Business Context and Reporting Period
Company: Atmos Energy Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: September 30, 2009
Business Overview: Atmos Energy is a regulated natural gas distribution, transmission, and storage company serving over 3 million customers across 12 states, primarily in the South. The company operates through four segments: Natural Gas Distribution, Regulated Transmission and Storage, Natural Gas Marketing, and Pipeline, Storage and Other. The company has maintained a record of 25+ consecutive years of increasing dividends and earnings growth.
Key Financial Metrics
| Metric | Fiscal 2009 | Fiscal 2008 |
|---|---|---|
| Operating Revenues | $4,969,080,000 | $7,221,305,000 |
| Gross Profit | $1,346,702,000 | $1,321,326,000 |
| Operating Income | $447,402,000 | $427,895,000 |
| Net Income | $190,978,000 | $180,331,000 |
| Diluted EPS | $2.08 | $2.00 |
| Cash Flow from Operations | $919,233,000 | $370,933,000 |
| Capital Expenditures | $509,494,000 | $472,273,000 |
| Total Debt (Short + Long Term) | $2,241,950,000 | $2,470,334,000 |
| Shareholders' Equity | $2,176,761,000 | $2,052,492,000 |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated operating revenues decreased 31% to $4.97 billion, primarily driven by a significant drop in natural gas prices which reduced the pass-through purchased gas costs in the distribution and marketing segments.
- Profit Growth: Despite lower revenues, Net Income increased 6% to $191 million. Regulated operations contributed 83% of net income, up from 74% in 2008.
- Cash Flow Surge: Operating cash flow more than doubled to $919 million, largely due to a $369 million favorable impact on working capital resulting from lower natural gas prices.
- Segment Performance:
- Distribution: Operating income increased 11% due to rate increases and favorable ratemaking activities, offsetting a 5% decline in throughput.
- Marketing: Net income decreased 33% due to a $54 million decrease in unrealized margins on asset optimization activities.
- Debt Refinancing: The company issued $450 million of 8.50% Senior Notes in March 2009 to redeem $400 million of lower-interest notes maturing in October 2009, increasing interest expense.
Guidance, Outlook, and Risks
- Outlook: Management expects fiscal 2010 pension and postretirement medical costs to be materially the same as fiscal 2009. The company anticipates contributing approximately $12.2 million to postretirement benefit plans in fiscal 2010.
- Ratemaking: The company continues to focus on reducing regulatory lag. Several rate cases were pending as of September 30, 2009, with potential operating income increases totaling approximately $30.9 million if approved.
- Key Risks:
- Credit Markets: Disruptions in credit markets could limit access to capital and increase borrowing costs, though credit ratings were upgraded by S&P and Moody's in 2009.
- Economic Conditions: The recession may lead to lower gas consumption and higher bad debt expense.
- Regulatory: The company is under investigation by the FERC regarding competitive bidding regulations for released firm capacity.
- Commodity Prices: Volatility in natural gas prices impacts the marketing segment's unrealized margins and working capital requirements.
Investor Verification Checklist
- Verify the status and outcome of the pending FERC investigation regarding competitive bidding regulations.
- Monitor the approval status of pending rate cases in Texas, Georgia, and Kentucky, which represent significant potential income increases.
- Track the realization of the $24.9 million potential gross profit from asset optimization activities, which is expected to be recognized in fiscal 2010.
- Review the impact of the new 8.50% Senior Notes on future interest expense compared to the redeemed 4.00% notes.
- Assess the company's ability to maintain credit ratings given the volatility in the energy sector and credit markets.