Susan Giles - Vice President of Investor Relations Kim Cocklin - President and Chief Executive Officer Bret Eckert - Senior Vice President and Chief Financial Officer.

Gabe Moreen - Bank of America.

Greetings and welcome to the Fiscal 2014 First Quarter Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Susan Giles from Atmost Energy Corporation. Thank you, Ms. Giles, you may now begin..

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 this live call, but will be happy to take questions on any of them at the end of our prepared remarks. If you would like to access the webcast and slides, please visit our website at atmosenergy.com and click on the Conference Call link.

Additionally, the company's Form 10-Q was filed last night and is also available on our website. Our speakers this morning are Kim Cocklin, President and CEO; and Bret Eckert, Senior Vice President and CFO. There are also 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 within the meaning of the Securities Act and the Securities Exchange Act.

Please see Slide 18 for more information regarding the risks and uncertainties we consider in making these forward-looking statements and where to go to get more information on such risks and uncertainties. And now I'd 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 your continued interest in Atmos Energy. Yesterday, we reported first quarter consolidated net income of $87 million or $0.95 per diluted share compared to $80 million or $0.88 per diluted share one year ago.

After excluding unrealized margins in both periods, net income was $81 million or $0.88 per diluted share in the current quarter compared to $67 million or $0.74 last year. Regulated operations contributed 94% of our earnings.

The execution of our regulatory strategy continues to drive our financial performance and has improved the stability and predictability of earnings for the enterprise. Also, colder than normal weather positively impacted financial results in both our regulated and non-regulated segments this first quarter.

Our liquidity and financial position remained strong. Our debt capitalization ratio was 54.2% at December 31 compared with 53.5% one year ago. Last week, we were up in news from Moody's who upgraded our debt rating to A2 with a stable outlook. The agency upgraded our rating two notches versus one notch for most other US utilities.

Moody's cited our jurisdictional diversity and our success in increasing and stabilizing regulated margins to rate increases and rate design improvement as a rationale for the upgrade. Yesterday, our Board of Directors declared our 121st consecutive quarterly cash dividend.

The indicated annual dividend rate for fiscal '14 is $1.48, which is 5.7% increase over the '13 annual dividend rate. We remain very focused on enhancing system safety and reliability through infrastructure investment and delivering shareholder value and consistent earnings growth.

For the calendar year ended December 31, we delivered total return to our shareholders of nearly 43%. Our CFO, Bret Eckert, will review our financial results in great detail and then we'll return with the closing comments and open the call up for questions.

Bret?.

Thanks, Kim, and good morning, everyone. If you follow me on Slide 2, reported net income for the quarter was $87 or $0.95 per diluted share compared with $80 million or $0.88 one year ago, as Kim said.

Excluding unrealized margins in both periods, net income was $81 million or $0.88 per diluted share compared with $67 million or $0.74 per share last year. Results in the prior year included $3 million of income from discontinued operations from the Georgia distribution assets, which were sold in April 2013.

The first quarter of fiscal 2014 was strong mainly due to colder weather, which as Kim mentioned positively affected each of our segments. Colder weather drove higher customer consumption across our distribution service territories.

The cold weather increased transportation volumes in our transition and storage segment, ATT, and also increased delivered volumes and margins in our non-regulated segments.

Turning to Slide 3, in the current quarter, gross profit in our natural gas distribution segment increased by about $20 million, $11 million of the increase is the result of weather that was 30% colder than last year, which drove a 19% in distribution throughput as a result of substantially colder weather, particularly in December.

Rate increases contributed another $2 million. Finally, revenue-related taxes increased by $5 million, primarily due to higher revenues in the Mid-Tex division. However, this increase had no material impact to operating income as the associated tax expense increased by about the same amount.

Turning to Slide 4, our regulated interstate pipeline, Atmos Pipeline Texas, generated almost $11 million of incremental margin quarter-over-quarter. About $7 million of that amount reflects the impact of our GRIP filing that became effective in May of 2013.

APT also experienced an increase of about $1.4 million from higher transportation volume due to the colder weather. Turning now to our non-regulated segment and you may want to turn to Slide 12.

Gross profit decreased about $4 million in our non-regulated segment, mainly as a result of an $8.5 million increase in realized margins offset by $12 million decrease in unrealized margins quarter-over-quarter.

Realized margins for gas delivery and related services increased $2.4 million due to an increase in gas delivery per unit margins to $0.12 per Mcf from $0.10 a year ago.

The increase in per unit margins reflects the impact of higher margin incremental sales, particularly in December as a result of the colder weather coupled with a 9% increase in consolidated sales volumes through other utilities, municipalities and industrial customers.

Additionally, we experienced a $6.1 million in other realized margins, primarily due to the timing and magnitude of losses realized on the settlement of financial position quarter-over-quarter. Turning now to the expense side of the income statement. O&M increased by $9 million quarter-over-quarter, mainly due to higher employee-related expense.

The increase reflects annual merit increases, increased employee benefit cost and lower capitalization rates associated with the lower capital spending in the current quarter. Details about our capital spending are presented on Slide 5. As you can see, CapEx decreased $9.5 million in the first quarter compared to one year ago.

Spending in our natural gas distribution segment decreased about $18 million due to our crew's inability to perform construction work and the winter weather experienced in December. In addition, some of the studies related to some of the projects delayed our interest for 2014, which were originally slated for the October to December timeframe.

Lastly, the prior year quarter includes spending on a new customer information system that was completed last spring. These decreases were partially offset by a $9.5 million from spending in Atmos Pipeline Texas.

In the first quarter, APT completed its Line WX expansion project in the DSW area and performed higher levels of cathotic protection work to enhance the safety of the pipeline. Moving now to our earnings guidance for fiscal 2014, as a reminder, our practice is to provide annual earnings guidance only.

We expect fiscal 2014 earnings per share at the end of previously announced range of between $2.66 to $2.76 per diluted share excluding unrealized margins. We expect a continued execution of our rate strategy to be the primary driver for the year's result.

Looking on Slide 25, we anticipate annual operating income increases of between $110 million and $130 million from improved rate outcomes in the year. In the first quarter, weather was 21% colder than normal and O&M was lower than expected primarily due to the weather.

As the weather improves, we anticipate our crews will catch up on work initially slated for our first quarter. As a result, the O&M run rate for the remainder of the year should be higher than what we experienced in the first quarter, but still within our previously announced targeted range, as shown on Page 15.

Looking at Slide 16, our capital budget range has not changed. It remains between $830 million and $850 million for fiscal 2014. We will continue to finance these investments via cash flows, long-term debt securities and equities, while maintaining a sound capital structure.

Most importantly, our financing plan has been reflected in both our 2014 earnings per share guidance of $2.66 to $2.76 per diluted share and our plans to grow EPS by 6% to 8% annually through fiscal 2018. Thank you for your time and now I'll hand the call back over to Kim..

Thank you, Bret, and great report. We are certainly encouraged by our earnings report for this first quarter of fiscal '14, which really represents another successful chapter in our growth story that we announced at the beginning of fiscal '12.

Our fundamental business continues to be delivering safe and reliable natural gas service to our customers and successful execution of our rate strategy is critical to meeting our financial commitments of growing earnings per share 6% to 8% through fiscal '18 annually, as Bret said.

In the first quarter of fiscal '14, we did complete a number of rate proceedings, which when combined with regulatory expense deferrals results in an increase of about $18.6 million in annual operating income. The bulk of this came from 2012 Mid-Tex city's rate review mechanism filing of $12.5 million.

We also currently have several rate actions that are filed and pending, which total about $43 million in request and intend to file another 10 to 12 cases this fiscal year that in total would request about $90 million. You can see Slide 7 through 11 providing more detail on these rate cases.

On a regulated instrastate pipeline, Atmos Pipeline Texas, we continue to invest capital to increase capacity, secure long-term gas supply and enhance the reliability of our service in critical locations on the Mid-Tex system. Capital expenses are GRIP eligible again with an 11.8% return on equity.

Fiscal '13 was the third year of the three-year pilot program for the Rider REV on our APT pipeline, and we did request an extension of that Rider REV in late fiscal '13. And in December, the Texas Railroad Commission did grant an extension of this Rider until November 2017.

That Rider is an annual mechanism that adjusts regulated rates by tracking any difference between APT's non-regulated annual revenue and a benchmark credit of $84 million and sharing that difference 75% to customers and 25% to the company.

We remain very focused on executing our capital plan of strategically spending between $850 million and $950 million annually through fiscal '18 to enhance the safety and reliability of our system. We're firmly committed to delivering dependable long-term financial success and do intend to grow earnings per share 6% to 8% annually through fiscal '18.

We thank you very much for your time, your interest and will open the call up now for questions..

(Operator Instructions) Our first question comes from the line of Gabe Moreen from Bank of America..

Two questions from me. One, Bret, just wondering if you can walk a little bit through more of the O&M drivers. I think O&M came in a bit higher than we were expecting this quarter. You said it'd still be within your guidance, but sounds like you're still expecting a decent growth rate in O&M for the remaining quarters.

Can you just maybe walk us through the drivers a little bit more on that?.

Yeah, Gabe, good question. It really is just driven by the weather. If you look at the first quarter of last year, it was warmer, we got a big jumpstart last year in our CapEx, just like CapEx in the first quarter was higher and that caused O&M to be lower.

We kind of had the reverse situation this quarter again, significantly colder than normal, lagging behind both the CapEx and O&M plans. And with that said, Slide 15 has our O&M range of $470 million to $480 million, which is lower than 2013 O&M of $488 million.

So it's really just timing with regard to the weather and the crew's ability to get out and manage through it..

And shifting gears, Kim, theirs is some info in public out there that there's a couple of gas utility properties out there on the market.

Can you speak to your appetite for potentially looking at some of those properties and whether Atmos will be looking at those?.

We haven't heard any of that. We've heard the same rumors as you heard. And we have publicly expressed our position that our growth strategy continues to be focused on investing in our infrastructure and having a capital budget of $850 million to $950 million every year through fiscal '18. We're not interested in pursuing any acquisitions.

We think that the prices are not within a reasonable range. They certainly provide the same opportunity for growth long-term for our shareholders or short-term and they won't generate the accretion that we're showing certainly this first quarter and when we started our program in '12.

So no, we're sticking to our commitment that we made beginning in '12 that the best growth and the highest and best use for our capital is investing it in our infrastructure and making our system much safer and trying to pursue our goal of becoming the safest natural gas utility in the country.

So no, we're not interested, we're not looking to add growth through anybody that might be on the market. I don't know if I could be anymore clearer than that, but I hope that answers the question..

(Operator Instructions) We have no further questions at this time..

A recording of this call is available for replay on our website through May the 5th. We appreciate your interest in Atmos Energy and thank you for joining us this morning. Good bye..