Business context and reporting period
Atmos Energy Corporation’s fiscal 2021 Form 10-K covers the year ended September 30, 2021. The company is a regulated natural-gas distributor serving more than 3 million customers in eight states, with a Texas pipeline and storage business. Its two reportable segments are distribution and pipeline and storage.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Operating revenue | $3.407 billion | $2.821 billion |
| Operating income | $905.0 million | $824.1 million |
| Net income | $665.6 million | $601.4 million |
| Diluted EPS | $5.12 | $4.89 |
| Adjusted net income / diluted EPS | $665.6 million / $5.12 | $580.5 million / $4.72 |
| Cash from operating activities | $(1.084) billion | $1.038 billion |
| Capital expenditures | $1.970 billion | $1.936 billion |
Revenue rose 21% year over year, substantially reflecting higher gas costs that are generally passed through to customers. Net income increased 11%; compared with FY2020 adjusted for its one-time $21.0 million noncash tax benefit, adjusted net income increased $85.1 million, or about 15%. Management attributed the improvement chiefly to rate outcomes and customer growth, partly offset by increased bad-debt and maintenance expense.
- Distribution operating income was $618.5 million, up $90.3 million; segment net income was $445.9 million.
- Pipeline and storage operating income was $286.5 million, down $9.4 million; segment net income was $219.7 million. Higher rates partly offset maintenance costs, depreciation and weaker pipeline throughput/spread-related activity.
- Operating cash flow swung to a $1.084 billion use, principally from Winter Storm Uri gas costs and the timing of customer collections, recorded as regulatory assets. Investing cash use was $1.964 billion; financing provided $3.144 billion.
- At year-end, long-term debt was $7.331 billion on the capitalization presentation, and shareholders’ equity was $7.907 billion. Equity represented 51.9% of capitalization, or 60.6% excluding $2.2 billion of storm-related financing. Cash was $116.7 million; management reported approximately $2.9 billion of total liquidity, including cash and proceeds available through equity forward sales.
- Quarterly dividends were $0.625 per share in FY2021, versus $0.575 in FY2020. The board increased the FY2022 quarterly dividend by 8.8%.
Material changes, outlook, and risks
- Winter Storm Uri: February 2021 gas purchases totaled approximately $2.3 billion. The company issued $2.2 billion of notes to fund these costs and recorded a $2.1 billion regulatory asset, subject to commission review. Texas’s regulator subsequently determined the costs were prudently incurred; securitization financing was still pending, and management expected proceeds within 12 months of the filing. The company intended to use the proceeds to repay the storm-related notes, classified as current maturities totaling $2.4 billion at year-end.
- Rate recovery: FY2021 ratemaking actions increased annual operating income by $185.7 million as reported, or $226.2 million excluding excess deferred-tax refunds. The company reported $56.5 million of rate actions pending at year-end; approvals and implementation dates varied by jurisdiction.
- Financing and credit: Debt and equity financing exceeded $3.4 billion during the year. S&P lowered ratings one notch after Uri; S&P and Moody’s both maintained negative outlooks, while ratings remained investment grade. The company reported compliance with debt covenants.
- Risks and contingencies: Key exposures include regulatory decisions and lag, pipeline integrity and safety, severe weather and supply disruption, climate-related policy, competition from alternative energy, cyber/technology risks, and capital-market access. The filing also describes an RRC enforcement proceeding seeking $1.6 million in penalties relating to a 2018 fatal incident and civil actions and an ongoing investigation concerning a 2021 worksite accident involving two fatalities. Management stated that other litigation and environmental matters were not expected to have a material adverse effect.
- Other unusual item: The company refunded $55.9 million of excess deferred taxes to customers in FY2021, affecting reported operating income and tax rates. No numerical earnings or capital-spending guidance for FY2022 is provided in the supplied filing text.
Important facts for investors to verify
- Progress, final financing terms and timing of Texas and Kansas securitization, and repayment of the $2.2 billion Uri-related notes.
- Whether the $2.1 billion storm regulatory asset remains recoverable in full, including carrying and administrative costs.
- Execution and customer-bill impacts of approved and pending rate adjustments, including deferred-tax refunds.
- Operating cash flow recovery, bad-debt trends, capital spending needs, and the effect of financing on leverage and credit ratings.
- Developments in the cited safety investigations, enforcement proceeding and civil litigation.
The independent auditor issued an unqualified opinion on the financial statements and internal controls. The audit identified capitalization of construction costs as a critical audit matter.