Business Context and Reporting Period
Registrant: The Laclede Group, Inc. (Laclede Group) and its primary subsidiary, Laclede Gas Company.
Reporting Period: Fiscal year ended September 30, 2002.
Business Overview: Laclede Group is an exempt public holding company. Its core business is Laclede Gas, the largest natural gas distribution utility in Missouri, serving over 630,000 customers. In January 2002, the Group acquired SM&P Utility Resources, Inc., a major underground locating and marking service business, to diversify earnings and provide counter-seasonal revenue. The company restructured into a holding company effective October 1, 2001.
Key Financial Metrics
| Metric | Fiscal 2002 | Fiscal 2001 | Fiscal 2000 |
|---|---|---|---|
| Total Operating Revenues | $755.2 million | $1,002.1 million | $566.1 million |
| Net Income (Common Stock) | $22.3 million | $30.4 million | $25.9 million |
| Earnings Per Share | $1.18 | $1.61 | $1.37 |
| Operating Income | $59.8 million | $72.3 million | $63.3 million |
| Net Cash from Operating Activities | $83.8 million | $37.9 million | $3.0 million |
| Total Assets | $1,081.9 million | $975.9 million | $931.7 million |
| Long-Term Debt | $259.5 million | $284.5 million | $234.4 million |
| Debt to Capitalization | 47.5% | 49.5% | 45.1% |
| Dividends Declared (Per Share) | $1.34 | $1.34 | $1.34 |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased 24.6% from fiscal 2001 to 2002. This was primarily driven by a 35.9% drop in regulated gas distribution revenues due to significantly warmer weather (15% warmer than normal) and a return to lower wholesale natural gas prices compared to the spike in fiscal 2001.
- Earnings Decrease: Net income applicable to common stock fell 26.6% to $22.3 million. Earnings per share dropped $0.43 to $1.18. The decline was attributed to reduced gas sales volumes and the expiration of the Gas Supply Incentive Plan (GSIP) in September 2001.
- Acquisition Impact: The acquisition of SM&P contributed approximately $1.4 million to consolidated earnings and added $94.1 million in non-regulated revenues, partially offsetting the utility's performance decline.
- Rate Increases: A general rate increase effective December 1, 2001, provided a $9.2 million benefit. A subsequent settlement approved in October 2002 established an additional $14 million annual rate increase effective November 9, 2002.
Guidance, Outlook, and Risks
- Regulatory Settlement: A comprehensive rate case settlement was approved in October 2002, providing a $14 million annual revenue increase and a moratorium on further rate filings until March 1, 2004. It also introduced a weather mitigation plan to stabilize revenues.
- Customer Concentration Risk: In November 2002, SM&P notified the company that two major customers (representing 48% of SM&P's revenue and 6% of consolidated revenue) would not renew certain contracts after February/March 2003. Management is evaluating the financial impact.
- Regulatory Contingencies: The Missouri Public Service Commission (MoPSC) staff recommended disallowing approximately $4.9 million in pre-tax gains from the Price Stabilization Program (PSP). Laclede Gas is vigorously opposing this, with a hearing scheduled for February 2003. A final decision could materially affect future financial results.
- Credit Ratings: Credit ratings were downgraded by S&P and Moody's during fiscal 2002 due to warmer winters and increased debt leverage. However, ratings remain investment grade (A+ / A3).
- Environmental Liabilities: Costs for remediation of former manufactured gas plant sites are estimated at $2.3 million for the Shrewsbury site (reserved) and potentially material for two other sites where scope is unknown.
Investor Verification Checklist
- SM&P Contract Renewals: Verify the final outcome of the contract non-renewals by the two major SM&P customers and the resulting revenue impact for fiscal 2003.
- PSP Disallowance: Monitor the February 2003 MoPSC hearing regarding the potential $4.9 million disallowance of PSP gains.
- Weather Sensitivity: Assess the effectiveness of the new weather mitigation rate design in stabilizing revenues against future weather fluctuations.
- Environmental Costs: Track the scope and cost determination for the two former manufactured gas plant sites where remediation costs are currently unknown.
- Debt Covenants: Confirm compliance with credit facility covenants, specifically the rating triggers (A3/A-) on the $42.8 million SM&P acquisition loan and the $20 million working capital line.