Spire Inc. — Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2020. The filing is a 2020 annual report, not a 2019 fourth-quarter report. Spire operates regulated natural-gas utilities in Missouri, Alabama and Mississippi, alongside a non-regulated gas-marketing business and pipeline and storage activities. Utility earnings are seasonal and generally concentrated in the winter heating months.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Operating revenue | $1,855.4 million | $1,952.4 million |
| Operating income | $206.4 million | $302.3 million |
| Net income | $88.6 million | $184.6 million |
| Diluted EPS | $1.44 | $3.52 |
| Net economic earnings (non-GAAP) | $207.8 million; $3.76 per diluted share | $195.1 million; $3.73 per diluted share |
| Contribution margin (non-GAAP) | $1,067.8 million | $1,012.8 million |
| Cash from operating activities | $469.9 million | $450.9 million |
| Capital expenditures | $638.4 million | $823.3 million |
- Revenue fell 5.0%; gas-cost recoveries and usage were lower. These pass-through gas costs affect reported revenue but generally do not directly affect utility operating income.
- Operating income declined 31.7%, primarily reflecting $148.6 million of impairment charges. Excluding the impairments, management reported higher underlying earnings; non-GAAP net economic earnings increased 6.5%.
- Gas Utility net income was $213.6 million, up from $190.5 million. Gas Marketing net income fell to $7.0 million from $18.5 million, with storage-capacity costs and less favorable market conditions cited. Other reported a $132.0 million net loss, including the impairments.
- Operating cash flow exceeded investing cash outflow by $161.7 million; operating cash flow less capital expenditures was negative. Financing provided $160.0 million.
- At year-end, Spire reported $4.1 million cash, $648.0 million notes payable and $2.5 billion long-term debt principal, including current maturities. Long-term debt principal plus notes payable was approximately $3.15 billion. Equity represented 50% of long-term consolidated capitalization, versus 55% a year earlier.
- A $975 million syndicated revolving credit facility expires in October 2023; $648 million was outstanding under short-term borrowing arrangements at year-end. Management said it had adequate capital-market access and liquidity. Ratings remained investment grade with stable outlooks.
- Common dividends declared were $2.49 per share, up from $2.37. Capital expenditures were $638.4 million; management planned total FY2021 capital expenditures of approximately $590 million and said utility capital spending would resume growth thereafter.
Material changes and notable items
- Spire revised Spire Storage’s development plan, citing a longer time needed to optimize and position the facility for western U.S. energy markets. It recorded a $140.8 million impairment; two compressed-natural-gas fueling stations accounted for another $7.8 million.
- The 65-mile Spire STL Pipeline entered service in November 2019. Spire Missouri is its foundation shipper, committed to 3.5 million therms per day of capacity.
- Spire Missouri’s FY2020 utility contribution margin rose $23.4 million, supported by higher infrastructure surcharges (ISRS) and other factors, partly offset by warmer weather, lower volumes and COVID-related lost late-payment fees. Missouri temperatures were 9% warmer than the prior year.
- Spire Alabama’s net income increased to $65.7 million from $60.3 million, while revenue declined. Temperatures were 13% warmer than the prior year and 17% warmer than historical norms.
- The company settled Spire Missouri ISRS disputes for a $15 million customer bill credit in August 2020. A further $7 million annualized ISRS increase was approved after year-end. Spire Missouri also gave notice of intent to file a general rate case.
- COVID-19 effects through year-end included $2.3 million of lost late-payment fees and $4.8 million of increased bad-debt expense. Spire Missouri recorded a $3.8 million regulatory asset for deferred costs; Spire Alabama’s RSE mechanism offset its reported COVID-related effects.
Outlook, risks and contingencies
- Management identified continued COVID-19 uncertainty, customer payment and demand changes, and possible effects on liquidity, costs and capital access. The company reported no employee furloughs or layoffs in FY2020.
- Key risks include regulatory decisions on rates and cost recovery, pipeline supply and integrity, weather and climate-related changes, gas-price and counterparty exposure in marketing, cyber and operational-system disruptions, pension funding, and access to capital.
- Spire Storage plans approximately $16 million of additional investment over the following year or so. Its October 2020 FERC expansion application did not commit the company to incremental investment.
- Contractual obligations totaled $6.32 billion, including $2.50 billion debt principal, $1.39 billion future interest, $1.75 billion natural-gas purchase obligations and $540.1 million asset-retirement obligations. Much of the gas-related cost is recoverable from customers, subject to regulatory review.
- The filing describes former manufactured-gas-plant and other environmental matters. Management said recorded estimates were not material and did not expect a material effect, while noting future remediation costs remain uncertain. The FERC pipeline authorization was also subject to pending court review.
- The auditor issued unqualified opinions on the financial statements and Spire Inc.’s internal controls. The auditor identified rate-regulation accounting and valuation of the Spire Storage impairment as critical audit matters.
Important facts for investors to verify
- Whether the Spire Storage revised plan, projected market demand and expected investment support future cash flows or additional impairment.
- How the Missouri rate case, ISRS approvals and regulatory recovery of deferred COVID-19 costs affect utility earnings and cash flow.
- FY2021 capital spending, funding needs and the company’s ability to maintain liquidity while operating cash flow remains below capital expenditures.
- Debt maturities, short-term borrowing usage, credit ratings and the effect of refinancing costs on dividends and capital investment.
- Gas Marketing storage economics and whether the FY2020 costs produce the anticipated benefits in the 2020–2021 heating season.
- Potential changes in customer collections, bad debts, commercial and industrial demand, and regulatory treatment as pandemic-related conditions evolve.