UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
Washington,
D.C. 20549
|
|
FORM
10-K
|
(Mark
One)
|
|
|
|
|
R
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
For
the fiscal year ended SEPTEMBER 30, 2006
|
OR
|
£
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
|
OF
THE SECURITIES EXCHANGE ACT OF 1934
|
Commission
|
Exact
Name of Registrant as Specified in Charter, State of
Incorporation,
|
IRS
Employer
|
File
Number
|
Address
of Principal Executive Office and Telephone Number
|
Identification
Number
|
1-5540
|
PEOPLES
ENERGY CORPORATION
|
36-2642766
|
2-26983
|
THE
PEOPLES GAS LIGHT AND COKE COMPANY
|
36-1613900
|
2-35965
|
NORTH
SHORE GAS COMPANY
|
36-1558720
|
|
|
|
|
(an
Illinois Corporation)
|
|
|
130
East Randolph Drive, 24
th
Floor
|
|
|
Chicago,
Illinois 60601-6207
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|
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Telephone
(312) 240-4000
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|
Securities
registered pursuant to Section 12(b) of the Act:
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Name
of each exchange
|
Title
of Each Class
|
|
on
which registered
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Peoples
Energy Corporation
|
|
New
York Stock Exchange,
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Common
Stock, without par value
|
|
Chicago
Stock Exchange,
|
|
|
and
Pacific Exchange
|
Indicate
by check mark if the registrant is a well-known seasoned issuer,
as
defined in Rule 405 of the Securities Act.
|
Peoples
Energy Corporation
|
Yes
R
No
£
|
The
Peoples Gas Light and Coke Company
|
Yes
£
No
R
|
North
Shore Gas Company
|
Yes
£
No
R
|
Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Act.
|
Peoples
Energy Corporation
|
Yes
£
No
R
|
The
Peoples Gas Light and Coke Company
|
Yes
R
No
£
|
North
Shore Gas Company
|
Yes
R
No
£
|
Indicate
by check mark whether the registrants (1) have 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 shorter period that the registrant
was required to file such reports), and (2) have been subject to
such
filing requirements for the past 90 days. Yes
R
No
£
|
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in
Part III of this Form 10-K or any amendment to this Form 10-K.
R
|
Indicate
by check mark whether the registrant is a large accelerated filer,
an
accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of
the
Exchange Act. (Check one):
|
|
Peoples
Energy Corporation
|
Large
accelerated filer
R
Accelerated
filer
£
Non-accelerated
filer
£
|
|
The
Peoples Gas Light and Coke Company
|
Large
accelerated filer
£
Accelerated
filer
£
Non-accelerated
filer
R
|
|
North
Shore Gas Company
|
Large
accelerated filer
£
Accelerated
filer
£
Non-accelerated
filer
R
|
Indicate
by check mark whether the registrant is a shell company (as defined
in
Rule 12b-2 of the Act).
|
Peoples
Energy Corporation
|
Yes
£
No
R
|
The
Peoples Gas Light and Coke Company
|
Yes
£
No
R
|
North
Shore Gas Company
|
Yes
£
No
R
|
The
aggregate market value of the voting stock held by non-affiliates
of the
registrants as of the last business day of the registrant's most
recently
completed second fiscal quarter:
|
|
|
Peoples
Energy Corporation
|
Approximately
$1.4 billion computed on the basis of the closing market price of
$35.64
for a share of Common Stock on March 31, 2006.
|
|
|
The
Peoples Gas Light and Coke Company
|
None.
|
|
|
North
Shore Gas Company
|
None.
|
Indicate
the number of shares outstanding of each of the registrant's classes
of
Common Stock, as of the latest practicable date (November 30,
2006):
|
|
|
Peoples
Energy Corporation
|
Common
Stock, no par value, 38,572,918 shares outstanding
|
|
|
The
Peoples Gas Light and Coke Company
|
Common
Stock, no par value, 25,357,566 shares outstanding (all of which
are owned
beneficially and of record by Peoples Energy
Corporation)
|
|
|
North
Shore Gas Company
|
Common
Stock, no par value, 3,625,887 shares outstanding (all of which are
owned
beneficially and of record by Peoples Energy
Corporation)
|
This
combined Form 10-K is separately filed by Peoples Energy Corporation,
The
Peoples Gas Light and Coke Company, and North Shore Gas Company.
Information contained herein relating to any individual company is
filed
by such company on its own behalf. Each company makes no representation
as
to information relating to the other companies.
The
Peoples Gas Light and Coke Company and North Shore Gas Company meet
the
conditions set forth in General Instruction I(1)(a) and (b) of Form
10-K
and are therefore filing this Form 10-K with the reduced disclosure
format
permitted by General Instruction
I(2).
|
Documents
Incorporated by Reference
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|
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|
|
Document
|
Part
of Form 10-K
|
|
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Peoples
Energy Corporation
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Company's
Notice of Annual Meeting and Proxy Statement or an amendment to this
Form
10-K filed within 120 days of the end of the Company's fiscal
year
|
Part
III
|
|
|
|
The
Peoples Gas Light and Coke Company
|
None
|
|
|
|
|
North
Shore Gas Company
|
None
|
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CONTENTS
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Page
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Item
No.
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No.
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Glossary
of Terms
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4
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Forward-Looking
Information
|
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7
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Part
I
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1.
|
B
u
s
i
n
e
ss
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|
8
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1A.
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Risk
Factors
|
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16
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1B.
|
Unresolved
Staff Comments
|
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24
|
2.
|
Prop
e
r
t
i
es
|
|
24
|
3.
|
Legal
P
roceedin
g
s
|
|
26
|
4.
|
Submission
of Matters to
a
Vote of Security Holders
|
|
26
|
|
Executive
Office
r
s
of the Company
|
|
27
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Part
II
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5.
|
Market
for the C
o
mpany's
Common Stock and Related
Stockholder
Matters
|
|
28
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6.
|
Select
e
d
Finan
c
ial
Data
|
|
29
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7.
|
Management's
D
i
scussion
and A
n
alysis
of Results
of
Operations and Financial Condition
|
30
|
7A.
|
Q
u
antitative
and Qu
a
litative
Disclosures About Market Risk
|
|
54
|
8.
|
Financial
Statements and Supple
m
entary
D
a
ta
|
|
59
|
9.
|
Cha
n
ges
in and Disagreements with Accountants on
Accounting
and Financial Disclosure
|
130
|
9A.
|
Co
n
trols
and Procedures
|
|
130
|
9B.
|
Other
Informat
i
on
|
|
132
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Part
III
|
10.
|
Directors
an
d
Executive Officers of the Company
|
|
132
|
11.
|
Executiv
e
Compensation
|
|
133
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12.
|
Securi
t
y
Ownership of Certain Beneficial Owners and
Management
and Related Stockholder Matters
|
133
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13.
|
Certai
n
Relationships and Related Transactions
|
|
134
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14.
|
Principal
Accountant
Fees and Services
|
134
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Part
IV
|
15.
|
Exhibits
and Fina
n
cial
Statement Schedules
|
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134
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|
|
|
|
Signatures
|
|
136
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|
Exhibit
Index
|
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139
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WHERE
TO FIND MORE INFORMATION
Peoples
Energy Corporation makes available through its Web site, free of charge, its
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) of the Exchange Act as soon as reasonably practicable after it
electronically files such material with, or furnishes it to, the Securities
and
Exchange Commission. The Company's Web site address is http://
www.PeoplesEnergy.com
.
Peoples
Energy Corporation - Glossary of Terms
Throughout
this document, Peoples Energy Corporation, together with its consolidated
subsidiaries, may be referred to as "Peoples Energy," "the Company,"
"management," "we," "us" or "our." References to Peoples Gas and to North Shore
Gas refer to The Peoples Gas Light and Coke Company and North Shore Gas Company,
respectively. References to the Registrants mean Peoples Energy, Peoples Gas
and
North Shore Gas, unless the context clearly indicates otherwise. Additional
abbreviations or acronyms used in this filing are defined below:
Units
of Measure
|
Bbl
|
|
Barrel
|
Bcf
|
|
Billion
cubic feet
|
Bcfe
*
|
|
Billion
cubic feet of gas equivalent
|
Btu
|
|
British
thermal unit
|
Dth
|
|
1
dekatherm = 10 therms
|
MBbls
|
|
Thousand
barrels
|
MBd
|
|
Thousand
barrels per day
|
Mcf
|
|
Thousand
cubic feet
|
MDth
|
|
Thousand
dekatherms
|
Mcfe*
|
|
Thousand
cubic feet of gas equivalent
|
MMbtu
|
|
Million
British thermal units
|
MMcfe*
|
|
Million
cubic feet of gas equivalent
|
MMcfd
|
|
Million
cubic feet of gas per day
|
MMcfed*
|
|
Million
cubic feet of gas equivalent per day
|
Mwh
|
|
Megawatt-hour
|
Therm
|
|
100,000
Btu (approximately 100 cubic feet)
|
|
|
|
*
denotes that oil reserves have been converted to their cubic feet
equivalents at a rate of 6 Mcf per barrel
|
|
|
|
Abbreviations
|
CERCLA
|
|
Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended
|
Chicago
|
|
City
of Chicago, Illinois
|
Commission
|
|
Illinois
Commerce Commission
|
DD&A
|
|
Depreciation,
depletion and amortization
|
DDC
Plan
|
|
Directors
Deferred Compensation Plan
|
DSOP
|
|
Directors
Stock and Option Plan
|
EITF
|
|
Emerging
Issues Task Force
|
EPA
|
|
United
States Environmental Protection Agency
|
ESPP
|
|
Employee
Stock Purchase Plan
|
FASB
|
|
Financial
Accounting Standards Board
|
FERC
|
|
Federal
Energy Regulatory Commission
|
FIN
|
|
FASB
Interpretation No.
|
FSP
|
|
FASB
Staff Position
|
GAAP
|
|
Accounting
principles generally accepted in the United States
|
LIFO
|
|
Last-in,
first-out
|
LOCOM
|
|
Lower
of cost or market
|
LTIC
|
|
Long-Term
Incentive Compensation
|
MD&A
|
|
Management's
Discussion and Analysis of Results of Operations and Financial
Condition
|
MTM
|
|
Mark-to-market
|
NYMEX
|
|
New
York Mercantile Exchange
|
PRP
|
|
Potentially
Responsible Party
|
RCRA
|
|
Resource
Conservation and Recovery Act
|
RSA
|
|
Restricted
Stock Award
|
RSU
|
|
Restricted
Stock Unit
|
SAB
|
|
Staff
Accounting Bulletin
|
SAR
|
|
Stock
Appreciation Right
|
SCEP
|
|
Southeast
Chicago Energy Project, LLC
|
SEC
|
|
Securities
and Exchange Commission
|
SFAS
|
|
Statement
of Financial Accounting Standards
|
Definitions
|
|
|
|
Basin
|
|
A
geological feature in the earth’s subsurface that is composed of
sedimentary rock and geological structures where oil and natural
gas
prospect and fields are potentially found.
|
|
|
|
Development
well
|
|
Well
drilled within the proved area of an oil or natural gas field to
the depth
of a stratigraphic horizon known to be productive.
|
|
|
|
Dry
hole
|
|
Exploratory
or development well that does not produce oil or gas in commercial
quantities.
|
|
|
|
Exploratory
well
|
|
Well
drilled to find and produce oil or gas in an unproved area, to find
a new
reservoir in a field previously found to be productive or in another
reservoir, or to extend a known reservoir.
|
|
|
|
Field
|
|
Area
consisting of a single reservoir or multiple reservoirs all grouped
on or
related to the same geological structural feature or stratigraphic
condition.
|
|
|
|
Gross
acres or gross wells
|
|
The
total acres or wells in which a working interest is
owned.
|
|
|
|
Heating
degree days
|
|
A
unit of measure used to represent each degree that the mean temperature
for a 24-hour period is less than 65 degrees
Fahrenheit.
|
|
|
|
Lease
operating expenses
|
|
Expenses
incurred to operate the wells and equipment on a producing
lease.
|
|
|
|
Mark-to-market
|
|
A
re-valuation of an asset or liability to its current fair
value.
|
|
|
|
Multiple
completion
|
|
The
completion of a well in more than one producing formation at multiple
depths.
|
|
|
|
Net
acreage and net wells
|
|
Obtained
by multiplying gross acreage and gross wells by the Company’s working
interest percentage in the properties.
|
|
|
|
Proved
developed reserves
|
|
Portion
of proved reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods.
|
|
|
|
Proved
reserves
|
|
Estimated
quantities of natural gas, natural gas liquids and crude oil which
geological and engineering data demonstrate, with reasonable certainty,
can be recovered in future years from known reservoirs under existing
economic and operating conditions. Reservoirs are considered proved
if
shown to be economically producible by either actual production or
conclusive formation tests.
|
|
|
|
Proved
undeveloped reserves
|
|
Portion
of proved reserves that can be expected to be recovered from new
wells on
undrilled proved acreage, or from existing wells where a relatively
major
expenditure is required for completion.
|
|
|
|
Regulatory
asset/liability
|
|
An
asset or liability recorded by the Company as a result of certain
costs or
revenues qualifying for regulatory treatment and deferred until recovered
or refunded through rates.
|
|
|
|
Reservoir
|
|
A
porous, permeable sedimentary rock formation containing quantities
of oil
and/or gas enclosed or surrounded by layers of less permeable or
impervious rock.
|
|
|
|
Weather
normalized
|
|
Usage,
revenue or operating income excluding the estimated effects of deviations
from normal weather.
|
|
|
|
Working
Interest
|
|
The
ownership interest under an oil and gas lease after accounting for
the
interests reserved for the lessor or landowner.
|
Referenced
Accounting Standards
|
|
|
|
APB
Opinion No. 25
|
|
Accounting
for Stock Issued to Employees
|
|
|
|
EITF
99-02
|
|
Accounting
for Weather Derivatives
|
|
|
|
FIN
47
|
|
Accounting
for Conditional Asset Retirement Obligations
|
|
|
|
FIN
48
|
|
Accounting
for Uncertainty in Income Taxes - an Interpretation of FASB Statement
No.
109
|
|
|
|
FSP
No. 106-2
|
|
Accounting
and Disclosure Requirements Related to the Medicare Prescription
Drug
Improvement and Modernization Act of 2003
|
|
|
|
SAB
No. 108
|
|
Considering
the Effects of Prior Year Misstatements When Quantifying Misstatements
in
Current Year Financial Statements
|
|
|
|
SFAS
No. 5
|
|
Accounting
for Contingencies
|
|
|
|
SFAS
No. 71
|
|
Accounting
for the Effects of Certain Types of Regulation
|
|
|
|
SFAS
No. 88
|
|
Employer’s
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits
|
|
|
|
SFAS
No. 123
|
|
Accounting
for Stock-Based Compensation
|
|
|
|
SFAS
No. 123 (R)
|
|
Share-based
Payment
|
|
|
|
SFAS
No. 133
|
|
Accounting
for Derivatives and Hedging Activities (as amended and
interpreted)
|
|
|
|
SFAS
No. 141
|
|
Business
Combinations
|
|
|
|
SFAS
No. 143
|
|
Accounting
for Asset Retirement Obligations
|
|
|
|
SFAS
No. 144
|
|
Accounting
for the Impairment or Disposal of Long-Lived Assets
|
|
|
|
SFAS
No. 158
|
|
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans—an
amendment of FASB Statements No. 87, 88, 106, and
132(R)
|
FORWARD-LOOKING
INFORMATION
This
document contains statements that may be considered forward-looking, such as:
management's expectations and outlook for earnings, the statements of the
Company's business and financial goals regarding its business segments, the
effect of weather on net income, cash position, source of funds and financing
activities, market risk, the effect on income arising from changes in Gas
Distribution revenue from customers' gas purchases from third parties, the
adequacy of the Gas Distribution segment's reserves for uncollectible accounts,
capital expenditures of the Company's subsidiaries, and environmental matters.
These statements speak of the Company's plans, goals, beliefs, or expectations,
refer to estimates or use similar terms. Generally, the words "may," "could,"
"project," "believe," "anticipate," "estimate," "plan," "forecast," "will be"
and similar words identify forward-looking statements. Actual results could
differ materially, because the realization of those results is subject to many
uncertainties including:
·
|
The
outcome of the pending merger between the Company and WPS Resources
Corporation;
|
·
|
the
outcome of rate increase proceedings if filed with the Commission
by the
utility subsidiaries;
|
·
|
adverse
decisions in proceedings before the Commission, including, but not
limited
to, proceedings concerning the prudence review of the utility
subsidiaries' gas purchases;
|
·
|
adverse
changes in the Commission's approved rate mechanisms for recovery
of
environmental remediation costs at former manufactured gas sites
of the
Company's subsidiaries, or adverse decisions by the Commission with
respect to the prudence of costs actually
incurred;
|
·
|
the
future health of the United States and Illinois
economies;
|
·
|
the
timing and extent of changes in interest rates and energy commodity
prices, including but not limited to the effect of gas prices on
cost of
gas supplies, accounts receivable and the provision for uncollectible
accounts, interest expense and earnings from the Oil and Gas Production
segment;
|
·
|
the
effectiveness of the Company's derivative instruments and hedging
activities and their impact on our future results of
operations;
|
·
|
adverse
resolution of material litigation;
|
·
|
effectiveness
of the Company's risk management policies and the creditworthiness
of
customers and counterparties;
|
·
|
changes
in the credit ratings of the Company, Peoples Gas and North Shore
Gas;
|
·
|
regulatory
developments in the United States, Illinois and other states where
the
Company does business;
|
·
|
changes
in the nature of the Company's competition resulting from industry
consolidation, legislative change, regulatory change and other factors,
as
well as action taken by particular
competitors;
|
·
|
the
Company's success in identifying diversified business segment projects
on
financially acceptable terms and generating earnings from projects
in a
reasonable time;
|
·
|
operational
factors affecting the Company's Gas Distribution, Energy Assets and
Oil
and Gas Production segments;
|
·
|
the
Company's ability to complete its divestment of its power generation
assets on advantageous terms;
|
·
|
drilling
and production risks and the inherent uncertainty of oil and gas
reserve
estimates;
|
·
|
weather-related
energy demand;
|
·
|
terrorist
activities; and
|
·
|
the
application of, or changes in, accounting rules or interpretations,
including, but not limited to the impact of mark-to market accounting
treatment for some of the Company's derivative contracts used by
the
Company to manage commodity price basis, and other
risks.
|
Also,
projections to future periods of the effectiveness of internal control over
financial reporting are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Some of these uncertainties that may
affect future results are discussed in more detail in Item 1—Business, Item
1A—Risk Factors and Item 7—MD&A. All forward-looking statements included in
this document are based upon information presently available, and the
C
ompany,
Peoples Gas and North Shore Gas
assume
no obligation to update any forward-looking statements.
PART
I
GENERAL
Peoples
Energy is a holding company and does not engage directly in any business of
its
own, but does provide administrative services that support the business
activities of its subsidiaries. Income is derived principally from the Company’s
regulated utility subsidiaries, Peoples Gas and North Shore Gas. The Company
also derives income from its other subsidiaries, Peoples Energy Resources
Company, LLC (Peoples Energy Resources), Peoples Energy Services Corporation
(Peoples Energy Services) and Peoples Energy Production Company (Peoples Energy
Production). The Company and its subsidiaries had 2,223 employees at September
30, 2006.
The
Company was incorporated in 1967 under the Illinois Business Corporation Act
and
has its principal executive offices at 130 East Randolph Drive, Chicago,
Illinois 60601-6207 (Telephone (312) 240-4000).
The
Company has five reportable business segments: Gas Distribution, Oil and Gas
Production, Energy Marketing, Energy Assets, and Corporate and Other. (See
Note
3 of the Notes to Consolidated Financial Statements for financial information
about the Company’s business segments for the last three fiscal years.) Also see
Note 2B of the Notes to Consolidated Financial Statements for financial
information about discontinued operations.
MERGER
On
July 8,
2006, WPS Resources Corporation (WPS Resources), Wedge Acquisition Corporation
(Sub), a wholly owned subsidiary of WPS Resources, and Peoples Energy
Corporation (the Company or Peoples Energy) entered into an Agreement and Plan
of Merger (the Agreement).
The
Agreement provides for the merger of Sub with and into Peoples Energy (the
Merger) on the terms and subject to the conditions set forth in the Agreement,
with Peoples Energy continuing as the surviving corporation. As a result of
the
Merger, Peoples Energy will become a wholly owned subsidiary of WPS Resources,
and Peoples Energy shareholders will receive shares of WPS Resources common
stock in exchange for their shares of common stock of Peoples Energy. At the
effective time of the Merger, each share of common stock of Peoples Energy
issued and outstanding immediately prior to the effective time will be cancelled
and converted into the right to receive 0.825 shares of common stock of WPS
Resources. The companies expect that upon consummation of the Merger Peoples
Energy shareholders will own approximately 42.4% of the common stock of WPS
Resources and WPS Resources shareholders will own approximately 57.6% of the
common stock of WPS Resources.
WPS
Resources and Peoples Energy have each made customary representations,
warranties and covenants in the Agreement, including, among others, covenants
to
conduct their businesses in the ordinary course between the execution of the
Agreement and the consummation of the Merger and covenants not to engage in
certain kinds of transactions during that period. During such period, Peoples
Energy will not declare cash dividends in excess of $0.545 per share per quarter
without the prior consent of WPS Resources. Immediately after the effective
time
of the Merger, WPS Resources will adopt a dividend policy providing for a
quarterly dividend of $0.66 per share of WPS Resources common stock, subject
to
evaluation over time as future business needs dictate. WPS Resources and Peoples
Energy have made certain additional customary covenants, including, among
others, covenants, subject to certain exceptions, (A) to cause a shareholders
meeting to be held to consider approval of the Merger and the other transactions
contemplated by the Agreement, (B) not to solicit proposals relating to
alternative business combination transactions, and (C) not to enter into
discussions concerning, or provide confidential information in connection with,
alternative business combination transactions.
Consummation
of the Merger is subject to customary conditions, including, among others,
(i)
approval of the shareholders of each of WPS Resources and Peoples Energy, (ii)
absence of any material adverse effect, (iii) expiration or termination of
the
applicable Hart-Scott-Rodino Act waiting period, (iv) absence of any order
or
injunction prohibiting the consummation of the Merger, (v) the registration
statement on Form S-4 shall have become effective, (vi) the shares of WPS
Resources common stock issuable to Peoples Energy’s shareholders pursuant to the
Agreement and under the employee benefit plans of Peoples Energy shall have
been
approved for listing on the New York Stock Exchange, (vii) subject to certain
exceptions, the accuracy of representations and warranties with respect to
WPS
Resources’ and Peoples Energy’s business, as applicable, (vii) receipt of
customary tax opinions and (viii) receipt of all required statutory approvals
from, among others, the FERC, the Federal Communications Commission, and state
public service and utility commissions.
The
Agreement contains certain termination rights for both WPS Resources and Peoples
Energy, and further provides that, upon termination of the Agreement under
specified circumstances, a party would be required to pay the other party a
termination fee of $45 million. In addition, under specified circumstances
each
party may be obligated to reimburse the other party for up to $15 million of
expenses, which would reduce the amount of any required termination fee payable
by that party.
The
consummation of the Merger is subject to the satisfaction or waiver of closing
conditions applicable to both WPS
Resources
and Peoples Energy, including the receipt of required regulatory approvals
and
the approval of the transaction by the shareholders of both WPS Resources and
Peoples Energy. On August 2, 2006, WPS Resources, Peoples Energy, Peoples Gas
and North Shore Gas jointly filed an application for approval of the Merger
with
the Commission. The companies seek the expedited consideration of the
application by the Commission, with requested approval by December 28, 2006
so
that the Merger could close on or shortly after January 1, 2007. The application
indicates that The Peoples Gas Light and Coke Company (Peoples Gas) and North
Shore Gas Company (North Shore Gas) will further postpone filing rate cases
until early 2007, with new rates to take effect in 2008 due to the normal
11-month rate case process in Illinois. On October 31, 2006, Commission Staff
and Interveners filed Direct Testimony and opinion on the Merger proposal.
On
November 13, 2006, the Companies filed rebuttal testimony.
WPS
Resources and Peoples Energy filed their joint application for FERC approval
on
August 15, 2006. The comment period on the FERC filing passed with no comments
received. On November 2, 2006, the FERC issued a deficiency letter identifying
an item about which additional information was required, and WPS Resources
and
Peoples Energy responded on November 6, 2006. The comment period for this
response was concluded on November 13, 2006. No comments were
received.
On
August
15, 2006, WPS Resources filed with the Public Service Commission of Wisconsin
(PSCW) for approval of amendments to its “affiliated interest” agreements so
that they include and apply to Peoples Energy and its subsidiaries, as
appropriate, upon closing of the merger. These agreements govern the provision
by and among WPS Resources and its regulated and non-regulated subsidiaries
of
services, property, and other things of value. Modification of these agreements
requires the approval of the PSCW. WPS Resources had concluded that no other
PSCW approvals were required prior to the closing of the merger. However, on
August 9, 2006, the PSCW issued a notice of investigation of the merger to
consider, among other things, whether the PSCW has jurisdiction and pre-approval
authority over the merger. Subsequently, the PSCW asserted jurisdiction and
pre-approval authority over the merger, and, on September 27, 2006, the PSCW
re-noticed the investigatory matter as a contested case proceeding in which
it
would consider whether the merger is in the public interest and whether certain
conditions should be placed upon WPS Resources (and affiliate arrangements
within its holding company system) as a result of the merger. WPS Resources
acknowledges the PSCW’s continuing jurisdiction from time to time to consider
and, if appropriate, impose additional conditions upon Wisconsin public utility
holding companies. However, WPS Resources does not believe that the PSCW has
jurisdiction and pre-approval authority over the merger, even though the PSCW
has asserted such jurisdiction and authority. The PSCW has established a
schedule for completion of the proceeding that would accommodate a closing
of
the merger in the first quarter of 2007. WPS Resources’ participation in the
proceeding will be subject to its right to challenge the PSCW’s asserted
jurisdiction before the PSCW and on appeal of an adverse PSCW
order.
Pursuant
to the Agreement, management from both companies jointly selected Integrys
Energy Group, Inc. (Integrys) as the new name for the combined company. Upon
consummation of the Merger, WPS Resources’ Board of Directors will be comprised
of sixteen directors, nine of whom will have been designated by WPS Resources
and seven of whom will have been designated by Peoples Energy. Mr. Larry Weyers,
currently Chairman, President and Chief Executive Officer of WPS Resources,
will
remain President and Chief Executive Officer of Integrys following the Merger.
Mr. James Boris, currently the Lead Director of Peoples Energy will become
the
non-executive Chairman of Integrys as of the effective time of the Merger.
Upon
the consummation of the Merger, WPS Resources will amend bylaws consistent
with
the foregoing.
On
October 9, 2006, the Company identified many of Integrys’ senior leaders, who
will manage Integrys after the transaction closes through a holding company,
operating companies and a services group. Following the Merger, Integrys will
establish its headquarters in Chicago, Illinois. The headquarters of the
Integrys’ unregulated energy marketing business will be located in Green Bay,
Wisconsin and the headquarters of the utilities’ businesses will be located in
the same place as immediately prior to the effective time of the Merger. The
headquarters of the oil and gas production business will remain in Houston,
Texas.
On
October 18, 2006, the WPS Resources registration statement on Form S-4 was
made
effective by the SEC.
On
October 25, 2006, the Federal Trade Commission granted termination of the
waiting period for the Hart-Scott-Rodino filing for the Merger.
On
December 6, 2006, at special meetings of shareholders held by WPS Resources
and Peoples Energy, shareholders of both companies approved the proposed
merger transaction. WPS Resources’ shareholders also approved an amendment to
WPS Resources Corporation’s restated articles of incorporation to change the
name of WPS Resources Corporation to Integrys Energy Group, Inc., when the
closing of the merger has been completed.
1.
GAS DISTRIBUTION SEGMENT
Principal
Products and Markets
The
Gas
Distribution segment is the Company’s core business. Its two regulated utilities
(Peoples Gas and North Shore Gas, whose operations are limited to this segment
and the Corporate and Other segment) purchase, store, distribute, sell and
transport natural gas to approximately one million customers through an
approximately 6,000-mile distribution-mains system serving Chicago and 54
communities in northeastern Illinois. The customer base includes residential,
commercial and industrial sales and transportation accounts that provide a
broad
and diversified foundation for the utilities’ business.
As
part
of this segment, Peoples Gas utilizes its storage and pipeline supply assets
as
a natural gas hub. This activity is regulated by the FERC and consists of
providing wholesale transportation and storage services in interstate
commerce.
For
fiscal 2006 and on September 30, 2006, the Gas Distribution segment accounted
for
64%
of
revenues and 75% of capital assets.
Peoples
Gas was formed in 1855 and had 1,520 employees at September 30, 2006, of which
883 are union employees. It has approximately 815,000 residential, commercial
and industrial retail sales and transportation customers in
Chicago.
North
Shore Gas was formed in 1900 and had 205 employees at September 30, 2006, of
which 138 are union employees. It has approximately 156,000 residential,
commercial and industrial retail sales and transportation customers within
its
service area of approximately 275 square miles, located in northeastern
Illinois.
The
basic
marketing plans of Peoples Gas and North Shore Gas are to maintain their
existing shares in traditional market segments, which include space heating,
water heating, clothes drying and cooking. North Shore Gas’ service territory
has potential for expansion through increasing population density.
Competition
Competition
in varying degrees exists between natural gas and other fuels or forms of energy
available to consumers in the Midwest and the utilities’ respective service
territories, such as electricity and diesel fuel.
Absent
extraordinary circumstances, potential competitors are barred from constructing
competing gas distribution systems in the utility subsidiaries’ service
territories by a judicial doctrine known as the “first in the field” doctrine.
In addition, the high cost of installing duplicate distribution facilities
would
render the construction of a competing system impractical.
An
interstate pipeline may seek to provide transportation service directly to
end
users. Such direct service by a pipeline to an end user would bypass the local
distributor’s service and reduce the distributor’s earnings. No Peoples Gas
customers have been lost to bypass service; only one end user in North Shore
Gas’ service territory is served directly by a pipeline supplier. Both utility
subsidiaries have a bypass rate approved by the Commission, which allows the
utilities to negotiate rates with customers that are potential bypass
candidates.
Since
2002, all customers have had the opportunity to choose a gas supplier. A
substantial portion of the gas that Peoples Gas and North Shore Gas deliver
to
their customers consists of gas that the subsidiaries’ customers purchase
directly from producers and marketers rather than from the utilities. These
direct customer purchases have little effect on net income because the utilities
provide transportation service for such gas volumes and recover margins similar
to those applicable to conventional gas sales.
Current
Sources and Availability of Natural Gas
Peoples
Gas and North Shore Gas have each entered into long-term and short-term firm
gas
supply contracts with various suppliers, including BP Canada Energy Marketing
Corp., Occidental Energy Marketing, Inc., Oneok Energy Services Company, L.P.,
and Tenaska Marketing Ventures, with remaining gas supply contract terms up
to
two years. When used in conjunction with contract storage, company-owned storage
and peak-shaving facilities, such supply is deemed sufficient to meet current
and foreseeable peak and annual market requirements. Although the Company
believes North American gas supply to be sufficient to meet current and
prospective United States market demands, it is unable to quantify or otherwise
make specific representations regarding national supply availability and the
cost of the supply.
Peoples
Gas and North Shore Gas purchase firm transportation and storage services from
interstate pipelines in the ordinary course of business. Seven interstate
pipelines interconnect with Peoples Gas’ utility system and two interstate
pipelines and one local distribution company interconnect with North Shore
Gas’
utility system. Having multiple pipelines that serve the utilities’ service
territories improves reliability, provides access to diverse supply and fosters
competition among these service providers that can lead to favorable conditions
for the utilities when negotiating new agreements.
The
following table shows the expected design peak-day availability of gas in MDth
during the 2006-2007 heating season for Peoples Gas and North Shore
Gas:
|
|
|
Peoples
Gas
|
|
North
Shore Gas
|
|
|
|
Design
Peak-Day
|
|
Year
of
|
|
Design
Peak-Day
|
|
Year
of
|
|
|
|
Availability
|
|
Contract
|
|
Availability
|
|
Contract
|
Source
|
|
(MDth)
|
|
Expiration
|
|
(MDth)
|
|
Expiration
|
Firm
pipeline capacity
|
|
320
|
|
2008-2011
|
|
58
|
|
2008-2017
|
Firm
city-gate supply
|
|
168
|
|
2007
|
|
47
|
|
2007
|
Liquefied
petroleum gas
|
|
-
|
|
|
|
40
|
|
|
Storage
gas:
|
|
|
|
|
|
|
|
|
|
Contract
|
|
583
|
|
2009-2017
|
|
233
|
|
2009-2017
|
|
Peoples—Manlove
|
|
993
|
|
|
|
-
|
|
|
Customer-owned
|
|
253
|
|
|
|
60
|
|
|
Total
expected design
|
|
|
|
|
|
|
|
|
|
peak-day
availability
|
|
2,317
|
|
|
|
438
|
|
|
Peoples
Gas and North Shore Gas forecast maximum peak day demands of 2,257 MDth and
427
MDth, respectively.
The
sources of gas supply (including gas transported for customers) in MDth for
Peoples Gas and North Shore Gas were as follows:
|
|
Peoples
Gas
|
|
North
Shore Gas
|
|
|
|
For
Fiscal Years Ended September 30,
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
Gas
purchases
|
|
109,685
|
|
115,530
|
|
118,532
|
|
23,523
|
|
24,052
|
|
25,479
|
|
Liquefied
petroleum gas produced
|
|
-
|
|
-
|
|
-
|
|
10
|
|
6
|
|
10
|
|
Customer-owned
gas received
|
|
71,782
|
|
73,240
|
|
78,007
|
|
12,793
|
|
12,516
|
|
13,106
|
|
Underground
storage—net
|
|
(3,655
|
)
|
(2,710
|
)
|
214
|
|
(883
|
)
|
116
|
|
(964
|
)
|
Purchased
storage compressor fuel,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
franchise
requirements,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
unaccounted-for gas
|
|
(4,456
|
)
|
(4,200
|
)
|
(4,436
|
)
|
(517
|
)
|
(868
|
)
|
(646
|
)
|
Total
|
|
173,356
|
|
181,860
|
|
192,317
|
|
34,926
|
|
35,822
|
|
36,985
|
|
Importance
of Regulatory Environment
Legislation
and Regulation at State Level.
Peoples
Gas and North Shore Gas are subject to the jurisdiction of and regulation by
the
Commission, which has general supervisory and regulatory powers over practically
all phases of the public utility business in Illinois. These include rates
and
charges, issuance of securities, services and facilities, systems of accounts,
investments, safety standards, transactions with affiliated interests and other
matters.
Peoples
Gas and North Shore Gas are authorized, by statute and/or certificates of public
convenience and necessity, to conduct operations in the territories they serve.
In addition, these subsidiaries operate under franchises and license agreements
granted to them by the municipalities they serve. Peoples Gas holds a perpetual,
nonexclusive franchise to serve Chicago. North Shore Gas’ franchises with
municipalities within its service territory are of various terms and expiration
dates.
Impact
on Sales and Rates.
Peoples
Gas and North Shore Gas sell and distribute natural gas having an average
heating value of approximately 1,000 Btu per cubic foot. Sales are made and
service rendered by Peoples Gas and North Shore Gas pursuant to rate schedules
on file with the Commission containing various service
classifications
largely reflecting customers’ different uses and levels of consumption. In
addition to the rate for distribution of gas, Peoples Gas and North Shore Gas
each bills a gas charge representing the cost of gas and transportation and
storage services purchased. This gas charge is determined in accordance with
a
rider to the rate schedules (Rider 2, Gas Charge) to recover the costs incurred
by Peoples Gas and North Shore Gas to purchase, transport and store gas
supplies. The level of the Gas Charge under both subsidiaries’ rate schedules is
adjusted monthly to reflect increases or decreases in natural gas supplier
charges, gains, losses and costs incurred under its hedging program, purchased
storage service costs, transportation charges and liquefied petroleum gas costs.
In addition, under the tariffs of Peoples Gas and North Shore Gas, the
difference for any month between costs recoverable through the Gas Charge and
revenues billed to customers under the Gas Charge is refundable to or
recoverable from customers. (See Notes 2K and 8 of the Notes to Consolidated
Financial Statements.)
Commission
rules place restrictions on when the utility subsidiaries may terminate or
deny
service to customers who do not pay their bills for utility service. Though
each
utility’s current rates were established to recover an estimated bad debt
expense, bad debt expense can exceed these estimates by significant amounts,
particularly for Peoples Gas. Both the federal and state governments have
legislation that provides for additional funding for assistance to low-income
energy users, including customers of the Company’s utility subsidiaries. The
state legislation creates a fund, financed by charges to electric and gas
customers of public utilities, participating municipal utilities and electric
co-ops, which supplements currently available federal energy
assistance.
Legislation
and Regulation at Federal Level.
The
Company is a holding company as defined in the Public Utility Holding Company
Act of 1935 (1935 Act). By Order entered on December 6, 1968 (Holding Company
Act Release No. 16233), the SEC, pursuant to Section 3(a)(1) of the 1935 Act,
exempted the Company and its subsidiary companies as such from the provisions
of
the 1935 Act, other than Section 9(a)(2) thereof.
The
Energy Policy Act of 2005 (Energy Policy Act), signed into law on August 8,
2005, repeals the 1935 Act and makes clear the authority of the FERC over
mergers or acquisitions of public utility holding companies. In addition, the
Energy Policy Act reduces the depreciable life of certain gas distribution
lines
for Federal income tax purposes from twenty years to 15 years, and authorizes
funding of coal gasification projects, which could provide additional gas
supply.
Most
of
the gas distributed by Peoples Gas and North Shore Gas is transported to the
utilities’ distribution systems by interstate pipelines. The pipelines’ services
(transportation and storage service) are regulated by the FERC under the Natural
Gas Act and the Natural Gas Policy Act of 1978. (See Impact on Sales and Rates
and Current Sources and Availability of Natural Gas.)
Under
United States Department of Transportation regulations, the Commission is
responsible for monitoring Peoples Gas’ and North Shore Gas’ safety compliance
program for its pipelines under 49 CFR Part 192 (Transportation of Natural
and
Other Gas by Pipeline: Minimum Federal Safety Standards) and 49 CFR Part 195
(Transportation of Hazardous Liquids by Pipeline).
The
Pipeline Safety Improvement Act of 2002 makes numerous changes to pipeline
safety law, the most significant of which is the requirement that operators
of
pipeline facilities implement written integrity management programs. Such
programs must include a baseline integrity assessment of an operator’s
transmission facilities that must be completed within 10 years after enactment
of the legislation. Peoples Gas owns and operates 158 miles of pipelines subject
to this requirement, and North Shore Gas owns and operates 96 miles of pipelines
subject to this requirement. Implementation of this legislation is not expected
to have a material adverse effect on the financial condition or operations
of
the Company.
Seasonality
The
business of the Company’s utility subsidiaries is influenced by seasonal weather
conditions because a large element of the subsidiaries’ customer load consists
of space heating. Therefore, weather-related deliveries can have a significant
positive or negative impact on net income. (For discussion of the Company’s
prior weather
insurance
arrangements mitigating the effect of the seasonal nature of gas revenues on
cash flow, see Item 7A—Quantitative and Qualitative Disclosures About Market
Risk—Risk Management Activities—Weather Risk.)
During
fiscal 2006, the Gas Distribution segment recorded 74% of its revenues from
November through March.
Practices
Relating to Working Capital
The
seasonality of revenues causes the timing of cash collections to be concentrated
from January through June. A portion of the winter gas supply needs is typically
purchased and stored from April through November. Also, planned capital spending
on the Gas Distribution facilities is concentrated in April through November.
Because of these timing differences, the cash flow from customers is likely
to
be supplemented with temporary increases of short-term commercial paper and
bank
loans during the late summer and fall. Short-term debt is typically reduced
over
the January through June period.
Effects
of Environmental Legislation
The
Company and its subsidiaries are subject to federal and state environmental
laws. Peoples Gas and North Shore Gas are conducting environmental
investigations and remedial work at the sites of former manufactured gas plant
operations. (See Note 7A of the Notes to Consolidated Financial Statements.)
In
1994, North Shore Gas received a demand for payment of environmental response
costs at a former mineral processing site in Denver, Colorado (Denver Site).
North Shore Gas does not believe that it has liability for the response costs
but cannot determine the matter with certainty. (See Note 7B of the Notes to
Consolidated Financial Statements.)
Peoples
Gas and North Shore Gas did not incur and do not anticipate any material
expenditures to construct environmental control facilities due to normal
operations.
2.
OIL AND GAS PRODUCTION SEGMENT
The
Oil
and Gas Production segment, through Peoples Energy Production, is active in
the
acquisition, development and production of oil and gas reserves in selected
onshore basins in the United States through direct ownership in oil, gas and
mineral leases.
Peoples
Energy Production’s primary focus is on natural gas, with growth coming from low
to moderate risk drilling opportunities and acquisition of proved reserves
with
upside potential that can be realized through drilling, production enhancements
and reservoir optimization programs. Peoples Energy Production also has a 23%
equity interest in EnerVest Energy, L.P. (EnerVest), which developed and managed
a portfolio of oil and gas producing properties. This partnership closed a
transaction on October 31, 2005 that resulted in the remaining properties owned
by the partnership being sold to a third party. A substantial portion of the
proceeds from the sale of assets have been distributed to the partners. The
partnership is in the process of winding up the affairs of the partnership.
Peoples Energy Production has no remaining capital investment commitments
associated with the EnerVest partnership.
Competition
in acquiring oil and gas leases and producing properties in the Company’s
targeted onshore basins is substantial. Competitors include the major oil
companies, as well as many independents, some of which have significantly
greater resources. In order to grow the current asset base, replace and expand
reserves, and increase operating income, the Company must select and acquire
from third parties quality producing properties and prospects for future
drilling. The Company has no control over the timing of when these opportunities
may become available.
Extensive
federal, state and local laws govern oil and natural gas operations, regulate
the discharge of materials into the environment or otherwise relate to the
protection of the environment. Numerous governmental agencies issue rules and
regulations to implement and enforce such laws that are often difficult and
costly to comply with and which may carry substantial administrative, civil
and
even criminal penalties for failure to comply. The regulatory burden on the
oil
and natural gas extractive industry increases its cost of doing business and
consequently affects its profitability. These laws, rules and regulations affect
the Company’s operations, as well as the oil and gas exploration and production
industry in general. The costs of such compliance have not been material to
Peoples Energy Production to date. The Company believes that it is in
substantial compliance with current applicable environmental laws, rules and
regulations and that continued compliance with existing
requirements
will not have a material adverse impact on the Oil and Gas Production segment.
The Company currently has no material estimated capital expenditures for
environmental control facilities.
The
Energy Policy Act contains several provisions intended to encourage domestic
production of oil and gas, such as greater access to Federal lands for onshore
oil and gas leasing and permitting, and tax incentives to encourage oil refinery
investment. The Energy Policy Act is not expected to have a significant effect
on the Company’s Oil and Gas Production segment.
3.
ENERGY MARKETING SEGMENT
Peoples
Energy Services, one of the major contributors to the Energy Marketing segment,
primarily provides gas, electricity and energy management services to
industrial, commercial and residential customers regionally within
Illinois
.
Peoples
Energy Services also provides gas in Michigan, Ohio and New York.
Peoples
Energy Services’ operating income can be influenced by seasonal weather
conditions and total margin can be impacted by usage. In addition, revenue
sensitive items such as customer accounts receivable balances are typically
impacted when natural gas or electric prices increase as certain products of
the
segment are tied to an index. However, some risk to accounts receivables and
reserves for uncollectible accounts is mitigated by fixed price products offered
to customers.
Peoples
Energy Services is one of the largest nonutility energy marketers in the
northern Illinois retail energy marketplace. It has customers from a wide
variety of commercial and industrial segments, as well as residential customers.
This minimizes the impacts of business cycle risks in any one segment. Peoples
Energy Services is certified by the Commission as an Alternative Retail Electric
Supplier (ARES), authorizing it to be a nonutility marketer of electricity,
and
as an Alternative Gas Supplier (AGS), authorizing it to be a nonutility marketer
of natural gas for residential and small commercial customers; AGS certification
is not required to serve other customers. As of September 30, 2006, there were
a
total of 20 ARESs in addition to three electric utilities offering supply
service outside their service territories and 12 AGSs in Illinois, as well
as
several other national gas marketers focused on the commercial and industrial
segment. Peoples Energy Services is also currently licensed as an AGS in
Michigan, a Competitive Retail Natural Gas Supplier (CRNGS) in Ohio, and a
gas
Energy Service Company (ESCO) in New York.
Peoples
Energy Resources, another major contributor to the Energy Marketing segment,
provides wholesale services to marketers, utilities, pipelines and gas-fired
power generation facilities. Peoples Energy Resources is authorized by the
FERC
to sell gas for resale at negotiated rates. The FERC conferred this authority
in
a rulemaking (Order 547), and Peoples Energy Resources did not need to seek
specific approval to make sales for resale at negotiated rates. The FERC does
not regulate the sales rates, nor are there any reporting requirements
associated with these sales. The FERC, in November 2003, issued Order 644 in
which it established a code of conduct applicable to entities making sales
pursuant to Order 547 and required such sellers to report to the FERC whether
they report prices to publications that publish natural gas price
indices.
4.
ENERGY ASSETS SEGMENT
The
Energy Assets segment, through Peoples Energy Resources, is engaged in the
development, operation and ownership of electric generation facilities for
sales
to electric utilities and marketers. Currently, the Company has an ownership
interest in one electric generation facility. Peoples Energy Resources and
Dominion Energy, Inc. (Dominion) are equal investors in Elwood Energy LLC
(Elwood), which owns and operates a 1,400-megawatt peaking facility near
Chicago. The plant capacity has been sold through long-term contracts with
Exelon Generation Company, LLC (Exelon) and Constellation Energy Commodities
Group, Inc. Due to the structure of these contracts and the fact that Elwood
is
a peaking facility, the majority of Elwood’s revenues and the Company’s equity
earnings in this investment are recognized in the Company’s third and fourth
fiscal quarters.
The
Company announced in February 2006 its intention to exit the power generation
business.
On
January 31, 2006, the Company sold its 100% interest in the Valencia Energy
power development site in New Mexico. On May 31, 2006, the Company completed
the
sale of its 27% interest in the SCEP facility to Exelon Generation
Company,
LLC. On September 20, 2006, the Company announced that it signed an agreement
with J-POWER USA Development Co., Ltd. (J-Power) to sell its 50% interest in
the
Elwood power generation facility and its 100% interest in a fully-permitted
power development site, the COB Energy Facility (COB), for $110 million, subject
to certain closing adjustments. These sales will complete the divestiture of
substantially all power assets owned by Peoples Energy. The Board of Directors
of J-Power's parent company approved the transactions on November 30, 2006.
Financial results for power generation are now being reported by Peoples Energy
as discontinued operations. Through Elwood and COB, the Company owned
approximately 700 net Megawatts of power generation assets.
Peoples
Energy Resources owns a propane-based peaking plant and other contractual assets
of pipeline transportation and storage in the Midwest region, which enables
it
to perform in other asset-based wholesale activities. Peoples Energy Resources
owns approximately 40 miles of small diameter pipes, which are used to provide
services to local refineries in the Chicago area. Peoples Energy Resources
also
owns 250 acres of land and related facilities in Will County,
Illinois.
The
Energy Policy Act removes certain regulatory obstacles that could have delayed
or impeded government approvals of and private investment in liquefied natural
gas facilities, authorizes funding for coal gasification projects, and contains
standards banning energy market manipulation and permitting substantially higher
penalties for violations of such standards.
5
.
CORPORATE AND OTHER SEGMENT
Certain
business development activities that do not fall under the four major business
segments are reported in the Corporate and Other segment. Corporate
administrative activities that support the business segments are also included
in Corporate and Other.
Investors
should consider carefully the following factors that could cause the Company’s
operating results and financial condition to be materially adversely affected.
New risks may emerge at any time, and management cannot predict those risks
or
estimate the extent to which they may affect the Company’s financial
performance.
Peoples
Energy is a holding company and its assets consist primarily of investments
in
its subsidiaries; covenants in certain of the Company’s financial instruments
may limit its ability to pay dividends, thereby adversely impacting the
valuation of the Company’s common stock and access to
capital.
The
Company’s assets consist primarily of investments in subsidiaries. Dividends on
its common stock depend on the earnings, financial condition and capital
requirements of the Company’s subsidiaries, principally Peoples Gas and North
Shore Gas and the distribution or other payment of earnings from the
subsidiaries to the Company in the form of dividends from the utilities, and
in
the case of its non-regulated subsidiaries dividends, loans, advances or
repayment of loans and advances. The subsidiaries are distinct legal entities
and have no obligation to pay any dividends or make advances or loans to the
Company. Peoples Energy’s ability to pay dividends on its common stock may also
be limited by existing or future regulatory restrictions or agreement covenants
limiting the right of its subsidiaries to pay dividends on their common
stock.
Commodity
price changes may affect the operating costs and competitive positions of the
Company’s businesses, thereby adversely impacting its liquidity and results of
operations.
The
Company’s energy businesses are sensitive to changes in natural gas, oil,
electricity and other commodity prices. Any changes could affect the prices
these businesses charge, their operating costs and the competitive position
of
their products and services. In the case of the Gas Distribution operations,
costs for purchased gas and pipeline transportation and storage services are
fully recovered through the Gas Charge, but increases in gas costs affect total
retail prices and, therefore, the competitive position of the Company’s Gas
Distribution businesses relative to electricity and other forms of energy.
In
addition, the timing and extent of high natural gas
prices
can materially adversely affect the Gas Distribution segment’s accounts
receivable, provision for uncollectible accounts, fuel cost and interest
expense. The Company is also subject to margin requirements in connection with
use of derivative financial instruments and these requirements could escalate
if
prices move adversely relative to hedge positions.
The
Company’s earnings growth and the carrying value of the Company’s oil and gas
producing properties depends in part upon the prices received for its natural
gas and oil production. Natural gas and oil prices historically have been
volatile and are likely to continue to be volatile in the future. The prices
for
natural gas and oil are subject to a variety of factors that are beyond the
Company’s control. These factors include, but are not limited to, the level of
consumer demand for, and the supply of, natural gas and oil, commodity
processing, gathering and transportation availability, the level of imports
of,
and the price of, foreign natural gas and oil, the price and availability of
alternative fuel sources, weather conditions, political conditions or
hostilities in natural gas and oil producing regions. Further, because over
90%
of the Company’s proved reserves at September 30, 2006 were natural gas
reserves, the Company is substantially more sensitive to changes in natural
gas
prices than to changes in oil prices. Declines in natural gas and oil prices
would not only reduce revenue, but could reduce the amount of natural gas and
oil that can be produced economically and, as a result, could adversely affect
the financial results of the Oil and Gas Production segment.
A
significant decline in natural gas and oil prices could result in a downward
revision of the Company’s reserves and a write-down of the carrying value of
natural gas and oil properties that would negatively impact the Company’s net
income and stockholders’ equity.
The
Company has approximately 50% of anticipated production hedged for fiscal 2007,
which is substantially lower than in recent years. This lower hedge percentage
may potentially result in the Company having increased earnings
volatility. The Company will have the potential to realize
higher prices if gas prices hold at or near current levels or lower prices
if gas prices decline.
The
Company’s use of derivative financial instruments could result in earnings
volatility and financial losses.
Some
of
the Company's subsidiaries use derivative financial instruments, including
futures, swaps, collars and option contracts either traded on exchanges or
executed over-the-counter with natural gas and power merchants as well as
financial institutions, to hedge commodity price and interest rate risk.
Fluctuating commodity prices could cause revenues, net income and cash
requirements of the Company to be volatile due to the use of financial
instruments that are not perfectly matched to the exposure (which may result
from the nature of the derivative instrument used or as a result of a
discontinued physical transaction), or if the Company's derivative instruments
and hedging transactions fail to qualify for hedge accounting under SFAS No.
133. The Company may also incur financial losses if counterparties fail to
perform under these instruments. Fluctuating commodity prices and related MTM
accounting also could cause revenues and net income of the Company to be
volatile due to the use of derivative instruments. For additional information
concerning the use of derivatives, see Note 2L of the Notes to Consolidated
Financial Statements.
The
Company’s operating results may be adversely affected by mild
weather.
The
Company’s Gas Distribution businesses and retail business have historically
delivered less natural gas, and consequently earned less income, when weather
conditions are warmer than normal. Mild weather in the future could diminish
the
Company’s revenues and results of operations and harm its financial condition.
Although the Company may from time to time utilize weather insurance or
financial weather derivatives to manage this risk, such measures result in
the
Company incurring costs and expose the Company to the credit risk of the
counterparties in such transactions and, moreover, there can be no assurance
that such measures will fully protect the Company from the effects of mild
weather. (See Item 7A—Quantitative and Qualitative Disclosures about Market
Risk—Weather Risk.)
The
Company’s Gas Distribution subsidiaries depend on storage and transportation
services purchased from interstate pipelines and on a storage field owned by
Peoples Gas to meet their customers’ gas requirements.
Peoples
Gas and North Shore Gas meet a significant percentage of their customers’ peak
day, seasonal and annual gas requirements through withdrawals, pursuant to
contracts, from storage facilities owned and operated by interstate pipelines
and through deliveries of gas transported on interstate pipelines with which
they or their gas suppliers have contracts. Peoples Gas and North Shore Gas
each
contracts with multiple pipelines for these services, and it has gas supply
contracts with multiple suppliers. If a pipeline were to fail to perform storage
or transportation service, including for reasons of force majeure, on a peak
day
or other day with high volume gas requirements, Peoples Gas’ and North Shore
Gas’ ability to meet all their customers’ gas requirements may be impaired
unless or until alternative supply arrangements were put in place. Likewise,
Peoples Gas plans to meet approximately 40% of its peak day requirements from
its own storage field. If that storage field, or the Peoples Gas-owned
transmission pipeline used to transport storage gas to the market, were to
be
out of service for any reason, this could impair Peoples Gas’ ability to meet
its customers’ full requirements on a peak day. Also, North Shore Gas purchases
a storage service from Peoples Gas, and its ability to serve its customers
could
be adversely affected by failures at Peoples Gas’ storage field.
The
Company’s operations are subject to operational hazards and uninsured
risks.
The
Company’s Gas Distribution, Oil and Gas Production, and Energy Assets operations
are subject to the inherent risks normally associated with those operations,
including pipeline ruptures, damage caused by excavators, explosions, release
of
toxic substances, fires, adverse weather conditions, and other hazards, each
of
which could result in damage to or destruction of the Company’s facilities or
damages to persons and property. In addition, the Company’s operations face
possible risks associated with acts of intentional harm on these assets. The
nature of the risks is such that some liabilities could exceed the Company’s
insurance policy limits, or, as in the case of environmental fines and
penalties, cannot be insured. As a result, the Company could incur substantial
costs that could adversely affect its future results of operations, cash flows
or financial condition. A substantial portion of the Company’s oil and gas
production is transported on or processed by third party pipelines and
processing plants. Those pipelines and processing plants are subject to the
same
risks.
The
Company’s oil and gas producing operations involve many risks associated with
estimates and assumptions used in making capital expenditure
decisions.
In
addition to the operational risks described above, the Company’s oil and gas
drilling operations are also subject to the risk of not encountering
commercially productive reservoirs and the Company may not recover all or any
portion of its investment in those wells. Drilling for natural gas and oil
can
be unprofitable, not only because of dry holes but also due to wells that are
productive but do not produce sufficient net reserves to return a profit at
then
realized prices after deducting drilling, operating, production taxes and other
costs.
In
addition, estimating quantities of proved natural gas and oil reserves is a
complex process that involves significant interpretations of technical data
and
assumptions that result in reserve estimates being inherently imprecise. The
Company utilizes a 10% discount factor when estimating the value of its
reserves, as prescribed by the SEC, and this may not necessarily represent
the
most appropriate discount factor, given actual interest rates and risks to
which
the Company’s production business or the natural gas and oil industry, in
general, are subject. Any significant variations from the interpretations or
assumptions used in the estimates or changes of conditions could cause the
estimated quantities and net present value of the Company’s reserves to differ
materially from amounts disclosed in this document.
The
natural gas and oil reserve data included in this document represent the
Company’s best estimates. The Company uses outside reservoir engineers to
provide an analysis of reserves and future production. These analyses are the
basis for the Company’s reserve estimates. Investors should not assume that the
present values referred to in this document represent the current market value
of the Company’s estimated natural gas and oil
reserves.
The timing of the production and the expenses from development and production
of
natural gas and oil properties will affect both the timing of actual future
net
cash flows from proved reserves and their present value.
The
agencies that regulate the Company’s businesses and their customers affect
profitability and potential regulatory changes may adversely affect the
Company’s businesses due to reductions in revenues or increased capital
expenditures.
The
Company’s utility subsidiaries are subject to the jurisdiction of and regulation
by the Commission, which has general supervisory and regulatory powers over
practically all phases of the public utility business in Illinois, including
rates and charges, issuance of securities, services and facilities, systems
of
accounts, investments, safety standards, transactions with affiliated interests
and other matters. Recently, credit rating agencies have issued negative alerts
on some Illinois utilities, citing as a concern a heightened level of
politicizing of the regulatory process in Illinois, particularly with regard
to
electric utilities. If Peoples Gas’ and North Shore Gas’ tariff rates were
reduced in a future proceeding, or if the Commission denied recovery of certain
costs presently allowed to be recovered through rates, the profitability of
the
utilities’ businesses could be reduced.
The
utility subsidiaries and Peoples Energy Resources are also subject to U.S.
Department of Transportation rules applicable to owners and operators of certain
pipeline facilities. Regulatory requirements relating to the integrity of these
pipelines require capital spending in order to maintain compliance with these
requirements. Any additional laws or regulations that are enacted could
significantly increase the amount of these expenditures.
Peoples
Gas’ and Peoples Energy Wholesale Marketing’s midstream gas services that are
reflected in the Gas Distribution and Energy Marketing segments, respectively,
are regulated by the FERC. Additional or different regulations imposed by the
FERC could affect the profitability of these segments.
The
Company’s Gas Distribution and Energy Assets businesses are also subject to
costly and increasingly stringent environmental regulations. The cost of future
environmental compliance could be significant.
The
Illinois state legislature is reviewing potential legislation to modify the
regulatory process applicable to electric transmission and distribution
companies. This has increased regulatory uncertainty surrounding retail electric
unbundling in Illinois and could adversely impact retail electric sales by
Peoples Energy Services within the Energy Marketing segment.
An
adverse decision in proceedings before the Commission concerning the prudence
review of the Company’s gas purchases could require a significant refund
obligation.
For
each
utility subsidiary, the Commission conducts annual proceedings regarding the
reconciliation of revenues from the Gas Charge and related gas costs. In these
proceedings, the accuracy of the reconciliation of revenues and costs is
reviewed and the prudence of gas costs recovered through the Gas Charge is
examined by interested parties. If the Commission were to find that the
reconciliation was inaccurate or any gas costs were imprudently incurred, the
Commission would order the utility to refund the affected amount to customers
through subsequent Gas Charge filings. The Commission has ordered refunds to
the
Company's utility customers in connection with prior years' gas charge
reconciliation proceedings (see Notes 2C and 8A of the Notes to Consolidated
Financial Statements). Proceedings regarding Peoples Gas and North Shore Gas
for
fiscal year 2005 costs are currently pending before the Commission. The outcome
of these proceedings cannot be predicted. (See Note 8A of the Notes to
Consolidated Financial Statements.)
A
change in the Commission’s approved rate mechanisms for recovery of
environmental remediation costs at former manufactured gas sites of the
Company’s subsidiaries, or adverse decisions with respect to the prudence of
costs actually incurred, could result in the Company reversing significant
amounts currently reflected as regulatory assets, resulting in a decrease to
net
income.
As
described more fully in Note 7A of the Notes to Consolidated Financial
Statements, the Company’s subsidiaries are accruing liabilities and deferring
costs (recorded as regulatory assets) incurred in connection with the
subsidiaries' former manufactured gas sites, including related legal expenses,
pending recovery through rates or from other entities. At September 30, 2006,
regulatory assets of $313 million have been recorded. This amount reflects
the
net amount of (1) costs incurred to date, (2) carrying costs, (3) amounts
recovered from insurance companies, other entities and from customers, and
(4)
management's best estimates of the costs the utilities will spend in the future
for investigating and remediating the manufactured gas sites ($269 million
for
the Company on a consolidated basis). Management has recorded liabilities for
the amounts described in clause (4) of the preceding sentence. Management
believes that any such costs that are not recoverable from other entities or
from insurance carriers are recoverable through rates for utility services
under
Commission-approved mechanisms for the recovery of prudently incurred costs.
A
change in these rate recovery mechanisms, however, or a decision by the
Commission that some or all of these costs were not prudently incurred, could
result in the present recognition as expense of some or all of these
costs.
An
inability to access financial markets could affect the execution of the
Company’s business plan.
The
Company relies on access to both short-term money markets and longer-term
capital markets as a significant source of liquidity for capital requirements
not satisfied by the cash flows from its operations. Management believes that
the Company and its subsidiaries will maintain sufficient access to these
financial markets based upon current credit ratings. However, certain
disruptions outside of the Company’s control may increase its cost of borrowing
or restrict its ability to access one or more financial markets. Such
disruptions could include an economic downturn, the bankruptcy of an unrelated
energy company or downgrades to the Company’s credit ratings.
Restrictions
on the Company’s ability to access financial markets may affect its ability to
execute its business plan as scheduled.
Adverse
changes in our credit ratings may negatively affect the
Company.
The
Company's long-term senior unsecured debt is rated Baa2 by Moody’s Investors
Services and BBB+ by Standard and Poor’s Rating Group. Peoples Gas' and North
Shore Gas' long-term senior secured debt is rated A1 by Moody's Investor
Services and A- by Standard and Poor's. Downgrades in the credit ratings of
the
Company or the utility subsidiaries could impair our ability to access capital
markets at attractive rates and increase our borrowing costs. In addition,
reductions in credit ratings could require the affected company to post
additional collateral related to various trading contracts which could reduce
its liquidity.
Risks
Relating to the Merger
The
merger may not be completed, which could adversely affect Peoples Energy’s
business operations and stock prices.
WPS
Resources and Peoples Energy have not yet obtained all federal and state
regulatory clearances, consents and approvals required to complete the merger.
Governmental or regulatory agencies could still seek to block or challenge
the
merger or could impose restrictions they deem necessary or desirable in the
public interest as a condition to approving the merger. If these approvals
are
not received, or they are not received on terms that satisfy the conditions
set
forth in the merger agreement, then neither WPS Resources nor Peoples Energy
will be obligated to complete the merger.
WPS
Resources and Peoples Energy are each subject to termination fees of $45 million
or the reimbursement of $15 million of merger-related out-of-pocket expenses
if
it terminates the merger under certain circumstances specified in the merger
agreement.
In
addition, the merger agreement contains customary other closing conditions,
which may not be satisfied or waived. If WPS Resources and Peoples Energy are
unable to complete the merger, Peoples Energy would be subject to a number
of
risks, including the following:
·
|
Peoples
Energy would not realize the benefits of the proposed merger, including
any synergies from combining the two
companies;
|
·
|
the
trading price of Peoples Energy common stock may decline to the extent
that the current market prices reflect a market assumption that the
merger
will be completed; and
|
·
|
Peoples
Energy would continue to be exposed to the general competitive pressures
and risks discussed in this Annual Report on Form 10-K for the year
ended
September 30, 2006, which pressures and risks may be increased if
the
merger is not completed.
|
The
occurrence of any of these events individually or in combination could have
a
material adverse effect on the results of operations or the trading price of
Peoples Energy common stock.
Peoples
Energy will be subject to business uncertainties and contractual restrictions
while the merger is pending that could adversely affect its
business.
Uncertainty
about the effect of the merger on employees and customers may have an adverse
effect on Peoples Energy, regardless of whether the merger is eventually
completed, and, consequently, on the combined company. Although Peoples Energy
has taken steps designed to reduce any adverse effects, these uncertainties
may
impair Peoples Energy’s ability to attract, retain and motivate key personnel
until the merger is completed, or the merger agreement is terminated, and for
a
period of time thereafter, and could cause customers, suppliers and others
that
deal with Peoples Energy to seek to change existing business relationships
with
WPS Resources or Peoples Energy.
Employee
retention and recruitment may be particularly challenging during the pendency
of
the merger, as employees and prospective employees may experience uncertainty
about their future roles with the combined company. The departure of existing
key employees or the failure of potential key employees to accept employment
with the Company, despite Peoples Energy’s retention and recruiting efforts,
could have a material adverse impact on Peoples Energy’s business, financial
condition and operating results, regardless of whether the merger is eventually
completed.
The
pursuit of the merger and the preparation for the integration of WPS Resources
and Peoples Energy may place a significant burden on management and internal
resources. The diversion of management attention away from day-to-day business
concerns and any difficulties encountered in the transition and integration
process could have a material adverse impact on Peoples Energy’s business,
financial condition and operating results, regardless of whether the merger
is
eventually completed.
In
addition, the merger agreement restricts each of WPS Resources and Peoples
Energy, without the other party’s consent, from making certain acquisitions and
taking other specified actions until the merger occurs or the merger agreement
terminates. These restrictions may prevent Peoples Energy from pursuing
otherwise attractive business opportunities and making other changes to their
businesses prior to completion of the merger or termination of the merger
agreement.
The
value of shares of WPS Resources common stock to be received by Peoples Energy
shareholders in the merger will fluctuate.
In
the
merger, each share of Peoples Energy common stock outstanding immediately prior
to completion of the merger will be converted into the right to receive 0.825
shares of WPS Resources common stock (with cash paid in lieu of fractional
shares). The exchange ratio is fixed and will not be adjusted to reflect stock
price changes prior to the completion of the merger.
The
market prices of WPS Resources common stock and Peoples Energy common stock
immediately prior to the effective time of the completion of the merger may
vary
significantly from their market prices at the date of the joint proxy
statement/prospectus and at the date of the special meetings of the shareholders
of WPS Resources and the shareholders of Peoples Energy. These variations may
be
the result of various factors, including:
·
|
changes
in the business, operations or prospects of WPS Resources and/or
Peoples
Energy;
|
·
|
speculation
regarding the likelihood that the merger will be completed and the
timing
of the completion;
|
·
|
general
market and economic conditions; and
|
·
|
litigation
and/or regulatory developments.
|
The
merger is subject to receipt of consent or approval from governmental entities
that could delay or prevent the completion of the merger or impose conditions
that could have a material adverse effect on the combined company or that could
cause abandonment of the merger.
To
complete the merger, WPS Resources and Peoples Energy need to obtain approvals
or consents from, or make filings with, a number of United States federal and
state public utility, antitrust and other regulatory authorities.
While
WPS
Resources and Peoples Energy each believe that they will receive the required
statutory approvals and other clearances for the merger, there can be no
assurance as to the timing of these approvals and clearances or their ability
to
obtain these approvals and clearances on satisfactory terms or otherwise. There
can be no assurance that any of these approvals will be obtained or, if
obtained, that these approvals will not contain terms or conditions that could
reasonably be expected to have a material adverse effect on the combined company
following completion of the merger.
On December
6, 2006, at special meetings of shareholders held by WPS
Resources and Peoples Energy, shareholders of both companies approved the
proposed merger transaction. Additional approvals will have to be obtained
to complete the merger. Accordingly, the companies' shareholder approvals
have been obtained before the terms of any conditions that may be imposed
to obtain additional approvals are known. As a result, WPS Resources and Peoples
Energy may make prospective decisions to waive a condition or approve certain
actions required to obtain necessary approvals without seeking further
shareholder approval.
The
anticipated benefits of combining WPS Resources and Peoples Energy may not
be
realized.
WPS
Resources and Peoples Energy entered into the merger agreement with the
expectation that the merger would result in various benefits, including, among
other things, synergies, cost savings and operating efficiencies.
Although
Peoples Energy and WPS Resources expect to achieve the anticipated benefits
of
the merger, including the synergies, achieving them is subject to a number
of
uncertainties, including:
·
|
whether
United States federal and state public utility, antitrust and other
regulatory authorities whose approval is required to complete the
merger
impose conditions on the merger or require the combined company to
share a
disproportionate amount of the expected or achieved synergies of
the
merger with customers, any of which may have an adverse effect on
the
combined company;
|
·
|
resolution
of pending and future rate cases and negotiations (including the
recovery
of deferred costs) and other regulatory decisions impacting WPS Resources’
and Peoples Energy’s regulated businesses, including the rate treatment of
synergies and the cost to achieve those
synergies;
|
·
|
the
ability of the two companies to combine certain of their operations
or
take advantage of expected growth opportunities;
|
·
|
general
market and economic conditions;
|
·
|
general
competitive factors in the market place;
and
|
·
|
higher
than expected costs required to achieve the expected
synergies.
|
No
assurance can be given that these benefits will be achieved or, if achieved,
the
timing of their achievement. Failure to achieve these anticipated benefits
could
result in increased costs and decreases in the amount of expected revenues
of
the combined company.
The
integration of WPS Resources and Peoples Energy following the merger will
present significant challenges that may result in a decline in the anticipated
potential benefits of the merger.
The
merger involves the integration of two companies that previously operated
independently. The difficulties of combining the companies’ operations
include:
·
|
combining
the best practices of two companies, including utility operations,
non-regulated marketing operations and staff
functions;
|
·
|
the
necessity of coordinating geographically separated organizations,
systems
and facilities;
|
·
|
integrating
personnel with diverse business backgrounds and organizational
cultures;
|
·
|
reducing
the costs associated with each company’s operations;
and
|
·
|
preserving
important relationships of both WPS Resources and Peoples Energy
and
resolving potential conflicts that may
arise.
|
The
process of integrating operations could cause an interruption of, or loss of
momentum in, the activities of one or more of the combined company’s businesses
and the possible loss of key personnel. The diversion of management’s attention
and any delays or difficulties encountered in connection with the merger and
the
integration of the two companies’ operations could have an adverse effect on the
business, results of operations, financial condition or prospects of the
combined company after the merger.
WPS
Resources and Peoples Energy expect the merger to generate potential pre-tax
cost synergies of $94 million for the combined company on an annualized basis
by
the end of the fifth full year of operations following completion of the merger
(excluding costs of integration). These savings may not be realized within
the
time periods contemplated, or at all.
Peoples
Energy will incur significant transaction, merger-related and restructuring
costs in connection with the merger.
Peoples
Energy expects to incur costs associated with combining the operations of the
two companies, as well as transaction fees and other costs related to the
merger. The combined company also will incur restructuring and integration
costs
in connection with the merger. The estimated total cost to WPS Resources (and
ultimately the combined company) of accomplishing the merger and achieving
the
synergies and cost savings is approximately $186 million in transaction and
integration costs, most of which will be incurred through 2010. The costs
related to restructuring will be treated as a liability and will be included
in
the total purchase price or expensed, depending on the nature of the
restructuring activity. Although WPS Resources and Peoples Energy expect that
the
elimination of duplicative costs, as well as the realization of other
efficiencies related to the integration of the businesses, may offset
incremental transaction, merger-related and restructuring costs over time,
any
net benefit may not be achieved in the near term, or at all.
The
combined company will record goodwill that could become impaired and adversely
affect the combined company’s operating results.
The
merger will be accounted for as a purchase by WPS Resources in accordance with
generally accepted accounting principles. Under the purchase method of
accounting, the assets and liabilities of Peoples Energy will be recorded,
as of
completion, at their respective fair values and added to those of WPS Resources.
The reported financial condition and results of operations of WPS Resources
issued after completion of the merger will reflect Peoples Energy balances
and
results after completion of the merger, but will not be restated retroactively
to reflect the historical financial position or results of operations of Peoples
Energy. Following completion of the merger, the earnings of the combined company
will reflect purchase accounting adjustments, including increased amortization
and depreciation expense for acquired assets.
Under
the
purchase method of accounting, the total purchase price will be allocated to
Peoples Energy’s tangible assets and liabilities and identifiable intangible
assets, based on their fair values as of the date of completion of the merger.
The excess of the purchase price over those fair values will be recorded as
goodwill. We expect that the merger will result in the creation of goodwill
based upon the application of purchase accounting. To the extent the value
of
goodwill or intangibles becomes impaired, the combined company may be required
to incur material charges relating to such impairment. Such a potential
impairment charge could have a material impact on the combined company’s
operating results.
ITEM
1B.
Unresolved Staff Comments
None.
The
Company’s assets consist primarily of its investments in its subsidiaries. The
principal properties of those subsidiaries are described below.
GAS
DISTRIBUTION
The
properties of Peoples Gas and North Shore Gas consist primarily of its gas
distribution system, which includes approximately 6,000 miles of gas mains,
approximately
611,000
service pipes, and odorization and regulation facilities. Peoples Gas owns
and
operates an underground gas storage reservoir and a liquefied natural gas plant
at Manlove Field located in central Illinois. Peoples Gas also owns a natural
gas pipeline system that runs from Manlove Field to Chicago with seven major
interstate pipeline interconnects at various points. The underground storage
reservoir also serves North Shore Gas under a contractual arrangement. Peoples
Gas utilizes its storage and pipeline supply assets as a natural gas hub in
the
Chicago area. General properties include a substantial investment in office
and
service buildings, garages, repair shops and motor vehicles, together with
the
equipment, tools and fixtures necessary to conduct utility
business.
Most
of
the principal plants and properties of Peoples Gas and North Shore Gas, other
than mains, services, meters, regulators and cushion gas in underground storage,
are located on property owned in fee. Substantially all gas mains are located
under public streets, alleys and highways, or under property owned by others
under grants of easements. Meters and house regulators in use and a portion
of
services are located on premises being served. Certain storage wells and other
facilities of the Manlove Field storage reservoir and certain portions of the
transmission system are located on land held pursuant to leases, easements
or
permits. Peoples Gas leases its headquarters office in Chicago.
Substantially
all of the physical properties now owned or hereafter acquired by Peoples Gas
or
North Shore Gas are subject to (a) the first-mortgage lien of each utility’s
respective mortgage indenture to U.S. Bank National Association, as Trustee,
to
secure each utility’s respective outstanding first mortgage bonds and (b) in
certain cases, other exceptions and defects that do not interfere with the
use
of the property.
OIL
AND GAS PRODUCTION
The
Oil
and Gas Production segment, through Peoples Energy Production, owns working
interests in substantial oil and gas leasehold positions located in various
areas of Texas, Louisiana, New Mexico, Arkansas, Oklahoma
,
Mississippi and North Dakota. The Company operates a number of Texas, New
Mexico, Louisiana and Mississippi properties, with its principal operating
areas
being located in South Texas, eastern Texas, northern Louisiana and along the
Gulf Coast of Texas. As of September 30, 2006, total proved reserves were
approximately 233 Bcfe, of which approximately 88% are operated by the Company.
The Company owns a 23% equity investment interest in EnerVest, which managed
and
developed a portfolio of oil and gas producing properties. On October 31, 2005,
EnerVest sold all the properties owned by the partnership and has distributed
a
substantial portion of the proceeds to the partners. The partnership is in
the
process of winding up the affairs of the partnership. Peoples Energy Production
has no remaining capital investment commitments associated with the EnerVest
partnership.
Information
detailing the Company's gas and oil operations is presented below:
Location
of Oil and Gas Properties—Distribution of Production and
Reserves
The
following tables summarize certain property and drilling statistics for Peoples
Energy Production's oil and gas production activities.
|
|
At
September 30, 2006
|
|
Proved
reserves (Bcfe)
|
|
232.8
|
|
|
|
|
|
Productive
wells
|
|
|
|
Gross
oil wells
|
|
43
|
|
Net
oil wells
|
|
22
|
|
Gross
gas wells (1)
|
|
710
|
|
Net
gas wells (1)
|
|
333
|
|
|
|
|
|
Acreage
|
|
|
|
Gross
developed acres
|
|
162,334
|
|
Net
developed acres
|
|
86,985
|
|
Gross
undeveloped acres
|
|
32,843
|
|
Net
undeveloped acres
|
|
18,256
|
|
(1)
27
gross
(14 net) wells have multiple completions.
|
|
For
Fiscal Years Ended
|
|
|
September
30,
|
Net
Wells Drilled
|
|
2006
|
|
2005
|
|
2004
|
|
Productive
|
|
|
|
|
|
|
|
Exploratory
|
|
-
|
|
-
|
|
2.2
|
|
Developmental
|
|
32.4
|
|
32.8
|
|
22.2
|
|
Dry
|
|
|
|
|
|
|
|
Exploratory
|
|
0.2
|
|
-
|
|
1.5
|
|
Developmental
|
|
2.8
|
|
1.6
|
|
0.2
|
|
As
of
September 30, 2006, 3 gross (2.2 net) wells were in progress.
Peoples
Energy Production leases office space in Houston, Texas. Total capital outlays
in fiscal 2006 for drilling and exploration projects were approximately $95
million.
ITEM
3. Legal Proceedings
See
Notes
7, 8 and 9 of the Notes to Consolidated Financial Statements for a discussion
of
material legal proceedings. The Company, Peoples Gas and North Shore Gas are
involved in various other claims and legal actions which management does not
believe will have a material adverse effect on the Company's, Peoples Gas'
and
North Shore Gas' financial position or results of operations.
ITEM
4. Submission of Matters to a Vote of Security Holders
None.
EXECUTIVE
OFFICERS OF THE COMPANY
The
following is a list of the names, ages and positions of the executive officers
of the Company. Executive officers were elected to serve for a term of one
year
or until their successors are duly elected and qualified.
|
|
Age
at
|
|
|
Name
|
|
11/30/2006
|
|
Position
with the Company
|
|
|
|
|
|
Katherine
A. Donofrio
|
49
|
|
Senior
Vice President (Business Services) of the Company (2001). Ms. Donofrio
is
also Senior Vice President of Peoples Gas and North Shore Gas (2002).
|
|
|
|
|
|
Linda
M. Kallas
|
|
47
|
|
Vice
President and Controller (2004) of the Company. Ms. Kallas is also
Vice
President and Controller (2004) of Peoples Gas and North Shore Gas.
Prior
to becoming Vice President, Ms. Kallas was Assistant Vice President
and
Controller (2002). Prior to becoming Controller Ms. Kallas was Director
of
Corporate Accounting (1999).
|
|
|
|
|
|
Peter
H. Kauffman
|
|
60
|
|
Assistant
General Counsel and Secretary (1998) of the Company. Mr. Kauffman
is also
Assistant General Counsel and Secretary of Peoples Gas and North
Shore Gas
(1998).
|
|
|
|
|
|
William
E. Morrow
|
|
50
|
|
Executive
Vice President of Operations (2004) of the Company and Vice Chairman
(2004) and a Director (2000) of Peoples Gas and North Shore Gas.
Mr.
Morrow is also President of Peoples Energy Resources (2000). Prior
to
becoming Executive Vice President of Operations, Mr. Morrow was Executive
Vice President of the Company (2000). Mr. Morrow was also Executive
Vice
President (2001) of Peoples Gas and North Shore Gas.
|
|
|
|
|
|
Thomas
A. Nardi
|
|
52
|
|
Executive
Vice President and Chief Financial Officer (2005) of the Company,
Peoples
Gas and North Shore Gas and Director (2002) of Peoples Gas and North
Shore
Gas. Prior to becoming Executive Vice President, Mr. Nardi was Senior
Vice
President and Chief Financial Officer (2001) of the Company, Peoples
Gas
and North Shore Gas. Prior to becoming Senior Vice President, Mr.
Nardi
was President of Peoples Energy Services (2000). Mr. Nardi has been
an
employee of the Company and/or its subsidiaries since 2000.
|
|
|
|
|
|
Steven
W. Nance
|
|
50
|
|
President
of Peoples Energy Production Company, the Oil and Gas Production
business
segment of the Company (2000).
|
|
|
|
|
|
Thomas
M. Patrick
|
|
60
|
|
Chairman,
President and Chief Executive Officer (2002) and a Director (1998)
of the
Company. Mr. Patrick is also Chairman of the Board and Chief Executive
Officer of Peoples Gas and North Shore Gas (2002). Prior to becoming
Chairman, Mr. Patrick was President and Chief Operating Officer (1998)
of
the Company and its subsidiaries and Vice Chairman (2001) of both
utility
subsidiaries.
|
|
|
|
|
|
Desiree
G. Rogers
|
|
47
|
|
President
(2004) and a Director (2004) of Peoples Gas and North Shore Gas.
Ms.
Rogers is also Senior Vice President (Marketing and Communications)
of the
Company (2001). Prior to becoming President, Ms. Rogers was Senior
Vice
President of Peoples Gas and North Shore Gas (2001).
|
|
|
Age
at
|
|
|
Name
|
|
11/30/2005
|
|
Position
with the Company
|
|
|
|
|
|
Douglas
M. Ruschau
|
|
48
|
|
Vice
President (Finance) (2002) and Treasurer of the Company (2003). Mr.
Ruschau is also Vice President (2002) and Treasurer (2003) of Peoples
Gas
and North Shore Gas. Mr. Ruschau became an employee of the Company
in
2002. Prior to working for the Company, Mr. Ruschau was employed
by Nicor
Inc. (1980-2002) as Assistant Vice President Finance (1998).
|
PART
II
ITEM
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
The
common stock of the Company is listed on the New York Stock, Chicago Stock
and
Pacific Exchanges (trading symbol: PGL). At November 30, 2006, there were 18,091
registered shareholders. There were no issuances of unregistered stock in the
current fiscal quarter. See Notes 17 and 18 of the Notes to Consolidated
Financial Statements for information regarding dividends declared on common
equity and securities authorized for issuance under equity compensation
plans.
All
of
the outstanding shares of common stock of Peoples Gas and North Shore Gas are
owned by the Company.
|
|
Stock
Price
|
Fiscal
Quarters
|
|
|
High
|
|
|
Low
|
|
2006
|
|
|
|
|
|
|
|
Fourth
|
|
$
|
43.87
|
|
$
|
35.71
|
|
Third
|
|
|
38.66
|
|
|
35.10
|
|
Second
|
|
|
37.97
|
|
|
35.11
|
|
First
|
|
|
39.90
|
|
|
34.34
|
|
2005
|
|
|
|
|
|
|
|
Fourth
|
|
$
|
45.52
|
|
$
|
38.71
|
|
Third
|
|
|
44.97
|
|
|
38.72
|
|
Second
|
|
|
45.10
|
|
|
41.11
|
|
First
|
|
|
45.38
|
|
|
41.05
|
|
The
following table provides information about the Company's purchases of its equity
securities in fiscal 2006:
|
|
|
(A)
|
|
(B)
|
|
(C)
|
|
(D)
|
Period
|
|
Total
Number of Shares (or Units) Purchased
|
|
Average
Price Paid Per Share (or Unit)
|
|
Total
Number of Shares (or Units) Purchased as Part of Publicly Announced
Plans
or Programs
|
|
Maximum
Number (or Approximate Dollar Value) of Shares (or Units) that
May Yet Be
Purchased Under the Plans or Programs
|
October
2005
|
|
10,027
(1)
|
|
$
38.98
|
|
10,027
(1)
|
|
Not
applicable
(2)
|
December
2005
|
|
834
(1)
|
|
$
36.30
|
|
834
(1)
|
|
Not
applicable
(2)
|
March
2006
|
|
65
(1)
|
|
$
36.09
|
|
65
(1)
|
|
Not
applicable
(2)
|
May
2006
|
|
69
(1)
|
|
$
36.46
|
|
69
(1)
|
|
Not
applicable
(2)
|
(1)
|
Represents
shares of restricted stock cancelled to pay for taxes related to
the
vesting of restricted stock
|
|
under
the 1990 LTIC Plan. The 2004 Incentive Compensation Plan replaced
the 1990
LTIC Plan.
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Maximum
number of shares cannot be determined as amounts to be purchased
vary with
individual tax
|
|
status
and market price of Company common
stock.
|
ITEM
6. Selected Financial Data
Peoples
Energy Corporation
|
(In
Thousands, Except Per-Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended September 30,
|
|
|
2006
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
3,017,970
|
|
|
|
$
|
2,599,585
|
|
$
|
2,260,199
|
|
$
|
2,138,394
|
|
|
|
$
|
1,482,534
|
|
|
|
Income
(loss) from continuing operations
|
|
|
(27,941
|
)
|
|
|
|
66,848
|
|
|
74,742
|
|
|
97,162
|
|
|
|
|
83,027
|
|
|
|
Income
from discontinued operations, net of taxes
|
|
|
10,305
|
|
|
|
|
11,285
|
|
|
6,822
|
|
|
6,772
|
|
|
|
|
6,044
|
|
|
|
Net
income (loss) (GAAP)
|
|
$
|
(17,636
|
)
|
|
|
$
|
78,133
|
|
$
|
81,564
|
|
$
|
103,934
|
|
|
|
$
|
89,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ongoing
income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(non-GAAP)
(1)
|
|
$
|
44,206
|
|
|
|
$
|
74,766
|
|
$
|
84,985
|
|
$
|
97,162
|
|
|
|
$
|
83,027
|
|
|
|
Diluted
(loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
|
(0.73
|
)
|
|
|
|
1.75
|
|
|
2.00
|
|
|
2.68
|
|
|
|
|
2.34
|
|
|
|
From
discontinued operations, net of taxes
|
|
|
0.27
|
|
|
|
|
0.30
|
|
|
0.18
|
|
|
0.19
|
|
|
|
|
0.17
|
|
|
|
Total
|
|
|
(0.46
|
)
|
|
|
|
2.05
|
|
|
2.18
|
|
|
2.87
|
|
|
|
|
2.51
|
|
|
|
Total
assets
|
|
|
3,822,414
|
|
|
|
|
3,537,791
|
|
|
3,094,790
|
|
|
2,928,538
|
|
|
|
|
2,723,647
|
|
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
894,702
|
|
|
|
|
895,583
|
|
|
897,377
|
|
|
744,345
|
|
|
|
|
554,014
|
|
|
|
Common
equity
|
|
|
841,454
|
|
|
|
|
800,154
|
|
|
870,083
|
|
|
847,999
|
|
|
|
|
806,324
|
|
|
|
Short-term
debt
|
|
|
309,744
|
|
(2
|
)
|
|
8,148
|
|
|
55,625
|
|
|
207,949
|
|
(3
|
)
|
|
377,871
|
|
(4
|
)
|
Cash
dividends declared per share
|
|
$
|
2.18
|
|
|
|
$
|
2.175
|
|
$
|
2.15
|
|
$
|
2.11
|
|
|
|
$
|
2.07
|
|
|
|
(1)
|
Ongoing
income from continuing operations (non-GAAP) is defined as GAAP income
from continuing operations adjusted to exclude the effects of
the
amended gas charge settlement agreement and merger-related costs
of $64.7
million and $7.5 million after tax, respectively, in fiscal 2006,
and
restructuring costs for fiscal 2005 and 2004 of $7.9 million and
$10.2
million after tax, respectively. See Item 7-MD&A-Executive Summary-for
a discussion of management's use of non-GAAP financial measures and
a
reconciliation of GAAP and non-GAAP
earnings.
|
(2)
|
Represents
commercial paper at Peoples Energy as discussed in Item
7-MD&A-Financial Sources.
|
(3)
|
Includes
$152.0 million of long-term debt of Peoples Gas classified as short-term
debt due to bondholder tender
rights.
|
(4)
|
Includes
$90.0 million of long-term debt ($75.0 million for Peoples Gas and
$15.0
million for North Shore Gas) retired in fiscal 2003 and $202.0 million
of
long-term debt of Peoples Gas classified as short-term debt due to
bondholder tender rights.
|
ITEM
7. Management's Discussion and Analysis of Financial Condition and Results
of
Operations
INTRODUCTION
In
this
section, management discusses the financial condition, results of operations,
cash flows, and expected future performance of the Company and its four primary
business segments. The discussion applies to Peoples Energy and its business
segments on a consolidated basis with the exception of the section titled
“Peoples Gas and North Shore Gas Discussions,” which provides information
specific to the Company’s two regulated utility subsidiaries. Certain other
results of operations and information specific to Peoples Gas and North Shore
Gas are also found in Item 1—Business—Gas Distribution Segment and in this Item
7 under Liquidity and Capital Resources.
Management’s
discussion should be read in conjunction with the Company’s Consolidated
Financial Statements and related notes. Unless otherwise noted, earnings per
share are presented on a diluted basis.
EXECUTIVE
SUMMARY
Peoples
Energy is a diversified energy company that conducts operations in four main
business segments:
The
Gas
Distribution segment has the most significant impact on the Company’s
consolidated financial results. The remaining segments represent a portfolio
of
complementary energy businesses that the Company has developed to diversify
the
sources of consolidated operating income.
The
regulated gas distribution utilities, with service territories in Chicago and
its northern suburbs, form the core of Peoples Energy. Until recently they
have
generated reliable earnings near the rate of return on equity allowed by the
Commission, approximately 11%, since 1994. Fiscal 2006 operating results reflect
continued erosion in Gas Distribution segment results, including a $107.3
million pre-tax gas charge settlement, pursuant to Commission orders issued
on
March 28, 2006 that settled gas charge reconciliation proceedings for fiscal
years 2001 through 2004. Our two natural gas utilities, Peoples Gas and North
Shore Gas, have not increased their delivery rates in eleven years, during
which
time operating costs have increased and throughput has declined.
The
business environment in which Peoples Gas and North Shore Gas operate benefits
from a fundamentally strong economic base. The service territories are mature,
and natural gas has a high penetration in its markets. However, gas usage per
customer has declined steadily in recent years due to lower weather-normalized
demand primarily reflecting customer conservation. It is unclear how much of
the
load loss is permanent, but customers are reacting to higher bills by lowering
their consumption.
The
diversified energy businesses use a low to moderate risk approach to develop
assets and services that can provide long-term growth and supplement the base
of
utility earnings. Since 1998, the contribution of operating income from the
Company’s diversified businesses has grown from an insignificant amount to $59.0
million (including $17.1 million in operating income from the discontinued
operations of the power generation business) in fiscal 2006.
The
Company announced in February 2006 its intention to exit the power generation
business. On January 31, 2006, the Company sold its 100% interest in the
Valencia Energy power development site in New Mexico. On May 31, 2006, the
Company completed the sale of its 27% interest in the SCEP facility to Exelon
Generation Company, LLC. On September 20, 2006, the Company announced that
it
signed an agreement with J-POWER USA Development Co., Ltd. (J-Power) to sell
its
50% interest in the Elwood power generation facility and its 100% interest
in a
fully-permitted power development site, the COB Energy Facility (COB), for
$110
million, subject to certain closing adjustments. These sales will complete
the
divestiture of substantially all power assets owned by Peoples Energy. The
Board
of Directors of J-Power's parent company approved the transactions on
November
30, 2006. Financial results for power generation are now being reported by
Peoples Energy as discontinued operations. Through Elwood and COB, the Company
owned approximately 700 net Megawatts of power generation assets.
Merger.
Pursuant
to the definitive merger agreement entered into between Peoples Energy and
WPS
Resources on July 10, 2006, in August the companies jointly filed an application
for approval of the merger with the Commission. Required regulatory approvals
at
the federal level, including those with the SEC, FERC, and Department of
Justice, either have been or are expected to be received by December 31, 2006.
Special shareholder meetings were held by both companies on December 6, 2006,
to
seek shareholder approval of the transaction.
Shareholders of both WPS Resources and Peoples Energy approved the merger.
The
companies are targeting a closing date for the merger during the first calendar
quarter of 2007. (See Note 1 of the Notes to Consolidated Financial Statements
for further discussion of the merger.)
Rate
Case.
The
Company announced in September 2005 that Peoples Gas and North Shore Gas planned
to file delivery rate increases with the Commission. However, those plans have
been postponed to allow Peoples Energy and WPS Resources to focus on gaining
approvals for the merger. The companies are seeking expedited consideration
of
the application for approval of the merger by the Commission. The application
indicates that Peoples Gas and North Shore Gas will further postpone filing
rate
cases until early 2007, with new rates to take effect in 2008 due to the normal
11-month rate case process in Illinois.
Strategic
Restructuring.
In
fiscal 2004 the Company took actions to improve the financial performance of
its
utilities by restructuring its utility and corporate support areas. The
organizational restructuring targeted elimination of over 100 salaried
positions, or about 10% of the Company’s nonunion workforce. Overall, about 300
employees accepted the voluntary severance offer that accompanied the
restructuring. (See Note 4 of the Notes to Consolidated Financial
Statements.)
Earnings
Outlook.
Due to
the pending merger with WPS Resources, Peoples Energy is not providing a
specific earnings outlook for fiscal 2007 at this time. However, the Company
expects some improvement in earnings, excluding the impact of merger-related
expenses, driven primarily by higher earnings from the Energy Marketing and
Oil
and Gas Production segments. Excluding the effects in fiscal 2006 of the gas
charge settlement, Gas Distribution results are not likely to improve materially
over fiscal 2006 absent increases in delivery rates, which are not expected
before the second quarter of fiscal 2008.
Key
planning assumptions utilized by the Company for fiscal 2007 include normal
weather based on a 10-year average of 6,175 degree days (representing a change
from the Company’s previous degree day planning assumption, which in fiscal 2006
utilized a 30-year average of 6,408 degree days), an average NYMEX gas price
of
$7.50 per MMbtu, a 2.25% utility bad debt rate, and higher expenses in the
Gas
Distribution and Corporate and Other segments. Capital expenditures are
estimated at $250 million, with nearly half in the Gas Distribution segment
and
the remainder primarily in the Oil and Gas Production segment. No acquisitions
have been budgeted in the Oil and Gas Production segment. Other assumptions
include higher interest expense, a 35% effective tax rate, and slightly higher
common shares outstanding.
Financial
Results
Financial
results for fiscal years 2006 and 2005 are summarized in the following table.
Operating income for fiscal 2006 includes a $107.3 million pre-tax charge ($1.68
per share after tax) for settlement of utility gas charge proceedings for fiscal
years 2001 through 2004, as well as related civil litigation, and $8.9 million
of expenses (pre-tax) related to the Company’s recently announced proposed
merger with WPS Resources. Results for fiscal 2005 include $13.1 million in
pension charges (pre-tax) related to the Company’s 2004 organizational
restructuring. Income from discontinued operations relates to the Company’s
power generation business. Ongoing operating income (non-GAAP) and ongoing
income from continuing operations (non-GAAP) are defined as GAAP operating
income and GAAP income from continuing operations, respectively, adjusted to
exclude the effects of the fiscal 2006 settlement charge, merger expenses,
and
last year’s restructuring charge. Management believes that such measures of
ongoing results are useful for year-over-year comparisons since charges of
this
magnitude
are infrequent and affect the comparability of operating results. Ongoing
operating income and ongoing income from continuing operations are used
internally to measure performance and in reports for management and the
Company’s Board of Directors.
|
|
|
|
|
|
|
|
|
Merger,
Restructuring
|
|
|
|
|
|
|
|
|
|
|
Ongoing
|
|
|
and
Settlement
|
|
|
As
Reported
|
|
(In
Thousands, except per share amounts)
|
|
|
(non-GAAP
)
|
|
|
Charges
|
|
|
(GAAP
)
|
|
For
Fiscal Years Ended September 30,
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
Operating
Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
Distribution
|
|
$
|
94,606
|
|
$
|
137,335
|
|
$
|
(107,330
|
)
|
$
|
-
|
|
$
|
(12,724
|
)
|
$
|
137,335
|
|
Oil
and Gas Production
|
|
|
31,097
|
|
|
16,853
|
|
|
-
|
|
|
-
|
|
|
31,097
|
|
|
16,853
|
|
Energy
Marketing
|
|
|
8,959
|
|
|
13,471
|
|
|
-
|
|
|
-
|
|
|
8,959
|
|
|
13,471
|
|
Energy
Assets
|
|
|
1,766
|
|
|
1,727
|
|
|
-
|
|
|
-
|
|
|
1,766
|
|
|
1,727
|
|
Corporate
and Other
|
|
|
(18,368
|
)
|
|
(6,828
|
)
|
|
(8,944
|
)
|
|
(13,141
|
)
|
|
(27,312
|
)
|
|
(19,969
|
)
|
Total
Operating Income (Loss)
|
|
$
|
118,060
|
|
$
|
162,558
|
|
$
|
(116,274
|
)
|
$
|
(13,141
|
)
|
$
|
1,786
|
|
$
|
149,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
44,206
|
|
$
|
74,766
|
|
$
|
(72,147
|
)
|
$
|
(7,918
|
)
|
$
|
(27,941
|
)
|
$
|
66,848
|
|
Income
from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,305
|
|
|
11,285
|
|
Net
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(17,636
|
)
|
$
|
78,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Diluted Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
1.14
|
|
$
|
1.96
|
|
$
|
(1.87
|
)
|
$
|
(0.21
|
)
|
$
|
(0.73
|
)
|
$
|
1.75
|
|
Income
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.27
|
|
|
0.30
|
|
Net
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.46
|
)
|
$
|
2.05
|
|
Ongoing
operating income for fiscal 2006 decreased $44.5 million, primarily driven
by
the following items:
·
|
Gas
Distribution deliveries for the year declined an estimated 4% from
the
prior year due to customer conservation. In addition, fiscal 2006
utility
deliveries were negatively impacted by 10% warmer than normal weather.
Gas
Distribution results were also negatively impacted by sharply higher
operating expenses.
|
·
|
Pursuant
to the amended gas charge settlement, Hub revenues for the Gas
Distribution segment in fiscal 2006 are being recorded as a credit
to
customers’ gas charges, negatively impacting year-over-year comparisons by
$10.7 million.
|
·
|
Oil
and Gas Production volumes were up 2% for fiscal 2006 compared to
a year
ago. This improvement reflects strong performance of both existing
and new
wells and the impact of the Company’s fiscal 2006 Will-Drill acquisition,
offset by the normal decline rate of existing production. Net realized
prices increased sharply in fiscal 2006, partially offset by higher
operating costs.
|
·
|
Energy
Marketing results were negatively impacted by an unrealized loss
of $17.6
million for the year due to LOCOM inventory adjustments and MTM accounting
of energy contracts, the impact of which was magnified by a significant
decline in the market price of natural gas during the latter half
of
September 2006. Approximately $15 million of the year-end impact
from
these adjustments is timing related and is expected to reverse over
fiscal
2007.
|
·
|
Year-over-year
comparisons were negatively impacted by a $6.8 million gain in last
year’s
fourth quarter associated with the sale by Trigen-Peoples District
Energy
(of which Peoples Energy owned a 50% interest) of its district heating
and
cooling plant in Chicago, which was reported in the Corporate and
Other
segment.
|
RESULTS
OF OPERATIONS
Statement
of Operations Variations
Fiscal
2006
.
The
Company’s revenues and cost of energy sold increased $418.4 million and $398.9
million, respectively. The increases are due to the impact of higher commodity
prices at the Gas Distribution and Energy
Marketing
segments as well as a 2% year-over-year increase in average daily production
volumes and higher net realized prices at the Oil and Gas Production segment.
These increases were partially offset by the impacts on the Gas Distribution
segment of warmer weather and an estimated 4% decrease in deliveries resulting
from customer conservation. Revenue comparisons were also adversely impacted
by
the change in the regulatory treatment of Hub revenue in the Gas Distribution
segment.
In
fiscal
2006, the Company recorded a $107.3 million pretax charge related to a
settlement of the Company's gas charge proceedings for fiscal years 2001 through
2004 approved by the Commission, as discussed in Notes 2C and 8A of the Notes
to
Consolidated Financial Statements. Also, the Company recorded $8.9 million
of
costs incurred in connection with the Merger. See Note 1 of the Notes to
Consolidated Financial Statements for further discussion of the
Merger.
In
fiscal
2005, the Company recorded $13.1 million in pension-related charges
resulting from its organizational restructuring commenced in the fall of fiscal
2004 (as described in Note 4 of the Notes to the Consolidated Financial
Statements).
Utility
environmental costs increased $3.2 million for fiscal 2006 and relate to
investigation and remediation activities at multiple sites that formerly had
operations for gas manufacturing and the storage of manufactured gas (see Note
7
of the Notes to Consolidated Financial Statement for further discussion). These
costs are recovered through the utilities' rate mechanism and a similar amount
is included in revenues, therefore these costs do not affect operating
income.
Operation
and maintenance expense, excluding the above-mentioned merger costs,
environmental costs and restructuring-related pension charges, increased $31.0
million. Significant items to note in fiscal 2006 were:
·
|
Increased
bad debt expense at the Gas Distribution segment of $6.5 million
for
fiscal 2006 due to high natural gas prices and their corresponding
impact
on revenues.
|
·
|
Increased
pension expense at Corporate and the Gas Distribution segment totaling
$9.9 million due to lower discount
rates.
|
·
|
Increased
direct labor costs at Corporate and the Gas Distribution segment
totaling
$4.6 million for fiscal 2006, primarily due to increases in wages
and
headcount.
|
·
|
Increased
lease operating, exploration and general and administrative costs
at the
Oil and Gas Production segment totaling $7.5
million.
|
·
|
Rate
case costs of $2.0 million expensed during fiscal 2006.
|
Other
Variances for 2006.
·
|
DD&A
increased $7.5 million in total and at the Oil and Gas Production
segment
increased $6.7 million, primarily due to the impacts of higher production
and higher DD&A rates.
|
·
|
Taxes,
other than income taxes, increased $16.7 million primarily due to
higher
revenue taxes ($13.9 million) in the Gas Distribution segment due
to
higher revenues. Revenue taxes are recovered through the utilities’ rate
mechanism and a similar amount included in revenues; therefore, these
costs do not affect operating
income.
|
·
|
Equity
investment income was $7.8 million in fiscal 2006 compared to $10.3
million in fiscal 2005. Fiscal 2006 results include the $7.8 million
pretax gain associated with the first quarter sale of certain assets
at
the Company’s EnerVest Energy, L.P. (EnerVest) partnership. Fiscal 2005
results include a $6.8 million gain related to the fourth quarter
sale of
assets by the Company's equity investment, Trigen-Peoples District
Energy
(recorded in the Corporate and Other segment). Fiscal 2005 results
also
reflect a full year of equity investment income from both these
investments.
|
·
|
Interest
expense increased $11.0 million due primarily to higher interest
rates,
higher short-term borrowing balances, and an increase in gas costs
refundable to customers through rate
adjustments.
|
·
|
Income
tax expense decreased $60.8 million primarily due to the charge for
the
amended settlement agreement related to the Company's gas charge
proceedings and related tax benefit of $42.7 million. The effective
tax
rate on fiscal 2006 ongoing income (non-GAAP), excluding the impact
of the
gas charge settlement and merger costs) was about 32%, down from
36% last
year, due to the impact of lower income before taxes and federal
Medicare
subsidies excludable from taxable
income.
|
·
|
Pre-tax
income from discontinued operations totaled $17.1 million for fiscal
2006
compared to $18.7 million in fiscal 2005. Fiscal 2006 results included
a
$4.1 million pre-tax gain from the sale of SCEP, a $1.8 million pre-tax
loss from the sale of the Valencia development site, and lower
depreciation expense at Elwood. Fiscal 2005 results reflect a full
year of
SCEP equity investment income.
|
Fiscal
2005
.
The
Company’s revenues and cost of energy sold increased $339.4 million and $337.6
million, respectively, in fiscal 2005 compared to fiscal 2004. The increases
are
due to higher commodity prices in the Gas Distribution segment and increased
sales volumes in the Energy Marketing segment, partially offset by a 5.1%
decrease in Gas Distribution deliveries resulting from warmer weather and
ongoing conservation measures by utility customers. In addition, average daily
production volumes at the Oil and Gas Production segment were down 12% compared
to the prior year due to well performance, rig availability, and other timing
delays.
The
Company recorded $13.1 million in pension-related charges in fiscal 2005
resulting from its organizational restructuring commenced in 2004, compared
to
$17.0 million in restructuring costs recorded in fiscal 2004 (as described
in
Note 4 of the Notes to Consolidated Financial Statements).
Utility
environmental costs increased $13.1 million and relate to investigation and
remediation activities at multiple sites that formerly had operations for gas
manufacturing and the storage of manufactured gas.
Operation
and maintenance expense, excluding the above-mentioned environmental costs
and
restructuring-related pension charges, decreased $3.3 million. Significant
items
to note in fiscal 2005 were:
·
|
Decreased
direct labor costs primarily at Corporate and the Gas Distribution
segment
of $16.4 million as a result of the organizational
restructuring.
|
·
|
Exploration
costs in the Oil and Gas Production segment decreased $5.1 million,
reflecting a significant dry hole expense recognized in fiscal
2004.
|
·
|
Lease
operating expense and general and administrative expenses in the
Oil and
Gas Production segment increased $5.1 million in aggregate primarily
as a
result of a general increase in the cost of goods and
services.
|
·
|
Increased
outside service expense of $3.7 million, much of which related to
Sarbanes-Oxley compliance work.
|
·
|
Increased
insurance, employee group insurance and other benefit expenses totaling
$6.6 million.
|
Other
Variances for 2005.
·
|
DD&A
decreased $8.1 million mainly due to the $6.6 million impact of the
approval by the Commission in April 2005 of new depreciation rates
that
reflect longer useful lives on utility plant (Commission Depreciation
Order). The Oil and Gas Production segment also had lower DD&A expense
($1.6 million) in fiscal 2005.
|
·
|
Taxes,
other than income taxes, increased $14.3 million primarily due to
higher
revenue taxes in the Gas Distribution segment.
|
·
|
Equity
investment income increased $5.9 million primarily due to the $6.8
million
gain related to the sale of assets by the Company's equity investment,
Trigen-Peoples District Energy.
|
·
|
Interest
expense increased $2.2 million due primarily to higher interest
rates.
|
·
|
Income
tax expense increased $3.9 million as tax expense in fiscal 2004
was
positively impacted by several items, including adjustments to accrued
income taxes based on updated estimates of income tax liabilities
and tax
legislation which resulted in the Company realizing tax benefits
from
dividends reinvested in Peoples Energy stock under the Company's
Employee
Stock Ownership Plan.
|
·
|
Income
from discontinued operations, net of taxes, increased $4.5 million
primarily due to the results of the Energy Assets segment’s Elwood
facility, which included the Company’s portion ($4.1 million) of a
reduction in prior and current period expenses, primarily depreciation
on
generating equipment.
|
Segment
Discussion
A
summary
of the Company’s operating income by segment, income from discontinued
operations, and variations between periods, is presented below.
|
|
For
Fiscal Years Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
Increase/(Decrease
)
|
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
vs. 2005
|
|
|
2005
vs. 2004
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
Distribution
|
|
$
|
(12,724
|
)
|
$
|
137,335
|
|
$
|
141,158
|
|
$
|
(150,059
|
)
|
$
|
(3,823
|
)
|
Oil
and Gas Production
|
|
|
31,097
|
|
|
16,853
|
|
|
41,537
|
|
|
14,244
|
|
|
(24,684
|
)
|
Energy
Marketing
|
|
|
8,959
|
|
|
13,471
|
|
|
9,879
|
|
|
(4,512
|
)
|
|
3,592
|
|
Energy
Assets
|
|
|
1,766
|
|
|
1,727
|
|
|
1,575
|
|
|
39
|
|
|
152
|
|
Corporate
and Other
|
|
|
(27,312
|
)
|
|
(19,969
|
)
|
|
(41,120
|
)
|
|
(7,343
|
)
|
|
21,151
|
|
Total
operating income
|
|
$
|
1,786
|
|
$
|
149,417
|
|
$
|
153,029
|
|
$
|
(147,631
|
)
|
$
|
(3,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
Assets- Power generation
|
|
$
|
17,133
|
|
$
|
18,760
|
|
$
|
11,353
|
|
$
|
(1,627
|
)
|
$
|
7,407
|
|
Corporate
and Other
|
|
|
(31
|
)
|
|
(31
|
)
|
|
(31
|
)
|
|
-
|
|
|
-
|
|
Less:
income tax expense
|
|
|
6,797
|
|
|
7,444
|
|
|
4,500
|
|
|
(647
|
)
|
|
2,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
$
|
10,305
|
|
$
|
11,285
|
|
$
|
6,822
|
|
$
|
(980
|
)
|
$
|
4,463
|
|
Gas
Distribution Segment.
Revenues
of Peoples Gas and North Shore Gas are directly impacted by fluctuations in
weather because both companies have a large number of heating customers.
Fluctuations in weather have the potential to significantly impact year-to-year
comparisons of operating income and cash flow.
Revenues
of Peoples Gas and North Shore Gas are also affected by changes in the unit
cost
of the utilities’ gas purchases and do not include the cost of gas supplies for
customers who purchase gas directly from producers and marketers. In a steady
gas price environment, the unit cost of gas does not have a significant direct
effect on operating income because the utilities’ tariffs provide for
dollar-for-dollar recovery of gas costs. (See Note 2K of the Notes to
Consolidated Financial Statements.) However, significant changes in gas costs
can materially affect the reserve for uncollectible accounts, customer demand
and working capital needs.
Fiscal
2006 revenues
for
the
Gas Distribution segment increased $233.2 million over 2005, primarily due
to
the impact of changes in commodity prices (an increase of $317 million) that
are
recovered on a dollar-for-dollar basis. This impact was partially offset by
decreases in deliveries due to warmer weather ($21 million), lower
weather-normalized demand ($98 million) and by the impact of the change in
the
regulatory treatment of Hub revenues ($10.7 million) due to the amended
settlement agreement. Operating income for fiscal 2006 decreased $150.1 million
reflecting the impact of the amended settlement agreement. The $107.3 million
in
settlement charges recorded in fiscal 2006 and the $13.3 million liability
recognized in prior periods reflect the following settlement amounts: $100
million in refunds to customers; $5 million related to the payment to the City
and the AG pursuant to the settlement agreement; $10.7 million to reflect a
change in regulatory treatment for fiscal 2005 Hub revenues; and an estimated
$5
million net increase in bad debt expense primarily related to the termination
of
collection activities on approximately $207 million of bad debt written off
during fiscal years 2000-2005.
For
fiscal
2006,
ongoing (non-GAAP) operating income was $94.6 million compared to $137.3 million
last year. The decrease was due primarily to the impact of lower gas deliveries
($10.7 million), including an estimated 4% decline in weather normalized demand
due to the impact of customer conservation, a weather insurance recovery
recorded in fiscal 2005 ($3.5 million), the change in treatment of 2006 Hub
revenues ($10.7 million), and higher operating expenses ($18.3 million). Weather
for fiscal 2006 was 89 degree days or 2% warmer than last year. The increase
in
operating costs primarily reflected higher pension expenses ($7.7 million),
labor-related expenses
($2.1
million), rate case costs ($2.0 million) and higher bad debt expense. Bad debt
increased $6.5 million due to high natural gas prices and their corresponding
impact on revenues. The bad debt accrual rate remained unchanged at
approximately 2.25% of revenue.
Fiscal
2005 revenues increased $186.6 million compared to fiscal 2004, primarily due
to
the impact on revenues of higher commodity prices ($221 million) that are
recovered on a dollar-for-dollar basis. Partially offsetting this effect were
decreases in deliveries due primarily to warmer weather ($31 million). Weather
was 4% warmer compared to fiscal 2004. Operating income decreased $3.8 million
compared with the previous year due to the effects of warmer weather ($5
million), lower weather-normalized deliveries ($8 million), higher outside
services expense ($3.0 million), the 2004 insurance recovery ($2.5 million)
related to mercury cleanup costs incurred in prior years and increases in
numerous other nonlabor expenses aggregating $11.3 million. Partially offsetting
these negative variations are the effect of the fiscal 2004 accounts receivable
adjustment ($6.9 million), decreased direct labor costs related to the
organizational restructuring ($9.6 million), reduced depreciation expense ($6.6
million) as a result of the Commission Depreciation Order, and increased hub
operating income ($2.2 million).
The
following table summarizes revenue, deliveries and other statistics for the
Gas
Distribution segment.
Gas
Distribution Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended
|
|
Increase/(Decrease
)
|
|
Margin
Data
|
|
September
30,
|
|
Fiscal
2006 vs.
|
|
Fiscal
2005 vs.
|
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Fiscal
2005
|
|
Fiscal
2004
|
|
Gas
Distribution revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,485,753
|
|
$
|
1,290,716
|
|
$
|
1,148,499
|
|
$
|
195,037
|
|
$
|
142,217
|
|
Commercial
|
|
|
242,196
|
|
|
209,712
|
|
|
184,756
|
|
|
32,484
|
|
|
24,956
|
|
Industrial
|
|
|
41,575
|
|
|
36,368
|
|
|
30,324
|
|
|
5,207
|
|
|
6,044
|
|
Total
sales
|
|
|
1,769,524
|
|
|
1,536,796
|
|
|
1,363,579
|
|
|
232,728
|
|
|
173,217
|
|
Transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
35,156
|
|
|
32,360
|
|
|
32,354
|
|
|
2,796
|
|
|
6
|
|
Commercial
|
|
|
50,544
|
|
|
48,719
|
|
|
47,285
|
|
|
1,825
|
|
|
1,434
|
|
Industrial
|
|
|
18,828
|
|
|
19,880
|
|
|
19,437
|
|
|
(1,052
|
)
|
|
443
|
|
Contract
pooling
|
|
|
29,448
|
|
|
20,694
|
|
|
15,372
|
|
|
8,754
|
|
|
5,322
|
|
Total
transportation
|
|
|
133,976
|
|
|
121,653
|
|
|
114,448
|
|
|
12,323
|
|
|
7,205
|
|
Total
Hub revenues
|
|
|
-
|
|
|
10,662
|
|
|
7,620
|
|
|
(10,662
|
)
|
|
3,042
|
|
Other
Gas Distribution revenues
|
|
|
18,380
|
|
|
19,563
|
|
|
16,436
|
|
|
(1,183
|
)
|
|
3,127
|
|
Total
Gas Distribution revenues
|
|
|
1,921,880
|
|
|
1,688,674
|
|
|
1,502,083
|
|
|
233,206
|
|
|
186,591
|
|
Less:
Gas costs
|
|
|
1,272,633
|
|
|
1,034,376
|
|
|
868,518
|
|
|
238,257
|
|
|
165,858
|
|
Gross
margin
|
|
|
649,247
|
|
|
654,298
|
|
|
633,565
|
|
|
(5,051
|
)
|
|
20,733
|
|
Less:
Revenue taxes and surcharges
|
|
|
164,273
|
|
|
150,325
|
|
|
138,841
|
|
|
13,948
|
|
|
11,484
|
|
Environmental costs recovered
|
|
|
33,654
|
|
|
30,437
|
|
|
17,384
|
|
|
3,217
|
|
|
13,053
|
|
Net
margin (1)
|
|
$
|
451,320
|
|
$
|
473,536
|
|
$
|
477,340
|
|
$
|
(22,216
|
)
|
$
|
(3,804
|
)
|
Gas
Distribution deliveries (MDth):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
103,656
|
|
|
110,429
|
|
|
116,939
|
|
|
(6,773
|
)
|
|
(6,510
|
)
|
Commercial
|
|
|
18,210
|
|
|
19,349
|
|
|
20,303
|
|
|
(1,139
|
)
|
|
(954
|
)
|
Industrial
|
|
|
3,293
|
|
|
3,607
|
|
|
3,597
|
|
|
(314
|
)
|
|
10
|
|
Total
gas sales
|
|
|
125,159
|
|
|
133,385
|
|
|
140,839
|
|
|
(8,226
|
)
|
|
(7,454
|
)
|
Transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
19,504
|
|
|
19,927
|
|
|
21,061
|
|
|
(423
|
)
|
|
(1,134
|
)
|
Commercial
|
|
|
42,474
|
|
|
41,239
|
|
|
43,646
|
|
|
1,235
|
|
|
(2,407
|
)
|
Industrial
|
|
|
21,146
|
|
|
23,131
|
|
|
23,756
|
|
|
(1,985
|
)
|
|
(625
|
)
|
Total
transportation
|
|
|
83,124
|
|
|
84,297
|
|
|
88,463
|
|
|
(1,173
|
)
|
|
(4,166
|
)
|
Total
Gas Distribution deliveries
|
|
|
208,283
|
|
|
217,682
|
|
|
229,302
|
|
|
(9,399
|
)
|
|
(11,620
|
)
|
Total
Hub volumes
|
|
|
-
|
|
|
22,784
|
|
|
19,381
|
|
|
(22,784
|
)
|
|
3,403
|
|
Gross
margin per Dth delivered (3)
|
|
$
|
3.12
|
|
$
|
2.96
|
|
$
|
2.73
|
|
$
|
0.16
|
|
$
|
0.23
|
|
Net
margin per Dth delivered (3)
|
|
$
|
2.17
|
|
$
|
2.13
|
|
$
|
2.05
|
|
$
|
0.04
|
|
$
|
0.08
|
|
Average
cost per Dth of gas sold
|
|
$
|
10.17
|
|
$
|
7.75
|
|
$
|
6.17
|
|
$
|
2.42
|
|
$
|
1.58
|
|
Actual
heating degree days
|
|
|
5,775
|
|
|
5,864
|
|
|
6,091
|
|
|
(89
|
)
|
|
(227
|
)
|
Normal
heating degree days (2)
|
|
|
6,408
|
|
|
6,427
|
|
|
6,427
|
|
|
|
|
|
|
|
Actual
heating degree days as a percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
normal (actual/normal)
|
|
|
90
|
|
|
91
|
|
|
95
|
|
|
|
|
|
|
|
(1)
|
As
used above, net margin is not a financial measure computed under
GAAP but
represents an operating performance measure. Gross margin is the
GAAP
measure most closely related to net margin. Management believes net
margin
to be useful in understanding the Gas Distribution segment's operations
because the utility subsidiaries are allowed, under their tariffs,
to
recover gas costs, revenue taxes and environmental costs from their
customers on a dollar-for-dollar
basis.
|
(2)
|
Normal
heating degree days for fiscal 2004 and 2005 are based on a 30-year
average of monthly temperatures at Chicago's O'Hare Airport for the
years
1970-1999. Normal heating degree days for fiscal 2006 are based on
a
30-year average of monthly temperatures at Chicago's O'Hare Airport
for
the years 1975-2004.
|
(3)
|
Margin
per Dth is based upon gas distribution and transportation activity
and
excludes the impact of hub revenues and hub
volumes.
|
Oil
and Gas Production Segment.
Revenues
and operating income for fiscal 2006 increased $26.1 million and $14.2 million,
respectively, compared with the same period last year. The increase in revenue
is due primarily to higher net realized commodity prices as older hedge
positions continued to roll off and a 2% increase in equivalent average daily
production. The improvement in production from a year ago reflects the results
of the Company’s 2006 drilling program and the impact of the February 2006
acquisition of properties from Will-Drill Resources, Inc. (Will-Drill),
partially offset by the normal decline of existing production. Fiscal 2006
operating income results benefited from significantly higher net realized prices
due to a lower percentage of gas volumes hedged (71% compared to nearly 100%
a
year ago), a small increase in production, and higher results from the Company’s
EnerVest partnership, which benefited from a $7.8 million pretax gain associated
with the sale of assets. Last year’s net realized price was negatively impacted
by an $8.4 million hedge ineffectiveness charge resulting from wider than normal
differentials between NYMEX and wellhead prices primarily due to the impact
of
hurricanes Katrina and Rita. The improvements in production and realized
commodity prices were partially offset by higher operating costs ($17.3
million), most notably higher general and administrative expense ($6.0 million)
and depletion expenses ($6.7 million). In fiscal 2006, the Company drilled
58
wells (11 related to the Will-Drill acquisition) with a success rate of
93%.
Fiscal
2005 revenues
and
operating income decreased $23.2 million and $24.7 million, respectively,
compared with fiscal 2004 due mainly to lower production volumes and oil and
gas
hedge ineffectiveness ($8.4 million). Hedge ineffectiveness was primarily due
to
the impact of hurricanes Katrina and Rita on the price differentials between
NYMEX and field prices. On an equivalent basis, average daily production volumes
declined 12% compared to the prior year due to well performance, rig
availability, and other timing delays. Increases in lease operating expense
($3.7 million) and lower equity investment income from the Company’s investment
in EnerVest ($1.3 million), higher production taxes (associated with higher
wellhead gas prices) and administrative costs ($1.5 million) also reduced
operating income comparisons to fiscal 2004. These negative impacts on operating
income were partially offset by lower DD&A expense ($1.6 million) and lower
exploration expense ($5.1 million) compared to the previous year.
The
following table summarizes hedges in place as of October 1, 2007 for the Oil
and
Gas Production segment.
|
|
Fiscal
2007
|
|
Gas
hedges in place (MMbtus)
|
|
|
12,705,000
|
|
Gas
hedges as a percent of estimated fiscal production
|
|
|
50
|
%
|
Percent
of gas hedges that are swaps
|
|
|
63
|
%
|
Average
swap price ($/MMbtu)
|
|
$
|
5.37
|
|
Percent
of gas hedges that are no-cost collars
|
|
|
37
|
%
|
Weighted-average
floor price ($/MMbtu)
|
|
$
|
5.62
|
|
Weighted-average
ceiling price ($/MMbtu)
|
|
$
|
6.72
|
|
Oil
hedges in place (MBbls)
|
|
|
182
|
|
Oil
hedges as a percent of estimated fiscal production
|
|
|
63
|
%
|
Average
hedge price ($/Bbl)
|
|
$
|
37.50
|
|
The
following table summarizes operating statistics from the Oil and Gas Production
segment.
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Total
production—gas equivalent (MMcfe)
|
|
|
24,712
|
|
|
24,319
|
|
|
27,853
|
|
Daily
average gas production (MMcfd)
|
|
|
61.9
|
|
|
59.6
|
|
|
67.0
|
|
Daily
average oil production (MBd)
|
|
|
1.0
|
|
|
1.2
|
|
|
1.5
|
|
Daily
average production—gas equivalent (MMcfed)
|
|
|
67.7
|
|
|
66.6
|
|
|
76.1
|
|
Gas
production as a percentage of total production
|
|
|
91
|
%
|
|
90
|
%
|
|
88
|
%
|
Percent
of production hedged during the period—gas
|
|
|
71
|
%
|
|
98
|
%
|
|
94
|
%
|
Percent
of production hedged during the period—oil
|
|
|
85
|
%
|
|
99
|
%
|
|
77
|
%
|
Net
realized gas price received ($/Mcf)
|
|
$
|
5.28
|
|
$
|
4.15
|
|
$
|
4.44
|
|
Net
realized oil price received ($/Bbl)
|
|
$
|
24.62
|
|
$
|
24.10
|
|
$
|
26.85
|
|
DD&A
rate ($/Mcfe)
|
|
$
|
2.11
|
|
$
|
1.87
|
|
$
|
1.69
|
|
Average
lease operating expense ($/Mcfe)
|
|
$
|
0.72
|
|
$
|
0.70
|
|
$
|
0.48
|
|
Average
production taxes ($/Mcfe)
|
|
$
|
0.57
|
|
$
|
0.50
|
|
$
|
0.34
|
|
Due
to
higher
market prices and lower hedge percentages, net realized prices increased in
fiscal 2006. The increase in the 2006 DD&A rate was caused by production mix
and the addition of unproven capital and costs associated with the development
of both proven and unproven reserves.
On
February 23, 2006 the Company announced that it had acquired certain oil and
gas
properties in eastern Texas, northern Louisiana and Mississippi from Will-Drill
for approximately $139 million. The acquired properties, virtually all of which
are now operated by the Company, consist of approximately 60,000 gross acres
in
33 fields in the heart of the Cotton Valley / Travis Peak (Hosston) gas trend.
The acquisition initially added approximately 7.5 MMcfed to existing production
and an estimated 59 Bcfe of proven reserves. Approximately 47% of the acquired
reserves are developed. The Will-Drill acquisition added 4.8 MMcfed to the
annual average production. The Company expects to spend approximately $60
million of drilling capital on the acquired properties in fiscal
2007.
During
April 2005, the Company acquired properties in South Texas for approximately
$6
million. Although there was minimal production at the time of acquisition,
these
properties are providing current and future drilling opportunities.
On
July
30, 2004, the Company acquired certain oil and gas properties in eastern Texas
from a private entity for approximately $10 million. Initial development of
the
acquired reserves began in fiscal 2005 with capital spending on these properties
totaling $19.8 million. The acquired properties, which are operated by the
Company, are located in close proximity to the existing Peoples Energy
Production holdings in eastern Texas. On December 31, 2003, the Company
acquired, through a series of transactions, certain oil and gas properties
located in Texas for approximately $33.1 million. The acquired reserves, 88%
of
which are natural gas, contributed approximately 3.3 MMcfe per day of production
to the Company’s fiscal 2004 production. The majority of the acquired properties
are located adjacent to or in close proximity to existing holdings of the
Company, and each of the acquired properties is operated by the
Company.
Energy
Marketing Segment.
Revenues
for fiscal 2006 increased $155.2 million, primarily due to higher commodity
prices, partially offset by a decline in gas volumes sold. Operating income
for
fiscal 2006 was $9.0 million compared to $13.5 million in fiscal 2005. Energy
Marketing’s margins can be volatile and are small in relation to the market
value of the commodity. As a result, revenue statistics are not necessarily
indicative of Energy Marketing operating income results. Retail results declined
from a year ago due primarily to LOCOM and MTM accounting adjustments of energy
contracts, the impact of which was magnified by a significant decline in the
market price of natural gas during the latter half of September 2006, as well
as
higher operating expenses, partially due to higher sales and marketing expenses
associated with customer growth. Lower retail results were
partially
offset by higher wholesale marketing results, reflecting additional pipeline
and
storage capacity under contract and the positive impact of price volatility
and
spreads on storage and transportation optimization strategies, partially offset
by LOCOM adjustments and MTM accounting. For the year, the number of retail
customers increased approximately 60% from a year ago, to almost 41,000, as
Energy Marketing expanded its customer base in Michigan and Ohio. Retail gas
deliveries declined slightly to 48 Bcf, while electric deliveries increased
24%
to 1.7 million Mwh from 1.4 million Mwh a year ago. LOCOM inventory loss
adjustments ($16.3 million), fair value hedge accounting losses ($3.2 million),
ineffectiveness gains ($0.6 million) and MTM accounting gains ($1.3 million)
resulted in an unrealized loss for the Energy Marketing segment of $17.6 million
for fiscal 2006. This net unrealized loss includes both MTM activity of hedges
for settlement in future periods and settled within the current period, as
well
as LOCOM inventory loss adjustments that are expected to reverse when the gas
inventory is sold pursuant to existing contracts. Approximately $15 million
of
the year-end impact (net) is expected to reverse over the course of the next
fiscal year and relates primarily to the LOCOM adjustment of $16.3 million.
The
earnings variability resulting from accounting timing can be significant from
period to period, even when the underlying economic position is
unchanged.
The
Company uses derivatives to mitigate commodity price risk and substantially
lock
in the profit margin that it will ultimately realize when inventory volumes
are
withdrawn from storage. Under fair value hedge accounting, which Energy
Marketing is using for certain storage activity, the MTM adjustment to inventory
is computed using spot prices, while the derivatives used to mitigate the risk
of changes in inventory value are marked-to-market using forward prices. When
the spot price of natural gas changes disproportionately to the forward price,
the difference is recorded in operating results. As a result, earnings are
subject to volatility, even when the underlying expected profit margin over
the
duration of the contracts is unchanged. The volatility resulting from this
accounting can be significant from period to period.
Revenues
for fiscal 2005 increased $173.7 million primarily due to higher retail and
wholesale commodity prices and volumes. Operating income improved $3.6 million,
driven by higher retail margins, higher load and lower operating costs,
partially offset by a $3.3 million MTM loss related to the application of fair
value hedge accounting to certain storage inventory transactions.
The
following table summarizes operating statistics for the Energy Marketing
segment.
|
|
For
Fiscal Years Ended September 30,
|
(In
Thousands, Except Customers)
|
|
2006
|
|
2005
|
|
2004
|
|
Wholesale
gas volumes sold (MDth)
|
|
48,160
|
|
56,391
|
|
52,815
|
|
Retail
gas volumes sold (Dth)
|
|
48,289
|
|
49,923
|
|
47,965
|
|
Number
of retail gas customers
|
|
37,084
|
|
23,389
|
|
24,744
|
|
Retail
electric volumes sold (Mwh)
|
|
1,727
|
|
1,397
|
|
1,113
|
|
Number
of electric customers
|
|
3,380
|
|
2,268
|
|
1,901
|
|
Energy
Assets Segment.
All
financial results relating to power generation formerly included in this
business segment are now reported as discontinued operations, including prior
year results. Operating income for the Energy Assets segment reflects the
Company’s natural gas liquids (NGL) peaking facility, a 40 mile refinery gas
pipeline, 250 acres of land and related facilities, and certain limited business
development expenses related to ongoing asset investment
opportunities.
Revenues
for
fiscal
2006 increased $4.1 million, primarily due to higher commodity prices and
increased volumes associated with activity at the Company’s propane-based
peaking facility. Fiscal 2006 operating income of $1.8 million was flat compared
to fiscal 2005.
Discontinued
Operations.
The
Company announced in February 2006 its intention to exit the power generation
business. On January 31, 2006, the Company sold its 100% interest in the
Valencia Energy power development site in New Mexico. On May 31, 2006, the
Company completed the sale of its 27% interest in the SCEP facility to Exelon
Generation Company, LLC. On September 20, 2006, the Company announced that
it
signed an agreement
with
J-Power to sell its 50% interest in the Elwood power generation facility and
its
100% interest in a fully-permitted power development site, the COB Energy
Facility (COB), for $110 million, subject to certain closing adjustments. These
sales will complete the divestiture of substantially all power assets owned
by
Peoples Energy. The Board of Directors of J-Power's parent company approved
the
transactions on November 30, 2006. Financial results for power generation are
now being reported by Peoples Energy as discontinued operations. Through Elwood
and COB, the Company owned approximately 700 net Megawatts of power generation
assets.
Fiscal
2006 income from discontinued operations for the Energy Assets segment decreased
$1.6 million (before taxes) due to the absence of equity investment income
from
SCEP and the $1.8 million loss on the sale of the Valencia development site,
partially offset by the $4.1 million gain on the sale of SCEP. Amortization
of
capitalized interest related to the construction of the Elwood power generation
facility was formerly included in the Corporate and Other segment.
Fiscal
2005 income from discontinued operations for the Energy Assets segment increased
$7.4 million (before taxes) from the prior year largely as a result of lower
depreciation expense impact on equity investment income for the Elwood facility
and lower other expenses. In connection with its fiscal 2004 year-end audit,
the
Elwood partnership determined that depreciation expense related to current
and
prior periods should be adjusted, primarily to recognize greater salvage value
of its generating equipment. This adjustment positively impacted fiscal 2005
results by $4.1 million, of which $2.2 million related to prior
periods.
The
electric capacity of Elwood Energy LLC (Elwood) has been sold through long-term
contracts with Exelon Generation Company, LLC (Exelon), Engage Energy America
LLC (Engage) and Aquila, Inc. (Aquila). Effective December 31, 2004, the
contract with Engage terminated and the related electric capacity is being
purchased by Exelon. On June 15, 2006, Aquila assigned its Elwood power sales
agreement to Constellation Energy Commodities Group, Inc, a subsidiary of
Constellation Energy Group, Inc. In August 2006, S&P and Moody’s ratings on
Elwood’s bonds were upgraded to BB- and Ba1, respectively, with a stable
outlook.
Corporate
and Other Segment.
The
operating loss for fiscal 2006 increased $7.3 million and includes $8.9 of
merger-related expenses. Results for fiscal 2005 included $13.1 million in
restructuring charges. Absent these costs, corporate and other expenses
increased $11.5 million due primarily to a $6.8 million gain in fiscal 2005
associated with the sale of certain assets by Trigen-Peoples District Energy
(of
which Peoples Energy owned a 50% interest) and higher legal ($2.4 million)
and
incentive benefit expenses ($3.4 million).
The
operating loss for fiscal 2005 decreased $21.2 million primarily due to direct
labor savings of $6.8 million as a result of the restructuring, the $6.8 million
gain resulting from the sale of the Trigen-Peoples’ district heating and cooling
plant, and a $3.9 million decrease in costs resulting from the 2004
organizational restructuring.
Critical
Accounting Policies
In
preparing the Company’s financial statements using GAAP, management exercises
judgment in the selection and application of accounting principles, including
making estimates and assumptions. Management considers its critical accounting
policies to be those that are important to the representation of the Company’s
financial condition and results of operations. They require management’s most
difficult and subjective or complex judgments, including those that could result
in materially different amounts if the Company reported under different
conditions or using different assumptions. The Company discusses its critical
accounting policies, as well as other accounting policies, with senior members
of management and the Audit Committee, as appropriate. There were no material
changes in the application of each of the critical accounting policies listed
below during fiscal 2006. (See Note 2O of the Notes to the Consolidated
Financial Statements for a discussion of recent accounting pronouncements.)
Regulated
Operations.
Due to
the regulation of the Company’s utility subsidiaries, certain transactions are
recorded based on the accounting prescribed in SFAS No. 71. Regulatory assets
represent probable future revenue associated with certain incurred costs that
will be recovered from customers through the ratemaking process. Regulatory
liabilities represent probable future reductions in revenue or refunds to
customers. Accordingly, actions of the Commission could have an effect on the
amount recovered from or refunded to customers. Any
differences
between recoverable and refundable amounts and the amounts deferred would be
recorded as income or expense at the time of any Commission action (see Notes
2C
and 8 of the Notes to the Consolidated Financial Statements for a discussion
of
the gas charge settlement). If all or a reportable portion of the utility
operations becomes no longer subject to the provision of SFAS No. 71, a
write-off of related regulatory assets or liabilities would be required, unless
some form of transition cost recovery continued through rates established and
collected for the remaining regulated operations. No such change is foreseen
by
management. (See Note 2K of the Notes to Consolidated Financial Statements
for a
summary of regulatory assets and liabilities recorded under this
policy.)
Environmental
Activities Relating to Former Manufactured Gas Operations.
The
Company’s utility subsidiaries, their predecessors, and certain former
affiliates operated facilities in the past at multiple sites for the purpose
of
manufacturing gas and storing manufactured gas (manufactured gas sites). The
utility subsidiaries are accruing and deferring the costs they incur in
connection with environmental activities at the manufactured gas sites pending
recovery through rates or from other entities. The amounts deferred include
costs incurred but not yet recovered through rates and management’s best
estimates of the costs that the utilities will incur in investigating and
remediating the manufactured gas sites. Management’s estimates are based upon a
probabilistic model and an ongoing review by management of future investigative
and remedial costs.
Management
considers this policy critical due to the substantial uncertainty in the
estimation of future costs with respect to the amount and timing of costs,
and
the extent of recovery from other PRPs. (See Notes 2K and 7 of the Notes to
Consolidated Financial Statements for deferred environmental costs recorded
as
regulatory assets and a discussion of environmental matters.)
Retirement
and Postretirement Benefits.
The
calculation of pension expense relies on actuarial assumptions including
discount rate, long-term rate of return on assets and assumed future increases
in compensation. These assumptions are determined annually and changes to the
assumptions can have a material effect on the amounts recorded from year to
year. The Company bases its discount rate assumption on yields of high quality
long-term, fixed-income bonds. A decrease in the assumed discount rate of 25
basis points would have increased fiscal 2006 pension expense by $1.3
million.
Additionally,
when an employee retires and takes his/her retirement benefit as a lump sum,
a
settlement amount under SFAS No. 88 is calculated representing a portion of
unrecognized gains and losses. The Company has chosen to record this amount
in
the current period instead of amortizing the difference over the expected
average service life of the remaining participants. Both methods are acceptable
under GAAP. Therefore, the timing of retirements can have an effect on the
amount recorded in any given year. (See Note 11 of the Notes to Consolidated
Financial Statements for current year assumptions.)
In
addition, the Company and its subsidiaries currently provide certain health
care
and life insurance benefits for retired employees. Substantially all employees
may become eligible for such benefit coverage if they reach retirement age
while
working for the Company. Through the use of an independent actuary, the Company
accrues the expected costs of such benefits during a portion of the employees’
years of service. This accrual is based on assumptions regarding discount rates,
rate of return on assets and health care cost trend rates. The health care
cost
trend rate assumption has a significant effect on the amounts reported.
Increasing the assumed health care cost trend rate by one percentage point
for
each future year would have increased the accumulated postretirement benefit
obligation at September 30, 2006, by $12.9 million and the aggregate of service
and interest cost components of the net periodic postretirement benefit cost
by
$2.1 million annually. Decreasing the assumed health care cost trend rate by
one
percentage point for each future year would have decreased the accumulated
postretirement benefit obligation at September 30, 2006, by $11.2 million and
the aggregate of service and interest cost components of the net periodic
postretirement benefit cost by $1.7 million annually. A decrease in the assumed
discount rate of 25 basis points would have increased postretirement benefit
cost expense by $0.4 million. (See Note 11 of the Notes to Consolidated
Financial Statements for current year assumptions.)
Derivative
Instruments and Hedging Activities.
The
Company enters into financial derivative contracts to hedge price risk on
natural gas and oil purchases and sales. For each contract, management must
determine whether the underlying transaction qualifies as a hedge under
derivative accounting rules prescribed in SFAS No.
133.
If
contracts do qualify as hedges, they have the effect of reducing, but not
completely eliminating, volatility in earnings. For contracts not qualifying
as
hedges, the change in the fair value of these contracts is recorded in income
monthly and results in potentially significant impacts, both positive and
negative. Additionally, due to the nature of the Company’s businesses, many of
the Company’s contracts for physical purchases and sales of gas, oil or power
meet the definition of a derivative, but are exempt from derivative accounting
requirements under the normal purchases and sales exemption. Under this
exemption, if the transactions are clearly intended to meet the requirements
of
customers, MTM accounting is not required. Management judgment is required
to
make this determination. The application of hedge accounting and the normal
purchase and sales exemption is also subject to contemporaneous documentation
requirements under SFAS No. 133. The Company also manages its levels of floating
and fixed rate interest payments within a specified range through the use of
derivative financial instruments. (See Note 2L of the Notes to Consolidated
Financial Statements for further discussion of the Company’s cash flow and fair
value hedging strategies and the MTM derivative instruments.)
Provision
for Uncollectible Accounts.
The
Company’s subsidiaries accrue for estimated uncollectible accounts as revenues
are recorded. The accrual rates are established based upon historical experience
and projections of future charge-offs resulting from various factors, including
the impacts of natural gas prices and weather. Each quarter, the Company’s
subsidiaries update the projection of future charge-offs based upon the most
current information available, and adjust the reserve for uncollectible
accounts, if necessary.
Depreciation,
depletion and amortization.
The
Company’s provision for depreciation at Peoples Gas and North Shore Gas
substantially reflects the systematic amortization of the original cost of
depreciable property, net of the accumulated reserve for depreciation, over
the
estimated composite remaining useful lives on the straight-line method.
Additionally, actual dismantling cost, net of salvage, is recorded as
depreciation expense in the month incurred. The depreciation rates of Peoples
Gas and North Shore Gas are subject to periodic review by the Commission, which
approves the depreciation rates used for rate-making purposes. Diversified
businesses’ depreciable properties, other than oil and gas producing properties,
are amortized over their estimated useful lives.
In
the
case of oil and gas producing properties, the Company is amortizing associated
capitalized costs by utilizing the successful efforts method of accounting
on
the units-of-production method based on estimated proved oil and gas reserves.
The successful efforts method provides for properties to be aggregated into
cost
centers, or “pools”, with depreciation, depletion and amortization calculated on
a pool- by- pool basis. These pools are comprised of properties in an area
that
share the same general geological characteristics. Unit of production
amortization rates and the aggregation of properties into pools are reviewed
at
least once a year or whenever there is an indication of the need for revision.
Those revisions are accounted for prospectively as changes in accounting
estimates. Acquisition costs are amortized over total proved reserves.
Development costs are amortized over total proved developed reserves. Costs
to
be amortized include all capitalized costs (less accumulated amortization)
and
estimated dismantlement and abandonment costs, net of estimated salvage. The
cost of investments in unproved properties and major development projects are
excluded from the amortization base. These costs and resulting proved reserves
are transferred into the amortization base or expensed at the point when a
determination can be made about the project’s success. (See Note 19 of the Notes
to Consolidated Financial Statements for supplemental disclosures of the
Company’s Oil and Gas Production segment.)
Recent
Accounting Pronouncements
See
Note
2O of the
Notes
to
Consolidated Financial Statements.
LIQUIDITY
AND CAPITAL RESOURCES
The
following is a summary of cash flows for the Company:
|
|
For
Fiscal Years Ended September 30,
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Net
cash provided by operating activities
|
|
$
|
131,162
|
|
$
|
282,152
|
|
$
|
202,292
|
|
Net
cash used in investing activities
|
|
$
|
(340,265
|
)
|
$
|
(156,190
|
)
|
$
|
(164,763
|
)
|
Net
cash provided by (used in) financing activities
|
|
$
|
233,032
|
|
$
|
(115,004
|
)
|
$
|
(43,949
|
)
|
Cash
provided by operating activities for fiscal 2006 decreased as compared to fiscal
2005, primarily due to the decrease in net income resulting from the impact
of
the gas charge settlement refund (see Note 8 of the Notes to Consolidated
Financial Statements) and other factors described above under “Results of
Operations,” partially offset by favorable net changes in working capital. In
the accompanying cash flow statements, balance sheet changes in current deferred
tax assets, gas in storage and deposits with broker or trustee exclude certain
noncash transactions (primarily the effects of MTM accounting). Changes in
gas
in storage reflect lower-of-cost-or-market adjustments. Additionally, balance
sheet changes in intercompany assets/liabilities of Peoples Gas and North Shore
Gas exclude the noncash effects of derivative activity conducted on their behalf
by Peoples Energy. Net cash used in investing activities increased as a result
of an increase in capital spending, primarily in the Oil and Gas Production
segment. On February 23, 2006, the Company announced that it had acquired
certain oil and gas properties in eastern Texas, northern Louisiana and
Mississippi from Will-Drill for approximately $139 million. Increases in the
return of capital from the Company's equity method investments, primarily
related to the sale of properties by the EnerVest partnership and the
Trigen-Peoples partnership, as well as through the sale of the Company’s
interest in the SCEP facility which resulted in proceeds of approximately
$47 million, were largely offset by an increase in deposits associated with
the
Company’s commodity hedging activities. Net cash provided by financing
activities increased primarily due to additional commercial paper borrowing
($301.6 million) in fiscal 2006, partially related to the Oil and Gas Production
segment acquisition, compared to commercial paper retirement ($47.5 million)
in
fiscal 2005.
Cash
provided by operating activities for fiscal 2005 increased due to favorable
net
changes in working capital. Net cash used in investing activities in fiscal
2005
decreased compared to 2004 as a result of decreased capital spending primarily
in the Oil and Gas Production segment offset by an increase in deposits
associated with the Company's commodity hedging activities driven by price
declines and ratings downgrades on Company long-term debt. The increase in
net
cash used in financing activities in fiscal 2005 compared to 2004 was primarily
due to increased retirements of commercial paper, lower amounts of debt issued
(net of retirements) and to lower amounts of common stock issued under the
continuous equity program and the LTIC Plan in fiscal 2005 compared to fiscal
2004.
See
the
Consolidated Statements of Cash Flows and the discussion of major balance sheet
variations below for more detail.
Balance
Sheet Variations
Total
assets at September 30, 2006, increased $284.6 million as compared to September
30, 2005, due to additional capital investment in the Oil and Gas Production
segment resulting from the Will-Drill acquisition, increases in current
regulatory assets related primarily to MTM accounting for the utility gas costs
hedging program, and increases in noncurrent regulatory assets and capital
investments in the Gas Distribution segment resulting from the recognition
of
asset retirement obligations required under FIN 47. These increases were
partially offset by decreases in derivative assets that are marked-to-market
and
largely relate to utility hedge activity. The decrease in derivative assets
reflects price declines during fiscal 2006 relative to utility supply contracts
(long positions). Current liabilities increased due to additional levels of
commercial paper outstanding (primarily due to the oil and gas properties
acquisition) and an increase in gas costs refundable through rate adjustments,
partially offset by a decrease in accrued taxes due to lower taxable
income and by a decrease in regulatory liabilities largely corresponding
with the above decrease in derivative assets that are marked-to-market.
Settlement
of these assets is included as an adjustment to gas costs included in customer
bills. Deferred credits and other liabilities increased due to the recognition
of asset retirement obligations required under FIN 47. The increase in the
Company's capitalization was the result of the combined decrease in the
accumulated other comprehensive loss and increase in common stock (primarily
issued through the Direct Purchase and Investment Plan and the LTIC Plans),
partially offset by the reduction in retained earnings, due primarily to the
$64.7 million after tax charge related to the gas charge settlement and dividend
payments of $83.7 million. The decrease in the accumulated other comprehensive
loss reflects both price declines related to short position derivatives
accounted for as cash flow hedges at the Company's Oil and Gas Production and
Energy Marketing segments and a net decrease in derivative positions at the
Oil
and Gas Production segment.
Financial
Sources
The
Company and Peoples Gas have access to outside capital markets, commercial
paper
markets and internal sources of funds that together provide sufficient resources
to meet their working capital and long-term capital requirements. North Shore
Gas has access to outside capital markets to meet long-term capital requirements
and uses internal sources of funds and loans from the Company and Peoples Gas
to
meet working capital needs. Changes that could materially alter its liquidity
position include the effect of high gas prices on utility working capital and
on
hedge-related margin requirements for the upcoming heating season.
The
Company maintains lines of credit facilities to ensure sufficient liquidity
for
seasonal working capital requirements and other short-term financial needs.
As
forecasts of liquidity change throughout the year (due to high gas prices,
for
example), the Company may seek additional sources of liquidity in order to
meet
its objectives.
Due
to
the seasonal nature of gas usage, a major portion of the utilities’ cash
collections occurs between January and June. Because of timing differences
in
the receipt and disbursement of cash and the level of construction requirements,
the utility subsidiaries borrow from time to time on a short-term basis.
Short-term borrowings are repaid with cash from operations or other short-term
borrowings or are refinanced on a permanent basis with debt or equity, depending
on market conditions and capital structure considerations.
In
addition to cash generated internally by operations, as of September 30,
2006, the Company and its subsidiaries had committed credit facilities of
$650 million (Peoples Energy, $400 million; Peoples Gas,
$250 million). These facilities primarily support the Company’s and Peoples
Gas’ ability to borrow using commercial paper. As of September 30, 2006,
$89.6 million of Peoples Energy’s $400 million line and all of Peoples
Gas’ $250 million facilities were available. The Peoples Energy
$400 million credit agreement expires in June 2011, and the Peoples Gas
$250 million credit agreement expires in July 2010. The long-term credit
facilities are expected to be renewed when they expire, although the exact
amount of the renewals will be evaluated at that time and may change from the
current levels. North Shore Gas intends to meet its future short term borrowing
requirements through loans from Peoples Energy or Peoples Gas.
The
Company’s and Peoples Gas’ credit facilities generally contain debt triggers
that permit the lenders to terminate the credit commitments to the borrowing
company and declare any outstanding amounts due and payable if the borrowing
company’s consolidated debt-to-total capital ratio, excluding the impact of
accumulated other comprehensive income (AOCI), exceeds 65%. At
September 30, 2006, the Company’s total debt was 59% of total debt plus
equity (58% excluding AOCI), up from 53% a year ago due primarily to the impacts
of the settlement charge and the Will-Drill oil and gas acquisition. Anticipated
proceeds from the sale of the Company’s remaining power generation assets by
calendar year end will be used to reduce short-term borrowing. The current
debt-to-total capital ratio for Peoples Gas is 44% (44% excluding AOCI).
Management does not expect the gas reconciliation settlement to have a material
adverse affect on the Company's liquidity or its ability to fund its strategic
initiatives and capital expenditures.
In
addition to the committed credit facilities discussed above, the Company has
uncommitted lines of credit and letters of credit backup of $25.0 million,
of
which $2.0 million was used for letters of credit backup and $23.0 million
was
unused as of September 30, 2006. Peoples Gas and North Shore have the
ability to loan up to
$50 million
between the two utilities and to borrow up to $150 million and $50 million,
respectively, from Peoples Energy. As of September 30, 2006, there were no
loans from Peoples Energy to Peoples Gas or North Shore Gas. As of
September 30, 2006, there were no loans between Peoples Gas and North Shore
Gas.
The
current credit ratings for the Company, Peoples Gas and North Shore Gas are
summarized in the table below.
|
Corporate
Credit
Rating
|
Company
Senior
Unsecured
Debt
|
Peoples
Gas/
North
Shore Gas
Senior
Secured
Debt
|
Company
Commercial
Paper
|
Peoples
Gas
Commercial
Paper
|
Moody's
|
n/a
|
Baa2
|
A1
|
P-2
|
P-1
|
Standard
and Poor’s
|
A-
|
BBB+
|
A-
|
A-2
|
A-2
|
Moody’s
describes double-A rated debt (Aa1, Aa2 and Aa3) as high-grade and single-A
rated debt (A1, A2 and A3) as upper-medium grade. S&P describes A-rated debt
(A+, A and A-) as strong and triple-B rated debt (BBB+, BBB and BBB-) as
adequate. The lowest investment grade credit ratings for Moody’s is Baa3 and for
S&P is BBB-. Thus, both credit rating agencies give the Company, Peoples Gas
and North Shore Gas investment grade ratings.
Regarding
short-term ratings applicable to commercial paper, Moody’s describes the P-1
rating as indicating a superior repayment ability and P-2 as indicating a strong
repayment ability. S&P describes an A-2 rating as satisfactory.
Changes
in Credit Lines and Debt Securities
On
October 20, 2006, the Company entered into (1) a $25 million revolving credit
agreement with ABN AMRO Bank, N.V.; (2) a $25 million revolving credit agreement
with Bank of America, N.A.; and (3) a $25 million revolving credit agreement
with JPMorgan Chase Bank to provide for potential seasonal liquidity needs.
Each
credit agreement is effective from October 20, 2006 through the earlier of
(i)
March 31, 2007 or (ii) the consummation of the merger between a subsidiary
of
WPS Resources Corporation and Peoples Energy. Funds may be used for general
corporate purposes and commercial paper back-up.
On
June
13, 2006, the Company and various institutions entered into a $400 million
5-year syndicated revolving credit agreement. The credit agreement is effective
through June 13, 2011 and funds may be used for general corporate purposes.
The
credit agreement supports the Company's commercial paper borrowing program.
This
credit agreement replaces the previous $225 million credit facility dated
March 8, 2004 that was scheduled to expire in March 2007.
On
July 12, 2005, Peoples Gas entered into a 5-year syndicated revolving
credit agreement with eleven financial institutions that provides backup for
Peoples Gas’ seasonal commercial paper borrowing program. The maximum amount
that may be borrowed under the credit agreement is $250 million. This
replaces the previous $200 million credit facility that was scheduled to
expire in August 2005.
During
fiscal 2005 the Company refinanced $50 million of Peoples Gas debt. (See
Note 14A of the Notes to Consolidated Financial Statements for details of
fiscal 2005’s refinancing activity.)
Changes
in Equity Securities
The
Company has filed a universal shelf registration statement on Form S-3 for
the issuance from time to time of up to 1.5 million shares of common stock
pursuant to a continuous equity offering in one or more negotiated transactions
or “at-the-market” offerings. As of September 30, 2006, a total of
1,235,700 shares of common stock had been issued through the continuous
equity offering. In fiscal 2004, 377,400 shares were issued, resulting in
proceeds of $15.5 million, net of issuance costs. During fiscal 2005 and 2006
and through the date of filing the Company’s Form 10-K with the SEC, the
Company has not issued any additional shares under this registration
statement.
However, the Company did issue common stock through its LTIC Plan, Direct
Purchase and Investment Plan, DDC Plan, DSOP and its ESPP. (See Note 17 of
the Notes to Consolidated Financial Statements.)
During
fiscal 2006, Peoples Gas issued 540,000 shares of its common stock to the
Company for $53.9 million.
Financial
Uses
Capital
Spending
.
In
fiscal 2006, the Company's capital expenditures totaled $344.0 million,
including $0.6 million related to assets of discontinued operations. The Gas
Distribution segment spent $101.6 million on property, plant and equipment,
of
which $92.2 million related to Peoples Gas and $9.4 million to North Shore
Gas.
Capital expenditures at the Oil and Gas Production segment on the acquisition
of
reserves, drilling projects and the exploitation of the acquired and existing
assets totaled $236.4 million. Management currently estimates that capital
spending for fiscal 2007 will total approximately $250 million.
Dividends
.
The
Company's dividends have not changed since February 4, 2005, when the Company's
Board of Directors voted to raise the regular quarterly dividend on the
Company's common stock from 54 cents per share to 54 1/2 cents per share. The
first payment at this new level was made on April 15, 2005, to shareholders
of
record at the close of business on March 22, 2005.
Interest
Coverage
The
fixed
charges coverage ratios for the Company, Peoples Gas and North Shore Gas are
as
follows:
|
|
For
Fiscal Years Ended
|
|
|
September
30,
|
|
|
2006
|
|
2005
|
|
2004
|
|
Peoples
Energy
|
|
0.52
|
|
3.23
|
|
3.29
|
|
Peoples
Gas
|
|
(1.28
|
)
|
4.20
|
|
4.30
|
|
North
Shore Gas
|
|
3.58
|
|
5.87
|
|
5.83
|
|
The
decrease in the ratio for the Company in fiscal 2006 from 2005 reflects higher
interest rates, lower pretax income, due primarily to the settlement charge
in
fiscal 2006, and an increase in gas costs refundable to customers through rate
adjustments. The decrease in the ratio in fiscal 2005 from 2004 reflects higher
interest rates in fiscal 2005.
The
decrease in the ratio for Peoples Gas in fiscal 2006 from 2005 reflects higher
interest rates, lower pretax income, due primarily to the settlement charge
in
fiscal 2006, and an increase in gas costs refundable to customers through rate
adjustments. The decrease in the ratio in fiscal 2005 from 2004 reflects higher
interest rates in fiscal 2005.
The
decrease in the ratio for North Shore Gas in fiscal 2006 from 2005 and 2004
levels reflects lower pretax income, due primarily to the settlement charge
in
fiscal 2006, and an increase in gas costs refundable to customers through rate
adjustments.
Commitments
and Contractual Obligations
Off-Balance
Sheet Arrangements.
Off-balance sheet debt at September 30, 2006 and 2005, consists of the Company's
pro rata share of nonrecourse debt of various equity investments, including
EnerVest (zero and $2.9 million) and Elwood ($165.1 million and $174.3 million).
The Company believes this off-balance sheet financing will not have a material
effect on the Company's future financial condition. The Company also has
commercial obligations of $34.6 million in guarantees, $6.7 million in letters
of credit, $1.6 million in surety bonds and $35.2 million in operating leases
at
September 30, 2006. (See Notes 5 and 10 of the Notes to Consolidated Financial
Statements for further descriptions and details of the Company’s off-balance
sheet arrangements.)
Contractual
Obligations.
The
Company has certain contractual obligations directly related to the Company’s
operations and unconsolidated equity investees. The majority of these are
guarantees of debt service and performance (related to unconsolidated equity
investees), as well as substantial commitments for gas supply, transportation
and storage. (See Note 10 of the Notes to the Consolidated Financial
Statements.)
The
following table summarizes the Company’s long-term minimum contractual
obligations.
|
|
Payments
Due by Period
|
|
|
|
|
|
|
|
Less
than
|
|
|
1
to 3
|
|
|
4
to 5
|
|
|
More
than
|
|
(In
Millions)
|
|
|
Total
|
|
|
1
Year
|
|
|
Years
|
|
|
Years
|
|
|
5
Years
|
|
Total
debt (See Note 14)
|
|
$
|
1,204.4
|
|
$
|
309.7
|
|
$
|
-
|
|
$
|
373.5
|
|
$
|
521.2
|
|
Estimated
interest payments on debt (1)
|
|
|
631.5
|
|
|
46.7
|
|
|
93.4
|
|
|
79.3
|
|
|
412.1
|
|
Operating
leases (See Note 10C)
|
|
|
35.2
|
|
|
3.9
|
|
|
8.2
|
|
|
8.6
|
|
|
14.5
|
|
Purchase
obligations (2)
|
|
|
1,108.8
|
|
|
471.9
|
|
|
407.1
|
|
|
96.9
|
|
|
132.9
|
|
Minimum
pension funding (3) (See Note 11)
|
|
|
92.8
|
|
|
-
|
|
|
26.1
|
|
|
33.3
|
|
|
33.4
|
|
Total
contractual cash obligations
|
|
$
|
3,072.7
|
|
$
|
832.2
|
|
$
|
534.8
|
|
$
|
591.6
|
|
$
|
1,114.1
|
|
(1)
|
Includes
interest on fixed and adjustable rate debt. The adjustable rate interest
is calculated based on the indexed rate in effect at September 30,
2006.
|
(2)
|
Includes
gas purchases, storage, transportation, information technology-related
and
miscellaneous long-term and short-term capital
purchase
commitments.
|
(3)
|
Minimum
pension funding is an estimate of the contributions that would be
required
pursuant to the Employee Retirement Income Security
Act
to fund benefits earned as of October 1, 2006. Additional contributions
may be made to fund benefits accruing after October 1, 2006, or
on
a discretionary basis.
|
Merger.
In
the
event that the pending merger with WPS Resources is successfully completed,
the
Company will recognize expenses estimated to total approximately $14 million
in
addition to expenses recognized in fiscal 2006. These payments are for
transaction fees and other costs, as well as additional compensation expense
resulting from the change in control provisions in the Company’s long-term
incentive plans. (See Note 17 of the Notes to Consolidated Financial
Statements.) Note 1 of the Notes to Consolidated Financial Statements discusses
the termination fees and related expenses in the event the merger is not
completed.
Environmental
Matters
.
Peoples
Gas and North Shore Gas are conducting environmental investigations and remedial
work at certain sites that were the locations of former manufactured gas
operations. (See Note 7A of the Notes to Consolidated Financial Statements.)
North Shore Gas received a demand from a responsible party under CERCLA for
environmental costs associated with a site in Denver, Colorado. (See Note 7B
of
the Notes to Consolidated Financial Statements.)
Gas
Charge Reconciliation Proceedings and Related Matters.
For each
utility subsidiary, the Commission conducts annual proceedings regarding the
reconciliation of revenues from the Gas Charge and related gas costs. In these
proceedings, the accuracy of the reconciliation of revenues and costs is
reviewed and the prudence of gas costs recovered through the Gas Charge is
examined by interested parties. On March 21, 2005, the Illinois Attorney General
(AG) and Chicago filed lawsuits against the Company and several of its
subsidiaries alleging violations against its customers under certain state
and
city consumer fraud laws, respectively. On March 28, 2006, the Commission issued
an order approving a settlement that resolved Peoples Gas' and North Shore
Gas'
fiscal 2001 - 2004 gas charge cases and the AG and Chicago lawsuits. (See Note
8A of the Notes to Consolidated Financial Statements.)
In
February 2004, a purported class action was filed against the Company and
Peoples Gas by a Peoples Gas customer alleging, among other things, violation
of
the Illinois Consumer Fraud and Deceptive Business Practices Act related to
maters at issue in Peoples Gas' gas charge reconciliation proceedings. (See
Note
8B
of the
Notes to Consolidated Financial Statements.)
Indenture
Restrictions
North
Shore Gas’ indenture relating to its first mortgage bonds contains provisions
and covenants restricting the payment of cash dividends and the purchase or
redemption of capital stock. At September 30, 2006, such restrictions
amounted to $6.9 million of North Shore Gas’ total retained earnings of
$
76.3 million.
Peoples
Energy Resources owns a 50% equity interest in Elwood. Elwood's trust indenture
and other agreements related to its project financing prohibit Elwood from
making distributions unless Elwood has maintained certain minimum historic
and
projected debt service coverage ratios. At July 5, 2006, a minimum debt service
coverage ratio of 1.2 to 1.0 was required to make a cash distribution and
Elwood's actual debt service coverage ratio was approximately 1.4 to
1.0.
PEOPLES
GAS AND NORTH SHORE GAS DISCUSSIONS
The
financial results of Peoples Gas (including its hub operations) and North Shore
Gas are reported primarily within the Gas Distribution segment. Operating income
(GAAP) and ongoing operating income (non-GAAP) by business segment for Peoples
Gas and North Shore Gas is presented below.
|
|
Peoples
Gas
|
|
North
Shore Gas
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
Gas
|
|
|
and
|
|
|
|
|
|
Gas
|
|
|
and
|
|
|
|
|
(In
Thousands)
|
|
|
Distribution
|
|
|
Other
|
|
|
Total
|
|
|
Distribution
|
|
|
Other
|
|
|
Total
|
|
For
the Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2006 (GAAP)
|
|
$
|
(27,472
|
)
|
$
|
(12,662
|
)
|
$
|
(40,134
|
)
|
$
|
15,022
|
|
$
|
(1,694
|
)
|
$
|
13,328
|
|
September
30, 2006 (non-GAAP)
(1)
|
|
|
75,558
|
|
|
(12,662
|
)
|
|
62,896
|
|
|
19,322
|
|
|
(1,694
|
)
|
|
17,628
|
|
September
30, 2005 (GAAP)
|
|
|
113,669
|
|
|
(18,110
|
)
|
|
95,559
|
|
|
22,909
|
|
|
(1,864
|
)
|
|
21,045
|
|
September
30, 2005 (non-GAAP)
(1)
|
|
|
113,669
|
|
|
(9,320
|
)
|
|
104,349
|
|
|
22,909
|
|
|
(1,242
|
)
|
|
21,667
|
|
September
30, 2004 (GAAP)
|
|
|
118,144
|
|
|
(30,336
|
)
|
|
87,808
|
|
|
24,825
|
|
|
(3,493
|
)
|
|
21,332
|
|
September
30, 2004 (non-GAAP)
(1)
|
|
|
118,144
|
|
|
(20,650
|
)
|
|
97,494
|
|
|
24,825
|
|
|
(2,611
|
)
|
|
22,214
|
|
(1)
|
Fiscal
2006 ongoing operating income (non-GAAP) is defined as GAAP operating
(loss) adjusted to exclude the effects of a charge of $103.0 million
and
$4.3 million at Peoples Gas and North Shore Gas, respectively, associated
with the settlement of gas charge proceedings. Fiscal 2005 ongoing
operating income (non-GAAP) is defined as GAAP operating income adjusted
to exclude the effects of pension expense related restructuring costs
of
$8.8 million and $0.6 million at Peoples Gas and North Shore Gas,
respectively. Fiscal 2004 ongoing operating income (non-GAAP) is
defined
as GAAP operating income adjusted to exclude the effects of pension
expense related restructuring costs of $9.7 million and $0.9 million
at
Peoples Gas and North Shore Gas, respectively. See Item 7 - MD&A -
Executive Summary for a discussion of management's use of non-GAAP
financial measures and a reconciliation of GAAP and non-GAAP
earnings.
|
The
following discussions supplement Peoples Gas' and North Shore Gas' information
included in Liquidity and Capital Resources and in the Company's Gas
Distribution segment discussion within this MD&A.
Peoples
Gas Discussion
GAAP
net
loss for Peoples Gas for fiscal 2006 was $35.4 million compared to net income
of
$49.3 million in fiscal 2005. Excluding the charge related to the settlement
of
gas charge proceedings ($62.1 million, after tax), ongoing net income (non-GAAP)
was $26.6 million. Excluding pension-related charges ($5.3 million, after tax)
resulting from the fiscal year 2004 organizational restructuring, ongoing net
income (non-GAAP) for fiscal 2005 was $54.6 million.
Revenues
for fiscal 2006 increased $197.6 million compared with fiscal 2005. These
results were due to the impact on revenues of changes in gas prices (an increase
of $270 million) that are recovered on a dollar-for-dollar basis. These results
also reflected the impact on revenues of decreased deliveries due to weather
($16 million) that was 2% warmer compared with the prior year,
lower
weather-normalized demand ($88 million) and the impact of the change in the
regulatory treatment of Hub revenues ($10.7 million) due to the gas charge
settlement agreement. The $135.7 million decrease in operating income for fiscal
2006 was primarily due to the $103.0 million charge related to the amended
settlement of the gas charge proceedings, higher operation and maintenance
expense
($21.0 million), the change in treatment of Hub revenues ($10.7 million), lower
deliveries resulting from warmer weather ($2 million) and lower normalized
deliveries ($8 million). The increase in operation and maintenance expense
was
due to higher labor, pension, group insurance, bad debt, outside services and
rate case expenses. These increases were partially offset by the impact of
the
fiscal 2005 restructuring-related pension charge of $8.8 million.
Interest
expense for Peoples Gas for fiscal 2006 increased $3.2 million due to higher
interest rates and an increase in gas costs refundable to customers through
rate
adjustments.
Fiscal
2005 revenues for Peoples Gas increased $145.3 million from the previous period.
The main reason for the increase was the impact on revenues of higher gas prices
($179 million). Partially offsetting these effects were lower revenues resulting
from a decrease in deliveries due to weather ($27 million) that was 4% warmer
than the previous period and a decrease in normalized deliveries. GAAP operating
income increased $7.8 million from fiscal 2004. Operating income was favorably
impacted by decreased labor costs related to the organizational restructuring
($8.6 million) and a decrease in depreciation expense ($5.7 million) primarily
due to the Commission Depreciation Order. Negative impacts on 2005 results
include lower deliveries resulting from warmer weather ($4.5
million).
Fiscal
2005 interest expense for Peoples Gas increased $2.7 million over fiscal 2004
primarily due to higher interest rates.
Total
assets at September 30, 2006 increased $135.7 million compared to September
30, 2005 due primarily to an increase in current regulatory assets related
to
MTM accounting for the utility gas costs hedging program, an increase in
noncurrent regulatory assets and capital investments related to the recognition
of asset retirement obligations required under FIN 47, an increase in cash
and
cash equivalents, an increase in gas in storage (due to higher prices and
volume), and an increase in prepaid pension costs (due to the elimination of
the
additional minimum pension liability as a result of increased plan funding
and
an increase in the discount rate). These increases were partially offset by
a
decrease in intercompany receivables due to of a decrease in derivative assets
contracted by Peoples Energy on behalf of Peoples Gas that are marked-to-market.
The decrease in derivative assets reflects price declines during fiscal 2006
relative to utility supply contracts (long positions). The increase in current
liabilities was driven by an increase in intercompany payables (made up largely
of unrealized losses on derivatives contracted by Peoples Energy on behalf
of
Peoples Gas that are marked-to-market) and increases in gas costs refundable
through rate adjustments. These increases were partially offset by a decrease
in
current regulatory liabilities. The decrease in current regulatory liabilities
largely corresponds with above decrease in derivative assets that are
marked-to-market. Settlement of these assets is included as an adjustment to
gas
costs included in customer bills. Deferred credits and other liabilities
increased primarily due to the recognition of asset retirement obligations
required under FIN 47, which largely correspond with the above increase in
noncurrent regulatory assets. Peoples Gas’ capitalization increased with a $53.9
million equity contribution by the Company in Peoples Gas and a decrease in
the
accumulated other comprehensive loss. These increases were partially offset
by
the reduction in retained earnings due primarily to dividend payments of $15.4
million and a $35.4 million fiscal 2006 net loss, which reflects the $62.1
million after tax charge related to the gas charge settlement.
North
Shore Gas Discussion
GAAP
net
income for North Shore Gas for fiscal 2006 was $6.7 million compared to $11.4
million in fiscal 2005. Excluding the net charge related to the settlement
of
gas charge proceedings ($2.6 million, after tax), ongoing net income (loss)
(non-GAAP) was $9.3 million. Excluding pension-related charges ($0.4 million,
after tax) resulting from the fiscal year 2004 organizational restructuring,
ongoing net income (non-GAAP) for fiscal 2005 was $11.8 million.
Revenues
for North Shore Gas for fiscal 2006 increased $39.1 million compared to fiscal
2005, mainly due to the impact on revenues of higher gas prices ($48 million),
partially offset by the impact of decreased deliveries due to weather ($4
million) that was 2% warmer compared with the same year ago period and lower
weather-normalized demand ($11 million). Operating income decreased $7.7 million
for fiscal 2006. Results were unfavorably
impacted
by the net charge ($4.3 million) related to the amended settlement of the gas
charge proceedings, lower deliveries resulting from warmer weather ($0.5
million), lower normalized deliveries ($0.5 million), and higher operation
and
maintenance expenses
($3.7
million) which included $0.7 million of rate case costs, partially offset by
the
impact of the fiscal 2005 restructuring-related pension charge of $0.6
million.
Interest
expense for North Shore Gas for fiscal 2006 increased $0.4 million primarily
due
to an increase in gas costs refundable to customers through rate
adjustments.
Fiscal
2005 revenues for North Shore Gas increased $37.8 million over the prior period
mainly due to the impact on revenues of higher gas prices ($42 million).
Partially offsetting these effects were lower revenues resulting from a decrease
in deliveries due to weather ($4 million) that was 4% warmer compared to the
prior period. GAAP operating income for fiscal 2005 was flat compared to fiscal
2004. The fiscal 2005 results were favorably impacted by a decrease in
depreciation expense ($1.4 million) primarily due to the Commission Depreciation
Order and negatively impacted by an increase in pension expense ($1.0 million).
Total
assets at September 30, 2006 increased $28.8 million compared to September
30, 2005 due to an increase in current regulatory assets related primarily
to
MTM accounting for the utility gas costs hedging program, an increase in
noncurrent regulatory assets related to the recognition of asset retirement
obligations required under FIN 47, and an increase in gas in storage. These
increases were partially offset by a decrease in intercompany receivables made
up largely of a decrease in derivative assets contracted by Peoples Energy
on
behalf of North Shore Gas that are marked-to-market. The decrease in derivative
assets reflects price declines during fiscal 2006 relative to utility supply
contracts (long positions). The increase in current liabilities was driven
by an
increase in intercompany payables (made up largely of unrealized losses on
derivatives contracted by Peoples Energy on behalf of North Shore Gas that
are
marked-to-market) and an increase in gas costs refundable through rate
adjustments. This decrease was partially offset by a decrease in regulatory
liabilities. The decrease in regulatory liabilities largely corresponds with
the
above decrease in derivative assets that are marked-to-market. Settlement of
these assets is included as an adjustment to gas costs included in customer
bills. The Company's capitalization decreased with the reduction in retained
earnings due primarily to dividend payments of $11.0 million, partially offset
by $6.7 million of net income, which was negatively affected by the $2.6 million
after tax charge related to the gas charge settlement.
The
Peoples Gas Light and Coke Company
|
|
Gas
Distribution Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended
|
|
Increase/(Decrease
)
|
|
Margin
Data
|
|
September
30,
|
|
|
Fiscal
2006 vs.
|
|
|
Fiscal
2005 vs.
|
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Fiscal
2005
|
|
|
Fiscal
2004
|
|
Gas
Distribution revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,249,993
|
|
$
|
1,086,435
|
|
$
|
974,143
|
|
$
|
163,558
|
|
$
|
112,292
|
|
Commercial
|
|
|
203,005
|
|
|
175,904
|
|
|
155,934
|
|
|
27,101
|
|
|
19,970
|
|
Industrial
|
|
|
32,936
|
|
|
28,720
|
|
|
24,112
|
|
|
4,216
|
|
|
4,608
|
|
Total
sales
|
|
|
1,485,934
|
|
|
1,291,059
|
|
|
1,154,189
|
|
|
194,875
|
|
|
136,870
|
|
Transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
33,260
|
|
|
30,699
|
|
|
30,645
|
|
|
2,561
|
|
|
54
|
|
Commercial
|
|
|
43,734
|
|
|
42,329
|
|
|
41,131
|
|
|
1,405
|
|
|
1,198
|
|
Industrial
|
|
|
15,995
|
|
|
16,994
|
|
|
16,656
|
|
|
(999
|
)
|
|
338
|
|
Contract
pooling
|
|
|
26,643
|
|
|
18,381
|
|
|
14,017
|
|
|
8,262
|
|
|
4,364
|
|
Total
transportation
|
|
|
119,632
|
|
|
108,403
|
|
|
102,449
|
|
|
11,229
|
|
|
5,954
|
|
Total
Hub revenues
|
|
|
-
|
|
|
10,662
|
|
|
7,620
|
|
|
(10,662
|
)
|
|
3,042
|
|
Other
Gas Distribution revenues
|
|
|
16,725
|
|
|
14,579
|
|
|
15,117
|
|
|
2,146
|
|
|
(538
|
)
|
Total
Gas Distribution revenues
|
|
|
1,622,291
|
|
|
1,424,703
|
|
|
1,279,375
|
|
|
197,588
|
|
|
145,328
|
|
Less:
Gas costs
|
|
|
1,052,333
|
|
|
853,453
|
|
|
723,771
|
|
|
198,880
|
|
|
129,682
|
|
Gross
margin
|
|
|
569,958
|
|
|
571,250
|
|
|
555,604
|
|
|
(1,292
|
)
|
|
15,646
|
|
Less:
Revenue taxes and surcharges
|
|
|
149,786
|
|
|
136,115
|
|
|
125,500
|
|
|
13,671
|
|
|
10,615
|
|
Environmental costs recovered
|
|
|
31,588
|
|
|
28,574
|
|
|
16,206
|
|
|
3,014
|
|
|
12,368
|
|
Net
margin (1)
|
|
$
|
388,584
|
|
$
|
406,561
|
|
$
|
413,898
|
|
$
|
(17,977
|
)
|
$
|
(7,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
Distribution deliveries (MDth):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
85,381
|
|
|
91,217
|
|
|
97,035
|
|
|
(5,836
|
)
|
|
(5,818
|
)
|
Commercial
|
|
|
15,021
|
|
|
16,022
|
|
|
16,856
|
|
|
(1,001
|
)
|
|
(834
|
)
|
Industrial
|
|
|
2,571
|
|
|
2,801
|
|
|
2,790
|
|
|
(230
|
)
|
|
11
|
|
Total
gas sales
|
|
|
102,973
|
|
|
110,040
|
|
|
116,681
|
|
|
(7,067
|
)
|
|
(6,641
|
)
|
Transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
18,637
|
|
|
19,134
|
|
|
20,210
|
|
|
(497
|
)
|
|
(1,076
|
)
|
Commercial
|
|
|
35,645
|
|
|
35,024
|
|
|
37,287
|
|
|
621
|
|
|
(2,263
|
)
|
Industrial
|
|
|
16,101
|
|
|
17,662
|
|
|
18,139
|
|
|
(1,561
|
)
|
|
(477
|
)
|
Total
transportation
|
|
|
70,383
|
|
|
71,820
|
|
|
75,636
|
|
|
(1,437
|
)
|
|
(3,816
|
)
|
Total
Gas Distribution deliveries
|
|
|
173,356
|
|
|
181,860
|
|
|
192,317
|
|
|
(8,504
|
)
|
|
(10,457
|
)
|
Total
Hub volumes
|
|
|
-
|
|
|
22,784
|
|
|
19,381
|
|
|
(22,784
|
)
|
|
3,403
|
|
Gross
margin per Dth delivered (3)
|
|
$
|
3.29
|
|
$
|
3.08
|
|
$
|
2.85
|
|
$
|
0.21
|
|
$
|
0.23
|
|
Net
margin per Dth delivered (3)
|
|
$
|
2.24
|
|
$
|
2.18
|
|
$
|
2.11
|
|
$
|
0.06
|
|
$
|
0.07
|
|
Average
cost per Dth of gas sold
|
|
$
|
10.22
|
|
$
|
7.76
|
|
$
|
6.20
|
|
$
|
2.46
|
|
$
|
1.56
|
|
Actual
heating degree days
|
|
|
5,775
|
|
|
5,864
|
|
|
6,091
|
|
|
(89
|
)
|
|
(227
|
)
|
Normal
heating degree days (2)
|
|
|
6,408
|
|
|
6,427
|
|
|
6,427
|
|
|
|
|
|
|
|
Actual
heating degree days as a percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
normal (actual/normal)
|
|
|
90
|
|
|
91
|
|
|
95
|
|
|
|
|
|
|
|
(1)
|
As
used above, net margin is not a financial measure computed under
GAAP but
represents an operating performance measure. Gross margin is the
GAAP
measure most closely related to net margin. Management believes net
margin
to be useful in understanding Peoples Gas' operations because the
utility
subsidiaries are allowed, under their tariffs, to recover gas costs,
revenue taxes and environmental costs from their customers on a
dollar-for-dollar basis.
|
(2)
|
Normal
heating degree days for fiscal 2004 and 2005 are based on a 30-year
average of monthly temperatures at Chicago's O'Hare Airport for the
years
1970-1999. Normal heating degree days for fiscal 2006 are based on
a
30-year average of monthly temperatures at Chicago's O'Hare Airport
for
the years 1975-2004.
|
(3)
|
Margin
per Dth is based upon gas distribution and transportation activity
and
excludes the impact of hub revenues and hub
volumes.
|
North
Shore Gas Company
|
|
Gas
Distribution Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended
|
|
Increase/(Decrease
)
|
|
Margin
Data
|
|
September
30,
|
|
|
Fiscal
2006 vs.
|
|
|
Fiscal
2005 vs.
|
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Fiscal
2005
|
|
|
Fiscal
2004
|
|
Gas
Distribution revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
235,760
|
|
$
|
204,281
|
|
$
|
174,356
|
|
$
|
31,479
|
|
$
|
29,925
|
|
Commercial
|
|
|
39,191
|
|
|
33,808
|
|
|
28,822
|
|
|
5,383
|
|
|
4,986
|
|
Industrial
|
|
|
8,639
|
|
|
7,648
|
|
|
6,212
|
|
|
991
|
|
|
1,436
|
|
Total
sales
|
|
|
283,590
|
|
|
245,737
|
|
|
209,390
|
|
|
37,853
|
|
|
36,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1,896
|
|
|
1,661
|
|
|
1,709
|
|
|
235
|
|
|
(48
|
)
|
Commercial
|
|
|
6,810
|
|
|
6,390
|
|
|
6,154
|
|
|
420
|
|
|
236
|
|
Industrial
|
|
|
2,833
|
|
|
2,886
|
|
|
2,781
|
|
|
(53
|
)
|
|
105
|
|
Contract
pooling
|
|
|
2,805
|
|
|
2,313
|
|
|
1,355
|
|
|
492
|
|
|
958
|
|
Total
transportation
|
|
|
14,344
|
|
|
13,250
|
|
|
11,999
|
|
|
1,094
|
|
|
1,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Gas Distribution revenues
|
|
|
1,655
|
|
|
1,474
|
|
|
1,320
|
|
|
181
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Gas Distribution revenues
|
|
|
299,589
|
|
|
260,461
|
|
|
222,709
|
|
|
39,128
|
|
|
37,752
|
|
Less:
Gas costs
|
|
|
220,300
|
|
|
180,923
|
|
|
144,747
|
|
|
39,377
|
|
|
36,176
|
|
Gross
margin
|
|
|
79,289
|
|
|
79,538
|
|
|
77,962
|
|
|
(249
|
)
|
|
1,576
|
|
Less:
Revenue taxes and surcharges
|
|
|
14,487
|
|
|
14,210
|
|
|
13,341
|
|
|
277
|
|
|
869
|
|
Environmental costs recovered
|
|
|
2,065
|
|
|
1,863
|
|
|
1,178
|
|
|
202
|
|
|
685
|
|
Net
margin (1)
|
|
$
|
62,737
|
|
$
|
63,465
|
|
$
|
63,443
|
|
$
|
(728
|
)
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
Distribution deliveries (MDth):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
18,275
|
|
|
19,212
|
|
|
19,904
|
|
|
(937
|
)
|
|
(692
|
)
|
Commercial
|
|
|
3,188
|
|
|
3,327
|
|
|
3,447
|
|
|
(139
|
)
|
|
(120
|
)
|
Industrial
|
|
|
722
|
|
|
806
|
|
|
807
|
|
|
(84
|
)
|
|
(1
|
)
|
Total
gas sales
|
|
|
22,185
|
|
|
23,345
|
|
|
24,158
|
|
|
(1,160
|
)
|
|
(813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
867
|
|
|
793
|
|
|
851
|
|
|
74
|
|
|
(58
|
)
|
Commercial
|
|
|
6,829
|
|
|
6,215
|
|
|
6,359
|
|
|
614
|
|
|
(144
|
)
|
Industrial
|
|
|
5,045
|
|
|
5,469
|
|
|
5,617
|
|
|
(424
|
)
|
|
(148
|
)
|
Total
transportation
|
|
|
12,741
|
|
|
12,477
|
|
|
12,827
|
|
|
264
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Gas Distribution deliveries
|
|
|
34,926
|
|
|
35,822
|
|
|
36,985
|
|
|
(896
|
)
|
|
(1,163
|
)
|
Gross
margin per Dth delivered
|
|
$
|
2.27
|
|
$
|
2.22
|
|
$
|
2.11
|
|
$
|
0.05
|
|
$
|
0.11
|
|
Net
margin per Dth delivered
|
|
$
|
1.80
|
|
$
|
1.77
|
|
$
|
1.72
|
|
$
|
0.03
|
|
$
|
0.05
|
|
Average
cost per Dth of gas sold
|
|
$
|
9.93
|
|
$
|
7.75
|
|
$
|
5.99
|
|
$
|
2.18
|
|
$
|
1.76
|
|
Actual
heating degree days
|
|
|
5,775
|
|
|
5,864
|
|
|
6,091
|
|
|
(89
|
)
|
|
(227
|
)
|
Normal
heating degree days (2)
|
|
|
6,408
|
|
|
6,427
|
|
|
6,427
|
|
|
|
|
|
|
|
Actual
heating degree days as a percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
normal (actual/normal)
|
|
|
90
|
|
|
91
|
|
|
95
|
|
|
|
|
|
|
|
(1)
|
As
used above, net margin is not a financial measure computed under
GAAP but
represents an operating performance measure. Gross margin is the
GAAP
measure most closely related to net margin. Management believes net
margin
to be useful in understanding North Shore Gas' operations because
the
utility subsidiaries are allowed, under their tariffs, to recover
gas
costs, revenue taxes and environmental costs from their customers
on a
dollar-for-dollar basis.
|
(2)
|
Normal
heating degree days for fiscal 2004 and 2005 are based on a 30-year
average of monthly temperatures at Chicago's O'Hare Airport for the
years
1970-1999. Normal heating degree days for fiscal 2006 are based on
a
30-year average of monthly temperatures at Chicago's O'Hare Airport
for
the years 1975-2004.
|
ITEM
7A. Quantitative and Qualitative Disclosures About Market
Risk
The
Company is exposed to various business risks associated with commodity prices,
weather, interest rates, and credit. These financial exposures are monitored
and
managed by the Company as an integral part of its overall risk management
program. The Company’s risk management program includes, among other things, the
use of financial derivatives.
Quantitative
and qualitative disclosures about market risk are reported under Item 1A—Risk
Factors and below under Risk Management Activities.
RISK
MANAGEMENT ACTIVITIES
Commodity
Price Risk
The
Company’s earnings may vary due to changes in commodity prices (market risk)
that affect its subsidiaries’ operations and investments. To manage this market
risk, the Company uses forward contracts and financial instruments, including
commodity futures contracts, swaps and options. It is the policy of the Company
to use these instruments solely for the purpose of managing risk and not for
any
speculative purpose.
Derivative
Summary.
The
following table summarizes the changes in valuation of all outstanding
derivative contracts during fiscal 2006 and 2005. All amounts are based on
fair
values at the end of the period and do not necessarily indicate that a gain
or
loss on the derivative will be recognized in income in future periods.
Generally, hedges are held to maturity, which coincides with recognition of
the
transaction being hedged (e.g., anticipated sales or cost of purchases in
income), thereby achieving the realization of prices contemplated by the
underlying risk management strategies.
|
|
Derivative
Type
|
|
|
|
Cash
Flow
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
Hedges
|
|
Hedges
|
|
Mark-to-Market
|
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
Value
of contracts outstanding at October 1
|
|
$
|
(202,904
|
)
|
$
|
(89,306
|
)
|
$
|
(21,457
|
)
|
$
|
(139
|
)
|
$
|
204,276
|
|
$
|
27,678
|
|
Loss
on contracts discontinued as cash flow hedges
|
|
|
-
|
|
|
2,956
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,956
|
)
|
Less:
Gain (loss) on contracts realized or otherwise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
settled
during the year
|
|
|
(87,020
|
)
|
|
(64,841
|
)
|
|
6,192
|
|
|
(2
|
)
|
|
(19,603
|
)
|
|
17,159
|
|
Plus:
Unrealized gain (loss) on new contracts entered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into
during the period and outstanding at year-end
|
|
|
6,144
|
|
|
(20,797
|
)
|
|
10,449
|
|
|
(20,790
|
)
|
|
(147,720
|
)
|
|
199,012
|
|
Plus:
Other unrealized gain (loss), primarily changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
market prices on contracts outstanding at the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning
of the year
|
|
|
85,958
|
|
|
(160,598
|
)
|
|
26,101
|
|
|
(530
|
)
|
|
(227,719
|
)
|
|
(2,299
|
)
|
Value
of contracts outstanding at September 30
|
|
$
|
(23,782
|
)
|
$
|
(202,904
|
)
|
$
|
8,901
|
|
$
|
(21,457
|
)
|
$
|
(151,560
|
)
|
$
|
204,276
|
|
The
change in the value of derivative contracts for the fiscal year ended September
30, 2006 was due primarily to the dramatic change in the forward price curve
of
natural gas over this same period. The increase in the value of contracts
designated as cash flow hedges was driven primarily by the effect of lower
forward prices and a reduction of hedged volumes in the Oil and Gas Production
segment’s derivatives portfolio. The increase in the value of contracts
designated as fair value hedges was driven primarily by an increase in value
in
the Energy Marketing segment’s storage optimization portfolio, partially offset
by the decrease in value of the Company’s floating rate interest rate swap
reflecting the rise in short term interest rates. The primary cause of the
decrease in the value of contracts designated as MTM is attributable to the
impact of the change in the forward price curve on the derivative instruments
of
Peoples Gas and North Shore Gas used to manage each utility’s cost of gas
supply. This was partially offset by the positive impact of changes in prices
on
MTM portfolios at the Energy Marketing segment. For the fiscal year ended
September 30, 2006, unrealized losses on contracts attributed to Peoples Gas
and
North Shore Gas were $322 million and $61 million, respectively. SFAS No. 71
allows for these MTM derivative gains and losses to be recorded as regulatory
assets or regulatory liabilities. Realized gains and losses
are
recorded as an adjustment to the cost of gas supply in the period that the
underlying gas purchase transaction takes place. The costs and benefits of
this
activity are passed through to customers under the tariffs of Peoples Gas and
North Shore Gas.
The
following table is a summary of the fair market value of commodity derivatives
by type at September 30, 2006. Valuations are based on the NYMEX closing prices
for the respective NYMEX Henry Hub futures contracts and on the closing prices
published in various commodity pricing publications for the geographical
differential between a specific location price and the NYMEX Henry Hub futures
contract closing price where applicable.
Commodity
Derivatives
|
|
|
|
|
|
|
|
|
(Fair
Value amounts in thousands)
|
|
|
|
|
|
|
|
Futures/Forwards
|
|
Maturity
|
|
Volumes
(MMbtu's)
|
|
Price
Per
MMbtu
|
|
Fair
Value
|
Long
Natural Gas
|
|
Less
than 1 Year
|
|
13,538,565
|
|
3.53
- 11.98
|
|
$
(13,787)
|
Short
Natural Gas
|
|
Less
than 1 Year
|
|
11,443,642
|
|
3.50
- 12.34
|
|
18,922
|
Long
Natural Gas
|
|
1
-
3 Years
|
|
2,599,737
|
|
7.27
- 11.00
|
|
(127)
|
Short
Natural Gas
|
|
1
-
3 Years
|
|
860,000
|
|
8.63
- 9.99
|
|
(111)
|
|
|
|
|
28,441,944
|
|
|
|
$
4,897
|
Options
|
|
Maturity
|
|
Volumes
(MMbtu's)
|
|
Price
Per
MMbtu
|
|
Fair
Value
|
Long
Natural Gas
|
|
Less
than 1 Year
|
|
9,394,500
|
|
5.00
- 15.00
|
|
$
4,702
|
Short
Natural Gas
|
|
Less
than 1 Year
|
|
10,434,500
|
|
5.50
- 15.00
|
|
(17,440)
|
Long
Natural Gas
|
|
1
-
3 Years
|
|
2,852,000
|
|
7.00
- 9.00
|
|
3,465
|
Short
Natural Gas
|
|
1
-
3 Years
|
|
2,852,000
|
|
5.50
- 12.00
|
|
(2,011)
|
|
|
|
|
25,533,000
|
|
|
|
$
(11,284)
|
Swaps
(NG)
|
|
Maturity
|
|
Volumes
(MMbtu's)
|
|
Price
Per
MMbtu
|
|
Fair
Value
|
Long
Natural Gas
|
|
Less
than 1 Year
|
|
77,515,502
|
|
2.83
- 13.04
|
|
$
(151,621)
|
Short
Natural Gas
|
|
Less
than 1 Year
|
|
27,007,500
|
|
0.96
- 12.54
|
|
4,844
|
Long
Natural Gas
|
|
1
-
3 Years
|
|
15,896,721
|
|
6.57
- 10.82
|
|
(11,908)
|
Short
Natural Gas
|
|
1
-
3 Years
|
|
10,955,000
|
|
3.84
- 11.83
|
|
3,373
|
Long
Natural Gas
|
|
4
-
5 Years
|
|
1,920,000
|
|
6.60
- 7.10
|
|
91
|
Short
Natural Gas
|
|
4
-
5 Years
|
|
1,920,000
|
|
8.99
- 9.50
|
|
1,498
|
Long
Natural Gas
|
|
More
than 5 Years
|
|
900,000
|
|
6.86
|
|
49
|
Short
Natural Gas
|
|
More
than 5 Years
|
|
2,820,000
|
|
8.31
- 9.15
|
|
1,180
|
|
|
|
|
138,934,723
|
|
|
|
$
(152,494)
|
Total
(NG)
|
|
Maturity
|
|
Volumes
(MMbtu's)
|
|
Price
Per
MMbtu
|
|
Fair
Value
|
Long
Natural Gas
|
|
Less
than 1 Year
|
|
100,448,567
|
|
2.83
- 15.00
|
|
$
(160,706)
|
Short
Natural Gas
|
|
Less
than 1 Year
|
|
48,885,642
|
|
0.96
- 15.00
|
|
6,326
|
Long
Natural Gas
|
|
1
-
3 Years
|
|
21,348,458
|
|
6.57
- 11.00
|
|
(8,570)
|
Short
Natural Gas
|
|
1
-
3 Years
|
|
14,667,000
|
|
3.84
- 12.00
|
|
1,251
|
Long
Natural Gas
|
|
4
-
5 Years
|
|
1,920,000
|
|
6.60
- 7.10
|
|
91
|
Short
Natural Gas
|
|
4
-
5 Years
|
|
1,920,000
|
|
8.99
- 9.50
|
|
1,498
|
Long
Natural Gas
|
|
More
than 5 Years
|
|
900,000
|
|
6.86
|
|
49
|
Short
Natural Gas
|
|
More
than 5 Years
|
|
2,820,000
|
|
8.31
- 9.15
|
|
1,180
|
|
|
|
|
192,909,667
|
|
|
|
$
(158,881)
|
Swaps
(OIL)
|
|
Maturity
|
|
Volumes
(Bbl's)
|
|
Price
Per
Bbl
|
|
Fair
Value
|
Short
WTI Crude Oil
|
|
Less
than 1 Year
|
|
182,500
|
|
37.50
|
|
$
(5,227)
|
Short
WTI Crude Oil
|
|
1
-
3 Years
|
|
73,200
|
|
56.60
|
|
(837)
|
|
|
|
|
255,700
|
|
|
|
$
(6,064)
|
Futures/Forwards
(Megawatt-hours)
|
|
Maturity
|
|
Amounts
(Mwh's)
|
|
Price
Per
Mwh
|
|
Fair
Value
|
Long
Megawatt-hours
|
|
Less
than 1 Year
|
|
633,938
|
|
(0.20)
- 0.36
|
|
$
52
|
|
|
|
|
633,938
|
|
|
|
$
52
|
Grand
Total - Fair Value of Commodity Derivatives
|
|
|
|
|
|
$
(164,893)
|
Fair
Value of Interest Rate Swap
|
|
|
|
|
|
|
(1,548)
|
Grand
Total - Fair Value of all Derivatives
|
|
|
|
|
|
$
(166,441)
|
Cash
Flow Hedges.
The
Company has positions in oil and gas reserves, natural gas, and transportation
as part of its Oil and Gas Production and Energy Marketing businesses, and
related to its company use gas in the Gas Distribution segment. The Company
uses
derivative financial instruments to protect against loss of value of future
anticipated cash transactions (sales and purchases) caused by changes in the
marketplace. These instruments are designated cash flow hedges, which allow
for
the effective portion of unrealized changes in value during the life of the
hedge to be recorded in other comprehensive income. Realized gains and losses
from cash flow hedges are recorded in the statement of operations in the same
month the related physical sales and purchases and interest expense are
recorded. Cash flow hedge accounting is discontinued when it is no longer
probable that the original forecasted transactions will occur. The carrying
value of contracts which no longer qualify for hedge accounting are
prospectively marked-to-market, with the change in value recorded in the
statement of operations. If the original forecasted transactions are probable
of
not occurring, any amounts previously recorded in other comprehensive income
are
immediately recorded in the statement of operations. Hedge ineffectiveness
can
result from differences in critical terms (such as location) between the hedging
instrument and the hedged transaction and result in the immediate recognition
of
gains or losses.
Fair
Value Hedges.
The
Company uses financial and physical hedges to protect the value of a portion
of
Energy Marketing’s gas in storage and these are accounted for as fair value
hedges. The change in value of these hedges and the change in value of the
inventory hedged are expected to largely offset in each reporting period in
the
statement of operations. During the years ended September 30, 2006 and 2005,
the
Energy Marketing segment recorded MTM losses of $3.2 million and $3.3 million,
respectively, related to the application of fair value hedge accounting to
certain storage inventory transactions. The Energy Marketing segment uses
derivatives to mitigate commodity price risk and substantially lock in the
profit margin that it will ultimately realize when inventory volumes are
withdrawn from storage. Under fair value accounting, which is used for certain
storage activity, the MTM adjustment to inventory is computed using spot prices,
while the derivatives used to mitigate the risk of changes in inventory value
are marked to market using forward prices. When the spot price of natural gas
changes disproportionately to the forward price, the difference is recorded
in
operating results. As a result, earnings are subject to volatility, even when
the underlying expected profit margin over the duration of the contracts is
unchanged. The volatility resulting from this accounting can be significant
from
period to period. A portion of this accounting loss will reverse next year
if
the volumes are withdrawn from storage. At September 30, 2006, gas inventory
hedged using fair value accounting at Energy Marketing had a fair value of
$18.0
million, including MTM decreases in inventory totaling $16.8 million for changes
in spot prices. Derivative assets totaling $10.3 million were recorded for
the
fair value of the derivatives used to hedge this inventory. At September 30,
2005, hedged gas inventory at Energy Marketing had a fair value of $44.1
million, including MTM increases in inventory totaling $17.6 million for changes
in spot prices. Derivative liabilities totaling $20.9 million were recorded
for
the fair value of the derivatives used to hedge this inventory.
The
Company also uses certain financial instruments to adjust the portfolio
composition of its debt from fixed-rate to floating-rate debt. These derivative
instruments are accounted for as fair value hedges and are not material to
the
Company's financial condition or results of operations. The change in value
of
these hedges along with the offsetting change in value of the debt hedged (to
the extent the hedge is effective) are recorded in each reporting period in
interest expense in the statement of operations.
Mark-To-Market
Derivative Instruments.
Peoples
Gas and North Shore Gas use derivative instruments to manage each utility’s cost
of gas supply and mitigate price volatility. All such derivative instruments
are
measured at fair value. The regulated utilities’ tariffs allow for full recovery
from their customers of prudently incurred gas supply costs, including gains
or
losses on these derivative instruments. As a result, SFAS No. 71 allows these
MTM derivative gains or losses to be recorded as regulatory assets or regulatory
liabilities. Realized gains or losses are recorded as an adjustment to the
cost
of gas supply in the period that the underlying gas purchase transaction takes
place. The costs and benefits of this activity are passed through to customers
under the tariffs of Peoples Gas and North Shore Gas.
The
Energy Marketing segment uses certain derivative contracts (such as NYMEX or
Basis swaps) that do not qualify for hedge accounting under SFAS No. 133.
Included in these contracts are hedges of location differentials associated
with
its wholesale natural gas contracts and transactions involving storage assets.
In the fiscal year
ended
September 30, 2006, the Energy Marketing segment recognized MTM pretax gains
(losses) (included in revenues) of $1.3 million related to these derivatives.
As
physical volumes are delivered under natural gas contracts or withdrawn under
certain gas storage contracts, these MTM accounting impacts are reversed. The
above amounts include net MTM activity both for hedges for settlement in future
periods and the reversal of amounts recorded in prior periods and settled within
the current period.
The
following table summarizes the market value of these outstanding instruments
and
other derivative instruments that do not qualify for hedge accounting and are
recorded on a MTM basis. All amounts are expected to be settled during the
next
12 months.
|
|
September
30,
|
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
Peoples
Gas mark-to-market asset (liability)
|
|
$
|
(128,417
|
)
|
$
|
172,549
|
|
North
Shore Gas mark-to-market asset (liability)
|
|
|
(24,135
|
)
|
|
33,754
|
|
Other
mark-to-market asset (liability)
|
|
|
992
|
|
|
(2,027
|
)
|
Total
|
|
$
|
(151,560
|
)
|
$
|
204,276
|
|
Weather
Risk
The
Company’s Gas Distribution earnings vary due to the warmth or severity of the
weather. The Company has managed this risk through the purchase of weather
insurance and the use of block rates in utility rate design. Block rates help
mitigate the effect of warm weather by allowing greater cost recovery on the
first volumes through the meter and less on the last volumes. The insurance
in
place for fiscal 2005 was provided by a subsidiary of X.L. America, Inc. and
protected the Company for a portion of lost revenue incurred when weather was
more than 5% warmer than normal. In fiscal 2005 the Company recognized as
additional revenues $3.5 million in insurance recoveries. No weather insurance
was purchased for fiscal 2006 as the Company views the current market pricing
for this product as excessive relative to the risk it would protect
against.
The
Energy Marketing business segment can also be affected by weather variations.
Storage, swing supply and weather derivatives are used or are available to
protect earnings and ensure performance.
Interest
Rate Risk
The
Company uses interest rate derivatives to adjust the portfolio composition
of
fixed-rate and floating rate debt and it accounts for these derivatives as
fair
value hedges.
In
August
2004, the Company entered into a six-month LIBOR-based interest rate swap
agreement on $50.0 million of its $325.0 million 6.90% Series A
Notes, due January 15, 2011. Under this agreement, the Company will receive
the fixed price of 6.90% and pay six-month LIBOR plus a defined spread on the
notional amount of $50.0 million. The payments will reset on the
15th day of each January and July until maturity of the Series A
Notes.
Credit
Risk
The
Company has established a credit policy to mitigate the effect of nonperformance
on wholesale transactions. Pursuant to this policy, a credit limit is
established for all counterparties based on a review of their financial
condition. The Company reviews, and changes when necessary, its credit
underwriting and monitoring procedures. The Company has adequate financial
assurance provisions in its commercial agreements that permit the Company to
call for credit support when warranted. Action may include the calling of
collateral, adjusting credit lines, changing payment terms or reducing future
business. In addition, netting arrangements and requirements to post margin
are
used to further reduce credit exposure.
Credit
risk for the utility companies is spread over a diversified base of residential,
commercial and industrial customers. Customers’ payment records are continually
monitored and credit deposits are required, when appropriate.
ITEM
8. Financial Statements and Supplementary Data
|
|
Page
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
Peoples
En
e
r
gy
|
|
60
|
Peoples
G
as
|
|
61
|
North
Shore
G
as
|
|
62
|
|
|
|
Consolidated
Statements of Operations for Fiscal Years Ended September 30, 2006,
2005
and 2004
|
Peoples
En
e
rgy
|
|
63
|
People
s
Gas
|
|
68
|
North
S
h
ore
Gas
|
|
73
|
|
|
|
Consolidated
Balance Sheets at September 30, 2006 and 2005
|
|
|
Peoples
E
n
e
r
gy
|
|
64
|
Peoples
G
a
s
|
|
69
|
North
Shore
G
as
|
|
74
|
|
|
|
Consolidated
Capitalization Statements at September 30, 2006 and 2005
|
|
|
People
s
En
e
rgy
|
|
65
|
Peoples
Gas
|
|
70
|
North
Shore Gas
|
|
75
|
|
|
|
Consolidated
Statements of Stockholders' Equity for Fiscal Years Ended September
30,
2006, 2005 and 2004
|
Peoples
Ene
r
gy
|
|
66
|
People
s
Gas
|
|
71
|
North
S
h
o
re
Gas
|
|
76
|
|
|
|
Consolidated
Statements of Cash Flows for Fiscal Years Ended September 30, 2006,
2005
and 2004
|
P
e
op
l
es
E
ner
g
y
|
|
67
|
Peoples
Gas
|
|
72
|
North
Sh
o
re
Gas
|
|
77
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
78
|
|
|
|
Consolidated
Financial Statements and Notes to Consolidated Financial Statements
of
Elwood Energy LLC*
|
*
The
Company's investment in Elwood meets certain "significance" tests pursuant
to
Rule 3-09 of SEC Regulation S-X. The Company intends to file by December
29, 2006, an amendment to its annual report on Form 10-K to include the
separate financial statements of Elwood.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Shareholders of Peoples Energy Corporation:
We
have
audited the accompanying consolidated balance sheets and consolidated
capitalization statements of Peoples Energy Corporation and subsidiary companies
(the Company) as of September 30, 2006 and 2005, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the
three years in the period ended September 30, 2006. Our audits also included
the
financial statement schedules listed in the Index at Item 15(a)2. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Peoples Energy Corporation
and subsidiary companies at September 30, 2006 and 2005, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2006, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
As
discussed in Note 2 to the consolidated financial statements, effective
September 30, 2006, the Company changed its method of accounting for conditional
asset retirement obligations to adopt FASB Interpretation No. 47, “Conditional
Asset Retirement Obligations”.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company's internal
control over financial reporting as of September 30, 2006, based on the criteria
established in
Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission and
our
report dated December 14, 2006, expressed an unqualified opinion on management's
assessment of the effectiveness of the Company's internal control over financial
reporting and an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.
/s/
DELOITTE & TOUCHE LLP
DELOITTE
& TOUCHE LLP
Chicago,
Illinois
December
14, 2006
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
The
Peoples Gas Light and Coke Company:
We
have
audited the accompanying consolidated balance sheets and consolidated
capitalization statements of The Peoples Gas Light and Coke Company and
subsidiary companies (hereinafter referred to as Peoples Gas, a wholly owned
subsidiary of Peoples Energy Corporation) as of September 30, 2006 and 2005,
and
the related consolidated statements of operations, stockholder’s equity, and
cash flows for each of the three years in the period ended September 30, 2006.
Our audits also included the financial statement schedules listed in the Index
at Item 15(a)2. These consolidated financial statements and financial statement
schedules are the responsibility of the management of Peoples Gas. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. Peoples Gas is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the internal control over financial reporting
of
Peoples Gas. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Peoples Gas at September
30,
2006 and 2005, and the results of its operations and its cash flows for each
of
the three years in the period ended September 30, 2006, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
As
discussed in Note 2 to the consolidated financial statements, effective
September 30, 2006, Peoples Gas changed its method of accounting for conditional
asset retirement obligations to adopt FASB Interpretation No. 47, “Conditional
Asset Retirement Obligations”.
/s/
DELOITTE & TOUCHE LLP
DELOITTE
& TOUCHE LLP
Chicago,
Illinois
December
14, 2006
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
North
Shore Gas Company:
We
have
audited the accompanying consolidated balance sheets and consolidated
capitalization statements of North Shore Gas Company and subsidiary companies
(hereinafter referred to as North Shore Gas, a wholly owned subsidiary of
Peoples Energy Corporation) as of September 30, 2006 and 2005, and the related
consolidated statements of operations, stockholder’s equity, and cash flows for
each of the three years in the period ended September 30, 2006. Our audits
also
included the financial statement schedules listed in the Index at Item 15(a)2.
These consolidated financial statements and financial statement schedules are
the responsibility of the management of North Shore Gas. Our responsibility
is
to express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. North Shore Gas is not required
to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the internal control over financial reporting
of
North Shore Gas. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of North Shore Gas at September
30, 2006 and 2005, and the results of its operations and its cash flows for
each
of the three years in the period ended September 30, 2006, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
As
discussed in Note 2 to the consolidated financial statements, effective
September 30, 2006, North Shore Gas changed its method of accounting for
conditional asset retirement obligations to adopt FASB Interpretation No. 47,
“Conditional Asset Retirement Obligations”.
/s/
DELOITTE & TOUCHE LLP
DELOITTE
& TOUCHE LLP
Chicago,
Illinois
December
14, 2006
Peoples
Energy Corporation
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands, Except Per-Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,017,970
|
|
$
|
2,599,585
|
|
$
|
2,260,199
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost
of energy sold
|
|
|
2,204,313
|
|
|
1,805,369
|
|
|
1,467,777
|
|
Gas
charge settlement
|
|
|
107,330
|
|
|
-
|
|
|
-
|
|
Operation
and maintenance, excluding merger,
|
|
|
|
|
|
|
|
|
|
|
restructuring
and environmental costs
|
|
|
350,776
|
|
|
319,735
|
|
|
322,997
|
|
Merger
costs
|
|
|
8,944
|
|
|
-
|
|
|
-
|
|
Restructuring
costs
|
|
|
-
|
|
|
13,141
|
|
|
17,000
|
|
Environmental
costs
|
|
|
33,654
|
|
|
30,437
|
|
|
17,384
|
|
Depreciation,
depletion and amortization
|
|
|
118,403
|
|
|
110,888
|
|
|
118,986
|
|
Taxes,
other than income taxes
|
|
|
200,918
|
|
|
184,206
|
|
|
169,934
|
|
(Gains)
losses on property sales and impairments, net
|
|
|
(336
|
)
|
|
(3,320
|
)
|
|
(2,547
|
)
|
Total
Operating Expenses
|
|
|
3,024,002
|
|
|
2,460,456
|
|
|
2,111,531
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
investment income
|
|
|
7,818
|
|
|
10,288
|
|
|
4,361
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
1,786
|
|
|
149,417
|
|
|
153,029
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
8,591
|
|
|
5,623
|
|
|
3,808
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
283
|
|
|
317
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
61,583
|
|
|
50,615
|
|
|
48,426
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Continuing Operations Before
Income
Taxes
|
|
|
(51,489
|
)
|
|
104,108
|
|
|
108,075
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
(23,548
|
)
|
|
37,260
|
|
|
33,333
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Continuing Operations
|
|
|
(27,941
|
)
|
|
66,848
|
|
|
74,742
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, net of income
|
|
|
|
|
|
|
|
|
|
|
tax
expense of $6,797, $7,444 and $4,500,
respectively
|
|
|
10,305
|
|
|
11,285
|
|
|
6,822
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(17,636
|
)
|
$
|
78,133
|
|
$
|
81,564
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Shares of Common Stock Outstanding
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
38,365
|
|
|
37,977
|
|
|
37,318
|
|
Diluted
|
|
|
38,518
|
|
|
38,140
|
|
|
37,490
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(Loss) Per Share of Common Stock
|
|
|
|
|
|
|
|
|
|
|
Basic,
continuing operations
|
|
$
|
(0.73
|
)
|
$
|
1.76
|
|
$
|
2.01
|
|
Basic,
discontinued operations
|
|
$
|
0.27
|
|
$
|
0.30
|
|
$
|
0.18
|
|
Total
- basic earnings (loss) per share
|
|
$
|
(0.46
|
)
|
$
|
2.06
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted,
continuing operations
|
|
$
|
(0.73
|
)
|
$
|
1.75
|
|
$
|
2.00
|
|
Diluted,
discontinued operations
|
|
$
|
0.27
|
|
$
|
0.30
|
|
$
|
0.18
|
|
Total
- diluted earnings (loss) per share
|
|
$
|
(0.46
|
)
|
$
|
2.05
|
|
$
|
2.18
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
Declared Per Share
|
|
$
|
2.18
|
|
$
|
2.175
|
|
$
|
2.15
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
|
Peoples
Energy Corporation
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
At
September 30,
|
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
|
|
CAPITAL
INVESTMENTS:
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
Utility
plant
|
|
$
|
2,733,008
|
|
$
|
2,634,629
|
|
Oil
and gas
|
|
|
792,862
|
|
|
555,365
|
|
Other
|
|
|
24,522
|
|
|
22,740
|
|
Total
property, plant and equipment
|
|
|
3,550,392
|
|
|
3,212,734
|
|
Less—Accumulated
depreciation, depletion and amortization
|
|
|
1,367,503
|
|
|
1,266,351
|
|
Net
property, plant and equipment
|
|
|
2,182,889
|
|
|
1,946,383
|
|
Investment
in equity investees
|
|
|
250
|
|
|
20,851
|
|
Other
investments
|
|
|
12,527
|
|
|
13,796
|
|
Total
Capital Investments—Net
|
|
|
2,195,666
|
|
|
1,981,030
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
42,115
|
|
|
18,186
|
|
Deposits
with broker or trustee
|
|
|
103,584
|
|
|
25,327
|
|
Receivables—
|
|
|
|
|
|
|
|
Customers,
net of reserve for uncollectible
|
|
|
|
|
|
|
|
accounts
of $43,971 and $34,954, respectively
|
|
|
220,969
|
|
|
246,393
|
|
Other
|
|
|
4,812
|
|
|
4,092
|
|
Derivative
assets, at fair value—current
|
|
|
49,116
|
|
|
247,612
|
|
Materials
and supplies, at average cost
|
|
|
9,670
|
|
|
10,468
|
|
Gas
in storage
|
|
|
238,251
|
|
|
236,995
|
|
Gas
costs recoverable through rate adjustments
|
|
|
6,679
|
|
|
8,608
|
|
Regulatory
assets of utility subsidiaries
|
|
|
193,989
|
|
|
30,062
|
|
Other
|
|
|
46,237
|
|
|
70,887
|
|
Assets
of discontinued operations
|
|
|
84,471
|
|
|
128,319
|
|
Total
Current Assets
|
|
|
999,893
|
|
|
1,026,949
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
Prepaid
pension costs
|
|
|
182,319
|
|
|
152,720
|
|
Noncurrent
regulatory assets of utility subsidiaries
|
|
|
404,713
|
|
|
322,163
|
|
Derivative
assets, at fair value—noncurrent
|
|
|
17,148
|
|
|
7,021
|
|
Deferred
charges and other
|
|
|
22,675
|
|
|
47,908
|
|
Total
Other Assets
|
|
|
626,855
|
|
|
529,812
|
|
Total
Assets
|
|
$
|
3,822,414
|
|
$
|
3,537,791
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION
AND LIABILITIES
|
|
|
|
|
|
|
|
Total
Capitalization (see Consolidated Capitalization
Statements)
|
|
$
|
1,736,156
|
|
$
|
1,695,737
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Commercial
paper
|
|
|
309,744
|
|
|
8,148
|
|
Accounts
payable
|
|
|
211,112
|
|
|
236,212
|
|
Regulatory
liabilities of utility subsidiaries
|
|
|
11,250
|
|
|
198,550
|
|
Dividends
payable
|
|
|
20,974
|
|
|
20,791
|
|
Customer
deposits
|
|
|
35,168
|
|
|
29,803
|
|
Customer
credit balances
|
|
|
89,676
|
|
|
59,635
|
|
Accrued
taxes
|
|
|
3,963
|
|
|
26,096
|
|
Gas
deliverable to customers
|
|
|
87,141
|
|
|
56,129
|
|
Derivative
liabilities, at fair value—current
|
|
|
214,518
|
|
|
186,854
|
|
Other
accrued liabilities
|
|
|
43,904
|
|
|
67,702
|
|
Gas
costs refundable through rate adjustments
|
|
|
62,153
|
|
|
293
|
|
Accrued
interest
|
|
|
12,439
|
|
|
11,474
|
|
Deferred
credit related to discontinued operations
|
|
|
-
|
|
|
2,201
|
|
Total
Current Liabilities
|
|
|
1,102,042
|
|
|
903,888
|
|
|
|
|
|
|
|
|
|
DEFERRED
CREDITS AND OTHER LIABILITIES:
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
461,046
|
|
|
446,382
|
|
Investment
tax credits
|
|
|
26,148
|
|
|
26,373
|
|
Derivative
liabilities, at fair value—noncurrent
|
|
|
22,671
|
|
|
68,895
|
|
Environmental
liabilities
|
|
|
269,200
|
|
|
282,411
|
|
Asset
retirement obligations
|
|
|
112,331
|
|
|
1,541
|
|
Pension,
postretirement and other
|
|
|
92,820
|
|
|
112,564
|
|
Total
Deferred Credits and Other Liabilities
|
|
|
984,216
|
|
|
938,166
|
|
Total
Capitalization and Liabilities
|
|
$
|
3,822,414
|
|
$
|
3,537,791
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
|
Peoples
Energy Corporation
|
CONSOLIDATED
CAPITALIZATION STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
At
September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
(In
Thousands, Except Shares)
|
|
|
|
|
|
|
|
COMMON
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
Common
stock, without par value—
|
|
|
|
|
|
|
|
Authorized
60,000,000 shares
|
|
|
|
|
|
|
|
Issued
38,731,880 and 38,400,318 shares, respectively
|
|
$
|
423,085
|
|
$
|
409,060
|
|
Treasury
stock (243,100 shares, at cost)
|
|
|
(6,677
|
)
|
|
(6,677
|
)
|
Retained
earnings
|
|
|
444,444
|
|
|
546,237
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(19,398
|
)
|
|
(148,466
|
)
|
Total
Common Stockholders' Equity
|
|
|
841,454
|
|
|
800,154
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT:
|
|
|
|
|
|
|
|
Peoples
Energy Corporation
|
|
|
|
|
|
|
|
6.9%
Series A, due January 15, 2011
|
|
|
325,000
|
|
|
325,000
|
|
Fair
value hedge adjustment
|
|
|
(1,548
|
)
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
The
Peoples Gas Light and Coke Company
|
|
|
|
|
|
|
|
First
and Refunding Mortgage Bonds—
|
|
|
|
|
|
|
|
4.75%
Series HH, due March 1, 2030,
|
|
|
|
|
|
|
|
adjustable
after July 1, 2014
|
|
|
50,000
|
|
|
50,000
|
|
5.00%
Series KK, due February 1, 2033
|
|
|
50,000
|
|
|
50,000
|
|
3.05%
Series LL, due February 1, 2033,
|
|
|
|
|
|
|
|
adjustable
after February 1, 2008
|
|
|
50,000
|
|
|
50,000
|
|
4.00%
Series MM-2, due March 1, 2010
|
|
|
50,000
|
|
|
50,000
|
|
4.625%
Series NN-2, due May 1, 2013
|
|
|
75,000
|
|
|
75,000
|
|
4.875%
Series QQ, due November 1, 2038,
|
|
|
|
|
|
|
|
adjustable
after November 1, 2018
|
|
|
75,000
|
|
|
75,000
|
|
4.30%
Series RR, due June 1, 2035,
|
|
|
|
|
|
|
|
adjustable
after June 1, 2016
|
|
|
50,000
|
|
|
50,000
|
|
|
|
|
400,000
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
Adjustable
Rate Bonds—
|
|
|
|
|
|
|
|
Series
OO, due October 1, 2037
|
|
|
51,000
|
|
|
51,000
|
|
Series
PP, due October 1, 2037
|
|
|
51,000
|
|
|
51,000
|
|
|
|
|
102,000
|
|
|
102,000
|
|
|
|
|
|
|
|
|
|
North
Shore Gas Company
|
|
|
|
|
|
|
|
First
Mortgage Bonds—
|
|
|
|
|
|
|
|
5.00%
Series M, due December 1, 2028
|
|
|
29,250
|
|
|
29,250
|
|
4.625%
Series N-2, due May 1, 2013
|
|
|
40,000
|
|
|
40,000
|
|
|
|
|
69,250
|
|
|
69,250
|
|
|
|
|
|
|
|
|
|
Total
Long-Term Debt
|
|
|
894,702
|
|
|
895,583
|
|
|
|
|
|
|
|
|
|
Total
Capitalization
|
|
$
|
1,736,156
|
|
$
|
1,695,737
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
Peoples
Energy Corporation
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
(In
Thousands, Except Per-Share Amounts)
|
|
|
Stock
|
|
|
Stock
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Total
|
|
For
Fiscal Year Ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
$
|
346,545
|
|
$
|
(6,760
|
)
|
$
|
549,969
|
|
$
|
(41,755
|
)
|
$
|
847,999
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
81,564
|
|
|
|
|
|
81,564
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
16,047
|
|
|
16,047
|
|
Unrealized
hedge (loss)
|
|
|
|
|
|
|
|
|
|
|
|
(39,599
|
)
|
|
(39,599
|
)
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued
|
|
|
44,614
|
|
|
|
|
|
|
|
|
|
|
|
44,614
|
|
Treasury
stock
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
83
|
|
Dividends
declared on common stock ($2.15)
|
|
|
|
|
|
|
|
|
(80,424
|
)
|
|
|
|
|
(80,424
|
)
|
Other
|
|
|
|
|
|
|
|
|
(201
|
)
|
|
|
|
|
(201
|
)
|
September
30, 2004 (1) (2)
|
|
$
|
391,159
|
|
$
|
(6,677
|
)
|
$
|
550,908
|
|
$
|
(65,307
|
)
|
$
|
870,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Year Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
78,133
|
|
|
|
|
|
78,133
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
(17,886
|
)
|
|
(17,886
|
)
|
Unrealized
hedge (loss)
|
|
|
|
|
|
|
|
|
|
|
|
(65,273
|
)
|
|
(65,273
|
)
|
Total
Comprehensive (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued
|
|
|
17,901
|
|
|
|
|
|
|
|
|
|
|
|
17,901
|
|
Dividends
declared on common stock ($2.175)
|
|
|
|
|
|
|
|
|
(82,695
|
)
|
|
|
|
|
(82,695
|
)
|
Other
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
(109
|
)
|
September
30, 2005 (1) (2)
|
|
$
|
409,060
|
|
$
|
(6,677
|
)
|
$
|
546,237
|
|
$
|
(148,466
|
)
|
$
|
800,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Year Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
|
|
|
|
|
|
(17,636
|
)
|
|
|
|
|
(17,636
|
)
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
25,785
|
|
|
25,785
|
|
Unrealized
hedge gain
|
|
|
|
|
|
|
|
|
|
|
|
103,283
|
|
|
103,283
|
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued
|
|
|
14,025
|
|
|
|
|
|
|
|
|
|
|
|
14,025
|
|
Dividends
declared on common stock ($2.18)
|
|
|
|
|
|
|
|
|
(83,698
|
)
|
|
|
|
|
(83,698
|
)
|
Other
|
|
|
|
|
|
|
|
|
(459
|
)
|
|
|
|
|
(459
|
)
|
September
30, 2006 (1) (2)
|
|
$
|
423,085
|
|
$
|
(6,677
|
)
|
$
|
444,444
|
|
$
|
(19,398
|
)
|
$
|
841,454
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
|
(1)
|
Accumulated
other comprehensive income balance is net of $17.0 million and
$5.2
million of deferred income tax credits
related
to minimum pension liabilities at September 30, 2005 and 2004,
respectively. At September 30, 2006, there was no
minimum
pension liability; the related balance in accumulated other comprehensive
income was reduced to
zero.
|
(2)
|
Accumulated
other comprehensive income balance is net of $12.8 million,
$80.9 million
and $37.9 million of deferred
income
tax credits related to unrealized hedge losses at September
30, 2006, 2005
and 2004,
respectively.
|
Peoples
Energy Corporation
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended September 30,
|
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(17,636
|
)
|
$
|
78,133
|
|
$
|
81,564
|
|
Adjustments
to reconcile net income to cash provided by operations:
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
123,812
|
|
|
116,226
|
|
|
125,212
|
|
Deferred
income taxes and investment tax credits—net
|
|
|
(32,407
|
)
|
|
19,614
|
|
|
17,003
|
|
Change
in undistributed earnings from equity investments
|
|
|
4,788
|
|
|
(10,150
|
)
|
|
(8,327
|
)
|
Mark-to-market
gain or loss included in net income
|
|
|
(5,577
|
)
|
|
11,100
|
|
|
625
|
|
Pension
funding (greater) less than expense
|
|
|
170
|
|
|
(4,536
|
)
|
|
10,741
|
|
Other
adjustments
|
|
|
(25,872
|
)
|
|
7,490
|
|
|
(20,133
|
)
|
Net
changes in:
|
|
|
|
|
|
|
|
|
|
|
Receivables—net
|
|
|
24,704
|
|
|
(56,956
|
)
|
|
22,734
|
|
Gas
in storage, excluding fair value adjustments
|
|
|
(17,924
|
)
|
|
(28,344
|
)
|
|
(25,210
|
)
|
Gas
costs recoverable/refundable through rate adjustments
|
|
|
63,789
|
|
|
12,268
|
|
|
(2,957
|
)
|
Accounts
payable
|
|
|
(30,048
|
)
|
|
88,900
|
|
|
(14,025
|
)
|
Gas
deliverable to customers
|
|
|
31,012
|
|
|
20,206
|
|
|
12,431
|
|
Other
accrued liabilities
|
|
|
(12,548
|
)
|
|
6,239
|
|
|
20,992
|
|
Accrued
interest
|
|
|
965
|
|
|
167
|
|
|
308
|
|
Accrued
taxes
|
|
|
(13,650
|
)
|
|
8,813
|
|
|
(18,676
|
)
|
Customer
credit balances and deposits
|
|
|
35,405
|
|
|
9,030
|
|
|
5,325
|
|
Other
|
|
|
2,179
|
|
|
3,952
|
|
|
(5,315
|
)
|
Net
Cash Provided by (Used in) Operating Activities
|
|
|
131,162
|
|
|
282,152
|
|
|
202,292
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
spending
|
|
|
(344,017
|
)
|
|
(162,758
|
)
|
|
(189,389
|
)
|
Return
of capital investments
|
|
|
59,343
|
|
|
10,359
|
|
|
14,692
|
|
Decrease
(increase) in deposits with broker or trustee
|
|
|
(59,862
|
)
|
|
(11,436
|
)
|
|
5,470
|
|
Proceeds
from sale of assets
|
|
|
2,567
|
|
|
4,934
|
|
|
3,727
|
|
Other
|
|
|
1,704
|
|
|
2,711
|
|
|
737
|
|
Net
Cash Provided By (Used in) Investing Activities
|
|
|
(340,265
|
)
|
|
(156,190
|
)
|
|
(164,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from (payment of) overdraft facility
|
|
|
4,948
|
|
|
2,604
|
|
|
(597
|
)
|
Issuance
(retirement) of commercial paper
|
|
|
301,596
|
|
|
(47,477
|
)
|
|
(325
|
)
|
Retirement
of short-term debt
|
|
|
-
|
|
|
-
|
|
|
(152,000
|
)
|
Issuance
of long-term debt
|
|
|
-
|
|
|
47,947
|
|
|
223,608
|
|
Retirement
of long-term debt
|
|
|
-
|
|
|
(51,794
|
)
|
|
(76,515
|
)
|
Proceeds
from issuance of common stock
|
|
|
10,002
|
|
|
15,988
|
|
|
41,383
|
|
Dividends
paid on common stock
|
|
|
(83,514
|
)
|
|
(82,272
|
)
|
|
(79,503
|
)
|
Net
Cash Provided by (Used in) Financing Activities
|
|
|
233,032
|
|
|
(115,004
|
)
|
|
(43,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
23,929
|
|
|
10,958
|
|
|
(6,420
|
)
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
18,186
|
|
|
7,228
|
|
|
13,648
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
42,115
|
|
$
|
18,186
|
|
$
|
7,228
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid, net of refunds
|
|
$
|
36,015
|
|
$
|
15,334
|
|
$
|
37,264
|
|
Interest
paid, net of amounts capitalized
|
|
$
|
57,444
|
|
$
|
49,295
|
|
$
|
46,363
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
|
The
Peoples Gas Light and Coke Company
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,622,291
|
|
$
|
1,424,703
|
|
$
|
1,279,375
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Gas
costs
|
|
|
1,052,333
|
|
|
853,453
|
|
|
723,771
|
|
Gas
charge settlement
|
|
|
103,030
|
|
|
-
|
|
|
-
|
|
Operation
and maintenance, excluding
|
|
|
|
|
|
|
|
|
|
|
restructuring
and environmental costs
|
|
|
252,663
|
|
|
231,709
|
|
|
242,023
|
|
Restructuring
costs
|
|
|
-
|
|
|
8,790
|
|
|
9,686
|
|
Environmental
costs
|
|
|
31,588
|
|
|
28,574
|
|
|
16,206
|
|
Depreciation
and amortization
|
|
|
56,850
|
|
|
56,178
|
|
|
61,872
|
|
Taxes,
other than income taxes
|
|
|
166,821
|
|
|
152,533
|
|
|
140,348
|
|
(Gains)
losses on property sales
|
|
|
(860
|
)
|
|
(2,093
|
)
|
|
(2,339
|
)
|
Total
Operating Expenses
|
|
|
1,662,425
|
|
|
1,329,144
|
|
|
1,191,567
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (Loss)
|
|
|
(40,134
|
)
|
|
95,559
|
|
|
87,808
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
5,698
|
|
|
4,350
|
|
|
3,123
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
137
|
|
|
105
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
26,987
|
|
|
23,781
|
|
|
21,114
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Income Taxes
|
|
|
(61,560
|
)
|
|
76,023
|
|
|
69,773
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
(26,116
|
)
|
|
26,690
|
|
|
24,397
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(35,444
|
)
|
$
|
49,333
|
|
$
|
45,376
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
The
Peoples Gas Light and Coke Company
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
At
September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CAPITAL
INVESTMENTS:
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
$
|
2,358,448
|
|
$
|
2,271,716
|
|
Less—Accumulated
depreciation and amortization
|
|
|
946,227
|
|
|
904,200
|
|
Net
property, plant and equipment
|
|
|
1,412,221
|
|
|
1,367,516
|
|
Other
investments
|
|
|
1,361
|
|
|
1,548
|
|
Total
Capital Investments—Net
|
|
|
1,413,582
|
|
|
1,369,064
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
30,770
|
|
|
-
|
|
Deposits
with broker or trustee
|
|
|
5,107
|
|
|
38
|
|
Receivables—
|
|
|
|
|
|
|
|
Customers,
net of reserve for uncollectible
|
|
|
|
|
|
|
|
accounts
of $40,631 and $31,947, respectively
|
|
|
99,955
|
|
|
113,946
|
|
Intercompany
receivables
|
|
|
6,285
|
|
|
189,794
|
|
Other
|
|
|
211
|
|
|
2
|
|
Materials
and supplies, at average cost
|
|
|
8,575
|
|
|
9,238
|
|
Gas
in storage, at last-in, first-out cost
|
|
|
127,745
|
|
|
106,242
|
|
Gas
costs recoverable through rate adjustments
|
|
|
4,514
|
|
|
6,889
|
|
Regulatory
assets
|
|
|
169,077
|
|
|
28,061
|
|
Other
|
|
|
26,218
|
|
|
9,127
|
|
Total
Current Assets
|
|
|
478,457
|
|
|
463,337
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
Prepaid
pension costs
|
|
|
184,660
|
|
|
153,110
|
|
Noncurrent
regulatory assets
|
|
|
317,898
|
|
|
256,180
|
|
Deferred
charges and other
|
|
|
18,257
|
|
|
35,490
|
|
Total
Other Assets
|
|
|
520,815
|
|
|
444,780
|
|
Total
Assets
|
|
$
|
2,412,854
|
|
$
|
2,277,181
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION
AND LIABILITIES
|
|
|
|
|
|
|
|
Total
Capitalization (see Consolidated Capitalization
Statements)
|
|
$
|
1,138,105
|
|
$
|
1,115,272
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Other
short-term debt—intercompany
|
|
|
-
|
|
|
360
|
|
Accounts
payable
|
|
|
81,385
|
|
|
98,069
|
|
Intercompany
payables
|
|
|
167,391
|
|
|
22,573
|
|
Regulatory
liabilities
|
|
|
11,249
|
|
|
166,745
|
|
Customer
deposits
|
|
|
32,123
|
|
|
27,314
|
|
Customer
credit balances
|
|
|
76,416
|
|
|
49,873
|
|
Accrued
taxes
|
|
|
17,457
|
|
|
24,089
|
|
Gas
deliverable to customers
|
|
|
80,840
|
|
|
51,456
|
|
Other
accrued liabilities
|
|
|
17,481
|
|
|
30,647
|
|
Gas
costs refundable through rate adjustments
|
|
|
49,726
|
|
|
29
|
|
Accrued
interest
|
|
|
5,993
|
|
|
5,559
|
|
Total
Current Liabilities
|
|
|
540,061
|
|
|
476,714
|
|
|
|
|
|
|
|
|
|
DEFERRED
CREDITS AND OTHER LIABILITIES:
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
353,245
|
|
|
365,016
|
|
Investment
tax credits
|
|
|
23,284
|
|
|
23,514
|
|
Environmental
liabilities
|
|
|
201,300
|
|
|
217,611
|
|
Asset
retirement obligations
|
|
|
91,071
|
|
|
-
|
|
Pension,
postretirement and other
|
|
|
65,788
|
|
|
79,054
|
|
Total
Deferred Credits and Other Liabilities
|
|
|
734,688
|
|
|
685,195
|
|
Total
Capitalization and Liabilities
|
|
$
|
2,412,854
|
|
$
|
2,277,181
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
The
Peoples Gas Light and Coke Company
|
|
CONSOLIDATED
CAPITALIZATION STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
(In
Thousands, Except Shares)
|
|
|
|
|
|
|
|
COMMON
STOCKHOLDER'S EQUITY:
|
|
|
|
|
|
|
|
Common
stock, without par value—
|
|
|
|
|
|
|
|
Authorized
40,000,000 shares
|
|
|
|
|
|
|
|
Outstanding
25,357,566 and 24,817,566 shares, respectively
|
|
$
|
219,242
|
|
$
|
165,307
|
|
Retained
earnings
|
|
|
418,291
|
|
|
469,447
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(1,428
|
)
|
|
(21,482
|
)
|
Total
Common Stockholder's Equity
|
|
|
636,105
|
|
|
613,272
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT:
|
|
|
|
|
|
|
|
First
and Refunding Mortgage Bonds—
|
|
|
|
|
|
|
|
4.75%
Series HH, due March 1, 2030,
|
|
|
|
|
|
|
|
adjustable
after July 1, 2014
|
|
|
50,000
|
|
|
50,000
|
|
5.00%
Series KK, due February 1, 2033
|
|
|
50,000
|
|
|
50,000
|
|
3.05%
Series LL, due February 1, 2033,
|
|
|
|
|
|
|
|
adjustable
after February 1, 2008
|
|
|
50,000
|
|
|
50,000
|
|
4.00%
Series MM-2, due March 1, 2010
|
|
|
50,000
|
|
|
50,000
|
|
4.625%
Series NN-2, due May 1, 2013
|
|
|
75,000
|
|
|
75,000
|
|
4.875%
Series QQ, due November 1, 2038,
|
|
|
|
|
|
|
|
adjustable
after November 1, 2018
|
|
|
75,000
|
|
|
75,000
|
|
4.30%
Series RR, due June 1, 2035,
|
|
|
|
|
|
|
|
adjustable
after June 1, 2016
|
|
|
50,000
|
|
|
50,000
|
|
|
|
|
400,000
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
Adjustable
Rate Bonds—
|
|
|
|
|
|
|
|
Series
OO, due October 1, 2037
|
|
|
51,000
|
|
|
51,000
|
|
Series
PP, due October 1, 2037
|
|
|
51,000
|
|
|
51,000
|
|
|
|
|
102,000
|
|
|
102,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Long-Term Debt
|
|
|
502,000
|
|
|
502,000
|
|
|
|
|
|
|
|
|
|
Total
Capitalization
|
|
$
|
1,138,105
|
|
$
|
1,115,272
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
The
Peoples Gas Light and Coke Company
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDER'S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
(In
Thousands)
|
|
|
Stock
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Total
|
|
For
Fiscal Year Ended September 30, 2004
|
|
$
|
165,307
|
|
$
|
482,228
|
|
$
|
(21,052
|
)
|
$
|
626,483
|
|
Beginning
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
45,376
|
|
|
|
|
|
45,376
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
13,929
|
|
|
13,929
|
|
Unrealized
hedge gain
|
|
|
|
|
|
|
|
|
43
|
|
|
43
|
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
59,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared on common stock
|
|
|
|
|
|
(56,200
|
)
|
|
|
|
|
(56,200
|
)
|
Other
|
|
|
|
|
|
(111
|
)
|
|
|
|
|
(111
|
)
|
September
30, 2004 (1) (2)
|
|
$
|
165,307
|
|
$
|
471,293
|
|
$
|
(7,080
|
)
|
$
|
629,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Year Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
49,333
|
|
|
|
|
|
49,333
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
(14,444
|
)
|
|
(14,444
|
)
|
Unrealized
hedge gain
|
|
|
|
|
|
|
|
|
42
|
|
|
42
|
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
34,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared on common stock
|
|
|
|
|
|
(51,300
|
)
|
|
|
|
|
(51,300
|
)
|
Other
|
|
|
|
|
|
121
|
|
|
|
|
|
121
|
|
September
30, 2005 (1) (2)
|
|
$
|
165,307
|
|
$
|
469,447
|
|
$
|
(21,482
|
)
|
$
|
613,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Year Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
|
|
|
(35,444
|
)
|
|
|
|
|
(35,444
|
)
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
21,158
|
|
|
21,158
|
|
Unrealized
hedge (loss)
|
|
|
|
|
|
|
|
|
(1,104
|
)
|
|
(1,104
|
)
|
Total
Comprehensive (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
(15,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued
|
|
|
53,935
|
|
|
|
|
|
|
|
|
53,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared on common stock
|
|
|
|
|
|
(15,400
|
)
|
|
|
|
|
(15,400
|
)
|
Other
|
|
|
|
|
|
(312
|
)
|
|
|
|
|
(312
|
)
|
September
30, 2006 (1) (2)
|
|
$
|
219,242
|
|
$
|
418,291
|
|
$
|
(1,428
|
)
|
$
|
636,105
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part of
these
statements.
|
|
(1)
|
Accumulated
other comprehensive income balance is net of $14.0 million and
$4.4
million of deferred
income
tax credits related to minimum pension liabilities at September
30, 2005
and 2004, respectively. At September 30, 2006,
there
was no minimum pension liability; the related balance in accumulated
other
comprehensive income was reduced to
zero.
|
(2)
|
Accumulated
other comprehensive income balance is net of $0.9 million, $0.2
million
and $0.2 million of deferred
income
tax credits related to unrealized hedge losses at September 30,
2006, 2005
and 2004,
respectively.
|
The
Peoples Gas Light and Coke Company
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(35,444
|
)
|
$
|
49,333
|
|
$
|
45,376
|
|
Adjustments
to reconcile net income to cash provided by operations:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
61,323
|
|
|
60,652
|
|
|
66,599
|
|
Deferred
income taxes and investment tax credits—net
|
|
|
(37,540
|
)
|
|
(3,271
|
)
|
|
2,917
|
|
Pension
funding (greater) less than expense
|
|
|
(4,700
|
)
|
|
(4,016
|
)
|
|
2,977
|
|
Other
adjustments
|
|
|
(4,888
|
)
|
|
17,197
|
|
|
(10,911
|
)
|
Net
changes in:
|
|
|
|
|
|
|
|
|
|
|
Receivables—net
|
|
|
13,782
|
|
|
(3,249
|
)
|
|
23,519
|
|
Intercompany
receivables
|
|
|
10,301
|
|
|
(11,480
|
)
|
|
25,391
|
|
Gas
in storage
|
|
|
(21,503
|
)
|
|
1,033
|
|
|
4,717
|
|
Gas
costs recoverable/refundable through rate adjustments
|
|
|
52,072
|
|
|
11,061
|
|
|
4,392
|
|
Accounts
payable
|
|
|
(17,569
|
)
|
|
25,610
|
|
|
(10,453
|
)
|
Intercompany
payables
|
|
|
8,138
|
|
|
(14,103
|
)
|
|
(9,044
|
)
|
Gas
deliverable to customers
|
|
|
29,384
|
|
|
18,993
|
|
|
11,267
|
|
Other
accrued liabilities
|
|
|
(1,917
|
)
|
|
(7,329
|
)
|
|
6,379
|
|
Accrued
interest
|
|
|
434
|
|
|
27
|
|
|
471
|
|
Accrued
taxes
|
|
|
(3,016
|
)
|
|
29
|
|
|
(3,633
|
)
|
Customer
credit balances and deposits
|
|
|
31,351
|
|
|
7,665
|
|
|
5,325
|
|
Other
|
|
|
326
|
|
|
288
|
|
|
(952
|
)
|
Net
Cash Provided by (Used in) Operating Activities
|
|
|
80,534
|
|
|
148,440
|
|
|
164,337
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
spending
|
|
|
(92,202
|
)
|
|
(73,021
|
)
|
|
(67,750
|
)
|
Decrease
(increase) in deposits with broker or trustee
|
|
|
451
|
|
|
(38
|
)
|
|
11,080
|
|
Proceeds
from sale of assets
|
|
|
1,350
|
|
|
3,431
|
|
|
2,478
|
|
Other
|
|
|
1,577
|
|
|
2,938
|
|
|
669
|
|
Net
Cash Provided by (Used in) Investing Activities
|
|
|
(88,824
|
)
|
|
(66,690
|
)
|
|
(53,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from overdraft facility
|
|
|
885
|
|
|
2,237
|
|
|
666
|
|
Retirement
of commercial paper
|
|
|
-
|
|
|
(31,000
|
)
|
|
(24,949
|
)
|
Retirement
of short-term debt intercompany
|
|
|
(360
|
)
|
|
-
|
|
|
(176,400
|
)
|
Issuance
of short-term debt
|
|
|
-
|
|
|
360
|
|
|
-
|
|
Issuance
of long-term debt
|
|
|
-
|
|
|
47,947
|
|
|
222,575
|
|
Retirement
of long-term debt
|
|
|
-
|
|
|
(50,000
|
)
|
|
(76,500
|
)
|
Dividends
paid on common stock
|
|
|
(15,400
|
)
|
|
(51,300
|
)
|
|
(56,200
|
)
|
Proceeds
from issuance of common stock
|
|
|
53,935
|
|
|
-
|
|
|
-
|
|
Net
Cash Provided by (Used in) Financing Activities
|
|
|
39,060
|
|
|
(81,756
|
)
|
|
(110,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
30,770
|
|
|
(6
|
)
|
|
6
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
-
|
|
|
6
|
|
|
-
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
30,770
|
|
$
|
-
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid, net of refunds
|
|
$
|
11,531
|
|
$
|
28,321
|
|
$
|
29,933
|
|
Interest
paid, net of amounts capitalized
|
|
$
|
23,797
|
|
$
|
22,391
|
|
$
|
19,572
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part of
these
statements.
|
|
North
Shore Gas Company
|
|
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
299,589
|
|
$
|
260,461
|
|
$
|
222,711
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Gas
costs
|
|
|
220,300
|
|
|
180,923
|
|
|
144,747
|
|
Gas
charge settlement
|
|
|
4,300
|
|
|
-
|
|
|
-
|
|
Operation
and maintenance, excluding
|
|
|
|
|
|
|
|
|
|
|
restructuring
and environmental costs
|
|
|
37,364
|
|
|
33,713
|
|
|
32,663
|
|
Restructuring
costs
|
|
|
-
|
|
|
622
|
|
|
882
|
|
Environmental
costs
|
|
|
2,065
|
|
|
1,863
|
|
|
1,178
|
|
Depreciation
|
|
|
5,724
|
|
|
5,716
|
|
|
7,066
|
|
Taxes,
other than income taxes
|
|
|
16,508
|
|
|
16,578
|
|
|
16,003
|
|
Losses
(gains) on property sales
|
|
|
-
|
|
|
1
|
|
|
(1,160
|
)
|
Total
Operating Expenses
|
|
|
286,261
|
|
|
239,416
|
|
|
201,379
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
13,328
|
|
|
21,045
|
|
|
21,332
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
1,263
|
|
|
826
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
16
|
|
|
112
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
4,071
|
|
|
3,706
|
|
|
3,688
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before Income Taxes
|
|
|
10,504
|
|
|
18,053
|
|
|
17,819
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
3,797
|
|
|
6,656
|
|
|
6,743
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
6,707
|
|
$
|
11,397
|
|
$
|
11,076
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
North
Shore Gas Company
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
At
September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CAPITAL
INVESTMENTS:
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
$
|
374,560
|
|
$
|
362,912
|
|
Less—Accumulated
depreciation
|
|
|
149,832
|
|
|
144,504
|
|
Net
property, plant and equipment
|
|
|
224,728
|
|
|
218,408
|
|
Total
Capital Investments—Net
|
|
|
224,728
|
|
|
218,408
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
12,815
|
|
|
10,545
|
|
Deposits
with broker or trustee
|
|
|
1,930
|
|
|
-
|
|
Receivables—
|
|
|
|
|
|
|
|
Customers,
net of reserve for uncollectible
|
|
|
|
|
|
|
|
accounts
of $2,127 and $1,455, respectively
|
|
|
12,858
|
|
|
14,209
|
|
Intercompany
receivables
|
|
|
3,625
|
|
|
39,815
|
|
Materials
and supplies, at average cost
|
|
|
1,095
|
|
|
1,230
|
|
Gas
in storage, at last-in, first-out cost
|
|
|
21,744
|
|
|
14,231
|
|
Gas
costs recoverable through rate adjustments
|
|
|
2,165
|
|
|
1,719
|
|
Regulatory
assets
|
|
|
24,912
|
|
|
2,001
|
|
Other
|
|
|
2,929
|
|
|
371
|
|
Total
Current Assets
|
|
|
84,073
|
|
|
84,121
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
Prepaid
pension costs
|
|
|
2,725
|
|
|
-
|
|
Noncurrent
regulatory assets
|
|
|
86,815
|
|
|
65,983
|
|
Deferred
charges and other
|
|
|
1,648
|
|
|
2,677
|
|
Total
Other Assets
|
|
|
91,188
|
|
|
68,660
|
|
Total
Assets
|
|
$
|
399,989
|
|
$
|
371,189
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION
AND LIABILITIES
|
|
|
|
|
|
|
|
Total
Capitalization (see Consolidated Capitalization
Statements)
|
|
$
|
170,119
|
|
$
|
172,186
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
14,776
|
|
|
21,879
|
|
Intercompany
payables
|
|
|
29,620
|
|
|
2,722
|
|
Regulatory
liabilities
|
|
|
1
|
|
|
32,485
|
|
Customer
deposits
|
|
|
2,860
|
|
|
2,489
|
|
Customer
credit balances
|
|
|
11,808
|
|
|
8,761
|
|
Accrued
taxes
|
|
|
1,271
|
|
|
2,904
|
|
Gas
deliverable to customers
|
|
|
6,301
|
|
|
4,673
|
|
Other
accrued liabilities
|
|
|
1,746
|
|
|
3,504
|
|
Gas
costs refundable through rate adjustments
|
|
|
12,427
|
|
|
264
|
|
Accrued
interest
|
|
|
1,317
|
|
|
1,284
|
|
Total
Current Liabilities
|
|
|
82,127
|
|
|
80,965
|
|
|
|
|
|
|
|
|
|
DEFERRED
CREDITS AND OTHER LIABILITIES:
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
45,745
|
|
|
39,061
|
|
Investment
tax credits
|
|
|
2,864
|
|
|
2,859
|
|
Environmental
liabilities
|
|
|
67,900
|
|
|
64,800
|
|
Asset
retirement obligations
|
|
|
19,257
|
|
|
-
|
|
Pension,
postretirement and other
|
|
|
11,977
|
|
|
11,318
|
|
Total
Deferred Credits and Other Liabilities
|
|
|
147,743
|
|
|
118,038
|
|
Total
Capitalization and Liabilities
|
|
$
|
399,989
|
|
$
|
371,189
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
|
North
Shore Gas Company
|
|
CONSOLIDATED
CAPITALIZATION STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
(In
Thousands, Except Shares)
|
|
|
|
|
|
|
|
COMMON
STOCKHOLDER'S EQUITY:
|
|
|
|
|
|
|
|
Common
stock, without par value—
|
|
|
|
|
|
|
|
Authorized
5,000,000 shares
|
|
|
|
|
|
|
|
Outstanding
3,625,887 shares
|
|
$
|
24,757
|
|
$
|
24,757
|
|
Retained
earnings
|
|
|
76,262
|
|
|
80,555
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(150
|
)
|
|
(2,376
|
)
|
Total
Common Stockholder's Equity
|
|
|
100,869
|
|
|
102,936
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT:
|
|
|
|
|
|
|
|
First
Mortgage Bonds—
|
|
|
|
|
|
|
|
5.00%
Series M, due December 1, 2028
|
|
|
29,250
|
|
|
29,250
|
|
4.625%
Series N-2, due May 1, 2013
|
|
|
40,000
|
|
|
40,000
|
|
Total
Long-Term Debt
|
|
|
69,250
|
|
|
69,250
|
|
|
|
|
|
|
|
|
|
Total
Capitalization
|
|
$
|
170,119
|
|
$
|
172,186
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
|
North
Shore Gas Company
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDER'S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
(In
Thousands)
|
|
|
Stock
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Year Ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
$
|
24,757
|
|
$
|
80,882
|
|
$
|
(2,278
|
)
|
$
|
103,361
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
11,076
|
|
|
|
|
|
11,076
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
919
|
|
|
919
|
|
Unrealized
hedge gain
|
|
|
|
|
|
|
|
|
23
|
|
|
23
|
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
12,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared on common stock
|
|
|
|
|
|
(11,700
|
)
|
|
|
|
|
(11,700
|
)
|
September
30, 2004 (1)(2)
|
|
$
|
24,757
|
|
$
|
80,258
|
|
$
|
(1,336
|
)
|
$
|
103,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Year Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
11,397
|
|
|
|
|
|
11,397
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
(1,063
|
)
|
|
(1,063
|
)
|
Unrealized
hedge gain
|
|
|
|
|
|
|
|
|
23
|
|
|
23
|
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
10,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared on common stock
|
|
|
|
|
|
(11,100
|
)
|
|
|
|
|
(11,100
|
)
|
September
30, 2005 (1)(2)
|
|
$
|
24,757
|
|
$
|
80,555
|
|
$
|
(2,376
|
)
|
$
|
102,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Year Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
6,707
|
|
|
|
|
|
6,707
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
2,203
|
|
|
2,203
|
|
Unrealized
hedge gain
|
|
|
|
|
|
|
|
|
23
|
|
|
23
|
|
Total
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
8,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared on common stock
|
|
|
|
|
|
(11,000
|
)
|
|
|
|
|
(11,000
|
)
|
September
30, 2006 (1)(2)
|
|
$
|
24,757
|
|
$
|
76,262
|
|
$
|
(150
|
)
|
$
|
100,869
|
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
|
(1)
|
Accumulated
other comprehensive income balance is net of $1.5 million
and $0.8 million
of deferred income tax credits related
to
minimum pension liabilities at September 30, 2005 and 2004,
respectively.
At September 30, 2006, there was no minimum
pension
liability; the related balance in accumulated other comprehensive
income
was reduced to zero.
|
(2)
|
Accumulated
other comprehensive income balance is net of $0.1 million,
$0.1 million
and $0.1 million of deferred income tax
credits
related to unrealized hedge losses at September 30, 2006,
2005 and 2004,
respectively.
|
North
Shore Gas Company
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
6,707
|
|
$
|
11,397
|
|
$
|
11,076
|
|
Adjustments
to reconcile net income to cash provided by operations:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,594
|
|
|
6,548
|
|
|
8,403
|
|
Deferred
income taxes and investment tax credits—net
|
|
|
3,420
|
|
|
6,015
|
|
|
3,095
|
|
Pension
funding (greater) less than expense
|
|
|
1,495
|
|
|
(6,949
|
)
|
|
2,801
|
|
Other
adjustments
|
|
|
5,815
|
|
|
(1,671
|
)
|
|
(270
|
)
|
Net
changes in:
|
|
|
|
|
|
|
|
|
|
|
Receivables—net
|
|
|
1,351
|
|
|
(717
|
)
|
|
3,398
|
|
Intercompany
receivables
|
|
|
2,075
|
|
|
9,207
|
|
|
(12,471
|
)
|
Gas
in storage
|
|
|
(7,513
|
)
|
|
690
|
|
|
(5,478
|
)
|
Gas
costs recoverable/refundable through rate adjustments
|
|
|
11,717
|
|
|
1,207
|
|
|
(7,349
|
)
|
Accounts
payable
|
|
|
(6,732
|
)
|
|
8,968
|
|
|
(348
|
)
|
Intercompany
payables
|
|
|
(64
|
)
|
|
(3,498
|
)
|
|
(3,840
|
)
|
Gas
deliverable to customers
|
|
|
1,628
|
|
|
1,213
|
|
|
1,164
|
|
Other
accrued liabilities
|
|
|
(1,757
|
)
|
|
1,253
|
|
|
680
|
|
Accrued
interest
|
|
|
33
|
|
|
14
|
|
|
(6
|
)
|
Accrued
taxes
|
|
|
(4,224
|
)
|
|
1,776
|
|
|
1,871
|
|
Customer
credit balances and deposits
|
|
|
3,418
|
|
|
1,979
|
|
|
409
|
|
Other
|
|
|
(1,867
|
)
|
|
(1,934
|
)
|
|
90
|
|
Net
Cash Provided by (Used in) Operating Activities
|
|
|
22,096
|
|
|
35,498
|
|
|
3,225
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
spending
|
|
|
(9,418
|
)
|
|
(9,815
|
)
|
|
(10,592
|
)
|
Decrease
in deposits with broker or trustee
|
|
|
613
|
|
|
-
|
|
|
2,766
|
|
Intercompany
note receivable
|
|
|
360
|
|
|
(360
|
)
|
|
-
|
|
Proceeds
from sale of assets
|
|
|
-
|
|
|
-
|
|
|
1,250
|
|
Other
|
|
|
(10
|
)
|
|
(4
|
)
|
|
(693
|
)
|
Net
Cash Provided by (Used in) Investing Activities
|
|
|
(8,455
|
)
|
|
(10,179
|
)
|
|
(7,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from (payment of) overdraft facility
|
|
|
(371
|
)
|
|
214
|
|
|
(157
|
)
|
Issuance
of short-term debt
|
|
|
-
|
|
|
-
|
|
|
3,810
|
|
Retirement
of short-term debt
|
|
|
-
|
|
|
(3,810
|
)
|
|
-
|
|
Retirement
of long-term debt
|
|
|
-
|
|
|
(80
|
)
|
|
(15
|
)
|
Dividends
paid on common stock
|
|
|
(11,000
|
)
|
|
(11,100
|
)
|
|
(11,700
|
)
|
Net
Cash Provided by (Used in) Financing Activities
|
|
|
(11,371
|
)
|
|
(14,776
|
)
|
|
(8,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
2,270
|
|
|
10,543
|
|
|
(12,106
|
)
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
10,545
|
|
|
2
|
|
|
12,108
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
12,815
|
|
$
|
10,545
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid, net of refunds
|
|
$
|
3,947
|
|
$
|
(1,150
|
)
|
$
|
3,295
|
|
Interest
paid, net of amounts capitalized
|
|
$
|
3,621
|
|
$
|
3,531
|
|
$
|
3,456
|
|
|
The
Notes to Consolidated Financial Statements are an integral part
of these
statements.
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
July 8,
2006, WPS Resources Corporation (WPS Resources), Wedge Acquisition Corporation
(Sub), a wholly owned subsidiary of WPS Resources, and Peoples Energy
Corporation (the Company or Peoples Energy) entered into an Agreement and Plan
of Merger (the Agreement).
The
Agreement provides for the merger of Sub with and into Peoples Energy (the
Merger) on the terms and subject to the conditions set forth in the Agreement,
with Peoples Energy continuing as the surviving corporation. As a result of
the
Merger, Peoples Energy will become a wholly owned subsidiary of WPS Resources,
and Peoples Energy shareholders will receive shares of WPS Resources common
stock in exchange for their shares of common stock of Peoples Energy. At the
effective time of the Merger, each share of common stock of Peoples Energy
issued and outstanding immediately prior to the effective time will be cancelled
and converted into the right to receive 0.825 shares of common stock of WPS
Resources. The companies expect that upon consummation of the Merger Peoples
Energy shareholders will own approximately 42.4% of the common stock of WPS
Resources and WPS Resources shareholders will own approximately 57.6% of the
common stock of WPS Resources.
WPS
Resources and Peoples Energy have each made customary representations,
warranties and covenants in the Agreement, including, among others, covenants
to
conduct their businesses in the ordinary course between the execution of the
Agreement and the consummation of the Merger and covenants not to engage in
certain kinds of transactions during that period. During such period, Peoples
Energy will not declare cash dividends in excess of $0.545 per share per quarter
without the prior consent of WPS Resources. Immediately after the effective
time
of the Merger, WPS Resources will adopt a dividend policy providing for a
quarterly dividend of $0.66 per share of WPS Resources common stock, subject
to
evaluation over time as future business needs dictate. WPS Resources and Peoples
Energy have made certain additional customary covenants, including, among
others, covenants, subject to certain exceptions, (A) to cause a shareholders
meeting to be held to consider approval of the Merger and the other transactions
contemplated by the Agreement, (B) not to solicit proposals relating to
alternative business combination transactions, and (C) not to enter into
discussions concerning, or provide confidential information in connection with,
alternative business combination transactions.
Consummation
of the Merger is subject to customary conditions, including, among others,
(i)
approval of the shareholders of each of WPS Resources and Peoples Energy, (ii)
absence of any material adverse effect, (iii) expiration or termination of
the
applicable Hart-Scott-Rodino Act waiting period, (iv) absence of any order
or
injunction prohibiting the consummation of the Merger, (v) the registration
statement on Form S-4 shall have become effective, (vi) the shares of WPS
Resources common stock issuable to Peoples Energy’s shareholders pursuant to the
Agreement and under the employee benefit plans of Peoples Energy shall have
been
approved for listing on the New York Stock Exchange, (vii) subject to certain
exceptions, the accuracy of representations and warranties with respect to
WPS
Resources’ and Peoples Energy’s business, as applicable, (vii) receipt of
customary tax opinions and (viii) receipt of all required statutory approvals
from, among others, the FERC, the Federal Communications Commission, and state
public service and utility commissions.
The
Agreement contains certain termination rights for both WPS Resources and Peoples
Energy, and further provides that, upon termination of the Agreement under
specified circumstances, a party would be required to pay the other party a
termination fee of $45 million. In addition, under specified circumstances
each
party may be obligated to reimburse the other party for up to $15 million of
expenses, which would reduce the amount of any required termination fee payable
by that party.
The
consummation of the Merger is subject to the satisfaction or waiver of closing
conditions applicable to both WPS
Resources
and Peoples Energy, including the receipt of required regulatory approvals
and
the approval of the transaction by the shareholders of both WPS Resources and
Peoples Energy. On August 2, 2006, WPS Resources, Peoples Energy, Peoples Gas
and North Shore Gas jointly filed an application for approval of the Merger
with
the Commission. The companies seek the expedited consideration of the
application by the
Commission,
with requested approval by December 28, 2006 so that the Merger could close
on
or shortly after January 1, 2007. The application indicates that The Peoples
Gas
Light and Coke Company (Peoples Gas) and North Shore Gas Company (North Shore
Gas) will further postpone filing rate cases until early 2007, with new rates
to
take effect in 2008 due to the normal 11-month rate case process in Illinois.
On
October 31, 2006, Commission Staff and Interveners filed Direct Testimony and
opinion on the Merger proposal. On November 13, 2006, the Companies filed
rebuttal testimony.
WPS
Resources and Peoples Energy filed their joint application for FERC approval
on
August 15, 2006. The comment period on the FERC filing passed with no comments
received. On November 2, 2006, the FERC issued a deficiency letter identifying
an item about which additional information was required, and WPS Resources
and
Peoples Energy responded on November 6, 2006. The comment period for this
response was concluded on November 13, 2006. No comments were
received.
On
August
15, 2006, WPS Resources filed with PSCW for approval of amendments to its
“affiliated interest” agreements so that they include and apply to Peoples
Energy and its subsidiaries, as appropriate, upon closing of the merger. These
agreements govern the provision by and among WPS Resources and its regulated
and
non-regulated subsidiaries of services, property, and other things of value.
Modification of these agreements requires the approval of the PSCW. WPS
Resources had concluded that no other PSCW approvals were required prior to
the
closing of the merger. However, on August 9, 2006, the PSCW issued a notice
of
investigation of the merger to consider, among other things, whether the PSCW
has jurisdiction and pre-approval authority over the merger. Subsequently,
the
PSCW asserted jurisdiction and pre-approval authority over the merger, and,
on
September 27, 2006, the PSCW re-noticed the investigatory matter as a contested
case proceeding in which it would consider whether the merger is in the public
interest and whether certain conditions should be placed upon WPS Resources
(and
affiliate arrangements within its holding company system) as a result of the
merger. WPS Resources acknowledges the PSCW’s continuing jurisdiction from time
to time to consider and, if appropriate, impose additional conditions upon
Wisconsin public utility holding companies. However, WPS Resources does not
believe that the PSCW has jurisdiction and pre-approval authority over the
merger, even though the PSCW has asserted such jurisdiction and authority.
The
PSCW has established a schedule for completion of the proceeding that would
accommodate a closing of the merger in the first quarter of 2007. WPS Resources’
participation in the proceeding will be subject to its right to challenge the
PSCW’s asserted jurisdiction before the PSCW and on appeal of an adverse PSCW
order.
Pursuant
to the Agreement, management from both companies jointly selected Integrys
Energy Group, Inc. (Integrys) as the new name for the combined company. Upon
consummation of the Merger, WPS Resources’ Board of Directors will be comprised
of sixteen directors, nine of whom will have been designated by WPS Resources
and seven of whom will have been designated by Peoples Energy. Mr. Larry Weyers,
currently Chairman, President and Chief Executive Officer of WPS Resources,
will
remain President and Chief Executive Officer of Integrys following the Merger.
Mr. James Boris, currently the Lead Director of Peoples Energy will become
the
non-executive Chairman of Integrys as of the effective time of the Merger.
Upon
the consummation of the Merger, WPS Resources will amend bylaws consistent
with
the foregoing.
On
October 9, 2006, the Company identified many of Integrys’ senior leaders, who
will manage Integrys after the transaction closes through a holding company,
operating companies and a services group. Following the Merger, Integrys will
establish its headquarters in Chicago, Illinois. The headquarters of the
Integrys’ unregulated energy marketing business will be located in Green Bay,
Wisconsin and the headquarters of the utilities’ businesses will be located in
the same place as immediately prior to the effective time of the Merger. The
headquarters of the oil and gas production business will remain in Houston,
Texas.
On
October 18, 2006, the WPS Resources registration statement on Form S-4 was
made
effective by the SEC.
On
October 25, 2006, the Federal Trade Commission granted termination of the
waiting period for the Hart-Scott-Rodino filing for the Merger.
On
December 6, 2006, at special meetings of shareholders held by WPS Resources
and
Peoples Energy, shareholders of both companies approved the proposed merger
transaction. WPS Resources’ shareholders also
approved
an amendment to WPS Resources Corporation’s restated articles of incorporation
to change the name of WPS Resources Corporation to Integrys Energy Group, Inc.,
when the closing of the merger has been completed.
For
the
fiscal year ended September 30, 2006, the Company incurred merger related costs
of $8.9 million, primarily legal, consulting and investment banking fees. Under
SFAS No. 141, such costs are expensed as incurred by the Company as the acquired
entity in the merger. The Company has recorded the income tax impact of merger
costs based upon its current estimate of their ultimate treatment, however,
this
estimate is subject to change based upon the outcome of future
events.
2:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.
General
Peoples
Energy is a holding company whose income is derived principally from its
regulated utility subsidiaries, Peoples Gas and North Shore Gas. The utilities
are primarily engaged in the sale and transportation of natural gas to
residential, commercial and industrial customers in Chicago and the northeast
section of Illinois. Peoples Gas’ and North Shore Gas’ utility operations are
subject to regulation by the Commission. Regulated operations are accounted
for
in accordance with SFAS No. 71. This standard controls the application of GAAP
for companies whose rates are determined by an independent regulator such as
the
Commission. Under this standard, certain costs or revenues are deferred on
the
balance sheet until recovered or refunded through rates. Other business segments
of the Company include Oil and Gas Production, Energy Marketing (both retail
and
wholesale activity), Energy Assets (primarily power generation), and Corporate
and Other.
The
Company makes certain estimates and assumptions in preparing its consolidated
financial statements in accordance with GAAP. These estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for the periods presented. Actual
results may differ from those estimates.
All
subsidiaries are included in the consolidated financial statements. All
significant intercompany transactions have been eliminated in consolidation.
Investments for which the Company or its subsidiaries have at least a 20%
interest, but less than a majority ownership, are accounted for under the equity
method, as the Company has the ability to exercise significant influence, but
not control, over the investee’s operating and financial policies.
B.
Discontinued Operations
The
Company announced in February, 2006 its intention to exit the power generation
business. On January 31, 2006, the Company sold its 100% interest in the
Valencia Energy power development site in New Mexico. On May 31, 2006, the
Company completed the sale of its 27% interest in the SCEP facility to Exelon
Generation Company, LLC. On September 20, 2006, the Company announced that
it
signed an agreement with J-Power USA Development Co., Ltd. to sell its 50%
interest in the Elwood power generation facility and its 100% interest in a
fully-permitted power development site, the COB Energy Facility (COB), for
$110
million, subject to certain closing adjustments. These sales will complete
the
divestiture of substantially all power assets owned by Peoples Energy. The
Board
of Directors of J-Power's parent company approved the transactions on November
30, 2006. Financial results for power generation are now being reported by
Peoples Energy as discontinued operations. Through Elwood and COB, the Company
owned approximately 700 net Megawatts of power generation assets.
The
operating results of the Company’s power generation business were reported under
the Power Generation segment and included in consolidated operating income
prior
to the change in segment reporting described below and the treatment as
discontinued operations. Effective in the second quarter of fiscal 2006, the
Company reports the results of operations of its power generation business
as
discontinued operations in accordance with SFAS No. 144. Results of operations
and assets for all periods have been reclassified to conform with the
discontinued operations presentation.
The
following table summarizes the power generation items which are reflected as
assets of and deferred credit related to discontinued operations in the
Company’s consolidated balance sheets.
|
|
September
30,
|
|
|
|
|
2006
|
|
|
2005
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
Investments
in unconsolidated affiliates
|
|
$
|
74,071
|
|
$
|
115,168
|
|
Other
investments
|
|
|
10,400
|
|
|
12,245
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
906
|
|
Total
assets
|
|
$
|
84,471
|
|
$
|
128,319
|
|
|
|
|
|
|
|
|
|
Deferred
credit
|
|
$
|
-
|
|
$
|
2,201
|
|
The
summarized financial results for the Company’s discontinued operations were as
follows:
Fiscal
Year Ended September 30,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Operation
and maintenance
|
|
$
|
(3,600)
|
|
$
|
(2,009)
|
|
$
|
(4,055)
|
|
Taxes,
other than income taxes
|
|
|
(84)
|
|
|
(63)
|
|
|
(104)
|
|
Gains
on property sales
|
|
|
4,139
|
|
|
-
|
|
|
-
|
|
Impairments
and losses on property sales
|
|
|
(2,156)
|
|
|
(143)
|
|
|
-
|
|
Equity
investment income
|
|
|
18,803
|
|
|
20,944
|
|
|
15,481
|
|
Income
before income taxes
|
|
|
17,102
|
|
|
18,729
|
|
|
11,322
|
|
Income
tax expense
|
|
|
6,797
|
|
|
7,444
|
|
|
4,500
|
|
Income
from discontinued operations, net of
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
$
|
10,305
|
|
$
|
11,285
|
|
$
|
6,822
|
|
C.
Gas Charge Settlement
On
March
28, 2006, the Commission approved orders that settle gas charge reconciliation
proceedings for fiscal years 2001 through 2004 for Peoples Energy Corporation
and its utility subsidiaries. The orders, which became publicly available March
30, adopt a January 17, 2006 Settlement Agreement and Release, as amended by
an
Amendment and Addendum dated March 6, 2006 (the Agreement).
Pursuant
to the Agreement, Peoples Gas and North Shore Gas agreed to refund (through
a
credit applied to customer bills) the total sum of $100 million to their
customers. In its orders approving the Agreement, the Commission determined
that
$96 million
should
be
refunded to customers of Peoples Gas and $4 million should be refunded to
customers of North Shore Gas. In April 2006, the refund was credited to customer
accounts.
Pursuant
to the Agreement, Peoples Energy also paid $5 million jointly to the City of
Chicago and the Illinois Attorney General in 2006. The Company also agreed
to
pay up to $5 million per year over the next five years towards the funding
of
conservation and weatherization programs for low and moderate-income residential
dwellings (Conservation Programs). The five subsequent payments of up to $5
million shall be paid based upon Conservation Programs to be developed by the
City of Chicago and/or the Illinois Attorney General. Peoples Gas and North
Shore Gas will not seek recovery in any future rate or reconciliation cases
of
any amounts associated with the Conservation Programs.
Peoples
Gas and North Shore Gas agreed to forgive all outstanding bad debt from fiscal
years 2000-2005 existing as of March 6, 2006, estimated at $207 million, remove
the bad debt from customers’ records and to not use any forgiven indebtedness as
a reason to deny gas service. Peoples Gas and North Shore Gas had written off
the estimated $207 million in prior periods.
Peoples
Gas and North Shore Gas agreed to credit fiscal 2005 and fiscal 2006 revenues
derived from the provision of gas Hub services as an offset to utility
customers’ gas charges and to account for such revenues received from gas Hub
services in the same manner in all future gas charge reconciliation cases.
The
Company has reported for the fiscal year ended September 30, 2006 a charge
reflecting the terms of the settlement. This charge totaled $107.3 million
pretax or $1.68 per share after tax. The charge reflects $100 million in refunds
to customers, $10.7 million to reflect a change in the regulatory accounting
treatment for fiscal 2005 Hub revenues, $5 million in estimated additional
bad
debt expense
due
to
termination of collection activity on amounts previously written off and $5
million related to the first payment to the Illinois Attorney General and City
of Chicago under the settlement, and is net of approximately $13.3 million
in
previously recorded liabilities related to the cases. The $107.3 million charge
has been allocated $103.0 million to Peoples Gas and $4.3 million to North
Shore Gas in accordance with the Order. Accrued liabilities totaling $11.3
million at September 30, 2006 are included in the consolidated balance sheet
caption regulatory liabilities under current liabilities. Following is a
reconciliation of the total gas charge settlement per the statement of
operations and the related liability.
|
|
Total
|
|
Peoples
Gas
|
|
North
Shore Gas
|
|
(Dollars
in Thousands)
|
|
|
|
|
|
|
|
|
|
|
Refund
|
|
$
|
100,000
|
|
$
|
96,000
|
|
$
|
4,000
|
|
Payment
to Illinois Attorney General and City of Chicago
|
|
|
5,000
|
|
|
4,800
|
|
|
200
|
|
Hub
fiscal 2005 revenues
|
|
|
10,662
|
|
|
10,662
|
|
|
-
|
|
Bad
debt expense
|
|
|
5,000
|
|
|
4,900
|
|
|
100
|
|
Amounts
recognized prior to fiscal 2006
|
|
|
(13,332
|
)
|
|
(13,332
|
)
|
|
-
|
|
Gas
charge settlement per consolidated statements of
operations
|
|
|
|
|
|
|
|
|
|
|
for
fiscal 2006
|
|
$
|
107,330
|
|
$
|
103,030
|
|
$
|
4,300
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized prior to fiscal 2006
|
|
|
13,332
|
|
|
13,332
|
|
|
-
|
|
Interest
on Hub fiscal 2005 revenues refundable
|
|
|
|
|
|
|
|
|
|
|
and
other minor amounts refundable
|
|
|
588
|
|
|
587
|
|
|
1
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Addition
to reserve for uncollectible accounts
|
|
|
5,000
|
|
|
4,900
|
|
|
100
|
|
Less
payments in fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
Refund
credited to customer accounts
|
|
|
100,000
|
|
|
96,000
|
|
|
4,000
|
|
Payment
to Illinois Attorney General and City of Chicago
|
|
|
5,000
|
|
|
4,800
|
|
|
200
|
|
Gas
charge settlement liability per consolidated balance
sheets
|
|
|
|
|
|
|
|
|
|
|
at
September 30, 2006 (1)
|
|
$
|
11,250
|
|
$
|
11,249
|
|
$
|
1
|
|
(1)
|
Represents
2005 Hub Revenue and related interest that will be refunded to
customers
pending close of
the
Commission's review of 2005 gas charge reconciliation and minor
amounts to
be refunded to customers
through
the monthly gas charge filings in early fiscal
2007.
|
See
Note
8A for a complete discussion of the gas charge cases and the settlement
agreement.
D.
Use of Fair Value Measurements
The
Company reports certain contracts and instruments at fair value in accordance
with GAAP. Fair value is based on actively quoted market prices, if available.
In the absence of actively quoted market prices, the Company seeks indicative
price information from external sources, including broker quotes and industry
publications. If pricing information from external sources is not available,
the
Company must estimate prices based on available historical and near-term future
price information and certain statistical methods, including regression
analysis.
For
options and contracts with option-like characteristics where pricing information
is not available from external sources, the Company uses a modified
Black-Scholes model and considers time value, the volatility of the underlying
commodities and other relevant assumptions when estimating fair value. If
pricing information is not available from external sources, judgment is required
to develop the estimates of fair value. For individual contracts, the use of
different assumptions could have a material effect on the contract’s estimated
fair value.
The
following table summarizes the carrying amounts and fair values of long-term
debt financial instruments included in the Consolidated Balance Sheets of the
Company, Peoples Gas and North Shore Gas.
(In
Millions)
|
|
Peoples
Energy
|
|
Peoples
Gas
|
|
North
Shore Gas
|
|
Long-term
debt including
current
portion
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
At
September 30, 2006
|
|
$894.7
|
|
$907.1
|
|
$502.0
|
|
$499.6
|
|
$69.3
|
|
$67.4
|
|
At
September 30, 2005
|
|
$895.6
|
|
$912.8
|
|
$502.0
|
|
$499.9
|
|
$69.3
|
|
$67.4
|
|
The
estimated fair values are determined based on the long-term debt interest rates
that are currently available for issuance of debt with similar terms, call
dates
and remaining maturities. The carrying amount of all other financial instruments
approximate fair value.
Considerable
judgment is required to develop the fair value estimates; therefore, the values
are not necessarily indicative of the amounts that could be realized in a
current market exchange. The fair value estimates are based on information
available to management as of each fiscal year-end. Management is not aware
of
any subsequent factors that would affect significantly the estimated fair value
amounts.
E.
Revenue Recognition
Natural
gas and electricity sales and transportation revenues for the utilities and
Peoples Energy Services Corporation are recorded on the accrual basis for all
gas and electricity delivered during the month, including an estimate for gas
and electricity delivered but unbilled at the end of each month. The amount
of
accrued unbilled revenue included in gross receivables from customers is
summarized below.
|
|
September
30,
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
Peoples
Gas
|
|
$
|
31,247
|
|
$
|
32,282
|
|
North
Shore Gas
|
|
|
5,933
|
|
|
6,136
|
|
Peoples
Energy Services
|
|
|
21,269
|
|
|
19,362
|
|
Consolidated
Peoples Energy
|
|
$
|
58,449
|
|
$
|
57,780
|
|
In
Illinois, delivering, supplying, furnishing or selling gas for use or
consumption and not for resale is subject to state and, in some cases, municipal
taxes (revenue taxes). The Illinois Public Utilities Act provides that the
tax
may be recovered from utility customers by adding an additional charge to
customers' bills. These taxes are due only to the extent they are collected
as
cash receipts as opposed to amounts billed. As a result, most revenue taxes
are
reported on a gross basis, whereby the billed amounts for the recovery of these
taxes are included in revenues and an offsetting expense amount (net of an
administrative fee) representing the expected cash payment of the taxes is
included in taxes, other than income taxes on the statement of operations.
Revenue tax amounts included in utility revenues are as follows:
|
|
For
Fiscal Years Ended September 30,
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Peoples
Gas
|
|
$
|
148,462
|
|
$
|
133,987
|
|
$
|
124,797
|
|
North
Shore Gas
|
|
|
13,339
|
|
|
13,119
|
|
|
12,125
|
|
Consolidated
Peoples Energy
|
|
$
|
161,801
|
|
$
|
147,106
|
|
$
|
136,922
|
|
In
the
Oil and Gas production segment, natural gas and crude oil production revenues
are recorded on the entitlement method. Under the entitlement method, revenue
is
recorded when title is transferred based on the
Company's
net interest. The Company records its entitled share of revenues based on
estimated monthly production volumes. Subsequently, these estimated volumes
are
adjusted to reflect actual volumes that are supported by third party statements
and/or cash receipts.
F.
Weather Insurance
The
Company was partially protected from the impact of unusually mild weather by
a
weather insurance program subject to certain deductibles and maximums for fiscal
year 2005. The contract settled annually at the fiscal year-end. The insurance
proceeds are reported as revenue and the premium is charged to operating expense
based on the guidance of EITF 99-02. The Company recorded $3.5 million in
weather insurance recovery as revenue in 2005 and no revenue was recorded in
2006 or 2004.
G.
Income Taxes
The
Company follows the asset and liability method of accounting for deferred income
taxes. Under this method, deferred income taxes have been recorded using
currently enacted tax rates for the differences between the tax basis of assets
and liabilities and the basis reported in the financial statements. Due to
the
effects of regulation on Peoples Gas and North Shore Gas, certain adjustments
made to deferred income taxes are, in turn, recorded as regulatory assets
(liabilities). (See Note 2K.)
Income
taxes allocated to Peoples Gas and North Shore Gas are included in the
consolidated tax return of the Company. The separate return method has not
been
used, but the principles of that method are generally followed. Deferred taxes
exist at Peoples Gas and North Shore Gas only if the temporary differences
that
generate those deferred taxes are derived from assets and liabilities of Peoples
Gas and North Shore Gas. Additionally, the taxable income of Peoples Gas and
North Shore Gas is the basis for recording current income tax expense and cash
payments by each utility. Finally, tax benefits of loss companies, or tax
credits from nonutility subsidiaries of the Company, are allocated to those
nonutility subsidiaries.
There
are
specific deviations from the separate return method. North Shore Gas could
be an
alternative minimum tax (AMT) taxpayer if it were a stand-alone company but
only
records a deferred tax asset and pays amounts to the Company if the entire
group
is an AMT taxpayer. North Shore Gas uses the federal income tax marginal rate
of
35%, but on a stand-alone basis, it would use a marginal rate between 34% and
35%. Finally, if Peoples Gas or North Shore Gas were to have a capital loss,
and
another member of the group had capital gains to offset that loss, no deferred
tax asset or increase to income tax expense would result.
Each
utility subsidiary within the consolidated group nets its income tax-related
regulatory assets and liabilities. At September 30, 2006 and 2005, net
regulatory income tax assets for both the Company and Peoples Gas amounted
to
$22.6 million and $23.1 million, respectively. At September 30, 2006 and 2005,
net regulatory income tax liabilities for both the Company and North Shore
Gas
recorded in other liabilities equaled $2.1 million and $2.0 million,
respectively.
Investment
tax credits have been deferred and are being amortized to income over the
remaining book lives of related property.
H.
Asset Retirement Obligations
SFAS
No. 143
Legal
retirement obligations previously identified at the Company under the provisions
of SFAS No. 143, related primarily to reserve assets at the Oil and Gas
Production segment. Those obligations totaled $2.0 million and $1.6 million
at
September 30, 2006 and 2005, respectively.
Adoption
of FIN 47
The
Company adopted the provisions of FIN 47, as of September 30, 2006. Upon
adoption of this interpretation, the Company recorded liabilities for
conditional asset retirement obligations, which were previously believed to
be
outside the scope of SFAS No. 143.
As
of
September 30, 2006, the Company recorded as conditional asset retirement
obligations the following amounts:
·
|
Pipe
Removal - Distribution (including asbestos and PCBs in pipes) - $109.0
million
|
·
|
Asbestos
and PCBs in Property - $0.5 million
|
·
|
Above
Ground Storage Tanks - $0.8 million
|
The
Company, Peoples Gas and North Shore Gas also recorded an increase in the net
carrying value of related property, plant and equipment and an increase in
regulatory assets for future retirement costs as part of adopting FIN 47:
|
|
|
|
|
|
|
|
Total
|
|
(Millions)
|
|
Peoples
Gas
|
|
North
Shore Gas
|
|
Peoples
Energy
|
|
Property,
plant and equipment
|
|
$
|
22.2
|
|
$
|
5.1
|
|
$
|
27.3
|
|
Accumulated
depreciation
|
|
|
(7.9
|
)
|
|
(1.7
|
)
|
|
(9.6
|
)
|
Property,
plant and equipment, net
|
|
|
14.3
|
|
|
3.4
|
|
|
17.7
|
|
Regulatory
assets
|
|
|
76.8
|
|
|
15.8
|
|
|
92.6
|
|
Asset
retirement obligations - adoption of FIN 47
|
|
$
|
91.1
|
|
$
|
19.2
|
|
$
|
110.3
|
|
The
cumulative effect of adopting FIN 47 has been deferred as a regulatory asset
in
anticipation that the actual costs to dispose of the assets will be recoverable
in future rates. Under SFAS No. 71, regulatory assets are recognized for timing
differences between the Company’s recovery of the asset retirement obligations
in rates and when the Company recognizes these costs under FIN 47.
If
the
Company had applied the provisions of FIN 47 as of October 1, 2003, the pro
forma impacts on net income and basic and diluted earnings per common share
would not be material. The following table lists the pro forma amount of the
liability for asset retirement obligations for prior years.
|
|
Gas
Distribution
|
|
Total
|
|
(Millions)
|
|
Peoples
Gas
|
|
North
Shore Gas
|
|
Peoples
Energy
|
|
September
30, 2005
|
|
$
|
86.2
|
|
$
|
18.1
|
|
$
|
104.3
|
|
September
30, 2004
|
|
|
81.1
|
|
|
17.0
|
|
|
98.1
|
|
October
1, 2003
|
|
|
77.4
|
|
|
15.9
|
|
|
93.3
|
|
Changes
to Asset Retirement Obligation Liabilities
The
following table describes all changes to the asset retirement obligations of
the
Company through September 30, 2006, including the adoption of FIN
47.
|
|
Gas
Distribution
|
|
|
|
|
|
|
|
(Millions)
|
|
Peoples
Gas
|
|
North
Shore Gas
|
|
Oil
and Gas Production
|
|
Total
|
|
Asset
retirement obligations at October 1, 2003
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.7
|
|
$
|
0.7
|
|
Accretion
expense
|
|
|
-
|
|
|
-
|
|
|
0.1
|
|
|
0.1
|
|
Liabilities
incurred
|
|
|
-
|
|
|
-
|
|
|
0.4
|
|
|
0.4
|
|
Asset
retirement obligations at September 30, 2004
|
|
|
-
|
|
|
-
|
|
|
1.2
|
|
|
1.2
|
|
Accretion
expense
|
|
|
-
|
|
|
-
|
|
|
0.1
|
|
|
0.1
|
|
Liabilities
incurred
|
|
|
-
|
|
|
-
|
|
|
0.3
|
|
|
0.3
|
|
Asset
retirement obligations at September 30, 2005
|
|
|
-
|
|
|
-
|
|
|
1.6
|
|
|
1.6
|
|
Accretion
expense
|
|
|
-
|
|
|
-
|
|
|
0.1
|
|
|
0.1
|
|
Liabilities
incurred
|
|
|
-
|
|
|
-
|
|
|
0.4
|
|
|
0.4
|
|
Liabilities
settled
|
|
|
-
|
|
|
-
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Adoption
of FIN 47
|
|
|
91.1
|
|
|
19.2
|
|
|
-
|
|
|
110.3
|
|
Asset
retirement obligations at September 30, 2006
|
|
$
|
91.1
|
|
$
|
19.2
|
|
$
|
2.0
|
|
$
|
112.3
|
|
I.
Property, Plant and Equipment
Property,
plant and equipment is stated at original cost and includes amounts for
capitalized labor costs, payroll taxes, employee benefit costs, administrative
costs and an allowance for funds used during construction or capitalized
interest as appropriate.
The
Company’s utility subsidiaries charge the cost of maintenance and repairs of
property and minor renewals and improvements of property to maintenance expense.
When depreciable property is retired, its original cost is charged to the
accumulated provision for depreciation. The provision for depreciation
substantially reflects the systematic amortization of the original cost of
depreciable property, net of the accumulated reserve for depreciation, over
the
estimated composite remaining useful lives on the straight-line method.
Additionally, actual dismantling cost, net of salvage, is recorded as
depreciation expense in the month incurred. In April 2005, the Commission
approved new depreciation rates for both Peoples Gas and North Shore Gas that
reflect longer useful lives on utility plant. The $6.6 million impact ($5.4
million for Peoples Gas and $1.2 million for North Shore Gas) of the
depreciation change was retroactive to October 1, 2004, the effective date
of
the Commission Depreciation Order.
Diversified
businesses’ depreciable properties, other than oil and gas producing properties,
are amortized over their estimated useful lives. Gains and losses are recognized
at the time of asset sale or disposition.
The
consolidated provision for depreciation and amortization for the Company,
expressed as an annual percentage of the original cost of depreciable property,
was 2.7%, 2.7% and 3.0% for fiscal years 2006, 2005 and 2004, respectively.
For
Peoples Gas the annual percentage was 2.7%, 2.7% and 3.0% for fiscal years
2006,
2005 and 2004, respectively. For North Shore Gas the annual percentage was
1.8%,
1.8% and 2.3% for fiscal years 2006, 2005 and 2004, respectively.
In
the
case of oil and gas producing properties, the Company is amortizing associated
capitalized costs by utilizing the successful efforts method of accounting
on
the units-of-production method based on estimated proved oil and gas reserves.
The fiscal 2006, 2005 and 2004 average rate of depletion was
$2.11,
$1.87 and $1.69 per Mcfe unit of production, respectively.
At
September 30, 2006 and 2005, the Company did not have any exploratory
pre-production wells requiring additional major capital expenditures (to
determine presence of proved reserves) or any exploratory wells where more
than
one year had elapsed since the completion of drilling without a determination
of
well results.
At
September 30, 2006 and 2005, the Company had no capitalized exploratory well
costs pending determination of proved reserves. A portion of exploration expense
recognized in fiscal 2004 relates to the expensing of $2.7 million in costs
previously capitalized.
The
Company performs an evaluation for impairment whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets or
intangible assets with finite lives may not be recoverable. These assets are
written down to fair value if the sum of the expected future undiscounted cash
flows is less than the carrying amounts. Fiscal 2006 results from discontinued
operations include impairments of $2.1 million. There were no impairments
recorded in 2005. Impairments recorded in 2004 were $1.1 million in the Energy
Marketing segment.
J.
Gas in Storage
The
Company’s utility subsidiaries price storage injections except for liquid
propane at North Shore Gas at the fiscal-year average of the costs of natural
gas supply purchased. Withdrawals from storage for the utilities except for
liquid propane at North Shore Gas are priced on the LIFO cost method. The
estimated replacement cost of gas in inventory at September 30, 2006 and 2005
exceeded the LIFO cost by approximately $83.7 million and $583.3 million,
respectively. North Shore Gas accounts for liquid propane inventory using the
average cost method.
The
estimated replacement cost of gas in inventory for Peoples Gas at September
30,
2006 and 2005 exceeded the LIFO cost by approximately $70.9 million and $498.4
million, respectively. The estimated replacement cost of
gas
in
inventory exclusive of the liquid propane for North Shore Gas at September
30,
2006 and 2005 exceeded the LIFO cost by approximately $12.7 million and $84.9
million, respectively. Both Peoples Gas’ and North Shore Gas’ calculation used a
year-end Chicago city-gate gas price per Dth of $3.67 for fiscal 2006 and $11.70
for fiscal 2005.
The
Energy Marketing and Energy Assets segments account for gas in inventory using
the average cost method. A portion of gas in storage for Energy Marketing is
reported at fair value to reflect the effects of fair value hedge accounting
in
accordance with SFAS No. 133.
K.
Regulated Operations
Peoples
Gas’ and North Shore Gas’ utility operations are subject to regulation by the
Commission. Regulated operations are accounted for in accordance with SFAS
No.
71. This standard controls the application of GAAP for companies whose rates
are
determined by an independent regulator such as the Commission.
Regulatory
assets represent probable future revenue associated with certain incurred costs
that will be recovered from customers through the ratemaking process. Regulatory
liabilities represent probable future reductions in revenue or refunds to
customers.
The
table
below summarizes the regulatory assets and liabilities of Peoples Gas and North
Shore Gas that were reflected on the Consolidated Balance Sheets.
|
|
Peoples
Gas
|
|
North
Shore Gas
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory
assets of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental
costs, net of recoveries (see Note 7A)
|
|
$
|
243,990
|
|
$
|
248,520
|
|
$
|
69,225
|
|
$
|
65,834
|
|
Asset
retirement obligations (Note 2H)
|
|
|
76,804
|
|
|
-
|
|
|
15,771
|
|
|
-
|
|
Income
tax (see Note 2G)
|
|
|
22,550
|
|
|
23,120
|
|
|
-
|
|
|
-
|
|
Gas
costs recoverable through rate adjustments
|
|
|
4,514
|
|
|
6,889
|
|
|
2,165
|
|
|
1,719
|
|
Discount,
premium, expenses and loss on reacquired bonds
|
|
|
11,755
|
|
|
12,208
|
|
|
2,039
|
|
|
2,150
|
|
Gas
costs hedging program (see Note 2L)
|
|
|
131,410
|
|
|
-
|
|
|
24,692
|
|
|
-
|
|
Other
|
|
|
466
|
|
|
393
|
|
|
-
|
|
|
-
|
|
Total
regulatory assets of subsidiaries
|
|
|
491,489
|
|
|
291,130
|
|
|
113,892
|
|
|
69,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory
liabilities of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (see Note 2G)
|
|
|
-
|
|
|
-
|
|
|
2,117
|
|
|
2,001
|
|
Gas
costs hedging program (see Note 2L)
|
|
|
-
|
|
|
167,125
|
|
|
-
|
|
|
32,563
|
|
Gas
charge settlement (see Note 2C)
|
|
|
11,249
|
|
|
-
|
|
|
1
|
|
|
-
|
|
Gas
costs refundable through rate adjustments
|
|
|
49,726
|
|
|
29
|
|
|
12,427
|
|
|
264
|
|
Total
regulatory liabilities of subsidiaries
|
|
|
60,975
|
|
|
167,154
|
|
|
14,545
|
|
|
34,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
regulatory assets and liabilities of subsidiaries
|
|
$
|
430,514
|
|
$
|
123,976
|
|
$
|
99,347
|
|
$
|
34,875
|
|
Environmental
costs, net of recoveries are the deferred costs associated with former
manufactured gas plant operations, which are allowed to be recovered by the
utilities from customers on a dollar-for-dollar basis. For each utility
subsidiary, the Commission conducts annual proceedings regarding the
reconciliation of revenues and related environmental costs. If the Commission
were to find that the reconciliation was inaccurate or any of the environmental
costs were imprudently incurred, the Commission would order the utility to
refund the affected amount to customers.
Under
the
tariffs of Peoples Gas and North Shore Gas, all prudently incurred gas costs
are
recoverable from customers. The difference for any month between costs
recoverable through the Gas Charge and the actual amount billed to customers
under the Gas Charge is recovered from or refunded to customers through future
adjustments to the Gas Charge. Such difference for any month is recorded either
as a current asset or as a current
liability
(with a contra entry to gas costs). Gas costs consist of two types—Commodity and
Non-Commodity costs. The two types are tracked independently and may cause
both
an accounts receivable from and an accounts payable to customers.
Gas
costs
recoverable and refundable through rate adjustments represent the regulatory
assets and liabilities, respectively, that result from the annual proceedings
conducted by the Commission regarding the reconciliation of revenues from the
Gas Charge and related gas costs. If the Commission were to find that the
reconciliation was inaccurate or any gas costs were imprudently incurred, the
Commission would order the utility to refund the affected amount to customers
through subsequent Gas Charge filings (see Note 8A).
Peoples
Gas and North Shore Gas use derivative instruments to manage each utility’s
respective cost of gas supply. SFAS No. 71 allows for MTM derivative gains
and
losses to be recorded as regulatory assets or regulatory liabilities. Realized
gains and losses are recorded as an adjustment to the cost of gas supply in
the
period that the underlying gas purchase transaction takes place. The costs
and
benefits of this activity are passed through to customers under the tariffs
of
Peoples Gas and North Shore Gas.
Costs
related to utility asset retirement obligations under SFAS No. 143 and FIN
47
are recoverable from utility customers. The Commission previously has approved
Company recovery of significant retirement (decommissioning) costs through
the
establishment of a regulatory asset. Amounts charged to customers for the costs
related to the retirement of long-lived assets may differ from the period costs
recognized in accordance with SFAS No. 143 and FIN 47 and, therefore, may result
in a difference in the timing of recognition of period costs for financial
reporting and rate-making purposes. Under the requirements of SFAS No. 71,
the
Company’s utility subsidiaries have recognized a regulatory asset for this
difference.
Certain
regulatory assets do not result from cash expenditures, and therefore do not
represent investments included in rate base or have offsetting liabilities
that
reduce the rate base of the utilities. Incremental environmental costs incurred
and not yet recovered from customers and recoverable gas costs, which are
generally recovered within one year, are not included in rate base. However,
the
Company is allowed to recover a carrying cost for amounts spent but not yet
collected from customers. The regulatory assets related to debt are not included
in rate base, but are recovered over the term of the debt through the rate
of
return authorized by the Commission.
L.
Derivative Instruments and Hedging Activities
The
Company's earnings may vary due to changes in commodity prices and interest
rates (market risk) that affect its operations and investments. To manage this
risk, the Company uses forward contracts and financial instruments, including
commodity futures contracts, swaps and options. It is the policy of the Company
to use these instruments solely for the purpose of managing risk and not for
any
speculative purpose. The Company accounts for derivative financial instruments
pursuant to SFAS No. 133. Under the provisions of SFAS No. 133, all derivatives
are recognized on the balance sheet at their fair value unless they qualify
for
the normal purchases and normal sales exception.
Cash
Flow Hedges.
The
Company has positions in oil and gas reserves, natural gas, and transportation
as part of its Oil and Gas Production and Energy Marketing businesses, and
related to its company use gas in the Gas Distribution segment. The Company
uses
derivative financial instruments to protect against loss of value of future
anticipated cash transactions caused by commodity price changes in the
marketplace. These instruments are designated as cash flow hedges, which allow
for the effective portion of unrealized changes in value during the life of
the
hedge to be recorded in other comprehensive income. Realized gains and losses
from commodity cash flow hedges are recorded in revenues or cost of energy
sold
in the statement of operations in the same month the related physical sales
or
purchases are recorded in the statement of operations.
Cash
flow
hedge accounting is discontinued when it is no longer probable that the original
forecasted transactions will occur. The carrying value of contracts which no
longer qualify for hedge accounting are prospectively marked-to-market, with
the
change in value recorded in each reporting period in the statement of
operations. If the original forecasted transactions are probable of not
occurring, any amounts previously recorded in other comprehensive income are
immediately recorded in the statement of operations. In fiscal 2005, the Company
recognized a pretax loss of $0.3 million against revenues in the statement
of
operations related to the
discontinuance
of oil cash flow hedges for which the forecasted transactions are probable
of
not occurring. In addition, cash flow hedge ineffectiveness can result from
differences in critical terms (such as location) between the hedging instrument
and the hedged transaction and result in the immediate recognition of gains
or
losses recorded in revenues. Hedge ineffectiveness pretax gains totaled $7.4
million in fiscal 2006 and were due primarily to the reversal of MTM
ineffectiveness recorded in previous years in the Oil and Gas Production
segment. Any actual ineffectiveness realized is reflected in revenue as an
offset to this gain. Hedge ineffectiveness pretax losses totaled $8.2 million
in
fiscal 2005 and were due primarily to unusually wide differentials between
NYMEX
prices and field prices in the Oil and Gas Production segment subsequent to
hurricanes Katrina and Rita.
The
following table summarizes selected information related to cash flow hedges
included in the Consolidated Statement of Operations and Balance Sheet through
September 30, 2006.
|
|
|
|
|
Interest
|
|
Partnership
|
|
|
|
|
(In
Thousands)
|
|
Commodities
|
|
Rate
|
|
Transactions
|
|
Total
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion
of after-tax gains (losses) on hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
determined
to be ineffective and included in net income
|
|
$
|
4,481
|
|
$
|
-
|
|
|
N/A
|
|
$
|
4,481
|
|
Accumulated
other comprehensive income (loss) after tax at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2006
|
|
$
|
(15,928
|
)
|
$
|
(431
|
)
|
$
|
(3,039
|
)
|
$
|
(19,398
|
)
|
Portion
of accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expected
to be reclassified to earnings during the next
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
months based on prices at September 30, 2006
|
|
$
|
(14,794
|
)
|
$
|
(65
|
)
|
|
N/A
|
|
$
|
(14,859
|
)
|
Maximum
term
|
|
|
78
months
|
|
|
79
months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion
of after-tax gains (losses) on hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
determined
to be ineffective and included in net income
|
|
$
|
(4,967
|
)
|
$
|
-
|
|
|
N/A
|
|
$
|
(4,967
|
)
|
After-tax
gains (losses) resulting from discontinuance of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
flow hedges
|
|
$
|
(196
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
(196
|
)
|
Accumulated
other comprehensive income (loss) after tax at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2005
|
|
$
|
(117,542
|
)
|
$
|
(497
|
)
|
$
|
(4,643
|
)
|
$
|
(122,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion
of after-tax gains (losses) on hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
determined
to be ineffective and included in net income
|
|
$
|
(987
|
)
|
$
|
-
|
|
|
N/A
|
|
$
|
(987
|
)
|
Accumulated
other comprehensive income (loss) after tax at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2004
|
|
$
|
(52,603
|
)
|
$
|
(562
|
)
|
$
|
(4,244
|
)
|
$
|
(57,409
|
)
|
Mark-to-Market
Derivative Instruments.
Peoples
Gas and North Shore Gas use derivative instruments to manage each utility's
cost
of gas supply and mitigate price volatility. All such derivative instruments
are
measured at fair value. The regulated utilities' tariffs allow for full recovery
from their customers of prudently incurred gas supply costs, including gains
or
losses on these derivative instruments. As a result, SFAS No. 71 allows for
these MTM derivative gains or losses to be recorded as regulatory assets or
regulatory liabilities. Realized gains or losses are recorded as an adjustment
to the cost of gas supply in the period that the underlying gas purchase
transaction takes place. The costs and benefits of this activity are passed
through to customers under the tariffs of Peoples Gas and North Shore
Gas.
Fair
Value Hedges.
The
Company uses financial hedges to protect the value of a portion of Energy
Marketing’s gas in storage and these are accounted for as fair value hedges. The
change in value of these hedges, along with the offsetting change in value
of
the inventory hedged (to the extent the hedge is effective), are recorded on
the
statement of operations in each reporting period's cost of energy sold.
The
Energy Marketing segment recorded in fiscal 2006 and 2005 $3.2 million and
$3.3
million in MTM losses, respectively, related to the application of fair value
hedge accounting to certain retail storage inventory
transactions.
The segment uses derivatives to mitigate commodity price risk and substantially
lock in the profit margin that it will ultimately realize when inventory volumes
are withdrawn from storage. Under fair value accounting, which this segment
is
using for certain storage activity, the MTM adjustment to inventory is computed
using spot prices, while the derivatives used to mitigate the risk of changes
in
inventory value are marked to market using forward prices. When the spot price
of natural gas changes disproportionately to the forward price, the difference
is recorded in operating results. As a result, earnings are subject to
volatility, even when the underlying expected profit margin over the duration
of
the contracts is unchanged. The volatility resulting from this accounting can
be
significant from period to period. This accounting loss will reverse next year
as the volumes are withdrawn from storage.
The
Company also uses certain financial instruments to adjust the portfolio
composition of its debt from fixed-rate to floating-rate debt. These derivative
instruments are accounted for as fair value hedges. The change in value of
these
hedges along with the offsetting change in value of the debt hedged (to the
extent the hedge is effective) are recorded in each reporting period in interest
expense in the statement of operations.
M.
Related Party Transactions
Peoples
Energy Corporation provides administrative services for its subsidiaries. These
services include purchasing, accounting, finance and treasury, tax, information
technology, auditing, insurance and pension administration, human resources
and
other miscellaneous services. Costs for these services amounted to $83.1
million, $69.0 million and $79.3 million in fiscal 2006, 2005 and 2004,
respectively. Specific and systematic cost allocation methodologies are used
to
allocate the costs and include such factors as payroll, number of employees,
space occupied and capital investment.
Peoples
Gas also provides certain billing, cash receipts processing, customer care,
gas
transportation and other services to North Shore Gas and bills for services
rendered. Peoples Gas billings to North Shore Gas were $6.6 million; $6.1
million and $6.7 million for fiscal years 2006, 2005 and 2004,
respectively.
Intercompany
receivables and payables at Peoples Gas and North Shore Gas at September 30,
2005 and 2004 primarily represent MTM gains on derivative instruments (see
Note
2L) executed by the Company on behalf of its utility subsidiaries. Intercompany
payables at Peoples Gas and North Shore Gas also relate to administrative
service provided by the Company.
For
the
fiscal years ended 2006, 2005 and 2004, Peoples Energy Resources sold natural
gas to Elwood for use at the Elwood power generation facility in the amounts
of
$20.4 million, $44.1 million and $13.7 million, respectively. Peoples Energy
Resources had $0.8 million and $9.4 million in accounts receivable from Elwood
at September 30, 2006 and 2005, respectively. These sales will cease in fiscal
2007 after the sale of Elwood (see Note 2B), however, the impact on income
from
continuing operations will not be material to the Company's consolidated
financial statements. At September 30, 2006, the Company had a 50% equity
interest in Elwood. (See Note 5.)
N.
Statement of Cash Flows
For
purposes of reporting cash flows, the Company considers all highly liquid
financial instruments with a maturity at the date of purchase of three months
or
less to be cash equivalents. Under the Company’s cash management practices,
checks issued pending clearance that result in overdraft balances for accounting
purposes are included in accounts payable and total $14.0 million and $9.1
million as of September 30, 2006 and 2005, respectively. For Peoples Gas, the
overdraft amounts in accounts payable at September 30, 2006 and 2005 were $8.0
million and $7.1 million, respectively. North Shore Gas’ overdraft amount in
accounts payable at September 30, 2006 and 2005, was zero and $0.4 million,
respectively.
Noncash
investing and financing activities in fiscal 2006 include the Company’s
recognition of conditional asset retirement obligations under FIN 47 and related
additional investments in property plant and equipment and regulatory assets.
(See Note 2H for a discussion of the impact of adoption of FIN 47 on the
Company, Peoples Gas and North Shore Gas.)
O.
Recent
Accounting Pronouncements
In
June
2006, the FASB issued FIN 48, which prescribes a recognition threshold and
measurement approach for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. Additionally,
FIN
48 provides guidance on the derecognition, classification, accounting in interim
periods and disclosure requirements for uncertain tax positions. The provisions
of FIN 48 are effective for fiscal years beginning after December 15, 2006,
with
the cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The Company is still evaluating whether
the requirements of FIN 48 will have a significant effect on its financial
condition or results of operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 defines fair value, establishes a framework for measuring fair value
in
generally accepted accounting principles, and expands disclosures about fair
value measurements. The provisions of this standard apply to other accounting
pronouncements that require or permit fair value measurements. This statement
is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and for interim periods within those fiscal years. The Company
is still evaluating whether the requirements of SFAS No. 157 will have a
significant effect on its financial condition or results of
operations.
In
September 2006, the FASB issued SFAS No. 158, which requires an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income.
This
Statement also requires an employer to measure the funded status of a plan
as of
the date of its year-end statement of financial position, with limited
exceptions. An employer with publicly traded equity securities is required
to
initially recognize the funded status of a defined benefit postretirement plan
and to provide the required disclosures as of the end of the fiscal year ending
after December 15, 2006. The Company expects that the requirements of SFAS
No.
158 may have a significant effect on its balance sheet (with a combined
reduction to accumulated other comprehensive income or increase in regulatory
assets estimated to be about $150 million based on current market and employee
data). The Company will also be required to move its measurement date from
June
30th to September 30th. As the actual impact of adopting SFAS No. 158 will
be
dependent upon the fair value of plan assets and the amount of projected benefit
obligations measured as of September 30, 2007, the above estimated amount may
not be reflective of the actual impact of the adoption.
In
September 2006, the SEC issued SAB No. 108, which provides interpretive guidance
on how the effects of the carryover or reversal of prior year misstatements
should be considered in evaluating whether current year financial
statements are materially misstated. The SEC staff believes that registrants
should quantify errors using both a balance sheet and an income statement
approach and evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. SAB No. 108 is effective as of the end of fiscal years
ending after November 15, 2006. The adoption of SAB No. 108 is not expected
to
have a material impact on the Company’s consolidated financial
statements.
P.
Contingencies, Indemnities and Commitments
Contingent
obligations, including indemnities, litigation and other possible commitments
are accounted for in accordance with SFAS No. 5, which requires that an
estimated loss be recorded if it is probable that an asset has been impaired
or
a liability has been incurred at the date of the financial statements and the
amount of the loss can be reasonably estimated. Accordingly, those contingencies
that are deemed to be probable and where the amount of loss is reasonably
estimable are accrued in the financial statements. If only a range of loss
can
be determined, the best estimate within that range is accrued; if none of the
estimates within that range is better than another, the low end of the range
is
accrued. Disclosure of a contingency is required if there is at least a
reasonable possibility that a loss has been or will be incurred, even if the
amount is not estimable. The assessment of contingencies is a highly subjective
process that requires judgments about future events. Contingencies are reviewed
at least quarterly to determine the adequacy of the accruals and related
financial statement disclosure. The ultimate settlement of contingencies may
differ materially from amounts accrued in the financial
statements.
Change
in Segment Reporting
Beginning
in fiscal 2006, the Company restructured the management and operations of
certain of its businesses and has realigned its segment reporting to match
these
changes. The financial data by business segment presented below has been
reclassified to conform with the new reportable segments. The Company's
reportable segments are Gas Distribution (including Peoples Gas hub operations,
formerly included as part of Midstream Services), Oil and Gas Production, Energy
Assets, Energy Marketing (both retail and wholesale activity, formerly included
as Retail Energy Services and part of Midstream Services, respectively), and
Corporate and Other.
Total
segment capital assets include net property, plant and equipment and certain
intangible assets classified in other investments. Financial data by business
segment is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Gas
|
|
Oil
and Gas
|
|
Energy
|
|
Energy
|
|
and
|
|
|
|
|
|
|
|
(In
Thousands)
|
|
Distribution
|
|
Production
|
|
Marketing
|
|
Assets
|
|
Other
|
|
Adjustments
|
|
Total
|
|
12
Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(1)
|
|
$
|
1,921,880
|
|
$
|
126,750
|
|
$
|
960,693
|
|
$
|
13,540
|
|
$
|
-
|
|
$
|
(4,893
|
)
|
$
|
3,017,970
|
|
Cost
of energy sold
|
|
|
1,272,633
|
|
|
-
|
|
|
928,640
|
|
|
9,032
|
|
|
-
|
|
|
(5,992
|
)
|
|
2,204,313
|
|
Gas
charge settlement
|
|
|
107,330
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
107,330
|
|
Operation
and maintenance, excluding merger,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gas
charge settlement and environmental costs
|
|
|
275,944
|
|
|
36,362
|
|
|
20,916
|
|
|
1,902
|
|
|
14,553
|
|
|
1,099
|
|
|
350,776
|
|
Merger
costs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,944
|
|
|
-
|
|
|
8,944
|
|
Environmental
costs
|
|
|
33,654
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
33,654
|
|
Depreciation,
depletion and amortization
|
|
|
62,574
|
|
|
52,479
|
|
|
1,606
|
|
|
356
|
|
|
1,388
|
|
|
-
|
|
|
118,403
|
|
Taxes,
other than income taxes
|
|
|
183,329
|
|
|
14,553
|
|
|
560
|
|
|
119
|
|
|
2,357
|
|
|
-
|
|
|
200,918
|
|
(Gains)
losses on property sales and impairments, net
|
|
|
(860
|
)
|
|
10
|
|
|
12
|
|
|
365
|
|
|
137
|
|
|
-
|
|
|
(336
|
)
|
Equity
investment income (2)
|
|
|
-
|
|
|
7,751
|
|
|
-
|
|
|
-
|
|
|
67
|
|
|
-
|
|
|
7,818
|
|
Operating
income (loss)
|
|
$
|
(12,724
|
)
|
$
|
31,097
|
|
$
|
8,959
|
|
$
|
1,766
|
|
$
|
(27,312
|
)
|
$
|
-
|
|
$
|
1,786
|
|
Income
(loss) from discontinued operations, net of income taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
10,324
|
|
$
|
(19
|
)
|
$
|
-
|
|
$
|
10,305
|
|
Segment
capital assets of continuing operations, net (3)
|
|
$
|
1,637,198
|
|
$
|
532,742
|
|
$
|
3,596
|
|
$
|
5,176
|
|
$
|
8,127
|
|
$
|
-
|
|
$
|
2,186,839
|
|
Investments
in equity investees (4)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
250
|
|
$
|
-
|
|
$
|
-
|
|
$
|
250
|
|
Capital
spending (5)
|
|
$
|
101,620
|
|
$
|
238,169
|
|
$
|
31
|
|
$
|
315
|
|
$
|
3,316
|
|
$
|
-
|
|
$
|
343,451
|
|
12
Months Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(1)
|
|
$
|
1,688,674
|
|
$
|
100,602
|
|
$
|
805,515
|
|
$
|
9,482
|
|
$
|
-
|
|
$
|
(4,688
|
)
|
$
|
2,599,585
|
|
Cost
of energy sold
|
|
|
1,034,376
|
|
|
-
|
|
|
773,565
|
|
|
4,480
|
|
|
-
|
|
|
(7,052
|
)
|
|
1,805,369
|
|
Operation
and maintenance, excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring
and environmental costs
|
|
|
257,652
|
|
|
28,972
|
|
|
16,012
|
|
|
2,926
|
|
|
11,809
|
|
|
2,364
|
|
|
319,735
|
|
Restructuring
costs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,141
|
|
|
-
|
|
|
13,141
|
|
Environmental
costs
|
|
|
30,437
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
30,437
|
|
Depreciation,
depletion and amortization
|
|
|
61,894
|
|
|
45,764
|
|
|
1,797
|
|
|
485
|
|
|
948
|
|
|
-
|
|
|
110,888
|
|
Taxes,
other than income taxes
|
|
|
169,072
|
|
|
12,399
|
|
|
648
|
|
|
139
|
|
|
1,948
|
|
|
-
|
|
|
184,206
|
|
(Gains)
losses on property sales and impairments, net
|
|
|
(2,092
|
)
|
|
(983
|
)
|
|
22
|
|
|
(275
|
)
|
|
8
|
|
|
-
|
|
|
(3,320
|
)
|
Equity
investment income (2)
|
|
|
-
|
|
|
2,403
|
|
|
-
|
|
|
-
|
|
|
7,885
|
|
|
-
|
|
|
10,288
|
|
Operating
income (loss)
|
|
$
|
137,335
|
|
$
|
16,853
|
|
$
|
13,471
|
|
$
|
1,727
|
|
$
|
(19,969
|
)
|
$
|
-
|
|
$
|
149,417
|
|
Income
(loss) from discontinued operations, net of income taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
11,304
|
|
$
|
(19
|
)
|
$
|
-
|
|
$
|
11,285
|
|
Segment
capital assets of continuing operations, net (3)
|
|
$
|
1,586,174
|
|
$
|
347,606
|
|
$
|
5,495
|
|
$
|
5,525
|
|
$
|
6,244
|
|
$
|
-
|
|
$
|
1,951,044
|
|
Investments
in equity investees (4)
|
|
$
|
-
|
|
$
|
10,317
|
|
$
|
-
|
|
$
|
-
|
|
$
|
10,534
|
|
$
|
-
|
|
$
|
20,851
|
|
Capital
spending (5)
|
|
$
|
82,836
|
|
$
|
74,155
|
|
$
|
148
|
|
$
|
956
|
|
$
|
2,827
|
|
$
|
-
|
|
$
|
160,922
|
|
12
Months Ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(1)
|
|
$
|
1,502,083
|
|
$
|
123,777
|
|
$
|
631,774
|
|
$
|
6,432
|
|
$
|
178
|
|
$
|
(4,045
|
)
|
$
|
2,260,199
|
|
Cost
of energy sold
|
|
|
868,518
|
|
|
-
|
|
|
601,098
|
|
|
3,749
|
|
|
94
|
|
|
(5,682
|
)
|
|
1,467,777
|
|
Operation
and maintenance, excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring
and environmental costs
|
|
|
253,233
|
|
|
28,846
|
|
|
17,201
|
|
|
861
|
|
|
21,219
|
|
|
1,637
|
|
|
322,997
|
|
Restructuring
costs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,000
|
|
|
-
|
|
|
17,000
|
|
Environmental
costs
|
|
|
17,384
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,384
|
|
Depreciation,
depletion and amortization
|
|
|
68,939
|
|
|
47,338
|
|
|
1,914
|
|
|
315
|
|
|
480
|
|
|
-
|
|
|
118,986
|
|
Taxes,
other than income taxes
|
|
|
156,350
|
|
|
9,884
|
|
|
517
|
|
|
53
|
|
|
3,130
|
|
|
-
|
|
|
169,934
|
|
(Gains)
losses on property sales and impairments, net
|
|
|
(3,499
|
)
|
|
(99
|
)
|
|
1,165
|
|
|
(121
|
)
|
|
7
|
|
|
-
|
|
|
(2,547
|
)
|
Equity
investment income (2)
|
|
|
-
|
|
|
3,729
|
|
|
-
|
|
|
-
|
|
|
632
|
|
|
-
|
|
|
4,361
|
|
Operating
income (loss)
|
|
$
|
141,158
|
|
$
|
41,537
|
|
$
|
9,879
|
|
$
|
1,575
|
|
$
|
(41,120
|
)
|
$
|
-
|
|
$
|
153,029
|
|
Income
(loss) from discontinued operations, net of income taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
6,841
|
|
$
|
(19
|
)
|
$
|
-
|
|
$
|
6,822
|
|
Segment
capital assets of continuing operations, net (3)
|
|
$
|
1,571,966
|
|
$
|
319,099
|
|
$
|
7,227
|
|
$
|
5,718
|
|
$
|
4,374
|
|
$
|
-
|
|
$
|
1,908,384
|
|
Investments
in equity investees (4)
|
|
$
|
-
|
|
$
|
19,150
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,674
|
|
$
|
-
|
|
$
|
22,824
|
|
Capital
spending (5)
|
|
$
|
78,245
|
|
$
|
102,376
|
|
$
|
1,818
|
|
$
|
964
|
|
$
|
3,440
|
|
$
|
-
|
|
$
|
186,843
|
|
(1)
|
Oil
and Gas Production revenues are net of gains and losses from
hedging
activities.
|
(2)
|
Excludes
equity investment income from discontinued operations. See
Note
5.
|
(3)
|
Excludes
segment assets of discontinued operations at September 30,
2006, 2005 and
2004 of $9,490, $12,209 and $10,783,
respectively.
|
(4)
|
Excludes
investments in equity investees of discontinued operations
at September
30, 2006, 2005 and 2004 of $74,071, $115,168 and $112,995,
respectively.
|
(5)
|
Excludes
capital spending relating to assets of discontinued operations
at
September 30, 2006, 2005 and 2004 of $566, $1,836 and
$2,546
respectively.
|
The
table
below reconciles the Company’s net capital investments reported on the
Consolidated Balance Sheets to segment totals:
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Capital
investments
|
|
|
|
|
|
|
|
|
|
|
Segment
capital assets of
|
|
|
|
|
|
|
|
|
|
|
continuing
operations, net
|
|
$
|
2,186,839
|
|
$
|
1,951,044
|
|
$
|
1,908,384
|
|
Investments
in equity investees
|
|
|
250
|
|
|
20,851
|
|
|
22,824
|
|
Other
investments not included in
|
|
|
|
|
|
|
|
|
|
|
above
categories
|
|
|
8,577
|
|
|
9,135
|
|
|
7,966
|
|
Total
capital investments—net
|
|
$
|
2,195,666
|
|
$
|
1,981,030
|
|
$
|
1,939,174
|
|
During
the fourth quarter of fiscal 2004, the Company commenced a restructuring plan
to
enhance operating efficiency and customer service and to mitigate the impact
of
rising operating costs on utility customers, while maintaining solid financial
results for the Company. The restructuring activities were designed to result
in
a reduction of over 100 nonunion permanent positions at all levels in the
utility business and corporate support functions. An enhanced voluntary
termination severance package was offered to nonunion employees including a
termination allowance of three weeks' pay for each completed year of service
up
to a maximum of 52 weeks of pay, outplacement assistance, enhanced educational
assistance, and reduced Consolidated Omnibus Budget Reconciliation Act (COBRA)
rates. Approximately 300 employees accepted the package, resulting in about
200
open positions, some of which have been filled in fiscal 2005 and
2006.
The
restructuring activities were substantially completed by September 30, 2004.
The
restructuring plan resulted in aggregate costs of $17.0 million to the
Consolidated Statement of Operations for fiscal 2004. Included in this amount
were costs of $9.7 million and $0.9 million related to Peoples Gas and North
Shore Gas, respectively, based primarily upon severance payments and related
employer payroll taxes at each respective utility. The table below summarizes
the total Company charge by major type of cost.
(In
Thousands)
|
|
|
Severance
payments including payroll taxes
|
|
$15,490
|
Enhanced
educational and outplacement assistance
|
|
1,050
|
Medical
costs due to reduced COBRA rates
|
|
400
|
Legal
fees
|
|
60
|
Total
|
|
$17,000
|
A
total
of $16.6 million has been paid for severance payments, program expenses,
employer taxes and legal fees. Substantially all payments were made during
fiscal 2005, and no significant future payments are anticipated. In addition,
approximately $0.4 million in severance costs originally accrued were reversed
in connection with the revocation of severance agreements during fiscal
2005.
In
fiscal
2005, the Company recorded $13.1 million for pension settlements and
curtailments, net of capitalized amounts, associated with the restructuring
plan
described above (see Note 11). Included in this amount were charges of $8.8
million and $0.6 million for Peoples Gas and North Shore Gas, respectively.
As
the Company’s pension plan measurement year ends June 30, these restructuring
costs for settlements and curtailments subsequent to June 30, 2004 were required
to be recognized in fiscal 2005.
The
Company has several investments in the form of partnerships that are accounted
for as unconsolidated equity method investments. Individually, the Company's
equity investments do not meet the requirements for separate financial statement
disclosure. However, in aggregate these investments are material. The Company
records its share of equity investment income based on financial information
it
receives from the partnerships. All information is current or based on estimated
results for the quarter. The Company is not a managing partner in any of these
investments.
On
May
31, 2006 the Company completed the sale of its interest in the SCEP facility
and
recognized a pretax gain of $4.1 million. On September 20, 2006, the Company
announced that it signed an agreement with J-Power to sell its 50% interest
in
Elwood by December 2006. (See Note 2B.)
In
fiscal
2006 Peoples Energy Production, through its equity investment in EnerVest
Energy, L.P. (EnerVest), recognized a $7.8 million gain related to the sale
of
all remaining properties in the partnership.
The
partnership is in the process of winding up its affairs. Peoples Energy
Production has no remaining capital investment commitments with the EnerVest
partnership.
On
September 30, 2005, Trigen-Peoples District Energy Company (Trigen-Peoples),
a
50%-50% partnership between the Company and Trigen Energy Company (Trigen),
sold
its district heating and cooling plant. The Company liquidated its partnership
with Trigen effective with the sale of the plant.
The
following table summarizes the combined partnership financial results and
financial position of the Company’s unconsolidated equity method investments
(including investments reported by the Company as discontinued
operations).
|
|
For
Fiscal Years Ended
|
|
|
September
30,
|
(In
Thousands)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Revenues
|
|
$
|
103,212
|
|
$
|
212,774
|
|
$
|
175,284
|
|
Operating
income
|
|
|
59,409
|
|
|
105,141
|
|
|
86,664
|
|
Interest
expense
|
|
|
28,847
|
|
|
37,302
|
|
|
38,594
|
|
Net
income
|
|
|
32,016
|
|
|
74,646
|
|
|
47,288
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
58,643
|
|
|
107,927
|
|
|
72,103
|
|
Noncurrent
assets
|
|
|
439,490
|
|
|
666,527
|
|
|
745,485
|
|
Current
liabilities
|
|
|
29,647
|
|
|
57,923
|
|
|
47,962
|
|
Noncurrent
liabilities
|
|
|
322,081
|
|
|
397,826
|
|
|
448,973
|
|
The
following table summarizes the Company’s equity method investment ownership
percentage and its equity share of the net income shown in the previous
table.
|
|
|
|
|
Ownership
Percentage
|
|
Equity
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Fiscal Years Ended
|
|
(In
Thousands)
|
|
|
|
|
At
September 30,
|
|
September
30,
|
|
Investment
|
|
|
Segment
|
|
2006
|
|
2005
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
EnerVest
|
|
|
Oil
and Gas
|
|
23
|
%
|
30
|
%
|
30
|
%
|
$
|
7,751
|
|
$
|
2,403
|
|
$
|
3,729
|
|
Trigen-Peoples
|
|
|
Corporate
and Other
|
|
N/A
|
|
50
|
|
50
|
|
|
67
|
|
|
7,885
|
|
|
632
|
|
Equity
investment income from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
7,818
|
|
|
10,288
|
|
|
4,361
|
|
Elwood
|
|
|
Energy
Assets
|
|
50
|
|
50
|
|
50
|
|
|
15,782
|
|
|
15,528
|
|
|
9,768
|
|
SCEP
|
|
|
Energy
Assets
|
|
N/A
|
|
28
|
|
29
|
|
|
3,021
|
|
|
5,416
|
|
|
5,713
|
|
Equity
investment income from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
18,803
|
|
|
20,944
|
|
|
15,481
|
|
Total
equity investment income
|
|
|
|
|
|
|
|
|
|
|
$
|
26,621
|
|
$
|
31,232
|
|
$
|
19,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
partnership income included in the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company's
retained earnings at the end of each period
|
|
|
|
|
|
|
|
$
|
25,461
|
|
$
|
30,249
|
|
$
|
20,099
|
|
6:
CONCENTRATION OF CREDIT RISK
Peoples
Gas provides natural gas service to approximately 815,000 customers within
Chicago. North Shore Gas provides natural gas service to about 156,000 customers
within approximately 275 square miles in northeastern Illinois. Credit risk
for
the utility companies is spread over a diversified base of residential,
commercial and industrial customers.
Peoples
Gas and North Shore Gas encourage customers to participate in their
long-standing budget payment programs, which allow the cost of higher gas
consumption levels associated with the heating season to be spread over a
12-month billing cycle. Customers’ payment records are continually monitored and
credit deposits are required, when appropriate.
Peoples
Energy Services, one of the Company’s Energy Marketing subsidiaries, sells
natural gas to approximately 37,100 commercial, industrial and residential
customers in northern Illinois, Michigan, Ohio, and New York. It also sells
electricity to approximately 3,400 commercial and industrial customers in
Illinois. Customers’ payment records are continually monitored and credit
deposits are required, when appropriate. Peoples Energy Wholesale Marketing,
also included in the Company’s Energy Marketing segment, buys and sells natural
gas through a variety of counterparties.
The
Company has ownership interests in one natural gas-fired power plant, Elwood
at
50%. Elwood’s plant capacity and output has been sold on a long-term basis to
two counterparties: Constellation and Exelon. This activity is included in
the
Energy Assets segment as discontinued operations.
In
August
2006, S&P and Moody’s ratings on Elwood’s bonds were upgraded to BB- and
Ba1, respectively, with a stable outlook.
As
of
September 30, 2006, Peoples Energy Production, the Company’s Oil and Gas
Production subsidiary, operated 394 wells with approximately 30% of the
production from these wells being sold to a single marketer, Cima Energy LLC.
In
addition, the Company owns nonoperated interests in 359 wells, which are managed
by 45 operators.
A.
Former Manufactured Gas Plant
The
Company's utility subsidiaries, their predecessors and certain former affiliates
operated facilities in the past at multiple sites for the purpose of
manufacturing gas and storing manufactured gas. In connection with manufacturing
and storing gas, waste materials were produced that may have resulted in soil
and groundwater contamination at these sites. Under certain laws and regulations
relating to the protection of the environment, the subsidiaries might be
required to undertake remedial action with respect to some of these materials.
The subsidiaries are addressing these sites under a program supervised by the
Illinois Environmental Protection Agency.
Peoples
Gas is addressing 29 manufactured gas sites, including several sites described
in more detail below. Investigations have been completed at all or portions
of
25 sites. Remediations have been completed at all or portions of nine of these
25 sites. Peoples Gas has determined that remediations are not required at
three
of these 25 sites.
North
Shore Gas is addressing five manufactured gas sites, including one site
described in more detail below. Investigations have been completed at all or
portions of four sites. Remediations have not yet been completed at any of
these
four sites. North Shore Gas has determined that remediation is not required
at
one of these four sites.
The
United States Environmental Protection Agency (EPA) has identified North Shore
Gas as a potentially responsible party (PRP) under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
(CERCLA), at the Waukegan Coke Plant Site located in Waukegan, Illinois
(Waukegan Site). The Waukegan Site is part of the Outboard Marine Corporation
(OMC) Superfund Site. The EPA also has identified OMC, General Motors
Corporation and certain other parties as PRPs at the Waukegan Site. The EPA
has
issued a record of decision (ROD) selecting the remedial action for the Waukegan
Site. The selected remedy consists of on-site treatment of groundwater and
off-site disposal of soil containing polynuclear aromatic hydrocarbons and
arsenic. North Shore Gas and the other PRPs have executed a remedial action
consent decree which has been entered by the federal district court. The consent
decree requires North Shore Gas and General Motors, jointly and severally,
to
perform the remedial action and establish and maintain financial assurance
of
$27 million. The soil component of the remedial action was completed in August
2005. The groundwater component of the remedial action is undergoing design
and
is expected to begin in 2007. The EPA has agreed to reduce the financial
assurance requirement to $21 million to reflect completion of the soil component
of the remedial action
.
In
2004,
the owners (River Village West) of a property in the vicinity of the former
Pitney Court Station filed suit against Peoples Gas in the United States
District Court for the Northern District of Illinois under the Resource
Conservation and Recovery Act (RCRA). The suit,
River
Village West LLC et al v. The Peoples Gas Light and Coke Company
,
No.
04-C-3392 (N.D. Ill. 2004), seeks an order directing Peoples Gas to remediate
the site. In December 2005, Peoples Gas and the plaintiffs settled and the
litigation has been dismissed with prejudice. Pursuant to the terms of the
settlement agreement, Peoples Gas has agreed to remediate the site and to
investigate and, if necessary, remediate sediments in the area of the Chicago
River adjacent to the site.
With
respect to portions of certain other sites in the City of Chicago (Chicago),
Peoples Gas has received demands from site owners and others asserting standing
regarding the investigation or remediation of their parcels. Some of these
demands seek to require Peoples Gas to perform extensive investigations or
remediations. These demands include notice letters sent to Peoples Gas by River
Village West. These letters informed Peoples Gas of River Village West's intent
to file suit under RCRA seeking an order directing Peoples Gas to remediate
seven
former manufactured gas plant sites located on or near the Chicago River. In
April 2005, River Village West filed suit against Peoples Gas in the United
States District Court for the Northern District of Illinois under RCRA. The
suit,
River
Village West LLC et al v. The Peoples Gas Light and Coke Company
,
No.
05-C-2103 (N.D. Ill. 2005), seeks an order directing Peoples Gas to remediate
three of the seven sites: the former South Station, the former Throop Street
Station and the former Hough Place Station. Peoples Gas is currently engaged
in
settlement discussions with River Village West.
In
August
2006, an individual filed suit against Peoples Gas in the United States District
Court for the Northern District of Illinois under RCRA. The suit,
Thomas
A. Snitzer v. The Peoples Gas Light and Coke Company
,
No.
06-C-4465 (N.D. Ill. 2006), seeks an order directing Peoples Gas to remediate
the Willow Street Station former manufactured gas plant site which is located
along the Chicago River. Peoples Gas has filed an answer and the court has
set a
scheduling order. In October 2006, the same individual filed another suit in
the
United States District Court for the Northern District of Illinois under RCRA
and CERCLA. The suit,
Thomas
A. Snitzer v. The Peoples Gas Light and Coke Company
,
No.
06-C-5901 (N.D. Ill. 2006), seeks an order directing Peoples Gas to remediate
the following four former manufactured gas plant sites, which are located on
or
near the Chicago River: 22
nd
Street
Station, Division Street Station, Hawthorne Station, and North Shore Avenue
Station. This individual has also notified Peoples Gas of his intent to file
suit under RCRA and CERCLA seeking an order directing Peoples Gas to remediate
the following two former manufactured gas plant sites: Calumet Station and
North
Station.
The
utility subsidiaries are accruing liabilities and deferring costs (recorded
as
regulatory assets) incurred in connection with all of the manufactured gas
sites, including related legal expenses, pending recovery through rates or
from
other entities. At September 30, 2006, regulatory assets (stated in current
year dollars) were recorded in the following amounts: for Peoples Gas, $244
million; for North Shore Gas, $69 million; and for the Company on a consolidated
basis, $313 million. Each of the foregoing amounts reflects the net amount
of
(1) costs incurred to date, (2) carrying costs, (3) amounts recovered from
insurance companies, other entities and customers, and (4) management's best
estimates of the costs the utilities will spend in the future for investigating
and remediating the manufactured gas sites. Management has recorded liabilities
for the amounts described in clause (4) of the preceding sentence as follows:
for Peoples Gas, $201 million; for North Shore Gas, $68 million; and for the
Company on a consolidated basis, $269 million. Management also estimates that
additional costs in excess of the recorded liabilities are reasonably possible
in the following amounts: for Peoples Gas, $113 million; for North Shore Gas,
$79 million; and for the Company on a consolidated basis, $192
million.
Management's
foregoing estimates are developed with the aid of probabilistic modeling. They
are based upon an ongoing review and judgment by management of potential costs
associated with conducting investigative and remedial actions at the
manufactured gas sites, and of the likelihood of incurring such costs. The
liabilities recorded reflect the costs of all activities estimated, as a result
of this analysis, to have a 75% or greater likelihood of occurrence. The
additional costs described above as reasonably possible reflect the difference
between the costs reflected in the liabilities for manufactured gas sites and
costs that would result from the use of a lower probability threshold determined
for each subsidiary by management after considering the sites included for
that
subsidiary. Because these estimates reflect future expenditures, they are
sensitive to changes in assumptions with respect to the probability and
magnitude of the various factors used in the modeling. The estimates are also
affected by changes that result from the Company's actual experience in
remediating the sites.
Actual
costs, which may differ materially from these estimates, will depend on several
factors including whether contamination exists at all sites, the nature and
extent of contamination and the level of remediation that may be required.
Other
factors that may affect such costs include, but are not limited to, changes
in
remediation technology, fluctuations in unit costs and changes in environmental
laws and regulations.
With
respect to certain sites or portions of sites, the subsidiaries have received
demands to investigate and remediate to extensive levels. Management does not
believe that the utility subsidiaries are legally required to comply with such
demands. However, if the subsidiaries were required to do so at all of the
sites
that have not been remediated, the Company currently estimates that its
aggregate maximum potential liability would be approximately $420 million higher
than the total of the recorded liabilities and estimates of additional
reasonably possible costs indicated above.
Each
subsidiary intends to seek contribution from other entities for the costs
incurred at the sites, but the full extent of such contributions cannot be
determined at this time.
Peoples
Gas and North Shore Gas are recovering the costs of environmental activities
relating to
the
utilities
'
former
manufactured gas operations, including carrying charges on the unrecovered
balances, under
rate
mechanisms approved by the
Illinois
Commerce Commission (Commission) which authorize recovery
of
prudently
incurred
costs.
Costs
incurred in each fiscal year are subject to a prudence review by the Commission
during a reconciliation proceeding for such fiscal year. Costs
are
expensed in the statement of operations in the same period they are billed
to
customers and recognized as revenues.
Management
believes that any costs incurred by Peoples Gas and North Shore Gas for
environmental activities relating to former manufactured gas operations that
are
not recoverable through contributions from other entities or from insurance
carriers have been prudently incurred and are therefore recoverable through
rates for utility service. Accordingly, management believes that the costs
incurred by the subsidiaries in connection with former manufactured gas
operations will not have a material adverse effect on the financial position
or
results of operations of the utilities. However, any changes in the utilities'
approved rate mechanisms
for
recovery of these costs, or any adverse conclusions
by the
Commission
with respect to the prudence
of
costs
actually
incurred
,
could
materially affect the utilities' recovery of such costs through
rates.
B.
Former Mineral Processing Site in Denver, Colorado
In
1994,
North Shore Gas received a demand from the S.W. Shattuck Chemical Company,
Inc.
(Shattuck), a responsible party under CERCLA, for reimbursement, indemnification
and contribution for response costs incurred at Shattuck's Denver site. Shattuck
is a wholly owned subsidiary of Salomon, Inc. (Salomon). The demand alleges
that
North Shore Gas is a successor to the liability of a former entity that was
allegedly responsible during the period 1934-1941 for the disposal of mineral
processing wastes containing radium and other hazardous substances at the site.
In 1992, the EPA issued the ROD for the Denver site. The remedy selected in
the
ROD consisted of the on-site stabilization, solidification and capping of soils
containing radioactive wastes. In 1997, the remedial action was completed.
The
cost of the remedy at the site has been estimated by Shattuck to be
approximately $31 million. Salomon has provided financial assurance for the
performance of the remediation of the site.
North
Shore Gas filed a declaratory judgment action against Salomon in the U.S.
District Court for the Northern District of Illinois. The suit asked the court
to declare that North Shore Gas is not liable for response costs at the Denver
site. Salomon filed a counterclaim for costs incurred by Salomon and Shattuck
with respect to the site. In 1997, the district court granted North Shore Gas'
motion for summary judgment, declaring that North Shore Gas is not liable for
any response costs in connection with the Denver site.
In
1998,
the United States Court of Appeals, Seventh Circuit, reversed the district
court's decision and remanded the case for determination of what liability,
if
any, the former entity has, and therefore North Shore Gas has, for activities
at
the site.
In
1999,
the EPA announced that it was reopening the ROD for the Denver site. The EPA's
announcement followed a six-month scientific/technical review by the agency
of
the remedy's effectiveness. In 2000, the EPA amended the ROD to require removal
of the radioactive wastes from the site to a licensed off-site disposal
facility. The EPA estimates that this action will cost an additional $22.0
million (representing the present worth of estimated capital costs and estimated
operation and maintenance costs).
In
December 2001, Shattuck entered into a proposed settlement agreement with the
United States and the State of Colorado regarding past and future response
costs
at the site. In August 2002, the agreement was approved by the District Court
for the District of Colorado. Under the terms of the agreement, Shattuck agreed
to pay, in addition to amounts already paid for response costs at the site,
approximately $7.2 million in exchange for a release from further obligations
at
the site. The release will not apply in the event that new information shows
that the remedy selected in the amended ROD is not protective of human health
or
the environment or if it becomes necessary to remediate contaminated groundwater
beneath or emanating from the site.
The
remediation of the site was completed in July 2006. According to U.S. EPA,
all
radioactive waste has been removed and the site has been deemed protective
of
human health and the environment.
North
Shore Gas does not believe that it has liability for the response costs, but
cannot determine the matter with certainty. At this time, North Shore Gas cannot
reasonably estimate what range of loss, if any, may occur. In the event that
North Shore Gas incurs liability, it would pursue reimbursement from insurance
carriers, other responsible parties, if any, and through its rates for utility
service.
C.
Other
The
Company has identified other sites on which the Company’s subsidiaries, their
predecessors and affiliates have conducted operations which may have resulted
in
releases of contaminants to the soil and groundwater. While the Company does
not
expect to be required to investigate or remediate these sites, it cannot
determine the matter with certainty. In the event that the Company incurs costs
in connection with the investigation or remediation of these sites, it would
seek reimbursement from other responsible parties, if any, and, if appropriate,
through the utilities’ rates for utility services.
8:
GAS
CHARGE RECONCILIATION PROCEEDINGS AND RELATED MATTERS
A.
Illinois Commerce Commission Proceedings
For
each
utility subsidiary, the Commission conducts annual proceedings regarding the
reconciliation of revenues from the Gas Charge and related gas costs. In these
proceedings, the accuracy of the reconciliation of revenues and costs is
reviewed and the prudence of gas costs recovered through the Gas Charge is
examined by interested parties. If the Commission were to find that the
reconciliation was inaccurate or any gas costs were imprudently incurred, the
Commission would order the utility to refund the affected amount to customers
through subsequent Gas Charge filings. The proceedings are initiated shortly
after the close of the fiscal year and historically take at least a year to
18
months to complete.
The
Commission issued orders on March 28, 2006, approving a settlement that resolved
all proceedings regarding Peoples Gas and North Shore Gas for fiscal 2001 -
2004
costs. The recommendation that proceedings for Peoples Gas’ and North Shore Gas’
fiscal 2000 be reopened was made moot by approval of the settlement. The orders
adopted a January 17, 2006 Settlement Agreement and Release among and between
Peoples Energy, Peoples Gas, Peoples MW, LLC, Peoples Energy Resources Company,
LLC and North Shore Gas (collectively, the Peoples Companies), the People of
the
State of Illinois through Lisa Madigan, Illinois Attorney General (AG), the
Chicago and the Citizens Utility Board, as amended by an Amendment and Addendum
dated March 6, 2006 (the Agreement).
The
Agreement provides for the following:
(i)
|
Peoples
Gas and North Shore Gas agreed to refund the total sum of $100 million
to
their customers (the Refund). In its orders approving the Agreement,
the
Commission determined that $96 million should be refunded to customers
of
Peoples Gas and $4 million should be refunded to customers of North
Shore
Gas. Pursuant to the orders, on April 6, 2006, Peoples Gas and North
Shore
Gas filed informational statements with the Commission showing the
amount
of the refund to various customer classes. In April 2006, the refund
was
credited to customer accounts.
|
(ii)
|
Peoples
Energy agreed to pay to the City and the AG, jointly $5 million.
The
Company also agrees to pay up to $5 million per year over the next
five
years towards the funding of conservation and weatherization programs
for
low and moderate-income residential dwellings (Conservation Programs).
The
five subsequent payments of up to $5 million shall be paid based
upon
Conservation Programs to be developed by the City of Chicago and/or
the
Illinois Attorney General. The Conservation Programs will have the
purpose
of providing energy and natural gas conservation programs for residents
within Peoples Gas’ and North Shore Gas’
|
|
service
areas and will have the goal of reducing those residents’ energy usage and
costs. Peoples Gas and North Shore Gas will not seek recovery in
any
future rate or reconciliation cases of any amounts associated with
the
Conservation Programs.
|
(iii)
|
Peoples
Gas and North Shore Gas agreed to forgive all outstanding bad debt
from
fiscal years 2000-2005 existing as of March 6, 2006, estimated at
$207
million, remove the bad debt from customers’ records and to not use any
forgiven indebtedness as a reason to deny gas service. Peoples Gas
and
North Shore Gas have written off the estimated $207 million in prior
periods. The Agreement does not affect the ability of Peoples Gas
and
North Shore Gas to recover any future bad debts as specifically authorized
by the Commission now or in the future.
|
(iv)
|
Peoples
Gas and North Shore Gas will cooperate with Chicago and the AG to
identify
those customers of Peoples Gas and North Shore Gas who were not receiving
gas as of the date of the Agreement (approximately 12,000 customers)
that
are financial hardship cases. The hardship cases may be identified
by
either the utilities or the AG and Chicago. Following identification,
Peoples Gas and North Shore Gas will reconnect the hardship cases.
Peoples
Gas and North Shore Gas will also forgive all outstanding debt for
such
customers, as described in paragraph (iii) above.
|
(v)
|
Peoples
Gas and North Shore Gas agree to credit fiscal 2005 and fiscal 2006
revenues derived from the provision of gas Hub services as an offset
to
utility customers’ gas charges and to account for such revenues received
from gas Hub services in the same manner in all future gas charge
reconciliation cases. The fiscal 2006 revenues are being credited
in
fiscal 2006. The fiscal 2005 revenues are expected to be credited
to
customers following an order in the fiscal 2005 gas charge reconciliation
case. For fiscal 2005 and 2006, only Peoples Gas had Hub revenues.
|
(vi)
|
Peoples
Gas and North Shore Gas agreed to implement recommendations proposed
by
the Commission’s staff and the intervenors to conduct internal and
external audits of their gas procurement practices.
|
The
terms
of the Agreement expressly provide that nothing in the Agreement, or any acts
performed or documents executed in furtherance of the Agreement, shall
constitute or may be used as an admission of liability against Peoples Energy
or
its utility subsidiaries. The Commission’s orders effectively adopted the
provisions of the Agreement as a resolution on the merits of the differences
between the parties concerning the gas charge reconciliation matters related
to
the years 2000 through 2004 for Peoples Energy, Peoples Gas and North Shore
Gas
and also made other findings and conclusions.
See
Note
2C for a summary of significant accounting matters related to the
settlement.
Fiscal
2005 Gas Charge reconciliation cases were initiated in November 2005. Peoples
Gas and North Shore Gas each filed direct testimony. These cases were heard
and
continued to February 22, 2007. Commission Staff and Intervener Direct Testimony
is due January 18, 2007. The settlement of the prior fiscal years' Gas Charge
reconciliation proceedings does not affect these cases, except for Peoples
Gas'
agreement to credit fiscal 2005 Hub revenues as an offset to
utility
customers’ gas charges
.
B.
Class Action
In
February 2004, a purported class action was filed in Cook County Circuit Court
against the Company and Peoples Gas by Stephen Alport, a Peoples Gas customer,
alleging, among other things, violation of the Illinois Consumer Fraud and
Deceptive Business Practices Act related to matters at issue in Peoples Gas'
fiscal year 2001 gas charge reconciliation proceedings. The suit seeks
unspecified compensatory and punitive damages. The Company and Peoples Gas
deny
the allegations and are vigorously defending the suit. Peoples Gas has been
dismissed as a defendant and the only remaining counts of the suit allege
violations of the Consumer Fraud and Deceptive Business Practices Act and that
the Company acted in concert with others to commit a tortious act.
Based
upon the settlement and dismissal of Peoples Gas’ fiscal years 2001 through 2004
reconciliation cases by the ICC, the court on September 25, 2006 ruled to limit
the potential class members in the suit seeking damages to
those
persons who were customers during the time that Peoples Energy’s joint venture
with Enron was in operation and did not receive part of the settlement proceeds
from the reconciliation cases. The court also denied Peoples Gas’ motion to
dismiss the case to the extent that the complaint seeks punitive damages (which
could not have been obtained in the administrative reconciliation cases).
Plaintiffs have filed a third amended complaint and a motion for class
certification, to which the Company is in the process of responding. Management
cannot predict the outcome of this litigation and has not recorded a liability
associated with this contingency.
A.
Corrosion Control Inspection Proceeding
State
and
federal law requires gas utilities to conduct periodic corrosion control
inspections on natural gas pipelines. On April 19, 2006 the Commission initiated
a citation proceeding related to such inspections that were required to be
performed by Peoples Gas during 2003 and 2004, but which were not completed
in
the requisite timeframe.
On
November 3, 2006, Peoples Gas and all intervening parties filed a stipulation
to
settle the Commission proceeding, and the Commission Staff separately filed
in
support of the stipulation. Under the stipulation, Peoples Gas agreed that
it
was not in compliance with applicable regulations, and further agreed to pay
a
penalty of $1 million, pay for a consultant to conduct a comprehensive
investigation of its compliance with Commission pipeline safety regulations,
become compliant with those regulations, not seek recovery in future rate cases
of certain costs related to non-compliance and hold meetings with the City
of
Chicago to exchange information. If approved by the Commission, the stipulation
will resolve only the Commission proceeding and does not constitute a release
related to any civil or criminal laws. Peoples Gas has recorded a liability
of
$1 million associated with this settlement.
On
May
16, 2006, the Attorney General of the State of Illinois served a subpoena
requesting documents relating to Peoples Gas' corrosion inspections. Peoples
Gas' counsel has met with representatives of the Attorney General’s office and
are providing documents relating to the subpoena. Management cannot predict
the
outcome of this investigation and has not recorded a liability associated with
this contingency.
On
July
10, 2006, the U. S. Attorney for the Northern District of Illinois served a
grand jury subpoena on Peoples Gas requesting documents relating to Peoples
Gas'
corrosion inspections. Peoples Gas' counsel has met with the U.S. Attorney's
office and are providing documents relating to corrosion inspections.
Discussions between the U.S. Attorney and counsel for Peoples Gas are ongoing.
Management cannot predict the outcome of this investigation and has not recorded
a liability associated with this contingency.
B
.
Builders Class Action
In
June
2005, a purported class action was filed against the Company by Birchwood
Builders, LLC in the Circuit Court of Cook County, Illinois alleging that
Peoples Gas and North Shore Gas were fraudulently and improperly charging fees
to customers with respect to utility connections, disconnections, reconnections,
relocations, extensions of gas service pipes and extensions of distribution
gas
mains and failing to return related customer deposits. The parties are
attempting to resolve this matter through mediation. The Company, Peoples Gas
and North Shore Gas also have filed two currently pending motions to dismiss
the
lawsuit. The Company and the utility subsidiaries believe
they
have meritorious defenses and intend to vigorously defend against the class
action lawsuit. Management cannot predict the outcome of this litigation and
has
not recorded a liability associated with this contingency.
10:
OTHER COMMITMENTS AND CONTINGENCIES
A.
Guarantees and Letters of Credit
As
of
September 30, 2006, the Company had issued approximately $34.6 million of
guarantees related to its unconsolidated equity investments as presented in
the
table below. In addition, the Company has authorized the issuance of standby
letters of credit by financial institutions in the amount of $6.7 million as
of
September 30,
2006.
Surety bonds totaling $1.6 million were issued by the Company as of September
30, 2006. The Company enters into these arrangements to secure financing and
facilitate commercial transactions by its investees and subsidiaries with third
parties. The Company is not required to record liabilities associated with
these
obligations in the Consolidated Financial Statements. No such liabilities have
been recognized as of September 30, 2006.
Unconsolidated
Equity
Investee
|
Nature
of Guarantee
|
Amount
(In
millions)
|
Expected
Expiration
Date
|
|
|
|
|
Elwood
|
Operational
|
$
20.9
|
August
31, 2017
|
Elwood
|
Debt
service
|
13.7
(1)
|
July
5, 2026
|
Total
|
|
$
34.6
|
|
(1)
|
Based
on the amount of the next semi-annual debt service payment as of
September
30, 2006. The amount of guarantee varies throughout the life of the
loan,
but cannot exceed $16.5 million.
|
The
Company's equity interests in Elwood have also been pledged as collateral for
the benefit of Elwood's bondholders.
At
September 30, 2006, Peoples Gas and North Shore Gas had no material letters
of
credit or surety bonds and no outstanding guarantees.
B.
Purchase Commitments
Peoples
Gas and North Shore Gas have purchase commitments for gas purchase, storage
and
transportation as well as materials, supplies, services and property, plant
and
equipment as part of the normal course of business. Certain contracts contain
penalty provisions for early termination. The Company does not expect potential
payments under these provisions to materially affect results of operations
or
its financial condition in any individual year. Purchase obligations are
summarized below in Note 10D.
C.
Operating Leases
The
Company and subsidiaries lease office space under agreements that expire in
various years through 2016. During fiscal 2003, the Company extended the lease
for its headquarters for an additional five years to August 31, 2014. The rental
obligations consist of a base rent plus operating expenses and taxes. Rental
expenses for the Company under operating leases were $8.3 million, $8.6 million
and $8.7 million for fiscal years 2006, 2005 and 2004, respectively. Rental
expenses for Peoples Gas under operating leases were $2.6 million, $2.6 million
and $3.6 million for fiscal years 2006, 2005 and 2004, respectively. Rental
expenses for North Shore Gas under operating leases were insignificant. The
minimum rental commitments payable in future years under all noncancelable
leases for the Company and Peoples Gas are summarized below in Note
10D.
D.
Contractual Obligations
The
following table summarizes Peoples Energy’s, Peoples Gas’ and North Shore Gas’
minimum contractual cash obligations as of September 30, 2006.
|
|
Payments
Due by Period
|
(In
Millions)
|
|
|
|
|
|
Less
than
|
|
|
1
to 3
|
|
|
4
to 5
|
|
|
More
than
|
|
Peoples
Energy (consolidated)
|
|
|
Total
|
|
|
1
Year
|
|
|
Years
|
|
|
Years
|
|
|
5
Years
|
|
Total
debt (See Note 14)
|
|
$
|
1,204.4
|
|
$
|
309.7
|
|
$
|
-
|
|
$
|
373.5
|
|
$
|
521.2
|
|
Estimated
interest payments on debt (1)
|
|
|
631.5
|
|
|
46.7
|
|
|
93.4
|
|
|
79.3
|
|
|
412.1
|
|
Operating
leases (See Note 10C)
|
|
|
35.2
|
|
|
3.9
|
|
|
8.2
|
|
|
8.6
|
|
|
14.5
|
|
Purchase
obligations (2)
|
|
|
1,108.8
|
|
|
471.9
|
|
|
407.1
|
|
|
96.9
|
|
|
132.9
|
|
Minimum
pension funding (3) (See Note 11)
|
|
|
92.8
|
|
|
-
|
|
|
26.1
|
|
|
33.3
|
|
|
33.4
|
|
Total
contractual cash obligations
|
|
$
|
3,072.7
|
|
$
|
832.2
|
|
$
|
534.8
|
|
$
|
591.6
|
|
$
|
1,114.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples
Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt (See Note 14)
|
|
$
|
502.0
|
|
$
|
-
|
|
$
|
-
|
|
$
|
50.0
|
|
$
|
452.0
|
|
Estimated
interest payments on debt (1)
|
|
|
485.9
|
|
|
21.2
|
|
|
42.5
|
|
|
39.5
|
|
|
382.7
|
|
Operating
leases (See Note 10C)
|
|
|
26.3
|
|
|
3.2
|
|
|
6.5
|
|
|
6.9
|
|
|
9.7
|
|
Purchase
obligations (2)
|
|
|
353.0
|
|
|
76.4
|
|
|
109.9
|
|
|
68.0
|
|
|
98.7
|
|
Total
contractual cash obligations
|
|
$
|
1,367.2
|
|
$
|
100.8
|
|
$
|
158.9
|
|
$
|
164.4
|
|
$
|
943.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
Shore Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt (See Note 14)
|
|
$
|
69.3
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
69.3
|
|
Estimated
interest payments on debt (1)
|
|
|
45.8
|
|
|
3.3
|
|
|
6.6
|
|
|
6.6
|
|
|
29.3
|
|
Operating
leases (See Note 10C)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Purchase
obligations (2)
|
|
|
79.2
|
|
|
17.7
|
|
|
28.6
|
|
|
9.9
|
|
|
23.0
|
|
Total
contractual cash obligations
|
|
$
|
194.3
|
|
$
|
21.0
|
|
$
|
35.2
|
|
$
|
16.5
|
|
$
|
121.6
|
|
(1)
|
Includes
interest on fixed and adjustable rate debt. The adjustable rate interest
is calculated based on the indexed rate in effect at September 30,
2006.
|
(2)
|
Includes
gas purchases, storage, transportation, information technology-related
and
miscellaneous long-term and short-term capital purchase
commitments.
|
(3)
|
Minimum
pension funding is an estimate of the contributions that would be
required
pursuant to the Employee Retirement Income Security Act to fund benefits
earned as of October 1, 2006. Additional contributions may be made
to fund
benefits accruing after October 1, 2006, or on a discretionary
basis.
|
11:
RETIREMENT AND POSTRETIREMENT BENEFITS
The
Company and its subsidiaries participate in two noncontributory defined benefit
pension plans, the Retirement Plan and the Service Annuity System, covering
substantially all employees. These plans provide pension benefits that generally
are based on an employee's length of service, compensation during the five
years
preceding retirement and social security benefits. Employees who began
participation in the Retirement Plan July 1, 2001, and thereafter will have
their benefits determined based on their compensation during the five years
preceding termination of employment and an aged-based percentage credited to
them for each year of their participation. The Company and its subsidiaries
make
contributions to the plans based upon actuarial determinations and in
consideration of tax regulations and funding requirements under federal law.
The
Company also has a non-qualified pension plan (Supplemental Plan) that provides
certain employees with pension benefits in excess of qualified plan limits
imposed by federal tax law. Effective October 1, 2004, the Company began
including amounts related to executive deferred compensation (EDC) in the
calculation of supplemental pension expense. Retiring employees have the option
of receiving retirement benefits in the form of an annuity or a lump sum
payment.
The
Company follows SFAS No. 88 to account for unrecognized gains and losses related
to the settlement of its pension plans' Projected Benefit Obligations (PBO).
During fiscal 2006, as in past fiscal periods, a portion of each plans' PBO
was
settled by the payment of lump sum benefits, resulting in a settlement cost
under SFAS No. 88 for the Retirement Plan, Service Annuity System and
Supplemental Plan.
In
addition, the Company and its subsidiaries currently provide certain
contributory health care and life insurance benefits for retired employees.
Substantially all employees may become eligible for such benefit coverage if
they reach retirement age while working for the Company. These plans, like
the
pension plans, are funded based upon actuarial determinations, consideration
of
tax regulations and the Company's funding policy. The Company accrues the
expected costs of such benefits over the service lives of employees who meet
the
eligibility requirements of the plan.
A.
Benefit Obligations
|
|
|
|
|
|
|
|
Other
Postretirement
|
|
|
|
Pension
Benefits
|
|
Benefits
|
|
Fiscal
Years Ended September 30
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
(In
Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of measurement period
|
|
$
|
508.6
|
|
$
|
458.3
|
|
$
|
133.1
|
|
$
|
147.1
|
|
Service
cost
|
|
|
21.0
|
|
|
15.9
|
|
|
7.1
|
|
|
6.1
|
|
Interest
cost
|
|
|
25.5
|
|
|
27.2
|
|
|
6.4
|
|
|
7.9
|
|
Participant
contributions
|
|
|
-
|
|
|
-
|
|
|
6.8
|
|
|
5.9
|
|
Curtailment
|
|
|
-
|
|
|
(1.6
|
)
|
|
-
|
|
|
(0.6
|
)
|
Plan
amendments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7.3
|
)
|
Actuarial
(gain)/loss
|
|
|
(69.7
|
)
|
|
88.5
|
|
|
(7.5
|
)
|
|
(11.3
|
)
|
Benefits
paid
|
|
|
(46.5
|
)
|
|
(79.7
|
)
|
|
(15.8
|
)
|
|
(14.7
|
)
|
Benefit
obligation at end of measurement period (June 30)
|
|
$
|
438.9
|
|
$
|
508.6
|
|
$
|
130.1
|
|
$
|
133.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation at end of measurement period (June 30)
|
|
$
|
361.1
|
|
$
|
402.6
|
|
|
|
|
|
|
|
B.
Plan Assets
|
|
|
|
|
|
|
|
Other
Postretirement
|
|
|
|
Pension
Benefits
|
|
Benefits
|
|
Fiscal
Years Ended September 30
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
(In
Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of measurement period
|
|
$
|
480.6
|
|
$
|
495.1
|
|
$
|
39.8
|
|
$
|
46.9
|
|
Actual
return on plan assets
|
|
|
38.1
|
|
|
33.3
|
|
|
1.1
|
|
|
1.7
|
|
Employer
contributions (including non-qualified plans)
|
|
|
23.2
|
|
|
31.9
|
|
|
0.2
|
|
|
-
|
|
Participant
contributions
|
|
|
-
|
|
|
-
|
|
|
6.8
|
|
|
5.9
|
|
Benefits
paid
|
|
|
(46.5
|
)
|
|
(79.7
|
)
|
|
(15.8
|
)
|
|
(14.7
|
)
|
Fair
value of plan assets at end of measurement
period
(June 30)
|
|
$
|
495.4
|
|
$
|
480.6
|
|
$
|
32.1
|
|
$
|
39.8
|
|
The
asset
allocation, by asset class, for the Company’s pension and other postretirement
benefit plans at the June 30 measurement date are as follows:
|
|
Target
|
|
Percentage
of Plan Assets
|
|
|
Allocation
|
|
at
June 30,
|
|
|
2006
|
|
2006
|
|
2005
|
Pension
Benefits:
|
|
|
|
|
|
|
Equity
securities
|
|
70%
|
|
69%
|
|
69%
|
Debt
securities
|
|
30%
|
|
30%
|
|
30%
|
Other
|
|
0%
|
|
1%
|
|
1%
|
Total
|
|
100%
|
|
100%
|
|
100%
|
|
|
|
|
|
|
|
Other
Postretirement Benefits:
|
|
|
|
|
|
|
Equity
securities
|
|
60%
|
|
57%
|
|
58%
|
Debt
securities
|
|
40%
|
|
38%
|
|
40%
|
Other
|
|
0%
|
|
5%
|
|
2%
|
Total
|
|
100%
|
|
100%
|
|
100%
|
The
target asset allocation reflects the Company’s investment strategy of maximizing
the long-term rate of return on plan assets within an appropriate level of
risk.
Plan assets are rebalanced from time to time if the actual allocation deviates
from the target by more than allowable limits as defined under the Company's
investment policy.
C.
Funded Status
The
funded status of the plans, reconciled to the amount reported on the statement
of financial position, is as follows:
|
|
|
|
|
|
|
|
Other
Postretirement
|
|
|
|
Pension
Benefits
|
|
Benefits
|
|
Fiscal
Years Ended September 30
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
(In
Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets
|
|
$
|
495.4
|
|
$
|
480.6
|
|
$
|
32.1
|
|
$
|
39.8
|
|
Benefit
obligations
|
|
|
438.9
|
|
|
508.6
|
|
|
130.1
|
|
|
133.1
|
|
Over
(under) funded status
|
|
|
56.5
|
|
|
(28.0
|
)
|
|
(98.0
|
)
|
|
(93.3
|
)
|
Unrecognized
net transition obligation (asset)
|
|
|
-
|
|
|
(0.1
|
)
|
|
8.6
|
|
|
9.8
|
|
Unrecognized
prior service cost
|
|
|
32.8
|
|
|
35.4
|
|
|
-
|
|
|
-
|
|
Unrecognized
net actuarial (gain)/loss
|
|
|
85.0
|
|
|
167.1
|
|
|
21.6
|
|
|
28.4
|
|
Adjustment
for Medicare Part D receivable
|
|
|
-
|
|
|
-
|
|
|
(0.7
|
)
|
|
-
|
|
Recognized
prepaid (accrued) benefit cost at September 30
|
|
$
|
174.3
|
|
$
|
174.4
|
|
$
|
(68.5
|
)
|
$
|
(55.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in the statement of financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
position
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
pension cost
|
|
$
|
182.3
|
|
$
|
152.7
|
|
$
|
-
|
|
$
|
-
|
|
Accrued
benefit liability
|
|
|
(8.0
|
)
|
|
(42.6
|
)
|
|
(68.5
|
)
|
|
(55.1
|
)
|
Intangible
asset
|
|
|
-
|
|
|
21.5
|
|
|
-
|
|
|
-
|
|
Accumulated
other comprehensive income, pretax
|
|
|
-
|
|
|
42.8
|
|
|
-
|
|
|
-
|
|
Net
amount recognized
|
|
$
|
174.3
|
|
$
|
174.4
|
|
$
|
(68.5
|
)
|
$
|
(55.1
|
)
|
The
Company’s Retirement Plan and Supplemental Plan had accumulated benefit
obligations in excess of (less than) plan assets as of June 30, 2006 and 2005,
as follows:
|
|
Retirement
Plan
|
|
Supplemental
Plan
|
|
(In
Millions)
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
Benefit
obligation
|
|
$
|
211.4
|
|
$
|
270.0
|
|
$
|
7.1
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation (ABO)
|
|
$
|
173.7
|
|
$
|
223.3
|
|
$
|
6.2
|
|
$
|
6.2
|
|
Fair
value of plan assets
|
|
|
195.6
|
|
|
188.6
|
|
|
-
|
|
|
-
|
|
ABO
in excess of (less than) plan assets
|
|
$
|
(21.9
|
)
|
$
|
34.7
|
|
$
|
6.2
|
|
$
|
6.2
|
|
Pretax
amounts included in other comprehensive income arising from a change in the
minimum liability are as follows:
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
Fiscal
years ended September 30,
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
(In
Millions)
|
|
|
|
|
|
|
|
|
Change
in minimum liability included
|
|
|
|
|
|
|
|
|
in other comprehensive income as a loss (gain)
|
|
$(42.8)
|
|
$29.7
|
|
N/A
|
|
N/A
|
D.
Expected Cash Flow
Information
about the expected cash flows for the pension and other postretirement benefit
plans follows:
(In
Millions)
|
Pension
Benefits
|
|
Other
Postretirement Benefits
|
Employer
contributions:
|
|
|
|
2007
(expected)
|
$
3.7
|
|
$
-
|
|
|
|
|
Expected
benefit payments:
|
|
|
|
2007
|
$
35.5
|
|
$
8.5
|
2008
|
31.5
|
|
8.7
|
2009
|
34.3
|
|
9.0
|
2010
|
34.7
|
|
9.2
|
2011
|
42.0
|
|
9.8
|
Years
2012-2016
|
259.3
|
|
58.9
|
The
above
table reflects the total benefits expected to be paid from the plan or from
Company assets and does not include the participants’ share of the cost. The
above expected benefit payments for other postretirement benefits include
payments for prescription drug benefits and are net of the following expected
Medicare Part D subsidy receipts:
(In
Millions)
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012-2016
|
Other
postretirement benefits
|
$0.8
|
$0.9
|
$0.9
|
$1.0
|
$1.0
|
$5.8
|
E.
Net Benefit Cost
|
|
Pension
Benefits
|
|
|
Other
Postretirement Benefits
|
|
Fiscal
Years Ended September 30
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
21.0
|
|
$
|
15.9
|
|
$
|
17.8
|
|
$
|
7.1
|
|
$
|
6.1
|
|
$
|
5.3
|
|
Interest
cost
|
|
|
25.5
|
|
|
27.2
|
|
|
27.7
|
|
|
6.4
|
|
|
7.9
|
|
|
7.3
|
|
Expected
return on plan assets
|
|
|
(40.8
|
)
|
|
(43.0
|
)
|
|
(46.6
|
)
|
|
(2.9
|
)
|
|
(3.3
|
)
|
|
(3.8
|
)
|
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
transition (asset)/obligation
|
|
|
(0.1
|
)
|
|
(0.8
|
)
|
|
(1.1
|
)
|
|
1.2
|
|
|
1.8
|
|
|
1.9
|
|
Prior
service cost
|
|
|
2.6
|
|
|
2.7
|
|
|
3.0
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
actuarial (gain)/loss
|
|
|
6.1
|
|
|
2.0
|
|
|
1.6
|
|
|
1.1
|
|
|
1.4
|
|
|
0.9
|
|
Net
periodic benefit cost
|
|
|
14.3
|
|
|
4.0
|
|
|
2.4
|
|
|
12.9
|
|
|
13.9
|
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment
recognition
|
|
|
-
|
|
|
5.1
|
|
|
-
|
|
|
-
|
|
|
0.4
|
|
|
-
|
|
Contribution
shortfall recognition
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0.7
|
|
One-time
recognition for EDC
|
|
|
-
|
|
|
2.2
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Effects
of lump sum settlements upon retirement
|
|
|
9.0
|
|
|
15.5
|
|
|
9.4
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
benefit cost
|
|
$
|
23.3
|
|
$
|
26.8
|
|
$
|
11.8
|
|
$
|
12.9
|
|
$
|
14.3
|
|
$
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
benefit cost by company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples
Gas
|
|
$
|
11.5
|
|
$
|
12.6
|
|
$
|
3.0
|
|
$
|
10.0
|
|
$
|
11.3
|
|
$
|
10.0
|
|
North
Shore Gas
|
|
|
3.4
|
|
|
3.8
|
|
|
2.8
|
|
|
1.4
|
|
|
1.4
|
|
|
1.2
|
|
All
other companies
|
|
|
8.4
|
|
|
10.4
|
|
|
6.0
|
|
|
1.5
|
|
|
1.6
|
|
|
1.1
|
|
|
|
$
|
23.3
|
|
$
|
26.8
|
|
$
|
11.8
|
|
$
|
12.9
|
|
$
|
14.3
|
|
$
|
12.3
|
|
In
fiscal
2005 the Company recorded a combined $15.9 million noncash expense (before
capitalization) for pension and other postretirement benefits associated with
the restructuring described in Note 4. The $15.9 million included approximately
$10.4 million related to effects of lump sum settlements and $5.5 million
related to curtailment charges. In addition, remeasurement of the pension plan’s
liabilities and assets when the plan curtailment was recognized during the
first
quarter of fiscal 2005 resulted in an increase of $22.6 million in the minimum
liability recognized in other comprehensive income.
On
December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the Act) was signed into law. The Act introduces a prescription
drug benefit under Medicare (Medicare Part D) as well as a federal subsidy
to
sponsors of retiree health care benefit plans that provide a benefit that is
at
least actuarially equivalent to Medicare Part D.
FSP
No.
106-2 provides accounting guidance to employers that have determined that
prescription drug benefits available under their retiree health care benefit
plans are at least actuarially equivalent to Medicare Part D. The FSP requires
that the benefit attributable to past service be accounted for as an actuarial
gain and the benefit related to current service be reported as a reduction
in
service cost.
Detailed
regulations needed to implement the Act were issued in January of 2005 and
the
Company determined that the benefits provided by its retiree health care benefit
plans are at least actuarially equivalent to Medicare Part D and qualify for
the
federal subsidy. The impact of the Act on the Company's postretirement benefit
plan was considered a significant event and a remeasurement of plan assets
and
obligations was performed as of February 28, 2005. The impact of the Act reduced
accumulated postretirement benefit obligation by $37.9 million related to
benefits
attributed to past service. The reduction in the components of net periodic
benefit cost for 2006 and 2005 was as follows:
(In
millions)
|
|
|
2006
|
|
|
2005
|
|
Service
Cost
|
|
$
|
1.8
|
|
$
|
0.5
|
|
Interest
Cost
|
|
|
2.0
|
|
|
0.7
|
|
Amortization
of actuarial gain
|
|
|
2.5
|
|
|
0.6
|
|
Total
reduction in net periodic benefit cost
|
|
$
|
6.3
|
|
$
|
1.8
|
|
F.
Primary Actuarial Assumptions
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
Weighted-average
assumptions used to determine benefit obligations, June
30:
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
6.50%
|
|
5.25%
|
|
6.25%
|
|
5.00%
|
Future
compensation increases
|
|
3.75%
|
|
3.75%
|
|
|
|
|
Health
care cost trend rate assumed for next year
|
|
|
|
|
|
8.00%
|
|
9.00%
|
Rate
to which the cost trend rate is assumed
to
decline (the ultimate rate)
|
|
|
|
|
|
5.00%
|
|
5.00%
|
Year
that the rate reaches the ultimate trend rate
|
|
|
|
|
|
2010
|
|
2010
|
|
|
Pension
Benefits
|
|
Other
Postretirement Benefits
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
Weighted-average
assumptions used to determine
net
periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
5.25%
|
|
6.13%
|
|
6.00%
|
|
5.00%
|
|
6.02%
|
|
6.00%
|
Expected
return on assets
|
|
8.75%
|
|
8.75%
|
|
8.75%
|
|
8.75%
|
|
8.75%
|
|
8.75%
|
Future
compensation increases
|
|
3.75%
|
|
3.75%
|
|
3.75%
|
|
|
|
|
|
|
Health
care cost trend rate assumed for
next
year
|
|
|
|
|
|
|
|
9.00%
|
|
10.00%
|
|
8.00%
|
Rate
to which the cost trend rate is
assumed
to
decline
(the ultimate rate)
|
|
|
|
|
|
|
|
5.00%
|
|
5.00%
|
|
5.00%
|
Year
that the rate reaches the ultimate
trend
rate
|
|
|
|
|
|
|
|
2010
|
|
2010
|
|
2007
|
The
Company utilized the assistance of its plan actuaries in determining the
discount rate assumption. The Company’s actuaries have developed an interest
rate yield curve to enable companies to make judgments pursuant to EITF Topic
No. D-36, “Selection of Discount Rates Used for Measuring Defined Benefit
Pension Obligations and Obligations of Post Retirement Benefit Plans Other
Than
Pensions.” The yield curve is comprised of Aaa and Aa bonds with maturities
between zero and thirty years. The plan actuaries then discount the expected
annual benefit cash flows for each of the Company’s pension and retiree welfare
plans using this yield curve and develop a single-point discount rate matching
each plan’s expected payout structure.
The
Company establishes its expected return on asset assumption based on
consideration of historical and projected asset class returns. For each asset
class, the expected return is calculated as the weighted-average of the
historical and projected returns, as determined by an independent source. This
amount is then compared to the historical investment performance of the Trust
as
well as a group of peer companies for reasonableness.
Assumed
health care cost trend rates have a significant effect on the amounts reported
for the health care plans. For fiscal 2006 a one-percentage-point change in
the
assumed health care cost trend rates would have the following
effects:
|
|
1-Percentage-Point
|
(In
Millions)
|
|
|
Increase
|
|
|
Decrease
|
|
Effect
on total of service and interest cost
|
|
$
|
2.1
|
|
$
|
(1.7
|
)
|
Effect
on postretirement benefit obligation
|
|
$
|
12.9
|
|
$
|
(11.2
|
)
|
G.
Defined Contribution Plans
In
addition to the defined benefit pension plans, the Company has defined
contribution plans that allow eligible employees to contribute a portion of
their income in accordance with specified guidelines. The Company matches a
percentage of the employee contribution up to certain limits. The cost of the
Company’s matching contribution to the plans totaled $3.7 million, $3.6 million
and $4.0 million in fiscal 2006, 2005 and 2004, respectively.
12:
TAX MATTERS
A.
Income Tax Expense
Total
income tax expense (benefit) as shown for the Company on the Consolidated
Statements of Operations is composed of the following:
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
8,594
|
|
$
|
18,579
|
|
$
|
21,051
|
|
State
|
|
|
(3,167
|
)
|
|
1,112
|
|
|
(1,216
|
)
|
Total
current income taxes
|
|
|
5,427
|
|
|
19,691
|
|
|
19,835
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(23,441
|
)
|
|
16,529
|
|
|
13,086
|
|
State
|
|
|
(5,093
|
)
|
|
1,653
|
|
|
1,531
|
|
Total
deferred income taxes
|
|
|
(28,534
|
)
|
|
18,182
|
|
|
14,617
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
tax credits—net:
|
|
|
|
|
|
|
|
|
|
|
Federal
amortization
|
|
|
(708
|
)
|
|
(712
|
)
|
|
(903
|
)
|
State
ITC provision
|
|
|
471
|
|
|
286
|
|
|
-
|
|
State
ITC amortization
|
|
|
(204
|
)
|
|
(187
|
)
|
|
(216
|
)
|
Total
investment tax credits—net
|
|
|
(441
|
)
|
|
(613
|
)
|
|
(1,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
from
continuing operations
|
|
|
(23,548
|
)
|
|
37,260
|
|
|
33,333
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense from discontinued operations
|
|
|
6,797
|
|
|
7,444
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income tax expense (benefit)
|
|
$
|
(16,751
|
)
|
$
|
44,704
|
|
$
|
37,833
|
|
Total
income tax expense (benefit) as shown for Peoples Gas and North Shore Gas on
each of the respective Consolidated Statements of Operations is composed of
the
following:
|
|
Peoples
Gas
|
|
North
Shore Gas
|
|
For
Fiscal Years Ended September 30,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
12,343
|
|
$
|
24,479
|
|
$
|
17,565
|
|
$
|
702
|
|
$
|
575
|
|
$
|
2,976
|
|
State
|
|
|
(920
|
)
|
|
5,482
|
|
|
3,915
|
|
|
(325
|
)
|
|
66
|
|
|
672
|
|
Total
current income taxes
|
|
|
11,423
|
|
|
29,961
|
|
|
21,480
|
|
|
377
|
|
|
641
|
|
|
3,648
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(33,391
|
)
|
|
(2,964
|
)
|
|
2,721
|
|
|
2,389
|
|
|
4,816
|
|
|
2,655
|
|
State
|
|
|
(3,732
|
)
|
|
257
|
|
|
1,199
|
|
|
1,057
|
|
|
1,248
|
|
|
555
|
|
Total
deferred income taxes
|
|
|
(37,123
|
)
|
|
(2,707
|
)
|
|
3,920
|
|
|
3,446
|
|
|
6,064
|
|
|
3,210
|
|
Investment
tax credits—net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
amortization
|
|
|
(647
|
)
|
|
(649
|
)
|
|
(812
|
)
|
|
(61
|
)
|
|
(63
|
)
|
|
(90
|
)
|
State
ITC provision
|
|
|
412
|
|
|
253
|
|
|
-
|
|
|
58
|
|
|
33
|
|
|
-
|
|
State
ITC amortization
|
|
|
(181
|
)
|
|
(168
|
)
|
|
(191
|
)
|
|
(23
|
)
|
|
(19
|
)
|
|
(25
|
)
|
Total
investment tax credits—net
|
|
|
(416
|
)
|
|
(564
|
)
|
|
(1,003
|
)
|
|
(26
|
)
|
|
(49
|
)
|
|
(115
|
)
|
Net
income tax expense (benefit)
|
|
$
|
(26,116
|
)
|
$
|
26,690
|
|
$
|
24,397
|
|
$
|
3,797
|
|
$
|
6,656
|
|
$
|
6,743
|
|
B.
Tax Rate Reconciliation
The
following is a reconciliation for the Company between the
federal
statutory income tax rate of 35% and the effective income tax rate for
continuing operations
.
|
|
Percent
of Pretax Income/Loss
|
|
For
Fiscal Years Ended September 30,
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Federal
statutory income tax rate
|
|
35.00
|
|
35.00
|
|
35.00
|
|
Increase
(decrease) due to:
|
|
|
|
|
|
|
|
State
income taxes—net
|
|
10.09
|
|
1.79
|
|
0.06
|
|
Federal
medicare subsidy
|
|
3.20
|
|
(0.57
|
)
|
-
|
|
Merger
costs—non-deductible
|
|
(3.16
|
)
|
-
|
|
-
|
|
Other—net
|
|
0.60
|
|
(0.43
|
)
|
(4.22
|
)
|
Effective
income tax rate for continuing operations
|
|
45.73
|
|
35.79
|
|
30.84
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate for discontinued operations
|
|
39.74
|
|
39.75
|
|
39.75
|
|
|
|
|
|
|
|
|
|
Total
effective income tax rate
|
|
48.71
|
|
36.39
|
|
31.69
|
|
The
increase in the state income tax rate in fiscal 2006 is due to the impact
of
Illinois tax benefits relative to the Company’s disproportionately smaller
consolidated loss before income taxes caused by taxable income in states
other
than Illinois. The Medicare Prescription Drug, Improvement and Modernization
Act
of 2003 (see Note 11E) excludes receipt of the subsidy from taxable income
of
the employer for federal income tax purposes. Certain transaction costs incurred
to facilitate a merger are
estimated
to be non-deductible for tax purposes. (See Note 1 for a discussion of the
proposed merger between the Company and WPS Resources.
)
The
following
is a reconciliation for Peoples Gas between the
federal
statutory income tax rate of 35% and the total effective income tax
rate
.
|
|
Peoples
Gas
|
|
|
|
Percent
of Pretax Income/Loss
|
|
For
Fiscal Years Ended September 30,
|
|
2006
|
|
2005
|
|
2004
|
|
Federal
statutory income tax rate
|
|
35.00
|
|
35.00
|
|
35.00
|
|
Increase
(decrease) due to:
|
|
|
|
|
|
|
|
State
income taxes—net
|
|
4.67
|
|
4.98
|
|
4.59
|
|
Federal
medicare subsidy
|
|
2.16
|
|
(0.63
|
)
|
-
|
|
Federal
accrual adjustments
|
|
1.42
|
|
(4.03
|
)
|
(1.28
|
)
|
Other—net
|
|
(0.83
|
)
|
(0.21
|
)
|
(3.34
|
)
|
Total
effective income tax rate
|
|
42.42
|
|
35.11
|
|
34.97
|
|
The
following is a reconciliation for North Shore Gas between the
federal
statutory income tax rate of 35% and the total effective income tax
rate
.
|
|
North
Shore Gas
|
|
|
|
Percent
of Pretax Income
|
|
For
Fiscal Years Ended September 30,
|
|
2006
|
|
2005
|
|
2004
|
|
Federal
statutory income tax rate
|
|
35.00
|
|
35.00
|
|
35.00
|
|
Increase
(decrease) due to:
|
|
|
|
|
|
|
|
State
income taxes—net
|
|
4.74
|
|
4.78
|
|
4.38
|
|
Other—net
|
|
(3.59
|
)
|
(2.91
|
)
|
(1.45
|
)
|
Total
effective income tax rate
|
|
36.15
|
|
36.87
|
|
37.93
|
|
C.
Deferred Income Taxes
Summarized
in the table below for the Company are the temporary differences which gave
rise
to the net deferred income tax liabilities (see Note 2G).
|
|
September
30,
|
|
|
|
|
2006
|
|
|
|
2005
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Property—accelerated
depreciation
|
|
|
|
|
|
|
|
|
and
other property-related items
|
|
$
|
434,073
|
|
|
$
|
409,553
|
|
Pension
|
|
|
72,880
|
|
|
|
63,659
|
|
Partnership
items
|
|
|
28,512
|
|
|
|
26,323
|
|
Other
|
|
|
30,632
|
|
|
|
40,364
|
|
Total
deferred income tax liabilities
|
|
|
566,097
|
|
|
|
539,899
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Derivative
instruments
|
|
|
(21,962
|
)
|
|
|
(85,496
|
)
|
Alternative
minimum tax
|
|
|
(23,626
|
)
|
|
|
(8,517
|
)
|
Group
insurance
|
|
|
(29,559
|
)
|
|
|
(21,103
|
)
|
Other
|
|
|
(65,184
|
)
|
|
|
(42,872
|
)
|
Total
deferred income tax assets
|
|
|
(140,331
|
)
|
|
|
(157,988
|
)
|
Net
deferred income tax liabilities
|
|
$
|
425,766
|
(1)
|
|
$
|
381,911
|
(2)
|
(1)
|
Includes
$35.3 million of net current deferred tax assets that are classified
in
Other Current Assets and Other Accrued Liabilities on the balance
sheet.
|
(2)
|
Includes
$64.4 million of net current deferred tax assets that are classified
in
Other Current Assets and Other Accrued Liabilities on the balance
sheet.
|
Summarized
in the table below for Peoples Gas are the temporary differences which gave
rise
to the net deferred income tax liabilities (see Note 2G).
(In
Thousands)
|
|
Peoples
Gas
|
|
September
30,
|
|
|
2006
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Property—accelerated
depreciation and
|
|
|
|
|
|
|
|
|
other
property-related items
|
|
$
|
323,254
|
|
|
$
|
317,020
|
|
Pension
|
|
|
73,393
|
|
|
|
60,818
|
|
Other
|
|
|
24,040
|
|
|
|
30,905
|
|
Total
deferred income tax liabilities
|
|
|
420,687
|
|
|
|
408,743
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Alternative
minimum tax
|
|
|
(18,101
|
)
|
|
|
(4,318
|
)
|
Group
insurance
|
|
|
(24,083
|
)
|
|
|
(17,399
|
)
|
Other
|
|
|
(49,635
|
)
|
|
|
(30,458
|
)
|
Total
deferred income tax assets
|
|
|
(91,819
|
)
|
|
|
(52,175
|
)
|
Net
deferred income tax liabilities
|
|
$
|
328,868
|
(1)
|
|
$
|
356,568
|
(2)
|
(1)
|
Includes
$24.3 million of net current deferred taxes that is classified
in Other
Current Assets on the balance
sheet.
|
(2)
|
Includes
$7.6 million of net current deferred taxes that is classified
in Other
Current Assets on the balance
sheet.
|
Summarized
in the table below for North Shore Gas are the temporary differences which
gave
rise to the net deferred income tax liabilities (see Note 2G).
(In
Thousands)
|
|
North
Shore Gas
|
|
September
30,
|
|
|
2006
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Property—accelerated
depreciation and
|
|
|
|
|
|
|
|
|
other
property-related items
|
|
$
|
43,881
|
|
|
$
|
42,050
|
|
Gas
cost reconciliation
|
|
|
-
|
|
|
|
2,571
|
|
Other
|
|
|
8,569
|
|
|
|
2,642
|
|
Total
deferred income tax liabilities
|
|
|
52,450
|
|
|
|
47,263
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Group
insurance
|
|
|
(3,019
|
)
|
|
|
(2,217
|
)
|
Gas
cost reconciliation
|
|
|
(1,142
|
)
|
|
|
-
|
|
Other
|
|
|
(5,050
|
)
|
|
|
(4,035
|
)
|
Total
deferred income tax assets
|
|
|
(9,211
|
)
|
|
|
(6,252
|
)
|
Net
deferred income tax liabilities
|
|
$
|
43,239
|
(1)
|
|
$
|
41,011
|
(2)
|
(1)
|
Includes
$2.5 million of net current deferred taxes that is classified in
Other
Current Assets on the balance
sheet.
|
(2)
|
Includes
$1.9 million of net current deferred taxes that is classified in
Other
Accrued Liabilities on the balance
sheet.
|
As
of
September 30, 2006, the Company had federal and state net operating loss
carryforwards of approximately $5.9 million and $4.7 million, respectively,
which, if unused, will expire in 2026 and 2018, respectively.
The
Company records a reserve for uncertain tax positions based upon its assessment
of the probabilities that certain deductions or income tax positions may not
be
sustained when income tax returns are audited by taxing
jurisdictions. The reserves recorded at September 30, 2006 and 2005 are
not material to the consolidated financial statements.
13:
DEBT COVENANTS
North
Shore Gas’ indenture relating to its first mortgage bonds contains provisions
and covenants restricting the payment of cash dividends and the purchase or
redemption of capital stock. At September 30, 2006, such restrictions
amounted to $6.9 million out of North Shore Gas’ total retained earnings of
$76.3 million.
The
Company has revolving credit facilities which primarily support its commercial
paper borrowing. These credit facilities provide that the lenders under such
facilities may terminate the credit commitments to the borrowing company and
declare any outstanding amounts due and payable if the borrowing company’s
debt-to-total capital ratio excluding the impact of accumulated other
comprehensive income (AOCI), exceeds 65%. At September 30, 2006, this
ratio, as defined in the credit facilities, was 58% for Peoples Energy and
44%
for Peoples Gas.
The
Company’s indenture relating to its $325.0 million notes due
January 15, 2011, has a cross-default provision relating to any other
indebtedness greater than $15.0 million. The Company’s five-year revolving
credit facilities have a cross-default provision relating to any other
indebtedness greater than $15.0 million. Peoples Gas’ five-year revolving
credit facilities have a cross-default provision relating to any other
indebtedness greater than $15.0 million.
The
Indenture of Mortgage, dated January 2, 1926, as supplemented, securing the
First and Refunding Mortgage Bonds issued by Peoples Gas, constitutes a direct,
first-mortgage lien on substantially all property owned by Peoples Gas. The
Indenture, dated April 1, 1955, as supplemented, securing the first
mortgage bonds issued by North Shore Gas, constitutes a direct, first-mortgage
lien on substantially all property owned by North Shore Gas.
14:
LONG-TERM DEBT AND SHORT-TERM DEBT
Peoples
Gas and North Shore Gas utilize mortgage bonds to secure tax exempt interest
rates. The Illinois Finance Authority has issued tax exempt bonds for the
benefit of Peoples Gas and North Shore Gas and Chicago has issued tax exempt
bonds for the benefit of Peoples Gas. Each issuance is secured by an equal
principal amount of Peoples Gas’ or North Shore Gas’ first mortgage
bonds.
A.
Changes in Debt Securities
During
fiscal 2005, the Company took advantage of the low interest rate environment
to
refinance existing higher interest rate debt. During fiscal 2004, the Company
took advantage of the low interest rate environment to term-up adjustable rate
debt. In general, debt classified as short-term due to the technical tender
provisions was replaced by long-term debt.
Peoples
Gas has $51.0 million of Adjustable Rate, Series OO bonds, due October 1, 2037
and $51.0 million of Adjustable rate, Series PP bonds, due October 1, 2037
outstanding, which currently are in a 35-day period Auction Rate Mode. Fiscal
2006 weighted-average interest rate was 3.17% and 3.29% for Series OO and PP,
respectively.
The
following table summarizes the fiscal 2005 and 2004 changes in the composition
of the Company’s debt.
(Dollars
In Millions)
|
|
Issuances
(tax exempt
)
|
|
Retirements
(tax exempt
)
|
|
Fiscal
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples
Gas
|
|
$
|
50.0
|
|
|
Adjustable
rate, Series RR
|
|
$
|
50.0
|
|
|
6.10%
Series FF,
|
|
|
|
|
|
|
|
due
June 1, 2035
|
|
|
|
|
|
Due
June 1, 2025
|
|
|
|
|
|
|
(4.30%
fixed for 11 years)
|
|
|
|
|
|
|
Total
Fiscal 2005
|
|
$
|
50.0
|
|
|
|
|
$
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples
Gas
|
|
$
|
51.0
|
|
|
Adjustable
rate, Series OO
|
|
$
|
27.0
|
|
|
Variable
rate, Series EE
|
|
|
|
|
|
|
|
due
Oct. 1, 2037 (1)
|
|
|
|
|
|
|
|
|
|
|
51.0
|
|
|
Adjustable
rate, Series PP,
|
|
|
37.5
|
|
|
Variable
rate, Series II
|
|
|
|
|
|
|
|
due
Oct. 1, 2037 (1)
|
|
|
|
|
|
|
|
|
|
|
75.0
|
|
|
Adjustable
rate, Series QQ,
|
|
|
37.5
|
|
|
Variable
rate, Series JJ
|
|
|
|
|
|
|
|
due
Nov. 1, 2038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.875%
fixed for 15 years)
|
|
|
75.0
|
|
|
5.75%,
Series DD
|
|
Total
Fiscal 2004
|
|
$
|
177.0
|
|
|
|
|
$
|
177.0
|
|
|
|
|
On
June
13, 2006, the Company entered into a 5-year syndicated revolving credit
agreement with twelve financial institutions that provides backup for the
Company’s commercial paper borrowing program. The maximum amount that may be
borrowed under the credit agreement is $400 million. This replaces the
previous $225 million credit facility that was scheduled to expire in March
2007.
On
July 12, 2005, Peoples Gas entered into a 5-year syndicated revolving
credit agreement with eleven financial institutions that provides backup for
Peoples Gas’ seasonal commercial paper borrowing program. The maximum amount
that may be borrowed under the credit agreement is $250 million. This
replaced the previous $200 million credit facility that was scheduled to
expire in August 2005.
B.
Short-Term Debt
The
following table presents a detail of short-term debt by type.
|
|
Fiscal
2006
|
|
Balance
At
|
|
Fiscal
2005
|
|
Balance
At
|
|
|
|
Weighted-Average
|
|
September
30,
|
|
Weighted-Average
|
|
September
30,
|
|
(In
Thousands)
|
|
Interest
Rate %
|
|
2006
|
|
Interest
Rate %
|
|
2005
|
|
Commercial
Paper:
|
|
|
|
|
|
|
|
|
|
|
|
Peoples
Energy
|
|
5.08
|
|
$
|
309,744
|
|
2.41
|
|
$
|
8,148
|
|
Peoples
Gas
|
|
4.41
|
|
|
-
|
|
2.07
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
Peoples
Energy
|
|
5.16
|
|
$
|
-
|
|
2.56
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
short-term debt - Company
|
|
|
|
$
|
309,744
|
|
|
|
$
|
8,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
loans to Peoples Gas
|
|
4.07
|
|
$
|
-
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
Shore Gas loans to Peoples Gas
|
|
4.48
|
|
$
|
-
|
|
2.63
|
|
$
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
loans to North Shore Gas
|
|
4.09
|
|
$
|
-
|
|
2.13
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples
Gas loans to North Shore Gas
|
|
4.23
|
|
$
|
-
|
|
2.38
|
|
$
|
-
|
|
Short-term
cash needs of Peoples Energy are met through bank loans or the issuance of
short-term debt. The outstanding total amount of commercial paper and bank
loans
under the revolving credit facilities cannot at any time exceed total bank
lines
of credit then in effect. At September 30, 2006, the Company and its
subsidiaries had combined lines of credit totaling $650 million. Of those
lines Peoples Energy Corporation had lines of credit totaling $400 million,
of which $89.6 million of credit was available. The agreements for the
$400 million will expire June 2011. Such lines of credit cover the
projected short-term credit needs of the Company. Payment for the lines of
credit is by fee. In addition, at September 30, 2006, the Company had
approximately $6.7 million of letters of credit outstanding for financial
and performance guarantees.
On
October 20, 2006, the Company entered into (1) a $25 million revolving credit
agreement with ABN AMRO Bank, N.V.; (2) a $25 million revolving credit agreement
with Bank of America, N.A.; and (3) a $25 million revolving credit agreement
with JPMorgan Chase Bank to provide for potential seasonal liquidity needs.
Each
credit agreement is effective from October 20, 2006 through the earlier of
(i)
March 31, 2007 or (ii) the consummation of the merger between a subsidiary
of
WPS Resources Corporation and Peoples Energy. Funds may be used for general
corporate purposes and commercial paper back-up.
Short-term
cash needs of Peoples Gas are met through inter-company loans from the Company,
inter-utility loans from North Shore Gas, bank loans or the issuance of
commercial paper. The outstanding total amount of commercial paper and bank
loans under the revolving credit facilities cannot at any time exceed total
bank
lines of credit then in effect. At September 30, 2006, Peoples Gas had
aggregate available lines of $250 million all of which was available.
Agreements covering these lines expire in July 2010. In addition, at
September 30, 2006 and 2005, Peoples Gas had approximately
$0.1 million and $0.1 million, respectively, of letters of credit
outstanding for financial and performance guarantees. The credit facilities
of
the Company and Peoples Gas are expected to be renewed when they expire,
although the exact amount of the renewals will be evaluated at that time and
may
change from the current levels.
North
Shore Gas’ short-term cash needs are met through loans from the Company and/or
inter-utility loans from Peoples Gas, which are sufficient resources to meet
working capital requirements. At September 30, 2006, North Shore had no
loans outstanding.
15:
EARNINGS PER SHARE
The
following table summarizes average and diluted shares for computing the
Company’s per-share amounts. The dilution is attributable to stock options and
performance shares outstanding under the Company’s LTIC and DSOP. The diluted
shares for the Company are as follows:
|
|
For
Fiscal Years Ended
September
30,
|
|
|
2006
|
|
2005
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
Average
shares of common stock outstanding
|
|
38,365
|
|
37,977
|
|
37,318
|
|
Effects
of options and performance shares
|
|
153
|
|
163
|
|
172
|
|
Diluted
shares
|
|
38,518
|
|
38,140
|
|
37,490
|
|
For
fiscal 2006, all outstanding options and performance shares were excluded from
the computation of diluted loss per share because inclusion would be
antidilutive.
16:
PREFERRED STOCK
The
Company has five million shares of Preferred Stock, no par value,
authorized for issuance, of which none were issued and outstanding at
September 30, 2006.
Peoples
Gas has 430,000 shares of Preferred Stock, $100 par value, authorized
for issuance, of which none were issued and outstanding at September 30,
2006. North Shore Gas has 160,000 shares of Preferred Stock, $100 par
value, authorized for issuance, of which none were issued and outstanding at
September 30, 2006.
17:
COMMON STOCK AND STOCK COMPENSATION PLANS
Common
Stock
The
Company has filed a universal shelf registration statement on Form S-3 for
the issuance from time to time of up to 1.5 million shares of common stock
pursuant to a continuous equity offering in one or more negotiated transactions
or “at-the-market” offerings. Since the Form S-3 was filed in 2002 and through
September 30, 2006, 1,235,700 shares of common stock have been issued
through the continuous equity offering. Proceeds, net of issuance costs, totaled
$47.9 million.
In
addition, the Company issues common stock through other plans such as the Direct
Purchase and Investment Plan and ESPP. In early fiscal 2003, the Company began
issuing new shares from open market transactions to satisfy the requirements
of
the Direct Purchase and Investment Plan. Stock activity is summarized
below.
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
(Dollars
in Thousands)
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
|
Dollars
|
|
Beginning
of period
|
|
38,157,218
|
|
$
|
402,383
|
|
37,733,894
|
|
$
|
384,482
|
|
36,689,968
|
|
|
$
|
339,785
|
|
Shares
issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Stock Purchase Plan
|
|
15,590
|
|
|
510
|
|
12,228
|
|
|
479
|
|
13,244
|
|
|
|
487
|
|
Long-Term
Incentive Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan—net
|
|
62,330
|
|
|
3,374
|
|
176,601
|
|
|
6,602
|
|
390,302
|
|
|
|
14,451
|
|
Shares
issued through continuous
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equity
offerings
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
377,400
|
|
|
|
15,458
|
|
Directors
Deferred Compensation Plan
|
|
3,056
|
|
|
879
|
|
2,879
|
|
|
1,019
|
|
-
|
|
|
|
-
|
|
Directors
Stock and Option Plan
|
|
-
|
|
|
-
|
|
1,092
|
|
|
43
|
|
766
|
(1)
|
|
|
3,347
|
|
Direct
Purchase and Investment Plan
|
|
250,586
|
|
|
9,262
|
|
230,524
|
|
|
9,758
|
|
262,214
|
|
|
|
10,954
|
|
Total
activity for the period
|
|
331,562
|
|
|
14,025
|
|
423,324
|
|
|
17,901
|
|
1,043,926
|
|
|
|
44,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End
of period
|
|
38,488,780
|
|
$
|
416,408
|
|
38,157,218
|
|
$
|
402,383
|
|
37,733,894
|
|
|
$
|
384,482
|
|
(1)
|
During
2004 Treasury Shares were reduced by 3,000, of which 766 were
re-issued in
accordance with the DSOP.
|
In
fiscal
2006, Peoples Gas issued
540,000
shares of its common stock to the Company for $53.9 million.
The
2004
Incentive Compensation Plan (Plan) is comprised of two sub-plans, the LTIC
Plan
and the Short-Term Incentive Compensation Plan. The Plan does not provide for
the grant of stock options or SARs, as under the prior plan, but instead
provides for the issuance of restricted stock, restricted stock units and
performance shares. All outstanding options from the prior plan became fully
vested as of December 31, 2003, and no options or restricted stock units were
subsequently granted.
Under
the
Plan, up to 700,000 shares of the Company's common stock are available for
issuance for awards under the LTIC Plan. However, no more than 350,000 shares
may be granted for restricted stock and for awards of restricted stock
units.
Restricted
stock awards are shares of the Company's common stock awarded to eligible
employees and are subject to forfeiture. Restricted stock awards granted vest
in
equal annual increments over a five-year period from the
date
of
grant and are subject to forfeiture if the recipient fails to remain employed,
other than by reason of death, disability or retirement on or after attaining
age 65 (or such earlier date as determined by the Compensation Committee of
the
Board of Directors (Compensation Committee)), until the applicable vesting
date.
Additionally, in the event of a change in control any grants of restricted
stock
under the Plan will become immediately fully vested. Restricted stock awards
have no exercise price and compensation cost is measured based upon the fair
market value of the Company's common stock at the date of grant. Such cost
is
recognized as expense over the vesting period.
A
performance share is a contingent right to receive a share of common stock
of
the Company in the future, pursuant to the terms of a grant made under the
Plan
and the related award agreement. One or more performance goals and a performance
cycle (period) of not less than one year is established for any grant of
performance shares. At the expiration of the performance cycle, the Compensation
Committee will determine the extent to which the performance goals were
achieved. The Compensation Committee will then determine the number of
performance shares to which a recipient of performance shares under the grant
is
entitled, based upon the number of performance shares originally granted to
the
recipient and the level of performance achieved. Performance shares will be
settled by the delivery of shares of common stock of the Company as soon as
practicable after the close of the performance cycle.
If
a
performance share recipient's employment with the Company terminates other
than
by reason of death, disability, or retirement on or after attaining age 65
(or
such earlier date as determined by the Compensation Committee) prior to the
last
day of a performance cycle, the recipient will forfeit the performance shares
granted with respect to such performance cycle. If a performance share
recipient's employment with the Company terminates by reason of death or
disability prior to the last day of a performance cycle, the performance goals
for the recipient's performance shares will be deemed to have been achieved
at
target levels, and the recipient will be entitled to a pro rata distribution
of
shares of common stock in settlement of the performance shares. If a performance
share recipient's employment with the Company terminates by reason of retirement
on or after attaining age 65 (or such earlier date as determined by the
Compensation Committee) prior to the last day of a performance cycle, the
recipient will be entitled to a pro rata distribution of shares of common stock
in settlement of the performance shares, based upon the performance goals
achieved. If there is a change in control of Peoples Energy, the performance
goals of all outstanding performance shares granted under the Plan will be
deemed to have been achieved at target levels, and a recipient will be entitled
to a pro rata distribution of shares of common stock in settlement of the
performance shares, based on the number of months during the performance cycle
that the recipient was employed by the Company, up to the date of the change
in
control. Performance shares have no exercise price.
Under
the
Plan, performance goals may be based on various criteria measuring the
performance of the Company generally or relative to peer company performance,
and may be based on a comparison of actual performance during a performance
period against budget for such period.
The
Company's prior plan awarded grants of options enabling the recipient to
purchase Company common stock at a price equal to the fair market value of
the
shares on the date the option was granted. The grant of a SAR enables the
recipient to receive, for each SAR granted, cash in an amount equal to the
excess of the fair market value of one share of Company common stock on the
date
the SAR is exercised over the fair market value of one share on the date the
SAR
was granted. Before an option or SAR may be exercised, the recipient must
generally complete 12 months of continuous employment subsequent to the grant
of
the option or SAR. Options and SARs may be exercised within 10 years from the
date of grant, subject to earlier termination in case of death, retirement or
termination of employment for other reasons.
The
Company also offers employees periodic opportunities to purchase shares of
its
common stock at a discount from the then current market price under its ESPP.
As
of November 30, 2006, the Company may sell up to 853,312 shares of common stock
to its employees under the ESPP. Under the terms of this plan, all employees
are
eligible to purchase shares at 90% of the stock's market price at the date
of
purchase.
As
a
result of the merger agreement between the Company and WPS Resources, it is
necessary to limit the amount of stock that employees not covered under
collective bargaining agreements can purchase under the ESPP. Therefore,
effective September 1, 2006: (1) employees currently enrolled in payroll
deduction cannot increase the payroll deduction for the plan from what it was
on
July 8, 2006; (2) participation in the plan can only be done through payroll
deductions; no other forms of payment will be accepted; and (3) employees who
did not participate in payroll deduction on July 8, 2006 and new employees
cannot purchase stock under the ESPP.
If
the
merger with WPS Resources becomes probable of occurring, the change in control
provisions for the stock awards described above would become effective. See
Note
1 for further discussion regarding the merger.
Nonemployee
directors participate in the Company's DSOP. Under the DSOP, as amended by
the
Board of Directors in December 2002, each nonemployee director of the Company
will receive, as part of his or her annual retainer, an annual award of 1,000
deferred shares of common stock of the Company. With certain exceptions under
the DSOP, shares are automatically deferred until the director's retirement.
The
director is entitled to receive amounts representing dividends from such
deferred shares equal to dividends paid with respect to a like number of shares
of common stock of the Company. Compensation expense is based upon the fair
market value of the Company's common stock at the date of issuance.
Nonemployee
directors also have an opportunity to defer their compensation in the form
of
cash or Company common stock. Compensation expense in the form of common stock
is based upon the fair market value of the Company's common stock at the date
of
issuance.
The
Company has a policy of issuing additional shares to satisfy the exercises
or
conversions under its share-based compensation arrangements.
Effective
October 1, 2005, the Company adopted SFAS No. 123 (R), requiring compensation
costs related to share-based payment transactions to be recognized in the
financial statements. Compensation cost is measured based on the grant-date
fair
value of the equity or liability instrument issued. In addition, liability
awards are remeasured each reporting period. Compensation cost is recognized
over the period that the employee provides service in exchange for the award.
SFAS No. 123 (R) replaces SFAS No. 123 and supersedes APB Opinion No. 25.
The
Company applied the modified prospective method of adopting SFAS No. 123 (R),
which requires the new standard to be applied to unexercised SARs and unvested
performance shares as of October 1, 2005 and prospectively. The method requires
SFAS No. 123 (R) to be applied prospectively to the ESPP, new awards under
the
Plan and existing awards if modified, repurchased or cancelled.
Adoption
of SFAS No. 123 (R) resulted in the Company recognizing immaterial compensation
expense upon adoption and related primarily to the Company's unvested
performance shares and unexercised SARs.
Share-based
employee compensation expense relative to ESPP, performance shares, SARs, RSAs
and directors fees paid in stock included in reported net income for the fiscal
years ended September 30, 2006, 2005 and 2004 (prior years not restated for
adoption of SFAS No. 123 (R)) totaled $4.0 million, $2.0 million and $1.8
million, respectively (tax benefit of $1.6 million, $0.8 million and $0.7
million, respectively).
There
were 15,590, 12,228 and 13,244 shares sold through the ESPP for the fiscal
years
ended September 30, 2006, 2005 and 2004, respectively. Had compensation cost
for
shares issued under the ESPP been determined consistent with the requirements
under the prior SFAS No. 123, the pro forma effect on the Company's 2005 and
2004 net income and earnings per share would not be material.
Prior
to
the adoption of SFAS No. 123 (R), the Company’s SARs were recorded at intrinsic
value. As the Company's SARs meet the SFAS No. 123 (R) definition of a
share-based liability, the fair value of each SAR award is estimated on the
date
of grant and updated on a quarterly basis using the Black-Scholes-Merton
valuation model. Compensation expense for SARs is recognized over the vesting
period. The model uses the assumptions in
the
following table. The expected term of the SARs represents the period of time
the
granted SARs are expected to be outstanding based on historical experience,
subject to remaining contractual term. The risk-free rate for periods within
the
contractual life of the SARs is based on the U.S. Treasury yield curve in effect
at the time of the grant or subsequent quarter-end measurement
date.
For
the Fiscal Year Ended September 30, 2006
|
|
Expected
volatility
|
17%-19%
|
Weighted-average
volatility
|
17.76%
|
Expected
dividends
|
5.4%
|
Expected
term (in years)
|
0-5
|
Risk-free
rate
|
4.6%-4.9%
|
At
September 30, 2006, 134,075 total performance shares were outstanding and
remained unvested under the Plan for the 2004-2006, 2005-2007 and 2006-2008
performance cycles. As vesting and conversion of performance shares to Company
common stock depends upon achieving certain goals represented by a combination
of market and performance measures, the Company estimated the fair value of
such
awards based on historical input into a Monte Carlo simulation model, three
year
business plan data and grant date fair market value of the Company's common
stock. The calculated compensation cost is recognized as expense over each
of
the respective three-year cycles. In December 2006 it was determined that no
performance shares granted under the 2004-2006 cycle had vested.
A
summary
of share-based payment activity during fiscal 2006 is presented
below:
|
|
|
|
|
|
|
|
Weighted-Average
|
|
Aggregate
|
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
Intrinsic
Value
|
|
Options
|
|
Shares
|
|
Exercise
Price
|
|
|
Contractual
Term
|
|
(000's)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2005
|
|
593,400
|
|
$
|
38.37
|
|
|
|
|
|
|
|
|
Granted
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Exercised
|
|
(47,300
|
)
|
|
35.25
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
(11,200
|
)
|
|
37.69
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2006
|
|
534,900
|
|
$
|
38.66
|
|
|
|
5.1
years
|
|
$
|
1,065
|
|
Exercisable
at September 30, 2006
|
|
534,900
|
|
$
|
38.66
|
|
|
|
5.1
years
|
|
$
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
Aggregate
|
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
Intrinsic
Value
|
|
SARs
|
|
Shares
|
|
Exercise
Price
|
|
|
Contractual
Term
|
|
(000's)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2005
|
|
35,700
|
|
$
|
36.45
|
|
|
|
|
|
|
|
|
Granted
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Exercised
|
|
(7,800
|
)
|
|
36.84
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
(2,300
|
)
|
|
35.10
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2006
|
|
25,600
|
|
$
|
36.46
|
|
|
|
2.7
years
|
|
$
|
107
|
|
Exercisable
at September 30, 2006
|
|
25,600
|
|
$
|
36.46
|
|
|
|
2.7
years
|
|
$
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Intrinsic
Value
|
|
|
|
|
RSAs
|
|
Shares
|
|
Contractual
Term
|
|
|
(000's)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2005
|
|
114,220
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
65,550
|
|
|
|
|
|
|
|
|
|
|
|
Converted
|
|
(33,715
|
)
|
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
(5,125
|
)
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2006
|
|
140,930
|
|
|
3.0
years
|
|
|
$
|
5,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Intrinsic
Value
|
|
|
|
|
Performance
Shares
|
|
Shares
|
|
Contractual
Term
|
|
|
(000's)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2005
|
|
81,575
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
55,900
|
|
|
|
|
|
|
|
|
|
|
|
Converted
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
(3,400
|
)
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2006
|
|
134,075
|
|
|
1.1
years
|
|
|
$
|
5,450
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
Intrinsic
Value
|
Director
Plans
|
|
Shares
|
|
(000's)
|
|
|
|
|
|
|
Outstanding
at September 30, 2005
|
|
114,424
|
|
|
|
Granted
|
|
27,972
|
|
|
|
Converted
|
|
(6,659
|
)
|
|
|
Forfeited
or expired
|
|
-
|
|
|
|
Outstanding
at September 30, 2006
|
|
135,737
|
|
$
|
5,518
|
A
summary
of certain share-based payment activity during fiscal 2006, 2005 and 2004 is
presented below:
|
|
Non-Qualified
|
|
|
|
|
|
|
|
Performance
|
|
|
|
(In
Thousands, Except Per-Share Amounts)
|
|
Stock
Options
|
|
SARs
|
|
RSAs
|
|
Shares
|
|
Director
Plans
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
grant-date fair value
of
options or shares granted
|
|
$
|
-
|
|
$
|
-
|
|
$
|
36.49
|
|
$
|
18.37
|
|
$
|
36.73
|
Total
intrinsic value of options exercised,
liabilities
paid or shares converted
|
|
|
266
|
|
|
28
|
|
|
1,295
|
|
|
-
|
|
|
1,027
|
Total
fair value of options or shares vested
|
|
|
-
|
|
|
-
|
|
|
1,310
|
|
|
-
|
|
|
-
|
Total
cash received from options exercised
or
shares converted
|
|
|
1,667
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Total
cash used to settle equity instruments
granted
|
|
|
-
|
|
|
28
|
|
|
-
|
|
|
-
|
|
|
-
|
Actual
tax benefit realized from options
exercised
or shares converted
|
|
$
|
106
|
|
$
|
11
|
|
$
|
515
|
|
$
|
-
|
|
$
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
grant-date fair value
of
options or shares granted
|
|
$
|
-
|
|
$
|
-
|
|
$
|
42.30
|
|
$
|
1.02
|
|
$
|
37.89
|
Total
intrinsic value of options exercised,
liabilities
paid or shares converted
|
|
|
817
|
|
|
499
|
|
|
1,221
|
|
|
-
|
|
|
983
|
Total
fair value of options or shares vested
|
|
|
-
|
|
|
-
|
|
|
1,067
|
|
|
-
|
|
|
-
|
Total
cash received from options exercised or
shares
converted
|
|
|
5,607
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Total
cash used to settle equity instruments
granted
|
|
|
-
|
|
|
499
|
|
|
-
|
|
|
-
|
|
|
-
|
Actual
tax benefit realized from options
exercised
or shares converted
|
|
$
|
325
|
|
$
|
198
|
|
$
|
485
|
|
$
|
-
|
|
$
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
grant-date fair value
of
options or shares granted
|
|
$
|
-
|
|
$
|
-
|
|
$
|
41.47
|
|
$
|
-
|
|
$
|
41.76
|
Total
intrinsic value of options exercised,
liabilities
paid or shares converted
|
|
|
2,810
|
|
|
743
|
|
|
1,094
|
|
|
-
|
|
|
837
|
Total
fair value of options or shares vested
|
|
|
-
|
|
|
-
|
|
|
922
|
|
|
-
|
|
|
-
|
Total
cash received from options exercised or
shares
converted
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Total
cash used to settle equity instruments
granted
|
|
|
12,960
|
|
|
743
|
|
|
-
|
|
|
-
|
|
|
-
|
Actual
tax benefit realized from options
exercised
or shares converted
|
|
$
|
1,117
|
|
$
|
295
|
|
$
|
435
|
|
$
|
-
|
|
$
|
333
|
A
summary
of the status of the Company's nonvested shares as of September 30, 2006 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
|
|
|
RSA
|
|
|
|
|
Shares
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
Weighted-Average
|
|
|
RSA
|
|
|
Grant-Date
|
|
Performance
|
|
|
Grant-Date
|
|
|
Shares
|
|
|
Fair
Value
|
|
Shares
|
|
|
Fair
Value
|
Nonvested
at September 30, 2005
|
|
114,220
|
|
|
$
|
39.95
|
|
81,575
|
|
|
$
|
0.55
|
Granted
|
|
65,550
|
|
|
|
36.49
|
|
55,900
|
|
|
|
18.37
|
Vested
|
|
(33,715
|
)
|
|
|
38.85
|
|
-
|
|
|
|
-
|
Forfeited
|
|
(5,125
|
)
|
|
|
36.56
|
|
(3,400
|
)
|
|
|
6.22
|
Nonvested
at September 30, 2006
|
|
140,930
|
|
|
$
|
38.63
|
|
134,075
|
|
|
$
|
7.83
|
As
of
September 30, 2006, there was $4.6 million of total unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under
the Plan, assuming no Company merger with WPS Resources. That cost would be
recognized over a period of 5 years.
The
Company’s long-term incentive compensation plans provide for accelerated vesting
of restricted stock awards and for accelerated vesting at target levels for
performance shares in the event of a change in control. When the merger with
WPS
Resources becomes probable of occurring, the Company will be required to
recognize compensation expense of approximately $5.2 million representing higher
levels for performance shares (including cumulative amounts for all outstanding
performance shares) and a shorter vesting period for restricted stock than
under
current expense recognition methods.
18:
QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly
financial data does not always reveal the trend of the Company’s business
operations due to nonrecurring items and seasonal weather patterns which affect
earnings, and related components of net revenues and operating income.
In
the
third and fourth quarters of fiscal 2006, the Company recorded pre-tax
merger-related expenses of $1.9 million ($1.1 million or $0.03 per diluted
share
after taxes) and $7.0 million ($6.4 million or $0.16 per diluted share after
taxes), respectively.
In
the
first and second quarters of fiscal 2006, the Company recorded pre-tax charges
of $91.7 million ($55.2 million or $1.44 per diluted share after taxes) and
$15.7 million ($9.4 million or $0.25 per diluted share after taxes),
respectively, for settlement of utility gas charge proceedings for fiscal years
2001 through 2004, as well as related civil litigation. Of these amounts,
Peoples Gas recorded pre-tax charges of $74.7 million ($45.0 million after
taxes) and $28.4 million ($17.1 million after taxes) in the first and second
quarters of fiscal 2006, respectively. North Shore Gas recorded a pre-tax charge
of $17.0 million ($10.2 million after taxes) in the first quarter of fiscal
2006
and a pre-tax credit of $(12.7) million ($(7.7) million after taxes) in the
second quarter of fiscal 2006 reducing the accruals for the settlement made
in
earlier periods.
In
the
first quarter of fiscal 2005, the Company recorded pension-related restructuring
costs of $11.2 million, a portion of which related to Peoples Gas ($7.0 million)
and North Shore Gas ($0.5 million). See Note 4 for further discussion.
Quarterly
financial data for the Company was as follows:
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
1,052,386
|
|
$
|
1,180,028
|
|
$
|
400,445
|
|
$
|
385,111
|
|
$
|
3,017,970
|
|
Operating
income (loss)
|
|
|
(22,512
|
)
|
|
59,432
|
|
|
(6,359
|
)
|
|
(28,775
|
)
|
|
1,786
|
|
Income
(loss) from continuing operations
|
|
|
(18,325
|
)
|
|
33,591
|
|
|
(13,714
|
)
|
|
(29,493
|
)
|
|
(27,941
|
)
|
Income
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of tax
|
|
|
(1,156
|
)
|
|
(421
|
)
|
|
3,603
|
|
|
8,279
|
|
|
10,305
|
|
Net
income (loss)
|
|
|
(19,481
|
)
|
|
33,170
|
|
|
(10,111
|
)
|
|
(21,214
|
)
|
|
(17,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(0.48
|
)
|
$
|
0.88
|
|
$
|
(0.35
|
)
|
$
|
(0.77
|
)
|
$
|
(0.73
|
)
|
Income
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of tax
|
|
$
|
(0.03
|
)
|
$
|
(0.01
|
)
|
$
|
0.09
|
|
$
|
0.22
|
|
$
|
0.27
|
|
Net
income (loss)
|
|
$
|
(0.51
|
)
|
$
|
0.87
|
|
$
|
(0.26
|
)
|
$
|
(0.55
|
)
|
$
|
(0.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(0.48
|
)
|
$
|
0.87
|
|
$
|
(0.35
|
)
|
$
|
(0.76
|
)
|
$
|
(0.73
|
)
|
Income
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of tax
|
|
$
|
(0.03
|
)
|
$
|
(0.01
|
)
|
$
|
0.09
|
|
$
|
0.21
|
|
$
|
0.27
|
|
Net
income (loss)
|
|
$
|
(0.51
|
)
|
$
|
0.86
|
|
$
|
(0.26
|
)
|
$
|
(0.55
|
)
|
$
|
(0.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$
|
0.545
|
|
$
|
0.545
|
|
$
|
0.545
|
|
$
|
0.545
|
|
$
|
2.18
|
|
Common
stock prices (high-low)
|
|
$
|
39.90–$34.34
|
|
$
|
37.97–$35.11
|
|
$
|
38.66–$35.10
|
|
$
|
43.87–$35.71
|
|
$
|
43.87–$34.34
|
|
Fiscal
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
737,411
|
|
$
|
1,026,906
|
|
$
|
455,931
|
|
$
|
379,337
|
|
$
|
2,599,585
|
|
Operating
income (loss)
|
|
|
47,386
|
|
|
88,520
|
|
|
19,858
|
|
|
(6,347
|
)
|
|
149,417
|
|
Income
(loss) from continuing operations
|
|
|
23,062
|
|
|
49,831
|
|
|
4,835
|
|
|
(10,880
|
)
|
|
66,848
|
|
Income
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of tax
|
|
|
(586
|
)
|
|
1,341
|
|
|
1,964
|
|
|
8,566
|
|
|
11,285
|
|
Net
income (loss)
|
|
|
22,476
|
|
|
51,172
|
|
|
6,799
|
|
|
(2,314
|
)
|
|
78,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.61
|
|
$
|
1.31
|
|
$
|
0.13
|
|
$
|
(0.29
|
)
|
$
|
1.76
|
|
Income
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of tax
|
|
$
|
(0.02
|
)
|
$
|
0.04
|
|
$
|
0.05
|
|
$
|
0.23
|
|
$
|
0.30
|
|
Net
income (loss)
|
|
$
|
0.59
|
|
$
|
1.35
|
|
$
|
0.18
|
|
$
|
(0.06
|
)
|
$
|
2.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.61
|
|
$
|
1.31
|
|
$
|
0.13
|
|
$
|
(0.28
|
)
|
$
|
1.75
|
|
Income
(loss) from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations,
net of tax
|
|
$
|
(0.02
|
)
|
$
|
0.03
|
|
$
|
0.05
|
|
$
|
0.22
|
|
$
|
0.30
|
|
Net
income (loss)
|
|
$
|
0.59
|
|
$
|
1.34
|
|
$
|
0.18
|
|
$
|
(0.06
|
)
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$
|
0.54
|
|
$
|
0.545
|
|
$
|
0.545
|
|
$
|
0.545
|
|
$
|
2.175
|
|
Common
stock prices (high-low)
|
|
$
|
45.38–$41.05
|
|
$
|
45.10–$41.11
|
|
$
|
44.97–$38.72
|
|
$
|
45.52–$38.71
|
|
$
|
45.52–$38.71
|
|
Quarterly
earnings-per-share amounts are based on the weighted-average common shares
outstanding for each quarter and, therefore, the sum of each quarter may not
equal the amount computed for the total year.
Quarterly
financial data for Peoples Gas was as follows:
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
613,525
|
|
$
|
694,163
|
|
$
|
190,587
|
|
$
|
124,016
|
|
$
|
1,622,291
|
|
Operating
income (loss)
|
|
|
(35,807
|
)
|
|
16,561
|
|
|
(1,371
|
)
|
|
(19,517
|
)
|
|
(40,134
|
)
|
Net
income (loss)
|
|
|
(24,240
|
)
|
|
7,608
|
|
|
(3,374
|
)
|
|
(15,438
|
)
|
|
(35,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
438,852
|
|
$
|
627,485
|
|
$
|
219,275
|
|
$
|
139,091
|
|
$
|
1,424,703
|
|
Operating
income (loss)
|
|
|
32,364
|
|
|
62,794
|
|
|
11,037
|
|
|
(10,636
|
)
|
|
95,559
|
|
Net
income (loss)
|
|
|
17,269
|
|
|
35,640
|
|
|
3,947
|
|
|
(7,523
|
)
|
|
49,333
|
|
Quarterly
financial data for North Shore Gas was as follows:
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
115,464
|
|
$
|
127,194
|
|
$
|
33,239
|
|
$
|
23,692
|
|
$
|
299,589
|
|
Operating
income (loss)
|
|
|
(8,791
|
)
|
|
23,276
|
|
|
464
|
|
|
(1,621
|
)
|
|
13,328
|
|
Net
income (loss)
|
|
|
(5,659
|
)
|
|
13,829
|
|
|
(20
|
)
|
|
(1,443
|
)
|
|
6,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
80,096
|
|
$
|
115,147
|
|
$
|
38,957
|
|
$
|
26,261
|
|
$
|
260,461
|
|
Operating
income (loss)
|
|
|
7,354
|
|
|
12,346
|
|
|
2,601
|
|
|
(1,256
|
)
|
|
21,045
|
|
Net
income (loss)
|
|
|
4,093
|
|
|
7,125
|
|
|
1,195
|
|
|
(1,016
|
)
|
|
11,397
|
|
19:
SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED)
A.
Results of Operations for Exploration and Production
Activities
The
following table summarizes revenue and direct cost information relating to
the
Company’s oil and gas exploration and production activities. The Company has no
long-term agreements to purchase oil or gas production from foreign governments
or authorities.
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas production revenues (1)
|
|
$
|
126,750
|
|
$
|
100,602
|
|
$
|
123,777
|
|
Operating
costs:
|
|
|
|
|
|
|
|
|
|
|
DD &A
and impairments
|
|
|
52,049
|
|
|
45,485
|
|
|
47,078
|
|
Lease
operating expenses
|
|
|
17,769
|
|
|
16,994
|
|
|
13,326
|
|
Exploration
expense
|
|
|
1,072
|
|
|
403
|
|
|
5,479
|
|
Production
taxes
|
|
|
14,133
|
|
|
12,064
|
|
|
9,565
|
|
Income
tax
|
|
|
14,876
|
|
|
9,146
|
|
|
17,229
|
|
|
|
|
99,899
|
|
|
84,092
|
|
|
92,677
|
|
Results
of operations for producing activities
|
|
|
|
|
|
|
|
|
|
|
(excluding
corporate overhead, general
|
|
|
|
|
|
|
|
|
|
|
and
administrative costs and financing costs)
|
|
$
|
26,851
|
|
$
|
16,510
|
|
$
|
31,100
|
|
Lease
operating expense per Mcfe
|
|
$
|
0.72
|
|
$
|
0.70
|
|
$
|
0.48
|
|
Production
taxes per Mcfe
|
|
$
|
0.57
|
|
$
|
0.50
|
|
$
|
0.34
|
|
Amortization
rate per Mcfe (2)
|
|
$
|
2.11
|
|
$
|
1.87
|
|
$
|
1.69
|
|
(1)
|
Includes
hedge losses of $62.6 million, $65.9 million and $25.8 million for
fiscal
2006, 2005 and 2004, respectively.
|
(2)
|
Amortization
rate per Mcfe reflects only DD&A of capitalized costs of proved oil
and gas properties.
|
B.
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development
Activities
The
following table summarizes capitalized costs incurred in oil and gas producing
activities.
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of proved properties
|
|
$
|
103,794
|
|
$
|
2,451
|
|
$
|
32,288
|
|
Acquisition
of unproved properties
|
|
|
37,975
|
|
|
3,890
|
|
|
10,700
|
|
Exploration
|
|
|
797
|
|
|
681
|
|
|
6,439
|
|
Development
|
|
|
93,840
|
|
|
66,992
|
|
|
52,615
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
236,406
|
|
$
|
74,014
|
|
$
|
102,042
|
|
C.
Capitalized Costs Relating to Oil and Gas Producing
Activities
The
following table summarizes capitalized costs and associated accumulated
DD&A, including impairments, relating to the Company’s oil and gas
production, exploration and development activities.
|
|
For
Fiscal Years Ended
September
30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Proved
properties
|
|
$
|
738,432
|
|
$
|
537,995
|
|
$
|
471,008
|
|
Unproved
properties
|
|
|
51,001
|
|
|
15,581
|
|
|
15,582
|
|
Total
proved and unproved properties
|
|
|
789,433
|
|
|
553,576
|
|
|
486,590
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
DD&A and impairments
|
|
|
(258,869
|
)
|
|
(206,820
|
)
|
|
(168,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
capitalized costs
|
|
$
|
530,564
|
|
$
|
346,756
|
|
$
|
318,108
|
|
D.
Costs Not Being Amortized
Following
is a summary of costs excluded from the depletion base at September 30, 2006,
by
year incurred. The Company is unable to predict either the timing of the
inclusion of these costs and the related natural gas and oil reserves in its
depletion computation or their potential future impact on depletion
rates.
|
|
For
Fiscal Years Ended September 30,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Prior
Years
|
|
|
Total
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
acquisition costs
|
|
$
|
37,975
|
|
$
|
3,740
|
|
$
|
5,348
|
|
$
|
3,938
|
|
$
|
51,001
|
|
Exploration
and development
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
37,975
|
|
$
|
3,740
|
|
$
|
5,348
|
|
$
|
3,938
|
|
$
|
51,001
|
|
E.
Reserve Quantity Information
The
Company’s proved oil and gas reserve quantities are based on estimates prepared
by third-party independent engineering consulting firms in conjunction with
the
Company’s engineers, geologists and geophysicists in accordance with guidelines
established by the SEC. The Company’s estimates of proved reserve quantities of
its properties are prepared by Netherland, Sewell & Associates, Inc., Miller
and Lents, Ltd. and Prator Bett, L.L.C. Each year, Peoples Energy Production
files estimates of oil and gas reserves with the U.S. Department of Energy
on
Form EIA-23. These estimates are consistent with the reserve data reported
in
this Note 19, with the exception that Form EIA-23 includes only gross reserves
from properties operated by the Company.
Estimated
quantities of proved oil and natural gas reserves and changes in net quantities
of proved developed and undeveloped oil and natural gas reserves were as
follows:
|
|
|
|
|
|
Gas
|
|
|
|
Gas
|
|
Oil
|
|
Equivalent
|
|
|
|
MMcf
|
|
MBbls
|
|
MMcfe
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
Ending
Reserves—September 30, 2003
|
|
167,101
|
|
2,393
|
|
181,457
|
|
|
|
|
|
|
|
|
|
Extensions,
discoveries and other additions
|
|
14,952
|
|
218
|
|
16,260
|
|
Production
|
|
(24,515
|
)
|
(556
|
)
|
(27,853
|
)
|
Purchases
of reserves in place
|
|
22,170
|
|
393
|
|
24,526
|
|
Revisions
of previous estimates
|
|
(5,663
|
)
|
121
|
|
(4,931
|
)
|
Sales
of reserves in place
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
Ending
Reserves—September 30, 2004
|
|
174,045
|
|
2,569
|
|
189,459
|
|
|
|
|
|
|
|
|
|
Extensions,
discoveries and other additions
|
|
19,038
|
|
146
|
|
19,914
|
|
Production
|
|
(22,115
|
)
|
(406
|
)
|
(24,551
|
)
|
Purchases
of reserves in place
|
|
812
|
|
103
|
|
1,430
|
|
Revisions
of previous estimates
|
|
(3,235
|
)
|
(168
|
)
|
(4,243
|
)
|
Sales
of reserves in place
|
|
(129
|
)
|
(41
|
)
|
(375
|
)
|
|
|
|
|
|
|
|
|
Ending
Reserves—September 30, 2005
|
|
168,416
|
|
2,203
|
|
181,634
|
|
|
|
|
|
|
|
|
|
Extensions,
discoveries and other additions
|
|
27,843
|
|
269
|
|
29,455
|
|
Production
|
|
(22,599
|
)
|
(352
|
)
|
(24,713
|
)
|
Purchases
of reserves in place
|
|
60,009
|
|
558
|
|
63,356
|
|
Revisions
of previous estimates (1)
|
|
(15,198
|
)
|
(283
|
)
|
(16,893
|
)
|
Sales
of reserves in place
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
Ending
Reserves—September 30, 2006
|
|
218,471
|
|
2,395
|
|
232,839
|
|
|
|
|
|
|
|
|
|
Proved
Developed Reserves
|
|
|
|
|
|
|
|
End
of year—September 30, 2004
|
|
135,088
|
|
2,059
|
|
147,442
|
|
End
of year—September 30, 2005
|
|
132,742
|
|
1,569
|
|
142,156
|
|
End
of year—September 30, 2006
|
|
137,976
|
|
1,706
|
|
148,212
|
|
(1)
|
A
substantial portion of the revisions at year end 2006 are a function
of
the gas pricing on
September
30, 2006. The index cash price used as of September 30, 2006
was
$4.18/MMBtu as
compared
to $14.71/MMBtu at September 30, 2005. This decreased gas price
resulted
in a downward
revision
of approximately 13.0 Bcfe of gas and associated
liquids.
|
Oil
and
natural gas reserves cannot be measured exactly. Estimates of oil and natural
gas reserves require extensive judgments of geologic and reservoir engineering
data and are generally less precise than other estimates made in connection
with
financial disclosures.
Proved
reserves are those quantities which, upon analysis of geological and engineering
data, appear with reasonable certainty to be recoverable in the future from
known oil and natural gas reservoirs under existing economic and operating
conditions. Proved developed reserves are those reserves which can be expected
to be recovered through existing wells with existing equipment and operating
methods. Proved undeveloped reserves
are
those
reserves which are expected to be recovered from new wells on undrilled acreage
or from existing wells where a relatively major expenditure is
required.
Assigning
monetary values to such estimates, which require extensive judgment, does not
reduce the subjectivity and changing nature of such reserve estimates. The
uncertainties inherent in the disclosure of oil and gas reserves are compounded
by applying additional estimates of the rates and timing of production and
the
costs that will be incurred in developing and producing the reserves. The
information set forth herein is therefore subjective and, since judgments are
involved, may not be comparable to estimates submitted by other oil and natural
gas producers. In addition, since prices and costs do not remain static and
no
price or cost escalations or de-escalations have been considered, the results
are not necessarily indicative of the estimated fair market value of estimated
proved reserves nor of estimated future cash flows.
F.
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves
Future
cash inflows are based on year-end cash prices for oil and gas and do not
include the effects of hedges. Operating costs, production and ad valorem taxes
and future development costs are based on current costs with no
escalation.
The
following table summarizes unaudited information concerning future net cash
flows for oil and gas reserves, net of income tax expense. Income tax expense
has been computed using expected future tax rates and giving effects to tax
deductions and credits available, under current laws, and which relate to oil
and gas producing activities. This information does not purport to present
the
fair market value of the Company’s oil and gas assets, but does present a
standardized measure of value disclosure concerning possible future net cash
flows that would result under the assumptions used.
|
|
For
Fiscal Years Ended
September
30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Future
cash flows
|
|
$
|
965,716
|
|
$
|
2,081,286
|
|
$
|
1,169,106
|
|
Future
production and development costs
|
|
|
492,145
|
|
|
483,653
|
|
|
346,920
|
|
Future
income tax expense
|
|
|
169,027
|
|
|
568,625
|
|
|
292,388
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
net cash flows
|
|
|
304,544
|
|
|
1,029,008
|
|
|
529,798
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten
percent annual discount for estimated
|
|
|
|
|
|
|
|
|
|
|
timing
of cash flows
|
|
|
153,566
|
|
|
439,640
|
|
|
207,299
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized
measure of discounted future net cash
|
|
|
|
|
|
|
|
|
|
|
flows
relating to proved oil and natural gas reserves
|
|
$
|
150,978
|
|
$
|
589,368
|
|
$
|
322,499
|
|
The
future net cash flows before income taxes for fiscal 2006, 2005 and 2004 are
$473.6 million, $1,597.6 million and $822.2 million, respectively, and after
discounting at 10% are $240.5 million, $917.5 million, $502.4 million,
respectively.
In
the
foregoing determination of future cash inflows, sales revenues for gas and
oil
were based on cash prices at year-end. The year-end gas prices utilized for
fiscal 2006, 2005 and 2004 were $4.18, $14.71 and $6.24 per MMbtu, respectively.
Future costs of developing and producing the proved gas and oil reserves
reported at the end of each year shown were based on costs determined at each
such year-end, assuming the continuation of existing economic conditions. Future
income taxes were computed by applying the appropriate year-end or future
statutory tax rate to future pretax net cash flows, less the tax basis of the
properties involved, and giving effect to tax deductions and permanent
differences. Estimates of future liabilities and receivables applicable to
oil
and gas commodity hedges are not reflected in future cash flows from proved
reserves as of the date of the reserve report.
A
summary
of the changes in the standardized measure of discounted future net cash flows
applicable to proved oil, natural gas liquids and gas reserves
follows.
|
|
For
Fiscal Years Ended
September
30,
|
|
|
|
|
2006
|
|
|
2005
|
|
(In
Thousands)
|
|
|
|
|
|
|
|
Beginning
of year
|
|
$
|
589,368
|
|
$
|
322,499
|
|
|
|
|
|
|
|
|
|
Revisions
of previous estimates
|
|
|
|
|
|
|
|
Changes
in prices and costs
|
|
|
(594,122
|
)
|
|
426,833
|
|
Changes
in quantities
|
|
|
(91,819
|
)
|
|
(25,294
|
)
|
Additions
to proved reserves resulting from extensions,
|
|
|
|
|
|
|
|
discoveries
and improved recovery, less related costs
|
|
|
27,341
|
|
|
90,106
|
|
Purchases
of reserves in place
|
|
|
35,455
|
|
|
6,727
|
|
Sales
of reserves in place
|
|
|
-
|
|
|
(1,713
|
)
|
Previously
estimated development costs incurred
|
|
|
|
|
|
|
|
during
the period
|
|
|
34,479
|
|
|
37,880
|
|
Changes
in estimated future development costs
|
|
|
(14,008
|
)
|
|
(25,933
|
)
|
Accretion
of discount
|
|
|
91,750
|
|
|
50,245
|
|
Sales
of oil and gas, net of production costs
|
|
|
(158,808
|
)
|
|
(137,422
|
)
|
Net
change in income taxes
|
|
|
238,597
|
|
|
(148,181
|
)
|
Timing
and other
|
|
|
(7,255
|
)
|
|
(6,379
|
)
|
|
|
|
|
|
|
|
|
Net
change
|
|
|
(438,390
|
)
|
|
266,869
|
|
|
|
|
|
|
|
|
|
End
of year
|
|
$
|
150,978
|
|
$
|
589,368
|
|
ITEM
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
ITEM
9A. Controls and Procedures
Disclosure
Controls and Procedures
In
accordance with Exchange Act Rules 13a-15 and 15d-15, the Company, Peoples
Gas
and North Shore Gas carried out an evaluation, under the supervision and with
the participation of management, including Thomas M. Patrick, our principal
executive officer, and Thomas A. Nardi, our principal financial officer, of
the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on this evaluation, our principal executive
officer and our principal financial officer concluded that our disclosure
controls and procedures were effective as of September 30, 2006 to ensure that
information required to be disclosed and filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.
Management’s
Report on Internal Control Over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting. The Company’s internal control system
is designed to provide reasonable assurance to our management and Board of
Directors regarding the preparation and fair presentation of published financial
statements.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentations. Also, the effectiveness of internal control
over
financial reporting may deteriorate in future periods due to either changes
in
conditions or declining levels of compliance with policies or
procedures.
The
Company's management assessed the effectiveness of the Company's internal
control over financial reporting as of September 30, 2006. In making this
assessment, management used criteria set forth in
Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this assessment, management believes that, as of September 30, 2006, the
Company's internal control over financial reporting was effective based on
such
criteria.
Deloitte
& Touche LLP, an independent registered accounting firm, issued an audit
report on management’s assessment of the Company’s internal control over
financial reporting. This report appears below.
Changes
In Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting
during the quarter ended September 30, 2006 that have materially affected or
are
reasonably likely to materially affect the Company’s internal control over
financial reporting.
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Shareholders of
Peoples
Energy Corporation
Chicago,
Illinois
We
have
audited management's assessment, included in the accompanying Management's
Report on Internal Control Over Financial Reporting, that Peoples Energy
Corporation and subsidiary companies (the “Company”) maintained effective
internal control over financial reporting as of September 30, 2006, based on
criteria established in
Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion
on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A
company's internal control over financial reporting is a process designed by,
or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by
the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance
with generally accepted accounting principles. A company's internal control
over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented
or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In
our
opinion, management's assessment that the Company maintained effective internal
control over financial reporting as of September 30, 2006, is fairly stated,
in
all material respects, based on the criteria established in
Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Also
in
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2006, based on
the
criteria established in
Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets and
consolidated capitalization statements of the Company as of September 30, 2006
and 2005, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 2006, and the financial statement schedules of the Company for each of
the
three years in the period ended September 30, 2006, and our report dated
December 14, 2006 expressed an unqualified opinion on those financial statements
and financial statement schedules and included an explanatory paragraph
regarding the Company’s adoption of FASB Interpretation No. 47,
"Conditional Asset Retirement Obligations".
/s/
DELOITTE & TOUCHE LLP
DELOITTE
& TOUCHE LLP
Chicago,
Illinois
December
14, 2006
ITEM
9B. Other Information
None.
PART
III
ITEM
10. Directors, Executive Officers and Corporate Governance
Certain
information required in Part III—Item 10 of this Form 10-K will be incorporated
by reference to the Company's definitive proxy statement to be filed with the
SEC, or filed with the SEC as an amendment to this Form 10-K, within 120 days
of
the end of the Company's fiscal year.
Information
relating to the executive officers of the Company is set forth in Part I of
this
report under the caption “Executive Officers of the Company.”
The
Company has disclosed its code of ethics on its Web site at
www.PeoplesEnergy.com
.
ITEM
11. Executive Compensation
The
information required in Part III—Item 11 of this Form 10-K will be incorporated
by reference to the Company's definitive proxy statement to be filed with the
SEC, or filed with the SEC as an amendment to this Form 10-K, within 120 days
of
the end of the Company's fiscal year.
ITEM
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
information required in Part III—Item 12 of this Form 10-K will be incorporated
by reference to the Company's definitive proxy statement to be filed with the
SEC, or filed with the SEC as an amendment to this Form 10-K, within 120 days
of
the end of the Company's fiscal year.
EQUITY
COMPENSATION PLAN INFORMATION
Plan
Category
|
(A)
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants
and Rights
|
(B)
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights
|
(C)
Number
of Securities Remaining Available for Future Issuance under Equity
Compensation Plans (Excluding Securities Reflected in Column A)
|
|
|
|
|
Equity
compensation plans approved by security holders
|
563,006
(1) (2)
|
$38.91
|
651,717
(3)
|
Equity
compensation plans not approved by security holders (4)
|
107,632
(4)
|
$36.89
|
82,468
|
Total
|
670,638
|
--
|
734,185
|
(1)
|
Excludes
25,600 SARs outstanding and exercisable under the Company's LTIC
Plan. The
grant of a SAR enables the recipient to receive, for each SAR granted,
cash in an amount equal to the excess of the fair market value of
one
share of Company common stock on the date the SAR is exercised over
the
fair market value of one share on the date the SAR was granted. No
security is issued upon the exercise of a
SAR.
|
(2)
|
Includes
94,106 shares equivalent held for the account of participants in
the
Company's DDC Plan.
|
(3)
|
Includes
600,360 shares remaining available for issuance under the Company's
2004
Incentive Compensation Plan for awards of performance shares, restricted
stock and RSUs, of which no more than 250,900 shares may be used
for
awards of restricted stock or RSUs that vest solely upon continued
service. Includes 51,357 share equivalents remaining available for
future
issuance under the DDC Plan.
|
(4)
|
Includes
41,632 deferred shares held for the account of participants in the
Company's DSOP.
|
ITEM
13. Certain Relationships, Related Transactions, and Director
Independence
The
information required in Part III—Item 13 of this Form 10-K will be incorporated
by reference to the Company's definitive proxy statement to be filed with the
SEC, or filed with the SEC as an amendment to this Form 10-K, within 120 days
of
the end of the Company's fiscal year.
ITEM
14. Principal Accounting Fees and Services
The
information required in Part III—Item 14 of this Form 10-K will be incorporated
by reference to the Company's definitive proxy statement to be filed with the
SEC, or filed with the SEC as an amendment to this Form 10-K, within 120 days
of
the end of the Company's fiscal year.
PART
IV
ITEM
15. Exhibits and Financial Statement Schedules
|
|
|
|
|
Page
|
|
|
(a)
|
1.
|
Financial
Statements:
|
|
|
|
|
|
|
See
Part II,
Item
8.
|
|
59
|
|
|
|
2.
|
Financial
Statement Schedules:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
II
|
Valuation
and Qualifying Accounts
|
|
135
|
|
|
|
|
|
|
|
|
|
|
3.
|
Exhibits
|
|
|
|
|
|
|
See
Exhibit Index
|
|
139
|
|
|
Schedule
II
|
|
VALUATION
AND QUALIFYING ACCOUNTS
(In
Thousands)
|
|
|
|
|
|
|
|
|
|
|
Peoples
Energy Corporation and Subsidiary Companies
|
|
|
|
|
|
|
|
|
|
|
Column
A
|
|
|
Column
B
|
|
|
Column
C
|
|
|
Column
D
|
|
|
Column
E
|
|
|
|
|
|
|
|
Additions
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
for the
|
|
|
|
|
|
|
|
Balance
at
|
|
|
Charged
|
|
|
purpose
for which the
|
|
|
|
|
|
|
|
beginning
|
|
|
to
costs and
|
|
|
reserves
or deferred
|
|
|
Balance
at end
|
|
Description
|
|
|
of
period
|
|
|
expenses
|
|
|
credits
were created
|
|
|
of
period
|
|
Fiscal
Year Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(deducted
from assets in balance sheet):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for uncollectible accounts
|
|
$
|
34,954
|
|
$
|
48,574
|
|
$
|
39,557
|
|
$
|
43,971
|
|
Fiscal
Year Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(deducted
from assets in balance sheet):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for uncollectible accounts
|
|
$
|
29,138
|
|
$
|
37,110
|
|
$
|
31,294
|
|
$
|
34,954
|
|
Fiscal
Year Ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(deducted
from assets in balance sheet):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for uncollectible accounts
|
|
$
|
33,124
|
|
$
|
37,274
|
|
$
|
41,260
|
|
$
|
29,138
|
|
The
Peoples Gas Light and Coke Company and Subsidiary
Companies
|
|
|
|
|
|
|
|
|
|
|
Column
A
|
|
|
Column
B
|
|
|
Column
C
|
|
|
Column
D
|
|
|
Column
E
|
|
|
|
|
|
|
|
Additions
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
for the
|
|
|
|
|
|
|
|
Balance
at
|
|
|
Charged
|
|
|
purpose
for which the
|
|
|
|
|
|
|
|
beginning
|
|
|
to
costs and
|
|
|
reserves
or deferred
|
|
|
Balance
at end
|
|
Description
|
|
|
of
period
|
|
|
expenses
|
|
|
credits
were created
|
|
|
of
period
|
|
Fiscal
Year Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(deducted
from assets in balance sheet):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for uncollectible accounts
|
|
$
|
31,947
|
|
$
|
45,681
|
|
$
|
36,997
|
|
$
|
40,631
|
|
Fiscal
Year Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(deducted
from assets in balance sheet):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for uncollectible accounts
|
|
$
|
26,536
|
|
$
|
34,796
|
|
$
|
29,385
|
|
$
|
31,947
|
|
Fiscal
Year Ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(deducted
from assets in balance sheet):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for uncollectible accounts
|
|
$
|
29,207
|
|
$
|
35,306
|
|
$
|
37,977
|
|
$
|
26,536
|
|
North
Shore Gas Company and Subsidiary Companies
|
|
|
|
|
|
|
|
|
|
|
Column
A
|
|
|
Column
B
|
|
|
Column
C
|
|
|
Column
D
|
|
|
Column
E
|
|
|
|
|
|
|
|
Additions
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
for the
|
|
|
|
|
|
|
|
Balance
at
|
|
|
Charged
|
|
|
purpose
for which the
|
|
|
|
|
|
|
|
beginning
|
|
|
to
costs and
|
|
|
reserves
or deferred
|
|
|
Balance
at end
|
|
Description
|
|
|
of
period
|
|
|
expenses
|
|
|
credits
were created
|
|
|
of
period
|
|
Fiscal
Year Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(deducted
from assets in balance sheet):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for uncollectible accounts
|
|
$
|
1,455
|
|
$
|
2,185
|
|
$
|
1,513
|
|
$
|
2,127
|
|
Fiscal
Year Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(deducted
from assets in balance sheet):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for uncollectible accounts
|
|
$
|
943
|
|
$
|
1,563
|
|
$
|
1,051
|
|
$
|
1,455
|
|
Fiscal
Year Ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(deducted
from assets in balance sheet):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
for uncollectible accounts
|
|
$
|
1,012
|
|
$
|
1,177
|
|
$
|
1,246
|
|
$
|
943
|
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on
its
behalf by the undersigned, thereunto duly authorized.
|
|
|
PEOPLES
ENERGY CORPORATION
|
|
|
|
|
Date:
December
14, 2006
|
|
|
By:
/s/
THOMAS M. PATRICK
|
|
|
|
Thomas
M. Patrick
|
|
|
|
Chairman
of the Board, President and
|
|
|
|
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on
December 14, 2006.
/s/
THOMAS M. PATRICK
|
Chairman
of the Board, President and Chief Executive
|
Thomas
M. Patrick
|
Officer
and Director (Principal Executive Officer)
|
|
|
/s/
THOMAS A. NARDI
|
Executive
Vice President and Chief Financial Officer
|
Thomas
A. Nardi
|
(Principal
Financial Officer)
|
|
|
/s/
LINDA M. KALLAS
|
Vice
President and Controller
|
Linda
M. Kallas
|
(Principal
Accounting Officer)
|
|
|
/s/
KEITH E. BAILEY
|
Director
|
Keith
E. Bailey
|
|
|
|
/s/
JAMES R. BORIS
|
Director
|
James
R. Boris
|
|
|
|
/s/
WILLIAM J. BRODSKY
|
Director
|
William
J. Brodsky
|
|
|
|
/s/
PASTORA SAN JUAN CAFFERTY
|
Director
|
Pastora
San Juan Cafferty
|
|
|
|
/s/
DIANA S. FERGUSON
|
Director
|
Diana
S. Ferguson
|
|
|
|
/s/
JOHN W. HIGGINS
|
Director
|
John
W. Higgins
|
|
|
|
/s/
DIPAK C. JAIN
|
Director
|
Dipak
C. Jain
|
|
|
|
/s/
MICHAEL E. LAVIN
|
Director
|
Michael
E. Lavin
|
|
|
|
/s/
HOMER J. LIVINGSTON, JR.
|
Director
|
Homer
J. Livingston, Jr.
|
|
|
|
/s/
RICHARD P. TOFT
|
Director
|
Richard
P. Toft
|
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on
its
behalf by the undersigned, thereunto duly authorized.
|
|
THE
PEOPLES GAS LIGHT AND COKE COMPANY
|
|
|
|
Date:
December
14, 2006
|
|
By:
/s/
THOMAS M. PATRICK
|
|
|
Thomas
M. Patrick
|
|
|
Chairman
of the Board
|
|
|
and
Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on
December 14, 2006.
/s/
THOMAS M. PATRICK
|
Chairman
of the Board and Chief Executive
|
Thomas
M. Patrick
|
Officer
and Director (Principal Executive Officer)
|
|
|
/s/
THOMAS A. NARDI
|
Executive
Vice President, Chief Financial Officer and Director
|
Thomas
A. Nardi
|
(Principal
Financial Officer)
|
|
|
/s/
LINDA M. KALLAS
|
Vice
President and Controller
|
Linda
M. Kallas
|
(Principal
Accounting Officer)
|
|
|
/s/
DESIREE G. ROGERS
|
Director
|
Desiree
G. Rogers
|
|
|
|
/s/
WILLIAM E. MORROW
|
Director
|
William
E. Morrow
|
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on
its
behalf by the undersigned, thereunto duly authorized.
|
|
|
NORTH
SHORE GAS COMPANY
|
|
|
|
|
Date:
December
14, 2006
|
|
|
By:
/s/
THOMAS M. PATRICK
|
|
|
|
Thomas
M. Patrick
|
|
|
|
Chairman
of the Board
|
|
|
|
and
Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on
December 14, 2006.
/s/
THOMAS M. PATRICK
|
Chairman
of the Board and Chief Executive
|
Thomas
M. Patrick
|
Officer
and Director (Principal Executive Officer)
|
|
|
/s/
THOMAS A. NARDI
|
Executive
Vice President, Chief Financial Officer and Director
|
Thomas
A. Nardi
|
(Principal
Financial Officer)
|
|
|
/s/
LINDA M. KALLAS
|
Vice
President and Controller
|
Linda
M. Kallas
|
(Principal
Accounting Officer)
|
|
|
/s/
DESIREE G. ROGERS
|
Director
|
Desiree
G. Rogers
|
|
|
|
/s/
WILLIAM E. MORROW
|
Director
|
William
E. Morrow
|
|
Peoples
Energy Corporation and Subsidiary Companies
EXHIBIT
INDEX
(a)
|
The
exhibits listed below are filed herewith and made a part
hereof:
|
Exhibit
Number
|
Description
of Document
|
|
|
10(a)
|
Employment
and Retention Agreement dated August 31, 2006 between the Company
and
Thomas M. Patrick.
|
|
|
10(b)
|
Seasonal
Credit Agreement dated as of October 20, 2006 between the Company
and ABN
AMRO Bank N.V.
|
|
|
10(c)
|
Seasonal
Credit Agreement dated as of October 20, 2006 between the Company
and Bank
of America, N.A.
|
|
|
10(d)
|
Seasonal
Credit Agreement dated as of October 20, 2006 between the Company
and
JPMorgan Chase Bank.
|
|
|
10(e)
|
Amendment
Number One to the Amended and Restated Trust under the Company's
Directors
Deferred Compensation Plan, Directors Stock and Option Plan, Executive
Deferred Compensation Plan and Supplemental Retirement Benefit Plan,
dated
as of July 24, 2006.
|
|
|
12
|
Statement
re: Computation of Ratio of Earnings to Fixed charges for the Company,
Peoples Gas and North Shore Gas.
|
|
|
21
|
Subsidiaries
of the Company.
|
|
|
23(a)
|
Consent
of Deloitte & Touche LLP to incorporate by reference in Registration
Statement File Nos. 333-84594, 333-70702, 2-82760, 33-6369, 33-63193,
333-62070, 333-113204, 333-116192, and 333-17701.
|
|
|
23(b)
|
Consent
of Netherland, Sewell and Associates, Inc. to incorporate by reference
in
Registration Statement File Nos. 333-84594, 333-70702, 2-82760, 33-6369,
033-63193, 333-62070, 333-113204, 333-116192, and
333-17701.
|
|
|
23(c)
|
Consent
of Miller and Lents, Ltd. to incorporate by reference in Registration
Statement File Nos. 333-84594, 333-70702, 2-82760, 33-6369, 033-63193,
333-62070, 333-113204, 333-116192, and 333-17701.
|
|
|
23(d)
|
Prator
Bett, L.L.C. consent to incorporate by reference in Registration
Statement
File Nos. 333-84594, 333-70702, 2-82760, 33-6369, 033-63193, 333-62070,
333-113204, 333-116192, and 333-17701.
|
|
|
31(a)
|
Certification
of Thomas M. Patrick on behalf of the Company, Peoples Gas and North
Shore
Gas pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as
adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
31(b)
|
Certification
of Thomas A. Nardi on behalf of the Company, Peoples Gas and North
Shore
Gas pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as
adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
32(a)
|
Certification
of Thomas M. Patrick on behalf of the Company, Peoples Gas and North
Shore
Gas pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906
of the Sarbanes-Oxley Act of 2002.
|
|
|
32(b)
|
Certification
of Thomas A. Nardi on behalf of the Company, Peoples Gas and North
Shore
Gas pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906
of the Sarbanes-Oxley Act of 2002.
|
|
|
99
|
Form
11-K for the Employee Stock Purchase Plan of the Company for the
fiscal
year ended September 30, 2006.
|
Peoples
Energy Corporation and Subsidiary Companies
EXHIBIT
INDEX
(Continued)
|
Exhibit
Number
|
Description
of Document
|
|
|
|
(b)
|
Exhibits
listed below have been filed heretofore with the SEC pursuant to
the
Securities Act of 1933, as amended, and/or the Securities Exchange
Act of
1934, as amended, and are incorporated herein by reference. The file
number and exhibit number of each such exhibit are stated in the
description of such exhibits.
|
|
|
|
|
3(a)
|
Articles
of Incorporation of the Company, as amended on March 3, 1995 (The
Company—Form 10-K for the fiscal year ended September 30, 1995, Exhibit
3(b)).
|
|
|
|
|
3(b)
|
Articles
of Incorporation of Peoples Gas, as amended on April 24, 1995 (Peoples
Gas—Form 10-K for fiscal year ended 1995, Exhibit
3(b)).
|
|
|
|
|
3(c)
|
Articles
of Incorporation of North Shore Gas, as amended on April 24, 1995
(North
Shore Gas—Form 10-K for fiscal year ended 1995, Exhibit
3(b)).
|
|
|
|
|
3(d)
|
By-Laws
of the Company, as amended December 2, 2005 (The Company—Form 10-Q for the
quarter ended March 31, 2006, Exhibit 3).
|
|
|
|
|
3(e)
|
By-Laws
of Peoples Gas, as amended August 10, 2004, (Peoples Gas—Form 10-K for the
fiscal year ended 2004, Exhibit 3(b)).
|
|
|
|
|
3(f)
|
By-Laws
of North Shore Gas, as amended August 10, 2004, (North Shore Gas—Form 10-K
for the fiscal year ended 2004, Exhibit 3(d)).
|
|
|
|
|
4(a)
|
Indenture
dated as of January 18, 2001, from the Company to Bank One Trust
Company
National Association (The Company—Form 10-Q for the quarter ended March
31, 2001, Exhibit 4(a)).
|
|
|
|
|
4(b)
|
The
Peoples Gas Light and Coke Company First and Refunding Mortgage,
dated
January 2, 1926, from Chicago By-Product Coke Company to Illinois
Merchants Trust Company, Trustee, assumed by The Peoples Gas Light
and
Coke Company (Peoples Gas) by Indenture dated March 1, 1928 (Peoples
Gas—May 17, 1935, Exhibit B-6a, Exhibit B-6b A-2 File No. 2-2151, 1936);
Supplemental Indenture dated as of May 20, 1936, (Peoples Gas—Form
8-K for the year 1936, Exhibit B-6f); Supplemental Indenture dated
as of
March 10, 1950 (Peoples Gas—Form 8-K for the month of March 1950, Exhibit
B-6i); Supplemental Indenture dated as of June 1, 1951 (Peoples Gas—File
No. 2-8989, Post-Effective, Exhibit 7-4(b)); Supplemental Indenture
dated
as of August 15, 1967 (Peoples Gas—File No. 2-26983, Post-Effective,
Exhibit 2-4); Supplemental Indenture dated as of
September 15, 1970 (Peoples Gas—File No. 2-38168, Post-Effective
Exhibit 2-2); Supplemental Indenture dated June 1, 1995 (Peoples
Gas—Form
10-K for fiscal year ended September 30, 1995); Supplemental Indenture,
First and Refunding Mortgage Multi-Modal Bonds, Series HH of Peoples
Gas,
effective March 1, 2000 (Peoples Gas—Form 10-K for fiscal year ended
September 30, 2000, Exhibit 4(b)); Supplemental Indenture dated as
of
February 1, 2003, First and Refunding Mortgage 5% Bonds, Series KK
(The
Company and Peoples Gas—Form 10-Q for the quarter ended March 31, 2003,
Exhibit 4(a)); Supplemental Indenture dated as of February 1, 2003,
First
and Refunding Mortgage Multi-Modal Bonds, Series LL (The Company
and
Peoples Gas—Form 10-Q for the quarter ended March 31, 2003, Exhibit 4(b));
Supplemental Indenture dated as of
|
Peoples
Energy Corporation and Subsidiary Companies
EXHIBIT
INDEX
(Continued)
|
Exhibit
Number
|
Description
of Document
|
|
|
|
|
|
February
15, 2003, First and Refunding Mortgage 4.00% Bonds, Series MM-1 and
Series
MM-2 (The Company and Peoples Gas—Form 10-Q for the quarter ended March
31, 2003, Exhibit 4(c)); Supplemental Indenture dated as of April
15,
2003, First and Refunding Mortgage 4.625% Bonds, Series NN-1 and
Series
NN-2 (The Company and Peoples Gas—Form 10-Q for the quarter ended March
31, 2003, Exhibit 4(e)); Supplemental Indenture dated as of October
1,
2003, First and Refunding Mortgage Bonds, Series OO (The Company
and
Peoples Gas—Form 10-Q for the quarter ended December 31, 2003, Exhibit
4(a)); Peoples Gas Supplemental Indenture dated as of October 1,
2003,
First and Refunding Mortgage Bonds, Series PP (The Company and Peoples
Gas—Form 10-Q for the quarter ended December 31, 2003, Exhibit 4(b));
Peoples Gas Supplemental Indenture dated as of November 1, 2003,
First and
Refunding Mortgage Multi-Modal Bonds, Series QQ (The Company and
Peoples
Gas—Form 10-Q for the quarter ended December 31, 2003, Exhibit 4(c));
Peoples Gas Supplemental Indenture dated as of January 1, 2005, First
and
Refunding Mortgage Bonds, Series RR (The Company and Peoples Gas—Form 10-Q
for the quarter ended December 31, 2004, Exhibit 4(b)); Loan Agreement
between Peoples Gas and Illinois Development Finance Authority dated
October 1, 2003, Gas Supply Refunding Revenue Bonds, Series 2003C
(The
Company and Peoples Gas—Form 10-Q for the quarter ended December 31, 2003,
Exhibit 4(d)); Loan Agreement between Peoples Gas and Illinois Development
Finance Authority dated October 1, 2003, Gas Supply Refunding Revenue
Bonds, Series 2003D (The Company and Peoples Gas—Form 10-Q for the quarter
ended December 31, 2003, Exhibit 4(e)); Loan Agreement between Peoples
Gas
and Illinois Development Finance Authority dated November 1, 2003,
Gas
Supply Refunding Revenue Bonds, Series 2003E (The Company and Peoples
Gas—Form 10-Q for the quarter ended December 31, 2003, Exhibit 4(f));
Loan
Agreement between Peoples Gas and Illinois Finance Authority dated
as of
January 1, 2005 (The Company and Peoples Gas—Form 10-Q for the quarter
ended December 31, 2004, Exhibit 4(a)).
|
|
|
|
|
4(c)
|
North
Shore Gas Company (North Shore) Indenture, dated as of
April 1, 1955, from North Shore to Continental Bank, National
Association, as Trustee; Third Supplemental Indenture, dated as of
December 20, 1963 (North Shore—File No. 2-35965, Exhibit 4-1); Fourth
Supplemental Indenture, dated as of May 1 1964 (North Shore—File No.
2-35965, Exhibit 4-1); Fifth Supplemental Indenture dated as of
February 1, 1970 (North Shore—File No. 2-35965, Exhibit 4-2);
Ninth Supplemental Indenture dated as of December 1, 1987 (North
Shore—Form 10-K for the fiscal year ended September 30, 1987, Exhibit 4);
Thirteenth Supplemental Indenture dated December 1, 1998 (North Shore
Gas—Form 10-Q for the quarter ended March 31, 1999, Exhibit 4); Fourteenth
Supplemental Indenture dated as of April 15, 2003, First Mortgage
4.625%
Bonds, Series N-1 and Series N-2 (The Company and North Shore Gas—Form
10-Q for the quarter ended March 31, 2003, Exhibit
4(g)).
|
|
|
|
|
10(f)
|
Lease
dated October 20, 1993, between Prudential Plaza Associates, as
Landlord, and Peoples Gas, as Tenant (Peoples Gas—Form 10-Q for the
quarterly period ended December 31, 1993, Exhibit 10); Peoples
Gas fourth Amendment to Lease (for headquarters office space) between
SIP
North Stetson Venture, LLC and Peoples Gas dated August 13, 2003
(Peoples
Gas—Form 10-K for fiscal year ended September 30, 2003, Exhibit
10(h)).
|
Peoples
Energy Corporation and Subsidiary Companies
EXHIBIT
INDEX
(Continued)
|
Exhibit
Number
|
Description
of Document
|
|
|
|
|
10(g)
|
Credit
Agreement dated as of June 13, 2006, by and among Peoples Gas, the
financial institutions party hereto, and Bank of America, N.A., JPMorgan
Chase Bank, N.A., ABN AMRO Incorporated, US Bank National Association,
and
The Bank of Tokyo-Mitsubishi, Ltd. Chicago Branch, as agents (The
Company—Form 10-Q for the quarter ended June 30, 2006, Exhibit
10(a).
|
|
|
|
|
10(h)
|
Insurance
Agreement between Peoples Gas and Ambac dated as of January 1, 2005
(The
Company and Peoples Gas—Form 10-Q for the quarter ended December 31, 2004,
Exhibit 10(b)).
|
|
|
|
|
10(i)
|
Employee
Stock Purchase Plan, as amended, dated August 6, 1997 (The Company—Form
10-K for the fiscal year ended September 30, 1997, Exhibit
3(d)).
|
|
|
|
|
10(j)
|
Executive
Deferred Compensation Plan, amended as of December 4, 2002 (The
Company—Form 10-Q for the quarter ended December 31, 2002, Exhibit
10(c)).
|
|
|
|
|
10(k)
|
Directors
Stock and Option Plan as amended December 4, 2002 (The Company—Form 10-Q
for the quarterly period ended December 31, 2002, Exhibit
10(g)).
|
|
|
|
|
10(l)
|
Amended
and Restated Trust under the Company's Directors Deferred Compensation
Plan, Directors Stock and Option Plan, Executive Deferred Compensation
Plan and Supplemental Retirement Benefit Plan, dated as of August
13, 2003
(The Company—Form 10-K for fiscal year ended September 30, 2003, Exhibit
10(a)).
|
|
|
|
|
10(m)
|
Directors
Deferred Compensation Plan, as amended, dated April 7, 2004 (The
Company—Form 10-Q for the quarter ended June 30, 2004, Exhibit
10(a)).
|
|
|
|
|
10(n)
|
The
Company's 2004 Incentive Compensation Plan, effective February 27,
2004
(The Company—Form 10-Q for the quarter ended March 31, 2004, Exhibit
10(a)).
|
|
|
|
|
10(o)
|
The
Company’s Long-Term Incentive Compensation Plan, as amended December 4,
2002 (The Company—Form 10-Q for the quarter ended December 31, 2002,
Exhibit 10(d)).
|
|
|
|
|
10(p)
|
Percentage
Interest Award granted to Steven W. Nance, dated December 17, 2001
(The
Company—Form 10-K for fiscal year ended September 30, 2003, Exhibit
10(b)).
|
|
|
|
|
10(q)
|
Equity
Interest Award granted to Steven W. Nance, dated December 17, 2001
(The
Company—Form 10-K for fiscal year ended September 30, 2003, Exhibit
10(c)).
|
|
|
|
Peoples
Energy Corporation and Subsidiary Companies
EXHIBIT
INDEX
(Continued)
|
Exhibit
Number
|
Description
of Document
|
|
|
|
|
10(r)
|
Severance
Agreement between the Company and Desiree G. Rogers dated as of April
22,
2005 (The Company—Form 10-Q for the quarter ended June 30, 2005, Exhibit
10(a)); Severance Agreement between the Company and Steven W. Nance
dated
as of June 2, 2004 (The Company—Form 10-K for fiscal year ended September
30, 2004, Exhibit 10(e)); Severance Agreement between the Company
and
William E. Morrow dated as of June 2, 2004 (The Company—Form 10-K for
fiscal year ended September 30, 2004, Exhibit 10(f)); Severance Agreement
between the Company and Thomas A. Nardi dated as of June 2, 2004
(The
Company—Form 10-K for fiscal year ended September 30, 2004, Exhibit
10(g)).
|
|
|
|
|
10(s)
|
Retainer
Agreement between the Company and Theodore R. Tetzlaff dated as of
June
30, 2005 (The Company—Form 10-Q for the quarter ended June 30, 2005,
Exhibit 10(b)).
|
|
|
|
|
10(t)
|
Summary
Sheet for Officer Perquisites (The Company—Form 10-K for fiscal year ended
September 30, 2005, Exhibit 10(b)).
|
|
|
|
|
10(u)
|
Order
of the Illinois Commerce Commission in Docket No. 01-0706 for North
Shore
Gas (the Company (The Company—Form 10-Q for the quarter ended March 31,
2006, Exhibit 10.1).
|
|
|
|
|
10(v)
|
Order
of the Illinois Commerce Commission in Docket No. 02-0726 for North
Shore
Gas (The Company—Form 10-Q for the quarter ended March 31, 2006, Exhibit
10.2).
|
|
|
|
|
10(w)
|
Order
of the Illinois Commerce Commission in Docket No. 02-0727 for Peoples
Gas
(The Company—Form 10-Q for the quarter ended March 31, 2006, Exhibit
10.3).
|
|
|
|
|
10(x)
|
Order
of the Illinois Commerce Commission in Docket No. 03-0704 for North
Shore
Gas (The Company—Form 10-Q for the quarter ended March 31, 2006, Exhibit
10.4).
|
|
|
|
|
10(y)
|
Order
of the Illinois Commerce Commission in Docket No. 03-0705 for Peoples
Gas
(The Company—Form 10-Q for the quarter ended March 31, 2006, Exhibit
10.5).
|
|
|
|
|
10(z)
|
Order
of the Illinois Commerce Commission in Docket No. 04-0682 for North
Shore
Gas (The Company—Form 10-Q for the quarter ended March 31, 2006, Exhibit
10.6).
|
|
|
|
|
10(aa)
|
Order
of the Illinois Commerce Commission in Docket No. 04-0683 for Peoples
Gas
(The Company—Form 10-Q for the quarter ended March 31, 2006, Exhibit
10.7).
|
|
|
|
EXHIBIT
10(a)
EMPLOYMENT
AND RETENTION AGREEMENT
BETWEEN
PEOPLES
ENERGY CORPORATION
AND
THOMAS
M. PATRICK
CHAIRMAN,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THIS
AGREEMENT is effective as of August 31, 2006 (“Effective Date”), by and between
Peoples Energy Corporation, an Illinois corporation (“PEC” or the “Company”),
and Thomas M. Patrick, Chairman, President and Chief Executive Officer (the
“Executive”).
WITNESSETH
WHEREAS,
the Executive is a valuable employee of the Company and an integral part of
the
management of the Company; and
WHEREAS,
PEC wishes to encourage the Executive to continue his career and services with
the Company for the period preceding an anticipated change in control
transaction; and
WHEREAS,
the Board of Directors of PEC previously determined that it would be in the
best
interests of the Company and its shareholders to assure continuity in the
management of the Company’s administration and operations in the event of a
change in control by entering into a severance agreement with the Executive;
and
WHEREAS,
PEC and the Executive entered into a severance agreement effective as of August
1, 2002, which was superseded by a severance agreement effective as of June
2,
2004 (the “Severance Agreement”);
WHEREAS,
the Board of Directors of PEC and the Executive now desire to cancel the
Severance Agreement and replace it with this Agreement in consideration of
the
parties’ agreement that the Executive will delay his retirement pending
completion of an anticipated change in control transaction; and
WHEREAS,
the parties acknowledge that the Executive is waiving certain rights under
the
Severance Agreement and other arrangements in exchange for new rights provided
by this Agreement.
NOW
THEREFORE, for good and valuable consideration, the parties hereby agree to
the
following:
1.
Definitions.
“AAA”
shall have the meaning set forth in paragraph 5 of this Agreement.
“Affiliate”
shall mean the subsidiaries of PEC and other entities controlled by such
subsidiaries.
“Agreement”
shall mean this Employment and Retention Agreement.
“Board”
shall mean the Board of Directors of PEC.
“Cause”
shall mean the Executive’s fraud or dishonesty which has resulted in or is
likely to result in material economic damage to the Company as determined in
good faith by a vote of at least two-thirds of the non-employee directors of
PEC
at a meeting of the Board at which the Executive is provided an opportunity
to
be heard.
“Change
in Control” shall mean:
(i)
the
acquisition by any Person or Persons acting in concert, of ownership of stock
of
PEC that, together with stock held by such Person or Persons acting in concert,
constitutes more than fifty percent (50%) of the total fair market value or
total voting power of the stock of PEC (calculated in accordance with Code
Section 318(a) and subject to the limitations of Internal Revenue Service
(“IRS”) Notice 2005-1); or
(ii)
a
change
in the ownership of a substantial portion of the assets (as defined for purposes
of Code Section 409A) of PEC; or
(iii)
a
change
in the effective control (as defined for purposes of Code Section 409A) of
PEC.
“Code”
shall mean the United States Internal Revenue Code of 1986, as amended, or
any
successor thereto.
“Company”
shall mean PEC and include any Affiliate and successor or successors to
PEC.
“Compensation
Committee” shall mean the Management Development and Compensation Committee of
the PEC Board of Directors.
“Disability”
shall mean an impairment that affects the Executive and causes him either (a)
to
be unable to engage in any substantial gainful activity by reason of a medically
determinable physical or mental impairment that can be expected to result in
death or to last for a continuous period of not fewer than 12 months, as
determined by a physician selected by the Company; or (b) to receive income
replacement benefits for a period of not fewer than three (3) months under
an
accident and health plan covering employees of the Company by reason of a
medically determinable physical or mental impairment that can be expected to
result in death or to last for a continuous period of not fewer than 12
months.
“Effective
Date” shall mean the date set forth in the first paragraph of this
Agreement.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.
“PEC”
shall mean Peoples Energy Corporation, an Illinois corporation.
“PEC
LTIC” shall mean the Peoples Energy Corporation Long Term Incentive Compensation
Plan, as amended from time to time, or any successor plan.
“PEC
Retirement Plan” shall mean the Peoples Energy Corporation Retirement Plan as in
effect on the Effective Date, as amended from time to time, or any successor
plan.
“PEC
SRB”
shall mean the Peoples Energy Corporation Supplemental Retirement Benefit Plan
as in effect on the Effective Date, as amended from time to time, or any
successor plan.
“PEC
STIC” shall mean the Peoples Energy Corporation Short Term Incentive
Compensation Plan, as amended from time to time, or any successor
plan.
“Person”
shall have the meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof, including a “group” as
defined in Section 13(d) except that such term shall not include: (i)
the Company or any of its subsidiaries; (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any of
its
Affiliates; (iii) an underwriter temporarily holding securities pursuant to
an
offering of such securities; or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
“Severance
Agreement” shall have the meaning set forth in the preamble to this
Agreement.
“Term”
shall mean the term of this Agreement as set forth in paragraph 2.
2.
Term.
This
Agreement shall be effective as of the Effective Date and shall continue
thereafter until the Executive retires from employment with the Company, the
Executive’s employment terminates due to death, Disability or another reason
other than Cause, or the Company terminates the Executive’s employment for
Cause.
3.
Compensation
and Employee Benefits.
a.
Salary
and Benefits.
(i)
During
the Term, the Executive shall continue to receive his current salary in
accordance with the Company’s normal payroll procedures, subject to increase
from time to time in accordance with salary increases generally granted to
Company executives, and shall remain eligible to participate in all Company
bonus programs, incentive arrangements and employee benefit plans for which
he
is eligible as of the Effective Date or thereafter in accordance with their
terms.
(ii)
Upon
the
termination of the Executive’s employment for any reason other than Cause,
within five (5) business days after such termination PEC shall pay to the
Executive (or, if the Executive has died before receiving all payments to which
he has become entitled hereunder, to the beneficiary or estate of the Executive
as described in paragraph 12) the sum of his accrued but unpaid salary and
accrued but unused paid time off for nonunion employees under the Paid Time
Off
Bank, as in effect on the Effective Date, as amended from time to time, or
any
successor plan.
b.
Incentive
Payments.
The
Executive shall be entitled to the following incentive payments if he remains
employed with the Company through November 30, 2006 or dies or experiences
a
Disability that causes termination of his employment on or before that
date:
(i)
one
million dollars ($1,000,000) (less applicable tax withholdings) payable on
December 1, 2006; and
(ii)
one
million seven hundred seventy-five thousand dollars ($1,775,000) (less
applicable tax withholdings) payable as soon as practicable following the date
that is six months after the Executive’s employment termination date, provided
that he is not terminated for Cause.
The
incentive payments are in consideration of the Executive’s agreement to and
compliance with the terms set forth in paragraphs 4, 7, and 17 of this
Agreement, provided that he complies with such terms and his employment is
not
terminated for Cause. PEC shall pay the designated amounts to the Executive
(or,
if the Executive dies before receiving the payments to which he has become
entitled hereunder, to the beneficiary or estate of the Executive as described
in paragraph 12) in lump sum cash payments.
If the
Executive’s employment is terminated for Cause after November 30, 2006 or he
fails to agree to and comply with paragraphs 4, 7 and 17 of this Agreement,
he
shall forfeit his right to receive the incentive payment described in paragraph
(ii) above.
c.
Success
Bonus.
If
the
Executive remains employed with the Company on:
(i)
the
later
of (A) the closing date of the Change in Control transaction under consideration
on the Effective Date (“Project Score”), or (B) at the Company’s option (with
notice to be provided to the Executive before the closing of Project Score),
the
date that marks the three (3)-month anniversary of the closing of Project Score;
or
(ii)
if
Project Score is abandoned and does not close, the later of (A) the date
PEC hires a new chief executive officer and he or she commences service in
such
position, or (B) at the Company’s option (with notice to be provided to the
Executive before the new chief executive officer commences service), the date
that marks the three (3)-month anniversary of the new chief executive officer’s
first day of service in such position;
or
if the
Company terminates the Executive’s employment due to death, Disability or a
reason other than Cause before the occurrence of an event described in (i)
or
(ii) above, then PEC shall pay to the Executive (or, if the Executive has died
before receiving all payments to which he has become entitled hereunder, to
the
beneficiary or estate of the Executive as described in paragraph 12) a lump
sum
cash payment in the amount of two million dollars ($2,000,000), provided that
the Executive complies with the terms of paragraph 7 of this Agreement. Such
payment shall be made as soon as practicable following the date that is six
months after the Executive’s employment termination date.
d.
Retirement
Benefits and Incentives.
The
Executive shall be entitled to receive any vested benefits credited or accrued
on his behalf under any retirement plan, bonus program or incentive arrangement
maintained by the Company, including, but not limited to, the PEC LTIC, the
PEC
Retirement Plan, the PEC SRB and the PEC STIC. Such benefits shall be
distributed or paid in accordance with the respective provisions of such plans,
programs or arrangements. To the extent required under Code Section 409A,
certain benefit distributions or payments (not including benefits due under
the
Company’s qualified retirement plans, such as the PEC Retirement Plan) may not
be payable
before
the date that is six months after the Executive’s employment termination date.
If the Executive’s benefit payments under the PEC SRB are delayed for six months
to comply with Code Section 409A and he elects an annuity form of distribution
under that plan, the annuity payments that otherwise would have been payable
during the six months immediately following the Executive’s employment
termination shall be aggregated and paid to the Executive all at once as soon
as
practicable following the date that is six months after the Executive’s
employment termination date.
e.
Health
Benefits.
The
Executive shall be entitled to any post-retirement health benefits for which
he
is eligible under the Company’s welfare benefit plans (within the meaning of
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”)). If the Executive is not retirement eligible, within the
meaning of the Company’s welfare benefit plans, at the time of his employment
termination, the Company may provide health benefits through a fully insured
health care or HMO plan. PEC’s obligations under this paragraph 3.e. shall
cease on the earlier of (i) the date as of which such coverage ends in
accordance with the Company’s welfare benefit plan and (ii) the date
following the termination of the Executive’s employment as of which the
Executive is eligible to receive benefits under welfare benefit plans (within
the meaning of ERISA Section 3(1)) provided by an employer of the Executive
other than the Company.
4.
Source
of
Payments.
a.
All
payments provided for in paragraph 3 shall be paid in cash from the general
funds of PEC; provided, however, that such payments shall be reduced by the
amount of any payments made to the Executive or his dependents, beneficiaries
or
estate from any trust or special or separate fund established or utilized by
PEC
to assure such payments. The Company shall not be required to establish a
special or separate fund or other segregation of assets to assure such payments,
and, if the Company makes any investments to aid it in meeting its obligations
hereunder, the Executive shall have no right, title or interest whatever in
or
to any such investments except as may otherwise be expressly provided in a
separate written instrument relating to such investments. Nothing
contained in this Agreement, and no action taken pursuant to its provisions,
shall create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and the Executive or any other person. To
the extent that any person acquires a right to receive payments from the Company
such right shall be no greater than the right of an unsecured creditor of the
Company.
b.
The
Executive hereby waives the contribution requirement described in Section 1(f)
of the Amended and Restated Trust under Peoples Energy Corporation Directors
Deferred Compensation Plan, Directors Stock and Option Plan, Executive Deferred
Compensation Plan and Supplemental Retirement Plan dated February 27, 2004
(the
“Trust Agreement”) with respect to any benefits to which he may be entitled
under the plans covered by the Trust Agreement.
5.
Litigation
Expenses; Arbitration.
a.
PEC’s
obligation to make the payments provided for in this Agreement and otherwise
to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others, except as set forth in
paragraph 7. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. PEC agrees
to pay, upon written demand therefor by the Executive, all legal fees and
expenses which the Executive may reasonably incur as a result of any dispute
or
contest (regardless of the outcome thereof) by or with the Company or others
regarding the validity or enforceability of, or liability under, any provision
of this Agreement, plus in each case interest at the federal long-term rate
in
effect under Code Section 1274(d), compounded monthly. In any such action
brought by the Executive for damages or to enforce any provisions of this
Agreement, the Executive shall be entitled to seek both legal and equitable
relief and remedies, including, without limitation, specific performance of
the
Company’s obligations hereunder, in his sole discretion. The obligation of
the Company under this paragraph 5 shall survive the termination for any reason
of this Agreement (whether such termination is by the Company, by the Executive,
upon the expiration of this Agreement or otherwise).
b.
In
the
event of any dispute or difference between the Company and the Executive with
respect to the subject matter of this Agreement and the enforcement of rights
hereunder, the Executive may, in his sole discretion by written notice to PEC,
require such dispute or difference to be submitted to arbitration. The
arbitrator or arbitrators shall be selected by agreement of the parties or,
if
they cannot agree on an arbitrator or arbitrators within 30 days after the
Executive has notified PEC of his desire to have the question settled by
arbitration, then the arbitrator or arbitrators shall be selected by the
American Arbitration Association (the “AAA”) in Illinois upon the application of
the Executive. The determination reached in such arbitration shall be
final and binding on both parties without any right of appeal of further
dispute. Execution of the determination by such arbitrator may be sought
in any court of competent jurisdiction. The arbitrators shall not be bound
by judicial formalities and may abstain from following the strict rules of
evidence and shall interpret this Agreement as an honorable engagement and
not
merely as a legal obligation. Unless otherwise agreed by the parties, any
such arbitration shall take place in Illinois, and shall be conducted in
accordance with the Rules of the AAA.
6.
Tax
Withholding.
The
Company may withhold from any payments made under this Agreement all federal,
state or other taxes, including excise taxes as shall be required pursuant
to
any law or governmental regulation or ruling.
7.
Waiver
and Releases.
In
consideration of the covenants under this Agreement, including, but not limited
to, paragraphs 3 and 5, and as a condition precedent to receiving any payments
under this Agreement, the Executive agrees to execute, concurrently with his
employment termination, a release substantially in the form of Exhibit A and
a
Confidentiality Agreement substantially in the form of Exhibit B,
respectively, attached hereto and by this reference made a part
hereof.
8.
Entire
Understanding.
This
Agreement contains the entire understanding between the Company and the
Executive with respect to the subject matter hereof and supersedes any prior
agreement between the Company and the Executive providing for severance or
similar benefits, except that this Agreement shall not affect or operate to
reduce any benefit or compensation inuring to the Executive of any kind
elsewhere provided and not expressly provided for in this
Agreement.
9.
Severability.
If,
for
any reason, any one or more of the provisions or part of a provision contained
in this Agreement is held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement not held invalid,
illegal or unenforceable, and each other provision or part of a provision shall,
to the fullest extent consistent with law, continue in full force and
effect.
10.
Consolidation,
Merger, or Sale of Assets.
If
PEC
consolidates or merges into or with, or transfers all or substantially all
of
its assets to, another corporation, limited liability company, limited
partnership, or other entity, the term “the Company” as used herein shall
include such other entity and this Agreement shall continue in full force and
effect.
11.
Notices.
All
notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered by overnight courier, facsimile or electronic mail or mailed,
postage prepaid, first class with return receipt, as follows:
a.
to
PEC:
Peoples
Energy Corporation
130
East
Randolph Drive
Chicago,
Illinois 60601
Attention:
Secretary
Facsimile:
(312) 240-4348
b.
to
the
Executive:
Thomas
M.
Patrick
Chairman,
President and Chief Executive Officer
Peoples
Energy Corporation
130
East
Randolph Drive
Chicago,
Illinois 60601
Facsimile:
(312) 240-4310
or
to
such other address as either party shall have previously specified in writing
to
the other.
12.
No
Attachment.
Except
as
required by law and as expressly provided in this paragraph 12, no right to
receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy or similar process or assignment
by operation of law, and any attempt, voluntary or involuntary, to effect any
such action shall be null, void and of no effect. Notwithstanding the
preceding sentence, the Executive may, by giving written notice to PEC during
the Executive’s lifetime, designate a beneficiary or beneficiaries to whom the
benefits described in paragraph 3 shall be transferred in the event of the
Executive’s death. Any such designation may be revoked or changed by the
Executive at any time and from time to time by similar written notice. If
there is no such designated beneficiary living upon the death of the Executive
or if all such designated beneficiaries die prior to the receipt by the
Executive of the referenced benefits, such benefits shall be transferred to
the
Executive’s surviving spouse or, if none, then such benefits will be transferred
to the estate or personal representative of the Executive. If the Company,
after reasonable inquiry, is unable to determine within twelve months after
the
Executive’s death whether any designated beneficiary of the Executive did in
fact survive the Executive, such beneficiary shall be conclusively presumed
to
have died prior to the Executive’s death.
13.
Binding
Agreement.
This
Agreement shall be binding upon, and shall inure to the benefit of, the
Executive and the Company and their respective permitted successors and
assigns.
14.
Modification
and Waiver.
This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
15.
Headings
of No Effect.
The
paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
16.
Governing
Law.
This
Agreement and its validity, interpretation, performance, and enforcement shall
be governed by the laws of the State of Illinois without giving effect to the
choice of law provisions in effect in such state.
17.
Termination
of Severance Agreement.
The
Severance Agreement is hereby terminated and no longer in effect as of the
Effective Date.
18.
Code
Section 409A Compliance.
No
provision in this Agreement is intended to provide a deferral of compensation
within the meaning of Code Section 409A. Company and Executive agree that
if and to the extent Code Section 409A applies to this Agreement, the Agreement
shall be administered in accordance with the requirements of Code Section 409A
so that there will not be a plan failure under Code Section 409A(a)(1), and
all
amounts payable hereunder shall be distributed only in compliance with the
requirements of paragraphs (2), (3) and (4) of such Code section, including,
by
way of example and without limitation, Code Section 409A(2)(A)(i), which
prohibits the distribution of compensation subject to Code Section 409A to
a
“specified employee” of a publicly traded company any earlier than six months
after the date of separation of service in the case of a distribution by reason
of separation of service. No distribution shall be made under the
Agreement that would fail to meet the requirements of Code Section
409A.
In
addition, this Agreement is not intended to materially modify any deferred
compensation plan of the Company that existed on October 3, 2004. However,
if this Agreement would otherwise be interpreted to be a material modification
of any deferred compensation plan of the Company that existed on October 3,
2004, as permitted by IRS Notice 2005-1, Q&A-18(b), this Agreement shall be
treated as material modification of such deferred compensation plan only as
to
the benefits provided by this Agreement and only the benefits provided by this
Agreement shall be subject to Code Section 409A.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, PEC has caused this Agreement to be executed, and the Executive
has executed this Agreement.
PEOPLES
ENERGY CORPORATION
By:
WILLIAM
J. BRODSKY
Director
and Chairman of the Management
Development
and Compensation Committee
of
the Board of
Directors
EXECUTIVE
By:
THOMAS
M.
PATRICK
Chairman,
President and Chief Executive Officer
EXHIBIT
A
RELEASE
OF CLAIMS
AND
COVENANT
NOT TO SUE
THIS
RELEASE OF CLAIMS AND COVENANT NOT TO SUE (the “Release”) is executed and
delivered by THOMAS M. PATRICK (the “Executive”), to Peoples Energy Corporation,
its subsidiaries, and affiliates (collectively referred to as the
“Company”).
In
consideration of the agreement by the Company to provide the Executive with
the
payments and benefits under the Employment and Retention Agreement between
the
Executive and the Company dated August 31, 2006, the Executive hereby agrees
as
follows:
1.
Release
and Covenant.
The
Executive, of his own free volition, forever waives and releases any and all
claims the Executive, his dependents, relatives, heirs, executors,
administrators, successors and assigns has or may have against the Company,
its
directors, officers, employees, agents, stockholders, successors and assigns
(both individually and in their official capacities with the Company) of any
kind or nature whatsoever arising from facts, assertions, circumstances,
omissions or matters occurring on or before the date hereof, including all
claims arising from or relating in any way to the Executive’s employment with
the Company or the conclusion of such employment (whether such claims are
presently known or hereafter discovered). This release includes, but is
not limited to, a release of any claims in tort or contract, including claims
for wrongful discharge, breach of any employment contract or any other
agreement, contract, practice or policy. In addition to any other claims,
the Executive specifically waives, releases, and covenants not to sue or to
file
any charges or administrative actions with respect to any and all claims against
the Company under the Americans with Disabilities Act, the Age Discrimination
in
Employment Act, Title VII (or any other title) of the Civil Rights Act of 1964
(including all claims of sex, race, national origin, and religious
discrimination), Section 1981 of the Civil Rights Act, the Federal Equal Pay
Act, the Illinois Human Rights Act, the Illinois Wage Payment and Collection
Act, the Cook County Human Rights Ordinance, the City of Chicago Human Rights
Ordinance, the Employee Retirement Income Security Act, the Family and Medical
Leave Act, or any other federal, state or local statute, law, regulation,
ordinance, or doctrine of common law or public policy, contract or tort law
having any bearing whatsoever on the terms and conditions of employment or
termination of employment. This Release shall not, however, constitute a
waiver of any of the Executive’s rights under the Employment and Retention
Agreement or any rights he may have as a director or officer of the Company
to
indemnification under the Company’s articles of incorporation or by-laws with
respect to claims by third parties. The Executive acknowledges that, in
his decision to enter into this Release, he has not relied on any
representations, promises or agreements of any kind, including oral statements
by representatives of the Company, except as set forth in this
Release.
2.
Due
Care.
This
Release contains a release of all claims under the Age Discrimination in
Employment Act (“ADEA”) and, therefore, pursuant to the requirements of the
ADEA, the Executive acknowledges that he has been advised (i) that this release
includes, but is not limited to, all claims under the ADEA arising up to and
including the date of execution of this release; (ii) to consult with an
attorney and or other advisor of his choosing concerning his rights and
obligations under this release; (iii) to fully consider this release before
executing it, and that he has been offered ample time and opportunity, in excess
of 21 days, to do so; and (iv) that this release shall become effective and
enforceable 7 days following execution of this Release by the Executive, during
which 7-day period the Executive may revoke his acceptance of this Release
by
delivering written notice to: Corporate Secretary, Peoples Energy
Corporation, 130 East Randolph Drive, Chicago, Illinois 60601.
3.
No
Assignment of Claims.
The
Executive represents and warrants that there has been no assignment or other
transfer of any interest in any claim which the Executive may have against
the
Company. The Executive agrees to indemnify and hold the Company harmless
from any liability, claims, demands, damages, cost, expenses and attorney’s fees
incurred as a result of any person asserting such assignment or transfer of
any
rights or claims under any such assignment or transfer. It is the
intention of the Executive and the Company that this indemnity does not require
payment as a condition precedent to recovery by the Company from the Executive
under this indemnity.
4.
Modification
and Waiver.
This
Release may not be modified or amended except by an instrument in writing signed
by the Executive and the Company. No term or condition of this Release
shall be deemed to have been waived, nor shall there be any estoppel against
the
enforcement of any provision of this Release except by written instrument signed
by the party charged with such waiver or estoppel. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein, and
each
such waiver shall operate only as to the specific term or condition waived
and
shall not constitute a waiver of such term or condition for the future or as
to
any act other than that specifically waived.
5.
Governing
Law.
To
the
extent not governed by federal law, this Release and its validity,
interpretation, performance, and enforcement shall be governed by the laws
of
the State of Illinois without giving effect to the choice of law provisions
in
effect in such state.
IN
WITNESS WHEREOF, the Executive has executed this Release and delivered it to
the
Company on __________________ ____, _______.
By:
THOMAS
M.
PATRICK
EXHIBIT
B
CONFIDENTIALITY
AND NON-SOLICITATION AGREEMENT
BETWEEN
PEOPLES
ENERGY CORPORATION
AND
THOMAS
M. PATRICK
THIS
CONFIDENTIALITY AND NON-SOLICITATION AGREEMENT (the “Agreement”), effective as
of _______________ ____, ______, by and between Peoples Energy Corporation,
including any of its subsidiaries, affiliates and related entities (the
“Company”) and THOMAS M. PATRICK (the “Executive”).
WITNESSETH
WHEREAS,
the Executive is an employee of the Company;
WHEREAS,
the Company and the Executive have entered into an employment and retention
agreement dated August 31, 2006 (the “Employment and Retention Agreement”) under
which the Company has covenanted to provide the Executive with certain payments
and benefits in the event that the Executive’s employment with the Company ends
under the circumstances described therein;
WHEREAS,
in consideration of the Company’s covenants under the Employment and Retention
Agreement, and as a condition precedent to the Executive receiving any payments
or benefits under the Employment and Retention Agreement, the Executive has
agreed to execute a confidentiality agreement concurrently with his employment
termination as described in the Employment and Retention Agreement;
NOW,
THEREFORE, as a condition precedent, and in consideration of the covenants
by
the Company to provide the Executive with the payments and benefits under the
Employment and Retention Agreement, the Executive hereby agrees as follows:
1.
Confidential
Information; Acknowledgement of Legitimate Business Interest of the
Company.
The
Executive expressly recognizes and acknowledges that during his employment
with
the Company, he became entrusted with, had access to, or gained possession
of
confidential and proprietary information, data, documents, records, materials,
and other trade secrets and/or other proprietary business information of the
Company that is not readily available to competitors, outside third parties
and/or the public, including without limitation, information about (i) current
or prospective customers and/or suppliers, (ii) employees, research, goodwill,
production, and prices, (iii) business methods, processes, practices or
procedures; (iv) computer software and technology development, (v) the Company’s
hydrocarbon interests and prospects, and (vi) business strategy, including
acquisition, merger and/or divestiture strategies (collectively or with respect
to any of the foregoing, the “Confidential Information”). The Executive
further
recognizes
and acknowledges that the Confidential Information is the sole and exclusive
property of the Company and that the Company has a legitimate interest in
protecting its Confidential Information.
2.
Non-Disclosure
of Confidential Information.
The
Executive agrees that following his termination of employment, he shall keep
and
retain in confidence all Confidential Information and will not, without the
consent of the Company, disclose or divulge any Confidential Information
obtained during his employment with the Company to any third party for so long
as the Confidential Information is valuable and unique, or until either the
Company has either itself released the Confidential Information into the public
domain or the Confidential Information has clearly become publicly available
by
means other than the Company or the Executive. No individual piece of
Confidential Information shall be deemed to have become publicly available
merely because other pieces of Confidential Information shall have become
publicly available, and no individual piece of Confidential Information shall
be
deemed to have become publicly available unless all of its substantive
provisions shall have become publicly available. This paragraph 2 shall
not prevent the Executive from using general skills and experience developed
in
positions with the Company or other employers, or from accepting a position
of
employment with another company, firm, or other organization, provided that
such
position does not require divulgence or use of the Confidential
Information.
3.
Cooperation
with the Company.
If
the
Executive receives a subpoena or other judicial or administrative process
demanding that he disclose Confidential Information (“Subpoena”), the Executive
agrees that he will promptly notify the Company and cooperate fully with the
Company if the Company elects to challenge or otherwise resist disclosure of
the
Confidential Information sought by the Subpoena. Any such challenge or
resistance by the Company shall be at the Company’s own expense. If the
Executive promptly notifies the Company of the receipt of a Subpoena and the
Company declines or fails to challenge or resist the Subpoena, or if after
intervention by the Company in the judicial or administrative process, the
Company is unsuccessful in quashing or opposing the disclosure, the Executive
may produce the Confidential Information or respond to the Subpoena as he deems
appropriate.
4.
Return
of
Property
.
The
Executive understands and agrees that all business information, files, research,
records, memoranda, books, lists and other documents and tangible materials,
including computer disks, and other hardware and software that he receives
during employment, whether confidential or not, are the property of the Company
and that, immediately upon the termination of the Executive’s employment, he
will promptly deliver to the Company all such materials, including copies
thereof, in his possession or under his control.
5.
Non-Solicitation.
The
Executive covenants and agrees that for a period commencing on the date of
the
Executive’s termination of employment with the Company and ending on the date
that is one (1)
year
after such employment termination date, the Executive shall not, directly or
indirectly, solicit, induce, influence, or attempt to induce any employee of
the
Company to terminate his employment with, or compete against the Company or
any
present or future affiliates of the Company. In particular, and without
limiting the foregoing, the Executive agrees that during the one-year (1-year)
period commencing on the Executive’s employment termination date with the
Company, the Executive shall not directly or indirectly attempt to hire any
other employee of the Company or otherwise encourage any other employee to
leave
the employ of the Company, or (ii) advise or recommend to any other person
that
they employ or solicit for employment, any employee of the Company.
6.
Equitable
Relief.
The
Executive acknowledges that the Confidential Information to be disclosed to
the
Executive during his employment is of a special and unique character, and that
the breach of any provision of this Agreement, including without limitation,
its
non-solicitation provision, will cause the Company irreparable injury and
damage. Accordingly, the Company shall be entitled, in addition to all
other remedies available to it, to injunctive and equitable relief to prevent
a
breach of any part of this Agreement or to enforce any part of this
Agreement.
7.
Assignment.
This
Agreement is not assignable, in whole or in part, and shall not be assigned,
by
the Executive; and any purported assignment by the Executive shall be considered
null and void. This Agreement is assignable and may be so assigned by
Employer, and this Agreement shall inure to the Benefit of, and shall be binding
upon, any and all successors and assigns of the Company.
8.
Entire
Understanding.
This
Agreement contains the entire understanding between the Company and the
Executive with respect to the subject matter hereof.
9.
Severability.
If,
for
any reason, any one or more of the provisions or part of a provision contained
in this Agreement shall be held to be invalid, illegal or unenforceable in
any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement not held invalid,
illegal or unenforceable, and each other provision or part of a provision shall,
to the fullest extent consistent with law, continue in full force and
effect.
10.
Consolidation,
Merger, or Sale of Assets.
If
the
Company consolidates or merges into or with, or transfers all or substantially
all of its assets to, another corporation, the term “the Company” as used herein
shall include such other corporation and this Agreement shall continue in full
force and effect.
11.
Notices.
All
notices, requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be deemed to have been duly given
if delivered by overnight courier, facsimile or electronic mail or mailed,
postage prepaid, first class with return receipt, as follows:
a.
to
the
Company:
Peoples
Energy Corporation
130
East
Randolph Drive
Chicago,
Illinois 60601
Attention:
Secretary
Facsimile:
(312) 240-4348
b.
to
the
Executive:
the
Executive’s most recent home address
or
facsimile number on file with the Company
or
to
such other address as either party shall have previously specified in writing
to
the other.
12.
Binding
Agreement.
This
Agreement shall be binding upon, and shall inure to the benefit of, the
Executive and the Company and their respective permitted successors and
assigns.
13.
Modification
and Waiver.
This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel. No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.
14.
Headings
of No Effect.
The
paragraph headings contained in this Agreement are included solely for
convenience of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
15.
Governing
Law.
This
Agreement and its validity, interpretation, performance, and enforcement shall
be governed by the laws of the State of Illinois without giving effect to the
choice of law provisions in effect in such state.
IN
WITNESS WHEREOF, Peoples Energy Corporation, on behalf of itself and its
subsidiaries, affiliates and related entities, has caused this Agreement to
be
executed, and the Executive has executed this Agreement, as of the effective
date written above.
PEOPLES
ENERGY CORPORATION
By:
WILLIAM
J. BRODSKY
Director
and Chairman of the Management
Development and Compensation Committee
of
the Board of Directors
EXECUTIVE
By:
THOMAS
M.
PATRICK
Chairman,
President and Chief Executive Officer
EXHIBIT
10(b)
Execution
Draft
SEASONAL
CREDIT AGREEMENT
DATED
AS OF
October
20, 2006
BETWEEN
PEOPLES
ENERGY CORPORATION,
and
ABN
AMRO BANK N.V.
as
Lender.
|
TABLE
OF CONTENTS
SECTION
1.
DEFINITIONS;
INTERPRETATION.
|
1
|
|
Section
1.1
|
Definitions
|
1
|
|
Section
1.2
|
Interpretation
|
7
|
SECTION 2.
THE
REVOLVING CREDIT.
|
7
|
|
Section
2.1
|
The
Loan Commitment
|
7
|
|
Section
2.2
|
[Reserved]
|
7
|
|
Section
2.3
|
Applicable
Interest Rates
|
7
|
|
Section
2.5
|
Minimum
Borrowing Amounts
|
9
|
|
Section
2.6
|
Manner
of Borrowing Loans and Designating Interest Rates Applicable to
Loans
|
9
|
|
Section
2.8
|
Interest
Periods
|
10
|
|
Section
2.9
|
Maturity
of Loans
|
11
|
|
Section
2.10
|
Prepayments
|
11
|
|
Section
2.12
|
Default
Rate
|
11
|
|
Section
2.13
|
Evidence
of Debt
|
12
|
|
Section
2.14
|
Funding
Indemnity
|
12
|
|
Section
2.15
|
Revolving
Credit Commitment Terminations
|
13
|
|
Section
2.16
|
Regulation
D Compensation
|
13
|
|
Section
2.17
|
Arbitrage
Compensation
|
13
|
SECTION 3.
FEES.
|
13
|
|
Section
3.1
|
Fees
.
|
13
|
SECTION
4.
PLACE
AND APPLICATION OF PAYMENTS.
|
14
|
|
Section
4.1
|
Place
and Application of Payments
|
14
|
SECTION
5.
REPRESENTATIONS
AND WARRANTIES.
|
14
|
|
Section
5.1
|
Corporate
Organization and Authority
|
15
|
|
Section
5.2
|
Corporate
Authority and Validity of Obligations
|
15
|
|
Section
5.3
|
Financial
Statements
|
15
|
|
Section
5.4
|
Approvals
|
15
|
|
Section
5.5
|
ERISA
|
15
|
|
Section
5.6
|
Government
Regulation
|
16
|
|
Section
5.7
|
Margin
Stock; Proceeds
|
16
|
|
Section
5.8
|
Full
Disclosure
|
16
|
SECTION
6.
CONDITIONS
PRECEDENT.
|
16
|
|
Section
6.1
|
Initial
Credit Event
|
16
|
|
Section
6.2
|
All
Credit Events
|
17
|
SECTION
7.
COVENANTS.
|
17
|
|
Section
7.1
|
Corporate
Existence
|
17
|
|
Section
7.2
|
ERISA
|
18
|
|
Section
7.3
|
Financial
Reports and Other Information
|
18
|
|
Section
7.5
|
Regulation
U; Proceeds
|
19
|
|
Section
7.6
|
Sales
of Assets
|
19
|
|
Section
7.7
|
Capital
Ratio
|
19
|
|
Section
7.8
|
Compliance
with Laws
|
19
|
|
Section
7.9
|
Mergers
and Consolidations
|
19
|
SECTION
8.
EVENTS
OF DEFAULT AND REMEDIES.
|
20
|
|
Section
8.1
|
Events
of Default
|
20
|
|
Section
8.2
|
Non-Bankruptcy
Defaults
|
21
|
|
Section
8.3
|
Bankruptcy
Defaults
|
22
|
|
Section
8.4
|
Expenses
|
22
|
SECTION
9.
CHANGE
IN CIRCUMSTANCES.
|
22
|
|
Section
9.1
|
Change
of Law
|
22
|
|
Section
9.2
|
Unavailability
of Deposits or Inability to Ascertain, or Inadequacy of,
LIBOR
|
22
|
|
Section
9.3
|
Increased
Cost and Reduced Return
|
22
|
|
Section
9.5
|
Lending
Offices
|
24
|
|
Section
9.6
|
Discretion
of Lender as to Manner of Funding
|
24
|
SECTION
11.
MISCELLANEOUS.
|
24
|
|
Section
11.1
|
Withholding
Taxes
|
24
|
|
Section
11.2
|
No
Waiver of Rights
|
25
|
|
Section
11.3
|
Non-Business
Day
|
25
|
|
Section
11.4
|
Documentary
Taxes
|
25
|
|
Section
11.5
|
Survival
of Representations
|
25
|
|
Section
11.6
|
Survival
of Indemnities
|
25
|
|
Section
11.7
|
Set-Off
|
26
|
|
Section
11.8
|
Notices
|
26
|
|
Section
11.9
|
Counterparts
|
27
|
|
Section
11.10
|
Successors
and Assigns
|
27
|
|
Section
11.11
|
[Reserved]
.
|
28
|
|
Section
11.12
|
Assignments,
Participations, Etc
|
28
|
|
Section
11.13
|
Amendments
|
30
|
|
Section
11.14
|
Headings
|
30
|
|
Section
11.15
|
Legal
Fees, Other Costs and Indemnification
|
30
|
|
Section
11.16
|
[Reserved]
.
|
30
|
|
Section
11.17
|
Entire
Agreement
|
30
|
|
Section
11.18
|
Construction
|
30
|
|
Section
11.19
|
Governing
Law
|
30
|
|
Section
11.20
|
SUBMISSION
TO JURISDICTION; WAIVER OF JURY TRIAL
|
30
|
|
Section
11.21
|
Confidentiality
|
31
|
|
Section
11.22
|
Patriot
Act
|
31
|
CREDIT
AGREEMENT
This
SEASONAL
CREDIT AGREEMENT,
dated as
of October 20, 2006, is by and between PEOPLES ENERGY CORPORATION, an Illinois
corporation (the “
Borrower
”),
and
ABN AMRO BANK N.V., as lender (in such capacity, the “
Lender
”).
WITNESSETH
THAT:
WHEREAS,
the
Borrower desires to obtain the commitment of the Lender to make available
a
seasonal revolving credit facility for loans (the “
Revolving
Credit
”),
as
described herein; and
WHEREAS,
the
Lender is willing to extend such commitments subject to all of the terms
and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth.
NOW,
THEREFORE,
in
consideration of the recitals set forth above and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION
1.
DEFINITIONS;
INTERPRETATION.
Section
1.1
Definitions
.
The
following terms when used herein have the following meanings:
“Affiliate
”
means,
as to any Person, any other Person which directly or indirectly controls,
or is
under common control with, or is controlled by, such Person. As used in this
definition, “
control
”
(including “
controlled
by
”
and
“
under
common control with
”
and
other cognates thereof,) means possession, directly or indirectly, of power
to
direct or cause the direction of management or policies of a Person (whether
through ownership of securities or partnership or other ownership interests,
by
contract or otherwise), provided that, in any event for purposes of this
definition: (i) any Person which owns directly or indirectly 5% or more of
the
securities having ordinary voting power for the election of directors or
other
governing body of a corporation or 5% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner
of such
other Person) will be deemed to control such corporation or other Person;
and
(ii) each director and executive officer of the Borrower or any Subsidiary
shall
be deemed an Affiliate of the Borrower and each Subsidiary.
“
Agreement
”
means
this Credit Agreement, including all Exhibits and Schedules hereto, as it
may be
amended, supplemented or otherwise modified from time to time in accordance
with
the terms hereof.
“
Applicable
Margin
”
means,
at any time (i) with respect to Base Rate Loans, the Base Rate Margin; and
(ii)
with respect to LIBOR Loans, the LIBOR Margin.
“
Applicable
Telerate Page
”
is
defined in Section 2.3(b) hereof.
“Assignment
and Assumption”
means an
assignment and assumption entered into by the Lender and an Eligible Assignee
(with the consent of any party whose consent is required by
Section 11.12(b)), in substantially any form approved by the
Lender.
“
Authorized
Representative
”
means
those persons shown on the list of employees provided by the Borrower pursuant
to Section 6.1(e) hereof, or on any such updated list provided by the Borrower
to the Lender, or any further or different employee of the Borrower so named
by
any officer of the Borrower in a written notice to the Lender.
“
Base
Rate
”
is
defined in Section 2.3(a) hereof.
“
Base
Rate Loan
”
means
a
Loan bearing interest prior to maturity at a rate specified in Section 2.3(a)
hereof.
“
Base
Rate Margin
”
means
the percentage set forth in Schedule 1A hereto corresponding to the then
applicable Credit Rating.
“
Borrower
”
is
defined in the preamble of this Agreement.
“
Borrowing
”
means
the total of Loans of a single type advanced, continued for an additional
Interest Period, or converted from a different type into such type by the
Lender
on a single date and for a single Interest Period. A Borrowing is “advanced” on
the day the Lender advances funds comprising such Borrowing to the Borrower,
is
“continued” on the date a new Interest Period for the same type of Loans
commences for such Borrowing, and is “converted” when such Borrowing is changed
from one type of Loan to the other, all as requested by the Borrower pursuant
to
Section 2.5(a).
“
Business
Day
”
means
any day other than a Saturday or Sunday on which Lender is not authorized
or
required to close in Chicago, Illinois and, if the applicable Business Day
relates to the borrowing or payment of a LIBOR Loan, on which banks are dealing
in U.S. Dollars in the interbank market in London, England.
“
Capital
”
means,
as of any date of determination thereof, without duplication, the sum of
Consolidated Net Worth
plus
Indebtedness, excluding accumulated other comprehensive income/loss, as
determined in accordance with generally accepted accounting principles
consistently applied.
“
Capital
Lease
”
means
at any date any lease of Property which, in accordance with GAAP, would be
required to be capitalized on the balance sheet of the lessee.
“
Capital
Ratio
”
means,
for any fiscal quarter of the Borrower, the ratio, rounded downwards to two
decimal points, of the sum of Indebtedness for such fiscal quarter to the
sum of
Capital for such fiscal quarter.
“
Capitalized
Lease Obligations
”
means,
for any Person, the amount of such Person’s liabilities under Capital Leases
determined at any date in accordance with GAAP.
“
Code
”
means
the Internal Revenue Code of 1986, as amended.
“
Commitment
Fee Rate”
means
the
percentage set forth on Schedule 1A hereto corresponding to the then applicable
Credit Rating.
“
Compliance
Certificate
”
means
a
certificate in the form of Exhibit A hereto.
“
Consolidated
EBIT
”
means,
for any period, for the Borrower and its Consolidated Subsidiaries, (A) the
sum
of the amounts for such period of (i) consolidated net income, (ii) net income
taxes in respect of such period (such amount to be a positive number in cases
where net cash taxes are payable and zero in cases where a cash refund in
respect of taxes paid is due), (iii) consolidated interest expense, and (iv)
losses on sales of assets (excluding sales in the ordinary course of business)
and other extraordinary losses less (B) the amount for such period of (i)
interest income and (ii) gains on sales of assets (excluding sales in the
ordinary course of business) and other extraordinary gains, all as determined
on
a consolidated basis in accordance with GAAP.
“
Consolidated
Net
Worth
”
means,
as of the date of any determination thereof, the amount reflected as
shareholders equity upon a consolidated balance sheet of the Borrower and
its
Subsidiaries.
“
Contractual
Obligation
”
means,
as to any Person, any provision of any security issued by such Person or
of any
agreement, instrument or undertaking to which such Person is a party or by
which
it or any of its Property is bound.
“
Controlled
Group
”
means
all members of a controlled group of corporations and all trades and businesses
(whether or not incorporated) under common control that, together with the
Borrower or any of its Subsidiaries, are treated as a single employer under
Section 414 of the Code.
“
Credit
Documents
”
means
this Agreement, the Note and all other documents, instrument and agreements
executed and delivered by Borrower or any Affiliate thereof in connection
with
this Agreement.
“
Credit
Event
”
means
the Borrowing of any Loan.
“
Credit
Rating
”
means,
at any time, the long-term senior un-secured non-credit enhanced debt rating
of
the Borrower as determined by Standard & Poors’ Ratings Services and/or
Moody’s Investors Service.
“
Default
”
means
any event or condition the occurrence of which would, with the passage of
time
or the giving of notice, or both, constitute an Event of Default.
“
EBIT
”
means,
for any period, for the Borrower or any of its Subsidiaries, (A) the sum
of the
amounts for such period of (i) net income, (ii) net income taxes in respect
of
such period (such amount to be a positive number in cases where net cash
taxes
are payable and zero in cases where a cash refund in respect of taxes paid
is
due), (iii) interest expense, and (iv) losses on sales of assets (excluding
sales in the ordinary course of business) and other extraordinary losses
less
(B) the amount for such period of (i) interest income and (ii) gains on sales
of
assets (excluding sales in the ordinary course of business) and other
extraordinary gains, all as determined in accordance with GAAP.
“
Effective
Date
”
means
October 20, 2006.
“Eligible
Assignee”
means
(a) an Affiliate of the Lender, and (b) any other Person (other than a natural
person) approved by (i) the Lender, and (ii) unless an Event of Default has
occurred and is continuing, the Borrower (each such approval not to be
unreasonably withheld or delayed);
provided
that
notwithstanding the foregoing, “Eligible Assignee” shall not include the
Borrower or any of the Borrower’s Affiliates or Subsidiaries.
“
ERISA
”
is
defined in Section 5.5 hereof.
“
Event
of Default
”
means
any of the events or circumstances specified in Section 8.1 hereof.
“
Existing
Credit Agreement
”
means
that certain Credit Agreement dated as of June 13, 2006 by and among Borrower,
Bank of America, N.A. as “Agent” thereunder, and the other financial
institutions a party thereto (as may be amended, supplemented or modified
from
time to time).
“
Federal
Funds Rate
”
means
the fluctuating interest rate per annum described in part (x) of clause (ii)
of
the definition of Base Rate set forth in Section 2.3(a) hereof.
“
GAAP
”
means
generally accepted accounting principles as in effect in the United States
from
time to time, applied by the Borrower and its Subsidiaries on a basis consistent
with the preparation of the Borrower’s financial statements furnished to the
Lender as described in Section 5.3 hereof.
“
Guarantee
”
means,
in respect of any Person, any obligation, contingent or otherwise, of such
Person directly or indirectly guaranteeing any Indebtedness of another Person,
including, without limitation, by means of an agreement to purchase or pay
(or
advance or supply funds for the purchase or payment of) such Indebtedness
or to
maintain financial covenants, or to assure the payment of such Indebtedness
by
an agreement to make payments in respect of goods or services regardless
of
whether delivered, or otherwise, provided, that the term “Guarantee” shall not
include endorsements for deposit or collection in the ordinary course of
business; and such term when used as a verb shall have a correlative
meaning.
“
Indebtedness
”
means,
as to any Person, without duplication: (i) all obligations of such Person
for
borrowed money or evidenced by bonds, debentures, notes or similar instruments;
(ii) all obligations of such Person for the deferred purchase price of property
or services (other than in respect of trade accounts payable arising in the
ordinary course of business, customer deposits, provisions for rate refunds
(if
any), deferred fuel expenses and obligations in respect of pensions and other
post-retirement benefits and employee welfare plans); (iii) all Capitalized
Lease Obligations of such Person; (iv) all Indebtedness of others secured
by a
Lien on any properties, assets or revenues of such Person (other than stock,
partnership interests or other equity interests of the Borrower or any
Subsidiaries in other entities) to the extent of the lesser of the value
of the
property subject to such Lien or the amount of such Indebtedness; (v) all
Indebtedness of others Guaranteed by such Person; and (vi) all obligations
of
such Person, contingent or otherwise, in respect of any letters or credit
(whether commercial or standby) or bankers’ acceptances.
“
Interest
Period
”
is
defined in Section 2.6 hereof.
“
Lender
”
is
defined in the preamble of this Agreement and includes any successor
thereto.
“
Lending
Office
”
is
defined in Section 9.4 hereof.
“
LIBOR
”
is
defined in Section 2.3(b) hereof.
“
LIBOR
Loan
”
means
a
Loan bearing interest prior to maturity at the rate specified in Section
2.3(b)
hereof.
“
LIBOR
Margin
”
means
the percentage set forth in Schedule 1A hereto beside the then applicable
Credit
Rating.
“
LIBOR
Reserve Percentage
”
is
defined in Section 2.3(b) hereof.
“
Lien
”
means
any interest in Property securing an obligation owed to, or a claim by, a
Person
other than the owner of the Property, whether such interest is based on the
common law, statute or contract, including, but not limited to, the security
interest lien arising from a mortgage, encumbrance, pledge, conditional sale,
security agreement or trust receipt, or a lease, consignment or bailment
for
security purposes. For the purposes of this definition, a Person shall be
deemed
to be the owner of any Property which it has acquired or holds subject to
a
conditional sale agreement, Capital Lease or other arrangement pursuant to
which
title to the Property has been retained by or vested in some other Person
for
security purposes, and such retention of title shall constitute a
“Lien.”
“
Loan
”
is
defined in Section 2.1 hereof and, as so defined, includes a Base Rate Loan
or
LIBOR Loan, each of which is a “type” of Loan hereunder.
“
Material
Adverse Effect
”
means
a
material adverse effect on (i) the business, financial position or results
of
operations of the Borrower, (ii) the ability of the Borrower to perform its
obligations under the Credit Documents, (iii) the validity or enforceability
of
the obligations of the Borrower, (iv) the rights and remedies of the Lender
against the Borrower or (v) the timely payment of the principal of and interest
on the Loans or other amounts payable by the Borrower hereunder.
“
Non-Recourse
Indebtedness
”
means
all Indebtedness of the Borrower that is non-recourse to the
Borrower.
“
Note
”
is
defined in Section 2.10(a) hereof.
“
Obligations
”
means
all fees payable hereunder, all obligations of the Borrower to pay principal
or
interest on Loans and all other payment obligations of the Borrower arising
under or in relation to any Credit Document.
“
Person
”
means
an individual, partnership, corporation, limited liability company, association,
trust, unincorporated organization or any other entity or organization,
including a government or any agency or political subdivision
thereof.
“
Plan
”
means
at any time an employee pension benefit plan covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code that
is
either (i) maintained by a member of the Controlled Group or (ii) maintained
pursuant to a collective bargaining agreement or any other arrangement under
which more than one employer makes contributions and to which a member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions.
“
PBGC
”
is
defined in Section 5.5 hereof.
“
Property
”
means
any interest in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible, whether now owned or hereafter acquired.
“
Reference
Bank
”
means
ABN AMRO Bank N.V.
“
Revolving
Credit Commitment
”
is
defined in Section 2.1 hereof.
“
SEC
”
means
the Securities and Exchange Commission.
“
Significant
Subsidiary
”
means
a
Subsidiary of the Borrower which meets any of the following
conditions:
(1)
the
book
value of the Subsidiary’s assets exceeds twenty percent (20%) of the book value
of the assets of the Borrower and its other Subsidiaries consolidated as of
the
end of the most recently completed fiscal quarter; or
(2)
the
Subsidiary’s EBIT exceeds twenty percent (20%) of Consolidated EBIT as of the
end of the most recently completed fiscal quarter and the twelve month period
ending therewith.
“
SPC
”
is
defined in Section 11.12(g) hereof.
“
Subsidiary
”
means,
as to the Borrower, any corporation or other entity of which more than fifty
percent (50%) of the outstanding stock or comparable equity interests having
ordinary voting power for the election of the Board of Directors of such
corporation or similar governing body in the case of a non-corporation
(irrespective of whether or not, at the time, stock or other equity interests
of
any other class or classes of such corporation or other entity shall have or
might have voting power by reason of the happening of any contingency) is at
the
time directly or indirectly owned by the Borrower or by one or more of its
Subsidiaries.
“
Telerate
Service
”
means
the Moneyline Telerate.
“
Termination
Date
”
means
the earlier to occur of (i) March 31, 2007 and (ii) the consummation of the
merger between a subsidiary of WPS Resources Corporation and Borrower as
contemplated by that certain merger application filed with the Illinois Commerce
Commission on or about August 2, 2006.
“
Unfunded
Vested Liabilities
”
means,
with respect to any Plan at any time, the amount (if any) by which (i) the
present value of all vested non-forfeitable accrued benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such
benefits, all determined as of
the then most recent valuation date for
such Plan, but only to the extent that such excess represents a potential
liability of a member of the Controlled Group to the PBGC or the Plan under
Title IV of ERISA.
“
Upfront
Fee
”
is
defined in Section 3.1(d).
“
U.S.
Dollars
”
and
“
$
”
each
means the lawful currency of the United States of America.
“
Utilization
Fee Rate
”
means
the percentage set forth in Schedule 1A hereto corresponding to the then
applicable Credit Rating.
“
Welfare
Plan
”
means
a
“welfare plan”, as defined in Section 3(l) of ERISA.
Section
1.2
Interpretation
.
The
foregoing definitions shall be equally applicable to both the singular and
plural forms of the terms defined. All references to times of day in this
Agreement shall be references to Chicago, Illinois time unless otherwise
specifically provided. Where the character or amount of any asset or liability
or item of income or expense is required to be determined or any consolidation
or other accounting computation is required to be made for the purposes of
this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the specific
provisions of this Agreement.
SECTION
2.
THE
REVOLVING CREDIT.
Section
2.1
The
Loan Commitment
.
Subject
to the terms and conditions hereof the Lender agrees to make a loan or loans
(individually a “
Loan
”
and
collectively “
Loans
”)
to the
Borrower from time to time on a revolving basis in an aggregate outstanding
amount up to the TWENTY FIVE MILLION DOLLARS (
$
25,000,000)
(such amount, as increased or reduced pursuant to Section 2.12 or changed as
a
result of one or more assignments under Section 11.12, the “
Revolving
Credit Commitment
”)
before
the Termination Date,
provided
that the
sum of the aggregate amount of Loans at any time outstanding shall not exceed
the Revolving Credit Commitment in effect at such time. As provided in Section
2.5(a) hereof, the Borrower may elect that each Borrowing of Loans be either
Base Rate Loans or LIBOR Loans. Loans may be repaid and the principal amount
thereof re-borrowed before the Termination Date, subject to all the terms and
conditions hereof.
Section
2.2
[Reserved]
.
Section
2.3
Applicable
Interest Rates
.
Section
2.4
Base
Rate Loans
.
Each
Base
Rate Loan made or maintained by Lender shall bear interest during each Interest
Period it is outstanding (computed (x) at all times the Base Rate is based
on
the rate described in clause (i) of the definition thereof, on the basis of
a
year of 365 or 366 days, as applicable, and actual days elapsed or (y) at all
times the Base Rate is based on the rate described in clause (ii) of the
definition thereof, on the basis of a year of 360 days and actual days elapsed)
on the unpaid principal
amount
thereof from the date such Loan is advanced, continued or created by conversion
from a LIBOR Loan until maturity (whether by acceleration or otherwise) at
a
rate per annum equal to the sum of the Applicable Margin plus the Base Rate
from
time to time in effect, payable on the last day of its Interest Period and
at
maturity (whether by acceleration or otherwise).
“
Base
Rate
”
means
for any day the greater of:
i
the
rate
of interest announced by ABN AMRO Bank N.V. from time to time as its “Prime
Commercial Lending Rate,” or equivalent, for U.S. Dollar loans as in effect on
such day, with any change in the Base Rate resulting from a change in said
prime
rate to be effective as of the date of the relevant change in said “Prime
Commercial Lending Rate”; and
ii
the
sum
of (x) the rate determined by the Lender to be the prevailing rate per annum
(rounded upwards, if necessary, to the nearest one hundred-thousandth of a
percentage point) at approximately 10:00 a.m. (Chicago time) (or as soon
thereafter as is practicable) on such day (or, if such day is not a Business
Day, on the immediately preceding Business Day) for the purchase at face value
of overnight Federal funds in an amount comparable to the principal amount
owed
to ABN AMRO Bank N.V. for which such rate is being determined, plus (y) one-half
of one percent (0.50%)
.
(b)
LIBOR
Loans
.
Each
LIBOR Loan made or maintained by Lender shall bear interest during each Interest
Period it is outstanding (computed on the basis of a year of 360 days and actual
days elapsed) on the unpaid principal amount thereof from the date such Loan
is
advanced, continued, or created by conversion from a Base Rate Loan until
maturity (whether by acceleration or otherwise) at a rate per annum equal to
the
sum of the Applicable Margin plus the LIBOR applicable for such Interest Period,
payable on the last day of the Interest Period and at maturity (whether by
acceleration or otherwise).
“
LIBOR
”
means,
for an Interest Period for a Borrowing of LIBOR Loans, (a) the LIBOR Index
Rate
for such Interest Period, if such rate is available, and (b) if the LIBOR
Index
Rate cannot be determined, the arithmetic average of the rates of interest
per
annum (rounded upwards, if necessary, to the nearest one-sixteenth of one
percent) at which deposits in U.S. Dollars in immediately available funds
are
offered to the Reference Bank at 11:00 a.m. (London, England time) two (2)
Business Days before the beginning of such Interest Period by major banks
in the
interbank LIBOR market for delivery on the first day of and for a Period
equal
to such Interest Period in an amount equal or comparable to the principal
amount
of the LIBOR Loan scheduled to be made by the Reference Bank as part of such
Borrowing.
“
LIBOR
Index Rate
”
means,
for any Interest Period, the rate per annum (rounded upwards, if necessary,
to
the next higher one-sixteenth of one percent) for deposits in U.S. Dollars,
for
delivery on the first day of and for a period equal to such Interest Period
in
an amount equal or comparable to the principal amount of the LIBOR Loan
scheduled to be made by ABN AMRO Bank N.V. as part of such Borrowing, which
appears on the Applicable Telerate Page, as appropriate for such currency,
as of
11:00 a.m. (London, England time) on the day two (2) Business Days before
the
commencement of such Interest Period.
“
Applicable
Telerate Page
”
means
the display page designated as “
Page
3750
”
on
the
Telerate Service (or such other page as may replace such page, as appropriate,
on that service or such other service as may be nominated by the British
Bankers’ Association as the information vendor for the purpose of displaying
British Bankers’ Association Interest Settlement Rates for deposits in U.S.
Dollars).
“
LIBOR
Reserve Percentage
”
means
for any Borrowing of LIBOR Loans from Lender, the daily average for the
applicable Interest Period of the actual effective rate, expressed as a decimal,
at which reserves (including, without limitation, any supplemental, marginal
and
emergency reserves) are maintained by Lender during such Interest Period
pursuant to Regulation D of the Board of Governors of the Federal Reserve
System
(or any successor) on “
LIBOR
liabilities
”,
as
defined in such Board’s Regulation D (or in respect of any other category of
liabilities that includes deposits by reference to which the interest rate
on
LIBOR Loans is determined or any category of extensions of credit or other
assets that include loans by non-United States offices of Lender to United
States residents), subject to any amendments of such reserve requirement
by such
Board or its successor, taking into account any transitional adjustments
thereto. For purposes of this definition, the LIBOR Loans shall be deemed
to be
“
LIBOR
liabilities
”
as
defined in Regulation D without benefit or credit for any prorations, exemptions
or offsets under Regulation D.
(c)
Rate
Determinations
.
The
Lender shall determine each interest rate applicable to Obligations and the
amount of all Obligations, and a determination thereof by the Lender shall
be
conclusive and binding except in the case of manifest error.
Section
2.5
Minimum
Borrowing Amounts
.
Each
Borrowing of Base Rate Loans shall be in an amount not less than $1,000,000
and
in integral multiples of $500,000. Each Borrowing of LIBOR Loans shall be in
an
amount not less than $2,000,000 and in integral multiples of
$1,000,000.
Section
2.6
Manner
of Borrowing Loans and Designating Interest Rates Applicable to
Loans
.
Section
2.7
Notice
to the Lender
.
The
Borrower shall give notice to the Lender by no later than 10:00 a.m. (Chicago
time) (i) at least two (2) Business Days before the date on which the Borrower
requests the Lender to advance a Borrowing of LIBOR Loans and (ii) at least
one
(1) Business Day before the date on which the Borrower requests the Lender
to
advance a Borrowing of Base Rate Loans. The Loans included in each Borrowing
shall bear interest initially at the type of rate specified in such notice
of a
new Borrowing. Thereafter, the Borrower may from time to time elect to change
or
continue the type of interest rate borne by each Borrowing or, subject to
Section 2.4’s minimum amount requirement for each outstanding Borrowing, a
portion thereof, as follows: (i) if such Borrowing is of LIBOR Loans, on the
last day of the Interest Period applicable thereto, the Borrower may continue
part or all of such Borrowing as LIBOR Loans for an Interest Period or Interest
Periods specified by the Borrower or convert part or all of such Borrowing
into
Base Rate Loans, (ii) if such Borrowing is of Base Rate Loans, on any Business
Day, the Borrower may convert all or part of such Borrowing into LIBOR Loans
for
an Interest Period or Interest Periods specified by the Borrower. The Borrower
shall give all such notices requesting the advance, continuation, or conversion
of a Borrowing to the Lender by telephone or
facsimile
(which notice shall be irrevocable once given and, if by telephone, shall be
promptly confirmed in writing). Notices of the continuation of a Borrowing
of
LIBOR Loans for an additional Interest Period or of the conversion of part
or
all of a Borrowing of LIBOR Loans into Base Rate Loans or of Base Rate Loans
into LIBOR Loans must be given by no later than 10:00 a.m. (Chicago time) at
least three (3) Business Days before the date of the requested continuation
or
conversion. All such notices concerning the advance, continuation, or conversion
of a Borrowing shall specify the date of the requested advance, continuation
or
conversion of a Borrowing (which shall be a Business Day), the amount of the
requested Borrowing to be advanced, continued, or converted, the type of Loans
to comprise such new, continued or converted Borrowing and, if such Borrowing
is
to be comprised of LIBOR Loans, the Interest Period applicable thereto. The
Borrower agrees that the Lender may rely on any such telephonic or facsimile
notice given by any person it in good faith believes is an Authorized
Representative without the necessity of independent investigation, and in the
event any such notice by telephone conflicts with any written confirmation,
such
telephonic notice shall govern if the Lender has acted in reliance thereon.
There may be no more than five different Interest Periods in effect at any
one
time, provided that for purposes of determining the number of Interest Periods
in effect at any one time, all Base Rate Loans shall be deemed to have one
and
the same Interest Period.
(a)
[Reserved]
.
(b)
Borrower’s
Failure to Notify
.
Any outstanding Borrowing of Base Rate Loans shall, subject to Section 6.2
hereof, automatically be continued for an additional Interest Period on the
last
day of its then current Interest Period as a Base Rate Loan unless the Borrower
has notified the Lender within the period required by Section 2.5(a) that it
intends to convert such Borrowing into a Borrowing of LIBOR Loans or notifies
the Lender within the period required by Section 2.8(a) that it intends to
prepay such Borrowing. If the Borrower fails to give notice pursuant to Section
2.5(a) above of the continuation or conversion of any outstanding principal
amount of a Borrowing of LIBOR Loans before the last day of its then current
Interest Period within the period required by Section 2.5(a) and has not
notified the Lender within the period required by Section 2.8(a) that it intends
to prepay such Borrowing, such Borrowing shall automatically be converted into
a
Borrowing of Base Rate Loans, subject to Section 6.2 hereof.
Section
2.8
Interest
Periods.
As
provided in Section 2.5(a) hereof, at the time of each request to advance,
continue, or create by conversion a Borrowing of LIBOR Loans, the Borrower
shall
select an Interest Period applicable to such Loans from among the available
options. The term “
Interest
Period
”
means
the period commencing on the date a Borrowing of Loans is advanced, continued,
or created by conversion and ending: (a) in the case of Base Rate Loans, on
the
last Business Day of the calendar quarter in which such Borrowing is advanced,
continued, or created by conversion (or on the last day of the following
calendar quarter if such Loan is advanced, continued or created by conversion
on
the last Business Day of a calendar quarter), and (b) in the case of LIBOR
Loans, 1, 2 or 3 months thereafter;
provided
,
however
,
that:
(a)
any
Interest Period for a Borrowing of Base Rate Loans that otherwise would end
after the Termination Date shall end on the Termination Date;
(b)
for
any
Borrowing of LIBOR Loans, the Borrower may not select an Interest Period that
extends beyond the Termination Date;
(c)
whenever
the last day of any Interest Period would otherwise be a day that is not a
Business Day, the last day of such Interest Period shall be extended to the
next
succeeding Business Day, provided that, if such extension would cause the last
day of an Interest Period for a Borrowing of LIBOR Loans to occur in the
following calendar month, the last day of such Interest Period shall be the
immediately preceding Business Day; and
(d)
for
purposes of determining an Interest Period for a Borrowing of LIBOR Loans,
a
month means a period starting on one day in a calendar month and ending on
the
numerically corresponding day in the next calendar month;
provided
,
however
,
that if
there is no numerically corresponding day in the month in which such an Interest
Period is to end or if such an Interest Period begins on the last Business
Day
of a calendar month, then such Interest Period shall end on the last Business
Day of the calendar month in which such Interest Period is to end.
Section
2.9
Maturity
of Loans.
Unless
an
earlier maturity is provided for hereunder (whether by acceleration or
otherwise), each Loan shall mature and become due and payable by the Borrower
on
the Termination Date.
Section
2.10
Prepayments.
Section
2.11
The
Borrower may prepay without premium or penalty and in whole or in part (but,
if
in part, then: (i) if such Borrowing is of Base Rate Loans, in an amount not
less than $1,000,000 and integral multiples of $500,000 in excess thereof,
(ii)
if such Borrowing is of LIBOR Loans, in an amount not less than $2,000,000
and
integral multiples of $1,000,000 in excess thereof and (iii) in an amount such
that the minimum amount required for a Borrowing pursuant to Section 2.4 hereof
remains outstanding) any Borrowing of LIBOR Loans upon three Business Days’
prior notice to the Lender or, in the case of a Borrowing of Base Rate Loans,
notice delivered to the Lender no later than 10:00 a.m. (Chicago time) on the
date of prepayment, such prepayment to be made by the payment of the principal
amount to be prepaid and accrued interest thereon to the date fixed for
prepayment. In the case of LIBOR Loans, any amounts owing under Section 2.11
hereof as a result of such prepayment shall be paid contemporaneously with
such
prepayment. Any amount paid or prepaid before the Termination Date may, subject
to the terms and conditions of this Agreement, be borrowed, repaid and borrowed
again.
(a)
At
any
time that the Borrower becomes aware, or should have become aware (pursuant
to
Borrower’s ordinary business practices) that the aggregate amount of outstanding
Loans shall at any time for any reason exceed the Revolving Credit Commitment
then in effect, the Borrower shall, immediately notify the Lender of this
determination. Within two (2) Business Days of the delivery of the notice
described in the preceding sentence, the Borrower shall, without further notice
or demand, pay the amount of such excess to the Lender as a prepayment of the
Loans. Each such prepayment shall be accompanied by a payment of all accrued
and
unpaid interest on the Loans prepaid and shall be subject to Section
2.11.
Section
2.12
Default
Rate.
If
any
payment of principal on any Loan or other Obligation is not made when due
(whether by acceleration or otherwise), such Loan shall bear interest (computed
on the basis of a year of 360 days and actual days elapsed or, if based on
the
rate described in clause (i) of the definition of Base Rate, on the basis of
a
year of 365 or 366 days, as applicable, and the actual number of days elapsed)
from the date such payment was due until paid in full, payable on demand, at
a
rate per annum equal to:
(a)
for
any
Base Rate Loan or Obligation other than a LIBOR Loan, the sum of two percent
(2%) plus the Applicable Margin plus the Base Rate from time to time in effect;
and
(b)
for
any
LIBOR Loan, the sum of two percent (2%) plus the rate of interest in effect
thereon at the time of such default until the end of the Interest Period
applicable thereto and, thereafter, at a rate per annum equal to the sum of
two
percent (2%) plus the Applicable Margin plus the Base Rate from time to time
in
effect.
Section
2.13
Evidence
of Debt.
(a)
Lender shall maintain in accordance with its usual practice an account or
accounts evidencing the indebtedness of the Borrower to Lender resulting from
each Loan owing to Lender from time to time, including the amounts of principal
and interest payable and paid to Lender from time to time hereunder in respect
of Loans. The Borrower agrees that upon notice by Lender to the Borrower to
the
effect that a Note is required or appropriate in order for Lender to evidence
(whether for purposes of pledge, enforcement or otherwise) the Loans owing
to,
or to be made by, Lender under the Credit Documents, the Borrower shall promptly
execute and deliver to Lender a promissory note in the form of Exhibit A hereto
(such promissory note is hereinafter referred to as the
“Note”
).
Section
2.14
Funding
Indemnity.
If
Lender
shall incur any loss, cost or expense (including, without limitation, any loss,
cost or expense (excluding loss of margin) incurred by reason of the liquidation
or re-employment of deposits or other funds acquired by Lender to fund or
maintain any LIBOR Loan or the relending or reinvesting of such deposits or
amounts paid or prepaid to Lender) as a result of:
(a)
any
payment (whether by acceleration or otherwise), prepayment or conversion of
a
LIBOR Loan on a date other than the last day of its Interest
Period,
(b)
any
failure (because of a failure to meet the conditions of Section 6 or otherwise)
by the Borrower to borrow or continue a LIBOR Loan, or to convert a Base Rate
Loan into a LIBOR Loan, on the date specified in a notice given pursuant to
Section 2.5(a) or established pursuant to Section 2.5(c) hereof,
(c)
any
failure by the Borrower to make any payment of principal on any LIBOR Loan
when
due (whether by acceleration or otherwise), or
(d)
any
acceleration of the maturity of a LIBOR Loan as a result of the occurrence
of
any Event of Default hereunder,
then,
upon the demand of Lender, the Borrower shall pay to Lender such amount as
will
reimburse Lender for such loss, cost or expense. If Lender makes such a claim
for compensation, it shall provide to the Borrower a certificate executed by
an
officer of Lender setting forth the amount of such loss, cost or expense in
reasonable detail (including an explanation of the basis for and the computation
of such loss, cost or expense) and the amounts shown on such certificate if
reasonably calculated shall be conclusive absent manifest error.
Section
2.15
Revolving
Credit Commitment Terminations.
The
Borrower shall have the right at any time and from time to time, upon five
(5)
Business Days’ prior written notice to the Lender, to terminate the Revolving
Credit Commitment without premium or penalty, in whole or in part, any partial
termination to be in an amount not less than $2,000,000 and integral multiples
of $1,000,000 in excess thereof,
provided
that the
Revolving Credit Commitment may not be reduced to an amount less than the sum
of
the amount of all Loans then outstanding. Any termination of Revolving Credit
Commitment pursuant to this Section 2.12 may not be reinstated.
Section
2.16
Regulation
D Compensation.
The
Lender may require the Borrower to pay, contemporaneously with each payment
of
interest on the LIBOR Loans, additional interest on the related LIBOR Loans
of
Lender at a rate per annum equal to the excess of (i)(A) the applicable LIBOR
rate (or other base rate determined pursuant to Section 2.9(b)) divided by
(B)
one minus the LIBOR Reserve Percentage over (ii) the rate specified in clause
(i)(A). Any computation by Lender of such additional interest shall be
conclusive absent manifest error. If the Lender requires payment of such
additional interest (x) it shall notify the Borrower that it is subject to
LIBOR
reserves under Regulation D of the Board of Governors of the Federal Reserve
System (or any successor regulation), in which case such additional interest
on
the LIBOR Loans of Lender shall be payable to Lender at the place indicated
in
such notice with respect to each Interest Period commencing at least five (5)
Business Days after the giving of such notice and (y) shall notify the Borrower
at least five (5) Business Days prior to each date on which interest is payable
on the LIBOR Loans of the amount then due under this Section.
Section
2.17
Arbitrage
Compensation.
If
at the
time of the making of any Loan hereunder, the interest rate payable hereunder
in
respect of such Loan is less than the rate (as determined by the Lender in
consultation with the Borrower) at which funds of comparable term and amount
are
generally available to the Borrower in the commercial paper market (the
“
CP
Rate
”)
(an
“
Arbitrage
Condition
”),
the
Borrower agrees to pay to the Lender arbitrage compensation on such Loan at
a
rate equal to the difference between the effective interest rate payable
hereunder (inclusive of all fees) in respect of such Loan and the CP Rate as
applied to such Loan. Such payments shall continue, at the time and in the
manner set forth for payments of interest on such Loan, for as long as the
Arbitrage Condition continues. Upon the termination of the Arbitrage Condition
for any reason (as determined by the Lender in consultation with the Borrower),
such payments shall no longer be due with respect to such Loan, even if a future
Arbitrage Condition were to occur prior to repayment in full of such
Loan.
SECTION
3.
FEES.
Section
3.1
Fees
.
(a)
Commitment
Fee
.
For the
period from the Effective Date to and including the Termination Date, Borrower
shall pay to the Lender a commitment fee accruing at a rate per annum equal
to
the Commitment Fee Rate on the average daily amount of the unused Revolving
Credit Commitment. Such commitment fee is payable in arrears on December 31,
2006, on the last Business Day of each calendar quarter thereafter and on the
Termination Date, unless the Revolving Credit Commitment are terminated in
whole
on an earlier date, in which event the fee for the period to but not including
the date of such termination shall be paid in whole on the date of such
termination.
(b)
[Reserved].
(c)
Utilization
Fee
.
From
and after the Effective Date, for any day on which the aggregate principal
amount of Loans then outstanding exceeds fifty percent (50%) of the Revolving
Credit Commitment then in effect, Borrower shall pay to the Lender a utilization
fee accruing at a rate per annum equal to the Utilization Fee Rate on the
aggregate amount of Loans outstanding on such date. Such fee is payable in
arrears on the last Business Day of each calendar quarter and on the Termination
Date, and if the Revolving Credit Commitment is terminated in whole prior to
the
Termination Date, the fee for the period to but not including the date of such
termination shall be paid in whole on the date of such termination.
(d)
Upfront
Fee
.
The
Borrower shall pay to the Lender a fee (the “
Upfront
Fee
”)
in an
amount equal to $6,250 representing two and one half basis points (0.025%)
of
the Revolving Credit Commitment. The Upfront Fee shall be non-refundable and
shall be fully earned, due and payable in full on the Effective
Date.
(e)
[Reserved]
.
(f)
[Reserved]
.
(g)
Fee
Calculations
.
All
fees payable under this Agreement shall be payable in U.S. Dollars and shall
be
computed on the basis of a year of 360 days, for the actual number of days
elapsed. All determinations of the amount of fees owing hereunder (and the
components thereof) shall be made by the Lender and shall be conclusive absent
manifest error..
SECTION
4.
PLACE
AND
APPLICATION OF PAYMENTS.
Section
4.1
Place
and Application of Payments.
All
payments of principal of and interest on the Loans, and of all other Obligations
and other amounts payable by the Borrower under the Credit Documents, shall
be
made by the Borrower to the Lender by no later than 12:30 p.m. (Chicago time)
on
the due date thereof at the principal office of the Lender in New York, New
York, pursuant to the payment instructions set forth on Part A of Schedule
1
hereof (or such other location in the United States as the Lender may designate
to the Borrower). Any payments received after such time shall be deemed to
have
been received by the Lender on the next Business Day. All such payments shall
be
made free and clear of, and without deduction for, any set-off, counterclaim,
levy, or any other deduction of any kind in U.S. Dollars, in immediately
available funds at the place of payment.
SECTION
5.
REPRESENTATIONS
AND WARRANTIES.
The
Borrower hereby represents and warrants to the Lender as to itself and, where
the following representations and warranties apply to Subsidiaries, as to each
of its Subsidiaries, as follows:
Section
5.1
Corporate
Organization and Authority.
The
Borrower is duly organized and existing in good standing under the laws of
the
State of Illinois; has all necessary corporate power to carry on its present
business; and is duly licensed or qualified and, in good standing in each
jurisdiction in which the failure to be so licensed, qualified or in good
standing would have a Material Adverse Effect.
Section
5.2
Corporate
Authority and Validity of Obligations.
The
Borrower has full right and authority to enter into this Agreement and the
other
Credit Documents to which it is a party, to make the borrowings herein provided
for, to issue its Notes in evidence thereof, and to perform all of its
obligations under the Credit Documents to which it is a party. Each Credit
Document to which it is a party has been duly authorized, executed and delivered
by the Borrower and constitutes valid and binding obligations of the Borrower
enforceable in accordance with its terms, except as such enforceability may
be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforceability of creditors’ rights generally and by equitable
principles of general applicability (regardless of whether such enforceability
is considered in a proceeding in equity or at law). No Credit Document, nor
the
performance or observance by the Borrower of any of the matters or things
therein provided for, contravenes any provision of law or any charter or by-law
provision of the Borrower or any material Contractual Obligation of or affecting
the Borrower or any of its Properties or results in or requires the creation
or
imposition of any Lien on any of the Properties or revenues of the
Borrower.
Section
5.3
Financial
Statements.
All
financial statements heretofore delivered to the Lender showing historical
performance of the Borrower for each of the Borrower’s fiscal quarters and/or
years ending on or before June 30, 2006, have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent, except
as otherwise noted therein, with that of the previous fiscal year. Each of
such
financial statements fairly presents on a consolidated basis the financial
condition of the Borrower and its Subsidiaries as of the dates thereof and
the
results of operations for the periods covered thereby. The Borrower and its
Subsidiaries have no material contingent liabilities other than those disclosed
in the financial statements or in comments or footnotes thereto, or in any
report supplementary thereto, most recently furnished to the Lender as of the
time such representation and warranty is made, including reports of the Borrower
filed with the SEC from time to time. Since June 30, 2006 through the Effective
Date, there has been no event or series of events which has resulted in a
Material Adverse Effect.
Section
5.4
Approvals.
No
authorization, approval, consent, license, exemption, filing or registration
with any court or governmental department, agency or instrumentality, nor any
approval or consent of the stockholders of the Borrower or any Subsidiary or
from any other Person, is necessary to the valid execution, delivery or
performance by the Borrower or any Subsidiary of any Credit Document to which
it
is a party.
Section
5.5
ERISA.
With
respect to each Plan, the Borrower and each other member of the Controlled
Group
has fulfilled its obligations under the minimum funding standards of and is
in
compliance in all material respects with the Employee Retirement Income Security
Act of 1974, as amended (“
ERISA
”),
and
with the Code to the extent applicable to it and has not incurred any liability
to the Pension Benefit Guaranty Corporation (“
PBGC
”)
or a
Plan under Title IV of ERISA other than a liability to the PBGC for premiums
under Section 4007 of ERISA. Neither the Borrower nor any Subsidiary has any
contingent liabilities for any post-retirement benefits under a Welfare Plan,
other than liability for continuation coverage described in Part 6 of Title
I of
ERISA.
Section
5.6
Government
Regulation.
Neither
the Borrower nor any Subsidiary is an “
investment
company
”
within
the meaning of the Investment Company Act of 1940, as amended.
Section
5.7
Margin
Stock; Proceeds.
Neither
the Borrower nor any Subsidiary is engaged principally, or as one of its primary
activities, in the business of extending credit for the purpose of purchasing
or
carrying margin stock (“
margin
stock
”
to
have
the same meaning herein as in Regulation U of the Board of Governors of the
Federal Reserve System). The Borrower will not use the proceeds of any Loan
in a
manner that violates any provision of Regulation U or X of the Board of
Governors of the Federal Reserve System. The Borrower is not subject to
regulation under the Investment Company Act of 1940. In addition, the Borrower
is not an “investment company” registered or required to be registered under the
Investment Company Act of 1940. Proceeds of the Loans will only be used to
backstop commercial paper issued by the Borrower and for general corporate
purposes.
Section
5.8
Full
Disclosure.
All
information heretofore furnished by the Borrower to the Lender for purposes
of
or in connection with the Credit Documents or any transaction contemplated
thereby is, and all such information hereafter furnished by the Borrower to
the
Lender will be, to the best of the Borrower’s knowledge, after due inquiry, true
and accurate in all material respects and not misleading on the date as of
which
such information is stated or certified.
SECTION
6.
CONDITIONS
PRECEDENT.
The
obligation of Lender to advance any Loan shall be subject to the following
conditions precedent:
Section
6.1
Initial
Credit Event.
Before
or
concurrently with the Effective Date:
(a)
The
Lender shall have received the favorable written opinion of counsel to the
Borrower in form and substance reasonably acceptable to the Lender;
(b)
The
Lender shall have received copies of (i) the Articles of Incorporation, together
with all amendments and (ii) the Borrower’s bylaws (or comparable constituent
documents) and any amendments thereto, certified in each instance by its
Secretary or an Assistant Secretary;
(c)
The
Lender shall have received copies of resolutions of the Borrower’s Board of
Directors authorizing the execution and delivery of the Credit Documents and
the
consummation of the transactions contemplated thereby together with specimen
signatures of the persons authorized to execute such documents on the Borrower’s
behalf, all certified in each instance by its Secretary or an Assistant
Secretary;
(d)
The
Lender shall have received, if requested, an executed Note of the Borrower
dated
the date hereof and otherwise in compliance with the provisions of Section
2.10(a) hereof;
(e)
The
Lender shall have received a duly executed original of (i) this Agreement,
(ii)
a list of the Borrower’s Authorized Representatives and (iii) such other
documents as the Lender may reasonably request;
(f)
The
Lender shall have received a certificate by the chief financial officer of
the
Borrower, stating that on the Effective Date no Default or Event of Default
has
occurred and is continuing, and that all representations and warranties set
forth herein are true and correct as of such date;
(g)
The
Lender shall have received evidence that Borrower is validly existing and in
good standing under the laws of the jurisdiction of incorporation;
(h)
The
Lender shall have received payment of the Upfront Fee; and
(i)
The
Lender shall have received a duly executed Compliance Certificate containing
information as of June 30, 2006.
Section
6.2
All
Credit Events.
A
s
of the
time of each Credit Event hereunder:
(a)
The
Lender shall have received the notice required by Section 2.5
hereof;
(b)
Each
of
the representations and warranties set forth in Section 5 hereof (except the
last sentence of Section 5.3) shall be and remain true and correct in all
material respects as of said time, taking into account any amendments to such
Section (including without limitation any amendments, modifications and updates
to the Schedules referenced therein) made after the date of this Agreement
in
accordance with its provisions, except that if any such representation or
warranty relates solely to an earlier date it need only remain true as of such
date; and
(c)
The
Borrower shall be in full compliance with all of the terms and conditions
hereof, and no Default or Event of Default shall have occurred and be continuing
or would occur as a result of such Credit Event.
Each
request for a Borrowing consisting of an advance of a Loan hereunder shall
be
deemed to be a representation and warranty by the Borrower on the date of such
Credit Event as to the facts specified in paragraphs (b) and (c) of this Section
6.2.
SECTION
7.
COVENANTS.
The
Borrower covenants and agrees that, so long as any Loan is outstanding
hereunder, or any Revolving Credit Commitment is available to or in use by
the
Borrower hereunder, except to the extent compliance in any case is waived in
writing by the Lender:
Section
7.1
Corporate
Existence.
Borrower
shall preserve and maintain its corporate existence.
Section
7.2
ERISA.
The
Borrower will, and will cause each of its Subsidiaries to, promptly pay and
discharge all obligations and liabilities arising under ERISA of a character
which if unpaid or unperformed might result in the imposition of a Lien against
any of its properties or assets and will promptly notify the Lender of (i)
the
occurrence of any reportable event (as defined in ERISA) affecting a Plan,
other
than any such event of which the PBGC has waived notice by regulation, (ii)
receipt of any notice from PBGC of its intention to seek termination of any
Plan
or appointment of a trustee therefor, (iii) its or any of its Subsidiaries’
intention to terminate or withdraw from any Plan, and (iv) the occurrence of
any
event affecting any Plan which could result in the incurrence by the Borrower
or
any of its Subsidiaries of any material liability, fine or penalty, or any
material increase in the contingent liability of the Borrower or any of its
Subsidiaries under any post-retirement Welfare Plan benefit.
Section
7.3
Financial
Reports and Other Information.
(a)
The
Borrower will maintain a system of accounting in accordance with GAAP and will
furnish to the Lender and its duly authorized representatives such information
respecting the business and financial condition of the Borrower as Lender may
reasonably request; and without any request, the Borrower will furnish each
of
the following to the Lender:
i
within
one hundred twenty (120) days after the end of its fiscal year ending September
30, 2006, a copy of the Borrower’s financial statements for such fiscal year,
including the consolidated balance sheet of the Borrower for such year and
the
related statement of income and statement of cash flow, as certified by
independent public accountants of recognized national standing selected by
the
Borrower in accordance with GAAP with such accountants’ opinion to the effect
that the financial statements have been prepared in accordance with GAAP and
present fairly in all material respects in accordance with GAAP the consolidated
financial position of the Borrower and its Subsidiaries as of the close of
such
fiscal year and the results of their operations and cash flows for the fiscal
year then ended and that an examination of such accounts in connection with
such
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, such examination included such tests of
the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
ii
within
sixty (60) days after the end of each of the quarterly fiscal periods of the
Borrower during the term hereof, a consolidated un-audited balance sheet of
the
Borrower, and the related statement of income and statement of cash flow, as
of
the close of such period, all of the foregoing prepared by the Borrower in
reasonable detail in accordance with GAAP and certified by the Borrower’s chief
financial officer as fairly presenting the financial condition as at the dates
thereof and the results of operations for the periods covered thereby;
and
iii
within
five (5) days after Borrower files a Form 8-K with the SEC, a copy of said
form
8-K.
(b)
Each
financial statement furnished to the Lender pursuant to subsection (i) or (ii)
of this Section 7.3 shall be accompanied by (A) a written certificate signed
by
the Borrower’s chief financial officer to the effect that no Default or Event of
Default has occurred during the period covered by such statements or, if any
such Default or Event of Default has occurred during such period, setting forth
a description of such Default or Event of Default and specifying the action,
if
any, taken by the Borrower to remedy the same, and (B) a Compliance Certificate
in the form of Exhibit B hereto showing the Borrower’s compliance with the
covenants set forth in Sections 7.5 and 7.8 hereof.
(c)
The
Borrower will promptly (and in any event within five Business Days after an
officer of the Borrower has knowledge thereof) give notice to the Lender of
the
occurrence of any Default or Event of Default.
Section
7.4
Regulation
U; Proceeds.
The
Borrower will not use any part of the proceeds of any of the Borrowings,
directly or indirectly to purchase or carry any margin stock (as defined in
Section 5.7 hereof) or to extend credit to others for the purpose of purchasing
or carrying any such margin stock. The Borrower will only use proceeds of the
Loans to backstop commercial paper issued by the Borrower and for general
corporate purposes.
Section
7.5
Sales
of Assets
.
The
Borrower will not during the term of this Agreement sell, lease or otherwise
dispose of more that (i) thirty-five percent (35%) of the consolidated fixed
assets of the Borrower or (ii) fifteen percent (15%) of the consolidated
"regulated assets" of the Borrower. For purposes of this Section 7.5(a) the
amount of consolidated fixed assets shall be determined using the net book
value
of such assets at the time of such sale, lease or disposition.
(b)
The
Borrower will not sell, transfer or otherwise dispose of, or permit any
Subsidiary to issue, sell, transfer or otherwise dispose of, more than twenty
percent (20%) of any of its public utility Subsidiaries’ shares of stock of any
class (including as “stock” for purposes of this Section, any warrants, rights
or options to purchase or otherwise acquire stock or other Securities
exchangeable for or convertible into stock).
Section
7.6
Capital
Ratio.
The
Borrower will not at any time permit the Capital Ratio to exceed 0.65 to
1.00.
Section
7.7
Compliance
with Laws.
Without
limiting any of the other covenants of the Borrower in this Section 7, the
Borrower will conduct its business, and otherwise be, in compliance with all
applicable laws, regulations, ordinances and orders of any governmental or
judicial authorities;
provided
,
however
,
that
the Borrower shall not be required to comply with any such law, regulation,
ordinance or order if the failure to comply therewith could not reasonably
be
expected to have a Material Adverse Effect.
Section
7.8
Mergers
and Consolidations.
The
Borrower will not, and will not permit any public utility Subsidiary, to
consolidate with or be a party to merger with any other Person;
provided,
however
,
that
the Borrower or any public utility Subsidiary of the Borrower may, upon prior
notice to the Lender, enter into one or more mergers or acquisitions with any
other Person so long as (a) in the case of the Borrower, the Borrower is the
surviving entity and (b) in the case of a public utility Subsidiary of the
Borrower, the Borrower will at all times continue to own at least 80% of the
equity securities of such public utility Subsidiary. The Lender acknowledges
that Borrower has entered into an agreement and plan of merger with a subsidiary
of WPS Resources Corporation.
SECTION
8.
EVENTS
OF
DEFAULT AND REMEDIES.
Section
8.1
Events
of Default.
Any
one
or more of the following shall constitute an Event of Default:
(a)
non-payment
by Borrower (i) when due of the principal of any Loan or (ii) in the payment
of
fees, interest or of any other Obligation within five (5) days of the due
date;
(b)
default
by the Borrower in the observance or performance of any covenant set forth
in
Section 7.1 with regard to the Borrower or (ii) Section 7.3(c), Section 7.4
through 7.6 hereof;
(c)
any
default by the Borrower in the observance or performance of any provision
hereof, or of any other Credit Document not mentioned in (a) or (b) above,
which
is not remedied within thirty (30) days after notice thereof shall have been
given to the Borrower by the Lender,
provided
that,
with respect only to Section 7.7, if Borrower (or its Subsidiary, as applicable)
has made good faith efforts to cure such default, then the Borrower shall be
afforded an additional period of time to cure such default, such additional
cure
period not to exceed thirty (30) days;
(d)
failure
to pay when due Indebtedness in an aggregate principal amount of $15,000,000
or
more of the Borrower, or (ii) default shall occur under one or more indentures,
agreements or other instruments under which any Indebtedness of the Borrower
in
an aggregate principal amount of $15,000,000 or more and such default shall
continue for a period of time sufficient to permit the holder or beneficiary
of
such Indebtedness (including, without limitation the Lender with respect to
loans, credit facilities and other extensions of credit other than pursuant
to
this Agreement) or a trustee therefor to cause the acceleration of the maturity
of any such Indebtedness or any mandatory unscheduled prepayment, purchase
or
funding;
(e)
representation
or warranty made herein or in any other Credit Document by the Borrower, or
in
any statement or certificate furnished pursuant hereto or pursuant to any other
Credit Document by the Borrower, or in connection with any Credit Document,
proves untrue in any material respect as of the date of the issuance or making,
or deemed making or issuance, thereof;
(f)
Borrower
shall (i) have entered involuntarily against it an order for relief under the
United States Bankruptcy Code, as amended, or any analogous action is taken
under any other applicable law relating to bankruptcy or insolvency and such
action continues un-discharged or is not dismissed or stayed for a period of
sixty (60) days, (ii) fail to pay its debts generally as they become due and
such failure to pay would constitute an Event of Default under Section 8.1(d)
or
admit in writing its inability to pay its debts generally as they become due,
(iii) make an assignment for the benefit of creditors, (iv) apply for, seek,
consent to, or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part of
its
Property, (v) institute any proceeding seeking to have entered
against
it an order for relief under the United States Bankruptcy Code, as amended,
to
adjudicate it insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (vi) take any corporate
action (such as the passage by its board of directors of a resolution) in
furtherance of any matter described in parts (i)-(v) above, or (vii) fail to
contest in good faith any appointment or proceeding described in Section 8.1(g)
hereof;
(g)
Custodian,
receiver, trustee, examiner, liquidator or similar official shall be appointed
for the Borrower or any of its Significant Subsidiaries, or any substantial
part
of any of their Property, or a proceeding described in Section 8.1(f)(v) shall
be instituted against the Borrower, and such appointment continues un-discharged
or such proceeding continues un-dismissed or un-stayed for a period of sixty
(60) days;
(h)
the
Borrower shall fail within thirty (30) days to pay, bond or otherwise discharge
any judgment or order for the payment of money in excess of $15,000,000 which
is
not stayed on appeal or otherwise being appropriately contested in good faith
in
a manner that stays execution thereon;
(i)
the
Borrower or any other member of the Controlled Group shall fail to pay when
due
an amount or amounts which it shall have become liable, to pay to the PBGC
or to
a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or
Plans
having aggregate Unfunded Vested Liabilities in excess of $5,000,000
(collectively, a “
Material
Plan
”)
shall
be filed under Title IV of ERISA by the Borrower or any other member of the
Controlled Group, any plan administrator or any combination of the foregoing;
or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or
to
cause a trustee to be appointed to administer any Material Plan or a proceeding
shall be instituted by a fiduciary of any Material Plan against the Borrower
or
any other member of the Controlled Group to enforce Section 515 or 4219(c)(5)
of
ERISA and such proceeding shall not have been dismissed within thirty (30)
days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or
(j)
any
Event
of Default under the Existing Credit Agreement, it being the express intent
of
the parties hereto that this Agreement shall benefit from the covenants and
agreements contained in the Existing Credit Agreement.
Section
8.2
Non-Bankruptcy
Defaults.
When
any
Event of Default other than those described in subsections (f) or (g) of Section
8.1 hereof has occurred and is continuing, the Lender may: (a) terminate the
remaining Revolving Credit Commitment and all other obligations of the Lender
hereunder (other than the obligations of the Lender under section 11.21 hereof)
on the date stated in such notice (which may be the date thereof); and (b)
declare the principal of and the accrued interest on the outstanding Note to
be
forthwith due and payable and thereupon the Note, including both principal
and
interest thereon, and all other Obligations, shall be and become immediately
due
and payable together with all other amounts payable under the Credit Documents
without further demand, presentment, protest or notice of any kind.
Section
8.3
Bankruptcy
Defaults.
When
any
Event of Default described in subsections (f) or (g) of Section 8.1 hereof
has
occurred and is continuing, then the Note shall immediately become due and
payable together with all other amounts payable under the Credit Documents
without presentment, demand, protest or notice of any kind and the obligation
of
the Lender to extend further credit pursuant to any of the terms hereof shall
immediately terminate.
Section
8.4
Expenses.
The
Borrower agrees to pay to the Lender and any other holder of the Note, all
costs
and expenses incurred or paid by the Lender or any such holder, including
reasonable attorneys’ fees (including reasonable allocable fees of in-house
counsel) and court costs, in connection with any Default or Event of Default
by
the Borrower hereunder or in connection with the enforcement of any of the
Credit Documents.
SECTION
9.
CHANGE
IN
CIRCUMSTANCES.
Section
9.1
Change
of Law.
Notwithstanding
any other provisions of this Agreement or the Note, if at any time after the
date hereof any change in applicable law or regulation or in the interpretation
thereof makes it unlawful for Lender to make or continue to maintain LIBOR
Loans
or to perform its obligations as contemplated hereby, Lender shall promptly
give
notice thereof to the Borrower and Lender’s obligations to make or maintain
LIBOR Loans under this Agreement shall terminate until it is no longer unlawful
for Lender to make or maintain LIBOR Loans. The Borrower shall prepay on demand
the outstanding principal amount of any such affected LIBOR Loans, together
with
all interest accrued thereon at a rate per annum equal to the interest rate
applicable to such Loan;
provided
,
however
,
subject
to all of the terms and conditions of this Agreement, the Borrower may then
elect to borrow the principal amount of the affected LIBOR Loans from Lender
by
means of Base Rate Loans from Lender.
Section
9.2
Unavailability
of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR..
If
on or
prior to the first day of any Interest Period for any Borrowing of LIBOR
Loans:
(a)
the
Lender determines that deposits in U.S. Dollars (in the applicable amounts)
are
not being offered to major banks in the LIBOR interbank market for such Interest
Period, or that by reason of circumstances affecting the interbank LIBOR market
adequate and reasonable means do not exist for ascertaining the applicable
LIBOR, or
(b)
Lender
reasonably determines that LIBOR as reasonably determined by the Lender will
not
adequately and fairly reflect the cost to Lender of funding its LIBOR Loans
or
Loan for such Interest Period, then the Lender shall forthwith give notice
thereof to the Borrower, whereupon until the Lender notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, the
obligations of the Lender to make LIBOR Loans shall be suspended.
Section
9.3
Increased
Cost and Reduced Return.
Section
9.4
If, on or after the date hereof, the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Lender (or its Lending Office) with any request or directive (whether or
not
having the force of law but, if not having the force of law, compliance with
which is customary in the relevant jurisdiction) of any such authority, central
bank or comparable agency:
i
shall
subject Lender (or its Lending Office) to any tax, duty or other charge with
respect to its LIBOR Loans, its Notes
or
its
participation in any thereof or its obligation to make Eurodollar Loans, or
to
participate therein,
or
shall
change the basis of taxation of payments to Lender (or its Lending Office)
of
the principal of or interest on its LIBOR Loans, Letter(s) of Credit, or
participations therein or any other amounts due under this Agreement in respect
of its LIBOR Loans or its obligation to make LIBOR Loans, (except for changes
in
the rate of tax on the overall net income or profits of Lender or its Lending
Office imposed by the jurisdiction in which Lender or its lending office is
incorporated in which Lender’s principal executive office or Lending Office is
located); or
ii
shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement (including, without limitation, any such requirement imposed by
the
Board of Governors of the Federal Reserve System, but excluding with respect
to
any LIBOR Loans any such requirement included in an applicable LIBOR Reserve
Percentage) against assets of, deposits with or for the account of, or credit
extended by, Lender (or its Lending Office) or shall impose on Lender (or its
Lending Office) or on the interbank market any other condition affecting its
LIBOR Loans, its Note,
or
its
obligation to make Eurodollar Loans
;
and
the
result of any of the foregoing is to increase the cost to Lender (or its Lending
Office) of making or maintaining any LIBOR Loan, or to reduce the amount of
any
sum received or receivable by Lender (or its Lending Office) under this
Agreement or under its Note with respect thereto, by an amount deemed by Lender
to be material, then, within fifteen (15) days after demand by Lender, the
Borrower shall be obligated to pay to Lender such additional amount or amounts
as will compensate Lender for such increased cost or reduction. In the event
any
law, rule, regulation or interpretation described above is revoked, declared
invalid or inapplicable or is otherwise rescinded, and as a result thereof
Lender is determined to be entitled to a refund from the applicable authority
for any amount or amounts which were paid or reimbursed by Borrower to Lender
hereunder, Lender shall refund such amount or amounts to Borrower without
interest.
(b)
If,
after
the date hereof, Lender shall have determined that the adoption of any
applicable law, rule or regulation regarding capital adequacy, or any change
therein (including, without limitation, any revision in the Final Risk-Based
Capital Guidelines of the Board of Governors of the Federal Reserve System
(12
CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) or of the Office of
the
Comptroller of the Currency (12 CFR Part 3, Appendix A), or in any other
applicable capital rules heretofore adopted and issued by any governmental
authority), or any change in the interpretation or administration thereof by
any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Lender (or its
Lending Office) with any request or directive regarding capital adequacy
(whether or not having the force of law but, if not having the force of law,
compliance with which is customary in
the
applicable jurisdiction) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on Lender’s
capital, or on the capital of any corporation controlling Lender, as a
consequence of its obligations hereunder to a level below that which Lender
could have achieved but for such adoption, change or compliance (taking into
consideration Lender’s policies with respect to capital adequacy) by an amount
deemed by Lender to be material, then from time to time, within fifteen (15)
days after demand by Lender, the Borrower shall pay to Lender such additional
amount or amounts as will compensate Lender for such reduction.
(c)
If
Lender
determines to seek compensation under this Section 9.3, it shall notify the
Borrower of the circumstances that entitle it to such compensation pursuant
to
this Section 9.3 and will designate a different Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole judgment of Lender, be otherwise disadvantageous
to
Lender. A certificate of Lender claiming compensation under this Section 9.3
and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. In determining such amount,
Lender may use any reasonable averaging and attribution methods. Lender shall
not be entitled to demand compensation under this Section 9.3 for any period
more than 90 days prior to the day on which such demand is made;
provided
however
,
that
the foregoing shall in no way limit the right of Lender to demand or receive
such compensation to the extent that such compensation relates to the
retroactive application of any law, regulation, guideline or request if such
demand is made within 90 days after the implementation of such retroactive
law,
interpretation, guideline or request. A certificate as to the nature and amount
of such increased cost, submitted to the Borrower and the Lender in good faith,
shall be conclusive and binding for all purposes, absent manifest
error.
Section
9.5
Lending
Offices.
The
Lender may, at its option, elect to make Loans hereunder at the branch, office
or affiliate specified on the appropriate signature page hereof or in the
assignment agreement which any assignee bank executes pursuant to Section 11.12
hereof (each a “Lending Office”) for each type of Loan available hereunder or at
such other of its branches, offices or affiliates as it may from time to time
elect and designate in a written notice to the Borrower.
Section
9.6
Discretion
of Lender as to Manner of Funding.
Notwithstanding
any other provision of this Agreement, the Lender shall be entitled to fund
and
maintain its funding of all or any part of its Loans in any manner it sees
fit,
it being understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if the Lender had actually funded
and
maintained each LIBOR Loan through the purchase of deposits in the LIBOR
interbank market having a maturity corresponding to such Loan’s Interest Period
and bearing an interest rate equal to LIBOR for such Interest
Period.
SECTION
10.
RESERVED.
SECTION
11.
MISCELLANEOUS.
Section
11.1
Withholding
Taxes.
Subject
to this Section 11.1, each payment by the Borrower under this Agreement or
the
other Credit Documents shall be made without withholding for or on account
of
any present or future taxes (other than overall net income taxes on the
recipient). If any such withholding is so required, the Borrower shall make
the
withholding, pay the amount withheld to the appropriate governmental authority
before penalties attach thereto or interest accrues thereon and forthwith pay
such additional amount as may be necessary to ensure that the net amount
actually received by the Lender free and clear of such taxes (including such
taxes on such additional
amount)
is equal to the amount which the Lender would have received had such withholding
not been made. If the Lender pays any amount in respect of any such taxes,
penalties or interest the Borrower shall reimburse the Lender for that payment
on demand. If the Borrower pays any such taxes, penalties or interest, it shall
deliver official tax receipts evidencing that payment or certified copies
thereof to the Lender on or before the thirtieth day after payment. If the
Lender determines it has received or been granted a credit against or relief
or
remission for, or repayment of, any taxes paid or payable by it because of
any
taxes, penalties or interest paid by the Borrower and evidenced by such a tax
receipt, Lender shall, to the extent it can do so without prejudice to the
retention of the amount of such credit, relief, remission or repayment, pay
to
the Borrower such amount as Lender determines is attributable to such deduction
or withholding and which will leave Lender (after such payment) in no better
or
worse position than it would have been in if the Borrower had not been required
to make such deduction or withholding. Nothing in this Agreement shall interfere
with the right of the Lender to arrange its tax affairs in whatever manner
it
thinks fit nor oblige the Lender to disclose any information relating to its
tax
affairs or any computations in connection with such taxes.
Section
11.2
No
Waiver of Rights.
No
delay
or failure on the part of the Lender or on the part of the holder or holders
of
the Note in the exercise of any power or right under any Credit Document shall
operate as a waiver thereof, nor as an acquiescence in any default, nor shall
any single or partial exercise thereof preclude any other or further exercise
of
any other power or right, and the rights and remedies hereunder of the Lender
and/or the holder or holders of the Note are cumulative to, and not exclusive
of, any rights or remedies which any of them would otherwise have.
Section
11.3
Non-Business
Day.
If
any
payment of principal or interest on any Loan or of any other Obligation shall
fall due on a day which is not a Business Day, interest or fees (as applicable)
at the rate, if any, such Loan or other Obligation bears for the period prior
to
maturity shall continue to accrue on such Obligation from the stated due date
thereof to and including the next succeeding Business Day, on which the same
shall be payable.
Section
11.4
Documentary
Taxes.
The
Borrower agrees that it will pay any documentary, stamp or similar taxes payable
in respect to any Credit Document, including interest and penalties, in the
event any such taxes are assessed, irrespective of when such assessment is
made
and whether or not any credit is then in use or available
hereunder.
Section
11.5
Survival
of Representations.
All
representations and warranties made herein or in certificates given pursuant
hereto shall survive the execution and delivery of this Agreement and the other
Credit Documents, and shall continue in full force and effect with respect
to
the date as of which they were made as long as any credit is in use or available
hereunder.
Section
11.6
Survival
of Indemnities.
All
indemnities and all other provisions relative to reimbursement to the Lender
of
amounts sufficient to protect the yield of the Lender with respect to the Loans,
including, but not limited to, Section 2.11, Section 9.3 and Section 11.15
hereof, shall survive the termination of this Agreement and the other Credit
Documents and the payment of the Loans and all other Obligations.
Section
11.7
Set-Off.
In
addition to any rights now or hereafter granted under applicable law and not
by
way of limitation of any such rights, upon the occurrence of any Event of
Default, Lender and each subsequent holder of the Note is hereby authorized
by
the Borrower at any time or from time to time, without notice to the Borrower
or
to any other Person, any such notice being hereby expressly waived, to set
off
and to appropriate and to apply any and all deposits (general or special,
including, but not limited to, Indebtedness evidenced by certificates of
deposit, whether matured or unmatured, and in whatever currency denominated)
and
any other Indebtedness at any time held or owing by the Lender or that
subsequent holder to or for the credit or the account of the Borrower, whether
or not matured, against and on account of the obligations and liabilities of
the
Borrower to the Lender or that subsequent holder under the Credit Documents,
including, but not limited to, all claims of any nature or description arising
out of or connected with the Credit Documents, irrespective of whether or not
(a) the Lender or that subsequent holder shall have made any demand hereunder
or
(b) the principal of or the interest on the Loans or the Note and other amounts
due hereunder shall have become due and payable pursuant to Section 8 and
although said obligations and liabilities, or any of them, may be contingent
or
unmatured.
Section
11.8
Notices.
Except
as
otherwise specified herein, all notices under the Credit Documents shall be
in
writing (including facsimile or other electronic communication) and shall be
given to a party hereunder at its address or facsimile number set forth below
or
such other address or facsimile number as such party may hereafter specify
by
notice to the Lender and the Borrower, given by courier, by United States
certified or registered mail, or by other telecommunication device capable
of
creating a written record of such notice and its receipt. Notices under the
Credit Documents to the Lender and the Borrower shall be addressed
to:
If
to the Borrower:
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Peoples
Energy Corporation
130
East Randolph Drive
Chicago,
Illinois 60601
Attention:
Vice President, Finance
Facsimile:
312.373.4213
Telephone:
312.240.3818
|
|
If
to the Lender: (Notices related to commitments, covenants or extensions
of
expiry/termination dates)
|
|
ABN
AMRO Bank N.V.
540
W. Madison Street
Chicago,
IL 60661-2591
Attention:
Kris Grosshans
Facsimile:
312 904 1466
Telephone:
312 904 7301 (Mr. Grosshans)
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|
ABN
AMRO Bank N.V.
540
West Madison Street, 26
th
Floor
Chicago,
IL 60661-2591
Attn:
Credit Administration
E-Mail:
melanie.dziobas@abnamro.com
FAX:
312-992-5111
ABN
AMRO Bank N.V.
4400
Post Oak Parkway, Suite 1500
Houston,
TX 77027
Attn:
Scott Donaldson
E-Mail:
scott.donaldson@abnamro.com
Fax:
(832)681-7141
|
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Borrowing
Requests and notices relating to Loans, Interest and
Fees:
|
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ABN
AMRO Bank N.V.
540
W. Madison St., 21
st
Flr.
Chicago,
IL 60661-2591
Attn:
Loan Administration
Facsimile:
(312) 992-5157
E-mail:
cpu.team.b@abnamro.com
Telephone:
(312) 992-5152
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Each
such
notice, request or other communication shall be effective (i) if given by
facsimile, when such facsimile is transmitted to the facsimile number specified
in this Section 11.8 or on the signature pages hereof and a confirmation
of
receipt of such facsimile has been received by the sender, (ii) if given
by
courier, when delivered, (iii) if given by mail, three business days after
such
communication is deposited in the mail, registered with return receipt
requested, addressed as aforesaid or (iv) if given by any other means, when
delivered at the addresses specified in this Section 11.8;
provided
that
any
notice given pursuant to Section 2 hereof shall be effective only upon
receipt.
Section
11.9
Counterparts
.
This
Agreement may be executed in any number of counterpart signature pages, and
by
the different parties on different counterparts, each of which when executed
shall be deemed an original but all such counterparts taken together shall
constitute one and the same instrument. Delivery of an executed counterpart
via
facsimile or other electronic means shall for all purposes be deemed as
effective as delivery of an original counterpart.
Section
11.10
Successors
and Assigns
.
This
Agreement shall be binding upon the Borrower and its successors and assigns,
and
shall inure to the benefit of each of the Lender and the benefit of their
respective successors, and assigns, including any subsequent holder of any
Note.
The Borrower may not assign any of its rights or obligations under any Credit
Document without the written consent of all of the Lender.
Section
11.11
[Reserved]
.
Section
11.12
Assignments,
Participations, Etc
.
(a)
Successors
and Assigns Generally
The
provisions of this Agreement shall be binding upon and inure to the benefit
of
the parties hereto and their respective successors and assigns permitted
hereby,
except that the Borrower may not assign or otherwise transfer any of its
rights
or obligations hereunder without the prior written consent of the Lender
and
Lender may not assign or otherwise transfer any of its rights or obligations
hereunder except (i) to an Eligible Assignee in accordance with the
provisions of paragraph (b) of this Section, (ii) by way of
participation in accordance with the provisions of paragraph (d) of this
Section or (iii) by way of pledge or assignment of a security interest
subject to the restrictions of paragraph (f) of this Section (and any other
attempted assignment or transfer by any party hereto shall be null and void).
Nothing in this Agreement, expressed or implied, shall be construed to confer
upon any Person (other than the parties hereto, their respective successors
and
assigns permitted hereby, Participants to the extent provided in
paragraph (d) of this Section and, to the extent expressly contemplated
hereby, the affiliates of each of the Lender and the Lender) any legal or
equitable right, remedy or claim under or by reason of this Agreement.
(b)
Assignments
by Lender.
The
Lender may at any time assign to one or more Eligible Assignees its rights
and
obligations under this Agreement (including its Revolving Credit Commitment
and
the Loans at the time owing to it);
provided
that so
long as no Event of Default has occurred and is continuing, any assignment
of a
Revolving Credit Commitment must be approved by the Borrower, which approval
shall not be unreasonably withheld, unless the Person that is the proposed
assignee is itself an Eligible Assignee. Subject to acceptance and recording
thereof by the Lender pursuant to paragraph (c) of this Section, from and
after the effective date specified in each Assignment and Assumption, the
Eligible Assignee thereunder shall be a party to this Agreement and, to the
extent of the interest assigned by such Assignment and Assumption, have the
rights and obligations of Lender under this Agreement shall to the extent
of the
interest assigned by such Assignment and Assumption, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Assumption covering all of the Lender’s rights and obligations under this
Agreement, Lender shall cease to be a party hereto) but shall continue to
be
entitled to the benefits of Sections 9.3 and 11.1 with respect to facts and
circumstances occurring prior to the effective date of such assignment. Any
assignment or transfer by Lender of rights or obligations under this Agreement
that does not comply with this paragraph shall be treated for purposes of
this
Agreement as a sale by Lender of a participation in such rights and obligations
in accordance with paragraph (d) of this Section.
(e)
Participations.
Lender
and/or any holder of the Note may at any time, without the consent of, or
notice
to, the Borrower, sell participations to any Person (other than a natural
person
or a Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a
“
Participant”
)
in all
or a portion of Lender’s or such holder’s rights and/or obligations under this
Agreement (including all or a portion of its Revolving Credit Commitment
and/or
the Loans owing to it);
provided
that
(i) Lender’s obligations under this Agreement shall remain unchanged,
(ii) Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations and (iii) the Borrower shall continue
to deal solely and directly with Lender in connection with Lender’s rights and
obligations under this Agreement.
Any
agreement or instrument pursuant to which Lender sells such a participation
shall provide that Lender shall retain the sole right to enforce this Agreement
and to approve any amendment, modification or waiver of any provision of
this
Agreement;
provided
that
such agreement or instrument may provide that Lender will not, without
the
consent of the Participant, agree to any amendment, modification or waiver
of
the type described in Section 11.13(i) that directly affects such Participant.
Subject to paragraph (e) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Section 2.11, Section
9.3 and
Section 11.7 to the same extent as if it were Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section. Lender
shall keep a register, meeting the requirements of Treasury Regulation
Section
5f.103-1(c), of each participant, specifying such participant’s entitlement to
payments of principal and interest with respect to such
participation.
(f)
Limitations
upon Participant Rights.
A
Participant shall not be entitled to receive any greater payment under Section
2.11, Section 9.3 or Section 11.7 than the Lender would have been entitled
to
receive with respect to the participation sold to such Participant, unless
the
sale of the participation to such Participant is made with the Borrower’s prior
written consent
.
(g)
Certain
Pledges.
The
Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of the Lender,
including without limitation any pledge or assignment to secure obligations
to a
Federal Reserve Bank; provided that no such pledge or assignment shall release
Lender from any of its obligations hereunder or substitute any such pledgee
or
assignee for Lender as a party hereto
.
Certain
Funding Arrangements.
Notwithstanding
anything to the contrary contained herein, Lender may grant to a special purpose
funding vehicle (a “
SPC”
),
identified as such in writing from time to time by the Lender and the Borrower,
the option to provide to the Borrower all or any part of any Loan that the
Lender would otherwise be obligated to make to the Borrower pursuant to this
Agreement;
provided
that (i)
nothing herein shall constitute a commitment by any SPC to make any Loan, (ii)
if an SPC elects not to exercise such option or otherwise fails to provide
all
or any part of such Loan, the Lender shall be obligated to make such Loan
pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall
utilize the Revolving Credit Commitment of the Lender to the same extent, and
as
if, such Loan were made by the Lender. Each party hereto hereby agrees that
no
SPC shall be liable for any indemnity or similar payment obligation under this
Agreement (all liability for which shall remain with the Lender). In furtherance
of the foregoing, each party hereto hereby agrees (which agreement shall survive
the termination of this Agreement) that, prior to the date that is one year
and
one day after the payment in full of all outstanding commercial paper or other
senior indebtedness of any SPC, it will not institute against, or join any
other
person in instituting against, such SPC any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the United
States or any State thereof arising out of any claim relating to the Credit
Documents. In addition, notwithstanding anything to the contrary contained
in
this Section 11.12(b), any SPC may (i) with notice to, but without the prior
written consent of, the Borrower, assign all or a portion of its interests
in
any Loan to the Lender or to any financial institutions (consented to by the
Borrower and Lender) providing liquidity and/or credit support to or for the
account of such SPC to support the funding or maintenance of Loans and (ii)
disclose on a confidential basis any non-public information relating to its
Loans to any rating agency, commercial paper dealer or provider of any surety,
guarantee or credit or liquidity enhancement to such SPC. This section may
not
be amended without the written consent of the SPC
.
Section
11.13
Amendments
.
Any
provision of the Credit Documents may be amended or waived if, but only if,
such
amendment or waiver is in writing and is signed by the Borrower and the
Lender.
Section
11.14
Headings
.
Section
headings used in this Agreement are for reference only and shall not affect
the
construction of this Agreement.
Section
11.15
Legal
Fees, Other Costs and Indemnification
.
The
Borrower agrees to pay all reasonable costs and expenses of the Lender in
connection with the preparation and negotiation of the Credit Documents,
including without limitation, the reasonable fees and disbursements of counsel
to the Lender in connection with the preparation and execution of the Credit
Documents, and any amendment, waiver or consent related hereto, whether or
not
the transactions contemplated herein are consummated. The Borrower further
agrees to indemnify the Lender and its directors, agents, officers and
employees, against all losses, claims, damages, penalties, judgments,
liabilities and expenses (including, without limitation, all reasonable expenses
of litigation or preparation therefor, whether or not the indemnified Person
is
a party thereto) which any of them may incur or reasonably pay arising out
of or
relating to any Credit Document or any of the transactions contemplated thereby
or the direct or indirect application or proposed application of the proceeds
of
any Loan, other than those which arise from the gross negligence or willful
misconduct of the party claiming indemnification. The Borrower, upon demand
by
the Lender at any time, shall reimburse the Lender for any reasonable legal
or
other expenses (including reasonable allocable fees and expenses of in-house
counsel) incurred in connection with investigating or defending against any
of
the foregoing except if the same is directly due to the gross negligence or
willful misconduct of the party to be indemnified.
Section
11.16
[Reserved]
.
Section
11.17
Entire
Agreement
.
The
Credit Documents constitute the entire understanding of the parties thereto
with
respect to the subject matter thereof and any prior or contemporaneous
agreements, whether written or oral, with respect thereto are superseded
thereby.
Section
11.18
Construction
.
The
parties hereto acknowledge and agree that neither this Agreement nor the other
Credit Documents shall be construed more favorably in favor of one than the
other based upon which party drafted the same, it being acknowledged that all
parties hereto contributed substantially to the negotiation of this Agreement
and the other Credit Documents.
Section
11.19
Governing
Law
.
This
Agreement and the other Credit Documents, and the rights and duties of
the
parties hereto, shall be construed and determined in accordance with the
internal laws of the State of Illinois.
Section 11.20
SUBMISSION
TO JURISDICTION; WAIVER OF JURY TRIAL
.
THE
BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF
THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS AND OF ANY
ILLINOIS STATE COURT SITTING IN THE CITY OF CHICAGO FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH
A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF
OR RELATING TO ANY CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
THEREBY.
Section
11.21
Confidentiality
.
The
Lender shall hold all non-public information provided to it by Borrower pursuant
to or in connection with this Agreement in accordance with its customary
procedures for handling confidential information of this nature, but may make
disclosure to any of its examiners, regulators, Affiliates, outside auditors,
counsel and other professional advisors in connection with this Agreement or
any
other Credit Document or as reasonably required by any potential
bona
fide
transferee, participant or assignee, or in connection with the exercise of
remedies under a Credit Document, or to any nationally recognized rating agency
that requires access to information about Lender’s investment portfolio in
connection with ratings issued with respect to Lender, or as requested by any
governmental agency or representative thereof or pursuant to legal process;
provided
,
however
,
that
unless specifically prohibited by applicable law or court order, the Lender
shall use reasonable efforts to promptly notify Borrower of any request by
any
governmental agency or representative thereof (other than any such request
in
connection with an examination of the financial condition of the Lender by
such
governmental agency) for disclosure of any such non-public information and,
where practicable, prior to disclosure of such information. Prior to any such
disclosure pursuant to this Section 11.21, the Lender shall require any
such
bona
fide
transferee,
participant and assignee receiving a disclosure of non-public information to
agree, for the benefit of Borrower, in writing to be bound by this Section
11.21; and to require such Person to require any other Person to whom such
Person discloses such non-public information to be similarly bound by this
Section 11.21. The Lender shall not be required to hold confidential any
information that becomes public by any means other than as a result of a breach
by it of its obligations under this Section 11.21.
Section
11.22
Patriot
Act
.
As
required by federal law or the Lender or Lender’s polices and practices, the
Lender may need to collect certain customer identification information
and
documentation in connection with opening or maintaining accounts or establishing
or continuing to provide services.
Balance
of Page Intentionally Left Blank
-
Signature Page Follows -
In
Witness Whereof, the parties hereto have caused this Seasonal Credit Agreement
to be duly executed and delivered in Chicago, Illinois by their duly authorized
officers as of the day and year first above written.
|
PEOPLES
ENERGY CORPORATION
,
an Illinois corporation, as Borrower
|
|
|
|
By:
/s/ Douglas M. Ruschau
|
|
Its:
Vice President & Treasurer
|
|
|
|
|
|
ABN
AMRO BANK N.V
.,
as Lender
|
|
|
|
By:
/s/ Charles F. Randolph
|
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Its:
Managing Director
|
|
Title:
_________________________________________
|
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|
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|
By:
/s/ E. Bennett
|
|
Its:
Director
|
|
Title:
_________________________________________
|
EXHIBIT
A
REVOLVING
NOTE
$25,000,000
|
October 20, 2006
|
FOR
VALUE RECEIVED,
the
undersigned,
PEOPLES
ENERGY CORPORATION
,
an
Illinois corporation (the “
Borrower
”),
promises to pay to the order of
ABN
AMRO Bank N.V.
(the
“
Bank
”)
on the
Termination Date of the hereinafter defined Credit Agreement, or such earlier
date as provided in the Credit Agreement or this Note, at the principal office
of the Bank in Chicago, Illinois, in U.S. Dollars in accordance with Section
4.1
of the Credit Agreement, the aggregate unpaid principal of all Loans made by
the
Bank to the Borrower pursuant to the Credit Agreement, together with interest
on
the principal amount of each Loan from time to time outstanding hereunder at
the
rates, and payable in the manner and on the dates, specified in the Credit
Agreement.
The
Bank
shall record on its books or records or on a schedule attached to this Note,
which is a part hereof, each Loan made by it pursuant to the Credit Agreement,
together with all payments of principal and interest and the principal balances
from time to time outstanding hereon, whether the Loan is a Base Rate Loan
or a
LIBOR Loan and the interest rate and Interest Period applicable thereto,
provided that prior to the transfer of this Note all such amounts shall be
recorded on a schedule attached to this Note. The record thereof, whether
shown
on such books or records or on a schedule to this Note, shall be
prima
facie
evidence
of the same, provided, however, that the failure of the Bank to record any
of
the foregoing or any error in any such record shall not limit or otherwise
affect the obligation of the Borrower to repay all Loans made to it pursuant
to
the Credit Agreement together with accrued interest thereon.
This
Note
is the “Note” referred to in that certain Seasonal Credit Agreement dated as of
October 20, 2006, by and between the Borrower and ABN AMRO Bank N.V. (the
“
Credit
Agreement
”),
and
this Note and the holder hereof are entitled to all the benefits provided
for
thereby or referred to therein, to which Credit Agreement reference is hereby
made for a statement thereof. This Note may only be conveyed, transferred,
assigned or otherwise negotiated to a holder in accordance with the terms
of the
Credit Agreement. All defined terms used in this Note, except terms otherwise
defined herein, shall have the same meaning as in the Credit Agreement. This
Note shall be governed by and construed in accordance with the internal laws
of
the State of Illinois.
Prepayments
may be made hereon and this Note may be declared due prior to the expressed
maturity hereof, all in the events, on the terms and in the manner as provided
for in the Credit Agreement.
The
Borrower hereby waives demand, presentment, protest or notice of any kind
hereunder.
|
PEOPLES
ENERGY CORPORATION
,
an Illinois corporation
|
|
|
|
By:
__________________________________________
|
|
Its:
__________________________________________
|
EXHIBIT
B
COMPLIANCE
CERTIFICATE
This
Compliance Certificate is furnished to ABN AMRO Bank N.V., as Lender pursuant
to
the Credit Agreement (the “
Credit
Agreement
”)
dated
as of October 20, 2006, by and between Peoples Energy Corporation and ABN AMRO
Bank N.V. Unless otherwise defined herein, the terms used in this Compliance
Certificate have the meanings ascribed thereto in the Credit
Agreement.
THE
UNDERSIGNED HEREBY CERTIFIES THAT:
1.
I
am the
duly elected or appointed ___________________of Peoples Energy
Corporation;
2.
I
have
reviewed the terms of the Credit Agreement and I have made, or have caused
to be
made under my supervision, a detailed review of the transactions and conditions
of Peoples Energy Corporation and its Subsidiaries during the accounting period
covered by the attached financial statements;
3.
The
examinations described in paragraph 2 did not disclose, and I have no knowledge
of, the existence of any condition or event which constitutes a Default or
an
Event of Default during or at the end of the accounting period covered by the
attached financial statements or as of the date of this Certificate, except
as
set forth below. Without limitation to the foregoing, except as noted below
the
Borrower is in compliance with 7.5 and Section 7.6 of the Credit Agreement;
and
4.
Schedule
1 attached hereto sets forth (i) financial data and computations evidencing
compliance with certain covenants of the Credit Agreement, all of which data
and
computations are true, complete and correct, and are made in accordance with
the
terms of the Credit Agreement, and (ii) the list of Subsidiaries in existence
as
of the date hereof.
Described
below are the exceptions, if any, to paragraph 3 by listing, in detail, the
nature of the condition or event, the period during which it has existed and
the
action which the Borrower has taken, is taking, or proposes to take with respect
to each such condition or event:
The
foregoing certifications, together with the list set forth in Schedule 1 hereto
and the financial statements delivered with this Certificate in support hereof,
are made and delivered this ___________day of __________, 20 __.
SCHEDULE
1 TO COMPLIANCE CERTIFICATE
Compliance
Calculations for Credit Agreement
CALCULATION
AS OF ________ __,200_
Capital
Ratio (Sec. 7.6)
|
|
|
1.
(a)
consolidated Indebtedness
|
$
|
|
(b)
less
accumulated other comprehensive income/loss
|
$__________
|
|
(c) net consolidated Indebtedness
|
$__________
|
|
2.
Consolidated
Net Worth
|
$
|
|
3.
Sum
of Line 1(c)
plus
Line 2
|
$
|
|
4.
Capital
Ratio
|
_____
:1.00
|
(ratio
of (A) Line 1(c) to (B) Line 3 not to exceed 0.65 to
1.00)
|
List
of Subsidiaries
The
Peoples Gas Light and Coke Company
Peoples
Gas Light Exploration Company
Peoples
Gas Neighborhood Development Corporation
North
Shore Gas Company
North
Shore Exploration Company
Peoples
District Energy Corporation
Peoples
NGV Corp.
Peoples
Energy Production Company
PEP
Holding, LLC
Peoples
Energy Canadian Holdings, Inc.
Peoples
Energy Production Company of Canada
Peoples
Energy Production Operating Company
Peoples
Energy Production Partners, L.P.
Peoples
Energy Production - Texas, L.P.
EnerVest
Energy, L.P.
Sierra
1996-I Limited Partnership
Peoples
Energy Resources Company, LLC
Peoples
Energy Wholesale Marketing, LLC
|
PERC
Canada, Inc.
Peoples
Natural Gas Liquids, LLC
PERC
Holdings, LLC
PV
Midstream Ventures, LLC
PERC
Power, LLC
COB
Energy Facility, LLC
Peoples
Calumet, LLC
Calumet
Power, LLC
Peoples
Elwood, LLC
Elwood
Energy, LLC
Peoples
Elwood Expansion, LLC
Elwood
Expansion, LLC
Valencia
Energy, LLC
Peoples
MW, LLC
Peoples
Energy Services Corporation
Peoples
Energy Ventures, LLC
Peoples
Energy Business Services, LLC
Peoples
Energy Home Services, LLC
Peoples
Energy Neighborhood Development, LLC
Peoples
Technology, LLC
|
SCHEDULE
1
LENDER’S
PAYMENT INFORMATION
Loan
Repayments, Interest, Fees:
ABN
AMRO
Bank N.V.
New
York,
NY
ABA
#
026009580
F/O
ABN
AMRO Bank, N.V.
Chicago
Branch CPU
Account
#
650-001-1789-41
Reference:
Peoples Energy Corporation
ACBS#:
00004049
SCHEDULE
1A
PRICING
GRID
(Basis
Points)
S
& P/ Moody’s Senior Un-Secured Rating
|
A/
A2 or higher
|
A-/
A3
|
BBB+/
Baa1
|
BBB/
Baa2
|
BBB-/
Baa3
|
lower
than
BBB-/ Baa3
|
Commitment
Fee
|
6.0
|
7.0
|
8.0
|
10.0
|
12.5
|
20.0
|
Base
Rate Margin
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
LIBOR
Margin
|
25.0
|
30.0
|
40.0
|
50.0
|
62.5
|
87.5
|
Utilization
Fee (>50%)
|
10.0
|
10.0
|
12.5
|
12.5
|
12.5
|
12.5
|
Any
change in a Credit Rating of the Borrower (and if applicable, any change in
fees
or interest payable hereunder based on such Credit Rating), shall be effective
as of the date such change is announced by the applicable rating
agency.
*
If
the Borrower is split-rated and the ratings differential is one level, the
higher rating will apply. If the Borrower is split-rated and the ratings
differential is two levels or more, the rating level one below the higher level
will apply. If at any time the Borrower has no Moody’s rating or no Standard
& Poors’ rating, the “Lower than BBB-/Baa3” level will apply; provided,
however, that in such event the Borrower may propose an alternative rating
agency or mechanism in replacement thereof.
EXHIBIT
10(c)
Execution
Draft
SEASONAL
CREDIT AGREEMENT
DATED
AS OF
October
20, 2006
BETWEEN
PEOPLES
ENERGY CORPORATION,
and
BANK
OF AMERICA, N.A.
as
Lender.
|
TABLE
OF CONTENTS
SECTION
1.
DEFINITIONS;
INTERPRETATION.
|
1
|
|
Section
1.1
|
Definitions
|
1
|
|
Section
1.2
|
Interpretation
|
7
|
SECTION
2.
THE
REVOLVING CREDIT.
|
7
|
|
Section
2.1
|
The
Loan Commitment
|
7
|
|
Section
2.2
|
[Reserved]
|
7
|
|
Section
2.3
|
Applicable
Interest Rates
|
7
|
|
Section
2.5
|
Minimum
Borrowing Amounts
|
9
|
|
Section
2.6
|
Manner
of Borrowing Loans and Designating Interest Rates Applicable to
Loans
|
9
|
|
Section
2.8
|
Interest
Periods
|
10
|
|
Section
2.9
|
Maturity
of Loans
|
11
|
|
Section
2.10
|
Prepayments
|
11
|
|
Section
2.12
|
Default
Rate
|
11
|
|
Section
2.13
|
Evidence
of Debt
|
12
|
|
Section
2.14
|
Funding
Indemnity
|
12
|
|
Section
2.15
|
Revolving
Credit Commitment Terminations
|
13
|
|
Section
2.16
|
Regulation
D Compensation
|
13
|
|
Section
2.17
|
Arbitrage
Compensation
|
13
|
SECTION
3.
FEES.
|
13
|
|
Section
3.1
|
Fees
.
|
13
|
SECTION
4.
PLACE
AND APPLICATION OF PAYMENTS.
|
14
|
|
Section
4.1
|
Place
and Application of Payments
|
14
|
SECTION
5.
REPRESENTATIONS
AND WARRANTIES.
|
14
|
|
Section
5.1
|
Corporate
Organization and Authority
|
15
|
|
Section
5.2
|
Corporate
Authority and Validity of Obligations
|
15
|
|
Section
5.3
|
Financial
Statements
|
15
|
|
Section
5.4
|
Approvals
|
15
|
|
Section
5.5
|
ERISA
|
15
|
|
Section
5.6
|
Government
Regulation
|
16
|
|
Section
5.7
|
Margin
Stock; Proceeds
|
16
|
|
Section
5.8
|
Full
Disclosure
|
16
|
SECTION
6.
CONDITIONS
PRECEDENT.
|
16
|
|
Section
6.1
|
Initial
Credit Event
|
16
|
|
Section
6.2
|
All
Credit Events
|
17
|
SECTION
7.
COVENANTS.
|
17
|
|
Section
7.1
|
Corporate
Existence
|
17
|
|
Section
7.2
|
ERISA
|
18
|
|
Section
7.3
|
Financial
Reports and Other Information
|
18
|
|
Section
7.5
|
Regulation
U; Proceeds
|
19
|
|
Section
7.6
|
Sales
of Assets
|
19
|
|
Section
7.7
|
Capital
Ratio
|
19
|
|
Section
7.8
|
Compliance
with Laws
|
19
|
|
Section
7.9
|
Mergers
and Consolidations
|
19
|
SECTION
8.
EVENTS
OF DEFAULT AND REMEDIES.
|
20
|
|
Section
8.1
|
Events
of Default
|
20
|
|
Section
8.2
|
Non-Bankruptcy
Defaults
|
21
|
|
Section
8.3
|
Bankruptcy
Defaults
|
22
|
|
Section
8.4
|
Expenses
|
22
|
SECTION
9.
CHANGE
IN CIRCUMSTANCES.
|
22
|
|
Section
9.1
|
Change
of Law
|
22
|
|
Section
9.2
|
Unavailability
of Deposits or Inability to Ascertain, or Inadequacy of,
LIBOR
|
22
|
|
Section
9.3
|
Increased
Cost and Reduced Return
|
22
|
|
Section
9.5
|
Lending
Offices
|
24
|
|
Section
9.6
|
Discretion
of Lender as to Manner of Funding
|
24
|
SECTION
11.
MISCELLANEOUS.
|
24
|
|
Section
11.1
|
Withholding
Taxes
|
24
|
|
Section
11.2
|
No
Waiver of Rights
|
25
|
|
Section
11.3
|
Non-Business
Day
|
25
|
|
Section
11.4
|
Documentary
Taxes
|
25
|
|
Section
11.5
|
Survival
of Representations
|
25
|
|
Section
11.6
|
Survival
of Indemnities
|
25
|
|
Section
11.7
|
Set-Off
|
26
|
|
Section
11.8
|
Notices
|
26
|
|
Section
11.9
|
Counterparts
|
27
|
|
Section
11.10
|
Successors
and Assigns
|
27
|
|
Section
11.11
|
[Reserved]
.
|
27
|
|
Section
11.12
|
Assignments,
Participations, Etc
|
27
|
|
Section
11.13
|
Amendments
|
29
|
|
Section
11.14
|
Headings
|
29
|
|
Section
11.15
|
Legal
Fees, Other Costs and Indemnification
|
29
|
|
Section
11.16
|
[Reserved]
.
|
30
|
|
Section
11.17
|
Entire
Agreement
|
30
|
|
Section
11.18
|
Construction
|
30
|
|
Section
11.19
|
Governing
Law
|
30
|
|
Section
11.20
|
SUBMISSION
TO JURISDICTION; WAIVER OF JURY TRIAL
|
30
|
|
Section
11.21
|
Confidentiality
|
31
|
|
Section
11.22
|
Patriot
Act
|
31
|
CREDIT
AGREEMENT
This
SEASONAL
CREDIT AGREEMENT,
dated as
of October 20, 2006, is by and between PEOPLES ENERGY CORPORATION, an Illinois
corporation (the “
Borrower
”),
and
BANK OF AMERICA, N.A., as lender (in such capacity, the “
Lender
”).
WITNESSETH
THAT:
WHEREAS,
the
Borrower desires to obtain the commitment of the Lender to make available a
seasonal revolving credit facility for loans (the “
Revolving
Credit
”),
as
described herein; and
WHEREAS,
the
Lender is willing to extend such commitments subject to all of the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth.
NOW,
THEREFORE,
in
consideration of the recitals set forth above and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION
1.
DEFINITIONS;
INTERPRETATION.
Section
1.1
Definitions
.
The following terms when used herein have the following meanings:
“Affiliate
”
means,
as to any Person, any other Person which directly or indirectly controls, or
is
under common control with, or is controlled by, such Person. As used in this
definition, “
control
”
(including “
controlled
by
”
and
“
under
common control with
”
and
other cognates thereof,) means possession, directly or indirectly, of power
to
direct or cause the direction of management or policies of a Person (whether
through ownership of securities or partnership or other ownership interests,
by
contract or otherwise), provided that, in any event for purposes of this
definition: (i) any Person which owns directly or indirectly 5% or more of
the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or 5% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of
such
other Person) will be deemed to control such corporation or other Person; and
(ii) each director and executive officer of the Borrower or any Subsidiary
shall
be deemed an Affiliate of the Borrower and each Subsidiary.
“
Agreement
”
means
this Credit Agreement, including all Exhibits and Schedules hereto, as it may
be
amended, supplemented or otherwise modified from time to time in accordance
with
the terms hereof.
“
Applicable
Margin
”
means,
at any time (i) with respect to Base Rate Loans, the Base Rate Margin; and
(ii)
with respect to LIBOR Loans, the LIBOR Margin.
“
Applicable
Telerate Page
”
is
defined in Section 2.3(b) hereof.
“Assignment
and Assumption”
means an
assignment and assumption entered into by the Lender and an Eligible Assignee
(with the consent of any party whose consent is required by
Section 11.12(b)), in substantially any form approved by the
Lender.
“
Authorized
Representative
”
means
those persons shown on the list of employees provided by the Borrower pursuant
to Section 6.1(e) hereof, or on any such updated list provided by the Borrower
to the Lender, or any further or different employee of the Borrower so named
by
any officer of the Borrower in a written notice to the Lender.
“
Base
Rate
”
is
defined in Section 2.3(a) hereof.
“
Base
Rate Loan
”
means
a
Loan bearing interest prior to maturity at a rate specified in Section 2.3(a)
hereof.
“
Base
Rate Margin
”
means
the percentage set forth in Schedule 1A hereto corresponding to the then
applicable Credit Rating.
“
Borrower
”
is
defined in the preamble of this Agreement.
“
Borrowing
”
means
the total of Loans of a single type advanced, continued for an additional
Interest Period, or converted from a different type into such type by the Lender
on a single date and for a single Interest Period. A Borrowing is “advanced” on
the day the Lender advances funds comprising such Borrowing to the Borrower,
is
“continued” on the date a new Interest Period for the same type of Loans
commences for such Borrowing, and is “converted” when such Borrowing is changed
from one type of Loan to the other, all as requested by the Borrower pursuant
to
Section 2.5(a).
“
Business
Day
”
means
any day other than a Saturday or Sunday on which Lender is not authorized or
required to close in Chicago, Illinois and, if the applicable Business Day
relates to the borrowing or payment of a LIBOR Loan, on which banks are dealing
in U.S. Dollars in the interbank market in London, England.
“
Capital
”
means,
as of any date of determination thereof, without duplication, the sum of
Consolidated Net Worth
plus
Indebtedness, excluding accumulated other comprehensive income/loss, as
determined in accordance with generally accepted accounting principles
consistently applied.
“
Capital
Lease
”
means
at any date any lease of Property which, in accordance with GAAP, would be
required to be capitalized on the balance sheet of the lessee.
“
Capital
Ratio
”
means,
for any fiscal quarter of the Borrower, the ratio, rounded downwards to two
decimal points, of the sum of Indebtedness for such fiscal quarter to the sum
of
Capital for such fiscal quarter.
“
Capitalized
Lease Obligations
”
means,
for any Person, the amount of such Person’s liabilities under Capital Leases
determined at any date in accordance with GAAP.
“
Code
”
means
the Internal Revenue Code of 1986, as amended.
“
Commitment
Fee Rate”
means
the
percentage set forth on Schedule 1A hereto corresponding to the then applicable
Credit Rating.
“
Compliance
Certificate
”
means
a
certificate in the form of Exhibit A hereto.
“
Consolidated
EBIT
”
means,
for any period, for the Borrower and its Consolidated Subsidiaries, (A) the
sum
of the amounts for such period of (i) consolidated net income, (ii) net income
taxes in respect of such period (such amount to be a positive number in cases
where net cash taxes are payable and zero in cases where a cash refund in
respect of taxes paid is due), (iii) consolidated interest expense, and (iv)
losses on sales of assets (excluding sales in the ordinary course of business)
and other extraordinary losses less (B) the amount for such period of (i)
interest income and (ii) gains on sales of assets (excluding sales in the
ordinary course of business) and other extraordinary gains, all as determined
on
a consolidated basis in accordance with GAAP.
“
Consolidated
Net
Worth
”
means,
as of the date of any determination thereof, the amount reflected as
shareholders equity upon a consolidated balance sheet of the Borrower and its
Subsidiaries.
“
Contractual
Obligation
”
means,
as to any Person, any provision of any security issued by such Person or of
any
agreement, instrument or undertaking to which such Person is a party or by
which
it or any of its Property is bound.
“
Controlled
Group
”
means
all members of a controlled group of corporations and all trades and businesses
(whether or not incorporated) under common control that, together with the
Borrower or any of its Subsidiaries, are treated as a single employer under
Section 414 of the Code.
“
Credit
Documents
”
means
this Agreement, the Note and all other documents, instrument and agreements
executed and delivered by Borrower or any Affiliate thereof in connection with
this Agreement.
“
Credit
Event
”
means
the Borrowing of any Loan.
“
Credit
Rating
”
means,
at any time, the long-term senior un-secured non-credit enhanced debt rating
of
the Borrower as determined by Standard & Poors’ Ratings Services and/or
Moody’s Investors Service.
“
Default
”
means
any event or condition the occurrence of which would, with the passage of time
or the giving of notice, or both, constitute an Event of Default.
“
EBIT
”
means,
for any period, for the Borrower or any of its Subsidiaries, (A) the sum of
the
amounts for such period of (i) net income, (ii) net income taxes in respect
of
such period (such amount to be a positive number in cases where net cash taxes
are payable and zero in cases where a cash refund in respect of taxes paid
is
due), (iii) interest expense, and (iv) losses on sales of assets (excluding
sales in the ordinary course of business) and other extraordinary losses less
(B) the amount for such period of (i) interest income and (ii) gains on sales
of
assets (excluding sales in the ordinary course of business) and other
extraordinary gains, all as determined in accordance with GAAP.
“
Effective
Date
”
means
October 20, 2006.
“Eligible
Assignee”
means
(a) an Affiliate of the Lender, and (b) any other Person (other than a natural
person) approved by (i) the Lender, and (ii) unless an Event of Default has
occurred and is continuing, the Borrower (each such approval not to be
unreasonably withheld or delayed);
provided
that
notwithstanding the foregoing, “Eligible Assignee” shall not include the
Borrower or any of the Borrower’s Affiliates or Subsidiaries.
“
ERISA
”
is
defined in Section 5.5 hereof.
“
Event
of Default
”
means
any of the events or circumstances specified in Section 8.1 hereof.
“
Existing
Credit Agreement
”
means
that certain Credit Agreement dated as of June 13, 2006 by and among Borrower,
Bank of America, N.A. as “Agent” thereunder, and the other financial
institutions a party thereto (as may be amended, supplemented or modified from
time to time).
“
Federal
Funds Rate
”
means
the fluctuating interest rate per annum described in part (x) of clause (ii)
of
the definition of Base Rate set forth in Section 2.3(a) hereof.
“
GAAP
”
means
generally accepted accounting principles as in effect in the United States
from
time to time, applied by the Borrower and its Subsidiaries on a basis consistent
with the preparation of the Borrower’s financial statements furnished to the
Lender as described in Section 5.3 hereof.
“
Guarantee
”
means,
in respect of any Person, any obligation, contingent or otherwise, of such
Person directly or indirectly guaranteeing any Indebtedness of another Person,
including, without limitation, by means of an agreement to purchase or pay
(or
advance or supply funds for the purchase or payment of) such Indebtedness or
to
maintain financial covenants, or to assure the payment of such Indebtedness
by
an agreement to make payments in respect of goods or services regardless of
whether delivered, or otherwise, provided, that the term “Guarantee” shall not
include endorsements for deposit or collection in the ordinary course of
business; and such term when used as a verb shall have a correlative
meaning.
“
Indebtedness
”
means,
as to any Person, without duplication: (i) all obligations of such Person for
borrowed money or evidenced by bonds, debentures, notes or similar instruments;
(ii) all obligations of such Person for the deferred purchase price of property
or services (other than in respect of trade accounts payable arising in the
ordinary course of business, customer deposits, provisions for rate refunds
(if
any), deferred fuel expenses and obligations in respect of pensions and other
post-retirement benefits and employee welfare plans); (iii) all Capitalized
Lease Obligations of such Person; (iv) all Indebtedness of others secured by
a
Lien on any properties, assets or revenues of such Person (other than stock,
partnership interests or other equity interests of the Borrower or any
Subsidiaries in other entities) to the extent of the lesser of the value of
the
property subject to such Lien or the amount of such Indebtedness; (v) all
Indebtedness of others Guaranteed by such Person; and (vi) all obligations
of
such Person, contingent or otherwise, in respect of any letters or credit
(whether commercial or standby) or bankers’ acceptances.
“
Interest
Period
”
is
defined in Section 2.6 hereof.
“
Lender
”
is
defined in the preamble of this Agreement and includes any successor
thereto.
“
Lending
Office
”
is
defined in Section 9.4 hereof.
“
LIBOR
”
is
defined in Section 2.3(b) hereof.
“
LIBOR
Loan
”
means
a
Loan bearing interest prior to maturity at the rate specified in Section 2.3(b)
hereof.
“
LIBOR
Margin
”
means
the percentage set forth in Schedule 1A hereto beside the then applicable Credit
Rating.
“
LIBOR
Reserve Percentage
”
is
defined in Section 2.3(b) hereof.
“
Lien
”
means
any interest in Property securing an obligation owed to, or a claim by, a Person
other than the owner of the Property, whether such interest is based on the
common law, statute or contract, including, but not limited to, the security
interest lien arising from a mortgage, encumbrance, pledge, conditional sale,
security agreement or trust receipt, or a lease, consignment or bailment for
security purposes. For the purposes of this definition, a Person shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, Capital Lease or other arrangement pursuant to
which
title to the Property has been retained by or vested in some other Person for
security purposes, and such retention of title shall constitute a
“Lien.”
“
Loan
”
is
defined in Section 2.1 hereof and, as so defined, includes a Base Rate Loan
or
LIBOR Loan, each of which is a “type” of Loan hereunder.
“
Material
Adverse Effect
”
means
a
material adverse effect on (i) the business, financial position or results
of
operations of the Borrower, (ii) the ability of the Borrower to perform its
obligations under the Credit Documents, (iii) the validity or enforceability
of
the obligations of the Borrower, (iv) the rights and remedies of the Lender
against the Borrower or (v) the timely payment of the principal of and interest
on the Loans or other amounts payable by the Borrower hereunder.
“
Non-Recourse
Indebtedness
”
means
all Indebtedness of the Borrower that is non-recourse to the
Borrower.
“
Note
”
is
defined in Section 2.10(a) hereof.
“
Obligations
”
means
all fees payable hereunder, all obligations of the Borrower to pay principal
or
interest on Loans and all other payment obligations of the Borrower arising
under or in relation to any Credit Document.
“
Person
”
means
an individual, partnership, corporation, limited liability company, association,
trust, unincorporated organization or any other entity or organization,
including a government or any agency or political subdivision
thereof.
“
Plan
”
means
at any time an employee pension benefit plan covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code that
is
either (i) maintained by a member of the Controlled Group or (ii) maintained
pursuant to a collective bargaining agreement or any other arrangement under
which more than one employer makes contributions and to which a member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions.
“
PBGC
”
is
defined in Section 5.5 hereof.
“
Property
”
means
any interest in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible, whether now owned or hereafter acquired.
“
Reference
Bank
”
means
Bank of America, N.A.
“
Revolving
Credit Commitment
”
is
defined in Section 2.1 hereof.
“
SEC
”
means
the Securities and Exchange Commission.
“
Significant
Subsidiary
”
means
a
Subsidiary of the Borrower which meets any of the following
conditions:
(1)
the
book
value of the Subsidiary’s assets exceeds twenty percent (20%) of the book value
of the assets of the Borrower and its other Subsidiaries consolidated as of
the
end of the most recently completed fiscal quarter; or
(2)
the
Subsidiary’s EBIT exceeds twenty percent (20%) of Consolidated EBIT as of the
end of the most recently completed fiscal quarter and the twelve month period
ending therewith.
“
SPC
”
is
defined in Section 11.12(g) hereof.
“
Subsidiary
”
means,
as to the Borrower, any corporation or other entity of which more than fifty
percent (50%) of the outstanding stock or comparable equity interests having
ordinary voting power for the election of the Board of Directors of such
corporation or similar governing body in the case of a non-corporation
(irrespective of whether or not, at the time, stock or other equity interests
of
any other class or classes of such corporation or other entity shall have or
might have voting power by reason of the happening of any contingency) is at
the
time directly or indirectly owned by the Borrower or by one or more of its
Subsidiaries.
“
Telerate
Service
”
means
the Moneyline Telerate.
“
Termination
Date
”
means
the earlier to occur of (i) March 31, 2007 and (ii) the consummation of the
merger between a subsidiary of WPS Resources Corporation and Borrower as
contemplated by that certain merger application filed with the Illinois Commerce
Commission on or about August 2, 2006.
“
Unfunded
Vested Liabilities
”
means,
with respect to any Plan at any time, the amount (if any) by which (i) the
present value of all vested non-forfeitable accrued benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such excess represents a potential liability
of a member of the Controlled Group to the PBGC or the Plan under Title IV
of
ERISA.
“
Upfront
Fee
”
is
defined in Section 3.1(d).
“
U.S.
Dollars
”
and
“
$
”
each
means the lawful currency of the United States of America.
“
Utilization
Fee Rate
”
means
the percentage set forth in Schedule 1A hereto corresponding to the then
applicable Credit Rating.
“
Welfare
Plan
”
means
a
“welfare plan”, as defined in Section 3(l) of ERISA.
Section
1.2
Interpretation
.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the terms defined. All references to times of day in this
Agreement shall be references to Chicago, Illinois time unless otherwise
specifically provided. Where the character or amount of any asset or liability
or item of income or expense is required to be determined or any consolidation
or other accounting computation is required to be made for the purposes of
this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the specific
provisions of this Agreement.
SECTION
2.
THE
REVOLVING CREDIT.
Section
2.1
The
Loan Commitment
.
Subject to the terms and conditions hereof the Lender agrees to make a
loan or loans (individually a “
Loan
”
and
collectively “
Loans
”)
to the
Borrower from time to time on a revolving basis in an aggregate outstanding
amount up to the TWENTY FIVE MILLION DOLLARS (
$
25,000,000)
(such amount, as increased or reduced pursuant to Section 2.12 or changed as
a
result of one or more assignments under Section 11.12, the “
Revolving
Credit Commitment
”)
before
the Termination Date,
provided
that the
sum of the aggregate amount of Loans at any time outstanding shall not exceed
the Revolving Credit Commitment in effect at such time. As provided in Section
2.5(a) hereof, the Borrower may elect that each Borrowing of Loans be either
Base Rate Loans or LIBOR Loans. Loans may be repaid and the principal amount
thereof re-borrowed before the Termination Date, subject to all the terms and
conditions hereof.
Section
2.2
[Reserved]
.
Section
2.3
Applicable
Interest Rates
.
Section
2.4
Base
Rate Loans
.
Each Base Rate Loan made or maintained by Lender shall bear interest during
each
Interest Period it is outstanding (computed (x) at all times the Base Rate
is
based on the rate described in clause (i) of the definition thereof, on the
basis of a year of 365 or 366 days, as applicable, and actual days elapsed
or
(y) at all times the Base Rate is based on the rate described in clause (ii)
of
the definition thereof, on the basis of a year of 360 days and actual days
elapsed) on the unpaid principal
amount
thereof from the date such Loan is advanced, continued or created by conversion
from a LIBOR Loan until maturity (whether by acceleration or otherwise) at
a
rate per annum equal to the sum of the Applicable Margin plus the Base Rate
from
time to time in effect, payable on the last day of its Interest Period and
at
maturity (whether by acceleration or otherwise).
“
Base
Rate
”
means
for any day the greater of:
i
the
rate
of interest announced by Bank of America, N.A. from time to time as its “Prime
Commercial Lending Rate,” or equivalent, for U.S. Dollar loans as in effect on
such day, with any change in the Base Rate resulting from a change in said
prime
rate to be effective as of the date of the relevant change in said “Prime
Commercial Lending Rate”; and
ii
the
sum
of (x) the rate determined by the Lender to be the prevailing rate per annum
(rounded upwards, if necessary, to the nearest one hundred-thousandth of a
percentage point) at approximately 10:00 a.m. (Chicago time) (or as soon
thereafter as is practicable) on such day (or, if such day is not a Business
Day, on the immediately preceding Business Day) for the purchase at face value
of overnight Federal funds in an amount comparable to the principal amount
owed
to Bank of America, N.A. for which such rate is being determined, plus (y)
one-half of one percent (0.50%).
(b)
LIBOR
Loans
.
Each
LIBOR Loan made or maintained by Lender shall bear interest during each Interest
Period it is outstanding (computed on the basis of a year of 360 days and actual
days elapsed) on the unpaid principal amount thereof from the date such Loan
is
advanced, continued, or created by conversion from a Base Rate Loan until
maturity (whether by acceleration or otherwise) at a rate per annum equal to
the
sum of the Applicable Margin plus the LIBOR applicable for such Interest Period,
payable on the last day of the Interest Period and at maturity (whether by
acceleration or otherwise).
“
LIBOR
”
means,
for an Interest Period for a Borrowing of LIBOR Loans, (a) the LIBOR Index
Rate
for such Interest Period, if such rate is available, and (b) if the LIBOR Index
Rate cannot be determined, the arithmetic average of the rates of interest
per
annum (rounded upwards, if necessary, to the nearest one-sixteenth of one
percent) at which deposits in U.S. Dollars in immediately available funds are
offered to the Reference Bank at 11:00 a.m. (London, England time) two (2)
Business Days before the beginning of such Interest Period by major banks in
the
interbank LIBOR market for delivery on the first day of and for a Period equal
to such Interest Period in an amount equal or comparable to the principal amount
of the LIBOR Loan scheduled to be made by the Reference Bank as part of such
Borrowing.
“
LIBOR
Index Rate
”
means,
for any Interest Period, the rate per annum (rounded upwards, if necessary,
to
the next higher one-sixteenth of one percent) for deposits in U.S. Dollars,
for
delivery on the first day of and for a period equal to such Interest Period
in
an amount equal or comparable to the principal amount of the LIBOR Loan
scheduled to be made by Bank of America, N.A. as part of such Borrowing, which
appears on the Applicable Telerate Page, as appropriate for such currency,
as of
11:00 a.m. (London, England time) on the day two (2) Business Days before the
commencement of such Interest Period.
“
Applicable
Telerate Page
”
means
the display page designated as “
Page
3750
”
on
the
Telerate Service (or such other page as may replace such page, as appropriate,
on that service or such other service as may be nominated by the British
Bankers’ Association as the information vendor for the purpose of displaying
British Bankers’ Association Interest Settlement Rates for deposits in U.S.
Dollars).
“
LIBOR
Reserve Percentage
”
means
for any Borrowing of LIBOR Loans from Lender, the daily average for the
applicable Interest Period of the actual effective rate, expressed as a decimal,
at which reserves (including, without limitation, any supplemental, marginal
and
emergency reserves) are maintained by Lender during such Interest Period
pursuant to Regulation D of the Board of Governors of the Federal Reserve System
(or any successor) on “
LIBOR
liabilities
”,
as
defined in such Board’s Regulation D (or in respect of any other category of
liabilities that includes deposits by reference to which the interest rate
on
LIBOR Loans is determined or any category of extensions of credit or other
assets that include loans by non-United States offices of Lender to United
States residents), subject to any amendments of such reserve requirement by
such
Board or its successor, taking into account any transitional adjustments
thereto. For purposes of this definition, the LIBOR Loans shall be deemed to
be
“
LIBOR
liabilities
”
as
defined in Regulation D without benefit or credit for any prorations, exemptions
or offsets under Regulation D.
(c)
Rate
Determinations
.
The
Lender shall determine each interest rate applicable to Obligations and the
amount of all Obligations, and a determination thereof by the Lender shall
be
conclusive and binding except in the case of manifest error.
Section
2.5
Minimum
Borrowing Amounts
.
Each Borrowing of Base Rate Loans shall be in an amount not less than
$1,000,000 and in integral multiples of $500,000. Each Borrowing of LIBOR Loans
shall be in an amount not less than $2,000,000 and in integral multiples of
$1,000,000.
Section
2.6
Manner
of Borrowing Loans and Designating Interest Rates Applicable to
Loans
.
Section
2.7
Notice
to the Lender
.
The
Borrower shall give notice to the Lender by no later than 10:00 a.m. (Chicago
time) (i) at least two (2) Business Days before the date on which the Borrower
requests the Lender to advance a Borrowing of LIBOR Loans and (ii) at least
one
(1) Business Day before the date on which the Borrower requests the Lender
to
advance a Borrowing of Base Rate Loans. The Loans included in each Borrowing
shall bear interest initially at the type of rate specified in such notice
of a
new Borrowing. Thereafter, the Borrower may from time to time elect to change
or
continue the type of interest rate borne by each Borrowing or, subject to
Section 2.4’s minimum amount requirement for each outstanding Borrowing, a
portion thereof, as follows: (i) if such Borrowing is of LIBOR Loans, on the
last day of the Interest Period applicable thereto, the Borrower may continue
part or all of such Borrowing as LIBOR Loans for an Interest Period or Interest
Periods specified by the Borrower or convert part or all of such Borrowing
into
Base Rate Loans, (ii) if such Borrowing is of Base Rate Loans, on any Business
Day, the Borrower may convert all or part of such Borrowing into LIBOR Loans
for
an Interest Period or Interest Periods specified by the Borrower. The Borrower
shall
give all such notices requesting the advance, continuation, or conversion of
a
Borrowing to the Lender by telephone or facsimile (which notice shall be
irrevocable once given and, if by telephone, shall be promptly confirmed in
writing). Notices of the continuation of a Borrowing of LIBOR Loans for an
additional Interest Period or of the conversion of part or all of a Borrowing
of
LIBOR Loans into Base Rate Loans or of Base Rate Loans into LIBOR Loans must
be
given by no later than 10:00 a.m. (Chicago time) at least three (3) Business
Days before the date of the requested continuation or conversion. All such
notices concerning the advance, continuation, or conversion of a Borrowing
shall
specify the date of the requested advance, continuation or conversion of a
Borrowing (which shall be a Business Day), the amount of the requested Borrowing
to be advanced, continued, or converted, the type of Loans to comprise such
new,
continued or converted Borrowing and, if such Borrowing is to be comprised
of
LIBOR Loans, the Interest Period applicable thereto. The Borrower agrees that
the Lender may rely on any such telephonic or facsimile notice given by any
person it in good faith believes is an Authorized Representative without the
necessity of independent investigation, and in the event any such notice by
telephone conflicts with any written confirmation, such telephonic notice shall
govern if the Lender has acted in reliance thereon. There may be no more than
five different Interest Periods in effect at any one time, provided that for
purposes of determining the number of Interest Periods in effect at any one
time, all Base Rate Loans shall be deemed to have one and the same Interest
Period.
(a)
[Reserved]
.
(b)
Borrower’s
Failure to Notify
.
Any
outstanding Borrowing of Base Rate Loans shall, subject to Section 6.2 hereof,
automatically be continued for an additional Interest Period on the last day
of
its then current Interest Period as a Base Rate Loan unless the Borrower has
notified the Lender within the period required by Section 2.5(a) that it intends
to convert such Borrowing into a Borrowing of LIBOR Loans or notifies the Lender
within the period required by Section 2.8(a) that it intends to prepay such
Borrowing. If the Borrower fails to give notice pursuant to Section 2.5(a)
above
of the continuation or conversion of any outstanding principal amount of a
Borrowing of LIBOR Loans before the last day of its then current Interest Period
within the period required by Section 2.5(a) and has not notified the Lender
within the period required by Section 2.8(a) that it intends to prepay such
Borrowing, such Borrowing shall automatically be converted into a Borrowing
of
Base Rate Loans, subject to Section 6.2 hereof.
Section
2.8
Interest
Periods
.
As provided in Section 2.5(a) hereof, at the time of each request to
advance, continue, or create by conversion a Borrowing of LIBOR Loans, the
Borrower shall select an Interest Period applicable to such Loans from among
the
available options. The term “
Interest
Period
”
means
the period commencing on the date a Borrowing of Loans is advanced, continued,
or created by conversion and ending: (a) in the case of Base Rate Loans, on
the
last Business Day of the calendar quarter in which such Borrowing is advanced,
continued, or created by conversion (or on the last day of the following
calendar quarter if such Loan is advanced, continued or created by conversion
on
the last Business Day of a calendar quarter), and (b) in the case of LIBOR
Loans, 1, 2 or 3 months thereafter;
provided
,
however
,
that:
(a)
any
Interest Period for a Borrowing of Base Rate Loans that otherwise would end
after the Termination Date shall end on the Termination Date;
(b)
for
any
Borrowing of LIBOR Loans, the Borrower may not select an Interest Period that
extends beyond the Termination Date;
(c)
whenever
the last day of any Interest Period would otherwise be a day that is not a
Business Day, the last day of such Interest Period shall be extended to the
next
succeeding Business Day, provided that, if such extension would cause the last
day of an Interest Period for a Borrowing of LIBOR Loans to occur in the
following calendar month, the last day of such Interest Period shall be the
immediately preceding Business Day; and
(d)
for
purposes of determining an Interest Period for a Borrowing of LIBOR Loans,
a
month means a period starting on one day in a calendar month and ending on
the
numerically corresponding day in the next calendar month;
provided
,
however
,
that if
there is no numerically corresponding day in the month in which such an Interest
Period is to end or if such an Interest Period begins on the last Business
Day
of a calendar month, then such Interest Period shall end on the last Business
Day of the calendar month in which such Interest Period is to end.
Section
2.9
Maturity
of Loans
.
Unless an earlier maturity is provided for hereunder (whether by
acceleration or otherwise), each Loan shall mature and become due and payable
by
the Borrower on the Termination Date.
Section
2.10
Prepayments
.
Section
2.11
The Borrower may prepay without premium or penalty and in whole or in part
(but,
if in part, then: (i) if such Borrowing is of Base Rate Loans, in an amount
not
less than $1,000,000 and integral multiples of $500,000 in excess thereof,
(ii)
if such Borrowing is of LIBOR Loans, in an amount not less than $2,000,000
and
integral multiples of $1,000,000 in excess thereof and (iii) in an amount such
that the minimum amount required for a Borrowing pursuant to Section 2.4 hereof
remains outstanding) any Borrowing of LIBOR Loans upon three Business Days’
prior notice to the Lender or, in the case of a Borrowing of Base Rate Loans,
notice delivered to the Lender no later than 10:00 a.m. (Chicago time) on the
date of prepayment, such prepayment to be made by the payment of the principal
amount to be prepaid and accrued interest thereon to the date fixed for
prepayment. In the case of LIBOR Loans, any amounts owing under Section 2.11
hereof as a result of such prepayment shall be paid contemporaneously with
such
prepayment. Any amount paid or prepaid before the Termination Date may, subject
to the terms and conditions of this Agreement, be borrowed, repaid and borrowed
again.
(a)
At
any
time that the Borrower becomes aware, or should have become aware (pursuant
to
Borrower’s ordinary business practices) that the aggregate amount of outstanding
Loans shall at any time for any reason exceed the Revolving Credit Commitment
then in effect, the Borrower shall, immediately notify the Lender of this
determination. Within two (2) Business Days of the delivery of the notice
described in the preceding sentence, the Borrower shall, without further notice
or demand, pay the amount of such excess to the Lender as a prepayment of the
Loans. Each such prepayment shall be accompanied by a payment of all accrued
and
unpaid interest on the Loans prepaid and shall be subject to Section
2.11.
Section
2.12
Default
Rate
.
If any payment of principal on any Loan or other Obligation is not made
when due (whether by acceleration or otherwise), such Loan shall bear interest
(computed on the basis of a year of 360 days and actual days elapsed or, if
based on the rate described in clause (i) of the definition of Base Rate, on
the
basis of a year of 365 or 366 days, as applicable, and the actual number of
days
elapsed) from the date such payment was due until paid in full, payable on
demand, at a rate per annum equal to:
(a)
for
any
Base Rate Loan or Obligation other than a LIBOR Loan, the sum of two percent
(2%) plus the Applicable Margin plus the Base Rate from time to time in effect;
and
(b)
for
any
LIBOR Loan, the sum of two percent (2%) plus the rate of interest in effect
thereon at the time of such default until the end of the Interest Period
applicable thereto and, thereafter, at a rate per annum equal to the sum of
two
percent (2%) plus the Applicable Margin plus the Base Rate from time to time
in
effect.
Section
2.13
Evidence
of Debt
.
(a)
Lender shall maintain in accordance with its usual practice an account or
accounts evidencing the indebtedness of the Borrower to Lender resulting from
each Loan owing to Lender from time to time, including the amounts of principal
and interest payable and paid to Lender from time to time hereunder in respect
of Loans. The Borrower agrees that upon notice by Lender to the Borrower to
the
effect that a Note is required or appropriate in order for Lender to evidence
(whether for purposes of pledge, enforcement or otherwise) the Loans owing
to,
or to be made by, Lender under the Credit Documents, the Borrower shall promptly
execute and deliver to Lender a promissory note in the form of Exhibit A hereto
(such promissory note is hereinafter referred to as the
“Note”
).
Section
2.14
Funding
Indemnity
.
If Lender shall incur any loss, cost or expense (including, without
limitation, any loss, cost or expense (excluding loss of margin) incurred by
reason of the liquidation or re-employment of deposits or other funds acquired
by Lender to fund or maintain any LIBOR Loan or the relending or reinvesting
of
such deposits or amounts paid or prepaid to Lender) as a result of:
(a)
any
payment (whether by acceleration or otherwise), prepayment or conversion of
a
LIBOR Loan on a date other than the last day of its Interest
Period,
(b)
any
failure (because of a failure to meet the conditions of Section 6 or otherwise)
by the Borrower to borrow or continue a LIBOR Loan, or to convert a Base Rate
Loan into a LIBOR Loan, on the date specified in a notice given pursuant to
Section 2.5(a) or established pursuant to Section 2.5(c) hereof,
(c)
any
failure by the Borrower to make any payment of principal on any LIBOR Loan
when
due (whether by acceleration or otherwise), or
(d)
any
acceleration of the maturity of a LIBOR Loan as a result of the occurrence
of
any Event of Default hereunder,
then,
upon the demand of Lender, the Borrower shall pay to Lender such amount as
will
reimburse Lender for such loss, cost or expense. If Lender makes such a claim
for compensation, it shall provide to the Borrower a certificate executed by
an
officer of Lender setting forth the amount of such loss, cost or expense in
reasonable detail (including an explanation of the basis for and the computation
of such loss, cost or expense) and the amounts shown on such certificate if
reasonably calculated shall be conclusive absent manifest error.
Section
2.15
Revolving
Credit Commitment Terminations
.
The Borrower shall have the right at any time and from time to time, upon
five (5) Business Days’ prior written notice to the Lender, to terminate the
Revolving Credit Commitment without premium or penalty, in whole or in part,
any
partial termination to be in an amount not less than $2,000,000 and integral
multiples of $1,000,000 in excess thereof,
provided
that the
Revolving Credit Commitment may not be reduced to an amount less than the sum
of
the amount of all Loans then outstanding. Any termination of Revolving Credit
Commitment pursuant to this Section 2.12 may not be reinstated.
Section
2.16
Regulation
D Compensation
.
The Lender may require the Borrower to pay, contemporaneously with each
payment of interest on the LIBOR Loans, additional interest on the related
LIBOR
Loans of Lender at a rate per annum equal to the excess of (i)(A) the applicable
LIBOR rate (or other base rate determined pursuant to Section 2.9(b)) divided
by
(B) one minus the LIBOR Reserve Percentage over (ii) the rate specified in
clause (i)(A). Any computation by Lender of such additional interest shall
be
conclusive absent manifest error. If the Lender requires payment of such
additional interest (x) it shall notify the Borrower that it is subject to
LIBOR
reserves under Regulation D of the Board of Governors of the Federal Reserve
System (or any successor regulation), in which case such additional interest
on
the LIBOR Loans of Lender shall be payable to Lender at the place indicated
in
such notice with respect to each Interest Period commencing at least five (5)
Business Days after the giving of such notice and (y) shall notify the Borrower
at least five (5) Business Days prior to each date on which interest is payable
on the LIBOR Loans of the amount then due under this Section.
Section
2.17
Arbitrage
Compensation
.
If at the time of the making of any Loan hereunder, the interest rate
payable hereunder in respect of such Loan is less than the rate (as determined
by the Lender in consultation with the Borrower) at which funds of comparable
term and amount are generally available to the Borrower in the commercial paper
market (the “
CP
Rate
”)
(an
“
Arbitrage
Condition
”),
the
Borrower agrees to pay to the Lender arbitrage compensation on such Loan at
a
rate equal to the difference between the effective interest rate payable
hereunder (inclusive of all fees) in respect of such Loan and the CP Rate as
applied to such Loan. Such payments shall continue, at the time and in the
manner set forth for payments of interest on such Loan, for as long as the
Arbitrage Condition continues. Upon the termination of the Arbitrage Condition
for any reason (as determined by the Lender in consultation with the Borrower),
such payments shall no longer be due with respect to such Loan, even if a future
Arbitrage Condition were to occur prior to repayment in full of such
Loan.
SECTION
3.
FEES.
Section
3.1
Fees
.
(a)
Commitment
Fee
.
For the period from the Effective Date to and including the Termination Date,
Borrower shall pay to the Lender a commitment fee accruing at a rate per annum
equal to the Commitment Fee Rate on the average daily amount of the unused
Revolving Credit Commitment. Such commitment fee is payable in arrears on
December 31, 2006, on the last Business Day of each calendar quarter thereafter
and on the Termination Date, unless the Revolving Credit Commitment are
terminated in whole on an earlier date, in which event the fee for the period
to
but not including the date of such termination shall be paid in whole on the
date of such termination.
(b)
[Reserved].
(c)
Utilization
Fee
.
From and after the Effective Date, for any day on which the aggregate principal
amount of Loans then outstanding exceeds fifty percent (50%) of the Revolving
Credit Commitment then in effect, Borrower shall pay to the Lender a utilization
fee accruing at a rate per annum equal to the Utilization Fee Rate on the
aggregate amount of Loans outstanding on such date. Such fee is payable in
arrears on the last Business Day of each calendar quarter and on the Termination
Date, and if the Revolving Credit Commitment is terminated in whole prior to
the
Termination Date, the fee for the period to but not including the date of such
termination shall be paid in whole on the date of such termination.
(d)
Upfront
Fee
.
The Borrower shall pay to the Lender a fee (the “
Upfront
Fee
”)
in an
amount equal to $6,250 representing two and one half basis points (0.025%)
of
the Revolving Credit Commitment. The Upfront Fee shall be non-refundable and
shall be fully earned, due and payable in full on the Effective
Date.
(e)
[Reserved]
.
(f)
[Reserved]
.
(g)
Fee
Calculations
.
All fees payable under this Agreement shall be payable in U.S. Dollars and
shall
be computed on the basis of a year of 360 days, for the actual number of days
elapsed. All determinations of the amount of fees owing hereunder (and the
components thereof) shall be made by the Lender and shall be conclusive absent
manifest error..
SECTION
4.
PLACE
AND
APPLICATION OF PAYMENTS.
Section
4.1
Place
and Application of Payments
.
All payments of principal of and interest on the Loans, and of all other
Obligations and other amounts payable by the Borrower under the Credit
Documents, shall be made by the Borrower to the Lender by no later than 12:30
p.m. (Chicago time) on the due date thereof at the principal office of the
Lender in New York, New York, pursuant to the payment instructions set forth
on
Part A of Schedule 1 hereof (or such other location in the United States as
the
Lender may designate to the Borrower). Any payments received after such time
shall be deemed to have been received by the Lender on the next Business Day.
All such payments shall be made free and clear of, and without deduction for,
any set-off, counterclaim, levy, or any other deduction of any kind in U.S.
Dollars, in immediately available funds at the place of payment.
SECTION
5.
REPRESENTATIONS
AND WARRANTIES.
The
Borrower hereby represents and warrants to the Lender as to itself and, where
the following representations and warranties apply to Subsidiaries, as to each
of its Subsidiaries, as follows:
Section
5.1
Corporate
Organization and Authority
.
The Borrower is duly organized and existing in good standing under the
laws of the State of Illinois; has all necessary corporate power to carry on
its
present business; and is duly licensed or qualified and, in good standing in
each jurisdiction in which the failure to be so licensed, qualified or in good
standing would have a Material Adverse Effect.
Section
5.2
Corporate
Authority and Validity of Obligations
.
The Borrower has full right and authority to enter into this Agreement and
the other Credit Documents to which it is a party, to make the borrowings herein
provided for, to issue its Notes in evidence thereof, and to perform all of
its
obligations under the Credit Documents to which it is a party. Each Credit
Document to which it is a party has been duly authorized, executed and delivered
by the Borrower and constitutes valid and binding obligations of the Borrower
enforceable in accordance with its terms, except as such enforceability may
be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforceability of creditors’ rights generally and by equitable
principles of general applicability (regardless of whether such enforceability
is considered in a proceeding in equity or at law). No Credit Document, nor
the
performance or observance by the Borrower of any of the matters or things
therein provided for, contravenes any provision of law or any charter or by-law
provision of the Borrower or any material Contractual Obligation of or affecting
the Borrower or any of its Properties or results in or requires the creation
or
imposition of any Lien on any of the Properties or revenues of the
Borrower.
Section
5.3
Financial
Statements
.
All financial statements heretofore delivered to the Lender showing
historical performance of the Borrower for each of the Borrower’s fiscal
quarters and/or years ending on or before June 30, 2006, have been prepared
in
accordance with generally accepted accounting principles applied on a basis
consistent, except as otherwise noted therein, with that of the previous fiscal
year. Each of such financial statements fairly presents on a consolidated basis
the financial condition of the Borrower and its Subsidiaries as of the dates
thereof and the results of operations for the periods covered thereby. The
Borrower and its Subsidiaries have no material contingent liabilities other
than
those disclosed in the financial statements or in comments or footnotes thereto,
or in any report supplementary thereto, most recently furnished to the Lender
as
of the time such representation and warranty is made, including reports of
the
Borrower filed with the SEC from time to time. Since June 30, 2006 through
the
Effective Date, there has been no event or series of events which has resulted
in a Material Adverse Effect.
Section
5.4
Approvals
.
No authorization, approval, consent, license, exemption, filing or
registration with any court or governmental department, agency or
instrumentality, nor any approval or consent of the stockholders of the Borrower
or any Subsidiary or from any other Person, is necessary to the valid execution,
delivery or performance by the Borrower or any Subsidiary of any Credit Document
to which it is a party.
Section
5.5
ERISA
.
With respect to each Plan, the Borrower and each other member of the
Controlled Group has fulfilled its obligations under the minimum funding
standards of and is in compliance in all material respects with the Employee
Retirement Income Security Act of 1974, as amended (“
ERISA
”),
and
with the Code to the extent applicable to it and has not incurred any liability
to the Pension Benefit Guaranty Corporation (“
PBGC
”)
or a
Plan under Title IV of ERISA other than a liability to the PBGC for premiums
under Section 4007 of ERISA. Neither the Borrower nor any Subsidiary has any
contingent liabilities for any post-retirement benefits under a Welfare Plan,
other than liability for continuation coverage described in Part 6 of Title
I of
ERISA.
Section
5.6
Government
Regulation
.
Neither the Borrower nor any Subsidiary is an “
investment
company
”
within
the meaning of the Investment Company Act of 1940, as amended.
Section
5.7
Margin
Stock; Proceeds
.
Neither the Borrower nor any Subsidiary is engaged principally, or as one
of its primary activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (“
margin
stock
”
to
have
the same meaning herein as in Regulation U of the Board of Governors of the
Federal Reserve System). The Borrower will not use the proceeds of any Loan
in a
manner that violates any provision of Regulation U or X of the Board of
Governors of the Federal Reserve System. The Borrower is not subject to
regulation under the Investment Company Act of 1940. In addition, the Borrower
is not an “investment company” registered or required to be registered under the
Investment Company Act of 1940. Proceeds of the Loans will only be used to
backstop commercial paper issued by the Borrower and for general corporate
purposes.
Section
5.8
Full
Disclosure
.
All information heretofore furnished by the Borrower to the Lender for
purposes of or in connection with the Credit Documents or any transaction
contemplated thereby is, and all such information hereafter furnished by the
Borrower to the Lender will be, to the best of the Borrower’s knowledge, after
due inquiry, true and accurate in all material respects and not misleading
on
the date as of which such information is stated or certified.
SECTION
6.
CONDITIONS
PRECEDENT.
The
obligation of Lender to advance any Loan shall be subject to the following
conditions precedent:
Section
6.1
Initial
Credit Event
.
Before or concurrently with the Effective Date:
(a)
The
Lender shall have received the favorable written opinion of counsel to the
Borrower in form and substance reasonably acceptable to the Lender;
(b)
The
Lender shall have received copies of (i) the Articles of Incorporation, together
with all amendments and (ii) the Borrower’s bylaws (or comparable constituent
documents) and any amendments thereto, certified in each instance by its
Secretary or an Assistant Secretary;
(c)
The
Lender shall have received copies of resolutions of the Borrower’s Board of
Directors authorizing the execution and delivery of the Credit Documents and
the
consummation of the transactions contemplated thereby together with specimen
signatures of the persons authorized to execute such documents on the Borrower’s
behalf, all certified in each instance by its Secretary or an Assistant
Secretary;
(d)
The
Lender shall have received, if requested, an executed Note of the Borrower
dated
the date hereof and otherwise in compliance with the provisions of Section
2.10(a) hereof;
(e)
The
Lender shall have received a duly executed original of (i) this Agreement,
(ii)
a list of the Borrower’s Authorized Representatives and (iii) such other
documents as the Lender may reasonably request;
(f)
The
Lender shall have received a certificate by the chief financial officer of
the
Borrower, stating that on the Effective Date no Default or Event of Default
has
occurred and is continuing, and that all representations and warranties set
forth herein are true and correct as of such date;
(g)
The
Lender shall have received evidence that Borrower is validly existing and in
good standing under the laws of the jurisdiction of incorporation;
(h)
The
Lender shall have received payment of the Upfront Fee; and
(i)
The
Lender shall have received a duly executed Compliance Certificate containing
information as of June 30, 2006.
Section
6.2
All
Credit Events
.
As of the time of each Credit Event hereunder:
(a)
The
Lender shall have received the notice required by Section 2.5
hereof;
(b)
Each
of
the representations and warranties set forth in Section 5 hereof (except the
last sentence of Section 5.3) shall be and remain true and correct in all
material respects as of said time, taking into account any amendments to such
Section (including without limitation any amendments, modifications and updates
to the Schedules referenced therein) made after the date of this Agreement
in
accordance with its provisions, except that if any such representation or
warranty relates solely to an earlier date it need only remain true as of such
date; and
(c)
The
Borrower shall be in full compliance with all of the terms and conditions
hereof, and no Default or Event of Default shall have occurred and be continuing
or would occur as a result of such Credit Event.
Each
request for a Borrowing consisting of an advance of a Loan hereunder shall
be
deemed to be a representation and warranty by the Borrower on the date of such
Credit Event as to the facts specified in paragraphs (b) and (c) of this Section
6.2.
SECTION
7.
COVENANTS.
The
Borrower covenants and agrees that, so long as any Loan is outstanding
hereunder, or any Revolving Credit Commitment is available to or in use by
the
Borrower hereunder, except to the extent compliance in any case is waived in
writing by the Lender:
Section
7.1
Corporate
Existence
.
Borrower
shall preserve and maintain its corporate existence.
Section
7.2
ERISA
.
The Borrower will, and will cause each of its Subsidiaries to, promptly
pay and discharge all obligations and liabilities arising under ERISA of a
character which if unpaid or unperformed might result in the imposition of
a
Lien against any of its properties or assets and will promptly notify the Lender
of (i) the occurrence of any reportable event (as defined in ERISA) affecting
a
Plan, other than any such event of which the PBGC has waived notice by
regulation, (ii) receipt of any notice from PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor, (iii) its or
any
of its Subsidiaries’ intention to terminate or withdraw from any Plan, and (iv)
the occurrence of any event affecting any Plan which could result in the
incurrence by the Borrower or any of its Subsidiaries of any material liability,
fine or penalty, or any material increase in the contingent liability of the
Borrower or any of its Subsidiaries under any post-retirement Welfare Plan
benefit.
Section
7.3
Financial
Reports and Other Information
.
(a) The Borrower will maintain a system of accounting in accordance
with GAAP and will furnish to the Lender and its duly authorized representatives
such information respecting the business and financial condition of the Borrower
as Lender may reasonably request; and without any request, the Borrower will
furnish each of the following to the Lender:
i
within
one hundred twenty (120) days after the end of its fiscal year ending September
30, 2006, a copy of the Borrower’s financial statements for such fiscal year,
including the consolidated balance sheet of the Borrower for such year and
the
related statement of income and statement of cash flow, as certified by
independent public accountants of recognized national standing selected by
the
Borrower in accordance with GAAP with such accountants’ opinion to the effect
that the financial statements have been prepared in accordance with GAAP and
present fairly in all material respects in accordance with GAAP the consolidated
financial position of the Borrower and its Subsidiaries as of the close of
such
fiscal year and the results of their operations and cash flows for the fiscal
year then ended and that an examination of such accounts in connection with
such
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, such examination included such tests of
the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
ii
within
sixty (60) days after the end of each of the quarterly fiscal periods of the
Borrower during the term hereof, a consolidated un-audited balance sheet of
the
Borrower, and the related statement of income and statement of cash flow, as
of
the close of such period, all of the foregoing prepared by the Borrower in
reasonable detail in accordance with GAAP and certified by the Borrower’s chief
financial officer as fairly presenting the financial condition as at the dates
thereof and the results of operations for the periods covered thereby;
and
iii
within
five (5) days after Borrower files a Form 8-K with the SEC, a copy of said
form
8-K.
(b)
Each
financial statement furnished to the Lender pursuant to subsection (i) or (ii)
of this Section 7.3 shall be accompanied by (A) a written certificate signed
by
the Borrower’s chief financial officer to the effect that no Default or Event of
Default has occurred during the period covered by such statements or, if any
such Default or Event of Default has occurred during such period, setting forth
a description
of
such
Default or Event of Default and specifying the action, if any, taken by the
Borrower to remedy the same, and (B) a Compliance Certificate in the form of
Exhibit B hereto showing the Borrower’s compliance with the covenants set forth
in Sections 7.5 and 7.6 hereof.
(c)
The
Borrower will promptly (and in any event within five Business Days after an
officer of the Borrower has knowledge thereof) give notice to the Lender of
the
occurrence of any Default or Event of Default.
Section
7.4
Regulation
U; Proceeds
.
The Borrower will not use any part of the proceeds of any of the
Borrowings, directly or indirectly to purchase or carry any margin stock (as
defined in Section 5.7 hereof) or to extend credit to others for the purpose
of
purchasing or carrying any such margin stock. The Borrower will only use
proceeds of the Loans to backstop commercial paper issued by the Borrower and
for general corporate purposes.
Section
7.5
Sales
of Assets
.
The Borrower will not during the term of this Agreement sell, lease or
otherwise dispose of more that (i) thirty-five percent (35%) of the consolidated
fixed assets of the Borrower or (ii) fifteen percent (15%) of the consolidated
"regulated assets" of the Borrower. For purposes of this Section 7.5(a) the
amount of consolidated fixed assets shall be determined using the net book
value
of such assets at the time of such sale, lease or disposition.
(a)
The
Borrower will not sell, transfer or otherwise dispose of, or permit any
Subsidiary to issue, sell, transfer or otherwise dispose of, more than twenty
percent (20%) of any of its public utility Subsidiaries’ shares of stock of any
class (including as “stock” for purposes of this Section, any warrants, rights
or options to purchase or otherwise acquire stock or other Securities
exchangeable for or convertible into stock).
Section
7.6
Capital
Ratio
.
The Borrower will not at any time permit the Capital Ratio to exceed 0.65
to 1.00.
Section
7.7
Compliance
with Laws
.
Without limiting any of the other covenants of the Borrower in this
Section 7, the Borrower will conduct its business, and otherwise be, in
compliance with all applicable laws, regulations, ordinances and orders of
any
governmental or judicial authorities;
provided
,
however
,
that
the Borrower shall not be required to comply with any such law, regulation,
ordinance or order if the failure to comply therewith could not reasonably
be
expected to have a Material Adverse Effect.
Section
7.8
Mergers
and Consolidations
.
The Borrower will not, and will not permit any public utility Subsidiary,
to consolidate with or be a party to merger with any other Person;
provided,
however
,
that
the Borrower or any public utility Subsidiary of the Borrower may, upon prior
notice to the Lender, enter into one or more mergers or acquisitions with any
other Person so long as (a) in the case of the Borrower, the Borrower is the
surviving entity and (b) in the case of a public utility Subsidiary of the
Borrower, the Borrower will at all times continue to own at least 80% of the
equity securities of such public utility Subsidiary. The Lender acknowledges
that Borrower has entered into an agreement and plan of merger with a subsidiary
of WPS Resources Corporation.
SECTION
8.
EVENTS
OF
DEFAULT AND REMEDIES.
Section
8.1
Events
of Default
.
Any one or more of the following shall constitute an Event of
Default:
(a)
non-payment
by Borrower (i) when due of the principal of any Loan or (ii) in the payment
of
fees, interest or of any other Obligation within five (5) days of the due
date;
(b)
default
by the Borrower in the observance or performance of any covenant set forth
in
Section 7.1 with regard to the Borrower or (ii) Section 7.3(c), Section 7.4
through 7.6 hereof;
(c)
any
default by the Borrower in the observance or performance of any provision
hereof, or of any other Credit Document not mentioned in (a) or (b) above,
which
is not remedied within thirty (30) days after notice thereof shall have been
given to the Borrower by the Lender,
provided
that,
with respect only to Section 7.7, if Borrower (or its Subsidiary, as applicable)
has made good faith efforts to cure such default, then the Borrower shall be
afforded an additional period of time to cure such default, such additional
cure
period not to exceed thirty (30) days;
(d)
failure
to pay when due Indebtedness in an aggregate principal amount of $15,000,000
or
more of the Borrower, or (ii) default shall occur under one or more indentures,
agreements or other instruments under which any Indebtedness of the Borrower
in
an aggregate principal amount of $15,000,000 or more and such default shall
continue for a period of time sufficient to permit the holder or beneficiary
of
such Indebtedness (including, without limitation the Lender with respect to
loans, credit facilities and other extensions of credit other than pursuant
to
this Agreement) or a trustee therefor to cause the acceleration of the maturity
of any such Indebtedness or any mandatory unscheduled prepayment, purchase
or
funding;
(e)
representation
or warranty made herein or in any other Credit Document by the Borrower, or
in
any statement or certificate furnished pursuant hereto or pursuant to any other
Credit Document by the Borrower, or in connection with any Credit Document,
proves untrue in any material respect as of the date of the issuance or making,
or deemed making or issuance, thereof;
(f)
Borrower
shall (i) have entered involuntarily against it an order for relief under the
United States Bankruptcy Code, as amended, or any analogous action is taken
under any other applicable law relating to bankruptcy or insolvency and such
action continues un-discharged or is not dismissed or stayed for a period of
sixty (60) days, (ii) fail to pay its debts generally as they become due and
such failure to pay would constitute an Event of Default under Section 8.1(d)
or
admit in writing its inability to pay its debts generally as they become due,
(iii) make an assignment for the benefit of creditors, (iv) apply for, seek,
consent to, or acquiesce in, the appointment of a receiver, custodian,
trustee,
examiner, liquidator or similar official for it or any substantial part of
its
Property, (v) institute any proceeding seeking to have entered against it an
order for relief under the United States Bankruptcy Code, as amended, to
adjudicate it insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (vi) take any corporate
action (such as the passage by its board of directors of a resolution) in
furtherance of any matter described in parts (i)-(v) above, or (vii) fail to
contest in good faith any appointment or proceeding described in Section 8.1(g)
hereof;
(g)
Custodian,
receiver, trustee, examiner, liquidator or similar official shall be appointed
for the Borrower or any of its Significant Subsidiaries, or any substantial
part
of any of their Property, or a proceeding described in Section 8.1(f)(v) shall
be instituted against the Borrower, and such appointment continues un-discharged
or such proceeding continues un-dismissed or un-stayed for a period of sixty
(60) days;
(h)
the
Borrower shall fail within thirty (30) days to pay, bond or otherwise discharge
any judgment or order for the payment of money in excess of $15,000,000 which
is
not stayed on appeal or otherwise being appropriately contested in good faith
in
a manner that stays execution thereon;
(i)
the
Borrower or any other member of the Controlled Group shall fail to pay when
due
an amount or amounts which it shall have become liable, to pay to the PBGC
or to
a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or
Plans
having aggregate Unfunded Vested Liabilities in excess of $5,000,000
(collectively, a “
Material
Plan
”)
shall
be filed under Title IV of ERISA by the Borrower or any other member of the
Controlled Group, any plan administrator or any combination of the foregoing;
or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or
to
cause a trustee to be appointed to administer any Material Plan or a proceeding
shall be instituted by a fiduciary of any Material Plan against the Borrower
or
any other member of the Controlled Group to enforce Section 515 or 4219(c)(5)
of
ERISA and such proceeding shall not have been dismissed within thirty (30)
days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or
(j)
any
Event
of Default under the Existing Credit Agreement, it being the express intent
of
the parties hereto that this Agreement shall benefit from the covenants and
agreements contained in the Existing Credit Agreement.
Section
8.2
Non-Bankruptcy
Defaults
.
When any Event of Default other than those described in subsections (f) or
(g) of Section 8.1 hereof has occurred and is continuing, the Lender may: (a)
terminate the remaining Revolving Credit Commitment and all other obligations
of
the Lender hereunder (other than the obligations of the Lender under section
11.21 hereof) on the date stated in such notice (which may be the date thereof);
and (b) declare the principal of and the accrued interest on the outstanding
Note to be forthwith due and payable and thereupon the Note, including both
principal and interest thereon, and all other Obligations, shall be and become
immediately due and payable together with all other amounts payable under the
Credit Documents without further demand, presentment, protest or notice of
any
kind.
Section
8.3
Bankruptcy
Defaults
.
When any Event of Default described in subsections (f) or (g) of Section
8.1 hereof has occurred and is continuing, then the Note shall immediately
become due and payable together with all other amounts payable under the Credit
Documents without presentment, demand, protest or notice of any kind and the
obligation of the Lender to extend further credit pursuant to any of the terms
hereof shall immediately terminate.
Section
8.4
Expenses
.
The Borrower agrees to pay to the Lender and any other holder of the Note,
all costs and expenses incurred or paid by the Lender or any such holder,
including reasonable attorneys’ fees (including reasonable allocable fees of
in-house counsel) and court costs, in connection with any Default or Event
of
Default by the Borrower hereunder or in connection with the enforcement of
any
of the Credit Documents.
SECTION
9.
CHANGE
IN
CIRCUMSTANCES.
Section
9.1
Change
of Law
.
Notwithstanding any other provisions of this Agreement or the Note, if at
any time after the date hereof any change in applicable law or regulation or
in
the interpretation thereof makes it unlawful for Lender to make or continue
to
maintain LIBOR Loans or to perform its obligations as contemplated hereby,
Lender shall promptly give notice thereof to the Borrower and Lender’s
obligations to make or maintain LIBOR Loans under this Agreement shall terminate
until it is no longer unlawful for Lender to make or maintain LIBOR Loans.
The
Borrower shall prepay on demand the outstanding principal amount of any such
affected LIBOR Loans, together with all interest accrued thereon at a rate
per
annum equal to the interest rate applicable to such Loan;
provided
,
however
,
subject
to all of the terms and conditions of this Agreement, the Borrower may then
elect to borrow the principal amount of the affected LIBOR Loans from Lender
by
means of Base Rate Loans from Lender.
Section
9.2
Unavailability
of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR
.
If on or prior to the first day of any Interest Period for any Borrowing
of LIBOR Loans:
(a)
the
Lender determines that deposits in U.S. Dollars (in the applicable amounts)
are
not being offered to major banks in the LIBOR interbank market for such Interest
Period, or that by reason of circumstances affecting the interbank LIBOR market
adequate and reasonable means do not exist for ascertaining the applicable
LIBOR, or
(b)
Lender
reasonably determines that LIBOR as reasonably determined by the Lender will
not
adequately and fairly reflect the cost to Lender of funding its LIBOR Loans
or
Loan for such Interest Period, then the Lender shall forthwith give notice
thereof to the Borrower, whereupon until the Lender notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, the
obligations of the Lender to make LIBOR Loans shall be suspended.
Section
9.3
Increased
Cost and Reduced Return
.
Section
9.4
If, on
or after the date hereof, the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Lender (or its Lending Office) with any request or directive (whether or
not
having the force of law but, if not having the force of law, compliance with
which is customary in the relevant jurisdiction) of any such authority, central
bank or comparable agency:
i
shall
subject Lender (or its Lending Office) to any tax, duty or other charge with
respect to its LIBOR Loans, its Notes
or
its
participation in any thereof or its obligation to make Eurodollar Loans, or
to
participate therein,
or
shall
change the basis of taxation of payments to Lender (or its Lending Office)
of
the principal of or interest on its LIBOR Loans, Letter(s) of Credit, or
participations therein or any other amounts due under this Agreement in respect
of its LIBOR Loans or its obligation to make LIBOR Loans, (except for changes
in
the rate of tax on the overall net income or profits of Lender or its Lending
Office imposed by the jurisdiction in which Lender or its lending office is
incorporated in which Lender’s principal executive office or Lending Office is
located); or
ii
shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement (including, without limitation, any such requirement imposed by
the
Board of Governors of the Federal Reserve System, but excluding with respect
to
any LIBOR Loans any such requirement included in an applicable LIBOR Reserve
Percentage) against assets of, deposits with or for the account of, or credit
extended by, Lender (or its Lending Office) or shall impose on Lender (or its
Lending Office) or on the interbank market any other condition affecting its
LIBOR Loans, its Note,
or
its
obligation to make Eurodollar Loans
;
and
the
result of any of the foregoing is to increase the cost to Lender (or its Lending
Office) of making or maintaining any LIBOR Loan, or to reduce the amount of
any
sum received or receivable by Lender (or its Lending Office) under this
Agreement or under its Note with respect thereto, by an amount deemed by Lender
to be material, then, within fifteen (15) days after demand by Lender, the
Borrower shall be obligated to pay to Lender such additional amount or amounts
as will compensate Lender for such increased cost or reduction. In the event
any
law, rule, regulation or interpretation described above is revoked, declared
invalid or inapplicable or is otherwise rescinded, and as a result thereof
Lender is determined to be entitled to a refund from the applicable authority
for any amount or amounts which were paid or reimbursed by Borrower to Lender
hereunder, Lender shall refund such amount or amounts to Borrower without
interest.
(b)
If,
after
the date hereof, Lender shall have determined that the adoption of any
applicable law, rule or regulation regarding capital adequacy, or any change
therein (including, without limitation, any revision in the Final Risk-Based
Capital Guidelines of the Board of Governors of the Federal Reserve System
(12
CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) or of the Office of
the
Comptroller of the Currency (12 CFR Part 3, Appendix A), or in any other
applicable capital rules heretofore adopted and issued by any governmental
authority), or any change in the interpretation or administration thereof by
any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Lender (or its
Lending Office) with any request or directive regarding capital adequacy
(whether or not having the force of law but, if not having the force of law,
compliance with which is customary in the applicable jurisdiction) of any such
authority, central bank or comparable agency, has or would have the effect
of
reducing the rate of return on Lender’s capital, or on the capital of any
corporation controlling Lender, as a consequence of its obligations hereunder
to
a level below that which Lender could have achieved but for such adoption,
change or compliance (taking into consideration Lender’s policies with respect
to capital adequacy) by an amount deemed by Lender to be material, then from
time to time, within fifteen (15) days after demand by Lender, the Borrower
shall pay to Lender such additional amount or amounts as will compensate Lender
for such reduction.
(c)
If
Lender
determines to seek compensation under this Section 9.3, it shall notify the
Borrower of the circumstances that entitle it to such compensation pursuant
to
this Section 9.3 and will designate a different Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole judgment of Lender, be otherwise disadvantageous
to
Lender. A certificate of Lender claiming compensation under this Section 9.3
and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. In determining such amount,
Lender may use any reasonable averaging and attribution methods. Lender shall
not be entitled to demand compensation under this Section 9.3 for any period
more than 90 days prior to the day on which such demand is made;
provided
however
,
that
the foregoing shall in no way limit the right of Lender to demand or receive
such compensation to the extent that such compensation relates to the
retroactive application of any law, regulation, guideline or request if such
demand is made within 90 days after the implementation of such retroactive
law,
interpretation, guideline or request. A certificate as to the nature and amount
of such increased cost, submitted to the Borrower and the Lender in good faith,
shall be conclusive and binding for all purposes, absent manifest
error.
Section
9.5
Lending
Offices
.
The Lender may, at its option, elect to make Loans hereunder at the
branch, office or affiliate specified on the appropriate signature page hereof
or in the assignment agreement which any assignee bank executes pursuant to
Section 11.12 hereof (each a “Lending Office”) for each type of Loan available
hereunder or at such other of its branches, offices or affiliates as it may
from
time to time elect and designate in a written notice to the
Borrower.
Section
9.6
Discretion
of Lender as to Manner of Funding
.
Notwithstanding any other provision of this Agreement, the Lender shall be
entitled to fund and maintain its funding of all or any part of its Loans in
any
manner it sees fit, it being understood, however, that for the purposes of
this
Agreement all determinations hereunder shall be made as if the Lender had
actually funded and maintained each LIBOR Loan through the purchase of deposits
in the LIBOR interbank market having a maturity corresponding to such Loan’s
Interest Period and bearing an interest rate equal to LIBOR for such Interest
Period.
SECTION
10.
RESERVED.
SECTION
11.
MISCELLANEOUS.
Section
11.1
Withholding
Taxes
.
Subject to this Section 11.1, each payment by the Borrower under this
Agreement or the other Credit Documents shall be made without withholding for
or
on account of any present or future taxes (other than overall net income taxes
on the recipient). If any such withholding is so required, the Borrower shall
make the withholding, pay the amount withheld to the appropriate governmental
authority before penalties attach thereto or interest accrues thereon and
forthwith pay such additional amount as may be
necessary
to ensure that the net amount actually received by the Lender free and clear
of
such taxes (including such taxes on such additional amount) is equal to the
amount which the Lender would have received had such withholding not been made.
If the Lender pays any amount in respect of any such taxes, penalties or
interest the Borrower shall reimburse the Lender for that payment on demand.
If
the Borrower pays any such taxes, penalties or interest, it shall deliver
official tax receipts evidencing that payment or certified copies thereof to
the
Lender on or before the thirtieth day after payment. If the Lender determines
it
has received or been granted a credit against or relief or remission for, or
repayment of, any taxes paid or payable by it because of any taxes, penalties
or
interest paid by the Borrower and evidenced by such a tax receipt, Lender shall,
to the extent it can do so without prejudice to the retention of the amount
of
such credit, relief, remission or repayment, pay to the Borrower such amount
as
Lender determines is attributable to such deduction or withholding and which
will leave Lender (after such payment) in no better or worse position than
it
would have been in if the Borrower had not been required to make such deduction
or withholding. Nothing in this Agreement shall interfere with the right of
the
Lender to arrange its tax affairs in whatever manner it thinks fit nor oblige
the Lender to disclose any information relating to its tax affairs or any
computations in connection with such taxes.
Section
11.2
No
Waiver of Rights
.
No delay or failure on the part of the Lender or on the part of the holder
or holders of the Note in the exercise of any power or right under any Credit
Document shall operate as a waiver thereof, nor as an acquiescence in any
default, nor shall any single or partial exercise thereof preclude any other
or
further exercise of any other power or right, and the rights and remedies
hereunder of the Lender and/or the holder or holders of the Note are cumulative
to, and not exclusive of, any rights or remedies which any of them would
otherwise have.
Section
11.3
Non-Business
Day
.
If any payment of principal or interest on any Loan or of any other Obligation
shall fall due on a day which is not a Business Day, interest or fees (as
applicable) at the rate, if any, such Loan or other Obligation bears for the
period prior to maturity shall continue to accrue on such Obligation from the
stated due date thereof to and including the next succeeding Business Day,
on
which the same shall be payable.
Section
11.4
Documentary
Taxes
.
The Borrower agrees that it will pay any documentary, stamp or similar
taxes payable in respect to any Credit Document, including interest and
penalties, in the event any such taxes are assessed, irrespective of when such
assessment is made and whether or not any credit is then in use or available
hereunder.
Section
11.5
Survival
of Representations
.
All representations and warranties made herein or in certificates given
pursuant hereto shall survive the execution and delivery of this Agreement
and
the other Credit Documents, and shall continue in full force and effect with
respect to the date as of which they were made as long as any credit is in
use
or available hereunder.
Section
11.6
Survival
of Indemnities
.
All indemnities and all other provisions relative to reimbursement to the
Lender of amounts sufficient to protect the yield of the Lender with respect
to
the Loans, including, but not limited to, Section 2.11, Section 9.3 and Section
11.15 hereof, shall survive the termination of this Agreement and the other
Credit Documents and the payment of the Loans and all other
Obligations.
Section
11.7
Set-Off
.
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence of any
Event of Default, Lender and each subsequent holder of the Note is hereby
authorized by the Borrower at any time or from time to time, without notice
to
the Borrower or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all deposits (general
or special, including, but not limited to, Indebtedness evidenced by
certificates of deposit, whether matured or unmatured, and in whatever currency
denominated) and any other Indebtedness at any time held or owing by the Lender
or that subsequent holder to or for the credit or the account of the Borrower,
whether or not matured, against and on account of the obligations and
liabilities of the Borrower to the Lender or that subsequent holder under the
Credit Documents, including, but not limited to, all claims of any nature or
description arising out of or connected with the Credit Documents, irrespective
of whether or not (a) the Lender or that subsequent holder shall have made
any
demand hereunder or (b) the principal of or the interest on the Loans or the
Note and other amounts due hereunder shall have become due and payable pursuant
to Section 8 and although said obligations and liabilities, or any of them,
may
be contingent or unmatured.
Section
11.8
Notices
.
Except as otherwise specified herein, all notices under the Credit
Documents shall be in writing (including facsimile or other electronic
communication) and shall be given to a party hereunder at its address or
facsimile number set forth below or such other address or facsimile number
as
such party may hereafter specify by notice to the Lender and the Borrower,
given
by courier, by United States certified or registered mail, or by other
telecommunication device capable of creating a written record of such notice
and
its receipt. Notices under the Credit Documents to the Lender and the Borrower
shall be addressed to:
|
If
to the Borrower:
|
|
|
|
Peoples
Energy Corporation
130
East Randolph Drive
Chicago,
Illinois 60601
Attention:
Vice President, Finance
Facsimile:
312.373.4213
Telephone:
312.240.3818
|
|
|
|
If
to the Lender: (Notices related to commitments, covenants or extensions
of
expiry/termination dates)
|
|
|
|
Bank
of America, N.A.
100
Federal Street, MA5-100-09-08
Boston,
MA 02110
Attention:
Richard D. Hill, Jr./Dori J. Aleksandrowicz
Facsimile:
617-434-2160
Telephone:
617-434-4080 (Mr. Hill)
617-434-3358
(Ms. Aleksandrowicz)
|
|
Borrowing
Requests and notices relating to Loans, Interest and
Fees:
|
|
|
|
Bank
of America, N.A.
100
Federal Street, MA5-100-09-02
Boston,
MA 02110
Attention:
Wun W. Wong
Facsimile:
617-310-2353
Telephone:
617-434-9341
E-mail:
wun.w.wong@bankofamerica.com
|
|
|
Each
such
notice, request or other communication shall be effective (i) if given by
facsimile, when such facsimile is transmitted to the facsimile number specified
in this Section 11.8 or on the signature pages hereof and a confirmation of
receipt of such facsimile has been received by the sender, (ii) if given by
courier, when delivered, (iii) if given by mail, three business days after
such
communication is deposited in the mail, registered with return receipt
requested, addressed as aforesaid or (iv) if given by any other means, when
delivered at the addresses specified in this Section 11.8;
provided
that
any
notice given pursuant to Section 2 hereof shall be effective only upon
receipt.
Section
11.9
Counterparts
.
This Agreement may be executed in any number of counterpart signature
pages, and by the different parties on different counterparts, each of which
when executed shall be deemed an original but all such counterparts taken
together shall constitute one and the same instrument. Delivery of an executed
counterpart via facsimile or other electronic means shall for all purposes
be
deemed as effective as delivery of an original counterpart.
Section
11.10
Successors
and Assigns
.
This Agreement shall be binding upon the Borrower and its successors and
assigns, and shall inure to the benefit of each of the Lender and the benefit
of
their respective successors, and assigns, including any subsequent holder of
any
Note. The Borrower may not assign any of its rights or obligations under any
Credit Document without the written consent of all of the Lender.
Section
11.11
[Reserved]
.
Section
11.12
Assignments,
Participations, Etc
.
(a)
Successors
and Assigns Generally
The
provisions of this Agreement shall be binding upon and inure to the benefit
of
the parties hereto and their respective successors and assigns permitted hereby,
except that the Borrower may not assign or otherwise transfer any of its rights
or obligations hereunder without the prior written consent of the Lender and
Lender may not assign or otherwise transfer any of its rights or obligations
hereunder except (i) to an Eligible Assignee in accordance with the
provisions of paragraph (b) of this Section, (ii) by way of
participation in accordance with the provisions of paragraph (d) of this
Section or (iii) by way of pledge or assignment of a security interest
subject to the restrictions of paragraph (f) of this Section (and any other
attempted assignment or transfer by any party hereto shall be null and void).
Nothing in this Agreement, expressed or implied, shall be construed to confer
upon any Person (other than the parties hereto, their respective successors
and
assigns permitted hereby, Participants to the extent provided in
paragraph (d) of this Section and, to the extent expressly contemplated
hereby, the affiliates of each of the Lender and the Lender) any legal or
equitable right, remedy or claim under or by reason of this Agreement.
(b)
Assignments
by Lender.
The
Lender may at any time assign to one or more Eligible Assignees its rights
and
obligations under this Agreement (including its Revolving Credit Commitment
and
the Loans at the time owing to it);
provided
that so
long as no Event of Default has occurred and is continuing, any assignment
of a
Revolving Credit Commitment must be approved by the Borrower, which approval
shall not be unreasonably withheld, unless the Person that is the proposed
assignee is itself an Eligible Assignee. Subject to acceptance and recording
thereof by the Lender pursuant to paragraph (c) of this Section, from and
after the effective date specified in each Assignment and Assumption, the
Eligible Assignee thereunder shall be a party to this Agreement and, to the
extent of the interest assigned by such Assignment and Assumption, have the
rights and obligations of Lender under this Agreement shall to the extent of
the
interest assigned by such Assignment and Assumption, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Assumption covering all of the Lender’s rights and obligations under this
Agreement, Lender shall cease to be a party hereto) but shall continue to be
entitled to the benefits of Sections 9.3 and 11.1 with respect to facts and
circumstances occurring prior to the effective date of such assignment. Any
assignment or transfer by Lender of rights or obligations under this Agreement
that does not comply with this paragraph shall be treated for purposes of this
Agreement as a sale by Lender of a participation in such rights and obligations
in accordance with paragraph (d) of this Section.
(c)
Participations.
Lender
and/or any holder of the Note may at any time, without the consent of, or notice
to, the Borrower, sell participations to any Person (other than a natural person
or a Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a
“
Participant”
)
in all
or a portion of Lender’s or such holder’s rights and/or obligations under this
Agreement (including all or a portion of its Revolving Credit Commitment and/or
the Loans owing to it);
provided
that
(i) Lender’s obligations under this Agreement shall remain unchanged,
(ii) Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations and (iii) the Borrower shall continue
to deal solely and directly with Lender in connection with Lender’s rights and
obligations under this Agreement.
Any
agreement or instrument pursuant to which Lender sells such a participation
shall provide that Lender shall retain the sole right to enforce this Agreement
and to approve any amendment, modification or waiver of any provision of this
Agreement;
provided
that
such agreement or instrument may provide that Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
of
the type described in Section 11.13(i) that directly affects such Participant.
Subject to paragraph (e) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Section 2.11, Section 9.3
and
Section 11.7 to the same extent as if it were Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section. Lender
shall keep a register, meeting the requirements of Treasury Regulation Section
5f.103-1(c), of each participant, specifying such participant’s entitlement to
payments of principal and interest with respect to such
participation.
(d)
Limitations
upon Participant Rights.
A
Participant shall not be entitled to receive any greater payment under Section
2.11, Section 9.3 or Section 11.7 than the Lender would have been entitled
to
receive with respect to the participation sold to such Participant, unless
the
sale of the participation to such Participant is made with the Borrower’s prior
written consent.
(e)
Certain
Pledges.
The
Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of the Lender,
including without limitation any pledge or assignment to secure obligations
to a
Federal Reserve Bank; provided that no such pledge or assignment shall release
Lender from any of its obligations hereunder or substitute any such pledgee
or
assignee for Lender as a party hereto.
Certain
Funding Arrangements.
Notwithstanding
anything to the contrary contained herein, Lender may grant to a special purpose
funding vehicle (a “
SPC”
),
identified as such in writing from time to time by the Lender and the Borrower,
the option to provide to the Borrower all or any part of any Loan that the
Lender would otherwise be obligated to make to the Borrower pursuant to this
Agreement;
provided
that (i)
nothing herein shall constitute a commitment by any SPC to make any Loan, (ii)
if an SPC elects not to exercise such option or otherwise fails to provide
all
or any part of such Loan, the Lender shall be obligated to make such Loan
pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall
utilize the Revolving Credit Commitment of the Lender to the same extent, and
as
if, such Loan were made by the Lender. Each party hereto hereby agrees that
no
SPC shall be liable for any indemnity or similar payment obligation under this
Agreement (all liability for which shall remain with the Lender). In furtherance
of the foregoing, each party hereto hereby agrees (which agreement shall survive
the termination of this Agreement) that, prior to the date that is one year
and
one day after the payment in full of all outstanding commercial paper or other
senior indebtedness of any SPC, it will not institute against, or join any
other
person in instituting against, such SPC any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the United
States or any State thereof arising out of any claim relating to the Credit
Documents. In addition, notwithstanding anything to the contrary contained
in
this Section 11.12(b), any SPC may (i) with notice to, but without the prior
written consent of, the Borrower, assign all or a portion of its interests
in
any Loan to the Lender or to any financial institutions (consented to by the
Borrower and Lender) providing liquidity and/or credit support to or for the
account of such SPC to support the funding or maintenance of Loans and (ii)
disclose on a confidential basis any non-public information relating to its
Loans to any rating agency, commercial paper dealer or provider of any surety,
guarantee or credit or liquidity enhancement to such SPC. This section may
not
be amended without the written consent of the SPC.
Section
11.13
Amendments
.
Any provision of the Credit Documents may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the Borrower
and the Lender.
Section
11.14
Headings
.
Section headings used in this Agreement are for reference only and shall
not affect the construction of this Agreement.
Section
11.15
Legal
Fees, Other Costs and Indemnification
.
The Borrower agrees to pay all reasonable costs and expenses of the Lender
in connection with the preparation and negotiation of the Credit Documents,
including without limitation, the reasonable fees and disbursements of counsel
to the Lender in connection with the preparation and execution of the Credit
Documents, and any amendment,
waiver
or
consent related hereto, whether or not the transactions contemplated herein
are
consummated. The Borrower further agrees to indemnify the Lender and its
directors, agents, officers and employees, against all losses, claims, damages,
penalties, judgments, liabilities and expenses (including, without limitation,
all reasonable expenses of litigation or preparation therefor, whether or not
the indemnified Person is a party thereto) which any of them may incur or
reasonably pay arising out of or relating to any Credit Document or any of
the
transactions contemplated thereby or the direct or indirect application or
proposed application of the proceeds of any Loan, other than those which arise
from the gross negligence or willful misconduct of the party claiming
indemnification. The Borrower, upon demand by the Lender at any time, shall
reimburse the Lender for any reasonable legal or other expenses (including
reasonable allocable fees and expenses of in-house counsel) incurred in
connection with investigating or defending against any of the foregoing except
if the same is directly due to the gross negligence or willful misconduct of
the
party to be indemnified.
Section
11.16
[Reserved]
.
Section
11.17
Entire
Agreement
.
The Credit Documents constitute the entire understanding of the parties thereto
with respect to the subject matter thereof and any prior or contemporaneous
agreements, whether written or oral, with respect thereto are superseded
thereby.
Section
11.18
Construction
.
The parties hereto acknowledge and agree that neither this Agreement nor
the other Credit Documents shall be construed more favorably in favor of one
than the other based upon which party drafted the same, it being acknowledged
that all parties hereto contributed substantially to the negotiation of this
Agreement and the other Credit Documents.
Section
11.19
Governing
Law
.
This Agreement and the other Credit Documents, and the rights and duties
of the parties hereto, shall be construed and determined in accordance with
the
internal laws of the State of Illinois.
Section
11.20
SUBMISSION
TO JURISDICTION; WAIVER OF JURY TRIAL
.
THE BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS AND OF ANY ILLINOIS
STATE COURT SITTING IN THE CITY OF CHICAGO FOR PURPOSES OF ALL LEGAL PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR
THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER IRREVOCABLY WAIVES,
TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
ANY
CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY.
Section
11.21
Confidentiality
.
The Lender shall hold all non-public information provided to it by
Borrower pursuant to or in connection with this Agreement in accordance with
its
customary procedures for handling confidential information of this nature,
but
may make disclosure to any of its examiners, regulators, Affiliates, outside
auditors, counsel and other professional advisors in connection with this
Agreement or any other Credit Document or as reasonably required by any
potential
bona
fide
transferee, participant or assignee, or in connection with the exercise of
remedies under a Credit Document, or to any nationally recognized rating agency
that requires access to information about Lender’s investment portfolio in
connection with ratings issued with respect to Lender, or as requested by any
governmental agency or representative thereof or pursuant to legal process;
provided
,
however
,
that
unless specifically prohibited by applicable law or court order, the Lender
shall use reasonable efforts to promptly notify Borrower of any request by
any
governmental agency or representative thereof (other than any such request
in
connection with an examination of the financial condition of the Lender by
such
governmental agency) for disclosure of any such non-public information and,
where practicable, prior to disclosure of such information. Prior to any such
disclosure pursuant to this Section 11.21, the Lender shall require any
such
bona
fide
transferee,
participant and assignee receiving a disclosure of non-public information to
agree, for the benefit of Borrower, in writing to be bound by this Section
11.21; and to require such Person to require any other Person to whom such
Person discloses such non-public information to be similarly bound by this
Section 11.21. The Lender shall not be required to hold confidential any
information that becomes public by any means other than as a result of a breach
by it of its obligations under this Section 11.21.
Section
11.22
Patriot
Act
.
As required by federal law or the Lender or Lender’s polices and
practices, the Lender may need to collect certain customer identification
information and documentation in connection with opening or maintaining accounts
or establishing or continuing to provide services.
Balance
of Page Intentionally Left Blank
-
Signature Page Follows -
In
Witness Whereof, the parties hereto have caused this Seasonal Credit Agreement
to be duly executed and delivered in Chicago, Illinois by their duly authorized
officers as of the day and year first above written.
|
PEOPLES
ENERGY CORPORATION
,
an Illinois corporation, as Borrower
|
|
|
|
By:
/s/ Douglas M. Ruschau
|
|
Its:
Vice President & Treasurer
|
|
|
|
|
|
BANK
OF AMERICA, N.A
.,
as Lender
|
|
|
|
By:
/s/ Richard D. Hill, Jr.
|
|
Its:
Managing Director
|
|
Title:
_____________________
|
|
|
EXHIBIT
A
REVOLVING
NOTE
$25,000,000
|
October
20,
2006
|
FOR
VALUE RECEIVED,
the
undersigned,
PEOPLES
ENERGY CORPORATION
,
an
Illinois corporation (the “
Borrower
”),
promises to pay to the order of
BANK
OF AMERICA, N.A.
(the
“
Bank
”)
on the
Termination Date of the hereinafter defined Credit Agreement, or such earlier
date as provided in the Credit Agreement or this Note, at the principal office
of the Bank in Chicago, Illinois, in U.S. Dollars in accordance with Section
4.1
of the Credit Agreement, the aggregate unpaid principal of all Loans made by
the
Bank to the Borrower pursuant to the Credit Agreement, together with interest
on
the principal amount of each Loan from time to time outstanding hereunder at
the
rates, and payable in the manner and on the dates, specified in the Credit
Agreement.
The
Bank
shall record on its books or records or on a schedule attached to this Note,
which is a part hereof, each Loan made by it pursuant to the Credit Agreement,
together with all payments of principal and interest and the principal balances
from time to time outstanding hereon, whether the Loan is a Base Rate Loan
or a
LIBOR Loan and the interest rate and Interest Period applicable thereto,
provided that prior to the transfer of this Note all such amounts shall be
recorded on a schedule attached to this Note. The record thereof, whether shown
on such books or records or on a schedule to this Note, shall be
prima
facie
evidence
of the same, provided, however, that the failure of the Bank to record any
of
the foregoing or any error in any such record shall not limit or otherwise
affect the obligation of the Borrower to repay all Loans made to it pursuant
to
the Credit Agreement together with accrued interest thereon.
This
Note
is the “Note” referred to in that certain Seasonal Credit Agreement dated as of
October 20, 2006, by and between the Borrower and Bank of America, N.A. (the
“
Credit
Agreement
”),
and
this Note and the holder hereof are entitled to all the benefits provided for
thereby or referred to therein, to which Credit Agreement reference is hereby
made for a statement thereof. This Note may only be conveyed, transferred,
assigned or otherwise negotiated to a holder in accordance with the terms of
the
Credit Agreement. All defined terms used in this Note, except terms otherwise
defined herein, shall have the same meaning as in the Credit Agreement. This
Note shall be governed by and construed in accordance with the internal laws
of
the State of Illinois.
Prepayments
may be made hereon and this Note may be declared due prior to the expressed
maturity hereof, all in the events, on the terms and in the manner as provided
for in the Credit Agreement.
The
Borrower hereby waives demand, presentment, protest or notice of any kind
hereunder.
|
PEOPLES
ENERGY CORPORATION
,
an Illinois corporation
|
|
|
|
By:
__________________________
|
|
Its:
__________________________
|
EXHIBIT
B
COMPLIANCE
CERTIFICATE
This
Compliance Certificate is furnished to Bank of America, N.A., as Lender pursuant
to the Credit Agreement (the “
Credit
Agreement
”)
dated
as of October 20, 2006, by and between Peoples Energy Corporation and Bank
of
America, N.A. Unless otherwise defined herein, the terms used in this Compliance
Certificate have the meanings ascribed thereto in the Credit
Agreement.
THE
UNDERSIGNED HEREBY CERTIFIES THAT:
1.
I
am the
duly elected or appointed ___________________of Peoples Energy
Corporation;
2.
I
have
reviewed the terms of the Credit Agreement and I have made, or have caused
to be
made under my supervision, a detailed review of the transactions and conditions
of Peoples Energy Corporation and its Subsidiaries during the accounting period
covered by the attached financial statements;
3.
The
examinations described in paragraph 2 did not disclose, and I have no knowledge
of, the existence of any condition or event which constitutes a Default or
an
Event of Default during or at the end of the accounting period covered by the
attached financial statements or as of the date of this Certificate, except
as
set forth below. Without limitation to the foregoing, except as noted below
the
Borrower is in compliance with 7.5 and Section 7.6 of the Credit Agreement;
and
4.
Schedule
1 attached hereto sets forth (i) financial data and computations evidencing
compliance with certain covenants of the Credit Agreement, all of which data
and
computations are true, complete and correct, and are made in accordance with
the
terms of the Credit Agreement, and (ii) the list of Subsidiaries in existence
as
of the date hereof.
Described
below are the exceptions, if any, to paragraph 3 by listing, in detail, the
nature of the condition or event, the period during which it has existed and
the
action which the Borrower has taken, is taking, or proposes to take with respect
to each such condition or event:
The
foregoing certifications, together with the list set forth in Schedule 1 hereto
and the financial statements delivered with this Certificate in support hereof,
are made and delivered this ___________day of __________, 20 __.
SCHEDULE
1 TO COMPLIANCE CERTIFICATE
Compliance
Calculations for Credit Agreement
CALCULATION
AS OF ________ __,200_
Capital
Ratio (Sec. 7.6)
|
|
|
1.
(a)
consolidated Indebtedness
|
$
|
|
(b)
less
accumulated other comprehensive income/loss
|
$__________
|
|
(c)
net consolidated Indebtedness
|
$__________
|
|
2.
Consolidated
Net Worth
|
$
|
|
3.
Sum
of Line 1(c)
plus
Line 2
|
$
|
|
4.
Capital
Ratio
|
_____
:1.00
|
(ratio
of (A) Line 1(c) to (B) Line 3 not to exceed 0.65 to
1.00)
|
List
of Subsidiaries
The
Peoples Gas Light and Coke Company
Peoples
Gas Light Exploration Company
Peoples
Gas Neighborhood Development Corporation
North
Shore Gas Company
North
Shore Exploration Company
Peoples
District Energy Corporation
Peoples
NGV Corp.
Peoples
Energy Production Company
PEP
Holding, LLC
Peoples
Energy Canadian Holdings, Inc.
Peoples
Energy Production Company of Canada
Peoples
Energy Production Operating Company
Peoples
Energy Production Partners, L.P.
Peoples
Energy Production - Texas, L.P.
EnerVest
Energy, L.P.
Sierra
1996-I Limited Partnership
Peoples
Energy Resources Company, LLC
Peoples
Energy Wholesale Marketing, LLC
|
PERC
Canada, Inc.
Peoples
Natural Gas Liquids, LLC
PERC
Holdings, LLC
PV
Midstream Ventures, LLC
PERC
Power, LLC
COB
Energy Facility, LLC
Peoples
Calumet, LLC
Calumet
Power, LLC
Peoples
Elwood, LLC
Elwood
Energy, LLC
Peoples
Elwood Expansion, LLC
Elwood
Expansion, LLC
Valencia
Energy, LLC
Peoples
MW, LLC
Peoples
Energy Services Corporation
Peoples
Energy Ventures, LLC
Peoples
Energy Business Services, LLC
Peoples
Energy Home Services, LLC
Peoples
Energy Neighborhood Development, LLC
Peoples
Technology, LLC
|
SCHEDULE
1
LENDER’S
PAYMENT INFORMATION
Loan
Repayments, Interest, Fees:
Bank
of
America, N.A.
New
York,
N.Y.
ABA
#
026009593
A/C:
Business Credit Services,/Middle Market-NE Team 3
Account
#
1093600000591
Reference:
Peoples Energy
Schedule
1
Credit
Agreement
SCHEDULE
1A
PRICING
GRID
(Basis
Points)
S
& P/ Moody’s Senior Un-Secured Rating
|
A/
A2 or higher
|
A-/
A3
|
BBB+/
Baa1
|
BBB/
Baa2
|
BBB-/
Baa3
|
lower
than BBB-/ Baa3
|
Commitment
Fee
|
6.0
|
7.0
|
8.0
|
10.0
|
12.5
|
20.0
|
Base
Rate Margin
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
LIBOR
Margin
|
25.0
|
30.0
|
40.0
|
50.0
|
62.5
|
87.5
|
Utilization
Fee (>50%)
|
10.0
|
10.0
|
12.5
|
12.5
|
12.5
|
12.5
|
Any
change in a Credit Rating of the Borrower (and if applicable, any change in
fees
or interest payable hereunder based on such Credit Rating), shall be effective
as of the date such change is announced by the applicable rating
agency.
*
If
the Borrower is split-rated and the ratings differential is one level, the
higher rating will apply. If the Borrower is split-rated and the ratings
differential is two levels or more, the rating level one below the higher level
will apply. If at any time the Borrower has no Moody’s rating or no Standard
& Poors’ rating, the “Lower than BBB-/Baa3” level will apply; provided,
however, that in such event the Borrower may propose an alternative rating
agency or mechanism in replacement thereof.
Schedule
1 - A
Credit
Agreement
EXHIBIT
10(d)
Execution
Draft
SEASONAL
CREDIT AGREEMENT
DATED
AS OF
October
20, 2006
BETWEEN
PEOPLES
ENERGY CORPORATION,
and
JPMORGAN
CHASE BANK, N.A.
as
Lender.
|
TABLE
OF CONTENTS
SECTION
1.
DEFINITIONS;
INTERPRETATION.
|
1
|
|
Section
1.1
|
Definitions
|
1
|
|
Section
1.2
|
Interpretation
|
7
|
SECTION
2.
THE
REVOLVING CREDIT.
|
7
|
|
Section
2.1
|
The
Loan Commitment
|
7
|
|
Section
2.2
|
[Reserved]
|
7
|
|
Section
2.3
|
Applicable
Interest Rates
|
7
|
|
Section
2.5
|
Minimum
Borrowing Amounts
|
9
|
|
Section
2.6
|
Manner
of Borrowing Loans and Designating Interest Rates Applicable to
Loans
|
9
|
|
Section
2.8
|
Interest
Periods
|
10
|
|
Section
2.9
|
Maturity
of Loans
|
11
|
|
Section
2.10
|
Prepayments
|
11
|
|
Section
2.12
|
Default
Rate
|
11
|
|
Section
2.13
|
Evidence
of Debt
|
12
|
|
Section
2.14
|
Funding
Indemnity
|
12
|
|
Section
2.15
|
Revolving
Credit Commitment Terminations
|
12
|
|
Section
2.16
|
Regulation
D Compensation
|
13
|
|
Section
2.17
|
Arbitrage
Compensation
|
13
|
SECTION
3.
FEES.
|
13
|
|
Section
3.1
|
Fees
.
|
13
|
SECTION
4.
PLACE
AND APPLICATION OF PAYMENTS.
|
14
|
|
Section
4.1
|
Place
and Application of Payments
|
14
|
SECTION
5.
REPRESENTATIONS
AND WARRANTIES.
|
14
|
|
Section
5.1
|
Corporate
Organization and Authority
|
14
|
|
Section
5.2
|
Corporate
Authority and Validity of Obligations
|
14
|
|
Section
5.3
|
Financial
Statements
|
15
|
|
Section
5.4
|
Approvals
|
15
|
|
Section
5.5
|
ERISA
|
15
|
|
Section
5.6
|
Government
Regulation
|
15
|
|
Section
5.7
|
Margin
Stock; Proceeds
|
15
|
|
Section
5.8
|
Full
Disclosure
|
16
|
SECTION
6.
CONDITIONS
PRECEDENT.
|
16
|
|
Section
6.1
|
Initial
Credit Event
|
16
|
|
Section
6.2
|
All
Credit Events
|
17
|
SECTION
7.
COVENANTS.
|
17
|
|
Section
7.1
|
Corporate
Existence
|
17
|
|
Section
7.2
|
ERISA
|
17
|
|
Section
7.3
|
Financial
Reports and Other Information
|
17
|
|
Section
7.5
|
Regulation
U; Proceeds
|
18
|
|
Section
7.6
|
Sales
of Assets
|
18
|
|
Section
7.7
|
Capital
Ratio
|
19
|
|
Section
7.8
|
Compliance
with Laws
|
19
|
|
Section
7.9
|
Mergers
and Consolidations
|
19
|
SECTION
8.
EVENTS
OF DEFAULT AND REMEDIES.
|
19
|
|
Section
8.1
|
Events
of Default
|
19
|
|
Section
8.2
|
Non-Bankruptcy
Defaults
|
21
|
|
Section
8.3
|
Bankruptcy
Defaults
|
21
|
|
Section
8.4
|
Expenses
|
21
|
SECTION
9.
CHANGE
IN CIRCUMSTANCES.
|
21
|
|
Section
9.1
|
Change
of Law
|
21
|
|
Section
9.2
|
Unavailability
of Deposits or Inability to Ascertain, or Inadequacy of,
LIBOR
|
22
|
|
Section
9.3
|
Increased
Cost and Reduced Return
|
22
|
|
Section
9.5
|
Lending
Offices
|
23
|
|
Section
9.6
|
Discretion
of Lender as to Manner of Funding
|
24
|
SECTION
11.
MISCELLANEOUS.
|
24
|
|
Section
11.1
|
Withholding
Taxes
|
24
|
|
Section
11.2
|
No
Waiver of Rights
|
24
|
|
Section
11.3
|
Non-Business
Day
|
25
|
|
Section
11.4
|
Documentary
Taxes
|
25
|
|
Section
11.5
|
Survival
of Representations
|
25
|
|
Section
11.6
|
Survival
of Indemnities
|
25
|
|
Section
11.7
|
Set-Off
|
25
|
|
Section
11.8
|
Notices
|
25
|
|
Section
11.9
|
Counterparts
|
26
|
|
Section
11.10
|
Successors
and Assigns
|
27
|
|
Section
11.11
|
[Reserved]
.
|
27
|
|
Section
11.12
|
Assignments,
Participations, Etc
|
27
|
|
Section
11.13
|
Amendments
|
29
|
|
Section
11.14
|
Headings
|
29
|
|
Section
11.15
|
Legal
Fees, Other Costs and Indemnification
|
29
|
|
Section
11.16
|
[Reserved]
.
|
29
|
|
Section
11.17
|
Entire
Agreement
|
29
|
|
Section
11.18
|
Construction
|
29
|
|
Section
11.19
|
Governing
Law
|
29
|
|
Section
11.20
|
SUBMISSION
TO JURISDICTION; WAIVER OF JURY TRIAL
|
30
|
|
Section
11.21
|
Confidentiality
|
30
|
|
Section
11.22
|
Patriot
Act
|
30
|
CREDIT
AGREEMENT
This
SEASONAL
CREDIT AGREEMENT,
dated as
of October 20, 2006, is by and between PEOPLES ENERGY CORPORATION, an Illinois
corporation (the “
Borrower
”),
and
JPMORGAN CHASE BANK, N.A., as lender (in such capacity, the “
Lender
”).
WITNESSETH
THAT:
WHEREAS,
the
Borrower desires to obtain the commitment of the Lender to make available a
seasonal revolving credit facility for loans (the “
Revolving
Credit
”),
as
described herein; and
WHEREAS,
the
Lender is willing to extend such commitments subject to all of the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth.
NOW,
THEREFORE,
in
consideration of the recitals set forth above and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION
1.
DEFINITIONS;
INTERPRETATION.
Section
1.1
Definitions
.
The following terms when used herein have the following
meanings:
“Affiliate
”
means,
as to any Person, any other Person which directly or indirectly controls, or
is
under common control with, or is controlled by, such Person. As used in this
definition, “
control
”
(including “
controlled
by
”
and
“
under
common control with
”
and
other cognates thereof,) means possession, directly or indirectly, of power
to
direct or cause the direction of management or policies of a Person (whether
through ownership of securities or partnership or other ownership interests,
by
contract or otherwise), provided that, in any event for purposes of this
definition: (i) any Person which owns directly or indirectly 5% or more of
the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or 5% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of
such
other Person) will be deemed to control such corporation or other Person; and
(ii) each director and executive officer of the Borrower or any Subsidiary
shall
be deemed an Affiliate of the Borrower and each Subsidiary.
“
Agreement
”
means
this Credit Agreement, including all Exhibits and Schedules hereto, as it may
be
amended, supplemented or otherwise modified from time to time in accordance
with
the terms hereof.
“
Applicable
Margin
”
means,
at any time (i) with respect to Base Rate Loans, the Base Rate Margin; and
(ii)
with respect to LIBOR Loans, the LIBOR Margin.
“
Applicable
Telerate Page
”
is
defined in Section 2.3(b) hereof.
“Assignment
and Assumption”
means an
assignment and assumption entered into by the Lender and an Eligible Assignee
(with the consent of any party whose consent is required by
Section 11.12(b)), in substantially any form approved by the
Lender.
“
Authorized
Representative
”
means
those persons shown on the list of employees provided by the Borrower pursuant
to Section 6.1(e) hereof, or on any such updated list provided by the Borrower
to the Lender, or any further or different employee of the Borrower so named
by
any officer of the Borrower in a written notice to the Lender.
“
Base
Rate
”
is
defined in Section 2.3(a) hereof.
“
Base
Rate Loan
”
means
a
Loan bearing interest prior to maturity at a rate specified in Section 2.3(a)
hereof.
“
Base
Rate Margin
”
means
the percentage set forth in Schedule 1A hereto corresponding to the then
applicable Credit Rating.
“
Borrower
”
is
defined in the preamble of this Agreement.
“
Borrowing
”
means
the total of Loans of a single type advanced, continued for an additional
Interest Period, or converted from a different type into such type by the Lender
on a single date and for a single Interest Period. A Borrowing is “advanced” on
the day the Lender advances funds comprising such Borrowing to the Borrower,
is
“continued” on the date a new Interest Period for the same type of Loans
commences for such Borrowing, and is “converted” when such Borrowing is changed
from one type of Loan to the other, all as requested by the Borrower pursuant
to
Section 2.5(a).
“
Business
Day
”
means
any day other than a Saturday or Sunday on which Lender is not authorized or
required to close in Chicago, Illinois and, if the applicable Business Day
relates to the borrowing or payment of a LIBOR Loan, on which banks are dealing
in U.S. Dollars in the interbank market in London, England.
“
Capital
”
means,
as of any date of determination thereof, without duplication, the sum of
Consolidated Net Worth
plus
Indebtedness, excluding accumulated other comprehensive income/loss, as
determined in accordance with generally accepted accounting principles
consistently applied.
“
Capital
Lease
”
means
at any date any lease of Property which, in accordance with GAAP, would be
required to be capitalized on the balance sheet of the lessee.
“
Capital
Ratio
”
means,
for any fiscal quarter of the Borrower, the ratio, rounded downwards to two
decimal points, of the sum of Indebtedness for such fiscal quarter to the sum
of
Capital for such fiscal quarter.
“
Capitalized
Lease Obligations
”
means,
for any Person, the amount of such Person’s liabilities under Capital Leases
determined at any date in accordance with GAAP.
“
Code
”
means
the Internal Revenue Code of 1986, as amended.
“
Commitment
Fee Rate”
means
the
percentage set forth on Schedule 1A hereto corresponding to the then applicable
Credit Rating.
“
Compliance
Certificate
”
means
a
certificate in the form of Exhibit A hereto.
“
Consolidated
EBIT
”
means,
for any period, for the Borrower and its Consolidated Subsidiaries, (A) the
sum
of the amounts for such period of (i) consolidated net income, (ii) net income
taxes in respect of such period (such amount to be a positive number in cases
where net cash taxes are payable and zero in cases where a cash refund in
respect of taxes paid is due), (iii) consolidated interest expense, and (iv)
losses on sales of assets (excluding sales in the ordinary course of business)
and other extraordinary losses less (B) the amount for such period of (i)
interest income and (ii) gains on sales of assets (excluding sales in the
ordinary course of business) and other extraordinary gains, all as determined
on
a consolidated basis in accordance with GAAP.
“
Consolidated
Net
Worth
”
means,
as of the date of any determination thereof, the amount reflected as
shareholders equity upon a consolidated balance sheet of the Borrower and its
Subsidiaries.
“
Contractual
Obligation
”
means,
as to any Person, any provision of any security issued by such Person or of
any
agreement, instrument or undertaking to which such Person is a party or by
which
it or any of its Property is bound.
“
Controlled
Group
”
means
all members of a controlled group of corporations and all trades and businesses
(whether or not incorporated) under common control that, together with the
Borrower or any of its Subsidiaries, are treated as a single employer under
Section 414 of the Code.
“
Credit
Documents
”
means
this Agreement, the Note and all other documents, instrument and agreements
executed and delivered by Borrower or any Affiliate thereof in connection with
this Agreement.
“
Credit
Event
”
means
the Borrowing of any Loan.
“
Credit
Rating
”
means,
at any time, the long-term senior un-secured non-credit enhanced debt rating
of
the Borrower as determined by Standard & Poors’ Ratings Services and/or
Moody’s Investors Service.
“
Default
”
means
any event or condition the occurrence of which would, with the passage of time
or the giving of notice, or both, constitute an Event of Default.
“
EBIT
”
means,
for any period, for the Borrower or any of its Subsidiaries, (A) the sum of
the
amounts for such period of (i) net income, (ii) net income taxes in respect
of
such period (such amount to be a positive number in cases where net cash taxes
are payable and zero in cases where a cash refund in respect of taxes paid
is
due), (iii) interest expense, and (iv) losses on sales of assets (excluding
sales in the ordinary course of business) and other extraordinary losses less
(B) the amount for such period of (i) interest income and (ii) gains on sales
of
assets (excluding sales in the ordinary course of business) and other
extraordinary gains, all as determined in accordance with GAAP.
“
Effective
Date
”
means
October 20, 2006.
“Eligible
Assignee”
means
(a) an Affiliate of the Lender, and (b) any other Person (other than a natural
person) approved by (i) the Lender, and (ii) unless an Event of Default has
occurred and is continuing, the Borrower (each such approval not to be
unreasonably withheld or delayed);
provided
that
notwithstanding the foregoing, “Eligible Assignee” shall not include the
Borrower or any of the Borrower’s Affiliates or Subsidiaries.
“
ERISA
”
is
defined in Section 5.5 hereof.
“
Event
of Default
”
means
any of the events or circumstances specified in Section 8.1 hereof.
“
Existing
Credit Agreement
”
means
that certain Credit Agreement dated as of June 13, 2006 by and among Borrower,
Bank of America, N.A. as “Agent” thereunder, and the other financial
institutions a party thereto (as may be amended, supplemented or modified from
time to time).
“
Federal
Funds Rate
”
means
the fluctuating interest rate per annum described in part (x) of clause (ii)
of
the definition of Base Rate set forth in Section 2.3(a) hereof.
“
GAAP
”
means
generally accepted accounting principles as in effect in the United States
from
time to time, applied by the Borrower and its Subsidiaries on a basis consistent
with the preparation of the Borrower’s financial statements furnished to the
Lender as described in Section 5.3 hereof.
“
Guarantee
”
means,
in respect of any Person, any obligation, contingent or otherwise, of such
Person directly or indirectly guaranteeing any Indebtedness of another Person,
including, without limitation, by means of an agreement to purchase or pay
(or
advance or supply funds for the purchase or payment of) such Indebtedness or
to
maintain financial covenants, or to assure the payment of such Indebtedness
by
an agreement to make payments in respect of goods or services regardless of
whether delivered, or otherwise, provided, that the term “Guarantee” shall not
include endorsements for deposit or collection in the ordinary course of
business; and such term when used as a verb shall have a correlative
meaning.
“
Indebtedness
”
means,
as to any Person, without duplication: (i) all obligations of such Person for
borrowed money or evidenced by bonds, debentures, notes or similar instruments;
(ii) all obligations of such Person for the deferred purchase price of property
or services (other than in respect of trade accounts payable arising in the
ordinary course of business, customer deposits, provisions for rate refunds
(if
any), deferred fuel expenses and obligations in respect of pensions and other
post-retirement benefits and employee welfare plans); (iii) all Capitalized
Lease Obligations of such Person; (iv) all Indebtedness of others secured by
a
Lien on any properties, assets or revenues of such Person (other than stock,
partnership interests or other equity interests of the Borrower or any
Subsidiaries in other entities) to the extent of the lesser of the value of
the
property subject to such Lien or the amount of such Indebtedness; (v) all
Indebtedness of others Guaranteed by such Person; and (vi) all obligations
of
such Person, contingent or otherwise, in respect of any letters or credit
(whether commercial or standby) or bankers’ acceptances.
“
Interest
Period
”
is
defined in Section 2.6 hereof.
“
Lender
”
is
defined in the preamble of this Agreement and includes any successor
thereto.
“
Lending
Office
”
is
defined in Section 9.4 hereof.
“
LIBOR
”
is
defined in Section 2.3(b) hereof.
“
LIBOR
Loan
”
means
a
Loan bearing interest prior to maturity at the rate specified in Section 2.3(b)
hereof.
“
LIBOR
Margin
”
means
the percentage set forth in Schedule 1A hereto beside the then applicable Credit
Rating.
“
LIBOR
Reserve Percentage
”
is
defined in Section 2.3(b) hereof.
“
Lien
”
means
any interest in Property securing an obligation owed to, or a claim by, a Person
other than the owner of the Property, whether such interest is based on the
common law, statute or contract, including, but not limited to, the security
interest lien arising from a mortgage, encumbrance, pledge, conditional sale,
security agreement or trust receipt, or a lease, consignment or bailment for
security purposes. For the purposes of this definition, a Person shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, Capital Lease or other arrangement pursuant to
which
title to the Property has been retained by or vested in some other Person for
security purposes, and such retention of title shall constitute a
“Lien.”
“
Loan
”
is
defined in Section 2.1 hereof and, as so defined, includes a Base Rate Loan
or
LIBOR Loan, each of which is a “type” of Loan hereunder.
“
Material
Adverse Effect
”
means
a
material adverse effect on (i) the business, financial position or results
of
operations of the Borrower, (ii) the ability of the Borrower to perform its
obligations under the Credit Documents, (iii) the validity or enforceability
of
the obligations of the Borrower, (iv) the rights and remedies of the Lender
against the Borrower or (v) the timely payment of the principal of and interest
on the Loans or other amounts payable by the Borrower hereunder.
“
Non-Recourse
Indebtedness
”
means
all Indebtedness of the Borrower that is non-recourse to the
Borrower.
“
Note
”
is
defined in Section 2.10(a) hereof.
“
Obligations
”
means
all fees payable hereunder, all obligations of the Borrower to pay principal
or
interest on Loans and all other payment obligations of the Borrower arising
under or in relation to any Credit Document.
“
Person
”
means
an individual, partnership, corporation, limited liability company, association,
trust, unincorporated organization or any other entity or organization,
including a government or any agency or political subdivision
thereof.
“
Plan
”
means
at any time an employee pension benefit plan covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code that
is
either (i) maintained by a member of the Controlled Group or (ii) maintained
pursuant to a collective bargaining agreement or any other arrangement under
which more than one employer makes contributions and to which a member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions.
“
PBGC
”
is
defined in Section 5.5 hereof.
“
Property
”
means
any interest in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible, whether now owned or hereafter acquired.
“
Reference
Bank
”
means
JPMorgan Chase Bank, N.A.
“
Revolving
Credit Commitment
”
is
defined in Section 2.1 hereof.
“
SEC
”
means
the Securities and Exchange Commission.
“
Significant
Subsidiary
”
means
a
Subsidiary of the Borrower which meets any of the following
conditions:
(1)
the
book
value of the Subsidiary’s assets exceeds twenty percent (20%) of the book value
of the assets of the Borrower and its other Subsidiaries consolidated as of
the
end of the most recently completed fiscal quarter; or
(2)
the
Subsidiary’s EBIT exceeds twenty percent (20%) of Consolidated EBIT as of the
end of the most recently completed fiscal quarter and the twelve month period
ending therewith.
“
SPC
”
is
defined in Section 11.12(g) hereof.
“
Subsidiary
”
means,
as to the Borrower, any corporation or other entity of which more than fifty
percent (50%) of the outstanding stock or comparable equity interests having
ordinary voting power for the election of the Board of Directors of such
corporation or similar governing body in the case of a non-corporation
(irrespective of whether or not, at the time, stock or other equity interests
of
any other class or classes of such corporation or other entity shall have or
might have voting power by reason of the happening of any contingency) is at
the
time directly or indirectly owned by the Borrower or by one or more of its
Subsidiaries.
“
Telerate
Service
”
means
the Moneyline Telerate.
“
Termination
Date
”
means
the earlier to occur of (i) March 31, 2007 and (ii) the consummation of the
merger between a subsidiary of WPS Resources Corporation and Borrower as
contemplated by that certain merger application filed with the Illinois Commerce
Commission on or about August 2, 2006.
“
Unfunded
Vested Liabilities
”
means,
with respect to any Plan at any time, the amount (if any) by which (i) the
present value of all vested non-forfeitable accrued benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such excess represents a potential liability
of a member of the Controlled Group to the PBGC or the Plan under Title IV
of
ERISA.
“
Upfront
Fee
”
is
defined in Section 3.1(d).
“
U.S.
Dollars
”
and
“
$
”
each
means the lawful currency of the United States of America.
“
Utilization
Fee Rate
”
means
the percentage set forth in Schedule 1A hereto corresponding to the then
applicable Credit Rating.
“
Welfare
Plan
”
means
a
“welfare plan”, as defined in Section 3(l) of ERISA.
Section
1.2
Interpretation
.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the terms defined. All references to times of day in this
Agreement shall be references to Chicago, Illinois time unless otherwise
specifically provided. Where the character or amount of any asset or liability
or item of income or expense is required to be determined or any consolidation
or other accounting computation is required to be made for the purposes of
this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the specific
provisions of this Agreement.
SECTION
2.
THE
REVOLVING CREDIT.
Section
2.1
The
Loan Commitment
.
Subject to the terms and conditions hereof the Lender agrees to make a
loan or loans (individually a “
Loan
”
and
collectively “
Loans
”)
to the
Borrower from time to time on a revolving basis in an aggregate outstanding
amount up to the TWENTY FIVE MILLION DOLLARS (
$
25,000,000)
(such amount, as increased or reduced pursuant to Section 2.12 or changed as
a
result of one or more assignments under Section 11.12, the “
Revolving
Credit Commitment
”)
before
the Termination Date,
provided
that the
sum of the aggregate amount of Loans at any time outstanding shall not exceed
the Revolving Credit Commitment in effect at such time. As provided in Section
2.5(a) hereof, the Borrower may elect that each Borrowing of Loans be either
Base Rate Loans or LIBOR Loans. Loans may be repaid and the principal amount
thereof re-borrowed before the Termination Date, subject to all the terms and
conditions hereof.
Section
2.2
[Reserved]
.
Section
2.3
Applicable
Interest Rates
.
Section
2.4
Base
Rate Loans
.
Each Base Rate Loan made or maintained by Lender shall bear interest during
each
Interest Period it is outstanding (computed (x) at all times the Base Rate
is
based on the rate described in clause (i) of the definition thereof, on the
basis of a year of 365 or 366 days, as applicable, and actual days elapsed
or
(y) at all times the Base Rate is based on the rate described in clause (ii)
of
the definition thereof, on the basis of a year of 360 days and actual days
elapsed) on the unpaid principal amount thereof from the date such Loan is
advanced, continued or created by conversion from a LIBOR Loan until maturity
(whether by acceleration or otherwise) at a rate per annum equal to the sum
of
the Applicable Margin plus the Base Rate from time to time in effect, payable
on
the last day of its Interest Period and at maturity (whether by acceleration
or
otherwise).
“
Base
Rate
”
means
for any day the greater of:
i
the
rate
of interest announced by JPMorgan Chase Bank, N.A. from time to time as its
“Prime Commercial Lending Rate,” or equivalent, for U.S. Dollar loans as in
effect on such day, with any change in the Base Rate resulting from a change
in
said prime rate to be effective as of the date of the relevant change in said
“Prime Commercial Lending Rate”; and
ii
the
sum
of (x) the rate determined by the Lender to be the prevailing rate per annum
(rounded upwards, if necessary, to the nearest one hundred-thousandth of a
percentage point) at approximately 10:00 a.m. (Chicago time) (or as soon
thereafter as is practicable) on such day (or, if such day is not a Business
Day, on the immediately preceding Business Day) for the purchase at face value
of overnight Federal funds in an amount comparable to the principal amount
owed
to JPMorgan Chase Bank, N.A. for which such rate is being determined, plus
(y)
one-half of one percent (0.50%).
(b)
LIBOR
Loans
.
Each
LIBOR Loan made or maintained by Lender shall bear interest during each Interest
Period it is outstanding (computed on the basis of a year of 360 days and actual
days elapsed) on the unpaid principal amount thereof from the date such Loan
is
advanced, continued, or created by conversion from a Base Rate Loan until
maturity (whether by acceleration or otherwise) at a rate per annum equal to
the
sum of the Applicable Margin plus the LIBOR applicable for such Interest Period,
payable on the last day of the Interest Period and at maturity (whether by
acceleration or otherwise).
“
LIBOR
”
means,
for an Interest Period for a Borrowing of LIBOR Loans, (a) the LIBOR Index
Rate
for such Interest Period, if such rate is available, and (b) if the LIBOR Index
Rate cannot be determined, the arithmetic average of the rates of interest
per
annum (rounded upwards, if necessary, to the nearest one-sixteenth of one
percent) at which deposits in U.S. Dollars in immediately available funds are
offered to the Reference Bank at 11:00 a.m. (London, England time) two (2)
Business Days before the beginning of such Interest Period by major banks in
the
interbank LIBOR market for delivery on the first day of and for a Period equal
to such Interest Period in an amount equal or comparable to the principal amount
of the LIBOR Loan scheduled to be made by the Reference Bank as part of such
Borrowing.
“
LIBOR
Index Rate
”
means,
for any Interest Period, the rate per annum (rounded upwards, if necessary,
to
the next higher one-sixteenth of one percent) for deposits in U.S. Dollars,
for
delivery on the first day of and for a period equal to such Interest Period
in
an amount equal or comparable to the principal amount of the LIBOR Loan
scheduled to be made by JPMorgan Chase Bank, N.A. as part of such Borrowing,
which appears on the Applicable Telerate Page, as appropriate for such currency,
as of 11:00 a.m. (London, England time) on the day two (2) Business Days before
the commencement of such Interest Period.
“
Applicable
Telerate Page
”
means
the display page designated as “
Page
3750
”
on
the
Telerate Service (or such other page as may replace such page, as appropriate,
on that service or such other service as may be nominated by the British
Bankers’ Association as the information vendor for the purpose of displaying
British Bankers’ Association Interest Settlement Rates for deposits in U.S.
Dollars).
“
LIBOR
Reserve Percentage
”
means
for any Borrowing of LIBOR Loans from Lender, the daily average for the
applicable Interest Period of the actual effective rate, expressed as a decimal,
at which reserves (including, without limitation, any supplemental, marginal
and
emergency reserves) are maintained by Lender during such Interest Period
pursuant to Regulation D of the Board of Governors of the Federal Reserve System
(or any successor) on “
LIBOR
liabilities
”,
as
defined in such Board’s Regulation D (or in respect of any other category of
liabilities that includes deposits by reference to which the interest rate
on
LIBOR Loans is determined or any category of extensions of credit or other
assets that include loans by non-United States offices of Lender to United
States residents), subject to any amendments of such reserve requirement by
such
Board or its successor, taking into account any transitional adjustments
thereto. For purposes of this definition, the LIBOR Loans shall be deemed to
be
“
LIBOR
liabilities
”
as
defined in Regulation D without benefit or credit for any prorations, exemptions
or offsets under Regulation D.
(c)
Rate
Determinations
.
The
Lender shall determine each interest rate applicable to Obligations and the
amount of all Obligations, and a determination thereof by the Lender shall
be
conclusive and binding except in the case of manifest error.
Section
2.5
Minimum
Borrowing Amounts
.
Each Borrowing of Base Rate Loans shall be in an amount not less than
$1,000,000 and in integral multiples of $500,000. Each Borrowing of LIBOR Loans
shall be in an amount not less than $2,000,000 and in integral multiples of
$1,000,000.
Section
2.6
Manner
of Borrowing Loans and Designating Interest Rates Applicable to
Loans
.
Section
2.7
Notice
to the Lender
.
The Borrower shall give notice to the Lender by no later than 10:00 a.m.
(Chicago time) (i) at least two (2) Business Days before the date on which
the
Borrower requests the Lender to advance a Borrowing of LIBOR Loans and (ii)
at
least one (1) Business Day before the date on which the Borrower requests the
Lender to advance a Borrowing of Base Rate Loans. The Loans included in each
Borrowing shall bear interest initially at the type of rate specified in such
notice of a new Borrowing. Thereafter, the Borrower may from time to time elect
to change or continue the type of interest rate borne by each Borrowing or,
subject to Section 2.4’s minimum amount requirement for each outstanding
Borrowing, a portion thereof, as follows: (i) if such Borrowing is of LIBOR
Loans, on the last day of the Interest Period applicable thereto, the Borrower
may continue part or all of such Borrowing as LIBOR Loans for an Interest Period
or Interest Periods specified by the Borrower or convert part or all of such
Borrowing into Base Rate Loans, (ii) if such Borrowing is of Base Rate Loans,
on
any Business Day, the Borrower may convert all or part of such Borrowing into
LIBOR Loans for an Interest Period or Interest Periods specified by the
Borrower. The Borrower shall give all such notices requesting the advance,
continuation, or conversion of a Borrowing to the Lender by telephone or
facsimile (which notice shall be irrevocable once given and, if by telephone,
shall be promptly confirmed in writing). Notices of the continuation of a
Borrowing of LIBOR Loans for an additional Interest Period or of the conversion
of part or all of a Borrowing of LIBOR Loans into Base Rate Loans or of Base
Rate Loans into LIBOR Loans must be given by no later than 10:00 a.m. (Chicago
time) at least three (3) Business Days before the date of the requested
continuation or conversion. All such notices concerning the advance,
continuation, or conversion of a Borrowing shall specify the date of the
requested advance, continuation or conversion of a Borrowing (which shall be
a
Business
Day), the amount of the requested Borrowing to be advanced, continued, or
converted, the type of Loans to comprise such new, continued or converted
Borrowing and, if such Borrowing is to be comprised of LIBOR Loans, the Interest
Period applicable thereto. The Borrower agrees that the Lender may rely on
any
such telephonic or facsimile notice given by any person it in good faith
believes is an Authorized Representative without the necessity of independent
investigation, and in the event any such notice by telephone conflicts with
any
written confirmation, such telephonic notice shall govern if the Lender has
acted in reliance thereon. There may be no more than five different Interest
Periods in effect at any one time, provided that for purposes of determining
the
number of Interest Periods in effect at any one time, all Base Rate Loans shall
be deemed to have one and the same Interest Period.
(a)
[Reserved]
.
(b)
Borrower’s
Failure to Notify
.
Any
outstanding Borrowing of Base Rate Loans shall, subject to Section 6.2 hereof,
automatically be continued for an additional Interest Period on the last day
of
its then current Interest Period as a Base Rate Loan unless the Borrower has
notified the Lender within the period required by Section 2.5(a) that it intends
to convert such Borrowing into a Borrowing of LIBOR Loans or notifies the Lender
within the period required by Section 2.8(a) that it intends to prepay such
Borrowing. If the Borrower fails to give notice pursuant to Section 2.5(a)
above
of the continuation or conversion of any outstanding principal amount of a
Borrowing of LIBOR Loans before the last day of its then current Interest Period
within the period required by Section 2.5(a) and has not notified the Lender
within the period required by Section 2.8(a) that it intends to prepay such
Borrowing, such Borrowing shall automatically be converted into a Borrowing
of
Base Rate Loans, subject to Section 6.2 hereof.
Section
2.8
Interest
Periods
.
As provided in Section 2.5(a) hereof, at the time of each request to advance,
continue, or create by conversion a Borrowing of LIBOR Loans, the Borrower
shall
select an Interest Period applicable to such Loans from among the available
options. The term “
Interest
Period
”
means
the period commencing on the date a Borrowing of Loans is advanced, continued,
or created by conversion and ending: (a) in the case of Base Rate Loans, on
the
last Business Day of the calendar quarter in which such Borrowing is advanced,
continued, or created by conversion (or on the last day of the following
calendar quarter if such Loan is advanced, continued or created by conversion
on
the last Business Day of a calendar quarter), and (b) in the case of LIBOR
Loans, 1, 2 or 3 months thereafter;
provided
,
however
,
that:
(a)
any
Interest Period for a Borrowing of Base Rate Loans that otherwise would end
after the Termination Date shall end on the Termination Date;
(b)
for
any
Borrowing of LIBOR Loans, the Borrower may not select an Interest Period that
extends beyond the Termination Date;
(c)
whenever
the last day of any Interest Period would otherwise be a day that is not a
Business Day, the last day of such Interest Period shall be extended to the
next
succeeding Business Day, provided that, if such extension would cause the last
day of an Interest Period for a Borrowing of LIBOR Loans to occur in the
following calendar month, the last day of such Interest Period shall be the
immediately preceding Business Day; and
(d)
for
purposes of determining an Interest Period for a Borrowing of LIBOR Loans,
a
month means a period starting on one day in a calendar month and ending on
the
numerically corresponding day in the next calendar month;
provided
,
however
,
that if
there is no numerically corresponding day in the month in which such an Interest
Period is to end or if such an Interest Period begins on the last Business
Day
of a calendar month, then such Interest Period shall end on the last Business
Day of the calendar month in which such Interest Period is to end.
Section
2.9
Maturity
of Loans
.
Unless an earlier maturity is provided for hereunder (whether by acceleration
or
otherwise), each Loan shall mature and become due and payable by the Borrower
on
the Termination Date.
Section
2.10
Prepayments
.
Section
2.11
The Borrower may prepay without premium or penalty and in whole or in part
(but,
if in part, then: (i) if such Borrowing is of Base Rate Loans, in an amount
not
less than $1,000,000 and integral multiples of $500,000 in excess thereof,
(ii)
if such Borrowing is of LIBOR Loans, in an amount not less than $2,000,000
and
integral multiples of $1,000,000 in excess thereof and (iii) in an amount such
that the minimum amount required for a Borrowing pursuant to Section 2.4 hereof
remains outstanding) any Borrowing of LIBOR Loans upon three Business Days’
prior notice to the Lender or, in the case of a Borrowing of Base Rate Loans,
notice delivered to the Lender no later than 10:00 a.m. (Chicago time) on the
date of prepayment, such prepayment to be made by the payment of the principal
amount to be prepaid and accrued interest thereon to the date fixed for
prepayment. In the case of LIBOR Loans, any amounts owing under Section 2.11
hereof as a result of such prepayment shall be paid contemporaneously with
such
prepayment. Any amount paid or prepaid before the Termination Date may, subject
to the terms and conditions of this Agreement, be borrowed, repaid and borrowed
again.
(a)
At
any
time that the Borrower becomes aware, or should have become aware (pursuant
to
Borrower’s ordinary business practices) that the aggregate amount of outstanding
Loans shall at any time for any reason exceed the Revolving Credit Commitment
then in effect, the Borrower shall, immediately notify the Lender of this
determination. Within two (2) Business Days of the delivery of the notice
described in the preceding sentence, the Borrower shall, without further notice
or demand, pay the amount of such excess to the Lender as a prepayment of the
Loans. Each such prepayment shall be accompanied by a payment of all accrued
and
unpaid interest on the Loans prepaid and shall be subject to Section
2.11.
Section
2.12
Default
Rate
.
If any payment of principal on any Loan or other Obligation is not made when
due
(whether by acceleration or otherwise), such Loan shall bear interest (computed
on the basis of a year of 360 days and actual days elapsed or, if based on
the
rate described in clause (i) of the definition of Base Rate, on the basis of
a
year of 365 or 366 days, as applicable, and the actual number of days elapsed)
from the date such payment was due until paid in full, payable on demand, at
a
rate per annum equal to:
(a)
for
any
Base Rate Loan or Obligation other than a LIBOR Loan, the sum of two percent
(2%) plus the Applicable Margin plus the Base Rate from time to time in effect;
and
(b)
for
any
LIBOR Loan, the sum of two percent (2%) plus the rate of interest in effect
thereon at the time of such default until the end of the Interest Period
applicable thereto and, thereafter, at a rate per annum equal to the sum of
two
percent (2%) plus the Applicable Margin plus the Base Rate from time to time
in
effect.
Section
2.13
Evidence
of Debt
.
(a)
Lender shall maintain in accordance with its usual practice an account or
accounts evidencing the indebtedness of the Borrower to Lender resulting from
each Loan owing to Lender from time to time, including the amounts of principal
and interest payable and paid to Lender from time to time hereunder in respect
of Loans. The Borrower agrees that upon notice by Lender to the Borrower to
the
effect that a Note is required or appropriate in order for Lender to evidence
(whether for purposes of pledge, enforcement or otherwise) the Loans owing
to,
or to be made by, Lender under the Credit Documents, the Borrower shall promptly
execute and deliver to Lender a promissory note in the form of Exhibit A hereto
(such promissory note is hereinafter referred to as the
“Note”
).
Section
2.14
Funding
Indemnity
.
If Lender shall incur any loss, cost or expense (including, without limitation,
any loss, cost or expense (excluding loss of margin) incurred by reason of
the
liquidation or re-employment of deposits or other funds acquired by Lender
to
fund or maintain any LIBOR Loan or the relending or reinvesting of such deposits
or amounts paid or prepaid to Lender) as a result of:
(a)
any
payment (whether by acceleration or otherwise), prepayment or conversion of
a
LIBOR Loan on a date other than the last day of its Interest
Period,
(b)
any
failure (because of a failure to meet the conditions of Section 6 or otherwise)
by the Borrower to borrow or continue a LIBOR Loan, or to convert a Base Rate
Loan into a LIBOR Loan, on the date specified in a notice given pursuant to
Section 2.5(a) or established pursuant to Section 2.5(c) hereof,
(c)
any
failure by the Borrower to make any payment of principal on any LIBOR Loan
when
due (whether by acceleration or otherwise), or
(d)
any
acceleration of the maturity of a LIBOR Loan as a result of the occurrence
of
any Event of Default hereunder,
then,
upon the demand of Lender, the Borrower shall pay to Lender such amount as
will
reimburse Lender for such loss, cost or expense. If Lender makes such a claim
for compensation, it shall provide to the Borrower a certificate executed by
an
officer of Lender setting forth the amount of such loss, cost or expense in
reasonable detail (including an explanation of the basis for and the computation
of such loss, cost or expense) and the amounts shown on such certificate if
reasonably calculated shall be conclusive absent manifest error.
Section
2.15
Revolving
Credit Commitment Terminations
.
The Borrower shall have the right at any time and from time to time, upon five
(5) Business Days’ prior written notice to the Lender, to terminate the
Revolving Credit Commitment without premium or penalty, in whole or in part,
any
partial termination to be in an amount not less than $2,000,000 and integral
multiples of $1,000,000 in excess thereof,
provided
that the
Revolving Credit Commitment may not be reduced to an amount less than the sum
of
the amount of all Loans then outstanding. Any termination of Revolving Credit
Commitment pursuant to this Section 2.12 may not be reinstated.
Section
2.16
Regulation
D Compensation
.
The Lender may require the Borrower to pay, contemporaneously with each
payment of interest on the LIBOR Loans, additional interest on the related
LIBOR
Loans of Lender at a rate per annum equal to the excess of (i)(A) the applicable
LIBOR rate (or other base rate determined pursuant to Section 2.9(b)) divided
by
(B) one minus the LIBOR Reserve Percentage over (ii) the rate specified in
clause (i)(A). Any computation by Lender of such additional interest shall
be
conclusive absent manifest error. If the Lender requires payment of such
additional interest (x) it shall notify the Borrower that it is subject to
LIBOR
reserves under Regulation D of the Board of Governors of the Federal Reserve
System (or any successor regulation), in which case such additional interest
on
the LIBOR Loans of Lender shall be payable to Lender at the place indicated
in
such notice with respect to each Interest Period commencing at least five (5)
Business Days after the giving of such notice and (y) shall notify the Borrower
at least five (5) Business Days prior to each date on which interest is payable
on the LIBOR Loans of the amount then due under this Section.
Section
2.17
Arbitrage
Compensation
.
If at the time of the making of any Loan hereunder, the interest rate payable
hereunder in respect of such Loan is less than the rate (as determined by the
Lender in consultation with the Borrower) at which funds of comparable term
and
amount are generally available to the Borrower in the commercial paper market
(the “
CP
Rate
”)
(an
“
Arbitrage
Condition
”),
the
Borrower agrees to pay to the Lender arbitrage compensation on such Loan at
a
rate equal to the difference between the effective interest rate payable
hereunder (inclusive of all fees) in respect of such Loan and the CP Rate as
applied to such Loan. Such payments shall continue, at the time and in the
manner set forth for payments of interest on such Loan, for as long as the
Arbitrage Condition continues. Upon the termination of the Arbitrage Condition
for any reason (as determined by the Lender in consultation with the Borrower),
such payments shall no longer be due with respect to such Loan, even if a future
Arbitrage Condition were to occur prior to repayment in full of such
Loan.
SECTION
3.
FEES.
Section
3.1
Fees
.
(a)
Commitment
Fee
.
For the
period from the Effective Date to and including the Termination Date, Borrower
shall pay to the Lender a commitment fee accruing at a rate per annum equal
to
the Commitment Fee Rate on the average daily amount of the unused Revolving
Credit Commitment. Such commitment fee is payable in arrears on December 31,
2006, on the last Business Day of each calendar quarter thereafter and on the
Termination Date, unless the Revolving Credit Commitment are terminated in
whole
on an earlier date, in which event the fee for the period to but not including
the date of such termination shall be paid in whole on the date of such
termination.
(b)
[Reserved].
(c)
Utilization
Fee
.
From and after the Effective Date, for any day on which the aggregate principal
amount of Loans then outstanding exceeds fifty percent (50%) of the Revolving
Credit Commitment then in effect, Borrower shall pay to the Lender a utilization
fee accruing at a rate per annum equal to the Utilization Fee Rate on the
aggregate amount of Loans outstanding on such date. Such fee is payable in
arrears on the last Business Day of each calendar quarter and on the Termination
Date, and if the Revolving Credit Commitment is terminated in whole prior to
the
Termination Date, the fee for the period to but not including the date of such
termination shall be paid in whole on the date of such termination.
(d)
Upfront
Fee
.
The
Borrower shall pay to the Lender a fee (the “
Upfront
Fee
”)
in an
amount equal to $6,250 representing two and one half basis points (0.025%)
of
the Revolving Credit Commitment. The Upfront Fee shall be non-refundable and
shall be fully earned, due and payable in full on the Effective
Date.
(e)
[Reserved]
.
(f)
[Reserved]
.
(g)
Fee
Calculations
.
All
fees payable under this Agreement shall be payable in U.S. Dollars and shall
be
computed on the basis of a year of 360 days, for the actual number of days
elapsed. All determinations of the amount of fees owing hereunder (and the
components thereof) shall be made by the Lender and shall be conclusive absent
manifest error..
SECTION
4.
PLACE
AND
APPLICATION OF PAYMENTS.
Section
4.1
Place
and Application of Payments
.
All payments of principal of and interest on the Loans, and of all other
Obligations and other amounts payable by the Borrower under the Credit
Documents, shall be made by the Borrower to the Lender by no later than 12:30
p.m. (Chicago time) on the due date thereof at the principal office of the
Lender in New York, New York, pursuant to the payment instructions set forth
on
Part A of Schedule 1 hereof (or such other location in the United States as
the
Lender may designate to the Borrower). Any payments received after such time
shall be deemed to have been received by the Lender on the next Business Day.
All such payments shall be made free and clear of, and without deduction for,
any set-off, counterclaim, levy, or any other deduction of any kind in U.S.
Dollars, in immediately available funds at the place of payment.
SECTION
5.
REPRESENTATIONS
AND WARRANTIES.
The
Borrower hereby represents and warrants to the Lender as to itself and, where
the following representations and warranties apply to Subsidiaries, as to each
of its Subsidiaries, as follows:
Section
5.1
Corporate
Organization and Authority
.
The Borrower is duly organized and existing in good standing under the laws
of
the State of Illinois; has all necessary corporate power to carry on its present
business; and is duly licensed or qualified and, in good standing in each
jurisdiction in which the failure to be so licensed, qualified or in good
standing would have a Material Adverse Effect.
Section
5.2
Corporate
Authority and Validity of Obligations
.
The Borrower has full right and authority to enter into this Agreement and
the other Credit Documents to which it is a party, to make the borrowings herein
provided for, to issue its Notes in evidence thereof, and to perform all of
its
obligations under the Credit Documents to which it is a party. Each Credit
Document to which it is a party has been duly authorized, executed and delivered
by the Borrower and constitutes valid and binding obligations of the Borrower
enforceable in accordance with its terms, except as such enforceability may
be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting
the enforceability of creditors’ rights generally and by equitable principles of
general applicability (regardless of whether such enforceability is considered
in a proceeding in equity or at law). No Credit Document, nor the performance
or
observance by the Borrower of any of the matters or things therein provided
for,
contravenes any provision of law or any charter or by-law provision of the
Borrower or any material Contractual Obligation of or affecting the Borrower
or
any of its Properties or results in or requires the creation or imposition
of
any Lien on any of the Properties or revenues of the Borrower.
Section
5.3
Financial
Statements
.
All financial statements heretofore delivered to the Lender showing historical
performance of the Borrower for each of the Borrower’s fiscal quarters and/or
years ending on or before June 30, 2006, have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent, except
as otherwise noted therein, with that of the previous fiscal year. Each of
such
financial statements fairly presents on a consolidated basis the financial
condition of the Borrower and its Subsidiaries as of the dates thereof and
the
results of operations for the periods covered thereby. The Borrower and its
Subsidiaries have no material contingent liabilities other than those disclosed
in the financial statements or in comments or footnotes thereto, or in any
report supplementary thereto, most recently furnished to the Lender as of the
time such representation and warranty is made, including reports of the Borrower
filed with the SEC from time to time. Since June 30, 2006 through the Effective
Date, there has been no event or series of events which has resulted in a
Material Adverse Effect.
Section
5.4
Approvals
.
No authorization, approval, consent, license, exemption, filing or registration
with any court or governmental department, agency or instrumentality, nor any
approval or consent of the stockholders of the Borrower or any Subsidiary or
from any other Person, is necessary to the valid execution, delivery or
performance by the Borrower or any Subsidiary of any Credit Document to which
it
is a party.
Section
5.5
ERISA
.
With respect to each Plan, the Borrower and each other member of the Controlled
Group has fulfilled its obligations under the minimum funding standards of
and
is in compliance in all material respects with the Employee Retirement Income
Security Act of 1974, as amended (“
ERISA
”),
and
with the Code to the extent applicable to it and has not incurred any liability
to the Pension Benefit Guaranty Corporation (“
PBGC
”)
or a
Plan under Title IV of ERISA other than a liability to the PBGC for premiums
under Section 4007 of ERISA. Neither the Borrower nor any Subsidiary has any
contingent liabilities for any post-retirement benefits under a Welfare Plan,
other than liability for continuation coverage described in Part 6 of Title
I of
ERISA.
Section
5.6
Government
Regulation
.
Neither the Borrower nor any Subsidiary is an “
investment
company
”
within
the meaning of the Investment Company Act of 1940, as amended.
Section
5.7
Margin
Stock; Proceeds
.
Neither the Borrower nor any Subsidiary is engaged principally, or as one of
its
primary activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (“
margin
stock
”
to
have
the same meaning herein as in Regulation U of the Board of Governors of the
Federal Reserve System). The Borrower will not use the proceeds of any Loan
in a
manner that violates any provision of Regulation U or X of the Board of
Governors of the Federal Reserve System. The Borrower is not subject to
regulation under the Investment Company Act of 1940. In addition, the Borrower
is not an “investment company” registered or required to be registered under the
Investment Company Act of 1940. Proceeds of the Loans will only be used to
backstop commercial paper issued by the Borrower and for general corporate
purposes.
Section
5.8
Full
Disclosure
.
All information heretofore furnished by the Borrower to the Lender for purposes
of or in connection with the Credit Documents or any transaction contemplated
thereby is, and all such information hereafter furnished by the Borrower to
the
Lender will be, to the best of the Borrower’s knowledge, after due inquiry, true
and accurate in all material respects and not misleading on the date as of
which
such information is stated or certified.
SECTION
6.
CONDITIONS
PRECEDENT.
The
obligation of Lender to advance any Loan shall be subject to the following
conditions precedent:
Section
6.1
Initial
Credit Event
.
Before or concurrently with the Effective Date:
(a)
The
Lender shall have received the favorable written opinion of counsel to the
Borrower in form and substance reasonably acceptable to the Lender;
(b)
The
Lender shall have received copies of (i) the Articles of Incorporation, together
with all amendments and (ii) the Borrower’s bylaws (or comparable constituent
documents) and any amendments thereto, certified in each instance by its
Secretary or an Assistant Secretary;
(c)
The
Lender shall have received copies of resolutions of the Borrower’s Board of
Directors authorizing the execution and delivery of the Credit Documents and
the
consummation of the transactions contemplated thereby together with specimen
signatures of the persons authorized to execute such documents on the Borrower’s
behalf, all certified in each instance by its Secretary or an Assistant
Secretary;
(d)
The
Lender shall have received, if requested, an executed Note of the Borrower
dated
the date hereof and otherwise in compliance with the provisions of Section
2.10(a) hereof;
(e)
The
Lender shall have received a duly executed original of (i) this Agreement,
(ii)
a list of the Borrower’s Authorized Representatives and (iii) such other
documents as the Lender may reasonably request;
(f)
The
Lender shall have received a certificate by the chief financial officer of
the
Borrower, stating that on the Effective Date no Default or Event of Default
has
occurred and is continuing, and that all representations and warranties set
forth herein are true and correct as of such date;
(g)
The
Lender shall have received evidence that Borrower is validly existing and in
good standing under the laws of the jurisdiction of incorporation;
(h)
The
Lender shall have received payment of the Upfront Fee; and
(i)
The
Lender shall have received a duly executed Compliance Certificate containing
information as of June 30, 2006.
Section
6.2
All
Credit Events
.
As of the time of each Credit Event hereunder:
(a)
The
Lender shall have received the notice required by Section 2.5
hereof;
(b)
Each
of
the representations and warranties set forth in Section 5 hereof (except the
last sentence of Section 5.3) shall be and remain true and correct in all
material respects as of said time, taking into account any amendments to such
Section (including without limitation any amendments, modifications and updates
to the Schedules referenced therein) made after the date of this Agreement
in
accordance with its provisions, except that if any such representation or
warranty relates solely to an earlier date it need only remain true as of such
date; and
(c)
The
Borrower shall be in full compliance with all of the terms and conditions
hereof, and no Default or Event of Default shall have occurred and be continuing
or would occur as a result of such Credit Event.
Each
request for a Borrowing consisting of an advance of a Loan hereunder shall
be
deemed to be a representation and warranty by the Borrower on the date of such
Credit Event as to the facts specified in paragraphs (b) and (c) of this Section
6.2.
SECTION
7.
COVENANTS.
The
Borrower covenants and agrees that, so long as any Loan is outstanding
hereunder, or any Revolving Credit Commitment is available to or in use by
the
Borrower hereunder, except to the extent compliance in any case is waived in
writing by the Lender:
Section
7.1
Corporate
Existence
.
Borrower shall preserve and maintain its corporate existence.
Section
7.2
ERISA
.
The Borrower will, and will cause each of its Subsidiaries to, promptly pay
and
discharge all obligations and liabilities arising under ERISA of a character
which if unpaid or unperformed might result in the imposition of a Lien against
any of its properties or assets and will promptly notify the Lender of (i)
the
occurrence of any reportable event (as defined in ERISA) affecting a Plan,
other
than any such event of which the PBGC has waived notice by regulation, (ii)
receipt of any notice from PBGC of its intention to seek termination of any
Plan
or appointment of a trustee therefor, (iii) its or any of its Subsidiaries’
intention to terminate or withdraw from any Plan, and (iv) the occurrence of
any
event affecting any Plan which could result in the incurrence by the Borrower
or
any of its Subsidiaries of any material liability, fine or penalty, or any
material increase in the contingent liability of the Borrower or any of its
Subsidiaries under any post-retirement Welfare Plan benefit.
Section
7.3
Financial
Reports and Other Information
.
(a) The Borrower will maintain a system of accounting in accordance
with GAAP and will furnish to the Lender and its duly authorized representatives
such information respecting the business and financial condition of the Borrower
as Lender may reasonably request; and without any request, the Borrower will
furnish each of the following to the Lender:
i
within
one hundred twenty (120) days after the end of its fiscal year ending September
30, 2006, a copy of the Borrower’s financial statements for such fiscal year,
including the consolidated balance sheet of the Borrower for such year and
the
related statement of income and statement of cash flow, as certified by
independent public accountants of recognized national standing selected by
the
Borrower in accordance with GAAP with such accountants’ opinion to the effect
that the financial statements have been prepared in accordance with GAAP and
present fairly in all material respects in accordance with GAAP the consolidated
financial position of the Borrower and its Subsidiaries as of the close of
such
fiscal year and the results of their operations and cash flows for the fiscal
year then ended and that an examination of such accounts in connection with
such
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, such examination included such tests of
the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
ii
within
sixty (60) days after the end of each of the quarterly fiscal periods of the
Borrower during the term hereof, a consolidated un-audited balance sheet of
the
Borrower, and the related statement of income and statement of cash flow, as
of
the close of such period, all of the foregoing prepared by the Borrower in
reasonable detail in accordance with GAAP and certified by the Borrower’s chief
financial officer as fairly presenting the financial condition as at the dates
thereof and the results of operations for the periods covered thereby;
and
iii
within
five (5) days after Borrower files a Form 8-K with the SEC, a copy of said
form
8-K.
(b)
Each
financial statement furnished to the Lender pursuant to subsection (i) or (ii)
of this Section 7.3 shall be accompanied by (A) a written certificate signed
by
the Borrower’s chief financial officer to the effect that no Default or Event of
Default has occurred during the period covered by such statements or, if any
such Default or Event of Default has occurred during such period, setting forth
a description of such Default or Event of Default and specifying the action,
if
any, taken by the Borrower to remedy the same, and (B) a Compliance Certificate
in the form of Exhibit B hereto showing the Borrower’s compliance with the
covenants set forth in Sections 7.5 and 7.8 hereof.
(c)
The
Borrower will promptly (and in any event within five Business Days after an
officer of the Borrower has knowledge thereof) give notice to the Lender of
the
occurrence of any Default or Event of Default.
Section
7.4
Regulation
U; Proceeds
.
The Borrower will not use any part of the proceeds of any of the Borrowings,
directly or indirectly to purchase or carry any margin stock (as defined in
Section 5.7 hereof) or to extend credit to others for the purpose of purchasing
or carrying any such margin stock. The Borrower will only use proceeds of the
Loans to backstop commercial paper issued by the Borrower and for general
corporate purposes.
Section
7.5
Sales
of
Assets
.
The
Borrower will not during the term of this Agreement sell, lease or otherwise
dispose of more that (i) thirty-five percent (35%) of the consolidated fixed
assets of the Borrower or (ii) fifteen percent (15%) of the consolidated
"regulated assets" of the Borrower. For purposes of this Section 7.5(a) the
amount of consolidated fixed assets shall be determined using the net book
value
of such assets at the time of such sale, lease or disposition.
(b)
The
Borrower will not sell, transfer or otherwise dispose of, or permit any
Subsidiary to issue, sell, transfer or otherwise dispose of, more than twenty
percent (20%) of any of its public utility Subsidiaries’ shares of stock of any
class (including as “stock” for purposes of this Section, any warrants, rights
or options to purchase or otherwise acquire stock or other Securities
exchangeable for or convertible into stock).
Section
7.6
Capital
Ratio
.
The Borrower will not at any time permit the Capital Ratio to exceed 0.65 to
1.00.
Section
7.7
Compliance
with Laws
.
Without limiting any of the other covenants of the Borrower in this Section
7,
the Borrower will conduct its business, and otherwise be, in compliance with
all
applicable laws, regulations, ordinances and orders of any governmental or
judicial authorities;
provided
,
however
,
that
the Borrower shall not be required to comply with any such law, regulation,
ordinance or order if the failure to comply therewith could not reasonably
be
expected to have a Material Adverse Effect.
Section
7.8
Mergers
and Consolidations
.
The Borrower will not, and will not permit any public utility Subsidiary, to
consolidate with or be a party to merger with any other Person;
provided,
however
,
that
the Borrower or any public utility Subsidiary of the Borrower may, upon prior
notice to the Lender, enter into one or more mergers or acquisitions with any
other Person so long as (a) in the case of the Borrower, the Borrower is the
surviving entity and (b) in the case of a public utility Subsidiary of the
Borrower, the Borrower will at all times continue to own at least 80% of the
equity securities of such public utility Subsidiary. The Lender acknowledges
that Borrower has entered into an agreement and plan of merger with a subsidiary
of WPS Resources Corporation.
SECTION
8.
EVENTS
OF
DEFAULT AND REMEDIES.
Section
8.1
Events
of Default
.
Any one or more of the following shall constitute an Event of
Default:
(a)
non-payment
by Borrower (i) when due of the principal of any Loan or (ii) in the payment
of
fees, interest or of any other Obligation within five (5) days of the due
date;
(b)
default
by the Borrower in the observance or performance of any covenant set forth
in
Section 7.1 with regard to the Borrower or (ii) Section 7.3(c), Section 7.4
through 7.6 hereof;
(c)
any
default by the Borrower in the observance or performance of any provision
hereof, or of any other Credit Document not mentioned in (a) or (b) above,
which
is not remedied within thirty (30) days after notice thereof shall have been
given to the Borrower by the Lender,
provided
that,
with respect only to Section 7.7, if Borrower (or its Subsidiary, as applicable)
has made good faith efforts to cure such default, then the Borrower shall be
afforded an additional period of time to cure such default, such additional
cure
period not to exceed thirty (30) days;
(d)
failure
to pay when due Indebtedness in an aggregate principal amount of $15,000,000
or
more of the Borrower, or (ii) default shall occur under one or more indentures,
agreements or other instruments under which any Indebtedness of the Borrower
in
an aggregate principal amount of $15,000,000 or more and such default shall
continue for a period of time sufficient to permit the holder or beneficiary
of
such Indebtedness (including, without limitation the Lender with respect to
loans, credit facilities and other extensions of credit other than pursuant
to
this Agreement) or a trustee therefor to cause the acceleration of the maturity
of any such Indebtedness or any mandatory unscheduled prepayment, purchase
or
funding;
(e)
representation
or warranty made herein or in any other Credit Document by the Borrower, or
in
any statement or certificate furnished pursuant hereto or pursuant to any other
Credit Document by the Borrower, or in connection with any Credit Document,
proves untrue in any material respect as of the date of the issuance or making,
or deemed making or issuance, thereof;
(f)
Borrower
shall (i) have entered involuntarily against it an order for relief under the
United States Bankruptcy Code, as amended, or any analogous action is taken
under any other applicable law relating to bankruptcy or insolvency and such
action continues un-discharged or is not dismissed or stayed for a period of
sixty (60) days, (ii) fail to pay its debts generally as they become due and
such failure to pay would constitute an Event of Default under Section 8.1(d)
or
admit in writing its inability to pay its debts generally as they become due,
(iii) make an assignment for the benefit of creditors, (iv) apply for, seek,
consent to, or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part of
its
Property, (v) institute any proceeding seeking to have entered against it an
order for relief under the United States Bankruptcy Code, as amended, to
adjudicate it insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (vi) take any corporate
action (such as the passage by its board of directors of a resolution) in
furtherance of any matter described in parts (i)-(v) above, or (vii) fail to
contest in good faith any appointment or proceeding described in Section 8.1(g)
hereof;
(g)
Custodian,
receiver, trustee, examiner, liquidator or similar official shall be appointed
for the Borrower or any of its Significant Subsidiaries, or any substantial
part
of any of their Property, or a proceeding described in Section 8.1(f)(v) shall
be instituted against the Borrower, and such appointment continues un-discharged
or such proceeding continues un-dismissed or un-stayed for a period of sixty
(60) days;
(h)
the
Borrower shall fail within thirty (30) days to pay, bond or otherwise discharge
any judgment or order for the payment of money in excess of $15,000,000 which
is
not stayed on appeal or otherwise being appropriately contested in good faith
in
a manner that stays execution thereon;
(i)
the
Borrower or any other member of the Controlled Group shall fail to pay when
due
an amount or amounts which it shall have become liable, to pay to the PBGC
or to
a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or
Plans
having aggregate Unfunded Vested Liabilities in excess of $5,000,000
(collectively, a “
Material
Plan
”)
shall
be filed under Title IV of ERISA by the Borrower or
any
other
member of the Controlled Group, any plan administrator or any combination of
the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA
to
terminate or to cause a trustee to be appointed to administer any Material
Plan
or a proceeding shall be instituted by a fiduciary of any Material Plan against
the Borrower or any other member of the Controlled Group to enforce Section
515
or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within
thirty (30) days thereafter; or a condition shall exist by reason of which
the
PBGC would be entitled to obtain a decree adjudicating that any Material Plan
must be terminated; or
(j)
any
Event
of Default under the Existing Credit Agreement, it being the express intent
of
the parties hereto that this Agreement shall benefit from the covenants and
agreements contained in the Existing Credit Agreement.
Section
8.2
Non-Bankruptcy
Defaults
.
When any Event of Default other than those described in subsections (f) or
(g)
of Section 8.1 hereof has occurred and is continuing, the Lender may: (a)
terminate the remaining Revolving Credit Commitment and all other obligations
of
the Lender hereunder (other than the obligations of the Lender under section
11.21 hereof) on the date stated in such notice (which may be the date thereof);
and (b) declare the principal of and the accrued interest on the outstanding
Note to be forthwith due and payable and thereupon the Note, including both
principal and interest thereon, and all other Obligations, shall be and become
immediately due and payable together with all other amounts payable under the
Credit Documents without further demand, presentment, protest or notice of
any
kind.
Section
8.3
Bankruptcy
Defaults
.
When any Event of Default described in subsections (f) or (g) of Section 8.1
hereof has occurred and is continuing, then the Note shall immediately become
due and payable together with all other amounts payable under the Credit
Documents without presentment, demand, protest or notice of any kind and the
obligation of the Lender to extend further credit pursuant to any of the terms
hereof shall immediately terminate.
Section
8.4
Expenses
.
The Borrower agrees to pay to the Lender and any other holder of the Note,
all
costs and expenses incurred or paid by the Lender or any such holder, including
reasonable attorneys’ fees (including reasonable allocable fees of in-house
counsel) and court costs, in connection with any Default or Event of Default
by
the Borrower hereunder or in connection with the enforcement of any of the
Credit Documents.
SECTION
9.
CHANGE
IN
CIRCUMSTANCES.
Section
9.1
Change
of Law
.
Notwithstanding any other provisions of this Agreement or the Note, if at any
time after the date hereof any change in applicable law or regulation or in
the
interpretation thereof makes it unlawful for Lender to make or continue to
maintain LIBOR Loans or to perform its obligations as contemplated hereby,
Lender shall promptly give notice thereof to the Borrower and Lender’s
obligations to make or maintain LIBOR Loans under this Agreement shall terminate
until it is no longer unlawful for Lender to make or maintain LIBOR Loans.
The
Borrower shall prepay on demand the outstanding principal amount of any such
affected LIBOR Loans, together with all interest accrued thereon at a rate
per
annum equal to the interest rate applicable to such Loan;
provided
,
however
,
subject
to all of the terms and conditions of this Agreement, the Borrower may then
elect to borrow the principal amount of the affected LIBOR Loans from Lender
by
means of Base Rate Loans from Lender.
Section
9.2
Unavailability
of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR
.
If on or prior to the first day of any Interest Period for any Borrowing
of LIBOR Loans:
(a)
the
Lender determines that deposits in U.S. Dollars (in the applicable amounts)
are
not being offered to major banks in the LIBOR interbank market for such Interest
Period, or that by reason of circumstances affecting the interbank LIBOR market
adequate and reasonable means do not exist for ascertaining the applicable
LIBOR, or
(b)
Lender
reasonably determines that LIBOR as reasonably determined by the Lender will
not
adequately and fairly reflect the cost to Lender of funding its LIBOR Loans
or
Loan for such Interest Period, then the Lender shall forthwith give notice
thereof to the Borrower, whereupon until the Lender notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, the
obligations of the Lender to make LIBOR Loans shall be suspended.
Section
9.3
Increased
Cost and Reduced Return
.
Section
9.4
If, on or after the date hereof, the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Lender (or its Lending Office) with any request or directive (whether or
not
having the force of law but, if not having the force of law, compliance with
which is customary in the relevant jurisdiction) of any such authority, central
bank or comparable agency:
i
shall
subject Lender (or its Lending Office) to any tax, duty or other charge with
respect to its LIBOR Loans, its Notes
or
its
participation in any thereof or its obligation to make Eurodollar Loans, or
to
participate therein,
or
shall
change the basis of taxation of payments to Lender (or its Lending Office)
of
the principal of or interest on its LIBOR Loans, Letter(s) of Credit, or
participations therein or any other amounts due under this Agreement in respect
of its LIBOR Loans or its obligation to make LIBOR Loans, (except for changes
in
the rate of tax on the overall net income or profits of Lender or its Lending
Office imposed by the jurisdiction in which Lender or its lending office is
incorporated in which Lender’s principal executive office or Lending Office is
located); or
ii
shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement (including, without limitation, any such requirement imposed by
the
Board of Governors of the Federal Reserve System, but excluding with respect
to
any LIBOR Loans any such requirement included in an applicable LIBOR Reserve
Percentage) against assets of, deposits with or for the account of, or credit
extended by, Lender (or its Lending Office) or shall impose on Lender (or its
Lending Office) or on the interbank market any other condition affecting its
LIBOR Loans, its Note,
or
its
obligation to make Eurodollar Loans
;
and
the
result of any of the foregoing is to increase the cost to Lender (or its Lending
Office) of making or maintaining any LIBOR Loan, or to reduce the amount of
any
sum received or receivable by Lender (or its Lending Office) under this
Agreement or under its Note with respect thereto, by an amount deemed by Lender
to be material, then, within fifteen (15) days after demand by Lender, the
Borrower shall be obligated
to
pay to
Lender such additional amount or amounts as will compensate Lender for such
increased cost or reduction. In the event any law, rule, regulation or
interpretation described above is revoked, declared invalid or inapplicable
or
is otherwise rescinded, and as a result thereof Lender is determined to be
entitled to a refund from the applicable authority for any amount or amounts
which were paid or reimbursed by Borrower to Lender hereunder, Lender shall
refund such amount or amounts to Borrower without interest.
(b)
If,
after
the date hereof, Lender shall have determined that the adoption of any
applicable law, rule or regulation regarding capital adequacy, or any change
therein (including, without limitation, any revision in the Final Risk-Based
Capital Guidelines of the Board of Governors of the Federal Reserve System
(12
CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) or of the Office of
the
Comptroller of the Currency (12 CFR Part 3, Appendix A), or in any other
applicable capital rules heretofore adopted and issued by any governmental
authority), or any change in the interpretation or administration thereof by
any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Lender (or its
Lending Office) with any request or directive regarding capital adequacy
(whether or not having the force of law but, if not having the force of law,
compliance with which is customary in the applicable jurisdiction) of any such
authority, central bank or comparable agency, has or would have the effect
of
reducing the rate of return on Lender’s capital, or on the capital of any
corporation controlling Lender, as a consequence of its obligations hereunder
to
a level below that which Lender could have achieved but for such adoption,
change or compliance (taking into consideration Lender’s policies with respect
to capital adequacy) by an amount deemed by Lender to be material, then from
time to time, within fifteen (15) days after demand by Lender, the Borrower
shall pay to Lender such additional amount or amounts as will compensate Lender
for such reduction.
(c)
If
Lender
determines to seek compensation under this Section 9.3, it shall notify the
Borrower of the circumstances that entitle it to such compensation pursuant
to
this Section 9.3 and will designate a different Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole judgment of Lender, be otherwise disadvantageous
to
Lender. A certificate of Lender claiming compensation under this Section 9.3
and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. In determining such amount,
Lender may use any reasonable averaging and attribution methods. Lender shall
not be entitled to demand compensation under this Section 9.3 for any period
more than 90 days prior to the day on which such demand is made;
provided
however
,
that
the foregoing shall in no way limit the right of Lender to demand or receive
such compensation to the extent that such compensation relates to the
retroactive application of any law, regulation, guideline or request if such
demand is made within 90 days after the implementation of such retroactive
law,
interpretation, guideline or request. A certificate as to the nature and amount
of such increased cost, submitted to the Borrower and the Lender in good faith,
shall be conclusive and binding for all purposes, absent manifest
error.
Section
9.5
Lending
Offices
.
The Lender may, at its option, elect to make Loans hereunder at the branch,
office or affiliate specified on the appropriate signature page hereof or in
the
assignment agreement which any assignee bank executes pursuant to Section 11.12
hereof (each a “Lending Office”) for each type of Loan available hereunder or at
such other of its branches, offices or affiliates as it may from time to time
elect and designate in a written notice to the Borrower.
Section
9.6
Discretion
of Lender as to Manner of Funding
.
Notwithstanding any other provision of this Agreement, the Lender shall be
entitled to fund and maintain its funding of all or any part of its Loans in
any
manner it sees fit, it being understood, however, that for the purposes of
this
Agreement all determinations hereunder shall be made as if the Lender had
actually funded and maintained each LIBOR Loan through the purchase of deposits
in the LIBOR interbank market having a maturity corresponding to such Loan’s
Interest Period and bearing an interest rate equal to LIBOR for such Interest
Period.
SECTION
10.
RESERVED.
SECTION
11.
MISCELLANEOUS.
Section
11.1
Withholding
Taxes
.
Subject to this Section 11.1, each payment by the Borrower under this Agreement
or the other Credit Documents shall be made without withholding for or on
account of any present or future taxes (other than overall net income taxes
on
the recipient). If any such withholding is so required, the Borrower shall
make
the withholding, pay the amount withheld to the appropriate governmental
authority before penalties attach thereto or interest accrues thereon and
forthwith pay such additional amount as may be necessary to ensure that the
net
amount actually received by the Lender free and clear of such taxes (including
such taxes on such additional amount) is equal to the amount which the Lender
would have received had such withholding not been made. If the Lender pays
any
amount in respect of any such taxes, penalties or interest the Borrower shall
reimburse the Lender for that payment on demand. If the Borrower pays any such
taxes, penalties or interest, it shall deliver official tax receipts evidencing
that payment or certified copies thereof to the Lender on or before the
thirtieth day after payment. If the Lender determines it has received or been
granted a credit against or relief or remission for, or repayment of, any taxes
paid or payable by it because of any taxes, penalties or interest paid by the
Borrower and evidenced by such a tax receipt, Lender shall, to the extent it
can
do so without prejudice to the retention of the amount of such credit, relief,
remission or repayment, pay to the Borrower such amount as Lender determines
is
attributable to such deduction or withholding and which will leave Lender (after
such payment) in no better or worse position than it would have been in if
the
Borrower had not been required to make such deduction or withholding. Nothing
in
this Agreement shall interfere with the right of the Lender to arrange its
tax
affairs in whatever manner it thinks fit nor oblige the Lender to disclose
any
information relating to its tax affairs or any computations in connection with
such taxes.
Section
11.2
No
Waiver of Rights
.
No delay or failure on the part of the Lender or on the part of the holder
or
holders of the Note in the exercise of any power or right under any Credit
Document shall operate as a waiver thereof, nor as an acquiescence in any
default, nor shall any single or partial exercise thereof preclude any other
or
further exercise of any other power or right, and the rights and remedies
hereunder of the Lender and/or the holder or holders of the Note are cumulative
to, and not exclusive of, any rights or remedies which any of them would
otherwise have.
Section
11.3
Non-Business
Day
.
If any payment of principal or interest on any Loan or of any other Obligation
shall fall due on a day which is not a Business Day, interest or fees (as
applicable) at the rate, if any, such Loan or other Obligation bears for the
period prior to maturity shall continue to accrue on such Obligation from the
stated due date thereof to and including the next succeeding Business Day,
on
which the same shall be payable.
Section
11.4
Documentary
Taxes
.
The Borrower agrees that it will pay any documentary, stamp or similar taxes
payable in respect to any Credit Document, including interest and penalties,
in
the event any such taxes are assessed, irrespective of when such assessment
is
made and whether or not any credit is then in use or available
hereunder.
Section
11.5
Survival
of Representations
.
All representations and warranties made herein or in certificates given pursuant
hereto shall survive the execution and delivery of this Agreement and the other
Credit Documents, and shall continue in full force and effect with respect
to
the date as of which they were made as long as any credit is in use or available
hereunder.
Section
11.6
Survival
of Indemnities
.
All indemnities and all other provisions relative to reimbursement to the Lender
of amounts sufficient to protect the yield of the Lender with respect to the
Loans, including, but not limited to, Section 2.11, Section 9.3 and Section
11.15 hereof, shall survive the termination of this Agreement and the other
Credit Documents and the payment of the Loans and all other
Obligations.
Section
11.7
Set-Off
.
In addition to any rights now or hereafter granted under applicable law and
not
by way of limitation of any such rights, upon the occurrence of any Event of
Default, Lender and each subsequent holder of the Note is hereby authorized
by
the Borrower at any time or from time to time, without notice to the Borrower
or
to any other Person, any such notice being hereby expressly waived, to set
off
and to appropriate and to apply any and all deposits (general or special,
including, but not limited to, Indebtedness evidenced by certificates of
deposit, whether matured or unmatured, and in whatever currency denominated)
and
any other Indebtedness at any time held or owing by the Lender or that
subsequent holder to or for the credit or the account of the Borrower, whether
or not matured, against and on account of the obligations and liabilities of
the
Borrower to the Lender or that subsequent holder under the Credit Documents,
including, but not limited to, all claims of any nature or description arising
out of or connected with the Credit Documents, irrespective of whether or not
(a) the Lender or that subsequent holder shall have made any demand hereunder
or
(b) the principal of or the interest on the Loans or the Note and other amounts
due hereunder shall have become due and payable pursuant to Section 8 and
although said obligations and liabilities, or any of them, may be contingent
or
unmatured.
Section
11.8
Notices
.
Except as otherwise specified herein, all notices under the Credit Documents
shall be in writing (including facsimile or other electronic communication)
and
shall be given to a party hereunder at its address or facsimile number set
forth
below or such other address or facsimile number as such party may hereafter
specify by notice to the Lender and the Borrower, given by courier, by United
States certified or registered mail, or by other telecommunication device
capable of creating a written record of such notice and its receipt. Notices
under the Credit Documents to the Lender and the Borrower shall be addressed
to:
If
to the Borrower:
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|
Peoples
Energy Corporation
130
East Randolph Drive
Chicago,
Illinois 60601
Attention:
Vice President, Finance
Facsimile:
312.373.4213
Telephone:
312.240.3818
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If
to the Lender: (Notices related to commitments, covenants or extensions
of
expiry/termination dates)
|
|
JPMorgan
Chase Bank, N.A.
227
West Monroe Street, 28
th
Floor
Mail
Code IL1-0530
Chicago,
IL 60606
Attn:
Gabe Simon
E-Mail:
gabriel.j.simon@chase.com
FAX:
312-541-3376
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|
Borrowing
Requests and notices relating to Loans, Interest and
Fees:
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|
JPMorgan
Chase Bank, N.A.
10
S. Dearborn St., 19
th
Flr.
Mail
Code IL1-0010
Chicago,
IL 60603
Attn:
Kerry Sroczynski
Facsimile:
(312) 385-7096
E-mail:
kerry.j.sroczynski@jpmchase.com
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|
Each
such
notice, request or other communication shall be effective (i) if given by
facsimile, when such facsimile is transmitted to the facsimile number specified
in this Section 11.8 or on the signature pages hereof and a confirmation of
receipt of such facsimile has been received by the sender, (ii) if given by
courier, when delivered, (iii) if given by mail, three business days after
such
communication is deposited in the mail, registered with return receipt
requested, addressed as aforesaid or (iv) if given by any other means, when
delivered at the addresses specified in this Section 11.8;
provided
that
any
notice given pursuant to Section 2 hereof shall be effective only upon
receipt.
Section
11.9
Counterparts
.
This Agreement may be executed in any number of counterpart signature pages,
and
by the different parties on different counterparts, each of which when executed
shall be deemed an original but all such counterparts taken together shall
constitute one and the same instrument. Delivery of an executed counterpart
via
facsimile or other electronic means shall for all purposes be deemed as
effective as delivery of an original counterpart.
Section
11.10
Successors
and Assigns
.
This Agreement shall be binding upon the Borrower and its successors and
assigns, and shall inure to the benefit of each of the Lender and the benefit
of
their respective successors, and assigns, including any subsequent holder of
any
Note. The Borrower may not assign any of its rights or obligations under any
Credit Document without the written consent of all of the Lender.
Section
11.11
[Reserved]
.
Section
11.12
Assignments,
Participations, Etc
.
Successors
and Assigns Generally
The
provisions of this Agreement shall be binding upon and inure to the benefit
of
the parties hereto and their respective successors and assigns permitted hereby,
except that the Borrower may not assign or otherwise transfer any of its rights
or obligations hereunder without the prior written consent of the Lender and
Lender may not assign or otherwise transfer any of its rights or obligations
hereunder except (i) to an Eligible Assignee in accordance with the
provisions of paragraph (b) of this Section, (ii) by way of
participation in accordance with the provisions of paragraph (d) of this
Section or (iii) by way of pledge or assignment of a security interest
subject to the restrictions of paragraph (f) of this Section (and any other
attempted assignment or transfer by any party hereto shall be null and void).
Nothing in this Agreement, expressed or implied, shall be construed to confer
upon any Person (other than the parties hereto, their respective successors
and
assigns permitted hereby, Participants to the extent provided in
paragraph (d) of this Section and, to the extent expressly contemplated
hereby, the affiliates of each of the Lender and the Lender) any legal or
equitable right, remedy or claim under or by reason of this Agreement.
(a)
Assignments
by Lender.
The
Lender may at any time assign to one or more Eligible Assignees its rights
and
obligations under this Agreement (including its Revolving Credit Commitment
and
the Loans at the time owing to it);
provided
that so
long as no Event of Default has occurred and is continuing, any assignment
of a
Revolving Credit Commitment must be approved by the Borrower, which approval
shall not be unreasonably withheld, unless the Person that is the proposed
assignee is itself an Eligible Assignee. Subject to acceptance and recording
thereof by the Lender pursuant to paragraph (c) of this Section, from and
after the effective date specified in each Assignment and Assumption, the
Eligible Assignee thereunder shall be a party to this Agreement and, to the
extent of the interest assigned by such Assignment and Assumption, have the
rights and obligations of Lender under this Agreement shall to the extent of
the
interest assigned by such Assignment and Assumption, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Assumption covering all of the Lender’s rights and obligations under this
Agreement, Lender shall cease to be a party hereto) but shall continue to be
entitled to the benefits of Sections 9.3 and 11.1 with respect to facts and
circumstances occurring prior to the effective date of such assignment. Any
assignment or transfer by Lender of rights or obligations under this Agreement
that does not comply with this paragraph shall be treated for purposes of this
Agreement as a sale by Lender of a participation in such rights and obligations
in accordance with paragraph (d) of this Section.
(b)
Participations.
Lender
and/or any holder of the Note may at any time, without the consent of, or notice
to, the Borrower, sell participations to any Person (other than a natural person
or a Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a
“
Participant”
)
in all
or a portion of Lender’s or such holder’s rights and/or obligations under this
Agreement (including all or a portion of its Revolving Credit Commitment and/or
the Loans owing to it);
provided
that
(i) Lender’s obligations under this Agreement shall remain unchanged,
(ii) Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations and (iii) the Borrower shall continue
to deal solely and directly with Lender in connection with Lender’s rights and
obligations under this Agreement.
Any
agreement or instrument pursuant to which Lender sells such a participation
shall provide that Lender shall retain the sole right to enforce this Agreement
and to approve any amendment, modification or waiver of any provision of this
Agreement;
provided
that
such agreement or instrument may provide that Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
of
the type described in Section 11.13(i) that directly affects such Participant.
Subject to paragraph (e) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Section 2.11, Section 9.3
and
Section 11.7 to the same extent as if it were Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section. Lender
shall keep a register, meeting the requirements of Treasury Regulation Section
5f.103-1(c), of each participant, specifying such participant’s entitlement to
payments of principal and interest with respect to such
participation.
(c)
Limitations
upon Participant Rights.
A
Participant shall not be entitled to receive any greater payment under Section
2.11, Section 9.3 or Section 11.7 than the Lender would have been entitled
to
receive with respect to the participation sold to such Participant, unless
the
sale of the participation to such Participant is made with the Borrower’s prior
written consent.
(d)
Certain
Pledges.
The
Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of the Lender,
including without limitation any pledge or assignment to secure obligations
to a
Federal Reserve Bank; provided that no such pledge or assignment shall release
Lender from any of its obligations hereunder or substitute any such pledgee
or
assignee for Lender as a party hereto.
Certain
Funding Arrangements.
Notwithstanding
anything to the contrary contained herein, Lender may grant to a special purpose
funding vehicle (a “
SPC”
),
identified as such in writing from time to time by the Lender and the Borrower,
the option to provide to the Borrower all or any part of any Loan that the
Lender would otherwise be obligated to make to the Borrower pursuant to this
Agreement;
provided
that (i)
nothing herein shall constitute a commitment by any SPC to make any Loan, (ii)
if an SPC elects not to exercise such option or otherwise fails to provide
all
or any part of such Loan, the Lender shall be obligated to make such Loan
pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall
utilize the Revolving Credit Commitment of the Lender to the same extent, and
as
if, such Loan were made by the Lender. Each party hereto hereby agrees that
no
SPC shall be liable for any indemnity or similar payment obligation under this
Agreement (all liability for which shall remain with the Lender). In furtherance
of the foregoing, each party hereto hereby agrees (which agreement shall survive
the termination of this Agreement) that, prior to the date that is one year
and
one day after the payment in full of all outstanding commercial paper or other
senior indebtedness of any SPC, it will not institute against, or join any
other
person in instituting against, such SPC any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the United
States or any State thereof arising out of any claim relating to the Credit
Documents. In addition, notwithstanding
anything
to the contrary contained in this Section 11.12(b), any SPC may (i) with notice
to, but without the prior written consent of, the Borrower, assign all or a
portion of its interests in any Loan to the Lender or to any financial
institutions (consented to by the Borrower and Lender) providing liquidity
and/or credit support to or for the account of such SPC to support the funding
or maintenance of Loans and (ii) disclose on a confidential basis any non-public
information relating to its Loans to any rating agency, commercial paper dealer
or provider of any surety, guarantee or credit or liquidity enhancement to
such
SPC. This section may not be amended without the written consent of the SPC.
Section
11.13
Amendments
.
Any provision of the Credit Documents may be amended or waived if, but only
if,
such amendment or waiver is in writing and is signed by the Borrower and the
Lender.
Section
11.14
Headings
.
Section headings used in this Agreement are for reference only and shall not
affect the construction of this Agreement.
Section
11.15
Legal
Fees, Other Costs and Indemnification
.
The Borrower agrees to pay all reasonable costs and expenses of the Lender
in
connection with the preparation and negotiation of the Credit Documents,
including without limitation, the reasonable fees and disbursements of counsel
to the Lender in connection with the preparation and execution of the Credit
Documents, and any amendment, waiver or consent related hereto, whether or
not
the transactions contemplated herein are consummated. The Borrower further
agrees to indemnify the Lender and its directors, agents, officers and
employees, against all losses, claims, damages, penalties, judgments,
liabilities and expenses (including, without limitation, all reasonable expenses
of litigation or preparation therefor, whether or not the indemnified Person
is
a party thereto) which any of them may incur or reasonably pay arising out
of or
relating to any Credit Document or any of the transactions contemplated thereby
or the direct or indirect application or proposed application of the proceeds
of
any Loan, other than those which arise from the gross negligence or willful
misconduct of the party claiming indemnification. The Borrower, upon demand
by
the Lender at any time, shall reimburse the Lender for any reasonable legal
or
other expenses (including reasonable allocable fees and expenses of in-house
counsel) incurred in connection with investigating or defending against any
of
the foregoing except if the same is directly due to the gross negligence or
willful misconduct of the party to be indemnified.
Section
11.16
[Reserved]
.
Section
11.17
Entire
Agreement
.
The Credit Documents constitute the entire understanding of the parties thereto
with respect to the subject matter thereof and any prior or contemporaneous
agreements, whether written or oral, with respect thereto are superseded
thereby.
Section
11.18
Construction
.
The parties hereto acknowledge and agree that neither this Agreement nor the
other Credit Documents shall be construed more favorably in favor of one than
the other based upon which party drafted the same, it being acknowledged that
all parties hereto contributed substantially to the negotiation of this
Agreement and the other Credit Documents.
Section
11.19
Governing
Law
.
This Agreement and the other Credit Documents, and the rights and duties of
the
parties hereto, shall be construed and determined in accordance with the
internal laws of the State of Illinois.
Section
11.20
SUBMISSION
TO JURISDICTION; WAIVER OF JURY TRIAL
.
THE BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS AND OF ANY ILLINOIS
STATE COURT SITTING IN THE CITY OF CHICAGO FOR PURPOSES OF ALL LEGAL PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR
THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER IRREVOCABLY WAIVES,
TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
ANY
CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY.
Section
11.21
Confidentiality
.
The Lender shall hold all non-public information provided to it by Borrower
pursuant to or in connection with this Agreement in accordance with its
customary procedures for handling confidential information of this nature,
but
may make disclosure to any of its examiners, regulators, Affiliates, outside
auditors, counsel and other professional advisors in connection with this
Agreement or any other Credit Document or as reasonably required by any
potential
bona
fide
transferee, participant or assignee, or in connection with the exercise of
remedies under a Credit Document, or to any nationally recognized rating agency
that requires access to information about Lender’s investment portfolio in
connection with ratings issued with respect to Lender, or as requested by any
governmental agency or representative thereof or pursuant to legal process;
provided
,
however
,
that
unless specifically prohibited by applicable law or court order, the Lender
shall use reasonable efforts to promptly notify Borrower of any request by
any
governmental agency or representative thereof (other than any such request
in
connection with an examination of the financial condition of the Lender by
such
governmental agency) for disclosure of any such non-public information and,
where practicable, prior to disclosure of such information. Prior to any such
disclosure pursuant to this Section 11.21, the Lender shall require any
such
bona
fide
transferee,
participant and assignee receiving a disclosure of non-public information to
agree, for the benefit of Borrower, in writing to be bound by this Section
11.21; and to require such Person to require any other Person to whom such
Person discloses such non-public information to be similarly bound by this
Section 11.21. The Lender shall not be required to hold confidential any
information that becomes public by any means other than as a result of a breach
by it of its obligations under this Section 11.21.
Section
11.22
Patriot
Act
.
As required by federal law or the Lender or Lender’s polices and practices, the
Lender may need to collect certain customer identification information and
documentation in connection with opening or maintaining accounts or establishing
or continuing to provide services.
Balance
of Page Intentionally Left Blank
-
Signature Page Follows -
In
Witness Whereof, the parties hereto have caused this Seasonal Credit Agreement
to be duly executed and delivered in Chicago, Illinois by their duly authorized
officers as of the day and year first above written.
|
PEOPLES
ENERGY CORPORATION
,
an Illinois corporation, as Borrower
|
|
|
|
By:
/s/ Douglas M. Ruschau
|
|
Its:
Vice President & Treasurer
|
|
|
|
|
|
JPMORGAN
CHASE BANK, N.A
.,
as Lender
|
|
|
|
By:
/s/ Gabriel J. Simon
|
|
Its:
Assistant Vice President
|
|
Title:
________________________
|
|
|
EXHIBIT
A
REVOLVING
NOTE
$25,000,000
|
October
20,
2006
|
FOR
VALUE RECEIVED,
the
undersigned,
PEOPLES
ENERGY CORPORATION
,
an
Illinois corporation (the “
Borrower
”),
promises to pay to the order of
JPMORGAN
CHASE BANK, N.A.
(the
“
Bank
”)
on the
Termination Date of the hereinafter defined Credit Agreement, or such earlier
date as provided in the Credit Agreement or this Note, at the principal office
of the Bank in Chicago, Illinois, in U.S. Dollars in accordance with Section
4.1
of the Credit Agreement, the aggregate unpaid principal of all Loans made by
the
Bank to the Borrower pursuant to the Credit Agreement, together with interest
on
the principal amount of each Loan from time to time outstanding hereunder at
the
rates, and payable in the manner and on the dates, specified in the Credit
Agreement.
The
Bank
shall record on its books or records or on a schedule attached to this Note,
which is a part hereof, each Loan made by it pursuant to the Credit Agreement,
together with all payments of principal and interest and the principal balances
from time to time outstanding hereon, whether the Loan is a Base Rate Loan
or a
LIBOR Loan and the interest rate and Interest Period applicable thereto,
provided that prior to the transfer of this Note all such amounts shall be
recorded on a schedule attached to this Note. The record thereof, whether shown
on such books or records or on a schedule to this Note, shall be
prima
facie
evidence
of the same, provided, however, that the failure of the Bank to record any
of
the foregoing or any error in any such record shall not limit or otherwise
affect the obligation of the Borrower to repay all Loans made to it pursuant
to
the Credit Agreement together with accrued interest thereon.
This
Note
is the “Note” referred to in that certain Seasonal Credit Agreement dated as of
October 20, 2006, by and between the Borrower and JPMorgan Chase Bank, N.A.
(the
“
Credit
Agreement
”),
and
this Note and the holder hereof are entitled to all the benefits provided for
thereby or referred to therein, to which Credit Agreement reference is hereby
made for a statement thereof. This Note may only be conveyed, transferred,
assigned or otherwise negotiated to a holder in accordance with the terms of
the
Credit Agreement. All defined terms used in this Note, except terms otherwise
defined herein, shall have the same meaning as in the Credit Agreement. This
Note shall be governed by and construed in accordance with the internal laws
of
the State of Illinois.
Prepayments
may be made hereon and this Note may be declared due prior to the expressed
maturity hereof, all in the events, on the terms and in the manner as provided
for in the Credit Agreement.
The
Borrower hereby waives demand, presentment, protest or notice of any kind
hereunder.
|
PEOPLES
ENERGY CORPORATION
,
an Illinois corporation
|
|
|
|
By:
_________________________________
|
|
Its:
_________________________________
|
EXHIBIT
B
COMPLIANCE
CERTIFICATE
This
Compliance Certificate is furnished to JPMorgan Chase Bank, N.A., as Lender
pursuant to the Credit Agreement (the “
Credit
Agreement
”)
dated
as of October 20, 2006, by and between Peoples Energy Corporation and JPMorgan
Chase Bank, N.A. Unless otherwise defined herein, the terms used in this
Compliance Certificate have the meanings ascribed thereto in the Credit
Agreement.
THE
UNDERSIGNED HEREBY CERTIFIES THAT:
1.
I
am the
duly elected or appointed ___________________of Peoples Energy
Corporation;
2.
I
have
reviewed the terms of the Credit Agreement and I have made, or have caused
to be
made under my supervision, a detailed review of the transactions and conditions
of Peoples Energy Corporation and its Subsidiaries during the accounting period
covered by the attached financial statements;
3.
The
examinations described in paragraph 2 did not disclose, and I have no knowledge
of, the existence of any condition or event which constitutes a Default or
an
Event of Default during or at the end of the accounting period covered by the
attached financial statements or as of the date of this Certificate, except
as
set forth below. Without limitation to the foregoing, except as noted below
the
Borrower is in compliance with 7.5 and Section 7.6 of the Credit Agreement;
and
4.
Schedule
1 attached hereto sets forth (i) financial data and computations evidencing
compliance with certain covenants of the Credit Agreement, all of which data
and
computations are true, complete and correct, and are made in accordance with
the
terms of the Credit Agreement, and (ii) the list of Subsidiaries in existence
as
of the date hereof.
Described
below are the exceptions, if any, to paragraph 3 by listing, in detail, the
nature of the condition or event, the period during which it has existed and
the
action which the Borrower has taken, is taking, or proposes to take with respect
to each such condition or event:
The
foregoing certifications, together with the list set forth in Schedule 1 hereto
and the financial statements delivered with this Certificate in support hereof,
are made and delivered this ___________day of __________, 20 __.
SCHEDULE
1 TO COMPLIANCE CERTIFICATE
Compliance
Calculations for Credit Agreement
CALCULATION
AS OF ________ __,200_
Capital
Ratio (Sec. 7.6)
|
|
|
1.
(a)
consolidated Indebtedness
|
$
|
|
(b)
less
accumulated other comprehensive income/loss
|
$__________
|
|
(c)
net consolidated Indebtedness
|
$__________
|
|
2.
Consolidated
Net Worth
|
$
|
|
3.
Sum
of Line 1(c)
plus
Line 2
|
$
|
|
4.
Capital
Ratio
|
____
:1.00
|
(ratio
of (A) Line 1(c) to (B) Line 3 not to exceed 0.65 to
1.00)
|
List
of Subsidiaries
The
Peoples Gas Light and Coke Company
Peoples
Gas Light Exploration Company
Peoples
Gas Neighborhood Development Corporation
North
Shore Gas Company
North
Shore Exploration Company
Peoples
District Energy Corporation
Peoples
NGV Corp.
Peoples
Energy Production Company
PEP
Holding, LLC
Peoples
Energy Canadian Holdings, Inc.
Peoples
Energy Production Company of Canada
Peoples
Energy Production Operating Company
Peoples
Energy Production Partners, L.P.
Peoples
Energy Production - Texas, L.P.
EnerVest
Energy, L.P.
Sierra
1996-I Limited Partnership
Peoples
Energy Resources Company, LLC
Peoples
Energy Wholesale Marketing, LLC
|
PERC
Canada, Inc.
Peoples
Natural Gas Liquids, LLC
PERC
Holdings, LLC
PV
Midstream Ventures, LLC
PERC
Power, LLC
COB
Energy Facility, LLC
Peoples
Calumet, LLC
Calumet
Power, LLC
Peoples
Elwood, LLC
Elwood
Energy, LLC
Peoples
Elwood Expansion, LLC
Elwood
Expansion, LLC
Valencia
Energy, LLC
Peoples
MW, LLC
Peoples
Energy Services Corporation
Peoples
Energy Ventures, LLC
Peoples
Energy Business Services, LLC
Peoples
Energy Home Services, LLC
Peoples
Energy Neighborhood Development, LLC
Peoples
Technology, LLC
|
SCHEDULE
1
LENDER’S
PAYMENT INFORMATION
Loan
Repayments, Interest, Fees:
JPMorgan
Chase Bank, N.A.
Chicago,
IL
ABA
#
021000021
Account
Name: Loan Processing DP
Account
#
9008109962
Reference:
Peoples Energy Corporation
Attn:
Kerry Scroczynski
Schedule
1
Credit
Agreement
SCHEDULE
1A
PRICING
GRID
(Basis
Points)
S
& P/ Moody’s Senior Un-Secured Rating
|
A/
A2 or higher
|
A-/
A3
|
BBB+/
Baa1
|
BBB/
Baa2
|
BBB-/
Baa3
|
lower
than BBB-/ Baa3
|
Commitment
Fee
|
6.0
|
7.0
|
8.0
|
10.0
|
12.5
|
20.0
|
Base
Rate Margin
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
LIBOR
Margin
|
25.0
|
30.0
|
40.0
|
50.0
|
62.5
|
87.5
|
Utilization
Fee (>50%)
|
10.0
|
10.0
|
12.5
|
12.5
|
12.5
|
12.5
|
Any
change in a Credit Rating of the Borrower (and if applicable, any change in
fees
or interest payable hereunder based on such Credit Rating), shall be effective
as of the date such change is announced by the applicable rating
agency.
*
If
the Borrower is split-rated and the ratings differential is one level, the
higher rating will apply. If the Borrower is split-rated and the ratings
differential is two levels or more, the rating level one below the higher level
will apply. If at any time the Borrower has no Moody’s rating or no Standard
& Poors’ rating, the “Lower than BBB-/Baa3” level will apply; provided,
however, that in such event the Borrower may propose an alternative rating
agency or mechanism in replacement thereof.
Schedule
1 - A
Credit
Agreement
EXHIBIT
10(e)
AMENDMENT
NUMBER ONE
TO
THE
AMENDED
AND RESTATED TRUST AGREEMENT
In
accordance with Section 14 of the
trust
agreement for the Amended and Restated Trust Under Peoples Energy Corporation
(the "Company") Directors Deferred Compensation Plan, Directors Stock And
Option
Plan, Executive Deferred Compensation Plan, and Supplemental Retirement Benefit
Plan, effective March 1, 2004
(the
"Trust Agreement"), the Company and The Northern Trust Company (the "Trustee")
hereby amend the Trust Agreement, effective
July 24
,
2006 as
follows:
1.
|
Section
1(f) of the Trust Agreement is hereby amended by deleting the first
sentence and replacing it with the
following:
|
Upon
a
Change of Control (as defined herein), the Company shall, as soon as possible,
but in no event longer than 10 business days following the Change of Control,
make an irrevocable contribution to the Trust in an amount that is sufficient
to
pay each Participant or Beneficiary the benefits to which such Participant
or
Beneficiary would be entitled pursuant to the terms of the Plans as of the
date
on which such Change of Control occurred, except to the extent the Company
receives a waiver from any Participant or Beneficiary waiving any right to
receive any portion of such Participant's or Beneficiary's benefits from
the
Trust. Notwithstanding the foregoing, the Trustee shall have no duty to
determine whether such irrevocable contribution by the Company is in an amount
sufficient to pay such benefits or to enforce any contribution obligation
of the
Company, or to determine whether a waiver has been obtained.
All
provisions of the Trust Agreement not specifically mentioned in this Amendment
shall be considered modified to the extent necessary to be consistent with
the
changes made in this Amendment.
IN
WITNESS WHEREOF, the Company and the Trustee have caused this Amendment to
be
executed and delivered as of the date first set forth above.
COMPANY:
|
|
TRUSTEE:
|
PEOPLES
ENERGY CORPORATION
|
|
THE
NORTHERN TRUST COMPANY
|
By:
/s/
Douglas M. Ruschau
|
|
By:
/s/
Neal Brailov
|
Its:
Vice President & Treasurer
|
|
Its:
Vice President
|
Exhibit
12
Peoples
Energy Corporation and Subsidiary Companies
Statement
Re: Computation of Ratio of Earnings to Fixed Charges
(Dollars
in Thousands)
|
|
Fiscal
years ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) Before Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Dividends, as reported
|
|
$
|
(17,636
|
)
|
$
|
78,133
|
|
$
|
81,564
|
|
$
|
103,934
|
|
$
|
89,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in undistributed earnings from equity investees
|
|
|
4,788
|
|
|
(10,150
|
)
|
|
(8,327
|
)
|
|
4,740
|
|
|
12,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add
- Income Taxes
|
|
|
(16,751
|
)
|
|
44,704
|
|
|
37,833
|
|
|
59,182
|
|
|
46,321
|
|
Fixed
charges excluding capitalized interest
|
|
|
61,583
|
|
|
50,615
|
|
|
48,426
|
|
|
49,441
|
|
|
56,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
$
|
31,984
|
|
$
|
163,302
|
|
$
|
159,496
|
|
$
|
217,297
|
|
$
|
204,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
charges including capitalized interest
|
|
$
|
61,583
|
|
$
|
50,615
|
|
$
|
48,426
|
|
$
|
49,441
|
|
$
|
56,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of Earnings to Fixed Charges
|
|
|
0.52
|
|
|
3.23
|
|
|
3.29
|
|
|
4.40
|
|
|
3.62
|
|
Exhibit
12
The
Peoples Gas Light and Coke Company and Subsidiary
Companies
Statement
Re: Computation of Ratio of Earnings to Fixed Charges
(Dollars
in Thousands)
|
|
Fiscal
years ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) Before Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Dividends
|
|
$
|
(35,444
|
)
|
$
|
49,333
|
|
$
|
45,376
|
|
$
|
79,582
|
|
$
|
77,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add
- Income Taxes
|
|
|
(26,116
|
)
|
|
26,690
|
|
|
24,397
|
|
|
45,752
|
|
|
47,832
|
|
Fixed
Charges excluding capitalized interest
|
|
|
26,987
|
|
|
23,781
|
|
|
21,114
|
|
|
22,314
|
|
|
23,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
$
|
(34,573
|
)
|
$
|
99,804
|
|
$
|
90,887
|
|
$
|
147,648
|
|
$
|
149,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Charges including capitalized interest
|
|
$
|
26,987
|
|
$
|
23,781
|
|
$
|
21,114
|
|
$
|
22,314
|
|
$
|
23,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of Earnings to Fixed Charges
|
|
|
(1.28
|
)
|
|
4.20
|
|
|
4.30
|
|
|
6.62
|
|
|
6.31
|
|
Exhibit
12
North
Shore Gas Company and Subsidiary Companies
Statement
Re: Computation of Ratio of Earnings to Fixed Charges
(Dollars
in Thousands)
|
|
Fiscal
years ended September 30,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Before Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Dividends
|
|
$
|
6,707
|
|
$
|
11,397
|
|
$
|
11,076
|
|
$
|
14,545
|
|
$
|
12,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add
- Income Taxes
|
|
|
3,797
|
|
|
6,656
|
|
|
6,743
|
|
|
8,712
|
|
|
7,916
|
|
Fixed
Charges excluding capitalized interest
|
|
|
4,071
|
|
|
3,706
|
|
|
3,688
|
|
|
3,603
|
|
|
5,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
$
|
14,575
|
|
$
|
21,759
|
|
$
|
21,507
|
|
$
|
26,860
|
|
$
|
25,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Charges including capitalized interest
|
|
$
|
4,071
|
|
$
|
3,706
|
|
$
|
3,688
|
|
$
|
3,603
|
|
$
|
5,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of Earnings to Fixed Charges
|
|
|
3.58
|
|
|
5.87
|
|
|
5.83
|
|
|
7.45
|
|
|
5.13
|
|
Exhibit
21
SUBSIDIARIES
OF PEOPLES ENERGY CORPORATION
|
The
following is a list of subsidiaries of the Company as of September
30,
2006, omitting some subsidiaries which, considered in the aggregate,
would
not constitute a significant subsidiary.
|
Subsidiary
|
State
of Incorporation
or
Formation
|
The
Peoples Gas Light and Coke Company
|
Illinois
|
North
Shore Gas Company
|
Illinois
|
Peoples
Energy Production Company
|
Delaware
|
PEP
Holdings, LLC
|
Delaware
|
Peoples
Energy Production Operating Company
|
Delaware
|
Peoples
Energy Production Partners, L.P.
|
Delaware
|
Peoples
Energy Production - Texas, L.P.
|
Delaware
|
Peoples
Energy Resources Company, LLC
|
Delaware
|
PERC
Power, LLC
|
Delaware
|
Peoples
Elwood, LLC
|
Delaware
|
Peoples
Calumet, LLC
|
Delaware
|
PERC
Wholesale Marketing, LLC
|
Delaware
|
Peoples
Energy Services Corporation
|
Illinois
|
|
|
|
|
Exhibit
23(a)
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in
Registration
Statements Nos. 333-84594 and 333-70702 on Form S-3, and 2-82760, 33-6369,
033-63193, 333-62070, 333-113204, 333-116192 and 333-17701 on Form S-8, of
Peoples Energy Corporation, of our report dated December 14, 2006 relating
to
the consolidated financial statements and financial statement schedules of
Peoples Energy Corporation (which report expresses an unqualified opinion and
includes an explanatory paragraph regarding the adoption of FASB Interpretation
No. 47, “Conditional Asset Retirement Obligations”) and of our report dated
December 14, 2006 relating to management’s report on the effectiveness of
internal control over financial reporting, appearing in this Annual Report
on
Form 10-K of Peoples Energy Corporation for the year ended September 30,
2006.
DELOITTE
& TOUCHE LLP
Chicago,
Illinois
December
14, 2006
Exhibit
23(b)
[NETHERLAND,
SEWELL & ASSOCIATES, INC. LETTERHEAD]
CONSENT
OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
As
oil
and gas consultants, we hereby consent to the use of our name and our report
dated October 31, 2006, in this Form 10-K, incorporated by reference into
Peoples Energy Corporation's previously filed Registration Statement File Nos.
333-84594 and 333-70702 on Form S-3, and 2-82760, 33-6369, 033-63193, 333-62070,
333-113204, 333-116192 and 333-17701 on Form S-8.
|
NETHERLAND,
SEWELL & ASSOCIATES, INC.
|
|
|
|
By:
/s/
Danny D. Simmons
|
|
Danny
D. Simmons
|
|
Executive
Vice President
|
Houston,
Texas
December
14, 2006
Exhibit
23(c)
[MILLER
AND LENTS, LTD. LETTERHEAD]
CONSENT
OF MILLER AND LENTS, LTD.
As
oil
and gas consultants, we hereby consent to the use of our name and our report
dated October 30, 2006, in this Form 10-K, incorporated in reference into
Peoples Energy Corporation's previously filed Registration Statement File Nos.
333-84594 and 333-70702 on Form S-3, and 2-82760, 33-6369, 033-63193, 333-62070,
333-113204, 333-116192, and 333-17701 on Form S-8.
|
MILLER
AND LENTS, LTD.
|
|
|
|
By
/s/
Leslie A. Fallon
|
|
Leslie
A. Fallon
|
|
Vice
President
|
Houston,
Texas
December
14, 2006
Exhibit
23(d)
[PRATOR
BETT, L.L.C. LETTERHEAD]
CONSENT
OF PRATOR BETT, L.L.C.
As
oil
and gas consultants, we hereby consent to the use of our name and our reports
dated October 27, October 28, and October 30, 2006 in this Form 10-K,
incorporated by reference into Peoples Energy Corporation's previously filed
Registration Statement File Nos. 333-84594 and 333-70702 on Form S-3, and
2-82760, 33-6369, 033-63193, 333-62070, 333-113204, 333-116192, and 333-17701
on
Form S-8.
|
Prator
Bett, L.L.C.
|
|
|
|
By
/s/
M. Drayton Prator, III
|
|
M.
Drayton Prator, III, PE
|
|
Partner
|
Houston,
Texas
December
14, 2006
EXHIBIT
31(a)
I,
Thomas
M. Patrick, certify that:
1)
|
I
have reviewed this annual report on Form 10-K of Peoples Energy
Corporation;
|
2)
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4)
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
d)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case
of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant's internal control over financial
reporting; and
|
5)
|
The
registrant's other certifying officer and I have disclosed, based
on our
most recent evaluation of internal control over financial reporting,
to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record,
process, summarize and report financial information;
and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
Date:
December 14, 2006
/s/
Thomas M. Patrick
Thomas
M.
Patrick
Chairman
of the Board, President
And
Chief Executive Officer
EXHIBIT
31(a)
I,
Thomas
M. Patrick, certify that:
1)
|
I
have reviewed this annual report on Form 10-K of The Peoples Gas
Light and
Coke Company;
|
2)
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4)
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
b)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
c)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case
of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant's internal control over financial
reporting; and
|
5)
|
The
registrant's other certifying officer and I have disclosed, based
on our
most recent evaluation of internal control over financial reporting,
to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record,
process, summarize and report financial information;
and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
Date:
December 14, 2006
/s/
Thomas M. Patrick
Thomas
M.
Patrick
Chairman
of the Board and
Chief
Executive Officer
EXHIBIT
31(a)
I,
Thomas
M. Patrick, certify that:
1)
|
I
have reviewed this annual report on Form 10-K of North Shore Gas
Company;
|
2)
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4)
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
b)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
c)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case
of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant's internal control over financial
reporting; and
|
5)
|
The
registrant's other certifying officer and I have disclosed, based
on our
most recent evaluation of internal control over financial reporting,
to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record,
process, summarize and report financial information;
and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
Date:
December 14, 2006
/s/
Thomas M. Patrick
Thomas
M.
Patrick
Chairman
of the Board and
Chief
Executive Officer
EXHIBIT
31(b)
I,
Thomas
A. Nardi, certify that:
1)
|
I
have reviewed this annual report on Form 10-K of Peoples Energy
Corporation;
|
2)
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4)
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
d)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case
of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant's internal control over financial
reporting; and
|
5)
|
The
registrant's other certifying officer and I have disclosed, based
on our
most recent evaluation of internal control over financial reporting,
to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record,
process, summarize and report financial information;
and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
Date:
December 14, 2006
/s/
Thomas A. Nardi
Thomas
A.
Nardi
Executive
Vice President and
Chief
Financial Officer
EXHIBIT
31(b)
I,
Thomas
A. Nardi, certify that:
1)
|
I
have reviewed this annual report on Form 10-K of The Peoples Gas
Light and
Coke Company;
|
2)
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4)
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
b)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
c)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case
of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant's internal control over financial
reporting; and
|
5)
|
The
registrant's other certifying officer and I have disclosed, based
on our
most recent evaluation of internal control over financial reporting,
to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record,
process, summarize and report financial information;
and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
Date:
December 14, 2006
/s/
Thomas A. Nardi
Thomas
A.
Nardi
Executive
Vice President and
Chief
Financial Officer
EXHIBIT
31(b)
I,
Thomas
A. Nardi, certify that:
1)
|
I
have reviewed this annual report on Form 10-K of North Shore Gas
Company;
|
2)
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4)
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
|
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
b)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
c)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case
of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant's internal control over financial
reporting; and
|
5)
|
The
registrant's other certifying officer and I have disclosed, based
on our
most recent evaluation of internal control over financial reporting,
to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record,
process, summarize and report financial information;
and
|
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
Date:
December 14, 2006
/s/
Thomas A. Nardi
Thomas
A.
Nardi
Executive
Vice President and
Chief
Financial Officer
Exhibit
32(a)
PEOPLES
ENERGY CORPORATION AND CONSOLIDATED AFFILIATES
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF
THE
SARBANES-OXLEY ACT OF 2002
In
connection with the combined Annual Report of Peoples Energy Corporation
(the
“Company”), The Peoples Gas Light and Coke Company (“Peoples Gas”) and North
Shore Gas Company (“North Shore Gas") on Form 10-K for the period ending
September 30, 2006 as filed with the Securities and Exchange Commission on
the
date hereof (the "Report"), I, Thomas M. Patrick, Chairman of the Board,
President and Chief Executive Officer of the Company and Chairman of the
Board
and Chief Executive Officer of Peoples Gas and North Shore Gas, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
|
The
Report fully complies with the requirements of section 13(a) or 15(d)
of
the Securities Exchange Act of 1934; and
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the
Company,
Peoples Gas and North Shore Gas.
|
/s/
Thomas M. Patrick
|
|
December
14, 2006
|
|
|
Date
|
Thomas
M. Patrick
|
|
|
Chairman
of the Board,
|
|
|
President
and Chief Executive Officer of
|
|
|
Peoples
Energy Corporation
|
|
|
/s/
Thomas M. Patrick
|
|
December
14, 2006
|
|
|
Date
|
Thomas
M. Patrick
|
|
|
Chairman
of the Board and Chief Executive Officer of
|
|
|
The
Peoples Gas Light and Coke Company
|
|
|
|
|
|
/s/
Thomas M. Patrick
|
|
December
14, 2006
|
|
|
Date
|
Thomas
M. Patrick
|
|
|
Chairman
of the Board and Chief Executive Officer of
|
|
|
North
Shore Gas Company
|
|
|
|
|
|
Exhibit
32(b)
PEOPLES
ENERGY CORPORATION AND CONSOLIDATED AFFILIATES
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906
OF
THE
SARBANES-OXLEY ACT OF 2002
In
connection with the combined Annual Report of Peoples Energy Corporation (the
“Company”), The Peoples Gas Light and Coke Company (“Peoples Gas”) and North
Shore Gas Company (“North Shore Gas") on Form 10-K for the period ending
September 30, 2006 as filed with the Securities and Exchange Commission on
the
date hereof (the "Report"), I, Thomas A. Nardi, Executive Vice President and
Chief Financial Officer of the Company, Peoples Gas and North Shore Gas,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of
the
Sarbanes-Oxley Act of 2002, that:
(1)
|
The
Report fully complies with the requirements of section 13(a) or 15(d)
of
the Securities Exchange Act of 1934; and
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the
Company,
Peoples Gas and North Shore Gas.
|
/s/
Thomas A. Nardi
|
|
December
14, 2006
|
|
|
Date
|
Thomas
A. Nardi
|
|
|
Executive
Vice President and
|
|
|
Chief
Financial Officer of
|
|
|
Peoples
Energy Corporation
|
|
|
/s/
Thomas A. Nardi
|
|
December
14, 2006
|
|
|
Date
|
Thomas
A. Nardi
|
|
|
Executive
Vice President and
|
|
|
Chief
Financial Officer of
|
|
|
The
Peoples Gas Light and Coke Company
|
|
|
/s/
Thomas A. Nardi
|
|
December
14, 2006
|
|
|
Date
|
Thomas
A. Nardi
|
|
|
Executive
Vice President and
|
|
|
Chief
Financial Officer of
|
|
|
North
Shore Gas Company
|
|
|
Exhibit
99
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
11-K
[X]
|
ANNUAL
REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
|
|
EXCHANGE
ACT OF 1934
|
For
the
fiscal year ended September 30, 2006
OR
[
]
|
TRANSITION
REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
|
|
EXCHANGE
ACT OF 1934
|
Commission
file number 2-82760
A.
|
Full
title of the plan and address of the plan, if different from that
of the
issuer
|
|
named
below:
|
Peoples
Energy Corporation
Employee
Stock Purchase Plan
B.
|
Name
of issuer of the securities held pursuant to the plan and the address
of
its
|
|
principal
executive office:
|
Peoples
Energy Corporation
130
East
Randolph Drive
Chicago,
Illinois 60601
This
Form
11-K is being filed for informational purposes only.
ITEM
1. An audited statement of
financial condition as of the end of the latest two
fiscal
years of the plan.
Not
applicable. Employees' payments for Company stock are neither segregated
nor
held for investment.
ITEM
2. An audited statement of
income and changes in plan equity for each of the
latest
three fiscal years of the plan.
Not
applicable. See above.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, Peoples Energy
Corporation has duly caused this annual report to be signed on its behalf
by the
undersigned hereunto duly authorized.
|
Peoples
Energy Corporation
|
|
|
Employee
Stock Purchase Plan
|
|
|
(Name
of Plan)
|
|
Date:
December 14, 2006
|
By:
/s/ Thomas A. Nardi
|
|
|
(Signature)
|
|
|
Thomas
A. Nardi
|
|
|
Executive
Vice President and
|
|
|
Chief
Financial Officer
|
|
|
Peoples
Energy Corporation
|
|