10-QPeriod: Q1 FY2014

ATMOS ENERGY CORP Quarterly Report for Q1 Ended Dec 31, 2013

Filed February 4, 2014For Securities:ATO

Summary

Atmos Energy Corporation's (ATO) third-quarter fiscal year 2014 report (ending December 31, 2013) shows a robust increase in net income driven by colder weather and positive regulatory outcomes. Consolidated net income rose by approximately 8.1% to $87.0 million, or $0.95 per diluted share, compared to the prior year. This growth was primarily fueled by the natural gas distribution segment, which saw its net income increase by 18% due to higher volumes and rate adjustments. The company continued to invest in infrastructure, with capital expenditures of $180.6 million during the quarter. The balance sheet reflects a slight increase in net property, plant and equipment and a significant rise in current assets, particularly cash and accounts receivable. Long-term debt decreased, while short-term debt increased to manage working capital needs, leading to a consolidated debt-to-capitalization ratio of 54.2% which is within the company's target range. Key financial highlights include strong operating income growth across regulated segments, partially offset by a decline in the nonregulated segment's profitability. The company also benefited from favorable hedging activities and successfully managed its financial risks. Atmos Energy remains focused on safety, reliability, and shareholder value, as evidenced by a recent dividend increase and positive credit rating outlook.

Financial Highlights

45 data points
Beta

Net Income

$87.02M

EPS (Diluted)

$0.95

Total Assets

$8.62B

Cash & Equivalents

$194.56M

Free Cash Flow

$34.30M

Financial Statements
Beta
Gross Profit$388.96M
Operating Expenses$218.24M
Operating Income$170.72M
Interest Expense$32.12M
Net Income$87.02M
EPS (Basic)$0.95
EPS (Diluted)$0.95
Shares Outstanding (Basic)91.84M
Shares Outstanding (Diluted)91.84M

Key Highlights

  • 1Consolidated net income increased by 8.1% to $87.0 million for the three months ended December 31, 2013.
  • 2Diluted earnings per share from continuing operations rose to $0.95, up from $0.85 in the prior year.
  • 3The natural gas distribution segment experienced an 18% increase in income from continuing operations, driven by colder weather and rate adjustments.
  • 4Capital expenditures for the quarter totaled $180.6 million, primarily for safety and reliability improvements.
  • 5Total debt as a percentage of total capitalization remained manageable at 54.2% as of December 31, 2013.
  • 6Moody's upgraded Atmos Energy's senior unsecured debt rating to A2 and commercial paper rating to P-1 in January 2014.
  • 7The company increased its quarterly dividend by 5.7% in the first quarter of fiscal 2014.

Frequently Asked Questions

The increase in net income was primarily driven by a combination of colder weather, which increased natural gas volumes, and positive regulatory outcomes that allowed for higher authorized rates of return. The natural gas distribution segment was the largest contributor to this growth.

Atmos Energy funds its operations and capital expenditures through a mix of internally generated funds, borrowings under its commercial paper program and bank credit facilities, and potentially from public debt and equity markets. The company maintains a target debt-to-capitalization ratio between 50% and 55% and had over $1 billion in capacity from its short-term facilities at the end of the quarter.

The company is involved in ongoing litigation, notably the Kentucky litigation where an appeals court overturned a significant jury verdict, remanding a portion for a new trial on punitive damages. While the company believes the final outcome will not have a material adverse effect, this remains a developing situation. There is also a dispute with the Tennessee Department of Revenue regarding business taxes, for which an adequate reserve has been accrued.

The nonregulated segment's net income decreased by 41% compared to the prior year, primarily due to lower gross profit, driven by a significant decrease in unrealized margins. In contrast, the regulated segments, particularly natural gas distribution, showed strong growth in net income.