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SPIRE INC 10-Q 2006

Documents found in this filing:

  1. 10-Q
  2. Ex-12
  3. Ex-31
  4. Ex-32
  5. Ex-99
  6. Ex-99

 


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 June 30, 2006

OR

[     ]

TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

Commission File Number

Exact Name of Registrant as Specified in its Charter and Principal Office Address and Telephone Number

 

 

State of Incorporation

I.R.S.

Employer Identification Number

1-16681

The Laclede Group, Inc.

720 Olive Street

St. Louis, MO 63101

314-342-0500

Missouri

74-2976504

1-1822

Laclede Gas Company

720 Olive Street

St. Louis, MO 63101

314-342-0500

Missouri

43-0368139

Indicate by check mark whether the registrant:

(1)           has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report),

 

The Laclede Group, Inc.:

Yes

[ X ]

No

[     ]

 

 

 

 

 

Laclede Gas Company:

Yes

[ X ]

No

[     ]

                

and (2) has been subject to such filing requirements for the past 90 days:

                

The Laclede Group, Inc.:

Yes

[ X ]

No

[     ]

 

 

 

 

 

Laclede Gas Company:

Yes

[ X ]

No

[     ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act):

 

The Laclede Group, Inc.:

Large accelerated filer

[     ]

Accelerated filer

[ X ]

Non-accelerated filer

[     ]

 

 

 

 

 

 

 

Laclede Gas Company:

Large accelerated filer

[     ]

Accelerated filer

[     ]

Non-accelerated filer

[ X ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

                

The Laclede Group, Inc.:

Yes

[     ]

No

[ X ]

 

 

 

 

 

Laclede Gas Company:

Yes

[     ]

No

[ X ]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

 

 

 

Shares Outstanding At

Registrant

Description of Common Stock

July 28, 2006

The Laclede Group, Inc.:

Common Stock ($1.00 Par Value)

21,357,009

Laclede Gas Company:

Common Stock ($1.00 Par Value)

10,170 *

* 100% owned by The Laclede Group, Inc.

 

 


 

 

 

TABLE OF CONTENTS

 

Page No.

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1    Financial Statements

 

 

 

 

 

The Laclede Group, Inc.:

 

 

Statements of Consolidated Income

 

4

Statements of Consolidated Comprehensive Income

 

5

Consolidated Balance Sheets

 

6-7

Statements of Consolidated Cash Flows

 

8

Notes to Consolidated Financial Statements

 

9-21

 

 

 

Laclede Gas Company:

 

 

Statements of Income

 

Ex. 99.1, p. 1

Balance Sheets

 

Ex. 99.1, p. 2-3

Statements of Cash Flows

 

Ex. 99.1, p. 4

Notes to Financial Statements

 

Ex. 99.1, p. 5-12

 

 

 

Item 2    Management’s Discussion and Analysis of Financial Condition and

Results of Operations (The Laclede Group, Inc.)

 

22-34

Management’s Discussion and Analysis of Financial Condition and

Results of Operations (Laclede Gas Company)

 

Ex. 99.1, p. 13-23

 

 

 

Item 3    Quantitative and Qualitative Disclosures About Market Risk

 

35

 

 

 

Item 4    Controls and Procedures

 

35

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1    Legal Proceedings

 

36

 

 

 

Item 2    Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

 

 

Item 6    Exhibits

 

36

 

 

 

SIGNATURES – The Laclede Group, Inc.

 

37

 

 

 

SIGNATURES – Laclede Gas Company

 

38

 

 

 

INDEX TO EXHIBITS

 

39

 

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).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

PART I. FINANCIAL INFORMATION

 

The interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Form 10-K for the fiscal year ended September 30, 2005.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Item 1. Financial Statements

THE LACLEDE GROUP, INC.

STATEMENTS OF CONSOLIDATED INCOME

(UNAUDITED)

(Thousands, Except Per Share Amounts)

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

June 30,

 

 

 

June 30,

 

 

 

 

2006

 

 

2005

 

 

 

 

2006

 

 

2005

 

Operating Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gas distribution

 

$

148,690

 

$

162,371

 

 

 

$

1,049,374

 

$

888,620

 

Non-Regulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

50,417

 

 

45,118

 

 

 

 

116,434

 

 

96,910

 

Gas marketing

 

 

130,372

 

 

103,008

 

 

 

 

559,437

 

 

337,794

 

Other

 

 

1,063

 

 

830

 

 

 

 

3,312

 

 

7,043

 

Total Operating Revenues

 

 

330,542

 

 

311,327

 

 

 

 

1,728,557

 

 

1,330,367

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural and propane gas

 

 

90,305

 

 

102,995

 

 

 

 

773,732

 

 

630,647

 

Other operation expenses

 

 

31,029

 

 

27,896

 

 

 

 

101,898

 

 

93,496

 

Maintenance

 

 

5,480

 

 

5,160

 

 

 

 

15,735

 

 

14,054

 

Depreciation and amortization

 

 

8,275

 

 

5,947

 

 

 

 

22,536

 

 

16,919

 

Taxes, other than income taxes

 

 

14,014

 

 

13,198

 

 

 

 

62,911

 

 

55,498

 

Total regulated operating expenses

 

 

149,103

 

 

155,196

 

 

 

 

976,812

 

 

810,614

 

Non-Regulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

44,153

 

 

38,195

 

 

 

 

114,063

 

 

91,370

 

Gas marketing

 

 

124,599

 

 

101,454

 

 

 

 

535,945

 

 

330,945

 

Other

 

 

1,406

 

 

986

 

 

 

 

3,108

 

 

7,003

 

Total Operating Expenses

 

 

319,261

 

 

295,831

 

 

 

 

1,629,928

 

 

1,239,932

 

Operating Income

 

 

11,281

 

 

15,496

 

 

 

 

98,629

 

 

90,435

 

Other Income and (Income Deductions) – Net

 

 

1,385

 

 

822

 

 

 

 

3,849

 

 

2,302

 

Interest Charges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on long-term debt

 

 

5,417

 

 

5,642

 

 

 

 

16,703

 

 

17,193

 

Interest on long-term debt to unconsolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

affiliate trust

 

 

894

 

 

894

 

 

 

 

2,680

 

 

2,680

 

Other interest charges

 

 

2,589

 

 

883

 

 

 

 

7,753

 

 

3,171

 

Total Interest Charges

 

 

8,900

 

 

7,419

 

 

 

 

27,136

 

 

23,044

 

Income Before Income Taxes

 

 

3,766

 

 

8,899

 

 

 

 

75,342

 

 

69,693

 

Income Tax Expense

 

 

1,026

 

 

2,788

 

 

 

 

25,480

 

 

24,492

 

Net Income

 

 

2,740

 

 

6,111

 

 

 

 

49,862

 

 

45,201

 

Dividends on Redeemable Preferred Stock –

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Laclede Gas

 

 

12

 

 

13

 

 

 

 

37

 

 

43

 

Net Income Applicable to Common Stock

 

$

2,728

 

$

6,098

 

 

 

$

49,825

 

$

45,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Number of Common Shares Outstanding

 

 

21,269

 

 

21,103

 

 

 

 

21,230

 

 

21,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share of Common Stock

 

$

.13

 

$

.29

 

 

 

$

2.35

 

$

2.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share of Common Stock

 

$

.13

 

$

.29

 

 

 

$

2.34

 

$

2.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends Declared Per Share of Common Stock

 

$

.355

 

$

.345

 

 

 

$

1.055

 

$

1.030

 

 

See notes to consolidated financial statements.

4

 

 

 

THE LACLEDE GROUP, INC.

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

(UNAUDITED)

 

(Thousands)

 

 

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

June 30,

 

 

 

June 30,

 

 

 

 

2006

 

 

2005

 

 

 

 

2006

 

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Applicable to Common Stock

 

$

2,728

 

$

6,098

 

 

 

$

49,825

 

$

45,158

 

Other Comprehensive Income (Loss), Before Tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains (losses) on cash flow hedging derivative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net hedging gain (loss) arising during period

 

 

2,656

 

 

1,412

 

 

 

 

10,566

 

 

(1,770

)

Reclassification adjustment for (gains) losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

included in net income

 

 

(2,703

)

 

1,504

 

 

 

 

3,432

 

 

3,516

 

Net unrealized gains (losses) on cash flow hedging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

derivative instruments

 

 

(47

)

 

2,916

 

 

 

 

13,998

 

 

1,746

 

Other Comprehensive Income (Loss), Before Tax

 

 

(47

)

 

2,916

 

 

 

 

13,998

 

 

1,746

 

Income Tax Expense (Benefit) Related to Items of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

(18

)

 

1,127

 

 

 

 

5,408

 

 

675

 

Other Comprehensive Income (Loss), Net of Tax

 

 

(29

)

 

1,789

 

 

 

 

8,590

 

 

1,071

 

Comprehensive Income

 

$

2,699

 

$

7,887

 

 

 

$

58,415

 

$

46,229

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

THE LACLEDE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

June 30,

 

 

 

Sept. 30,

 

 

 

June 30,

 

 

 

2006

 

 

 

2005

 

 

 

2005

 

(Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utility Plant

 

$

1,135,936

 

 

 

$

1,105,733

 

 

 

$

1,102,208

 

Less: Accumulated depreciation and amortization

 

 

382,684

 

 

 

 

377,252

 

 

 

 

382,697

 

Net Utility Plant

 

 

753,252

 

 

 

 

728,481

 

 

 

 

719,511

 

Goodwill

 

 

28,124

 

 

 

 

28,124

 

 

 

 

28,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-utility property

 

 

11,563

 

 

 

 

11,791

 

 

 

 

11,972

 

Other investments

 

 

42,201

 

 

 

 

37,825

 

 

 

 

37,855

 

Other Property and Investments

 

 

53,764

 

 

 

 

49,616

 

 

 

 

49,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

31,906

 

 

 

 

6,013

 

 

 

 

4,778

 

Accounts receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gas Customers – billed and unbilled

 

 

102,277

 

 

 

 

77,268

 

 

 

 

83,522

 

Other

 

 

80,377

 

 

 

 

91,189

 

 

 

 

69,560

 

Less - Allowances for doubtful accounts

 

 

(14,923

)

 

 

 

(11,813

)

 

 

 

(11,233

)

Delayed customer billings

 

 

11,606

 

 

 

 

-

 

 

 

 

4,769

 

Inventories:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas stored underground at LIFO cost

 

 

57,567

 

 

 

 

159,643

 

 

 

 

53,873

 

Propane gas at FIFO cost

 

 

19,385

 

 

 

 

19,980

 

 

 

 

19,981

 

Materials, supplies, and merchandise at avg. cost

 

 

5,449

 

 

 

 

4,985

 

 

 

 

4,950

 

Derivative instrument assets

 

 

14,698

 

 

 

 

20,325

 

 

 

 

9,168

 

Unamortized purchased gas adjustments

 

 

10,967

 

 

 

 

31,261

 

 

 

 

5,572

 

Deferred income taxes

 

 

5,056

 

 

 

 

-

 

 

 

 

7,874

 

Prepayments and other

 

 

26,683

 

 

 

 

25,275

 

 

 

 

27,783

 

Total Current Assets

 

 

351,048

 

 

 

 

424,126

 

 

 

 

280,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Charges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid pension cost

 

 

70,271

 

 

 

 

82,557

 

 

 

 

84,924

 

Regulatory assets

 

 

185,868

 

 

 

 

115,950

 

 

 

 

121,011

 

Other

 

 

5,482

 

 

 

 

5,247

 

 

 

 

5,830

 

Total Deferred Charges

 

 

261,621

 

 

 

 

203,754

 

 

 

 

211,765

 

Total Assets

 

$

1,447,809

 

 

 

$

1,434,101

 

 

 

$

1,289,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

6

 

 

 

THE LACLEDE GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

(UNAUDITED)

 

 

 

 

June 30,

 

 

 

Sept. 30,

 

 

 

June 30,

 

 

 

2006

 

 

 

2005

 

 

 

2005

 

(Thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capitalization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock (70,000,000 shares authorized, 21,331,355,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,172,009, and 21,115,750 shares issued, respectively)

 

$

21,331

 

 

 

$

21,172

 

 

 

$

21,116

 

Paid-in capital

 

 

125,754

 

 

 

 

121,505

 

 

 

 

119,693

 

Retained earnings

 

 

258,914

 

 

 

 

231,551

 

 

 

 

243,935

 

Accumulated other comprehensive income (loss)

 

 

887

 

 

 

 

(7,703

)

 

 

 

(536

)

Total common stock equity

 

 

406,886

 

 

 

 

366,525

 

 

 

 

384,208

 

Redeemable preferred stock (less current sinking fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

requirements) – Laclede Gas

 

 

787

 

 

 

 

948

 

 

 

 

948

 

Long-term debt to unconsolidated affiliate trust

 

 

46,400

 

 

 

 

46,400

 

 

 

 

46,400

 

Long-term debt (less current portion) – Laclede Gas

 

 

349,021

 

 

 

 

294,033

 

 

 

 

294,009

 

Total Capitalization

 

 

803,094

 

 

 

 

707,906

 

 

 

 

725,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable

 

 

123,200

 

 

 

 

70,605

 

 

 

 

47,420

 

Accounts payable

 

 

93,693

 

 

 

 

138,404

 

 

 

 

89,396

 

Advance customer billings

 

 

-

 

 

 

 

30,688

 

 

 

 

-

 

Current portion of long-term debt and preferred stock

 

 

159

 

 

 

 

40,061

 

 

 

 

40,095

 

Wages and compensation accrued

 

 

17,973

 

 

 

 

14,113

 

 

 

 

16,467

 

Dividends payable

 

 

7,648

 

 

 

 

7,369

 

 

 

 

7,350

 

Customer deposits

 

 

17,722

 

 

 

 

13,229

 

 

 

 

13,326

 

Interest accrued

 

 

5,914

 

 

 

 

10,216

 

 

 

 

5,721

 

Taxes accrued

 

 

17,975

 

 

 

 

23,550

 

 

 

 

26,005

 

Deferred income taxes

 

 

-

 

 

 

 

1,822

 

 

 

 

-

 

Other

 

 

20,216

 

 

 

 

15,503

 

 

 

 

13,441

 

Total Current Liabilities

 

 

304,500

 

 

 

 

365,560

 

 

 

 

259,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred Credits and Other Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

233,369

 

 

 

 

186,236

 

 

 

 

205,447

 

Unamortized investment tax credits

 

 

4,515

 

 

 

 

4,678

 

 

 

 

4,761

 

Pension and postretirement benefit costs

 

 

23,980

 

 

 

 

24,529

 

 

 

 

20,225

 

Regulatory liabilities

 

 

54,792

 

 

 

 

123,534

 

 

 

 

52,218

 

Other

 

 

23,559

 

 

 

 

21,658

 

 

 

 

22,387

 

Total Deferred Credits and Other Liabilities

 

 

340,215

 

 

 

 

360,635

 

 

 

 

305,038

 

Total Capitalization and Liabilities

 

$

1,447,809

 

 

 

$

1,434,101

 

 

 

$

1,289,824

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 

7

 

 

 

  THE LACLEDE GROUP, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

(UNAUDITED)

 

 

Nine Months Ended

 

 

 

June 30,

 

 

 

 

2006

 

 

 

 

2005

 

(Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

 

 

Net Income

 

$

49,862

 

 

 

$

45,201

 

Adjustments to reconcile net income to net cash

 

 

 

 

 

 

 

 

 

provided by (used in) operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

25,450

 

 

 

 

19,602

 

Deferred income taxes and investment tax credits

 

 

18,322

 

 

 

 

4,225

 

Other – net

 

 

1,323

 

 

 

 

489

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable – net

 

 

(11,087

)

 

 

 

(24,166

)

Unamortized purchased gas adjustments

 

 

20,294

 

 

 

 

14,046

 

Deferred purchased gas costs

 

 

(115,856

)

 

 

 

(35,162

)

Accounts payable

 

 

(44,711

)

 

 

 

21,030

 

Delayed customer billings - net

 

 

(42,294

)

 

 

 

(28,389

)

Taxes accrued

 

 

(5,575

)

 

 

 

9,280

 

Natural gas stored underground

 

 

102,076

 

 

 

 

77,900

 

Other assets and liabilities

 

 

30,218

 

 

 

 

(1,183

)

Net cash provided by operating activities

 

$

28,022

 

 

 

$

102,873

 

 

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(46,706

)

 

 

 

(44,520

)

Net investment in trusts

 

 

(3,924

)

 

 

 

(1,708

)

Other investments

 

 

552

 

 

 

 

1,277

 

Net cash used in investing activities

 

$

(50,078

)

 

 

$

(44,951

)

 

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

 

Issuance of first mortgage bonds

 

 

55,000

 

 

 

 

-

 

Maturity of first mortgage bonds

 

 

(40,000

)

 

 

 

(25,000

)

Issuance (repayment) of short-term debt – net

 

 

52,595

 

 

 

 

(23,960

)

Dividends paid

 

 

(22,225

)

 

 

 

(21,598

)

Issuance of common stock

 

 

3,215

 

 

 

 

3,770

 

Preferred stock reacquired

 

 

(63

)

 

 

 

(210

)

Other

 

 

(573

)

 

 

 

-

 

Net cash provided by (used in) financing activities

 

$

47,949

 

 

 

$

(66,998

)

 

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

$

25,893

 

 

 

$

(9,076

)

Cash and Cash Equivalents at Beginning of Period

 

 

6,013

 

 

 

 

13,854

 

Cash and Cash Equivalents at End of Period

 

$

31,906

 

 

 

$

4,778

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Paid During the Period for:

 

 

 

 

 

 

 

 

 

Interest

 

$

31,118

 

 

 

$

27,439

 

Income taxes

 

 

10,325

 

 

 

 

7,871

 

 

See notes to consolidated financial statements.

 

8

 

 

 

  THE LACLEDE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

These notes are an integral part of the accompanying consolidated financial statements of The Laclede Group, Inc. (Laclede Group or the Company) and its subsidiaries. In the opinion of Laclede Group, this interim report includes all adjustments (consisting of only 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 Consolidated Financial Statements contained in the Company’s Fiscal Year 2005 Form 10-K.

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 Company (Laclede Gas or the Utility). Laclede Gas is a regulated natural gas distribution utility having a material seasonal cycle. As a result, these interim statements of income for Laclede Group are not necessarily indicative of annual results or representative of the succeeding quarters of the fiscal year. Due to the seasonal nature of the business of Laclede Gas, earnings are typically concentrated in the November through April period, which generally corresponds with the heating season. The Utility typically experiences losses during the non-heating season. The seasonal effect of the Utility’s earnings on Laclede Group is generally expected to be tempered somewhat by the results of SM&P Utility Resources, Inc. (SM&P), a non-regulated underground facility locating and marking service business, whose operations tend to be counter-seasonal to those of Laclede Gas.

UTILITY PLANT, DEPRECIATION AND AMORTIZATION – The settlement of the Utility’s 2005 rate proceeding fully implemented Laclede Gas’ depreciation method that was confirmed by the Missouri Public Service Commission (MoPSC or Commission) in January 2005. Pursuant to the terms of the 2005 rate case settlement, higher depreciation rates became effective January 1, 2006, reflecting, in part, an accrual for future removal costs, including costs related to interim retirements. Concurrent with implementation of new depreciation rates on January 1, 2006, Laclede Gas ceased expensing all removal costs, net of salvage, as incurred and discontinued an annual $3.4 million negative amortization of a portion of the Utility’s depreciation reserve, as previously ordered by the MoPSC in the Utility’s 2001 rate case. Prior to December 1, 2001, the Utility’s removal costs, net of salvage, were charged to accumulated depreciation.

As reported in its fiscal 2005 Form 10-K, Laclede Gas was conducting a study in light of the recent conclusions of certain regulatory proceedings, the purpose of which was to quantify the amount of accrued asset removal costs previously recovered through rates in excess of actual costs incurred. The amount quantified was approximately $48.3 million at January 1, 2006. During the quarter ended March 31, 2006, the study was completed and the Utility reclassified that amount on its Balance Sheets from “Accumulated depreciation and amortization” to “Regulatory liabilities” pursuant to Statement of Financial Accounting Standards (SFAS) No. 71. This reclassification reflects the Utility’s best estimate utilizing historical rates accrued for estimated removal costs embedded in the Utility’s depreciation rates. In conjunction with the implementation of new depreciation rates and consistent with the reclassification of this amount, the Utility began accruing asset removal costs through depreciation expense, with a corresponding credit to “Regulatory liabilities.” When Laclede Gas retires depreciable utility plant and equipment, it charges the associated original costs to “Accumulated depreciation and amortization,” and any related removal costs incurred are charged to “Regulatory liabilities.” The regulatory liability recorded at June 30, 2006 was $50.7 million and the amounts reclassified at September 30, 2005 and June 30, 2005 were $49.0 million and $49.9 million, respectively. In the rate setting process, the regulatory liability will be deducted from the rate base upon which the Utility has the opportunity to earn its allowed rate of return.

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 revenues at June 30, 2006 and 2005, for the Utility, were $9.2 million and $7.8 million, respectively. After accrual of related gas cost expense, the accrued pre-tax net revenues at June 30, 2006 and 2005 were $3.6 million and $3.7 million, respectively. The amount of accrued unbilled revenue at September 30, 2005 was $11.4 million. After accrual of related gas cost expense, the accrued pre-tax net revenues at September 30, 2005 were $4.8 million.

PURCHASED GAS ADJUSTMENTS AND DEFERRED ACCOUNT – As part of the settlement of the Utility’s 2005 rate case, the following modifications were made to Laclede Gas’ Purchased Gas Adjustment (PGA) Clause:

 

Previously, the Utility’s tariffs allowed for scheduled gas cost adjustments in the months of November, January, March and June. Effective October 1, 2005, the tariffs allow the Utility flexibility to make up to three discretionary PGA changes during each year, in addition to its mandatory November PGA change, so long as such changes are separated by at least two months.

 

 

9

 

 

 

 

 

Effective October 1, 2005, the Utility was authorized to implement the recovery of gas inventory carrying costs through its PGA rates to recover costs it incurs to finance its investment in gas supplies that are purchased during the injection season for sale during the heating season. The MoPSC also approved the application of carrying costs to all over- or under-recoveries of gas costs, including costs and cost reductions associated with the use of financial instruments. Previously, carrying costs were applicable only to certain gas cost components exceeding a predetermined threshold.

 

In its 2002 rate case, the MoPSC approved a plan applicable to the Utility’s gas supply commodity costs under which it could retain up to 10% of cost savings associated with the acquisition of natural gas below an established benchmark level of gas cost. The plan requires that if Laclede Gas’ retention of cost savings reaches $5 million, the Utility will retain 1% of any remaining cost savings. The settlement of the Utility’s 2005 rate case continued the plan, with certain modifications.

OFF-SYSTEM SALES - In conjunction with the settlement of the 2005 rate case, effective October 1, 2005, the Utility retains all pre-tax income from off-system sales and capacity release revenues up to $12 million annually. Pre-tax amounts in excess of $12 million, if any, are shared with customers, with the Utility retaining 50% of amounts exceeding that threshold.

STOCK-BASED COMPENSATION - The Laclede Group 2006 Equity Incentive Plan (the 2006 Plan) was approved at the annual meeting of shareholders of Laclede Group on January 26, 2006. The purpose of the 2006 Plan is to encourage officers and employees of the Company and its subsidiaries to contribute to the Company’s success and align their interests with shareholders. To accomplish this purpose, the Compensation Committee of the board of directors may grant awards under the 2006 Plan that may be earned by achieving performance objectives and/or other criteria as determined by the Compensation Committee. Under the terms of the 2006 Plan, officers and employees of the Company and its subsidiaries, as determined by the Committee, are eligible to be selected for awards. The 2006 Plan provides for restricted stock, restricted stock units, qualified and non-qualified stock options, stock appreciation rights and performance shares payable in stock or cash or a combination of both. The 2006 Plan generally provides a minimum vesting period of at least three years for each type of award. The maximum number of shares reserved for issuance under the 2006 Plan is 1,250,000. The 2006 Plan replaces the Laclede Group 2003 Equity Incentive Plan (the 2003 Plan). Shares reserved under the 2003 Plan, other than those needed for currently outstanding awards, were canceled upon shareholder approval of the 2006 Plan.

The Company’s Restricted Stock Plan for Non-Employee Directors was approved by shareholders in

January 2003. The principal purpose of the plan is to attract and retain qualified persons who are not employees or former employees of the Company or any of its subsidiaries for service as members of the board of directors and to encourage ownership in the Company by such non-employee directors by granting shares of common stock subject to restrictions. Shares vest depending on the participant’s age upon entering the plan and years of service as a director. The total number of shares of common stock that may be issued under the Restricted Stock Plan for Non-Employee Directors is 50,000.

The Company accounts for awards under the above referenced Plans under the recognition and measurement principles of SFAS No. 123(R), “Share-Based Payment.” Through fiscal year 2005, the Company accounted for the plans in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and provided pro forma disclosures in the Notes to Consolidated Financial Statements regarding the effect on net income and earnings as if compensation expense had been determined based on the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” Under the provisions of APB Opinion No. 25, the Company only recorded stock-based compensation cost related to restricted stock. The Company was not required to recognize compensation cost for stock options because all options granted under the Equity Incentive Plan had an exercise price equal to the market value of the Company’s stock on the date of the grant. The Company implemented the provisions of SFAS No. 123(R) on a modified prospective basis effective October 1, 2005. Consistent with this Statement, prior period amounts have not been restated. Under the modified prospective methodology, the Company is required to record compensation cost for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption, net of an estimate of expected forfeitures.

During the nine months ended June 30, 2006, the Company awarded 51,000 shares of performance-contingent restricted stock to executives and key employees at a weighted average fair value of $30.46 per share with a three-year performance period ending September 30, 2008. These shares vest in November 2008 upon the attainment of certain earnings and dividend growth performance goals. If the performance contingency is not satisfied, no compensation cost is recognized and any recognized compensation cost is reversed. The Company holds the certificates for restricted stock until the shares vest. In the interim, the participants receive full dividends and voting rights.

During the nine months ended June 30, 2006, the Company awarded 3,750 shares of restricted stock to non-employee directors at a weighted average fair value of $31.54 per share. The plan’s trustee acquires the shares for the awards in the open market and holds the shares as trustee for the benefit of the non-employee directors until the restrictions expire. In the interim, the participants receive full dividends and voting rights.

During the nine months ended June 30, 2006, the Company granted 105,500 non-qualified stock options to employees at an exercise price of $30.46 per share. The stock options vest one-fourth each year for four years after the date of the grant beginning November 3, 2006 and have a ten-year contractual term. The weighted-average fair value of options granted during the nine months ended June 30, 2006 is $6.80 per option.

 

 

10

 

 

 

 

Restricted stock activity for the quarter ended June 30, 2006 is presented below:

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

Grant Date

 

 

 

Shares

 

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

Nonvested at March 31, 2006

 

53,400

 

 

 

$

30.51

 

 

 

 

 

 

 

 

 

 

Granted

 

-

 

 

 

$

-

 

Vested

 

-

 

 

 

$

-

 

Forfeited

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Nonvested at June 30, 2006

 

53,400

 

 

 

$

30.51

 

 

Stock option activity for the quarter ended June 30, 2006 is presented below:

 

 

 

 

 

 

 

Weighted

 

 

 

Weighted Average

 

 

 

Aggregate

 

 

 

 

 

 

 

Average

 

 

 

Remaining

 

 

 

Intrinsic

 

 

 

 

 

 

 

Exercise

 

 

 

Contractual Term

 

 

 

Value

 

 

 

Shares

 

 

 

Price

 

 

 

(Years)

 

 

 

($000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2006

 

649,625

 

 

 

$

28.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Exercised

 

(3,500

)

 

 

$

26.46

 

 

 

 

 

 

 

 

 

 

Forfeited

 

(12,500

 

 

29.57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2006

 

633,625

 

 

 

$

28.87

 

 

 

7.9

 

 

 

$

3,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2006

 

206,375

 

 

 

$

27.71

 

 

 

7.4

 

 

 

$

1,372

 

 

Exercise prices of options outstanding at June 30, 2006 range from $23.27 to $30.95. During the nine months ended June 30, 2006, cash received from the exercise of stock options was approximately $0.5 million, the intrinsic value of the options exercised was approximately $0.2 million and the related actual tax benefit realized was approximately $63,000. The total fair value of restricted stock vested during the nine months ended June 30, 2006 was approximately $87,000 and the related actual tax benefit realized was approximately $34,000. The Company generally issues new shares to satisfy employee restricted stock awards and stock option exercises. Shares for non-employee directors are generally purchased on the open market. The closing price of the Company’s common stock was $34.36 at June 30, 2006.

Total compensation cost that has been charged against net income for share-based compensation arrangements was approximately $0.3 million and $0.9 million for the quarter and nine months ended June 30, 2006, respectively. Compensation cost capitalized as part of fixed assets was approximately $0.1 million for the quarter ended June 30, 2006 and was approximately $0.3 million for the nine months ended June 30, 2006. The total income tax benefit recognized in the income statement for share-based compensation arrangements was approximately $0.1 million for the quarter ended June 30, 2006 and was approximately $0.3 million for the nine months ended June 30, 2006. As of that date, there was approximately $3.3 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements (options and restricted stock). That cost is expected to be recognized over a weighted-average period of 2.4 years.

The fair value of the options granted during the nine months ended June 30, 2006 was estimated at the date of grant using a binomial option-pricing model based on the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on U.S. Treasury yields at the grant date. The expected life of options is based on generalized expectations regarding the behavior of option holders since the Company’s experience is not yet sufficient to develop an assumption specific to its employees.

 

11

 

 

 

 

 

Nine Months Ended

 

 

 

June 30,

 

 

 

2006

 

Risk free interest rate

 

4.60%

 

Expected dividend yield of stock

 

4.50%

 

Expected volatility of stock

 

25.00%

 

Expected life of option

 

96 months

 

 

The following table details the effect on net income and earnings per share had compensation cost for the stock-based compensation plans been recorded in the three months and nine months ended June 30, 2005 based on the fair value method under SFAS No. 123. The reported and pro forma net income and earnings per share for the current-year periods presented are the same since stock-based compensation cost is calculated under the provisions of SFAS No. 123(R) and reflected in the Statements of Consolidated Income for these periods. The amounts for the current-year periods presented are included in the table below only to provide the detail for a comparative presentation to the same periods last year.

 

 

 

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

 

 

June 30,

 

 

 

June 30,

 

 

 

 

 

 

2006

 

 

2005

 

 

 

 

2006

 

 

2005

 

(Thousands, Except Per Share Amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stock,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

as reported

 

 

 

$

2,728

 

$

6,098

 

 

 

$

49,825

 

$

45,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Total stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

cost included in reported net income,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax effects

 

 

 

 

171

 

 

3

 

 

 

 

530

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deduct: Total stock-based

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation cost includible in net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income determined under the fair

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

value based method for all awards,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax effects

 

 

 

 

171

 

 

147

 

 

 

 

530

 

 

420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma net income applicable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to common stock

 

 

 

$

2,728

 

$

5,954

 

 

 

$

49,825

 

$

44,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic – as reported

 

 

 

$

.13

 

$

.29

 

 

 

$

2.35

 

$

2.14

 

Diluted – as reported

 

 

 

$

.13

 

$

.29

 

 

 

$

2.34

 

$

2.14

 

Basic – pro forma

 

 

 

$

.13

 

$

.28

 

 

 

$

2.35

 

$

2.12

 

Diluted – pro forma

 

 

 

$

.13

 

$

.28

 

 

 

$

2.34

 

$

2.12

 

 

NEW ACCOUNTING STANDARDS – In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, “Inventory Costs.” This Statement amends the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. The provisions of this Statement are effective for inventory costs incurred during the Company’s fiscal year 2006. Adoption of this Statement had no effect on the financial position or results of operations of the Company.

In March 2005, the FASB issued Interpretation No. 47 (FIN 47), “Accounting for Conditional Asset Retirement Obligations.” FIN 47 clarifies how to account for uncertainties concerning the timing and method of settlement of an asset retirement obligation, as defined in SFAS No. 143, “Accounting for Asset Retirement Obligations.” This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 specifies that if there is a legal obligation to perform a conditional asset retirement activity, an entity is required to recognize a liability for the fair value of the obligation if it can be reasonably estimated. For Laclede Group, adoption of FIN 47 will be required by the end of fiscal year 2006. The Company is continuing to evaluate the provisions of this Interpretation and its impact on Laclede Gas and its other subsidiaries. At this writing, it is

 

12

 

expected that, pursuant to the provisions of FIN 47, Laclede Gas will have sufficient information to reasonably estimate certain of its legal obligations to perform conditional asset retirement obligations. The Utility believes that adoption of FIN 47 will result in timing differences between the recognition of asset retirement obligation expenses for financial reporting purposes and their recovery in rates, and such differences will be deferred in accordance with SFAS No. 71. Accordingly, while the impact on the Company’s consolidated balance sheet is not yet known, the adoption of FIN 47 is not expected to have a material effect on the Company’s results of operations or cash flows.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Correction.” This Statement replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 sets forth new guidelines on accounting for voluntary changes in accounting principle and requires certain disclosures. It also applies to the unusual situation in which an accounting pronouncement is issued but does not include specific transition guidelines. This Statement requires such accounting principle changes to be applied retrospectively to all prior periods presented and an adjustment to the balance of assets or liabilities affected along with an offsetting adjustment to retained earnings for the cumulative effect on periods prior to those presented. This Statement carries forward without change the guidance in APB Opinion No. 20 for reporting the correction of an error and a change in accounting estimate. SFAS No. 154 will be effective for the Company beginning with fiscal year 2007.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” This Statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” a replacement of SFAS No. 125. SFAS No. 155 permits the fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. It also establishes a requirement to evaluate beneficial interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. SFAS No. 155 will be effective for the Company beginning with fiscal year 2007. The Company is currently evaluating the provisions of this Statement.

In June 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 will be effective for the Company beginning with fiscal year 2008. The Company is currently evaluating the provisions of this Interpretation.

 

  

2.

EARNINGS PER SHARE

 

SFAS No. 128, “Earnings Per Share,” requires dual presentation of basic and diluted earnings per share (EPS). Basic EPS does not include potentially dilutive securities and is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted EPS assumes the issuance of common shares pursuant to the Company’s stock-based compensation plans at the beginning of each respective period, or at the date of grant or award, if later. For the quarter and nine months ended June 30, 2006, 151,500 shares attributable to outstanding stock options and restricted stock were excluded from the calculation of diluted earnings per share because their inclusion would have been antidilutive. There were 234,000 antidilutive shares for the quarter ended June 30, 2005. There were no antidilutive shares for the nine months ended June 30, 2005.

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

June 30,

 

 

 

June 30,

 

(Thousands, Except Per Share Amounts)

 

 

 

 

 

 

2006

 

 

2005

 

 

 

 

2006

 

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Applicable to Common Stock

 

 

 

 

 

$

2,728

 

$

6,098

 

 

 

$

49,825

 

$

45,158

 

Weighted-Average Shares Outstanding

 

 

 

 

 

 

21,269

 

 

21,103

 

 

 

 

21,230

 

 

21,060

 

Earnings Per Share of Common Stock

 

 

 

 

 

$

.13

 

$

.29

 

 

 

$

2.35

 

$

2.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Applicable to Common Stock

 

 

 

 

 

$

2,728

 

$

6,098

 

 

 

$

49,825

 

$

45,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Shares Outstanding

 

 

 

 

 

 

21,269

 

 

21,103

 

 

 

 

21,230

 

 

21,060

 

Dilutive Effect of Employee Stock Options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and Restricted Stock

 

 

 

 

 

 

44

 

 

35

 

 

 

 

36

 

 

35

 

Weighted-Average Diluted Shares

 

 

 

 

 

 

21,313

 

 

21,138

 

 

 

 

21,266

 

 

21,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share of Common Stock

 

 

 

 

 

$

.13

 

$

.29

 

 

 

$

2.34

 

$

2.14

 

  

 

3.

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

 

Laclede Gas has non-contributory defined benefit, trusteed forms of pension plans covering substantially all employees over the age of twenty-one. Benefits are based on years of service and the employee’s compensation during the highest three years of the last ten years of employment.

The funding policy of Laclede Gas is to contribute an amount not less than the minimum required by government funding standards, nor more than the maximum deductible amount for federal income tax purposes. Plan assets consist primarily of corporate and U.S. government obligations and pooled equity funds. Contributions to the pension plans in fiscal 2006 are anticipated to be $1.1 million into the qualified trusts, and $0.5 million into the non-qualified plans.

Pension costs for the quarters ending June 30, 2006 and 2005 were $1.3 million and $1.1 million, respectively. Pension costs for the nine months ended June 30, 2006 were $4.0 million compared with $3.4 million for the same period last year. These costs include amounts capitalized with construction activities.

 

The net periodic pension costs include the following components:

 

 

 

Three Months Ended

 

 

 

Nine Months Ended

 

 

 

June 30,

 

 

 

June 30,

 

(Thousands)

 

 

2006

 

 

2005

 

 

 

 

2006

 

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost - benefits earned

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

during the period

 

$

3,690

 

$

2,799

 

 

 

$

11,070

 

$

8,397

 

Interest cost on projected

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

benefit obligation

 

 

4,176

 

 

3,994

 

 

 

 

12,528

 

 

11,982

 

Expected return on plan assets

 

 

(5,196

)

 

(5,291

)

 

 

 

(15,588

)

 

(15,873

)

Amortization of prior service cost

 

 

294

 

 

309

 

 

 

 

882

 

 

926

 

Amortization of actuarial loss

 

 

1,728

 

 

730

 

 

 

 

5,184

 

 

2,190

 

Regulatory adjustment

 

 

(3,354

)

 

(1,409

)

 

 

 

(10,062

)

 

(4,226

)

Net pension cost

 

$

1,338

 

$

1,132

 

 

 

$

4,014

 

$

3,396

 

 

Pursuant to the MoPSC’s Order in Laclede Gas’ 2002 rate case, the return on plan assets is based on market-related value of plan assets implemented prospectively over a four-year period. Unrecognized gains or losses are amortized only to the extent that such gain or loss exceeds 10% of the greater of the projected benefit obligation or the market-related value of plan assets. Such excess is amortized over the average remaining service life of active participants. Also in the 2002 rate case, the Commission ordered that the recovery in rates for the Utility’s qualified

 

14

 

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 annually effective July 1, 2003. In the Company’s 2005 rate case, the Commission ordered that effective October 1, 2005, recovery in rates is based on an allowance of $4.1 million. The difference between these amounts on a pro-rata basis and pension expense as calculated pursuant to the above and included in the Statements of Consolidated Income and Consolidated Comprehensive Income is deferred as a regulatory asset or liability.

Pursuant to the provisions of the Laclede Gas pension plans, pension obligations may be satisfied by lump sum cash payments. Pursuant to MoPSC Order, lump sum payments are recognized as settlements (which can result in gains or losses) only if the total of such payments exceeds 100% of the sum of service and interest costs. No lump sum payments were recognized as settlements during the nine months ended June 30, 2006 or the nine months ended

June 30, 2005.

SM&P maintains a defined benefit plan for selected employees. The plan is a non-qualified plan and therefore has no assets held in trust. The plan was frozen to new participants in 2002. Net pension cost related to the plan is not material.

Laclede Gas also provides certain life insurance benefits at retirement. Medical insurance is available after early retirement until age 65.

Missouri state law provides for the recovery in rates of SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (OPEB), accrued costs provided that such costs are funded through an independent, external funding mechanism. Laclede Gas established the Voluntary Employees’ Beneficiary Association (VEBA) and Rabbi trusts as its external funding mechanisms. VEBA and Rabbi trusts’ assets consist primarily of money market securities and mutual funds invested in stocks and bonds.

Postretirement benefit costs for quarters ending June 30, 2006 and 2005 were $2.2 million and $2.0 million, respectively. Postretirement benefit costs for the nine months ended June 30, 2006 were $6.6 million compared with $6.0 million for the same period last year. These costs include amounts capitalized with construction activities.

 

Net periodic postretirement benefit costs consisted of the following components:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

June 30,

 

June 30,

 

(Thousands)

 

 

2006

 

 

2005

 

 

2006

 

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost – benefits earned during

 

 

 

 

 

 

 

 

 

 

 

 

 

the period

 

$

996

 

$

845

 

$

2,988

 

$

2,534

 

Interest cost on accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

postretirement benefit obligation

 

 

739

 

 

825

 

 

2,219

 

 

2,477

 

Expected return on plan assets

 

 

(339

)

 

(318

)

 

(1,018

)

 

(955

)

Amortization of transition obligation

 

 

82

 

 

144

 

 

245

 

 

433

 

Amortization of prior service cost

 

 

(9

)

 

(8

)

 

(27

)

 

(24

)

Amortization of actuarial loss

 

 

318

 

 

217

 

 

955

 

 

651

 

Regulatory adjustment

 

 

428

 

 

295

 

 

1,285

 

 

885

 

Net postretirement benefit cost

 

$

2,215

 

$