Business context and reporting period
Filing and period mismatch: The supplied filing is a combined 10-K for The Laclede Group, Inc., Laclede Gas Company, and Alabama Gas Corporation, for the fiscal year ended September 30, 2015. It is not a 2014 Q4 filing and does not identify Spire Inc. as the registrant. The summary below reflects the filing provided.
The Laclede Group operated regulated natural-gas utilities in Missouri and Alabama, plus non-regulated natural-gas marketing. Alagasco was included for a full year in fiscal 2015, compared with only September 2014 in fiscal 2014; this materially limits year-over-year comparability.
Key financial metrics
Amounts are in millions of dollars except per-share data.
| Metric | FY2015 | FY2014 |
|---|---|---|
| Operating revenue | $1,976.4 | $1,627.2 |
| Operating income | $272.5 | $166.4 |
| Net income | $136.9 | $84.6 |
| Diluted EPS | $3.16 | $2.35 |
| Net economic earnings (non-GAAP) | $138.3 | $100.1 |
| Operating cash flow | $322.4 | $122.6 |
| Capital expenditures | $289.8 | $171.0 |
Consolidated operating margin, a non-GAAP measure, was $857.2, up from $599.8. Gas Utility net income rose to $153.3 from $87.1, while Gas Marketing net income fell to $4.1 from $12.2. The Other segment reported a $20.5 net loss, primarily reflecting acquisition-related debt interest and other costs.
At September 30, 2015, total assets were $5,290.2, cash and cash equivalents were $13.8, and total debt was approximately $2,189.5, comprising $338.0 of short-term borrowings and $1,851.5 of long-term debt including the current portion. Consolidated capitalization was 47.0% common equity and 53.0% long-term debt. The company reported $4,527.1 of contractual obligations, including natural-gas purchase obligations of $1,369.3. Dividends declared were $1.84 per share, versus $1.76.
Material changes versus the prior comparable period
- Revenue increased $349.2 and net income increased $52.3. The main driver was the full-year contribution from Alagasco; management attributed $50.9 of net-income growth to its additional months of results. Missouri Utilities net income increased $15.3.
- Gas Marketing revenue and operating margin declined, reflecting lower gas prices and less market volatility and fewer pricing opportunities than in FY2014.
- Operating cash flow increased $199.8, partly due to Alagasco’s full-year inclusion and timing of gas-cost collections and inventory changes.
- Interest charges increased $28.4, mainly from debt issued to finance Alagasco. Short-term borrowings at year-end rose to $338.0 from $287.1.
- Capital expenditures increased, including investment in utility distribution infrastructure. The company also completed migration of MGE customer data to Laclede Gas’s customer-care and billing platform in September 2015.
Outlook, commentary, risks, and unusual items
- Management estimated FY2016 capital expenditures of approximately $315 million: $220 million for Laclede Gas, $90 million for Alagasco, and $5 million for non-regulated businesses. It expected adequate access to capital and sufficient resources for anticipated requirements.
- Management said Gas Marketing earnings would remain challenged by low, constrained commodity prices. It cited acquisition integration, debt levels, weather, gas supply and pipeline availability, regulatory outcomes, and access to credit as important uncertainties.
- Both utilities generally pass purchased-gas costs through to customers under regulatory mechanisms, subject to prudence review. Alagasco’s authorized return on average common equity was 10.5%–10.95%; its rate-setting order extended beyond September 30, 2018. Missouri rate recovery and infrastructure surcharges remain subject to regulatory approval.
- FY2015 results included $6.1 million of after-tax acquisition, divestiture, and restructuring adjustments and a $4.7 million gain on property sale. Management’s non-GAAP net economic earnings exclude specified timing, derivative, and transaction items; they should be considered alongside GAAP results.
- Alagasco faced lawsuits arising from a December 2013 apartment-complex incident that resulted in one fatality, injuries, and property damage. Management stated pending litigation contingencies were not considered material, but noted uncertainty in claim valuation and outcomes.
- Environmental matters include former manufactured-gas sites and Alagasco’s identification as a potentially responsible party at an Alabama Superfund site; management reported no material estimated liability for these matters at filing. The filing also describes pension underfunding and significant long-term contractual commitments.
- Management and the independent auditor reported effective internal control over financial reporting for the parent company as of September 30, 2015. The financial-statement and internal-control audit opinions were unqualified.
Important facts for investors to verify
- Confirm the intended issuer and period: the supplied document covers Laclede Group’s FY2015, not Spire Inc.’s 2014 Q4.
- Separate acquisition-driven growth from underlying performance, particularly Alagasco’s full-year contribution and the non-comparable FY2014 period.
- Review debt maturities, refinancing plans, seasonal borrowing needs, credit covenants, and the effect of variable rates and future financing on dividends.
- Assess the assumptions supporting regulatory-asset recovery, authorized returns, infrastructure surcharges, and purchased-gas cost recovery.
- Track Alagasco incident litigation, environmental matters, pension funding, integration progress, and whether FY2016 capital spending and expected acquisition benefits are achieved.