Exhibit 99.1
Selected Financial Data
Laclede Gas Company
Fiscal Years Ended September 30
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(Thousands) 2004 2003 2002 (a) 2001 2000
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Summary of Operations
Operating Revenues:
Utility $868,905 $774,772 $592,097 $ 923,242 $529,250
Other 2,577 2,391 2,521 78,867 36,878
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Total Operating Revenues 871,482 777,163 594,618 1,002,109 566,128
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Operating Expenses:
Utility
Natural and propane gas 575,691 483,742 340,045 640,006 294,717
Other operation expenses 121,596 118,550 106,027 101,915 86,970
Maintenance 18,705 18,759 17,813 19,262 18,556
Depreciation and amortization 22,385 22,229 24,215 26,193 24,672
Taxes, other than income taxes 60,077 56,102 48,342 65,062 42,788
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Total utility operating expenses 798,454 699,382 536,442 852,438 467,703
Other 2,456 2,386 2,572 77,346 35,082
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Total Operating Expenses 800,910 701,768 539,014 929,784 502,785
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Operating Income 70,572 75,395 55,604 72,325 63,343
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Allowance for Funds Used During Construction (123) (107) (149) 749 397
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Other Income and (Income Deductions) - Net 3,507 986 699 668 338
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Interest Charges:
Interest on long-term debt 22,010 20,169 20,820 18,372 15,164
Other interest charges 3,192 3,752 4,285 10,067 8,844
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Total Interest Charges 25,202 23,921 25,105 28,439 24,008
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Income Before Income Taxes 48,754 52,353 31,049 45,303 40,070
Income Tax Expense 16,555 18,011 10,720 14,831 14,105
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Net Income 32,199 34,342 20,329 30,472 25,965
Dividends on Redeemable Preferred Stock 62 62 68 87 93
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Earnings Applicable to Common Stock $ 32,137 $ 34,280 $ 20,261 $ 30,385 $ 25,872
====================================================================
1
Selected Financial Data (continued)
Laclede Gas Company
Fiscal Years Ended September 30
------------------------------------------------------------------------
(Thousands) 2004 2003 2002 (a) 2001 2000
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Dividends Declared -
Common Stock $ 27,183 $ 25,492 $ 25,311 $ 25,296 $ 25,297
Utility Plant
Gross Plant - End of Period $1,070,522 $1,030,665 $988,747 $949,775 $915,998
Net Plant - End of Period 646,875 621,247 594,376 569,640 545,715
Construction Expenditures 49,130 49,926 48,765 46,952 51,635
Property Retirements 9,276 8,007 9,769 13,141 6,663
Total Assets - End of Period $1,155,981 $1,113,009 $994,937 $975,910 $931,740
Capitalization -
End of Period
Common Stock and Paid-In
Capital $ 136,042 $ 82,579 $ 82,579 $106,590 $106,579
Retained Earnings 194,461 189,507 180,719 205,512 200,423
Accumulated Other Comprehensive
Income (Loss) (371) (582) (339) - -
Treasury Stock - - - (24,017) (24,017)
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Common Stock Equity 330,132 271,504 262,959 288,085 282,985
Redeemable Preferred Stock 1,108 1,258 1,266 1,588 1,763
Long-Term Debt 333,936 259,625 259,545 284,459 234,408
------------------------------------------------------------------------
Total Capitalization $ 665,176 $ 532,387 $523,770 $574,132 $519,156
========================================================================
<FN>
(a) Effective October 1, 2001, the corporation reorganized such that Laclede
Gas became a subsidiary of Laclede Group, an exempt public utility
holding company. In conjunction with the restructuring, the
subsidiaries of Laclede Gas became subsidiaries of Laclede Group.
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 periods, and their effects on overall financial condition and
liquidity.
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Certain words, such as "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "seek," and similar words
and expressions identify forward-looking statements that involve
uncertainties and risks. Future developments may not be in accordance with
our expectations or beliefs and the effect of future developments may not be
those anticipated. Among the factors that may cause results to differ
materially from those contemplated in any forward-looking statement are:
o weather conditions and catastrophic events;
o economic, competitive, political and regulatory conditions;
o legislative, regulatory and judicial mandates and decisions, some
of which may be retroactive, including those affecting
o allowed rates of return
o incentive regulation
o industry structure
o purchased gas adjustment provisions
o rate design structure and implementation
o franchise renewals
o environmental or safety matters
o taxes
o accounting standards;
o the results of litigation;
o retention, ability to attract, ability to collect from and conservation
efforts of customers;
o capital and energy commodity market conditions including the ability to
obtain funds for necessary capital expenditures and the terms and
conditions imposed for obtaining sufficient gas supply;
o discovery of material weakness in internal controls; 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 Utility's Financial
Statements and the notes thereto.
3
RESULTS OF OPERATIONS
Laclede Gas is regulated by the Missouri Public Service Commission (MoPSC or
Commission) and serves the metropolitan St. Louis area and several other
counties in eastern Missouri. Laclede Gas delivers natural gas to retail
customers at rates, and in accordance with tariffs, authorized by the MoPSC.
The Utility's earnings are generated by the sale of heating energy, which
historically has been heavily influenced by the weather. However, 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 in the future by recovering
fixed costs more evenly during the heating season. Due to the seasonal
nature of the business of Laclede Gas, earnings are typically concentrated
in the November through April period, which generally corresponds with the
heating season. The Utility typically experiences losses during the
non-heating season.
Mitigating the impact of weather fluctuations on Laclede Gas customers while
improving the ability to recover its authorized distribution costs and
return has been a fundamental component of the Laclede Gas strategy. The
Utility's distribution costs are the essential, primarily fixed expenditures
it must incur to operate and maintain a more than 15,000-mile natural gas
distribution system and related storage facilities. In fiscal 2003, when the
weather mitigation rate design first went into effect, the weather was
essentially normal; therefore, its impact was minimal. However, it has shown
its value during fiscal 2004, as the downward pressure on revenues and
earnings has been significantly mitigated despite temperatures that were 14%
warmer than normal. The Utility's income from off-system sales remains
subject to fluctuations in market conditions. In addition, Laclede Gas is
working to continually improve its ability to provide reliable natural gas
service at a reasonable cost, while maintaining and building a secure and
dependable infrastructure.
Laclede Gas' net income applicable to common stock for fiscal 2004 was $32.1
million, compared with $34.3 million for fiscal 2003, and $20.3 million for
fiscal 2002. The fiscal 2004 decrease in net income of $2.2 million from
fiscal 2003 was primarily attributable to the following factors, quantified
on a pre-tax basis.
Utility earnings decreased primarily due to the following factors:
o income recorded in 2003 totaling $3.5 million related to the
Utility's management of its annual gas supply costs;
o the net effect totaling $2.5 million of lower system gas sales
volumes (resulting from temperatures in Laclede Gas' service area
that were 14% warmer than normal and 15% warmer than the same
period last year) tempered by the beneficial effect this year of
the fully-implemented weather mitigation rate design that went
into effect November 9, 2002;
o a higher provision for uncollectible accounts totaling $1.7
million above fiscal year 2003;
o an increase in interest charges of $1.3 million, primarily due to
the issuance of additional long-term debt;
o pension costs that increased $1.1 million from fiscal year 2003;
and
o higher wage rates.
These factors were partially offset by:
o non-operating income recorded this year that increased $2.5
million primarily reflecting the receipt of additional proceeds
totaling $1.1 million related to the Utility's interest, as a
policyholder, in the sale of a mutual insurance company, increases
in other investment income, and lower donations;
o a decrease in group insurance costs totaling $1.6 million from
fiscal year 2003;
o income from off-system sales and capacity release that increased
$1.4 million from fiscal year 2003;
o the partial-year effect of the implementation of an Infrastructure
System Replacement Surcharge effective June 10, 2004, totaling
$1.1 million; and
o the fully-implemented general rate increase, effective November 9,
2002, totaling $.9 million.
Laclede Gas' net income applicable to common stock for fiscal year 2003 was
$34.3 million, compared with $20.3 million for fiscal year 2002. The
increase of $14.0 million was primarily attributable to the following
factors, quantified on a pre-tax basis.
Utility earnings increased primarily due to the following factors:
o general rate increases effective December 1, 2001 and November 9,
2002 totaling $15.2 million;
o the net effect totaling $10.1 million of higher system gas sales
volumes in fiscal 2003 (resulting from temperatures in Laclede
Gas' service area that were 1% colder than normal and 21% colder
than the same period in fiscal 2002), tempered by the partial-year
effect of the weather mitigation rate design effective November 9,
2002;
4
o income from off-system sales and capacity release that increased
$5.6 million from fiscal year 2002; and
o income recorded in 2003 totaling $3.5 million related to the
Utility's management of its annual gas supply costs.
These factors were partially offset by:
o higher pension costs amounting to $5.1 million;
o the effect of income recorded in fiscal year 2002 produced by the
Utility's Price Stabilization Program totaling $4.9 million;
o a higher provision for uncollectible accounts totaling $4.5
million;
o increased group insurance charges totaling $1.5 million; and
o higher wage rates.
Regulated Operating Revenues and Operating Expenses
Regulated operating revenues for fiscal year 2004 increased $94.1 million,
or 12.1%, above fiscal 2003. The increase was primarily attributable to
higher wholesale gas costs that are passed on to Utility customers (subject
to prudence review by the MoPSC) totaling $105.0 million, increased
off-system sales revenues totaling $42.0 million, and, to a lesser extent,
the effects of the general rate increase totaling $.9 million and the
partial-year effect of the ISRS totaling $1.1 million. These factors were
partially offset by lower system gas sales levels resulting from warmer
weather and other variations totaling $54.9 million. Temperatures were 14%
warmer than normal and 15% warmer than last year.
Regulated 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 wholesale
gas costs that are passed on to Utility customers (subject to prudence review
by the MoPSC) of $87.2 million, increased off-system and capacity release
revenues of $18.5 million, and the general rate increases effective December
1, 2001 and November 9, 2002 amounting to $15.2 million.
Laclede Gas sold and transported 1.12 billion therms in fiscal year 2004
compared with 1.13 billion and 1.06 billion in fiscal years 2003 and 2002,
respectively.
Regulated operating expenses in fiscal 2004 increased $99.1 million, or
14.2%, from fiscal 2003. Natural and propane gas expense increased $91.9
million, primarily attributable to higher rates charged by our suppliers and
increased off-system gas expense, partially offset by lower volumes
purchased for sendout. Other operation and maintenance expenses increased
$3.0 million, or 2.2%, primarily due to a higher provision for uncollectible
accounts, higher pension costs, and higher wage rates, partially offset by
lower group insurance charges. Taxes, other than income, increased $4.0
million, or 7.1%, primarily due to higher gross receipts taxes (attributable
to the increased revenues).
Regulated 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 increased depreciable property. Taxes, other than
income, increased $7.8 million, or 16.1%, primarily due to higher gross
receipts taxes (attributable to the increased revenues).
Other Income and Income Deductions - Net
The $2.5 million increase in other income and income deductions-net in
fiscal year 2004 from fiscal year 2003 was primarily attributable to the
recognition this year of the receipt of additional proceeds totaling $1.1
million related to Laclede Gas' interest, as a policyholder, in the sale of
a mutual insurance company. These proceeds represent initial distributions
relating to certain policies held by Laclede Gas. Subsequent distributions,
if any, are not expected to have a material impact on the financial position
or results of operations of Laclede Gas. Other income and income
deductions-net also increased due to higher investment income and lower
donations. The change in other income and income deductions-net in fiscal
year 2003 from fiscal year 2002 was minor because the receipt of proceeds
related to the interest in the sale of a mutual insurance company in 2003
totaling $.8 million was essentially offset by higher donations.
5
Interest Charges
Interest charges increased $1.3 million, or 5.4% in fiscal 2004 (compared
with fiscal 2003) primarily due to higher interest on long-term debt due to
the April 2004 issuance of $50 million of 5 1/2% First Mortgage Bonds and
the April 2004 issuance of $100 million of 6% First Mortgage Bonds. These
increases in interest costs were partially offset by the early redemption in
June 2004 of $50 million of 6 5/8% First Mortgage Bonds and the May 2003
maturity of $25 million of 6 1/4% First Mortgage Bonds, as well as reduced
interest on short-term debt, mainly attributable to lower borrowings.
Interest charges 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
Laclede Gas had a labor agreement that expired July 31, 2004 with Locals 5-6
and 5-194 of the Paper, Allied-Industrial, Chemical & Energy Workers
International Union, two locals that represent approximately 74% of Laclede
Gas' employees. On August 16, 2004, Laclede Gas and Union representatives
reached a new four-year labor agreement replacing the prior agreement. The
new contract applies through July 31, 2008.
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
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 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
6
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.
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. 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 Note 1 to the
Financial Statements included in this report on page 22 of Exhibit 99.1.
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 Court of Appeals for the Western District.
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 March 29, 2004,
the MoPSC Staff and Laclede Gas responded to a MoPSC order directing
interested parties to submit new proposed findings of fact on this issue for
its consideration. By Order dated May 4, 2004, the MoPSC determined that it
was necessary to take additional evidence on this issue. Evidentiary
hearings were held on September 22-24, 2004, and briefs were filed on
November 2, 2004. This proceeding now awaits the MoPSC's decision. Laclede
Gas believes that a favorable decision, when recognized in rates, would be
expected to benefit its cash flows.
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 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 Gas to flow through the $4.9 million to customers.
Pursuant to the Stay Order, Laclede Gas is paying $4.9 million into the
Court's registry pending a final judicial determination of Laclede Gas'
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. On December
5, 2003, the MoPSC appealed the Circuit Court's decision to the Missouri
Court of Appeals for the Western District. Oral arguments were held in the
Missouri Court of Appeals for the Western District on August 17, 2004. The
Utility is now awaiting the court's decision. The Utility continues to
believe in the merits of its position and intends, if necessary, to assert
its position vigorously throughout the appellate process. However, to the
extent that a final decision in the courts results in disallowance of the
$4.9 million in pre-tax gains, it could have a material effect on the future
financial position or results of operations of Laclede Gas.
7
On March 1, 2004, Laclede Gas submitted to the MoPSC an Infrastructure
System Replacement Surcharge (ISRS) filing designed to increase revenues by
approximately $3.86 million annually. Such filing was made pursuant to a
Missouri law, enacted in 2003, that allows gas utilities to adjust their
rates up to twice a year to recover certain facility-related expenditures
that are made to comply with state and federal safety requirements or to
relocate facilities in connection with public improvement projects. On March
12, 2004, the MoPSC suspended the proposed surcharge until June 29, 2004
pursuant to the statute. On May 27, 2004 the Utility and the Staff of the
MoPSC filed a Stipulation and Agreement ("S&A") that provided for a $3.56
million annual surcharge effective June 10, 2004. On June 1, 2004 the MoPSC
approved the S&A. On October 28, 2004, Laclede Gas submitted its second ISRS
filing to the MoPSC designed to increase revenues by approximately an
additional $1.6 million annually.
ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board (FASB) Interpretation No. 46 (Revised
December 2003) (FIN 46R), "Consolidation of Variable Interest Entities,"
addresses consolidation of business enterprises of variable interest
entities. Public entities shall apply this Interpretation to their interests
in special purpose entities as of the first interim period ending after
December 15, 2003. Application by public entities for all other types of
variable interest entities was required in financial statements for periods
ending after March 15, 2004. There was no effect on the financial position
or results of operations of Laclede Gas upon adoption.
In December 2003, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 132 (revised 2003) (SFAS No. 132 (R)), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The
provisions of this Statement do not change the measurement and recognition
provisions of SFAS No. 87, "Employers' Accounting for Pensions," No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132(R)
replaces SFAS No. 132, and requires certain additional disclosures that
became effective for fiscal years ending after and interim periods beginning
after December 15, 2003. The required disclosures are included in Note 2 to
the Financial Statements on page 24 of Exhibit 99.1, and the disclosures for
prior periods are presented consistent with current presentation.
The Emerging Issues Task Force (EITF) deliberated Issue 03-01, "The Meaning
of Other-Than-Temporary Impairment and its Application to Certain
Investments." The Issue was intended to address the meaning of
other-than-temporary impairment and its application to certain investments
held at cost. A consensus was reached regarding disclosure requirements
concerning unrealized losses on available-for-sale debt and equity
securities accounted for under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and SFAS No. 124, "Accounting for
Certain Investments Held for Not-for-Profit Organizations." The guidance for
evaluating whether an investment is other-than-temporarily impaired should
be applied in reporting periods beginning after June 15, 2004. The
disclosures are effective in annual financial statements for fiscal years
ended after December 15, 2003, for investments accounted for under SFAS Nos.
115 and 124. For all other investments within the scope of this Issue, the
disclosures are effective in annual financial statements for fiscal years
ending after June 15, 2004. Additional disclosures for cost method
investments are effective for fiscal years ending after June 15, 2004. There
were no disclosures required for this report.
In May 2004, the FASB issued FASB Staff Position (FSP) No. 106-2,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003." FSP 106-2 supersedes FSP
106-1 issued in January 2004. FSP 106-2 provides guidance on the accounting
for the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (Act) for employers that sponsor postretirement
health care plans that provide prescription drug benefits. The Act
introduces two new features to Medicare that an employer needs to consider
in measuring its obligation and net periodic postretirement benefit costs.
The effective date for FSP 106-2 is the first interim or annual period
beginning after June 15, 2004. The adoption of FSP 106-2 did not have a
material effect on the financial position or results of operations of the
Company.
INFLATION
The accompanying 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
8
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, 2004, credit ratings for outstanding securities for
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
The Utility has investment grade ratings, and believes that it will have
adequate access to the financial markets to meet its capital requirements.
These ratings remain subject to review and change by the rating agencies.
CASH FLOWS
Laclede Gas' 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. Changes
in the wholesale cost of natural gas, variations in the timing of
collections of gas costs under the Utility's PGA Clause, the seasonality of
accounts receivable balances, and the utilization of storage gas inventories
cause short-term cash requirements to vary during the year, and can cause
significant variations in the Utility's cash provided by or used in
operating activities.
Net cash provided by operating activities for the year ended 2004 was $83.0
million, a $91.2 million increase, compared with the same period last year.
The increase in cash provided by operating activities was primarily
attributable to changes in the cost of natural gas in storage and variations
in the timing of collections of gas costs under the PGA clause. Net cash
used in operating activities for the fiscal year ended 2003 was $8.2 million
compared with cash provided by operation in fiscal year 2002 totaling
$74.9 million. The adverse effect on cash related to operating activities
was primarily due to changes in the cost of natural gas in storage and
unfavorable variations in the timing of collections of gas costs under the
PGA clause.
Net cash used in investing activities for fiscal 2004 was $50.1 million
compared with $50.6 million for fiscal 2003 and $52.9 million for fiscal
year 2002. Cash used in investing activities primarily reflected
construction expenditures in all three years.
Net cash used in financing activities for fiscal 2004 totaled $33.5 million,
primarily reflecting the repayment of short-term debt and the payment of
dividends, partially offset by the issuance of additional long-term debt and
paid-in capital contributions from Laclede Group. Net cash provided by
financing activities was $60.4 million for fiscal 2003 primarily reflecting
the issuance of short-term debt, partially offset by the May 2003 maturity
of $25 million of 6 1/4% First Mortgage Bonds and dividend payments. Cash
used in financing activities totaled $23.9 million in fiscal 2002 primarily
due to the payment of dividends.
LIQUIDITY AND CAPITAL RESOURCES
The Utility's short-term borrowing requirements have traditionally been met
through the sale of commercial paper supported by lines of credit with
banks. During the fiscal year 2004 heating season, Laclede Gas had lines of
credit in place of up to $290 million, including a $25 million seasonal line
during the peak winter season. Laclede Gas had short-term borrowings
aggregating to a maximum of $274.7 million at any one time during the fiscal
year. These borrowings were primarily commercial paper, supplemented from
time to time by draws on the seasonal line of credit or short-term loans
from Laclede Group. Loans from Laclede Group were no more than $12.6 million
at any time. At the date of this report, Laclede Gas has aggregate lines of
credit totaling $300 million, with $15 million expiring in April 2005 and
$285 million expiring in September 2009. Short-term commercial paper
borrowings outstanding at September 30, 2004 were $71.4 million at a
weighted average interest rate of 1.9% per annum. Based on total short-term
borrowings at September 30, 2004, a change in interest rates of 100 basis
points would increase or decrease Laclede Gas pre-tax earnings and cash
flows by approximately $0.7 million on an annual basis.
9
Most of Laclede Gas' lines of credit include covenants limiting total debt,
including short-term debt, to no more than 70% of total capitalization and
requiring earnings before interest, taxes, depreciation and amortization
(EBITDA) to be at least 2.25 times interest expense. On September 30, 2004,
total debt was 56% of total capitalization. For the fiscal year ended
September 30, 2004, EBITDA was 3.82 times interest expense.
Laclede Gas has on file a shelf registration on Form S-3. Of the $350
million of securities originally registered under this Form S-3, $120
million of debt securities remained registered and unissued as of September
30, 2004. The original MoPSC authorization for issuing securities registered
on this Form S-3 expired September 2003. In response to an application filed
by the Utility, the MoPSC extended this authorization to issue debt
securities and receive paid-in capital through October 31, 2006. The
remaining MoPSC authorization is $65.5 million, reflecting capital
contributions that have been made by Laclede Group to Laclede Gas under this
authority through October 2004. The amount, timing and type of additional
financing to be issued under this shelf registration will depend on cash
requirements and market conditions.
In April 2004, Laclede Gas issued $50 million of First Mortgage Bonds, 5 1/2%
Series, due May 1, 2019, and $100 million of First Mortgage Bonds, 6%
Series, due May 1, 2034. The net proceeds of approximately $147.9 million
from this issuance were used to repay short-term debt and to call at par the
$50 million 6 5/8% Series First Mortgage Bonds in June 2004. The proceeds
were also used to pay at maturity $25 million of 8 1/2% First Mortgage Bonds
in November 2004. At September 30, 2004, Laclede Gas had fixed-rate
long-term debt totaling $360 million, including the $25 million current
portion. 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.
Utility construction expenditures were $49.1 million in fiscal 2004,
compared with $49.9 million and $48.8 million for the fiscal years 2003 and
2002, respectively. Utility construction expenditures are expected to be
approximately $56 million in fiscal 2005.
Capitalization at September 30, 2004, excluding current obligations of
long-term debt and preferred stock, consisted of 49.6% common stock equity,
..2% preferred stock and 50.2% long-term debt.
The ratio of earnings to fixed charges was 2.9 for fiscal year 2004, 3.2 for
fiscal year 2003 and 2.2 for fiscal year 2002.
It is management's view that Laclede Gas has adequate access to capital
markets and will have sufficient capital resources to meet anticipated
capital requirements.
CONTRACTUAL OBLIGATIONS
As of September 30, 2004, Laclede Gas had contractual obligations with
payments due as summarized below (in millions):
Payments due by period
--------------------------------------------------------
Less than 1-3 3-5 More than
Contractual Obligations Total 1 year Years Years 5 years
- -------------------------------------------------------------------------------------------------------------
Long-Term Debt (a) $557.7 $ 42.4 $ 66.8 $61.4 $387.1
Capital Leases - - - - -
Operating Leases (b) 9.1 2.3 3.9 2.6 .3
Purchase Obligations - Natural Gas (c) 169.7 90.8 66.9 6.0 6.0
Purchase Obligations - Other (d) 11.3 5.3 4.0 2.0 -
Other Long-Term Liabilities - - - - -
---------------------------------------------------------------------
Total $747.8 $140.8 $141.6 $72.0 $393.4
=====================================================================
<FN>
(a) Long-term debt obligations reflect principal maturities and
interest payments.
(b) Operating lease obligations are primarily for office space,
vehicles, and power operated equipment. Additional payments will be
incurred if renewal options are exercised under the provisions of
certain agreements.
(c) These purchase obligations represent the minimum payments required
under existing natural gas transportation and storage contracts and
natural gas supply agreements. These amounts reflect fixed
obligations as well as obligations to purchase natural gas at
future market prices, calculated using September 30, 2004 NYMEX
futures prices. Laclede Gas recovers the costs related to its
purchases, transportation, and storage of natural gas through
10
the operation of its Purchased Gas Adjustment Clause; however,
variations in the timing of collections of gas costs from customers
affect short-term cash requirements. Additional contractual
commitments are generally entered into prior to or during the
heating season.
(d) These purchase obligations reflect miscellaneous agreements for the
purchase of materials and the procurement of services necessary for
normal operations.
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, 2004, the Utility held
approximately 29 million MmBtu of futures contracts at an average price of
$6.67 per MmBtu. These positions have various expiration dates, the longest
of which extends through March 2005.
ENVIRONMENTAL MATTERS
Laclede Gas is subject to various environmental laws and regulations that,
to date, have not materially affected the Utility's financial position and
result of operations. As these laws, regulations, and their interpretations
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 remedial 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, 2004, Laclede Gas
has paid or reserved for these actions. If regulators require additional
remedial 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. Laclede Gas continues to evaluate options
concerning this site, including, but not limited to, the submission of its
own Remedial Action Plan (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 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.
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.
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. While the scope of future costs
relative to the actions Laclede Gas has taken at the Shrewsbury site
pursuant to the current agreement with federal and state regulators may not
be significant, the scope of costs relative to future remedial actions
regulators may require at the Shrewsbury site and 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 costs incurred under current agreement regarding 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, and with regard to any future actions that might be
required at the Shrewsbury site, since the scope of costs are unknown and
may be significant, denials of coverage may have a
11
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.
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, is responsible for auditing Laclede Gas' financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those 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.
The Certificates under Rule 13a-14(a) and Section 1350 Certifications of the
CEO and CFO of Laclede Gas are included in this report as Exhibits 31 and
32, respectively.
Douglas H. Yaeger
Chairman of the Board,
President and Chief Executive Officer
Barry C. Cooper
Chief Financial Officer
13
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholder
Laclede Gas Company
We have audited the accompanying balance sheets and statements of
capitalization of Laclede Gas Company (a wholly owned subsidiary of The
Laclede Group, Inc.) ("the Company") as of September 30, 2004 and 2003, and
the related statements of income, common shareholders' equity, comprehensive
income, and cash flows for each of the three years in the period ended
September 30, 2004. Our audits also included the financial statement
schedule listed in the Index at Part IV, Item 15(a) 2. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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 financial statements present fairly, in all material
respects, the financial position of Laclede Gas Company as of September 30,
2004 and 2003, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 2004 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 financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
November 17, 2004
14
LACLEDE GAS COMPANY
STATEMENTS OF INCOME
(Thousands)
- ---------------------------------------------------- ------------- ----------- ------------
Years Ended September 30 2004 2003 2002
- ---------------------------------------------------- ------------- ----------- ------------
Operating Revenues:
Utility $ 868,905 $ 774,772 $ 592,097
Other 2,577 2,391 2,521
------------- ----------- ------------
Total Operating Revenues 871,482 777,163 594,618
------------- ----------- ------------
Operating Expenses:
Utility
Natural and propane gas 575,691 483,742 340,045
Other operation expenses 121,596 118,550 106,027
Maintenance 18,705 18,759 17,813
Depreciation and amortization 22,385 22,229 24,215
Taxes, other than income taxes 60,077 56,102 48,342
------------- ----------- ------------
Total utility operating expenses 798,454 699,382 536,442
Other 2,456 2,386 2,572
------------- ----------- ------------
Total Operating Expenses 800,910 701,768 539,014
------------- ----------- ------------
Operating Income 70,572 75,395 55,604
------------- ----------- ------------
Other Income and (Income Deductions) - Net 3,384 879 550
------------- ----------- ------------
Interest Charges:
Interest on long-term debt 22,010 20,169 20,820
Other interest charges 3,192 3,752 4,285
------------- ----------- ------------
Total Interest Charges 25,202 23,921 25,105
------------- ----------- ------------
Income Before Income Taxes 48,754 52,353 31,049
Income Tax Expense 16,555 18,011 10,720
------------- ----------- ------------
Net Income 32,199 34,342 20,329
Dividends on Redeemable Preferred Stock 62 62 68
------------- ----------- ------------
Earnings Applicable to Common Stock $ 32,137 $ 34,280 $ 20,261
============= =========== ============
See the accompanying notes to financial statements.
15
LACLEDE GAS COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(Thousands)
- ------------------------------------------------------- ------------ ------------ ------------
Years Ended September 30 2004 2003 2002
- ------------------------------------------------------- ------------ ------------ ------------
Net Income $ 32,199 $ 34,342 $ 20,329
------------ ------------ ------------
Other Comprehensive Income (Loss) Before Tax:
Minimum pension liability adjustment 344 (396) (553)
Income tax expense (benefit) related to items
of other comprehensive income (loss) 133 (153) (214)
------------ ------------ ------------
Other Comprehensive Income (Loss), Net of Tax 211 (243) (339)
------------ ------------ ------------
Comprehensive Income $ 32,410 $ 34,099 $ 19,990
============ ============ ============
See the accompanying notes to financial statements.
16
LACLEDE GAS COMPANY
BALANCE SHEETS
(Thousands)
- ----------------------------------------------------------------- ------------- -------------
September 30 2004 2003
- ----------------------------------------------------------------- ------------- -------------
Assets
Utility Plant $1,070,522 $1,030,665
Less - Accumulated depreciation and amortization 423,647 409,418
------------- -------------
Net Utility Plant 646,875 621,247
------------- -------------
Other Property and Investments 29,664 27,898
------------- -------------
Current Assets:
Cash and cash equivalents 2,340 2,907
Accounts receivable:
Gas customers - billed and unbilled 76,223 70,217
Associated companies 300 8,957
Other 11,231 9,196
Allowances for doubtful accounts (9,975) (6,839)
Inventories:
Natural gas stored underground at LIFO cost 131,725 117,182
Propane gas at FIFO cost 15,808 17,132
Materials, supplies and merchandise at average
cost 4,588 3,995
Derivative instrument assets 15,196 10,838
Unamortized purchased gas adjustments 19,618 -
Deferred income taxes 1,321 7,631
Prepayments and other 6,211 4,881
------------- -------------
Total Current Assets 274,586 246,097
------------- -------------
Deferred Charges:
Prepaid pension cost 92,026 109,445
Regulatory assets 104,703 103,807
Other 8,127 4,515
------------- -------------
Total Deferred Charges 204,856 217,767
------------- -------------
Total Assets $1,155,981 $1,113,009
============= =============
See the accompanying notes to financial statements.
17
LACLEDE GAS COMPANY
BALANCE SHEETS (continued)
(Thousands)
- ------------------------------------------------------------------------ -------------- --------------
September 30 2004 2003
- ------------------------------------------------------------------------ -------------- --------------
Capitalization and Liabilities
Capitalization:
Common stock equity $ 330,132 $ 271,504
Redeemable preferred stock (less current sinking fund requirements) 1,108 1,258
Long-term debt (less current portion) 333,936 259,625
-------------- --------------
Total Capitalization 665,176 532,387
-------------- --------------
Current Liabilities:
Notes payable 71,380 218,200
Notes payable - associated companies - 11,540
Accounts payable 44,505 41,938
Accounts payable - associated companies 834 10,303
Advance customer billings 23,620 15,361
Current portion of long-term debt and preferred stock 25,145 -
Wages and compensation accrued 13,256 12,401
Dividends payable 7,214 6,461
Customer deposits 10,661 5,044
Interest accrued 10,623 7,072
Taxes accrued 17,669 16,287
Unamortized purchased gas adjustment - 5,865
Other 3,232 3,366
-------------- --------------
Total Current Liabilities 228,139 353,838
-------------- --------------
Deferred Credits and Other Liabilities:
Deferred income taxes 187,831 177,957
Unamortized investment tax credits 5,010 5,316
Pension and postretirement benefit costs 20,484 20,973
Regulatory liabilities 28,210 582
Other 21,131 21,956
-------------- --------------
Total Deferred Credits and Other Liabilities 262,666 226,784
-------------- --------------
Commitments and Contingencies (Note 12)
-------------- --------------
Total Capitalization and Liabilities $1,155,981 $1,113,009
============== ==============
See the accompanying notes to financial statements.
18
LACLEDE GAS COMPANY
STATEMENTS OF CAPITALIZATION
(Thousands, Except Per Share Amounts)
- ------------------------------------------------------------------------ ------------ -----------
September 30 2004 2003
- ------------------------------------------------------------------------ ------------ -----------
Common Stock Equity:
Common stock, par value $1 per share and Paid-in Capital:
Authorized - 2004 and 2003, 50,000,000 shares
Issued - 2004 and 2003, 100 shares $136,042 $ 82,579
Retained earnings 194,461 189,507
Accumulated other comprehensive income (loss) - minimum pension liability (371) (582)
------------ -----------
Total Common Stock Equity 330,132 271,504
------------ -----------
Redeemable Preferred Stock - Laclede Gas,
par value $25 per share (1,480,000 shares authorized)
Issued and outstanding:
5% Series B - 2004, 44,192 shares; and
2003, 44,413 shares 960 1,110
4.56% Series C - 2004 and 2003, 5,906 shares 148 148
------------ -----------
Total Redeemable Preferred Stock 1,108 1,258
------------ -----------
Long-Term Debt:
First mortgage bonds:
8-1/2% Series, due November 15, 2004 - 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
5-1/2% Series, due May 1, 2019 50,000 -
7% Series, due June 1, 2029 25,000 25,000
7.90% Series, due September 15, 2030 30,000 30,000
6% Series, due May 1, 2034 100,000 -
------------ -----------
Total 335,000 260,000
Unamortized discount, net of premium,
on long-term debt (1,064) (375)
------------ -----------
Total Long-Term Debt 333,936 259,625
------------ -----------
Total $665,176 $532,387
============ ===========
Long-term debt and preferred stock dollar amounts are exclusive of current
portion.
See the accompanying notes to financial statements.
19
LACLEDE GAS COMPANY
STATEMENTS OF 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, 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 October 1, 2001 (18,877,887) (18,878) 18,878 - - - -
Subsidiary equity dividended to Laclede
Group - - - (19,743) - - (19,743)
Dividends declared:
Common stock - - - (25,311) - - (25,311)
Preferred stock - - - (68) - - (68)
Other comprehensive income (loss) - - - - (339) - (339)
Other - - 6 - - - 6
---------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2002 100 $ - $ 82,579 $180,719 $ (339) $ - $262,959
---------------------------------------------------------------------------------
Net Income - - - 34,342 - - 34,342
Dividends declared:
Common stock - - - (25,492) - - (25,492)
Preferred stock - - - (62) - - (62)
Other comprehensive income (loss) - - - - (243) - (243)
---------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2003 100 $ - $ 82,579 $189,507 $ (582) $ - $271,504
---------------------------------------------------------------------------------
Net Income - - - 32,199 - - 32,199
Dividends declared:
Common stock - - - (27,183) - - (27,183)
Preferred stock - - - (62) - - (62)
Other comprehensive income (loss) - - - - 211 - 211
Paid-in capital contributions from
Laclede Group - - 53,463 - - - 53,463
---------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 2004 100 $ - $136,042 $194,461 $ (371) $ - $330,132
=================================================================================
See the accompanying notes to financial statements.
20
LACLEDE GAS COMPANY
STATEMENTS OF CASH FLOWS
(Thousands)
- ------------------------------------------------------------------------------------------------------------
Years Ended September 30 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------
Operating Activities:
Net Income $ 32,199 $ 34,342 $ 20,329
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 22,323 22,241 25,001
Deferred income taxes and investment
tax credits 15,311 13,542 6,374
Other - net 409 730 832
Changes in assets and liabilities:
Accounts receivable - net 3,752 (19,991) 15,191
Unamortized purchased gas adjustments (25,483) (17,111) 13,950
Deferred purchased gas costs 41,022 (21,461) 185
Accounts payable (6,902) 21,403 (1,955)
Advance customer billings - net 8,259 (9,471) 13,153
Taxes accrued 1,382 6,792 (6,067)
Natural gas stored underground (14,543) (40,095) (457)
Other assets and liabilities 5,270 925 (11,631)
------------------------------------
Net cash provided by (used in)
operating activities 82,999 (8,154) 74,905
Investing Activities:
Construction expenditures (49,130) (49,926) (48,765)
Employee benefit trusts (2,221) (1,099) (1,508)
Other investments 1,268 407 (2,598)
------------------------------------
Net cash used in
investing activities (50,083) (50,618) (52,871)
Financing Activities:
Issuance of first mortgage bonds 150,000 - -
Maturity/Redemption of first mortgage bonds (50,000) (25,000) -
Issuance (repayment) of short-term debt - net (158,360) 110,870 1,820
Dividends paid (26,494) (25,500) (25,365)
Paid-in capital contribution from Laclede Group 53,463 - -
Preferred stock reaquired (5) (8) (395)
Other (2,087) - -
------------------------------------
Net cash (used in) provided by
financing activities (33,483) 60,362 (23,940)
------------------------------------
Net Increase (Decrease) in Cash and
Cash Equivalents (567) 1,590 (1,906)
Cash and Cash Equivalents at
Beginning of Year 2,907 1,317 3,223
------------------------------------
Cash and Cash Equivalents at End of Year $ 2,340 $ 2,907 $ 1,317
====================================
Supplemental Disclosure of Cash Paid
(Refunded) During the Year for:
Interest $ 20,860 $ 23,497 $ 22,349
Income taxes 2,003 (4,317) 11,387
See the accompanying notes to financial statements.
21
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).
In compliance with accounting principles generally accepted in
the United States of America, transactions between Laclede Gas and its
affiliates as well as intercompany balances remaining on Laclede Gas'
balance sheet on September 30, 2004, have not been eliminated from the
Laclede Gas financial statements.
Laclede Gas provides administrative and general support to
affiliates. These 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 as well as charge or reimburse certain
tax obligations. At September 30, 2004, the Laclede Gas Balance Sheet
reflected a total of $.3 million of intercompany receivables and $.8 million
of 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.
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.
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 2004, 2003 and 2002 averaged approximately
2.6%, 2.7% and 2.8%, 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).
22
The following regulatory assets and regulatory liabilities were
reflected in the Balance Sheets as of September 30:
(Thousands) 2004 2003
------------------------------------------------------------------------------------
Regulatory Assets:
Future income taxes due from customers $ 62,834 $ 62,633
Pension and postretirement benefit costs 27,480 14,358
Unamortized purchased gas adjustments 19,618 -
Purchased gas costs - 13,749
Compensated absences 6,706 6,511
Other 7,751 6,984
-----------------------
Total Regulatory Assets $124,389 $104,235
=======================
Regulatory Liabilities:
Unamortized investment tax credits $ 5,010 $ 5,316
Unamortized purchased gas adjustments - 5,865
Purchased gas costs 27,273 -
Other 937 582
-----------------------
Total Regulatory Liabilities $ 33,220 $ 11,763
=======================
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 are being recovered and amortized
on a straight-line basis over a fifteen-year period, without return on
investment. Approximately $3.3 million has been amortized from December 27,
1999 through September 30, 2004. Previously deferred costs of $2.1 million
are being recovered and amortized on a straight line basis over a ten-year
period, without return on investment. Approximately $1.0 million has been
amortized from December 27, 1999 through September 30, 2004. 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 $.8 million and $.1 million has been amortized,
respectively, through September 30, 2004.
NATURAL GAS STORED UNDERGROUND - Inventory of Utility natural
gas in storage is priced on a last-in, first-out (LIFO) basis. The
replacement cost of natural gas stored underground for current use at
September 30, 2004 exceeded the LIFO cost by $6.5 million and at September
30, 2003 exceeded the LIFO cost by $19.6 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.
REVENUE RECOGNITION - Laclede Gas reads meters and bills its
customers on a monthly cycle billing basis. The Utility records its
regulated gas distribution revenues from gas sales and transportation
service on an accrual basis that includes estimated amounts for gas
delivered, but not yet billed. The accruals for unbilled revenues are
reversed in the subsequent accounting period when meters are actually read
and customers are billed. The amount of accrued unbilled revenue at
September 30, 2004 and 2003, for the Utility, was $8.8 million and $8.9
million, respectively. After accrual of related gas cost expense, the
accrued pre-tax net revenues at September 30, 2004 and 2003 were $4.2
million and $3.7 million, respectively.
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 Price Stabilization Program (PSP)) are gas costs recoverable through the
PGA mechanism.
The provisions of the PGA Clause also include operation of the
gas supply cost management program, whereby Laclede Gas is permitted to
share in certain costs savings related to its natural gas procurement
activities.
Operation of the PSP 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 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 12 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 gas supply cost management program and PSP
are reflected as a deferred charge or credit until fiscal year end. At that
time, the balance is classified as
23
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.
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 - Financial Accounting Standards Board
(FASB) Interpretation No. 46 (Revised December 2003) (FIN 46R),
"Consolidation of Variable Interest Entities," addresses consolidation of
business enterprises of variable interest entities. Public entities shall
apply this Interpretation to their interests in special purpose entities as
of the first interim period ending after December 15, 2003. Application by
public entities for all other types of variable interest entities was
required in financial statements for periods ending after March 15, 2004.
There was no effect on the financial position or results of operations of
Laclede Gas upon adoption.
In December 2003, the FASB issued SFAS No. 132 (revised 2003)
(SFAS No. 132(R)), "Employers' Disclosures about Pensions and Other
Postretirement Benefits." The provisions of this Statement do not change the
measurement and recognition provisions of SFAS No. 87, "Employers'
Accounting for Pensions," No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
and No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS No. 132(R) replaces SFAS No. 132, and requires certain
additional disclosures that became effective for fiscal years ending after
and interim periods beginning after December 15, 2003. The required
disclosures are included in Note 2, and the disclosures for prior periods
are presented consistent with current presentation.
The Emerging Issues Task Force (EITF) deliberated Issue 03-01,
"The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments." The Issue was intended to address the meaning of
other-than-temporary impairment and its application to certain investments
held at cost. A consensus was reached regarding disclosure requirements
concerning unrealized losses on available-for-sale debt and equity
securities accounted for under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and SFAS No. 124, "Accounting for
Certain Investments Held for Not-for-Profit Organizations." The guidance for
evaluating whether an investment is other-than-temporarily impaired should
be applied in reporting periods beginning after June 15, 2004. The
disclosures are effective in annual financial statements for fiscal years
ended after December 15, 2003, for investments accounted for under SFAS Nos.
115 and 124. For all other investments within the scope of this Issue, the
disclosures are effective in annual financial statements for fiscal years
ending after June 15, 2004. Additional disclosures for cost method
investments are effective for fiscal years ending after June 15, 2004. There
were no disclosures required for this report.
In May 2004, the FASB issued FASB Staff Position (FSP) No. 106-2,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003." FSP 106-2 supersedes FSP
106-1 issued in January 2004. FSP 106-2 provides guidance on the accounting
for the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (Act) for employers that sponsor postretirement
health care plans that provide prescription drug benefits. The Act
introduces two new features to Medicare that an employer needs to consider
in measuring its obligation and net periodic postretirement benefit costs.
The effective date for FSP 106-2 is the first interim or annual period
beginning after June 15, 2004. The adoption of FSP 106-2 did not have a
material effect on the financial position or results of operations of the
Company.
RECLASSIFICATION - Certain prior-period amounts have been
reclassified to conform to current-period presentation.
2. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Pension Plans
- -------------
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. Pension cost in 2004
and 2003 amounted to $4.5 and $2.2 million, respectively, and pension
credits in 2002 amounted to $4.5 million, including amounts recorded in
construction.
24
The net periodic pension costs (credits) include the following
components:
(Thousands) 2004 2003 2002
--------------------------------------------------------------------------------------------
Service cost - benefits earned
during the period $ 11,107 $ 9,060 $ 8,399
Interest cost on projected
benefit obligation 16,231 16,600 14,653
Expected return on plan assets (22,499) (22,601) (24,749)
Amortization of transition obligation - (236) (602)
Amortization of prior service cost 1,324 1,392 1,127
Amortization of actuarial (gain)/loss 3,803 1,338 (3,768)
-----------------------------------
Sub-Total $ 9,966 $ 5,553 $ (4,940)
Loss on lump sum settlement 8,109 273 -
Regulatory adjustment (13,583) (3,582) 435
-----------------------------------
Net pension cost (credit) $ 4,492 $ 2,244 $ (4,505)
===================================
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 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 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 and 2004, 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.
Pursuant to the provisions of the Laclede Gas pension plans,
pension obligations may be paid in the form of lump-sum cash payments.
Pursuant to MoPSC order in the Utility's 2001 rate case, effective for
fiscal 2002 through 2004, lump sum payments are recognized as settlements
only if the total of such payments exceeds 100% of the sum of service and
interest costs. Lump sum payments recognized as settlements totaled $32.7
million in fiscal 2004, $.5 million in fiscal 2003, and none in fiscal 2002.
Changes in the minimum pension liability resulted in
charges/(credits) to Other Comprehensive Income of $(.7) million in fiscal
2004, $5.1 million in fiscal 2003, and $.6 million in fiscal 2002.
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 $3.4 million effective July 1, 2003. The
difference between this amount and pension expense as calculated pursuant to
the above and included in the Statements of Income and Statements of
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 Balance Sheets at September 30:
(Thousands) 2004 2003
----------------------------------------------------------------------------------------
Benefit obligation at beginning of year $ 268,439 $ 228,090
Service cost 11,107 9,060
Interest cost 16,231 16,600
Plan amendments (55) -
Actuarial (gain) loss (2,825) 38,864
Settlements (32,677) (491)
Gross benefits paid (7,637) (23,684)
------------------------
Benefit obligation at end of year $ 252,583 $ 268,439
========================
Accumulated benefit obligation at end of year $ 199,819 $ 219,799
25
The following table sets forth the reconciliation of the
beginning and ending balances of the fair value of plan assets recognized in
the Balance Sheets at September 30:
(Thousands) 2004 2003
--------------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 274,542 $ 273,230
Actual return on plan assets 24,980 23,989
Employer contributions 270 1,498
Settlements (32,677) (491)
Gross benefits paid (7,637) (23,684)
-------------------------
Fair value of plan assets at end of year $ 259,478 $ 274,542
-------------------------
Funded status at end of year $ 6,896 $ 6,103
Unrecognized net actuarial loss 65,525 82,743
Unrecognized prior service cost 15,884 17,264
Fourth quarter contribution adjustment 56 56
-------------------------
Net amount recognized at end of year $ 88,361 $ 106,166
=========================
Amounts recognized in the Balance Sheets consist of:
Prepaid pension cost $ 88,607 $ 105,081
Accrued benefit liability (5,827) (5,294)
Intangible asset 691 753
Regulatory adjustment 4,286 4,677
Accumulated other comprehensive income 604 949
-------------------------
Net amount recognized at end of year $ 88,361 $ 106,166
=========================
The pension benefit obligation and the fair value of plan assets
are based on a June 30 measurement date. The assumptions used to
calculate net periodic pension costs are as follows:
2004 2003 2002
----------------------------------------------------------------------------------------------------
Weighted average discount rate 6.00% 7.25% 7.75%
Weighted average rate of future compensation increase 3.00% 4.00% 4.00%
Expected long term rate of return on plan assets 8.50% 8.50% 8.50%
The expected long term rate of return on plan assets is based on
historical and projected rates of return for current and planned asset
classes in the investment portfolio. Assumed projected rates of return for
each asset class were selected after analyzing historical experience and
future expectations of the returns. The overall expected rate of return for
the portfolio was developed based on the target allocation for each class.
The expected return is a long term assumption that generally does not change
annually.
The assumptions used to calculate the benefit obligations are as
follows:
2004 2003
----------------------------------------------------------------------------------------
Weighted average discount rate 6.25% 6.00%
Weighted average rate of future compensation increase 3.25% 3.00%
Following are the projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets for plans that have a
projected benefit obligation and an accumulated benefit obligation in excess
of plan assets:
(Thousands) 2004 2003
----------------------------------------------------------------------------------------
Projected benefit obligation $25,026 $23,920
Accumulated benefit obligation 22,139 21,428
Fair value of plan assets 15,034 14,788
Following are the targeted and actual plan assets by category:
2005 2004 2003
Target Actual Actual
----------------------------------------------------------------------------------------
Equity Securities 50% 51% 52%
Debt Securities 50% 49% 48%
-------------------------------
Total 100% 100% 100%
26
Laclede Gas' investment policy is designed to preserve, to the
extent possible, a surplus of plan assets over the projected benefit
obligation and minimize contributions to the trusts. The policy seeks to
maximize investment returns consistent with these objectives and Laclede
Gas' tolerance for risk. Outside investment management specialists are
utilized in each asset class. Such specialists are provided with guidelines,
where appropriate, designed to ensure that the investment portfolio is
managed in accordance with policy. Performance and compliance with the
guidelines is regularly monitored.
Laclede Gas' current investment policy targets an asset
allocation of 50% to equity securities and 50% to debt securities (including
short term securities held for the purpose of making benefit payments).
Laclede Gas generally rebalances quarterly if the actual allocation deviates
from the target allocation by more than 2%.
Following are expected pension benefit payments for the
succeeding five fiscal years, and in aggregate for the five years
thereafter:
Pensions Pensions
from from
Qualified Laclede
(Millions) Trust Gas Funds
----------------------------------------------------------------------------------
2005 $ 16.2 $ .3
2006 15.3 .4
2007 14.9 .4
2008 16.1 .4
2009 18.6 .5
2010 - 2014 119.5 2.9
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.
Contributions to the pension plans in fiscal 2005 are anticipated to be none
into the qualified trusts, and $.3 million into the non-qualified plans.
Postretirement Benefits
- -----------------------
Laclede Gas provides certain life insurance benefits at
retirement. Medical insurance is available after early retirement until age
65. The unrecognized transition obligation is being amortized over 20 years.
Postretirement benefit costs in 2004, 2003 and 2002 amounted to
approximately $7.9 million, $7.8 million, and $6.5 million, respectively,
including amounts charged to construction.
Net periodic postretirement benefit costs consisted of the
following components:
(Thousands) 2004 2003 2002
---------------------------------------------------------------------------------------
Service cost - benefits earned
during the period $3,175 $2,758 $2,205
Interest cost on accumulated
postretirement benefit obligation 3,202 3,661 3,266
Expected return on plan assets (836) (937) (853)
Amortization of transition
obligation 1,059 1,267 1,267
Amortization of prior service cost (32) 328 365
Amortization of actuarial loss 697 415 227
Regulatory adjustment 658 301 69
-----------------------------------
Net postretirement benefit cost $7,923 $7,793 $6,546
===================================
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 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 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 and 2004, pursuant to the Commission's
order in the Utility'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
27
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.
The following table sets forth the reconciliation of the
beginning and ending balances of the postretirement benefit obligation at
September 30:
(Thousands) 2004 2003
------------------------------------------------------ -----------------------
Benefit obligation at beginning of year $52,508 $50,027
Service cost 3,175 2,758
Interest cost 3,202 3,661
Plan amendments (4,323) (4,021)
Actuarial loss 2,577 5,131
Gross benefits paid (5,404) (5,048)
-----------------------
Benefit obligation at end of year $51,735 $52,508
=======================
The following table sets forth the reconciliation of the
beginning and ending balances of the fair value of plan assets recognized in
the Balance Sheets at September 30:
(Thousands) 2004 2003
--------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 14,254 $ 12,081
Actual return on plan assets 802 61
Employer contributions 7,324 7,160
Gross benefits paid (5,404) (5,048)
-------------------------
Fair value of plan assets at end of year $ 16,976 $ 14,254
-------------------------
Funded status at end of year $(34,759) $(38,254)
Unrecognized net actuarial loss 18,579 16,665
Unrecognized prior service cost (245) (277)
Unrecognized net transition obligation 5,188 10,570
-------------------------
Net amount recognized at end of year
as postretirement benefit cost $(11,237) $(11,296)
=========================
The accumulated postretirement benefit obligation and the fair
value of plan assets are based on a June 30 measurement date.
The assumptions used to calculate net periodic postretirement
benefit costs are as follows:
2004 2003 2002
--------------------------------------------------------------------------------------------
Weighted average discount rate 6.00% 7.25% 7.75%
Weighted average rate of future compensation increase 3.00% 4.00% 4.00%
Expected long term rate of return on plan assets 8.50% 8.50% 8.50%
Medical cost trend rate (initial) 7.00% 8.00% 5.00%
Medical cost trend rate (ultimate) 5.00% 5.00% 5.00%
The expected long term rate of return on plan assets is based on
historical and projected rates of return for current and planned asset
classes in the investment portfolio. Assumed projected rates of return for
each asset class were selected after analyzing historical experience and
future expectations of the returns. The overall expected rate of return for
the portfolio was developed based on the target allocation for each class.
The expected return is a long term assumption that generally does not change
annually.
The assumptions used to calculate the accumulated postretirement
benefit obligations are as follows:
2004 2003
----------------------------------------------------------------------------------------
Weighted average discount rate 6.25% 6.00%
Weighted average rate of future compensation increase 3.25% 3.00%
Medical cost trend rate (initial) 9.00% 7.00%
Medical cost trend rate (ultimate) 5.00% 5.00%
The following table presents the effect of an assumed 1% change
in the assumed medical cost trend rate:
(Thousands) 1% Increase 1% Decrease
------------------------------------------------------------------------------------------
Effect on net periodic benefit cost $ 430 $ (410)
Effect on accumulated postretirement benefit obligation 1,660 (1,580)
28
Following are the targeted and actual plan assets by category:
2005 2004 2003
Target Actual Actual
----------------------------------------------------------------------------------------
Equity Securities 60% 53% 45%
Debt Securities 40% 47% 55%
-------------------------------
Total 100% 100% 100%
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
Voluntary Employees' Beneficiary Association (VEBA) and Rabbi trusts as its
external funding mechanisms. Laclede Gas' investment policy seeks to
maximize investment returns consistent with Laclede Gas' tolerance for risk.
Outside investment management specialists are utilized in each asset class.
Such specialists are provided with guidelines, where appropriate, designed
to ensure that the investment portfolio is managed in accordance with
policy. Performance and compliance with the guidelines is regularly
monitored. Laclede Gas' current investment policy targets an asset
allocation of 60% to equity securities and 40% to debt securities, excluding
cash held in short term securities for the purpose of making benefit
payments. Laclede Gas currently invests in a mutual fund which is
continually rebalanced to the target allocation.
Following are expected postretirement benefit payments for the
succeeding five fiscal years, and in aggregate for the five years
thereafter:
Benefits Paid Benefits Paid
from Qualified from Laclede
(Millions) Trusts Gas Funds
----------------------------------------------------------------------------------------
2005 $ 4.2 $ .4
2006 4.4 .4
2007 4.6 .4
2008 4.6 .5
2009 4.8 .5
2010 - 2014 28.2 2.4
Laclede Gas' funding policy is to contribute amounts to the
trusts equal to the periodic benefit cost calculated pursuant to SFAS No.
106 as recovered in rates. Contributions to the postretirement plans in
fiscal 2005 are anticipated to be $7.5 million to the qualified trusts, and
$.4 million paid directly to participants from Laclede Gas funds.
Other Plans
- -----------
Laclede Gas sponsors 401(k) plans that cover substantially all
employees. The plans allow employees to contribute a portion of their base
pay in accordance with specific guidelines. Laclede Gas provides a match of
such contributions within specific limits. The cost of the defined
contribution plans of Laclede Gas amounted to approximately $2.9 million per
year for fiscal years 2004, 2003 and 2002.
3. GAS SUPPLY COST MANAGEMENT
In the 2002 rate case, the MoPSC approved a new plan applicable
to the management of Laclede Gas' gas supply commodity costs under which it
may retain up to 10% of cost savings associated with the acquisition of
natural gas below an established benchmark level of gas cost. Laclede Gas
achieved approximately $3.5 million in pre-tax income under the plan during
fiscal 2003, but did not record any income under the plan during fiscal
2004. Income recorded under the plan is included in the Utility Operating
Revenues on the Statements of Income.
4. COMMON STOCK AND PAID-IN CAPITAL
Laclede Gas issued no shares of its common stock during fiscal
2004 or fiscal 2003. Total shares of common stock outstanding were 100 at
September 30, 2004 and 2003.
Paid-in capital increased in 2004 by $53.5 million due to
capital contributions from Laclede Group. There was no change in paid-in
capital during 2003.
29
As of September 30, 2004, $120 million of the Laclede Gas shelf
registration on Form S-3 remained registered and unissued. The original
MoPSC authorization for issuing securities registered on Form S-3 expired in
September 2003. In response to an application filed by the Utility, the
MoPSC extended this authorization to issue debt securities and receive
paid-in capital through October 31, 2006. The remaining MoPSC authorization
is $65.5 million, reflecting capital contributions that have been made by
Laclede Group to Laclede Gas under this authority through October 2004. The
amount, timing and type of additional financing to be issued under this
shelf registration will depend on cash requirements and market conditions.
5. 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 2004, 221 shares of 5% Series B preferred stock were
reacquired; in 2003, 336 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, 2004 are $.1 million in 2005, and $.2 million each in 2006
through 2009.
6. LONG-TERM DEBT
Maturities on long-term debt, including current portion, for the
five fiscal years subsequent to September 30, 2004 are as follows:
2005 $25 million
2006 $40 million
2007 -
2008 $40 million
2009 -
In April 2004, Laclede Gas issued $50 million of First Mortgage
Bonds, 5 1/2% Series due May 1, 2019 and $100 million of First Mortgage
Bonds, 6% Series due May 1, 2034. The net proceeds of approximately $147.9
million from this issuance were used to repay short-term debt and to call at
par the $50 million 6 5/8% Series First Mortgage Bonds in June 2004. The
proceeds were also used to pay at maturity $25 million principal amount of
Laclede Gas' 8 1/2% First Mortgage Bonds in November 2004.
As of September 30, 2004, $120 million of the Laclede Gas shelf
registration on Form S-3 remained registered and unissued. The original
MoPSC authorization for issuing securities registered on Form S-3 expired in
September 2003. In response to an application filed by the Utility, the
MoPSC extended this authorization to issue debt securities and receive
paid-in capital through October 31, 2006. The remaining MoPSC authorization
is $65.5 million, reflecting capital contributions that have been made by
Laclede Group to Laclede Gas under this authority through October 2004. 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, 2004 and 2003, all of the retained earnings of Laclede Gas
were free from such restrictions.
7. NOTES PAYABLE AND CREDIT AGREEMENTS
In September 2004, Laclede Gas renewed its syndicated line of
credit for a term of five years and increased the amount of the line to $285
million from $250 million. The Utility has supplemental 364-day lines
totaling $15 million through April 2005. Laclede Gas also had a seasonal
credit line of $25 million 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 2004, the Utility's short-term
borrowing requirements, which peaked at $274.7 million, were met primarily
by the sale of commercial paper, supplemented from time to time by draws on
its seasonal credit line or short-term loans from Laclede Group. Loans from
Laclede Group were no more than $12.6 million at any time. Laclede Gas had
$71.4 million in
30
commercial paper outstanding as of September 30, 2004, at a weighted average
interest rate of 1.9% per annum, and $218.2 million outstanding as of
September 30, 2003, at a weighted average interest rate of 1.2% per annum.
Most of Laclede Gas' lines of credit include covenants limiting
total debt, including short-term debt, to no more than 70% of total
capitalization and requiring earnings before interest, taxes, depreciation
and amortization (EBITDA) to be at least 2.25 times interest expense. On
September 30, 2004, total debt was 56% of total capitalization. For the
fiscal year ended September 30, 2004, EBITDA was 3.82 times interest
expense.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of financial
instruments at September 30, 2004 and 2003 are as follows:
Carrying Fair
(Thousands) Amount Value
-----------------------------------------------------------------------------------------
2004:
Cash and cash equivalents $ 2,340 $ 2,340
Short-term debt 71,380 71,380
Long-term debt, including current portion 358,936 393,735
Redeemable preferred stock, including current sinking fund
requirements 1,253 1,253
2003:
Cash and cash equivalents $ 2,907 $ 2,907
Short-term debt 229,740 229,740
Long-term debt, including current portion 259,625 290,780
Redeemable preferred stock 1,258 1,258
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.
9. INCOME TAXES
The net provisions for income taxes charged during the years
ended September 30, 2004, 2003 and 2002 are as follows:
(Thousands)
-----------------------------------------------------------------------------
Years Ended September 30 2004 2003 2002
-----------------------------------------------------------------------------
Included in Statements of
Income:
Federal
Current $ 1,628 $ 3,342 $ 3,643
Deferred 12,785 12,112 5,666
Investment tax credit
adjustments - net (305) (313) (319)
State and local
Current (384) 1,127 703
Deferred 2,831 1,743 1,027
-------------------------------
Total $ 16,555 $ 18,011 $ 10,720
===============================
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The effective income tax rate varied from the federal statutory
income tax rate for each year due to the following:
2004 2003 2002
---------------------------------
Federal income tax statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax benefits 3.3 3.6 3.6
Certain expenses capitalized on books
and deducted on tax return (3.1) (2.9) (4.9)
Taxes related to prior years (.2) (1.3) 1.4
Other items - net (1.0) - (0.6)
---------------------------------
Effective income tax rate 34.0% 34.4% 34.5%
=================================
The significant items comprising the net deferred tax liability
recognized in the Balance Sheets as of September 30 are as follows:
(Thousands) 2004 2003
----------------------------------------------------------------------------------
Deferred tax assets:
Reserves not currently deductible $ 21,508 $ 18,043
Deferred gas cost - 1,602
Unamortized investment tax credits 3,154 3,347
Other 4,748 4,454
--------------------------
Total deferred tax assets 29,410 27,446
Deferred tax liabilities:
Relating to utility property 159,206 146,748
Pension 38,904 42,500
Deferred gas cost 5,589 -
Other 12,221 8,524
--------------------------
Total deferred tax liabilities 215,920 197,772
Net deferred tax liability 186,510 170,326
Net deferred tax asset - current 1,321 7,631
--------------------------
Net deferred tax liability - non-current $187,831 $177,957
==========================
10. OTHER INCOME AND INCOME DEDUCTIONS - NET
(Thousands) 2004 2003 2002
--------------------------------------------------------------------------------------------
Non-recurring investment gains $ 1,947 $ 816 $ -
Allowance for Funds
Used During Construction (123) (107) (149)
Other Income 1,310 759 850
Other Income Deductions 250 (589) (151)
-------------------------------------
Other Income and (Income Deductions) - Net $ 3,384 $ 879 $ 550
=====================================
Laclede Gas recorded the receipt of proceeds totaling $1.9
million and $.8 million during fiscal 2004 and 2003, respectively, related
to its interest, as a policy holder, in the sale of a mutual insurance
company. These proceeds represent initial distributions relating to certain
policies held by the Utility. Subsequent distributions, if any, are not
expected to have a material impact on the financial position or results of
operations of Laclede Gas.
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11. 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. Accounting policies are as
described in Note 1. There are no material intersegment revenues.
(Thousands)
Regulated Gas Non-Regulated
Distribution Other Eliminations Total
-------------------------------------------------------------
Fiscal 2004
Operating Revenues $ 868,905 $ 2,577 $ - $ 871,482
Depreciation & Amortization 22,385 - - 22,385
Interest Charges 25,202 - - 25,202
Income Tax Expense 16,508 47 - 16,555
Net Income 32,125 74 - 32,199
Total Assets 1,154,365 1,616 - 1,155,981
Construction Expenditures 49,130 - - 49,130
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
12. COMMITMENTS AND CONTINGENCIES
Laclede Gas estimates fiscal year 2005 utility construction
expenditures at approximately $56 million. There are no material contractual
commitments at September 30, 2004 related to these estimated construction
expenditures.
The lease agreement covering the general office space of Laclede
Gas extends through February 2010 with options to renew for up to 10
additional years. The aggregate rental expense for fiscal years 2004, 2003
and 2002 was $856,000, $847,000 and $838,000, respectively. The annual
minimum rental payment for fiscal year 2005 is anticipated to be
approximately $865,000 with a maximum annual rental payment escalation of
$8,800 per year for each year through fiscal 2010. 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 $1.3 million in fiscal 2005, $1.1 million in fiscal
2006, $.8 million in fiscal 2007, $.5 million in fiscal 2008 and $.2 million
in fiscal 2009. Laclede Gas has entered into various contracts, expiring on
dates through 2011, for the storage, transportation, and supply of natural
gas. Minimum payments required under the contracts in place at September 30,
2004 are estimated at approximately $170 million. Additional contracts are
generally entered into prior to or during the heating season. Laclede Gas
estimates that it will pay approximately $87 million annually, at present
rate levels, for fixed charges related to these or other contracts that are
expected to be in place for the upcoming year for the reservation of gas
supplies and pipeline transmission and storage capacity. The Utility
recovers these costs from customers in accordance with the PGA Clause.
Laclede Gas is subject to various environmental laws and
regulations that, to date, have not materially affected the Utility's
financial position and result of operations. As these laws, regulations, and
their interpretations 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 remedial 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,
33
2004, Laclede Gas has paid or reserved for these actions. If regulators
require additional remedial 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. Laclede Gas continues
to evaluate options concerning this site, including, but not limited to, the
submission of its own Remedial Action Plan (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 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.
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.
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. While the scope of
future costs relative to the actions Laclede Gas has taken at the Shrewsbury
site pursuant to the current agreement with federal and state regulators may
not be significant, the scope of costs relative to future remedial actions
regulators may require at the Shrewsbury site and 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 costs incurred under current
agreement regarding 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, and with
regard to any future actions that might be required at the Shrewsbury site,
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 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 Gas to flow through the $4.9
million to customers. Pursuant to the Stay Order, Laclede Gas is paying $4.9
million into the Court's registry pending a final judicial determination of
Laclede Gas' 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. On
December 5, 2003, the MoPSC appealed the Circuit Court's decision to the
Missouri Court of Appeals for the Western District. Oral arguments were held
in the Missouri Court of Appeals for the Western District on August 17,
2004. The Utility is now awaiting the court's decision. The Utility
continues to believe in the merits of its position and intends, if
necessary, to assert its position vigorously throughout the appellate
process. However, to the extent that a final decision in the courts results
in disallowance of the $4.9 million in pre-tax gains, it could have a
material effect on the future financial position or results of operations of
Laclede Gas.
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 that the final outcome will not have a material
adverse effect on the financial position or results of operations of Laclede
Gas.
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13. INTERIM FINANCIAL INFORMATION (UNAUDITED)
In the opinion of Laclede Gas, the quarterly information
presented below for fiscal years 2004 and 2003 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
- ---------------------------------------- --------------- ------------- -------------- -------------
2004
Total operating revenues $261,982 $397,526 $126,513 $85,461
Operating income (loss) 31,700 40,566 6,270 (7,964)
Net income (loss) 17,356 23,380 (115) (8,422)
- ---------------------------------------- --------------- ------------- -------------- -------------
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)
35