Report of Independent Registered Public Accounting Firm
Spire Inc. Retirement Plans Committee
The Laclede Gas Company - Missouri Gas Energy
Wage Deferral Savings Plan
St. Louis, Missouri
We have audited the accompanying statements of net assets available for benefits of The Laclede Gas Company - Missouri Gas Energy Wage Deferral Savings Plan as of December 31, 2016 and 2015, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of The Laclede Gas Company - Missouri Gas Energy Wage Deferral Savings Plan as of December 31, 2016 and 2015, and the changes in its net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The supplemental information in the accompanying Schedule of Assets (Held at End of Year) as of December 31, 2016, has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is presented for the purpose of additional analysis and is not a required part of the financial statements but includes supplemental information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental information is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information in the accompanying schedule, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information in the accompanying schedule is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/
BKD,
LLP
St. Louis, Missouri
June 29, 2017
Notes to Financial Statements
December 31, 2016 and 2015
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1.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Basis of Accounting
– The accompanying financial statements of The Laclede Gas Company - Missouri Gas Energy Wage Deferral Savings Plan (“the Plan”) have been prepared on the accrual basis.
Fair Value of Plan Assets
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Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy of inputs used to measure fair value includes:
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Level 1
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Quoted prices in active markets for identical assets or liabilities.
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Level 2
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Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
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Level 3
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Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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Descriptions of the valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying Statements of Net Assets Available for Benefits, as well as the general classification of such assets pursuant to the fair value hierarchy, are included in Note 3.
Investment Valuation and Income Recognition
– The Plan’s investments in common stock and mutual funds are stated at the market value of the underlying assets, which are determined by quoted market prices. Common/collective trusts (“CCTs”, singular "CCT") are valued based on information reported by the trust based on its underlying assets and audited financial statements. The Plan also holds units of a CCT that has investments in fully benefit-responsive investment contracts (“FBRICs”). The Plan’s CCT investments in FBRICs are presented at fair value measured using the NAV practical expedient in the Statements of Net Assets Available for Benefits at both December 31, 2016 and 2015.
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. No allowance for credit losses has been recorded as of December 31, 2016 and 2015.
Purchases and sales of investments are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought, sold, and/or held during the year.
Use of Estimates
– The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Plan sponsor to make estimates and assumptions that affect the reported amounts of net assets and changes in net assets and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Administrative Expenses
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The administrative cost of the Plan is paid by Laclede Gas Company (the “Company”), the Plan sponsor and Plan administrator. The Company is a wholly owned subsidiary of Spire Inc. Participants bear the cost of some individual transactions such as loan fees, dividend pass-through checks, overnight check fees, and purchases of Spire Inc. stock.
Payment of Benefits
– Benefits are recorded when paid. There were no distributions payable to Plan participants as of December 31, 2016 and 2015.
Presentation/Reclassifications
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Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on Net Assets Available for Benefits.
2. INFORMATION REGARDING THE PLAN
The following description pertains to the Plan as in effect during the years ended December 31, 2016 and 2015 and is provided for informational purposes only. Participants should refer to the Plan document and
Summary Plan Description
for a more complete description of the Plan's provisions, which are available from the Plan administrator. In case of conflict or discrepancy with the Plan document, the Plan document governs.
General
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The Plan is a defined contribution plan which covers collectively-bargained participants of the Company, provided that they meet the prescribed eligibility requirements.
The Plan was established on January 1, 2013 by the Southern Union Company.
The Plan was amended and restated on July 26, 2013 when Missouri Gas Energy ("MGE") was sold to Spire Inc. The Plan was subsequently amended and restated effective January 1, 2015 to incorporate all changes since the July 26, 2013 amendment and restatement.
Assets of the Plan are maintained in trust with Fidelity Management Trust Company (“Trustee”). The Company is the Plan sponsor, and in that capacity has named the Spire Inc. Retirement Plans Committee as administrator. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974
(“ERISA”).
Eligibility
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To be eligible to participate in the Plan, an employee must be a member of a collective bargaining unit and complete 90 consecutive days of service as defined in the Plan document.
Contributions
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The Plan provides for voluntary participant contributions subject to certain Internal Revenue Code (“IRC”) limitations. Participants who attain age 50 by each December 31 are permitted to make additional contributions (“catch-up contributions”) as permitted by the IRC. Participant contributions are matched 100% up to a maximum 5% of compensation in accordance with the collective bargaining agreement. Participants may change the amount of their contributions frequently, usually effective within one or two payroll cycles. Participants can make Roth 401(k) contributions to the Plan. Newly hired employees are auto-enrolled in the Plan at a deferral rate of 5%, along with the 5% matching employer contribution, effective the first pay period after they become eligible, unless they decline to defer or choose an alternative deferral amount in advance.
For all non-International Brotherhood of Electrical Workers Union Employees hired on or after May 1, 2009, the Company makes, on a payroll basis, a non-elective contribution equal to 3% of a participant's compensation that is eligible to be deferred. This non-elective contribution was discontinued for all participants effective October 1, 2016.
Investment Options
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Investment account options include various funds. Each participant has the option of directing his contributions into any of the separate investment accounts and may change the allocation daily.
Employee Stock Ownership Plan
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Effective April 29, 2016, the balances in the stock fund became an employee stock ownership plan. The Spire Inc. Employee Stock Ownership Plan (“ESOP”) constitutes a portion of the Plan, not a separate plan. Participant allocated contributions and employer matching contributions are invested directly into the ESOP. A participant may elect to receive dividends on the ESOP shares paid in cash directly to him/her. The election to receive cash dividends shall remain in effect until changed by the participant. Dividends not paid in cash are reinvested under the terms of the Plan.
Notes Receivable from Participants
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The Plan document includes provisions authorizing loans from the Plan to actively eligible participants. Loans are made to any eligible participant demonstrating a qualifying need. The minimum amount of the loan shall be $1,000. The maximum amount of a participant's loan is determined by the available loan balance restricted to the lesser of $50,000 less the highest outstanding loan balance over the last twelve months, if any, or 50 percent of the participant's vested account balance. All loans are covered by demand notes and are repayable over a period not to exceed five years, except for loans for the purchase of a principal residence, through payroll withholdings unless the participant is paying the loan in full. Interest on the loans is based on local prevailing rates as determined by the Plan administrator. A participant may have no more than two outstanding loans at a given time, including one used to purchase the principal residence of the participant. Interest rates on participant loans ranged from 4.25% to 5.75% at December 31, 2016.
Participant Accounts
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Each participant's account is credited with the participant's contribution, the Company's contribution and investment income and is charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.
Vesting
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Participants are immediately vested in their voluntary contributions plus earnings thereon. Vesting in the Company's contribution portion of their accounts plus earnings thereon is based on years of continuous service. A union participant is fully vested after six years of service. Notwithstanding the foregoing, any Plan participant who is credited with an hour of service on or after June 1, 2014, shall be 100% vested in the entire value of his accounts.
Forfeited Accounts
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During 2016 and 2015, there were no forfeitures of non-vested accounts.
Payment of Benefits
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Under the terms of the Plan, participants are entitled to receive the amount credited to their account upon normal retirement age of 65 or disability retirement. Participants terminating employment prior to retirement are entitled to receive that portion of their account that is vested. In event of death, the participant's account becomes fully vested and the balance is paid to the designated beneficiary. Distributions under the Plan are payable in a lump sum or through required minimum distributions.
Transfers
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The accounts for the participants in the Plan who remain employees of the Company, but who are no longer covered by a collective bargaining agreement, are transferred to the Laclede Gas Company Salary Deferral Savings Plan. Similarly, the accounts of those participants not covered by a collective bargaining agreement, but who later become covered by such an agreement, are transferred to the applicable Company defined contribution plan. Such transfers are reflected as a net amount in the Statements of Changes in Net Assets Available for Benefits.
3. INVESTMENTS
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the participants' account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
The Plan holds investments in a stable value fund, which consists of debt and equity securities wrapped by FBRICs. The FBRICs enable the fund to realize a specific known value for the assets if it needs to liquidate them for benefit payments. The FBRICs are issued by banks and insurance companies and serve to preserve the value of the fund’s investments by mitigating fluctuations in the market value of the associated underlying investments. These investment contracts are measured daily and may be redeemed daily with no restrictions related to the redemption notice period. However, if redemption does occur, the redeemed funds cannot be reinvested in a competing fund for at least 90 days. There are no reserves against the contract value for credit risk of the contract issuer or otherwise. Certain events, such as layoffs or early retirement incentives, may limit the ability of participants to access their investments at contract value. The likelihood of such events limiting the ability of the Plan to transact at contract value is not probable.
Recurring Measurements
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The table below presents the fair value measurements of assets recognized in the accompanying Statements of Net Assets Available for Benefits measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2016 and 2015.
Where quoted market prices are available in an active market, investments are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of investments with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, and cash flows. Such investments are classified in Level 2 of the valuation hierarchy.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
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Fair Value Measurements Using:
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Quoted Prices in Active Markets for Identical Assets
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Significant Other Observable Inputs
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Significant Unobservable Inputs
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December 31, 2016
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Total
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(Level 1)
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(Level 2)
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(Level 3)
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Mutual funds
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$
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38,608,239
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$
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38,608,239
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$
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—
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$
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—
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Common/collective trusts
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7,345,741
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—
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7,345,741
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—
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Common stock – Spire Inc.
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1,351,810
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1,351,810
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—
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—
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Total investments in the fair value hierarchy
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$
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47,305,790
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$
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39,960,049
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$
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7,345,741
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$
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—
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Common/collective trusts measured at NAV*
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3,863,049
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Total investments
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$
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51,168,839
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December 31, 2015
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Mutual funds
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$
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40,114,534
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$
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40,114,534
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$
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—
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$
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—
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Common/collective trusts
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6,837,673
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—
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6,837,673
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—
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Common stock – Spire Inc.
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644,841
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644,841
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—
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—
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Total investments in the fair value hierarchy
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$
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47,597,048
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$
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40,759,375
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$
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6,837,673
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$
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—
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Common/collective trusts measured at NAV*
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5,429,919
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Total investments
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$
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53,026,967
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*
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Certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on the Statements of Net Assets Available for Benefits.
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The Plan obtained its latest determination letter on March 24, 2014, in which the Internal Revenue Service stated that the Plan and related trust, as then designed, were in compliance with the applicable requirements of the Internal Revenue Code ("IRC") and therefore not subject to tax. Although the Plan has been amended since receiving the determination letter, the Plan Administrator and the Plan's tax counsel believe that the plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
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5.
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RELATED-PARTY TRANSACTIONS
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The Plan allows for transactions with certain parties who may perform services or have fiduciary responsibilities to the Plan, including the Company. These transactions qualify as party-in-interest transactions. The Company provides certain administrative services at no cost to the Plan. The Plan incurs expenses related to general administration and recordkeeping. The Company pays a portion of these expenses and certain accounting and auditing fees related to the Plan. The Plan paid $11,577 and $22,581 of recordkeeping fees to the trustee in 2016 and 2015, respectively. At December 31, 2016 and 2015, the Plan held 20,942.068 and 10,854.088 shares, respectively, of common stock of Spire Inc., the parent company of the sponsoring employer, with a market value of $1,351,810 and $644,841, respectively. During the years ended December 31, 2016 and 2015, the Plan received dividend income of $28,546 and $16,792, respectively.
6. PLAN TERMINATION
Although it has not expressed an intention to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan, subject to the provisions of ERISA.