SEC Filing Summary
Filing identity: The supplied filing is The Laclede Group, Inc.’s Form 10-Q for the quarter ended March 31, 2012 (second quarter of fiscal 2012), not a SPIRE Inc. filing for 2011 Q2 as stated in the request metadata. The interim financial statements are unaudited. Amounts below are in millions of dollars unless noted.
Business context and reporting period
Laclede Group’s principal business is regulated natural gas distribution through Laclede Gas Company in eastern Missouri; it also operates non-regulated gas marketing through Laclede Energy Resources (LER). Earnings are seasonal and typically concentrated in the November–April heating season. The regulated utility’s weather-mitigation rate design reduces, but does not eliminate, weather-related earnings effects.
Key financial metrics
| Metric | Three months ended Mar. 31, 2012 | Three months ended Mar. 31, 2011 | Six months ended Mar. 31, 2012 | Six months ended Mar. 31, 2011 |
|---|---|---|---|---|
| Operating revenue | $358.2 | $543.8 | $769.1 | $988.0 |
| Operating income | $50.6 | $49.9 | $93.7 | $90.7 |
| Net income | $29.7 | $27.9 | $54.9 | $51.3 |
| Diluted EPS | $1.32 | $1.25 | $2.45 | $2.30 |
| Dividends declared per share | $0.415 | $0.405 | $0.830 | $0.810 |
Operating margin, calculated as operating income divided by reported revenue, was approximately 14.1% for the quarter and 12.2% for the six-month period, compared with approximately 9.2% in each prior-year period. Reported revenue is affected by pass-through gas costs and changes in gas prices and presentation; it is not directly comparable to underlying sales margins.
- Cash flow: Six-month cash from operations was $71.5, down from $140.0; capital expenditures were $40.7, up from $29.7. Investing cash use was $42.1 and financing cash use was $63.3. Cash declined $34.0 to $9.3.
- Liquidity: At March 31, 2012, current assets were $277.8 and current liabilities $187.8. Laclede Gas had a $300 million revolving credit facility, with no commercial-paper borrowings outstanding at period-end; Laclede Group also had a $50 million facility, unused during the six months.
- Debt and capitalization: Long-term debt, including the current portion, was approximately $364.4; $25.0 was classified as current. Common equity was $615.2. The company reported no short-term debt at March 31.
Material changes versus prior comparable periods
- Quarterly net income rose $1.8 and six-month net income rose $3.6; diluted EPS increased from $1.25 to $1.32 for the quarter and from $2.30 to $2.45 for six months.
- LER results improved: management attributed higher segment earnings principally to increased margins, including lower transportation costs after contract renegotiations. LER’s sales volumes were essentially unchanged.
- Regulated gas distribution earnings were slightly lower: down $0.4 for the quarter and $0.8 for six months. Management cited unusually warm weather and higher pension and group insurance expenses, partly offset by lower operating and maintenance costs and increased infrastructure surcharge revenue.
- The service area experienced its warmest quarter and six-month period on record. Quarterly temperatures were 32.0% warmer than the prior-year quarter and 30.1% warmer than normal; six-month temperatures were 27.5% warmer year over year and 26.8% warmer than normal.
- Revenue declined substantially as lower gas prices and lower regulated system volumes reduced reported revenue. The company also began reporting certain LER wholesale transactions entered into on or after January 1, 2012 on a net basis; management said this changes revenue presentation, not operating income or net income.
- Operating cash flow fell, primarily due to cash margin payments on utility derivatives, timing of collections under the purchased gas adjustment mechanism, and increased pension funding. Capital expenditures increased, mainly for distribution infrastructure and information technology.
Outlook, risks, contingencies, and unusual items
- Outlook and strategy: No quantified annual earnings guidance is provided in the supplied filing text. Management stated it expects adequate access to capital markets and sufficient resources for anticipated needs. On April 27, 2012, the company announced a growth strategy focused on emerging technologies, acquisitions, infrastructure investment, and leveraging existing capabilities.
- Weather and seasonality: Results remain sensitive to weather, customer conservation, gas supply and pipeline access, commodity prices, regulatory decisions, and seasonal working-capital needs. Management cautions that interim results are not necessarily indicative of full-year results.
- LER and commodity exposure: LER faces competition, price and regional-market volatility, pipeline and storage capacity utilization risks, and counterparty credit risk. Derivative fair-value changes can affect earnings before related physical transactions settle. Management reported unmatched fixed-price positions were not material at March 31.
- Commitments and guarantees: Estimated contractual obligations totaled $1.306 billion, including $393.9 million of natural gas purchase obligations and $365.0 million of long-term debt principal. Laclede Group guaranteed $86.3 million of LER obligations at March 31; management considered the likelihood of payment low.
- Regulatory proceedings: Missouri regulators have proposed purchased-gas cost disallowances of $1.7 million, $2.8 million, and $1.5 million for earlier fiscal years. The company disputes them and recorded no liability. Related affiliate-transaction proceedings remain pending; an adverse commission ruling was reversed by a circuit court, and the commission appealed.
- Environmental matters: Three former manufactured-gas plant sites are identified. A 2005 consultant estimate put possible future investigation, monitoring, and remediation costs at $5.8–$36.3 million; actual costs could be higher or lower. The company says future net costs are expected to be recoverable through rates, subject to regulatory approval, and does not expect a material impact, though outcomes remain uncertain.
- Other unusual items: Approximately $2.0 million of Laclede Gas and LER margin deposits remained unavailable at MF Global after its bankruptcy. The company said exposure was not material but could not predict when or how much would be returned. Pension costs rose, including a $3.4 million quarterly loss on lump-sum settlements.
- Controls: Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the issuer and period: this is Laclede Group’s 2012 second-quarter 10-Q, not SPIRE Inc.’s 2011 Q2 filing.
- Review the full filing’s segment disclosures and non-GAAP reconciliation; six-month net economic earnings were $53.3 million versus $50.9 million, but this measure excludes certain energy-related timing and fair-value items.
- Monitor the pending gas-cost disallowance and affiliate-transaction proceedings, including the appeal and potential financial consequences.
- Assess actual costs, recoverability, insurance coverage, and other-party contributions for the former manufactured-gas plant sites.
- Track seasonal cash needs, derivative margin requirements, pension contributions, capital spending, and utilization of the credit facilities.
- Check whether LER’s improved margins persist and whether commodity, transportation, storage, and counterparty risks affect future results.