Atmos Energy Corporation (ATO) Q3 2011 Earnings Report, Transcript and Summary

Greetings and welcome to the Atmos Energy’s fiscal 2011 third quarter conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. (Operator instructions) as a reminder this conference is being recorded. It is now my pleasure to introduce to your host, Ms. Susan Giles, VP; Investor Relations for Atmos Energy Corporation. Thank you Mrs. Giles you may begin.

Thanks Jenny, good morning everyone. Thank you all for joining us. This call is open to the general public and media but designed for financial analysts. It is being webcast live over the Internet. We have placed slides on our website that summarize our financial results. We will refer to just a few of the slides during the call, but of course we are happy to take any questions online at the end of our prepared remark. If you would like to access the webcast for slides, please visit our website at atlasenergy.com and click on the conference call link. Additionally, we plan to file the Company’s Form 10-Q later today this afternoon. Our speakers today are Kim Cocklin, President, and CEO, and Fred Meisenheimer, Senior Vice President and CFO. There are other members of our leadership team here to assist with questions as needed. As we review these financial results and discuss future expectations; please keep in mind that some of our discussions might contain forward-looking statements and are intended to fall within the Safe Harbor rules of the Private Securities Litigation Reform Act of 1995. And now, I would like to turn the call over to Kim Cocklin. Kim.

Thank you very much Susan and good morning everyone. We certainly appreciate you joining us and thank you for your interest in Atmos Energy. It looks like the market is in for a wild rise as we begin our call too but yesterday we did report a third quarter consolidated net loss of $600,000 a negative $0.01 per diluted share. For the current nine month period, reported net income was almost $206 million or $2.25 per diluted share. There were lot of moving parts which are going to be addressed by Fred Meisenheimer. During the quarter, we did announce the sale of our distribution assets in Missouri, Illinois and Iowa which comprised about 84,000 meters at a price of approximately $124 million and the purchase through Liberty Energy, a sub-city area of Algonquin Power & Utilities Corp. From a geographical standpoint, this is a very rational decision; we have had a limited presence in these jurisdictions and we did not proceed growing our market share or expanding our foot print in these areas and these transactions will allow us to better focus on the remaining jurisdictions where we operate. Applications with the Illinois and Missouri agencies, commission were filed on Monday August 1, and we do anticipate the transaction to close in the latter half of our fiscal in 2012. Currently we expect the use of proceeds to fund capital programs but looking further out, we could also redeploy the proceeds to fund or partially fund an acquisition if a worthwhile asset presents itself. Also this quarter we recognized a partial impairment of our non-regulated segments gathering facilities in Kentucky, which we call the Shrewsbury Park City Systems. Taking this action was the result of examining our capabilities and recognizing that we simply do not have the depth of expertise…

Thanks Kim, good morning everyone. I will speak to the more significant items in the quarter and nine months and then discuss the outlook for the reminder of our fiscal year. As a result of the agreement to sell our distribution assets in Missouri, Illinois, and Iowa we just now combined in report to financial results for these assets, a one line item on the income statement entitled discontinued operations for all periods presented. Therefore, the corresponding detail by line item will be excluded from my comparative discussions. In accordance with accounting pronouncements, the discontinued operation results do not receive allocated corporate overhead or interest expense. Of course until we close the sale of these properties they will remain a part of our total consolidated results and contribute to our overall earnings. As we stated in the earnings release; the current quarter and year-to-date results were impacted by several onetime items. In the current quarter, the impairment of our non-regulated segments gathering facilities as Kim just mentioned; acquainted to a negative $6 million or $0.06 per diluted share. We still have a balance $6 million on the books for these assets. Revenues are currently sufficient to support this level of investment. For the current nine months, onetime items equalled almost a positive $7 million or $0.07 per diluted share. These items included the impairment I just mentioned as well as the earlier impairment of the Ft. Necessity storage project, the benefit from unwinding Treasury locks and a tax benefit from settling various income tax positions. By eliminating the onetime items in all periods and the mark to market accounting treatment required, by GAAP and our non-regulated operations which we have done for you on slides 44 and 45. The company earned $0.05 per share for the current quarter versus $0.09…

Thank you very much Fred. I will make a few closing comments and I will take your questions and you can see from hearing Fred, we had a busy third quarter. In spite of the few speed bumps, we had a very good run in the first nine months of our fiscal 2011. We have taken measure to clean up our balance sheet, we have eliminated under earning assets, which will ultimately removed more risk from the business going forward, although there is no market sense of improvement in the economy, our business continues to perform steadily. We have done a very good job of managing expense and we will continue that focus going forward. Our O&M expense is down this year without reducing complement. We were also able to provide annual wage increases to our employees while observing government mandated cost and our uncollectable expense is currently less than one quarter or 1% of total revenues despite the current economic conditions. Our fundamental business is delivering safe and reliable natural gas. We continued this extensively to execute our rate strategy, focusing on reducing our lag, improving our return on our return on equity and increasing the recovery of fixed cost. The stability and predictability of our margins remain vital to our growth. Today, rate outcomes that provided an increased operating income of about $70 million; which exceeds our original target of between $50 and $60 million of approved annual operating income increases from rate actions [ph] in fiscal 2011. On June 22, a rate settlement, a very important rate settlement was reached with the City of Dallas. This allows an annual increase in operating income to take effect of about $2 million, July 1. The settlement provides also for an annual rate review process which is patterned after our…

Thank you. (Operator instructions)

Should we sing happy birthday to the President?

It appears that there are no questions at this time.

Okay.

Okay Jen, and thank you everyone and as a reminder a recording of this call is available for replay on our website through November 9. Again we appreciate you interest in Atmos Energy and thank you for joining us. Good day.