26,611
Deferred 161 7,311 2,308 (12,347)
State and Local
Current 1,990 736 2,811 4,611
Deferred 74 1,276 475 (1,993)
-----------------------------------------------
Total $13,687 $12,946 $22,159 $ 16,882
===============================================
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 filed a petition for judicial review of the
10
MoPSC's decision with the Cole County Circuit Court, together with
a motion requesting that the MoPSC's decision be stayed. The
request for stay was denied on May 13, 2002. On April 3, 2003, the
Cole County Circuit Court issued its Order and Judgment affirming
the MoPSC's decision to terminate the GSIP. The Company is
currently reviewing whether to seek further judicial review of the
MoPSC's decision. However, pursuant to the 2001 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,
------------------- ------------------
2003 2002 2003 2002
---- ---- ---- ----
(Thousands)
Pre-Tax Income - Capacity Release $ 702 $ 411 $1,315 $ 580
Pre-Tax Income - Off System Sales 5,085 1,954 6,715 3,103
-----------------------------------------------
Total Pre-Tax Income $5,787 $2,365 $8,030 $3,683
===============================================
8.) In the course of its business, Laclede Group's non-regulated
marketing affiliate, Laclede Energy Resources, Inc. (LER), enters
into fixed price commitments for the sale of natural gas to
customers. LER manages the price risk associated with these sales
by either closely matching the purchases of physical supplies at
fixed prices or through the use of exchange-traded futures
contracts to lock in margins. At March 31, 2003, LER's open
positions were not material to Laclede Group's financial position
or results of operations. At that same date, LER had settled
futures contracts covering .4 million MmBtu of natural gas for
April 2003, and long (purchased) futures contracts covering .4
million MmBtu of natural gas at an average price of $4.97 per
MmBtu, extending through March 2004. These futures contracts are
derivative instruments and management has designated these items as
cash flow hedges of forecasted transactions. The fair values of the
instruments are recognized on the Consolidated Balance Sheets. The
change in the fair value of the effective portion of these hedge
instruments is recorded, net of tax, in Other Comprehensive Income,
a component of Common Stock Equity. These amounts will reduce or be
charged to Non-Regulated Other Operating Revenues or Expenses in
the Statements of Consolidated Income as the transactions occur. It
is estimated that $.2 million of the net unrealized gains on cash
flow hedging derivative instruments at March 31, 2003 will be
reclassified into the Consolidated Statement of Income during
fiscal 2003. The ineffective portions of these hedge instruments
were immaterial for the periods presented, and such amounts are
charged to Non-Regulated Other Operating Revenues or Expenses. Cash
flows from hedging transactions are classified in the same category
as the cash flows from the items that are being hedged in the
Statements of Consolidated Cash Flows.
9.) The Laclede Group Equity Plan was approved at the annual meeting of
shareholders of Laclede Group on January 30, 2003. The purpose of
the Equity Plan is to provide a more competitive compensation
program and to attract and retain those executive and other key
employees essential to achieve the Company's strategic objectives.
To accomplish this purpose, the compensation committee may grant
awards under the Equity Plan that may be earned by achieving
performance objectives and/or other criteria as determined by the
compensation committee. Under the terms of the Equity Plan, key
employees of the Company and its subsidiaries, as determined in the
sole discretion of the administrator, will be eligible to receive
(a) restricted shares of common stock, (b) performance awards, (c)
stock options exercisable into shares of common stock, (d) stock
appreciation rights, and (e) stock units, as well as any other
stock-based awards not inconsistent with the Equity Plan. Each
award under the Equity Plan shall have a minimum vesting period of
at least one year. The total number of shares that may be issued
pursuant to awards under the Equity Plan may not exceed 1,250,000.
During the quarter ended March 31, 2003, the Company granted
221,500 non-qualified stock options to employees at an exercise
price of $23.27 per share. No option can be exercised before
February 6, 2004. The stock options vest one-fourth each year for
four years after the date of the grant and expire on the tenth
anniversary of the grant date. The Company accounts for the Equity
Plan under the recognition and
11
measurement principles of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", and related
Interpretations. No compensation expense has been recognized in net
income, as all options granted under the Equity Plan had an
exercise price equal to the market value of the Company's stock on
the date of the grant.
Weighted Average
Shares Exercise Price
---------- ------------------
Outstanding at December 31, 2002 -
Granted 221,500 $23.27
Exercised -
Forfeited -
Outstanding at March 31, 2003 221,500 $23.27
Exercisable at March 31, 2003 -
The closing price of the Company's common stock was $23.20 at March
31, 2003.
If compensation expense had been determined based on the fair value
recognition provisions of SFAS 123, Accounting for Stock-Based
Compensation, the Company's net income and earnings per share would
have been reduced to the amounts shown in the following table. The
weighted-average fair value of options granted during 2003 is $4.33
per option. The estimated fair value of options is amortized to
expense over the options' vesting period.
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
(Thousands)
Net income, as reported $21,570 $20,738 $36,665 $28,457
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method
for all awards, net of tax effects (25) - (25) -
-----------------------------------------------------------
Pro forma net income $21,545 $20,738 $36,640 $28,457
===========================================================
Earnings per share:
Basic and Diluted - as reported $1.14 $1.10 $1.93 $1.51
Basic and Diluted - pro forma $1.13 $1.10 $1.93 $1.51
The fair value of the options was estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions:
2003 2002
------------------------------------
Risk free interest rate 4.00% Not Applicable
Expected dividend yield of stock 5.70% Not Applicable
Expected volatility of stock 25.00% Not Applicable
Expected life of option 96 months Not Applicable
12
10.) The Regulated Gas Distribution 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. The Non-Regulated Services segment includes the results
of SM&P, an underground locating and marking business operating in
the midwestern states, a wholly owned subsidiary of Laclede Group
acquired on January 28, 2002. Non-Regulated Other includes 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 seven wholly
owned subsidiaries, six of which became subsidiaries of Laclede
Group as a result of the restructuring on October 1, 2001, plus
Laclede Energy Services, Inc. (LES), a wholly owned subsidiary of
Laclede Group that became operational on May 1, 2002. LES performs
administrative gas supply and risk management services. The results
of SM&P's operations since January 28, 2002 and the results of LES'
operations since May 1, 2002 are included in Laclede Group's
Consolidated Financial Statements. There are no material
intersegment revenues.
Regulated
Gas Non-Regulated Non-Regulated
(Thousands) Distribution Services Other Eliminations Consolidated
----------------------------------------------------------------------------------------------------------
Three Months Ended
March 31, 2003
--------------
Operating revenues $ 357,456 $ 17,315 $ 47,408 $ - $ 422,179
Net income (loss) 24,874 (4,271) 967 - 21,570
Total assets 1,057,345 54,200 61,900 (18,812) 1,154,633
Six Months Ended
March 31, 2003
--------------
Operating revenues $ 574,621 $ 48,138 $ 79,591 $ - $ 702,350
Net income (loss) 39,447 (4,433) 1,651 - 36,665
Total assets 1,057,345 54,200 61,900 (18,812) 1,154,633
Three Months Ended
March 31, 2002
--------------
Operating revenues $ 256,802 $ 15,274 $ 15,387 $ - $ 287,463
Net income (loss) 22,572 (2,033) 199 - 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
In November 2002, two customers notified SM&P that, due to actions
they have taken to address workforce management issues, they did
not intend to continue to outsource certain functions, which
include locating services provided by SM&P, after February and
March 2003. One of these customers notified SM&P in January 2003
that it will continue to outsource a portion of its locating
services provided by SM&P beyond that timeframe. Revenue from these
customers totaled approximately $45 million for fiscal 2002 and is
currently expected to total approximately $27 million for fiscal
2003. In connection with the reduction in work from these
customers, SM&P made reductions in the required levels of
personnel, facilities and equipment. Management continues to
estimate that the total cost of these reductions will result in an
after-tax charge of approximately $1 million, all of which was
expensed during the quarter ended March 31, 2003.
11.) Laclede Gas is subject to various environmental laws and
regulations that, to date, have not materially affected the
Company's financial position and results of operations. As these
laws, regulations, and their interpretation evolve, however,
additional costs may be incurred.
13
With regard to a former manufactured gas plant site located in
Shrewsbury, Missouri, 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 $2.3 million.
As of March 31, 2003, Laclede Gas has paid or reserved for these
actions. If regulators require additional actions or assert
additional claims, Laclede Gas will incur additional costs.
Laclede Gas enrolled a second former manufactured gas plant site
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. This site is located
in and is presently owned by the City of St. Louis, Missouri. The
City of St. Louis has separately authorized a developer to prepare
both a Remedial Action Plan (RAP), for submission to the VCP, and a
site development plan. Laclede Gas continues to explore with the
developer what role, if any, it might play in these efforts.
Laclede Gas continues to evaluate other options as well, including,
but not limited to, the submission of its own RAP to the VCP.
Laclede Gas currently estimates that the cost of site
investigations, agency oversight and related legal and engineering
consulting may be approximately $629,000. Currently, Laclede Gas
has paid or reserved for these actions. Laclede has requested that
other former site owners and operators share in these costs and one
party has agreed to participate and has reimbursed Laclede Gas to
date for $173,000. Laclede Gas anticipates additional reimbursement
from this party. 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
may contain gas plant waste that may require remediation. Laclede
Gas is working to determine the nature and extent of such waste, if
any, and its 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 is
unknown and may be material. Laclede Gas has notified its insurers
that it seeks reimbursement of its costs at these three
manufactured gas plant sites. In response, 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 are not
expected to have any material impact on the financial position and
results of operations of Laclede Gas. With regard to the other two
sites, since the scope of costs are unknown and may be significant,
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.
12.) On June 28, 2002, the Staff of the MoPSC filed its recommendation
in a proceeding established to review Laclede Gas' gas costs for
fiscal 2001. In its recommendation, the Staff proposed to disallow
approximately $4.9 million in pre-tax gains achieved by Laclede Gas
in its incentive-based Price Stabilization Program. This Program
was discontinued at the end of the 2001-2002 heating season.
Laclede Gas believes that Staff's position lacks merit and has
vigorously opposed the adjustment in proceedings before the MoPSC,
including a formal hearing that was held on this matter in February
2003. Final briefs relating to this matter were filed with the
Commission in April 2003. Regulatory proceeding results are,
however, inherently uncertain, and to the extent that a final
Commission decision sustains Staff's recommended disallowance, the
proceeding's outcome could have a material effect on the future
financial position and results of operations of Laclede Gas.
Missouri statutes provide an opportunity for court review of
Commission decisions.
13.) In June 2001, the FASB issued SFAS No. 141, "Business
Combinations," which requires all business combinations in the
scope of this 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 FASB also issued
SFAS No. 142, "Goodwill and Other Intangible Assets", which
addresses how acquired goodwill and other intangible assets that
are acquired individually or with a group of other assets should be
accounted for in financial statements upon acquisition and after
they have been initially recognized in the financial statements.
The Company 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. The complete adoption of SFAS Nos. 141 and 142 on October
1, 2002 did not have a material effect on the financial position
and results of operations of Laclede Group.
14
The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which addresses financial accounting and reporting
for obligations associated with the retirement of tangible
long-lived assets and associated asset retirement costs. It applies
to legal obligations associated with the retirement of long-lived
assets that result from acquisition, construction, development
and/or the normal operation of a long-lived asset, except for
certain obligations of lessees. The provisions of the Statement
provide for rate-regulated entities that meet the criteria for
application of SFAS No. 71, such as Laclede Gas, to recognize
regulatory assets or liabilities for differences in the timing of
recognition of the period costs associated with asset retirement
obligations for financial reporting pursuant to this Statement and
rate-making purposes. The adoption of this Statement on October 1,
2002 did not affect the financial position and results of
operations of Laclede Group. There are legal obligations related to
final abandonment of the Utility's gas distribution system.
However, these obligations related to mass property and other
distribution system assets generally are in perpetuity and can not
be measured under SFAS No. 143 because of indeterminate settlement
dates and cash flow estimates.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure", provides alternative methods for a voluntary
change to the fair value based method of accounting for stock-based
compensation. In addition, this statement requires prominent
disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and
the method used on reported results. The disclosure provisions are
effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002.
The required disclosures are included in this report.
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", requires an entity to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. This requirement is
to be applied on a prospective basis to guarantees issued or
modified after December 31, 2002. This Interpretation also requires
disclosures in interim and annual financial statements about
obligations under certain guarantees that the entity has issued.
These disclosure requirements are effective for financial
statements of interim or annual periods ending after December 15,
2002. The required disclosures are included in this report.
14.) SM&P has several operating leases, the aggregate annual cost of
which is approximately $6 million, consisting primarily of 12-month
operating leases, with renewal options, for vehicles used in its
business. Upon acquisition of SM&P, Laclede Group assumed parental
guarantees of certain of those vehicle leases. Laclede Group
anticipates that the maximum guarantees will not exceed $11
million.
Laclede Group has guarantees outstanding of $6.5 million for
performance and payment of certain wholesale gas supply purchases
by Laclede Energy Resources, Inc. (its non-regulated marketing
affiliate), as of March 31, 2003.
Laclede Gas Company's Consolidated Financial Statements and Notes
to Consolidated Financial Statements are included in Exhibit 99.1.
15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THE LACLEDE GROUP, INC.
- -----------------------
This management's discussion analyzes the financial condition and results of
operations of The Laclede Group, Inc. (Laclede Group or the Company) and its
subsidiaries. It includes management's view of factors that affect its
business, explanations of past financial results including changes in
earnings and costs from the prior year, and their effects on overall
financial condition and liquidity.
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.
16
THE LACLEDE GROUP, INC.
RESULTS OF OPERATIONS
Quarter Ended March 31, 2003
Laclede Group's earnings for the quarter ended March 31, 2003 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 has historically
been heavily influenced by the weather. Temperatures in Laclede Gas' service
area during the second quarter of the current fiscal year were essentially
normal, but 17% colder than the same quarter last year. While this colder
weather produced higher earnings year-to-year, the effect of weather on
earnings for the quarter ended March 31, 2003, was mitigated by the
implementation of a new rate design on November 9, 2002. This new rate
design lessens the impact of weather on the Utility's earnings and recovers
fixed costs more evenly during the heating season. This resulting shift in
the interim margin revenue pattern resulted in lower margin revenue for the
quarter ended March 31, 2003 compared with the same period last year.
Laclede Group's earnings were $1.14 per share for the quarter ended March
31, 2003 compared with $1.10 per share for the quarter ended March 31, 2002.
In addition to the impact of higher gas sales resulting from colder weather,
the earnings of Laclede Gas were also favorably affected by the general rate
increase implemented November 9, 2002 and higher income from off system
sales. These benefits were partially offset by the shift in the quarterly
margin revenue associated with the new rate design, the effect of income
recorded in the same quarter last year produced by the Utility's Price
Stabilization Program, and approximately $1 million of after-tax rightsizing
costs recorded this quarter by SM&P, a wholly owned subsidiary.
Regulated operating revenues for the quarter ended March 31, 2003 were
$357.5 million, or $100.7 million more than the same period last year. The
increase was primarily attributable to higher Purchased Gas Adjustment (PGA)
Clause rates that are passed on to Utility customers, subject to prudence
review, higher gas sales levels resulting from colder weather, increased
off-system and capacity release revenues, and the general rate increase.
System therms sold and transported increased by 54.5 million therms, or
12.9%, above the quarter ended March 31, 2002.
Laclede Group's non-regulated services operating revenues for this quarter
increased $2.0 million due primarily to the full three-month effect of
revenues this year recorded by SM&P Utility Resources, Inc. (SM&P), a wholly
owned subsidiary acquired January 28, 2002. Other non-regulated operating
revenues increased $32.0 million primarily due to increased gas marketing
sales by Laclede Energy Resources, Inc.
Regulated operating expenses for the quarter ended March 31, 2003 increased
$97.0 million from the same quarter last year. Natural and propane gas
expense increased $91.8 million above last year's level primarily
attributable to higher rates charged by our suppliers, higher volumes
purchased for sendout due to the colder weather and higher off-system gas
expense. Other operation and maintenance expenses increased $1.5 million, or
4.5%, primarily due to higher pension costs, higher group insurance charges,
increased insurance premiums and higher wage rates, partially offset by a
lower provision for uncollectible accounts and reduced distribution charges.
Depreciation and amortization expense decreased $.4 million primarily due to
the effect of negative amortization of a portion of the depreciation reserve
effective July 1, 2002, as authorized by the Missouri Public Service
Commission (MoPSC). This effect was partially offset by increased
depreciable property. Taxes, other than income, increased $4.1 million, or
22.5%, primarily due to higher gross receipts taxes (reflecting the
increased revenues).
Laclede Group's non-regulated services operating expenses increased $4.6
million this quarter primarily due to the full three-month effect this year
and rightsizing costs recorded by SM&P related to the recent loss of two
customers. Other non-regulated operating expenses increased $30.8 million
mainly due to higher expenses associated with increased gas marketing sales
by Laclede Energy Resources, Inc.
The $.4 million increase in interest charges is primarily due to the
issuance of trust preferred securities in December 2002, partially offset by
a reduction in short-term interest charges (reflecting reduced rates).
The increase in income taxes is primarily due to higher pre-tax income.
In November 2002, two customers notified SM&P that, due to actions they have
taken to address workforce management issues, they did not intend to
continue to outsource certain functions, which include locating services
provided by SM&P, after February and March 2003. One of these customers
notified SM&P in January 2003 that it will continue to outsource a portion
of its locating services provided by SM&P beyond that timeframe. Revenue
from
17
these customers totaled approximately $45 million for fiscal 2002 and is
currently expected to total approximately $27 million for fiscal 2003. In
connection with the reduction in work from these customers, SM&P made
reductions in the required levels of personnel, facilities and equipment.
Management continues to estimate that the total cost of these reductions
will result in an after-tax charge of approximately $1 million, all of which
was expensed during the quarter ended March 31, 2003.
Six Months Ended March 31, 2003
- -------------------------------
Due to the seasonal nature of Laclede Gas' business, earnings are typically
concentrated in the November through April period, which generally
corresponds with the heating season. The Utility typically experiences
losses during the non-heating season. This seasonal effect on Laclede Group
is expected to be tempered somewhat by the impact of the weather mitigation
rate design implemented in November 2002 and 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 $1.93 per share for the six months ended March
31, 2003 compared with $1.51 per share for the same period last year.
Earnings were primarily comprised of those of Laclede Gas, which were
favorably affected by higher gas sales arising from temperatures in its
service area that were colder than last year, the benefit of the general
rate increases put into effect by Laclede Gas on December 1, 2001 and
November 9, 2002 and higher income from off system sales. Temperatures for
the six-month period ended March 31, 2003 were 2% colder than normal and 23%
colder than the same period last year. These benefits were partially offset
by the factors mentioned previously related to the quarter ended March 31,
2003.
Regulated operating revenues for the six months ended March 31, 2003 were
$574.6 million, or $134.6 million more than the same period last year. The
increase was primarily attributable to higher gas sales levels resulting
from colder weather, higher PGA rates that are passed on to Utility
customers, subject to prudence review, increased off-system and capacity
release revenues, and the general rate increases. System therms sold and
transported increased by 111.0 million therms, or 16.0%, above the six
months ended March 31, 2002.
Laclede Group's non-regulated services operating revenues for this period
increased $32.9 million from those revenues for the same period last year
attributable to the six-month effect of revenues recorded this year by SM&P,
acquired on January 28, 2002. Other non-regulated operating revenues
increased $52.8 million primarily due to increased gas marketing sales by
Laclede Energy Resources, Inc.
Regulated operating expenses for the six months ended March 31, 2003
increased $120.5 million from the same period last year. Natural and propane
gas expense increased $110.0 million above last year's level primarily
attributable to higher volumes purchased for sendout due to the colder
weather, higher rates charged by our suppliers and higher off system gas
expense. Other operation and maintenance expenses increased $6.7 million, or
10.5%, primarily due to higher pension costs, higher wage rates, higher
group insurance charges, increased insurance premiums, and a higher
provision for uncollectible accounts, partially offset by reduced
distribution charges. Depreciation and amortization expense decreased $1.6
million primarily due to the effect of negative amortization of a portion of
the depreciation reserve effective July 1, 2002, as authorized by the
Missouri Public Service Commission (MoPSC). This effect was partially offset
by increased depreciable property. Taxes, other than income, increased $5.4
million, or 17.1%, primarily due to higher gross receipts taxes (reflecting
the increased revenues).
Laclede Group's non-regulated services operating expenses increased $35.2
million for the six months ended March 31, 2003 due to the six-month effect
of operating expenses recorded this year by SM&P. Other non-regulated
operating expenses increased $50.2 million mainly due to higher expenses
associated with increased gas marketing sales by Laclede Energy Resources,
Inc.
The $.6 million increase in interest expense was primarily due to the
issuance of trust preferred securities in December 2002 partially offset by
a reduction in short-term interest charges (reflecting reduced rates).
The increase in income taxes is mainly due to higher pre-tax income.
18
Regulatory Matters
- ------------------
Laclede Gas previously appealed the MoPSC's decision in its 1999 rate case
relative to the calculation of its depreciation rates. The Circuit Court
remanded the decision to the MoPSC based on inadequate findings of fact. The
MoPSC upheld its previous order and Laclede Gas appealed this second order
to the Circuit Court. Last year, the Circuit Court ruled that the MoPSC's
second order was lawful and reasonable, and Laclede Gas appealed the Circuit
Court's decision to the Missouri Western District Court of Appeals. On March
4, 2003 the Court of Appeals issued an opinion remanding the decision to the
MoPSC based on the MoPSC's failure to support and explain its decision with
adequate findings of fact. The MoPSC has asked that the Court reconsider its
opinion or transfer this matter to the Missouri Supreme Court.
On May 31, 2002, the Staff of the Commission filed a Motion to Investigate
Laclede Gas Company's alleged transfer of its gas supply function to Laclede
Energy Services, Inc. (LES), a subsidiary of Laclede Group, and such
action's ramifications, including whether such alleged transfer required
Commission approval or was otherwise lawful. On June 10, 2002 Laclede Gas
responded, pointing out that it had not transferred its gas supply functions
to LES but had instead delegated five employees to LES with responsibility
for performing various gas supply administrative duties, many of which had
been performed in prior years by an outside party. Laclede Gas remained
primarily responsible for the gas supply function. Laclede Gas urged the
Commission to deny Staff's Motion on this and other grounds. The Commission
concluded that a case should be established to investigate the issues raised
by the Staff. The Commission also ordered the Staff to file a status report
regarding progress of the investigation and Laclede Gas to file any
responses to the Staff's status report. On March 28, 2003, Laclede Gas filed
a Motion with the Commission indicating that LES would be dissolved and that
in light of such action the parties had agreed that the investigation could
be terminated and the case closed. On April 14, 2003, LES ceased to exist as
a corporation. On April 22, 2003, the Commission ordered that the
investigation be dismissed and the case closed.
On July 29, 2002, Laclede Gas filed a proposed Catch-Up/Keep-Up Program with
the MoPSC that would permit the Company to use a portion of the savings from
its negotiated pipeline discounts to fund a low-income energy assistance
program. Pursuant to, and among revisions to the Program filed by the
Utility on September 23, 2002, the amount of discount savings that could be
used for this purpose would be limited to $6 million per year. In response
to certain objections filed by the MoPSC Staff and Missouri Office of the
Public Counsel, the Commission suspended the tariffs implementing the
Program and scheduled a prehearing conference that occurred on October 23,
2002. On January 16, 2003, the Commission, by a 3 to 2 vote, issued an order
rejecting the proposed plan. On January 23, 2003, the Utility filed a Motion
for Reconsideration seeking to identify whether the Commission would approve
the Program at a reduced funding level of $3 million per year. On February
13, 2003 the Commission convened a hearing for oral argument. On March 6,
2003 the Commission denied the Company's Motion for Reconsideration.
On June 28, 2002, the Staff of the MoPSC filed its recommendation in a
proceeding established to review Laclede Gas' gas costs for fiscal 2001. In
its recommendation, the Staff proposed to disallow approximately $4.9
million in pre-tax gains achieved by Laclede Gas in its incentive-based
Price Stabilization Program. This Program was discontinued at the end of the
2001-2002 heating season. Laclede Gas believes that Staff's position lacks
merit and has vigorously opposed the adjustment in proceedings before the
MoPSC, including a formal hearing that was held on this matter in February
2003. Final briefs relating to this matter were filed with the Commission in
April 2003. Regulatory proceeding results are, however, inherently
uncertain, and to the extent that a final Commission decision sustains
Staff's recommended disallowance, the proceeding's outcome could have a
material effect on the future financial position and results of operations
of Laclede Gas. Missouri statutes provide an opportunity for court review of
Commission decisions.
Critical Accounting Policies
- ----------------------------
Our Discussion and Analysis of our financial condition, results of
operations, liquidity and capital resources is based upon our financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. Generally
accepted accounting principles require that we make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We
evaluate our estimates on an ongoing basis. We base our estimates on
historical
19
experience and on various other assumptions that we believe are reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates. We believe the following represent the more significant items
requiring the use of judgment and estimates in preparing our consolidated
financial statements:
Allowances for doubtful accounts - Estimates of the collectibility
of trade accounts receivable are based on historical trends, age of
receivables, economic conditions, credit risk of specific
customers, and other factors.
Employee benefits and postretirement obligations - Pension and
postretirement obligations are calculated by actuarial consultants
that utilize several statistical factors and other assumptions
related to future events, such as discount rates, returns on plan
assets, compensation increases, and mortality rates. The amount of
expense recognized by the Utility is dependent on the regulatory
treatment provided for such costs. Certain liabilities related to
group medical benefits and workers' compensation claims, portions
of which are self-insured and/or contain stop/loss coverage with
third-party insurers to limit exposure, are established based on
historical trends.
Goodwill valuation - In accordance with SFAS No. 142, "Goodwill and
Other Intangible Assets", goodwill related to the acquisition of
SM&P is required to be tested for impairment annually or whenever
events or circumstances occur that may reduce the value of
goodwill. In performing impairment tests, valuation techniques
require the use of estimates with regard to discounted future cash
flows of operations, involving judgments based on a broad range of
information and historical results. If the test indicates
impairment has occurred, goodwill would be reduced which would
adversely impact earnings.
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). Management
believes that the current regulatory environment supports the continued use
of SFAS No. 71 and that all regulatory assets and liabilities are
recoverable or refundable through the regulatory process. We believe the
following represent the more significant items recorded through the
application of SFAS No. 71:
The Utility's Purchased Gas Adjustment (PGA) Clause allows Laclede
Gas to flow through to customers, subject to prudence review, the
cost of purchased gas supplies, including the costs, cost
reductions and associated carrying costs associated with the
Utility's use of natural gas financial instruments. The difference
between actual costs incurred and costs recovered through the
application of the PGA are recorded as regulatory assets and
liabilities that are recovered or refunded in a subsequent period.
For further discussion of significant accounting policies, see the Notes to
the Consolidated Financial Statements included in the Company's 10-K for the
year ended September 30, 2002.
Accounting Pronouncements
- -------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which
requires all business combinations in the scope of this 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 FASB
also issued SFAS No. 142, "Goodwill and Other Intangible Assets," which
addresses how acquired goodwill and other intangible assets that are
acquired individually
20
or with a group of other assets should be accounted for in financial
statements upon acquisition and after they have been initially recognized in
the financial statements. The Company had 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. The complete adoption of SFAS Nos. 141 and 142 on October 1, 2002 did
not have a material effect on the financial position and results of
operations of Laclede Group.
The FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations,"
which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and associated
asset retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from acquisition, construction,
development and/or the normal operation of a long-lived asset, except for
certain obligations of lessees. The provisions of the Statement provide for
rate-regulated entities that meet the criteria for application of SFAS No.
71, such as Laclede Gas, to recognize regulatory assets or liabilities for
differences in the timing of recognition of the period costs associated with
asset retirement obligations for financial reporting pursuant to this
Statement and rate-making purposes. The adoption of this Statement on
October 1, 2002 did not affect the financial position and results of
operations of Laclede Group. There are legal obligations related to final
abandonment of the Utility's gas distribution system. However, these
obligations related to mass property and other distribution system assets
generally are in perpetuity and can not be measured under SFAS No. 143
because of indeterminate settlement dates and cash flow estimates.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure", provides alternative methods for a voluntary change to the fair
value based method of accounting for stock-based compensation. In addition,
this statement requires prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the method used on reported results. The disclosure
provisions are effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002.
The required disclosures are included in this report.
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others", requires an entity to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This requirement is to be applied on a prospective
basis to guarantees issued or modified after December 31, 2002. This
Interpretation also requires disclosures in interim and annual financial
statements about obligations under certain guarantees that the entity has
issued. These disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The required
disclosures are included in this report.
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 in place of up to $215
million, expiring September 15, 2003, and supplemental credit lines of $15
million expiring January 31, 2004. During the quarter ending March 31, 2003,
Laclede Gas sold commercial paper aggregating to a maximum of $174.2 million
at any one time, but did not borrow from the banks under the aforementioned
agreements. At this writing, Laclede Gas has aggregate lines of credit
totaling $230 million. Short-term commercial paper borrowings outstanding at
March 31, 2003 were $122.4 million at a weighted average interest rate of
1.38%. Based on short-term borrowings at March 31, 2003, a change in
interest rates of 100 basis points would increase or decrease pre-tax
earnings and cash flows by approximately $1.2 million on an annual basis.
Most of Laclede Gas' lines of credit include a covenant limiting total debt,
including short-term debt, to no more than 70% of total capitalization. On
March 31, 2003, total debt was 58% of total capitalization.
Laclede Gas has filed a shelf registration on Form S-3. Of the $350 million
of securities originally registered under this S-3, $270 million of debt
securities remained registered and unissued as of March 31, 2003. The MoPSC
authorization for issuing securities registered on Form S-3 expires in
September 2003. The amount, timing and type of additional financing to be
issued under this shelf registration will depend on cash requirements and
market conditions.
21
Short-term cash requirements outside of Laclede Gas have been met thus far
with internally-generated funds. However, Laclede Group has a $20 million
working capital line of credit obtained from U.S. Bank National Association,
expiring in June 2003, with interest rates indexed to LIBOR or Prime, to
meet short-term liquidity needs of its non-utility subsidiaries. As of April
2003, the ratings triggers in this line of credit have been replaced by a
covenant limiting the total debt of Laclede Gas Company to no more than 70%
of the utility's total capitalization (as noted above, this ratio stood at
58% on March 31, 2003.) While this line has not been used to date, it may be
used for seasonal funding needs of the various subsidiaries from time to
time throughout the year or to provide letters of credit.
On December 16, 2002, Laclede Capital Trust I issued 1,800,000 trust
preferred securities at a par value of $25.00 each and a distribution rate
of 7.70%. These securities mature December 1, 2032, but may be redeemed at
Laclede's option on or after December 16, 2007. The proceeds of this
issuance were used to repay Laclede Group's short-term loan of $42.8 million
from U. S. Bank, which had funded the acquisition in January 2002 of SM&P
Utility Resources, Inc. and for other general corporate purposes. These
preferred securities were issued under Laclede Group's shelf registration on
Form S-3, which became effective May 6, 2002, and allows for the issuance of
equity securities, other than preferred stock, and debt securities. Of the
$500 million of securities originally registered under this S-3, $408.6
million remain registered and unissued as of March 31, 2003. The amount,
timing and type of additional financing to be issued under this shelf
registration will depend on cash requirements and market conditions.
The Trust Preferred Securities are rated A- (stable outlook) by Standard &
Poor's Ratings Group (S&P), Baa3 (stable outlook) by Moody's Investors
Service, Inc. and BBB+ (negative outlook) by Fitch Ratings. S&P, Moody's and
Fitch will continue to monitor the ratings of the Trust Preferred
Securities, as well as our other credit ratings, and will make future
adjustments to the extent warranted.
SM&P has several operating leases, the aggregate annual cost of which is
approximately $6 million, consisting primarily of 12-month operating leases,
with renewal options, for vehicles used in its business. Upon acquisition of
SM&P, Laclede Group assumed parental guarantees of certain of those vehicle
leases. Laclede Group anticipates that the maximum guarantees will not
exceed $11 million.
Laclede Group has guarantees outstanding of $6.5 million for performance and
payment of certain wholesale gas supply purchases by Laclede Energy
Resources, Inc. (its non-regulated marketing affiliate), as of March 31,
2003.
Utility construction expenditures were $22.7 million for the six months
ended March 31, 2003, compared with $22.3 million for the same period last
year. Non-utility construction expenditures were $.2 million for the six
months ended March 31, 2003, compared with $.4 for the same period last
year.
Consolidated capitalization at March 31, 2003, excluding current obligations
of long-term debt, increased $71.1 million since September 30, 2002 and
consisted of 50.5% Laclede Group common stock equity, .2% Laclede Gas
preferred stock equity, 7.3% Laclede Capital Trust I preferred securities
and 42.0% Laclede Gas long-term debt. The proportion of preferred securities
in the consolidated capital structure increased with the December 16, 2002
issuance of trust preferred securities by Laclede Capital Trust I.
The seasonal nature of Laclede Gas' sales affects the comparison of certain
balance sheet items at March 31, 2003 and at September 30, 2002, 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 adopted a risk management policy that provides
for the purchase of natural gas financial instruments with the goal of
managing price risk associated with purchasing natural gas on behalf of its
customers. This policy prohibits speculation. Costs and cost reductions,
including carrying costs, associated with the Utility's use of natural gas
financial instruments are allowed to be passed on to the Utility's customers
through the operation of its Purchased Gas Adjustment Clause, through which
the MoPSC allows 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. At March 31, 2003, the Utility held
approximately 5.9 million MmBtu of futures contracts at an average price of
$5.17 per MmBtu. Additionally, approximately 25.0 million MmBtu of price
risk mitigation was in place
22
through the use of option-based strategies. These positions have various
expiration dates, the longest of which extends through March 2004.
In the course of its business, Laclede Group's non-regulated marketing
affiliate, Laclede Energy Resources, Inc. (LER), enters into fixed price
commitments for the sale of natural gas to customers. LER manages the price
risk associated with these sales by either closely matching the purchases of
physical supplies at fixed prices or through the use of exchange-traded
futures contracts to lock in margins. At March 31, 2003, LER's open
positions were not material to Laclede Group's financial position or results
of operations.
Environmental Matters
- ---------------------
Laclede Gas is subject to various environmental laws and regulations that,
to date, have not materially affected the Company's financial position and
results of operations. As these laws, regulations, and their interpretation
evolve, however, additional costs may be incurred.
With regard to a former manufactured gas plant site located in Shrewsbury,
Missouri, 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 $2.3 million. As of March 31, 2003, Laclede Gas has paid or
reserved for these actions. If regulators require additional actions or
assert additional claims, Laclede Gas will incur additional costs.
Laclede Gas enrolled a second former manufactured gas plant site 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. This site is located in and is presently owned by the
City of St. Louis, Missouri. The City of St. Louis has separately authorized
a developer to prepare both a Remedial Action Plan (RAP), for submission to
the VCP, and a site development plan. Laclede Gas continues to explore with
the developer what role, if any, it might play in these efforts. Laclede Gas
continues to evaluate other options as well, including, but not limited to,
the submission of its own RAP to the VCP. Laclede Gas currently estimates
that the cost of site investigations, agency oversight and related legal and
engineering consulting may be approximately $629,000. Currently, Laclede Gas
has paid or reserved for these actions. Laclede has requested that other
former site owners and operators share in these costs and one party has
agreed to participate and has reimbursed Laclede Gas to date for $173,000.
Laclede Gas anticipates additional reimbursement from this party. 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 may contain gas plant
waste that may require remediation. Laclede Gas is working to determine the
nature and extent of such waste, if any, and its 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 is unknown and
may be material. Laclede Gas has notified its insurers that it seeks
reimbursement of its costs at these three manufactured gas plant sites. In
response, 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 are not expected to have any material impact on the financial
position and results of operations of Laclede Gas. With regard to the other
two sites, since the scope of costs are unknown and may be significant,
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.
Laclede Gas Company's Management Discussion and Analysis of Financial
Condition is included in Exhibit 99.1.
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For this discussion, see the "Market Risk" subsection in Management's
Discussion and Analysis of Financial Condition and Results of Operations,
page 22.
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 and Rule 15d-14 under the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective.
There have been no significant changes in our internal controls or in other
factors which could significantly affect internal controls subsequent to the
date we carried out our evaluation.
24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of environmental matters, see Note 11 to the
Consolidated Financial Statements on page 13. For a description of
pending regulatory matters of Laclede Gas, see Management's
Discussion and Analysis of Financial Condition and Results of
Operations, page 19.
Laclede Group and its subsidiaries are involved in other
litigation, claims and investigations arising in the normal course
of business. While the results of such litigation cannot be
predicted with certainty, management believes the final outcome
will not have a material adverse effect on the consolidated
financial position and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders:
The annual meeting of shareholders of The Laclede Group was held on
January 30, 2003, for the purpose of electing three directors to
the board of directors, approving the restricted stock plan for
non-employee directors, approving The Laclede Group Equity Plan,
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:
DIRECTOR NOMINEE FOR WITHHELD
---------------- --- --------
Arnold W. Donald 14,652,783 953,022
C. Ray Holman 14,698,942 906,863
William E. Nasser 14,732,778 873,027
The proposal to approve the restricted stock plan for non-employee
directors was approved upon the following vote:
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
9,771,664 1,730,965 285,156 3,818,020
The proposal to approve The Laclede Group Equity Incentive Plan was
approved upon the following vote:
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
10,271,006 1,227,895 288,882 3,818,022
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, 2003 was passed upon the
following vote:
FOR AGAINST ABSTAIN
--- ------- -------
15,243,416 231,770 130,618
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) Reports on Form 8-K
During the quarter, Laclede Group had two reports on Form 8-K:
1. Form 8-K dated January 30, 2003 furnishing under Item 9 the
presentation of the Company's officers at the annual meeting of
shareholders on that same date.
2. Form 8-K dated January 30, 2003 furnishing under Item 9 the
Company's first quarter earnings release.
25
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.
By: /s/ Barry C. Cooper
---------------------
Dated: April 24, 2003 Barry C. Cooper
---------------- Chief Financial Officer
(Authorized Signatory and
Chief Financial Officer)
26
CERTIFICATIONS
- --------------
I, Douglas H. Yaeger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Laclede Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 22, 2003
--------------
/s/ Douglas H. Yaeger
--------------------------------------
Douglas H. Yaeger
Chairman of the Board,
President and Chief Executive Officer
27
CERTIFICATIONS
- --------------
I, Barry C. Cooper, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Laclede Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 22, 2003
--------------
/s/ Barry C. Cooper
--------------------------------------
Barry C. Cooper
Chief Financial Officer
28
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.
Laclede Gas Company
By: /s/ Barry C. Cooper
---------------------
Dated: April 24, 2003 Barry C. Cooper
---------------- Chief Financial Officer
(Authorized Signatory and
Chief Financial Officer)
29
CERTIFICATIONS
- --------------
I, Douglas H. Yaeger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Laclede Gas
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 22, 2003
--------------
/s/ Douglas H. Yaeger
--------------------------------------
Douglas H. Yaeger
Chairman of the Board,
President and Chief Executive Officer
30
CERTIFICATIONS
- --------------
I, Barry C. Cooper, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Laclede Gas
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 22, 2003
--------------
/s/ Barry C. Cooper
--------------------------------------
Barry C. Cooper
Chief Financial Officer
31
INDEX TO EXHIBITS
-----------------
Exhibit
No.
- -------
10.01 - Amendment to Laclede Gas Company Salary Deferral Savings Plan
effective March 1, 2003.
10.02 - Form of Non-Qualified Stock Option Award Agreement under The
Laclede Group Equity Incentive Plan.
99.1 - Laclede Gas Company - Management's Discussion and Analysis of
Financial Condition and Results of Operations, Financial Statements
and Notes to Financial Statements.
99.2 - Certificate of compliance for The Laclede Group, Inc. under Section
906 of the Sarbanes-Oxley Act of 2002 for Douglas H. Yaeger
99.3 - Certificate of compliance for The Laclede Group, Inc. under Section
906 of the Sarbanes-Oxley Act of 2002 for Barry C. Cooper.
99.4 - Certificate of compliance for Laclede Gas Company under Section 906
of the Sarbanes-Oxley Act of 2002 for Douglas H. Yaeger.
99.5 - Certificate of compliance for Laclede Gas Company under Section 906
of the Sarbanes-Oxley Act of 2002 for Barry C. Cooper.
32