10-KPeriod: FY2010

ATMOS ENERGY CORP Annual Report, Year Ended Sep 30, 2010

Filed November 12, 2010For Securities:ATO

Summary

Atmos Energy Corporation (ATO) presents its 2010 Form 10-K, highlighting its core business as a natural gas distributor serving over three million customers across 12 states, primarily in the South. The company emphasizes its growth strategy through acquisitions and its consistent track record of increasing dividends and earnings for over 25 consecutive years. Key to its financial stability are regulatory mechanisms like purchased gas cost adjustments and weather normalization adjustments, which help to insulate margins from fluctuations in natural gas costs and weather variability. For investors, Atmos Energy's diversification across four segments—natural gas distribution, regulated transmission and storage, natural gas marketing, and pipeline, storage, and other—provides a stable, regulated base supplemented by nonregulated activities. The company's focus on reducing regulatory lag through rate design improvements and its ability to recover capital investments efficiently are positive indicators for consistent earnings. However, investors should remain aware of risks related to credit market disruptions, economic conditions impacting customer payments, and potential regulatory changes.

Financial Highlights

47 data points
Beta

Net Income

$205.84M

EPS (Diluted)

$2.20

Total Assets

$6.76B

Cash & Equivalents

$131.95M

Free Cash Flow

$726.48M

Financial Statements
Beta
Cost of Revenue$3.42B
Gross Profit$1.31B
Operating Expenses$850.30M
Operating Income$463.83M
Interest Expense$154.19M
Net Income$205.84M
EPS (Basic)$2.22
EPS (Diluted)$2.20
Shares Outstanding (Basic)91.85M
Shares Outstanding (Diluted)92.42M

Key Highlights

  • 1Atmos Energy is a major natural gas-only distributor with over three million customers in 12 states, primarily in the Southern U.S.
  • 2The company boasts over 25 consecutive years of increasing dividends and earnings.
  • 3Key strategies include reducing regulatory lag and separating cost recovery from customer usage patterns.
  • 4Purchased gas cost adjustment mechanisms and weather normalization adjustments (WNA) are in place for a significant portion of revenues, providing margin stability.
  • 5The company operates four segments: natural gas distribution, regulated transmission and storage, natural gas marketing, and pipeline, storage, and other.
  • 6Rate case filings and GRIP filings are actively used to adjust rates and recover capital costs, with over 80% of gross margin benefiting from accelerated recovery of expenditures.
  • 7The company has strong credit ratings, all considered investment grade, indicating good access to capital markets.

Frequently Asked Questions

Atmos Energy's primary business is the regulated distribution of natural gas. It serves over three million residential, commercial, public authority, and industrial customers across 12 states, with a significant concentration in the Southern U.S. (e.g., Texas, Louisiana, Mississippi, Kentucky, Colorado, Kansas).

The company utilizes purchased gas cost adjustment (PGA) mechanisms, which allow for dollar-for-dollar recovery of purchased gas costs, thus protecting gross profit from gas price fluctuations. Additionally, weather normalization adjustments (WNA) are in place for approximately 94% of residential and commercial margins in its service areas to mitigate the impact of weather deviations from normal, contributing to stable earnings.

Atmos Energy focuses on delivering superior shareholder value and improving earnings consistency. This is achieved through strategic acquisitions, efficient operating expense management, leveraging technology, and, importantly, implementing rate designs that reduce regulatory lag and separate cost recovery from customer usage patterns. The company also actively manages its capital structure and has strong relationships with credit rating agencies.

Key risks include disruptions in credit markets affecting capital access and cost, adverse economic conditions impacting customer payments and potentially increasing bad debt, increased operating costs due to new regulations (especially related to safety and environment), and competition from alternative energy sources. The concentration of operations in Texas also exposes the company to state-specific economic and regulatory risks.