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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Quarter Ended December 31, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission File Exact Name of Registrant as States of I.R.S.
Number Specified in its Charter and Incorporation Employer
Principal Office Address and Identification Number
Telephone Number
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1-16681 The Laclede Group, Inc. Missouri 74-2976504
720 Olive Street
St. Louis, MO 63101
314-342-0500
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1-1822 Laclede Gas Company Missouri 43-0368139
720 Olive Street
St. Louis, MO 63101
314-342-0500
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Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such report),
The Laclede Group, Inc.: Yes X No
---- ----
Laclede Gas Company: Yes X No
---- ----
and (2) has been subject to such filing requirements for the past 90 days:
The Laclede Group, Inc.: Yes X No
---- ----
Laclede Gas Company: Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Shares Outstanding At
Registrant Description of Common Stock January 31, 2003
- ---------- --------------------------- ----------------
The Laclede Group, Inc. Common Stock ($1.00 Par Value) 18,999,126
Laclede Gas Company Common Stock ($1.00 Par Value) 100 (100% owned by
Laclede Group)
1
TABLE OF CONTENTS Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Laclede Group, Inc.:
Statements of Consolidated Income 4
Consolidated Balance Sheets 5-6
Statements of Consolidated Cash Flows 7
Laclede Gas Company:
Statements of Consolidated Income 8
Consolidated Balance Sheets 9-10
Statements of Consolidated Cash Flows 11
Notes to Consolidated Financial Statements
(The Laclede Group and Laclede Gas Company - Combined) 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 18
Item 4. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 6. Exhibits and Other Reports on Form 8-K 26
SIGNATURES - The Laclede Group 27
CERTIFICATIONS - The Laclede Group 28-29
SIGNATURES - Laclede Gas Company 30
CERTIFICATIONS - Laclede Gas Company 31-32
INDEX TO EXHIBITS 33
Filing Format
- -------------
This Quarterly Report on Form 10-Q is a combined report being filed by two
separate registrants: The Laclede Group, Inc. (Laclede Group or the Company)
and Laclede Gas Company (Laclede Gas or the Utility).
Effective October 1, 2001, Laclede Gas and its subsidiaries became
subsidiaries of The Laclede Group. At that time stock certificates
previously representing shares of Laclede Gas common stock were deemed to
represent the same number of shares of The Laclede Group common stock. All
of the former subsidiaries of Laclede Gas (Laclede Investment LLC, Laclede
Energy Resources, Inc., Laclede Gas Family Services, Inc., Laclede
Development Company, Laclede Venture Corp. and Laclede Pipeline Company) are
now subsidiaries of Laclede Group.
2
PART I
FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q includes separate consolidated financial
statements (i.e. balance sheets, statements of income and statements of cash
flows) for Laclede Group and Laclede Gas.
A single set of Notes to the Consolidated Financial Statements begins on
page 12 that applies equally to Laclede Group and Laclede Gas, except where
otherwise noted.
This report includes a single Management's Discussion and Analysis of
Financial Condition and Results of Operations for Laclede Group as well as
Laclede Gas, due to the similarity of the operating results of the two
entities.
The interim financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's Form 10-K for the year ended September 30, 2002.
3
Item 1. Financial Statements
THE LACLEDE GROUP, INC.
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(Thousands, Except Per Share Amounts)
Three Months Ended
December 31,
2002 2001
-------- --------
Operating Revenues:
Regulated
Gas distribution $217,165 $183,211
Non-Regulated
Services 30,823 -
Other 32,183 11,433
----------------------
Total Operating Revenues 280,171 194,644
----------------------
Operating Expenses:
Regulated
Natural and propane gas 133,843 115,594
Other operation expenses 31,324 26,276
Maintenance 4,444 4,314
Depreciation and amortization 5,493 6,582
Taxes, other than income taxes 14,128 12,899
----------------------
Total regulated operating expenses 189,232 165,665
Non-Regulated
Services 30,625 -
Other 31,081 11,663
----------------------
Total Operating Expenses 250,938 177,328
----------------------
Operating Income 29,233 17,316
Other Income and Income Deductions - Net 1,048 924
----------------------
Income Before Interest and Income Taxes 30,281 18,240
----------------------
Interest Charges:
Interest on long-term debt 5,205 5,205
Preferred dividends and distributions of subsidiary trust 144 -
Other interest charges 1,349 1,359
----------------------
Total Interest Charges 6,698 6,564
----------------------
Income Before Income Taxes 23,583 11,676
Income Tax Expense 8,472 3,936
Dividends on Redeemable Preferred Stock - Laclede Gas 16 21
----------------------
Net Income Applicable to Common Stock $ 15,095 $ 7,719
======================
Average Number of Common Shares Outstanding 18,961 18,878
Earnings Per Share of Common Stock $.80 $.41
Dividends Declared Per Share of Common Stock $.335 $.335
See notes to consolidated financial statements.
4
THE LACLEDE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Dec. 31 Sept. 30
2002 2002
------- --------
(Thousands)
(UNAUDITED)
ASSETS
Utility Plant $ 998,768 $ 988,747
Less: Accumulated depreciation and amortization 398,724 394,371
---------------------------
Net Utility Plant 600,044 594,376
---------------------------
Goodwill 27,462 27,455
---------------------------
Other Property and Investments 46,535 46,986
---------------------------
Current Assets:
Cash and cash equivalents 8,842 12,870
Accounts receivable 173,575 94,010
Less: Allowances for doubtful accounts (4,677) (4,532)
Materials, supplies, and merchandise at avg. cost 4,620 4,364
Natural gas stored underground at LIFO cost 78,603 77,121
Propane gas at FIFO cost 14,698 14,712
Deferred income taxes 10,459 12,305
Prepayments and other 13,879 11,505
---------------------------
Total Current Assets 299,999 222,355
---------------------------
Deferred Charges:
Prepaid pension cost 113,095 114,313
Regulatory assets 73,076 72,484
Other 5,887 3,904
---------------------------
Total deferred charges 192,058 190,701
---------------------------
Total Assets $1,166,098 $1,081,873
===========================
See notes to consolidated financial statements.
5
THE LACLEDE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
Dec. 31 Sept. 30
2002 2002
------- --------
(Thousands)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock (Dec. 31, 2002, 18,962,906 and
Sept. 30, 2002, 18,921,287 shares issued) $ 18,963 $ 18,921
Paid-in capital 65,612 64,667
Retained earnings 211,259 202,517
Accumulated other comprehensive income (loss) (339) (339)
---------------------------
Total common stock equity 295,495 285,766
Redeemable preferred stock - Laclede Gas 1,266 1,266
Obligated mandatorily redeemable preferred securities of
subsidiary trust 45,000 -
Long-term debt (less sinking fund requirements) - Laclede Gas 259,566 259,545
---------------------------
Total Capitalization 601,327 546,577
---------------------------
Current Liabilities:
Notes payable 168,040 161,670
Accounts payable 84,177 45,707
Advance customer billings 11,359 24,832
Current portion of long-term debt 25,000 25,000
Taxes accrued 12,618 9,815
Unamortized purchased gas adjustment 16,879 22,976
Other 41,974 46,797
---------------------------
Total Current Liabilities 360,047 336,797
---------------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 160,008 157,378
Unamortized investment tax credits 5,551 5,629
Pension and postretirement benefit costs 16,391 14,658
Other 22,774 20,834
---------------------------
Total Deferred Credits and Other Liabilities 204,724 198,499
---------------------------
Total Capitalization and Liabilities $1,166,098 $1,081,873
===========================
See notes to consolidated financial statements.
6
THE LACLEDE GROUP, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
Three Months Ended
December 31,
2002 2001
-------- --------
(Thousands)
Operating Activities:
Net Income $ 15,095 $ 7,719
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 6,357 6,642
Deferred income taxes and investment
tax credits 2,548 (22,927)
Dividends on redeemable preferred stock - Laclede Gas 16 21
Other - net (1,455) 252
Changes in assets and liabilities:
Accounts receivable - net (79,420) (47,547)
Unamortized purchased gas adjustments (6,097) (676)
Deferred purchased gas costs 3,286 32,992
Advance customer billings - net (13,473) 4,797
Accounts payable 38,470 9,481
Taxes accrued 2,803 16,741
Natural gas stored underground (1,482) 4,160
Other assets and liabilities (4,775) (5,091)
-----------------------
Net cash provided by (used in) operating activities $(38,127) $ 6,564
-----------------------
Investing Activities:
Construction expenditures (11,570) (11,327)
Employee benefit trusts (530) (361)
Other investments 196 (1,739)
-----------------------
Net cash used in investing activities $(11,904) $(13,427)
-----------------------
Financing Activities:
Issuance of short-term debt - net 6,370 16,770
Dividends paid (6,354) (6,345)
Issuance of common stock 987 -
Issuance of Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust 45,000 -
Preferred stock reacquired and other - (395)
-----------------------
Net cash provided by financing activities $ 46,003 $ 10,030
-----------------------
Net Increase/(Decrease) in Cash and Cash Equivalents $ (4,028) $ 3,167
Cash and Cash Equivalents at Beg of Period 12,870 3,223
-----------------------
Cash and Cash Equivalents at End of Period $ 8,842 $ 6,390
=======================
Supplemental Disclosure of Cash Paid
During the Period for:
Interest $ 9,033 $ 8,740
Income taxes 4,320 2,404
See notes to consolidated financial statements.
7
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
(Thousands, Except Per Share Amounts)
Three Months Ended
December 31,
2002 2001
-------- --------
Operating Revenues:
Utility $217,165 $183,211
Other 650 607
----------------------
Total Operating Revenues 217,815 183,818
----------------------
Operating Expenses:
Utility
Natural and propane gas 133,843 115,594
Other operation expenses 31,324 26,276
Maintenance 4,444 4,314
Depreciation and amortization 5,493 6,582
Taxes, other than income taxes 14,128 12,899
----------------------
Total utility operating expenses 189,232 165,665
Other 635 574
----------------------
Total Operating Expenses 189,867 166,239
----------------------
Operating Income 27,948 17,579
Other Income and Income Deductions - Net 1,043 924
----------------------
Income Before Interest and Income Taxes 28,991 18,503
----------------------
Interest Charges:
Interest on long-term debt 5,205 5,205
Other interest charges 1,124 1,407
----------------------
Total Interest Charges 6,329 6,612
----------------------
Income Before Income Taxes 22,662 11,891
Income Tax Expense 8,064 4,011
----------------------
Net Income 14,598 7,880
Dividends on Redeemable Preferred Stock 16 21
----------------------
Earnings Applicable to Common Stock $ 14,582 $ 7,859
======================
See notes to consolidated financial statements.
8
LACLEDE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
Dec. 31 Sept. 30
2002 2002
---------- ---------
(Thousands)
(UNAUDITED)
ASSETS
Utility Plant $ 998,768 $ 988,747
Less: Accumulated depreciation and amortization 398,724 394,371
-----------------------
Net Utility Plant 600,044 594,376
-----------------------
Other Property and Investments 27,380 27,132
-----------------------
Current Assets:
Cash and cash equivalents 3,228 1,317
Accounts receivable 146,801 65,258
Less: Allowances for doubtful accounts (4,118) (3,718)
Materials, supplies, and merchandise at avg. cost 4,582 4,326
Natural gas stored underground at LIFO cost 78,578 77,087
Propane gas at FIFO cost 14,698 14,712
Deferred income taxes 10,459 12,305
Prepayments and other 7,627 2,515
-----------------------
Total Current Assets 261,855 173,802
-----------------------
Deferred Charges:
Prepaid pension cost 113,095 114,313
Regulatory assets 73,076 72,484
Other 4,122 3,714
-----------------------
Total deferred charges 190,293 190,511
-----------------------
Total Assets $1,079,572 $ 985,821
=======================
See notes to consolidated financial statements.
9
LACLEDE GAS COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
Dec. 31 Sept. 30
2002 2002
---------- ---------
(Thousands)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock and Paid-in capital (Dec. 31, 2002, and
Sept. 30, 2002, 100 shares issued) $ 82,579 $ 82,579
Retained earnings 188,949 180,719
Accumulated other comprehensive income (loss) (339) (339)
-----------------------
Total common stock equity 271,189 262,959
Redeemable preferred stock 1,266 1,266
Long-term debt (less sinking fund requirements) 259,566 259,545
-----------------------
Total Capitalization 532,021 523,770
-----------------------
Current Liabilities:
Notes payable 181,041 118,870
Accounts payable 68,121 30,838
Advance customer billings 11,359 24,832
Current portion of long-term debt 25,000 25,000
Taxes accrued 11,914 9,495
Unamortized purchased gas adjustment 16,879 22,976
Other 29,626 32,597
-----------------------
Total Current Liabilities 343,940 264,608
-----------------------
Deferred Credits and Other Liabilities:
Deferred income taxes 159,545 156,924
Unamortized investment tax credits 5,551 5,629
Pension and postretirement benefit costs 16,391 14,658
Other 22,124 20,232
-----------------------
Total Deferred Credits and Other Liabilities 203,611 197,443
-----------------------
Total Capitalization and Liabilities $1,079,572 $ 985,821
=======================
See notes to consolidated financial statements.
10
LACLEDE GAS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
Three Months Ended
December 31,
2002 2001
-------- --------
(Thousands)
Operating Activities:
Net Income $ 14,598 $ 7,880
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 5,477 6,582
Deferred income taxes and investment
tax credits 2,541 (22,927)
Other - net 143 252
Changes in assets and liabilities:
Accounts receivable - net (81,143) (45,239)
Unamortized purchased gas adjustments (6,097) (676)
Deferred purchased gas costs 3,286 32,992
Advance customer billings - net (13,473) 4,797
Accounts payable 37,283 6,626
Taxes accrued 2,419 16,172
Natural gas stored underground (1,491) 4,171
Other assets and liabilities (5,757) (7,590)
-----------------------
Net cash provided by (used in) operating activities $(42,214) $ 3,040
-----------------------
Investing Activities:
Construction expenditures (11,426) (11,321)
Employee benefit trusts (530) (361)
Other investments 264 (1,245)
-----------------------
Net cash used in investing activities $(11,692) $(12,927)
-----------------------
Financing Activities:
Issuance of short-term debt - net 62,171 16,770
Dividends paid (6,354) (6,345)
Preferred stock reacquired and other - (395)
-----------------------
Net cash provided by financing activities $ 55,817 $ 10,030
-----------------------
Net Increase in Cash and Cash Equivalents $ 1,911 $ 143
Cash and Cash Equivalents at Beg of Period 1,317 3,223
-----------------------
Cash and Cash Equivalents at End of Period $ 3,228 $ 3,366
=======================
Supplemental Disclosure of Cash Paid
During the Period for:
Interest $ 8,802 $ 8,740
Income taxes 4,371 2,404
See notes to consolidated financial statements.
11
THE LACLEDE GROUP, INC. AND LACLEDE GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.) Effective October 1, 2001, Laclede Gas Company (Laclede Gas or the
Utility) and its subsidiaries became subsidiaries of The Laclede
Group, Inc. (Laclede Group or the Company), an exempt holding
company under the Public Utility Holding Company Act of 1935. See
the Company's Annual Report on Form 10-K for the year ended
September 30, 2002 for additional details on this restructuring.
These notes are an integral part of the accompanying consolidated
financial statements of Laclede Group and its subsidiaries,
including Laclede Gas. Except where otherwise noted, these Notes to
Consolidated Financial Statements apply equally to Laclede Group
and Laclede Gas. In the opinion of Laclede Group and Laclede Gas,
this interim report includes all adjustments (consisting of normal
recurring accruals) necessary for the fair presentation of the
results of operations for the periods presented. Certain
prior-period amounts have been reclassified to conform to
current-period presentation. This Form 10-Q should be read in
conjunction with the Notes to Financial Statements contained in the
Company's Fiscal 2002 Form 10-K.
2.) On December 16, 2002, Laclede Capital Trust I (Trust), a wholly
owned Delaware Statutory trust of Laclede Group, issued $45 million
of 7.70% Trust Preferred Securities with a liquidation value of $25
per share due December 1, 2032. These securities can be redeemed on
or after December 16, 2007. All of the proceeds from the sale of
the Trust Preferred Securities were invested by the Trust in
debentures of Laclede Group with the same economic terms as the
Trust Preferred Securities. Net proceeds of approximately $43.3
million from the sale of these debentures were used to repay the
$42.8 million bank note obtained in January, 2002 to fund the
acquisition of SM&P and for other general corporate purposes.
The Trust Preferred Securities sold by the Trust represent
preferred beneficial interests and 97% beneficial ownership in the
assets held by the Trust. In exchange for the funds realized from
the sale of the Trust Preferred Securities and Trust common
securities representing 3% beneficial ownership interest in the
assets held by the Trust, Laclede Group issued $46.4 million of
junior subordinated debt instruments that constitute 100% of the
assets of the Trust.
The Trust Preferred Securities are rated A- (stable outlook) by
Standard & Poor's Ratings Group (S&P), Baa3 (stable outlook) by
Moody's Investors Service, Inc. and BBB+ (negative outlook) by
Fitch Ratings. S&P, Moody's and Fitch will continue to monitor the
ratings of the Trust Preferred Securities, as well as our other
credit ratings, and will make future adjustments to the extent
warranted.
3.) On October 3, 2002, the Missouri Public Service Commission (MoPSC
or the Commission) approved a settlement reached among the parties
to the 2002 rate case, filed by the Utility on January 25, 2002.
The terms of the settlement included (1) an annual rate increase of
$14 million effective on November 9, 2002; (2) a moratorium on
additional rate filings until March 1, 2004; and (3) an innovative
rate design that is expected to provide the Utility with the
ability to recover its distribution costs, which are essentially
fixed, in a manner that is significantly less sensitive to weather.
The settlement also provided for, among other things, changes
resulting in negative amortization of the depreciation reserve of
$3.4 million annually effective from July 1, 2002 until the
Utility's next rate case proceeding, minor changes in depreciation
rates effective January 1, 2003, and changes in the regulatory
treatment of pension costs primarily designed to stabilize such
costs, effective during fiscal 2003. Also approved was an incentive
program beginning in fiscal 2003 under which the Utility may
achieve, under specific conditions, income related to management of
its gas supply commodity costs. Previously deferred costs of $.3
million are being recovered and amortized on a straight-line basis
over a ten-year period, without return on investment, effective
with implementation of the new rates, in addition to certain
amounts authorized previously.
4.) On January 28, 2002, Laclede Group completed its acquisition from
NiSource, Inc. of 100% of the stock of SM&P Utility Resources, Inc.
(SM&P), one of the nation's major underground locating and marking
service businesses. SM&P, a Carmel, Indiana-based company, operates
in the midwestern states. Locators mark the placement of
underground facilities for major providers of telephone, natural
gas,
12
electric, water, cable TV and fiber optic services so that
construction work can be performed without damaging buried
facilities. As a result of the acquisition, SM&P's earnings flow is
expected to diversify Laclede Group's earnings and be
counter-seasonal to those of Laclede Gas. SM&P is a subsidiary of
Laclede Group and remains headquartered in Indiana. This
acquisition was financed initially with conventional bank debt
totaling $42.8 million, that was refinanced through the issuance of
Laclede Capital Trust Preferred Securities on December 16, 2002.
The following table summarizes the fair values of the assets
acquired and liabilities assumed at the date of acquisition. The
goodwill recognized in this transaction is fully deductible for tax
purposes. Acquired intangible assets of $498,000 were assigned to
registered trademarks that are not subject to amortization. Net
assets acquired includes cash and cash equivalents of $5.1 million.
At January 28, 2002
-------------------
(Thousands)
Current assets $20,578
Property, plant, and equipment 8,102
Other assets 456
Intangible assets 498
Goodwill 27,462
-------
Total assets acquired $57,096
-------
Current liabilities $13,571
Long-term liabilities 404
-------
Total liabilities assumed $13,975
-------
Net assets acquired $43,121
=======
SM&P's earnings are impacted by construction trends. SM&P's
revenues are dependent on a limited number of customers, primarily
in the utility and telecommunications sector, with contracts that
may be terminated on as short as 30 days' notice.
5.) The consolidated financial position, results of operations and cash
flows of Laclede Group are comprised primarily from the
consolidated financial position, results of operations and cash
flows of Laclede Gas. Laclede Gas is a natural gas distribution
utility having a material seasonal cycle. As a result, these
interim statements of income for Laclede Group and Laclede Gas are
not necessarily indicative of annual results or representative of
succeeding quarters of the fiscal year. Due to the seasonal nature
of the business of Laclede Gas, earnings are typically concentrated
in the first six months of the fiscal year, which generally
corresponds with the heating season. The Utility typically
experiences losses over the last half of its fiscal year. This
seasonal effect on Laclede Group is expected to be tempered
somewhat by the addition of SM&P, whose operations tend to be
counter-seasonal to those of Laclede Gas.
13
6.) Net provisions for income taxes were charged (credited) as follows
during the periods set forth below:
Laclede Group Laclede Gas
Three Months Ended Three Months Ended
December 31, December 31,
--------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
(Thousands) (Thousands)
Federal
Current $ 5,103 $ 22,988 $ 4,764 $ 23,061
Deferred 2,147 (19,658) 2,141 (19,666)
State and Local
Current 821 3,875 759 3,886
Deferred 401 (3,269) 400 (3,270)
--------------------- --------------------
Total $ 8,472 $ 3,936 $ 8,064 $ 4,011
===================== ====================
7.) Under the Gas Supply Incentive Plan (GSIP) of Laclede Gas, the
Utility shared with its customers certain gains and losses related
to the acquisition and management of its gas supply assets. The
provisions of the GSIP extended through September 30, 2001. In
September 2001, the MoPSC ruled that the GSIP should be allowed to
expire. The Utility requested clarification and rehearing. On
February 19, 2002, the MoPSC denied the Utility's application for
rehearing. Laclede Gas filed a petition for judicial review of the
MoPSC's decision with the Cole County Circuit Court, together with
a motion requesting that the MoPSC's decision be stayed. The
request for stay was denied on May 13, 2002. The petition for
judicial review is still pending. However, pursuant to the 2001
rate case settlement, the MoPSC authorized Laclede Gas to retain
all income from releases of pipeline capacity effective December 1,
2001. Income from releases of pipeline capacity was previously
shared with customers under the terms of the GSIP. Laclede Gas will
continue to retain all income resulting from sales outside of its
traditional service area, as previously authorized by the
Commission. Income related to releases of pipeline capacity and
sales made outside its traditional service area are volatile in
nature and subject to market conditions.
Three Months Ended
December 31,
2002 2001
------ ------
(Thousands)
Pre-Tax Income - Capacity Release $ 613 $ 167
Pre-Tax Income - Off System Sales 1,630 1,151
---------------------
Total Pre-Tax Income $2,243 $1,318
=====================
8.) Laclede Gas and other subsidiaries of Laclede Group may engage in
transactions with its affiliated companies during the ordinary
course of business. All significant intercompany balances have been
eliminated from the consolidated financial statements of Laclede
Group.
In compliance with generally accepted accounting principles,
transactions between Laclede Gas and its affiliates as well as
intercompany balances on Laclede Gas' balance sheet have not been
eliminated from the Laclede Gas consolidated financial statements.
These amounts are not disclosed on the face of the Laclede Gas
consolidated financial statements, since they are not material.
Laclede Gas provides administrative and general support to
affiliates. All such costs, which are not material, are billed to
the appropriate affiliates and are reflected in accounts receivable
on Laclede Gas' Consolidated Balance Sheet. Laclede Gas may also,
on occasion, borrow funds from, or lend funds to,
14
affiliated companies. At December 31, 2002, the Laclede Gas
Consolidated Balance Sheet reflected a total of $7.0 million of
intercompany receivables and $15.1 million of intercompany payables.
9.) The Regulated Gas Distribution segment consists of the regulated
operations of Laclede Gas and is the core business segment of
Laclede Group. Laclede Gas is a public utility engaged in the
retail distribution of natural gas serving an area in eastern
Missouri, with a population of approximately 2.0 million, including
the City of St. Louis, St. Louis County, and parts of eight other
counties. The Non-Regulated Services segment includes the results
of SM&P, an underground locating and marking business operating in
the midwestern states, a wholly owned subsidiary of Laclede Group
acquired on January 28, 2002. Non-Regulated Other includes the
transportation of liquid propane, gas marketing, the sale of
insurance related products, real estate development, the
compression of natural gas, and financial investments in other
enterprises. These operations are conducted through seven wholly
owned subsidiaries, six of which became subsidiaries of Laclede
Group as a result of the restructuring on October 1, 2001, plus
Laclede Energy Services, Inc. (LES), a wholly owned subsidiary of
Laclede Group that became operational on May 1, 2002. LES performs
administrative gas supply and risk management services. The results
of SM&P's operations since January 28, 2002 and the results of LES'
operations since May 1, 2002 are included in Laclede Group's
Consolidated Financial Statements. There are no material
intersegment revenues.
Regulated
Gas Non-Regulated Non-Regulated
(Thousands) Distribution Services Other Eliminations Consolidated
----------------------------------------------------------------------------------------------------------
Three Months Ended
December 31, 2002
-----------------
Operating revenues $ 217,165 $30,823 $32,183 $ - $ 280,171
Net income (loss) 14,573 (162) 684 - 15,095
Total assets 1,078,028 64,095 63,183 (39,208) 1,166,098
Three Months Ended
December 31, 2001
-----------------
Operating revenues $ 183,211 $ - $11,433 $ - $ 194,644
Net income (loss) 7,839 - (120) - 7,719
Total assets 1,021,627 - 32,637 (15,936) 1,038,328
In November 2002, SM&P was notified by two customers that, due to
actions they have taken to address workforce management issues,
they do not intend to continue to outsource certain functions,
which include locating services provided by SM&P, after February
and March 2003. One of these customers notified SM&P in January
2003 that it will continue to outsource a portion of its locating
services provided by SM&P beyond that timeframe. Revenue from these
customers totaled approximately $45 million for fiscal 2002 and is
currently expected to total approximately $27 million for fiscal
2003. In connection with the anticipated reduction in work from
these customers, SM&P will make reductions in the required levels
of personnel, facilities and equipment resulting in an after-tax
charge of approximately $1 million during the remainder of
fiscal 2003.
10.) Laclede Gas is subject to various environmental laws and
regulations that, to date, have not materially affected the
Company's financial position and results of operations. As these
laws, regulations, and their interpretation evolve, however,
additional costs may be incurred.
With regard to a former manufactured gas plant site located in
Shrewsbury, Missouri, Laclede Gas and state and federal
environmental regulators have agreed upon certain actions and those
actions are nearing completion. Laclede Gas currently estimates the
overall costs of these actions will be approximately $2.3 million.
As of December 31, 2002, Laclede Gas has paid or reserved for these
actions. If regulators require additional actions or assert
additional claims, Laclede Gas will incur additional costs.
15
Laclede Gas enrolled a second former manufactured gas plant site
into the Missouri Voluntary Cleanup Program (VCP). The VCP provides
opportunities to minimize the scope and cost of site cleanup while
maximizing possibilities for site development. This site is located
in and is presently owned by the City of St. Louis, Missouri. The
City of St. Louis has separately authorized a developer to prepare
both a Remedial Action Plan (RAP), for submission to the VCP, and a
site development plan. Laclede Gas is presently meeting with the
developer to determine what role, if any, it might play in these
efforts. Laclede Gas continues to evaluate other options as well,
including, but not limited to, the submission of its own RAP to the
VCP. Laclede Gas currently estimates that the cost of site
investigations, agency oversight and related legal and engineering
consulting may be approximately $629,000. Currently, Laclede Gas
has paid or reserved for these actions. Laclede has requested that
other former site owners and operators share in these costs and one
party has agreed to participate and has reimbursed Laclede Gas to
date for $173,000. Laclede Gas anticipates additional reimbursement
from this party. Laclede Gas plans to seek proportionate
reimbursement of all costs relative to this site from other
potentially responsible parties if practicable.
Costs incurred are charged to expense or capitalized in accordance
with generally accepted accounting principles. A predetermined
level of expense is included in Laclede Gas' rates.
Laclede Gas has been advised that a third former manufactured gas
plant site previously operated but no longer owned by Laclede Gas
may contain gas plant waste that may require remediation. Laclede
Gas is working to determine the nature and extent of such waste, if
any, and its responsibility, if any, for any remediation costs.
While the scope of costs relative to the Shrewsbury site will not
be significant, the scope of costs relative to the other sites is
unknown and may be material. Laclede Gas has notified its insurers
that it seeks reimbursement of its costs at these three
manufactured gas plant sites. In response, the majority of insurers
have reserved their rights. While some of the insurers have denied
coverage, Laclede Gas continues to seek reimbursement from them.
With regard to the Shrewsbury site, denials of coverage are not
expected to have any material impact on the financial position and
results of operations of Laclede Gas. With regard to the other two
sites, since the scope of costs are unknown and may be significant,
denials of coverage may have a material impact on the financial
position and results of operations of Laclede Gas. Such costs, if
incurred, have typically been subject to recovery in rates.
11.) On June 28, 2002, the Staff of the MoPSC filed its recommendation in
a proceeding established to review Laclede Gas' gas costs for fiscal
2001. In its recommendation, the Staff proposed to disallow
approximately $4.9 million in pre-tax gains achieved by Laclede Gas
in its incentive-based Price Stabilization Program. This Program
was discontinued at the end of the 2001-2002 heating season.
Laclede Gas believes that Staff's position lacks merit and intends
to vigorously oppose the adjustment in a proceeding before the
MoPSC, which is currently scheduled to occur in February 2003.
Regulatory proceeding results are, however, inherently uncertain,
and to the extent that a final Commission decision sustains Staff's
recommended disallowance, the proceeding's outcome could have a
material effect on the future financial position and results of
operations of Laclede Gas. Missouri statute provides an opportunity
for court review of Commission decisions.
12.) In June 2001, the FASB issued SFAS No. 141, "Business
Combinations," which requires all business combinations in the
scope of this Statement to be accounted for using the purchase
method. The provisions of this Statement apply to all business
combinations initiated after June 30, 2001. The FASB also issued
SFAS No. 142, "Goodwill and Other Intangible Assets," which
addresses how acquired goodwill and other intangible assets that
are acquired individually or with a group of other assets should be
accounted for in financial statements upon acquisition and after
they have been initially recognized in the financial statements.
The Company had adopted the provisions of SFAS No. 141 with the
acquisition of SM&P. As required by SFAS No. 141, the goodwill for
SM&P is being accounted for consistent with the provisions of SFAS
No. 142. The complete adoption of SFAS Nos. 141 and 142 on October
1, 2002 did not have a material effect on the financial position
and results of operations of Laclede Group.
16
The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting
for obligations associated with the retirement of tangible
long-lived assets and associated asset retirement costs. It applies
to legal obligations associated with the retirement of long-lived
assets that result from acquisition, construction, development
and/or the normal operation of a long-lived asset, except for
certain obligations of lessees. The provisions of the Statement
provide for rate-regulated entities that meet the criteria for
application of SFAS No. 71, such as Laclede Gas, to recognize
regulatory assets or liabilities for differences in the timing of
recognition of the period costs associated with asset retirement
obligations for financial reporting pursuant to this Statement and
rate-making purposes. The adoption of this Statement on October 1,
2002 did not affect the financial position and results of
operations of Laclede Group. There are legal obligations related to
final abandonment of the Utility's gas distribution system.
However, these obligations related to mass property and other
distribution system assets generally are in perpetuity and can not
be measured under SFAS No. 143 because of indeterminate settlement
dates and cash flow estimates.
13.) SM&P has several operating leases, the aggregate annual cost of
which is approximately $8 million, consisting primarily of 12-month
operating leases, with renewal options, for vehicles used in its
business. Upon acquisition of SM&P, Laclede Group assumed parental
guarantees of certain of those vehicle leases. Laclede Group
anticipates that the maximum guarantees will not exceed $15
million.
Laclede Group has guarantees outstanding of $6.5 million for
performance and payment of certain wholesale gas supply purchases
by Laclede Energy Resources, Inc. (its non-regulated marketing
affiliate), as of December 31, 2002.
17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This management's discussion analyzes the financial condition and results of
operations of The Laclede Group, Inc. (Laclede Group or the Company) and its
subsidiaries. It includes management's view of factors that affect its
business, explanations of past financial results including changes in
earnings and costs from the prior year, and their effects on overall
financial condition and liquidity.
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Certain words, such as "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "seek," and similar words
and expressions identify forward-looking statements that involve
uncertainties and risks. Future developments may not be in accordance with
our expectations or beliefs and the effect of future developments may not be
those anticipated. Among the factors that may cause results to differ
materially from those contemplated in any forward-looking statement are:
o weather conditions and catastrophic events;
o economic, competitive, political and regulatory conditions;
o legislative, regulatory and judicial mandates and decisions, some of which
may be retroactive, including those affecting
o allowed rates of return
o incentive regulation
o industry and rate structures
o purchased gas adjustment provisions
o franchise renewals
o environmental or safety matters;
o taxes;
o accounting standards;
o the results of litigation;
o retention, ability to attract, ability to collect from and conservation
efforts of customers;
o capital and energy commodity market conditions including the ability to
obtain funds for necessary capital expenditures and the terms and conditions
imposed for obtaining sufficient gas supply; and
o employee workforce issues.
Readers are urged to consider the risks, uncertainties and other factors
that could affect our business as described in this report. All
forward-looking statements made in this report rely upon the safe harbor
protections provided under the Private Securities Litigation Reform Act of
1995. We do not, by including this statement, assume any obligation to
review or revise any particular forward-looking statement in light of future
events.
The Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the Company's Consolidated
Financial Statements and the combined notes thereto.
18
THE LACLEDE GROUP, INC.
RESULTS OF OPERATIONS
Quarter Ended December 31, 2002
Laclede Group's earnings for the quarter ended December 31, 2002 were almost
solely derived from the regulated activities of its largest subsidiary,
Laclede Gas Company, Missouri's largest natural gas distribution company.
Those utility earnings are generated by the sale of heating energy, which is
influenced by the weather. Temperatures in Laclede Gas' service area during
the first quarter of the current fiscal year were 32% colder than the same
quarter last year, which was the third warmest such quarter on record.
Laclede Group's earnings were $.80 per share for the quarter ended December
31, 2002 compared with $.41 per share for the quarter ended December 31,
2001. In addition to the impact of higher gas sales resulting from colder
weather, the earnings of Laclede Gas were also favorably affected by the
general rate increases implemented December 1, 2001 and November 9, 2002.
These benefits were partially offset by a higher provision for uncollectible
accounts.
Regulated operating revenues for the quarter ended December 31, 2002 were
$217.2 million, or $34.0 million more than the same period last year. The
increase was primarily attributable to higher gas sales levels resulting
from colder weather, increased off-system and capacity release revenues, and
the general rate increases, partially offset by lower PGA rates which are
passed on to Utility customers, subject to prudence review. System therms
sold and transported increased by 56.5 million therms, or 20.8%, above the
quarter ended December 31, 2001.
Laclede Group's non-regulated services operating revenues for this quarter
were $30.8 million from SM&P Utility Resources, Inc. (SM&P), a wholly owned
subsidiary acquired January 28, 2002. Other non-regulated operating revenues
increased $20.8 million primarily due to increased gas marketing sales by
Laclede Energy Resources, Inc.
Regulated operating expenses for the quarter ended December 31, 2002
increased $23.6 million from the same quarter last year. Natural and propane
gas expense increased $18.3 million above last year's level primarily
attributable to higher volumes purchased for sendout due to the colder
weather and higher off-system gas expense, partially offset by lower rates
charged by our suppliers. Other operation and maintenance expenses increased
$5.2 million, or 16.9%, primarily due to a higher provision for
uncollectible accounts, higher pension costs, higher group insurance charges
and higher wage rates, partially offset by reduced distribution charges.
Depreciation and amortization expense decreased $1.1 million primarily due
to the effect of lower depreciation rates instituted December 1, 2001, and
negative amortization of a portion of the depreciation reserve effective
July 1, 2002, as authorized by the Missouri Public Service Commission
(MoPSC). These effects were partially offset by increased depreciable
property. Taxes, other than income, increased $1.2 million, or 9.5%,
primarily due to higher gross receipts taxes (reflecting the increased
revenues).
Laclede Group's non-regulated services operating expenses were $30.6 million
this quarter due to the operating expenses of SM&P. Other non-regulated
operating expenses increased $19.4 million mainly due to higher expenses
associated with increased gas marketing sales by Laclede Energy Resources,
Inc.
The $.3 million decrease in Laclede Gas' interest expense was primarily due
to a reduction in short-term interest charges.
The increase in income taxes is primarily due to higher pre-tax income.
In November 2002, SM&P was notified by two customers that, due to actions
they have taken to address workforce management issues, they do not intend
to continue to outsource certain functions, which include locating services
provided by SM&P, after February and March 2003. One of these customers
notified SM&P in January 2003 that it will continue to outsource a portion
of its locating services provided by SM&P beyond that timeframe. Revenue
from these customers totaled approximately $45 million for fiscal 2002 and
is currently expected to total approximately $27 million for fiscal 2003. In
connection with the anticipated reduction in work
19
from these customers, SM&P will make reductions in the required levels of
personnel, facilities and equipment resulting in an after-tax charge of
approximately $1 million during the remainder of fiscal 2003.
Regulatory Matters
- ------------------
Laclede Gas previously appealed the MoPSC's decision in its 1999 rate case
relative to the calculation of its depreciation rates. The Circuit Court
remanded the decision to the MoPSC based on inadequate findings of fact. The
MoPSC upheld its previous order and Laclede Gas appealed this second order
to the Circuit Court. On April 29, 2002, the Court ruled that the MoPSC's
second order was lawful and reasonable. On June 7, 2002, Laclede Gas
appealed the Circuit Court's decision to the Missouri Western District Court
of Appeals. All briefs to the Court of Appeals have been submitted and oral
arguments were held in December 2002. The Utility is currently awaiting the
Court's opinion.
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 the approximately $4.9
million of pre-tax income achieved under the PSP. Laclede Gas believes that
Staff's position lacks merit and continues to vigorously oppose the
adjustment in a proceeding before the MoPSC, the hearing for which is
currently scheduled to occur in February 2003. Regulatory proceeding results
are uncertain, and to the extent that a final Commission decision sustains
Staff's recommended disallowance, the outcome of the proceeding could have a
material effect on the future financial position and results of operations
of Laclede Gas. Missouri statutes provide an opportunity for court review of
Commission decisions.
On May 31, 2002, the Staff of the Commission filed a Motion to Investigate
Laclede Gas Company's alleged transfer of its gas supply function to Laclede
Energy Services, Inc. (LES), a subsidiary of Laclede Group, and such
action's ramifications, including whether such alleged transfer required
Commission approval or was otherwise lawful. On June 10, 2002 Laclede Gas
responded, pointing out that it had not transferred its gas supply functions
to LES but had instead delegated six employees to LES with responsibility
for performing various gas supply administrative duties, many of which had
been performed in prior years by an outside party. Laclede Gas remains
primarily responsible for the gas supply function. Laclede Gas urged the
Commission to deny Staff's Motion on this and other grounds. The Commission
concluded that a case should be established to investigate the issues raised
by the Staff. The Commission also ordered the Staff to file a status report
regarding progress of the investigation and Laclede Gas to file any
responses to the Staff's status report. Laclede Gas believes its actions
comply with applicable law and intends to vigorously defend its position.
The outcome of any regulatory proceeding is uncertain. However, Laclede Gas
does not believe that the eventual outcome of the case will have a material
effect on the financial results of Laclede Gas.
On July 29, 2002, Laclede Gas filed a proposed Catch-Up/Keep-Up Program with
the MoPSC that would permit the Company to use a portion of the savings from
its negotiated pipeline discounts to fund a low-income energy assistance
program. Pursuant to, and among revisions to the Program filed by the
Utility on September 23, 2002, the amount of discount savings that could be
used for this purpose would be limited to $6 million per year. In response
to certain objections filed by the MoPSC Staff and Missouri Office of the
Public Counsel, the Commission suspended the tariffs implementing the
Program and scheduled a prehearing conference that occurred on October 23,
2002. Evidentiary hearings were held on December 2 through December 6, 2002.
On January 16, 2003, the Commission, by a 3 to 2 vote, issued an order
rejecting the proposed plan. On January 23, 2003, the Utility filed a Motion
for Reconsideration seeking to identify whether the Commission would approve
the Program at a reduced funding level of $3 million per year.
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
20
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.
Laclede Gas accounts for its regulated operations in accordance with
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation." This statement sets forth the
application of accounting principles generally accepted in the United States
of America for those companies whose rates are established by or are subject
to approval by an independent third-party regulator. The provisions of SFAS
No. 71 require, among other things, that financial statements of a regulated
enterprise reflect the actions of regulators, where appropriate. These
actions may result in the recognition of revenues and expenses in time
periods that are different than non-regulated enterprises. When this occurs,
costs are deferred as assets in the balance sheet (regulatory assets) and
recorded as expenses when those amounts are reflected in rates. Also,
regulators can impose liabilities upon a regulated company for amounts
previously collected from customers and for recovery of costs that are
expected to be incurred in the future (regulatory liabilities).
Accounting Pronouncements
- -------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which
requires all business combinations in the scope of this Statement to be
accounted for using the purchase method. The provisions of this Statement
apply to all business combinations initiated after June 30, 2001. The FASB
also issued SFAS No. 142, "Goodwill and Other Intangible Assets," which
addresses how acquired goodwill and other intangible assets that are
acquired individually or with a group of other assets should be accounted
for in financial statements upon acquisition and after they have been
initially recognized in the financial statements. The Company had adopted
the provisions of SFAS No. 141 with the acquisition of SM&P. As required by
SFAS No. 141, the goodwill for SM&P is being accounted for consistent with
the provisions of SFAS No. 142. The complete adoption of SFAS Nos. 141 and
142 on October 1, 2002 did not have a material effect on the financial
position and results of operations of Laclede Group.
The FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations,"
which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and associated
asset retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from acquisition, construction,
development and/or the normal operation of a long-lived asset, except for
certain obligations of lessees. The provisions of the Statement provide for
rate-regulated entities that meet the criteria for application of SFAS No.
71, such as Laclede Gas, to recognize regulatory assets or liabilities for
differences in the timing of recognition of the period costs associated with
asset retirement obligations for financial reporting pursuant to this
Statement and rate-making purposes. The adoption of this Statement on
October 1, 2002 did not affect the financial position and results of
operations of Laclede Group. There are legal obligations related to final
abandonment of the Utility's gas distribution system. However, these
obligations related to mass property and other distribution system assets
generally are in perpetuity and can not be measured under SFAS No. 143
because of indeterminate settlement dates and cash flow estimates.
Liquidity and Capital Resources
- -------------------------------
The Company's short-term borrowing requirements typically peak during colder
months when Laclede Gas borrows money to cover the gap between when it
purchases its natural gas and when its customers pay for that gas. These
short-term cash requirements have traditionally been met through the sale of
commercial paper supported by lines of credit with banks.
Laclede Gas currently has a primary line of credit in place of up to $215
million, expiring September 15, 2003, and supplemental credit lines of $15
million that have been renewed through January 2004. During the quarter
ending December 31, 2002, Laclede Gas sold commercial paper aggregating to a
maximum of $168.6 million at any one
21
time, but did not borrow from the banks under the aforementioned agreements. At
this writing, Laclede Gas has aggregate lines of credit totaling $230 million.
Short-term commercial paper borrowings outstanding at December 31, 2002 were
$168.0 million at a weighted average interest rate of 1.66%. Based on short-term
borrowings at December 31, 2002, a change in interest rates of 100 basis points
would increase or decrease pre-tax earnings and cash flows by approximately
$1.7 million on an annual basis.
Most of Laclede Gas' lines of credit include a covenant limiting total debt,
including short-term debt, to no more than 70% of total capitalization. On
December 31, 2002, total debt was 63% of total capitalization.
Short-term cash requirements outside of Laclede Gas have been met thus far
with internally-generated funds. However, Laclede Group has put into place a
working capital line of credit for $20 million, expiring in June 2003, to
meet short-term funding needs of its non-utility subsidiaries. While this
line has not been used to date, it is expected to be used for seasonal needs
of the various subsidiaries from time to time throughout the year. The
Company's $20 million working capital line of credit includes rating
triggers that would trigger default in the event that the Laclede Gas'
ratings fall below a specified level. The line of credit was obtained from
U. S. Bank National Association, and includes interest rates at a rate
indexed to either LIBOR or Prime. The applicable rating triggers are a
rating on Laclede Gas Company's senior secured debt of no lower than
A3 (Moody's) or A- (S&P). Therefore, these triggers would take effect in the
event of a downgrade of three notches from the current level by S&P or of
one notch by Moody's.
On December 16, 2002, Laclede Capital Trust I issued 1,800,000 trust
preferred securities at a par value of $25.00 each and a distribution rate
of 7.70%. These securities mature December 1, 2032, but may be redeemed at
Laclede's option on or after December 16, 2007. The proceeds of this
issuance were used to repay Laclede Group's short-term loan of $42.8 million
from U. S. Bank, which had funded the acquisition in January 2002 of SM&P
Utility Resources, Inc. These preferred securities were issued under Laclede
Group's shelf registration on Form S-3, which became effective May 6, 2002,
and allows for the issuance of equity securities, other than preferred
stock, and debt securities. Of the $500 million of securities originally
registered under this S-3, $408.6 million remain registered and unissued as
of December 31, 2002. The amount, timing and type of additional financing to
be issued under this shelf registration will depend on cash requirements and
market conditions.
The Trust Preferred Securities are rated A- (stable outlook) by Standard &
Poor's Ratings Group (S&P), Baa3 (stable outlook) by Moody's Investors
Service, Inc. and BBB+ (negative outlook) by Fitch Ratings. S&P, Moody's and
Fitch will continue to monitor the ratings of the Trust Preferred
Securities, as well as our other credit ratings, and will make future
adjustments to the extent warranted.
SM&P has several operating leases, the aggregate annual cost of which is
approximately $8 million, consisting primarily of 12-month operating leases,
with renewal options, for vehicles used in its business. Upon acquisition of
SM&P, Laclede Group assumed parental guarantees of certain of those vehicle
leases. Laclede Group anticipates that the maximum guarantees will not
exceed $15 million.
Laclede Group has guarantees outstanding of $6.5 million for performance and
payment of certain wholesale gas supply purchases by Laclede Energy
Resources, Inc. (its non-regulated marketing affiliate), as of December 31,
2002.
Utility construction expenditures were $11.4 million for the quarter ended
December 31, 2002, compared with $11.3 million for the same period last
year. Non-utility construction expenditures were $.2 million for the same
period this year.
Consolidated capitalization at December 31, 2002, excluding current
obligations of long-term debt, increased $54.8 million since September 30,
2002 and consisted of 49.1% Laclede Group common stock equity, .2% Laclede
Gas preferred stock equity, 7.5% Laclede Capital Trust I preferred
securities and 43.2% Laclede Gas long-term debt. The proportion of preferred
securities in the consolidated capital structure increased with the December
16, 2002 issuance of trust preferred securities by Laclede Capital Trust I.
Laclede Gas' consolidated capitalization at December 31, 2002, excluding
current obligations of long-term debt, consisted of 51.0% common stock
equity, .2% preferred stock and 48.8% long-term debt.
22
The seasonal nature of Laclede Gas' sales affects the comparison of certain
balance sheet items at December 31, 2002 and at September 30, 2002, such as
Accounts Receivable - Net, Gas Stored Underground, Notes Payable, Accounts
Payable, Regulatory Liabilities, and Advance and Delayed Customer Billings.
Market Risk
- -----------
The management of Laclede Gas adopted a risk management policy that provides
for the purchase of natural gas financial instruments with the goal of
managing price risk associated with purchasing natural gas on behalf of its
customers. This policy prohibits speculation. Costs and cost reductions,
including carrying costs, associated with the Utility's use of natural gas
financial instruments are allowed to be passed on to the Utility's customers
through the operation of its Purchased Gas Adjustment Clause, through which
the MoPSC allows the Utility to recover gas supply costs. Accordingly,
Laclede Gas does not expect any earnings impact as a result of the use of
these financial instruments. At December 31, 2002, the Utility held
approximately 2.5 million MmBtu of futures contracts at an average price of
$3.97 per MmBtu. Additionally, approximately 5 million MmBtu of price risk
mitigation was in place through the use of option-based strategies. These
positions have various expiration dates, the longest of which extends
through March 2003.
In the course of its business, Laclede Group's non-regulated marketing
affiliate, Laclede Energy Resources, Inc. (LER), enters into fixed price
commitments for the sale of natural gas to customers. LER manages the price
risk associated with these sales by closely matching the purchases of
physical supplies at fixed prices to lock in margins. At December 31, 2002,
LER's open positions were not material to Laclede Group's financial position
or results of operations.
Environmental Matters
- ---------------------
Laclede Gas is subject to various environmental laws and regulations that,
to date, have not materially affected the Company's financial position and
results of operations. As these laws, regulations, and their interpretation
evolve, however, additional costs may be incurred.
With regard to a former manufactured gas plant site located in Shrewsbury,
Missouri, Laclede Gas and state and federal environmental regulators have
agreed upon certain actions and those actions are nearing completion.
Laclede Gas currently estimates the overall costs of these actions will be
approximately $2.3 million. As of December 31, 2002, Laclede Gas has paid or
reserved for these actions. If regulators require additional actions or
assert additional claims, Laclede Gas will incur additional costs.
Laclede Gas enrolled a second former manufactured gas plant site into the
Missouri Voluntary Cleanup Program (VCP). The VCP provides opportunities to
minimize the scope and cost of site cleanup while maximizing possibilities
for site development. This site is located in and is presently owned by the
City of St. Louis, Missouri. The City of St. Louis has separately authorized
a developer to prepare both a Remedial Action Plan (RAP), for submission to
the VCP, and a site development plan. Laclede Gas is presently meeting with
the developer to determine what role, if any, it might play in these
efforts. Laclede Gas continues to evaluate other options as well, including,
but not limited to, the submission of its own RAP to the VCP. Laclede Gas
currently estimates that the cost of site investigations, agency oversight
and related legal and engineering consulting may be approximately $629,000.
Currently, Laclede Gas has paid or reserved for these actions. Laclede has
requested that other former site owners and operators share in these costs
and one party has agreed to participate and has reimbursed Laclede Gas to
date for $173,000. Laclede Gas anticipates additional reimbursement from
this party. Laclede Gas plans to seek proportionate reimbursement of all
costs relative to this site from other potentially responsible parties if
practicable.
Costs incurred are charged to expense or capitalized in accordance with
generally accepted accounting principles. A predetermined level of expense
is included in Laclede Gas' rates.
23
Laclede Gas has been advised that a third former manufactured gas plant site
previously operated but no longer owned by Laclede Gas may contain gas plant
waste that may require remediation. Laclede Gas is working to determine the
nature and extent of such waste, if any, and its responsibility, if any, for
any remediation costs.
While the scope of costs relative to the Shrewsbury site will not be
significant, the scope of costs relative to the other sites is unknown and
may be material. Laclede Gas has notified its insurers that it seeks
reimbursement of its costs at these three manufactured gas plant sites.
In response, the majority of insurers have reserved their rights. While
some of the insurers have denied coverage, Laclede Gas continues to seek
reimbursement from them. With regard to the Shrewsbury site, denials of
coverage are not expected to have any material impact on the financial
position and results of operations of Laclede Gas. With regard to the other
two sites, since the scope of costs are unknown and may be significant,
denials of coverage may have a material impact on the financial position and
results of operations of Laclede Gas. Such costs, if incurred, have
typically been subject to recovery in rates.
24
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, we carried out
an evaluation, under the supervision and with participation of our
management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-14 and Rule 15d-14 under the
Securities Exchange Act of 1934, as amended. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective.
There have been no significant changes in our internal controls or
in other factors which could significantly affect internal controls
subsequent to the date we carried out our evaluation.
25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of environmental matters, see Note 10 to the
Consolidated Financial Statements on page 15. For a description of pending
regulatory matters of Laclede Gas, see Management's Discussion and Analysis
of Financial Condition and Results of Operations, page 20.
Laclede Group and its subsidiaries are 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 believes the final outcome will not have a material adverse
effect on the consolidated financial position and results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) Reports on Form 8-K
On October 4, 2002 the Company filed a Form 8-K reporting under Item 5
several events or developments that occurred since the filing of the June
30, 2002 quarterly report on Form 10-Q.
On November 12, 2002 the Company submitted a Form 8-K reporting under Item 9
the issuance of a press release announcing fiscal year 2002 results.
On December 10, 2002, the Company filed a Form 8-K reporting under Item 5
the execution of an underwriting agreement relating to the sale of 1,800,000
7.70% Trust Preferred Securities of Laclede Capital Trust I under a
registration statement on Form S-3 (No. 333-86722).
On December 16, 2002 the Company filed a Form 8-K reporting under Item 5
that pursuant to the underwriting agreement discussed above, Laclede Capital
Trust I subsequently sold to the underwriters named in schedule I to the
agreement 1,800,000 of the Trust Preferred Securities. Copies of the
definitive forms of the documents relative to the securities were filed as
exhibits to the Form 8-K.
26
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
The Laclede Group, Inc.
By: /s/ Barry C. Cooper
-------------------------
Dated: January 31, 2003 Barry C. Cooper
---------------- Chief Financial Officer
(Authorized Signatory and
Chief Financial Officer)
27
CERTIFICATIONS
- --------------
I, Douglas H. Yaeger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Laclede Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 29, 2003
----------------
/s/ Douglas H. Yaeger
-------------------------------------
Douglas H. Yaeger
Chairman of the Board,
President and Chief Executive Officer
28
CERTIFICATIONS
- --------------
I, Barry C. Cooper, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Laclede Group,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 29, 2003
----------------
/s/ Barry C. Cooper
-----------------------
Barry C. Cooper
Chief Financial Officer
29
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
Laclede Gas Company
By: /s/ Barry C. Cooper
-------------------------
Dated: January 31, 2003 Barry C. Cooper
---------------- Chief Financial Officer
(Authorized Signatory and
Chief Financial Officer)
30
CERTIFICATIONS
- --------------
I, Douglas H. Yaeger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Laclede Gas
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 29, 2003
----------------
/s/ Douglas H. Yaeger
-------------------------------------
Douglas H. Yaeger
Chairman of the Board,
President and Chief Executive Officer
31
CERTIFICATIONS
- --------------
I, Barry C. Cooper, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Laclede Gas
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 29, 2003
----------------
/s/ Barry C. Cooper
-----------------------
Barry C. Cooper
Chief Financial Officer
32
INDEX TO EXHIBITS
-----------------
Exhibit
No.
- -------
4.1* Certificate of Trust of Laclede Capital Trust I, dated April 4, 2002,
filed as Exhibit 4.3 to the Company's registration statement on
Form S-3 (No. 333-86722).
4.2* Declaration of Trust of Laclede Capital Trust I, dated April 4, 2002,
filed as Exhibit 4.4 to the Company's registration statement on
Form S-3 (No. 333-86722).
4.3* Amended and Restated Declaration of Trust dated December 16, 2002,
filed as Exhibit 1 to Form 8-K dated December 16, 2002.
4.4* Common Securities Guarantee Agreement dated December 16, 2002, filed
as Exhibit 2 to Form 8-K dated December 16, 2002.
4.5* Preferred Securities Guarantee Agreement dated December 16, 2002,
filed as Exhibit 3 to Form 8-K dated December 16, 2002.
4.6* Indenture for Subordinated Debt Securities dated December 16, 2002,
filed as Exhibit 4 to Form 8-K dated December 16, 2002.
4.7* First Supplemental Indenture dated December 16, 2002, filed as
Exhibit 5 to Form 8-K dated December 16, 2002.
99.1 - Certificate of compliance for The Laclede Group, Inc. under
Section 906 of the Sarbanes-Oxley Act of 2002 for Douglas H. Yaeger
99.2 - Certificate of compliance for The Laclede Group, Inc. under
Section 906 of the Sarbanes-Oxley Act of 2002 for Barry C. Cooper.
99.3 - Certificate of compliance for Laclede Gas Company under Section 906
of the Sarbanes-Oxley Act of 2002 for Douglas H. Yaeger.
99.4 - Certificate of compliance for Laclede Gas Company under Section 906
of the Sarbanes-Oxley Act of 2002 for Barry C. Cooper.
*Incorporated herein by reference, file no. 1-16681.
33