10-QPeriod: Q2 FY2004

ATMOS ENERGY CORP Quarterly Report for Q2 Ended Mar 31, 2004

Filed May 14, 2004For Securities:ATO

Summary

Atmos Energy Corporation's (ATO) 10-Q filing for the quarter ended March 31, 2004, indicates a mixed financial performance compared to the prior year, primarily influenced by seasonal factors and business segment performance. The utility segment, while facing challenges from warmer weather and a customer refund in Colorado, showed resilience through the impact of weather normalization adjustments and the full-year inclusion of the Mississippi Valley Gas Company acquisition. The natural gas marketing segment experienced a significant improvement in operating income, driven by better marketing activities and realized storage contributions, despite lower overall sales volumes and an unrealized loss on open contracts. The other nonutility segment saw a decrease in operating income due to lower transported volumes. Overall, the company's financial position remains robust, with a decrease in the debt-to-capitalization ratio and continued compliance with debt covenants. Investors should note the seasonal nature of the business, the ongoing impact of weather on utility volumes, and the strategic efforts within the marketing segment to improve profitability and manage risk.

Key Highlights

  • 1Net income for the three months ended March 31, 2004, was $58.3 million ($1.12 per diluted share), an increase from $48.5 million ($1.07 per diluted share) in the prior year's quarter.
  • 2For the six months ended March 31, 2004, net income was $87.8 million ($1.69 per diluted share), an increase from $74.3 million ($1.68 per diluted share) in the comparable prior-year period.
  • 3The utility segment's operating income decreased for both the three and six-month periods due to warmer weather and a regulatory refund, partially offset by weather normalization adjustments and the full-year impact of the Mississippi Valley Gas Company acquisition.
  • 4The natural gas marketing segment showed a significant improvement, with operating income increasing to $6.7 million for the three-month period and $19.9 million for the six-month period, compared to operating losses in the prior year.
  • 5Total capital expenditures for the six months ended March 31, 2004, were $83.7 million, an increase from $72.9 million in the prior year.
  • 6Cash flows from operating activities significantly increased to $290.6 million for the six months ended March 31, 2004, from $183.8 million in the prior year, primarily due to improved customer collections.
  • 7The company's debt-to-capitalization ratio decreased to 48.3% as of March 31, 2004, from 53.6% as of September 30, 2003, and the company remains in compliance with all debt covenants.

Frequently Asked Questions

For the three months ended March 31, 2004, Atmos Energy reported operating revenues of $1.117 billion, a decrease from $1.194 billion in the prior year. However, net income increased to $58.3 million ($1.12 per diluted share) from $48.5 million ($1.07 per diluted share) in the same period last year. For the six-month period, operating revenues were $1.881 billion compared to $1.875 billion previously, while net income rose to $87.8 million ($1.69 per diluted share) from $74.3 million ($1.68 per diluted share).

The utility segment's operating income decreased primarily due to warmer weather, which led to lower throughput and a $3.8 million decrease in gross profit margin for the three-month period. A regulatory ruling also resulted in a $1.9 million refund to Colorado customers. These factors were partially offset by a $4.7 million increase in weather normalization adjustments (WNA) and the full-year inclusion of the Mississippi Valley Gas Company acquisition for the six-month period. For the six months, the acquisition contributed $12.8 million to gross profit, while warmer weather reduced it by $12.2 million.

The natural gas marketing segment showed a significant turnaround, with operating income improving to $6.7 million for the three months ended March 31, 2004, from an operating loss of $1.7 million in the prior year. For the six-month period, operating income was $19.9 million, a substantial increase from a $0.4 million loss. This improvement was driven by stronger marketing activities, which contributed $16.8 million to gross profit for the quarter and $29.0 million for the six months, and an increase in realized storage contributions. Despite an unrealized loss on open contracts in the current quarter, overall gross profit margin for the segment rose to $11.9 million from $1.7 million for the quarter.

Atmos Energy generated $290.6 million in cash flow from operating activities for the six months ended March 31, 2004, a significant increase from $183.8 million in the prior year, largely due to improved customer collections. The company's debt-to-capitalization ratio improved to 48.3% from 53.6%. Capital expenditures for the six months were $83.7 million, with projected expenditures of approximately $175 million for the full fiscal year 2004. The company believes its internally generated funds, credit facilities, and capital markets access will provide sufficient liquidity for its needs.