10-QPeriod: Q1 FY2003

ATMOS ENERGY CORP Quarterly Report for Q1 Ended Dec 31, 2002

Filed February 14, 2003For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported its financial results for the quarter ended December 31, 2002. The company experienced a significant increase in operating revenues, primarily driven by the acquisition of Mississippi Valley Gas Company in December 2002, colder weather conditions compared to the prior year, and a modest increase in average sales prices. Net income also saw a substantial rise, benefiting from higher gross profit and the acquisition, despite a decrease in gas trading margin. Key financial activities during the quarter included substantial capital expenditures and significant financing activities related to the Mississippi Valley Gas acquisition. The company also highlighted its ongoing efforts to manage market risk through various hedging strategies for both its utility and natural gas marketing segments. Investors should note the increased goodwill resulting from the acquisition and the company's ongoing management of potential legal and environmental contingencies.

Key Highlights

  • 1Operating revenues increased by 48% to $401.5 million due to the Mississippi Valley Gas acquisition, colder weather, and higher average sales prices.
  • 2Net income rose by $5.2 million to $25.8 million, driven by increased operating income from the acquisition and improved weather conditions.
  • 3The company completed the acquisition of Mississippi Valley Gas Company for approximately $150.0 million (cash and stock) plus assumption of debt, significantly expanding its customer base.
  • 4Capital expenditures increased to $35.1 million, reflecting investments in infrastructure, with a significant portion of investing activities related to the Mississippi Valley Gas acquisition.
  • 5Net cash provided by financing activities was $113.9 million, largely due to a $147.0 million bridge loan used to fund the acquisition and repay debt.
  • 6Goodwill increased significantly to $272.3 million from $185.0 million, primarily due to the Mississippi Valley Gas acquisition.
  • 7The company is actively managing market risk through various hedging activities in both its utility and natural gas marketing segments.

Frequently Asked Questions

The primary driver of the significant increase in operating revenues was the acquisition of Mississippi Valley Gas Company, which closed on December 3, 2002. Additionally, colder weather compared to the prior year and a 14% increase in average sales price contributed to the revenue growth.

The acquisition significantly increased Atmos Energy's assets, particularly property, plant and equipment, and goodwill. It also led to a substantial increase in long-term and short-term debt and shareholders' equity. The financial statements reflect the consolidation of Mississippi Valley Gas Company's operations from December 2002 onwards, with pro forma effects also presented for comparison.

Atmos Energy utilizes a combination of strategies to manage price volatility, including underground storage assets, financial hedges, and fixed forward contracts. For the 2002-2003 heating season, approximately 51% of anticipated flowing gas requirements were covered through these methods. In its utility segment, hedging activities are accounted for under SFAS No. 133 and costs are generally recovered through rates. The natural gas marketing segment also uses various derivative instruments and is subject to mark-to-market accounting, with a portion of contracts being reclassified under SFAS No. 133 starting in 2003.

The company is involved in several legal proceedings, including class action lawsuits related to royalty underpayments and breach of contract claims, as well as a suit regarding propane explosion injuries. It is also addressing environmental matters related to former manufactured gas plant sites and mercury contamination. While the company believes the outcomes will not have a material adverse effect on its financial condition, these are areas for investors to monitor.