Business Context and Reporting Period
Company: Atmos Energy Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009 (Fiscal Third Quarter)
Business Overview: Atmos Energy operates primarily in regulated natural gas distribution and transmission/storage, alongside nonregulated natural gas marketing and pipeline operations. The company serves approximately 3.2 million customers across 12 states through six regulated distribution divisions.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Three Months Ended June 30, 2009 |
Nine Months Ended June 30, 2009 |
|---|---|---|
| Operating Revenues | $780,775 | $4,318,513 |
| Gross Profit | $259,640 | $1,114,903 |
| Operating Income | $43,683 | $433,424 |
| Net Income (Loss) | $1,964 | $206,930 |
| Diluted EPS | $0.02 | $2.26 |
| Operating Cash Flow | N/A | $824,594 |
| Capital Expenditures | $120,996 | $342,326 |
| Total Debt (Long-term + Current) | $2,169,526 | $2,169,526 |
| Cash and Equivalents | $125,735 | $125,735 |
Material Changes vs. Prior Period
- Net Income: For the three months ended June 30, 2009, the company reported a net income of $1.96 million compared to a net loss of $6.6 million in the prior-year quarter. For the nine-month period, net income increased 16% to $206.9 million from $178.7 million.
- Revenue Decline: Consolidated operating revenues decreased significantly year-over-year (52% for the quarter, 25% for the nine months) primarily due to lower natural gas prices and reduced throughput volumes driven by the economic recession and warmer weather in certain service areas.
- Segment Performance:
- Natural Gas Distribution: Gross profit decreased in the quarter due to rate design changes and lower throughput, but increased for the nine months due to rate increases and a one-time billing adjustment.
- Natural Gas Marketing: Gross profit improved significantly in the quarter ($15.0 million vs. a loss of $2.6 million) driven by a reduction in realized losses on asset optimization activities.
- Regulated Transmission: Gross profit increased due to higher demand-based fees and GRIP filing benefits.
- Unusual Items: Results included a favorable one-time tax benefit of $11.3 million and an unfavorable noncash charge of $5.4 million to impair available-for-sale investments.
Guidance, Outlook, and Risks
- Capital Expenditures: Expected to range between $500 million and $515 million for fiscal 2009.
- Liquidity: The company maintains approximately $1.3 billion in committed credit facilities, with $905 million available as of June 30, 2009. Management believes operating cash flows and credit facilities are sufficient to fund needs for the remainder of the fiscal year.
- Debt Refinancing: In March 2009, the company issued $450 million of 8.50% senior notes due 2019, using proceeds to redeem $400 million of 4.00% notes maturing in October 2009.
- Regulatory Risks: Ongoing rate cases in Dallas, Virginia, and other jurisdictions could impact future operating income. The company is also cooperating with an FERC investigation regarding pipeline capacity regulations.
- Market Risks: Exposure to natural gas price volatility, counterparty credit risk, and the impact of the economic downturn on customer demand.
Investor Verification Checklist
- Debt Structure: Verify the impact of the new 8.50% senior notes on future interest expense compared to the redeemed 4.00% notes.
- Investment Impairments: Review the $5.4 million impairment charge on available-for-sale securities and the remaining unrealized losses in the portfolio.
- Rate Case Outcomes: Monitor the status of the City of Dallas rate case and GRIP filings, as these significantly influence the Natural Gas Distribution segment's margins.
- Marketing Segment Volatility: Assess the sustainability of the Natural Gas Marketing segment's gross profit, which is heavily influenced by asset optimization spreads and unrealized gains/losses.
- Throughput Trends: Confirm if the year-over-year decline in gas throughput (4% for distribution, 7% for transmission) stabilizes as economic conditions improve.