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SPIRE INC 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-12
  3. Ex-31
  4. Ex-32
  5. Graphic
  6. Graphic
lacledegroupform10-qmar2011.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q

[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the Quarter Ended March 31, 2011
OR
[     ]
TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the Transition Period from ­__________ to __________

Commission File Number 1-16681

 
The Laclede Group, Inc. Logo
 
THE LACLEDE GROUP, INC.
(Exact name of registrant as specified in its charter)

Missouri
(State of Incorporation)
74-2976504
(I.R.S. Employer Identification number)
 
720 Olive Street
St. Louis, MO  63101
(Address and zip code of principal executive offices)
 
314-342-0500
(Registrant’s telephone number, including area code)

Indicate by check mark if the registrant:

(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [     ]

has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [     ]

is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer
[ X ]
 
Accelerated filer
[     ]
 
Non-accelerated filer
[     ]
 
Smaller reporting company
[     ]

is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [     ] No [ X ]

As of April 28, 2011, there were 22,408,718 shares of the registrant’s Common Stock, par value $1.00 per share, outstanding.
 






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FILING FORMAT

The Laclede Group, Inc. (Laclede Group or the Company) and Laclede Gas Company (Laclede Gas or the Utility) previously filed joint Forms 10-K and 10-Q, with the Utility’s Financial Statements, Notes to Financial Statements, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Exhibit 99.1 in the combined reports. Beginning with the quarter ended December 31, 2010, the Company and the Utility are each filing separate periodic reports with the SEC.





 
The interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Form 10-K for the fiscal year ended September 30, 2010.





 
THE LACLEDE GROUP, INC.
 (UNAUDITED)

   
Three Months Ended
     
Six Months Ended
 
   
March 31,
     
March 31,
 
(Thousands, Except Per Share Amounts)
   
2011
   
2010
       
2011
   
2010
 
                               
Operating Revenues:
                             
  Regulated Gas Distribution
 
$
388,375
 
$
373,520
     
$
665,818
 
$
656,449
 
  Non-Regulated Gas Marketing
   
155,111
   
261,473
       
321,519
   
458,998
 
  Other
   
292
   
332
       
643
   
11,044
 
          Total Operating Revenues
   
543,778
   
635,325
       
987,980
   
1,126,491
 
Operating Expenses:
                             
  Regulated Gas Distribution
                             
      Natural and propane gas
   
260,706
   
250,238
       
434,071
   
432,238
 
      Other operation expenses
   
39,500
   
37,779
       
74,362
   
75,242
 
      Maintenance
   
6,441
   
7,219
       
12,581
   
13,393
 
      Depreciation and amortization
   
9,739
   
9,385
       
19,377
   
18,748
 
      Taxes, other than income taxes
   
24,686
   
26,050
       
40,434
   
42,274
 
          Total Regulated Gas Distribution Operating Expenses
   
341,072
   
330,671
       
580,825
   
581,895
 
  Non-Regulated Gas Marketing
   
152,302
   
254,161
       
315,655
   
448,891
 
  Other
   
461
   
223
       
806
   
4,771
 
          Total Operating Expenses
   
493,835
   
585,055
       
897,286
   
1,035,557
 
Operating Income
   
49,943
   
50,270
       
90,694
   
90,934
 
Other Income and (Income Deductions) – Net
   
467
   
318
       
2,312
   
1,905
 
Interest Charges:
                             
  Interest on long-term debt
   
5,740
   
6,145
       
11,682
   
12,291
 
  Other interest charges
   
549
   
526
       
1,293
   
1,089
 
          Total Interest Charges
   
6,289
   
6,671
       
12,975
   
13,380
 
Income Before Income Taxes
   
44,121
   
43,917
       
80,031
   
79,459
 
Income Tax Expense
   
16,228
   
15,897
       
28,769
   
28,553
 
Net Income
 
$
27,893
 
$
28,020
     
$
51,262
 
$
50,906
 
                               
Average Number of Common Shares Outstanding:
                             
    Basic
   
22,100
   
21,980
       
22,070
   
21,968
 
    Diluted
   
22,172
   
22,027
       
22,145
   
22,014
 
                               
Basic Earnings Per Share of Common Stock
 
$
1.25
 
$
1.26
     
$
2.30
 
$
2.29
 
                               
Diluted Earnings Per Share of Common Stock
 
$
1.25
 
$
1.26
     
$
2.30
 
$
2.29
 
                               
Dividends Declared Per Share of Common Stock
 
$
0.405
 
$
0.395
     
$
0.810
 
$
0.790
 
                               
                             



THE LACLEDE GROUP, INC.
(UNAUDITED)

   
Three Months Ended
     
Six Months Ended
 
   
March 31,
     
March 31,
 
(Thousands)
   
2011
   
2010
       
2011
   
2010
 
                               
Net Income
 
$
27,893
 
$
28,020
     
$
51,262
 
$
50,906
 
Other Comprehensive Income (Loss), Before Tax:
                             
  Net gains (losses) on cash flow hedging derivative instruments:
                             
    Net hedging gain arising during the period
   
960
   
3,733
       
1,174
   
7,476
 
    Reclassification adjustment for gains included in net income
   
(147
)
 
(1,565
)
     
(3,237
)
 
(5,616
)
        Net unrealized gains (losses) on cash flow hedging
                             
          derivative instruments
   
813
   
2,168
       
(2,063
)
 
1,860
 
  Amortization of actuarial loss included in net periodic
                             
      pension and postretirement benefit cost
   
106
   
99
       
213
   
197
 
Other Comprehensive Income (Loss), Before Tax
   
919
   
2,267
       
(1,850
)
 
2,057
 
Income Tax Expense (Benefit) Related to Items of Other
                             
    Comprehensive Income (Loss)
   
355
   
877
       
(715
)
 
796
 
Other Comprehensive Income (Loss), Net of Tax
   
564
   
1,390
       
(1,135
)
 
1,261
 
Comprehensive Income
 
$
28,457
 
$
29,410
     
$
50,127
 
$
52,167
 
                               
                             














THE LACLEDE GROUP, INC.
(UNAUDITED)

   
March 31,
     
Sept. 30,
     
March 31,
 
(Thousands)
 
2011
     
2010
     
2010
 
                             
ASSETS
                           
Utility Plant
 
$
1,351,293
     
$
1,326,284
     
$
1,301,013
 
Less:  Accumulated depreciation and amortization
   
453,271
       
442,200
       
435,205
 
      Net Utility Plant
   
898,022
       
884,084
       
865,808
 
                             
Non-utility property
   
4,418
       
4,551
       
4,072
 
Other investments
   
53,485
       
50,226
       
49,193
 
      Other Property and Investments
   
57,903
       
54,777
       
53,265
 
                             
Current Assets:
                           
  Cash and cash equivalents
   
22,982
       
86,919
       
83,765
 
  Accounts receivable:
                           
      Utility
   
146,821
       
70,053
       
130,460
 
      Non-utility
   
43,079
       
56,160
       
78,857
 
      Other
   
7,505
       
11,671
       
6,466
 
      Allowance for doubtful accounts
   
(11,095
)
     
(10,295
)
     
(12,782
)
  Delayed customer billings
   
32,398
       
       
38,955
 
  Inventories:
                           
      Natural gas stored underground at LIFO cost
   
40,225
       
113,576
       
43,757
 
      Propane gas at FIFO cost
   
16,927
       
15,625
       
15,625
 
      Materials, supplies, and merchandise at average cost
   
4,402
       
3,867
       
4,338
 
  Natural gas receivable
   
18,183
       
22,963
       
25,672
 
  Derivative instrument assets
   
10,491
       
10,285
       
14,600
 
  Unamortized purchased gas adjustments
   
6,470
       
23,718
       
 
  Deferred income taxes
   
7,310
       
       
626
 
  Prepayments and other
   
5,437
       
9,653
       
7,836
 
          Total Current Assets
   
351,135
       
414,195
       
438,175
 
                             
Deferred Charges:
                           
  Regulatory assets
   
420,733
       
479,462
       
467,078
 
  Other
   
6,624
       
7,678
       
6,579
 
          Total Deferred Charges
   
427,357
       
487,140
       
473,657
 
Total Assets
 
$
1,734,417
     
$
1,840,196
     
$
1,830,905
 
                             

 
 

 
 
 
 




THE LACLEDE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(UNAUDITED)


   
March 31,
     
Sept. 30,
     
March 31,
 
(Thousands, except share amounts)
 
2011
     
2010
     
2010
 
                             
CAPITALIZATION AND LIABILITIES
                           
Capitalization:
                           
  Common stock (70,000,000 shares authorized, 22,400,309,
    22,292,804, and 22,271,064 shares issued, respectively)
 
$
22,400
     
$
22,293
     
$
22,271
 
  Paid-in capital
   
160,152
       
158,698
       
156,018
 
  Retained earnings
   
394,887
       
361,723
       
376,142
 
  Accumulated other comprehensive loss
   
(8,272
)
     
(7,137
)
     
(905
)
      Total Common Stock Equity
   
569,167
       
535,577
       
553,526
 
  Long-term debt (less current portion) – Laclede Gas
   
364,327
       
364,298
       
364,269
 
      Total Capitalization
   
933,494
       
899,875
       
917,795
 
                             
Current Liabilities:
                           
  Notes payable
   
       
129,650
       
114,950
 
  Accounts payable
   
96,808
       
95,595
       
122,844
 
  Advance customer billings
   
       
16,809
       
 
  Current portion of long-term debt
   
       
25,000
       
25,000
 
  Wages and compensation accrued
   
13,504
       
13,410
       
12,893
 
  Dividends payable
   
9,244
       
8,942
       
8,962
 
  Customer deposits
   
10,719
       
11,244
       
11,663
 
  Interest accrued
   
9,023
       
9,639
       
9,865
 
  Taxes accrued
   
36,509
       
10,501
       
42,830
 
  Unamortized purchased gas adjustments
   
       
       
1,148
 
  Deferred income taxes
   
       
155
       
 
  Other
   
13,307
       
12,979
       
12,839
 
      Total Current Liabilities
   
189,114
       
333,924
       
362,994
 
                             
Deferred Credits and Other Liabilities:
                           
  Deferred income taxes
   
293,466
       
292,391
       
248,968
 
  Unamortized investment tax credits
   
3,432
       
3,538
       
3,646
 
  Pension and postretirement benefit costs
   
208,727
       
207,607
       
201,643
 
  Asset retirement obligations
   
26,610
       
25,837
       
26,266
 
  Regulatory liabilities
   
49,077
       
47,365
       
45,088
 
  Other
   
30,497
       
29,659
       
24,505
 
      Total Deferred Credits and Other Liabilities
   
611,809
       
606,397
       
550,116
 
Commitments and Contingencies (Note 11)
                           
Total Capitalization and Liabilities
 
$
1,734,417
     
$
1,840,196
     
$
1,830,905
 
                             
                           
                             
                             




THE LACLEDE GROUP, INC.
(UNAUDITED)
 
   
Six Months Ended
 
   
March 31,
 
(Thousands)
 
2011
     
2010
 
                   
Operating Activities:
                 
  Net Income
 
$
51,262
     
$
50,906
 
  Adjustments to reconcile net income to net cash provided by (used in)
      operating activities:
                 
    Depreciation, amortization, and accretion
   
19,635
       
18,891
 
    Deferred income taxes and investment tax credits
   
(9,012
)
     
(15,953
)
    Other – net
   
71
       
1,375
 
    Changes in assets and liabilities:
                 
      Accounts receivable – net
   
(58,721
)
     
(83,006
)
      Unamortized purchased gas adjustments
   
17,248
       
(1,982
)
      Deferred purchased gas costs
   
60,725
       
25,323
 
      Accounts payable
   
2,658
       
50,986
 
      Delayed customer billings – net
   
(49,207
)
     
(60,095
)
      Taxes accrued
   
25,997
       
26,752
 
      Natural gas stored underground
   
73,351
       
49,556
 
      Other assets and liabilities
   
5,987
       
7,096
 
          Net cash provided by operating activities
   
139,994
       
69,849
 
                   
Investing Activities:
                 
  Capital expenditures
   
(29,746
)
     
(24,850
)
  Other investments
   
(1,514
)
     
(3,560
)
          Net cash used in investing activities
   
(31,260
)
     
(28,410
)
                   
Financing Activities:
                 
  Maturity of first mortgage bonds
   
(25,000
)
     
 
  Repayment of short-term debt – net
   
(129,650
)
     
(14,850
)
  Changes in book overdrafts
   
(291
)
     
(207
)
  Issuance of common stock
   
1,427
       
1,041
 
  Non-employee directors’ restricted stock awards
   
(494
)
     
(406
)
  Dividends paid
   
(17,782
)
     
(17,297
)
  Employees’ taxes paid associated with restricted shares withheld upon vesting
   
(1,162
)
     
(576
)
  Excess tax benefits from stock-based compensation
   
265
       
66
 
  Other
   
16
       
(36
)
          Net cash used in financing activities
   
(172,671
)
     
(32,265
)
                   
Net (Decrease) Increase in Cash and Cash Equivalents
   
(63,937
)
     
9,174
 
Cash and Cash Equivalents at Beginning of Period
   
86,919
       
74,591
 
Cash and Cash Equivalents at End of Period
 
$
22,982
 
 
 
$
83,765
 
                   
 
                 
Supplemental Disclosure of Cash Paid During the Period for:
                 
    Interest
 
$
13,241
     
$
13,305
 
    Income taxes
   
5,651
       
13,772
 
                   
                 





THE LACLEDE GROUP, INC.
(UNAUDITED)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These notes are an integral part of the accompanying unaudited consolidated financial statements of The Laclede Group, Inc. (Laclede Group or the Company) and its subsidiaries. In the opinion of Laclede Group, this interim report includes all adjustments (consisting of only normal recurring accruals) necessary for the fair presentation of the results of operations for the periods presented. This Form 10-Q should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Company’s Fiscal Year 2010 Form 10-K.
The consolidated financial position, results of operations, and cash flows of Laclede Group are comprised primarily from the financial position, results of operations, and cash flows of Laclede Gas Company (Laclede Gas or the Utility). Laclede Gas is a regulated natural gas distribution utility having a material seasonal cycle. As a result, these interim statements of income for Laclede Group are not necessarily indicative of annual results or representative of succeeding quarters of the fiscal year. Due to the seasonal nature of the business of Laclede Gas, earnings are typically concentrated in the November through April period, which generally corresponds with the heating season.
REVENUE RECOGNITION - Laclede Gas reads meters and bills its customers on monthly cycles. The Utility records its regulated gas distribution revenues from gas sales and transportation services on an accrual basis that includes estimated amounts for gas delivered, but not yet billed. The accruals for unbilled revenues are reversed in the subsequent accounting period when meters are actually read and customers are billed. The amounts of accrued unbilled revenues at March 31, 2011 and 2010, for the Utility, were $29.0 million and $22.6 million, respectively. The amount of accrued unbilled revenue at September 30, 2010 was $11.3 million.
GROSS RECEIPTS TAXES -Gross receipts taxes associated with Laclede Gas’ natural gas utility service are imposed on the Utility and billed to its customers. These amounts are recorded gross in the Statements of Consolidated Income. Amounts recorded in Regulated Gas Distribution Operating Revenues for the quarters ended March 31, 2011 and 2010 were $20.3 million and $21.5 million, respectively. Amounts recorded in Regulated Gas Distribution Operating Revenues for the six months ended March 31, 2011 and 2010 were $31.6 million and $33.5 million, respectively. Gross receipts taxes are expensed by the Utility and included in the Taxes, other than income taxes line.>

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

Laclede Gas has non-contributory, defined benefit, trusteed forms of pension plans covering substantially all employees. Plan assets consist primarily of corporate and U.S. government obligations and equity market exposure achieved through derivative investments.
Similar to modifications made to Laclede Gas’ primary plan in 2009, effective January 1, 2010, the Utility modified the calculation of future benefits under its Missouri Natural Gas division plan from a career average formula to a cash balance formula, which accrues benefits based on a percentage of compensation, provides interest credits on the balance, and provides certain transition credits. Benefits attributable to plan participation prior to January 1, 2010, will be based on career average compensation earned as a participant prior to January 1, 2010.
Pension costs for all of Laclede Gas' defined-benefit pension plans for the quarters ended March 31, 2011 and 2010 were $4.2 million and $1.6 million, respectively, including amounts charged to construction. Pension costs for the six months ended March 31, 2011 and 2010 were $5.8 million and $3.2 million, respectively, including amounts charged to construction.
The net periodic pension costs include the following components:

     
Three Months Ended
 
Six Months Ended
 
     
March 31,
 
March 31,
 
 
(Thousands)
 
2011
 
2010
 
2011
 
2010
 
                             
 
Service cost – benefits earned during the period
 
$
2,388
 
$
2,189
 
$
4,776
 
$
4,463
 
 
Interest cost on projected benefit obligation
   
4,705
   
4,924
   
9,410
   
9,881
 
 
Expected return on plan assets
   
(4,712
)
 
(5,075
)
 
(9,424
)
 
(10,107
)
 
Amortization of prior service cost
   
160
   
172
   
320
   
411
 
 
Amortization of actuarial loss
   
2,557
   
2,025
   
5,114
   
4,059
 
 
Sub-total
   
5,098
   
4,235
   
10,196
   
8,707
 
 
Regulatory adjustment
   
(862
)
 
(2,657
)
 
(4,395
)
 
(5,550
)
 
Net pension cost
 
$
4,236
 
$
1,578
 
$
5,801
 
$
3,157
 


Pursuant to the provisions of the Laclede Gas pension plans, pension obligations may be satisfied by lump-sum cash payments. Pursuant to a Missouri Public Service Commission (MoPSC or Commission) Order, lump-sum payments are recognized as settlements (which can result in gains or losses) only if the total of such payments exceeds 100% of the sum of service and interest costs. No lump-sum payments were recognized as settlements during the six months ended March 31, 2011 and March 31, 2010.
Pursuant to a MoPSC Order, the return on plan assets is based on the market-related value of plan assets implemented prospectively over a four-year period. Gains or losses not yet includible in pension cost are amortized only to the extent that such gain or loss exceeds 10% of the greater of the projected benefit obligation or the market-related value of plan assets. Such excess is amortized over the average remaining service life of active participants. The recovery in rates for the Utility’s qualified pension plans is based on an allowance of $4.8 million annually effective August 1, 2007 and $15.5 million annually effective January 1, 2011. The difference between these amounts and pension expense as calculated pursuant to the above and that otherwise would be included in the Statements of Consolidated Income and Statements of Consolidated Comprehensive Income is deferred as a regulatory asset or regulatory liability.
The funding policy of Laclede Gas is to contribute an amount not less than the minimum required by government funding standards, nor more than the maximum deductible amount for federal income tax purposes. Fiscal year 2011 contributions to the pension plans through March 31, 2011 were $4.9 million to the qualified trusts and approximately $1.1 million to the non-qualified plans. Contributions to the pension plans for the remaining six months of fiscal year 2011 are anticipated to be at least $11.9 million to the qualified trusts and $1.6 million to the non-qualified plans.

Postretirement Benefits

Laclede Gas provides certain life insurance benefits at retirement. Medical insurance is available after early retirement until age 65. The transition obligation not yet includible in postretirement benefit cost is being amortized over 20 years. Postretirement benefit costs for the quarters ended March 31, 2011 and 2010 were $2.4 million and $1.9 million, respectively, including amounts charged to construction. Postretirement benefit costs for the six months ended March 31, 2011 and 2010 were $4.3 million and $3.8 million, respectively, including amounts charged to construction.
Net periodic postretirement benefit costs consisted of the following components:

     
Three Months Ended
 
Six Months Ended
 
     
March 31,
 
March 31,
 
 
(Thousands)
 
2011
 
2010
 
2011
 
2010
 
                             
 
Service cost – benefits earned during the period
 
$
1,919
 
$
1,611
 
$
3,838
 
$
3,221
 
 
Interest cost on accumulated
                         
 
  postretirement benefit obligation
   
1,211
   
1,129
   
2,422
   
2,258
 
 
Expected return on plan assets
   
(912
)
 
(758
)
 
(1,823
)
 
(1,516
)
 
Amortization of transition obligation
   
34
   
34
   
68
   
68
 
 
Amortization of prior service credit
   
(582
)
 
(582
)
 
(1,164
)
 
(1,164
)
 
Amortization of actuarial loss
   
1,111
   
995
   
2,221
   
1,990
 
 
Sub-total
   
2,781
   
2,429
   
5,562
   
4,857
 
 
Regulatory adjustment
   
(400
)
 
(518
)
 
(1,271
)
 
(1,036
)
 
Net postretirement benefit cost
 
$
2,381
 
$
1,911
 
$
4,291
 
$
3,821
 

Missouri state law provides for the recovery in rates of costs accrued pursuant to generally accepted accounting principles (GAAP) provided that such costs are funded through an independent, external funding mechanism. Laclede Gas established Voluntary Employees’ Beneficiary Association (VEBA) and Rabbi trusts as its external funding mechanisms. VEBA and Rabbi trusts’ assets consist primarily of money market securities and mutual funds invested in stocks and bonds.
Pursuant to a MoPSC Order, the return on plan assets is based on the market-related value of plan assets implemented prospectively over a four-year period. Gains and losses not yet includible in postretirement benefit cost are amortized only to the extent that such gain or loss exceeds 10% of the greater of the accumulated postretirement benefit obligation or the market-related value of plan assets. Such excess is amortized over the average remaining service life of active participants. The Commission ordered that the recovery in rates be based on an annual allowance of $7.6 million effective August 1, 2007 and $9.5 million effective January 1, 2011. The difference between these amounts and postretirement benefit cost based on the above and that otherwise would be included in the Statements of Consolidated Income and Statements of Consolidated Comprehensive Income is deferred as a regulatory asset or regulatory liability.


Laclede Gas’ funding policy is to contribute amounts to the trusts equal to the periodic benefit cost calculated pursuant to GAAP as recovered in rates. Fiscal year 2011 contributions to the postretirement plans through March 31, 2011 were $2.8 million to the qualified trusts and approximately $0.1 million paid directly to participants from Laclede Gas funds. Contributions to the postretirement plans for the remaining six months of fiscal year 2011 are anticipated to be $8.3 million to the qualified trusts and $0.2 million paid directly to participants from Laclede Gas funds.

STOCK-BASED COMPENSATION

Awards of stock-based compensation are made pursuant to The Laclede Group 2006 Equity Incentive Plan and the Restricted Stock Plan for Non-Employee Directors. Refer to Note 4 of the Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2010 for descriptions of these plans.

Restricted Stock Awards

During the six months ended March 31, 2011, the Company granted 81,525 performance-contingent restricted shares and share units to executive officers and key employees at a weighted average grant date fair value of $30.78 per share. This number represents the maximum shares that can be earned pursuant to the terms of the awards. The shares and share units have a performance period ending September 30, 2013, during which participants are entitled to voting rights on the target level, or 54,350 shares. Dividends on these target level of shares accrue during the performance period and are paid to the participants up to the target level upon vesting, but are subject to forfeiture if the underlying shares do not vest. The number of shares and share units that will ultimately vest is dependent upon the attainment of certain levels of earnings growth and portfolio development performance goals; further, under the terms of the award, the Compensation Committee of the Board of Directors has the discretion to reduce by up to 25% the number that vest if the Company’s total shareholder return (TSR) during the performance period ranks below the median relative to a comparator group of companies. This TSR provision is considered a market condition under generally accepted accounting principles.
Performance-contingent restricted stock and performance-contingent restricted stock unit activity for the six months ended March 31, 2011 is presented below:

           
Weighted
           
Average
     
Shares/
   
Grant Date
     
Units
   
Fair Value
                   
 
Nonvested at September 30, 2010
 
255,300
     
$
34.07
 
                   
 
Granted (maximum shares that can be earned)
 
81,525
     
$
30.78
 
 
Vested
 
(72,750
)
   
$
29.32
 
 
Forfeited
 
(15,000
)
   
$
32.65
 
                   
 
Nonvested at March 31, 2011
 
249,075
     
$
34.46
 

During the six months ended March 31, 2011, the Company granted 29,250 shares of time-vested restricted stock to executive officers and key employees at a weighted average grant date fair value of $35.93 per share. These shares were awarded on December 1, 2010 and vest December 1, 2013. In the interim, participants receive full voting rights and dividends, which are not subject to forfeiture.
During the six months ended March 31, 2011, the Company granted 12,500 shares of time-vested restricted stock to non-employee directors at a weighted average grant date fair value of $39.48 per share. These shares vest depending on the participant’s age upon entering the plan and years of service as a director. The plan’s trustee acquires the shares for the awards in the open market and holds the shares as trustee for the benefit of the non-employee directors until the restrictions expire. In the interim, the participants receive full dividends and voting rights.


Time-vested restricted stock and time-vested restricted stock unit activity for the six months ended March 31, 2011 is presented below:

           
Weighted
           
Average
     
Shares/
   
Grant Date
     
Units
   
Fair Value
                   
 
Nonvested at September 30, 2010
 
121,850
     
$
36.62
 
                   
 
Granted
 
41,750
     
$
36.99
 
 
Vested
 
(26,250
)
   
$
35.15
 
 
Forfeited
 
(1,000
)
   
$
35.47
 
                   
 
Nonvested at March 31, 2011
 
136,350
     
$
37.03
 

During the six months ended March 31, 2011, 94,500 shares of restricted stock (performance-contingent and time-vested), awarded on December 5, 2007, vested. The Company withheld 32,373 of the vested shares at a weighted average price of $35.90 per share pursuant to elections by employees to satisfy tax withholding obligations.

Stock Option Awards

Stock option activity for the six months ended March 31, 2011 is presented below:

                 
Weighted
       
                 
Average
       
           
Weighted
   
Remaining
   
Aggregate
 
           
Average
   
Contractual
   
Intrinsic
 
     
Stock
   
Exercise
   
Term
   
Value
 
     
Options
   
Price
   
(Years)
   
($000)
 
                               
 
Outstanding at September 30, 2010
 
335,975
   
$
30.75
               
                               
 
Granted
 
   
$
               
 
Exercised
 
(22,975
)
 
$
30.88
               
 
Forfeited
 
   
$
               
 
Expired
 
   
$
               
                               
 
Outstanding at March 31, 2011
 
313,000
   
$
30.74
   
3.8
   
$
2,302
 
                               
 
Fully Vested and Expected to Vest
  at March 31, 2011
 
313,000
   
$
30.74
   
3.8
   
$
2,302
 
                               
 
Exercisable at March 31, 2011
 
313,000
   
$
30.74
   
3.8
   
$
2,302
 

The closing price of the Company’s common stock was $38.10 at March 31, 2011.



Equity Compensation Costs

The amounts of compensation cost recognized for share-based compensation arrangements are presented below:

     
Three Months Ended
 
Six Months Ended
 
     
March 31,
 
March 31,
 
 
(Thousands)
 
2011
 
2010
 
2011
 
2010
 
                             
 
Total equity compensation cost
 
$
822
 
$
1,041
 
$
1,540
 
$
1,909
 
 
Compensation cost capitalized
   
(177
)
 
(219
)
 
(331
)
 
(357
)
 
Compensation cost recognized in net income
   
645
   
822
   
1,209
   
1,552
 
 
Income tax benefit recognized in net income
   
(248
)
 
(316
)
 
(466
)
 
(598
)
 
Compensation cost recognized in net income,
                         
 
  net of income tax
 
$
397
 
$
506
 
$
743
 
$
954
 

As of March 31, 2011, there was $5.0 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 2.5 years.

EARNINGS PER COMMON SHARE

     
Three Months Ended
 
Six Months Ended
 
     
March 31,
 
March 31,
 
 
(Thousands, Except Per Share Amounts)
   
2011
   
2010
   
2011
   
2010
 
                             
 
Basic EPS:
                         
 
Net Income
 
$
27,893
 
$
28,020
 
$
51,262
 
$
50,906
 
 
  Less: Income allocated to participating securities
   
226
   
280
   
430
   
508
 
 
Net Income Available to Common Shareholders
 
$
27,667
 
$
27,740
 
$
50,832
 
$
50,398
 
                             
 
Weighted Average Shares Outstanding
   
22,100
   
21,980
   
22,070
   
21,968
 
 
Earnings Per Share of Common Stock
 
$
1.25
 
$
1.26
 
$
2.30
 
$
2.29
 
                             
 
Diluted EPS:
                         
 
Net Income
 
$
27,893
 
$
28,020
 
$
51,262
 
$
50,906
 
 
  Less: Income allocated to participating securities
   
226
   
279
   
429
   
508
 
 
Net Income Available to Common Shareholders
 
$
27,667
 
$
27,741
 
$
50,833
 
$
50,398
 
                             
 
Weighted Average Shares Outstanding
   
22,100
   
21,980
   
22,070
   
21,968
 
 
Dilutive Effect of Stock Options
                         
 
    and Restricted Stock
   
72
   
47
   
75
   
46
 
 
Weighted Average Diluted Shares
   
22,172
   
22,027
   
22,145
   
22,014
 
                             
 
Earnings Per Share of Common Stock
 
$
1.25
 
$
1.26
 
$
2.30
 
$
2.29
 
                             
 
Outstanding Shares Excluded from the
                         
 
Calculation of Diluted EPS Attributable to:
                         
 
Antidilutive stock options
   
   
77
   
   
77
 
 
Performance-contingent restricted stock
   
193
   
145
   
193
   
145
 
 
Total
   
193
   
222
   
193
   
222
 




FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of financial instruments are as follows:

 
(Thousands)
 
Carrying
Amount
 
Fair
Value
 
 
As of March 31, 2011
             
 
Cash and cash equivalents
 
$
22,982
 
$
22,982
 
 
Marketable securities
   
17,022
   
17,022
 
 
Derivative instrument assets
   
11,301
   
11,301
 
 
Derivative instrument liabilities
   
195
   
195
 
 
Long-term debt
   
364,327
   
391,877
 
                 
 
As of September 30, 2010
             
 
Cash and cash equivalents
 
$
86,919
 
$
86,919
 
 
Marketable securities
   
12,856
   
12,856
 
 
Derivative instrument assets
   
12,761
   
12,761
 
 
Derivative instrument liabilities
   
14
   
14
 
 
Short-term debt
   
129,650
   
129,650
 
 
Long-term debt, including current portion
   
389,298
   
443,959
 
                 
 
As of March 31, 2010
             
 
Cash and cash equivalents
 
$
83,765
 
$
83,765
 
 
Marketable securities
   
12,083
   
12,083
 
 
Derivative instrument assets
   
14,600
   
14,600
 
 
Derivative instrument liabilities
   
436
   
436
 
 
Short-term debt
   
114,950
   
114,950
 
 
Long-term debt, including current portion
   
389,269
   
408,429
 

The carrying amounts for cash and cash equivalents and short-term debt approximate fair value due to the short maturity of these instruments. The fair values of long-term debt are estimated based on market prices for similar issues. The fair values of marketable securities, derivative instrument assets, and derivative instrument liabilities are valued as described in Note 6, Fair Value Measurements.




FAIR VALUE MEASUREMENTS

The following table categorizes the assets and liabilities in the Consolidated Balance Sheets that are accounted for at fair value on a recurring basis in periods subsequent to initial recognition.

 
(Thousands)
   
Quoted
Prices in
Active
Markets
(Level 1)
   
Significant
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
   
Effects of Netting and Cash Margin Receivables
/Payables
   
Total
 
 
As of March 31, 2011
                               
 
Assets
                               
 
  U. S. Stock/Bond Mutual Funds
 
$
17,022
 
$
 
$
 
$
 
$
17,022
 
 
  NYMEX natural gas contracts
   
5,718
   
   
   
4,416
   
10,134
 
 
  NYMEX gasoline and heating
                               
 
    oil contracts
   
369
   
   
   
(38
)
 
331
 
 
  Natural gas commodity contracts
   
   
930
   
57
   
(151
)
 
836
 
 
Total
 
$
23,109
 
$
930
 
$
57
 
$
4,227
 
$
28,323
 
                                   
 
Liabilities
                               
 
  NYMEX natural gas contracts
 
$
27,841
 
$
 
$
 
$
(27,841
)
$
 
 
  Natural gas commodity contracts
   
   
313
   
33
   
(151
)
 
195
 
 
Total
 
$
27,841
 
$
313
 
$
33
 
$
(27,992
)
$
195
 
                                   
 
As of September 30, 2010
                               
 
Assets
                               
 
  U. S. Stock/Bond Mutual Funds
 
$
12,856
 
$
 
$
 
$
 
$
12,856
 
 
  NYMEX natural gas contracts
   
5,087
   
   
   
7,214
   
12,301
 
 
  NYMEX gasoline and heating
                               
 
    oil contracts
   
59
   
   
   
220
   
279
 
 
  Natural gas commodity contracts
   
   
161
   
76
   
(56
)
 
181
 
 
Total
 
$
18,002
 
$
161
 
$
76
 
$
7,378
 
$
25,617
 
                                   
 
Liabilities
                               
 
  NYMEX natural gas contracts
 
$
53,677
 
$
 
$
 
$
(53,677
)
$
 
 
  NYMEX gasoline & heating
                               
 
    oil contracts
   
37
   
   
   
(37
)
 
 
 
  Natural gas commodity contracts
   
   
17
   
53
   
(56
)
 
14
 
 
Total
 
$
53,714
 
$
17
 
$
53
 
$