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SPIRE INC 10-Q 2009

Documents found in this filing:

  1. 10-Q
  2. Ex-10.1
  3. Ex-12
  4. Ex-31
  5. Ex-32
  6. Ex-99.1
  7. Ex-99.1
form10-qjun2009.htm
 
 
 
 


 
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, 2009
OR
[     ]
TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
 
Commission File Number
 
 
Registrant
 
 
State of Incorporation
I.R.S.
Employer Identification
Number
1-16681
The Laclede Group, Inc.
Missouri
74-2976504
1-1822
Laclede Gas Company
Missouri
43-0368139

720 Olive Street
St. Louis, MO 63101
314-342-0500

Indicate by check mark if 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) 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
[     ]

has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

The Laclede Group, Inc.:
Yes
[     ]
No
[     ]
         
Laclede Gas Company:
Yes
[     ]
No
[     ]

is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

The Laclede Group, Inc.:
       
           
 
Large accelerated filer
[ X ]
 
Accelerated filer
[     ]
 
Non-accelerated filer
[     ]
 
Smaller reporting company
[     ]
           
Laclede Gas Company:
       
           
 
Large accelerated filer
[     ]
 
Accelerated filer
[     ]
 
Non-accelerated filer
[ X ]
 
Smaller reporting company
[     ]





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 31, 2009
The Laclede Group, Inc.:
Common Stock ($1.00 Par Value)
22,167,303
Laclede Gas Company:
Common Stock ($1.00 Par Value)
11,623  *
* 100% owned by The Laclede Group, Inc.

 
 
 
 

 
 



 

 





Page No.
       
PART I. FINANCIAL INFORMATION      
     
 
       
 
The Laclede Group, Inc.:
 
   
5
   
6
   
7-8
   
9
   
10-26
       
 
Laclede Gas Company:
 
   
Statements of Income
Ex. 99.1, p. 1
   
Statements of Comprehensive Income
Ex. 99.1, p. 2
   
Balance Sheets
Ex. 99.1, p. 3-4
   
Statements of Cash Flows
Ex. 99.1, p. 5
   
Notes to Financial Statements
Ex. 99.1, p. 6-16
       
 
   
27-40
 
Management’s Discussion and Analysis of Financial Condition and
 
   
Results of Operations (Laclede Gas Company)
Ex. 99.1, p. 17-27
       
41
       
41
       
 
       
42
       
42
       
42
       
43
       
44
       
45


 
 
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).





 
 
 
 
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, 2008.





 
THE LACLEDE GROUP, INC.

   
Three Months Ended
     
Nine Months Ended
 
   
June 30,
     
June 30,
 
(Thousands, Except Per Share Amounts)
   
2009
   
2008
       
2009
   
2008
 
                               
Operating Revenues:
                             
  Regulated Gas Distribution
 
$
160,332
 
$
189,598
     
$
958,901
 
$
1,017,579
 
  Non-Regulated Gas Marketing
   
148,442
   
314,646
       
681,071
   
735,831
 
  Other
   
1,170
   
1,244
       
3,296
   
3,774
 
          Total Operating Revenues
   
309,944
   
505,488
       
1,643,268
   
1,757,184
 
Operating Expenses:
                             
  Regulated Gas Distribution
                             
      Natural and propane gas
   
87,841
   
112,896
       
656,244
   
713,263
 
      Other operation expenses
   
33,900
   
34,285
       
110,452
   
108,487
 
      Maintenance
   
6,659
   
6,543
       
20,454
   
18,592
 
      Depreciation and amortization
   
9,190
   
8,819
       
27,489
   
26,295
 
      Taxes, other than income taxes
   
13,821
   
14,549
       
60,395
   
60,485
 
          Total Regulated Gas Distribution Operating Expenses
   
151,411
   
177,092
       
875,034
   
927,122
 
  Non-Regulated Gas Marketing
   
141,512
   
308,035
       
637,600
   
714,928
 
  Other
   
818
   
1,102
       
2,503
   
3,815
 
          Total Operating Expenses
   
293,741
   
486,229
       
1,515,137
   
1,645,865
 
Operating Income
   
16,203
   
19,259
       
128,131
   
111,319
 
Other Income and (Income Deductions) – Net
   
1,331
   
(836
)
     
2,317
   
2,889
 
Interest Charges:
                             
  Interest on long-term debt
   
6,146
   
4,876
       
18,437
   
14,877
 
  Interest on long-term debt to unconsolidated affiliate trust
   
   
347
       
   
486
 
  Other interest charges
   
737
   
1,189
       
4,551
   
7,408
 
          Total Interest Charges
   
6,883
   
6,412
       
22,988
   
22,771
 
Income from Continuing Operations Before Income Taxes
                             
   and Dividends on Laclede Gas Redeemable Preferred Stock
   
10,651
   
12,011
       
107,460
   
91,437
 
Income Tax Expense
   
3,774
   
2,902
       
38,451
   
30,713
 
Dividends on Laclede Gas Redeemable Preferred Stock
   
   
8
       
15
   
27
 
Income from Continuing Operations
   
6,877
   
9,101
       
68,994
   
60,697
 
Income from Discontinued Operations, Net
                             
    of Income Tax (Note 2)
   
   
158
       
   
20,819
 
Net Income
 
$
6,877
 
$
9,259
     
$
68,994
 
$
81,516
 
                               
Average Number of Common Shares Outstanding:
                             
    Basic
   
21,904
   
21,701
       
21,884
   
21,614
 
    Diluted
   
22,018
   
21,815
       
22,016
   
21,707
 
                               
Basic Earnings Per Share of Common Stock:
                             
    Income from Continuing Operations
 
$
0.31
 
$
0.42
     
$
3.15
 
$
2.81
 
    Income from Discontinued Operations
   
   
0.01
       
   
0.96
 
    Net Income
 
$
0.31
 
$
0.43
     
$
3.15
 
$
3.77
 
                               
Diluted Earnings Per Share of Common Stock:
                             
    Income from Continuing Operations
 
$
0.31
 
$
0.41
     
$
3.13
 
$
2.80
 
    Income from Discontinued Operations
   
   
0.01
       
   
0.96
 
    Net Income
 
$
0.31
 
$
0.42
     
$
3.13
 
$
3.76
 
                               
Dividends Declared Per Share of Common Stock
 
$
0.385
 
$
0.375
     
$
1.155
 
$
1.125
 
                               
                             





THE LACLEDE GROUP, INC.
(UNAUDITED)

   
Three Months Ended
     
Nine Months Ended
 
   
June 30,
     
June 30,
 
(Thousands)
   
2009
   
2008
       
2009
   
2008
 
                               
Net Income
 
$
6,877
 
$
9,259
     
$
68,994
 
$
81,516
 
Other Comprehensive Income (Loss), Before Tax:
                             
  Net gains (losses) on cash flow hedging derivative instruments:
                             
    Net hedging gain (loss) arising during period
   
(635
)
 
(10,388
)
     
6,406
   
(16,266
)
    Reclassification adjustment for (gains) losses included in net income
   
(3,824
)
 
3,256
       
(14,391
)
 
(1,184
)
        Net unrealized losses on cash flow hedging
                             
          derivative instruments
   
(4,459
)
 
(7,132
)
     
(7,985
)
 
(17,450
)
  Amortization of actuarial loss included in net periodic
                             
          pension and postretirement benefit cost
   
49
   
43
       
149
   
129
 
Other Comprehensive Loss, Before Tax
   
(4,410
)
 
(7,089
)
     
(7,836
)
 
(17,321
)
Income Tax Benefit Related to Items of Other
                             
    Comprehensive Loss
   
(1,695
)
 
(2,739
)
     
(3,012
)
 
(6,692
)
Other Comprehensive Loss, Net of Tax
   
(2,715
)
 
(4,350
)
     
(4,824
)
 
(10,629
)
Comprehensive Income
 
$
4,162
 
$
4,909
     
$
64,170
 
$
70,887
 
                               
                             











THE LACLEDE GROUP, INC.
(UNAUDITED)

   
June 30,
     
Sept. 30,
     
June 30,
 
(Thousands)
 
2009
     
2008
     
2008
 
                             
ASSETS
                           
Utility Plant
 
$
1,268,173
     
$
1,229,174
     
$
1,215,336
 
Less:  Accumulated depreciation and amortization
   
419,165
       
405,977
       
402,229
 
      Net Utility Plant
   
849,008
       
823,197
       
813,107
 
                             
Non-utility property
   
4,554
       
3,793
       
3,952
 
Other investments
   
45,090
       
43,314
       
43,226
 
      Other Property and Investments
   
49,644
       
47,107
       
47,178
 
                             
Current Assets:
                           
  Cash and cash equivalents
   
89,075
       
14,899
       
32,971
 
  Accounts receivable:
                           
      Utility
   
95,691
       
98,708
       
106,566
 
      Non-utility
   
47,437
       
102,389
       
119,017
 
      Other
   
11,345
       
10,486
       
4,890
 
      Allowances for doubtful accounts
   
(13,409
)
     
(12,624
)
     
(14,107
)
  Delayed customer billings
   
10,530
       
       
18,389
 
  Inventories:
                           
      Natural gas stored underground at LIFO cost
   
53,202
       
206,267
       
84,205
 
      Propane gas at FIFO cost
   
19,846
       
19,911
       
19,907
 
      Materials, supplies, and merchandise at average cost
   
5,055
       
5,301
       
5,699
 
  Derivative instrument assets
   
17,429
       
57,210
       
18,948
 
  Unamortized purchased gas adjustments
   
4,769
       
33,411
       
3,341
 
  Deferred income taxes
   
       
       
9,245
 
  Prepayments and other
   
31,732
       
25,950
       
19,847
 
          Total Current Assets
   
372,702
       
561,908
       
428,918
 
                             
Deferred Charges:
                           
  Regulatory assets
   
388,869
       
334,755
       
267,574
 
  Other
   
5,781
       
5,688
       
4,409
 
          Total Deferred Charges
   
394,650
       
340,443
       
271,983
 
Total Assets
 
$
1,666,004
     
$
1,772,655
     
$
1,561,186
 
                             

 


 

 




THE LACLEDE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(UNAUDITED)

   
June 30,
     
Sept. 30,
     
June 30,
 
(Thousands, except share amounts)
 
2009
     
2008
     
2008
 
                             
CAPITALIZATION AND LIABILITIES
                           
Capitalization:
                           
  Common stock (70,000,000 shares authorized, 22,157,980
    21,993,473, and 21,961,795 shares issued, respectively)
 
$
22,158
     
$
21,993
     
$
21,962
 
  Paid-in capital
   
152,904
       
147,241
       
144,955
 
  Retained earnings
   
356,239
       
312,808
       
324,694
 
  Accumulated other comprehensive income (loss)
   
(387
)
     
4,437
       
(8,772
)
      Total Common Stock Equity
   
530,914
       
486,479
       
482,839
 
  Laclede Gas redeemable preferred stock
    (less current sinking fund requirements)
   
       
467
       
467
 
  Long-term debt – Laclede Gas
   
389,225
       
389,181
       
309,167
 
      Total Capitalization
   
920,139
       
876,127
       
792,473
 
                             
Current Liabilities:
                           
  Notes payable
   
133,000
       
215,900
       
58,600
 
  Accounts payable
   
79,303
       
159,580
       
191,402
 
  Advance customer billings
   
       
25,548
       
 
  Current portion of preferred stock
   
       
160
       
160
 
  Wages and compensation accrued
   
13,736
       
12,197
       
13,267
 
  Dividends payable
   
8,688
       
8,400
       
8,326
 
  Customer deposits
   
13,839
       
14,020
       
14,923
 
  Interest accrued
   
6,367
       
10,094
       
6,204
 
  Taxes accrued
   
24,712
       
11,387
       
26,313
 
  Deferred income taxes current
   
9,717
       
11,669
       
 
  Other
   
10,752
       
10,249
       
6,257
 
      Total Current Liabilities
   
300,114
       
479,204
       
325,452
 
                             
Deferred Credits and Other Liabilities:
                           
  Deferred income taxes
   
244,971
       
222,761
       
233,368
 
  Unamortized investment tax credits
   
3,809
       
3,973
       
4,030
 
  Pension and postretirement benefit costs
   
101,991
       
98,513
       
71,164
 
  Asset retirement obligations
   
26,238
       
26,833
       
27,300
 
  Regulatory liabilities
   
45,231
       
42,191
       
84,436
 
  Other
   
23,511
       
23,053
       
22,963
 
      Total Deferred Credits and Other Liabilities
   
445,751
       
417,324
       
443,261
 
Total Capitalization and Liabilities
 
$
1,666,004
     
$
1,772,655
     
$
1,561,186
 
                             
                           
                             
                             




THE LACLEDE GROUP, INC.
(UNAUDITED)
 
   
Nine Months Ended
 
   
June 30,
 
(Thousands)
 
2009
     
2008
 
                   
Operating Activities:
                 
  Net Income
 
$
68,994
     
$
81,516
 
  Adjustments to reconcile net income to net cash provided by (used in)
      operating activities:
                 
    Gain on sale of discontinued operations
   
       
(44,491
)
    Depreciation, amortization, and accretion
   
27,709
       
27,828
 
    Deferred income taxes and investment tax credits
   
13,771
       
(6,247
)
    Other – net
   
2,451
       
3,225
 
    Changes in assets and liabilities:
                 
      Accounts receivable – net
   
57,895
       
(67,513
)
      Unamortized purchased gas adjustments
   
28,642
       
9,472
 
      Deferred purchased gas costs
   
(43,926
)
     
72,856
 
      Accounts payable
   
(78,306
)
     
92,780
 
      Delayed customer billings - net
   
(36,078
)
     
(43,829
)
      Taxes accrued
   
13,307
       
5,391
 
      Natural gas stored underground
   
142,979
       
54,051
 
      Other assets and liabilities
   
22,319
       
8,215
 
          Net cash provided by operating activities
   
219,757
       
193,254
 
                   
Investing Activities:
                 
  Proceeds from sale of discontinued operations
   
       
83,554
 
  Capital expenditures
   
(39,535
)
     
(41,503
)
  Other investments
   
(460
)
     
(76
)
  Proceeds from unconsolidated affiliate trust’s redemption of its common securities
   
       
1,400
 
          Net cash (used in) provided by investing activities
   
(39,995
)
     
43,375
 
                   
Financing Activities:
                 
  Maturity of First Mortgage Bonds
   
       
(40,000
)
  Redemption of long-term debt to unconsolidated affiliate trust
   
       
(46,400
)
  Issuance (repayment) of short-term debt – net
   
(82,900
)
     
(152,800
)
  Changes in book overdrafts
   
552
       
 
  Issuance of common stock
   
3,304
       
7,284
 
  Non-employee directors’ restricted stock awards
   
(570
)
     
(421
)
  Dividends paid
   
(25,278
)
     
(24,197
)
  Preferred stock reacquired
   
(627
)
     
(160
)
  Employees’ taxes paid associated with restricted shares withheld upon vesting
   
(675
)
     
 
  Excess tax benefits from stock-based compensation
   
724
       
293
 
  Other
   
(116
)
     
(3
)
          Net cash used in financing activities
   
(105,586
)
     
(256,404
)
                   
Net Increase (Decrease) in Cash and Cash Equivalents
   
74,176
       
(19,775
)
Cash and Cash Equivalents at Beginning of Period
   
14,899
       
52,746
 
Cash and Cash Equivalents at End of Period
 
$
89,075
 
 
 
$
32,971
 
                   
 
                 
Supplemental Disclosure of Cash Paid During the Period for:
                 
    Interest
 
$
26,355
     
$
30,109
 
    Income taxes
   
9,738
       
40,924
 
                   
                 





THE LACLEDE GROUP, INC.


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. This Form 10-Q should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Company’s Fiscal Year 2008 Form 10-K.
The consolidated financial position, results of operations, and cash flows of Laclede Group are comprised primarily from the 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 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.
REVENUE RECOGNITION -> Laclede Gas reads meters and bills its customers on monthly cycles. The Utility records its regulated gas distribution revenues from gas sales and transportation services 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 amounts of accrued unbilled revenues at June 30, 2009 and 2008, for the Utility, were $10.1 million and $10.9 million, respectively. The amount of accrued unbilled revenue at September 30, 2008 was $13.5 million.
STOCK-BASED COMPENSATION -> Awards of stock-based compensation are made pursuant to The Laclede Group 2006 Equity Incentive Plan and the Restricted Stock Plan for Non-Employee Directors. Refer to Note 1 of the Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2008 for descriptions of these plans. In January 2009, shareholders approved an amendment to the Restricted Stock Plan for Non-Employee Directors (Plan), increasing the number of shares of common stock available under the Plan to 150,000 from 50,000.

Restricted Stock Awards

During the nine months ended June 30, 2009, the Company awarded 89,850 performance-contingent restricted shares and share units to executive officers at a weighted average grant fair value of $47.17 per share. This number represents the maximum shares that can be earned pursuant to the terms of the awards. The shares and share units were awarded on November 5, 2008 and have a performance period ending September 30, 2011, during which participants are entitled to receive full dividends and voting rights on the target level, or 59,900 shares. The number of shares and share units that will ultimately vest is dependent upon the attainment of certain levels of earnings growth and portfolio development performance goals; further, under the terms of the award, the Compensation Committee of the Board of Directors may reduce by up to 25% the number that vest if the Company’s total shareholder return (TSR) during the performance period ranks below the median relative to a comparator group of companies. This TSR provision is considered a market condition under generally accepted accounting principles.



On November 2, 2008, 43,000 shares of performance-contingent restricted stock, awarded on November 2, 2005, vested. On that date, the Company withheld 12,615 of these vested shares at an average price of $53.48 per share pursuant to elections by employees to satisfy tax withholding obligations.
Performance-contingent restricted stock and performance-contingent restricted stock unit activity for the nine months ended June 30, 2009 is presented below:

           
Weighted
           
Average
     
Shares/
   
Grant Date
     
Units
   
Fair Value
                   
 
Nonvested at September 30, 2008
 
179,100
     
$
31.40
 
                   
 
Granted
 
89,850
     
$
47.17
 
 
Vested
 
(43,000
)
   
$
30.46
 
 
Forfeited
 
     
$
 
                   
 
Nonvested at June 30, 2009
 
225,950
     
$
37.85
 

On November 5, 2008, the Company awarded 27,100 shares of time-vested restricted stock to executives and key employees at a weighted average grant date fair value of $50.89 per share. These shares vest November 5, 2011. On March 31, 2009, the Company also awarded 800 shares of time-vested restricted stock to key employees at a weighted average grant date fair value of $38.98 per share. These shares vest April 1, 2012. In the interim, participants receive full dividends and voting rights.
During the nine months ended June 30, 2009, the Company awarded 12,500 shares of time-vested restricted stock to non-employee directors at a weighted average grant date fair value of $46.52 per share. These shares vest depending on the participant’s age upon entering the plan and years of service as a director. 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.
Time-vested restricted stock and time-vested restricted stock unit activity for the nine months ended June 30, 2009 is presented below:

           
Weighted
           
Average
     
Shares/
   
Grant Date
     
Units
   
Fair Value
                   
 
Nonvested at September 30, 2008
 
56,850
     
$
32.36
 
                   
 
Granted
 
40,400
     
$
49.30
 
 
Vested
 
(5,400
)
   
$
42.36
 
 
Forfeited
 
(800
)
   
$
42.57
 
                   
 
Nonvested at June 30, 2009
 
91,050
     
$
39.20
 




Stock Option Awards

Stock option activity for the nine months ended June 30, 2009 is presented below:

                 
Weighted
       
                 
Average
       
           
Weighted
   
Remaining
   
Aggregate
 
           
Average
   
Contractual
   
Intrinsic
 
     
Stock
   
Exercise
   
Term
   
Value
 
     
Options
   
Price
   
(Years)
   
($000)
 
                               
 
Outstanding at September 30, 2008
 
415,850
   
$
30.84
               
                               
 
Granted
 
   
$
               
 
Exercised
 
(54,125
)
 
$
30.63
               
 
Forfeited
 
(3,000
)
 
$
33.45
               
 
Expired
 
(2,500
)
 
$
32.26
               
                               
 
Outstanding at June 30, 2009
 
356,225
   
$
30.84
   
5.6
   
$
965
 
                               
 
Fully Vested and Expected to Vest
  at June 30, 2009
 
351,158
   
$
30.80
   
5.6
   
$
961
 
                               
 
Exercisable at June 30, 2009
 
283,850
   
$
30.14
   
5.3
   
$
907
 

The closing price of the Company’s common stock was $33.13 at June 30, 2009.

Equity Compensation Costs

The amounts of compensation cost recognized for share-based compensation arrangements are presented below:

     
Three Months Ended
 
Nine Months Ended
 
     
June 30,
 
June 30,
 
 
(Thousands)
 
2009
 
2008
 
2009
 
2008
 
                             
 
Total compensation cost
 
$
970
 
$
508
 
$
3,069
 
$
1,930
 
 
Compensation cost capitalized
   
(198
)
 
(112
)
 
(631
)
 
(410
)
 
Compensation cost recognized in net income
   
772
   
396
   
2,438
   
1,520
 
 
Income tax benefit recognized in net income
   
(298
)
 
(153
)
 
(940
)
 
(587
)
 
Compensation cost recognized in net income,
                         
 
  net of income tax
 
$
474
 
$
243
 
$
1,498
 
$
933
 

As of June 30, 2009, there was $6.2 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 2.4 years.


NEW ACCOUNTING STANDARDS -> In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The Statement applies to fair value measurements required under other accounting guidance that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. The guidance in this Statement does not apply to the Company’s stock-based compensation plans accounted for in accordance with SFAS No. 123(R), “Share-Based Payment.” The Company partially adopted SFAS No. 157 on October 1, 2008 and elected the one-year deferral allowed by FASB Staff Position (FSP) No. FAS 157-2, which permits delayed application of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for those recognized or disclosed at fair value on a recurring basis. The partial adoption of SFAS No. 157 had no impact on the Company’s financial position or results of operations. For disclosures required pursuant to SFAS No. 157, see Note 6, Fair Value Measurements. The Company will adopt SFAS No. 157 for certain nonfinancial assets and nonfinancial liabilities (primarily asset retirement obligations) as of the beginning of fiscal year 2010 and does not anticipate that such adoption will have a material impact on the Company’s financial position or results of operations.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” Laclede Group adopted the recognition and disclosure provisions of this Statement effective September 30, 2007. The Statement also requires that plan assets and benefit obligations be measured as of the date of the employer’s fiscal year-end statement of financial position. In conjunction with adoption of this provision of SFAS No. 158, the Company will be required to change its valuation date for its pension and other postretirement plans from June 30 to September 30. The Company will adopt this provision on September 30, 2009. Adoption will require certain adjustments to retained earnings and other comprehensive income, the total amounts of which will not be known until the September 30, 2009 actuarial valuation of the plans is complete. However, the majority of these adjustments, attributable to the Company’s qualified pension plans and other postretirement benefit plans, are expected to be deferred with entries to Regulatory assets.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” The Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. Upon adoption of SFAS No. 159, entities are permitted to choose, at specified election dates, to measure eligible items at fair value (fair value option). Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each reporting date. The decision about whether to elect the fair value option is applied instrument by instrument with few exceptions. The decision is also irrevocable (unless a new election date occurs) and must be applied to entire instruments and not to portions of instruments. SFAS No. 159 requires that cash flows related to items measured at fair value be classified in the statement of cash flows according to their nature and purpose as required by SFAS No. 95, “Statement of Cash Flows” (as amended). The Company adopted SFAS No. 159 on October 1, 2008. The Company did not elect the fair value option for any instruments not currently reported at fair value. Therefore, the adoption of this Statement had no effect on the Company’s financial position or results of operations.
In June 2007, the FASB ratified the consensus reached in Emerging Issues Task Force (EITF) Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.” This Issue addresses how an entity should recognize the tax benefit received on dividends that are (a) paid to employees holding equity-classified nonvested shares, equity-classified nonvested share units, or equity-classified outstanding share options and (b) charged to retained earnings under SFAS No. 123(R). The Task Force reached a consensus that such tax benefits should be recognized as an increase in additional paid-in capital. This EITF Issue also addresses how the accounting for these tax benefits is affected if an entity’s estimate of forfeitures changes in subsequent periods. With the adoption of this EITF issue on October 1, 2008, the Company now records these income tax benefits as increases to additional paid-in capital. Previously, the Company recorded these income tax benefits as reductions to income tax expense. Adoption of this EITF issue did not have a material effect on the Company’s financial position or results of operations.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” This Statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” by requiring enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for the Company’s interim and annual financial statements beginning with the second quarter of fiscal year 2009. The Statement does not require disclosures for periods prior to initial adoption. The adoption of this standard had no effect on the Company’s financial position or results of operations. For disclosures required pursuant to SFAS No. 161, see Note 7, Derivative Instruments and Hedging Activities.


In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method described by SFAS No. 128, “Earnings per Share.” The guidance in this FSP states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. This FSP will be effective for Laclede Group as of the beginning of fiscal year 2010. The FSP requires that the guidance be applied retrospectively to all prior-period EPS data presented. Certain of the Company’s stock-based compensation awards pay nonforfeitable dividends to the participants during the vesting period and, as such, will be deemed participating securities under this FSP. Upon adoption of this FSP, application of the two-class method will result in reductions to basic and diluted EPS. Based on currently outstanding awards, the Company believes such reductions will not be material. Reported net income and cash flows will be unaffected. The Company will retrospectively adjust comparative prior-period EPS amounts beginning in the first quarter of fiscal 2010.
In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The FSP requires disclosure of information regarding investment policies and strategies, the categories of plan assets, fair value measurements of plan assets, and significant concentrations of risk. The Company will be required to provide the additional disclosures with its annual financial statements for fiscal year 2010. The Company is currently evaluating the provisions of this FSP.
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP requires entities to provide disclosure of the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the balance sheet, in interim reporting periods. Prior to the issuance of this FSP, such disclosures were required only in annual reporting periods. The FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. Laclede Group adopted this FSP in the third quarter of fiscal year 2009. See Note 5, Fair Value of Financial Instruments, for the required disclosures.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Statement carries forward the guidance on this topic that is currently contained in the auditing literature, with certain minor changes that are not expected to significantly affect current practice. The Company adopted the Statement on a prospective basis in the third quarter of fiscal 2009. The adoption of this Statement had no effect on the Company’s financial statements. For disclosure of the date through which the Company has evaluated subsequent events, see the Subsequent Events section above.
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles.” This Statement is a replacement of SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” which the Company previously adopted on November 15, 2008 without any effect on the consolidated financial statements. SFAS No. 168 establishes the FASB Accounting Standards CodificationTM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP). Laclede Group is required to adopt SFAS No. 168 in the fourth quarter of fiscal year 2009. The Codification does not change GAAP, but it reorganizes the guidance into approximately 90 different topics using a consistent structure. Accordingly, the Company expects that adoption of SFAS No. 168 will have no effect on its financial position, results of operations, or cash flows. Upon adoption of SFAS No. 168, essentially all existing non-Securities and Exchange Commission accounting guidance not included in the Codification is superseded and deemed nonauthoritative. As such, upon adoption, the Company will modify certain references to specific accounting standards included in its filings.





On March 31, 2008, the Company completed the sale of 100% of its interest in its wholly-owned subsidiary, SM&P Utility Resources, Inc. (SM&P), to Stripe Acquisition, Inc. (an affiliate of Kohlberg Management VI, LLC) for $85 million in cash, subject to certain closing and post-closing adjustments. SM&P is an underground facilities locating and marking business that previously comprised Laclede Group’s Non-Regulated Services operating segment. The sales agreement included representations, warranties, and indemnification provisions customary for such transactions and was filed as an exhibit to the March 31, 2008 Form 10-Q. For information concerning Laclede Group’s obligations under these provisions, see Note 11, Commitments and Contingencies.
In accordance with generally accepted accounting principles, the operating results of SM&P have been aggregated and reported on the Statements of Consolidated Income as Income from Discontinued Operations, Net of Income Tax. The Company has reported in discontinued operations interest expense based on amounts previously recorded by SM&P. For the nine months ended June 30, 2008, discontinued operations includes pre-tax interest expense of $1.6 million. Discontinued operations does not include general corporate overhead expense. Income from Discontinued Operations reported in the Statements of Consolidated Income consists of the following:

     
Three Months Ended
 
Nine Months Ended
 
     
June 30,
 
June 30,
 
 
(Thousands)
 
2009
 
2008
 
2009
 
2008
 
                             
 
Operating revenues
 
$
 
$
 
$
 
$
65,423
 
                             
 
Loss from operations
   
   
   
   
(9,387
)
 
Gain on disposal
   
   
   
   
44,491
 
 
Pre-tax income
   
   
   
   
35,104
 
 
Income tax expense (benefit)
   
   
(158
)
 
   
14,285
 
 
Income From Discontinued Operations
 
$
 
$
158
 
$
 
$
20,819
 

Income from Discontinued Operations for the quarter ended June 30, 2008 was $0.2 million due to minor income tax adjustments related to the gain on disposal.




3.
EARNINGS PER SHARE

SFAS No. 128 requires dual presentation of basic and diluted EPS. Basic EPS does not include potentially dilutive securities and is computed by dividing net income 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. Shares attributable to stock options and time-vested restricted stock are excluded from the calculation of diluted earnings per share if the effect would be antidilutive. Performance-contingent restricted stock awards are only included in the calculation of diluted earnings per share to the extent the underlying performance and/or market conditions are satisfied (a) prior to the end of the reporting period or (b) would be satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive.

     
Three Months Ended
 
Nine Months Ended
 
     
June 30,
 
June 30,
 
 
(Thousands, Except Per Share Amounts)
   
2009
   
2008
   
2009
   
2008
 
                             
 
Basic EPS:
                         
 
Income from Continuing Operations
 
$
6,877
 
$
9,101
 
$
68,994
 
$
60,697
 
                             
 
Weighted Average Shares Outstanding
   
21,904
   
21,701
   
21,884
   
21,614
 
 
Earnings Per Share of Common Stock from
                         
 
    Continuing Operations
 
$
0.31
 
$
0.42
 
$
3.15
 
$
2.81
 
                             
 
Diluted EPS:
                         
 
Income from Continuing Operations
 
$
6,877
 
$
9,101
 
$
68,994
 
$
60,697
 
                             
 
Weighted Average Shares Outstanding
   
21,904
   
21,701
   
21,884
   
21,614
 
 
Dilutive Effect of Stock Options
                         
 
    and Restricted Stock
   
114
   
114
   
132
   
93
 
 
Weighted Average Diluted Shares
   
22,018
   
21,815
   
22,016
   
21,707
 
                             
 
Earnings Per Share of Common Stock from
                         
 
    Continuing Operations
 
$
0.31
 
$
0.41
 
$
3.13
 
$
2.80
 
                             
 
Outstanding Shares Excluded from the Calculation of Diluted EPS Attributable to:
                         
 
Antidilutive stock options
   
83
   
   
   
 
 
Antidilutive time-vested restricted stock
   
36
   
   
10
   
 
 
Performance-contingent restricted stock
   
163
   
149
   
163
   
149
 
 
Total
   
282
   
149
   
173
   
149
 





Pension Plans

Laclede Gas has non-contributory defined benefit, trusteed forms of pension plans covering substantially all employees. Effective January 1, 2009, the Company modified the calculation of future benefits under the primary plan from a years of service and final average compensation formula to a cash balance formula, which accrues benefits based on a percentage of compensation. Benefits attributable to plan participation prior to January 1, 2009 will be based on final average compensation at the date of termination of employment and years of service earned through January 1, 2009. Plan assets consist primarily of corporate and U.S. government obligations and pooled equity funds.
Pension costs for both the quarters ending June 30, 2009 and 2008 were $1.5 million, including amounts charged to construction. Pension costs for both the nine months ended June 30, 2009 and 2008 were $4.6 million, including amounts charged to construction.
The net periodic pension costs include the following components:

     
Three Months Ended
 
Nine Months Ended
 
     
June 30,
 
June 30,
 
 
(Thousands)
 
2009
 
2008
 
2009
 
2008
 
                             
 
Service cost – benefits earned
                         
 
during the period
 
$
1,817
 
$
3,243
 
$
7,119
 
$
9,728
 
 
Interest cost on projected
                         
 
benefit obligation
   
5,230
   
4,670
   
15,727
   
14,010
 
 
Expected return on plan assets
   
(5,234
)
 
(5,162
)
 
(15,703
)
 
(15,487
)
 
Amortization of prior service cost
   
258
   
272
   
776
   
816
 
 
Amortization of actuarial loss
   
774
   
791
   
2,322
   
2,373
 
 
Sub-total
   
2,845
   
3,814
   
10,241
   
11,440
 
 
Regulatory adjustment
   
(1,296
)
 
(2,280
)
 
(5,594
)
 
(6,840
)
 
Net pension cost
 
$
1,549
 
$
1,534
 
$
4,647
 
$
4,600
 

Pursuant to the provisions of the Laclede Gas pension plans, pension obligations may be satisfied by lump-sum cash payments. Pursuant to a Missouri Public Service Commission (MoPSC or Commission) 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, 2009 and June 30, 2008.
Pursuant to a MoPSC Order, the return on plan assets is based on the market-related value of plan assets implemented prospectively over a four-year period. Gains or losses not yet includible in pension cost 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. The recovery in rates for the Utility’s qualified pension plans is based on an allowance of $4.8 million annually effective August 1, 2007. The difference between this amount and pension expense as calculated pursuant to the above and that otherwise would be included in the Statements of Consolidated Income and Statements of Consolidated Comprehensive Income is deferred as a regulatory asset or regulatory liability.



Postretirement Benefits

Laclede Gas provides certain life insurance benefits at retirement. Medical insurance is available after early retirement until age 65. The transition obligation not yet includible in postretirement benefit cost is being amortized over 20 years. Postretirement benefit costs for both the quarters ended June 30, 2009 and 2008 were $1.9 million, including amounts charged to construction. Postretirement benefit costs for both the nine months ended June 30, 2009 and 2008 were $5.7 million, including amounts charged to construction.
Net periodic postretirement benefit costs consisted of the following components:

     
Three Months Ended
 
Nine Months Ended
 
     
June 30,
 
June 30,
 
 
(Thousands)
 
2009
 
2008
 
2009
 
2008
 
                             
 
Service cost – benefits earned
                         
 
during the period
 
$
1,283
 
$
1,140
 
$
3,849
 
$
3,420
 
 
Interest cost on accumulated
                         
 
postretirement benefit obligation
   
1,169
   
977
   
3,509
   
2,931
 
 
Expected return on plan assets
   
(594
)
 
(509
)
 
(1,782
)
 
(1,528
)
 
Amortization of transition obligation
   
34
   
34
   
102
   
102
 
 
Amortization of prior service cost
   
(582
)
 
(582
)
 
(1,746
)
 
(1,746
)
 
Amortization of actuarial loss
   
878
   
746
   
2,632
   
2,238
 
 
Sub-total
   
2,188
   
1,806
   
6,564
   
5,417
 
 
Regulatory adjustment
   
(278
)
 
104
   
(833
)
 
314
 
 
Net postretirement benefit cost
 
$
1,910
 
$
1,910
 
$
5,731
 
$
5,731
 

Missouri state law provides for the recovery in rates of SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” accrued costs provided that such costs are funded through an independent, external funding mechanism. Laclede Gas established Voluntary Employees’ Beneficiary Association (VEBA) and Rabbi trusts as its external funding mechanisms. VEBA and Rabbi trusts’ assets consist primarily of money market securities and mutual funds invested in stocks and bonds.
Pursuant to a MoPSC Order, the return on plan assets is based on the market-related value of plan assets implemented prospectively over a four-year period. Gains and losses not yet includible in postretirement benefit cost are amortized only to the extent that such gain or loss exceeds 10% of the greater of the accumulated postretirement benefit obligation or the market-related value of plan assets. Such excess is amortized over the average remaining service life of active participants. Previously, the recovery in rates for the postretirement benefit costs was based on an alternative methodology for amortization of unrecognized gains and losses as ordered by the MoPSC. The Commission ordered that the recovery in rates be based on an annual allowance of $7.6 million, effective August 1, 2007. The difference between this amount and postretirement benefit cost based on the above and that otherwise would be included in the Statements of Consolidated Income and Statements of Consolidated Comprehensive Income is deferred as a regulatory asset or regulatory liability.



The carrying amounts and estimated fair values of financial instruments at June 30, 2009 are as follows:

 
(Thousands)
 
Carrying
Amount
 
Fair
Value
 
                 
 
Cash and cash equivalents
 
$
89,075
 
$
89,075
 
 
Marketable securities
   
9,506
   
9,506
 
 
Derivative instrument assets
   
17,429
   
17,429
 
 
Short-term debt
   
133,000
   
133,000
 
 
Long-term debt
   
389,225
   
387,996
 

The carrying amounts for cash and cash equivalents and short-term debt approximate fair value due to the short maturity of these instruments. The fair value of long-term debt is based on market prices for similar issues. The fair values of marketable securities and derivative instrument assets are valued as described in Note 6, Fair Value Measurements.





As discussed in the New Accounting Standards section of Note 1, effective October 1, 2008, the Company partially adopted the provisions of SFAS No. 157. This Statement establishes a three-level hierarchy for fair value measurements that prioritizes the inputs used to measure fair value. Assessment of the significance of a particular input to the fair value measurements may require judgment and may affect the valuation of the asset or liability and its placement within the fair value hierarchy.
The following table categorizes the assets and liabilities in the Consolidated Balance Sheet that are accounted for at fair value on a recurring basis in periods subsequent to initial recognition.

 
As of June 30, 2009
 
 
(Thousands)
   
Quoted
Prices in
Active
Markets
(Level 1)
   
Significant
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
   
Effects of Netting and Cash Margin Receivables
/Payables
   
Total
 
 
Assets
                               
 
  Marketable securities
 
$
9,506
 
$
 
$
 
$
 
$
9,506
 
 
  Derivative instruments
   
10,779
   
400
   
   
6,250
   
17,429