Filing identity and reporting period
The supplied filing is The Laclede Group, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2014, covering fiscal 2014 Q2 and the six months then ended. This does not match the request metadata naming SPIRE INC; the filing itself identifies Laclede Group, Inc.
The company’s principal business is regulated natural-gas distribution in Missouri, including Missouri Gas Energy (MGE), acquired effective September 1, 2013. The filing states that results are seasonal and that MGE’s inclusion reduces comparability with prior periods.
Financial performance
| Metric | Three months ended March 31, 2014 | Prior-year quarter | Six months ended March 31, 2014 | Prior-year six months |
|---|---|---|---|---|
| Operating revenue | $694.5 million | $397.6 million | $1,163.1 million | $704.6 million |
| Operating income | $87.2 million | $51.8 million | $150.1 million | $93.9 million |
| Net income | $52.2 million | $30.2 million | $87.8 million | $55.8 million |
| Diluted EPS | $1.59 | $1.34 | $2.68 | $2.47 |
| Net economic earnings (non-GAAP) | $51.7 million | $32.5 million | $88.0 million | $60.7 million |
| Net economic earnings per share (non-GAAP) | $1.58 | $1.44 | $2.68 | $2.69 |
For the quarter, management reported operating margin, a non-GAAP measure, of $192.1 million versus $114.5 million; for six months, $348.9 million versus $219.0 million. Revenue and earnings growth chiefly reflected the MGE acquisition and colder weather. Service-area temperatures were 16.0% colder year over year in the quarter and 17.6% colder for the six-month period. Gas Marketing also benefited from stronger margins amid increased volatility and regional price differences.
Six-month operating cash flow was $142.8 million, nearly unchanged from $142.4 million. Investing activities used $38.4 million, including $68.2 million of capital expenditures, partly offset by MGE reconciliation proceeds and the NEG sale. Financing activities used $146.5 million; cash declined $42.1 million to $10.9 million. Dividends declared were $0.44 per share for the quarter and $0.88 for six months.
At March 31, 2014, total assets were $3.18 billion, common equity $1.11 billion, long-term debt (less current portion) $832.8 million, and short-term notes payable $36.0 million. The company reported capitalization of 57.1% common equity and 42.9% long-term debt. Current assets were $541.6 million and current liabilities $400.0 million. The Utility had a $450 million credit line and the parent had a $150 million line; no borrowings were outstanding under the parent’s line. The company said it had adequate capital-market access and resources for anticipated needs.
Changes, outlook, and risks
- MGE acquisition: The purchase price was effectively reduced to $940.1 million after a $23.9 million final reconciliation payment and $11.0 million received from the sale of NEG-related interests. MGE contributed $236.6 million of quarterly and $396.7 million of six-month revenue. Goodwill was $216.4 million; the acquisition’s asset-retirement-obligation allocation remained preliminary.
- Alagasco transaction: On April 5, 2014, Laclede Group agreed to acquire Alabama Gas Corporation for stated consideration of $1.6 billion, including approximately $1.35 billion cash and $250 million assumed debt. Closing was expected in 2014, subject to regulatory and other conditions. Management expected the transaction to add to net economic earnings per share beginning in fiscal 2015, but described this as based on preliminary estimates. Permanent financing was expected to include equity, mandatory convertible securities, long-term debt, cash, and short-term facilities; a $1.35 billion bridge facility was committed.
- Rates: MGE’s approved rate-case settlement provided for a $7.8 million annual base-rate increase effective May 1, 2014, replacing a similar amount then collected through its infrastructure surcharge. Laclede Gas received approval for a $7.0 million annual infrastructure surcharge effective April 12, 2014.
- Seasonality and earnings quality: Utility earnings are typically concentrated in the November–April heating season. Weather and MGE’s addition materially affect comparisons. Gas utility gas-cost changes generally flow through the purchased-gas adjustment mechanism, subject to regulatory prudence review. Management’s non-GAAP net economic earnings exclude specified derivative and inventory timing items and acquisition, divestiture, and restructuring impacts.
- Debt and financing risk: The Alagasco deal would substantially increase financing needs and could entail dilution, higher interest expense, reduced financial flexibility, or credit-rating pressure. An April 28 amendment temporarily raised the parent loan agreement’s maximum capitalization ratio from 70% to 73% following closing through September 30, 2015, and increased the permitted revolving commitment increase to $300 million from $200 million.
- Other risks and contingencies: Risks include gas-price and supply volatility, weather, regulatory decisions, pipeline availability, counterparty credit exposure in Gas Marketing, and environmental liabilities. The company disclosed estimated possible future MGP-site expenditures of $5.8 million to $36.3 million based on a 2005 analysis; actual costs may differ, and recovery or insurance is uncertain. Natural-gas purchase obligations were approximately $975 million, with Utility costs generally recoverable through customer rates subject to review.
- Controls: Management concluded disclosure controls were effective, but its assessment excluded recently acquired MGE under SEC guidance; integration-related control evaluation was ongoing.
Investor facts to verify
- Confirm the intended issuer: this filing is for The Laclede Group, Inc., not an entity identified as SPIRE INC.
- Track Alagasco regulatory approvals, closing status, final purchase adjustments, financing mix, and realized accretion versus management’s preliminary expectation.
- Assess whether earnings growth persists after separating MGE’s contribution and unusually cold-weather effects; note that six-month non-GAAP earnings per share were $2.68 versus $2.69 in the prior year.
- Monitor seasonal liquidity, gas-cost recovery timing, credit-line usage, and the effect of acquisition financing on leverage, ratings, and dividends.
- Review MGE integration and control procedures, the final purchase-price allocation, and environmental remediation and insurance developments.