Exhibit 99.1
Selected Financial Data
Laclede Gas Company
Fiscal Years Ended September 30
(Thousands) 2003 2002 2001 2000 1999
-------------------------------------------------------------------
Summary of Operations
Operating Revenues:
Utility $774,772 $592,097 $ 923,242 $529,250 $473,031
Other 2,391 2,521 78,867 36,878 18,287
-------------------------------------------------------------------
Total operating revenues 777,163 594,618 1,002,109 566,128 491,318
-------------------------------------------------------------------
Operating Expenses:
Utility:
Natural and propane gas 483,742 340,045 640,006 294,717 246,294
Other operation expenses 118,550 106,027 101,915 86,970 83,661
Maintenance 18,759 17,813 19,262 18,556 19,517
Depreciation & amortization 22,229 24,215 26,193 24,672 21,470
Taxes, other than income taxes 56,102 48,342 65,062 42,788 41,660
-------------------------------------------------------------------
Total utility operating expenses: 699,382 536,442 852,438 467,703 412,602
Other 2,386 2,572 77,346 35,082 17,497
-------------------------------------------------------------------
Total operating expenses 701,768 539,014 929,784 502,785 430,099
-------------------------------------------------------------------
Operating income 75,395 55,604 72,325 63,343 61,219
Allowance for Funds Used During
Construction (107) (149) 749 397 739
Other Income and Income
Deductions - Net 986 699 668 338 (942)
-------------------------------------------------------------------
Income Before Interest
and Income Taxes 76,274 56,154 73,742 64,078 61,016
-------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 20,169 20,820 18,372 15,164 13,966
Other interest charges 3,752 4,285 10,067 8,844 6,627
-------------------------------------------------------------------
Total interest charges 23,921 25,105 28,439 24,008 20,593
-------------------------------------------------------------------
Income Before Income Taxes 52,353 31,049 45,303 40,070 40,423
Income Taxes 18,011 10,720 14,831 14,105 14,361
-------------------------------------------------------------------
Net Income 34,342 20,329 30,472 25,965 26,062
Dividends on Redeemable Preferred
Stock 62 68 87 93 97
-------------------------------------------------------------------
Earnings Applicable to
Common Stock $ 34,280 $ 20,261 $ 30,385 $ 25,872 $ 25,965
===================================================================
1
Selected Financial Data (continued)
Laclede Gas Company
Fiscal Years Ended September 30
(Thousands) 2003 2002 2001 2000 1999
-----------------------------------------------------------------------
Dividends Declared -
Common Stock $ 25,492 $ 25,311 $ 25,296 $ 25,297 $ 24,459
Utility Plant
Gross Plant - End of Period $1,030,665 $988,747 $949,775 $915,998 $872,527
Net Plant - End of Period 621,247 594,376 569,640 545,715 517,635
Construction Expenditures 49,926 48,765 46,952 51,635 48,698
Property Retirements 8,007 9,769 13,141 6,663 8,190
Total Assets $1,113,009 $994,937 $975,910 $931,740 $837,664
Capitalization -
End of Period
Common Stock and Paid-In
Capital $ 82,579 $ 82,579 $106,590 $106,579 $106,570
Retained Earnings 189,507 180,719 205,512 200,423 199,848
Accumulated Other Comprehensive
Income (Loss) (582) (339) - - (77)
Treasury Stock - - (24,017) (24,017) (24,017)
-----------------------------------------------------------------------
Common Stock Equity 271,504 262,959 288,085 282,985 282,324
Redeemable Preferred Stock 1,258 1,266 1,588 1,763 1,923
Long-Term Debt 259,625 259,545 284,459 234,408 204,323
-----------------------------------------------------------------------
Total capitalization $ 532,387 $523,770 $574,132 $519,156 $488,570
=======================================================================
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LACLEDE GAS COMPANY
INTRODUCTION
This management's discussion analyzes the financial condition and results of
operations of Laclede Gas Company (Laclede Gas or the Utility). 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 "may,"
"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 general operations
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.
RESULTS OF OPERATIONS
Earnings
Utility earnings are generated by the sale of heating energy, which
historically have been heavily influenced by the weather. During fiscal
2002, earnings suffered from a significant weather-related reduction in
natural gas sales, primarily as a result of a heating season that was the
fifth warmest on record and 15% warmer than normal. In sharp contrast,
natural gas sales returned to near-normal levels for fiscal 2003 as the
heating season was just 1% colder than normal, but
3
21% colder than fiscal 2002. The significantly warmer temperatures
experienced in fiscal 2002 were 22% warmer than in fiscal 2001.
As part of the 2002 rate case settlement, the Utility initiated, effective
November 9, 2002, an innovative weather mitigation rate design that lessens
the impact of weather volatility on Laclede Gas customers during cold
winters and is expected to stabilize the Utility's earnings for the future.
Laclede Gas' net income applicable to common stock for fiscal 2003 was $34.3
million, compared with $20.3 million for fiscal 2002, and $30.4 million for
fiscal 2001.
In addition to the favorable effect of higher gas sales arising from the
colder weather, earnings also improved due to the impacts of rate changes
put into effect on December 1, 2001 and November 9, 2002, higher income from
off-system sales and capacity release, and benefits resulting from the
Utility's management of its annual gas supply costs. These factors were
partially offset by the effect of income recorded in fiscal 2002 produced by
the Utility's Price Stabilization Program and higher costs of doing
business.
The $10.1 million decrease in earnings in fiscal 2002 (from 2001) was
primarily attributable to the adverse impact of (1) lower gas sales arising
from temperatures in its service area that were significantly warmer than
the prior year; and, (2) the Missouri Public Service Commission's decision
not to extend the Utility's Gas Supply Incentive Plan (GSIP) beyond
September 30, 2001. The GSIP produced significant benefits for customers and
shareholders during the preceding five years during which the program was in
effect. These factors were partially offset by (1) the benefit of the
general rate increase effective on December 1, 2001; (2) nearly $4.9 million
of pre-tax income from the Utility's Price Stabilization Program (PSP)
recorded in 2002; and (3) higher income from off-system sales and capacity
release revenues. The PSP is discussed further in the Regulatory Matters
section below.
Operating Revenues
Operating revenues for fiscal year 2003 increased $182.7 million, or 30.9%,
above fiscal 2002. The increase in operating revenues was primarily
comprised of higher natural gas sales levels resulting from colder weather
and other variations amounting to $61.8 million, higher PGA rates that are
passed on to Utility customers (subject to prudence review) of $87.2
million, increased off-system and capacity release revenues of $18.5
million, and the general rate increases amounting to $15.2 million.
Operating revenues for fiscal year 2002 decreased $331.1 million, or 35.9%,
below fiscal 2001, reflecting both the return to a more traditional level of
wholesale gas prices and a weather-related reduction in natural gas sales.
The decrease in operating revenues was primarily comprised of lower
wholesale natural gas costs of $228.2 million and lower natural gas sales
levels and other variations of $125.3 million. These factors were slightly
offset by the benefit of the Utility's general rate increase, implemented
December 1, 2001, amounting to $9.2 million, and higher off-system sales,
capacity release and incentive revenues of $13.2 million.
Other operating revenues decreased $.1 million in 2003 (from 2002). Other
operating revenues decreased $76.3 million in 2002 (from 2001) reflecting
exclusion of subsidiary revenues in the presentation subsequent to the
October 1, 2001 restructuring.
Laclede Gas sold and transported 1.13 billion therms in 2003 compared with
1.06 billion and 1.12 billion in 2002 and 2001, respectively.
Operating Expenses
Operating expenses in fiscal 2003 increased $162.9 million, or 30.4%, from
fiscal 2002. Natural and propane gas expense increased $143.7 million
primarily attributable to higher volumes purchased for sendout arising from
the colder weather, higher rates charged by our suppliers, and higher off
system gas expense. Other operation and maintenance expenses increased $13.4
million, or 10.9%, primarily due to increased pension expense, a higher
provision for uncollectible accounts, increased group insurance charges,
higher wage rates, and increased insurance premiums. These factors were
partially offset by reduced distribution charges. Depreciation and
amortization expense decreased $2.0 million primarily due to the effect of
negative amortization of a portion of the depreciation reserve effective
July 1, 2002, as authorized by the MoPSC (see Note 1 related to Utility
Plant, Depreciation and Amortization). This effect was partially offset by
4
increased depreciable property. Taxes, other than income, increased $7.8
million, or 16.1%, primarily due to higher gross receipts taxes, reflecting
the increased revenues.
Operating expenses in fiscal 2002 decreased $316.0 million, or 37.1%, from
fiscal 2001. Natural and propane gas expense decreased $300.0 million
primarily due to decreased rates charged by suppliers and lower volumes
purchased for sendout due to the warmer weather, partially offset by higher
off-system gas expense. Other operation and maintenance expenses increased
$2.7 million, or 2.2%, primarily due to higher group insurance charges,
higher wage rates, increased insurance premiums, lower net pension credits,
and costs to remove retired utility plant. These factors were partially
offset by a lower provision for uncollectible accounts and reduced
distribution and maintenance charges. Depreciation and amortization expense
decreased $2.0 million primarily due to the effect of lower depreciation
rates instituted December 1, 2001 and negative amortization of a portion of
the depreciation reserve effective July 1, 2002, as authorized by the MoPSC
(see Note 1 related to Utility Plant, Depreciation and Amortization). These
effects were partially offset by increased depreciable property. Taxes,
other than income, decreased $16.7 million, or 25.7%, primarily due to lower
gross receipts taxes, reflecting the decreased revenues.
Interest Charges
Interest expense decreased $1.2 million, or 4.7%, in fiscal 2003 (compared
with fiscal 2002) primarily due to lower interest on long-term debt (due to
the May 2003 maturity of $25 million of 6 1/4% First Mortgage Bonds) and
reduced short-term interest expense (primarily due to lower rates).
Income Taxes
The variations in income taxes for all periods reported are primarily due to
changes in pre-tax income.
Labor Agreement
On July 30, 2000, Laclede Gas and Union representatives reached a new
four-year labor agreement replacing the prior agreement that was to expire
July 31, 2000. The new contract extends through July 31, 2004. The
settlement resulted in wage increases of 2.75% in all four years, along with
lump-sum payment provisions and other benefit improvements.
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 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.
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
5
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 related carrying costs associated with the Utility's
use of natural gas financial instruments to hedge the purchase
price of natural gas. 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.
The Company records deferred tax liabilities and assets measured by
enacted tax rates for the net tax effect of all temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes, and the amounts used for income
tax purposes. Changes in enacted tax rates, if any, and certain
property basis differences will be reflected by entries to
regulatory asset or liability accounts for regulated companies, and
will be reflected as income or loss for non-regulated companies.
Also, pursuant to the direction of the MoPSC, Laclede Gas'
provision for income tax expense for financial reporting purposes
reflects an open-ended method of tax depreciation. This method is
consistent with the regulatory treatment prescribed by the MoPSC to
depreciate the Utility's assets.
For further discussion of significant accounting policies, see the Note 1 to
the Financial Statements included in this report on page 23.
REGULATORY MATTERS
At the state level, there have been several important developments during
the fiscal year affecting Laclede Gas, some of which are still pending.
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. In 2002, 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. In May 2003, the Court of Appeals rejected the
MoPSC's request 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. The dissolution of LES had
no material effect on the financial position and results of operations of
Laclede Gas.
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
6
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.
Nevertheless, on April 29, 2003, the MoPSC decided by a 3-2 vote to disallow
the $4.9 million in pre-tax gains achieved by Laclede Gas, and directed
Laclede Gas to flow through such amount to its customers in its November
2003 PGA filing. On June 19, 2003, Laclede Gas appealed the MoPSC's decision
to the Cole County Circuit Court. On October 10, 2003, the Circuit Court
issued an order staying the MoPSC's decision requiring Laclede to flow
through the $4.9 million to customers. Pursuant to the Stay Order, Laclede
will instead pay the $4.9 million into the Court's registry pending a final
judicial determination of Laclede's entitlement to such amounts. On November
5, 2003, the Circuit Court of Cole County, Missouri, issued its Order and
Judgment vacating and setting aside the Commission's decision on the grounds
that it was unlawful and not supported by competent and substantial evidence
on the record. The Court's Order and Judgment becomes final 30 days after
the date it was issued, at which time it will be subject to appeal.
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. Formal hearings were held on December 2 and 3, 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 October 3, 2002, the MoPSC approved a settlement reached among the
parties to the 2002 rate case, filed by Laclede Gas 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 beginning 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.
On July 10, 2003, a bill was signed into Missouri law that, among other
things, allows gas utilities to adjust their rates twice a year to recover
the depreciation, property taxes, and rate of return on facility-related
expenditures that are made to comply with state and federal safety
requirements or to relocate facilities in connection with public improvement
projects. This bill was signed into law and became effective on August 28,
2003. The bill did not have any impact on Laclede during fiscal year 2003,
and the Utility is currently evaluating the impact it may have on future
periods. The Utility anticipates that the bill will have a generally
favorable impact on cash flows and earnings.
On October 9, 2003, the MoPSC issued an order conditionally granting the
Utility's request for a three year extension, through October 31, 2006, of
its authorization to issue securities pursuant to its Universal Shelf
Registration. The extension authorizes the Utility to issue securities in an
amount not to exceed $270 million, which represented the unused portion of
the $350 million Shelf Registration amount previously authorized in 2000.
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 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 adoption of SFAS Nos.
141 and 142 on October 1, 2002 did not have a material effect on the
financial position or results of operations of Laclede Gas.
7
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 or results of
operations of Laclede Gas. 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 continue in perpetuity and can not be measured under SFAS No. 143
because of indeterminate settlement dates and cash flow estimates.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," to consolidate accounting guidance on
various issues related to this matter. Adoption of this Statement in fiscal
2003 did not have a material effect on the financial position or results of
operations of Laclede Gas.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. The provisions
of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
adoption of SFAS No. 146 did not have a material effect on the financial
position or results of operations of Laclede Gas.
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 Laclede Group's Note 1, page 38.
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities," amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133.
This Statement is effective for contracts entered into or modified after
June 30, 2003, with certain exceptions, and for all hedging relationships
designated after June 30, 2003. There was no effect on the financial
position or results of operations of Laclede Gas.
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity," establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or
an asset in some circumstances). Many of those instruments were previously
classified as equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period beginning after June 15, 2003.
Laclede Gas' redeemable preferred stock is a liability under the provision
of SFAS No. 150 and is presented within the Capitalization section on the
Consolidated Balance Sheets. There was not a material effect on the
financial position or results of operations of Laclede Gas.
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. This
Interpretation did not have a material effect on the financial position or
results of operations of Laclede Gas.
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities",
addresses consolidation of business enterprises of variable interest
entities. This Interpretation applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities
in which an enterprise obtains an interest after that date. It applies in
the first interim period ending after December 15, 2003, to variable
interest entities in which an enterprise holds a variable interest acquired
before February 1, 2003. Laclede Gas does not expect a material effect on
its financial position or results of operations.
8
In October 2002, the Emerging Issues Task Force (EITF) reached a consensus
on Issue No. 02-3, "Issues Related to Accounting for Contracts Involved in
Energy Trading and Risk Management Activities." The consensus rescinded EITF
Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and
Risk Management Activities." The consensus precludes mark-to-market
accounting for all energy trading contracts not within the scope of SFAS No.
133, "Accounting for Derivative and Hedging Activities." The consensus to
rescind EITF 98-10 is applicable for fiscal periods beginning after December
15, 2002, except that energy trading contracts not within the scope of SFAS
No. 133 purchased after October 25, 2002, but prior to the implementation of
the consensus, are not permitted to apply mark-to-market accounting. The
EITF also reached a consensus that gains and losses on derivative
instruments within the scope of SFAS No. 133 should be shown net in the
income statement if the derivative instruments are purchased for trading
purposes. Application of these consensuses did not have a material effect on
the financial position or results of operations of Laclede Gas.
INFLATION
The accompanying consolidated financial statements reflect the historical
costs of events and transactions, regardless of the purchasing power of the
dollar at the time. Due to the capital-intensive nature of the business of
Laclede Gas, the most significant impact of inflation is on the depreciation
of utility plant. Rate regulation, to which Laclede Gas is subject, allows
recovery through its rates of only the historical cost of utility plant as
depreciation. While no plans exist to undertake replacements of plant in
service other than normal replacements and those under existing replacement
programs, Laclede Gas believes that any higher costs experienced upon
replacement of existing facilities would be recovered through the normal
regulatory process.
CREDIT RATINGS
As of September 30, 2003, credit ratings for outstanding securities for
Laclede Gas and Laclede Gas issues were as follows:
Type of Facility S&P Moody's Fitch
- -------------------------------------------------------------------------------------------
Laclede Gas First Mortgage Bonds A A3 A+
Laclede Gas Commercial Paper A-1 P-2
On May 5, 2003, Standard & Poor's (S&P) downgraded the long-term corporate
credit rating for Laclede Gas' First Mortgage Bonds from A+ to A. S&P cited
bondholder protection parameters that have eroded due to several successive
warmer-than-normal winters and increasing debt leverage as reasons for the
downgrade. S&P ratings outlook is currently stable.
The Utility's ratings remain investment grade, and the Company believes that
it will have adequate access to the markets to meet its capital
requirements. These ratings remain subject to review and change by the
rating agencies.
LIQUIDITY AND CAPITAL RESOURCES
The Utility'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.
During the fiscal year 2003 heating season, Laclede Gas had lines of credit
in place of up to $230 million. Laclede Gas sold commercial paper
aggregating to a maximum of $220.7 million at any one time during the fiscal
year, but did not borrow from the banks under the aforementioned agreements.
At this writing, Laclede Gas has aggregate lines of credit totaling $290
million, including a seasonal credit line of $25 million expiring February
13, 2004. Short-term commercial paper borrowings outstanding at September
30, 2003 were $218.2 million at a weighted average interest rate of 1.16%.
Based on total short-term borrowings at September 30, 2003, a change in
interest rates of 100 basis points would increase or decrease Laclede Gas's
pre-tax earnings and cash flows by approximately $2.3 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
September 30, 2003, total debt was 64% of total capitalization.
9
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 September 30, 2003. The
original MoPSC authorization for issuing securities registered on this Form
S-3 expired in September 2003. In response to an application filed by the
Utility, the MoPSC has extended this authorization through October 31, 2006.
The amount, timing and type of additional financing to be issued under this
shelf registration will depend on cash requirements and market conditions.
On May 1, 2003, $25 million of 6 1/4% Series First Mortgage Bonds matured
and were funded with the sale of commercial paper. At September 30, 2003,
Laclede Gas had fixed-rate long-term debt totaling $260 million. While these
long-term debt issues are fixed-rate, they are subject to changes in fair
value as market interest rates change. However, increases or decreases in
fair value would impact earnings and cash flows only if Laclede Gas were to
reacquire any of these issues in the open market prior to maturity.
Construction expenditures were $49.9 million in fiscal 2003 compared with
$48.8 million in fiscal 2002 and $47.0 million in fiscal 2001. Laclede Gas
expects fiscal 2004 utility construction expenditures to approximate $57
million.
Capitalization at September 30, 2003 consisted of 51.0% common stock equity,
..2% preferred stock, and 48.8% long-term debt.
The ratio of earnings to fixed charges was 3.2 for 2003, 2.2 for 2002 and
2.6 for 2001.
It is management's view that the Company has adequate access to capital
markets and will have sufficient capital resources, both internal and
external, to meet anticipated capital requirements.
MARKET RISK
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 adverse earnings impact as a result of the use of
these financial instruments. At September 30, 2003, the Utility held
approximately 13.8 million MmBtu of futures contracts at an average price of
$5.82 per MmBtu. Additionally, approximately 15.2 million MmBtu of other
price risk mitigation was in place through the use of option-based
strategies. These positions have various expiration dates, the longest of
which extends through September 2004.
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 essentially complete.
Laclede Gas currently estimates the overall costs of these actions will be
approximately $2.4 million. As of September 30, 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 is engaged in ongoing
meetings with the developer to determine 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
$650,000. Currently, Laclede Gas has paid or reserved for these actions.
Laclede Gas 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
10
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 recovered through Laclede Gas' rates.
Laclede Gas has been advised that a third former manufactured gas plant site
may require remediation. Laclede Gas does not and for many years has not
owned this site. At this time it is not clear whether Laclede Gas will incur
any costs in connection with environmental investigations or remediation at
the site, and if it does incur any costs, what the amount of those costs
would be.
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.
OFF-BALANCE SHEET ARRANGEMENTS
Laclede Gas has no off-balance sheet arrangements.
11
Independent Auditors' Report
To the Board of Directors and Shareholders of Laclede Gas Company:
We have audited the consolidated balance sheets and statements of
consolidated capitalization of Laclede Gas Company and its subsidiaries
("the Company") as of September 30, 2003 and 2002, and the related
statements of consolidated income, common shareholders' equity,
comprehensive income, and cash flows for each of the three years in the
period ended September 30, 2003. Our audits also included the financial
statement schedule listed in the Index at Part IV, Item 15(a) 2. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Laclede Gas Company and its
subsidiaries as of September 30, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 2003 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
November 18, 2003
12
Management Report
Management is responsible for the preparation, presentation and integrity of
the financial statements and other financial information in this report. The
statements were prepared in conformity with accounting principles generally
accepted in the United States of America and include amounts that are based
on management's best estimates and judgments. In the opinion of management,
the financial statements fairly reflect Laclede Gas' financial position,
results of operations and cash flows.
Laclede Gas maintains internal accounting systems and related administrative
controls that are designed to provide reasonable assurance, on a
cost-effective basis, that transactions are executed in accordance with
management's authorization, that financial statements are prepared in
conformity with accounting principles generally accepted in the United
States of America and that Laclede Gas' assets are properly accounted for
and safeguarded. Laclede Gas' Internal Audit Department, which has
unrestricted access to all levels of Laclede Gas management, monitors
compliance with established controls and procedures.
Deloitte & Touche LLP, Laclede Gas' independent auditors, whose report is
contained herein, are responsible for auditing Laclede Gas' financial
statements in accordance with auditing standards generally accepted in the
United States of America. Such standards include obtaining an understanding
of the internal control structure in order to design the audit of the
financial statements.
The Audit Committee of the Board of Directors, which consists of four
outside directors, meets periodically with management, the internal auditor,
and the independent auditors to review the manner in which they are
performing their responsibilities. Both the internal auditor and the
independent auditors periodically meet alone with the Audit Committee and
have access to the Audit Committee at any time.
Douglas H. Yaeger
Chairman of the Board,
President and Chief Executive Officer
Barry C. Cooper
Chief Financial Officer
13
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(Thousands)
- ---------------------------------------------------- ----------- ----------- -----------
Years Ended September 30 2003 2002 2001
- ---------------------------------------------------- ----------- ----------- -----------
Operating Revenues:
Utility $774,772 $592,097 $ 923,242
Other 2,391 2,521 78,867
----------- ----------- -----------
Total operating revenues 777,163 594,618 1,002,109
----------- ----------- -----------
Operating Expenses:
Utility
Natural and propane gas 483,742 340,045 640,006
Other operation expenses 118,550 106,027 101,915
Maintenance 18,759 17,813 19,262
Depreciation and amortization 22,229 24,215 26,193
Taxes, other than income taxes 56,102 48,342 65,062
----------- ----------- -----------
Total utility operating expenses 699,382 536,442 852,438
Other 2,386 2,572 77,346
----------- ----------- -----------
Total operating expenses 701,768 539,014 929,784
----------- ----------- -----------
Operating Income 75,395 55,604 72,325
Other Income and (Income Deductions) - Net 879 550 1,417
----------- ----------- -----------
Income Before Interest and Income Taxes 76,274 56,154 73,742
----------- ----------- -----------
Interest Charges:
Interest on long-term debt 20,169 20,820 18,372
Other interest charges 3,752 4,285 10,067
----------- ----------- -----------
Total interest charges 23,921 25,105 28,439
----------- ----------- -----------
Income Before Income Taxes 52,353 31,049 45,303
Income Tax Expense 18,011 10,720 14,831
----------- ----------- -----------
Net Income 34,342 20,329 30,472
Dividends on Redeemable Preferred Stock 62 68 87
----------- ----------- -----------
Earnings Applicable to Common Stock $ 34,280 $ 20,261 $ 30,385
=========== =========== ===========
See the accompanying notes to consolidated financial statements.
14
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Thousands)
- ------------------------------------------------------- ------------ ------------ ------------
Years Ended September 30 2003 2002 2001
- ------------------------------------------------------- ------------ ------------ ------------
Net Income $ 34,342 $ 20,329 $ 30,472
------------ ------------ ------------
Other Comprehensive Income (Loss):
Minimum pension liability adjustment (396) (553) -
Income tax expense (benefit) related to items
of other comprehensive income (loss) (153) (214) -
------------ ------------ ------------
Other Comprehensive Income (Loss), net of tax (243) (339) -
------------ ------------ ------------
Comprehensive Income $ 34,099 $ 19,990 $ 30,472
============ ============ ============
See the accompanying notes to consolidated financial statements.
15
LACLEDE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands)
- ----------------------------------------------------------------- ------------- --------------
September 30 2003 2002
- ----------------------------------------------------------------- ------------- --------------
Assets
Utility Plant $1,030,665 $988,747
Less - Accumulated depreciation and amortization 409,418 394,371
------------- --------------
Net utility plant 621,247 594,376
------------- --------------
Other Property and Investments 27,898 27,132
------------- --------------
Current Assets:
Cash and cash equivalents 2,907 1,317
Accounts receivable:
Gas customers - billed and unbilled 70,217 51,419
Associated companies 8,957 5,155
Other 9,196 8,684
Less - Allowances for doubtful accounts (6,839) (3,718)
Inventories:
Natural gas stored underground at LIFO cost 117,182 77,087
Propane gas at FIFO cost 17,132 14,712
Materials, supplies and merchandise at average
cost 3,995 4,326
Derivative instrument assets 10,838 11,329
Deferred income taxes 7,631 12,305
Prepayments and other 4,881 2,514
------------- --------------
Total current assets 246,097 185,130
------------- --------------
Deferred Charges:
Prepaid pension cost 109,445 114,313
Regulatory assets 103,807 70,272
Other 4,515 3,714
------------- --------------
Total deferred charges 217,767 188,299
------------- --------------
Total Assets $1,113,009 $994,937
============= ==============
See the accompanying notes to consolidated financial statements.
16
LACLEDE GAS COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
(Thousands)
- ------------------------------------------------------------------------ -------------- ------------
September 30 2003 2002
- ------------------------------------------------------------------------ -------------- ------------
Capitalization and Liabilities
Capitalization:
Common stock equity $ 271,504 $262,959
Redeemable preferred stock 1,258 1,266
Long-term debt (less sinking fund requirements) 259,625 259,545
-------------- ------------
Total Capitalization 532,387 523,770
-------------- ------------
Current Liabilities:
Notes payable 218,200 118,870
Notes payable - associated companies 11,540 -
Accounts payable 41,938 29,695
Accounts payable - associated companies 10,303 1,143
Advance customer billings 15,361 24,832
Current portion of long-term debt - 25,000
Wages and compensation accrued 12,401 11,794
Dividends payable 6,461 6,340
Customer deposits 5,044 4,226
Interest accrued 7,072 7,820
Taxes accrued 16,287 9,495
Unamortized purchased gas adjustment 5,865 22,976
Other 3,366 2,417
-------------- ------------
Total Current Liabilities 353,838 264,608
-------------- ------------
Deferred Credits and Other Liabilities:
Deferred income taxes 177,957 156,924
Unamortized investment tax credits 5,316 5,629
Pension and postretirement benefit costs 20,973 14,658
Regulatory liabilities 582 9,501
Other 21,956 19,847
-------------- ------------
Total Deferred Credits and Other Liabilities 226,784 206,559
-------------- ------------
Commitments and Contingencies (Note 14)
-------------- ------------
Total Capitalization and Liabilities $1,113,009 $994,937
============== ============
See the accompanying notes to consolidated financial statements.
17
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(Thousands, Except Per Share Amounts)
- ------------------------------------------------------------------------ ------------ ------------
September 30 2003 2002
- ------------------------------------------------------------------------ ------------ ------------
Common Stock Equity:
Common stock, par value $1 per share and Paid-in Capital:
Authorized - 2003 and 2002, 50,000,000 shares
Issued - 2003 and 2002, 100 shares $ 82,579 $ 82,579
Retained earnings 189,507 180,719
Accumulated other comprehensive income (loss) (582) (339)
------------ ------------
Total common stock equity 271,504 262,959
------------ ------------
Redeemable Preferred Stock - Laclede Gas,
par value $25 per share (1,480,000
shares authorized) Issued and outstanding:
5% Series B - 2003, 44,413 shares; and
2002, 44,749 shares 1,110 1,118
4.56% Series C - 2003 and 2002, 5,906 shares 148 148
------------ ------------
Total redeemable preferred stock 1,258 1,266
------------ ------------
Long-Term Debt:
First mortgage bonds:
8-1/2% Series, due November 15, 2004 25,000 25,000
8-5/8% Series, due May 15, 2006 40,000 40,000
7-1/2% Series, due November 1, 2007 40,000 40,000
6-1/2% Series, due November 15, 2010 25,000 25,000
6-1/2% Series, due October 15, 2012 25,000 25,000
6-5/8% Series, due June 15, 2016 50,000 50,000
7% Series, due June 1, 2029 25,000 25,000
7.90% Series, due September 15, 2030 30,000 30,000
------------ ------------
Total 260,000 260,000
Unamortized discount, net of premium,
on long-term debt (375) (455)
------------ ------------
Total long-term debt 259,625 259,545
------------ ------------
Total $532,387 $523,770
============ ============
Long-term debt and preferred stock amounts are exclusive of current portion.
See the accompanying notes to consolidated financial statements.
18
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED COMMON SHAREHOLDERS' EQUITY
Common Stock Issued
(Thousands, Except for ---------------------- Paid-in Retained Accum. Other Treasury
Shares and Per Share Amounts ) Shares Amount Capital Earnings Comp. Income Stock Total
------ ------ ------- -------- ------------ ----- -----
---------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2000 20,743,625 $20,744 $ 85,835 $200,423 $ - $(24,017) $282,985
---------------------------------------------------------------------------------
Net Income - - - 30,472 - - 30,472
Dividends declared:
Common stock ($1.34 per share) - - - (25,296) - - (25,296)
Preferred stock dividends - - - (87) - - (87)
Other - - 11 - - - 11
---------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2001 20,743,625 $20,744 $ 85,846 $205,512 $ - $(24,017) $288,085
---------------------------------------------------------------------------------
Net Income - - - 20,329 - - 20,329
Cancel treasury stock (1,865,638) (1,866) (22,151) - - 24,017 -
Effect of restructuring (18,877,987) - - - - - -
Effect of restructuring 100 - - - - - -
Dividends declared:
Common stock ($1.34 per share) - - - (25,311) - - (25,311)
Preferred stock dividends - - - (68) - - (68)
Other comprehensive income (loss) - - - - (339) - (339)
Other - - 6 (19,743) - - (19,737)
---------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2002 100 $18,878 $ 63,701 $180,719 $(339) $ - $262,959
---------------------------------------------------------------------------------
Net Income - - - 34,342 - - 34,342
Dividends declared:
Common stock ($1.34 per share) - - - (25,492) - - (25,492)
Preferred stock dividends - - - (62) - - (62)
Other comprehensive income (loss) - - - - (243) - (243)
---------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2003 100 $18,878 $ 63,701 $189,507 $(582) $ - $271,504
=================================================================================
See the accompanying notes to consolidated financial statements.
19
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Thousands)
- ------------------------------------------------------------------------------------------------------------
Years Ended September 30 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------
Operating Activities:
Net Income $ 34,342 $ 20,329 $ 30,472
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 22,241 25,001 26,425
Deferred income taxes and investment
tax credits 13,542 6,374 (3,454)
Other - net 730 832 (1,745)
Changes in assets and liabilities:
Accounts receivable - net (19,991) 15,191 (23,284)
Unamortized purchased gas adjustments (17,111) 13,950 23,933
Deferred purchased gas costs (21,461) 185 (3,332)
Accounts payable 21,403 (1,955) (13,572)
Advance customer billings (9,471) 13,153 (3,611)
Taxes accrued 6,792 (6,067) 2,868
Natural gas stored underground (40,095) (457) 18,126
Other assets and liabilities 925 (11,797) (14,927)
------------------------------------
Net cash provided by (used in)
operating activities (8,154) 74,739 37,899
Investing Activities:
Construction expenditures (49,926) (48,765) (46,952)
Employee benefit trusts (1,099) (1,342) (3,522)
Other investments 407 (2,598) (2,948)
------------------------------------
Net cash used in
investing activities (50,618) (52,705) (53,422)
Financing Activities:
Issuance (maturity) of First Mortgage Bonds (25,000) - 50,000
Issuance of short-term debt - net 110,870 1,820 (9,950)
Dividends paid (25,500) (25,365) (25,383)
Redemption of preferred stock (8) (395) (136)
------------------------------------
Net cash (used in) provided by
financing activities 60,362 (23,940) 14,531
------------------------------------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,590 (1,906) (992)
Cash and Cash Equivalents at
Beginning of Year 1,317 3,223 4,215
------------------------------------
Cash and Cash Equivalents at End of Year $ 2,907 $ 1,317 $ 3,223
====================================
Supplemental Disclosure of Cash Paid
(Refunded) During the Year for:
Interest $ 23,497 $ 22,349 $ 26,508
Income taxes (4,317) 11,387 12,462
See the accompanying notes to consolidated financial statements.
20
NOTES TO FINANCIAL STATEMENTS
LACLEDE GAS COMPANY
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION - The financial statements include the accounts
of Laclede Gas Company (Laclede Gas or the Utility) and its subsidiary
companies under the corporate organizational structure that was in place
during the three years ended September 30, 2003. Effective October 1, 2001,
the corporation reorganized such that Laclede Gas and its subsidiaries
became separate subsidiaries of The Laclede Group, Inc., an exempt holding
company under the Public Utility Holding Company Act of 1935. See Note 2 for
a discussion of the holding company structure.
The Laclede Gas Financial Statements included in this report present
the financial position, results of operations and cash flows of Laclede Gas
throughout the reported periods, as well as the financial position, results
of operations and cash flows of Laclede Gas' former subsidiaries prior to
restructuring. In conjunction with the October 1, 2001 restructuring,
Laclede Gas dividended its equity in its subsidiaries of $19.7 million to
Laclede Group. Also as of that same date, Laclede Gas cancelled its treasury
stock of $24.0 million.
All subsidiaries were wholly owned and material intercompany
transactions between Laclede Gas and its affiliates that occurred prior to
the October 1, 2001 restructuring have been eliminated from the financial
statements of Laclede Gas.
In compliance with generally accepted accounting principles,
transactions between Laclede Gas and its affiliates that occurred after the
October 1, 2001 restructuring, as well as intercompany balances remaining on
Laclede Gas' balance sheet on September 30, 2003, have not been eliminated
from the Laclede Gas financial statements.
Laclede Gas provides administrative and general support to affiliates
and has filed consolidated tax returns, which include affiliated company tax
obligations. All such costs, which are not material, are billed to the
appropriate affiliates and are reflected in accounts receivable on Laclede
Gas' Balance Sheet. Laclede Gas may also, on occasion, borrow funds from, or
lend funds to, affiliated companies. At September 30, 2003, the Laclede Gas
Balance Sheet reflected a total of $9.0 million of intercompany receivables
and $21.8 million intercompany payables.
NATURE OF OPERATIONS - Laclede Gas is a public utility engaged in the
retail distribution of natural gas. Laclede Gas serves an area in eastern
Missouri, with a population of approximately 2.0 million, including the City
of St. Louis, St. Louis County, and parts of eight other counties. As an
adjunct to its gas distribution business, Laclede Gas operates underground
natural gas storage fields. Laclede Gas has also made investments in some
non-utility businesses as part of a diversification program. Most of these
activities were conducted through the wholly owned subsidiaries that became
subsidiaries of Laclede Group effective with the October 1, 2001
restructuring.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
SYSTEM OF ACCOUNTS - The accounts of Laclede Gas are maintained in
accordance with the uniform system of accounts prescribed by the Missouri
Public Service Commission (MoPSC or Commission), which system substantially
conforms to that prescribed by the Federal Energy Regulatory Commission.
UTILITY PLANT, DEPRECIATION AND AMORTIZATION - Utility plant is stated
at original cost. The cost of additions to utility plant includes contracted
work, direct labor and materials, allocable overheads, and an allowance for
funds used during construction. The costs of units of property retired,
replaced, or renewed are removed from utility plant and are charged to
accumulated depreciation. Maintenance and repairs of property and
replacement and renewal of items determined to be less than units of
property are charged to maintenance expenses. Effective December 1, 2001,
the MoPSC ordered the cost of removing retired utility plant to be recovered
as an expense when incurred rather than being included in depreciation
rates. Prior to December 1, 2001, the Utility's removal costs, net of
salvage, were charged to accumulated depreciation. As ordered by the MoPSC,
Laclede Gas instituted lower depreciation rates effective December 1, 2001
and began expensing all removal costs, net of salvage, as incurred. These
costs are included in the Other Operation Expenses line on the income
statement. Effective July 1, 2002, the MoPSC ordered the negative
amortization on a straight-line basis of a portion of the Utility's
depreciation reserve, amounting to $3.4 million annually, until
implementation of rates in the Utility's next rate case proceeding during
which the parties have agreed to review the depreciation issue in light of
Statement of Financial Accounting Standard (SFAS) No. 143 implementation.
Minor changes in depreciation rates were implemented January 1, 2003, as
authorized by the MoPSC.
21
Utility plant is depreciated on a straight-line basis at rates based on
estimated service lives of the various classes of property. Annual
depreciation and amortization in 2003, 2002 and 2001 averaged approximately
2.7%, 2.8% and 2.9%, respectively, of the original cost of depreciable and
amortizable property.
REGULATED OPERATIONS - Laclede Gas accounts for its regulated
operations in accordance with 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).
The following regulatory assets and regulatory liabilities were
reflected in the Consolidated Balance Sheets as of September 30:
(Thousands) 2003 2002
------------------------------------------------------------------------------------
Regulatory Assets:
Future income taxes due from customers $ 62,633 $50,662
Pension and postretirement benefit costs 14,358 6,167
Purchased gas costs 13,749 -
Compensated absences 6,511 6,390
Other 6,984 7,924
-----------------------
Total Regulatory Assets $104,235 $71,143
=======================
Regulatory Liabilities:
Unamortized investment tax credits $ 5,316 $ 5,629
Unamortized purchased gas adjustments 5,865 22,976
Purchased gas costs - 9,117
Other 582 384
-----------------------
Total Regulatory Liabilities $ 11,763 $38,106
=======================
As authorized by the MoPSC, Laclede Gas discontinued deferring certain
costs for future recovery, as expenses associated with those specific areas
were included in approved rates effective December 27, 1999. Previously
deferred costs, of $10.5 million and $2.1 million, are being recovered and
amortized on a straight-line basis over fifteen-year and ten-year periods,
respectively, without return on investment. Approximately $2.6 million and
$.8 million has been amortized, respectively, from December 27, 1999 through
September 30, 2003. The Commission also authorized previously deferred costs
of $2.8 million and $.3 million to be recovered and amortized on a
straight-line basis over a ten-year period, without return on investment,
effective December 1, 2001 and November 9, 2002, respectively. Approximately
$.5 million and $29,000 has been amortized through September 30, 2003.
GAS STORED UNDERGROUND - Inventory of Utility gas in storage is priced
on a last-in, first-out (LIFO) basis. The replacement cost of gas stored
underground for current use at September 30, 2003 exceeded the LIFO cost by
$19.6 million and at September 30, 2002 exceeded the LIFO cost by $10.0
million. The inventory carrying value is not adjusted to the lower of cost
or market prices because, pursuant to the Laclede Gas Purchased Gas
Adjustment (PGA) Clause, actual gas costs are recovered in customer rates.
REGULATED GAS DISTRIBUTION REVENUES - Laclede Gas records revenues from
gas sales and transportation service on the accrual basis which includes
estimated amounts for gas delivered, where applicable, but not yet billed.
PURCHASED GAS ADJUSTMENTS AND DEFERRED ACCOUNT - The PGA Clause allows
Laclede Gas to flow through to customers, subject to prudence review, the
cost of purchased gas supplies. The Utility is allowed to file to modify, on
a periodic basis, the level of gas costs in its PGA. Currently, the MoPSC
allows Laclede Gas to adjust the gas cost component of its rates in order to
better match customer billings with market natural gas prices. Currently,
the tariffs allow scheduled gas cost adjustments in November, January, March
and June. Effective February 2002, the MoPSC clarified that costs, cost
reductions and carrying costs associated with the Utility's use of natural
gas financial instruments (except as provided previously under the PSP) are
gas costs recoverable through the PGA mechanism.
The provisions of the PGA Clause also included operation of the Gas
Supply Incentive Plan (GSIP or Plan), that extended through September 30,
2001. See Note 4 for additional information on the operation of the Plan.
Operation of the Price Stabilization Program (PSP or Program) was also
included in the provisions of the PGA Clause. Under those provisions, the
MoPSC authorized Laclede Gas to purchase financial instruments to protect
itself and its customers from unusually large winter period gas price
increases. The costs of purchasing these instruments and financial gains
derived from such activities were passed on to Laclede Gas customers through
the operation of its PGA Clause. Laclede Gas had an opportunity to benefit
from gains and cost reductions achieved under the Program. The cost of
financial instruments for the fiscal 2001 heating season, however, like the
cost of natural gas itself, increased
22
significantly. As a result, the MoPSC granted a request made by Laclede Gas
to reduce the amount of natural gas purchases required to be covered by such
financial instruments for that particular heating season. In February 2001,
the MoPSC approved modifications to the program for the fiscal 2002 heating
season. The modifications allowed a total of $4.0 million in supplemental
funding to be added to the program for the purchase of financial instruments
for the fiscal 2002 heating season and that the percentage of gas
requirements to be covered be reduced. Concurrently, Laclede Gas
relinquished a claim on $4.0 million arising from gains realized from
purchases and sales of financial instruments made during fiscal 2001 and
offered to utilize a similar amount to provide for future funding for such
instruments in the event the program was allowed to continue. The PSP was
allowed to expire at the end of the fiscal 2002 heating season, at which
time, the Utility recorded nearly $4.9 million in pre-tax income produced
through the Program. See Note 14 for further discussion of the PSP.
Pursuant to the provisions of the PGA Clause, the difference between
actual costs incurred and costs recovered through the application of the PGA
(including costs, cost reductions, and carrying costs associated with the
use of financial instruments), and amounts due to or from customers related
to the operation of the GSIP and PSP are reflected as a deferred charge or
credit until fiscal year end. At that time the balance is classified as a
current asset or liability and is recovered from or credited to customers
over an annual period commencing in November. The balance in the current
account is amortized as amounts are reflected in customer billings.
INCOME TAXES - Laclede Gas has elected, for tax purposes only, various
accelerated depreciation provisions of the Internal Revenue Code. In
addition, certain other costs are expensed currently for tax purposes while
being deferred for book purposes. The provision for current income taxes
reflects the tax treatment of these items. Laclede Gas records deferred tax
liabilities and assets measured by enacted tax rates for the net tax effect
of all temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes, and the amounts used for
income tax purposes. Changes in enacted tax rates, if any, and certain
property basis differences will be reflected by entries to regulatory asset
or liability accounts for regulated companies, and will be reflected as
income or loss for non-regulated companies.
Laclede Gas' investment tax credits utilized prior to 1986 have been
deferred and are being amortized in accordance with regulatory treatment
over the useful life of the related property.
CASH AND CASH EQUIVALENTS - All highly liquid debt instruments
purchased are considered to be cash equivalents. Such instruments are
carried at cost, which approximates market value.
NEW ACCOUNTING STANDARDS - 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
adoption of SFAS Nos. 141 and 142 on October 1, 2002 did not have a material
effect on the financial position or results of operations of Laclede Gas.
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
or results of operations of Laclede Gas. 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 continue in perpetuity and can not be measured under SFAS
No. 143 because of indeterminate settlement dates and cash flow estimates.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to consolidate accounting
guidance on various issues related to this matter. Adoption of this
Statement in fiscal 2003 did not have a material effect on the financial
position or results of operations of Laclede Gas.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which requires that a
liability for a cost associated with an exit or disposal activity be
recognized and measured initially at fair value only when the liability is
incurred. The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. The adoption of SFAS No. 146 did not have a material
effect on the financial position or results of operations of Laclede Gas.
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
23
are effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. The
required disclosures are included in Laclede Group's Note 1, page 38.
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities", amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133.
This Statement is effective for contracts entered into or modified after
June 30, 2003, with certain exceptions, and for all hedging relationships
designated after June 30, 2003. There was no effect on the financial
position or results of operations of Laclede Gas.
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or
an asset in some circumstances). Many of those instruments were previously
classified as equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period beginning after June 15, 2003.
Laclede Gas' redeemable preferred stock is a liability under the provision
of SFAS No. 150 and is presented within the Capitalization section on the
Consolidated Balance Sheets. There was not a material effect on the
financial position or results of operations of Laclede Gas.
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. This
Interpretation did not have a material effect on the financial position or
results of operations of Laclede Gas.
FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities", addresses consolidation of business enterprises of variable
interest entities. This Interpretation applies immediately to variable
interest entities created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. It
applies in the first interim period ending after December 15, 2003, to
variable interest entities in which an enterprise holds a variable interest
acquired before February 1, 2003. Laclede Gas does not expect a material
effect on its financial position or results of operations.
In October 2002, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 02-3, "Issues Related to Accounting for Contracts
Involved in Energy Trading and Risk Management Activities." The consensus
rescinded EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk Management Activities." The consensus precludes
mark-to-market accounting for all energy trading contracts not within the
scope of SFAS No. 133, "Accounting for Derivative and Hedging Activities."
The consensus to rescind EITF 98-10 is applicable for fiscal periods
beginning after December 15, 2002, except that energy trading contracts not
within the scope of SFAS No. 133 purchased after October 25, 2002, but prior
to the implementation of the consensus, are not permitted to apply
mark-to-market accounting. The EITF also reached a consensus that gains and
losses on derivative instruments within the scope of SFAS No. 133 should be
shown net in the income statement if the derivative instruments are
purchased for trading purposes. Application of these consensuses did not
have a material effect on the financial position or results of operations of
Laclede Gas.
RECLASSIFICATION - Certain prior-period amounts have been reclassified
to conform to current-period presentation.
2. CORPORATE RESTRUCTURING
Effective October 1, 2001, Laclede Gas and its subsidiaries became
subsidiaries of Laclede Group, an exempt holding company under the Public
Utility Holding Company Act of 1935. Under the new structure, Laclede Gas
and its former subsidiaries operate as separate subsidiaries of Laclede
Group. The following charts illustrate the major organizational changes
resulting from this restructuring.
24
Organization Structure
Prior to October 1, 2001
-------------------
Laclede Gas Company
-------------------
|
--------------------------------------------------------------------
| | |
---------------------- --------------------------- ------------------------
Laclede Investment LLC Laclede Development Company Laclede Pipeline Company
---------------------- --------------------------- ------------------------
| |
------------------------------ ---------------------
Laclede Energy Resources, Inc. Laclede Venture Corp.
------------------------------ ---------------------
|
---------------------------------
Laclede Gas Family Services, Inc.
---------------------------------
Organization Structure
Effective October 1, 2001
-----------------------
The Laclede Group, Inc.
-----------------------
|
-------------------------------------------------------------------------------------------
| | | |
- ------------------- ---------------------- --------------------------- ------------------------
Laclede Gas Company Laclede Investment LLC Laclede Development Company Laclede Pipeline Company
- ------------------- ---------------------- --------------------------- ------------------------
| |
------------------------------ ---------------------
Laclede Energy Resources, Inc. Laclede Venture Corp.
------------------------------ ---------------------
|
---------------------------------
Laclede Gas Family Services, Inc.
---------------------------------
Since the October 1, 2001 restructuring, stock certificates previously
representing shares of Laclede Gas common stock have represented the same
number of shares of Laclede Group common stock. All serial preferred stock
issued by Laclede Gas remains issued and outstanding as shares of Laclede
Gas serial preferred stock. The dividend rate for the preferred stock has
not changed and those dividends will continue to be paid by Laclede Gas. All
outstanding indebtedness and other obligations of Laclede Gas prior to the
restructuring remain outstanding as obligations of Laclede Gas.
3. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Laclede Gas has non-contributory defined benefit, trusteed forms of
pension plans covering substantially all employees over the age of
twenty-one. Benefits are based on years of service and the employee's
compensation during the last three years of employment. The funding policy
of Laclede Gas is to contribute an amount not less than the minimum required
by government funding standards, nor more than the maximum deductible amount
for federal income tax purposes. Plan assets consist primarily of corporate
and U.S. government obligations and pooled equity funds. Pension
25
cost in 2003 amounted to $3.5 million, pension credits in 2002 and 2001
amounted to $3.5 million and $5.2 million, respectively, including amounts
recorded in construction.
The net periodic pension costs (credits) include the following
components:
(Thousands) 2003 2002 2001
---------------------------------------------------------------------------------------------
Service cost - benefits earned
During the period $ 10,561 $ 9,441 $ 9,575
Interest cost on projected
benefit obligation 16,600 14,653 15,331
Expected return on plan assets (22,601) (24,749) (25,517)
Amortization of transition obligation (236) (602) (662)
Amortization of prior service cost 1,392 1,127 1,174
Amortization of actuarial (gain)/loss 1,338 (3,768) (5,544)
Regulatory adjustment (3,582) 435 435
---------------------------------------
Net pension cost (credit) $ 3,472 $(3,463) $ (5,208)
=======================================
Effective with the implementation of rates (from the 1999 rate case) on
December 27, 1999, the commission authorized amounts that were deferred
pursuant to provisions in previous rate cases to be included in rates
without return on investment and amortized over a fifteen-year period.
Additionally, pursuant to that order and effective for fiscal 2001 and 2002,
the return on plan assets was based on the market value of plan assets and
the unrecognized gain or loss balances subject to amortization were based
upon the most recent five-year average of the unrecognized gain or loss
balance. Net gains and losses in fiscal 2001 and 2002 subject to
amortization were amortized over a five-year period, as ordered by the MoPSC
in the 1999 rate case.
Effective for fiscal 2003, pursuant to the Commission's order in
Laclede Gas' 2002 rate case, the return on plan assets is based on
market-related value of plan assets implemented prospectively over a
four-year period. Unrecognized gains or losses are amortized only to the
extent that such gain or loss exceeds 10% of the greater of the projected
benefit obligation or the market-related value of plan assets. Such excess
is amortized over the average remaining service life of active participants.
Also in the 2002 rate case, the Commission ordered that the recovery in
rates for the Utility's qualified pension plans is based on the ERISA
minimum contribution of zero effective October 1, 2002, and on the ERISA
minimum contribution of zero plus $3,400,000 effective July 1, 2003. The
difference between this amount and pension expense as calculated pursuant to
the above and included in the Statement of Consolidated Income and Statement
of Consolidated Comprehensive Income is deferred as a regulatory asset or
liability.
The following table sets forth the reconciliation of the beginning and
ending balances of the pension benefit obligation recognized in the
Consolidated Balance Sheets at September 30:
(Thousands) 2003 2002
-----------------------------------------------------------------------------------------
Benefit obligation at beginning of year $228,090 $197,773
Service cost 10,561 9,441
Interest cost 16,600 14,653
Plan amendments - 4,897
Actuarial loss 38,865 24,401
Settlements (491) -
Gross benefits paid (25,186) (23,075)
----------------------------
Benefit obligation at end of year $268,439 $228,090
============================
26
The following table sets forth the reconciliation of the beginning and
ending balances of the fair value of plan assets recognized in the
Consolidated Balance Sheets at September 30:
(Thousands) 2003 2002
---------------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $273,230 $299,437
Actual return on plan assets 23,989 (4,486)
Employer contributions 3,000 1,354
Settlements (491) -
Gross benefits paid (25,186) (23,075)
---------------------------
Fair value of plan assets at end of year $274,542 $273,230
---------------------------
Funded status at end of year $ 6,103 $ 45,140
Unrecognized net actuarial loss 82,743 46,872
Unrecognized prior service cost 17,264 18,655
Unrecognized net transition asset - (236)
Fourth quarter contribution adjustment 56 989
---------------------------
Net amount recognized at end of year $106,166 $111,420
===========================
Amounts recognized in the Consolidated Balance Sheets consist of:
Prepaid pension cost $105,081 $114,313
Accrued benefit liability (5,294) (3,456)
Intangible asset 753 10
Regulatory adjustment 4,677 -
Accumulated other comprehensive income 949 553
---------------------------
Net amount recognized at end of year $106,166 $111,420
===========================
The pension benefit obligation and the fair value of plan assets are
based on a June 30 measurement date. The projected benefit obligation was
determined using a weighted average discount rate of 6.00% for 2003 and
7.25% for 2002, and a weighted average rate of future compensation increase
of 3.00% for 2003 and 4.00% for 2002. The effect of the above changes in
pension assumptions was to increase the projected benefit obligation by
$36.0 million. The expected long-term rate of return on plan assets was
8.50% for both 2003 and 2002.
The aggregate projected benefit obligation and fair value of plan
assets for plans with benefit obligations in excess of plan assets were
$23.9 million and $14.8 million, respectively, for fiscal 2003 and $5.2
million and $0, respectively, for fiscal 2002. The aggregate accumulated
benefit obligation and fair value of plan assets for plans with accumulated
benefit obligations in excess of plan assets were $21.4 million and $14.8
million, respectively, for fiscal 2003 and $5.0 million and $0,
respectively, for fiscal 2002.
Pursuant to the provisions of the Laclede Gas pension plans, pension
obligations may be settled by lump-sum cash payments. Settlements in 2003
resulted in a pre-tax loss of approximately $.3 million, and settlements in
2002 and 2001 resulted in pre-tax gains of approximately $0, and $.6
million, respectively. In 2001, all such lump sum payments were recognized
as settlements. Pursuant to MoPSC order in the 2001 rate case, effective for
fiscal 2002, lump sum payments are recognized as settlements only if the
total of such payments exceeds 100% of the sum of service and interest
costs. No lump sum payments were recognized as settlements in fiscal 2002,
and in fiscal 2003, $.5 million of lump sum payments were recognized as
settlements.
The cost of the defined contribution plans of Laclede Gas, which cover
substantially all employees, amounted to $2.9 million, $2.9 million, and
$3.0 million, respectively, for the years 2003, 2002 and 2001.
Laclede Gas also provides certain life insurance benefits at
retirement. Medical insurance is available after early retirement until
age 65.
Missouri state law provides for the recovery in rates of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(OPEB), accrued costs provided that such costs are funded through an
independent, external funding mechanism. Laclede Gas established the
Voluntary Employees' Beneficiary Association (VEBA) and Rabbi trusts as its
external funding mechanisms. VEBA and Rabbi trusts assets consist primarily
of money market securities and mutual funds invested in stocks and bonds.
The unrecognized transition obligation is being amortized over 20 years.
Postretirement benefit costs in 2003, 2002 and 2001 amounted to
approximately $7.8 million, $6.5 million, and $6.2 million, respectively,
including amounts charged to construction.
27
Net periodic postretirement benefit costs consisted of the following
components:
(Thousands) 2003 2002 2001
--------------------------------------------------------------------------------------------
Service cost - benefits earned
during the period $2,758 $2,205 $2,063
Interest cost on accumulated
postretirement benefit obligation 3,661 3,266 3,055
Expected return on plan assets (937) (853) (704)
Amortization of transition
obligation 1,267 1,267 1,267
Amortization of prior service cost 328 365 365
Amortization of actuarial loss 415 227 66
Regulatory adjustment 301 69 69
-------------------------------------
Net postretirement benefit cost $7,793 $6,546 $6,181
=====================================
The following table sets forth the reconciliation of the beginning and
ending balances of the postretirement benefit obligation at September 30:
(Thousands) 2003 2002
------------------------------------------------------------------------------------
Benefit obligation at beginning of year $50,027 $39,958
Service cost 2,758 2,205
Interest cost 3,661 3,266
Plan amendments (4,021) (476)
Actuarial loss 5,131 8,731
Gross benefits paid (5,048) (3,657)
-------------------------
Benefit obligation at end of year $52,508 $50,027
=========================
The following table sets forth the reconciliation of the beginning and
ending balances of the fair value of plan assets recognized in the
Consolidated Balance Sheets at September 30:
(Thousands) 2003 2002
-----------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 12,081 $ 9,715
Actual return on plan assets 61 114
Employer contributions 7,160 5,909
Gross benefits paid (5,048) (3,657)
-------------------------
Fair value of plan assets at end of year $ 14,254 $ 12,081
-------------------------
Funded status at end of year $(38,254) $(37,946)
Unrecognized net actuarial loss 16,665 11,073
Unrecognized prior service cost (277) 1,997
Unrecognized net transition obligation 10,570 13,912
-------------------------
Net amount recognized at end of year
as postretirement benefit cost $(11,296) $(10,964)
=========================
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation for 2003 was 7.00% in 2003,
and gradually decreases each successive year until it reaches 5.00% in 2005
and future years. Such rate for 2002 was 8.00% in 2002 and gradually
decreased each successive year until it reached 5.0% in 2005 and future
years. A one-percentage-point increase or (decrease) in the assumed health
care cost trend rate for each future year would have increased or
(decreased) the aggregate of the service and interest cost components of the
2003 net periodic postretirement benefit cost by approximately $.4 million
or $(.4) million and would have increased or (decreased) the postretirement
benefit obligation by $1.7 million or $(1.7) million. The accumulated
postretirement benefit obligation was determined using a weighted average
discount rate of 6.00% for 2003 and 7.25% for 2002, and a weighted average
rate of future compensation increase of 3.00% for 2003 and 4.00% for 2002.
These changes in assumptions increased the postretirement benefit obligation
by $5.1 million. The weighted average rate for the expected return on
medical plan assets was 7.75% for both 2003 and 2002 and the weighted
average rate for the expected return on life insurance plan assets was 8.50%
for both 2003 and 2002.
Effective with the implementation of rates (from the 1999 rate
case) on December 27, 1999, the commission authorized amounts that were
deferred pursuant to provisions in previous rate cases, to be included in
rates without return on investment and amortized over a fifteen-year period.
Additionally, pursuant to that order and effective for fiscal 2001 and 2002,
the return on plan assets was based on the market value of plan assets and
the unrecognized gain or loss balances subject to amortization were based
upon the most recent five-year average of the unrecognized gain or loss
28
balance. Net gains and losses in fiscal 2001 and 2002 subject to
amortization were amortized over a five-year period, as ordered by the MoPSC
in the 1999 rate case.
Effective for fiscal 2003, pursuant to the Commission's order in
the Company's 2002 rate case, the return on plan assets is based on market
related value of plan assets implemented prospectively over a four-year
period. Unrecognized gains and losses are amortized only to the extent that
such gain or loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market-related value of plan
assets. Such excess is amortized over the average remaining service life of
active participants. Also in the 2002 rate case, the Commission ordered that
the recovery in rates for the postretirement benefit costs be based on the
accounting methodology as ordered in the 1999 rate case. The difference
between this amount and postretirement benefit expense as calculated
pursuant to the above is deferred as a regulatory asset or liability.
4. GAS SUPPLY INCENTIVE PLAN AND OFF-SYSTEM SALES
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. After the MoPSC's decision to
terminate the GSIP was upheld by the Cole County Circuit Court, the Company
determined that it would not seek further judicial review of the MoPSC's
decision. 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 MoPSC. Income
related to releases of pipeline capacity and sales made outside its
traditional service area are volatile in nature and subject to market
conditions.
During fiscal 2001, total pre-tax income derived from all sharing
provisions of the GSIP, excluding income generated by sales outside of the
Laclede Gas service area, could not exceed $9.0 million. Of that amount,
pre-tax income derived from sharing gains and losses as measured against a
benchmark level of gas costs could not exceed $5.3 million. Under the
provisions of the Plan during fiscal 2001, Laclede Gas and its customers
shared as follows:
o releases of pipeline capacity, of which 70% to 90% of the revenues were
allocated to its customers and the balance to its shareholders,
o savings from discounts off of maximum pipeline transportation rates, of
which the excess over a predetermined baseline of $13 million was
allocated 70% to its customers and the balance to its shareholders,
o gains and losses as measured against a benchmark level of gas cost, of
which 50% to 90% (depending on the change from a predetermined cost)
was allocated to its customers and the balance to its shareholders, and
o increases or decreases in costs related to changes in the mix of
pipeline services, of which 70% was allocated to its customers and the
balance to its shareholders.
GSIP and off-system sales revenues are included in the gas
distribution operating revenues line in the accompanying financial
statements. Expenses related to the GSIP and off-system sales are included
in the natural and propane gas expense line in the accompanying financial
statements. Pre-tax income from the GSIP, capacity release and off-system
sales activities are set forth below.
(Thousands) 2003 2002 2001
-----------------------------------------------------------------------------------------
GSIP (including Capacity Release) $ - $ - $ 9,000
Capacity Release (post-GSIP) 3,567 1,402 -
Off-System Sales 7,186 3,718 1,035
----------------------------------
Total Pre-Tax Income $10,753 $5,120 $10,035
==================================
5. GAS SUPPLY MANAGEMENT COSTS
In the 2002 rate case, the MoPSC approved a new plan applicable
to the management of the Utility's gas supply commodity costs under which
Laclede Gas achieved approximately $3.5 million in pre-tax income during the
fiscal year ending September 30, 2003. Under the plan, the Utility may
retain up to 10% of cost savings associated with the acquisition of natural
gas below an established benchmark level of gas cost.
29
6. COMMON STOCK AND PAID-IN CAPITAL
Laclede Gas issued no shares of its common stock during fiscal 2003 or
fiscal 2002.
Paid-in capital increased slightly in 2003 due to gains recorded on
reacquired preferred stock. Paid-in capital decreased $22.2 million in 2002
primarily due to the cancellation of 1,865,638 shares of treasury stock
totaling $22.2 million by Laclede Gas.
Total shares of common stock outstanding were 100 at September 30, 2003
and 2002.
7. REDEEMABLE PREFERRED STOCK
The preferred stock, which is non-voting except in certain
circumstances, may be redeemed at the option of the Laclede Gas Board of
Directors. The redemption price is equal to par of $25.00 a share.
During 2003, 336 shares of 5% Series B preferred stock were reacquired;
in 2002, 16,006 shares of 5% Series B preferred stock were reacquired.
Any default in a sinking fund payment must be cured before Laclede Gas
may pay dividends on or acquire any common stock. Sinking fund requirements
on preferred stock for the next five years subsequent to September 30, 2003
are $0 in 2004 and $.2 million each in 2005 through 2008.
8. LONG-TERM DEBT
Maturities on long-term debt, including current portion, for the five
fiscal years subsequent to September 30, 2003 are as follows:
2004 -
2005 $25 million
2006 $40 million
2007 -
2008 $40 million
On May 1, 2003, $25 million of 6 1/4% Series First Mortgage Bonds
matured and was funded with the sale of commercial paper.
As of September 30, 2003, $270 million of the Laclede Gas shelf
registration on Form S-3 remained registered and unissued. The MoPSC
authorization for issuing securities registered on Form S-3 expired in
September 2003. On July 9, 2003, the Utility filed a request with the MoPSC
to extend their authorization for an additional three years. The Commission
subsequently extended its authorization through October 31, 2006. The
amount, timing and type of additional financing to be issued under this
shelf registration will depend on cash requirements and market conditions.
Substantially all of the utility plant of Laclede Gas is subject to the
liens of its mortgage. Its mortgage contains provisions that restrict
retained earnings from declaration or payment of cash dividends. As of
September 30, 2003 and 2002, all of the retained earnings of Laclede Gas
were free from such restrictions.
9. NOTES PAYABLE AND CREDIT AGREEMENTS
In September 2003, Laclede Gas renewed and increased its syndicated
line of credit to $250 million for a period of 364 days. Laclede Gas also
has supplemental 364-day lines totaling $15 million through April 2004.
Subsequent to the end of the fiscal year, a seasonal credit line of $25
million was put in place for the period of October 14, 2003 through February
13, 2004.
Laclede Gas issues commercial paper that is supported by the bank lines
of credit. During fiscal year 2003, the Utility's short-term borrowing
requirements, which peaked at $229.8 million, were met primarily by the sale
of commercial paper, supplemented from time to time by short-term loans from
Laclede Group of no more than $15 million. Laclede Gas had $218.2 million in
commercial paper outstanding as of September 30, 2003, at a weighted average
interest rate of 1.2%, and $118.9 million outstanding as of September 30,
2002, at a weighted average interest rate of 1.9%.
30
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of financial instruments
at September 30, 2003 and 2002 are as follows:
Carrying Fair
(Thousands) Amount Value
---------------------------------------------------------------------------------------
2003:
Cash and cash equivalents $ 2,907 $ 2,907
Short-term debt 229,740 229,740
Long-term debt 259,625 290,780
Redeemable preferred stock 1,258 1,258
2002:
Cash and cash equivalents $ 1,317 $ 1,317
Short-term debt 118,870 118,870
Long-term debt, including current portion 284,545 315,178
Redeemable preferred stock 1,266 1,266
The carrying amounts for cash and cash equivalents and short-term debt
approximate fair value due to the short maturity of these investments. Fair
value of long-term debt and preferred stock is estimated based on market
prices for similar issues.
11. INCOME TAXES
The net provisions for income taxes charged during the years ended
September 30, 2003, 2002 and 2001 are as follows:
(Thousands)
---------------------------------------------------------------------------------
Years Ended September 30 2003 2002 2001
---------------------------------------------------------------------------------
Included in Statements of
Consolidated Income:
Federal
Current $ 3,342 $ 3,643 $15,639
Deferred 12,112 5,666 (2,778)
Investment tax credit
adjustments - net (313) (319) (319)
State and local
Current 1,127 703 2,646
Deferred 1,743 1,027 (357)
---------------------------------
Total $18,011 $10,720 $14,831
=================================
The effective income tax rate varied from the federal statutory income
tax rate for each year due to the following:
2003 2002 2001
----------------------------------
Federal income tax statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
Net of federal income tax benefits 3.6 3.6 3.3
Certain expenses capitalized on books
And deducted on tax return (2.9) (4.9) (2.5)
Taxes related to prior years (1.3) 1.4 0.3
Other items - net - (0.6) (3.3)
----------------------------------
Effective income tax rate 34.4% 34.5% 32.8%
==================================
31
The significant items comprising the net deferred tax liability
recognized in the Balance Sheets as of September 30 are as follows:
(Thousands) 2003 2002
-----------------------------------------------------------------------------------
Deferred tax assets:
Reserves not currently deductible $ 18,043 $ 15,108
Deferred gas cost 1,602 9,037
Unamortized investment tax credits 3,347 3,544
Other 4,454 3,867
---------------------------
Total deferred tax assets 27,446 31,556
Deferred tax liabilities:
Relating to utility property 146,748 123,773
Pension 42,500 44,380
Other 8,524 8,022
---------------------------
Total deferred tax liabilities 197,772 176,175
Net deferred tax liability 170,326 144,619
Net deferred tax asset - current 7,631 12,305
---------------------------
Net deferred tax liability - non-current $177,957 $156,924
==========================
12. OTHER INCOME AND INCOME DEDUCTIONS - NET
(Thousands) 2003 2002 2001
--------------------------------------------------------------------------------------------
Allowance for Funds
Used During Construction $ (107) $(149) $ 749
Other Income 1,575 850 2,298
Other Income Deductions (589) (151) (1,630)
-------------------------------------
Other Income and (Income Deductions) - Net $ 879 $ 550 $ 1,417
====================================
32
13. INFORMATION BY OPERATING SEGMENT
The Regulated Gas Distribution segment consists of the regulated
operations of Laclede Gas. 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 Other
segment includes merchandise sales activities, and in fiscal 2001 (prior to
restructuring) included 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.
Accounting policies are as described in Note 1. There are no material
intersegment revenues.
(Thousands)
Regulated
Gas Non-Regulated
Distribution Other Eliminations Consolidated
------------------------------------------------------------
Fiscal 2003
Operating Revenues $ 774,772 $ 2,391 $ - $ 777,163
Depreciation & Amortization 22,229 - - 22,229
Interest Charges 23,921 - - 23,921
Income Tax Expense 18,009 2 - 18,011
Net Income 34,339 3 - 34,342
Total Assets 1,111,503 1,506 - 1,113,009
Construction Expenditures 49,926 - - 49,926
Fiscal 2002
Operating Revenues $ 592,097 $ 2,521 $ - $ 594,618
Depreciation & Amortization 24,215 - - 24,215
Interest Charges 25,105 - - 25,105
Income Tax Expense 10,740 (20) - 10,720
Net Income 20,360 (31) - 20,329
Total Assets 993,490 1,447 - 994,937
Construction Expenditures 48,765 - - 48,765
Fiscal 2001
Operating Revenues $ 923,242 $78,867 $ - $1,002,109
Depreciation & Amortization 26,193 - - 26,193
Interest Charges 28,792 - (353) 28,439
Income Tax Expense 14,170 661 - 14,831
Net Income 29,541 931 - 30,472
Total Assets 963,676 29,800 (17,566) 975,910
Construction Expenditures 46,952 - - 46,952
14. COMMITMENTS AND CONTINGENCIES
Laclede Gas estimates fiscal year 2004 utility construction
expenditures at approximately $57 million. The lease agreement covering the
general office space of Laclede Gas extends through February 2005 with
options to renew for up to 15 additional years. The aggregate rental expense
for fiscal years 2003, 2002 and 2001 was $847,000, $838,000 and $830,000,
respectively. The annual minimum rental payment for fiscal year 2004 is
anticipated to be approximately $856,000 with a maximum annual rental
payment escalation of $8,800 per year for each year through fiscal 2005.
Laclede Gas has other relatively minor rental arrangements that provide for
minimum rental payments. Laclede Gas has entered into various operating
lease agreements for the rental of vehicles and power operated equipment.
The rental costs will be approximately $697,000 in fiscal 2004, $587,000 in
fiscal 2005, $426,000 in fiscal 2006, $219,000 in fiscal 2007 and $90,000 in
fiscal 2008. Laclede Gas has entered into various contracts, which in the
aggregate require it to pay approximately $85 million on an annual basis, at
present rate levels, for the reservation of gas supplies and pipeline
transmission and storage capacity. These costs are recovered from customers
in accordance with the PGA Clause. The contracts have various expiration
dates ranging from 2004 to 2011.
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
essentially complete. Laclede Gas currently estimates the overall costs of
these actions will be approximately $2.4 million. As of September 30, 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
33
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 is engaged in ongoing
meetings with the developer to determine 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
$650,000. 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 recovered through Laclede Gas' rates.
Laclede Gas has been advised that a third former manufactured gas plant
site may require remediation. Laclede Gas does not and for many years has
not owned this site. At this time it is not clear whether Laclede Gas will
incur any costs in connection with environmental investigations or
remediation at the site, and if it does incur any costs, what the amount of
those costs would be.
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.
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. Nevertheless, on April 29, 2003, the MoPSC decided by a 3-2 vote to
disallow the $4.9 million in pre-tax gains achieved by Laclede Gas, and
directed Laclede Gas to flow through such amount to its ratepayers in its
November 2003 PGA filing. On June 19, 2003, Laclede Gas appealed the MoPSC's
decision to the Cole County Circuit Court. On October 10, 2003, the Circuit
Court issued an order staying the MoPSC's decision requiring Laclede Gas to
flow through the $4.9 million to customers. Pursuant to the Stay Order,
Laclede Gas will instead pay the $4.9 million into the Court's registry
pending a final judicial determination of the Utility's entitlement to such
amounts. On November 5, 2003, the Circuit Court of Cole County, Missouri,
issued its Order and Judgment vacating and setting aside the Commission's
decision on the grounds that it was unlawful and not supported by competent
and substantial evidence on the record. The Court's Order and Judgment
becomes final 30 days after the date it was issued, at which time it will be
subject to appeal.
Laclede Gas is involved in litigation, claims, and investigations
arising in the normal course of business. While the results of such
litigation cannot be predicted with certainty, management, after discussion
with counsel, believes the final outcome will not have a material adverse
effect on the financial position and results of operations reflected in the
financial statements presented herein.
34
15. INTERIM FINANCIAL INFORMATION (UNAUDITED)
In the opinion of Laclede Gas, the quarterly information presented
below for fiscal years 2003 and 2002 includes all adjustments (consisting of
only normal recurring accruals) necessary for a fair statement of the
results of operations for such periods. Variations in operations reported on
a quarterly basis primarily reflect the seasonal nature of the business of
Laclede Gas.
(Thousands)
- ---------------------------------------- --------------- ------------- -------------- -------------
Three Months Ended Dec. 31 March 31 June 30 Sept. 30
- ---------------------------------------- --------------- ------------- -------------- -------------
2003
Total operating revenues $217,815 $358,109 $ 114,829 $86,410
Operating income (loss) 27,948 46,765 5,124 (4,442)
Net income (loss) 14,598 24,898 53 (5,207)
- ---------------------------------------- --------------- ------------- -------------- -------------
Three Months Ended Dec. 31 March 31 June 30 Sept. 30
- ---------------------------------------- --------------- ------------- -------------- -------------
2002
Total operating revenues $183,818 $257,398 $ 87,968 $65,434
Operating income (loss) 17,579 43,066 (212) (4,829)
Net income (loss) 7,880 22,581 (3,379) (6,753)
35