Atmos Energy Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022. Atmos Energy is a regulated natural-gas distributor and pipeline operator serving approximately 3.3 million customers in eight states, with operations concentrated in Texas.
Financial performance and condition
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Operating revenue | $4.202 billion | $3.407 billion | +23.3% |
| Operating income | $921.0 million | $905.0 million | +1.8% |
| Net income | $774.4 million | $665.6 million | +16.3% |
| Diluted EPS | $5.60 | $5.12 | +9.4% |
| Cash from operations | $977.6 million | $(1.084) billion | Improved by $2.062 billion |
| Capital expenditures | $2.444 billion | $1.970 billion | +24.1% |
- Revenue growth largely reflects higher purchased-gas costs, which are generally passed through to customers without a margin, so reported revenue growth is not equivalent to underlying profit growth. Distribution revenue rose to $4.035 billion; pipeline and storage revenue was $693.7 million before intersegment eliminations.
- Operating income increased modestly, while net income benefited from lower income-tax expense. The effective income-tax rate was 9.1%, versus 18.8% in FY2021; customer refunds of excess deferred taxes reduced operating income.
- Operating cash flow recovered from FY2021, which included $2.1 billion of cash paid for Winter Storm Uri gas costs. Excluding that payment, FY2021 operating cash flow was $996.1 million. FY2022 cash generation was below capital expenditures.
- At year-end, total capitalization was $17.566 billion, including $7.962 billion of long-term debt and $185.0 million of short-term debt. Equity was 53.6% of capitalization; excluding the $2.2 billion of Uri-related financing, the ratio was 61.3%. Cash was $51.6 million.
- Management reported approximately $3.1 billion of liquidity: $2.309 billion of undrawn credit capacity, $776.6 million available from forward equity sales, and cash. The company reported compliance with debt covenants and investment-grade ratings: S&P A- with negative outlook and Moody’s A1 with stable outlook.
- The annual dividend was $2.72 per share, up from $2.50. The board increased the quarterly dividend rate by 8.8% for FY2023.
Changes versus the prior year
- Net income rose $108.8 million, driven principally by rate outcomes and customer growth, partly offset by higher employee, maintenance, depreciation and property-tax costs.
- Distribution operating income declined 2% to $604.5 million, including a $98.5 million year-over-year adverse effect from increased refunds of excess deferred taxes. Pipeline and storage operating income increased 10% to $316.4 million, supported by rate adjustments.
- Distribution sales volumes fell 5.4% to 292.3 Bcf, and total distribution throughput declined 3.5% to 445.0 Bcf. Distribution transportation volumes were nearly flat. Pipeline segment gross transportation volumes fell 2.9%.
- Capital spending increased by $474.9 million. More than 85% of FY2022 capital expenditures was directed to distribution and transportation system safety and reliability.
Outlook, risks and unusual items
- No specific earnings or revenue guidance is provided in the filing. Management’s strategy emphasizes system modernization, safety, timely regulatory recovery of capital investment and continued access to debt and equity markets.
- At September 30, 2022, the company had a $2.109 billion regulatory asset for Winter Storm Uri costs and carrying costs. Texas approved securitization of eligible costs over up to 30 years; repayment of the $2.2 billion Uri-related notes is expected after securitization proceeds are received. Kansas authorized $118.5 million of securitization, with bond issuance expected in FY2023.
- Rate mechanisms and pending proceedings are important to returns: the company said it could recover approximately 90% of capital expenditures within six months and substantially all within 12 months through existing mechanisms. Proceedings initiated in FY2022 sought $144.5 million in annual operating income; several were subsequently approved or implemented after year-end.
- The Inflation Reduction Act’s 15% corporate alternative minimum tax is anticipated to apply within four to five years; the company said the impact depends on future government guidance. It preliminarily did not expect the methane-emissions charge to materially affect results.
- Key risks include pipeline leaks or accidents and related liability, safety and environmental regulation, regulatory recovery delays or disallowances, extreme weather and gas-supply disruptions, cyberattacks, climate-related policy and demand changes, interest rates, capital-market access, and economic conditions. Approximately 70% of consolidated operations are in Texas.
- Legal matters include an RRC enforcement proceeding seeking $1.6 million in penalties related to a 2018 Dallas incident, and three civil actions following a 2021 Farmersville worksite accident that resulted in two fatalities and injuries. Management said it did not expect the matters, including other ordinary-course proceedings, to materially adversely affect the company; outcomes remain uncertain.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified determination of capital costs as a critical audit matter, involving judgment over whether expenditures were capital additions or maintenance expense.
Important facts for investors to verify
- Progress, timing and final proceeds from Texas and Kansas Uri-cost securitizations, and the planned repayment of the Uri-related notes.
- Whether rate approvals and infrastructure mechanisms continue to deliver timely recovery of the company’s substantial capital program, including the final outcomes of pending proceedings.
- Capital-spending requirements, financing mix, debt maturities and liquidity—particularly the $2.2 billion of debt due in FY2023 and reliance on securitization proceeds.
- Developments in the Dallas and Farmersville matters, pipeline safety performance, and any resulting penalties, claims or insurance recoveries.
- Effects of lower distribution sales volumes, elevated gas costs on customer collections and borrowing needs, and changes in interest rates or credit ratings.