SEC Filing Summary: The Laclede Group, Inc. (10-Q)
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the period ended June 30, 2009, for The Laclede Group, Inc. (Laclede Group) and its primary subsidiary, Laclede Gas Company (Laclede Gas). Laclede Gas is a regulated natural gas distribution utility serving eastern Missouri, including St. Louis. The Group also operates a non-regulated gas marketing segment (Laclede Energy Resources, Inc.) and other minor operations. The business is highly seasonal, with earnings typically concentrated in the November through April heating season.
Key Financial Metrics (Nine Months Ended June 30, 2009)
- Revenue: Total operating revenues were $1,643.3 million, a decrease of 6.5% from the prior year period ($1,757.2 million).
- Regulated Gas Distribution: $958.9 million (down 5.8%).
- Non-Regulated Gas Marketing: $681.1 million (down 7.4%).
- Profitability:
- Net Income: $69.0 million (down 15.4% from $81.5 million). The prior year included $20.8 million in income from discontinued operations (sale of SM&P Utility Resources).
- Income from Continuing Operations: $69.0 million (up 13.7% from $60.7 million).
- Diluted Earnings Per Share (EPS): $3.13 (up from $2.80 for continuing operations; down from $3.76 total EPS due to discontinued operations).
- Cash Flow:
- Net cash provided by operating activities: $219.8 million (up from $193.3 million).
- Net cash used in investing activities: $40.0 million (primarily capital expenditures of $39.5 million).
- Net cash used in financing activities: $105.6 million (net repayment of short-term debt and dividends).
- Liquidity and Debt:
- Cash and cash equivalents: $89.1 million (up from $14.9 million at Sept 30, 2008).
- Long-term debt: $389.2 million.
- Short-term debt (Notes payable): $133.0 million.
- Debt-to-Capitalization: 42.3% (Long-term debt) / 57.7% (Equity).
Material Changes vs. Prior Period
- Regulated Segment: Net income decreased by $6.0 million year-over-year. This was driven by higher operation and maintenance expenses ($4.9 million increase) and lower system gas sales volumes due to warmer weather. These were partially offset by higher Infrastructure System Replacement Surcharge (ISRS) revenues ($2.8 million) and a lower provision for uncollectible accounts.
- Non-Regulated Segment: Net income increased significantly by $12.7 million. This improvement was driven by a 57.5% increase in sales volumes (due to increased firm pipeline capacity) and higher margins resulting from depressed supply prices in the Mid-continent region.
- Discontinued Operations: The prior year period included a $44.5 million gain on the sale of SM&P Utility Resources, Inc., which is absent in the current period.
- Weather Impact: Temperatures in the service area were 1.9% warmer than the prior year and 1.1% warmer than normal, reducing demand for heating gas.
Outlook, Risks, and Contingencies
- Regulatory Matters: The Missouri Public Service Commission (MoPSC) Staff has proposed disallowances of gas costs totaling approximately $6.0 million related to purchases from the affiliate LER for fiscal years 2005, 2006, and 2007. Management believes these lack merit and is vigorously opposing them; no amounts have been recorded. Additionally, the MoPSC rejected a tariff filing regarding bad debt recovery, and the Company has sought judicial review.
- Market Risk: The Company manages natural gas price risk through a Purchased Gas Adjustment (PGA) Clause, allowing cost pass-through to customers. The non-regulated marketing affiliate uses derivatives to lock in margins. Unmatched positions are not considered material.
- Liquidity: Management maintains investment-grade credit ratings (S&P A, Moody's A-) and believes it has adequate access to capital markets. The Company has $320 million in syndicated lines of credit and $50 million in working capital lines.
- Contractual Obligations: Total contractual obligations are approximately $2.6 billion, primarily consisting of natural gas purchase obligations ($1.58 billion) and long-term debt principal and interest ($902 million).
Key Facts for Investor Verification
- Verify the status of the MoPSC disallowance proceedings regarding affiliate gas purchases, as a disallowance could impact future earnings.
- Monitor weather patterns for the upcoming heating season (Nov-Apr), as the utility's earnings are highly sensitive to temperature variations.
- Review the non-regulated marketing margins, which improved due to regional price differentials; assess the sustainability of these margins given new pipeline infrastructure.
- Confirm the credit rating stability given the company's reliance on short-term borrowing for seasonal cash flow needs.
- Check for updates on the judicial review of the MoPSC's rejection of the bad debt tariff filing.