Filing identity and reporting period
Important mismatch: The supplied filing is a combined Form 10-Q for The Laclede Group, Inc. and Laclede Gas Company, not Spire Inc. It reports the quarter and six months ended March 31, 2010 (fiscal Q2 2010), although the request metadata says “Spire Inc” and “2009 Q2.” The interim statements are unaudited; the supplied text primarily contains Laclede Group consolidated financials.
Laclede Group’s results are driven mainly by its regulated Missouri gas utility, with a non-regulated gas-marketing affiliate. Earnings are seasonal and typically concentrated in the November–April heating season.
Financial results
Amounts below are in millions, except per-share data. Comparisons are with the same period in 2009.
| Metric | Three months ended Mar. 31, 2010 | Three months ended Mar. 31, 2009 | Six months ended Mar. 31, 2010 | Six months ended Mar. 31, 2009 |
|---|---|---|---|---|
| Operating revenue | $635.3 | $659.1 | $1,126.5 | $1,333.3 |
| Operating income | $50.3 | $55.2 | $90.9 | $111.9 |
| Net income | $28.0 | $30.8 | $50.9 | $62.1 |
| Basic EPS | $1.26 | $1.39 | $2.29 | $2.81 |
| Diluted EPS | $1.26 | $1.39 | $2.29 | $2.80 |
| Dividend declared per share | $0.395 | $0.385 | $0.790 | $0.770 |
Operating margin, calculated as operating income divided by operating revenue, was about 7.9% for the quarter and 8.1% for the six months, versus about 8.4% in each comparable 2009 period. Revenue declines substantially reflect lower wholesale gas costs passed through to utility customers, as well as lower off-system sales; those pass-through gas costs generally do not directly affect utility net income.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was $69.8 million, down from $98.8 million. Investing used $28.4 million, including $24.9 million of capital expenditures; financing used $32.3 million. Cash increased $9.2 million to $83.8 million.
- At March 31, 2010, current assets were $438.2 million and current liabilities $363.0 million (calculated current ratio about 1.21). Total assets were $1.831 billion and common equity $553.5 million.
- Debt comprised $115.0 million of short-term notes and $389.3 million of long-term debt, including the current portion. The filing reports debt at 54% of total capitalization under its covenant calculation. Long-term debt fair value was $408.4 million versus $389.3 million carrying value.
- Laclede Gas had a $320 million bank line expiring December 2011 and $115.0 million of commercial paper outstanding at quarter-end. Covenant tests were met: debt was below the 70% limit and trailing EBITDA was 4.49 times interest expense, versus a 2.25-times minimum. Laclede Group also had $50 million of working-capital lines, unused during the six months and scheduled to expire in October 2010.
Material changes and management commentary
- Quarterly net income fell $2.8 million; six-month net income fell $11.2 million. Management attributed the main decline to weaker non-regulated gas-marketing results, partly offset by improved regulated distribution results.
- Gas-marketing net economic earnings were $3.8 million for the quarter versus $8.5 million; for six months they were $8.4 million versus $21.0 million. Management cited narrower regional gas-price differentials and reduced sales margins. Six-month marketing volumes were down 1%, though quarterly volumes rose 5.9%.
- Regulated distribution net economic earnings increased $1.3 million for the quarter and $2.6 million for six months. Factors included lower bad-debt expense and higher infrastructure surcharge revenues, partly offset by lower off-system sales and capacity-release income.
- A non-recurring wholesale propane sale in the December 2010 quarter generated $3.7 million of after-tax income, or $0.16 per diluted share, following an inventory exchange settled in cash rather than returned inventory.
- Management stated that it expected adequate access to credit and capital markets and sufficient resources for anticipated needs. The filing provides no consolidated earnings guidance.
Outlook, risks and contingencies
- A general rate case filed in December 2009 sought an annual revenue increase of approximately $52.6 million (6.9%); the MoPSC suspended the proposed rates and set hearings for summer 2010. Separately, an infrastructure surcharge increase of $2.8 million annually was approved and took effect March 31, 2010.
- Natural-gas purchase, storage and transportation commitments were estimated at about $1.0 billion. Utility gas costs are generally recoverable through the purchased-gas adjustment mechanism, subject to prudence review, but timing can affect cash needs.
- The MoPSC Staff had proposed approximately $6.0 million of purchased-gas cost disallowances for fiscal 2005–2007. The company disputed them; no liability was recorded. The FERC closed its investigation of the company’s capacity-release self-report without further action.
- Environmental remediation at three former manufactured-gas plant sites remains uncertain. A 2005 estimate put possible costs at $5.8–$36.3 million; management said future costs were expected to be deferred and recovered in rates, subject to approvals and other factors.
- Parent guarantees for LER gas-supply obligations were $98.3 million at March 31 and $102.3 million at April 30, 2010; none was recorded, and management assessed payment probability as low. Key risks include weather, gas-price and margin-cash volatility, regulatory decisions, counterparty credit, competition, and pension and environmental obligations.
Most important facts to verify
- Confirm the intended issuer and period: the supplied filing is Laclede Group/Laclede Gas for fiscal Q2 2010, not a Spire Inc. 2009 Q2 filing.
- Review the rate-case outcome and the status of the disputed purchased-gas disallowances.
- Track gas-marketing margins, derivative-related earnings volatility, and counterparty credit exposure.
- Assess seasonal liquidity, commercial-paper usage, expiring credit facilities, and cash recovery timing under the purchased-gas adjustment mechanism.
- Check the propane-sale gain’s non-recurring nature and the assumptions behind environmental remediation estimates and LER guarantees.