10-QPeriod: Q2 FY2001

ATMOS ENERGY CORP Quarterly Report for Q2 Ended Mar 31, 2001

Filed May 9, 2001For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported strong financial performance for the six months ended March 31, 2001, driven by significantly colder weather and higher natural gas prices compared to the prior year. Operating revenues more than doubled, and net income saw a substantial increase. The company benefited from increased sales volumes due to colder temperatures and higher average gas prices, which were largely passed through to customers. Despite rising gas costs, the company managed to increase its gross profit. Strategic acquisitions and operational efficiencies also contributed to the positive results. Key financial developments include a significant increase in accounts receivable and short-term debt utilization to manage unrecovered purchased gas costs, although this was partially offset by a substantial equity offering. The company is also progressing with a significant acquisition of Louisiana Gas Service Company, expected to close mid-year. Investors should note the company's continued investment in capital expenditures to maintain and expand its infrastructure, and its ongoing efforts to manage regulatory and environmental matters.

Key Highlights

  • 1Operating revenues for the six months ended March 31, 2001, more than doubled to $1.118 billion, up from $538.7 million in the prior year, primarily due to increased gas prices and volumes.
  • 2Net income for the six months increased significantly by 52.7% to $67.0 million ($1.87 per share) compared to $43.9 million ($1.41 per share) in the same period last year.
  • 3Colder weather conditions in the six-month period (111% of normal) drove a 19% increase in total throughput volumes (147.4 Bcf vs. 123.8 Bcf), positively impacting sales and transportation revenues.
  • 4The company significantly reduced its short-term debt by $197.1 million during the six months ended March 31, 2001, aided by proceeds from a $142.0 million equity offering.
  • 5Atmos Energy is proceeding with the acquisition of Louisiana Gas Service Company for approximately $365 million, with an expected closing date of June 30, 2001, following regulatory approvals.
  • 6Equity in earnings from Woodward Marketing, LLC increased substantially, reflecting its exposure to volatile gas prices and a 45% ownership interest prior to full consolidation.
  • 7Capital expenditures for the six months were $42.5 million, with a full-year budget of $85.0 million to $90.0 million, indicating continued investment in infrastructure.

Frequently Asked Questions

The primary drivers were a substantial increase in the average sales price of natural gas (up 78% for the six months) due to higher costs, and a 19% increase in sales and transportation volumes, largely attributable to significantly colder weather during the period. Rate increases in various jurisdictions and the addition of new customers also contributed.

Atmos Energy passed on the increased cost of gas to its customers through purchased gas adjustment mechanisms. However, a lag between paying for gas and regulatory approval for rate increases led to a significant increase in accounts receivable and the temporary use of short-term borrowings to finance unrecovered costs. The company also benefited from colder weather, which increased volumes and offset some of the margin pressure.

The acquisition of Louisiana Gas Service Company and LGS Natural Gas Company for approximately $365 million is progressing and is anticipated to be completed by June 30, 2001, following approval from the Louisiana Public Service Commission. This acquisition is expected to add significant customer and revenue streams, although it involves a cost-sharing mechanism with ratepayers for future savings.

The company is involved in several litigation matters, including a large class-action suit concerning royalty payments and other claims related to accidents and product liability. While the company believes these claims are without merit and intends to defend them vigorously, it has reserved for potential damages. Environmental matters include responsibilities for former manufactured gas plant sites and mercury contamination, for which the company has accrued costs and believes will not have a material adverse effect, often with provisions for cost recovery through rates or insurance.