Annual Reports

 
Quarterly Reports

  • 10-Q (Aug 2, 2017)
  • 10-Q (May 4, 2017)
  • 10-Q (Feb 7, 2017)
  • 10-Q (Aug 3, 2016)
  • 10-Q (May 4, 2016)
  • 10-Q (Feb 2, 2016)

 
8-K

 
Other

Atmos Energy 10-Q 2013

Documents found in this filing:

  1. 10-Q
  2. Ex-12
  3. Ex-15
  4. Ex-31
  5. Ex-32
  6. Ex-32
Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

  þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2012

or

 

  ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number 1-10042

Atmos Energy Corporation

(Exact name of registrant as specified in its charter)

 

Texas and Virginia   75-1743247
(State or other jurisdiction of
incorporation or organization)
  (IRS employer
identification no.)
Three Lincoln Centre, Suite 1800
5430 LBJ Freeway, Dallas, Texas
 

75240

(Zip code)

(Address of principal executive offices)  

(972) 934-9227

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer  þ

   Accelerated Filer  ¨    Non-Accelerated Filer  ¨    Smaller Reporting Company  ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  þ

Number of shares outstanding of each of the issuer’s classes of common stock, as of February 1, 2013.

 

Class

  

Shares Outstanding

No Par Value

   90,517,509


GLOSSARY OF KEY TERMS

 

AEC

   Atmos Energy Corporation

AEH

   Atmos Energy Holdings, Inc.

AEM

   Atmos Energy Marketing, LLC

AOCI

   Accumulated other comprehensive income

APS

   Atmos Pipeline and Storage, LLC

Bcf

   Billion cubic feet

CFTC

   Commodity Futures Trading Commission

FASB

   Financial Accounting Standards Board

Fitch

   Fitch Ratings, Ltd.

GAAP

   Generally Accepted Accounting Principles

GRIP

   Gas Reliability Infrastructure Program

GSRS

   Gas System Reliability Surcharge

ISRS

   Infrastructure System Replacement Surcharge

LPSC

   Louisiana Public Service Commission

Mcf

   Thousand cubic feet

MMcf

   Million cubic feet

MPSC

   Mississippi Public Service Commission

Moody’s

   Moody’s Investors Services, Inc.

NYMEX

   New York Mercantile Exchange, Inc.

PPA

   Pension Protection Act of 2006

PRP

   Pipeline Replacement Program

RRC

   Railroad Commission of Texas

RRM

   Rate Review Mechanism

S&P

   Standard & Poor’s Corporation

SEC

   United States Securities and Exchange Commission

WNA

   Weather Normalization Adjustment

 

1


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     December 31,
2012
    September 30,
2012
 
     (Unaudited)        
     (In thousands, except
share data)
 
ASSETS     

Property, plant and equipment

   $ 7,283,533     $ 7,134,470  

Less accumulated depreciation and amortization

     1,688,239       1,658,866  
  

 

 

   

 

 

 

Net property, plant and equipment

     5,595,294       5,475,604  

Current assets

    

Cash and cash equivalents

     124,601       64,239  

Accounts receivable, net

     500,863       234,526  

Gas stored underground

     274,126       256,415  

Other current assets

     265,044       272,782  
  

 

 

   

 

 

 

Total current assets

     1,164,634       827,962  

Goodwill and intangible assets

     740,836       740,847  

Deferred charges and other assets

     463,454       451,262  
  

 

 

   

 

 

 
   $ 7,964,218     $ 7,495,675  
  

 

 

   

 

 

 
CAPITALIZATION AND LIABILITIES     

Shareholders’ equity

    

Common stock, no par value (stated at $.005 per share); 200,000,000 shares authorized; issued and outstanding: December 31, 2012 — 90,516,948 shares September 30, 2012 — 90,239,900 shares

   $ 453     $ 451  

Additional paid-in capital

     1,750,195       1,745,467  

Retained earnings

     709,438       660,932  

Accumulated other comprehensive loss

     (36,081     (47,607
  

 

 

   

 

 

 

Shareholders’ equity

     2,424,005       2,359,243  

Long-term debt

     1,956,376       1,956,305  
  

 

 

   

 

 

 

Total capitalization

     4,380,381       4,315,548  

Current liabilities

    

Accounts payable and accrued liabilities

     367,312       215,229  

Other current liabilities

     446,717       489,665  

Short-term debt

     830,891       570,929  

Current maturities of long-term debt

     131       131  
  

 

 

   

 

 

 

Total current liabilities

     1,645,051       1,275,954  

Deferred income taxes

     1,066,273       1,015,083  

Regulatory cost of removal obligation

     371,608       381,164  

Pension and postretirement costs

     456,694       457,196  

Deferred credits and other liabilities

     44,211       50,730  
  

 

 

   

 

 

 
   $ 7,964,218     $ 7,495,675  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

2


ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

     Three Months Ended
December 31
 
     2012     2011  
     (Unaudited)  
     (In thousands, except per
share data)
 

Operating revenues

    

Natural gas distribution segment

   $ 666,787     $ 676,113  

Regulated transmission and storage segment

     60,681       56,759  

Nonregulated segment

     399,894       444,176  

Intersegment eliminations

     (93,207     (93,054
  

 

 

   

 

 

 
     1,034,155        1,083,994   

Purchased gas cost

    

Natural gas distribution segment

     387,156       392,518  

Regulated transmission and storage segment

     —         —    

Nonregulated segment

     377,435       428,771  

Intersegment eliminations

     (92,798     (92,687
  

 

 

   

 

 

 
     671,793       728,602  
  

 

 

   

 

 

 

Gross profit

     362,362       355,392  

Operating expenses

    

Operation and maintenance

     106,527       114,644  

Depreciation and amortization

     59,579       58,366  

Taxes, other than income

     41,334       42,911  
  

 

 

   

 

 

 

Total operating expenses

     207,440       215,921  
  

 

 

   

 

 

 

Operating income

     154,922       139,471  

Miscellaneous income (expense)

     698       (2,016

Interest charges

     30,522       35,726  
  

 

 

   

 

 

 

Income from continuing operations before income taxes

     125,098       101,729  

Income tax expense

     47,750       39,345  
  

 

 

   

 

 

 

Income from continuing operations

     77,348       62,384  

Income from discontinued operations, net of tax ($1,728 and $3,516)

     3,117       6,123  
  

 

 

   

 

 

 

Net income

   $ 80,465     $ 68,507  
  

 

 

   

 

 

 

Basic earnings per share

    

Income per share from continuing operations

   $ 0.85     $ 0.68  

Income per share from discontinued operations

     0.04       0.07  
  

 

 

   

 

 

 

Net income per share — basic

   $ 0.89     $ 0.75  
  

 

 

   

 

 

 

Diluted earnings per share

    

Income per share from continuing operations

   $ 0.85     $ 0.68  

Income per share from discontinued operations

     0.03       0.07  
  

 

 

   

 

 

 

Net income per share — diluted

   $ 0.88     $ 0.75  
  

 

 

   

 

 

 

Cash dividends per share

   $ 0.350     $ 0.345  
  

 

 

   

 

 

 

Weighted average shares outstanding:

    

Basic

     90,359       90,254  
  

 

 

   

 

 

 

Diluted

     91,309       90,546  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

3


ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

     Three Months Ended
December 31
 
     2012     2011  
     (Unaudited)  
     (In thousands)  

Net income

   $ 80,465     $ 68,507  

Other comprehensive income (loss), net of tax

    

Unrealized holding gains (losses) on available-for-sale securities, net of tax of $(220) and $514

     (373     901  

Amortization and unrealized gain (loss) on interest rate agreements, net of tax of $7,049 and $(638)

     12,264       (1,087

Net unrealized losses on commodity cash flow hedges, net of tax of $(233) and $(10,597)

     (365     (16,575
  

 

 

   

 

 

 

Total other comprehensive income (loss)

     11,526       (16,761
  

 

 

   

 

 

 

Total comprehensive income

   $ 91,991     $ 51,746  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

4


ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Three Months Ended
December 31
 
     2012     2011  
     (Unaudited)  
     (In thousands)  

Cash Flows From Operating Activities

    

Net income

   $ 80,465     $ 68,507  

Adjustments to reconcile net income to net cash provided (used) by operating activities:

    

Depreciation and amortization:

    

Charged to depreciation and amortization

     60,500       60,733  

Charged to other accounts

     128       78  

Deferred income taxes

     45,951       40,042  

Other

     3,242       4,692  

Net assets / liabilities from risk management activities

     (15,641     (8,426

Net change in operating assets and liabilities

     (144,787     (180,917
  

 

 

   

 

 

 

Net cash provided (used) by operating activities

     29,858       (15,291

Cash Flows From Investing Activities

    

Capital expenditures

     (190,027     (154,394

Other, net

     (1,273     (1,080
  

 

 

   

 

 

 

Net cash used in investing activities

     (191,300     (155,474

Cash Flows From Financing Activities

    

Net increase in short-term debt

     256,933       173,905  

Repayment of long-term debt

     —         (2,303

Cash dividends paid

     (31,992     (31,517

Repurchase of common stock

     —         (12,535

Repurchase of equity awards

     (3,124     (3,120

Issuance of common stock

     (13     76  
  

 

 

   

 

 

 

Net cash provided by financing activities

     221,804       124,506  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     60,362       (46,259

Cash and cash equivalents at beginning of period

     64,239       131,419  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 124,601     $ 85,160  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

5


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 31, 2012

1.    Nature of Business

Atmos Energy Corporation (“Atmos Energy” or the “Company”), headquartered in Dallas, Texas, is engaged primarily in the regulated natural gas distribution and transmission and storage businesses as well as certain other nonregulated businesses. For the fiscal year ended September 30, 2012, our regulated businesses comprised over 95 percent of our consolidated net income.

Through our natural gas distribution business, we deliver natural gas through sales and transportation arrangements to over three million residential, commercial, public authority and industrial customers through our six regulated natural gas distribution divisions which cover service areas located in nine states. In addition, we transport natural gas for others through our distribution system. In August 2012, we announced that we had entered into a definitive agreement to sell our natural gas distribution operations in Georgia, representing approximately 64,000 customers. After the closing of this transaction, which we currently anticipate will occur during the third quarter of fiscal 2013, we will operate in eight states. Our regulated activities also include our regulated pipeline and storage operations, which include the transportation of natural gas to our distribution system and the management of our underground storage facilities. Our regulated businesses are subject to federal and state regulation and/or regulation by local authorities in each of the states in which our natural gas distribution divisions operate.

Our nonregulated businesses operate primarily in the Midwest and Southeast through various wholly-owned subsidiaries of Atmos Energy Holdings, Inc. (AEH). AEH is wholly owned by the Company and based in Houston, Texas. Through AEH, we provide natural gas management and transportation services to municipalities, natural gas distribution companies, including certain divisions of Atmos Energy and third parties.

We operate the Company through the following three segments:

 

   

the natural gas distribution segment, which includes our regulated natural gas distribution and related sales operations,

 

   

the regulated transmission and storage segment, which includes the regulated pipeline and storage operations of our Atmos Pipeline — Texas Division and

 

   

the nonregulated segment, which includes our nonregulated natural gas management, nonregulated natural gas transmission, storage and other services.

2.    Unaudited Interim Financial Information

These consolidated interim-period financial statements have been prepared in accordance with accounting principles generally accepted in the United States on the same basis as those used for the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. In the opinion of management, all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been made to the unaudited consolidated interim-period financial statements. These consolidated interim-period financial statements are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited consolidated financial statements of Atmos Energy Corporation included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. Because of seasonal and other factors, the results of operations for the three-month period ended December 31, 2012 are not indicative of our results of operations for the full 2013 fiscal year, which ends September 30, 2013.

We have evaluated subsequent events from the December 31, 2012 balance sheet date through the date these financial statements were filed with the Securities and Exchange Commission (SEC). Except as discussed in Note 3, Note 6 and Note 9, no events have occurred subsequent to the balance sheet date that would require recognition or disclosure in the condensed consolidated financial statements.

 

6


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Significant accounting policies

Our accounting policies are described in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012.

Due to the pending sale of our distribution operations in our Georgia service area, the financial results for this service area are shown in discontinued operations. Accordingly, certain prior-year amounts have been reclassified to conform with the current-year presentation.

Due to accounting guidance that became effective for us on October 1, 2012, we have begun presenting the components of other comprehensive income and total comprehensive income in a separate condensed consolidated statement of comprehensive income immediately following the condensed consolidated statement of income. During the three months ended December 31, 2012, there were no other significant changes to our accounting policies.

Regulatory assets and liabilities

Accounting principles generally accepted in the United States require cost-based, rate-regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates. We record certain costs as regulatory assets when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. Substantially all of our regulatory assets are recorded as a component of deferred charges and other assets and substantially all of our regulatory liabilities are recorded as a component of deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities and the regulatory cost of removal obligation is reported separately.

Significant regulatory assets and liabilities as of December 31, 2012 and September 30, 2012 included the following:

 

     December 31,
2012
     September 30,
2012
 
     (In thousands)  

Regulatory assets:

     

Pension and postretirement benefit costs(1)

   $ 295,277      $ 296,160  

Merger and integration costs, net

     5,628        5,754  

Deferred gas costs

     28,351        31,359  

Regulatory cost of removal asset

     10,401        10,500  

Rate case costs

     5,726        4,661  

Deferred franchise fees

     819        2,714  

Texas Rule 8.209(2)

     9,734        5,370  

APT annual adjustment mechanism

     3,973        4,539  

Other

     6,973        7,262  
  

 

 

    

 

 

 
   $ 366,882      $ 368,319  
  

 

 

    

 

 

 

Regulatory liabilities:

     

Deferred gas costs

   $ 8,290      $ 23,072  

Regulatory cost of removal obligation

     450,968        459,688  

Other

     5,534        5,637  
  

 

 

    

 

 

 
   $ 464,792      $ 488,397  
  

 

 

    

 

 

 

 

7


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

  (1) 

Includes $11.5 million and $7.6 million of pension and post-retirement expense deferred in our Texas service areas pursuant to the Texas Gas Utility Regulatory Act.

 

  (2) 

Texas Rule 8.209 is a Railroad Commission rule that allows for the deferral of all expenses associated with capital expenditures incurred pursuant to this rule, including the recording of interest on the deferred expenses until the next rate proceeding (rate case or annual rate filing) at which time investment and costs would be recovered through base rates.

The amounts above do not include regulatory assets and liabilities related to our Georgia service area, which are classified as assets held for sale as discussed in Note 5.

Currently authorized rates do not include a return on certain of our merger and integration costs; however, we recover the amortization of these costs. Merger and integration costs, net, are generally amortized on a straight-line basis over estimated useful lives ranging up to 20 years.

Accumulated Other Comprehensive Income

Accumulated other comprehensive loss, net of tax, as of December 31, 2012 and September 30, 2012 consisted of the following unrealized gains (losses):

 

      December 31,
2012
    September 30,
2012
 
     (In thousands)  

Accumulated other comprehensive loss:

    

Unrealized holding gains on available-for-sale securities

   $ 5,288     $ 5,661  

Interest rate agreements

     (32,009     (44,273

Commodity cash flow hedges

     (9,360     (8,995
  

 

 

   

 

 

 
   $ (36,081   $ (47,607
  

 

 

   

 

 

 

3.    Financial Instruments

We use financial instruments to mitigate commodity price risk and interest rate risk. The objectives and strategies for using financial instruments have been tailored to our regulated and nonregulated businesses. The accounting for these financial instruments is fully described in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. During the first quarter, there were no changes in our objectives, strategies and accounting for these financial instruments. Currently, we utilize financial instruments in our natural gas distribution and nonregulated segments. We currently do not manage commodity price risk with financial instruments in our regulated transmission and storage segment.

Our financial instruments do not contain any credit risk-related or other contingent features that could cause payments to be accelerated when our financial instruments are in net liability positions.

Regulated Commodity Risk Management Activities

Although our purchased gas cost adjustment mechanisms essentially insulate our natural gas distribution segment from commodity price risk, our customers are exposed to the effects of volatile natural gas prices. We manage this exposure through a combination of physical storage, fixed-price forward contracts and financial instruments, primarily over-the-counter swap and option contracts, in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season.

Our natural gas distribution gas supply department is responsible for executing this segment’s commodity risk management activities in conformity with regulatory requirements. In jurisdictions where we are permitted to mitigate commodity price risk through financial instruments, the relevant regulatory authorities may establish

 

8


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

the level of heating season gas purchases that can be hedged. Historically, if the regulatory authority does not establish this level, we seek to hedge between 25 and 50 percent of anticipated heating season gas purchases using financial instruments. For the 2012-2013 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we anticipate hedging approximately 33 percent, or 22.6 Bcf of the winter flowing gas requirements. We have not designated these financial instruments as hedges for accounting purposes.

The costs associated with and the gains and losses arising from the use of financial instruments to mitigate commodity price risk are included in our purchased gas costs adjustment mechanisms in accordance with regulatory requirements. Therefore, changes in the fair value of these financial instruments are initially recorded as a component of deferred gas costs and recognized in the consolidated statement of income as a component of purchased gas costs when the related costs are recovered through our rates and recognized in revenue in accordance with applicable authoritative accounting guidance. Accordingly, there is no earnings impact on our natural gas distribution segment as a result of the use of financial instruments.

Nonregulated Commodity Risk Management Activities

Our nonregulated operations aggregate and purchase gas supply, arrange transportation and/or storage logistics and ultimately deliver gas to our customers at competitive prices. To provide these services, we utilize proprietary and customer-owned transportation and storage assets to provide the various services our customers request. In an effort to offset the demand fees paid to contract for storage capacity and to maximize the value of this capacity, AEH sells financial instruments to earn a gross profit margin through the arbitrage of pricing differences in various locations and by recognizing pricing differences that occur over time.

As a result of these activities, our nonregulated segment is exposed to risks associated with changes in the market price of natural gas. We manage our exposure to such risks through a combination of physical storage and financial instruments, including futures, over-the-counter and exchange traded options and swap contracts with counterparties. Future contracts provide the right, but not the obligation, to buy or sell the commodity at a fixed price. Option contracts provide the right, but not the requirement, to buy or sell the commodity at a fixed price. Swap contracts require receipt of payment for the commodity based on the difference between a fixed price and the market price on the settlement date.

We use financial instruments, designated as cash flow hedges of anticipated purchases and sales at index prices, to mitigate the commodity price risk in our nonregulated operations associated with deliveries under fixed-priced forward contracts to deliver gas to customers. These financial instruments have maturity dates ranging from one to 60 months. We use financial instruments, designated as fair value hedges, to hedge our natural gas inventory used in asset optimization activities in our nonregulated segment.

Our nonregulated operations also use storage swaps and futures to capture additional storage arbitrage opportunities that arise subsequent to the execution of the original fair value hedge associated with our physical natural gas inventory, basis swaps to insulate and protect the economic value of our fixed price and storage books and various over-the-counter and exchange-traded options. These financial instruments have not been designated as hedges for accounting purposes.

Interest Rate Risk Management Activities

We have periodically managed interest rate risk by entering into financial instruments to fix the Treasury yield component of the interest cost associated with anticipated financings. Prior to fiscal 2012, we used Treasury locks to mitigate interest rate risk; however, beginning in the fourth quarter of fiscal 2012 we started utilizing interest rate swaps and forward starting interest rate swaps to manage this risk.

In August 2011, we entered into three Treasury lock agreements to fix the Treasury yield component of the interest cost associated with $350 million of a total $500 million of senior notes that were issued on January 11,

 

9


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

2013. This offering is discussed in Note 6. We designated these Treasury locks as cash flow hedges. The Treasury locks were settled on January 8, 2013 with the payment of $66.7 million to the counterparties due to a decrease in the 30-year Treasury lock rates between inception of the Treasury locks and settlement. Because the Treasury locks were effective, the $66.7 million unrealized loss was recorded as a component of accumulated other comprehensive income and will be recognized as a component of interest expense over the 30-year life of the senior notes.

In the fourth quarter of fiscal 2012, we entered into an interest rate swap to fix the LIBOR component of our $260 million short-term financing facility that terminated on December 27, 2012. We recorded an immaterial loss upon settlement of the swap, which was recorded as a component of interest expense as we did not designate the interest rate swap as a hedge.

In October 2012, we entered into forward starting interest rate swaps to fix the Treasury yield component associated with the anticipated issuance of $500 million and $250 million unsecured senior notes in fiscal 2015 and fiscal 2017, which we designated as cash flow hedges at the time the agreements were executed. Accordingly, unrealized gains and losses associated with the forward starting interest rate swaps will be recorded as a component of accumulated other comprehensive income (loss). When the forward starting interest rate swaps settle, the realized gain or loss will be recorded as a component of accumulated other comprehensive income (loss) and recognized as a component of interest expense over the life of the related financing arrangement. Hedge ineffectiveness to the extent incurred will be reported as a component of interest expense.

In prior years, we entered into Treasury lock agreements to fix the Treasury yield component of the interest cost of financing various issuances of long-term debt and senior notes. The gains and losses realized upon settlement of these Treasury locks were recorded as a component of accumulated other comprehensive income (loss) when they were settled and are being recognized as a component of interest expense over the life of the associated notes from the date of settlement. As of December 31, 2012, the remaining amortization periods for the settled Treasury locks extend through fiscal 2041.

Quantitative Disclosures Related to Financial Instruments

The following tables present detailed information concerning the impact of financial instruments on our condensed consolidated balance sheet and income statements.

As of December 31, 2012, our financial instruments were comprised of both long and short commodity positions. A long position is a contract to purchase the commodity, while a short position is a contract to sell the commodity. As of December 31, 2012, we had net long/(short) commodity contracts outstanding in the following quantities:

 

Contract Type

  

Hedge Designation

   Natural
Gas
Distribution
     Nonregulated  
          Quantity (MMcf)  

Commodity contracts

  

Fair Value

            (26,450
  

Cash Flow

            28,718  
  

Not designated

     12,479        55,915  
     

 

 

    

 

 

 
        12,479        58,183  
     

 

 

    

 

 

 

 

10


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Impact of Financial Instruments on the Balance Sheet

The following tables present the fair value and balance sheet classification of our financial instruments by operating segment as of December 31, 2012 and September 30, 2012. As required by authoritative accounting literature, the fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements. Further, the amounts below do not include $16.6 million and $23.7 million of cash held on deposit as of December 31, 2012 and September 30, 2012 to collateralize certain financial instruments. Therefore, these gross balances are not indicative of either our actual credit exposure or net economic exposure. Additionally, the amounts below will not be equal to the amounts presented on our condensed consolidated balance sheet, nor will they be equal to the fair value information presented for our financial instruments in Note 4.

 

   

Balance Sheet Location

  Natural
Gas
Distribution
    Nonregulated     Total  
              (In thousands)        

December 31, 2012:

       

Designated As Hedges:

       

Asset Financial Instruments

       

Current commodity contracts

  Other current assets   $      $ 20,103     $ 20,103  

Noncurrent commodity
contracts

  Deferred charges and other assets     10,849       699       11,548  

Liability Financial Instruments

       

Current commodity contracts

  Other current liabilities     (77,078     (17,995     (95,073

Noncurrent commodity contracts

  Deferred credits and other liabilities            (4,084     (4,084
   

 

 

   

 

 

   

 

 

 

Total

      (66,229     (1,277     (67,506

Not Designated As Hedges:

       

Asset Financial Instruments

       

Current commodity contracts

  Other current assets     1,773       94,168       95,941  

Noncurrent commodity
contracts

  Deferred charges and other assets     761       59,791       60,552  

Liability Financial Instruments

       

Current commodity contracts

  Other current liabilities(1)     (502     (94,978     (95,480

Noncurrent commodity contracts

  Deferred credits and other liabilities            (59,266     (59,266
   

 

 

   

 

 

   

 

 

 

Total

      2,032       (285     1,747  
   

 

 

   

 

 

   

 

 

 

Total Financial Instruments

    $ (64,197)      $ (1,562   $ (65,759
   

 

 

   

 

 

   

 

 

 

 

  (1) 

Other current liabilities not designated as hedges in our natural gas distribution segment include $0.1 million related to risk management liabilities that were classified as assets held for sale at December 31, 2012.

 

11


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

   

Balance Sheet Location

  Natural
Gas
Distribution
    Nonregulated     Total  
              (In thousands)        

September 30, 2012:

       

Designated As Hedges:

       

Asset Financial Instruments

       

Current commodity contracts

  Other current assets   $      $ 19,301     $ 19,301  

Noncurrent commodity contracts

  Deferred charges and other assets            1,923       1,923  

Liability Financial Instruments

       

Current commodity contracts

  Other current liabilities     (85,040     (23,787     (108,827

Noncurrent commodity contracts

  Deferred credits and other liabilities            (4,999     (4,999
   

 

 

   

 

 

   

 

 

 

Total

      (85,040     (7,562     (92,602

Not Designated As Hedges:

       

Asset Financial Instruments

       

Current commodity contracts

  Other current assets(1)     7,082       98,393       105,475  

Noncurrent commodity contracts

  Deferred charges and other assets     2,283       60,932       63,215  

Liability Financial Instruments

       

Current commodity contracts

  Other current liabilities(2)     (585     (99,824     (100,409

Noncurrent commodity contracts

  Deferred credits and other liabilities            (67,062     (67,062
   

 

 

   

 

 

   

 

 

 

Total

      8,780       (7,561     1,219  
   

 

 

   

 

 

   

 

 

 

Total Financial Instruments

    $ (76,260)      $ (15,123   $ (91,383
   

 

 

   

 

 

   

 

 

 

 

  (1) 

Other current assets not designated as hedges in our natural gas distribution segment include $0.1 million related to risk management assets that were classified as assets held for sale at September 30, 2012.

 

  (2) 

Other current liabilities not designated as hedges in our natural gas distribution segment include $0.3 million related to risk management liabilities that were classified as assets held for sale at September 30, 2012.

Impact of Financial Instruments on the Income Statement

Hedge ineffectiveness for our nonregulated segment is recorded as a component of unrealized gross profit and primarily results from differences in the location and timing of the derivative instrument and the hedged item. Hedge ineffectiveness could materially affect our results of operations for the reported period. For the three months ended December 31, 2012 and 2011 we recognized a gain arising from fair value and cash flow hedge ineffectiveness of $16.1 million and $8.4 million. Additional information regarding ineffectiveness recognized in the income statement is included in the tables below.

 

12


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Fair Value Hedges

The impact of our nonregulated commodity contracts designated as fair value hedges and the related hedged item on our condensed consolidated income statement for the three months ended December 31, 2012 and 2011 is presented below.

 

     Three Months Ended
December 31
 
         2012             2011      
     (In thousands)  

Commodity contracts

   $ 7,314     $ 24,064  

Fair value adjustment for natural gas inventory designated as the hedged item

     8,818       (15,249
  

 

 

   

 

 

 

Total decrease in purchased gas cost

   $ 16,132     $ 8,815  
  

 

 

   

 

 

 

The decrease in purchased gas cost is comprised of the following:

    

Basis ineffectiveness

   $ (241   $ 841  

Timing ineffectiveness

     16,373       7,974  
  

 

 

   

 

 

 
   $ 16,132     $ 8,815  
  

 

 

   

 

 

 

Basis ineffectiveness arises from natural gas market price differences between the locations of the hedged inventory and the delivery location specified in the hedge instruments. Timing ineffectiveness arises due to changes in the difference between the spot price and the futures price, as well as the difference between the timing of the settlement of the futures and the valuation of the underlying physical commodity. As the commodity contract nears the settlement date, spot-to-forward price differences should converge, which should reduce or eliminate the impact of this ineffectiveness on purchased gas cost.

To the extent that the Company’s natural gas inventory does not qualify as a hedged item in a fair-value hedge, or has not been designated as such, the natural gas inventory is valued at the lower of cost or market. We did not record a writedown for nonqualifying natural gas inventory for the three months ended December 31, 2012. During the three months ended December 31, 2011, we recorded a $1.7 million charge to write down nonqualifying natural gas inventory to market.

 

13


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Cash Flow Hedges

The impact of cash flow hedges on our condensed consolidated income statements for the three months ended December 31, 2012 and 2011 is presented below. Note that this presentation does not reflect the financial impact arising from the hedged physical transaction. Therefore, this presentation is not indicative of the economic gross profit we realized when the underlying physical and financial transactions were settled.

 

     Three Months Ended December 31, 2012  
     Natural
Gas
Distribution
    Nonregulated     Consolidated  
     (In thousands)  

Loss reclassified from AOCI into purchased gas cost for effective portion of commodity contracts

   $      $ (5,160   $ (5,160

Loss arising from ineffective portion of commodity contracts

            (19     (19
  

 

 

   

 

 

   

 

 

 

Total impact on purchased gas cost

            (5,179     (5,179

Loss on settled interest rate agreements reclassified from AOCI into interest expense

     (502            (502
  

 

 

   

 

 

   

 

 

 

Total Impact from Cash Flow Hedges

   $ (502   $ (5,179   $ (5,681
  

 

 

   

 

 

   

 

 

 

 

     Three Months Ended December 31, 2011  
     Natural
Gas
Distribution
    Nonregulated     Consolidated  
     (In thousands)  

Loss reclassified from AOCI into purchased gas cost for effective portion of commodity contracts

   $      $ (11,642   $ (11,642

Loss arising from ineffective portion of commodity contracts

            (430     (430
  

 

 

   

 

 

   

 

 

 

Total impact on purchased gas cost

            (12,072     (12,072

Loss on settled interest rate agreements reclassified from AOCI into interest expense

     (502            (502
  

 

 

   

 

 

   

 

 

 

Total Impact from Cash Flow Hedges

   $ (502   $ (12,072   $ (12,574
  

 

 

   

 

 

   

 

 

 

 

14


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table summarizes the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income (loss), net of taxes, for the three months ended December 31, 2012 and 2011. The amounts included in the table below exclude gains and losses arising from ineffectiveness because those amounts are immediately recognized in the income statement as incurred.

 

      Three Months Ended
December 31
 
     2012     2011  
     (In thousands)  

Increase (decrease) in fair value:

    

Interest rate agreements

   $ 11,945     $ (1,403

Forward commodity contracts

     (3,513     (23,678

Recognition of losses in earnings due to settlements:

    

Interest rate agreements

     319       316   

Forward commodity contracts

     3,148       7,103   
  

 

 

   

 

 

 

Total other comprehensive income (loss) from hedging, net of tax(1)

   $ 11,899     $ (17,662
  

 

 

   

 

 

 

 

  (1) 

Utilizing an income tax rate ranging from 37 percent to 39 percent comprised of the effective rates in each taxing jurisdiction.

Deferred gains (losses) recorded in accumulated other comprehensive income (AOCI) associated with our Treasury lock and interest rate swap agreements are recognized in earnings as they are amortized over the terms of the underlying debt instruments, while deferred gains (losses) associated with commodity contracts are recognized in earnings upon settlement. The following amounts, net of deferred taxes, represent the expected recognition in earnings of the deferred gains (losses) recorded in AOCI associated with our financial instruments, based upon the fair values of these financial instruments as of December 31, 2012. However, the table below does not include the expected recognition in earnings of our outstanding Treasury lock and interest rate swap agreements as those instruments have not yet settled.

 

     Interest
Rate
Agreements
    Commodity
Contracts
    Total  
     (In thousands)  

Next twelve months

   $ (1,276   $ (7,342   $ (8,618

Thereafter

     11,322       (2,018     9,304  
  

 

 

   

 

 

   

 

 

 

Total(1)

   $ 10,046     $ (9,360   $ 686  
  

 

 

   

 

 

   

 

 

 

 

  (1) 

Utilizing an income tax rate ranging from 37 percent to 39 percent comprised of the effective rates in each taxing jurisdiction.

Impact of Financial Instruments Not Designated as Hedges

The impact of financial instruments that have not been designated as hedges on our condensed consolidated income statement for the three months ended December 31, 2012 and 2011 was a decrease in revenue of $0.1 million and $2.2 million. Note that this presentation does not reflect the expected gains or losses arising from the underlying physical transactions associated with these financial instruments. Therefore, this presentation is not indicative of the economic gross profit we realized when the underlying physical and financial transactions were settled.

As discussed above, financial instruments used in our natural gas distribution segment are not designated as hedges. However, there is no earnings impact on our natural gas distribution segment as a result of the use of

 

15


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

these financial instruments because the gains and losses arising from the use of these financial instruments are recognized in the consolidated statement of income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue. Accordingly, the impact of these financial instruments is excluded from this presentation.

4.    Fair Value Measurements

We report certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We record cash and cash equivalents, accounts receivable and accounts payable at carrying value, which substantially approximates fair value due to the short-term nature of these assets and liabilities. For other financial assets and liabilities, we primarily use quoted market prices and other observable market pricing information to minimize the use of unobservable pricing inputs in our measurements when determining fair value. The methods used to determine fair value for our assets and liabilities are fully described in Note 2 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. During the first quarter of fiscal 2013, there were no changes in these methods.

Fair value measurements also apply to the valuation of our pension and post-retirement plan assets. Current accounting guidance requires employers to annually disclose information about fair value measurements of the assets of a defined benefit pension or other postretirement plan. The fair value of these assets is presented in Note 9 to the financial statements in our Annual Report on Form 10-K for the fiscal year ending September 30, 2012.

 

16


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Quantitative Disclosures

Financial Instruments

The classification of our fair value measurements requires judgment regarding the degree to which market data are observable or corroborated by observable market data. Authoritative accounting literature establishes a fair value hierarchy that prioritizes the inputs used to measure fair value based on observable and unobservable data. The hierarchy categorizes the inputs into three levels, with the highest priority given to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1), with the lowest priority given to unobservable inputs (Level 3). The following table summarizes, by level within the fair value hierarchy, our assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2012 and September 30, 2012. As required under authoritative accounting literature, assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

      Quoted
Prices in
Active
Markets
(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)(1)
    Significant
Other
Unobservable
Inputs
(Level 3)
     Netting and
Cash
Collateral(2)
    December 31,
2012
 
     (In thousands)  

Assets:

           

Financial instruments

           

Natural gas distribution segment

   $      $ 13,383      $       —       $      $ 13,383  

Nonregulated segment

     1,043        173,718                (156,904     17,857  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total financial instruments

     1,043        187,101                (156,904     31,240  

Hedged portion of gas stored underground

     87,401                              87,401  

Available-for-sale securities

           

Money market funds

            801                       801  

Registered investment companies

     39,499                              39,499  

Bonds

            23,565                       23,565  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

     39,499        24,366                       63,865  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 127,943      $ 211,467      $       $ (156,904   $ 182,506  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities:

           

Financial instruments

           

Natural gas distribution segment

   $      $ 77,580      $       $      $ 77,580  

Nonregulated segment

     1,261        175,062                (173,463     2,860  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

   $ 1,261      $ 252,642      $       $ (173,463   $ 80,440  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

17


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

      Quoted
Prices in
Active
Markets
(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)(1)
    Significant
Other
Unobservable
Inputs
(Level 3)
     Netting and
Cash
Collateral(3)
    September 30,
2012
 
     (In thousands)  

Assets:

           

Financial instruments

           

Natural gas distribution segment

   $      $ 9,365      $       —       $      $ 9,365  

Nonregulated segment

     714        179,835                (162,776     17,773  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total financial instruments

     714        189,200                (162,776     27,138  

Hedged portion of gas stored underground

     67,192                              67,192  

Available-for-sale securities

           

Money market funds

            1,634                       1,634  

Registered investment companies

     40,212                              40,212  

Bonds

            22,552                       22,552  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

     40,212        24,186                       64,398  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 108,118      $ 213,386      $       $ (162,776   $ 158,728  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities:

           

Financial instruments

           

Natural gas distribution segment

   $      $ 85,625      $       $      $ 85,625  

Nonregulated segment

     4,563        191,109                (186,451     9,221  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

   $ 4,563      $ 276,734      $       $ (186,451   $ 94,846  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

  (1) 

Our Level 2 measurements consist of over-the-counter options and swaps, which are valued using a market-based approach in which observable market prices are adjusted for criteria specific to each instrument, such as the strike price, notional amount or basis differences, municipal and corporate bonds, which are valued based on the most recent available quoted market prices and money market funds which are valued at cost.

 

  (2) 

This column reflects adjustments to our gross financial instrument assets and liabilities to reflect netting permitted under our master netting agreements and the relevant authoritative accounting literature. In addition, as of December 31, 2012, we had $16.6 million of cash held in margin accounts to collateralize certain financial instruments, which amount is classified as current risk management assets.

 

  (3) 

This column reflects adjustments to our gross financial instrument assets and liabilities to reflect netting permitted under our master netting agreements and the relevant authoritative accounting literature. In addition, as of September 30, 2012 we had $23.7 million of cash held in margin accounts to collateralize certain financial instruments. Of this amount, $5.9 million was used to offset current risk management liabilities under master netting arrangements and the remaining $17.8 million is classified as current risk management assets.

 

18


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Available-for-sale securities are comprised of the following:

 

     Amortized
Cost
     Gross
Unrealized
Gain
     Gross
Unrealized
Loss
    Fair
Value
 
     (In thousands)  

As of December 31, 2012

          

Domestic equity mutual funds

   $ 25,645      $ 7,209      $      $ 32,854  

Foreign equity mutual funds

     5,568        1,077               6,645  

Bonds

     23,387        180        (2     23,565  

Money market funds

     801                       801  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 55,401      $ 8,466      $ (2   $ 63,865  
  

 

 

    

 

 

    

 

 

   

 

 

 

As of September 30, 2012

          

Domestic equity mutual funds

   $ 25,779      $ 8,183      $      $ 33,962  

Foreign equity mutual funds

     5,568        682               6,250  

Bonds

     22,358        196        (2     22,552  

Money market funds

     1,634                       1,634  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 55,339      $ 9,061      $ (2   $ 64,398  
  

 

 

    

 

 

    

 

 

   

 

 

 

At December 31, 2012 and September 30, 2012, our available-for-sale securities included $40.3 million and $41.8 million related to assets held in separate rabbi trusts for our supplemental executive benefit plans. At December 31, 2012, we maintained investments in bonds that have contractual maturity dates ranging from January 2013 through July 2016.

These securities are reported at market value with unrealized gains and losses shown as a component of accumulated other comprehensive income (loss). We regularly evaluate the performance of these investments on a fund by fund basis for impairment, taking into consideration the fund’s purpose, volatility and current returns. If a determination is made that a decline in fair value is other than temporary, the related fund is written down to its estimated fair value and the other-than-temporary impairment is recognized in the income statement.

Other Fair Value Measures

Our debt is recorded at carrying value. The fair value of our debt is determined using third party market value quotations, which are considered Level 1 fair value measurements for debt instruments with a recent, observable trade or Level 2 fair value measurements for debt instruments where fair value is determined using the most recent available quoted market price. The following table presents the carrying value and fair value of our debt as of December 31, 2012:

 

     December 31,
2012
 
     (In thousands)  

Carrying Amount

   $ 1,960,131  

Fair Value

   $ 2,403,501  

5.    Discontinued Operations

On August 8, 2012, we entered into a definitive agreement to sell substantially all of our natural gas distribution assets located in Georgia to Liberty Energy (Georgia) Corp., an affiliate of Algonquin Power & Utilities Corp. for a cash price of approximately $141 million. The agreement contains terms and conditions customary

 

19


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

for transactions of this type, including typical adjustments to the purchase price at closing, if applicable. The closing of the transaction is subject to the satisfaction of customary conditions including the receipt of applicable regulatory approvals. We currently anticipate the transaction will close during the third quarter of fiscal 2013.

As required under generally accepted accounting principles, the operating results of our discontinued operations have been aggregated and reported on the consolidated statements of income as income from discontinued operations, net of income tax. For the three months ended December 31, 2012, net income for discontinued operations includes the operating results of our Georgia operations. For the three months ended December 31, 2011, net income from discontinued operations includes the operating results of our Georgia operations and the operating results of our Missouri, Illinois and Iowa operations that were sold on August 1, 2012. Expenses related to general corporate overhead and interest expense allocated to the operations of these service areas are not included in discontinued operations.

The tables below set forth selected financial and operational information related to net assets and operating results related to discontinued operations. Additionally, assets and liabilities related to our Georgia operations are classified as “held for sale” in other current assets and liabilities in our consolidated balance sheets at December 31, 2012 and September 30, 2012. Prior period revenues and expenses associated with these assets have been reclassified into discontinued operations. This reclassification had no impact on previously reported net income.

The following table presents statement of income data related to discontinued operations.

 

     Three Months Ended
December 31
 
     2012      2011  
     (In thousands)  

Operating revenues

   $ 16,284      $ 40,630   

Purchased gas cost

     8,967        24,640   
  

 

 

    

 

 

 

Gross profit

     7,317        15,990   

Operating expenses

     2,820        6,728   
  

 

 

    

 

 

 

Operating income

     4,497        9,262   

Other nonoperating income

     348        377   
  

 

 

    

 

 

 

Income from discontinued operations before income taxes

     4,845        9,639   

Income tax expense

     1,728        3,516   
  

 

 

    

 

 

 

Net income

   $ 3,117      $ 6,123   
  

 

 

    

 

 

 

 

20


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table presents balance sheet data related to assets held for sale.

 

     December 31,
2012
     September 30,
2012
 
     (In thousands)  

Net plant, property & equipment

   $ 141,850      $ 142,865  

Gas stored underground

     5,320        4,688  

Other current assets

     11,605        6,931  

Deferred charges and other assets

     45        87  
  

 

 

    

 

 

 

Assets held for sale

   $ 158,820      $ 154,571  
  

 

 

    

 

 

 

Accounts payable and accrued liabilities

   $ 3,705      $ 2,114  

Other current liabilities

     3,265        3,776  

Regulatory cost of removal obligation

     3,525        3,257  

Deferred credits and other liabilities

     417        2,426  
  

 

 

    

 

 

 

Liabilities held for sale

   $ 10,912      $ 11,573  
  

 

 

    

 

 

 

6.    Debt

The nature and terms of our debt instruments and credit facilities are described in detail in Note 7 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. Except as discussed below, there were no material changes in the terms of our debt instruments during the three months ended December 31, 2012.

Long-term debt

Long-term debt at December 31, 2012 and September 30, 2012 consisted of the following:

 

     December 31,
2012
     September 30,
2012
 
     (In thousands)  

Unsecured 4.95% Senior Notes, due 2014

   $ 500,000      $ 500,000  

Unsecured 6.35% Senior Notes, due 2017

     250,000        250,000  

Unsecured 8.50% Senior Notes, due 2019

     450,000        450,000  

Unsecured 5.95% Senior Notes, due 2034

     200,000        200,000  

Unsecured 5.50% Senior Notes, due 2041

     400,000        400,000  

Medium term notes

     

Series A, 1995-1, 6.67%, due 2025

     10,000        10,000  

Unsecured 6.75% Debentures, due 2028

     150,000        150,000  

Rental property term note due in installments through 2013

     131        131  
  

 

 

    

 

 

 

Total long-term debt

     1,960,131        1,960,131  

Less:

     

Original issue discount on unsecured senior notes and debentures

     3,624        3,695  

Current maturities

     131        131  
  

 

 

    

 

 

 
   $ 1,956,376      $ 1,956,305  
  

 

 

    

 

 

 

Our $250 million Unsecured 5.125% Senior Notes were originally scheduled to mature in January 2013. On August 28, 2012 we redeemed these notes with proceeds received through the issuance of commercial paper. On

 

21


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

September 27, 2012, we entered into a $260 million short-term financing facility that was scheduled to mature on February 1, 2013 to repay the commercial paper borrowings utilized to redeem the Unsecured 5.125% Senior Notes. The short-term facility was repaid with the proceeds received through the issuance of 30-year unsecured senior notes on January 11, 2013, as discussed below.

We issued $500 million Unsecured 4.15% Senior Notes on January 11, 2013. The effective interest rate of these notes is 4.64 percent, after giving effect to offering costs and the settlement of the associated Treasury locks discussed in Note 3. Of the net proceeds of approximately $494 million, $260 million was used to repay our short-term financing facility. The remaining $234 million of net proceeds was used to partially repay our commercial paper borrowings and for general corporate purposes.

Short-term debt

Our short-term debt is utilized to fund ongoing working capital needs, such as our seasonal requirements for gas supply, general corporate liquidity and capital expenditures. Our short-term borrowing requirements are affected by the seasonal nature of the natural gas business. Changes in the price of natural gas and the amount of natural gas we need to supply our customers’ needs could significantly affect our borrowing requirements. Our short-term borrowings typically reach their highest levels in the winter months.

We currently finance our short-term borrowing requirements through a combination of a $750 million commercial paper program, four committed revolving credit facilities and one uncommitted revolving credit facility with third-party lenders. On December 7, 2012, we amended the terms of our former $750 million unsecured credit facility to increase the borrowing capacity to $950 million, with an accordion feature, which, if utilized, would increase the borrowing capacity to $1.2 billion. The amendment also permits us to obtain same-day funding on base rate loans. There were no other material changes to the credit facility. These facilities provide approximately $1.0 billion of working capital funding. At December 31, 2012 and September 30, 2012, there was $570.9 million and $310.9 million outstanding under our commercial paper program. We also use intercompany credit facilities to supplement the funding provided by these third-party committed credit facilities.

Regulated Operations

We fund our regulated operations as needed, primarily through our commercial paper program and three committed revolving credit facilities with third-party lenders that provide approximately $989 million of working capital funding, including a five-year $950 million unsecured facility, a $25 million unsecured facility and a $14 million revolving credit facility, which is used primarily to issue letters of credit. Due to outstanding letters of credit, the total amount available to us under our $14 million revolving credit facility was $2.5 million at December 31, 2012.

In addition to these third-party facilities, our regulated operations have a $500 million intercompany revolving credit facility with AEH, which bears interest at the lower of (i) the Eurodollar rate under the five-year revolving credit facility or (ii) the lowest rate outstanding under the commercial paper program. Applicable state regulatory commissions have approved our use of this facility through December 31, 2013.

Nonregulated Operations

Prior to December 5, 2012, Atmos Energy Marketing, LLC (AEM), which is wholly-owned by AEH, had a three-year $200 million committed revolving credit facility, expiring in December 2014, with a syndicate of third-party lenders with an accordion feature that could increase AEM’s borrowing capacity to $500 million. The credit facility was primarily used to issue letters of credit and, on a less frequent basis, to borrow funds for gas purchases and other working capital needs. This facility was collateralized by substantially all of the assets of AEM and was guaranteed by AEH. AEM terminated the committed revolving credit facility on December 5, 2012, primarily in order to reduce external credit expense. AEM incurred no penalties in connection with the

 

22


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

termination. This facility was replaced with two $25 million, 364-day bilateral credit facilities, one of which is a committed facility. These facilities will be used primarily to issue letters of credit. Due to outstanding letters of credit, the total amount available to us under these bilateral credit facilities was $40.0 million at December 31, 2012.

AEH has a $500 million intercompany demand credit facility with AEC. This facility bears interest at a rate equal to the greater of (i) the one-month LIBOR rate plus 3.00 percent or (ii) the rate for AEM’s borrowings under its committed credit facility plus 0.75 percent. Applicable state regulatory commissions have approved our use of this facility through December 31, 2013.

Shelf Registration

We have an effective shelf registration statement with the Securities and Exchange Commission (SEC) that permits us to issue a total of $1.3 billion in common stock and/or debt securities. The shelf registration statement has been approved by all requisite state regulatory commissions. At December 31, 2012, $900 million remained available for issuance under the shelf until it expires on March 31, 2013. However, with the issuance of $500 million of long-term debt on January 11, 2013, as described above, our remaining availability has been reduced to $400 million. We intend to file a new shelf registration statement with the SEC for $1.75 billion prior to the expiration of the current shelf registration statement.

Debt Covenants

The availability of funds under our regulated credit facilities is subject to conditions specified in the respective credit agreements, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in each of these facilities to maintain, at the end of each fiscal quarter, a ratio of total debt to total capitalization of no greater than 70 percent. At December 31, 2012, our total-debt-to-total-capitalization ratio, as defined in the agreements, was 55 percent. In addition, both the interest margin and the fee that we pay on unused amounts under each of these facilities are subject to adjustment depending upon our credit ratings.

In addition to these financial covenants, our credit facilities and public debt indentures contain usual and customary covenants for our business, including covenants substantially limiting liens, substantial asset sales and mergers.

Additionally, our public debt indentures relating to our senior notes and debentures, as well as our revolving credit agreements, each contain a default provision that is triggered if outstanding indebtedness arising out of any other credit agreements in amounts ranging from in excess of $15 million to in excess of $100 million becomes due by acceleration or is not paid at maturity.

We were in compliance with all of our debt covenants as of December 31, 2012. If we were unable to comply with our debt covenants, we would likely be required to repay our outstanding balances on demand, provide additional collateral or take other corrective actions.

 

23


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

7.    Earnings Per Share

Since we have non-vested share-based payments with a nonforfeitable right to dividends or dividend equivalents (referred to as participating securities) we are required to use the two-class method of computing earnings per share. The Company’s non-vested restricted stock units, for which vesting is predicated solely on the passage of time granted under the 1998 Long-Term Incentive Plan, are considered to be participating securities. The calculation of earnings per share using the two-class method excludes income attributable to these participating securities from the numerator and excludes the dilutive impact of those shares from the denominator. Basic and diluted earnings per share for the three months ended December 31, 2012 and 2011 are calculated as follows:

 

     Three Months Ended
December 31
 
     2012      2011  
     (In thousands, except
per share amounts)
 

Basic Earnings Per Share from continuing operations

     

Income from continuing operations

   $ 77,348      $ 62,384   

Less: Income from continuing operations allocated to participating securities

     260        650   
  

 

 

    

 

 

 

Income from continuing operations available to common shareholders

   $ 77,088      $ 61,734   
  

 

 

    

 

 

 

Basic weighted average shares outstanding

     90,359        90,254   
  

 

 

    

 

 

 

Income from continuing operations per share — Basic

   $ 0.85      $ 0.68   
  

 

 

    

 

 

 

Basic Earnings Per Share from discontinued operations

     

Income from discontinued operations

   $ 3,117      $ 6,123   

Less: Income from discontinued operations allocated to participating securities

     10        64   
  

 

 

    

 

 

 

Income from discontinued operations available to common shareholders

   $ 3,107      $ 6,059   
  

 

 

    

 

 

 

Basic weighted average shares outstanding

     90,359        90,254   
  

 

 

    

 

 

 

Income from discontinued operations per share — Basic

   $ 0.04      $ 0.07   
  

 

 

    

 

 

 

Net income per share — Basic

   $ 0.89      $ 0.75   
  

 

 

    

 

 

 

 

24


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

     Three Months Ended
December 31
 
     2012      2011  
     (In thousands, except
per share amounts)
 

Diluted Earnings Per Share from continuing operations

     

Income from continuing operations available to common shareholders

   $ 77,088      $ 61,734   

Effect of dilutive stock options and other shares

     2        1   
  

 

 

    

 

 

 

Income from continuing operations available to common shareholders

   $ 77,090      $ 61,735   
  

 

 

    

 

 

 

Basic weighted average shares outstanding

     90,359        90,254   

Additional dilutive stock options and other shares

     950        292   
  

 

 

    

 

 

 

Diluted weighted average shares outstanding

     91,309        90,546   
  

 

 

    

 

 

 

Income from continuing operations per share — Diluted

   $ 0.85      $ 0.68   
  

 

 

    

 

 

 

Diluted Earnings Per Share from discontinued operations

     

Income from discontinued operations available to common shareholders

   $ 3,107      $ 6,059   

Effect of dilutive stock options and other shares

               
  

 

 

    

 

 

 

Income from discontinued operations available to common shareholders

   $ 3,107      $ 6,059   
  

 

 

    

 

 

 

Basic weighted average shares outstanding

     90,359        90,254   

Additional dilutive stock options and other shares

     950        292   
  

 

 

    

 

 

 

Diluted weighted average shares outstanding

     91,309        90,546   
  

 

 

    

 

 

 

Income from discontinued operations per share — Diluted

   $ 0.03      $ 0.07   
  

 

 

    

 

 

 

Net income per share — Diluted

   $ 0.88      $ 0.75   
  

 

 

    

 

 

 

There were no out-of-the-money stock options excluded from the computation of diluted earnings per share for the three months ended December 31, 2012 and 2011 as their exercise price was less than the average market price of the common stock during that period.

 

25


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

8.    Interim Pension and Other Postretirement Benefit Plan Information

The components of our net periodic pension cost for our pension and other postretirement benefit plans for the three months ended December 31, 2012 and 2011 are presented in the following table. Most of these costs are recoverable through our gas distribution rates; however, a portion of these costs is capitalized into our gas distribution rate base. The remaining costs are recorded as a component of operation and maintenance expense.

 

     Three Months Ended December 31  
     Pension Benefits     Other Benefits  
     2012     2011     2012     2011  
     (In thousands)  

Components of net periodic pension cost:

        

Service cost

   $ 5,202     $ 4,298     $ 4,700     $ 4,088  

Interest cost

     6,025       6,677       3,241       3,465  

Expected return on assets

     (5,739     (5,368     (997     (652

Amortization of transition asset

                   270       378  

Amortization of prior service cost

     (35     (35     (362     (362

Amortization of actuarial loss

     5,561       4,142       1,049       662  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 11,014     $ 9,714     $ 7,901     $ 7,579  
  

 

 

   

 

 

   

 

 

   

 

 

 

The assumptions used to develop our net periodic pension cost for the three months ended December 31, 2012 and 2011 are as follows:

 

     Pension Benefits     Other Benefits  
     2012     2011     2012     2011  

Discount rate

     4.04     5.05     4.04     5.05

Rate of compensation increase

     3.50     3.50     N/A        N/A   

Expected return on plan assets

     7.75     7.75     4.70     4.70

The discount rate used to compute the present value of a plan’s liabilities generally is based on rates of high-grade corporate bonds with maturities similar to the average period over which the benefits will be paid. Generally, our funding policy has been to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974. We contributed $6.2 million to our pension plans during the three months ended December 31, 2012. In accordance with the Pension Protection Act of 2006 (PPA), we determined the funded status of our plans as of January 1, 2013. We expect to contribute a total of between $30 million and $40 million to our pension plans during fiscal 2013.

We contributed $6.2 million to our other post-retirement benefit plans during the three months ended December 31, 2012. We expect to contribute a total of between $25 million and $30 million to these plans during fiscal 2013.

9.    Commitments and Contingencies

Litigation and Environmental Matters

With respect to the specific litigation and environmental-related matters or claims that were disclosed in Note 13 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012, except as noted below, there were no material changes in the status of such litigation and environmental-related matters or claims during the three months ended December 31, 2012.

 

26


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Since September 2009, Atmos Energy and two subsidiaries of AEH, Atmos Energy Marketing, LLC (AEM) and Atmos Gathering Company, LLC (AGC) (collectively, the Atmos Entities), have been involved in a lawsuit filed in the Circuit Court of Edmonson County, Kentucky related to our Park City Gathering Project. The dispute which gave rise to the litigation involves the amount of royalties due from a third party producer to landowners (who own the mineral rights) for natural gas produced from the landowners’ properties. The third party producer was operating pursuant to leases between the landowners and certain investors/working interest owners. The third party producer filed a petition in bankruptcy, which was subsequently dismissed due to the lack of meaningful assets to reorganize or liquidate.

Although certain Atmos Energy companies entered into contracts with the third party producer to gather, treat and ultimately sell natural gas produced from the landowners’ properties, no Atmos Energy company had a contractual relationship with the landowners or the investors/working interest owners. After the lawsuit was filed, the landowners were successful in terminating for non-payment of royalties the leases related to the production of natural gas from their properties. Subsequent to termination, the investors/working interest owners under such leases filed additional claims against us for the termination of the leases.

During the trial, the landowners and the investors/working interest owners requested an award of compensatory damages plus punitive damages against us. On December 17, 2010, the jury returned a verdict in favor of the landowners and investor/working interest owners and awarded compensatory damages of $3.8 million and punitive damages of $27.5 million payable by Atmos Energy and the two AEH subsidiaries.

A hearing was held on February 28, 2011 to hear a number of motions, including a motion to dismiss the jury verdict and a motion for a new trial. The motions to dismiss the jury verdict and for a new trial were denied. However, the total punitive damages award was reduced from $27.5 million to $24.7 million. On October 17, 2011, we filed our brief of appellants with the Kentucky Court of Appeals (Court), appealing the verdict of the trial court. The appellees in this case subsequently filed their appellees’ brief with the Court on January 16, 2012, with our reply brief being filed with the Court on March 19, 2012. Oral arguments were held in the case on August 27, 2012.

In an opinion handed down on January 25, 2013, the Kentucky Court of Appeals overturned the $28.5 million jury verdict returned against the Atmos Entities. In a unanimous decision by a three-judge panel, the Court of Appeals reversed the claims asserted by the landowners and investors/working interest owners. The Court of Appeals concluded that all of such claims that the Atmos Entities appealed should have been dismissed by the trial court as a matter of law. The Court of Appeals let stand the jury verdict on one claim that Atmos Energy and our subsidiaries chose not to appeal, which was a trespass claim. The jury had awarded a total of $10,000 in compensatory damages to one landowner on that claim. The Court of Appeals vacated all of the other damages awarded by the jury and remanded the case to the trial court for a new trial, solely on the issue of whether punitive damages should be awarded to that landowner and, if so, in what amount.

The landowners and investors/working interest owners may seek discretionary review from the Supreme Court of Kentucky. The decision of the Court of Appeals will not become final until that process is completed. We had previously accrued what we believed to be an adequate amount for the anticipated resolution of this matter and we will continue to maintain this amount in legal reserves until the appellate process in this case has been completed. We continue to believe that the final outcome will not have a material adverse effect on our financial condition, results of operations or cash flows.

In addition, in a related development, on July 12, 2011, the Atmos Entities filed a lawsuit in the United States District Court, Western District of Kentucky, Atmos Energy Corporation et al.vs. Resource Energy Technologies, LLC and Robert Thorpe and John F. Charles, against the third party producer and its affiliates to recover all costs, including attorneys’ fees, incurred by the Atmos Entities, which are associated with the defense and appeal of the case discussed above as well as for all damages awarded to the plaintiffs in such case against the Atmos Entities. The total amount of damages being claimed in the lawsuit is “open-ended” since the appellate

 

27


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

process and related costs are ongoing. This lawsuit is based upon the indemnification provisions agreed to by the third party producer in favor of Atmos Gathering that are contained in an agreement entered into between Atmos Gathering and the third party producer in May 2009. The defendants filed a motion to dismiss the case on August 25, 2011, with Atmos Energy filing a brief in response to such motion on September 19, 2011. On March 27, 2012 the court denied the motion to dismiss. Since that time, we have continued to be engaged in discovery activities in this case.

We are a party to other litigation and environmental-related matters or claims that have arisen in the ordinary course of our business. While the results of such litigation and response actions to such environmental-related matters or claims cannot be predicted with certainty, we continue to believe the final outcome of such litigation and matters or claims will not have a material adverse effect on our financial condition, results of operations or cash flows.

Purchase Commitments

AEH has commitments to purchase physical quantities of natural gas under contracts indexed to the forward NYMEX strip or fixed price contracts. At December 31, 2012, AEH was committed to purchase 67.2 Bcf within one year, 25.1 Bcf within one to three years and 26.5 Bcf after three years under indexed contracts. AEH is committed to purchase 3.7 Bcf within one year and less than 0.1 Bcf within one to three years under fixed price contracts with prices ranging from $2.98 to $6.36 per Mcf. Purchases under these contracts totaled $289.5 million and $312.1 million for the three months ended December 31, 2012 and 2011.

Our natural gas distribution divisions, except for our Mid-Tex Division, maintain supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated base gas volumes are established under these contracts on a monthly basis at contractually negotiated prices. Commitments for incremental daily purchases are made as necessary during the month in accordance with the terms of the individual contract.

Our Mid-Tex Division maintains long-term supply contracts to ensure a reliable source of gas for our customers in its service area which obligate it to purchase specified volumes at market and fixed prices. The estimated commitments under these contracts as of December 31, 2012 are as follows (in thousands):

 

2013

   $ 174,615  

2014

     73,682  

2015

       

2016

       

2017

       

Thereafter

       
  

 

 

 
   $ 248,297  
  

 

 

 

Our nonregulated segment maintains long-term contracts related to storage and transportation. The estimated contractual demand fees for contracted storage and transportation under these contracts are detailed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. There were no material changes to the estimated storage and transportation fees for the quarter ended December 31, 2012.

Regulatory Matters

In July 2010, the Dodd-Frank Act was enacted, representing an extensive overhaul of the framework for regulation of U.S. financial markets. The Dodd-Frank Act calls for various regulatory agencies, including the SEC and the Commodities Futures Trading Commission (CFTC) to establish rules and regulations for implementation of many of the provisions of the Dodd-Frank Act. Although the CFTC and SEC have issued a

 

28


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

number of rules and regulations, we expect additional rules and regulations to be adopted, which should provide additional clarity regarding the extent of the impact of this legislation on us. The costs of participating in financial markets for hedging certain risks inherent in our business have been increased as a result of the new legislation and related rules and regulations. We also anticipate additional reporting and disclosure obligations will be imposed through the adoption of additional rules and regulations.

As of December 31, 2012, rate proceedings were in progress in our Kansas, Colorado, Louisiana and Georgia service areas. These regulatory proceedings are discussed in further detail below in Management’s Discussion and Analysis — Recent Ratemaking Developments.

10.    Concentration of Credit Risk

Information regarding our concentration of credit risk is disclosed in Note 15 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. During the three months ended December 31, 2012, there were no material changes in our concentration of credit risk.

11.    Segment Information

As discussed in Note 1 above, we operate the Company through the following three segments:

 

   

The natural gas distribution segment, which includes our regulated natural gas distribution and related sales operations,

 

   

The regulated transmission and storage segment, which includes the regulated pipeline and storage operations of our Atmos Pipeline — Texas Division and

 

   

The nonregulated segment, which is comprised of our nonregulated natural gas management, nonregulated natural gas transmission, storage and other services.

Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers in differing regulatory environments. Although our natural gas distribution segment operations are geographically dispersed, they are reported as a single segment as each natural gas distribution division has similar economic characteristics. The accounting policies of the segments are the same as those described in the summary of significant accounting policies found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. We evaluate performance based on net income or loss of the respective operating units.

 

29


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Income statements for the three month periods ended December 31, 2012 and 2011 by segment are presented in the following tables:

 

     Three Months Ended December 31, 2012  
     Natural
Gas
Distribution
    Regulated
Transmission
and Storage
    Nonregulated      Eliminations     Consolidated  
     (In thousands)  

Operating revenues from external parties

   $ 665,549     $ 18,699     $ 349,907      $      $ 1,034,155  

Intersegment revenues

     1,238       41,982       49,987        (93,207       
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     666,787       60,681       399,894        (93,207     1,034,155  

Purchased gas cost

     387,156              377,435        (92,798     671,793  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     279,631       60,681       22,459        (409     362,362  

Operating expenses

           

Operation and maintenance

     83,736       16,320       6,882        (411     106,527  

Depreciation and amortization

     50,060       8,390       1,129               59,579  

Taxes, other than income

     36,751       3,949       634               41,334  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     170,547       28,659       8,645        (411     207,440  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating income

     109,084       32,022       13,814        2       154,922  

Miscellaneous income (expense)

     (131     (127     1,667        (711     698  

Interest charges

     23,563       6,871       797        (709     30,522  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income from continuing operations before income taxes

     85,390       25,024       14,684               125,098  

Income tax expense

     32,297       8,919       6,534               47,750  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income from continuing operations

     53,093       16,105       8,150               77,348  

Income from discontinued operations, net of tax

     3,117                             3,117  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income

   $ 56,210     $ 16,105     $ 8,150      $      $ 80,465  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Capital expenditures

   $ 145,871     $ 43,831     $ 325      $      $ 190,027  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

30


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

     Three Months Ended December 31, 2011  
     Natural
Gas
Distribution
    Regulated
Transmission
and Storage
    Nonregulated      Eliminations     Consolidated  
     (In thousands)  

Operating revenues from external parties

   $ 675,889     $ 19,440     $ 388,665      $      $ 1,083,994  

Intersegment revenues

     224       37,319       55,511        (93,054       
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     676,113       56,759       444,176        (93,054     1,083,994  

Purchased gas cost

     392,518              428,771        (92,687     728,602  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     283,595       56,759       15,405        (367     355,392  

Operating expenses

           

Operation and maintenance

     91,996       16,965       6,051        (368     114,644  

Depreciation and amortization

     49,982       7,651       733               58,366  

Taxes, other than income

     38,192       3,784       935               42,911  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     180,170       28,400       7,719        (368     215,921  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating income

     103,425       28,359       7,686        1       139,471  

Miscellaneous income (expense)

     (1,897     (280     36        125       (2,016

Interest charges

     28,139       7,209       252        126       35,726  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income from continuing operations before income taxes

     73,389       20,870       7,470               101,729  

Income tax expense

     28,888       7,456       3,001               39,345  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income from continuing operations

     44,501       13,414       4,469               62,384  

Income from discontinued operations, net of tax

     6,123                             6,123  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income

   $ 50,624     $ 13,414     $ 4,469      $      $ 68,507  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Capital expenditures

   $ 128,733     $ 24,120     $ 1,541      $      $ 154,394  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

31


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Balance sheet information at December 31, 2012 and September 30, 2012 by segment is presented in the following tables.

 

     December 31, 2012  
     Natural
Gas
Distribution
     Regulated
Transmission
and Storage
     Nonregulated     Eliminations     Consolidated  
     (In thousands)  

ASSETS

            

Property, plant and equipment, net

   $ 4,523,922      $ 1,007,904      $ 63,468     $      $ 5,595,294  

Investment in subsidiaries

     771,387                (2,096     (769,291       

Current assets

            

Cash and cash equivalents

     77,136                47,465              124,601  

Assets from risk management activities

     1,773                17,857              19,630  

Other current assets

     770,366        14,632        471,582       (236,177     1,020,403  

Intercompany receivables

     624,637                       (624,637       
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     1,473,912        14,632        536,904       (860,814     1,164,634  

Intangible assets

                     153              153  

Goodwill

     573,550        132,422        34,711              740,683  

Noncurrent assets from risk management activities

     11,610                              11,610  

Deferred charges and other assets

     429,252        15,787        6,805              451,844  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
   $ 7,783,633      $ 1,170,745      $ 639,945     $ (1,630,105   $ 7,964,218  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

CAPITALIZATION AND LIABILITIES

  

         

Shareholders’ equity

   $ 2,424,005      $ 344,266      $ 427,121     $ (771,387   $ 2,424,005  

Long-term debt

     1,956,376                              1,956,376  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total capitalization

     4,380,381        344,266        427,121       (771,387     4,380,381  

Current liabilities

            

Current maturities of long-term debt

                     131              131  

Short-term debt

     1,045,180                       (214,289     830,891  

Liabilities from risk management activities

     77,500                              77,500  

Other current liabilities

     590,710        13,470        152,141       (19,792     736,529  

Intercompany payables

             573,006        51,631       (624,637       
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     1,713,390        586,476        203,903       (858,718     1,645,051  

Deferred income taxes

     823,073        238,285        4,915              1,066,273  

Noncurrent liabilities from risk management activities

                     2,860              2,860  

Regulatory cost of removal obligation

     371,608                              371,608  

Deferred credits and other liabilities

     495,181        1,718        1,146             498,045  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
   $ 7,783,633      $ 1,170,745      $ 639,945     $ (1,630,105   $ 7,964,218  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

32


ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

     September 30, 2012  
     Natural
Gas
Distribution
     Regulated
Transmission
and Storage
     Nonregulated     Eliminations     Consolidated  
     (In thousands)  

ASSETS

            

Property, plant and equipment, net

   $ 4,432,017      $ 979,443      $ 64,144     $      $ 5,475,604  

Investment in subsidiaries

     747,496                (2,096     (745,400       

Current assets

            

Cash and cash equivalents

     12,787                51,452              64,239  

Assets from risk management activities

     6,934                17,773              24,707  

Other current assets

     546,187        11,788        404,097       (223,056     739,016  

Intercompany receivables

     636,557                       (636,557       
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     1,202,465        11,788        473,322       (859,613     827,962  

Intangible assets

                     164              164  

Goodwill

     573,550        132,422        34,711              740,683  

Noncurrent assets from risk management activities

     2,283                              2,283  

Deferred charges and other assets

     417,893        24,353        6,733              448,979  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
   $ 7,375,704      $ 1,148,006      $ 576,978     $ (1,605,013   $ 7,495,675  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

CAPITALIZATION AND LIABILITIES

  

         

Shareholders’ equity

   $ 2,359,243      $ 328,161      $ 419,335     $ (747,496   $ 2,359,243  

Long-term debt

     1,956,305                              1,956,305  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total capitalization

     4,315,548        328,161        419,335       (747,496     4,315,548  

Current liabilities

            

Current maturities of long-term debt

                     131              131  

Short-term debt

     782,719                       (211,790     570,929  

Liabilities from risk management activities

     85,366                15              85,381  

Other current liabilities

     526,089        12,478        90,116       (9,170     619,513  

Intercompany payables

             584,578        51,979       (636,557       
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     1,394,174        597,056        142,241       (857,517     1,275,954  

Deferred income taxes

     789,288        220,647        5,148              1,015,083  

Noncurrent liabilities from risk management activities

                     9,206              9,206  

Regulatory cost of removal obligation

     381,164                              381,164  

Deferred credits and other liabilities

     495,530        2,142        1,048              498,720  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
   $ 7,375,704      $ 1,148,006      $ 576,978     $ (1,605,013   $ 7,495,675  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

33


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of

Atmos Energy Corporation

We have reviewed the condensed consolidated balance sheet of Atmos Energy Corporation and subsidiaries as of December 31, 2012, the related condensed consolidated statements of income and comprehensive income for the three-month periods ended December 31, 2012 and 2011, and the condensed consolidated statements of cash flows for the three-month periods ended December 31, 2012 and 2011. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Atmos Energy Corporation and subsidiaries as of September 30, 2012, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended, not presented herein, and in our report dated November 12, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2012, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/    ERNST & YOUNG LLP

Dallas, Texas

February 7, 2013

 

34


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion should be read in conjunction with the condensed consolidated financial statements in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended September 30, 2012.

Cautionary Statement for the Purposes of the Safe Harbor under the Private Securities Litigation Reform Act of 1995

The statements contained in this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report are forward-looking statements made in good faith by us and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report, or any other of our documents or oral presentations, the words “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “objective”, “plan”, “projection”, “seek”, “strategy” or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to our strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. These risks and uncertainties include the following: our ability to continue to access the credit markets to satisfy our liquidity requirements; the impact of adverse economic conditions on our customers; increased costs of providing pension and postretirement health care benefits and increased funding requirements along with increased costs of health care benefits; market risks beyond our control affecting our risk management activities including market liquidity, commodity price volatility, increasing interest rates and counterparty creditworthiness; regulatory trends and decisions, including the impact of rate proceedings before various state regulatory commissions; possible increased federal, state and local regulation of the safety of our operations; increased federal regulatory oversight and potential penalties; the impact of environmental regulations on our business; the impact of possible future additional regulatory and financial risks associated with global warming and climate change on our business; the concentration of our distribution, pipeline and storage operations in Texas; adverse weather conditions; the effects of inflation and changes in the availability and price of natural gas; the capital-intensive nature of our gas distribution business; increased competition from energy suppliers and alternative forms of energy; the threat of cyber-attacks or acts of cyber-terrorism that could disrupt our business operations and information technology systems; the inherent hazards and risks involved in operating our gas distribution business, natural disasters, terrorist activities or other events and other risks and uncertainties discussed herein, all of which are difficult to predict and many of which are beyond our control. Accordingly, while we believe these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, we undertake no obligation to update or revise any of our forward-looking statements whether as a result of new information, future events or otherwise.

OVERVIEW

Atmos Energy and its subsidiaries are engaged primarily in the regulated natural gas distribution and transportation and storage businesses as well as other nonregulated natural gas businesses. We distribute natural gas through sales and transportation arrangements to over three million residential, commercial, public authority and industrial customers throughout our six regulated natural gas distribution divisions, which cover service areas located in nine states. In addition, we transport natural gas for others through our regulated distribution and pipeline systems. In August 2012, we announced that we had entered into a definitive agreement to sell our natural gas distribution operations in Georgia, representing approximately 64,000 customers. After the closing of this transaction, which we currently anticipate will occur during the third quarter of fiscal 2013, we will operate in eight states.

Through our nonregulated businesses, we provide natural gas management and transportation services to municipalities, other local gas distribution companies and industrial customers primarily in the Midwest and

 

35


Southeast and natural gas transportation and storage services to certain of our natural gas distribution divisions and to third parties.

As discussed in Note 11, we operate the Company through the following three segments:

   

the natural gas distribution segment, which includes our regulated natural gas distribution and related sales operations,

 

   

the regulated transmission and storage segment, which includes the regulated pipeline and storage operations of our Atmos Pipeline — Texas Division and

 

   

the nonregulated segment, which includes our nonregulated natural gas management, nonregulated natural gas transmission, storage and other services.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. We based our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. On an ongoing basis, we evaluate our estimates, including those related to risk management and trading activities, the allowance for doubtful accounts, legal and environmental accruals, insurance accruals, pension and postretirement obligations, deferred income taxes and the valuation of goodwill, indefinite-lived intangible assets and other long-lived assets. Actual results may differ from such estimates.

Our critical accounting policies used in the preparation of our consolidated financial statements are described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012 and include the following:

 

   

Regulation

 

   

Unbilled revenue

 

   

Financial instruments and hedging activities

 

   

Fair value measurements

 

   

Impairment assessments

 

   

Pension and other postretirement plans

 

   

Contingencies

Our critical accounting policies are reviewed periodically by the Audit Committee. There were no significant changes to these critical accounting policies during the three months ended December 31, 2012.

RESULTS OF OPERATIONS

We reported net income of $80.5 million, or $0.88 per diluted share for the three months ended December 31, 2012 compared with net income of $68.5 million, or $0.75 per diluted share in the prior-year quarter. Regulated operations contributed 90 percent of our net income during this period with our nonregulated operations contributing the remaining ten percent. Excluding the impact of unrealized margins, diluted earnings per share increased $0.13 compared with the prior-year quarter. The $0.13 per diluted share increase primarily reflects recent rate increases approved in our regulated transmission and storage segment and improved asset optimization margins in our nonregulated segment, coupled with an $8.1 million decrease in operating and maintenance expense and a $5.2 million decrease in interest expense due primarily from interest capitalized related to Rule 8.209 spending in the current quarter and the early redemption of the 5.125% $250 million senior notes due January 2013, with funds borrowed under a $260 million short-term debt facility in August 2012.

 

36


Due to the pending sale of our Georgia service area, the results of operations for this service area are shown in discontinued operations for both periods presented. Prior-year results also reflect our Illinois, Iowa and Missouri service areas in discontinued operations. The sale of these three service areas was completed in August 2012. During the current-year quarter, discontinued operations generated net income of $3.1 million, or $0.03 per diluted share, compared with net income of $6.1 million, or $0.07 per diluted share in the prior-year quarter. Continuing operations in the current quarter generated net income of $77.3 million, or $0.85 per diluted share, compared with net income of $62.4 million, or $0.68 per diluted share in the prior-year quarter.

During the first quarter of fiscal 2013, we completed seven regulatory proceedings, which should result in a $63.7 million increase in annual operating income. The majority of this rate increase related to our Mid-Tex Division, where rates became effective January 1, 2013. The rate design approved in our Mid-Tex Division and West Texas Division regulatory proceedings includes an increase to the base customer charge and a decrease in the commodity charge applied to customer consumption. The effect of this change in rate design allows the Company’s rates to be more closely aligned with utility industry standard rate design. In addition, we anticipate these divisions will earn their operating income more ratably over the fiscal year as we are now less dependent on customer consumption. Therefore, we anticipate operating income earned during the first and second quarters to be lower than in previous periods with operating income earned during the third and fourth quarters to be higher than in previous periods. Accordingly, we anticipate our fiscal 2013 period-over-period results will reflect the impact of these rate design changes.

We also took several steps during the first quarter and early part of the second quarter to further strengthen our balance sheet and borrowing capability. In December 2012, we amended our $750 million revolving credit agreement primarily to (i) increase our borrowing capacity to $950 million while retaining the accordion feature that would allow an increase in borrowing capacity up to $1.2 billion and (ii) to permit same-day funding on base rate loans. We also terminated Atmos Energy Marketing’s $200 million committed and secured credit facility and replaced this facility with two $25 million 364-day bilateral facilities, which should result in a decrease in external credit expense incurred in our nonregulated operations. After giving effect to these changes, we have over $1 billion of working capital funding from four committed revolving credit facilities and one noncommitted revolving credit facility.

On January 11, 2013, we issued $500 million of 4.15% 30-year unsecured senior notes, which replaced, on a long-term basis, our $250 million 5.125% 10-year unsecured senior notes we redeemed in August 2012. The net proceeds of approximately $494 million were used to repay $260 million outstanding under the short-term financing facility used to redeem our 5.125% senior notes and to partially repay commercial paper borrowings and for general corporate purposes.

 

37


The following table presents our consolidated financial highlights for the three months ended December 31, 2012 and 2011:

 

     Three Months Ended
December 31
 
     2012      2011  
     (In thousands, except per
share data)
 

Operating revenues

   $ 1,034,155      $ 1,083,994  

Gross profit

     362,362        355,392  

Operating expenses

     207,440        215,921  

Operating income

     154,922        139,471  

Miscellaneous income (expense)

     698        (2,016

Interest charges

     30,522        35,726  

Income from continuing operations before income taxes

     125,098        101,729  

Income tax expense

     47,750        39,345  

Income from continuing operations

     77,348        62,384  

Income from discontinued operations, net of tax

     3,117        6,123  

Net income

   $ 80,465      $ 68,507  

Diluted net income per share from continuing operations

   $ 0.85      $ 0.68  

Diluted net income per share from discontinued operations

     0.03        0.07  

Diluted net income per share

   $ 0.88      $ 0.75  

Our consolidated net income during the three months ended December 31, 2012 and 2011 was earned in each of our business segments as follows:

 

     Three Months Ended
December 31
 
     2012      2011      Change  
     (In thousands)  

Natural gas distribution segment

   $ 56,210      $ 50,624      $ 5,586  

Regulated transmission and storage segment

     16,105        13,414        2,691  

Nonregulated segment

     8,150        4,469        3,681  
  

 

 

    

 

 

    

 

 

 

Net income

   $ 80,465      $ 68,507      $ 11,958  
  

 

 

    

 

 

    

 

 

 

 

38


The following table reflects our consolidated net income and diluted earnings per share in our regulated and nonregulated operations:

 

     Three Months Ended December 31  
     2012      2011      Change  
     (In thousands, except per share data)  

Regulated operations

   $ 69,198      $ 57,915      $ 11,283  

Nonregulated operations

     8,150        4,469        3,681  
  

 

 

    

 

 

    

 

 

 

Net income from continuing operations

     77,348        62,384        14,964  

Net income from discontinued operations

     3,117        6,123        (3,006
  

 

 

    

 

 

    

 

 

 

Net income

   $ 80,465      $ 68,507      $ 11,958  
  

 

 

    

 

 

    

 

 

 

Diluted EPS from continuing regulated operations

   $ 0.76      $ 0.63      $ 0.13  

Diluted EPS from nonregulated operations

     0.09        0.05        0.04  
  

 

 

    

 

 

    

 

 

 

Diluted EPS from continuing operations

     0.85        0.68        0.17  

Diluted EPS from discontinued operations

     0.03        0.07        (0.04
  

 

 

    

 

 

    

 

 

 

Consolidated diluted EPS

   $ 0.88      $ 0.75      $ 0.13  
  

 

 

    

 

 

    

 

 

 

Three Months Ended December 31, 2012 compared with Three Months Ended December 31, 2011

Natural Gas Distribution Segment

The primary factors that impact the results of our natural gas distribution operations are our ability to earn our authorized rates of return, the cost of natural gas, competitive factors in the energy industry and economic conditions in our service areas.

Our ability to earn our authorized rates of return is based primarily on our ability to improve the rate design in our various ratemaking jurisdictions by reducing or eliminating regulatory lag and, ultimately, separating the recovery of our approved margins from customer usage patterns. Improving rate design is a long-term process and is further complicated by the fact that we operate in multiple rate jurisdictions.

Seasonal weather patterns can also affect our natural gas distribution operations. However, the effect of weather that is above or below normal is substantially offset through weather normalization adjustments, known as WNA, which has been approved by state regulatory commissions for approximately 96 percent of our residential and commercial meters in the following states for the following time periods:

 

Georgia, Kansas, West Texas

   October — May

Kentucky, Mississippi, Tennessee, Mid-Tex

   November — April

Louisiana

   December — March

Virginia

   January — December

Our natural gas distribution operations are also affected by the cost of natural gas. The cost of gas is passed through to our customers without a markup. Therefore, increases in the cost of gas are offset by a corresponding increase in revenues. Accordingly, we believe gross profit is a better indicator of our financial performance than revenues. However, gross profit in our Texas and Mississippi service areas does include franchise fees and gross receipts taxes, which are calculated as a percentage of revenue (inclusive of gas costs). Therefore, the amount of these taxes included in revenues is influenced by the cost of gas and the level of gas sales volumes. We record the associated tax expense as a component of taxes, other than income. Although changes in these revenue-related taxes arising from changes in gas costs affect gross profit, over time the impact is offset within operating income.

 

39


As discussed above, the cost of gas typically does not have a direct impact on our gross profit. However, higher gas costs mean higher bills for our customers, which may adversely impact our accounts receivable collections, resulting in higher bad debt expense, and may require us to increase borrowings under our credit facilities resulting in higher interest expense. In addition, higher gas costs, as well as competitive factors in the industry and general economic conditions may cause customers to conserve or, in the case of industrial consumers, to use alternative energy sources. However, gas cost risk has been mitigated in recent years through improvements in rate design that allow us to collect from our customers the gas cost portion of our bad debt expense on approximately 75 percent of our residential and commercial margins.

In August 2012, we announced that we had entered into a definitive agreement to sell substantially all of our natural gas distribution operations in Georgia. Prior-year results also reflect our Illinois, Iowa and Missouri service areas in discontinued operations. The sale of these service areas was completed in August 2012. The results of these operations have been separately reported in the following tables as discontinued operations and exclude general corporate overhead and interest expense that would normally be allocated to these operations.

During the first quarter of fiscal 2013, we completed seven regulatory proceedings, which should result in a $63.7 million increase in annual operating income. The majority of this rate increase related to our Mid-Tex Division, where rates became effective January 1, 2013. The rate design approved in our Mid-Tex Division and West Texas Division regulatory proceedings includes an increase in the base customer charge and a decrease in the commodity charged applied to customer consumption. The effect of this change in rate design allows the Company’s rates to be more closely aligned with utility industry standard rate design. In addition, we anticipate these divisions will earn their operating income more ratably over the fiscal year as we are now less dependent on customer consumption. Therefore, we anticipate operating income earned during the first and second quarters to be lower than in previous periods while operating income earned during the third and fourth quarters to be higher than in previous periods. Accordingly, we anticipate our 2013 period-over-period results will reflect the impact of these rate design changes.

 

40


Review of Financial and Operating Results

Financial and operational highlights for our natural gas distribution segment for the three months ended December 31, 2012 and 2011 are presented below.

 

     Three Months Ended December 31  
     2012     2011     Change