SEC Filing Summary
Filing and period: The supplied filing is a combined, unaudited Form 10-Q for The Laclede Group, Inc. and Laclede Gas Company, for the quarter and nine months ended June 30, 2014. This does not match the request metadata identifying Spire Inc. and 2013 Q3; verify the issuer and period before relying on this summary.
Business context and reporting period
Laclede Group is a natural-gas utility holding company with regulated Gas Utility operations and non-regulated Gas Marketing activities. Laclede Gas serves eastern Missouri; the Utility also includes Missouri Gas Energy (MGE), acquired effective September 1, 2013. MGE’s inclusion materially affects comparisons with 2013. Utility earnings are seasonal and generally concentrated in the November–April heating season.
Financial results and liquidity
All amounts are in millions of dollars except per-share data. Consolidated Group results:
| Metric | Three months ended June 30, 2014 | Three months ended June 30, 2013 | Nine months ended June 30, 2014 | Nine months ended June 30, 2013 |
|---|---|---|---|---|
| Operating revenue | $241.8 | $165.3 | $1,404.9 | $869.9 |
| Operating income | $24.7 | $12.3 | $174.8 | $106.2 |
| Net income | $11.7 | $6.6 | $99.5 | $62.4 |
| Diluted EPS | $0.33 | $0.25 | $2.97 | $2.62 |
| Net economic earnings, non-GAAP | $14.5 | $8.2 | $102.5 | $68.9 |
| Net economic earnings per share, non-GAAP | $0.44 | $0.36 | $3.12 | $3.04 |
Operating margin, a non-GAAP measure used by management, was $130.3 for the quarter versus $74.3, and $479.2 for nine months versus $293.4. The filing attributes much of the increase to MGE; nine-month utility results also benefited from colder weather. The quarter’s service-area temperatures were 28.8% warmer year over year, while nine-month temperatures were 12.6% colder.
For the nine months, Group operating cash flow was $185.0 versus $167.0; investing cash outflow was $71.7 versus $99.4, including capital expenditures of $109.5 versus $96.8; financing cash inflow was $405.5 versus $461.4. Cash rose to $571.8 at June 30, 2014, substantially reflecting June equity and equity-unit proceeds. Group long-term debt was $976.6 and notes payable were zero at period-end. Group capitalization comprised 61.1% equity and 38.9% long-term debt.
Laclede Gas reported nine-month operating cash flow of $177.6, capital expenditures of $108.4, and cash of $6.0 at June 30. Its long-term debt was $807.9, with $126.9 of short-term borrowings from Laclede Group. Its $450.0 syndicated credit line was available; the filing reports debt at 48% of capitalization under the line’s covenant definition.
Material changes versus the prior comparable period
- Group nine-month revenue rose to $1,404.9 from $869.9 and net income to $99.5 from $62.4. The acquisition of MGE, which contributed $484.0 of nine-month utility revenue, is a major reason the periods are not directly comparable.
- Nine-month Gas Utility operating margin increased $175.7, including $156.2 from MGE. Higher operating expenses, depreciation, interest, and taxes partly offset the margin increase.
- Group issued 10.4 million common shares and 2.875 million equity units in June, raising approximately $600.0 net. Weighted-average shares increased, affecting reported EPS comparisons.
- Group cash increased from $53.0 at September 30, 2013 to $571.8 at June 30, 2014; the Utility’s cash declined from $23.9 to $6.0.
Outlook, commentary, risks, and unusual items
- Alagasco acquisition: Laclede Group agreed to acquire Alabama Gas Corporation for stated consideration of $1.6 billion, including about $1.35 billion cash and approximately $250 million of assumed debt. The Alabama commission approved the transaction in July 2014, after the quarter-end; the filing describes closing conditions and an appeal period. Management expected the deal to add to net economic earnings per share beginning in fiscal 2015. This was an expectation, not a guarantee.
- The June equity and equity-unit offerings were intended to fund part of Alagasco’s purchase price. The bridge facility commitment was reduced to $700 million; permanent financing was expected to include long-term debt and potentially other instruments. The filing warns of financing costs, interest-rate and credit-rating risks, dilution, integration costs, and the possibility the deal may not close or achieve expected benefits.
- MGE integration remained in progress. Management expected remaining financial-system and process conversions to be completed by the end of fiscal 2015. MGE was excluded from management’s assessment of internal control over financial reporting during the permitted post-acquisition period; management reported disclosure controls effective.
- Natural-gas purchase, transportation, and storage commitments were estimated at $1.15 billion for the Group and $695 million for the Utility. Utility gas costs are generally recoverable through the Purchased Gas Adjustment mechanism, subject to regulatory prudence review, but collection timing can affect cash needs.
- The Utility disclosed former manufactured-gas-plant environmental matters. A 2005 consultant estimate of possible future costs ranged from $5.8 million to $36.3 million; the filing says actual costs remain uncertain and could differ. The Utility expected qualifying remediation costs to be deferred and recovered in rates, subject to regulatory processes and potential insurance or third-party recoveries.
- Management cited exposure to weather, gas-price volatility, supply and pipeline availability, regulation, litigation, credit risk, capital-market access, and pension and environmental costs. The filing states interim results are not necessarily indicative of annual results.
Important facts for investors to verify
- Confirm that this Laclede Group/Laclede Gas 2014 filing—not a Spire Inc. 2013 filing—is the intended document.
- Check whether and when the Alagasco acquisition closed, its final purchase price and financing mix, and whether expected accretion was realized.
- Assess the effect of equity issuance, future debt, integration spending, and share dilution on reported and per-share earnings.
- Separate MGE’s acquired contribution and weather effects from underlying comparable utility performance; review progress on MGE integration and controls.
- Monitor regulatory rate recovery, gas-cost cash timing, environmental remediation exposure, and the large contractual natural-gas commitments.