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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number 1-10042
ATMOS ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS AND VIRGINIA 75-1743247
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Three Lincoln Centre, Suite 1800
5430 LBJ Freeway, Dallas, Texas 75240
(Address of principal executive offices) (Zip Code)
(972) 934-9227
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of common stock, as
of May 1, 2001.
Class Shares Outstanding
----- ------------------
No Par Value 40,466,957
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, September 30,
2001 2000
-------------- --------------
(Unaudited)
ASSETS
Property, plant and equipment $ 1,606,692 $ 1,579,803
Less accum. depreciation and amortization 618,949 597,457
-------------- --------------
Net property, plant and equipment 987,743 982,346
Current assets
Cash and cash equivalents 7,623 7,379
Accounts receivable, net 247,753 114,448
Inventories of supplies and merchandise 6,550 6,456
Gas stored underground 25,191 64,222
Prepayments 3,400 8,101
-------------- --------------
Total current assets 290,517 200,606
Deferred charges and other assets 173,866 165,806
-------------- --------------
$ 1,452,126 $ 1,348,758
============== ==============
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Common stock $ 195 $ 160
Additional paid-in capital 455,610 306,887
Retained earnings 129,633 83,154
Accumulated other comprehensive income (loss) (16) 2,265
-------------- --------------
Shareholders' equity 585,422 392,466
Long-term debt 354,330 363,198
-------------- --------------
Total capitalization 939,752 755,664
Current liabilities
Current maturities of long-term debt 15,656 17,566
Short-term debt 52,987 250,047
Accounts payable 136,847 73,031
Taxes payable 83,609 10,844
Customers' deposits 15,884 9,923
Other current liabilities 25,754 21,085
-------------- --------------
Total current liabilities 330,737 382,496
Deferred income taxes 99,273 131,619
Deferred credits and other liabilities 82,364 78,979
-------------- --------------
$ 1,452,126 $ 1,348,758
============== ==============
See accompanying notes to condensed consolidated financial statements.
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ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Three months ended
March 31
-----------------------
2001 2000
---------- ----------
Operating revenues $ 675,113 $ 314,197
Purchased gas cost 536,789 196,070
---------- ----------
Gross profit 138,324 118,127
Operating expenses
Operation 33,160 34,609
Maintenance 1,824 1,845
Depreciation and amortization 15,905 16,490
Taxes, other than income 13,544 9,196
---------- ----------
Total operating expenses 64,433 62,140
---------- ----------
Operating income 73,891 55,987
Equity in earnings of Woodward Marketing, LLC 6,022 1,355
Miscellaneous income 317 333
Interest charges, net 9,817 11,027
---------- ----------
Income before income taxes 70,413 46,648
Income taxes 26,339 17,075
---------- ----------
Net income $ 44,074 $ 29,573
========== ==========
Basic net income per share $ 1.14 $ .94
========== ==========
Diluted net income per share $ 1.13 $ .94
========== ==========
Cash dividends per share $ .290 $ .285
========== ==========
Weighted average shares outstanding:
Basic 38,815 31,332
========== ==========
Diluted 38,919 31,544
========== ==========
See accompanying notes to condensed consolidated financial statements.
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ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Six months ended
March 31
----------------------------
2001 2000
------------ ------------
Operating revenues $ 1,117,903 $ 538,655
Purchased gas cost 869,631 330,978
------------ ------------
Gross profit 248,272 207,677
Operating expenses
Operation 67,429 67,691
Maintenance 3,514 4,187
Depreciation and amortization 31,686 32,990
Taxes, other than income 22,811 16,681
------------ ------------
Total operating expenses 125,440 121,549
------------ ------------
Operating income 122,832 86,128
Equity in earnings of Woodward Marketing, LLC 8,062 4,387
Miscellaneous income (expense) (2,070) 1,259
Interest charges, net 22,063 22,244
------------ ------------
Income before income taxes 106,761 69,530
Income taxes 39,715 25,633
------------ ------------
Net income $ 67,046 $ 43,897
============ ============
Basic net income per share $ 1.87 $ 1.41
============ ============
Diluted net income per share $ 1.87 $ 1.40
============ ============
Cash dividends per share $ .58 $ .57
============ ============
Weighted average shares outstanding:
Basic 35,780 31,226
============ ============
Diluted 35,879 31,440
============ ============
See accompanying notes to condensed consolidated financial statements.
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ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six months ended
March 31
------------------------
2001 2000
---------- ----------
Cash Flows From Operating Activities
Net income $ 67,046 $ 43,897
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization:
Charged to depreciation and
amortization 31,686 32,990
Charged to other accounts 1,475 2,290
Deferred income taxes (benefit) (31,018) 3,987
Net change in operating assets and
liabilities 45,839 29,230
---------- ----------
Net cash provided by operating activities 115,028 112,394
Cash Flows From Investing Activities
Capital expenditures (42,507) (38,400)
Retirements of property, plant and
equipment, net 745 1,513
Proceeds from sale of utility assets 6,625 --
---------- ----------
Net cash used in investing activities (35,137) (36,887)
Cash Flows From Financing Activities
Net decrease in short-term debt (197,060) (41,565)
Cash dividends paid (20,567) (17,916)
Repayment of long-term debt (10,778) (8,313)
Issuance of common stock 6,715 6,696
Proceeds from equity offering, net 142,043 --
---------- ----------
Net cash used in financing activities (79,647) (61,098)
---------- ----------
Net increase in cash and cash equivalents 244 14,409
Cash and cash equivalents at beginning
of period 7,379 8,585
---------- ----------
Cash and cash equivalents at end
of period $ 7,623 $ 22,994
========== ==========
See accompanying notes to condensed consolidated financial statements.
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ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2001
1. Unaudited interim financial information
In the opinion of management, all material adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation have been made to
the unaudited interim period financial statements. Because of seasonal and other
factors, the results of operations for the six month period ended March 31, 2001
are not indicative of expected results of operations for the year ending
September 30, 2001. These interim financial statements and notes are condensed
as permitted by the instructions to Form 10-Q and should be read in conjunction
with the audited consolidated financial statements of Atmos Energy Corporation
in its Annual Report on Form 10-K for the fiscal year ended September 30, 2000.
Common stock - As of March 31, 2001, we had 100,000,000 shares of common stock,
no par value (stated at $.005 per share), authorized and 38,996,205 shares
outstanding. At September 30, 2000, we had 31,952,340 shares outstanding.
Comprehensive income - The following table presents the components of
comprehensive income, net of related tax, for the three-month and six-month
periods ended March 31, 2001 and 2000:
Three months ended
March 31
------------------------
2001 2000
---------- ----------
(In thousands)
Net income $ 44,074 $ 29,573
Unrealized holding gains (losses) on investments (759) 391
Reclassification for losses on derivative financial
instruments included in net income 3,634 --
---------- ----------
Comprehensive income $ 46,949 $ 29,964
========== ==========
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Six months ended
March 31
------------------------
2001 2000
---------- ----------
(In thousands)
Net income $ 67,046 $ 43,897
Unrealized holding gains (losses) on investments (2,281) 1,836
Derivative financial instruments:
Unrealized losses on derivative financial instruments (3,634) --
Less: reclassification for losses included in
net income 3,634 --
---------- ----------
Comprehensive income $ 64,765 $ 45,733
========== ==========
The only components of accumulated other comprehensive income (loss), net of
related tax, relate to unrealized holding gains and losses associated with
certain available for sale investments and unrealized gains and losses
associated with derivative financial instruments.
Reclassifications - Certain prior year amounts have been reclassified to conform
with the current year presentation.
2. Contingencies
Litigation
Greeley Division
On September 23, 1999, a suit was filed in the District Court of Stevens County,
Kansas, by Quinque Operating Company, Tom Boles and Robert Ditto, against more
than 200 companies in the natural gas industry including Atmos and our Greeley
Gas Division. The plaintiffs, who purport to represent a class consisting of gas
producers, royalty owners, overriding royalty owners, working interest owners
and state taxing authorities, accuse the defendants of underpaying royalties on
gas taken from wells situated on non-federal and non-Indian lands throughout the
United States and offshore waters predicated upon allegations that the
defendants' gas measurements are simply inaccurate and that the defendants
failed to comply with applicable regulations and industry standards over the
last 25 years. Although the plaintiffs do not specifically allege an amount of
damages, they contend that this suit is brought to recover billions of dollars
in revenues that the defendants have allegedly unlawfully diverted from the
plaintiffs to themselves. On April 10, 2000, this case was consolidated for
pre-trial proceedings with other similar pending litigation in federal court in
Wyoming in which we are also a defendant along with over 200 other defendants in
the case of In Re Natural Gas Royalties Quitam Litigation. In January 2001, the
federal court elected to remand this case back to the Kansas state court. A
reconsideration of remand was filed, but it was denied. The state court now has
jurisdiction over this proceeding and has issued a preliminary case management
order. We believe that the plaintiffs' claims are lacking in merit and we
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intend to vigorously defend this action. While the results of this litigation
cannot be predicted with certainty, we believe the final outcome of such
litigation will not have a material adverse effect on our financial condition,
results of operations or net cash flows because we believe that we have adequate
reserves to cover any damages that may ultimately be awarded.
Energas Division
On June 22, 2000, suit was filed in the 99th District Court of Lubbock County,
Texas, by Juanita Juarez, individually and on behalf of Moses Benitez, a minor
and Yolanda Davila, individually and on behalf of Isiah Garcia, a minor, against
our Energas Division and one of its employees. The plaintiffs were involved in
an automobile accident with an Energas Division employee who was driving a
vehicle belonging to the Energas Division. The plaintiffs allege that the
Energas employee failed to maintain proper control of the vehicle which failure
led to the plaintiffs being damaged. Although the plaintiffs have not as yet
alleged a total amount of damages, they have submitted evidence that they
incurred in excess of $75,000 in direct medical expenses and alleged that the
two adult plaintiffs will suffer a combined loss of approximately $1.1 million
of earnings capacity as a result of injuries suffered in the incident. We
believe that the plaintiffs' claims are lacking in merit and intend to
vigorously defend this action. While the results of this litigation cannot be
predicted with certainty, we believe the final outcome of such litigation will
not have a material adverse effect on our financial condition, results of
operations or net cash flows because we believe that we have adequate insurance
and reserves to cover any damages that may ultimately be awarded.
United Cities Propane Gas, Inc.
United Cities Propane Gas, Inc., one of our wholly-owned subsidiaries, is a
party to an action filed in June 2000 which is pending in the Circuit Court of
Sevier County, Tennessee. The plaintiffs' claims arise out of injuries alleged
to have been caused by a low-level propane explosion. The plaintiffs seek to
recover damages of $13.0 million. Discovery activities have begun in this case.
We deny any wrongdoing and we intend to vigorously defend against the
plaintiffs' claims. While the results of this litigation cannot be predicted
with certainty, we believe the final outcome of such litigation will not have a
material adverse effect on our financial condition, results of operations or net
cash flows because we believe that we have adequate insurance and reserves to
cover any damages that may ultimately be awarded.
We are a party to other litigation and claims that arise out of our ordinary
business. While the results of such litigation and claims cannot be predicted
with certainty, we believe the final outcome of such litigation and claims will
not have a material adverse effect on our financial condition, results of
operations or net cash flows because we believe that we have adequate insurance
and reserves to cover any damages that may ultimately be awarded.
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Environmental Matters
Manufactured Gas Plant Sites
The United Cities Division is the owner or previous owner of manufactured gas
plant sites in Johnson City and Bristol, Tennessee and Hannibal, Missouri which
were used to supply gas prior to the availability of natural gas. The gas
manufacturing process resulted in certain by-products and residual materials
including coal tar. The manufacturing process used by us was an acceptable and
satisfactory process at the time such operations were being conducted. Under
current environmental protection laws and regulations, we may be responsible for
response actions with respect to such materials if response actions are
necessary.
United Cities Gas Company and the Tennessee Department of Environment and
Conservation entered into a consent order effective January 23, 1997, to
facilitate the investigation, removal and remediation of the Johnson City site.
United Cities Gas Company began the implementation of the consent order in the
first quarter of 1997 which continued through March 31, 2001. The investigative
phase of the work at the site has been completed. Work on an interim removal
action is scheduled for 2001. The Tennessee Regulatory Authority granted United
Cities Gas Company permission to defer, until its next rate case, all costs
incurred in Tennessee in connection with state and federally mandated
environmental control requirements.
On July 22, 1998, we entered into an Abatement Order on Consent with the
Missouri Department of Natural Resources addressing the former manufactured gas
plant located in Hannibal, Missouri. Through our United Cities Division, we
agreed to perform a removal action, a subsequent site evaluation and to
reimburse the response costs incurred by the state of Missouri in connection
with the property. The removal action was conducted and completed in August
1998, and the site evaluation field work was conducted in August 1999. A risk
assessment for the site is currently being performed. On March 9, 1999, the
Missouri Public Service Commission issued an Order authorizing us to defer the
costs associated with this site until March 9, 2001. A renewal of the Order has
been requested. The matter is still pending before the Commission.
As of March 31, 2001, we had incurred costs of approximately $0.9 million for
the investigations of the Johnson City and Bristol, Tennessee and Hannibal,
Missouri sites and had a remaining accrual of $0.8 million.
Mercury Contamination Sites
We are currently conducting investigation and remediation activities pursuant to
Consent Orders between the Kansas Department of Health and Environment and
United Cities Gas Company. The Orders provide for the investigation and
remediation of mercury contamination at gas pipeline sites which utilize or
formerly utilized mercury meter equipment in Kansas. As of March 31, 2001, we
had incurred costs of $0.1 million for these sites and had a remaining accrual
of $0.3 million for recovery. The Kansas
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Corporation Commission has authorized us to defer these costs and seek recovery
in a future rate case.
We are a party to other environmental matters and claims, including those
discussed above, that arise out of our ordinary business. While the ultimate
results of response actions to these environmental matters and claims cannot be
predicted with certainty, we believe the final outcome of such response actions
will not have a material adverse effect on our financial condition, results of
operations or net cash flows because we believe that the expenditures related to
such response actions will either be recovered through rates, shared with other
parties or covered by adequate insurance or reserves.
3. Short-term debt
Committed credit facilities
We have short-term committed credit facilities totaling $800.0 million. On
August 3, 2000, we entered into a $485.0 million restricted short-term unsecured
credit facility with interest starting at LIBOR plus 75 basis points which is to
be utilized only to provide $385.0 million of bridge financing for the
acquisition of the assets and related costs of Louisiana Gas Service Company, a
division of Citizens Communications Company and LGS Natural Gas Company, a
subsidiary of Citizens and $100.0 million for refinancing certain existing debt.
This facility expires on August 3, 2001.
A second short-term unsecured credit facility, which serves as a backup
liquidity facility for our commercial paper program, is for $300.0 million. Our
commercial paper is rated A-2 by Standard and Poor's and P-2 by Moody's. At
March 31, 2001, $51.0 million of commercial paper was outstanding. A third
facility is for $15.0 million. At March 31, 2001, $2.0 million was outstanding
under this credit facility. On April 1, 2001, this facility was renewed and
increased to $18.0 million. These credit facilities are negotiated at least
annually and are used for working capital purposes.
Uncommitted credit facilities
We also have unsecured short-term uncommitted credit lines from three banks
totaling $90.0 million. No amounts were outstanding under these credit
facilities at March 31, 2001. These facilities are also used for working capital
purposes.
4. Earnings per share
Basic earnings per share has been computed by dividing net income for the period
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share has been computed by dividing net income for the
period by the weighted average number of common shares outstanding during the
period adjusted for the assumed exercise of restricted stock and other
contingently issuable shares of common stock. Net income for basic and diluted
earnings per share are the same, as there are no contingently issuable shares of
stock whose issuance would have impacted
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net income. A reconciliation between basic and diluted weighted average common
shares outstanding follows:
For the three months ended
March 31
--------------------------
2001 2000
---------- ----------
Weighted average common shares - basic 38,815 31,332
Effect of dilutive securities:
Restricted stock 92 207
Stock options 12 5
---------- ----------
Weighted average common shares - assuming
dilution 38,919 31,544
========== ==========
For the six months ended
March 31
------------------------
2001 2000
---------- ----------
Weighted average common shares - basic 35,780 31,226
Effect of dilutive securities:
Restricted stock 92 207
Stock options 7 7
---------- ----------
Weighted average common shares - assuming
dilution 35,879 31,440
========== ==========
5. Segment information
In accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information", we have
identified the following two segments: Utility and Non-Regulated. For an
expanded description of these segments, please refer to Note 1 of notes to
consolidated financial statements in our Annual Report on Form 10-K for the year
ended September 30, 2000. For the year ended September 30, 2000 and periods
prior thereto, we had identified three segments: Utility, Propane and
Non-Regulated. However, in August 2000, we combined our propane operations with
the propane operations of three other companies and the resulting combined joint
venture combined its operations with Heritage Propane Partners, LLC. As a result
of these transactions, the Propane segment for prior periods has been combined
with the Non-Regulated segment. For periods prior to August 2000, the revenues
and expenses of the propane operations were shown on a consolidated basis.
Subsequent to August 2000, results relating to Heritage Propane Partners, LLC
are accounted for using the equity method of accounting for investments based on
our percentage ownership.
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Summarized financial information concerning our reportable segments for the
three months and six months ended March 31, 2001 and 2000 are shown in the
following table:
Non-
Utility Regulated Total
------------ ------------ ------------
(In thousands)
For the three months ended
March 31, 2001:
Operating revenues for reportable
segments $ 647,292 $ 28,945 $ 676,237
Elimination of intersegment
revenues (364) (760) (1,124)
------------ ------------ ------------
Total operating revenues 646,928 28,185 675,113
Net income 35,941 8,133 44,074
March 31, 2000:
Operating revenues for reportable
segments 283,922 31,879 315,801
Elimination of intersegment
revenues (708) (896) (1,604)
------------ ------------ ------------
Total operating revenues 283,214 30,983 314,197
Net income 26,486 3,087 29,573
As of and for the six months ended
March 31, 2001:
Operating revenues for reportable
segments 1,075,754 44,912 1,120,666
Elimination of intersegment
revenues (1,117) (1,646) (2,763)
------------ ------------ ------------
Total operating revenues 1,074,637 43,266 1,117,903
Net income 58,779 8,267 67,046
Total assets 1,353,452 115,229 1,468,681
March 31, 2000:
Operating revenues for reportable
segments 493,218 48,508 541,726
Elimination of intersegment
revenues (1,304) (1,767) (3,071)
------------ ------------ ------------
Total operating revenues 491,914 46,741 538,655
Net income 37,590 6,307 43,897
Total assets 1,181,535 99,024 1,280,559
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A reconciliation of total assets for the reportable segments to total
consolidated assets for March 31, 2001 and 2000 is presented below:
March 31
----------------------------
2001 2000
------------ ------------
(In thousands)
Total assets for reportable segments $ 1,468,681 $ 1,280,559
Elimination of intercompany accounts (16,555) (3,878)
------------ ------------
Total consolidated assets $ 1,452,126 $ 1,276,681
============ ============
6. Derivative Instruments and Hedging Activities
In July 2000, we entered into an agreement to purchase weather hedges for our
Texas and Louisiana operations effective for the 2000-2001 heating season. The
hedges were designed to help mitigate the effects of weather that was at least
seven percent warmer than normal in both Texas and Louisiana while preserving
any upside.
Effective October 1, 2000, we adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that all
derivative financial instruments be recognized in the financial statements and
measured at fair value regardless of the purpose or intent for holding them.
Changes in the fair value of derivative financial instruments are either
recognized periodically in income or shareholders' equity (as a component of
other comprehensive income), depending on the classification of the derivative.
Derivative instruments may be classified as either fair value hedges, cash flow
hedges or net investment in a foreign operation hedges. The cumulative effect of
the change in accounting for the adoption of this Statement did not have a
material impact on our financial position, results of operations or cash flows.
Our derivative financial instruments are classified as cash flow hedges because
they hedge forecasted sales or purchases of natural gas. We primarily use
futures and options contracts in our hedging activities. Once a derivative
financial instrument is classified as a cash flow hedge, the effective portions
of changes in the fair value of the instrument are recorded in other
comprehensive income and are recognized in the consolidated statement of income
when the hedged item affects earnings. Ineffective portions of changes in the
fair value of cash flow hedges are recognized in earnings. Our derivative
financial instruments are highly effective, thus the changes in fair value of
the instruments are recognized in shareholders' equity as a component of other
comprehensive income.
Our hedging activities are used primarily in our non-regulated irrigation
business and underground storage business. In our non-regulated irrigation
business, we use derivative instruments to hedge certain volumes of gas to be
purchased that will ultimately be used to fulfill sales contracts. The objective
of using these derivative instruments is to help
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mitigate market fluctuations related to the purchase price. In our non-regulated
underground storage business, we use derivative instruments to hedge forecasted
sales prices on withdrawals from our underground storage facilities to help
minimize our exposure to market volatility. Any amounts recognized as gains and
losses reported in other comprehensive income will be reclassified into earnings
upon the completion of the purchase of gas related to the hedge for irrigation
and upon the ultimate sale of gas from our underground storage facilities
related to the hedge instrument. As of March 31, 2001, we did not have any
derivative financial instruments outstanding. Our other gas contracts meet the
exclusion criteria for normal purchases and sales; thus, they are not accounted
for as derivative financial instruments.
For the three months ended March 31, 2001, $3.6 million relating to our hedging
activities originally reflected in comprehensive income was recognized in net
income. For the six months ended March 31, 2001, an unrecognized loss of $3.6
million relating to our hedging activities recorded in comprehensive income was
offset by a reclassification of $3.6 million for losses recognized in net
income.
7. Woodward Marketing, LLC
In August 2000, we entered into an agreement with Woodward Marketing, Inc.
("WMI") to acquire the 55 percent interest in Woodward Marketing, LLC, a
Delaware limited liability company, ("Woodward") that we did not own in exchange
for 1,423,193 restricted shares of Atmos common stock. The consideration is
subject to an upward adjustment based on the market price of Atmos common stock.
The maximum number of additional shares that could be issued under the
adjustment provision is 232,547 plus an amount to compensate for dividends paid
after the completion of the acquisition. On April 1, 2001, we completed the
acquisition of the remaining 55 percent interest in Woodward.
Beginning April 1, 2001, all of Woodward's revenues and expenses will be fully
consolidated with Atmos. Prior to April 1, 2001, our 45 percent interest in
Woodward was accounted for using the equity method of accounting for
investments. Woodward is engaged in gas marketing, trading and energy management
services. Woodward provides natural gas services to industrial customers,
municipalities and natural gas utilities, including our five regulated utility
divisions, throughout the Southeast and Midwest. To perform these services,
Woodward engages in the physical marketing and trading of natural gas and
executes related financial derivatives for the overall management of its
contractual portfolio and physical positions.
To conduct its risk management and trading activities, Woodward uses storage,
transportation and requirements contracts, forwards, over-the-counter and
exchange-traded options, futures and swap contracts. As a result of these
activities and the nature of its business, Woodward is subject to market
volatility with respect to gas prices. In addition, we expect that working
capital requirements for our non-regulated business will increase significantly
as a result of the acquisition of the remaining 55 percent interest in Woodward.
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Prior to April 1, 2001, through Atmos Energy Marketing, LLC ("AEM"), our
wholly-owned subsidiary, we owned a 45 percent interest in Woodward. We
accounted for our 45 percent interest in Woodward using the equity method of
accounting for investments. Equity in earnings of Woodward included in the
condensed consolidated statements of income was $6.0 million and $1.4 million
for the three months ended March 31, 2001 and 2000 and $8.1 million and $4.4
million for the six months ended March 31, 2001 and 2000. The $5.4 million
excess purchase price over the value of the net tangible assets, which was
allocated to customer contracts and goodwill, is being amortized over 10 and 20
years. In 1999, Woodward adopted Emerging Issues Task Force 98-10, "Accounting
for Contracts Involved in Energy Trading and Risk Management Activities," ("EITF
98-10"). EITF 98-10 requires that energy trading contracts be marked to market
(that is, measured at fair value determined as of the balance sheet date) with
the gains and losses included in earnings. During our first quarter of fiscal
2001, Woodward adopted Emerging Issues Task Force 00-17, "Measuring the Fair
Value of Energy-Related Contracts in Applying EITF Issue No. 98-10" ("EITF
00-17"). EITF 00-17 extends the requirements under EITF 98-10 to storage and
transportation contracts. Beginning April 1, 2001, Woodward adopted Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities," as amended. The cumulative effect of the change in
accounting for the adoption of this Statement did not have a material impact on
our financial position, results of operations or cash flows.
Guarantees
Through March 31, 2001, AEM guaranteed the payment of 45 percent of borrowings
under Woodward's $140.0 million credit facility. No borrowing was outstanding
under this credit facility at March 31, 2001; however, related letters of credit
totaling $90.8 million reduced the amount available under this facility. AEM and
WMI acted as guarantors on payables of Woodward up to $40.0 million of natural
gas purchases and transportation services from certain suppliers. Woodward's
payable balances outstanding that were subject to these guarantees amounted to
$16.9 million at March 31, 2001. Since April 1, 2001, AEM has been the sole
guarantor of all amounts outstanding under the bank facility discussed above as
well as the sole guarantor of all payables of Woodward for natural gas purchases
and transportation services from suppliers.
Gas Purchases
Included in purchased gas cost were purchases from Woodward of approximately
$219.6 million and $50.3 million for the three-month periods ended March 31,
2001 and 2000 and approximately $364.5 million and $98.7 million for the
six-month periods ended March 31, 2001 and 2000.
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Revolving Credit Facility
In June 2000, AEM established an unsecured revolving credit facility with
Woodward whereby Woodward may borrow up to $15.0 million on a revolving credit
basis. In December 2000, the credit facility with Woodward was increased to
$30.0 million and subsequently to $50.0 million in January 2001. The term of the
facility is for one year ending on May 31, 2001. Interest is paid monthly and
adjusted periodically at a rate equal to the One Month LIBOR plus 125 basis
points. At March 31, 2001, $3.1 million in advances were outstanding under this
facility.
8. Subsequent Event
During the fiscal third quarter of 2001, we announced that our wholly-owned
subsidiary, Atmos Power Systems Inc., had entered into an agreement to
construct, own, operate and lease to the City of Bolivar, Tennessee Electric
Department an electrical power generating plant and associated facilities.
Atmos Power Systems' cost to construct the plant is estimated to be approximate
ly $4.0 million. The plant will be located in Hardeman County, Tennessee.
Atmos Power Systems, Inc. will lease the Hardeman Plant to the Bolivar Electric
Department for a term of ten years. The plant is designed to provide additional
peak load electrical power capacity to Bolivar Electric. In connection with its
lease of the Hardeman Plant, Bolivar Electric has also entered into a power
purchase agreement with the Tennessee Valley Authority. The terms of the
agreement specify that the Tennessee Valley Authority will purchase from Bolivar
Electric the electrical power generated by the Hardeman Plant.
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
Atmos Energy Corporation
We have reviewed the accompanying condensed consolidated balance sheet of Atmos
Energy Corporation as of March 31, 2001 and the related condensed consolidated
statements of income and cash flows for the three-month periods and six-month
periods ended March 31, 2001 and 2000. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Atmos Energy
Corporation as of September 30, 2000, and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended (not
presented herein) and in our report dated November 8, 2000, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of September 30, 2000 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
Dallas, Texas
April 17, 2001
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The following discussion should be read in conjunction with the condensed
consolidated financial statements contained in this Quarterly Report on Form
10-Q and Management's Discussion and Analysis contained in our Annual Report on
Form 10-K for the year ended September 30, 2000.
We distribute and sell natural gas to over one million residential, commercial,
industrial, agricultural and other customers in eleven states. Such business is
subject to regulation by state and/or local authorities in each of the states in
which we operate. In addition, our business is affected by seasonal weather
patterns, competitive factors within the energy industry and economic conditions
in the areas that we serve.
Cautionary Statement for the Purposes of the Safe Harbor under the Private
Securities Litigation Reform Act of 1995
The statements contained in this Quarterly Report on Form 10-Q may contain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical facts
included in the Report are forward-looking statements made in good faith by the
Company and are intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995. When used
in this Report, any other of the Company's documents or oral presentations, the
words "anticipate," "expect," "estimate," "plans," "believes," "objective,"
"forecast," "goal" or similar words are intended to identify forward-looking
statements. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied in the statements relating to the Company's strategy,
operations, markets, services, rates, recovery of costs, availability of gas
supply and other factors. These risks and uncertainties include the following:
national, regional and local economic conditions, including competition from
other energy suppliers as well as alternative forms of energy; regulatory and
business trends and decisions, including the impact of pending rate proceedings
before various state regulatory commissions; successful implementation of new
technologies and systems, including any technologies and systems related to the
Company's customer support center and billing operations; weather conditions
that would be adverse to the Company's business such as warmer than normal
weather in the Company's service territories; successful completion, financing
and integration of acquisitions; inflation and the volatility of commodity
prices for natural gas; hedging and market risk activities; further deregulation
or "unbundling" of the natural gas distribution industry and other
uncertainties, all of which are difficult to predict and many of which are
beyond the control of the Company. Accordingly, while the Company believes these
forward-looking statements to be reasonable, there can be no assurance that they
will approximate actual experience or that the expectations derived from them
will be
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realized. Further, the Company undertakes no obligation to update or revise any
of its forward-looking statements whether as a result of new information, future
events or otherwise.
Effects of Increased Gas Prices
During the past year, natural gas prices throughout the country began to
increase significantly. The increase in natural gas prices escalated during the
first six months of fiscal 2001. For the six months ended March 31, 2001, our
average cost of gas per Mcf sold increased 123 percent to $7.50 compared to
$3.36 for the six months ended March 31, 2000.
Although we expect to recover our purchased gas costs from ratepayers through
purchased gas adjustment mechanisms, there is a lag between the time we pay for
gas purchases and the time when regulators allow us to place higher rates in
service and recover those gas costs. Where allowed, we have increased our
purchased gas adjustments to help mitigate the increasing cost of gas. However,
as a result of the time lag previously mentioned, we have utilized short-term
borrowings to temporarily finance unrecovered purchased gas costs. In addition,
as a result of the increased gas costs, our accounts receivable balances during
the first six months of fiscal 2001 have increased significantly. Due to our
increase in accounts receivable, we also increased our allowance for doubtful
accounts.
Ratemaking Activity
In August 1999, the Energas Division filed a rate case in its West Texas System
cities requesting a rate increase of approximately $9.8 million annually. This
request was denied by the 67 cities served by our West Texas System. In March
2000, this decision was appealed to the Railroad Commission of Texas.
Subsequently, 59 cities representing approximately 58 percent of Energas'
customers ratified a non-binding Settlement Agreement. The Settlement Agreement
capped the rate increase at $3.0 million and entitled the ratifying cities to
accept a rate increase below $3.0 million in the event the Railroad Commission
adopted a lesser increase for the non-ratifying cities. Eight cities declined to
participate in the settlement and a hearing with the Railroad Commission was
held in August 2000. In December 2000, the Railroad Commission approved an
increase in annual revenues of approximately $3.0 million effective December 1,
2000. In addition, the Railroad Commission approved a new rate design providing
more protection from warmer than normal weather.
In February 2000, the United Cities Division filed a rate case in Illinois with
the Illinois Commerce Commission requesting an increase in revenues of
approximately $3.1 million annually. After review by the Illinois Commerce
Commission, the amount requested was revised to approximately $2.1 million. The
United Cities Division received an increase in annual revenues of approximately
$1.4 million. The new rates went into effect on October 23, 2000 and will be
collected primarily through an increase in customer charges.
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In March 2000, the United Cities Division filed a rate case in Virginia with the
State Corporation Commission of the Commonwealth of Virginia requesting an
increase in annual revenues of approximately $2.3 million. The State Corporation
Commission of Virginia reviewed the filing to determine if it met the
appropriate rules and regulations. In July 2000, we refiled the case requesting
an increase in revenues of approximately $2.1 million. The Commission accepted
the revised filing. In April 2001, the United Cities Division agreed to an
annual rate reduction of $0.5 million effective for the April 2001 billing
cycle.
In March 2001, the United Cities Division and the Iowa Consumer Advocate
Division of the Department of Justice reached an agreement for an annual rate
reduction of $0.3 million relating to our Iowa operations. The rate reduction
was effective March 2001.
In November 2000, the Greeley Division filed a rate case with the Colorado
Public Utilities Commission for approximately $4.2 million in annual revenues.
In May 2001, we received an increase in annual revenues of approximately $2.8
million from the Colorado Public Utilities Commission. The new rates went into
effect on May 4, 2001.
We continue to monitor rates in all of our service areas for recovery of service
costs and an adequate return on investment.
Weather and Seasonality
Our natural gas distribution business and irrigation sales business is seasonal
and dependent upon weather conditions in our service areas. Natural gas sales to
residential, commercial and public authority customers are affected by winter
heating season requirements. This generally results in higher operating revenues
and net income during the period from October through March of each year and
lower operating revenues and either net losses or lower net income during the
period from April through September of each year. Sales to industrial customers
are much less weather sensitive. Sales to agricultural customers, who typically
use natural gas to power irrigation pumps during the period from March through
September, are affected by rainfall amounts and the price of natural gas.
Weather for the six months ended March 31, 2001, excluding service areas with
weather normalized operations, was 11 percent colder than normal and 37 percent
colder than weather in the corresponding period of the prior year.
The effects of weather that is colder or warmer than normal are offset in the
Tennessee and Georgia jurisdictions served by the United Cities Division and in
the Kentucky jurisdiction served by the Western Kentucky Division through
weather normalization adjustments ("WNAs"). The Georgia Public Service
Commission, the Tennessee Regulatory Authority and the Kentucky Public Service
Commission have approved WNAs. The WNAs, effective October through May each year
in Georgia, and November through April each year in Tennessee and Kentucky,
allow the United Cities Division and Western Kentucky Division to increase the
base rate portion of customers' bills when weather is warmer than normal and
decrease the base rate when weather is colder than
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21
normal. The net effect of the WNAs was a decrease in revenues of approximately
$2.6 million for the six months ended March 31, 2001, as compared with an
increase of $3.9 million for the six months ended March 31, 2000. Approximately
375,000 or 34 percent of our meters in service are located in Georgia, Tennessee
and Kentucky. We did not have WNAs in our other service areas during the six
months ended March 31, 2001.
In July 2000, we entered into an agreement to purchase weather hedges for our
Texas and Louisiana operations effective for the 2000-2001 heating season. The
hedges were designed to help mitigate the effects of weather that was at least
seven percent warmer than normal in both Texas and Louisiana while preserving
any upside. The cost of the weather hedges was more than offset by the positive
effects of colder weather on our gross profit.
Status of Pending Acquisition
In April 2000, we entered into a definitive agreement to acquire the gas
operations of Louisiana Gas Service Company, a division of Citizens
Communications Company and LGS Natural Gas Company, a subsidiary of Citizens,
for $375.0 million. In December 2000, the purchase price was adjusted to $365.0
million. On April 18, 2001, the Louisiana Public Service Commission ("LPSC")
approved the purchase by Atmos of the assets of Louisiana Gas Service Company
and LGS Natural Gas Company. The acquisition is anticipated to be completed June
30, 2001.
The rate structure agreed to by the parties and approved by the LPSC contains a
mechanism that establishes a method of sharing with our ratepayers cost savings
that result from the acquisition. The cost savings will be the difference
between operation and maintenance expense in any future year and the 1998
normalized costs for Louisiana Gas Service Company, indexed for inflation,
annual changes in labor costs and customer growth.
The ratepayers are not assured any savings in 2001. In 2002 and all future years
in which the sharing mechanism is in effect, the ratepayers are assured annual
savings, indexed for inflation, annual changes in labor costs and customer
growth.
Atmos will be allowed to include its share of the savings each year as a cost of
service adjustment item. The sharing mechanism will remain in place for 20 years
subject to modification by escalators that have been built into the mechanism.
Louisiana Gas Service Company's rates are subject to a purchased gas adjustment
clause that allows them to pass changes in gas costs on to its customers. We
will be subject to the same clause after the closing. Louisiana Gas Service
Company is currently involved in a proceeding with the LPSC regarding past costs
associated with the purchase of gas that were charged to ratepayers. As
contemplated in the purchase agreement between us and Citizens, we will take
over defense of that proceeding after closing and we will have responsibility to
the LPSC for any finding of liability on the part of Louisiana Gas Service
Company. However, as provided in the purchase agreement, Citizens has agreed
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to fully indemnify us for any liability as a result of this proceeding, and
consequently we do not believe the outcome of this proceeding will have a
material adverse impact on us.
On January 29, 2001, the LPSC approved a rate stabilization clause for Louisiana
Gas Service Company for a three-year period beginning January 1, 2001. Under the
rate stabilization clause, Louisiana Gas Service Company will be allowed to earn
a return on equity within certain earnings ranges that will be monitored on an
annual basis.
Acquisition Strategy
We will continue to consider the acquisitions of both utility and non-regulated
businesses in the future when we believe such acquisitions will financially
enhance our growth and will be financially practicable. The specific type and
structure of such potential transactions and the method of financing, which will
typically involve the issuance of additional debt and/or equity securities, will
be determined by management and our Board of Directors. The ability to issue
additional securities is dependent on, among other things, conditions in the
capital markets, regulatory approvals and our earnings and cash flows. We
currently intend to seek acquisitions that are not expected to impact
significantly our current debt to equity ratio, but we cannot provide assurance
that we will be successful in continuing the current balance of debt and equity
in our capital structure.
FINANCIAL CONDITION
For the six months ended March 31, 2001, net cash provided by operating
activities totaled $115.0 million compared with $112.4 million for the six
months ended March 31, 2000. The increase in net cash provided by operating
activities was primarily the result of an increase in net income, increases in
accounts payable and taxes payable and decreases in gas stored underground and
prepayments partially offset by increases in accounts receivable and deferred
charges and other assets. In addition, the increase was offset by a deferred
income tax benefit. The increase in net income was primarily due to higher gross
profits due to increased volumes and rate increases as well as an increase in
our equity earnings of Woodward. This increase was partially offset by increased
operating expenses as well as a decrease in miscellaneous income (expense) as a
result of charges incurred related to our performance based-ratemaking
mechanisms and amortization relating to weather hedges purchased for our
Louisiana and Texas operations.
For the six months ended March 31, 2001, net cash used in investing activities
totaled $35.1 million compared with $36.9 million for the six months ended March
31, 2000. Major cash flows used in investing activities for the six months ended
March 31, 2001 included capital expenditures of $42.5 million compared with
$38.4 million for the six months ended March 31, 2000. The capital expenditures
budget for fiscal 2001, excluding acquisitions, is expected to be in the range
of $85.0 million to $90.0 million as compared with actual capital expenditures
of $75.6 million for fiscal 2000. Budgeted capital projects for fiscal 2001
include expenditures for additional mains, services, meters
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and equipment. On June 30, 2001, we also plan to complete the Louisiana Gas
Service Company acquisition for $365.0 million. Subsequent to the acquisition of
Louisiana Gas Service Company, we anticipate capital expenditures relating to
those operations to be approximately $3.0 million for the remainder of the
fiscal year. Capital expenditures and acquisitions for fiscal 2001 are planned
to be financed from internally generated funds and financing activities as
discussed below. For the six months ended March 31, 2001, we received net
proceeds of $6.6 million in connection with the sale of certain utility assets.
For the six months ended March 31, 2001, net cash used by financing activities
totaled $79.6 million compared with $61.1 million for the six months ended March
31, 2000. For the six-month period ended March 31, 2001, short-term debt
decreased $197.1 million compared with a decrease of $41.6 million for the six
months ended March 31, 2000. The net proceeds from the equity offering discussed
below were used to reduce the amount of short-term debt. Repayments of long-term
debt totaled $10.8 million for the six months ended March 31, 2001 compared with
$8.3 million for the six months ended March 31, 2000. We paid $20.6 million in
cash dividends during the six months ended March 31, 2001 compared with
dividends of $17.9 million during the six months ended March 31, 2000. This
reflects increases in the quarterly dividend rate and in the number of shares
outstanding. During the six months ended March 31, 2001, we issued 7,043,865
shares of common stock. Of these, 6,741,500 shares were issued in December 2000
in our equity offering which was priced at $22.25 per share. The net proceeds
from the equity offering totaled approximately $142.0 million after underwriting
discounts. The net proceeds were used to reduce short-term debt outstanding as
discussed above.
The following table presents the number of shares issued for the six-month
periods ended March 31, 2001 and 2000:
Six months ended
March 31
-----------------------
2001 2000
---------- ----------
Shares issued:
Employee Stock Ownership Plan 94,002 118,277
Direct Stock Purchase Plan 198,878 215,101
Outside Directors Stock-for-Fee Plan 1,117 1,127
United Cities Long-Term Stock Plan 3,700 --
Long-Term Incentive Plan 4,668 --
Equity Offering 6,741,500 --
---------- ----------
Total shares issued 7,043,865 334,505
========== ==========
We believe that internally generated funds, our credit facilities, commercial
paper program and access to the public capital markets will provide necessary
working capital and liquidity for capital expenditures and other cash needs for
the remainder of fiscal 2001, even with the anticipated significant increase in
working capital requirements for our non-regulated business after the Woodward
acquisition, as discussed previously.
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At March 31, 2001, we have $800.0 million in committed short-term credit
facilities. On August 3, 2000, we entered into a $485.0 million restricted
short-term unsecured credit facility with interest starting at LIBOR plus 75
basis points which is to be utilized only to provide $385.0 million of bridge
financing for the acquisition of the assets and related costs of Louisiana Gas
Service Company, a division of Citizens Communications Company and LGS Natural
Gas Company, a subsidiary of Citizens and $100.0 million for refinancing certain
existing debt. This facility expires on August 3, 2001.
A second short-term unsecured credit facility, which serves as a backup
liquidity facility for our commercial paper program, is for $300.0 million. Our
commercial paper is rated A-2 by Standard and Poor's and P-2 by Moody's. At
March 31, 2001, $51.0 million of commercial paper was outstanding. A third
facility is for $15.0 million. At March 31, 2001, $2.0 million was outstanding
under this credit facility. On April 1, 2001, this facility was renewed and
increased to $18.0 million. These credit facilities are negotiated at least
annually and are used for working capital purposes.
We also have unsecured short-term uncommitted credit lines from three banks
totaling $90.0 million. No amounts were outstanding under these credit
facilities at March 31, 2001. These facilities are also used for working capital
purposes.
In December 1999, we filed a universal shelf registration statement with the
Securities and Exchange Commission to issue, from time to time, up to $500.0
million in new common stock and/or debt. At March 31, 2001, we had approximately
$350.0 million available to issue under the shelf registration statement.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001, Compared with Three Months Ended March 31,
2000
Operating revenues increased by 115 percent to $675.1 million for the three
months ended March 31, 2001 from $314.2 million for the three months ended March
31, 2000. The most significant factors contributing to the increase in operating
revenues were a 98 percent increase in average sales price due to the increased
cost of gas and a 13 percent increase in sales and transportation volumes due to
colder weather. During the quarter ended March 2001, excluding service areas
with weather normalized operations, temperatures were 31 percent colder than in
the corresponding quarter of the prior year and were two percent colder than the
30-year normal. The total volume of gas sold and transported for the three
months ended March 31, 2001 was 79.4 billion cubic feet compared with 70.1
billion cubic feet for the three months ended March 31, 2000. The average sales
price per Mcf sold increased $5.19 or 98 percent to $10.48 primarily due to an
increase in the average cost of gas. The average cost of gas per Mcf sold
increased 154 percent to $8.53 for the three months ended March 31, 2001 from
$3.36 for the three months ended March 31, 2000. In addition, operating revenues
increased due to the impact of rate increases in Illinois and West Texas, as
well as the addition of approximately 48,000 customers in Missouri due to the
Associated Natural Gas
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acquisition completed in fiscal 2000. However, operating revenues were partially
offset by a reduction related to our former propane assets which were placed
into a joint venture partnership in August 2000, as described previously. For
additional information on our former propane operations, see the "Consolidated
Operating Statistics" tables that follow.
Gross profit increased by 17 percent to $138.3 million for the three months
ended March 31, 2001 from $118.1 million for the three months ended March 31,
2000. The increase in gross profit was due to the increase in volumes sold to
weather sensitive customers and an increase of $1.8 million in transportation
revenues due to higher average transportation revenue per Mcf. In addition,
gross profit increased due to the impact of rate increases and the additional
customers, partially offset by a reduction related to our former propane
operations, as discussed previously. Changes in the cost of gas do not directly
affect gross profit because the fluctuations in gas prices are passed through to
the customer.
Operating expenses increased to $64.4 million for the three months ended March
31, 2001 from $62.1 million for the three months ended March 31, 2000. Operation
and maintenance expense decreased due to savings resulting from the continued
cost control initiatives started during fiscal 2000 and reduced operations and
maintenance expenses associated with our former propane operations which were
placed into a joint venture partnership in fiscal 2000. An increase in the
provision for doubtful accounts of $1.4 million and pension costs of $1.6
million partially offset this decrease. Taxes other than income increased as a
result of increased city franchise taxes and state gross receipts taxes, which
are revenue based. However, these taxes are paid by the customer; thus, these
amounts are offset in revenues through customer billings and have no effect on
net income.
Operating income increased 32 percent for the three months ended March 31, 2001
to $73.9 million from $56.0 million for the three months ended March 31, 2000.
The increase in operating income resulted primarily from increased gross profit
described above.
Equity in earnings of Woodward Marketing, LLC increased $4.7 million for the
three months ended March 31, 2001 compared with the three months ended March 31,
2000. This increase was due to an increase in our earnings from our 45 percent
interest in Woodward due to exposure to the volatility of current gas prices.
Interest expense decreased $1.2 million, or 11 percent, for the three months
ended March 31, 2001 compared with the three months ended March 31, 2000 due
primarily to lower average outstanding short-term debt balances. In addition,
lower weighted average interest rates on short-term debt helped to reduce
interest expense.
Net income increased for the three months ended March 31, 2001 by $14.5 million
to $44.1 million from $29.6 million for the three months ended March 31, 2000.
This increase in net income resulted primarily from the increase in sales
volumes due to the colder than normal weather and the impact of rate increases
discussed above.
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Six Months Ended March 31, 2001, Compared with Six Months Ended March 31, 2000
Operating revenues increased by 108 percent to $1.1 billion for the six months
ended March 31, 2001 from $538.7 million for the six months ended March 31,
2000. The most significant factors contributing to the increase in operating
revenues were a 78 percent increase in average sales price due to the increased
cost of gas and a 19 percent increase in sales and transportation volumes due to
colder weather. During the six-month period ended March 2001, excluding service
areas with weather normalized operations, temperatures were 37 percent colder
than in the corresponding period of the prior year and were 11 percent colder
than the 30-year normal. The total volume of gas sold and transported for the
six months ended March 31, 2001 was 147.4 billion cubic feet compared with 123.8
billion cubic feet for the six months ended March 31, 2000. The average sales
price per Mcf sold increased $4.13 or 78 percent to $9.44 primarily due to an
increase in the average cost of gas. The average cost of gas per Mcf sold
increased 123 percent to $7.50 for the six months ended March 31, 2001 from
$3.36 for the six months ended March 31, 2000. In addition, operating revenues
increased due to the impact of rate increases in Kentucky, Illinois, Amarillo,
Texas, and West Texas, as well as the addition of approximately 48,000 customers
in Missouri due to the Associated Natural Gas acquisition completed in fiscal
2000. However, operating revenues were partially offset by a reduction related
to our former propane assets which were placed into a joint venture partnership
in August 2000, as described previously. For additional information on our
former propane operations, see the "Consolidated Operating Statistics" tables
that follow.
Gross profit increased by 20 percent to $248.3 million for the six months ended
March 31, 2001 from $207.7 million for the six months ended March 31, 2000. The
increase in gross profit was due to the increase in volumes sold to weather
sensitive customers and an increase of $2.9 million in transportation revenues
due to higher average transportation revenue per Mcf and increased volumes. In
addition, gross profit increased due to the impact of rate increases and the
additional customers, partially offset by a reduction related to our former
propane operations, as discussed previously. Changes in the cost of gas do not
directly affect gross profit because the fluctuations in gas prices are passed
through to the customer.
Operating expenses increased to $125.4 million for the six months ended March
31, 2001 from $121.5 million for the six months ended March 31, 2000. Operation
and maintenance expense decreased slightly due to savings resulting from the
continued cost control initiatives started during fiscal 2000 and reduced
operations and maintenance expenses associated with our former propane
operations which were placed into a joint venture partnership in fiscal 2000. An
increase in the provision for doubtful accounts of $8.4 million and pension
costs of $3.9 million partially offset this decrease. Taxes other than income
increased as a result of increased city franchise taxes and state gross receipts
taxes, which are revenue based. However, these taxes are paid by the customer;
thus, these amounts are offset in revenues through customer billings and have no
effect on net income.
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Operating income increased 43 percent for the six months ended March 31, 2001 to
$122.8 million from $86.1 million for the six months ended March 31, 2000. The
increase in operating income resulted primarily from increased gross profit
described above.
Equity in earnings of Woodward Marketing, LLC increased $3.7 million for the six
months ended March 31, 2001 compared with the six months ended March 31, 2000.
This increase was due to an increase in our earnings from our 45 percent
interest in Woodward due to exposure to the volatility of current gas prices.
Miscellaneous income (expense) decreased $3.4 million to $(2.1) million for the
six months ended March 31, 2001 compared to $1.3 million for the six months
ended March 31, 2000. This decrease was due to charges incurred related to our
performance based-ratemaking mechanisms and the amortization of weather hedges
purchased for our Louisiana and Texas operations offset by an increase in our
equity earnings in Heritage Propane Partners, LLC.
Net income increased for the six months ended March 31, 2001 by $23.1 million to
$67.0 million from $43.9 million for the six months ended March 31, 2000. This
increase in net income resulted primarily from the increase in sales volumes due
to the colder than normal weather and the impact of rate increases discussed
above.
UTILITY AND NON-REGULATED OPERATING DATA
Our utility business is composed of our five regulated utility divisions:
Energas Division, Greeley Gas Division, Trans La Division, United Cities
Division and Western Kentucky Division, in addition to shared services. The
non-regulated business includes non-regulated irrigation sales, energy services
to large volume customers, non-regulated underground storage operations, our
interest in Woodward, an equity interest in Heritage Propane Partners, LLC,
leasing of buildings and vehicles and non-regulated shared services. The
following tables of operating statistics summarize data of the utility and
non-regulated segments for the three-month and six-month periods ended March 31,
2001 and 2000. For further information regarding operating results of the
segments, see Note 5 of notes to condensed consolidated financial statements. As
discussed in our Annual Report on Form 10-K for the year ended September 30,
2000, in August 2000, we combined our propane operations with the propane
operations of three other companies and the resulting combined joint venture
combined its operations with Heritage Propane Partners, LLC. As a result of
these transactions, no information, on a consolidated basis, for the three-month
and six-month periods ended March 31, 2001 is presented for propane.
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ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
Three months ended
March 31
------------------------
2001 2000
---------- ----------
HEATING DEGREE DAYS
Actual (weighted average) 1,371 1,045
Percent of normal 102% 78%
SALES VOLUMES - MMcf(1)
Residential 36,487 29,612
Commercial 15,252 12,588
Public authority and other 2,737 2,462
Industrial (including agricultural) 7,504 9,245
---------- ----------
Total 61,980 53,907
Transportation volumes - MMcf(1) 17,403 16,211
---------- ----------
Total throughput - MMcf(1) 79,383 70,118
========== ==========
Propane - Gallons (000's)(2) -- 10,113
========== ==========
OPERATING REVENUES (000's)
Gas sales revenues
Residential $ 394,270 $ 168,635
Commercial 161,646 67,299
Public authority and other 26,790 11,051
Industrial (including agricultural) 66,890 38,008
---------- ----------
Total gas sales revenues 649,596 284,993
Transportation revenues 8,378 6,590
Propane revenues(2) -- 11,603
Other revenues 17,139 11,011
---------- ----------
Total operating revenues $ 675,113 $ 314,197
========== ==========
Cost of gas (excluding non-regulated) $ 528,564 $ 181,317
========== ==========
Average gas sales revenues per Mcf $ 10.48 $ 5.29
Average transportation revenue per Mcf $ .48 $ .41
Average cost of gas per Mcf sold $ 8.53 $ 3.36
(1) Volumes are reported as metered in million cubic feet (MMcf).
(2) Prior to August 2000, propane revenues and expenses were fully consolidated.
Subsequent to August 2000, the results of propane are shown on the equity
method.
28
29
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS
Six months ended
March 31
------------------------
2001 2000
---------- ----------
METERS IN SERVICE, end of period
Residential 975,627 925,293
Commercial 105,581 98,338
Public authority and other 7,470 7,427
Industrial (including agricultural) 16,280 14,513
---------- ----------
Total meters 1,104,958 1,045,571
Propane customers(2) -- 41,273
---------- ----------
Total 1,104,958 1,086,844
========== ==========
HEATING DEGREE DAYS
Actual (weighted average) 2,578 1,885
Percent of normal 111% 81%
SALES VOLUMES - MMcf(1)
Residential 65,300 49,541
Commercial 28,518 22,668
Public authority and other 5,620 4,295
Industrial (including agricultural) 15,089 16,555
---------- ----------
Total 114,527 93,059
Transportation volumes - MMcf(1) 32,901 30,721
---------- ----------
Total throughput - MMcf(1) 147,428 123,780
========== ==========
Propane - Gallons (000's)(2) -- 16,467
========== ==========
OPERATING REVENUES (000's)
Gas sales revenues
Residential $ 644,104 $ 285,939
Commercial 272,274 119,737
Public authority and other 48,870 19,853
Industrial (including agricultural) 116,210 69,015
---------- ----------
Total gas sales revenues 1,081,458 494,544
Transportation revenues 15,116 12,207
Propane revenues(2) -- 19,441
Other revenues 21,329 12,463
---------- ----------
Total operating revenues $1,117,903 $ 538,655
========== ==========
Cost of gas (excluding non-regulated) $ 859,384 $ 313,132
========== ==========
Average gas sales revenues per Mcf $ 9.44 $ 5.31
Average transportation revenue per Mcf $ .46 $ .40
Average cost of gas per Mcf sold $ 7.50 $ 3.36
(1) Volumes are reported as metered in million cubic feet (MMcf).
(2) Prior to August 2000, propane revenues and expenses were fully consolidated.
Subsequent to August 2000, the results of propane are shown on the equity
method.
29
30
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes from the information provided in Item 7A of
our Annual Report on Form 10-K for the year ended September 30, 2000.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 2 of notes to condensed consolidated financial statements herein for a
description of legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of Atmos Energy Corporation on February
14, 2001, 28,817,736 votes were cast as follows:
VOTES VOTES
FOR WITHHELD
---------- ----------
Class III Directors:
Robert W. Best 28,483,467 334,269
Thomas J. Garland 28,477,476 340,260
Phillip E. Nichol 28,472,843 344,893
Charles K. Vaughan 28,485,576 332,160
The other directors will continue to serve until the expiration of their terms.
The term of the Class I directors, Travis W. Bain II, Dan Busbee, Gene C. Koonce
and Vincent J. Lewis, will expire in 2002. The term of the Class II directors,
Richard W. Cardin, Thomas C. Meredith, Carl S. Quinn and Richard Ware II will
expire in 2003. The term of the Class III directors, listed above, will expire
in 2004.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits required by Item 601 of Regulation S-K and filed as
part of this report is set forth in the Exhibits Index, which
immediately precedes such exhibits.
(b) Reports on Form 8-K
None
30
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATMOS ENERGY CORPORATION
(Registrant)
Date: May 9, 2001 By: /s/ F.E. MEISENHEIMER
------------------------------
F.E. Meisenheimer
Vice President and Controller
(Chief Accounting Officer
and duly authorized signatory)
31
32
EXHIBITS INDEX
Item 6(a)
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
3.1 Amendment No. 1 to Bylaws of Atmos Energy Corporation (Amended
and Restated as of November 12, 1997)
12 Computation of ratio of earnings to fixed charges
15 Letter regarding unaudited interim financial information
32