Filing summary
Issuer and period clarification: The supplied filing is The Laclede Group, Inc. and Laclede Gas Company’s combined Form 10-K for the fiscal year ended September 30, 2010, filed November 19, 2010. It is not identified as a SPIRE INC filing or a 2009 Q4 report; the supplied text does not provide a separate 2009 Q4 filing.
Business context and reporting period
Laclede Group was a utility holding company whose core business was regulated natural-gas distribution through Laclede Gas, serving about 627,000 customers in eastern Missouri. Its other principal business was non-regulated gas marketing through Laclede Energy Resources (LER). Operations are seasonal, with utility earnings concentrated in the November–April heating season. The figures below are consolidated Laclede Group results unless otherwise noted.
Financial performance and position
| Metric | FY2010 | FY2009 |
|---|---|---|
| Operating revenue | $1,735.0 million | $1,895.2 million |
| Operating income | $104.9 million | $125.1 million |
| Net income | $54.0 million | $64.2 million |
| Continuing-operations diluted EPS | $2.43 | $2.89 |
| Net economic earnings, non-GAAP | $56.2 million | $60.8 million |
| Cash provided by operating activities | $106.9 million | $228.8 million |
| Capital expenditures | $57.0 million | $52.4 million |
| Cash and cash equivalents at year-end | $86.9 million | $74.6 million |
- FY2010 total revenue fell about 8.5%, operating income about 16.1%, and net income about 15.9% year over year. Lower gas costs passed through to utility customers reduced reported revenue, while narrower regional gas-price differentials materially compressed LER margins.
- LER revenue rose to $858.8 million from $836.9 million and sales volumes increased about 2%, but segment income from continuing operations dropped to $13.7 million from $31.4 million. Regulated gas distribution income improved to $36.0 million from $33.2 million.
- Operating cash flow declined by $121.8 million, primarily due to increased payments for natural-gas storage inventories. Investing cash use was $60.8 million; financing cash use was $33.8 million.
- At September 30, 2010, current assets were $414.2 million and current liabilities $333.9 million. Short-term notes payable were $129.7 million. Long-term debt was $364.3 million, plus $25.0 million current maturity. Total capitalization was $899.9 million, including $535.6 million of common equity.
- Laclede Gas had a $320 million bank credit facility expiring December 2011; $129.7 million of commercial paper was outstanding at year-end. Laclede Group also had $50 million of working-capital credit lines, unused during FY2010. Management stated it expected adequate access to capital and resources for foreseeable needs.
- The common dividend was $1.58 per share for FY2010, up from $1.54 in FY2009. The filing reports no explicit consolidated profit-margin guidance.
Material changes, outlook, risks, and unusual items
- A Missouri rate-case settlement approved in August 2010 provided a net annual revenue increase of $20.5 million, effective September 1, 2010, and retained the weather-mitigation rate design. A further infrastructure surcharge filing seeking $2.6 million annually was pending at the filing date.
- Management forecast approximately $64 million of regulated utility capital expenditures and $0.6 million of non-utility capital expenditures for FY2011. No specific earnings or EPS forecast is provided in the supplied text.
- Management attributed lower FY2010 earnings chiefly to LER’s reduced sales margins as regional price differentials narrowed. LER remained profitable and increased sales volumes, but its non-regulated business is more exposed to market, pipeline-capacity, counterparty-credit, and commodity-price conditions.
- A non-regulated propane inventory exchange settled in cash rather than returned inventory, contributing to a substantial increase in Other income and revenue. The filing describes the transaction as unusual.
- Regulatory and legal matters include MoPSC staff complaints filed in July and October 2010 concerning affiliate-document and affiliate-transaction rules; the company disputed the allegations. Proposed purchased-gas-cost disallowances for FY2005–FY2007 totaled $6.0 million after revisions; the company opposed them and recorded no liability. FERC staff closed its related self-report investigation without further action.
- Environmental remediation estimates for three former manufactured-gas sites ranged from $5.8 million to $36.3 million based on then-available information. The company said timing and ultimate costs were uncertain and anticipated seeking recovery in rates, net of insurance or other-party contributions.
- Other key exposures include weather and customer usage, timely regulatory cost recovery, gas supply and pipeline availability, interest-rate and seasonal funding needs, pipeline safety, environmental rules, pension and postretirement obligations, and credit access. LER guarantees totaled $105.3 million at year-end and $107.6 million by November 19, 2010; no liability was recorded, and management considered payment unlikely.
- Independent auditors gave an unqualified opinion on the consolidated financial statements; management and the auditor reported effective internal control over financial reporting as of September 30, 2010.
Important facts for investors to verify
- Confirm the intended company and period: the provided document covers Laclede Group/Laclede Gas FY2010, not SPIRE INC or 2009 Q4.
- Review the Laclede Gas subsidiary financial statements in Exhibit 99.1, which are not included in full in the supplied text, and distinguish utility results from consolidated holding-company results.
- Assess whether LER margins recover and examine its commodity, pipeline-capacity, counterparty, and guarantee exposures.
- Track outcomes of the MoPSC complaints, purchased-gas disallowance proceedings, pending surcharge filing, and environmental-site assessments.
- Evaluate operating-cash-flow variability, gas inventory funding, credit-facility maturities, and planned FY2011 capital spending.