THREE MONTHS ENDED JUNE 30, 2016
SPIRE
Net Income and Net Economic Earnings
The following tables reconcile the Company's net economic earnings to the most comparable GAAP number, net income.
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Gas Utility
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Gas Marketing
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Other
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Consolidated
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Per Diluted Share**
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Three Months Ended June 30, 2016
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Net Income (Loss) (GAAP)
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$
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17.9
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$
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(1.0
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)
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$
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(6.2
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)
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$
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10.7
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$
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0.24
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Adjustments, pre-tax:
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Unrealized loss on energy-related derivatives
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—
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4.9
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—
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4.9
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0.11
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Lower of cost or market inventory adjustments
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—
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(0.1
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)
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—
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(0.1
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)
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—
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Realized gain on economic hedges prior
to the sale of the physical commodity
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—
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(0.3
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)
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—
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(0.3
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)
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(0.01
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)
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Acquisition, divestiture and restructuring activities
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0.2
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—
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1.6
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1.8
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0.04
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Income tax effect of adjustments*
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(0.1
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)
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(1.7
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)
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(0.6
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)
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(2.4
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)
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(0.06
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)
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Weighted average shares adjustment
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—
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—
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—
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—
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0.01
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Net Economic Earnings (Loss) (Non-GAAP)**
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$
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18.0
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$
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1.8
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$
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(5.2
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)
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$
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14.6
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$
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0.33
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Three Months Ended June 30, 2015
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Net Income (Loss) (GAAP)
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$
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20.7
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$
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1.0
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$
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(7.6
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)
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$
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14.1
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$
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0.32
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Adjustments, pre-tax:
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Unrealized gain on energy-related derivatives
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—
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(2.9
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)
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—
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(2.9
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)
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(0.07
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)
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Lower of cost or market inventory adjustments
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—
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(0.4
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)
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—
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(0.4
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)
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(0.01
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)
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Realized loss on economic hedges prior
to the sale of the physical commodity
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—
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2.5
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—
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2.5
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0.06
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Acquisition, divestiture and restructuring activities
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0.8
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—
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2.7
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3.5
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0.08
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Gain on sale of property
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(7.6
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)
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—
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—
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(7.6
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)
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(0.17
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)
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Income tax effect of adjustments*
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2.6
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0.3
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(1.0
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)
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1.9
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0.04
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Net Economic Earnings (Loss) (Non-GAAP)**
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$
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16.5
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$
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0.5
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$
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(5.9
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)
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$
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11.1
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$
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0.25
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*
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Income taxes are calculated by applying effective federal, state, and local income tax rates applicable to ordinary income to the amounts of the pre-tax reconciling items.
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**
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Fiscal 2016 net economic earnings per share exclude the impact of the May 2016 equity issuance to fund a portion of the acquisition described in Note 10 to the financial statements in Item 1. The weighted average diluted shares used in the net economic earnings per share calculation for the three months ended June 30, 2016 was 43.5 million compared to 44.6 million in the GAAP diluted EPS calculation. Fiscal 2015 net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation.
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Consolidated
Spire’s net income was
$10.7
for the
three months ended June 30, 2016
, compared with
$14.1
for the
three months ended June 30, 2015
. Basic and diluted earnings per share for the
three months ended June 30, 2016
were
$0.24
, compared with basic and diluted earnings per share of
$0.32
for the
three months ended June 30, 2015
. Net income decreased
$3.4
as the effect of a $4.7 after-tax gain on the sale of property in the prior year was only partially offset by growth in the utility business. Spire's net economic earnings were
$14.6
(
$0.33
per diluted share) for the
three months ended June 30, 2016
, an increase of $3.5 from the
$11.1
(
$0.25
per diluted share) reported for the same period last year. The increase is primarily attributable to stronger results delivered by the Gas Utility and Gas Marketing segments, as described below.
Gas Utility
For the
three months ended June 30, 2016
, Gas Utility net income decreased by
$2.8
versus the prior-year quarter. Stronger operating results delivered in the current-year quarter were more than offset by the inclusion of a $4.7 gain on the sale of property in the prior-year quarter's net income. Net economic earnings increased by
$1.5
versus the prior-year quarter. The increase in net economic earnings, which excludes the gain on the sale of property, was driven by lower bad debt expenses and lower other operating expenses, partially offset by higher depreciation expense and higher income taxes. The changes in operating margin and operating expenses are further described below.
Gas Marketing
The Gas Marketing segment reported a net loss totaling
$1.0
for the
three months ended June 30, 2016
, versus net income of
$1.0
in the prior year. The result was driven by unfavorable fair market value adjustments, primarily on energy-related derivatives, incurred in the current-year quarter. Net economic earnings for the
three months ended June 30, 2016
increased
$1.3
compared with the
three months ended June 30, 2015
, reflecting higher overall volumes and stronger value associated with storage activity, partially offset by the effect of a narrowing spread reflective of the current market.
Operating Revenues and Operating Expenses
Reconciliations of the Company's operating margin to the most directly comparable GAAP measure are shown below.
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Gas Utility
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Gas Marketing
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Other
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Eliminations
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Consolidated
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Three Months Ended June 30, 2016
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Operating revenues
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$
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253.3
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$
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2.3
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$
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0.9
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$
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(7.2
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)
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$
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249.3
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Natural and propane gas expense
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61.1
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2.5
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—
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(6.9
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)
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56.7
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Gross receipts tax expense
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15.3
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—
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—
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—
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15.3
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Operating margin (non-GAAP)
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176.9
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(0.2
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0.9
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(0.3
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177.3
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Depreciation and amortization
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34.2
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0.1
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0.1
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—
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34.4
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Other operating expenses
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104.0
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1.3
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2.6
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(0.3
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)
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107.6
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Operating income (loss) (GAAP)
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$
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38.7
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$
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(1.6
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)
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$
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(1.8
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)
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$
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—
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$
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35.3
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Three Months Ended June 30, 2015
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Operating revenues
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$
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261.2
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$
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28.9
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$
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1.0
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$
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(15.9
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)
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$
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275.2
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Natural and propane gas expense
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73.2
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25.7
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0.1
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(15.6
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)
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83.4
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Gross receipts tax expense
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15.1
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0.1
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—
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—
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15.2
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Operating margin (non-GAAP)
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172.9
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3.1
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0.9
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(0.3
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)
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176.6
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Depreciation and amortization
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32.5
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0.1
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0.1
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—
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32.7
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Other operating expenses
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102.0
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1.5
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4.7
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(0.3
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)
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107.9
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Operating income (loss) (GAAP)
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$
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38.4
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$
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1.5
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$
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(3.9
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)
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$
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—
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$
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36.0
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Consolidated
As shown in the table above, Spire reported operating revenue decreases for the
three months ended June 30, 2016
compared with the same period last year, with decreases in both Gas Utility and Gas Marketing. Spire's third quarter operating margin increased
$0.7
compared with last year due primarily to increases in the Gas Utility segment, partly offset by lower results in the Gas Marketing segment. Depreciation and amortization expenses were up in the Gas Utility segment, reflecting the higher levels of capital investment undertaken in the past fifteen months. Other operating expenses and operating income for the third quarter were comparable to last year as the effects of some reduced cost were offset by the effect of the prior year's gain on sale of property. These fluctuations are described in more detail below.
Gas Utility
Operating Revenues
–
Gas Utility operating revenues for the
three months ended June 30, 2016
were
$253.3
, or
$7.9
less than the same period last year. The net decrease in Gas Utility operating revenues was attributable to the following factors:
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Lower wholesale gas costs passed on to customers
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$
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(16.5
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)
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Higher system sales volumes
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4.3
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Missouri Utilities
–
Higher Infrastructure System Replacement Surcharge (ISRS)
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3.3
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Alagasco
–
Lower Rate Stabilization and Equalization (RSE) revenue reduction
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2.8
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Lower off-system sales and capacity release
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(1.8
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)
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Higher gross receipts taxes (GRT)
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0.3
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All other variations
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(0.3
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)
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Total Variation
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$
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(7.9
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)
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As shown, the decrease was primarily attributable to lower revenues reflecting the decline in wholesale gas costs and lower off-system sales. These decreases were partially offset by the effects of higher volumes due to slightly colder weather (higher degree days), higher ISRS charges within the Missouri Utilities, and the adjustments under the RSE rate-setting process. Under the RSE, the APSC conducts quarterly reviews of the expected rate of return on average common equity for the full year, and reductions in rates can be made quarterly to bring the projected return to within the allowed range. The net reduction recorded in the third quarter of fiscal 2016 was $2.8 less than in last year's third quarter.
Operating Margin
– Gas Utility operating margin was
$176.9
for the
three months ended June 30, 2016
, a
$4.0
increase over the same period last year. The net increase was attributable to the following factors:
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Missouri Utilities
–
Higher Infrastructure System Replacement Surcharge (ISRS)
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$
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3.3
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Alagasco
–
Lower Rate Stabilization and Equalization (RSE) revenue reduction
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2.8
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Other variations, including timing of gas cost recoveries
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(2.1
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)
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Total Variation
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$
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4.0
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The increase in operating margin was primarily attributable to $3.3 higher ISRS charges within the Missouri Utilities for the current quarter, and Alagasco's RSE adjustment that was $2.8 less than in the prior year. These favorable impacts were partly offset by a $2.4 unfavorable effect from the timing of gas cost recoveries in the quarter. While lower gas costs negatively impact revenues, their impact on operating margin is minimal due to the related pass-through mechanisms, including the PGA clause for the Missouri Utilities and the GSA rider for the Alabama Utility.
Operating Expenses
– Depreciation and amortization expenses for the
three months ended June 30, 2016
increased
$1.7
from last year, primarily due to the higher levels of capital expenditures undertaken over the last fifteen months. Other operating expenses for the
three months ended June 30, 2016
are
$2.0
higher than the same period in the prior year, largely due to the prior year including the $7.6 gain on the sale of property. Excluding this gain, other operating expenses were $5.6 below prior year levels due to lower bad debt expense (reflecting the impact of warmer weather experienced during the heating season) and employee-related costs.
Gas Marketing
Operating Revenues
– Operating revenues decreased
$26.6
versus the prior-year period, as the effect of higher total volumes was more than offset by lower general pricing levels, the effect of increased trading activities, and unfavorable mark-to-market adjustments on derivatives. Under GAAP, revenues associated with trading activities are presented net of related costs. Average pricing for the quarter ended June 30, 2016 was approximately $2.031/MMBtu versus approximately $2.705/MMBtu for the quarter ended June 30, 2015.
Operating Margin
– Gas Marketing operating margin during the
three months ended June 30, 2016
decreased
$3.3
from the same period last year. The decrease in operating margin is primarily due to the negative $5.3 mark-to-market impact of fair value adjustments and narrowing spread, partially offset by the favorable impact of higher overall volumes and stronger value associated with storage activity.
Interest Charges
Consolidated interest charges during the
three months ended June 30, 2016
increased by $1.6 from the same period last year. The increase was driven by charges related to a temporary bridge facility secured and liquidated during the third quarter of this year, combined with higher interest rates on the $250.0 senior floating notes. Also, for the
three months ended June 30, 2016
and 2015, average short-term borrowings were $208.5 and $205.4, respectively, and the average interest rates on these borrowings were 0.9% and 0.8%, respectively.
Income Taxes
Consolidated income tax expense during the
three months ended June 30, 2016
increased $2.2 versus the prior-year quarter. The effective tax rate for the current quarter was 38.9% versus 24.6% in the prior-year period. The effective tax rate for the current-year quarter includes tax expense associated with a valuation allowance on deferred tax assets. The effective tax rate for the prior-year quarter reflects the benefit of adjustments from the prior year tax return filing.
LACLEDE GAS
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Three Months Ended June 30,
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2016
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2015
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Operating revenues
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$
|
179.3
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$
|
187.5
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Natural and propane gas expense
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48.0
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57.5
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Gross receipts tax expense
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11.5
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11.6
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Operating margin (non-GAAP)
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119.8
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118.4
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Depreciation and amortization
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22.3
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20.7
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Other operating expenses
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68.1
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63.2
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Operating income (GAAP)
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$
|
29.4
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$
|
34.5
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Net Income
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$
|
13.9
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$
|
20.0
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Operating revenues for the
three months ended June 30, 2016
decreased $8.2 from the same period last year primarily due to $12.3 in lower wholesale gas costs passed on to customers, and $1.8 in lower off-system sales and capacity release. These decreases were partially offset by a $3.3 increase in ISRS charges and the $2.9 favorable impact of higher gas usage by customers. Operating margin for the
three months ended June 30, 2016
increased $1.4 from the same period last year. Other operating expenses for the
three months ended June 30, 2016
increased $4.9, largely attributable to a $7.6 gain on the sale of property in the prior year. Excluding this gain, other operating expenses declined $2.7 versus the prior year due primarily to favorable bad debt experience and lower employee-related expenses. Depreciation and amortization increased $1.6 in the current quarter versus the prior year due to higher capital investments. Resulting net income for the
three months ended June 30, 2016
decreased $6.1 from the same period last year.
Temperatures in Laclede Gas’ service areas during the
three months ended June 30, 2016
were 18.0% colder than the same period last year, resulting in higher usage on a year-over-year comparative basis, but 11% warmer than normal. The Missouri Utilities' total system therms sold and transported were 237.3 million for the three months ended March 31, 2016, compared with 218.3 million for the same period last year, including a 1.4 million decrease in off-system sales. Total off-system therms sold and transported were 15.5 million for the three months ended March 31, 2016, compared with 16.9 million for the same period last year.
ALAGASCO
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Three Months Ended June 30,
|
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2016
|
|
2015
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Operating revenues
|
$
|
74.0
|
|
|
$
|
73.7
|
|
Natural gas expense
|
13.1
|
|
|
15.7
|
|
Gross receipts tax expense
|
3.8
|
|
|
3.5
|
|
Operating margin (non-GAAP)
|
57.1
|
|
|
54.5
|
|
Depreciation and amortization
|
11.9
|
|
|
11.8
|
|
Other operating expenses
|
35.9
|
|
|
38.8
|
|
Operating income (GAAP)
|
$
|
9.3
|
|
|
$
|
3.9
|
|
Net Income
|
$
|
4.0
|
|
|
$
|
0.7
|
|
Operating revenues for the
three months ended June 30, 2016
increased $0.3 from the same period last year. A $2.8 reduction in RSE adjustments compared to the prior year quarter, a $1.4 increase in customer usage, and a $0.3 increase in gross receipts taxes passed through to customers were largely offset by $4.2 lower gas prices passed through to customers. Operating margin increased $2.6 as the effect of lower gas prices was more than offset by favorable timing of gas cost recovery and the lower RSE adjustments. Depreciation and amortization expenses for the
three months ended June 30, 2016
were comparable to the same period last year. Other operating expenses were $2.9 lower, primarily due to lower employee costs and favorable bad debt experience. Net income during the
three months ended June 30, 2016
increased $3.3 from the same period last year, primarily due to the factors discussed above.
Temperatures in Alagasco's service area during the
three months ended June 30, 2016
were 34% colder than a year ago, but 26% warmer than normal. Alagasco's total system therms sold and transported were 191.3 million for the three months ended June 30, 2016, compared with 170.5 million for the same period last year.
For further information on the GSA and RSE mechanisms, please see Note 1, Summary of Significant Accounting Policies, and Note 15, Regulatory Matters, of Alagasco's Annual Report on Form 10-K for the period ended September 30, 2015.
NINE MONTHS ENDED JUNE 30, 2016
SPIRE
Net Income and Net Economic Earnings
The following tables reconcile the Company's net economic earnings to the most comparable GAAP number, net income.
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Gas Utility
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Gas Marketing
|
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Other
|
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Total
|
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Per Diluted Share**
|
Nine Months Ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) (GAAP)
|
$
|
169.6
|
|
|
$
|
2.8
|
|
|
$
|
(14.0
|
)
|
|
$
|
158.4
|
|
|
$
|
3.60
|
|
|
Adjustments, pre-tax:
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on energy-related derivatives
|
(0.1
|
)
|
|
3.0
|
|
|
—
|
|
|
2.9
|
|
|
0.07
|
|
|
Lower of cost or market inventory adjustments
|
—
|
|
|
0.6
|
|
|
—
|
|
|
0.6
|
|
|
0.01
|
|
|
Realized gain on economic hedges prior
to the sale of the physical commodity
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
(0.9
|
)
|
|
(0.02
|
)
|
|
Acquisition, divestiture and restructuring activities
|
1.6
|
|
|
—
|
|
|
3.5
|
|
|
5.1
|
|
|
0.12
|
|
|
Income tax effect of adjustments*
|
(0.6
|
)
|
|
(1.0
|
)
|
|
(1.3
|
)
|
|
(2.9
|
)
|
|
(0.07
|
)
|
|
Weighted average shares adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.03
|
|
|
Net Economic Earnings (Loss) (Non-GAAP)
|
$
|
170.5
|
|
|
$
|
4.5
|
|
|
$
|
(11.8
|
)
|
|
$
|
163.2
|
|
|
$
|
3.74
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) (GAAP)
|
$
|
166.5
|
|
|
$
|
3.5
|
|
|
$
|
(14.4
|
)
|
|
$
|
155.6
|
|
|
$
|
3.59
|
|
|
Adjustments, pre-tax:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on energy-related derivatives
|
(0.1
|
)
|
|
(3.4
|
)
|
|
—
|
|
|
(3.5
|
)
|
|
(0.09
|
)
|
|
Realized loss on economic hedges prior
to the sale of the physical commodity
|
—
|
|
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
0.06
|
|
|
Acquisition, divestiture and restructuring activities
|
1.7
|
|
|
—
|
|
|
4.8
|
|
|
6.5
|
|
|
0.15
|
|
|
Gain on sale of property
|
(7.6
|
)
|
|
—
|
|
|
—
|
|
|
(7.6
|
)
|
|
(0.17
|
)
|
|
Income tax effect of adjustments*
|
2.3
|
|
|
0.3
|
|
|
(1.8
|
)
|
|
0.8
|
|
|
0.02
|
|
|
Net Economic Earnings (Loss) (Non-GAAP)
|
$
|
162.8
|
|
|
$
|
3.0
|
|
|
$
|
(11.4
|
)
|
|
$
|
154.4
|
|
|
$
|
3.56
|
|
|
|
*
|
Income taxes are calculated by applying effective federal, state, and local income tax rates applicable to ordinary income to the amounts of the pre-tax reconciling items.
|
|
|
**
|
Fiscal 2016 net economic earnings per share exclude the impact of the May 2016 equity issuance to fund a portion of the acquisition described in Note 10 to the financial statements in Item 1. The weighted average diluted shares used in the net economic earnings per share calculation for the nine months ended June 30, 2016 was 43.5 million compared to 43.8 million in the GAAP diluted EPS calculation. Fiscal 2015 net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation.
|
Consolidated
Spire’s net income was
$158.4
for the
nine months ended June 30, 2016
, compared with
$155.6
for the
nine months ended June 30, 2015
. Basic and diluted earnings per share for the
nine months ended June 30, 2016
were
$3.62
and
$3.60
, respectively, compared with basic and diluted earnings per share of $3.59 for the
nine months ended June 30, 2015
. Net income increased $2.8, including the effect of the $4.7 after-tax gain on sale of property in the prior year, driven by higher income in the Gas Utility segment. Net economic earnings were
$163.2
(
$3.74
per diluted share) for the
nine months ended June 30, 2016
, up from
$154.4
(
$3.56
per diluted share) for the same period last year, reflecting improvements for both Gas Utility and Gas Marketing. These fluctuations are described in more detail below.
Gas Utility
Gas Utility net income and net economic earnings increased by
$3.1
and
$7.7
, respectively, for the
nine months ended June 30, 2016
, compared with the
nine months ended June 30, 2015
. The change in net income was smaller primarily due to the $4.7 after-tax gain on sale of property in the prior year. As discussed in more detail below, improvements in both measures were primarily due to decreases in other operating expenses, partially offset by lower operating margin and higher income taxes.
Gas Marketing
The Gas Marketing segment reported net income totaling
$2.8
for the
nine months ended June 30, 2016
, a decrease of $0.7 compared with the same period last year due to less favorable mark-to-market activity in the current year. Net economic earnings for the
nine months ended June 30, 2016
increased $1.5 from the same period last year, driven by increased volumes and stronger value associated with storage activity, partially offset by the effect of a narrowing spread.
Operating Revenues and Operating Expenses
Reconciliations of the Company's operating margin to the most directly comparable GAAP measure are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Utility
|
|
Gas Marketing
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
Nine Months Ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
1,265.5
|
|
|
$
|
23.1
|
|
|
$
|
2.6
|
|
|
$
|
(33.2
|
)
|
|
$
|
1,258.0
|
|
|
Natural and propane gas expense
|
496.0
|
|
|
13.9
|
|
|
—
|
|
|
(32.3
|
)
|
|
477.6
|
|
|
Gross receipts tax expense
|
65.0
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
65.1
|
|
|
Operating margin (non-GAAP)
|
704.5
|
|
|
9.1
|
|
|
2.6
|
|
|
(0.9
|
)
|
|
715.3
|
|
|
Depreciation and amortization
|
101.5
|
|
|
0.1
|
|
|
0.4
|
|
|
—
|
|
|
102.0
|
|
|
Other operating expenses
|
312.9
|
|
|
4.3
|
|
|
7.0
|
|
|
(0.9
|
)
|
|
323.3
|
|
|
Operating income (loss) (GAAP)
|
$
|
290.1
|
|
|
$
|
4.7
|
|
|
$
|
(4.8
|
)
|
|
$
|
—
|
|
|
$
|
290.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
1,692.6
|
|
|
$
|
135.2
|
|
|
$
|
2.8
|
|
|
$
|
(58.4
|
)
|
|
$
|
1,772.2
|
|
|
Natural and propane gas expense
|
902.1
|
|
|
124.8
|
|
|
0.3
|
|
|
(57.6
|
)
|
|
969.6
|
|
|
Gross receipts tax expense
|
86.1
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
86.3
|
|
|
Operating margin (non-GAAP)
|
704.4
|
|
|
10.2
|
|
|
2.5
|
|
|
(0.8
|
)
|
|
716.3
|
|
|
Depreciation and amortization
|
96.7
|
|
|
0.3
|
|
|
0.4
|
|
|
—
|
|
|
97.4
|
|
|
Other operating expenses
|
326.1
|
|
|
4.2
|
|
|
8.4
|
|
|
(0.8
|
)
|
|
337.9
|
|
|
Operating income (loss) (GAAP)
|
$
|
281.6
|
|
|
$
|
5.7
|
|
|
$
|
(6.3
|
)
|
|
$
|
—
|
|
|
$
|
281.0
|
|
Consolidated
As shown in the table above, Spire's operating revenues for the
nine months ended June 30, 2016
decreased at both Gas Utility and Gas Marketing, largely due to lower gas prices. Spire's operating margin decreased $1.0 compared with the same nine-month period last year due primarily to lower Gas Marketing results. Depreciation and amortization expenses were higher in the Gas Utility segment. Other operating expenses decreased, primarily due to lower operating expenses within the Missouri Utilities, resulting in higher operating income in the current year. These fluctuations are described in more detail below.
Gas Utility
Operating Revenues –
Gas Utility operating revenues for the
nine months ended June 30, 2016
were
$1,265.5
, or
$427.1
less than the same period last year. The decrease in Gas Utility operating revenues was attributable to the following factors:
|
|
|
|
|
Lower wholesale gas costs passed on to customers
|
$
|
(251.0
|
)
|
Lower system sales volumes
|
(145.6
|
)
|
Lower off-system sales and capacity release
|
(26.3
|
)
|
Lower gross receipts taxes (GRT)
|
(22.0
|
)
|
Missouri Utilities
–
Higher Infrastructure System Replacement Surcharge (ISRS)
|
9.8
|
|
Alagasco
–
Lower Rate Stabilization and Equalization (RSE) revenue reduction
|
9.7
|
|
Other variations
|
(1.7
|
)
|
Total Variation
|
$
|
(427.1
|
)
|
As shown, the decrease was primarily attributable to the decline in natural gas pricing, lower sales volumes due to warmer weather, and the related decrease in gross receipts taxes. These decreases were partially offset by higher ISRS charges within the Missouri Utilities and lower RSE adjustments at Alagasco.
Operating Margin
– Gas Utility operating margin was
$704.5
for the
nine months ended June 30, 2016
, a
$0.1
increase over the same period last year. The increase was attributable to the following factors:
|
|
|
|
|
Lower system sales volumes
|
$
|
(28.9
|
)
|
Missouri Utilities
–
Higher Infrastructure System Replacement Surcharge (ISRS)
|
9.8
|
|
Alagasco – Lower Rate Stabilization and Equalization (RSE) revenue reduction
|
9.7
|
|
Other variations, including timing of gas cost recoveries
|
9.5
|
|
Total Variation
|
$
|
0.1
|
|
The negative volume impact that resulted from the warmer weather in the current year was mitigated by the favorable impacts of the Missouri Utilities' ISRS charges, Alagasco's lower RSE adjustments, and the timing of gas cost recoveries. Since gas costs and GRT are passed through to customers, their impact on operating margin is minimal.
Operating Expenses
– Depreciation and amortization expenses for the
nine months ended June 30, 2016
increased
$4.8
from the same period last year due to the increased capital investments over the past year. Other operating expenses for the
nine months ended June 30, 2016
decreased
$13.2
from last year, partially attributable to the warmer weather, with lower employee-related expenses at both the Missouri and Alabama Utilities and lower bad debt expense in the current year.
Gas Marketing
Operating Revenues
– Gas Marketing operating revenues during the
nine months ended June 30, 2016
decreased
$112.1
from the same period last year, as the effect of higher total volumes was more than offset by lower general pricing levels, the effect of increased trading activities, and unfavorable mark-to-market adjustments on derivatives. Under GAAP, revenues associated with trading activities are presented net of related costs. Overall commodity pricing in the current year is $1.139/MMBtu below the prior year.
Operating Margin
– Gas Marketing operating margin during the
nine months ended June 30, 2016
decreased
$1.1
from the same period last year. The decrease in operating margin is primarily due to a narrowing spread and $3.5 unfavorable fair value adjustments, partially offset by the favorable impact of higher overall volumes and stronger value associated with storage activity.
Interest Charges
Consolidated interest charges during the
nine months ended June 30, 2016
are $1.6 higher than the same period last year. Interest expense reductions from the refinancing of $115.0 in Alagasco long-term debt in September and December of 2015 have been offset by higher charges on short-term borrowings and charges related to a temporary bridge facility secured and liquidated during the third quarter of this year. For the
nine months ended June 30, 2016
and 2015, average short-term borrowings were $297.9 and $307.1, respectively, and the average interest rates on these borrowings were 0.9% and 0.7%, respectively.
Income Taxes
Consolidated income tax expense during the
nine months ended June 30, 2016
increased $5.8 from the same period last year primarily as a result of higher pre-tax book income and an effective tax rate of 32.9% in the current year versus 31.6% in the prior-year period. The higher current-year rate includes tax expense associated with a valuation allowance on deferred tax assets. The effective tax rate for the prior-year period reflects the benefit of adjustments from the prior year tax return filing.
LACLEDE GAS
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
2016
|
|
2015
|
Operating revenues
|
$
|
943.2
|
|
|
$
|
1,265.6
|
|
Natural and propane gas expense
|
440.6
|
|
|
743.6
|
|
Gross receipts tax expense
|
49.7
|
|
|
66.0
|
|
Operating margin (non-GAAP)
|
452.9
|
|
|
456.0
|
|
Depreciation and amortization
|
66.0
|
|
|
61.4
|
|
Other operating expenses
|
205.4
|
|
|
214.7
|
|
Operating income (GAAP)
|
$
|
181.5
|
|
|
$
|
179.9
|
|
Net Income
|
$
|
107.6
|
|
|
$
|
108.9
|
|
Operating revenues during the
nine months ended June 30, 2016
decreased $322.4 from the same period last year primarily due to $196.0 lower wholesale gas costs passed on to customers, a $91.0 volume decrease related to the current year's warmer weather,
$26.3
lower off-system sales and capacity release and lower gross receipts tax collections of $17.2. These impacts were only slightly offset by ISRS charges totaling $9.8. Operating margin decreased $3.1 primarily due to lower volume, offset partly by higher ISRS charges. Other operating expenses during the
nine months ended June 30, 2016
decreased $9.3 from the same period last year, partly offset by higher depreciation. Excluding the benefit of last year's gain on sale of property, the other operating expense decrease was $16.9. The decrease in other operating expenses was driven by lower employee-related costs and lower bad debts. Income tax expense in the current year increased $3.5 due to slightly higher pre-tax book income and a higher effective tax rate. Net income decreased $1.3, primarily due to the factors discussed above.
Temperatures in Laclede Gas’ service areas during the
nine months ended June 30, 2016
were 20% warmer than the same period last year, resulting in lower gas usage and operating revenues on a year-over-year comparative basis, and 19% warmer than normal. The Missouri Utilities' total system therms sold and transported were 1,490.4 million for the nine months ended June 30, 2016, compared with 1,714.1 million for the same period last year, including a 12.0 million decrease in off-system sales. Total off-system therms sold and transported were 180.0 million for the
nine months ended June 30, 2016
, compared with 192.0 million for the same period last year.
ALAGASCO
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
2016
|
|
2015
|
Operating revenues
|
$
|
322.3
|
|
|
$
|
427.0
|
|
Natural gas expense
|
55.4
|
|
|
158.5
|
|
Gross receipts tax expense
|
15.3
|
|
|
20.1
|
|
Operating margin (non-GAAP)
|
251.6
|
|
|
248.4
|
|
Depreciation and amortization
|
35.5
|
|
|
35.3
|
|
Other operating expenses
|
107.5
|
|
|
111.4
|
|
Operating income (GAAP)
|
$
|
108.6
|
|
|
$
|
101.7
|
|
Net Income
|
$
|
62.0
|
|
|
$
|
57.6
|
|
Operating revenues for the
nine months ended June 30, 2016
decreased $104.7 from the same period last year. The primary drivers were $55.0 lower natural gas prices passed on to customers, the $54.6 impact of lower cycle customer usage due to the warmer weather, and $4.8 lower gross receipts taxes, offset partly by RSE adjustments. Operating margin increased $3.2 versus the prior period due to RSE adjustments and favorable timing of gas cost recoveries offsetting the impacts of the lower volume. Other operating expenses for the
nine months ended June 30, 2016
decreased $3.9 from the same period last year primarily driven by decreases in labor and employee-related expenses. Net income for the
nine months ended June 30, 2016
increased $4.4 from the same period last year, primarily due to the factors discussed above.
Temperatures in Alagasco's service area during the
nine months ended June 30, 2016
were 30% warmer than the same period last year and 24% warmer than normal. Alagasco's total system therms sold and transported were 673.7 million for the nine months ended June 30, 2016, compared with 710.6 million for the same period last year.
For further information on the GSA and RSE mechanisms, please see Note 1, Summary of Significant Accounting Policies, and Note 3, Regulatory Matters, of Alagasco's Annual Report on Form 10-K for the year ended September 30, 2015.
REGULATORY AND OTHER MATTERS
Please see the
Environmental Matters
section for information relative to environmental matters. Spire, Laclede Gas and Alagasco are involved in other litigation, claims, and investigations arising in the normal course of business. Management, after discussion with counsel, believes that the final outcomes of these matters will not have a material effect on the consolidated financial position, results of operations, or cash flows of the Company, Laclede Gas or Alagasco.
Laclede Gas
On November 12, 2015, the MoPSC approved an incremental ISRS amount of $4.4 for Laclede Gas' eastern Missouri service territory and $1.9 for MGE, effective December 1, 2015, bringing total annualized ISRS revenue to $19.6 for Laclede Gas' eastern Missouri service territory and $6.7 for MGE's service territory. On May 19, 2016 the MoPSC approved an incremental ISRS amount of $5.4 for Laclede Gas’ eastern Missouri service territory and $3.6 for MGE, effective May 31, 2016. This brings the total annualized ISRS revenues to $25.0 and $10.3 respectively.
On January 15, 2016, the Missouri Office of the Public Counsel (OPC) filed an appeal to Missouri’s Western District Court of Appeals of the Commission’s November 12 ISRS decision approving the process of updating ISRS applications during the pendency of the case. On May 18, OPC filed its initial brief before the Court and on June 17, 2016, the Company filed its initial brief. In the next ISRS case, the OPC raised the same issue and the Commission came to the same result. On June 30, 2016, the OPC filed a similar appeal to Missouri's Western Court of Appeals related to the May 19 decision. Laclede Gas believes the Commission’s decision in both ISRS cases was lawful and reasonable, and intends to vigorously oppose the appeals.
On October 28, 2015, Laclede Gas’ eastern Missouri service territory and MGE both filed for PGA reductions that were approved and became effective November 6, 2015, which decreased the average residential customer's bill by 9% and 5%, respectively. On March 4, 2016, Laclede Gas’ eastern Missouri service territory and MGE both filed for PGA reductions that were approved and became effective March 21, 2016, which decreased the average residential customer's bill by 3.5% and 3.3%, respectively.
On April 15, 2015, Laclede Gas filed for a new financing authorization to issue long-term debt securities and preferred stock, including on a private placement basis, as well as to issue common stock, receive paid-in capital, and enter into capital lease agreements through September 30, 2018, in the amount of $550.0. On February 10, 2016, the MoPSC issued an order authorizing Laclede Gas long-term financing authority for $300.0 for financings placed any time before September 30, 2018. On March 31, 2016, Laclede Gas filed an appeal with Missouri's Western District Court of Appeals challenging the level of authority. On July 20, 2016, the Company filed its initial brief in the appeal.
On April 26, 2016, OPC filed a complaint to address whether the gas rates of the Missouri Utilities are just and reasonable. OPC alleged that the Missouri Utilities were overearning based on an unadjusted return on equity for fiscal 2015. We believe that complaint lacks merit and is flawed in several respects, and we will vigorously defend our position that our rates are just and reasonable. On May 20, 2016, the MoPSC Staff (Staff) filed a response stating that “OPC has not adequately supported its claims of overearning by Laclede and MGE,” and asked the Commission to deny OPC’s request to have Staff do an investigation. On May 31, 2016, Laclede filed its answer as well as a motion to dismiss. On July 12, 2016, the Commission issued an order denying the motion to dismiss but also relieving Staff of the duty to perform an investigation. On July 22, Laclede filed a motion for reconsideration and, in the alternative, motion to stay the complaint.
Alagasco
Alagasco is subject to regulation by the APSC which established the Rate Stabilization and Equalization (RSE) rate-setting process in 1983 (see the 2015 Form 10-K for more detail). Reductions in rates can be made quarterly to bring the projected return within the allowed range; increases, however, are allowed only once each rate year, effective December 1, and cannot exceed 4% of prior-year revenues. The quarterly point of test reductions from rate year 2015 went into effect October 1, 2015 for $4.4 and December 1, 2015 for $12.2. Alagasco filed a $4.6 reduction for rate year 2016, effective December 1, 2015. There was no RSE reduction for the January 31, 2016 quarterly point of test. Related to the April 30, 2016 quarterly point of test, Alagasco recorded a $5.8 RSE reduction to operating revenues, which the APSC ordered, dated June 20, 2016, be applied to the Gas Supply Adjustment (GSA) balance. As of June 30, 2016, Alagasco recorded an estimated $4.5 RSE reduction to operating revenues to bring the expected rate of return on average common equity at the end of the year to within the allowed range of return.
The inflation-based Cost Control Mechanism (CCM), established by the APSC, allows for annual increases to operations and maintenance (O&M) expense, with savings below a defined level shared 50/50 with the customer and three-quarters of costs above a defined level returned to customers (see the 2015 Form 10-K for more detail). A CCM benefit to the company for such cost saving of $4.7 related to, and accrued in, fiscal 2015 went into rates effective December 1, 2015. For GAAP purposes, as of June 30, 2016, Alagasco accrued an estimated CCM benefit for Rate Year 2016 of $6.0.
On June 28, 2010, the APSC approved a reduction in depreciation rates, effective June 1, 2010, and a regulatory liability set up for Alagasco. Refunds from such will be passed back to eligible customers on a declining basis through rate year 2019 pursuant to the terms of this Negative Salvage Rebalancing (NSR) rider (see the 2015 Form 10-K for more detail). Through June 30, 2016, $8.3 of the customer refund has been returned to customers, and $18.7 is remaining to be refunded to customers.
Alagasco’s rate schedules for natural gas distribution charges contain a Gas Supply Adjustment (GSA) rider, established in 1993, which permits the pass-through to customers of changes in the cost of gas supply. Alagasco’s tariff provides a Temperature Adjustment Rider mechanism, also included in the GSA, which is designed to moderate the impact of departures from normal temperatures on Alagasco’s earnings (see the 2015 Form 10-K for more detail). Effective December 1, 2015, adjustments to the GSA will provide customers a refund of approximately $13.0 on an annualized basis. As of June 30, 2016, a $27.4 temperature adjustment has been booked to the GSA account reflecting weather that has been 24% warmer than normal. Effective July 1, 2016, adjustments were made to the GSA, reflecting a $19.3 increase on an annualized basis, to recover the deferred amounts related to the warmer than normal weather.
On March 25, 2016, Alagasco filed an application with the APSC for an intercompany revolving credit agreement allowing Alagasco to borrow from Spire in a principal amount not to exceed $200.0 at any time outstanding in combination with its bank line of credit, and to loan to Spire in a principal amount not to exceed $25.0 at any time outstanding. Borrowings may be used for the following purposes: (a) increasing working capital requirements; (b) financing construction requirements related to additions, extensions, and replacements of the distribution systems; and (c) financing other expenditures that may arise from time to time in the normal course of business. The application was approved by an APSC order dated April 5, 2016.
Spire
In addition to the matters described above, Spire initiated the following regulatory interactions during the nine months ended June 30, 2016.
On May 20, 2016, Spire Inc., Sempra, EnergySouth and Willmut Gas jointly filed with the Mississippi Public Service Commission to request approval of the indirect change of control of Willmut Gas, as discussed further in Note 10 to the financial statements in Item 1.
On July 22, 2016, the proposed project of Spire STL Pipeline LLC, a wholly owned subsidiary of Spire Inc., was accepted into the pre-filing process at the FERC. The proposal outlined the plan to build, own, operate, and maintain a pipeline interconnecting with the Rockies Express pipeline to deliver natural gas to the St. Louis, Missouri area. As an interstate project, the Spire STL Pipeline will be reviewed for siting and permitting by the FERC, which will be the lead agency for other federal, state, and local permitting authorities.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition, results of operations, liquidity, and capital resources is based upon our financial statements, which have been prepared in accordance with GAAP. GAAP requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies used in the preparation of our financial statements are described in Item 7 of the Company's, Laclede Gas', and Alagasco's Annual Reports on Form 10-K for the fiscal year ended September 30, 2015 and include the following:
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Employee benefits and postretirement obligations, and
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•
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Asset retirement obligations.
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There were no significant changes to these critical accounting policies during the
nine months ended June 30, 2016
.
For discussion of other significant accounting policies, see
Note 1
of the Notes to Financial Statements included in this Form 10-Q as well as Note 1 of the Notes to Financial Statements included in the Company’s, Laclede Gas', and Alagasco's Annual Reports on Form 10-K for the fiscal year ended September 30, 2015.
ACCOUNTING PRONOUNCEMENTS
The Company, Laclede Gas and Alagasco have evaluated or are in the process of evaluating the impact that recently issued accounting standards will have on the companies' financial position or results of operations upon adoption. For disclosures related to the adoption of new accounting standards, see the New Accounting Pronouncements section of
Note 1
of the Notes to Financial Statements.
FINANCIAL CONDITION
Cash Flows
Spire
The Company’s short-term borrowing requirements typically peak during colder months when the Utilities borrow money to cover the lag between purchases of natural gas and customer payments for that gas. Changes in the wholesale cost of natural gas (including cash payments for margin deposits associated with the Missouri Utilities’ use of natural gas derivative instruments), variations in the timing of collections of gas cost under the Missouri Utilities’ PGA clauses and Alagasco's GSA rider, the seasonality of accounts receivable balances, and the utilization of storage gas inventories cause short-term cash requirements to vary during the year and from year to year, and can cause significant variations in the Utilities' cash provided by or used in operating activities.
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Nine Months Ended
June 30,
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Cash Flow Summary
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2016
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2015
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Net cash provided by operating activities
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$
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356.9
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$
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366.3
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Net cash used in investing activities
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(196.8
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)
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(211.9
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)
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Net cash used in financing activities
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(169.0
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)
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(164.8
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)
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For the
nine months ended June 30, 2016
, net cash provided by operating activities declined $9.4 from the corresponding period of fiscal 2015. The change is primarily due to fluctuations in working capital, as mentioned above, largely driven by the relative weather conditions during the periods.
For the
nine months ended June 30, 2016
, net cash used in investing activities was $15.1 less than the same period in the prior year partially as a result of an $8.6 payment last year for the final reconciliation amount associated with the Alagasco acquisition. In addition, capital expenditures were $7.6 lower in the first nine months of fiscal 2016 compared to the same period of fiscal 2015. Despite the lower spending to this point in the fiscal year, the Company expects capital expenditures to total approximately $310 for the year ending September 30, 2016, or roughly $20 higher than fiscal 2015.
Lastly, for the
nine months ended June 30, 2016
, net cash used in financing activities was $4.2 higher than for the
nine months ended June 30, 2015
. This change primarily reflects the combination of a significant increase in short-term borrowing repayments largely offset by the May 2016 common stock issuance discussed below.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents
Spire had short-term investments ranging from $0 to $100.0 in the
nine months ended June 30, 2016
, but none outstanding at the end of the period. The invested funds included a portion of the proceeds from the issuance and sale by the Company of 2,185,000 shares of the Company's common stock in preparation for the EnergySouth acquisition described in Note 10 to the financial statements in Item 1. Due to lower yields available to Spire on short-term investments, the Company elected to provide a portion of Laclede Gas' and Alagasco's short-term funding through intercompany lending during the
nine months ended June 30, 2016
.
Neither Laclede Gas nor Alagasco had any short-term investments as of or in the
nine months ended June 30, 2016
.
Bank deposits were used to support working capital needs of the business
.
Short-term Debt
The Utilities' short-term borrowing requirements typically peak during the colder months. These short-term cash requirements can be met through the sale of commercial paper supported by lines of credit with banks or through direct use of the lines of credit. At
June 30, 2016
, Laclede Gas had a syndicated line of credit of $450.0 in place with nine banks that matures on September 3, 2019. The largest portion provided by a single bank under the line is 15.6%. The Laclede Gas line of credit includes a covenant limiting total debt, including short-term debt, to no more than 70% of total capitalization. As defined in the line of credit, total debt was 47% of total capitalization on
June 30, 2016
.
On September 2, 2014, Alagasco entered into a $150.0 syndicated line of credit with twelve banks and extinguished the line that was in place prior to its acquisition by Spire. The largest portion provided by a single bank is 10%. The line of credit, which matures on September 2, 2019, has a covenant limiting total debt to 70% of Alagasco's total capital. As defined in the line of credit, total debt was 25% of total capitalization on
June 30, 2016
.
Short-term cash requirements outside of the Utilities have generally been funded by internally generated funds or borrowings by Spire under its $150.0 syndicated line of credit with nine banks maturing on September 3, 2019, with the largest portion provided by a single bank being 15.6%. The line of credit has a covenant limiting the total consolidated debt of Spire to no more than 70% of its total consolidated capitalization. As defined in the line of credit, this ratio stood at 52% on
June 30, 2016
.
Spire
Information about Spire's consolidated short-term borrowings (excluding any current portion of long-term debt) during the
nine months ended June 30, 2016
and as of
June 30, 2016
, is presented below:
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Spire
Bank Line
Borrowings
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Laclede Gas
Commercial Paper
Borrowings
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Alagasco
Bank Line
Borrowings
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Total
Short-Term
Borrowings
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Nine Months Ended June 30, 2016
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Weighted average borrowings outstanding
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$50.8
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$212.3
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$34.8
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$297.9
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Weighted average interest rate
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1.6%
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0.7%
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1.4%
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0.9%
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Range of borrowings outstanding
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$0.0 - $74.0
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$43.0 - $307.2
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$0.0 - $61.0
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$73.1 - $427.2
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As of June 30, 2016
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Borrowings outstanding at end of period
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$—
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$97.6
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$—
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$97.6
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Weighted average interest rate
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—%
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0.8%
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—%
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0.8%
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Based on average short-term borrowings for the
nine months ended June 30, 2016
, an increase in the average interest rate of 100 basis points would decrease the Company's pre-tax earnings and cash flows by approximately $3.0 on an annual basis, portions of which may be offset through the application of PGA carrying costs.
Laclede Gas
Information about Laclede Gas' short-term borrowing during the
nine months ended June 30, 2016
and as of
June 30, 2016
, is presented below:
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Laclede Gas Commercial Paper Borrowings
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Laclede Gas
Borrowings
from Spire
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Total
Short-Term Borrowings
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Nine Months Ended June 30, 2016
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Weighted average borrowings outstanding
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$212.3
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$11.8
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$224.1
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Weighted average interest rate
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0.7%
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0.8%
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0.7%
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Range of borrowings outstanding
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$43.0 - $307.2
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$0.0 - $114.2
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$127.8 - $307.2
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As of June 30, 2016
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Borrowings outstanding at end of period
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$97.6
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$38.8
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$136.4
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Weighted average interest rate
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0.8%
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0.8%
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0.8%
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Based on average short-term borrowings for the
nine months ended June 30, 2016
, an increase in the average interest rate of 100 basis points would decrease Laclede Gas' pre-tax earnings and cash flows by approximately $2.2 on an annual basis, portions of which may be offset through the application of PGA carrying costs.
Alagasco
Information about Alagasco's short-term borrowing (excluding the current portion of long-term debt) during the
nine months ended June 30, 2016
and as of
June 30, 2016
, is presented below:
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Alagasco
Bank Line
Borrowings
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Alagasco
Borrowings
from Spire
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Total
Short-Term Borrowings
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Nine Months Ended June 30, 2016
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Weighted average borrowings outstanding
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$34.8
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$3.1
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$37.9
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Weighted average interest rate
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1.4%
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1.4%
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1.4%
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Range of borrowings outstanding
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$0.0 - $61.0
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$0.0 - $39.6
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$19.0 - $61.0
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As of June 30, 2016
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Borrowings outstanding at end of period
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$—
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$37.8
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$37.8
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Weighted average interest rate
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—%
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1.4%
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1.4%
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Based on average short-term borrowings for the
nine months ended June 30, 2016
, an increase in the average interest rate of 100 basis points would decrease Alagasco's pre-tax earnings and cash flows by approximately $0.4 on an annual basis, portions of which may be offset through the application of SGA carrying costs.
Long-term Debt and Equity
Spire
At
June 30, 2016
, excluding unamortized discounts and net hedging gains, Spire had fixed-rate long-term debt totaling $1,603.8 and floating rate debt totaling $250.0, of which $810.0 was issued by Laclede Gas and $250.0 was issued by Alagasco. With the exception of the $250.0 floating rate senior notes issued by Spire in August 2014, the long-term debt issues are fixed-rate and are subject to changes in their fair value as market interest rates change. However, increases or decreases in fair value would impact earnings and cash flows only if the Company were to reacquire any of these issues in the open market prior to maturity. Under GAAP applicable to the Utilities' regulated operations, losses or gains on early redemptions of long-term debt have been deferred as regulatory assets or regulatory liabilities and amortized over a future period. Of the Company's $1,710.0 senior long-term debt, $25.0 has no call options, $710.0 has make-whole call options, $725.0 is callable at par one to six months prior to maturity and $250.0 is callable at par one year prior to maturity. The remainder of the Company's long-term debt is $143.8 of junior subordinated notes associated with its equity units. None of the debt has any put options.
Spire entered into a master note purchase agreement on June 20, 2016 with certain institutional purchasers pursuant to which Spire has committed to issue a total of $165.0 unsecured notes in the private placement market. These notes are being issued to fund a portion of the purchase price for the EnergySouth acquisition described in Note 10 to the financial statements in Item 1, and will settle on or about the date that the acquisition closes. The interest rate to be paid on the notes will depend
on the settlement date. Tranche A of the notes for $35.0 will mature on September 1, 2021, and will bear interest between 2.49% and 2.61%. Tranche B for $130.0 will mature 10 years from the settlement date and will bear interest between 3.11% and 3.19%.
On May 17, 2016, the Company completed a public offering of 2,185,000 shares of its common stock, generating $133.2 of proceeds net of issuance costs, which are to be used to fund a portion of the purchase price of the EnergySouth acquisition.
Spire has a shelf registration statement on Form S-3 on file with the SEC for the issuance and sale of up to 168,698 shares of its common stock under its Dividend Reinvestment and Direct Stock Purchase Plan. There were 111,959 and 107,307 shares at
June 30, 2016
and July 31, 2016, respectively, remaining available for issuance under its Form S-3. Spire also has a shelf registration statement on Form S-3 on file with the SEC for the issuance of equity and debt securities, which expires August 6, 2016. The amount, timing, and type of additional financing to be issued under this shelf registration will depend on cash requirements and market conditions.
Consolidated capitalization at
June 30, 2016
consisted of 49.3% of Spire common stock equity and 50.7% of long-term debt, compared to 47.0% of Spire common stock equity and 53.0% of long-term debt at September 30, 2015.
Laclede Gas
Of Laclede Gas' $810.0 in long-term debt, $25.0 has no call option, $435.0 has make-whole call options, and $350.0 are callable at par one to six months prior to maturity. None of the debt has any put options.
Laclede Gas has authority from the MoPSC to issue debt securities and preferred stock, including on a private placement basis, as well as to issue common stock, receive paid-in capital, and enter into capital lease agreements, all for a total of up to $300.0, through September 30, 2018. This authority became effective March 11, 2016, but is under appeal by Laclede Gas, as discussed under Regulatory and Other Matters above. Laclede Gas has not issued securities under this new authorization.
Laclede Gas has a shelf registration on Form S-3 on file with the SEC for issuance of first mortgage bonds, unsecured debt, and preferred stock, which expires August 6, 2016. The amount, timing, and type of additional financing to be issued under this shelf registration will depend on cash requirements and market conditions, as well as future MoPSC authorizations.
Laclede Gas capitalization at
June 30, 2016
consisted of 57.3% of common stock equity and 42.7% of long-term debt compared to 56.2% of common stock equity and 43.8% of long-term debt at September 30, 2015.
Alagasco
All of Alagasco's $250.0 long-term debt issues have make-whole call options. None of the debt has any put options.
Alagasco has no standing authority to issue long-term debt and must petition the APSC for each planned issuance. On February 3, 2015, Alagasco received authorization and approval from the APSC to borrow $80.0 for the purpose of refinancing $80.0 of existing debt scheduled to mature on December 1, 2015. Pursuant to this authorization and an earlier authorization for a $35.0 debt issuance, Alagasco entered into a master note purchase agreement on June 5, 2015 with certain institutional purchasers pursuant to which Alagasco committed to issue $115.0 unsecured notes in the private placement market: $35.0 at a rate of 3.21% for 10 years which settled on September 15, 2015, and $80.0 at a rate of 4.31% for 30 years which settled on December 1, 2015. Alagasco used the net proceeds of the private placements to refinance existing indebtedness and for general corporate purposes.
Alagasco's capitalization at
June 30, 2016
consisted of 78.0% of common stock equity and 22.0% of long-term debt compared to 83.7% of common stock equity and 16.3% of long-term debt at September 30, 2015.
The Company’s, Laclede Gas', and Alagasco's access to capital markets, including the commercial paper market, and their respective financing costs, may depend on the credit rating of the entity that is accessing the capital markets. The credit ratings of the Company, Laclede Gas and Alagasco are considered to be investment grade, but are subject to review and change by the rating agencies.
It is management’s view that the Company, Laclede Gas, and Alagasco have adequate access to capital markets and will have sufficient capital resources, both internal and external, to meet anticipated capital requirements, which primarily include capital expenditures, interest payments of long-term debt, scheduled maturities of long-term debt, short-term seasonal needs, and dividends.
CONTRACTUAL OBLIGATIONS
During the
nine months ended June 30, 2016
, there were no material changes outside the ordinary course of business to the estimated contractual obligations from the disclosure provided in the Company's, Laclede Gas', and Alagasco's Form 10-K for the period ended September 30, 2015.
MARKET RISK
There were no material changes in the Company's commodity price risk or counterparty credit risk as of
June 30, 2016
relative to the corresponding information provided as of September 30, 2015 in the Company's Annual Report on Form 10-K.
During the second quarter of fiscal 2016, Spire entered into five-year interest rate swap transactions with a fixed interest rate of 1.776% and a notional amount of $105.0 to protect itself against adverse movement in interest rates in anticipation of the issuance of long-term debt in 2017. During the third quarter of 2016, the Company entered into seven-year swap transactions with an average fixed interest rate of 1.501% and a notional amount of $120.0 to hedge against additional debt expected to be issued in 2017 or early 2018. As a result, $2.2 and $4.0 mark-to-market losses were recognized for the three and nine months ended June 30, 2016, respectively.
The fair values of related derivative instruments are shown in
Note 5
, Fair Value Measurements, and information on concentrations of credit risk, including how LER manages these risks, is included in
Note 6
, Concentrations of Credit Risk, of the Notes to Financial Statements under Item 1. Information about the Company's short-term and long-term debt is included under the heading "Liquidity and Capital Resources" in this Item 2.
ENVIRONMENTAL MATTERS
The Missouri Utilities and Alagasco own and operate natural gas distribution, transmission and storage facilities, the operations of which are subject to various environmental laws, regulations, and interpretations. While environmental issues resulting from such operations arise in the ordinary course of business, such issues have not materially affected the Company’s, Laclede Gas', or Alagasco's financial position and results of operations. As environmental laws, regulations, and their interpretations change, however, Laclede Gas and Alagasco may be required to incur additional costs. For information relative to environmental matters, see
Note 9
, Commitments and Contingencies, of the Notes to Financial Statements included in Item 1.
OFF-BALANCE SHEET ARRANGEMENTS
At
June 30, 2016
, the Company had no off-balance-sheet financing arrangements, other than operating leases entered into in the ordinary course of business. The Company does not expect to engage in any significant off-balance-sheet financing arrangements in the near future.