Business Context and Reporting Period
Company: Atmos Energy Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: December 31, 2008
Business Overview: Atmos Energy operates primarily in regulated natural gas distribution and transmission/storage, serving approximately 3.2 million customers across 12 states. It also maintains nonregulated natural gas marketing and pipeline/storage operations. The company is a large accelerated filer incorporated in Texas.
Key Financial Metrics
| Metric | Q1 2009 (Ended Dec 31, 2008) | Q1 2008 (Ended Dec 31, 2007) |
|---|---|---|
| Operating Revenues | $1,716.3 million | $1,657.5 million |
| Gross Profit | $395.2 million | $369.6 million |
| Operating Income | $163.2 million | $158.5 million |
| Net Income | $76.0 million | $73.8 million |
| Diluted EPS | $0.83 | $0.82 |
| Operating Cash Flow | $150.7 million | $61.4 million |
| Capital Expenditures | $107.4 million | $94.2 million |
| Total Debt (Short + Long Term) | $2,484.2 million | $2,331.1 million |
| Cash and Equivalents | $69.8 million | $51.9 million |
Note: Debt figures include short-term debt and long-term debt (including current maturities). Total capitalization was $4,559.3 million, with a debt-to-capitalization ratio of 54.4%.
Material Changes vs. Prior Period
- Net Income Growth: Consolidated net income increased by $2.2 million (3.0%) to $76.0 million. This was driven by a $10.0 million increase in the Natural Gas Distribution segment, partially offset by a $10.0 million decrease in the Natural Gas Marketing segment.
- Segment Performance:
- Distribution: Net income rose to $50.1 million due to favorable ratemaking activity (including a $20.0 million rate increase in Mid-Tex) and a 6% increase in throughput. A non-recurring $8.1 million adjustment to gross profit for unbilled gas also contributed.
- Marketing: Net income fell to $10.6 million, primarily due to a $53.8 million decrease in unrealized margins caused by the recognition of previously unrecognized margins as gas was cycled from storage.
- Pipeline/Storage: Net income increased to $7.6 million, driven by a $4.6 million increase in asset optimization margins.
- Cash Flow: Operating cash flow surged by $89.3 million to $150.7 million, largely due to favorable timing of accounts receivable collections and purchases of gas stored underground.
- Debt Levels: Short-term debt increased to $360.8 million (from $350.5 million) due to seasonal winter heating requirements and tighter credit markets limiting commercial paper usage.
Guidance, Outlook, Risks, and Unusual Items
- Capital Expenditure Outlook: Capital expenditures for fiscal 2009 are expected to range between $500 million and $515 million.
- Liquidity and Credit Facilities: The company strengthened liquidity by executing two new committed credit facilities totaling $587.5 million. As of December 31, 2008, approximately $614 million was available under credit facilities. The company is evaluating refinancing options for $400 million in senior notes maturing in October 2009.
- Unusual Items:
- Accounting Change: Adoption of SFAS 158 decreased retained earnings by $7.8 million (net of tax) due to a change in the measurement date for pension obligations.
- Investment Impairment: A $2.1 million noncash charge was recorded to impair available-for-sale investments due to financial market deterioration.
- Risks:
- Market Risk: Exposure to natural gas price volatility and counterparty credit risk in financial instruments. The company holds a net open position of 0.1 Bcf as of period end.
- Regulatory Risk: Ongoing rate cases in Dallas and Tennessee; potential disallowances in gas cost reviews (though a proposal for decision recommended no disallowance in the Mid-Tex review).
- Refinancing Risk: Dependence on credit markets to refinance $400 million in debt maturing in 2009.
Key Facts for Investor Verification
- Refinancing Status: Verify the successful refinancing of the $400 million 4.00% senior notes maturing in October 2009.
- Rate Case Outcomes: Monitor the final resolution of the City of Dallas rate filing (suspended Dec 2008) and the Tennessee rate case (expected implementation by April 2009).
- Marketing Segment Realization: Track the realization of the $15.9 million "potential gross profit" in the marketing segment, which is contingent on future storage withdrawals and market conditions.
- Debt Covenants: Confirm continued compliance with the 70% debt-to-capitalization covenant and the 5-to-1 liabilities-to-tangible-net-worth covenant for the marketing subsidiary (AEM).
- Pension Funding: Verify the required pension contribution of less than $25 million due by September 15, 2009, driven by market declines in plan assets.