Atmos Energy Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2013; filed August 7, 2013. The interim financial statements are unaudited. Atmos primarily operates regulated natural gas distribution and transmission and storage businesses, alongside a nonregulated business. It serves approximately 3 million customers.
Financial performance
| Metric | Three months ended June 30, 2013 | Nine months ended June 30, 2013 |
|---|---|---|
| Operating revenue | $857.9 million | $3,201.1 million |
| Gross profit | $316.5 million | $1,111.6 million |
| Operating income | $86.4 million | $451.5 million |
| Continuing-operations income | $33.5 million | $223.2 million |
| Net income | $38.8 million | $235.7 million |
| Diluted EPS | $0.42 | $2.57 |
| Operating cash flow | $509.6 million for nine months | |
| Capital expenditures | $582.5 million for nine months |
Revenue includes substantial natural gas purchases passed through to customers; gross profit is therefore a more informative operating measure than revenue alone. Nine-month operating cash flow was below capital expenditures. Cash and cash equivalents were $32.0 million at June 30.
Balance sheet and liquidity
- Total assets were $7.80 billion; shareholders’ equity was $2.58 billion.
- Long-term debt was $2.46 billion and short-term debt was $142.0 million. Short-term debt had fallen from $570.9 million at September 30, 2012; long-term debt had risen from $1.96 billion, primarily following issuance of $500 million of 4.15% 30-year senior notes.
- Atmos reported $879.8 million available under credit facilities, net of letters of credit, and $1.75 billion available under its shelf registration. It stated that operating cash flow and borrowing capacity were expected to fund working capital and the fiscal 2013 capital program.
- The company was in compliance with debt covenants. Its covenant-defined debt-to-capitalization ratio was 52%, against a 70% maximum; its stated target range was 50%–55%. Credit ratings were investment grade with stable outlooks.
Changes versus prior comparable periods
- Third-quarter revenue rose to $857.9 million from $576.4 million and gross profit increased to $316.5 million from $293.2 million. Continuing-operations income increased to $33.5 million from $28.0 million.
- Third-quarter net income included a $5.3 million after-tax gain on the sale of Georgia operations. In the prior-year quarter, discontinued operations contributed $3.1 million; current-quarter discontinued operations had no operating income.
- Nine-month net income increased to $235.7 million from $208.8 million; diluted EPS rose to $2.57 from $2.28. Continuing-operations income increased by $30.7 million.
- Management attributed improvement to rate increases, pipeline rate recovery, lower interest expense and better nonregulated asset-optimization results for the nine-month period. Third-quarter nonregulated results weakened sharply, including a $9.7 million unrealized-margin loss versus a $3.1 million unrealized-margin gain a year earlier.
- Operating cash flow declined $9.2 million year over year, while capital expenditures increased $85.1 million. Investing cash flow benefited from $153.0 million in proceeds from the Georgia sale.
Outlook, commentary and significant items
- Fiscal 2013 capital expenditures were expected to be $790 million–$810 million. No consolidated EPS guidance is stated in the provided filing text.
- Management said rate-design changes in Mid-Tex and West Texas should make earnings less dependent on consumption and more evenly distributed through the year; first-half operating income was lower as expected, partly offset by a stronger third quarter.
- Twelve completed regulatory proceedings were expected to raise annual operating income by about $70.5 million. Rate proceedings remained in progress in Colorado and Kentucky, with other filings also pending; Atmos filed a Mid-Tex rate review request for a $17.1 million annual operating-income increase in July 2013.
- Atmos expected its nonregulated segment to remain below 10% of consolidated results, citing compressed market basis differentials and lower spot-to-forward price volatility. Its commodity-related unrealized margins and hedge ineffectiveness can make reported results volatile.
- Atmos completed the sale of substantially all Georgia distribution assets on April 1, 2013, for approximately $153 million and recorded a $5.3 million after-tax gain. The sale removed approximately 64,000 customers from continuing operations.
- Management cited seasonal working-capital needs, weather, natural-gas prices and customer collections, regulatory decisions, access to credit, pension costs, competition, operational and cyber risks, and commodity and counterparty exposures as risks. The company also reported ongoing Kentucky litigation and a Tennessee business-tax dispute; it said it did not expect these matters to have a material adverse effect. A Tennessee court ruled for the tax authority on certain issues after quarter-end; remaining issues were pending.
- Quarterly dividends were $0.35 per share. Pension and postretirement costs increased year over year; management anticipated fiscal 2013 contributions of $30 million–$40 million to defined-benefit plans and $25 million–$30 million to postretirement medical plans.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring regulated rate recovery versus the Georgia sale gain and nonregulated unrealized margins.
- Whether the pending rate cases and Mid-Tex filing are approved, and when any resulting revenues take effect.
- Execution and funding of the $790 million–$810 million fiscal 2013 capital program, given nine-month capital spending exceeded operating cash flow.
- Trends in debt, seasonal borrowing capacity, credit ratings and access to capital markets.
- Outcomes of the Kentucky litigation and Tennessee tax dispute, along with pension funding and commodity-market risks.